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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|- |  | -------------------------------------------------------

| |  | SECURITIES EXCHANGE ACT OF 1934
| |  | -------------------------------



| |  | For the quarterly period ended March 31, 2003
| |  | ---------------------------------------------



| ̈ |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
|- |  | --------------------------------------------------

| |  | SECURITIES EXCHANGE ACT OF 1934
| |  | -------------------------------



| |  | For the transition period from  to
.
| |  | ------------------------------------



Commission File No. 00026505



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COMMUNITY BANCORP INC.

(Name of issuer in its charter)



|Delaware                                                       |  | 33-0859334                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|900 Canterbury Place, Suite 300, CA      |  | 92025     
|---------------------------------------- |  | ----------
|(Address of principal executive offices) |  | (Zip Code)



(760)
432-1100

Issuers telephone number:



(Former Address)

(Former name, former address and former fiscal year, if changed since last report)



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Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ̈



Check whether or not the Company is an accelerated filer as
defined in Exchange Rule Act 12b-2.  Yes ̈No  x



Number of shares of common stock outstanding as
of March 31, 2003: 3,565,353



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PART 1: FINANCIAL
INFORMATION

ITEM 1: FINANCIAL STATEMENTS

COMMUNITY BANCORP INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)





|                                                                                                                                                                                  |  | March 31, 2003                                   |         |   | December 31, 2002 |   |         | March 31, 2002 | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ------- | - | ----------------- | - | ------- | -------------- | 
|                                                                                                                                                                                  |  | (dollars in thousands, except per share amounts) |        
|ASSETS                                                                                                                                                                            |  |                                                  |         |   |                   |   |         |                | 
|Cash and cash equivalents                                                                                                                                                         |  | $                                                | 21,060  |   |                   | $ | 21,504  |                | 
|Restricted cash                                                                                                                                                                   |  |                                                  |        |   |                   |   | 1,152   |                | 
|Interest bearing deposits in financial institutions                                                                                                                               |  |                                                  | 99      |   |                   |   | 99      |                | 
|Investments:                                                                                                                                                                      |  |                                                  |         |   |                   |   |         |                | 
|Trading securities, at fair value                                                                                                                                                 |  |                                                  | 13,119  |   |                   |   | 16,076  |                | 
|Held-to-maturity, at amortized cost; estimated fair value of $18,855 (2003), $21,095
(Dec 2002) and $24,064 (March 2002)                                                          |  |                                                  | 18,487  |   |                   |   | 20,770  |                | 
|Available-for-sale, at estimated fair value                                                                                                                                       |  |                                                  | 4,031   |   |                   |   |        |                | 
|Federal Reserve Bank & Federal Home Loan Bank stock, at cost                                                                                                                      |  |                                                  | 2,136   |   |                   |   | 1,548   |                | 
|Loans held for investment                                                                                                                                                         |  |                                                  | 310,969 |   |                   |   | 290,537 |                | 
|Less allowance for loan losses                                                                                                                                                    |  |                                                  | (4,266  | ) |                   |   | (3,945  | )              | 
|                                                                                                                                                                                  |  |                                                  |         |   |                   |   |         |                | 
|Net loans held for investment                                                                                                                                                     |  |                                                  | 306,703 |   |                   |   | 286,592 |                | 
|Loans held for sale                                                                                                                                                               |  |                                                  | 44,388  |   |                   |   | 52,879  |                | 
|Premises and equipment, net                                                                                                                                                       |  |                                                  | 4,050   |   |                   |   | 4,179   |                | 
|Other repossessed assets                                                                                                                                                          |  |                                                  |        |   |                   |   |        |                | 
|Accrued interest and other assets                                                                                                                                                 |  |                                                  | 6,118   |   |                   |   | 5,788   |                | 
|Income tax receivable                                                                                                                                                             |  |                                                  |        |   |                   |   | 309     |                | 
|Deferred tax asset, net                                                                                                                                                           |  |                                                  | 1,702   |   |                   |   | 1,705   |                | 
|Servicing assets, net                                                                                                                                                             |  |                                                  | 2,751   |   |                   |   | 2,617   |                | 
|Interest-only strips, at fair value                                                                                                                                               |  |                                                  | 536     |   |                   |   | 480     |                | 
|                                                                                                                                                                                  |  |                                                  |         |   |                   |   |         |                | 
|Total assets                                                                                                                                                                      |  | $                                                | 425,180 |   |                   | $ | 415,698 |                | 
|                                                                                                                                                                                  |  |                                                  |         |   |                   |   |         |                | 
|LIABILITIES AND SHAREHOLDERS
EQUITY                                                                                                                                              |  |                                                  |         |   |                   |   |         |                | 
|Deposits                                                                                                                                                                          |  |                                                  |         |   |                   |   |         |                | 
|Interest bearing                                                                                                                                                                  |  | $                                                | 306,730 |   |                   | $ | 312,514 |                | 
|Non-interest bearing                                                                                                                                                              |  |                                                  | 56,753  |   |                   |   | 51,438  |                | 
|                                                                                                                                                                                  |  |                                                  |         |   |                   |   |         |                | 
|Total deposits                                                                                                                                                                    |  |                                                  | 363,483 |   |                   |   | 363,952 |                | 
|Trust Preferred Securities                                                                                                                                                        |  |                                                  | 10,000  |   |                   |   | 10,000  |                | 
|Other borrowings                                                                                                                                                                  |  |                                                  | 24,916  |   |                   |   | 15,500  |                | 
|Reserve for losses on commitments to extend credit                                                                                                                                |  |                                                  | 184     |   |                   |   | 174     |                | 
|Income tax payable                                                                                                                                                                |  |                                                  | 479     |   |                   |   |        |                | 
|Accrued expenses and other liabilities                                                                                                                                            |  |                                                  | 4,336   |   |                   |   | 5,499   |                | 
|                                                                                                                                                                                  |  |                                                  |         |   |                   |   |         |                | 
|Total liabilities                                                                                                                                                                 |  |                                                  | 403,398 |   |                   |   | 395,125 |                | 
|                                                                                                                                                                                  |  |                                                  |         |   |                   |   |         |                | 
|Commitments and contingencies (Note 5)                                                                                                                                            |  |                                                  |         |   |                   |   |         |                | 
|Shareholders equity                                                                                                                                                              |  |                                                  |         |   |                   |   |         |                | 
|Common stock, $ .625 par value; authorized 10,000,000 shares, issued and outstanding,
3,565,000 at March 31, 2003; 3,542,000 at December 31, 2002 and 3,331,000 at March 31, 2002 |  |                                                  | 2,228   |   |                   |   | 2,214   |                | 
|Additional paid-in capital                                                                                                                                                        |  |                                                  | 10,802  |   |                   |   | 10,734  |                | 
|Unrealized gains on available-for-sale securities, net of income taxes                                                                                                            |  |                                                  | 3       |   |                   |   |        |                | 
|Retained earnings                                                                                                                                                                 |  |                                                  | 8,749   |   |                   |   | 7,625   |                | 
|                                                                                                                                                                                  |  |                                                  |         |   |                   |   |         |                | 
|Total shareholders equity                                                                                                                                                        |  |                                                  | 21,782  |   |                   |   | 20,573  |                | 
|                                                                                                                                                                                  |  |                                                  |         |   |                   |   |         |                | 
|Total liabilities and shareholders equity                                                                                                                                        |  | $                                                | 425,180 |   |                   | $ | 415,698 |                | 
|                                                                                                                                                                                  |  |                                                  |         |   |                   |   |         |                | 



See
accompanying notes to unaudited consolidated financial statements.



2



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COMMUNITY BANCORP INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(unaudited)

For the three months ended March 31:



|                                                                |  | 2003                                             |       | 2002
|--------------------------------------------------------------- |  | ------------------------------------------------ | ----- | ----
|                                                                |  | (dollars in thousands, except per share amounts)
|                                                                |  |                                                 
|Interest Income:                                                |  |                                                  |       |     
|Interest and fees on loans                                      |  | $                                                | 6,069 |     
|Interest on cash equivalents                                    |  |                                                  | 26    |     
|Interest on interest bearing deposits in financial institutions |  |                                                  | 3     |     
|Interest on trading securities                                  |  |                                                  | 58    |     
|Interest on U.S Treasury, govt. agencies & other securities    |  |                                                  | 259   |     
|                                                                |  |                                                  |       |     
|Total interest income                                           |  |                                                  | 6,415 |     
|                                                                |  |                                                  |       |     
|Interest Expense:                                               |  |                                                  |       |     
|Interest expensedeposits                                       |  |                                                  | 1,486 |     
|Interest expenseother borrowed money                           |  |                                                  | 286   |     
|                                                                |  |                                                  |       |     
|Total interest expense                                          |  |                                                  | 1,772 |     
|                                                                |  |                                                  |       |     
|Net interest income before provision for loan losses            |  |                                                  | 4,643 |     
|Provision for loan losses                                       |  |                                                  | 381   |     
|                                                                |  |                                                  |       |     
|Net interest income after provision for loan losses             |  |                                                  | 4,262 |     
|                                                                |  |                                                  |       |     
|Other operating income:                                         |  |                                                  |       |     
|Net gain on sale of loans                                       |  |                                                  | 1,137 |     
|Loan servicing fees, net                                        |  |                                                  | 152   |     
|Customer service charges                                        |  |                                                  | 187   |     
|Other fee income                                                |  |                                                  | 306   |     
|                                                                |  |                                                  |       |     
|Total other operating income                                    |  |                                                  | 1,782 |     
|                                                                |  |                                                  |       |     
|Other operating expenses:                                       |  |                                                  |       |     
|Salaries and employee benefits                                  |  |                                                  | 2,338 |     
|Occupancy                                                       |  |                                                  | 317   |     
|Telephone                                                       |  |                                                  | 60    |     
|Premises and equipment                                          |  |                                                  | 55    |     
|Data processing                                                 |  |                                                  | 160   |     
|Depreciation and amortization expense                           |  |                                                  | 210   |     
|Marketing and promotions                                        |  |                                                  | 56    |     
|Professional services                                           |  |                                                  | 317   |     
|Director, officer and employee expenses                         |  |                                                  | 138   |     
|Office expenses                                                 |  |                                                  | 162   |     
|Other expenses                                                  |  |                                                  | 319   |     
|                                                                |  |                                                  |       |     
|Total other operating expenses                                  |  |                                                  | 4,132 |     
|                                                                |  |                                                  |       |     
|Income before income taxes                                      |  |                                                  | 1,912 |     
|Provision for income taxes                                      |  |                                                  | 788   |     
|                                                                |  |                                                  |       |     
|Net income                                                      |  | $                                                | 1,124 |     
|                                                                |  |                                                  |       |     
|Comprehensive income                                            |  | $                                                | 1,127 |     
|                                                                |  |                                                  |       |     
|Basic earnings per share                                        |  | $                                                | 0.32  |     
|                                                                |  |                                                  |       |     
|Diluted earnings per share                                      |  | $                                                | 0.30  |     
|                                                                |  |                                                  |       |     



See
accompanying notes to unaudited consolidated financial statements.



3



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COMMUNITY BANCORP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)



|                                                                                            |  | For the three months ended March 31, |        
|------------------------------------------------------------------------------------------- |  | ------------------------------------ | -------
|                                                                                            |  | 2003                                 |        
|Cash flows from operating activities:                                                       |  |                                      |        
|Net income                                                                                  |  | $                                    | 1,124  
|Adjustments to reconcile net income to net cash provided by (used in) operating
activities: |  |                                      |        
|Depreciation and amortization                                                               |  |                                      | 210    
|Provision for loan losses                                                                   |  |                                      | 381    
|Net accretion of discount on securities held to maturity                                    |  |                                      | (62    
|Net gain on sale of loans held for sale                                                     |  |                                      | (1,137 
|Deferred income taxes (benefit)                                                             |  |                                      | 3      
|Change in value of interest-only strips                                                     |  |                                      | (27    
|Capitalization of interest-only strips                                                      |  |                                      | (29    
|Capitalization of servicing asset                                                           |  |                                      | (214   
|Amortization of servicing asset                                                             |  |                                      | 84     
|Change in valuation allowance for servicing asset                                           |  |                                      | (4     
|Unrealized loss on trading securities                                                       |  |                                      | 16     
|Origination of loans held for sale                                                          |  |                                      | (14,772
|Proceeds from sale of loans held for sale                                                   |  |                                      | 23,520 
|Decrease in restricted cash                                                                 |  |                                      | 1,152  
|Decrease in income tax receivable                                                           |  |                                      | 309    
|Increase in taxes payable                                                                   |  |                                      | 479    
|Decrease (increase) in accrued interest and other assets                                    |  |                                      | (330   
|Decrease in accrued expenses and other liabilities                                          |  |                                      | (1,163 
|                                                                                            |  |                                      |        
|Net cash provided by (used in) operating activities                                         |  |                                      | 9,540  
|                                                                                            |  |                                      |        
|Cash flows from investing activities:                                                       |  |                                      |        
|Origination of loans held for investment                                                    |  |                                      | (60,215
|Proceeds from principal paid on loans held for investment                                   |  |                                      | 40,734 
|Net change in interest bearing deposits in financial institutions                           |  |                                      |       
|Purchase of trading securities                                                              |  |                                      | (23,059
|Sale of trading securities                                                                  |  |                                      | 26,000 
|Maturities of securities held-to-maturity                                                   |  |                                      | 3,481  
|Purchases of securities held-to-maturity                                                    |  |                                      | (1,260 
|Maturities of securities available-for-sale                                                 |  |                                      | 53     
|Purchase of securities available-for-sale                                                   |  |                                      | (4,078 
|Purchases of Federal Reserve & Federal Home Loan Bank stocks                                |  |                                      | (588   
|Additions to premises and equipment                                                         |  |                                      | (81    
|                                                                                            |  |                                      |        
|Net cash used in investing activities                                                       |  |                                      | (19,013
|                                                                                            |  |                                      |        

(continued)



See accompanying notes to unaudited consolidated financial statements.



4



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COMMUNITY BANCORP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

(continued)



|                                                                                                                                                   |  | For the threemonths ended March 31, |       
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------
|                                                                                                                                                   |  | 2002                                |       
|Cash flows from financing activities:                                                                                                              |  |                                     |       
|Net increase/(decrease) in deposits:                                                                                                               |  |                                     |       
|Interest bearing                                                                                                                                   |  | $                                   | (5,784
|Non-interest bearing                                                                                                                               |  |                                     | 5,315 
|Proceeds from exercise of stock options                                                                                                            |  |                                     | 82    
|Repayment of other borrowings                                                                                                                      |  |                                     | (84   
|Proceeds from other borrowings                                                                                                                     |  |                                     | 9,500 
|Proceeds from sale of unallocated ESOP shares                                                                                                      |  |                                     |      
|                                                                                                                                                   |  |                                     |       
|Net cash provided by financing activities                                                                                                          |  |                                     | 9,029 
|                                                                                                                                                   |  |                                     |       
|Net increase (decrease) in cash and cash equivalents                                                                                               |  |                                     | (444  
|Cash and cash equivalents at beginning of period                                                                                                   |  |                                     | 21,504
|                                                                                                                                                   |  |                                     |       
|Cash and cash equivalents at end of period                                                                                                         |  | $                                   | 21,060
|                                                                                                                                                   |  |                                     |       
|Supplemental disclosure of cash flow information:                                                                                                  |  |                                     |       
|Cash paid during the period for:                                                                                                                   |  |                                     |       
|Interest on deposits                                                                                                                               |  |                                     | 1,754 
|Interest on other borrowings                                                                                                                       |  |                                     | 559   
|                                                                                                                                                   |  |                                     |       
|Total interest paid                                                                                                                                |  | $                                   | 2,313 
|                                                                                                                                                   |  |                                     |       
|Income Taxes                                                                                                                                       |  | $                                   |      
|                                                                                                                                                   |  |                                     |       
|Supplemental disclosure of non-cash investing activities:                                                                                          |  |                                     |       
|Loans held for investment transferred to held for sale                                                                                             |  | $                                   | 912   
|                                                                                                                                                   |  |                                     |       
|Change in unrealized gains on available-for-sale securities net of income taxes of $2
and $0, respectively, recorded in Other Comprehensive Income |  | $                                   | 3     
|                                                                                                                                                   |  |                                     |       



See
accompanying notes to unaudited consolidated financial statements.



5



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COMMUNITY
BANCORP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003

(unaudited)



Note 1 Basis of Presentation:



The interim financial statements included herein have been
prepared by Community Bancorp Inc. without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The interim financial statements include the accounts of Community Bancorp Inc. and its wholly
owned subsidiaries Community National Bank (the Bank) and Community (CA) Capital Trust I (the Trust), (collectively, the Company) as consolidated with the elimination of all intercompany transactions. Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and
regulations. Nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Companys latest Annual Report as found on Form 10-K. In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly the financial position of the Company with respect to the
interim financial statements and the results of its operations for the interim period ended March 31, 2003, have been included. Certain reclassifications may have been made to prior year amounts to conform to the 2003 presentation. The results of
operations for interim periods are not necessarily indicative of results for the full year.



Note 2 Significant Accounting Policies



Stock Option Plans



At March 31, 2003, the Company had two stock option plans, which are described more fully in Note 13 in the Companys 2002 Annual Report on Form 10-K. The Company accounts for stock options using
the intrinsic value method under the provisions of Accounting Principles Board (APB) Opinion No. 25 and provides proforma net income and proforma earnings per share disclosures for employee stock option grants as if the fair-value-based
method, defined in Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, had been applied. Had the Company determined compensation cost based on the fair value at the grant date for
its stock options under SFAS No. 123, the Companys net income would have been reduced to the pro forma amounts indicated below for the three months ended March 31:



|                                                                                                                                                |  | 2003 |           |   | 2002 |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | -
|Net income, as reported                                                                                                                         |  | $    | 1,124,000 |   |      | $
|Deduct: Total stock-based employee compensation expense determined under the fair value
based method for all awards, net of related tax effects |  |      | (28,000   | ) |      |  
|                                                                                                                                                |  |      |           |   |      |  
|Proforma net income                                                                                                                             |  | $    | 1,096,000 |   |      | $
|                                                                                                                                                |  |      |           |   |      |  
|Basic income per share, as reported                                                                                                             |  | $    | 0.32      |   |      | $
|Proforma basic income per share                                                                                                                 |  | $    | 0.31      |   |      | $
|Diluted income per share, as reported                                                                                                           |  | $    | 0.30      |   |      | $
|Proforma diluted income per share                                                                                                               |  | $    | 0.30      |   |      | $



6



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Note 3 Loans and Related
Allowance for Loan Losses:



A summary of loans are as
follows:



|                                                       |  | March 31, 2003         |        |   | December 31, 2002         |  
|------------------------------------------------------ |  | ---------------------- | ------ | - | ------------------------- | -
|                                                       |  | Loans Held for Sale    |        |   | Loans Held for Investment |  
|                                                       |  | (dollars in thousands) |       
|Construction loans                                     |  | $                      |       |   |                           | $
|Real estate one to four-family                        |  |                        |       |   |                           |  
|Real estate commercial and multi-family                |  |                        | 44,365 |   |                           |  
|Consumer home equity lines of credit                   |  |                        |       |   |                           |  
|Other consumer                                         |  |                        |       |   |                           |  
|Commercial                                             |  |                        |       |   |                           |  
|Aircraft                                               |  |                        |       |   |                           |  
|                                                       |  |                        |        |   |                           |  
|Total gross loans                                      |  |                        | 44,365 |   |                           |  
|Deferred loan origination costs (fees)                 |  |                        | 113    |   |                           |  
|Discount on unguaranteed portion of SBA loans retained |  |                        | (90    | ) |                           |  
|Allowance for loan losses                              |  |                        |       |   |                           |  
|                                                       |  |                        |        |   |                           |  
|Net loans                                              |  | $                      | 44,388 |   |                           | $
|                                                       |  |                        |        |   |                           |  



The
Companys lending activities are concentrated primarily in Riverside and San Diego Counties of Southern California. Although the Company seeks to avoid undue concentrations of loans to a single industry based upon a single class of collateral,
real estate and real estate associated business areas are among the principal industries in the Companys market area. As a result, the Companys loan and collateral portfolios are, to a significant degree, concentrated in those
industries. The Company evaluates each credit on an individual basis and determines collateral requirements accordingly. When real estate is taken as collateral, advances are generally limited to a certain percentage of the appraised value of the
collateral at the time the loan is made, depending on the type of loan, the underlying property and other factors.



Note 4 Sales and Servicing of SBA Loans:



The Company originates loans to customers under a SBA program that generally provides for SBA guarantees of 70% to 90% of each loan. The
Company sells a portion of the SBA 7a loans originated. On loans sold, the Company allocates the carrying value of such loans between the portion sold and the portion retained, based upon estimates of their relative fair value at the time of sale.
The difference between the adjusted carrying value and the face amount of the portion retained is amortized to interest income over the life of the related loans using the interest method.



Servicing assets are recognized when loans are sold with servicing retained. Servicing assets are amortized
in proportion to and over the period of estimated future net servicing income. The fair value of servicing assets is estimated by discounting the future cash flows at estimated future market rates for the expected life of the loans. The Company uses
industry prepayment statistics in estimating the expected life of the loan.



If the fair value of the servicing assets is less than the amortized carrying value, the asset is considered impaired. A valuation allowance must be established for the impaired asset by a charge
against income for the difference between the amortized carrying value and the fair value. As of March 31, 2003 and December 31, 2002, the valuation allowance for the servicing assets was $45,000 and $50,000, respectively. In estimating fair values
at March 31, 2003, the Company utilized a weighted average prepayment assumption of approximately 7% and a discount rate of 10%. In estimating fair values at December 31, 2002, the Company utilized a weighted average prepayment assumption of
approximately 7% and a discount rate of 12%.



7



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Note 5 Commitments and Contingencies:



The Company is a party to financial instruments with off-balance sheet risk in the normal course of business.
These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the
balance sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company uses the same credit policies in making commitments and conditional
obligations.



Commitments to extend credit
amounting to $30,299,000 and $33,327,000 were outstanding at March 31, 2003 and December 31, 2002, respectively. 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.



Standby
letters of credit and financial guarantees amounting to $2,434,000 and $2,243,000 were outstanding at March 31, 2003 and December 31, 2002, respectively. Standby letters of credit and financial guarantees are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. Most guarantees carry a one year term or less.



Undisbursed construction loans and lines of credit amounting
to $89,307,000 and $84,786,000 were outstanding at March 31, 2003 and December 31, 2002, respectively. Undisbursed construction loans are commitments to make additional principal advances on construction loans subject to completion of phases of
construction verified by inspection. Undisbursed lines of credit are revolving lines of credit whereby customers can repay principal and advance principal during the term of the loan in their discretion.



The Company generally requires collateral or other security to
support financial instruments with credit risk. Management does not anticipate any material loss will result from the outstanding commitments to extend credit, standby letters of credit and financial guarantees.



As of March 31, 2003 and December 31, 2002, the Company had
non-mandatory commitments to sell loans of none and $4,787,000, respectively.



Because of the nature of its activities, the Company is from time to time subject to pending and threatened legal actions which arise out of the normal course of its business. In the opinion of
management, the ultimate disposition of these matters will not have a material adverse effect on the Companys financial position, results of operations or liquidity.



8



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Note 6 Earnings per share



The following tables are a reconciliation
of the numerators and denominators of the basic and diluted EPS computations for the net earnings for the Company (dollars in thousands, except share data):



|                                                                               |  | For the three months ended March 31,
|------------------------------------------------------------------------------ |  | ------------------------------------
|                                                                               |  | 2002                                
|                                                                               |  | Earnings (Numerator)                
|Net Earnings                                                                   |  | $                                   
|                                                                               |  |                                     
|Basis EPS Earnings available to common shareholders                            |  | $                                   
|Effect of Dilutive Securities                                                  |  |                                     
|Options                                                                        |  |                                     
|                                                                               |  |                                     
|Diluted EPS Earnings Available to common Shareholders plus assumed Conversions |  | $                                   
|                                                                               |  |                                     



Note 7 Segment
Information



The following disclosure about
segments of the Company is made in accordance with the requirements of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The Company segregates its operations into two primary segments: Banking Division and
Small Business Administration (SBA) Division. The Company determines operating results of each segment based on an internal management system that allocates certain expenses to each.



|                                     |  | For the three months ended March 31, |        
|------------------------------------ |  | ------------------------------------ | -------
|                                     |  | 2003                                 |        
|                                     |  | Banking Division                     |        
|                                     |  | (dollars in thousands)               |        
|Interest income                      |  | $                                    | 4,827  
|Interest expense                     |  |                                      | (1,037 
|                                     |  |                                      |        
|Net interest income before provision |  |                                      | 3,790  
|Provision for loan losses            |  |                                      | (303   
|Other income                         |  |                                      | 450    
|Other expenses                       |  |                                      | (3,061 
|                                     |  |                                      |        
|Income before income taxes           |  |                                      | 876    
|Income taxes                         |  |                                      | (357   
|                                     |  |                                      |        
|Net income                           |  | $                                    | 519    
|                                     |  |                                      |        
|Assets employed at quarter end       |  | $                                    | 331,062
|                                     |  |                                      |        



Note 8 Recent
Accounting Developments



In July 2002, the
Financial Accounting Standards Board (FASB) issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal
activities and supercedes Emerging Issues Task Force (EITF) 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No.
146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3,



9



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a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entitys
commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The adoption of SFAS No. 146 by the Company on January 1, 2003 did not have a material impact on the Companys
financial condition, results of operations or cash flows.



In December 2002, SFAS No. 148, Accounting for Stock-based CompensationTransition and Disclosure, an amendment of FASB Statement No. 123, was issued and amends SFAS No. 123 to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The 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 periods beginning after December 15, 2002. The Company has not adopted the fair value based method of accounting for stock-based employee compensation.



In November 2002, the FASB issued Interpretation
(FIN) No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others, an interpretation of SFAS Nos. 5, 57 and 107, and rescission of FIN No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others. FIN No. 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also
requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of the interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002, while the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN
No. 45 did not have a material impact on the Companys financial condition, results of operations or cash flows.



10



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ITEM 2: MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following is managements discussion and analysis of the major factors that influenced the financial performance of the Company for the three months ended March 31, 2003. This analysis should
be read in conjunction with the Companys 2002 Annual Report as filed on Form 10-K and with the unaudited financial statements and notes as set forth in this report.



Certain statements contained in this Report, including, without limitation, statements containing the words
believes, anticipates, intends, expects, and words of similar import, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions in those areas in which the Company operates,
demographic changes, competition, fluctuations in interest rates, changes in business strategy or development plans, changes in governmental regulation, credit quality, the availability of capital to fund the expansion of the Companys
business, economic, political and global changes arising from the terrorist attacks of September 11, 2001 and their aftermath, and other factors referenced in the 10-K report for December 31, 2002 on file with the SEC, including in Item 1.
BUSINESS  FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS. The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.



This discussion should be read in conjunction with the financial statements of the Company, including the notes thereto, appearing elsewhere in this report.



RESULTS OF OPERATIONS



Net Income



Net income increased to $1.1 million for the three months ended March 31, 2003 compared to $590,000 for the three months ended March 31,
2002. Basic earnings per share were $0.32 and $0.17 for the three months ended March 31, 2003 and 2002, respectively. Diluted earnings per share were $0.30 and $0.17 for the three months ended March 31, 2003 and 2002, respectively. Earnings per
share for the three months ended March 31, 2002 were adjusted for the effects of a 5% stock dividend paid in November 2002. The increase in net income was mainly due to the increases in net interest income and non-interest income, partially offset
by increases in provisions for loan losses and other operating expenses. Net interest income increased due to an increase in average interest earning assets and the net interest margin, non-interest income increased due to an increase in the amount
of loans sold and other operating expenses increased during the three months ended March 31, 2003 due to the expansion of the Companys franchise and increased loan production.



Return on average equity was 21.35% for the three months ended March 31, 2003 compared to 13.68% for the
three months ended March 31, 2002. The return on average assets for the three months ended March 31, 2003 was 1.09% compared to 0.64% for the three months ended March 31, 2002. The increase in the return on average equity and average assets from
2002 to 2003 was due to the increase in net income noted above, which is the result of the increase in the net interest margin combined with the 12.2% growth in average assets, in accordance with the Companys strategic plan.



Interest Income



Net interest income is the most significant component of the
Companys income from operations. Net interest income is the difference (the interest rate spread) between the gross interest and fees earned on the loan and investment portfolios and the interest paid on deposits and other
borrowings. Net interest income depends on the volume of and interest rate earned on interest earning assets and the volume of and interest rate paid on interest bearing liabilities.



11



---



The following
table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield and cost information for the periods presented. Average balances are derived from daily balances, and non-accrual loans
are included as interest earning assets for purposes of this table.



|                                              |  | For the three months ended March 31, |        
|--------------------------------------------- |  | ------------------------------------ | -------
|                                              |  | 2003                                 |        
|                                              |  | Average Balance                      |        
|                                              |  | (dollars in thousands)               |        
|Average assets:                               |  |                                      |        
|Securities and time at other banks            |  | $                                    | 35,004 
|Fed funds sold                                |  |                                      | 8,969  
|Loans:                                        |  |                                      |        
|Commercial                                    |  |                                      | 138,110
|Real Estate                                   |  |                                      | 204,499
|Consumer                                      |  |                                      | 6,730  
|                                              |  |                                      |        
|Total loans                                   |  |                                      | 349,339
|                                              |  |                                      |        
|Total earning assets                          |  |                                      | 393,312
|Non earning assets                            |  |                                      | 24,730 
|                                              |  |                                      |        
|Total average assets                          |  | $                                    | 418,042
|                                              |  |                                      |        
|Average liabilities and shareholders equity:  |  |                                      |        
|Interest bearing deposits:                    |  |                                      |        
|Savings and interest bearing accounts         |  | $                                    | 88,020 
|Time deposits                                 |  |                                      | 215,617
|                                              |  |                                      |        
|Total interest bearing deposits               |  |                                      | 303,637
|Demand deposits                               |  |                                      | 52,155 
|Trust preferred debt                          |  |                                      | 10,000 
|Other borrowings                              |  |                                      | 25,537 
|                                              |  |                                      |        
|Total interest bearing liabilities            |  |                                      | 391,329
|Accrued expenses and other liabilities        |  |                                      | 5,361  
|Net shareholders equity                       |  |                                      | 21,352 
|                                              |  |                                      |        
|Total average liabilities shareholders equity |  | $                                    | 418,042
|                                              |  |                                      |        
|Net interest spread                           |  |                                      |        
|                                              |  |                                      |        
|Net interest income                           |  |                                      |        
|                                              |  |                                      |        
|Net yeild on interest earnings assets         |  |                                      |        
|                                              |  |                                      |        

Interest income for the three months ended March 31, 2003 increased to $6.4 million,
compared to $5.8 million for the three months ended March 31, 2002. The increase was due to the 12.2% increase in the average balance of interest earning assets, and was partially offset by a decrease in the yield on those assets. Average interest
earning assets increased to $393.3 million for the three months ended March 31, 2003 compared to $350.6 million for the three months ended March 31, 2002. The yield on interest earning assets decreased to 6.61% for the three months ended March 31,
2003 compared to 6.77% for the three months ended March 31, 2002. The largest single component of interest earning assets was real estate loans receivable, which had an average balance of $204.5 million with a yield of 7.22% for the three months
ended March 31, 2003 compared to $172.0 million with a yield of 7.41% for the three months ended March 31, 2002. The increase in the average balance of real estate loans receivable was attributable to the expansion of the Company as part of the
Companys strategic plan.



Interest expense
for the three months ended March 31, 2003 decreased to $1.8 million compared to $2.3 million for the three months ended March 31, 2002. This decrease was due to the repricing of maturing certificates of deposit (CDs) following the 4.75%
decline in the prime rate in 2001, and was partially offset by an increase in average deposits and other borrowings. Average interest-bearing liabilities increased to $391.3 million for the three months ended March 31, 2003 compared to $353.1



12



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million for the three months ended March 31, 2002. The largest component of interest bearing liabilities
is time deposits. Average time deposits increased to $215.6 million with a cost of 2.46% for the three months ended March 31, 2003 compared to $203.9 million with a cost of 3.51% for the three months ended March 31, 2002. The increase in average
interest bearing liabilities is a result of the Companys expansion as part of its strategic plan, including the addition of two new retail banking offices in 2001.



Other average borrowings increased to $35.5 million with a cost of 3.26% for the three months ended March 31,
2003 compared to $19.0 million with a cost of 7.25% for the three months ended March 31, 2002. In March of 2001, the Company established a line of credit with the Federal Home Loan Bank (FHLB) collateralized by commercial loans. Funds from the
credit line were used to increase liquidity at the Company. In addition to FHLB advances, other lines of credit are utilized to increase capital at the Bank and, until February 14, 2002, to fund the Companys ESOP. The loan to the
Companys ESOP was paid in full on February 14, 2002. The Company issued $10.0 million in Trust Preferred Securities in 2000. In December 2002, the Company entered into an interest rate swap agreement with third party, which in effect changed
the interest rate from an 11.0% fixed rate to a six month adjustable rate tied to a margin over prime. As a result of the interest rate swap, the cost of the Trust Preferred Securities declined to 6.94% for the three months ended March 31, 2003
compared to 11.27% for the three months ended March 31, 2002.



Net interest income before provision for estimated loan losses



Net interest income before provision for estimated loan losses for the three months ended March 31, 2003 was $4.6 million compared to $3.5 million for the three months ended March 31, 2002. This
increase was primarily due to the increase in the net interest margin, combined with an increase in average interest earning assets. Average interest earning assets were $393.3 million for the three months ended March 31, 2003 with a net interest
margin of 4.79% compared to $350.6 million with a net interest margin of 4.05% for the three months ended March 31, 2002. The increase in the net interest margin was primarily due to the decline in cost of interest bearing liabilities. For a
discussion of the repricing of the Companys assets and liabilities, see ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.



Provision for Estimated Loan Losses



Due to the growth in loans the provision for estimated loan losses totaled $381,000 for the three months
ended March 31, 2003 compared to $246,000 for the three months ended March 31, 2002. For further information, please see the Loans discussion in the FINANCIAL CONDITION portion of this section.



Other Operating Income



Other operating income represents non-interest types of
revenue and is comprised of net gain on sale of loans, loan servicing fees, customer service charges and other fee income. Other operating income was $1.8 million for the three months ended March 31, 2003 compared to $1.3 for the three months ended
March 31, 2002. The increase was due to a substantial increase in net gain on sale of loans combined with increases in loan servicing fees, customer service charges and other fee income.



Net gain on sale of loans increased $250,000 from $887,000 for the quarter ended March 31, 2002 to $1.1
million for the quarter ended March 31, 2003. During the three months ended March 31, 2003 the Company originated $16.6 million in SBA loans compared to $19.1 million during the three months ended March 31, 2002. The decline in originations of SBA
loans in the first quarter of 2003 when compared with the same period in 2002 is due to temporary delays in closing loans which have been approved. Management expects the originations to resume to their prior levels beginning in the second quarter
of 2003. SBA regulatory lending limits were temporarily reduced during January and February of 2003, and have since been restored to their prior levels. The Company originated $2.4 million in mortgage loans during the three months ended March 31,
2003 compared to $16.9 million during the three months ended March 31, 2002. The decline in mortgage originations is due to the closure of the mortgage department effective January 31, 2003. The closure of the mortgage department is expected to have
minimal impact on the gains on sale of loans. The Company sold $15.8 million in SBA loans and $6.6 million in mortgage



13



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loans during the three months ended March 31, 2003 compared to $14.0 million in SBA loans and $14.2
million in mortgage loans during the three month period ended March 31, 2002.



Loan servicing income increased to $152,000 for the three months ended March 31, 2003 compared to $88,000 for the three months ended March 31, 2002. Loan servicing income is the result of the spread
between the interest rate paid by borrowers and the interest rate paid to third party investors, multiplied by the total volume of loans sold. The increase in loan servicing income is a result of the increase in loans serviced for others. As of
March 31, 2003, SBA loans serviced for others increased to $122.3 million compared to $79.4 million as of March 31, 2002. The increase in loans serviced for others is a result of the loans sold in 2002 and the first quarter of 2003, net of principal
repayments.



Customer service charges increased
to $187,000 for the three months ended March 31, 2003 compared to $140,000 for the three months ended March 31, 2002. The increase is the result of a 31% increase average demand deposit accounts to $52.2 million for the three months ended March 31,
2003 from $39.7 million for the three months ended March 31, 2002.



Other fee income increased to $306,000 for the three months ended March 31, 2003 compared to $215,000 for the three months ended March 31, 2002. The increase in other fee income for the three month period is a result of an
increase in fees from brokering of loans to other financial institutions which the Company does not directly fund.



Other Operating Expenses



Other operating expenses are non-interest types of expenses and are incurred by the Company in its normal course of business. Salaries and
employee benefits, occupancy, telephone, premises and equipment, data processing, depreciation, marketing and promotions, professional services, director/officer/employee expenses, office and other expenses are the major categories of other
operating expenses. Other operating expenses increased to $4.1 million for the three months ended March 31, 2003 compared to $3.6 million for the three months ended March 31, 2002.



The increase in other operating expenses is primarily due to the $209,000 increase in salaries and employee
benefits to $2.3 million for the three months ended March 31, 2003 compared to $2.1 million for the three months ended March 31, 2002. The increase in salaries and employee benefits is primarily due to a decrease in the number of loans generated,
which affects the loan cost recovery netted against salaries and employee benefits. Excluding this effect, salaries and employee benefits have increased 3% overall. In addition, employee insurance benefits rates increased by 11.7% from 2002 to 2003.
In addition to salaries and employee benefits, professional services, including Legal, Accounting and other consultants increased $136,000 to $317,000 for the three months ended March 31, 2003 compared to $181,000 for the three months ended March
31, 2002, due to several factors including the increased oversight as a result of the Sarbanes-Oxley Act of 2002.



The Companys efficiency ratio, which is the ratio of recurring operating expenses to net interest income before provision for loan
losses plus non-interest income, decreased (improved) to 64.31% for the three months ended March 31, 2003 compared to 74.02% for the three months ended March 31, 2002. The decrease in efficiency ratio was due to the increase in net interest and
other operating income, partially offset by the increase in operating expenses. The increase in operating expenses is due to the expansion of the Companys business.



14



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The following
table compares each of the components of other operating expenses for the three months ended March 31, 2003 and 2002, respectively:



|                                        |  | For the three months ended March 31, |      
|--------------------------------------- |  | ------------------------------------ | -----
|                                        |  | 2003                                 |      
|                                        |  | (dollars in thousands)               |      
|Other operating expenses:               |  |                                      |      
|Salaries and employee benefits          |  | $                                    | 2,338
|Occupancy                               |  |                                      | 317  
|Telephone                               |  |                                      | 60   
|Premises and equipment                  |  |                                      | 55   
|Data processing                         |  |                                      | 160  
|Depreciation expense                    |  |                                      | 210  
|Marketing and promotions                |  |                                      | 56   
|Professional services                   |  |                                      | 317  
|Director, officer and employee expenses |  |                                      | 138  
|Office expenses                         |  |                                      | 162  
|Other expenses                          |  |                                      | 319  
|                                        |  |                                      |      
|Total other operating expenses          |  | $                                    | 4,132
|                                        |  |                                      |      



Provision for Income
Taxes



The effective income tax rate was
41.2% for the three months ended March 31, 2003 compared to 41.5% for the three months ended March 31, 2002. Provisions for income taxes totaled $788,000 and $419,000 for the three months ended March 31, 2003 and 2002, respectively.



FINANCIAL CONDITION



Summary of Changes in Consolidated Balance Sheets

March 31, 2003 compared to December 31, 2002 and March 31, 2002



Total assets of the Company increased to $425.2 million as of March 31, 2003 compared to $415.7 million as of
December 31, 2002 and $410.2 million as of March 31, 2002. The increase in total assets was due to the growth in net loans to $351.1 million as of March 31, 2003, compared to $336.5 million as of December 31, 2002, and $326.8 million as of March 31,
2002. Please refer to the LOANS section of this discussion for further information.



Deposits decreased to $363.5 million as of March 31, 2003 due to a reduction in wholesale deposits compared to $364.0 million as of December 31, 2002 and $344.2 million as of March 31, 2002. Cash and
cash equivalents decreased slightly to $21.1 million as of March 31, 2003 compared to $21.5 million as of December 31, 2002 and $43.1 million as of March 31, 2002. Please refer to the DEPOSITS AND BORROWINGS section of this discussion
for further information.



Shareholders
equity was $21.8 million as of March 31, 2003 compared to $20.6 million as of December 31, 2002, and was $18.0 million as of March 31, 2002. Please refer to the CAPITAL section of this discussion for further information.



Investments



The Companys investment portfolio consists primarily of
U.S. Treasury and agency securities, mortgage backed securities, SBA securities, mutual funds backed by agency and treasury securities, overnight investments in the Federal Funds market and CDs with other financial institutions. As of March 31,
2003, December 31, and March 31, 2002, CDs with other financial institutions totaled $99,000. U.S Government and other securities totaled $3.5 million as of March 31, 2003 compared to $5.0 million as of December 31, 2002 and were $5.5 million as of
March 31, 2002. As of March 31, 2002 all of these securities were held as collateral for public funds and treasury, tax and loan deposits. As of March 31, 2003 the remainder of the held to maturity portfolio was held in mortgage backed securities
backed by agencies of the U.S. government. During the three months ended March 31, 2003, the Company invested $4.0 million in mortgage backed securities which are classified as held for sale. Of this total, $2.0 million were pledged as additional
security for the Companys interest rate swap as of March 31, 2003. The



15



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interest rate swap was established in December 2002, however there were no securities pledged as
collateral as of December 31, 2002 or March 31, 2002. Average Federal Funds sold for the three months ended March 31, 2003 was $9.0 million compared to $13.9 million for the three months ended March 31, 2002.



The Company held $569,000 in Federal Reserve Bank stock as of
March 31, 2003 and December 31, 2002 compared to $515,000 as of March 31, 2002. The Company held $1,566,000 in Federal Home Loan Bank stock as of March 31, 2003 compared to $979,000 as of December 31, 2002 and $1,623,000 as of March 31, 2002. During
2002 the Company invested $16.1 million in a mutual fund whose primary investment is in adjustable agency mortgage backed securities. This investment is being held as a trading security. As of March 31, 2003 the balance in this investment was $13.1
million compared to $16.1 million as of December 31, 2002 and none as of March 31, 2002.



Loans



Loan
balances, net of the allowance for loan losses, increased to $351.1 million as of March 31, 2003 compared to $339.5 million as of December 31, 2002 and $326.8 million as of March 31, 2002. Total gross loans increased 8.2% from March 31, 2002 to
March 31, 2003. The Company services SBA 7a loans sold to other investors. As of March 31, 2003, the Company serviced $122.3 million in SBA 7a loans for other investors compared to $117.2 million as of December 31, 2002 and $79.4 million as of March
31, 2002.



Loan Origination and Sale. The
following table sets forth the Companys loan originations by category and purchases, sales and principal repayments of loans for the periods indicated:



|                       |  | At or for the three months ended March 31, |        
|---------------------- |  | ------------------------------------------ | -------
|                       |  | 2003                                       |        
|                       |  | (dollars in thousands)                     |        
|Beginning balance      |  | $                                          | 339,471
|Loans originated: (1)  |  |                                            |        
|Commercial loans       |  |                                            | 7,935  
|Real estate:           |  |                                            |        
|Construction loans     |  |                                            | 29,059 
|One-to four-family     |  |                                            | 2,353  
|Commercial             |  |                                            | 34,968 
|Consumer               |  |                                            | 672    
|                       |  |                                            |        
|Total loans originated |  |                                            | 74,987 
|Loans sold             |  |                                            |        
|Real estate:           |  |                                            |        
|One-to four-family     |  |                                            | 6,645  
|Commercial             |  |                                            | 15,833 
|                       |  |                                            |        
|Total loans sold       |  |                                            | 22,478 
|Less:                  |  |                                            |        
|Principal repayments   |  |                                            | 41,321 
|Other net charges (2)  |  |                                            | (432   
|                       |  |                                            |        
|Total Loans            |  | $                                          | 351,091
|                       |  |                                            |        

---

|(1) |  | Included in total loans originated are $2.4 million and $14.7 million of mortgage loans and $12.4 and $17.3 million of SBA loans originated for sale for the three
months ended March 31, 2003 and March 31, 2002, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Other net changes include changes in allowance for loan losses, deferred loan fees, loans in process and unamortized premiums and discounts.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------



Non-performing assets.Non-performing assets consist of non-performing loans, Other Real Estate Owned (OREO) and other repossessed assets. Non-performing loans are those loans which have (i) been placed on non-accrual status, (ii) been subject to troubled
debt restructurings, (iii) been classified as



16



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doubtful under the Companys asset classification system, or (iv) become contractually past due 90
days or more with respect to principal or interest and have not been restructured or otherwise placed on non-accrual status.



Certain financial institutions have elected to use Special Purpose Vehicles (SPV) to dispose of problem assets. A SPV is
typically a subsidiary company with an asset and liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt. Under certain circumstances, these financial institutions may exclude the problem
assets from their reported impaired and non-performing assets. The Company does not use those vehicles, or any other accounting structures, to dispose of problem assets.



The following table sets forth the Companys non-performing assets at the dates indicated:



|                                                                                                                      |  | March 31, 2003         |        |   | December 31, 2002 |   |        | March 31, 2002 | 
|--------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ----------------- | - | ------ | -------------- | 
|                                                                                                                      |  |                       
|                                                                                                                      |  | (dollars in thousands) |       
|Non-accrual loans                                                                                                     |  | $                      | 3,012  |   |                   | $ | 2,254  |                | 
|Troubled debt restructurings                                                                                          |  |                        |       |   |                   |   |       |                | 
|Loans contractually past due 90 days or more with respect to either principal or
interest and still accruing interest |  |                        |       |   |                   |   |       |                | 
|                                                                                                                      |  |                        |        |   |                   |   |        |                | 
|Total non-performing loans                                                                                            |  |                        | 3,012  |   |                   |   | 2,254  |                | 
|Other repossessed assets                                                                                              |  |                        |       |   |                   |   |       |                | 
|                                                                                                                      |  |                        |        |   |                   |   |        |                | 
|Total non-performing assets                                                                                           |  | $                      | 3,012  |   |                   | $ | 2,254  |                | 
|                                                                                                                      |  |                        |        |   |                   |   |        |                | 
|SUPPLEMENTAL DATA                                                                                                     |  |                        |        |   |                   |   |        |                | 
|Undisbursed portion of construction and other loans                                                                   |  | $                      | 91,741 |   |                   | $ | 87,029 |                | 
|Government guaranteed portion of total loans                                                                          |  | $                      | 29,617 |   |                   | $ | 32,066 |                | 
|Non-performing loans, net of government guarantees                                                                    |  | $                      | 703    |   |                   | $ | 651    |                | 
|Allowance for loan losses                                                                                             |  | $                      | 4,266  |   |                   | $ | 3,945  |                | 
|Reserves for losses on commitments to extend credit                                                                   |  | $                      | 184    |   |                   | $ | 174    |                | 
|Loan loss allowance to loans, gross                                                                                   |  |                        | 1.19   | % |                   |   | 1.14   | %              | 
|Allowance for loan losses to non accrual loans                                                                        |  |                        | 141.63 | % |                   |   | 175.02 | %              | 
|Allowance for loan losses, including reserves for losses on commitments to extend
credit, to:                         |  |                        |        |   |                   |   |        |                | 
|Total loans                                                                                                           |  |                        | 1.25   | % |                   |   | 1.19   | %              | 
|Total loans held for investment, net of government guarantees                                                         |  |                        | 1.58   | % |                   |   | 1.59   | %              | 
|Non-performing loans                                                                                                  |  |                        | 148    | % |                   |   | 183    | %              | 
|Non-performing loans, net of government guarantees                                                                    |  |                        | 633    | % |                   |   | 633    | %              | 
|Non-performing assets                                                                                                 |  |                        | 148    | % |                   |   | 183    | %              | 
|Total non-performing assets to total assets                                                                           |  |                        | 0.71   | % |                   |   | 0.54   | %              | 
|Total non-performing loans, net of government guarantees to total assets                                              |  |                        | 0.17   | % |                   |   | 0.16   | %              | 
|Total non-performing loans to total loans                                                                             |  |                        | 0.84   | % |                   |   | 0.65   | %              | 
|Total non-performing loans, net of government guarantees, to total loans                                              |  |                        | 0.20   | % |                   |   | 0.19   | %              | 



Non-accrual Loans.Non-accrual loans are impaired loans where the original contractual amount may not be fully collectible. The Company measures its impaired loans by using the fair value of the collateral if the loan is
collateral-dependent and the present value of the expected future cash flows discounted at the loans effective interest rate if the loan is not collateral-dependent. As of March 31, 2003, December 31, 2002 and March 31, 2002 all impaired or
non-accrual loans were collateral-dependent. The Company places loans on non-accrual status that are delinquent 90 days or more or when a reasonable doubt exists as to the collectibility of interest and principal. As of March 31, 2003 the Company
had thirteen loans on non-accrual status totaling $3.0 million with $2.3 million, or 76%, guaranteed by the SBA. As of December 31, 2002, the Company had fourteen loans on non-accrual status totaling $2.3 million. Of this total, $1.6 million, or
71%, was guaranteed by the SBA. As of March 31, 2002, the Company had thirteen loans on non-accrual status totaling $3.6 million. Of this total $2.5 million, or 69%, was guaranteed by the SBA.



17



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Included in
non-accrual loans are loans less than 90 days delinquent. Loans 90 days or more delinquent totaled $2.7 million as of March 31, 2003, compared to $655,000 as of December 31, 2002 and $1.3 million as of March 31, 2002. Net of government guarantees,
loans 90 days or more delinquent as of March 31, 2003 were $402,000 compared to $107,000 as of December 31, 2002 and $237,000 as of March 31, 2002.



Classified Assets.From time to time, management has reason to believe that certain borrowers may not be able to repay their loans
within the parameters of the present repayment terms, even though, in some cases, the loans are current at the time. These loans are graded in the classified loan grades of substandard, doubtful, or loss and
include non-performing loans. Each classified loan is monitored monthly. Classified assets (consisting of non-accrual loans, loans graded as substandard or lower and other repossessed assets) at March 31, 2003 were $1.5 million compared to $1.4
million as of December 31, 2002 and $3.5 million as of March 31, 2002. For classification purposes, the total amount classified is net of the amount of government guarantees.



Allowance for Loan Losses. The Company has established a methodology for the determination of
provisions for loan losses. The methodology is set forth in a formal policy and takes into consideration the need for an overall allowance for loan losses as well as specific allowances that are tied to individual loans. The Companys
methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance and a specific allowance for identified problem loans.



In originating loans, the Company recognizes that losses will be experienced and that the risk of loss will
vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the collateral securing the loan. The
allowance is increased by provisions charged against earnings and reduced by net loan chargeoffs. Loans are charged off when they are deemed to be uncollectible, or partially charged off when portions of a loan are deemed to be uncollectible.
Recoveries are generally recorded only when cash payments are received.



The allowance for loan losses is maintained to cover losses inherent in the loan portfolio. The responsibility for the review of the Companys assets and the determination of the adequacy of the general valuation
allowance lies with the Directors Loan Committee. This committee assigns the loss reserve ratio for each type of asset and reviews the adequacy of the allowance at least quarterly based on an evaluation of the portfolio, past experience,
prevailing market conditions, amount of government guarantees, concentration in loan types and other relevant factors.



Specific valuation allowances are established to absorb losses on loans for which full collectibility may not be reasonably assured as
prescribed in SFAS No. 114 (as amended by SFAS No. 118). The amount of the specific allowance is based on the estimated value of the collateral securing the loans and other analyses pertinent to each situation. Loans are identified for specific
allowances from information provided by several sources, including asset classification, third party reviews, delinquency reports, periodic updates to financial statements, public records and industry reports. All loan types are subject to specific
allowances once identified as an impaired or non-performing loan. Loans not subject to specific allowances are placed into pools by one of the following collateral types: Commercial Real Estate, One- to Four-Family Real Estate, Aircraft, Consumer
Home Equity, Consumer Other, Construction and Other Commercial Loans. All non-specific reserves are allocated to one of these categories. Estimates of identifiable losses are reviewed continually and, generally, a provision for losses is charged
against operations on a monthly basis as necessary to maintain the allowance at an appropriate level. Management presents an analysis of the allowance for loan losses to the Companys Board of Directors on a quarterly basis.



The Directors Loan Committee meets quarterly to review
and monitor conditions in the portfolio and to determine the appropriate allowance for loan losses. To the extent that any of these conditions are evidenced by identifiable problem credit or portfolio segment as of the evaluation date, the
committees estimate of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. By assessing the probable estimated losses inherent in the loan portfolio on a quarterly basis, the



18



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Company is able to adjust specific and inherent loss estimates based upon the most recent information that
has become available.



The following table sets
forth information regarding the Companys allowance for loan losses at the dates and for the periods indicated:



|                                                   |  | At or for the three months ended March 31, |      
|-------------------------------------------------- |  | ------------------------------------------ | -----
|                                                   |  | 2003                                       |      
|                                                   |  | (dollars in thousands)                     |      
|Balance at beginning of period                     |  | $                                          | 3,945
|Chargeoffs:                                        |  |                                            |      
|Real estate loans:                                 |  |                                            |      
|One-to four-family                                 |  |                                            |     
|Commercial                                         |  |                                            | 65   
|Consumer                                           |  |                                            | 5    
|                                                   |  |                                            |      
|Total chargeoffs                                   |  |                                            | 70   
|Recoveries:                                        |  |                                            |      
|Real estate loans:                                 |  |                                            |      
|One - to four-family                               |  |                                            |     
|Commercial                                         |  |                                            | 20   
|Consumer                                           |  |                                            |     
|                                                   |  |                                            |      
|Total recoveries                                   |  |                                            | 20   
|                                                   |  |                                            |      
|Net chargeoffs                                     |  |                                            | 50   
|Reserve for losses on commitments to extend credit |  |                                            | (10  
|Provision for loan losses                          |  |                                            | 381  
|                                                   |  |                                            |      
|Balance at end of period                           |  | $                                          | 4,266
|                                                   |  |                                            |      
|Net charge offs to average loans                   |  |                                            | 0.06 
|Reserve for losses on commitments to extend credit |  | $                                          | 184  



As of
March 31, 2003 the balance in the allowance for loans losses was $4.3 million compared to $3.9 million as of December 31, 2002 and $3.0 million as of March 31, 2002. In addition, the reserve for losses on commitments to extend credit was $184,000 as
of March 31, 2003 compared to $174,000 as of December 31, 2002 and was $279,000 as of March 31, 2002. The balance of commitments to extend credit on undisbursed construction and other loans was $91.7 million as of March 31, 2003 compared to $87.0
million as of December 31, 2002 and was $61.9 million as of March 31, 2002. The reduction of the reserve for loan losses on commitments to extend credit was due to an internal evaluation of the credit risk of the underlying collateral, combined with
a review of the historical losses incurred on the underlying collateral. Risks and uncertainties exist in all lending transactions, and even though there have historically been no charge offs on construction and other loans that have not been fully
disbursed, the Directors Loan Committee has established reserve levels for each category based upon loan type as well as economic uncertainties and other risks that exist as of each reporting period. In general there are no reserves
established for the government guaranteed portion of commitments to extend credit.



As of March 31, 2003 the allowance was 1.19% of total gross loans compared to 1.14% as of December 31, 2002 and was 0.92% as of March 31, 2002. Including the reserve for losses on commitments to extend
credit, the allowance as a percentage of total gross loans was 1.25% as of March 31, 2003 compared to 1.19% as of December 31, 2002 and was 1.00% as of March 31, 2002. The allowance for loan losses as a percentage of non-accrual loans was 141.63% as
of March 31, 2003 compared to 175.02% as of December 31, 2002 and was 84.98% as of March 31, 2002. The allowance for loan losses, including reserves for losses on commitments to extend credit, to non-performing loans, net of government guarantees
was 633% as of March 31, 2003 and December 31, 2002 compared to 303% as of



19



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March 31, 2002. Management believes the allowance at March 31, 2002 is adequate based upon its ongoing
analysis of the loan portfolio, historical loss trends and other factors.



The Company performs a migration analysis on a quarterly basis using an eight quarter history of charge offs to average loans by collateral type. Net charge offs for the quarter ended March 31, 2003 totaled $50,000, or 0.06%
(annualized) of average loans outstanding, compared to $1,000, or 0.00% annualized, for the quarter ended March 31, 2002. The Directors Loan Committee has also established reserve levels for each category based upon loan type, as certain loan
types may not have incurred losses or have had minimal losses in the eight quarter migration analysis. The Directors Loan Committee will consider trends in delinquencies and potential charge offs by loan type, market for the underlying real
estate or other collateral, trends in industry types, economic changes and other risks. In general, there are no reserves established for the government guaranteed portion of loans outstanding.



Other Repossessed assets.There were no other
repossessed assets as of March 31, 2003 or December 31, 2002. The repossessed asset totaling $1.9 million as of March 31, 2002 was an aircraft.



Deposits and Borrowings



Total deposits decreased to $363.5 million as of March 31, 2003 compared to $364.0 million as of December 31, 2002 and $344.2 million as
of March 31, 2002. Interest bearing deposits decreased to $306.7 million as of March 31, 2003 compared to $312.5 million as of December 31, 2002 and were $303.1 million as of March 31, 2002. Non-interest bearing deposits increased to $56.8 million
as of March 31, 2003 compared to $51.4 million as of December 31, 2002 and were $41.1 million as of March 31, 2002. Retail banking deposits increased to fund SBA loan retention and loans held for sale, and reduce wholesale deposits. Total wholesale
deposits were $54.0 million as of March 31, 2003 compared to $63.7 million as of December 31, 2002 and $76.5 million as of March 31, 2002. Total retail banking deposits increased to $309.5 million as of March 31, 2003 compared to $300.3 million as
of December 31, 2002 and were $267.8 million as of March 31, 2002. Retail deposits increased as part of the Companys overall expansion, including the addition of two retail banking offices in 2001.



During the first quarter of 2000, the Company issued $10
million in Trust Preferred Securities, which are debt instruments that act as additional capital for regulatory purposes. The average balance outstanding was $10 million for the three months ended March 31, 2003 and 2002, respectively. Proceeds from
the issuance of Trust Preferred Securities were used to pay off debt and provide additional capital to the Bank subsidiary.



Other borrowings totaled $24.9 million as of March 31, 2003 compared to $15.5 million as of December 31, 2002 and were $33.5 million as of
March 31, 2002. The Company established a line of credit with the FHLB collateralized by commercial loans and government securities. Funds from the credit line were used to purchase government securities and increase liquidity at the Company. In
addition to the FHLB advances, other lines of credit are utilized to increase capital at the Bank. In June 2001, the Company borrowed $1.0 million from an unaffiliated lender to contribute to the equity capital of the Bank. The outstanding principal
balance of this line as of March 31, 2003 was $1.9 million compared to $2.0 million as of December 31, 2002 and $1.0 million as of March 31, 2002. See the Capital discussion for further details on this loan.



Capital



The Companys capital increased to $21.8 million as of March 31, 2003 compared to $20.6 million as of
December 31, 2002 and was $18.0 million as of March 31, 2002. The $1.2 million increase in capital from December 31, 2002 to March 31, 2003 is a result of net income of $1.1 million for the quarter ended March 31, 2003 plus proceeds from the
exercise of stock options.



As part of the
Companys strategic plan, during the third quarter of 1998 the Board elected to eliminate cash dividends in favor of retaining earnings to support future growth. The Company declared a 5% stock dividend to shareholders of record as of November
15, 2002 which was paid on November 29, 2002. Whether or not stock dividends or any cash dividends will be paid in the future will be determined by the Board of Directors after consideration of various factors. The Companys and the Banks



20



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profitability and regulatory capital ratios in addition to other financial conditions will be key factors
considered by the Board of Directors in making such determinations regarding the payment of dividends.



Management considers capital requirements as part of its strategic planning process. The strategic plan calls for continuing increases in
assets and liabilities, and the capital required may therefore be in excess of retained earnings. The ability to obtain capital is dependent upon the capital markets as well as performance of the Company. Management regularly evaluates sources of
capital and the timing required to meet its strategic objectives.



On June 28, 2001, the Company entered into a loan agreement with Pacific Coast Bankers Bank pursuant to which the Company can borrow up to $2.0 million on a revolving line of credit. At March 31, 2003 and December 31,
2002, the outstanding balance on this line of credit was $2.0 million, compared to $1.0 million as of March 31, 2002. The proceeds of such loan were invested by the Company in the Bank in the form of equity capital. The loan provides for interest
only payments until December 28, 2002, after which time the outstanding balance of the loan will begin amortizing over a 5 year period. The loan documents require the Company to obtain the prior consent of the lender before paying any cash dividend
and before incurring additional indebtedness in excess of an additional $2.0 million outside the normal course of business.



At March 31, 2003 and December 31, 2002, all capital ratios were above all current Federal capital guidelines for a well
capitalized bank. As of March 31, 2003, the Banks regulatory Total Capital to risk-weighted assets ratio was 10.32% compared to 10.40% as of December 31, 2002. The Banks regulatory Tier 1 Capital to risk-weighted assets ratio was
9.10% as of March 31, 2003 compared to 9.20% as of December 31, 2002. The Banks regulatory Tier 1 Capital to average assets ratio was 7.93% as of March 31, 2003 compared to 7.95% as of December 31, 2002.



As of March 31, 2003, the Companys regulatory Total
capital to risk-weighted assets ratio was 9.88% compared to 9.99% as of December 31, 2002. The Companys regulatory Tier 1 Capital to risk-weighted assets ratio was 7.88% as of March 31, 2003 and December 31, 2002. The Companys regulatory
Tier 1 Capital to average assets ratio was 6.87% as of March 31, 2003 compared to 6.80% as of December 31, 2002.



Financial Borrowings and Commitments



As of March 31, 2003 the financial borrowings and commitments having an initial or remaining term of more than one year are as follows:



|           |  | Gross Rental Commitments |        | Trust Preferred Securities |   | Other Borrowings |  | Total Commitments
|---------- |  | ------------------------ | ------ | -------------------------- | - | ---------------- |  | -----------------
|           |  | (dollars in thousands)  
|2003       |  | $                        | 713    |                            | $ |                 |  | $                
|2004       |  |                          | 1,147  |                            |   |                 |  |                  
|2005       |  |                          | 1,182  |                            |   |                 |  |                  
|2006       |  |                          | 1,215  |                            |   |                 |  |                  
|2007       |  |                          | 1,068  |                            |   |                 |  |                  
|Thereafter |  |                          | 10,970 |                            |   | 10,000           |  |                  
|           |  |                          |        |                            |   |                  |  |                  
|Total      |  | $                        | 16,295 |                            | $ | 10,000           |  | $                
|           |  |                          |        |                            |   |                  |  |                  



Liquidity



Liquidity management involves the
Companys ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include funding of securities purchases, providing for customers credit needs and ongoing repayment of
borrowings. The Companys liquidity is actively managed on a daily basis and reviewed periodically by the Asset/Liability Committee



21



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and the Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet
the needs of the Company, including adequate cash flow for off-balance sheet instruments.



The Companys primary sources of liquidity are derived from financing activities which include the acceptance of customer and broker deposits, federal funds facilities and advances from the
Federal Home Loan Bank of San Francisco. These funding sources are augmented by payments of principal and interest on loans, the routine liquidation of securities from the trading securities portfolio and sales and participation of eligible loans.
Primary uses of funds include withdrawal of and interest payments on deposits, originations and purchases of loans, purchases of investment securities, and payment of operating expenses.



The Company experienced net cash inflows of $9.5 million during the three months ended March 31, 2003
compared to a net cash outflows of $2.3 million during the three months ended March 31, 2002 from operating activities. Net cash inflows from operating activities during the first quarter of 2003 were primarily from the proceeds from the sale of
loans held for sale in excess of the origination of loans held for sale, combined with the net income of the Company. During the three months ended March 31, 2002 the net cash outflows from operating activities were the result of the net proceeds
from the origination of loans held for sale, which were greater than the proceeds from the sale of loans held for sale and partially offset by the net income for the quarter. Net cash outflows from investing activities totaled $19.0 million and
$32.9 million during the quarters ended March 31, 2003 and 2002, respectively. Net cash outflows from investing activities for both periods can be attributed primarily to the growth in the Banks loan portfolio in excess of proceeds from
principal repayments on loans held for investment and purchases of trading and held-to-maturity investment securities. These activities were partially offset by net proceeds from the maturities of investment securities held-to-maturity and sale of
trading securities. The Company experienced net cash inflows from financing activities of $9.0 million and $39.4 million during the three months ended March 31, 2003 and 2002, respectively. During the first quarters of 2003 and 2002 net cash inflows
were primarily from advances from the Federal Home Loan Bank. In addition, during the first quarter of 2002 the Company had approximately $10.9 million in net cash inflows from the increase in interest bearing and non-interest bearing deposits.



As a means of augmenting its liquidity, the
Company has established federal funds lines with a correspondent bank. At March 31, 2003 the Companys available borrowing capacity includes approximately $5.0 million in federal funds line facilities and $19.2 million in unused FHLB advances.
Management believes its liquidity sources to be stable and adequate. At March 31, 2003, management was not aware of any information that was reasonably likely to have a material effect on the Companys liquidity position.



The liquidity of the parent company, Community Bancorp Inc. is
primarily dependent on the payment of cash dividends by its subsidiary, Community National Bank, subject to limitations imposed by the National Bank Act. During the quarters ended March 31, 2003 and 2002, there were no dividends paid by the Bank to
Community Bancorp Inc. As of March 31, 2003, approximately $6.4 million of undivided profits of the Bank were available for dividends to the Company.



Critical Accounting Policies and Estimates



The Managements Discussion and Analysis of Financial Condition and Results of Operations, as well as disclosures found
elsewhere in this Form 10-Q, are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of
the allowance for loan losses, the valuation of the servicing assets and interest-only strips and the valuation of other repossessed assets. Actual results could differ from those estimates.



| |  |  | Allowance for loan losses. An allowance for loan losses is maintained at a level deemed appropriate by management to adequately provide for known and inherent
risks in the loan portfolio and other extensions of credit, including off-balance sheet credit extensions. The
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22



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allowance is based upon a continuing review of the portfolio, past loan loss experience
and current economic conditions, which may affect the borrowers ability to pay, guarantees by government agencies and the underlying collateral value of the loans. Loans which are deemed to be uncollectible are charged off and deducted from
the allowance. Changes in these factors and conditions may cause managements estimate of the allowance to increase or decrease and result in adjustments to the Companys provision for loan losses.



In determining the appropriate level of the allowance for
loan losses, the Directors Loan Committee initially identifies all classified, restructured or non-performing loans and assesses each loan for impairment, as well as any government guarantees on these loans, which in general do not require an
allowance for loan loss. Loans are considered impaired when it is probable that a creditor will be unable to collect all amounts due according to the original contractual terms of the loan agreement. If the measure of the impaired loan is less than
the recorded investment in the loan, a valuation allowance is established with a corresponding charge to the provision for loan losses. The Company measures an impaired loan by using the fair value of the collateral if the loan is
collateral-dependent and the present value of the expected future cash flows discounted at the loans effective interest rate if the loan is not collateral-dependent.



After the specific allowances for loans are allocated, the remaining loans are pooled based on collateral
type. A range of potential losses is determined using an eight quarter historical analysis by pool based on the relative carrying value at the time of charge off. In addition, the Directors Loan Committee establishes reserve levels for each
pool based upon loan type as well as market condition for the underlying collateral, considering such factors as trends in the real estate market, economic uncertainties and other risks that exist as of each reporting period. In general there are no
reserves established for the government guaranteed portion of loans outstanding. All non-specific reserves are allocated to each of these pools.



The reserve for losses on commitments to extend credit are determined based on the historical losses on the underlying collateral of the
commitment. The majority of these commitments are on construction loans. The Directors Loan Committee also establishes a reserve for each pool based upon loan type as well as market conditions for the underlying real estate or other
collateral, considering such factors as trends in the real estate market, economic uncertainties and other risks that exist as of each reporting period. In general there are no reserves established for the government guaranteed portion of
commitments to extend credit.



Changes in the
financial condition of individual borrowers, in economic conditions, in historical loss experience and in the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for loan losses and the
associated provision for loan losses.



| |  |  | Servicing assets and interest-only strips. Servicing assets are recognized when loans are sold with servicing retained. Servicing assets are amortized in
proportion to and over the period of estimated future net servicing income. The fair value of servicing assets is estimated by discounting the future cash flows at estimated future market rates for the expected life of the loans. The Company uses
industry prepayment statistics in estimating the expected life of the loan. Management periodically evaluates servicing assets for impairment. For purposes of measuring impairment, the rights are stratified based on original term to maturity. The
amount of impairment recognized is the amount by which the servicing asset for a stratum exceeds its fair value. In estimating fair values at March 31, 2003, the Company utilized a weighted average prepayment assumption of approximately 7% and a
discount rate of 10%. In estimating fair values at December 31, 2002, the Company utilized a weighted average prepayment assumption of approximately 7% and a discount rate of 12%.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Rights to future interest income from serviced loans that
exceeds contractually specified servicing fees are classified as interest-only strips. The interest-only strips are accounted for as trading securities and recorded at fair value with any unrealized gains or losses recorded in earnings in the period
of change of fair value. Unrealized gains or losses on interest-only strips were not material



23



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during the three months ended March 31, 2003 and 2002. At March 31, 2003, the fair value
of interest-only strips was estimated using a weighted average prepayment assumption of approximately 7% and a discount rate of 10%. At December 31, 2002, the fair value of interest-only strips was estimated using a weighted average prepayment
assumption of approximately 7% and a discount rate of 12%.



Changes in these assumptions and economic factors may result in increases or decreases in the valuation of our servicing assets and interest-only strips.



| |  |  | Real Estate Owned and Other Repossessed Assets. Real estate or other assets acquired through foreclosure or deed-in-lieu of foreclosure are initially recorded
at the lower of cost or fair value less estimated costs to sell through a charge to the allowance for estimated loan losses. Subsequent declines in value are charged to operations. At March 31, 2002, the repossessed asset is an aircraft. Valuation
of the aircraft was done using the collateral method based on a recent appraisal of the underlying collateral. There were no real estate or other assets acquired through foreclosure or deed-in-lieu of foreclosure or other repossessed assets as of
March 31, 2003 or December 31, 2002.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



New
Accounting Standards. Refer to Note 2 in the Companys 2002 Annual Report on Form 10-K.



Regulatory Environment. Refer to SUPERVISION AND REGULATION in the Companys 2002 Annual Report on Form 10-K.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Interest rate risk (IRR) and credit risk
constitute the two greatest sources of financial exposure for insured financial institutions. Please refer to ITEM 2MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSFINANCIAL
CONDITIONLOANS, for a thorough discussion of the Companys lending activities. IRR represents the impact that changes in absolute and relative levels of market interest rates may have upon the Companys net interest income
(NII). Changes in the NII are the result of changes in the net interest spread between interest-earning assets and interest-bearing liabilities (timing risk), the relationship between various rates (basis risk), and changes in the shape
of the yield curve.



The Company realizes income
principally from the differential or spread between the interest earned on loans, investments, other interest-earning assets and the interest incurred on deposits. The volumes and yields on loans, deposits and borrowings are affected by market
interest rates. As of March 31, 2003, 87.68% of the Companys loan portfolio was tied to adjustable rate indices. The majority of the loans are tied to prime and reprice immediately. The exception is SBA 7a loans, which reprice on the first day
of the subsequent quarter after a change in prime. As of March 31, 2003, 58.65% of the Companys deposits were time deposits with a stated maturity (generally one year or less) and a fixed rate of interest. As of March 31, 2003, 28.64% of the
Companys borrowings were fixed rate with a remaining term of 26 years. The Company entered into an interest rate swap in December 2002 which effectively changes this fixed rate liability to a variable rate liability with a six months
adjustment period. The Gap table on page 26 reflects the affects of this interest rate swap.



Changes in the market level of interest rates directly and immediately affect the Companys interest spread, and therefore profitability. Sharp and significant changes to market rates can cause
the interest spread to shrink or expand significantly in the near term, principally because of the timing differences between the adjustable rate loans and the maturities (and therefore repricing) of the deposits and borrowings.



The Companys Asset/Liability Committee
(ALCO) is responsible for managing the Companys assets and liabilities in a manner that balances profitability, IRR and various other risks including liquidity. ALCO operates under policies and within risk limits prescribed by,
reviewed and approved by the Board of Directors.



24



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ALCO seeks to
stabilize the Companys NII by matching rate-sensitive assets and liabilities through maintaining the maturity and repricing of these assets and liabilities at appropriate levels given the interest rate environment. When the amount of
rate-sensitive liabilities exceeds rate-sensitive assets within specified time periods, NII generally will be negatively impacted by increasing rates and positively impacted by decreasing rates. Conversely, when the amount of rate-sensitive assets
exceeds the amount of rate-sensitive liabilities within specified time periods, net interest income will generally be positively impacted by increasing rates and negatively impacted by decreasing rates. The speed and velocity of the repricing assets
and liabilities will also contribute to the effects on the Companys NII, as will the presence or absence of periodic and lifetime interest rate caps and floors.



The Company utilizes two methods for measuring interest rate risk, gap analysis and interest income
simulations. Gap analysis focuses on measuring absolute dollar amounts subject to repricing within certain periods of time, particularly the one year maturity horizon. Interest income simulations are produced using a software model that is based on
actual cash flows and repricing characteristics for all of the Companys financial instruments and incorporates market-based assumptions regarding the impact of changing interest rates on current volumes of applicable financial instruments.



Interest rate simulations provide the Company
with an estimate of both the dollar amount and percentage change in NII under various rate scenarios. All assets and liabilities are normally subjected to up to 300 basis points in increases and decreases in interest rates in 100 basis point
increments. However, under the current interest rate environment, decreases in interest rates have been simulated at 25, 50 and 100 basis points. Under each interest rate scenario, the Company projects its net interest income. From these results,
the Company can then develop alternatives in dealing with the tolerance thresholds.



A traditional, although analytically limited measure, of a financial institutions IRR is the static gap. Static gap is the difference between the amount of assets and liabilities (adjusted
for any off-balance sheet positions) which are expected to mature or reprice within a specific period. Generally, a positive gap benefits an institution during periods of rising interest rates, and a negative gap benefits an institution during
periods of declining interest rates.



At March
31, 2003, 69.50% of the Companys interest-bearing deposits were comprised of certificate accounts, the majority of which have original terms averaging eleven months. The remaining, weighted average term to maturity for the Companys
certificate accounts approximated five months at March 31, 2003. Generally, the Companys offering rates for certificate accounts move directionally with the general level of short term interest rates, though the margin may vary due to
competitive pressures. While the maturities of interest bearing deposits in the following gap table imply that declines in interest rates will result in further declines in interest rates paid on deposits, interest rates cannot drop below 0%, and
there is a behavioral limit somewhere above 0% as to how low the rates can be reduced before the Companys customers no longer will maintain the deposit with the Company.



In addition to the Certificates of Deposits, the Company has $93.6 million in interest bearing transaction
accounts (savings, money markets and interest bearing checking) as of March 31, 2003, with rates being paid between 0.35% and 2.00%. Although the following table would indicate that declines in interest rates would result in a corresponding decline
in the cost of deposits, interest rates cannot drop below 0%, and there is a behavioral limit somewhere above 0% as to how low the rates can be reduced before the Companys customers no longer will maintain the deposit with the Company.



25



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The following
table sets forth information concerning repricing opportunities for the Companys interest-earning assets and interest bearing liabilities as of March 31, 2003. The amount of assets and liabilities shown within a particular period were
determined in accordance with their contractual maturities, except that adjustable rate products are included in the period in which they are first scheduled to adjust and not in the period in which they mature. Such assets and liabilities are
classified by the earlier of their maturity or repricing date.



Contractual Static GAP Position as of March 31, 2003



|                                                       |  | 0 -3 months            |         |   | Greater than 3 months to 6 months |   |         | Greater than 6 months to 12 months |  |   | Greater than 12 months to 5 years |   |  | Thereafter |        |   | Total balance |  
|------------------------------------------------------ |  | ---------------------- | ------- | - | --------------------------------- | - | ------- | ---------------------------------- |  | - | --------------------------------- | - |  | ---------- | ------ | - | ------------- | -
|                                                       |  | (dollars in thousands) |        
|Interest sensitive assets:                             |  |                        |         |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|Loans receivable:                                      |  |                        |         |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|Adjustable rate loans, gross                           |  | $                      | 186,136 |   |                                   | $ | 14,130  |                                    |  | $ | 40,410                            |   |  | $          | 70,171 |   |               | $
|Fixed rate loans, gross (1)(2)                         |  |                        | 1,455   |   |                                   |   | 5,912   |                                    |  |   | 3,122                             |   |  |            | 11,218 |   |               |  
|Investments:                                           |  |                        |         |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|Investment securities held-to-maturity                 |  |                        |        |   |                                   |   | 499     |                                    |  |   | 995                               |   |  |            | 2,006  |   |               |  
|Investment securities available-for-sale               |  |                        |        |   |                                   |   |        |                                    |  |   |                                  |   |  |            |       |   |               |  
|Federal funds sold                                     |  |                        | 5,830   |   |                                   |   |        |                                    |  |   |                                  |   |  |            |       |   |               |  
|Trading securities                                     |  |                        | 13,119  |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|Other investments                                      |  |                        | 2,102   |   |                                   |   |        |                                    |  |   | 99                                |   |  |            |       |   |               |  
|                                                       |  |                        |         |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|Total interest sensitive assets                        |  |                        | 208,642 |   |                                   |   | 20,541  |                                    |  |   | 44,626                            |   |  |            | 83,395 |   |               |  
|                                                       |  |                        |         |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|Interest sensitive liabilities:                        |  |                        |         |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|Deposits:                                              |  |                        |         |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|Non-interest bearing                                   |  |                        |        |   |                                   |   |        |                                    |  |   |                                  |   |  |            |       |   |               |  
|Interest bearing (1)                                   |  |                        | 189,262 |   |                                   |   | 60,556  |                                    |  |   | 54,479                            |   |  |            | 1,070  |   |               |  
|Other Borrowings (3)                                   |  |                        | 34,916  |   |                                   |   |        |                                    |  |   |                                  |   |  |            |       |   |               |  
|                                                       |  |                        |         |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|Total interest sensitive liabilities                   |  | $                      | 224,178 |   |                                   | $ | 60,556  |                                    |  | $ | 54,479                            |   |  | $          | 1,070  |   |               | $
|                                                       |  |                        |         |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|GAP Analysis                                           |  |                        |         |   |                                   |   |         |                                    |  |   |                                   |   |  |            |        |   |               |  
|Interest rate sensitivity gap                          |  | $                      | (15,536 | ) |                                   | $ | (40,015 | )                                  |  | $ | (9,853                            | ) |  | $          | 82,325 |   |               | $
|GAP as % of total interest sensitive assets            |  |                        | -3.87   | % |                                   |   | -9.96   | %                                  |  |   | -2.45                             | % |  |            | 20.50  | % |               |  
|Cumulative interest rate sensitivity gap               |  | $                      | (15,536 | ) |                                   | $ | (55,551 | )                                  |  | $ | (65,404                           | ) |  | $          | 16,921 |   |               | $
|Cumulative gap as % of total interest sensitive assets |  |                        | -3.87   | % |                                   |   | -13.83  | %                                  |  |   | -16.29                            | % |  |            | 4.21   | % |               |  

---

|(1) |  | Fixed rate loans and time deposits are assumed to mature on their contractual maturity date, and no assumptions have been assumed for historical prepayment
experience. The actual maturities of these instruments could vary substantially if future prepayments differ from the Companys assumptions
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Non-accrual loans are included as fixed rate loans with a maturity of one year or less for purposes of this table.
|--- |  | ------------------------------------------------------------------------------------------------------------------

|(3) |  | Other borrowings reflect the effects of the interest rate swap.
|--- |  | ---------------------------------------------------------------



During the quarter ended March 31, 2003, the fixed rate loans with a maturity of one year or less paid off or
were sold. During the same period, the Company increased its use of short term borrowings and the amount of short term interest bearing deposits. The effect of the funding of longer term loans with shorter term liabilities was to increase the one
year static maturity gap from 10.51% as of December 31, 2002 to 16.29% as of March 31, 2003. There are no current plans to decrease the negative one year static maturity gap through additional investments in short term assets at this
time.



Static Gap analysis has certain
limitations. Measuring the volume of repricing or maturing assets and liabilities does not always measure the full impact on net interest income. Static Gap analysis does not account for rate caps on products; dynamic changes such as increasing
prepay speeds as interest rates decrease, basis risk, or the benefit of non-rate funding sources. The relationship between product rate repricing and market rate changes (basis risk) is not the same for all products. The majority of the
Companys loan portfolio reprices quickly and completely following changes in market rates, while non-term deposit rates in general move more slowly and usually incorporate only a fraction of the change in rates. Products categorized as
non-rate sensitive, such as non-interest-bearing demand deposits, in the static Gap analysis behave like long term fixed rate funding sources. Both of these factors tend to make the Companys behavior more asset sensitive than is indicated in
the static Gap analysis. Management expects to experience higher net interest income when rates rise, the opposite of what is indicated by the static Gap analysis.



26



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The following
table shows the effects of changes in projected net interest income for the twelve months ending March 31, 2004 under the interest rate shock scenarios stated. The table was prepared as of March 31, 2003, at which time prime was 4.25%.



|Changes in Rates |  | Projected Net interest Income |        | Change from Base Case |   |       | % Change from Base Case | 
|---------------- |  | ----------------------------- | ------ | --------------------- | - | ----- | ----------------------- | 
|                 |  | (dollars in thousands)        |       
|+ 300 bp         |  | $                             | 25,036 |                       | $ | 3,962 |                         | 
|+ 200 bp         |  | $                             | 23,318 |                       | $ | 2,244 |                         | 
|+ 100 bp         |  | $                             | 21,836 |                       | $ | 762   |                         | 
|0 bp             |  | $                             | 21,074 |                       |   |       |                         | 
|- 25 bp          |  | $                             | 20,889 |                       | $ | (185  | )                       | 
|- 50 bp          |  | $                             | 20,678 |                       | $ | (396  | )                       | 
|- 100 bp         |  | $                             | 20,249 |                       | $ | (825  | )                       | 



Assumptions are inherently uncertain, and, consequently, the model cannot precisely measure net interest income or precisely predict the impact of changes in interest rates on net interest income. Actual results will differ from
simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and management strategy.



ITEM 4. CONTROLS AND PROCEDURES



| | (a) |  | Evaluation of disclosure 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 and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. Based
upon that evaluation, the Chief Executive Officer 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.



| | (b) |  | Changes in internal controls
| | --- |  | ----------------------------



There were no significant changes in the Companys internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation



| | (c) |  | Asset-Backed issuers
| | --- |  | --------------------



The Company is not an Asset-Backed issuer.



27



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Part II OTHER INFORMATION



Item 1 Legal Proceedings



None to report.



Item 2 Changes in Securities



None to report.



Item 3 Defaults upon senior securities



None to report.



Item 4 Submission of matters to security holders



None to report.



Item 5 Other information



None to report.



Item 6 Exhibits and Reports from 8-K



(a) Exhibits



| | 99.1 |  | Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | -----------------------------------------------------------------------



(b) Reports on Form 8-K



The Company filed an 8-K report on February 5, 2003 which contained the text of the 2002 year and fourth
quarter earnings press release.



28



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(SIGNATURES)



Pursuant to the requirements of the Exchange
Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



COMMUNITY BANCORP
INC.(Registrant)/s/    THOMAS E. SWANSONThomas E. Swanson President and Chief Executive Officer




Date May 5, 2003



/s/    L. BRUCE MILLS,
JR.L. Bruce Mills, Jr. Sr. Vice President, Chief Financial Officer




Date May 5, 2003



29



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CERTIFICATION



I, Thomas E. Swanson,
President and Chief Executive Officer of Community Bancorp Inc., certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Community Bancorp Inc;
| | -- |  | ----------------------------------------------------------------------------



| | 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 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; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | 6. |  | The registrants 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.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



/s/    THOMAS E. SWANSONThomas E. Swanson President and Chief Executive Officer




Date May 5, 2003



30



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I, L. Bruce Mills, Jr., Senior Vice President and Chief Financial Officer of Community Bancorp Inc.,
certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Community Bancorp Inc;
| | -- |  | ----------------------------------------------------------------------------



| | 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 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; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | 6. |  | The registrants 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.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



/s/    L. BRUCE MILLS,
JR.L. Bruce
Mills, Jr. Sr. Vice President, Chief Financial Officer




Date May 5, 2003





31



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EXHIBIT INDEX



|Exhibit No. |  | Description                                                            
|----------- |  | -----------------------------------------------------------------------
|99.1        |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



32