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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549





FORM 10-Q

|                                                                                           
|-------------------------------------------------------------------------------------------
|[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED MARCH 31, 2003

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

For the transition period from         to

Commission File No. 0-20862

VINEYARD NATIONAL BANCORP

(Exact Name of Registrant as Specified in its Charter)


|                                                                          |  |                                                
|------------------------------------------------------------------------- |  | -----------------------------------------------
|California
(State or other jurisdiction of
incorporation or organization) |  | 33-0309110
(IRS employer
identification number)

|                                                                                              |  |                 
|--------------------------------------------------------------------------------------------- |  | ----------------
|9590 Foothill Boulevard
Rancho Cucamonga, California
(Address of principal executive offices) |  | 91730
(Zip Code)

Registrants telephone number, including area code: (909) 987-0177

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x]  No [  ]

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

APPLICABLE TO CORPORATE ISSUER

Indicate the number of shares outstanding of the issuers common stock on the
latest practicable date: 2,795,328 shares of common stock as of May 7, 2003.

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TABLE OF CONTENTS



|                          |                                                                                               |                                                            |  |  |  |  |  | 
|------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------- |  |  |  |  |  | 
|PART I                   
|                          | ITEM I. FINANCIAL STATEMENTS                                                                 
|                          |                                                                                               | CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION            
|                          |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME                         
|                          |                                                                                               | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|                          |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|                          | ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                          | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                          | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II OTHER INFORMATION
|                          | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                          | ITEM 2. CHANGES IN SECURITIES                                                                
|                          | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                          | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                          | ITEM 5. OTHER INFORMATION                                                                    
|                          | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES               
|CERTIFICATION            
|CERTIFICATION            
|EXHIBIT 99.1             



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VINEYARD NATIONAL BANCORP
FORM 10-Q INDEX
FOR THE PERIODS ENDED MARCH 31, 2003 AND 2002,
AND DECEMBER 31, 2002

|             |  |                                                                                                     |  |  |    |  |    | 
|------------ |  | --------------------------------------------------------------------------------------------------- |  |  | -- |  | -- | 
|             |  | PART I  FINANCIAL INFORMATION                                                                      |  |  |    | 
|ITEM 1.      |  | Financial Statements                                                                                |  |  |    | 
|             |  | Consolidated Statements of Financial Condition                                                      |  |  |    | 
|             |  | at March 31, 2003 and December 31, 2002                                                             |  |  | 3  | 
|             |  | Consolidated Statements of Income                                                                   |  |  |    | 
|             |  | for the Three Months Ended March 31, 2003 and 2002                                                  |  |  | 4  | 
|             |  | Consolidated Statements of Changes in Stockholders Equity                                          |  |  |    | 
|             |  | for the Three Months Ended March 31, 2003 and 2002                                                  |  |  | 5  | 
|             |  | Consolidated Statements of Cash Flows                                                               |  |  |    | 
|             |  | for the Three Months Ended March 31, 2003 and 2002                                                  |  |  | 6  | 
|             |  | Notes to Consolidated Financial Statements                                                          |  |  | 7  | 
|ITEM 2.      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations               |  |  | 11 | 
|ITEM 3.      |  | Quantitative and
Qualitative Disclosures About Market Risk                                          |  |  | 23 | 
|ITEM 4.      |  | Controls and Procedures                                                                             |  |  | 25 | 
|             |  | PART II  OTHER INFORMATION                                                                         |  |  |    | 
|ITEM 1.      |  | Legal Proceedings                                                                                   |  |  | 26 | 
|ITEM 2.      |  | Changes in Securities                                                                               |  |  | 26 | 
|ITEM 3.      |  | Defaults upon Senior Securities                                                                     |  |  | 26 | 
|ITEM 4.      |  | Submission of Matters to a Vote of Security Holders                                                 |  |  | 26 | 
|ITEM 5.      |  | Other Information                                                                                   |  |  | 26 | 
|ITEM 6.      |  | Exhibits and Reports on Form 8-K                                                                    |  |  | 26 | 
|Signatures   |  |                                                                                                     |  |  |    |  | 27 | 
|             |  | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002        |  |  | 28 | 
|             |  | Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002        |  |  | 29 | 
|Exhibits     |  |                                                                                                     |  |  |    |  |    | 
|Exhibit 99.1 |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the |  |  |    | 
|             |  | Sarbanes-Oxley Act of 2002                                                                          |  |  | 30 | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|FORWARD-LOOKING STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|This report contains forward-looking statements as referenced in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
inherently unreliable and actual results may vary. Factors which could cause
actual results to differ from these forward-looking statements include changes
in the competitive marketplace, changes in the interest rate environment,
economic conditions, outcome of pending litigation, risks associated with
credit quality and other factors discussed in the Companys filings with the
Securities and Exchange Commission. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.

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PART I




ITEM I. FINANCIAL STATEMENTS




VINEYARD NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT MARCH 31, 2003 AND DECEMBER 31, 2002
(Unaudited except for December 31, 2002)

|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |              |   |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------- | -------- | ------------------- | --------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | - | -------------------- | ------- | ------------ | - | ------- | ------- | 
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   | Dollars in Thousands
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   | March 31,            |         | December 31,
|Assets                                                                                                                              |          | 2003                |                                               | 2002                                                                                                                                  
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|Cash and due from banks                                                                                                             |          | $                   | 8,882                                         |                                                                                                                                        |   | $                    | 17,533  |             
|Federal funds sold                                                                                                                  |          |                     |                                              |                                                                                                                                        |   |                      | 15,829  |             
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|                                                                                                                                    |          |                     |                                               | Total Cash and Cash Equivalents                                                                                                        |   |                      | 8,882   |              |   |         | 33,362  | 
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|Investment securities, available-for-sale                                                                                           |          |                     | 134,456                                       |                                                                                                                                        |   |                      | 87,553  |             
|Loans, net of unearned income                                                                                                       |          |                     | 306,548                                       |                                                                                                                                        |   |                      | 251,139 |             
|Loans held for sale                                                                                                                 |          |                     | 907                                           |                                                                                                                                        |   |                      | 2,112   |             
|                                                                                                                                    |          |                     | Less: Allowance for possible loan losses      |                                                                                                                                        |   | (3,513               | )       |              |   | (3,003  | )      
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|                                                                                                                                    |          |                     |                                               | Net Loans                                                                                                                              |   |                      | 303,942 |              |   |         | 250,248 | 
|Bank premises and equipment, net                                                                                                    |          |                     | 5,525                                         |                                                                                                                                        |   |                      | 5,600   |             
|Accrued interest                                                                                                                    |          |                     | 1,928                                         |                                                                                                                                        |   |                      | 1,487   |             
|Federal Home Loan Bank and other stock, at cost                                                                                     |          |                     | 3,770                                         |                                                                                                                                        |   |                      | 2,270   |             
|Deferred income tax asset                                                                                                           |          |                     | 2,516                                         |                                                                                                                                        |   |                      | 2,328   |             
|Other assets                                                                                                                        |          |                     | 3,141                                         |                                                                                                                                        |   |                      | 2,454   |             
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|                                                                                                                                    |          |                     |                                               | Total Assets                                                                                                                           |   | $                    | 464,160 |              |   | $       | 385,302 | 
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|                                                                                                                                    |          |                     |                                               | Liabilities and Stockholders Equity                                                                                                   |   |                      |         |              |   |         |         | 
|Liabilities                                                                                                                         |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|                                                                                                                                    | Deposits |                     |                                               |                                                                                                                                        |   |                      |         |              |  
|                                                                                                                                    |          |                     | Non-interest bearing                          |                                                                                                                                        | $ | 63,025               |         |              | $ | 61,906  |        
|                                                                                                                                    |          |                     | Interest-bearing                              |                                                                                                                                        |   | 277,148              |         |              |   | 225,606 |        
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|                                                                                                                                    |          |                     |                                               | Total Deposits                                                                                                                         |   |                      | 340,173 |              |   |         | 287,512 | 
|Federal Home Loan Bank advances                                                                                                     |          |                     | 70,000                                        |                                                                                                                                        |   |                      | 45,000  |             
|Other borrowings                                                                                                                    |          |                     | 6,800                                         |                                                                                                                                        |   |                      | 5,000   |             
|Subordinated debentures                                                                                                             |          |                     | 5,000                                         |                                                                                                                                        |   |                      | 5,000   |             
|Company obligated preferred securities of subsidiary trust holding
floating rate junior subordinated deferrable interest debentures |          |                     | 17,000                                        |                                                                                                                                        |   |                      | 17,000  |             
|Accrued interest and other liabilities                                                                                              |          |                     | 4,670                                         |                                                                                                                                        |   |                      | 5,832   |             
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|                                                                                                                                    |          |                     |                                               | Total Liabilities                                                                                                                      |   |                      | 443,643 |              |   |         | 365,344 | 
|Stockholders Equity                                                                                                                |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|                                                                                                                                    |          | Contributed capital |                                               |                                                                                                                                        |   |                      |         |              |   |        
|                                                                                                                                    |          |                     |                                               | Perpetual preferred stock  no par value, authorized 10,000,000
Shares, issued and outstanding, 50 shares in 2003 and 2002             |   |                      | 2,450   |              |   |         | 2,450   | 
|                                                                                                                                    |          |                     |                                               | Common stock-authorized 25,000,000 shares, no par
value; issued and outstanding 2,842,568 and 2,849,680
in 2003 and 2002, respectively |   |                      | 7,693   |              |   |         | 6,052   | 
|                                                                                                                                    |          |                     | Additional paid-in capital                    |                                                                                                                                        |   | 3,307                |         |              |   | 3,307   |        
|                                                                                                                                    |          |                     | Stock dividends to be distributed             |                                                                                                                                        |   |                     |         |              |   | 2,026   |        
|                                                                                                                                    |          |                     | Retained earnings                             |                                                                                                                                        |   | 7,218                |         |              |   | 6,014   |        
|                                                                                                                                    |          |                     | Accumulated other comprehensive (loss) income |                                                                                                                                        |   | (151                 | )       |              |   | 109     |        
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|                                                                                                                                    |          |                     |                                               | Total Stockholders Equity                                                                                                             |   |                      | 20,517  |              |   |         | 19,958  | 
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             
|                                                                                                                                    |          |                     |                                               | Total Liabilities and Stockholders Equity                                                                                             |   | $                    | 464,160 |              |   | $       | 385,302 | 
|                                                                                                                                    |          |                     |                                               |                                                                                                                                        |   |                      |         |             

See accompanying notes to financial statements.

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VINEYARD NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)

|                                   |                                                                |                                |                                                              |       |       |                              |      |       |       |       |  | 
|---------------------------------- | -------------------------------------------------------------- | ------------------------------ | ------------------------------------------------------------ | ----- | ----- | ---------------------------- | ---- | ----- | ----- | ----- |  | 
|                                   |                                                                |                                |                                                              |       |       | Dollars in Thousands        
|                                   |                                                                |                                |                                                              |       |       | Three Months Ended March 31,
|                                   |                                                                |                                |                                                              |       |       |                             
|                                   |                                                                |                                |                                                              |       |       | 2003                         |      | 2002 
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|Interest Income                    |                                                                |                                |                                                              |       |       |                              |      |      
|                                   | Interest and fees on loans                                     |                                | $                                                            | 5,286 |       |                              | $    | 3,310 |      
|                                   | Interest on investment securities                              |                                |                                                              | 1,321 |       |                              |      | 452   |      
|                                   | Interest on Federal funds sold                                 |                                |                                                              | 23    |       |                              |      | 10    |      
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|                                   |                                                                |                                | Total Interest Income                                        |       |       | 6,630                        |      |       |       | 3,772 | 
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|Interest Expense                   |                                                                |                                |                                                              |       |       |                              |      |      
|                                   | Interest on savings deposits                                   |                                |                                                              | 16    |       |                              |      | 35    |      
|                                   | Interest on NOW and money market deposits                      |                                |                                                              | 702   |       |                              |      | 176   |      
|                                   | Interest on time deposits in denominations of $100,000 or more |                                |                                                              | 424   |       |                              |      | 299   |      
|                                   | Interest on other time deposits                                |                                |                                                              | 379   |       |                              |      | 323   |      
|                                   | Interest on other borrowings                                   |                                |                                                              | 563   |       |                              |      | 318   |      
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|                                   |                                                                |                                | Total Interest Expense                                       |       |       | 2,084                        |      |       |       | 1,151 | 
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|                                   |                                                                |                                | Net Interest Income                                          |       |       | 4,546                        |      |       |       | 2,621 | 
|Provision for Possible Loan Losses |                                                                |                                | (500                                                         | )     |       |                              | (200 | )    
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|                                   |                                                                |                                | Net Interest Income After Provision
for Possible Loan Losses |       |       | 4,046                        |      |       |       | 2,421 | 
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|Non-Interest Income                |                                                                |                                |                                                              |       |       |                              |      |      
|                                   | Fees and service charges                                       |                                |                                                              | 496   |       |                              |      | 387   |      
|                                   | Gain on sale of SBA loans                                      |                                |                                                              | 178   |       |                              |      |      |      
|                                   | Net gain on sale of investment securities                      |                                |                                                              | 599   |       |                              |      | 77    |      
|                                   | Other income                                                   |                                |                                                              | 54    |       |                              |      | 64    |      
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|                                   |                                                                |                                | Total Non-Interest Income                                    |       |       | 1,327                        |      |       |       | 528   | 
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|Non-Interest Expense               |                                                                |                                |                                                              |       |       |                              |      |      
|                                   |                                                                | Salaries and employee benefits |                                                              |       | 1,748 |                              |      |       | 1,321 |      
|                                   |                                                                | Occupancy expense of premises  |                                                              |       | 248   |                              |      |       | 192   |      
|                                   |                                                                | Furniture and equipment        |                                                              |       | 194   |                              |      |       | 148   |      
|                                   |                                                                | Other                          |                                                              |       | 1,062 |                              |      |       | 708   |      
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|                                   |                                                                |                                | Total Non-Interest Expense                                   |       |       | 3,252                        |      |       |       | 2,369 | 
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|Income Before Income Taxes         |                                                                |                                | 2,121                                                        |       |       |                              | 580  |      
|Income Tax Provision               |                                                                |                                | 867                                                          |       |       |                              | 226  |      
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|Net Income                         |                                                                | $                              | 1,254                                                        |       |       | $                            | 354  |      
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|Basic Earnings Per Share           |                                                                | $                              | 0.42                                                         |       |       | $                            | 0.18 |      
|                                   |                                                                |                                |                                                              |       |       |                              |      |      
|Diluted Earnings Per Share         |                                                                | $                              | 0.39                                                         |       |       | $                            | 0.14 |      
|                                   |                                                                |                                |                                                              |       |       |                              |      |      

See accompanying notes to financial statements.

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VINEYARD NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)

|                                     |                      |   |                                                                      |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  |   |      |             |  |  |     |      |   |  |      |        |  |  |      |  
|------------------------------------ | -------------------- | - | -------------------------------------------------------------------- |  | -------------------- |  | --------- |  | ------------ | - | -------- |  | ----------- | - | ------ | ----- | ------------- | - | -------- |  | ------------- |  |  |  | - | ---- | ----------- |  |  | --- | ---- | - |  | ---- | ------ |  |  | ---- | -
|                                     |                      |   |                                                                      |  | Dollars in Thousands
|                                     |                      |   |                                                                      |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  |   |      |             |  |  |     |      |   |  |      |       
|                                     |                      |   |                                                                      |  |                      |  |           |  | Common Stock |   |          |  |             |   |        | Stock |               |   |          |  |               |  |  |  |   |      | Accumulated
|                                     |                      |   |                                                                      |  | Perpetual            |  |           |  | Additional   |   | Dividend |  |             |   |        |       |               |   |          |  | Other         |  |  |  |  
|                                     |                      |   |                                                                      |  | Preferred            |  | Number of |  |              |   |          |  | Paid-in     |   | To Be  |       | Comprehensive |   | Retained |  | Comprehensive |  |  |  |  
|                                     |                      |   |                                                                      |  | Stock                |  | Shares    |  | Amount       |   | Capital  |  | Distributed |   | Income |       | Earnings      |   | Income   |  | Total        
|                                     |                      |   |                                                                      |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |              
|Balance December 31, 2001            |                      | $ |                                                                     |  |                      |  | 1,876,126 |  |              | $ | 2,151    |  |             | $ | 3,307  |       |               | $ |         |  |               |  |  |  |   | $    | 5,032       |  |  | $   | (35  | ) |  | $    | 10,455 | 
|Stock options exercised              |                      |   |                                                                      |  |                      |  | 9,666     |  |              |   | 40       |  |             |   |        |       |               |   |          |  |               |  |  |  |   |      |             |  |  |     |      |   |  |      | 40     | 
|Conversion of convertible debentures |                      |   |                                                                      |  |                      |  | 20,000    |  |              |   | 100      |  |             |   |        |       |               |   |          |  |               |  |  |  |   |      |             |  |  |     |      |   |  |      | 100    | 
|                                     | Comprehensive income |   |                                                                      |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  |   |      |             |  |  |     |      |   |  |      |        |  | 
|                                     |                      |   | Net income                                                           |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  | $ | 354  |             |  |  | 354 |      |   |  |      |        |  |  | 354  |  
|                                     |                      |   | Unrealized security holding
losses (net of $157 tax)                 |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  |   | (217 | )           |  |  |     |      |   |  | (217 | )      |  |  | (217 | )
|                                     |                      |   | Less reclassification adjustment
for realized gains (net of $32 tax) |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  |   | 45   |             |  |  |     |      |   |  | 45   |        |  |  | 45   |  
|                                     |                      |   |                                                                      |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  |   |      |             |  |  |     |      |   |  |      |        | 
|                                     |                      |   | Total comprehensive income                                           |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  | $ | 182  |             |  |  |     |      |   |  |      |        |  |  |      |  
|                                     |                      |   |                                                                      |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  |   |      |             |  |  |     |      |   |  |      |        | 
|                                     |                      |   |                                                                      |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  |   |      |             |  |  |     |      |   |  |      |        | 
|Balance, March 31, 2002              |                      | $ |                                                                     |  |                      |  | 1,905,792 |  |              | $ | 2,291    |  |             | $ | 3,307  |       |               | $ |         |  |               |  |  |  |   | $    | 5,386       |  |  | $   | (207 | ) |  | $    | 10,777 | 
|                                     |                      |   |                                                                      |  |                      |  |           |  |              |   |          |  |             |   |        |       |               |   |          |  |               |  |  |  |   |      |             |  |  |     |      |   |  |      |        | 

|                                                                |                      |   |                                                                       |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  |             |       |       |   |  |       |      |   |  |      |        |   |  |       |  
|--------------------------------------------------------------- | -------------------- | - | --------------------------------------------------------------------- |  | --------- |  | --------- | - | ------------ | - | -------- | - | ----------- | - | ------ |  | ------------- | - | -------- | - | ------------- |  |  |  | ----------- | ----- | ----- | - |  | ----- | ---- | - |  | ---- | ------ | - |  | ----- | -
|                                                                |                      |   |                                                                       |  |           |  |           |   | Common Stock |   |          |   |             |   | Stock  |  |               |   |          |   |               |  |  |  | Accumulated |       |       |   | 
|                                                                |                      |   |                                                                       |  | Perpetual |  |           |   | Additional   |   | Dividend |   |             |   |        |  |               |   |          |   | Other         |  |  |  |            
|                                                                |                      |   |                                                                       |  | Preferred |  | Number of |   |              |   |          |   | Paid-in     |   | To Be  |  | Comprehensive |   | Retained |   | Comprehensive |  |  |  |            
|                                                                |                      |   |                                                                       |  | Stock     |  | Shares    |   | Amount       |   | Capital  |   | Distributed |   | Income |  | Earnings      |   | Income   |   | Total        
|                                                                |                      |   |                                                                       |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |              
|Balance December 31, 2002                                       |                      | $ | 2,450                                                                 |  |           |  | 2,849,680 |   |              | $ | 6,052    |   |             | $ | 3,307  |  |               | $ | 2,026    |   |               |  |  |  |             | $     | 6,014 |   |  | $     | 109  |   |  | $    | 19,958 |  
|Stock options exercised                                         |                      |   |                                                                       |  |           |  | 22,250    |   |              |   | 95       |   |             |   |        |  |               |   |          |   |               |  |  |  |             |       |       |   |  |       |      |   |  |      | 95     |  
|Purchase of treasury stock                                      |                      |   |                                                                       |  |           |  | (29,362   | ) |              |   | (478     | ) |             |   |        |  |               |   |          |   |               |  |  |  |             |       |       |   |  |       |      |   |  |      | (478   | )
|Stock dividends distributed                                     |                      |   |                                                                       |  |           |  |           |   |              |   | 2,024    |   |             |   |        |  |               |   | (2,024   | ) |               |  |  |  |             |       |       |   |  |       |      |   |  |      |       |  
|Cash paid for fractional shares for stock
dividend distribution |                      |   |                                                                       |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   | (2       | ) |               |  |  |  |             |       |       |   |  |       |      |   |  |      | (2     | )
|Cash dividends paid on preferred stock                          |                      |   |                                                                       |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  |             |       | (50   | ) |  |       |      |   |  |      | (50    | )
|                                                                | Comprehensive income |   |                                                                       |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  |             |       |       |   |  |       |      |   |  |      |        |   | 
|                                                                |                      |   | Net income                                                            |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  | $           | 1,254 |       |   |  | 1,254 |      |   |  |      |        |   |  | 1,254 |  
|                                                                |                      |   | Unrealized security holding losses
(net of $426 tax)                  |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  |             | (613  | )     |   |  |       |      |   |  | (613 | )      |   |  | (613  | )
|                                                                |                      |   | Less reclassification adjustment
for realized gains (net of $246
tax) |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  |             | 353   |       |   |  |       |      |   |  | 353  |        |   |  | 353   |  
|                                                                |                      |   |                                                                       |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  |             |       |       |   |  |       |      |   |  |      |        |  
|                                                                |                      |   | Total comprehensive income                                            |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  | $           | 994   |       |   |  |       |      |   |  |      |        |   |  |       |  
|                                                                |                      |   |                                                                       |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  |             |       |       |   |  |       |      |   |  |      |        |  
|                                                                |                      |   |                                                                       |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  |             |       |       |   |  |       |      |   |  |      |        |  
|Balance, March 31, 2003                                         |                      | $ | 2,450                                                                 |  |           |  | 2,842,568 |   |              | $ | 7,693    |   |             | $ | 3,307  |  |               | $ |         |   |               |  |  |  |             | $     | 7,218 |   |  | $     | (151 | ) |  | $    | 20,517 |  
|                                                                |                      |   |                                                                       |  |           |  |           |   |              |   |          |   |             |   |        |  |               |   |          |   |               |  |  |  |             |       |       |   |  |       |      |   |  |      |        |  

See accompanying notes to financial statements.

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VINEYARD NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)

|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |        |         |       |           |  
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------ | ------------------------------------------------------- | ----------------------------------------------------------- |  | - | ------- | ------ | ------- | ----- | -------------------- | - |  | - | ------ | ------ | ------- | ----- | --------- | -
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       | Dollars in Thousands |  
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       | March 31,            |   |  |   |        |        |         |       | March 31, |  
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       | 2003                 |   |  |   |        |        |         |       | 2002      |  
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |        |         |       |           |  
|Reconciliation of Net Income to
Net Cash Provided by Operating Activities |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|                                                                          |                                                                                            | Net Income                                                                                 |                                                         |                                                             |  |   |         | $      | 1,254   |       |                      |   |  |   |        | $      | 354     |      
|                                                                          |                                                                                            | Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities           |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |        |         |      
|                                                                          |                                                                                            |                                                                                            |                                                         | Depreciation                                                |  |   |         |        | 168     |       |                      |   |  |   |        |        | 148     |      
|                                                                          |                                                                                            |                                                                                            |                                                         | Investment securities accretion/amortization                |  |   |         |        |         |       | 151                  |   |  |   |        |        |         |       | 145       |  
|                                                                          |                                                                                            |                                                                                            |                                                         | Provision for possible loan losses                          |  |   |         |        |         |       | 500                  |   |  |   |        |        |         |       | 200       |  
|                                                                          |                                                                                            |                                                                                            |                                                         | Increase in deferred taxes                                  |  |   |         |        |         |       | 1                    |   |  |   |        |        |         |       |           |  
|                                                                          |                                                                                            |                                                                                            |                                                         | Increase in taxes payable                                   |  |   |         |        |         |       | (50                  | ) |  |   |        |        |         |       | 180       |  
|                                                                          |                                                                                            |                                                                                            |                                                         | (Increase) decrease in other assets                         |  |   |         |        |         |       | (695                 | ) |  |   |        |        |         |       | 168       |  
|                                                                          |                                                                                            |                                                                                            |                                                         | Decrease in cash surrender value of life insurance policies |  |   |         |        |         |       | 8                    |   |  |   |        |        |         |       |           |  
|                                                                          |                                                                                            |                                                                                            |                                                         | Gain on sale investment securities                          |  |   |         |        |         |       | (599                 | ) |  |   |        |        |         |       | (77       | )
|                                                                          |                                                                                            |                                                                                            |                                                         | Decrease in loans held for sale                             |  |   |         |        |         |       | 1,205                |   |  |   |        |        |         |       | 3,730     |  
|                                                                          |                                                                                            |                                                                                            |                                                         | Increase in unearned loan fees                              |  |   |         |        |         |       | 432                  |   |  |   |        |        |         |       | 61        |  
|                                                                          |                                                                                            |                                                                                            |                                                         | Increase in interest receivable                             |  |   |         |        |         |       | (441                 | ) |  |   |        |        |         |       | (32       | )
|                                                                          |                                                                                            |                                                                                            |                                                         | Decrease in interest payable                                |  |   |         |        |         |       | (208                 | ) |  |   |        |        |         |       | (264      | )
|                                                                          |                                                                                            |                                                                                            |                                                         | Decrease in accrued expense and other liabilities           |  |   |         |        |         |       | (904                 | ) |  |   |        |        |         |       | (152      | )
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|                                                                          |                                                                                            |                                                                                            |                                                         | Total Adjustment                                            |  |   |         |        |         |       | (432                 | ) |  |   |        |        |         |       | 4,107     |  
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|                                                                          |                                                                                            |                                                                                            |                                                         | Net Cash Provided By Operating Activities                   |  |   |         |        |         |       | 822                  |   |  |   |        |        |         |       | 4,461     |  
|Cash Flows From Investing Activities                                      |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|                                                                          |                                                                                            | Proceeds from sales of investment securities/mortgage backed securities
available-for-sale |                                                         |                                                             |  |   |         |        | 58,805  |       |                      |   |  |   |        |        | 6,373   |      
|                                                                          |                                                                                            | Proceeds from maturities of investment securities available-for-sale                       |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |        | 3,000   |      
|                                                                          |                                                                                            | Proceeds from principal reductions and maturities of mortgage-backed
securities            |                                                         |                                                             |  |   |         |        | 3,738   |       |                      |   |  |   |        |        | 2,286   |      
|                                                                          |                                                                                            | Purchase of investment securities available-for-sale                                       |                                                         |                                                             |  |   |         |        | (15,000 | )     |                      |   |  |   |        |        | (15,000 | )    
|                                                                          |                                                                                            | Purchase of mortgage-backed securities available-for-sale                                  |                                                         |                                                             |  |   |         |        | (94,447 | )     |                      |   |  |   |        |        | (16,450 | )    
|                                                                          |                                                                                            | Purchase of Federal Home Loan Bank and other stock                                         |                                                         |                                                             |  |   |         |        | (1,500  | )     |                      |   |  |   |        |        | (619    | )    
|                                                                          |                                                                                            | Recoveries on loans previously written off                                                 |                                                         |                                                             |  |   |         |        | 10      |       |                      |   |  |   |        |        | 68      |      
|                                                                          |                                                                                            | Net loans made to customers and principal collection of loans                              |                                                         |                                                             |  |   |         |        | (55,841 | )     |                      |   |  |   |        |        | (19,613 | )    
|                                                                          |                                                                                            | Capital expenditures                                                                       |                                                         |                                                             |  |   |         |        | (93     | )     |                      |   |  |   |        |        | (277    | )    
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|                                                                          |                                                                                            |                                                                                            |                                                         | Net Cash Used By Investing Activities                       |  |   |         |        |         |       | (104,328             | ) |  |   |        |        |         |       | (40,232   | )
|Cash Flows From Financing Activities                                      |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|                                                                          | Net increase in demand deposits, NOW
accounts, savings accounts, and money market deposits |                                                                                            |                                                         |                                                             |  |   |         | 33,505 |         |       |                      |   |  |   |        | 18,428 |        
|                                                                          | Net increase (decrease) in certificates of deposits                                        |                                                                                            |                                                         |                                                             |  |   |         | 19,156 |         |       |                      |   |  |   |        | (90    | )      
|                                                                          | Net change in Federal Home Loan Bank advances                                              |                                                                                            |                                                         |                                                             |  |   |         | 25,000 |         |       |                      |   |  |   |        | 12,500 |        
|                                                                          | Increase in other borrowings                                                               |                                                                                            |                                                         |                                                             |  |   |         | 1,800  |         |       |                      |   |  |   |        |        |        
|                                                                          | Purchase of treasury stock                                                                 |                                                                                            |                                                         |                                                             |  |   |         | (478   | )       |       |                      |   |  |   |        |        |        
|                                                                          | Dividends paid on perpetual preferred stock                                                |                                                                                            |                                                         |                                                             |  |   |         | (50    | )       |       |                      |   |  |   |        |        |        
|                                                                          | Cash paid on fractional shares of common stock dividend                                    |                                                                                            |                                                         |                                                             |  |   |         | (2     | )       |       |                      |   |  |   |        |        |        
|                                                                          | Stock options exercised                                                                    |                                                                                            |                                                         |                                                             |  |   |         | 95     |         |       |                      |   |  |   |        | 40     |        
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|                                                                          |                                                                                            |                                                                                            |                                                         | Net Cash Provided By Financing Activities                   |  |   |         |        |         |       | 79,026               |   |  |   |        |        |         |       | 30,878    |  
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|Net Decrease in Cash and Cash Equivalents                                 |                                                                                            |                                                                                            |                                                         |                                                             |  |   | (24,480 | )      |         |       |                      |   |  |   | (4,893 | )     
|Cash and Cash Equivalents, Beginning of year                              |                                                                                            |                                                                                            |                                                         |                                                             |  |   | 33,362  |        |         |       |                      |   |  |   | 14,710 |       
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|Cash and Cash Equivalents, End of quarter                                 |                                                                                            |                                                                                            |                                                         |                                                             |  | $ | 8,882   |        |         |       |                      |   |  | $ | 9,817  |       
|                                                                          |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|Supplemental Information                                                  |                                                                                            |                                                                                            |                                                         |                                                             |  |   |         |        |         |       |                      |   |  |   |        |       
|                                                                          |                                                                                            |                                                                                            | Change in valuation allowance for investment securities |                                                             |  |   |         |        | $       | 449   |                      |   |  |   |        |        | $       | 296   |          
|                                                                          |                                                                                            |                                                                                            | Interest paid                                           |                                                             |  |   |         |        | $       | 1,876 |                      |   |  |   |        |        | $       | 1,414 |          
|                                                                          |                                                                                            |                                                                                            | Income tax paid                                         |                                                             |  |   |         |        | $       | 2,065 |                      |   |  |   |        |        | $       | 46    |          
|                                                                          |                                                                                            |                                                                                            | Conversion of convertible debentures                    |                                                             |  |   |         |        | $       |      |                      |   |  |   |        |        | $       | 100   |          

See accompanying notes to financial statements.

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Note #1  Nature of Business and Summary of Significant Accounting Policies

The accounting and reporting policies
of Vineyard National Bancorp (the Company) and its
subsidiaries conform to accounting principles generally accepted in
the United States of America and to general practices within the
banking industry. In the opinion of Management, the unaudited
consolidated financial statements contain all (consisting of only
normal recurring adjustments) adjustments necessary to present fairly
the Companys consolidated financial position at March 31,
2003 and results of cash flows for the three months ended
March 31, 2003 and 2002 and the result of operation for the
three months ended March 31, 2003 and 2002.

Certain information and footnote
disclosures normally presented in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted. These interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto included in the Companys 2002 Annual Report to
shareholders. The results for the three months ended March 31,
2003 and 2002 may not necessarily be indicative of the operating
results for the full year.

A summary of the Companys
significant accounting and reporting policies consistently applied in
the preparation of the accompanying financial statements follows:

Principles of Consolidation

The consolidated financial statements include the Company and its wholly owned
subsidiaries, Vineyard National Bank (the Bank), Vineyard Statutory Trust I,
and Vineyard Statutory Trust II. Intercompany balances and transactions have
been eliminated.

Nature of Operations

The Company is organized as a single reporting segment and operates seven full
service branches within San Bernardino, Riverside, Orange, and Los Angeles
counties, California. The Company provides a variety of financial services to
individuals and small-to-medium sized businesses and offers a full range of
commercial banking services including the acceptance of checking and savings
deposits, and originating various types of installment, commercial and real
estate loans.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

Estimates that are particularly susceptible to significant change relate to the
determination of the allowance for losses on loans and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans.

While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, bank regulatory
agencies, as an integral part of their examination process, periodically review
the Banks allowances for losses on loans and foreclosed real estate. Such
agencies may require the Bank to recognize additions to the allowances based on
their judgments about information available to them at the time of their
examination. Because of these factors, it is reasonably possible that the
allowances for losses on loans and foreclosed real estate may change.

Comprehensive Income

The Company follows Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, which requires the disclosure of
comprehensive income and its components. Changes in unrealized gains/ (losses)
on available-for-sale securities, net of income taxes, is the only component of
accumulated other comprehensive income for the Company.

Reclassifications

Certain reclassifications have been made to the 2002 financial statements to
conform to 2003 classifications.

Current Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for by a single method  the purchase method. SFAS
No. 141 also specifies the criteria required for intangible assets to be
recognized and reported apart from goodwill. SFAS No. 142, effective January 1,
2002, requires that goodwill and intangible assets with indefinite useful lives
no longer be amortized, but instead tested for impairment at least annually.
SFAS No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121
(as superceded by SFAS No. 144), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The Company has adopted
the provisions of SFAS No. 141 and 142 which did not have a material impact on
the financial condition or operating results of the Company.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This Statement addresses

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financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
adoption of SFAS No. 143 did not have a material impact on the financial
condition or operating results of the Company.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 establishes a single accounting
model for the impairment or disposal of long-lived assets, including
discontinued operations. SFAS No. 144 superseded SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, and APB Opinion No. 30, Reporting the Results of Operations  Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The adoption of SFAS No. 144 did not have a material impact on the financial
condition or operating results of the Company.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements Nos.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
Among other provisions, SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt. Accordingly, gains or losses from
extinguishment of debt shall not be reported as extraordinary items unless the
extinguishment qualifies as an extraordinary item under the criteria of APB No.
30. Gains or losses from extinguishment of debt that do not meet the criteria
of APB No. 30 should be reclassified to income from continuing operations in
all prior periods presented. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002. The adoption of SFAS No. 145 did not have a
material impact on the financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement requires that a liability for
the cost associated with an exit or disposal activity be recognized when the
liability is incurred and nullifies the guidance of EITF No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in Restructuring), which
recognized a liability for an exit cost at the date of an entitys commitment
to an exit plan. SFAS No. 146 requires that the initial measurement of a
liability be at fair value. SFAS No. 146 is effective for exit and disposal
activities that are initiated after December 31, 2002. The adoption of SFAS
No. 146 did not have a material impact on the financial position or operating
results of the Company.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions, which requires that most financial services companies
subject their intangible assets to an annual impairment test instead of being
amortized. SFAS No. 147 applies to all new and past financial institution
acquisitions, including branch acquisitions that qualify as acquisitions of a
business, but excluding acquisitions between mutual institutions. All
acquisitions within the scope of the new statement will now be governed by the
requirements of SFAS Nos. 141 and 142. Certain provisions of SFAS No. 147 were
effective on October 1, 2002, while other provisions are effective for
acquisitions on or after October 1, 2002. The adoption of SFAS No. 147 did not
have a material impact on the financial condition or operating results of the
Company.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-based
CompensationTransition and Disclosure, an amendment of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting,
to require disclosure in the summary of significant accounting policies of the
effects of an entitys accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and
interim financial statements. While SFAS No. 148 does not amend SFAS No. 123 to
require companies to account for employee stock options using the fair value
method, the disclosure provisions of SFAS No. 148 are applicable to all
companies with stock-based employee compensation, regardless of whether they
account for that compensation using the fair value method of SFAS No. 123 or
the intrinsic value method of APB Opinion 25. The provisions of SFAS No. 148
are effective for annual financial statements for fiscal years ending after
December 15, 2002, and for financial reports containing condensed financial
statements for interim period beginning after December 15, 2002. The adoption
of SFAS No. 148 did not have a material impact on the financial condition or
operating results of the Company.

Note #2  Trust Preferred Securities

On December 18, 2001, Vineyard Statutory Trust I (Trust), a wholly owned
subsidiary of the Company, issued $12.0 million of Floating Rate Trust
Securities (Trust Securities). The Trust invested the gross proceeds from
the offering in Floating Rate Junior Subordinated Deferrable Interest
Debentures (Subordinated Debentures) issued by the Company. The Subordinated
Debentures were issued concurrent with the issuance of the Trust Securities.
The Company will pay the interest on the Subordinated Debentures to the Trust,
which represents the sole revenue and sole source of dividend distributions by
the Trust to the holders of the Trust Securities. The Company has guaranteed,
on a subordinated basis, payment of the Trusts obligation. The Company has
the right, assuming no default has occurred, to defer payments of

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interest on
the Subordinated Debentures at any time for a period not to exceed 20
consecutive quarters. The Trust Securities will mature on December 18, 2031
but can be called at any time commencing on December 18, 2006, at par.

On December 19, 2002, Vineyard Statutory Trust II (Trust II), a wholly owned
subsidiary of The Company, issued $5.0 million of Floating Rate Capital
Securities (Capital Securities). The Trust II invested the gross proceeds
from the offering in Floating Rate Junior Subordinated Deferrable Interest
Debentures (Floating Rate Subordinated Debentures) issued by The Company.
The Floating Rate Subordinated Debentures were issued concurrent with the
issuance of the Capital Securities. The Company will pay the interest on the
Floating Rate Subordinated Debentures to the Trust II, which represents the
sole revenue and sole source of dividend distributions by the Trust II to the
holders of the Capital Securities. The Company has guaranteed, on a
subordinated basis, payment of the Trust IIs obligation. The Capital
Securities will mature on December 26, 2032, but can be called at any time
commencing on December 26, 2007, at par.

Note #3 - Convertible Debentures

On April 30, 2001, the Company issued $3.8 million in 10% convertible
debentures which were convertible into shares of the Companys common stock at
any time before maturity or redemption, at a conversion price of $5.00 per
share. The debentures could be redeemed at the Companys option, in whole or
in part at any time after July 1, 2003 and were due June 30, 2008. Interest on
the debentures was due quarterly at an annual rate of 10%. During 2002, the
Company offered the holders of the convertible debentures an incentive to
convert. This incentive totaled $0.3 million and is included in other
expenses. All convertible debentures were converted in the third quarter of
2002. Total interest expense for such debentures recorded for the three months
ended March 31, 2003 and 2002 was $0 and $93,000, respectively.

Note #4 - Perpetual Preferred Stock

On December 18, 2002, the Company issued 50 shares of 7.0% Series A Preferred
Stock (Series A Preferred) at $50,000 per share to eight individual investors
for aggregate proceeds of $2.5 million. Each share of Series A Preferred is
entitled to a noncumulative, annual dividend of 7.0%, payable quarterly. The
Series A Preferred is not convertible into common stock and is redeemable at
the option of the Company at face value, plus any unpaid dividends declared.
The Series A Preferred qualifies as Tier I capital under the regulations of the
Federal Reserve Board. With each share of Series A Preferred, the Company
issued a warrant to purchase 2,000 shares of the Companys common stock at
$15.00 per share. The total number of shares issuable pursuant to the warrants
was increased to 105,000 shares and the per share exercise price has been
adjusted to $14.29 to reflect the 5% stock dividend declared by the Company on
December 23, 2002. Each warrant must be exercised prior to December 18, 2005
or it will expire pursuant to its terms. The Series A Preferred were offered
and sold pursuant to an exemption to the registration requirements under
Section 4(2) of the Securities Act of 1933, as amended.

Note #5 - Commitments and Contingencies

In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk. These financial instruments include
commitments to extend credit and letters of credit. To varying degrees, these
instruments involve elements of credit and interest rate risk in excess of the
amount recognized in the Companys consolidated financial statements. The
Companys exposure to credit loss in the event of non-performance by the other
party to the financial instruments for commitments to extend credit and letters
of credit is represented by the contractual amount of those instruments. At
March 31, 2003 and December 31, 2002, the Company had commitments to extend
credit of approximately $202.4 million and $97.2 million, respectively, and
obligations under standby and commercial letters of credit of approximately
$0.5 million and $0.4 million. 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. Since many of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company evaluates each customers creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on managements credit evaluation. Collateral
held varies but may include accounts receivable, inventory, property, plant and
equipment, income-producing commercial properties, residential properties and
properties under construction.

Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Commercial letters
of credit are conditional commitments issued by the Company to facilitate trade
or commerce. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.

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The Company is involved in various
litigation matters. In the opinion of
management and the Companys legal counsel, the disposition of all such other
litigation pending will not have a material effect on the Companys financial
statements.

Note #6 - Dividends

On December 23, 2002, the Company declared a 5% stock dividend to be paid on
January 15, 2003 to stockholders of record as of December 23, 2002. All share
and per share data has been retroactively adjusted to reflect the stock
dividend.

Note #7 - Earnings Per Share and Book Value

Basic earnings per share (EPS) excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity.

The following is a reconciliation of net income and shares outstanding to the
income and number of shares used to compute EPS (dollar amounts in thousands):

|                                                          |  |                              |       |        |  |        |           |        |  |   |     |  |  |  |           | 
|--------------------------------------------------------- |  | ---------------------------- | ----- | ------ |  | ------ | --------- | ------ |  | - | --- |  |  |  | --------- | 
|                                                          |  | Three Months Ended March 31,
|                                                          |  | 2003                         |       | 2002  
|                                                          |  |                              |       |       
|                                                          |  | Income                       |       | Shares |  | Income |           | Shares
|                                                          |  |                              |       |        |  |        |           |       
|Net income as reported                                    |  | $                            | 1,254 |        |  |        |           |        |  | $ | 354 |  |  |  |           | 
|Less: preferred stock dividend                            |  |                              | (50   | )      |  |        |           |        |  |   |     |  |  |  |           | 
|Shares outstanding at year-end                            |  |                              |       |        |  |        | 2,849,680 |        |  |   |     |  |  |  | 1,969,777 | 
|Impact of weighting shares
purchased during the year      |  |                              |       |        |  |        | (7,488    | )      |  |   |     |  |  |  | 7,319     | 
|                                                          |  |                              |       |        |  |        |           |        |  |   |     |  |  |  |           | 
|Used in basic EPS                                         |  | $                            | 1,204 |        |  |        | 2,842,192 |        |  | $ | 354 |  |  |  | 1,977,096 | 
|Add: interest expense on
convertible debt                 |  |                              |       |        |  |        |           |        |  |   | 56  |  |  |  |           | 
|Dilutive effect of outstanding
stock options and warrants |  |                              |       |        |  |        | 243,998   |        |  |   |     |  |  |  | 102,272   | 
|Dilutive effect of convertible
debentures                 |  |                              |       |        |  |        |           |        |  |   |     |  |  |  | 766,500   | 
|                                                          |  |                              |       |        |  |        |           |        |  |   |     |  |  |  |           | 
|Used in diluted EPS                                       |  | $                            | 1,204 |        |  |        | 3,086,190 |        |  | $ | 410 |  |  |  | 2,845,868 | 
|                                                          |  |                              |       |        |  |        |           |        |  |   |     |  |  |  |           | 

The following table illustrates the
effect on net income and earnings per share if the Company had
applied the fair value recognition provision of SFAS No. 123,
Accounting for Stock Based Compensation, to stock based employee
compensation (dollar amounts in thousands, except per share
data):

|                                                                                                   |  |                              |       |   |      |   |      |   | 
|-------------------------------------------------------------------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ---- | - | 
|                                                                                                   |  | Three Months Ended March 31,
|                                                                                                   |  |                              | 2003  |   | 2002
|                                                                                                   |  |                              |       |   |     
|Net
income as reported                                                                             |  | $                            | 1,254 |   |      | $ | 354  |  
|Less: preferred stock dividend                                                                     |  |                              | (50)  |   |      |   |     |  
|Stock-based
compensation using the intrinsic value method                                          |  |                              |      |   |      |   |     |  
|Stock-based
compensation that would have been reported using the fair value
method of SFAS No. 123 |  |                              | (89   | ) |      |   | (39  | )
|                                                                                                   |  |                              |       |   |     
|Pro
forma net income  used in basic earnings per share                                            |  |                              | 1,115 |   |      |   | 315  |  
|Add:
interest expense on convertible debt                                                          |  |                              |      |   |      |   | 56   |  
|                                                                                                   |  |                              |       |   |     
|Pro
forma net income  used in diluted earnings per share                                          |  | $                            | 1,115 |   |      | $ | 371  |  
|                                                                                                   |  |                              |       |   |     
|Basic
earnings per share                                                                           |  |                              |       |   |      |   |      |  
|As
reported                                                                                        |  | $                            | 0.42  |   |      | $ | 0.18 |  
|Pro
forma                                                                                          |  | $                            | 0.39  |   |      | $ | 0.13 |  
|Earnings
per share  assuming dilution                                                             |  |                              |       |   |      |   |      |  
|As
reported                                                                                        |  | $                            | 0.39  |   |      | $ | 0.14 |  
|Pro
forma                                                                                          |  | $                            | 0.36  |   |      | $ | 0.13 |  

The following table sets forth the information that was used in calculating the
Companys book value per common share as of March 31, 2003 and December 31,
2002 (dollar amounts in thousands):

|                                    |                   |   |           |           |              |   |           |           | 
|----------------------------------- | ----------------- | - | --------- | --------- | ------------ | - | --------- | --------- | 
|                                    |                   |   | March 31, |           | December 31,
|                                    |                   |   | 2003      |           | 2002        
|                                    |                   |   |           |           |             
|Period-end shares outstanding       |                   |   |           |           |              |   |           |          
|                                    | Basic             |   |           | 2,842,568 |              |   |           | 2,849,680 | 
|                                    | Dilutive Warrants |   |           |          |              |   |           |          | 
|                                    | Dilutive Options  |   |           |          |              |   |           |          | 
|                                    |                   |   |           |           |              |   |           |          
|Used in book value per
common share |                   |   | 2,842,568 |           |              |   | 2,849,680 |          
|Book value per common share         |                   | $ | 6.41      |           |              | $ | 6.11      |          
|                                    |                   |   |           |           |              |   |           |          

Note #8 - Subsequent Events

On April 9, 2003, the Company announced the signing of a definitive merger
agreement pursuant to which the Companys wholly-owned subsidiary, Vineyard
Bank, will acquire Southland Business Bank, a California-chartered commercial
bank. This acquisition will expand the Companys presence in the San Gabriel
Valley and surrounding areas. Southland Business Bank is headquartered in
Irwindale, California, and had total assets of $34.5 million, total deposits of
$31.4 million and total stockholders equity of $2.7 million as of December 31,
2002.

Under the terms of the merger agreement, shareholders of Southland Business
Bank will receive total consideration of $3.2 million for the 527,906 shares
currently outstanding to be paid in newly issued shares of common stock of the
Company, subject to certain conversion and exchange ratio conditions. To the
extent that the average closing price of the Companys common stock is less
than $17.78 prior to the measurement date for the transaction, then a portion
of the consideration will

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be paid in cash. The merger is expected to close
during the third quarter of the calendar year 2003, pending the receipt of all
requisite regulatory approvals and the approval of Southland Business Banks
shareholders.




ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Managements discussion and analysis of financial condition and results of
operations is intended to provide a better understanding of the significant
changes in trends relating to the Companys business, financial condition,
results of operations, liquidity and interest rate sensitivity. The following
discussion and analysis should be read in conjunction with the Companys
quarterly unaudited Consolidated Financial Statements, and notes thereto,
contained earlier in this Report.

Business and Organization

Vineyard National Bancorp

The Company was incorporated under the laws of the State of California on May
18, 1988 and commenced business on December 16, 1988 when, pursuant to a
reorganization, the Company acquired all of the voting stock of the Bank, a
California-chartered commercial bank. As a bank holding company, the Company
is registered under and subject to the Bank Holding Company Act of 1956, as
amended. The Companys principal asset is the capital stock of the Bank, which
had $463.0 million in assets as of March 31, 2003. On November 12, 2002, the
Companys common stock was listed on the NASDAQ National Market System and is
publicly traded under the symbol VNBC. Prior to that, the Companys common
stock was traded on the NASDAQ Smallcap Stock Market under the same symbol.
The Company had approximately 1,031 shareholders that own approximately
2,795,328 shares of the Companys common stock as of May 7, 2003.

The Companys principal business is to serve as a holding company for the Bank
and its subsidiaries and for other banking or banking-related subsidiaries
which the Company may establish or acquire. Vineyard Statutory Trust I and
Vineyard Statutory Trust II are wholly-owned subsidiaries of the Company,
formed on December 12, 2001 and December 19, 2002, respectively, for the sole
purpose of issuing trust preferred securities and to pay dividends on such
instruments. The Company may, in the future, consider acquiring other
businesses or engaging in other activities as permitted under Federal Reserve
Board regulations. On April 9, 2003, the Company announced the signing of a
definitive merger agreement pursuant to which the Companys wholly-owned
subsidiary, the Bank, will acquire Southland Business Bank, a
California-chartered commercial bank, see Note #8 in Item 1 hereof.

The Companys principal source of income is dividends from the Bank. Legal
limitations are imposed on the amount of dividends that may be paid and loans
that may be made by the Bank to the Company.

Vineyard Bank

The Bank was organized as a national banking association under federal law and
commenced operations under the name Vineyard National Bank on September 10,
1981. In August 2001, the Bank converted its charter to a California-chartered
commercial bank and now operates under the supervision of the California
Department of Financial Institutions (DFI) and the Federal Deposit Insurance
Corporation (FDIC). The Bank determined that it could better serve its
customers by converting to a state bank, which provided the Bank with increased
lending limits. The Banks deposit accounts are insured by the FDIC up to the
maximum amount permitted by law. The Bank is a non-member of the Federal
Reserve System.

The Bank is a community bank, dedicated to relationship banking and the success
of its customers. The Bank is primarily involved in attracting deposits from
individuals and businesses and using those deposits, together with borrowed
funds, to originate commercial business and commercial real estate loans,
primarily to small businesses, churches and private schools, single-family
construction loans (both tract and coastal loans), Small Business
Administration (SBA) loans and, to a lesser extent, single-family permanent
loans and various types of consumer loans. The Bank is focused on serving the
needs of commercial businesses with annual sales of less than $10.0 million,
retail community businesses, single-family residential developers and builders,
individuals and local public and private organizations. The Bank has
experienced substantial growth in recent years as it has expanded its core
deposit franchise and increased its originations of commercial and residential
construction loans.

The Bank operates seven full-service branch offices, which are located in each
of the communities of Rancho Cucamonga, Chino, Diamond Bar, La Verne,
Crestline, Blue Jay, and Corona all of which are located either in San
Bernardino or Riverside County, California. San Bernardino County is located
approximately 50 miles east of Los Angeles, California. The Rancho Cucamonga
office also serves as the Companys headquarters. The Banks seventh
full-service branch office, located in Corona, California, recently opened in
April, 2003. This new branch will give the Bank a greater extension into the
Anaheim and Northern Orange county region of California. In addition, the Bank
operates a loan production office in the city of Manhattan Beach, California,
principally for the marketing and origination of single-family construction
lending in the coastal communities surrounding Los Angeles. The Bank also
operates two loan production offices located in San Diego, California, and
Beverly Hills, California. These offices are principally for the origination
of SBA loans. The Bank

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currently plans to convert the Manhattan Beach loan
production office into a full-service banking center in the second quarter of
2003.

The Bank is, and has been since inception, headquartered in Rancho Cucamonga,
California and continues to have its roots in San Bernardino County. The Bank
believes that the demand for business and housing loans will remain strong in
the immediate future in the Banks primary market area, particularly in San
Bernardino County. Even during slow economic periods, businesses continue to
grow in San Bernardino County as the population migrates from heavily populated
areas such as Los Angeles County into San Bernardino County where the cost of
living and doing business are relatively less expensive. San Bernardino County
is an industrial/suburban area that serves as a geographic portal for many of
the products that are shipped into the port of Los Angeles and distributed
through channels in the San Bernardino County region to the rest of the United
States. As business opportunities continue to grow in San Bernardino County,
demand for housing increases as the population expands in the area.

The Bank attempts to differentiate itself from its competitors by providing
personalized service and building relationships with its customers. The Bank
believes relationship management is best delivered in contemporary,
well-appointed and efficient banking centers. Beginning in mid-2003, the
existing community banking centers will be redesigned to afford Bank clients
and employees with an environment conducive to providing personalized customer
service. In addition, ATM machines will be upgraded with current technology to
support branch designs and to better serve the Banks customers. The Bank
believes that alternative delivery locations may augment this branching network
beginning in 2004, which may be in the form of satellite branches and/or remote
kiosks. The satellite branches and remote kiosks would enable the Bank to
expand its presence in targeted markets without incurring significant overhead
expenses. The Bank will focus its new business generation efforts within those
communities of the new satellite branches, and augment these efforts with a
business banking focus targeting the lower range of middle-market and
professional clientele.

Beginning in early 2001, the Bank implemented a new business strategy that
concentrates on a sales and service approach to community banking, with the
focus placed on customer needs fulfillment. As part of the Banks efforts to
implement its customer-oriented strategy, the Bank selectively recruited
experienced professionals with developed business banking skills, augmented its
credit administration capabilities, and greatly expanded the marketing and
branding of the franchise. The Bank believes that expanding many of its
existing relationships will prove to be an effective source of new business
opportunities.

In late 2002, the Bank added single-family tract construction lending, SBA
lending and religious financial services to its existing specialty group,
single-family coastal construction lending. The Banks goal is for balanced
lending activities in each of these specialty groups. Additional specialty
groups that the Company anticipates pursuing include private banking, cash
management services and asset-based lending, among other products and services.
Each of these specialty groups will bring diversity to the Banks existing
product lines, offering its customers greater opportunities and opening new
opportunities for the Bank to serve new customers in the community. Loan growth
was 21% for the three months ended March 31, 2003 and 84% for fiscal year 2002.
New loan commitment volumes are targeted to produce net growth in loans
outstanding between 50% and 70% for fiscal year 2003 and 25% to 30% for each
year thereafter. As part of the Banks goal of balanced lending, net increases
in its loan portfolio are intended to produce a distribution mix of 15% in
commercial loans, 30% in commercial real estate loans, 25% in single-family
coastal construction, 15% in single-family tract construction and 15% in
consumer lending.

In order to expand the Banks core deposit franchise, the Bank will continue to
introduce additional products and services to capture money market and time
deposits by bundling them with other consumer services. Business deposits will
be pursued with an expanded courier network, by introduction of cash management
products and by specific targeting of non-credit business clientele. The
Banks core deposit franchise has been built around the community banking
system, with deposit growth of 18% for the first three months ended March 31,
2003 and 80% for fiscal year 2002. The Banks projected net growth in core
deposits ranges from 40% to 60% per annum with the intended distribution of 20%
in non-interest bearing demand deposits, 10% in NOW and savings deposits, 40%
in money market deposits and 30% in time deposits.

The Rancho Cucamonga and Chino full-service branches offer the most balanced
opportunities between lending and deposit generation among commercial and
consumer clientele. The Bank believes the communities of La Verne and Diamond
Bar offer substantial growth in the consumer depository markets while the two
branches within the San Bernardino mountain communities of Blue Jay and
Crestline will focus on capturing a larger market share of the community
deposits. The community of Corona serves as a launching point for servicing
the south western region of the Inland Empire and provides penetration into the
Northern Orange County marketplace. The Bank currently plans to convert the
Manhattan Beach loan production office into a full-service banking center
catering to professional and small businesses in the Los Angeles beach
communities.

In summary, the Company continues to expand its marketing efforts in seven
primary areas:



| |  |  | Community-based core deposit growth;                   
| | - |  | -------------------------------------------------------
|
| |  |  | Small business and commercial lending;                 
|
| |  |  | Single family coastal construction lending;            
|
| |  |  | Single family tract (entry level) construction lending;

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| |  |  | SBA lending;                                                                
| | - |  | ----------------------------------------------------------------------------
|
| |  |  | Religious financial services (lending and depository); and                  
|
| |  |  | Specialized depository and cash management services for commercial business.

Vineyard Service Company, Inc.

The Bank owns 100% of the capital stock of Vineyard Service Company, Inc.,
which is an inactive service company of the Bank. Vineyard Service Company,
Inc. was originally formed to provide services to both customers of the Bank
and others, including life and disability insurance.

Results of Operations

Net income for the three months ending March 31, 2003 and 2002, was $1.3
million and $0.4 million, respectively, representing an increase of 254% for
the three months ended March 31, 2003 as compared to the same period in 2002.
On a per diluted share basis, net income was $0.39 and $0.14 for the three
months ended March 31, 2003 and 2002, respectively. Prior period earnings per
share were adjusted for the 5% stock dividend declared in December 2002.

Operating results demonstrated a significant increase in the first three months
of 2003 over the same period in 2002 as the volume of earning assets increased.
The growth in earning assets was primarily funded by the growth in deposits
and other borrowings. The catalyst for the Companys growth continues to be
its efforts to attract stable, core deposits from within the Banks community
markets.

The Companys net interest income before its provision for possible loan losses
increased by $1.9 million or 73% for the three months ended March 31, 2003 as
compared with the first quarter of 2002. Non-interest income increased by $0.8
million or 151% in the first quarter of 2003 as compared to the first three
months of 2002. Thus, total net revenue (net interest income and non-interest
income) for the three months ended March 31, 2003 increased by $2.7 million or
87% as compared to the same period in 2002.

Total non-interest expense was $3.3 million and $2.4 million for the three
months ended March 31, 2003 and 2002, respectively. This was an increase of
$0.9 million or 37%. The largest item contributing to non-interest expense was
salaries and benefits which represents approximately 50% of total non-interest
expense for each of those periods. In order to support its growth, the Company
hired additional employees for business development and several experienced
managers in fiscal 2002. The Companys efficiency ratio, however, which is a
measure of non-interest expense divided by net interest income plus
non-interest income, improved from 75% to 55% for the three months ended March
31, 2003 as compared to the same quarter in 2002 due to the Company achieving
efficiencies of scale as it continues to grow.

The quality of the Companys loan portfolio continued to improve and perform
well as compared to peer group standards, sustaining no charge-offs in the
first quarter of 2003 and $10,000 in recoveries for loans previously charged
off, as compared to $13,000 in net loan charge-offs for the same period in
2002. The Companys continued growth of its loan portfolio necessitated a
provision made to the allowance for possible loan losses in the amount of $0.5
million and $0.2 million for the three months ended March 31, 2003 and 2002,
respectively. At March 31, 2003 and 2002, the Company reported no impaired or
non-performing loans or other real estate owned through foreclosure.

Beginning in early 2001, the Company began to implement an asset/liability
management strategy that was built around the risk elements of interest rate,
asset duration and funding risks. A component of this strategy was to deploy
excess liquidity previously invested in federal funds into higher yielding
mortgage-backed securities with relatively short duration and high cash flow
components. The Company increased the investment portfolio accordingly, which
enhanced the Companys overall yields and better addressed the risk elements
identified above. In doing so, the Company began to realize prepayments on
call options on certain of its mortgage-backed security investments and
liquidated those securities prior to market premium erosion while generating
gains on sale of investment securities of $0.6 million for the quarter ended
March 31, 2003. The Companys investment securities increased by $84.5 million
to $134.5 million at March 31, 2003 as compared to $50.0 million at March 31,
2002. The increase in investment securities provided an increase of $0.8
million in interest income for the three month period ended March 31, 2003 as
compared to the same period in 2002. Interest income from investment
securities for the three months ended March 31, 2003 and 2002 was $1.3 million
and $0.5 million, respectively.

At March 31, 2003, the Banks equity was $40.2 million. As a result, the Bank
exceeds the required capital levels to be considered well capitalized.
Pursuant to regulatory guidelines under prompt corrective action rules, a bank
must have total risk-based capital of 10% or greater, Tier 1 capital of 6% or
greater and a leverage ratio of 5% or greater to be considered well
capitalized. At March 31, 2003, the Banks total risk-based capital, Tier 1
capital and leverage ratios were 12.7%, 11.7% and 9.7%, respectively. On a
consolidated basis, the Company has similar ratios. The minimum ratios that
the Company must meet are total risk-based capital of 8%, Tier 1 capital of 4%
and a leverage ratio of 4%. At March 31, 2003, the Companys total risk-based
capital, Tier 1 and leverage ratios were 13.4%, 8.0%, and 6.6%, respectively.

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Net Interest Income

The Companys earnings are derived predominately from net interest income,
which is the difference between the interest earned on loans and securities and
the interest paid on deposits and borrowings. The net interest margin is the
net interest income divided by the average interest earning assets. Net
interest income and net interest margin are affected by several factors
including (1) the level of, and the relationship between, the dollar amount of
interest earning assets and interest bearing liabilities, (2) the relationship
between repricing or maturity of the Companys variable rate and fixed rate
loans and securities, and its deposits and borrowings, and (3) the magnitude of
the Companys non-interest earning assets, including non-accrual loans and
other real estate loans.

Total interest income for the three months ended March 31, 2003 and 2002 was
$6.6 million and $3.8 million, respectively, while total interest expense was
$2.1 million and $1.2 million, respectively. Therefore, the net interest
income was $4.5 million and $2.6 million for the quarters ended March 31, 2003
and 2002, respectively.

The net interest margin for the three month period ended March 31, 2003 was
4.7% as compared to 5.6% for the first quarter of 2002 which is a decrease of
90 basis points. At January 31, 2002, the national prime rate was 4.75%.
During the fourth quarter of 2002, the Federal Reserve Bank decreased the
overnight borrowing rate by 50 basis points, thus bringing the national prime
rate down to 4.25%, where it remained as of March 31, 2003. Consequently, the
Company has experienced some compression in its net interest margin as new
loans are generated, or existing loans are repriced, at a lower rate. Interest
yield on loans decreased from 9.1% for the quarter ended March 31, 2002 to 7.7%
for the quarter ended March 31, 2003. Although the Bank has many loans that
have reached their floor rates and have not continued to adjust downwards as
interest rates declined, certain higher rate loans that paid off were replaced
with new loans originated at lower market rates. Loan fees, which are included
in interest income, also contributed to interest income. For the three months
ended March 31, 2003, loan fee income represented $0.6 million or 11.4% of the
$5.3 million in interest and fees on loans. For the three months ended March
31, 2002, loan fee income was $0.6 million or 18% of the $3.3 million in
interest and fees on loans. Construction loans and commercial real estate
loans generate the bulk of all loan fee income. As the Company continues its
emphasis in single-family coastal and tract home construction loans, the volume
of construction fees have increased during the later part of 2002. Those fees
are deferred and amortized over the life of the loans. Construction loans
generally have a duration of 12 months and as the level of construction loans
continue to grow, the yield on loans will increase as a result and will reach a
greater constant level over a twelve month cycle.

Total interest expense was $2.1 million and $1.2 million for the three
months ended March 31, 2003 and 2002, respectively, for a total increase of
$0.9 million. Interest expense on deposits totaled $1.5 million during the
three months ended March 31, 2003 compared to $0.8 million during the three
months ended March 31, 2002 representing an increase of $0.7 million. Although
interest-bearing deposits increased in 2003 compared to 2002, the Company
continues to offer competitive rates and have maintained the cost of funds on
its deposits at 2.0% for the quarters ended March 31, 2003 and 2002. The cost
of funds of deposits includes non-interest bearing deposits. Average
non-interest bearing deposits increased from $48.2 million for the quarter
ended March 31, 2002 to $59.2 million for the quarter ended March 31, 2003.

Interest expense on short-term borrowings which includes primarily FHLB
borrowings have decreased from 2.4% for the quarter ended March 31, 2002 to
2.0% for the quarter ended March 31, 2003 as market rates have decreased as
discussed above.

An additional form of funding for the Banks growth was debt issued by the
Company which resulted in a higher consolidated cost of funds beyond that of
deposits and FHLB borrowings. In December 2002, the Company issued $5.0
million in Trust Preferred Securities and $5.0 million in subordinated debt.
The Company also borrowed $5.0 million on a line of credit with a financial
institution. Those instruments bear variable interest rates indexed to LIBOR
and adjust on a quarterly basis. The consolidated cost of funds for the
Company for the three months ended March 31, 2003 was 2.5%, down from 3.2% for
the same period ended March 31, 2002. As market rates have decreased, the
interest on those variable notes has decreased.

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The following table presents the distribution of the Companys average assets,
liabilities, and stockholders equity in combination with the total dollar
amounts of interest income from average interest earning assets and the
resultant yields without giving effect for any tax exemption, and the dollar
amounts of interest expense and average interest bearing liabilities, expressed
both in dollars and rates.

|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |   |      |     |  
|-------------------------------------------- | ------------------------------------------ | ------------------------------- | ---------------------------------------- | -------- | ------- | ---------- | ----- | ------- | ----- | -------- | ------- | ---------- | ------- | --- | ------- | ------- | ------- | ------- | ------- | - | ----- | ----- | --- | - | ---- | --- | -
|                                             |                                            | For the quarter ended March 31,
|                                             |                                            |                                
|                                             |                                            |                                 |                                          |          | 2003    |            | 2002 
|                                             |                                            |                                 |                                          |          |         |            |      
|                                             |                                            |                                 |                                          |          | Average |            |       |         |       |          | Average |            | Average |     |         |         |         |         | Average
|(Dollars in Thousands)                       |                                            | Balance                         |                                          | Interest |         | Yield/Cost |       | Balance |       | Interest |         | Yield/Cost
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |        
|Assets                                       |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|                                             |                                            | Loans                           |                                          | $        | 279,887 |            |       | $       | 5,286 |          |         |            | 7.7     | %   |         | $       | 146,556 |         |         | $ | 3,310 |       |     |   | 9.1  | %  
|                                             |                                            | Investment securities1          |                                          |          | 104,784 |            |       |         | 1,285 |          |         |            | 5.0     |     |         |         | 39,937  |         |         |   | 450   |       |     |   | 4.5  |    
|                                             |                                            | Federal funds sold              |                                          |          | 7,974   |            |       |         | 23    |          |         |            | 1.2     |     |         |         | 2,335   |         |         |   | 10    |       |     |   | 1.7  |    
|                                             |                                            | Other investments               |                                          |          | 2,806   |            |       |         | 36    |          |         |            | 5.2     |     |         |         | 445     |         |         |   | 2     |       |     |   | 1.8  |    
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|                                             |                                            |                                 | Total interest-earning assets            |          |         | 395,451    |       |         |       | 6,630    |         |            |         | 6.8 | %       |         |         | 189,273 |         |   |       | 3,772 |     |   |      | 8.0 | %
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|Other assets                                 |                                            |                                 | 25,856                                   |          |         |            |       |         |       |          |         |            |         |     | 17,487  |         |         |         |         |   |       |       |     |  
|                                             |                                            |                                 | Less: Allowance for possible loan
losses |          |         | (3,153     | )     |         |       |          |         |            |         |     |         |         |         | (1,637  | )       |   |       |       |     |   |      |     |  
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|                                             |                                            |                                 | Total average assets                     |          | $       | 418,154    |       |         |       |          |         |            |         |     |         |         | $       | 205,123 |         |   |       |       |     |   |      |     |  
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|Liabilities and Shareholders Equity         |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|                                             |                                            | Savings deposits                |                                          | $        | 145,089 |            |       |         | 719   |          |         |            | 2.0     | %   |         | $       | 56,417  |         |         |   | 211   |       |     |   | 1.5  | %  
|                                             |                                            | Time deposits                   |                                          |          | 103,353 |            |       |         | 803   |          |         |            | 3.2     |     |         |         | 62,235  |         |         |   | 622   |       |     |   | 4.0  |    
|                                             |                                            | Subordinated debt               |                                          |          | 5,000   |            |       |         | 55    |          |         |            | 4.5     |     |         |         |        |         |         |   |      |       |     |   |     |    
|                                             |                                            | Convertible debentures          |                                          |          |        |            |       |         |      |          |         |            |        |     |         |         | 3,736   |         |         |   | 93    |       |     |   | 10.0 |    
|                                             |                                            | Trust preferred securities      |                                          |          | 17,000  |            |       |         | 202   |          |         |            | 4.8     |     |         |         | 12,000  |         |         |   | 170   |       |     |   | 5.6  |    
|                                             |                                            | Short term borrowings           |                                          |          | 62,024  |            |       |         | 305   |          |         |            | 2.0     |     |         |         | 9,338   |         |         |   | 55    |       |     |   | 2.4  |    
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|                                             |                                            |                                 | Total interest-bearing liabilities       |          |         | 332,466    |       |         |       | 2,084    |         |            |         | 2.5 | %       |         |         | 143,726 |         |   |       | 1,151 |     |   |      | 3.2 | %
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|                                             |                                            | Demand deposits                 |                                          |          | 59,171  |            |       |         |       |          |         |            |         |     |         |         | 48,222  |         |         |   |       |       |     |   |      |    
|                                             |                                            | Other liabilities               |                                          |          | 6,140   |            |       |         |       |          |         |            |         |     |         |         | 2,609   |         |         |   |       |       |     |   |      |    
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|Total average liabilities                    |                                            |                                 | 397,777                                  |          |         |            |       |         |       |          |         |            |         |     | 194,557 |         |         |         |         |   |       |       |     |  
|Shareholders equity                         |                                            |                                 | 20,377                                   |          |         |            |       |         |       |          |         |            |         |     | 10,566  |         |         |         |         |   |       |       |     |  
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|                                             | Total liabilities and shareholders
equity |                                 | $                                        | 418,154  |         |            |       |         |       |          |         |            |         |     | $       | 205,123 |         |         |         |   |       |       |     |   |     
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|Net interest spread2                         |                                            |                                 |                                          |          |         |            |       |         |       |          | 4.3     | %          |         |     |         |         |         |         |         |   |       |       | 4.8 | %
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  
|Net interest income and net interest
margin3 |                                            |                                 |                                          |          |         | $          | 4,546 |         |       |          | 4.7     | %          |         |     |         |         |         | $       | 2,621   |   |       |       | 5.6 | %
|                                             |                                            |                                 |                                          |          |         |            |       |         |       |          |         |            |         |     |         |         |         |         |         |   |       |       |     |  

|  |  |                                                                                                                                               
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|1 |  | The yield for securities that are classified as available-for-sale is based
on historical amortized cost balances.                            
|  |  |                                                                                                                                               
|2 |  | Net interest spread represents the average yield earned on interest earning
assets less the average rate paid on
interest bearing liabilities.
|  |  |                                                                                                                                               
|3 |  | Net interest margin is computed by dividing net interest income by total
average earning assets.                                              

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Provision for Possible Loan Losses

For the three months ended March 31, 2003 and 2002, the provision for loan
losses was $0.5 million and $0.2 million, respectively. The provision for loan
losses was increased to support the significant growth in loans experienced
during such periods.

The Companys allowance for possible loan losses was $3.5 million or 1.14% of
gross loans at March 31, 2003 compared to $1.6 million or 1.07% of gross loans
at March 31, 2002. At December 31, 2002, the allowance for possible loan
losses was $3.0 million or 1.19% of gross loans. As the volume of loans
increases, the level of allowance for possible loan loss increases in order to
maintain a similar ratio of reserve to loans. Additions to the reserve are
effected through the provision for possible loan losses. Also affecting the
reserve are loans charged off and loans recovered. Net loan recoveries for the
three months ended March 31, 2003 were $10,000 whereas net loan charge-offs for
the three months ended March 31, 2002 were $13,000.

Although the Company maintains an allowance for possible loan losses at a level
it considers to be adequate to provide for losses, based on presently known
conditions, there can be no assurance that such losses will not exceed the
estimated amounts, thereby adversely affecting future results of operations.
The calculation for the adequacy of the allowance for possible loan losses, and
therefore the requisite amount of the provision for possible loan losses, is
based on several factors, including underlying loan collateral, delinquency
trends, borrowers cash flow and historic loan loss experience. All of these
factors can change without notice based on market and economic conditions and
other factors.

Non-Interest Income

Non-interest income for the three months ended March 31, 2003 and 2002 was $1.3
million and $0.5 million, respectively, for an increase of $0.8 million or
151%.

In the fourth quarter 2002, the Company began its SBA lending department. The
guaranteed portions of the SBA loans originated are eventually sold. The sale
of the guaranteed portion of the SBA loans, combined with other loans held for
sale and sold during the year, generated income of $178,000 from the SBA loan
sales and $54,000 from the other loans held for sale and sold for the first
three months ended March 31, 2003 as compared to $0 and $56,000, respectively,
for the same period in 2002.

During the quarter ended March 31, 2003, net gains from the sale of investment
securities amounted to $0.6 million as compared to $77,000 for the same period
in 2002. The gains were a result of managements ability to manage liquidity
needs, interest rate risk, and strategic planning in meeting capital
requirements during a period when market rates were favorable and therefore,
the Company realized gains upon sale from its available-for-sale investment
portfolio.

Income from fees and service charges also increased $0.1 million for the three
months ended March 31, 2003 as compared to the same quarter in 2002 as the
volume of loans and deposits have increased.

Non-Interest Expenses

The Companys non-interest expense for the three months ended March 31, 2003
and 2002 was $3.3 million and $2.4 million, respectively. The increase for the
quarter ended March 31, 2003 as compared to the same period in 2002 was $0.9
million or 37%. Non-interest expense consists primarily of (i) salaries and
other employee expenses, (ii) occupancy expenses, (iii) furniture and equipment
expenses, and (iv) data processing, marketing, professional fees, office
supplies, postage and telephone, insurance and assessments, administrative, and
other non-interest expense.

Salaries and employee benefits is the largest component of non-interest
expense. Beginning with the appointment of the Companys current Chief
Executive Officer in the fourth quarter of 2000, management has implemented
several structural changes within the operations of the Company in order to
support its strategic plan initiatives. In each of the following areas, a
seasoned and experienced individual has been recruited from other local
financial institutions to head their respective area: credit administration,
loan operations and construction support, SFR construction business
development, marketing, information technology, community banking, finance and
human resources. Additional personnel have been placed in business development
capacities for commercial and community banking. With the addition of these
individuals to the Companys existing personnel, the Company has been able to
produce significant growth in deposits and loans in 2003 and 2002, while
providing the infrastructure needed to support longer-term growth. The
Companys salaries and employee benefits expense increased by $0.4 million or
32% to $1.7 million for the three months ended March 31, 2003 from $1.3 million
for the three months ended March 31, 2002.

Occupancy expense increased $56,000 or 29% to $248,000 in the first three
months of 2003 from $192,000 in the first quarter of 2002. In 2002, the loan
production office in Manhattan Beach expanded into a larger facility to
accommodate additional staff as the single family coastal construction loan
production increased. The Company also entered into new office leases in San
Diego and Beverly Hills for the production of SBA loans as the Company began
its SBA lending

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department in the fourth quarter of 2002. Correspondingly, expenses related to
furniture and fixtures increased $46,000 or 31% in the three months ended March
31, 2003 as compared to the same period in 2002.

Other non-interest expense was $1.1 million and $0.7 million for the three
months ended March 31, 2003 and 2002, respectively, representing an increase of
$0.4 million or 57%. Other expenses increased significantly due primarily to
the Companys implementation of its strategy to grow the Company. All
categories of other non-interest expense, with the exception of data processing
and certain administrative expenses, increased including marketing,
professional services, office supplies, postage and telephone, and insurance
due to increases in the number of employees and the volume of loan and deposit
production. In particular, the Companys marketing expense increased
significantly from $152,000 in the first quarter of 2002 to $280,000 in the
first quarter of 2003 as the Company increased its advertising and promotional
campaigns in its communities.

The following is a breakdown of other non-interest expense for the three months
ended March 31, 2003 and 2002 (in thousands):

|                            |                                        |                                  |   |                              |       |      |   |     |     | 
|--------------------------- | -------------------------------------- | -------------------------------- | - | ---------------------------- | ----- | ---- | - | --- | --- | 
|                            |                                        |                                  |   | Three Months Ended March 31,
|                            |                                        |                                  |   |                             
|                            |                                        |                                  |   | 2003                         |       | 2002
|                            |                                        |                                  |   |                              |       |     
|Other non-interest expense: |                                        |                                  |   |                              |       |      |   |    
|                            | Data processing                        |                                  | $ | 166                          |       |      | $ | 193 |    
|                            | Marketing expenses                     |                                  |   | 280                          |       |      |   | 152 |    
|                            | Professional expenses                  |                                  |   | 143                          |       |      |   | 122 |    
|                            | Office supplies, postage and
telephone |                                  |   | 200                          |       |      |   | 135 |    
|                            | Insurance and assessment expense       |                                  |   | 69                           |       |      |   | 41  |    
|                            | Administrative expense                 |                                  |   | 33                           |       |      |   | 39  |    
|                            | Other                                  |                                  |   | 171                          |       |      |   | 26  |    
|                            |                                        |                                  |   |                              |       |      |   |    
|                            |                                        | Total other non-interest expense |   | $                            | 1,062 |      |   | $   | 708 | 
|                            |                                        |                                  |   |                              |       |      |   |    

Financial Condition

Assets

At March 31, 2003, total assets increased $78.9 million or 20% to $464.2
million from $385.3 million at December 31, 2002. Assets were comprised
primarily of $307.5 million in gross loans and $134.5 million in investment
securities at March 31, 2003. This is an increase of $54.2 million or 21% in
gross loans and $46.9 million or 54% in investment securities from December 31,
2002. This was offset by a decrease of $15.8 million in Fed Funds Sold between
December 31, 2002 and March 31, 2003.

Investments

The Company increased its securities portfolio during the first quarter of 2003
through the purchase of mortgage-backed securities, which are typically insured
by U.S. Government-backed agencies. The Companys securities portfolio
amounted to $134.5 million, or 29% of total assets, at March 31, 2003 and $87.6
million, or 23% of total assets, at December 31, 2002. The securities
portfolio was comprised of securities classified as available-for-sale. In
accordance with SFAS No. 115, investment securities available-for-sale are
carried at fair value and adjusted for amortization of premiums and accretions
of discounts.

The amortized cost and fair values of investment securities available-for-sale
at March 31, 2003, were (in thousands):

|                           |       |   |           |         |            |   |            |   |            |   |      |      |   |   |         |         | 
|-------------------------- | ----- | - | --------- | ------- | ---------- | - | ---------- | - | ---------- | - | ---- | ---- | - | - | ------- | ------- | 
|                           |       |   |           |         |            |   | Gross      |   | Gross      |   |      |      |  
|                           |       |   | Amortized |         | Unrealized |   | Unrealized |   |            |   |     
|                           |       |   | Cost      |         | Gains      |   | Losses     |   | Fair Value
|                           |       |   |           |         |            |   |            |   |           
|Mortgage-backed securities |       | $ | 119,717   |         |            | $ |           |   |            | $ | (268 | )    |   | $ | 119,449 |        
|U.S. agency securities     |       |   | 15,000    |         |            |   | 7          |   |            |   |     |      |   |   | 15,007  |        
|                           |       |   |           |         |            |   |            |   |            |   |      |      |   |   |         |        
|                           | Total |   | $         | 134,717 |            |   | $          | 7 |            |   | $    | (268 | ) |   | $       | 134,456 | 
|                           |       |   |           |         |            |   |            |   |            |   |      |      |   |   |         |        

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The amortized cost and fair values of investment securities available-for-sale
at December 31, 2002, were (in thousands):

|                           |  |           |        |            |  |            |     |            |  |   |   |  |  |   |        | 
|-------------------------- |  | --------- | ------ | ---------- |  | ---------- | --- | ---------- |  | - | - |  |  | - | ------ | 
|                           |  |           |        |            |  | Gross      |     | Gross      |  |   |   | 
|                           |  | Amortized |        | Unrealized |  | Unrealized |     |            |  |  
|                           |  | Cost      |        | Gains      |  | Losses     |     | Fair Value
|                           |  |           |        |            |  |            |     |           
|Mortgage-backed securities |  | $         | 87,364 |            |  | $          | 189 |            |  | $ |  |  |  | $ | 87,553 | 
|                           |  |           |        |            |  |            |     |            |  |   |   |  |  |   |        | 

The amortized cost and fair values of investment securities available-for-sale
at March 31, 2003, by expected maturities are shown below (in thousands).
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.

|                   |  |                               |         |            |  |   |         | 
|------------------ |  | ----------------------------- | ------- | ---------- |  | - | ------- | 
|                   |  | Securities Available-for-Sale
|                   |  | at March 31, 2003            
|                   |  |                              
|                   |  | Amortized                     |         |           
|                   |  | Cost                          |         | Fair Value
|                   |  |                               |         |           
|Due after 10 years |  | $                             | 134,717 |            |  | $ | 134,456 | 
|                   |  |                               |         |            |  |   |         | 

Proceeds from sales of mortgage-backed securities available-for-sale during the
three months ended March 31, 2003 were $58.8 million. Gross gains on those
sales were $599,000. Included in stockholders equity at March 31, 2003 is
$151,000 of net unrealized losses, net of tax benefits, on investment
securities available-for-sale.

Proceeds from sales of mortgage-backed securities available-for-sale during the
three months ended March 31, 2002 were $6.4 million. Gross gains on those
sales were $77,000. Included in stockholders equity at December 31, 2002 is
$109,000 of net unrealized gains, net of taxes, on investment securities
available-for-sale.

Securities with a carrying value and fair value of $134.5 million and $87.6
million at March 31, 2003 and December 31, 2002, respectively, were pledged to
secure public monies as required by law, Treasury, tax and loan deposits, and
Federal Home loan Bank advances.

Loans

The Company continued to have significant growth in its loan portfolio
increasing its gross loans during the first quarter of 2003 by $54.2 million or
21% from $253.2 million at December 31, 2002 to $307.5 million at March 31,
2003. All the Banks loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Companys market area, which
includes the counties of San Bernardino, Los Angeles, and Orange. These loans
are collateralized in accordance with Company policy. The concentrations of
credit by type of loan are set forth below (in thousands):

|                                       |             |                               |         |           |         |              |         |        |         | 
|-------------------------------------- | ----------- | ----------------------------- | ------- | --------- | ------- | ------------ | ------- | ------ | ------- | 
|                                       |             |                               |         | March 31, |         | December 31,
|                                       |             |                               |         | 2003      |         | 2002        
|                                       |             |                               |         |           |         |             
|Commercial, financial and agricultural |             | $                             | 19,828  |           |         | $            | 19,232  |       
|Real Estate  construction             |             |                               | 155,639 |           |         |              | 110,212 |       
|Real Estate  mortgage                 |             |                               |         |           |         |              |         |       
|                                       | Commercial  |                               |         | 95,844    |         |              |         | 93,122 |        
|                                       | Residential |                               |         | 30,930    |         |              |         | 23,480 |        
|Installment loans to individuals       |             |                               | 5,279   |           |         |              | 5,659   |       
|All other loans (including overdrafts) |             |                               | 86      |           |         |              | 60      |       
|                                       |             |                               |         |           |         |              |         |       
|                                       |             |                               | 307,606 |           |         |              | 251,765 |       
|Unearned income on installment loans   |             |                               | (20     | )         |         |              | (31     | )     
|Deferred loan fees                     |             |                               | (1,038  | )         |         |              | (595    | )     
|                                       |             |                               |         |           |         |              |         |       
|                                       |             | Loans, Net of Unearned Income |         | $         | 306,548 |              |         | $      | 251,139 | 
|                                       |             |                               |         |           |         |              |         |       
|Loans held for sale                    |             | $                             | 907     |           |         | $            | 2,112   |       
|                                       |             |                               |         |           |         |              |         |       

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Mortgage loans held for sale in the secondary market are carried at the lower
of cost or estimated market value in the aggregate market. Net unrealized
losses are recognized through a valuation allowance by charges to income.
Gains or losses realized on the sales are recognized at the time of sale and
are determined by the difference between the net proceeds and the carrying
value of the loans sold. Gains and losses on sales of loans are included in
non-interest income.

At March 31, 2003, the Bank had approximately $50.0 million in loans pledged to
secure FHLB borrowings.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is maintained at a level which, in
managements judgment, is adequate to absorb credit losses inherent in the loan
and lease portfolio. The amount of the allowance is based on managements
evaluation of the collectibility of the loan portfolio, including the nature of
the portfolio, credit concentrations, trends in historical loss experience,
specific impaired loans, and economic conditions. The allowance is increased
by a provision for loan and lease losses, which is charged to expense and
reduced by charge-offs, net of recoveries.

Transactions in the reserve for loan and lease losses are summarized as follows
(in thousands):

|                                           |  |           |       |              |  |   |       |  
|------------------------------------------ |  | --------- | ----- | ------------ |  | - | ----- | -
|                                           |  | March 31, |       | December 31,
|                                           |  | 2003      |       | 2002        
|                                           |  |           |       |             
|Balance, beginning of year                 |  | $         | 3,003 |              |  | $ | 1,450 |  
|Credit from purchase of loan portfolio     |  |           |      |              |  |   | 197   |  
|Recoveries on loans previously charged off |  |           | 10    |              |  |   | 167   |  
|Loans charged off                          |  |           |      |              |  |   | (241  | )
|Provision charged to operating expense     |  |           | 500   |              |  |   | 1,430 |  
|                                           |  |           |       |              |  |   |       |  
|Balance, end of year                       |  | $         | 3,513 |              |  | $ | 3,003 |  
|                                           |  |           |       |              |  |   |       |  

The provisions of SFAS No. 114 and SFAS No. 118 permit the valuation allowance
for loan losses to be determined on a loan-by-loan basis or by aggregating
loans with similar risk characteristics. The Bank considers a loan to be
impaired when it is probable that the Bank will be unable to collect all
amounts due (principal and interest) according to the contractual terms of the
loan agreement. Measurement of impairment is based on the expected future cash
flows of an impaired loan which are to be discounted at the loans effective
interest rate, or measured by reference to an observable market value, if one
exists, or the fair value of the collateral for a collateral-dependent loan.
The Bank selects the measurement method on a loan-by-loan basis except that
collateral-dependent loans for which foreclosure is probable are measured at
the fair value of the collateral. The Bank recognizes interest income on
impaired loans based on its existing methods of recognizing interest income on
nonaccrual and troubled debt restructured loans.

The Bank had no impaired loans as of March 31, 2003, and December 31, 2002.

The following is a summary of information pertaining to impaired loans as of
March 31, 2003, and December 31, 2002.

|                                                              |  |           |   |              |  |                |  |      |  |  |    |  |  |  |  | 
|------------------------------------------------------------- |  | --------- | - | ------------ |  | -------------- |  | ---- |  |  | -- |  |  |  |  | 
|                                                              |  | March 31, |   | December 31,
|                                                              |  | 2003      |   |              |  |                |  | 2002 |  |  |    | 
|                                                              |  |           |   |              |  |                |  |      |  |  |    | 
|                                                              |  |           |   |              |  | (in thousands)
|Average investment in impaired loans                          |  |           |  |              |  |                |  |      |  |  | 22 | 
|Interest income recognized on impaired loans                  |  |           |  |              |  |                |  |      |  |  |   | 
|Interest income recognized on a cash basis
for impaired loans |  |           |  |              |  |                |  |      |  |  |   | 

Nonperforming Assets

At March 31, 2003 and December 31, 2002, the Bank had no non-accrual loans or
loans classified as troubled debt restructurings. At March 31, 2003 the Bank
had approximately $1,100 in loans past due 90 days or more in interest or
principal and still accruing interest. At December 31, 2002, the Bank had no
loans past due 90 days or more in interest or principal and still accruing
interest.

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Deposits

Deposits represent the Banks primary source of funds for funding the Banks
loan activities. At March 31, 2003, the Bank increased its deposits by $52.7
million or 18% as compared to December 31, 2002. The increase is primarily due
to the increase of $30.1 million or 31% in money market accounts.

At March 31, 2003, the composition of the average deposit portfolio was 19% in
non-interest bearing deposits, 47% in money market, NOW and savings deposits,
and 34% in time certificates of deposit, while the composition was 26%, 41%,
and 33%, respectively, at December 31, 2002.

At March 31, 2003, the Bank had approximately 7,915 demand deposit accounts
with an aggregate balance of $69.8 million with an average
balance of $8,230.
In addition, the Banks NOW, and money market accounts taken together at March
31, 2003 were comprised of 4,595 accounts with an aggregate balance of $148.3
million and an average balance of $28,691. Savings deposits were comprised of
4,981 accounts with an aggregate balance of $13.7 million at March 31, 2003,
with an average account balance of $2,691. Time deposits (TCDs) were
comprised of approximately 3,478 accounts with an aggregate balance of $115.2
million with an average balance of $29,730 at March 31, 2003. TCDs with an
account balance of $100,000 or more equaled $58.2 million at March 31, 2003.

At December 31, 2002, the Bank had approximately 6,257 demand deposit accounts
representing aggregate deposits of approximately $69.5 million with an average
account balance of $11,012. In addition, at December 31, 2002, the Bank had
approximately 3,670 accounts representing approximately $116.8 million in NOW
and money market accounts with an average account balance of $31,794,
approximately 3,680 accounts for an aggregate of $12.7 million in savings
deposits with an average account balance of $3,463, and approximately 2,284
accounts representing approximately $96.1 million in TCDs with an average
account balance of $42,131. Of the total deposits at December 31, 2002, $47.6
million were in the form of TCDs in denominations of $100,000 or more.

At March 31, 2003, the scheduled maturities of time certificates of deposit in
denominations of $100,000 or more are as follows (in thousands):

|                               |  |           |        | 
|------------------------------ |  | --------- | ------ | 
|                               |  | March 31,
|                               |  | 2003     
|                               |  |          
|Three months or less           |  | $         | 10,365 | 
|Over three through six months  |  |           | 9,022  | 
|Over six through twelve months |  |           | 28,985 | 
|Over twelve months             |  |           | 9,820  | 
|                               |  |           |        | 
|                               |  | $         | 58,192 | 
|                               |  |           |        | 

Borrowings

At March 31, 2003, Federal Home Loan Bank (FHLB) advances were $70.0 million
as compared to $45.0 million at December 31, 2002. The increase in FHLB
advances was part of the Companys strategic plan to fund the growth of earning
assets.

Pursuant to collateral agreements with the FHLB, advances are secured by all
capital stock in FHLB, certain investment securities, and certain qualifying
loans. FHLB advances consist of the following as of March 31, 2003 (dollars in
thousands):

|         |  |          |      |        |  |   |        | 
|-------- |  | -------- | ---- | ------ |  | - | ------ | 
|         |  | Weighted |      |        |  |  
|         |  | Average  |      |        |  |  
|Maturity |  | Rate     |      | Amount
|         |  |          |      |       
|2003     |  |          | 1.35 | %      |  | $ | 30,000 | 
|2004     |  |          | 1.64 | %      |  |   | 25,000 | 
|2005     |  |          | 1.98 | %      |  |   | 15,000 | 
|         |  |          |      |        |  |   |        | 
|         |  |          | 1.59 | %      |  | $ | 70,000 | 
|         |  |          |      |        |  |   |        | 

During 2002, the Company obtained a $5.0 million line of credit from a
correspondent financial institution. The funds were drawn and held at the
Company as working capital. The line of credit bears interest at a floating
rate and matures on January 4, 2004. Interest is due quarterly. The line is
secured by 1,218,700 shares of the Banks stock representing 100% of the Banks
common stock.

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In December 2002 and December 2001, the Company issued trust preferred
securities of $5.0 million and $12.0 million, respectively. See Note #2 in
Item 1 hereof. Additionally, in December 2002, the Company issued $5.0 million
in subordinated debt which bears a floating rate of interest of 3.05% over the
three month LIBOR and has a fifteen-year maturity with quarterly interest
payments. The initial rate was set at 4.45%. As of March 31, 2003 the rate
had reset to 4.34%. The total of those two issuances of $10.0 million in
December 2002 was downstreamed to the Bank as additional capital for the Bank.

The Bank has lines of credit with five correspondent banks totaling $27.7
million at March 31, 2003. Additionally, the Bank has a borrowing line at the
Federal Home Loan Bank totaling $139.0 million at March 31, 2003, representing
30% of total assets of the Bank.

Stockholders Equity

At March 31, 2003 and December 31, 2002, stockholders equity was $20.5 million
and $20.0 million, respectively. The increase in stockholders equity was due
primarily to the net income for the first three months of 2003 of $1.3 million
offset by certain common stock repurchases and change in the valuation of the
investment securities available for sale.

Liquidity

The Company relies on asset-liability management to assure adequate liquidity
and to maintain an appropriate balance between interest sensitive-earning
assets and interest-bearing liabilities. Liquidity management involves the
ability to meet the cash flow requirements of customers. Typical demands on
liquidity are deposit run-off from demand deposits and savings accounts,
maturing time deposits, which are not renewed, and anticipated funding under
credit commitments to customers. Interest rate sensitivity management seeks to
avoid fluctuating interest margins to enhance consistent growth of net interest
income through periods of changing interest rates.

The Banks Asset-Liability Management Committee (ALCO) manages the Companys
liquidity position, the parameters of which are approved by the Board of
Directors. The liquidity position of the Bank is monitored daily. The Banks
loan to deposit ratio was 89% and 86% as of March 31, 2003 and December 31,
2002, respectively. The Banks policy is to strive for a loan to deposit ratio
between 70% and 90%.

Management believes the level of liquid assets is sufficient to meet current
and anticipated funding needs. Liquid assets represent approximately 14.9% of
total assets at March 31, 2003. The liquidity contingency process outlines
authorities and a reasonable course of action in case of unexpected liquidity
needs. The Bank has borrowing lines with five correspondent banks totaling
$27.7 million as well as an Advance Line with the Federal Home Loan Bank
allowing the bank to borrow up to 30% of its total assets as of March 31, 2003.
This advance line is collateralized by investment securities and/or eligible
loans.

Capital Resources

Neither the Company nor the Bank has any significant commitments for capital
expenditures.

The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by federal banking agencies.
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 Companys and the Banks
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action as applicable, the Company and the Bank
must meet specific capital guidelines that involve quantitative measures of the
Companys and the Banks assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The Companys and
the Banks capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors. Prompt corrective action provisions are not applicable to bank
holding companies.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of March 31,
2003, that the Company and the Bank meet all applicable capital adequacy
requirements.

As of the most recent formal notification from the Federal Deposit Insurance
Corporation, the Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum capital ratios as set forth in the table below.
The following table also sets forth the Companys and the Banks actual
regulatory capital amounts and ratios (dollar amounts in thousands):

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|                                       |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  |                   |        |  |  |  |      |  
|-------------------------------------- | ------- |  | ----------------- | ------ | ----------------- |  | ----------------- | ---- | ------- |  | -------------- | ------ | ----------------- |  | ------- | --- | - |  | ----------------- | ------ |  |  |  | ---- | -
|                                       |         |  |                   |        |                   |  |                   |      |         |  | Capital Needed
|                                       |         |  |                   |        |                   |  |                   |      |         |  |               
|                                       |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  | To Be Well       
|                                       |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  | Capitalized Under
|                                       |         |  |                   |        |                   |  |                   |      |         |  | For Capital    |        | Prompt Corrective
|                                       |         |  | Actual Regulatory |        | Adequacy Purposes |  | Action Provisions
|                                       |         |  |                   |        |                   |  |                  
|                                       |         |  | Capital           |        |                   |  |                   |      | Capital |  |                |        |                   |  | Capital |     |   |  |                  
|                                       |         |  | Amount            |        | Ratio             |  | Amount            |      | Ratio   |  | Amount         |        | Ratio            
|                                       |         |  |                   |        |                   |  |                   |      |         |  |                |        |                  
|As of March 31, 2003                   |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  |                   |        |  |  |  |     
|Total capital to risk-weighted assets: |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  |                   |        |  |  |  |     
|                                       | Bank    |  | $                 | 43,819 |                   |  |                   | 12.7 | %       |  | $              | 27,576 |                   |  |         | 8.0 | % |  | $                 | 34,469 |  |  |  | 10.0 | %
|                                       | Company |  | $                 | 46,158 |                   |  |                   | 13.4 | %       |  | $              | 27,657 |                   |  |         | 8.0 | % |  |                   | N/A    |  |  |  | N/A  |  
|Tier 1 to risk-weighted assets:        |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  |                   |        |  |  |  |     
|                                       | Bank    |  | $                 | 40,306 |                   |  |                   | 11.7 | %       |  | $              | 13,788 |                   |  |         | 4.0 | % |  | $                 | 20,682 |  |  |  | 6.0  | %
|                                       | Company |  | $                 | 27,534 |                   |  |                   | 8.0  | %       |  | $              | 13,828 |                   |  |         | 4.0 | % |  |                   | N/A    |  |  |  | N/A  |  
|Tier 1 capital to average assets:      |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  |                   |        |  |  |  |     
|                                       | Bank    |  | $                 | 40,306 |                   |  |                   | 9.7  | %       |  | $              | 16,624 |                   |  |         | 4.0 | % |  | $                 | 20,780 |  |  |  | 5.0  | %
|                                       | Company |  | $                 | 27,534 |                   |  |                   | 6.6  | %       |  | $              | 16,663 |                   |  |         | 4.0 | % |  |                   | N/A    |  |  |  | N/A  |  
|As of December 31, 2002                |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  |                   |        |  |  |  |     
|Total capital to risk-weighted assets: |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  |                   |        |  |  |  |     
|                                       | Bank    |  | $                 | 41,789 |                   |  |                   | 15.0 | %       |  | $              | 22,364 |                   |  |         | 8.0 | % |  | $                 | 27,955 |  |  |  | 10.0 | %
|                                       | Company |  | $                 | 44,838 |                   |  |                   | 16.0 | %       |  | $              | 22,454 |                   |  |         | 8.0 | % |  |                   | N/A    |  |  |  | N/A  |  
|Tier 1 to risk-weighted assets:        |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  |                   |        |  |  |  |     
|                                       | Bank    |  | $                 | 38,786 |                   |  |                   | 13.9 | %       |  | $              | 11,182 |                   |  |         | 4.0 | % |  | $                 | 16,773 |  |  |  | 6.0  | %
|                                       | Company |  | $                 | 26,452 |                   |  |                   | 9.4  | %       |  | $              | 11,227 |                   |  |         | 4.0 | % |  |                   | N/A    |  |  |  | N/A  |  
|Tier 1 capital to average assets:      |         |  |                   |        |                   |  |                   |      |         |  |                |        |                   |  |         |     |   |  |                   |        |  |  |  |     
|                                       | Bank    |  | $                 | 38,786 |                   |  |                   | 11.6 | %       |  | $              | 13,353 |                   |  |         | 4.0 | % |  | $                 | 16,691 |  |  |  | 5.0  | %
|                                       | Company |  | $                 | 26,452 |                   |  |                   | 7.9  | %       |  | $              | 13,412 |                   |  |         | 4.0 | % |  |                   | N/A    |  |  |  | N/A  |  

Economic Concerns

The Bank concentrates on marketing to, and serving the needs of, small and
medium-sized businesses, professionals and individuals located in the Southern
California counties of Los Angeles, San Bernardino, Orange, and Riverside
through its seven full service offices. In February 2001, the Bank opened a
loan production office in Manhattan Beach to primarily service the single
family residence construction lending practice in the coastal communities of
Los Angeles and in August 2002, the Bank opened two SBA loan production
offices, one in San Diego and one in Beverly Hills. In April, 2003, the Bank
opened its seventh full service office in Corona, California.

The financial condition of the Bank has been, and is expected to continue to
be, affected by the overall general economic conditions and the real estate
market in California. The future success of the Bank is dependent, in large
part, upon the quality of its assets.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys business is subject to general economic risks that could
adversely impact its results of operations and financial condition.

Changes in economic conditions, particularly an economic slowdown in
California, could hurt the Companys business.The Companys business is
directly affected by political and market conditions, broad trends in industry
and finance, legislative and regulatory changes, changes in governmental
monetary and fiscal policies, and inflation, all of which are beyond the
Companys control. A deterioration in economic conditions, in particular an
economic slowdown within California, could result in the following
consequences, any of which could hurt the Companys business materially:



| |  |  | loan delinquencies may increase;                                                                                                                                                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | problem assets and foreclosures may increase;                                                                                                                                                                                      
|
| |  |  | demand for the Companys products and services may decline; and                                                                                                                                                                    
|
| |  |  | collateral for loans made by the Company, especially real estate,
may decline in value, in turn reducing a clients borrowing power, and
reducing the value of assets and collateral associated with its loans
held for investment.

A downturn in the California real estate market could hurt its business.The
Companys business activities and credit exposure are concentrated in
California. A downturn in the California real estate market could hurt the
Companys business because many of its loans are secured by real estate located
within California. As of March 31, 2003, approximately 92% of the Companys
loans held for investment consisted of loans secured by real estate located in
California. If there is a significant decline in real estate values,
especially in California, the collateral for the Companys loans will provide
less security. As a result, the Companys ability to recover on defaulted
loans by selling the underlying real estate would be diminished, and the
Company would be more likely to suffer losses on defaulted loans. Real estate
values in California could be affected by, among other things, earthquakes and
other natural disasters particular to California.

The Company may suffer losses in its loan portfolio despite its underwriting
practices. The Company seeks to mitigate the risks inherent in its loan

portfolio by adhering to specific underwriting practices. These practices
include analysis of a borrowers prior credit history, financial statements,
tax returns and cash flow projections, valuation of collateral based on reports
of independent appraisers and verification of liquid assets. Although the
Company believes that its underwriting criteria are appropriate for the various
kinds of loans the Company makes, the Company may incur losses on loans that
meet its underwriting criteria, and these losses may exceed the amounts set
aside as reserves in its allowance for loan losses.

The Companys business is subject to interest rate risk and variations in
interest rates may negatively affect its financial performance.

Like other financial institutions, the Companys operating results are largely
dependent on its net interest income. Net interest income is the difference
between interest earned on loans and securities and interest expense incurred
on deposits and borrowings. The Companys net interest income is impacted by
changes in market rates of interest, the interest rate sensitivity of its
assets and liabilities, prepayments on its loans and securities and limits on
increases in the rates of interest charged on its loans. The Company expects
that it will continue to realize income from the differential or spread
between the interest earned on loans, securities and other interest-earning
assets, and interest paid on deposits, borrowings and other interest-bearing
liabilities. Net interest spreads are affected by the difference between the
maturities and repricing characteristics of interest-earning assets and
interest-bearing liabilities.

The Company cannot control or accurately predict changes in market rates of
interest. The following are some factors that may affect market interest
rates, all of which are beyond the Companys control:



| |  |  | inflation;                                                          
| | - |  | --------------------------------------------------------------------
|
| |  |  | slow or stagnant economic growth or recession;                      
|
| |  |  | unemployment;                                                       
|
| |  |  | money supply and the monetary policies of the Federal Reserve Board;
|
| |  |  | international disorders; and                                        
|
| |  |  | instability in domestic and foreign financial markets.              

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The Company is vulnerable to an increase in interest rates because its
interest-earning assets generally have longer maturities than its
interest-bearing liabilities. Under such circumstances, material and prolonged
increases in interest rates will negatively affect the Companys net interest
income. In addition, loan volume and yields are affected by market interest
rates on loans, and rising interest rates generally are associated with a lower
volume of loan originations. In addition, an increase in the general level of
interest rates may adversely affect the ability of certain borrowers to pay the
interest on and principal of their obligations. Accordingly, changes in levels
of market interest rates could materially and adversely affect the Companys
net interest spread, asset quality, loan origination volume, securities
portfolio, and overall profitability. Although the Company attempts to manage
its interest rate risk, the Company cannot assure you that it can minimize its
interest rate risk.

Interest Rates and Differentials

The Companys earnings depend primarily upon the difference between the income
it receives from its loan portfolio and investment securities and its cost of
funds, principally interest paid on savings and time deposits. Interest rates
charged on the Companys loans are affected principally by the demand for
loans, the supply of money available for lending purposes, and competitive
factors. In turn, these factors are influenced by general economic conditions
and other constraints beyond the Companys control, such as governmental
economic and tax policies, general supply of money in the economy, governmental
budgetary actions, and the actions of the Federal Reserve Board.

Asset/Liability Management

The Company realizes income principally from the differential or spread between
the interest earned on loans, investments, other interest-earning assets and
the interest paid on deposits and borrowings. The Company, like other
financial institutions, is subject to interest rate risk to the degree that its
interest-earning assets reprice differently than its interest-bearing
liabilities. The Companys primary objective in managing interest rate risk is
to minimize the adverse impact of changes in interest rates on the Companys
net interest income and capital, while maintaining an asset-liability balance
sheet mix that produces the most effective and efficient returns.

Interest rate sensitivity varies with different types of interest-earning
assets and interest-bearing liabilities. The Bank intends to maintain
interest-earning assets, comprised primarily of both loans and investments, and
interest-bearing liabilities, comprised primarily of deposits, maturing or
repricing in similar time horizons in order to minimize or eliminate any impact
from interest rate changes.

A sudden and substantial increase or decrease in interest rates may adversely
impact the Companys income to the extent that the interest rates associated
with the assets and liabilities do not change at the same speed, to the same
extent, or on the same basis. The Company has adopted formal policies and
practices to monitor its interest rate risk exposure. As a part of its risk
management practices, the Company uses the Economic Value of Equity (EVE) or
Earnings at Risk (EAR) to monitor its interest rate risk.

The Companys overall strategy is to minimize the adverse impact of immediate
incremental changes in market interest rates (rate shock) on EVE and EAR. The
EVE is defined as the present value of assets, minus the present value of
liabilities. The EAR is defined as the net interest income, which is interest
income less interest expense. The attainment of this goal requires a balance
between profitability, liquidity and interest rate risk exposure. To minimize
the adverse impact of changes in market interest rates, the Bank simulates the
effect of instantaneous interest rate changes on EVE at period end and EAR over
a one year horizon.

The table below shows the estimated impact of changes in interest rates on EVE
and EAR on March 31, 2003, assuming shifts of 100 to 200 basis points in both
directions (in thousands):

|             |  |                          |        |                  |  |                   |       |            |  |  |        |   |  |  |       | 
|------------ |  | ------------------------ | ------ | ---------------- |  | ----------------- | ----- | ---------- |  |  | ------ | - |  |  | ----- | 
|             |  | Economic Value of Equity |        | Earnings at Risk
|             |  |                          |        |                 
|Simulated    |  | Cumulative Dollar        |        | Percentage       |  | Cumulative Dollar |       | Percentage
|Rate Changes |  | Change                   |        | Change           |  | Change            |       | Change    
|             |  |                          |        |                  |  |                   |       |           
|+ 200        |  |                          | (2,141 | )                |  |                   | -4.05 |            |  |  | 1,573  |   |  |  | 7.95  | 
|+ 100        |  |                          | (997   | )                |  |                   | -1.89 |            |  |  | 518    |   |  |  | 2.62  | 
|- 100        |  |                          | (21    | )                |  |                   | -0.04 |            |  |  | (480   | ) |  |  | -2.43 | 
|- 200        |  |                          | 3,734  |                  |  |                   | 7.06  |            |  |  | (1,222 | ) |  |  | -6.18 | 

The amount and percentage changes represent the cumulative dollar and
percentage change in each rate change scenario from the base case. These
estimates are based upon a number of assumptions, including: the nature and
timing

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of interest rate levels including yield curve, prepayments on loans and
securities, pricing strategies on loans and deposits, replacement of asset and
liability cashflows, and other assumptions. While the assumptions used are
based on current economic and local market conditions, there is no assurance as
to the predictive nature of these conditions including how customer preferences
or competitor influences might change.

At March 31, 2003, the Companys estimated changes in EVE and EAR were within
the ranges established by the Board of Directors.




ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, 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 Executive Vice President and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures pursuant to the Exchange Act Rule 13a-14. Based upon that
evaluation, the Companys Chief Executive Officer along with the Companys
Executive Vice President and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Companys periodic
SEC filings. There have been no significant changes in the Companys internal
controls or in other factors which could significantly affect these controls
subsequent to the date the Company carried out its evaluation.

Disclosure controls and procedures are Company controls and other procedures
that are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files under the
Exchange Act is accumulated and communicated to the Companys management,
including its Chief Executive Officer and Executive Vice President and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.

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PART II

OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various litigation matters. In the opinion of
management and the Companys legal counsel, the disposition of all such
litigation pending will not have a material effect on the Companys financial
statements.




ITEM 2. CHANGES IN SECURITIES

None




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None




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

None




ITEM 5. OTHER INFORMATION

None




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | a) |  | Exhibits                                                                                            
| | -- |  | ----------------------------------------------------------------------------------------------------
|
| |    |  | 99.1 Section 906 Certification by the Chief Executive Officer and
the Chief Financial Officer.      
|
| | b) |  | Reports on Form 8-K:                                                                                
|
| |    |  | The following reports on Form 8-K were filed by the Company during
the quarter ended March 31, 2003:



| | i)  |  | January 21, 2003  Press Release: Year End
2002 Operating Results                                                                               
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|
| | ii) |  | March 28, 2003  Certifications of Chief
Executive Officer and Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on this 14th day of May 2003.

| |  |                           |  |                                                                                             |  | 
| |  | ------------------------- |  | ------------------------------------------------------------------------------------------- |  | 
| |  | VINEYARD NATIONAL BANCORP
| |  |                           |  |                                                                                             |  | 
| |  | By:                       |  | /s/ NORMAN MORALES                                                                          |  | 
| |  |                           |  |                                                                                             |  | 
| |  |                           |  | Norman Morales
President and Chief Executive Officer                                        |  | 
| |  |                           |  |                                                                                             |  | 
| |  | By:                       |  | /s/ GORDON FONG                                                                             |  | 
| |  |                           |  |                                                                                             |  | 
| |  |                           |  | Gordon Fong
Senior Vice President and Chief Financial Officer
(Principal Financial Officer) |  | 

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CERTIFICATION
PURSUANT TO RULE 13a-14
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Norman Morales, President and Chief Executive Officer (Principal Executive
Officer), certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of
Vineyard National Bancorp;                                                                                                                                                                                                                                              
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly 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 quarterly
report;
|
| | 3. |  | Based on my knowledge, the financial statements, and
other financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | Presented in this quarterly
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 to the audit committee of the
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;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (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 quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                                                     
|------------------ |  | ----------------------------------------------------
|Date: May 14, 2003 |  | /s/ Norman Morales                                  
|                   |  |                                                     
|                   |  | Norman Morales
President and Chief Executive Officer

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CERTIFICATION
PURSUANT TO RULE 13a-14
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Gordon Fong, Senior Vice President and Chief Financial Officer (Principal
Financial Officer), certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of
Vineyard National Bancorp;                                                                                                                                                                                                                                              
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly 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 quarterly
report;
|
| | 3. |  | Based on my knowledge, the financial statements, and
other financial information included in this quarterly 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 quarterly 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 the periodic 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 quarterly report (the Evaluation Date); and                                                                                                
|
| | (c) |  | Presented in this quarterly
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 to the audit committee of the
registrants board of directors (or persons performing the
equivalent function):
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| | (d) |  | 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;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (e) |  | 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 quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                                                                                            
|------------------ |  | -------------------------------------------------------------------------------------------
|Date: May 14, 2003 |  | /s/ Gordon Fong                                                                            
|                   |  |                                                                                            
|                   |  | Gordon Fong
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

Page 29 of 30