---

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

Form 10-Q

|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------
|  |                                                                                        
|  | For the quarterly period ended September 30, 2002                                      
|  |                                                                                        
|o | 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

|COMMUNITY BANCORP INC.                                                            
|----------------------------------------------------------------------------------
|                                                                                  
|(Exact name of registrant as specified in its charter)                            
|                                                                                  
|Delaware                                                                          
|                                                                                  
|(State or other jurisdiction of incorporation or organization)                    
|                                                                                  
|900 Canterbury Place, Suite 300, Escondido, CA                                    
|                                                                                  
|(Address of principal executive offices)                                          
|                                                                                  
|Issuers telephone number:     (760) 432-1100                                     
|                                                                                  
|None                                                                              
|(Former name, former address and former fiscal year, if changed since last report)
|                                                                                  

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 | o
|--- | - | -- | -

Number of shares of common stock outstanding as of
September 30, 2002: 3,342,145

---



---

PART 1: FINANCIAL INFORMATIONITEM 1: FINANCIAL STATEMENTS

COMMUNITY BANCORP INC. CONSOLIDATED
BALANCE SHEETS

|(dollars in thousands, except per share amounts) (unaudited)                                                                                             |                                            | September 30, 2002 |         | December 31, 2001 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------ | ------- | ----------------- | -
|                                                                                                                                                        
|                                                                                                                                                         |                                            |                    |         |                   |  
|ASSETS                                                                                                                                                   |                                            |                    |         |                   |  
|Cash and cash equivalents                                                                                                                                |                                            | $                  | 28,386  |                   | $
|Interest bearing deposits in financial institutions                                                                                                      |                                            |                    | 99      |                   |  
|Federal Reserve Bank & Federal Home Loan Bank stock, at cost                                                                                             |                                            |                    | 2,284   |                   |  
|Investment securities held-to-maturity, at amortized cost                                                                                                |                                            |                    | 24,676  |                   |  
|Interest-only strip, at fair value                                                                                                                       |                                            |                    | 432     |                   |  
|Loans held for investment                                                                                                                                |                                            |                    | 271,256 |                   |  
|                                                                                                                                                         | Less allowance for loan losses             |                    |         | (3,607            | )
|                                                                                                                                                         |                                            |                    |         |                   |  
|                                                                                                                                                         | Net loans held for investment              |                    |         | 267,649           |  
|Loans held for sale                                                                                                                                      |                                            |                    | 51,063  |                   |  
|Premises and equipment, net                                                                                                                              |                                            |                    | 4,354   |                   |  
|Other repossessed assets                                                                                                                                 |                                            |                    |        |                   |  
|Other real estate owned                                                                                                                                  |                                            |                    | 197     |                   |  
|Accrued interest and other assets                                                                                                                        |                                            |                    | 5,121   |                   |  
|Deferred tax asset                                                                                                                                       |                                            |                    | 1,240   |                   |  
|Servicing asset, net                                                                                                                                     |                                            |                    | 2,343   |                   |  
|                                                                                                                                                         |                                            |                    |         |                   |  
|                                                                                                                                                         | Total Assets                               |                    | $       | 387,844           |  
|                                                                                                                                                         |                                            |                    |         |                   |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                     |                                            |                    |         |                   |  
|Deposits:                                                                                                                                                |                                            |                    |         |                   |  
|                                                                                                                                                         | Interest bearing                           |                    | $       | 286,450           |  
|                                                                                                                                                         | Non-interest bearing                       |                    |         | 49,692            |  
|                                                                                                                                                         |                                            |                    |         |                   |  
|                                                                                                                                                         | Total deposits                             |                    |         | 336,142           |  
|Trust Preferred Securities                                                                                                                               |                                            |                    | 10,000  |                   |  
|Other borrowings                                                                                                                                         |                                            |                    | 18,088  |                   |  
|Reserve for losses on commitments to extend credit                                                                                                       |                                            |                    | 145     |                   |  
|Accrued expenses and other liabilities                                                                                                                   |                                            |                    | 3,959   |                   |  
|                                                                                                                                                         |                                            |                    |         |                   |  
|                                                                                                                                                         | Total liabilities                          |                    |         | 368,334           |  
|Commitments and contingencies (Note 4)                                                                                                                   |                                            |                    |         |                   |  
|Shareholders equity                                                                                                                                     |                                            |                    |         |                   |  
|Common stock, $0.625 par value; authorized 10,000,000 shares, issued and outstanding, 3,342,000 at September 30, 2002 and 3,311,000 at December 31, 2001 |                                            |                    | 2,089   |                   |  
|Additional paid-in capital                                                                                                                               |                                            |                    | 9,405   |                   |  
|Unearned ESOP contribution                                                                                                                               |                                            |                    |        |                   |  
|Retained earnings                                                                                                                                        |                                            |                    | 8,016   |                   |  
|                                                                                                                                                         |                                            |                    |         |                   |  
|                                                                                                                                                         | Total shareholders equity                 |                    |         | 19,510            |  
|                                                                                                                                                         |                                            |                    |         |                   |  
|                                                                                                                                                         | Total Liabilities and Shareholders Equity |                    | $       | 387,844           |  
|                                                                                                                                                         |                                            |                    |         |                   |  
|                                                                                                                                                         |                                            |                    |         |                   |  

See accompanying notes to unaudited consolidated financial statements.

2



---

COMMUNITY BANCORP INC. CONSOLIDATED STATEMENTS OF INCOME

|                                                                 |                                                                 | For the nine months ended September 30, |        | For the three months ended September 30, |  
|---------------------------------------------------------------- | --------------------------------------------------------------- | --------------------------------------- | ------ | ---------------------------------------- | -
|                                                                 |                                                                 |                                         |        |                                          |  
|(dollars in thousands, except for per share amounts) (unaudited) |                                                                 | 2002                                    |        | 2001                                     |  
|                                                                 |                                                                 |                                         |        |                                          |  
|Interest income:                                                 |                                                                 |                                         |        |                                          |  
|                                                                 | Interest and fees on loans                                      |                                         | $      | 17,256                                   |  
|                                                                 | Interest on cash equivalents                                    |                                         |        | 226                                      |  
|                                                                 | Interest on interest bearing deposits in financial institutions |                                         |        | 5                                        |  
|                                                                 | Interest on investment securities                               |                                         |        | 874                                      |  
|                                                                 |                                                                 |                                         |        |                                          |  
|                                                                 | Total interest income                                           |                                         |        | 18,361                                   |  
|                                                                 |                                                                 |                                         |        |                                          |  
|Interest expense on deposits                                     |                                                                 |                                         | 5,590  |                                          |  
|Interest expense on other borrowed money                         |                                                                 |                                         | 1,140  |                                          |  
|                                                                 |                                                                 |                                         |        |                                          |  
|                                                                 | Total interest expense                                          |                                         |        | 6,730                                    |  
|                                                                 |                                                                 |                                         |        |                                          |  
|Net interest income before provision for loan losses             |                                                                 |                                         | 11,631 |                                          |  
|Provision for loan losses                                        |                                                                 |                                         | 785    |                                          |  
|                                                                 |                                                                 |                                         |        |                                          |  
|Net interest income after provision for loan losses              |                                                                 |                                         | 10,846 |                                          |  
|Other operating income:                                          |                                                                 |                                         |        |                                          |  
|                                                                 | Net gain on sale of loans                                       |                                         |        | 3,362                                    |  
|                                                                 | Loan servicing fees, net                                        |                                         |        | 333                                      |  
|                                                                 | Customer service charges                                        |                                         |        | 435                                      |  
|                                                                 | Loss on other repossessed assets                                |                                         |        | (49                                      | )
|                                                                 | Other fee income                                                |                                         |        | 649                                      |  
|                                                                 |                                                                 |                                         |        |                                          |  
|                                                                 | Total other operating income                                    |                                         |        | 4,730                                    |  
|                                                                 |                                                                 |                                         |        |                                          |  
|Other operating expenses:                                        |                                                                 |                                         |        |                                          |  
|                                                                 | Salaries and employee benefits                                  |                                         |        | 6,618                                    |  
|                                                                 | Occupancy                                                       |                                         |        | 1,076                                    |  
|                                                                 | Telephone                                                       |                                         |        | 230                                      |  
|                                                                 | Premises and equipment                                          |                                         |        | 770                                      |  
|                                                                 | Marketing and promotions                                        |                                         |        | 207                                      |  
|                                                                 | Data processing                                                 |                                         |        | 545                                      |  
|                                                                 | Professional services                                           |                                         |        | 721                                      |  
|                                                                 | Director, officer and employee expenses                         |                                         |        | 334                                      |  
|                                                                 | Office expenses                                                 |                                         |        | 398                                      |  
|                                                                 | ESOP loan expense                                               |                                         |        |                                         |  
|                                                                 | Other expenses                                                  |                                         |        | 1,119                                    |  
|                                                                 |                                                                 |                                         |        |                                          |  
|                                                                 | Total other operating expenses                                  |                                         |        | 12,018                                   |  
|                                                                 |                                                                 |                                         |        |                                          |  
|Income before income taxes                                       |                                                                 |                                         | 3,558  |                                          |  
|Income taxes                                                     |                                                                 |                                         | 1,480  |                                          |  
|                                                                 |                                                                 |                                         |        |                                          |  
|Net Income                                                       |                                                                 | $                                       | 2,078  |                                          | $
|                                                                 |                                                                 |                                         |        |                                          |  
|Comprehensive Income                                             |                                                                 | $                                       | 2,078  |                                          | $
|                                                                 |                                                                 |                                         |        |                                          |  
|Basic earnings per share                                         |                                                                 | $                                       | 0.63   |                                          | $
|Diluted earnings per share                                       |                                                                 | $                                       | 0.61   |                                          | $
|                                                                 |                                                                 |                                         |        |                                          |  

See accompanying notes to unaudited consolidated financial statements.

3



---

COMMUNITY BANCORP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                              |                                                                           | For the nine months ended September 30, |      
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------- | --------------------------------------- | -----
|                                                                              |                                                                           |                                         |      
|(dollars in thousands) (unaudited)                                            |                                                                           | 2002                                    |      
|                                                                              |                                                                           |                                         |      
|Cash flows from operating activities:                                         |                                                                           |                                         |      
|Net income                                                                    |                                                                           | $                                       | 2,078
|Adjustments to reconcile net income to net cash used in operating activities: |                                                                           |                                         |      
|                                                                              | Depreciation and amortization                                             |                                         |      
|                                                                              | ESOP Compensation                                                         |                                         |      
|                                                                              | Provision for loan losses                                                 |                                         |      
|                                                                              | Net accretion of discount on investment securities                        |                                         |      
|                                                                              | Net gain on sale of loans                                                 |                                         |      
|                                                                              | Loss on sale of other repossessed asset                                   |                                         |      
|                                                                              | Loans originated for sale                                                 |                                         |      
|                                                                              | Unrealized (gain) loss on interest-only strips                            |                                         |      
|                                                                              | Capitalization of interest-only strips                                    |                                         |      
|                                                                              | Amortization of interest-only strips                                      |                                         |      
|                                                                              | Capitalization of servicing asset                                         |                                         |      
|                                                                              | Amortization of servicing asset                                           |                                         |      
|                                                                              | Change in valuation allowance for servicing asset                         |                                         |      
|                                                                              | Proceeds from sale of loans held for sale                                 |                                         |      
|                                                                              | Increase (decrease) in reserve for losses on commitments to extend credit |                                         |      
|                                                                              | Decrease in accrued interest and other assets                             |                                         |      
|                                                                              | Decrease in accrued expenses and other liabilities                        |                                         |      
|                                                                              |                                                                           |                                         |      
|                                                                              | Net cash provided by operating activities                                 |                                         |      
|Cash flows from investing activities:                                         |                                                                           |                                         |      
|                                                                              | Net increase in loans held for investment                                 |                                         |      
|                                                                              | Decrease in other repossessed assets                                      |                                         |      
|                                                                              | Net maturities of interest bearing time deposits                          |                                         |      
|                                                                              | Maturities of securities held-to-maturity                                 |                                         |      
|                                                                              | Purchase of securities held-to-maturity                                   |                                         |      
|                                                                              | Sale of Federal Home Loan Bank Stock                                      |                                         |      
|                                                                              | Purchase of Federal Reserve & Federal Home Loan Bank stock                |                                         |      
|                                                                              | Net additions to premises and equipment                                   |                                         |      
|                                                                              |                                                                           |                                         |      
|                                                                              | Net cash used in investing activities                                     |                                         |      
|                                                                              |                                                                           |                                         |      

See accompanying notes to unaudited consolidated financial statements.

4



---

COMMUNITY BANCORP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

|                                                          |                                                        | For the nine months ended September 30, |       
|--------------------------------------------------------- | ------------------------------------------------------ | --------------------------------------- | ------
|                                                          |                                                        |                                         |       
|(dollars in thousands) (unaudited)                        |                                                        | 2002                                    |       
|                                                          |                                                        |                                         |       
|Cash flows from financing activities:                     |                                                        |                                         |       
|                                                          | Net increase(decrease) in deposits:                    |                                         |       
|                                                          | Interest bearing                                       |                                         |       
|                                                          | Non-interest bearing                                   |                                         |       
|                                                          | Stock offering (net of expenses)                       |                                         |       
|                                                          | Exercise of stock options                              |                                         |       
|                                                          | Repayment of line of credit                            |                                         |       
|                                                          | Proceeds from sale of unallocated ESOP shares          |                                         |       
|                                                          | Proceeds from other borrowings                         |                                         |       
|                                                          |                                                        |                                         |       
|                                                          | Net cash provided by financing activities              |                                         |       
|                                                          |                                                        |                                         |       
|                                                          | Net increase in cash and cash equivalents              |                                         |       
|Cash and cash equivalents at beginning of period          |                                                        |                                         | 38,946
|                                                          |                                                        |                                         |       
|Cash and cash equivalents at end of period                |                                                        | $                                       | 28,386
|                                                          |                                                        |                                         |       
|Supplemental disclosure of cash flow information:         |                                                        |                                         |       
|                                                          | Cash paid during the period for:                       |                                         |       
|                                                          | Interest                                               |                                         | $     
|                                                          |                                                        |                                         |       
|                                                          | Income Taxes                                           |                                         | $     
|                                                          |                                                        |                                         |       
|Supplemental disclosure of non-cash investing activities: |                                                        |                                         |       
|                                                          | Loans held for investment transferred to held for sale |                                         | $     
|                                                          |                                                        |                                         |       
|                                                          | Loans to facilitate the sale of repossessed assets     |                                         | $     
|                                                          |                                                        |                                         |       
|                                                          | Loans transferred to other real estate owned           |                                         | $     
|                                                          |                                                        |                                         |       
|                                                          |                                                        |                                         |       

See accompanying notes to unaudited consolidated financial statements.

5



---

COMMUNITY BANCORP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2002
(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 Community Bancorp Inc. and its wholly owned subsidiaries Community National Bank
(formerly Fallbrook 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 10K.  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 September 30, 2002, have been included.  Certain reclassifications may have been made to prior year amounts to conform to the 2002
presentation.  The results of operations for interim periods are not necessarily indicative of results for the full year.

On October 10, 2000, Fallbrook National Bank, subsidiary of Community
Bancorp Inc., officially changed its name to Community National Bank.

Note 2 Loans and Related Allowance for Loan Losses:

A summary of loans
as of  September 30, 2002 and December 31, 2001 is as follows:

|                                                    |  | September 30, 2002     |         | December 31, 2001 |  
|--------------------------------------------------- |  | ---------------------- | ------- | ----------------- | -
|                                                    |  |                        |         |                   |  
|                                                    |  | (dollars in thousands) |        
|Construction loans                                  |  | $                      | 65,515  |                   | $
|Real estate one- to four-family                     |  |                        | 15,182  |                   |  
|Real estate commercial and multi-family             |  |                        | 191,618 |                   |  
|Consumer home equity lines of credit                |  |                        | 3,155   |                   |  
|Consumer other                                      |  |                        | 3,797   |                   |  
|Aircraft                                            |  |                        | 28,434  |                   |  
|Commercial                                          |  |                        | 16,194  |                   |  
|                                                    |  |                        |         |                   |  
|Total gross loans                                   |  |                        | 323,895 |                   |  
|Deferred loan (fees) costs                          |  |                        | (122    | )                 |  
|Discounts on unguaranteed portion of loans retained |  |                        | (1,454  | )                 |  
|Allowance for loan losses                           |  |                        | (3,607  | )                 |  
|                                                    |  |                        |         |                   |  
|Net loans                                           |  | $                      | 318,712 |                   | $
|                                                    |  |                        |         |                   |  

Included in net loans are $3.7 million and $3.0 million of mortgage loans, and $47.4 million and
$35.3 million of SBA loans held for sale at September 30, 2002 and December 31, 2001, respectively.

The Companys lending activities are concentrated primarily in 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

6



---

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 3 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.  Beginning in 2000, the Company retained both the guaranteed and unguaranteed portions of SBA 7a loans originated.  Prior to 2000, the Company routinely sold the
guaranteed portion of these loans to third parties and retained the unguaranteed portion of the loans sold.  During the latter half of 2001, the Company reached certain targets with regards to concentrations in SBA loans in the portfolio, and
again began selling a portion of the SBA 7a loans originated.  The Company allocates the carrying value of loans sold 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 September 30, 2002 and December 31, 2001, the valuation allowance for the servicing assets was $141,000 and $249,000, respectively.

Note 4 Commitments and Contingencies:

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.

During the nine months ended September 30, 2002, the Company increased its advances from the FHLB in the amount of $12.0 million, all of which mature in six months or less.

7



---

Note 5 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 nine months ended September 30,  |      
|------------------------------------------------------------------------------ |  | ---------------------------------------- | -----
|                                                                               |  |                                          |      
|                                                                               |  | 2002                                     |      
|                                                                               |  |                                          |      
|                                                                               |  | Earnings (Numerator)                     |      
|                                                                               |  |                                          |      
|Net Earnings                                                                   |  | $                                        | 2,078
|                                                                               |  |                                          |      
|Basis EPS Earnings available to common shareholders                            |  | $                                        | 2,078
|Effect of Dilutive Securities Options                                          |  | $                                        |     
|                                                                               |  |                                          |      
|Diluted EPS Earnings Available to common Shareholders plus assumed Conversions |  | $                                        | 2,078
|                                                                               |  |                                          |      
|                                                                               | 
|                                                                               |  | For the three months ended September 30, |      
|                                                                               |  |                                          |      
|                                                                               |  | 2002                                     |      
|                                                                               |  |                                          |      
|                                                                               |  | Earnings (Numerator)                     |      
|                                                                               |  |                                          |      
|Net Earnings                                                                   |  | $                                        | 775  
|                                                                               |  |                                          |      
|Basis EPS Earnings available to common shareholders                            |  | $                                        | 775  
|Effect of Dilutive Securities Options                                          |  |                                          |     
|                                                                               |  |                                          |      
|Diluted EPS Earnings Available to common Shareholders plus assumed Conversions |  | $                                        | 775  
|                                                                               |  |                                          |      
|                                                                               |  |                                          |      

8



---

Note 6 Segment Information

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

|                                     |  | For the nine months ended September 30, |        
|------------------------------------ |  | --------------------------------------- | -------
|                                     |  |                                         |        
|                                     |  | 2002                                    |        
|                                     |  |                                         |        
|                                     |  | Banking Division                        |        
|                                     |  |                                         |        
|                                     |  | (dollars in thousands)                  |        
|Interest income                      |  | $                                       | 13,429 
|Interest expense                     |  |                                         | 4,285  
|                                     |  |                                         |        
|Net interest income before provision |  |                                         | 9,144  
|Provision for loan losses            |  |                                         | 684    
|Other income                         |  |                                         | 1,077  
|Other expenses                       |  |                                         | 8,917  
|                                     |  |                                         |        
|Income before income taxes           |  |                                         | 620    
|Income taxes                         |  |                                         | 258    
|                                     |  |                                         |        
|Net income                           |  | $                                       | 362    
|                                     |  |                                         |        
|Assets employed at quarter end       |  | $                                       | 299,190
|                                     |  |                                         |        

|                                     |  | For the three months ended September 30, |        
|------------------------------------ |  | ---------------------------------------- | -------
|                                     |  |                                          |        
|                                     |  | 2002                                     |        
|                                     |  |                                          |        
|                                     |  | Banking Division                         |        
|                                     |  |                                          |        
|                                     |  | (dollars in thousands)                   |        
|Interest income                      |  | $                                        | 4,737  
|Interest expense                     |  |                                          | 1,272  
|                                     |  |                                          |        
|Net interest income before provision |  |                                          | 3,465  
|Provision for loan losses            |  |                                          | 280    
|Other income                         |  |                                          | 388    
|Other expenses                       |  |                                          | 3,069  
|                                     |  |                                          |        
|Income before income taxes           |  |                                          | 504    
|Income taxes                         |  |                                          | 210    
|                                     |  |                                          |        
|Net income                           |  | $                                        | 294    
|                                     |  |                                          |        
|Assets employed at quarter end       |  | $                                        | 299,190
|                                     |  |                                          |        
|                                     |  |                                          |        

Note 7 Recent Accounting Developments

SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, is effective for all fiscal years beginning after June 15, 2000.  SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments
embedded in

9



---

other contracts and for hedging activities.  Under SFAS No. 133, certain contracts that were not formerly considered
derivatives may now meet the definition of a derivative.  The Company adopted SFAS No. 133 effective January 1, 2001.  The adoption of SFAS No. 133 did not have a significant impact on the financial position, results of operations, or cash
flows of the Company.

SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,  revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of the provisions of SFAS No. 125 without reconsideration.  SFAS No. 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31, 2001.  The Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000.  The adoption of SFAS No. 140 did not have a material effect on the Companys financial position, results of operations or cash flows.

SFAS No.
141, Business Combinations, requires that all business combinations be accounted for by a single method  the purchase method.  The provisions of this SFAS No. 141 apply to all business combinations initiated after June 30,
2001.  SFAS No. 141 also applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later.  The adoption of the provisions of SFAS No. 141 did not have a material
impact on the Companys financial condition, results of operations or cash flows.

SFAS No. 142, Goodwill and Other Intangible Assets, requires that, upon its adoption, amortization
of goodwill will cease and instead, the carrying value of goodwill will be evaluated for impairment on an annual basis.  Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of .  SFAS No. 142 is effective for fiscal years beginning after December 15, 2001.  The adoption of SFAS
No. 142 did not have a material impact on the Companys financial condition, results of operations or cash flows.

SFAS No. 143, Accounting for Asset Retirement Obligations, requires
that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made.  The associated asset retirement cost would be capitalized as part of
the carrying amount of the long-lived asset.  SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002.  The Company has determined that this statement will not have a material impact on the Companys financial
condition, results of operations or cash flows.

SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, replaces SFAS No. 121.  SFAS No. 144 requires that
long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations.  SFAS No. 144 also broadens the reporting of discontinued operations to
include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction.  The provisions of SFAS No. 144 are
effective for financial statements issued for fiscal years beginning after December 15, 2001.  The adoption of SFAS No. 144 did not have a material impact on the Companys financial condition, results of operations or cash
flows.

Note 8 Termination of Employee Stock Ownership Plan

In 1997 the Company implemented an Employee Stock Ownership Plan (ESOP)
funded with borrowings of $1,000,000 that year.  In 2000, the loan was refinanced, with an additional $325,000 being advanced on the line during 2000 and another $50,000 in 2001.  As of December 31, 2001 and September 30, 2001 the
indebtedness of the ESOP was $813,000.  As of September 30, 2001, the Board of Directors elected to terminate the ESOP.   In February of 2002, the Company sold the remaining unallocated shares at a price of $6.50 per share, with total
proceeds of $822,000, and repaid principal totaling $813,000, resulting in the elimination of the unearned ESOP contribution.  The $9,000 excess of proceeds over loan balance is to be allocated to the beneficiaries of the ESOP.

10



---

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 and the nine months ended September 30, 2002. 
This analysis should be read in conjunction with the Companys 2001 Annual Report as filed on form 10K 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 10K report for December 31, 2001 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 $775,000 for the three months ended September 30, 2002 compared to $233,000 for the three months ended September 30, 2001.  Basic
earnings per share were $0.23 and $0.08 for the three months ended September 30, 2002 and 2001, respectively.  Diluted earnings per share were $0.22 and $0.08 for the three months ended September 30, 2002 and 2001, respectively.  Earnings
per share for the three months ended September 30, 2001 were adjusted for the effects of a stock dividend paid in November 2001.  The increase in net income was mainly due to the increases in net interest income, non-interest income and a
decrease in the provision for loan losses, partially offset by increases in other operating expenses.  Net interest income increased due to an increase in average interest earning assets, non-interest income increased due to an increase in the
amount of loans sold and other operating expenses increased during the three months ended September 30, 2002 due to the expansion of the Companys franchise and increased loan production.

The
return on average equity was 15.97% for the three months ended September 30, 2002 compared to 5.88% for the three months ended September 30, 2001.  Return on average assets for the three months ended September 30, 2002 was 0.78% compared to
0.28% for the three months ended September 30, 2001.  The increase in the return on average assets from 2001 to 2002 was due to the increase in net income noted above, which is the result of the 17.8% growth in average interest earning assets
and an increase of 67 basis points in net interest margin, combined with the 122.8% increase in non-interest income, and partially offset by the 52.6% increase in non-interest expense.

Net
income increased to $2.1 million for the nine months ended September 30, 2002 compared to $774,000 for the nine months ended September 30, 2001.  Basic earnings per share were $0.63 and $0.28 for the nine months ended September 30, 2002 and
2001, respectively.  Diluted earnings per share were $0.61 and $0.27 for the nine months ended September 30, 2002 and 2001, respectively.  Earnings per share for the nine months ended September 30, 2001 were adjusted for the effects of a
stock dividend paid in November 2001.  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, non-interest income

11



---

increased due to an increase in the net gain on sale of loans and other operating expenses increased during the nine months ended
September 30, 2002 due to the expansion of the Companys franchise and increased loan production.

The return on average equity was 15.16% for the nine months ended September 30, 2002 compared to
7.72% for the nine months ended September 30, 2001.  Return on average assets for the nine months ended September 30, 2002 was 0.71% compared to 0.33% for the nine months ended September 30, 2001.  The increase in the return on average
assets from 2001 to 2002 was due to the increase in net income noted above, which is the result of the 24.7% growth in average interest earning assets, combined with the 143.1% increase in non-interest income, and partially offset by the 30.1%
increase in non-interest expense.  The net interest margin was approximately the same for the nine months ended September 30, 2002 and 2001.

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.

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 nonaccrual loans are included as interest earning assets for purposes of this table.

|                                             |                                                    | For the three months ended September 30, |  
|-------------------------------------------- | -------------------------------------------------- | ---------------------------------------- | -
|                                             |                                                    |                                          |  
|                                             |                                                    | 2002                                     |  
|                                             |                                                    |                                          |  
|                                             |                                                    | Average Balance                          |  
|                                             |                                                    |                                          |  
|Average assets                               |                                                    |                                          |  
|                                             | Securities and time deposits at other banks        |                                          | $
|                                             | Fed funds sold                                     |                                          |  
|                                             | Loans                                              |                                          |  
|                                             | Commercial                                         |                                          |  
|                                             | Real Estate                                        |                                          |  
|                                             | Consumer                                           |                                          |  
|                                             |                                                    |                                          |  
|                                             | Total loans                                        |                                          |  
|                                             |                                                    |                                          |  
|                                             | Total earning assets                               |                                          |  
|                                             | Non earning assets                                 |                                          |  
|                                             |                                                    |                                          |  
|                                             | Total average assets                               |                                          | $
|                                             |                                                    |                                          |  
|Average liabilities and shareholders equity |                                                    |                                          |  
|                                             | Interest bearing deposits                          |                                          |  
|                                             | Savings and interest bearing accounts              |                                          | $
|                                             | Time deposits                                      |                                          |  
|                                             |                                                    |                                          |  
|                                             | Total interest bearing deposits                    |                                          |  
|                                             | Demand deposits                                    |                                          |  
|                                             | Trust preferred debt                               |                                          |  
|                                             | Other borrowings                                   |                                          |  
|                                             |                                                    |                                          |  
|                                             | Total interest bearing liabilities                 |                                          |  
|                                             | Accrued expenses and other liabilities             |                                          |  
|                                             | Net shareholders equity                           |                                          |  
|                                             |                                                    |                                          |  
|                                             | Total average liabilities and shareholders equity |                                          | $
|                                             |                                                    |                                          |  
|                                             | Net interest spread                                |                                          |  
|                                             |                                                    |                                          |  
|                                             | Net interest income                                |                                          |  
|                                             |                                                    |                                          |  
|                                             | Net yield on interest earning assets               |                                          |  
|                                             |                                                    |                                          |  
|                                             |                                                    |                                          |  

12



---

Interest expense for the three months ended September 30, 2002 decreased to
$2.1 million compared to $3.1 million for the three months ended September 30, 2001.  This decrease was due to the 4.75% decline in the prime rate during 2001, and was partially offset by an increase in average deposits and other
borrowings.  Due to the decline in the prime rate, the cost of deposits declined from 4.13% for the three months ended September 30, 2001 to 2.29% for the three months ended September 30, 2002.  Average interest-bearing liabilities
increased to $369.6 million for the three months ended September 30, 2002 compared to $314.4 million for the three months ended September 30, 2001.  The largest component of interest bearing liabilities is time deposits.  Average time
deposits increased to $202.7 million with a cost of 2.92% for the three months ended September 30, 2002 compared to $183.3 million with a cost of 5.08% for the three months ended September 30, 2001.  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.

Average borrowings increased to $27.3
million with a cost of 5.82% for the three months ended September 30, 2002, compared to $13.1 million with a cost of 9.79% for the three months ended September 30, 2001. 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.  See Deposits and Borrowings in the FINANCIAL CONDITION section of this
discussion for further information.

13



---

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 nonaccrual loans are included as interest earning assets for purposes of this table.

|                                             |                                                    | For the nine months ended September 30, |  
|-------------------------------------------- | -------------------------------------------------- | --------------------------------------- | -
|                                             |                                                    |                                         |  
|                                             |                                                    | 2002                                    |  
|                                             |                                                    |                                         |  
|                                             |                                                    | Average Balance                         |  
|                                             |                                                    |                                         |  
|Average assets                               |                                                    |                                         |  
|                                             | Securities and time deposits at other banks        |                                         | $
|                                             | Fed funds sold                                     |                                         |  
|                                             | Loans                                              |                                         |  
|                                             | Commercial                                         |                                         |  
|                                             | Real Estate                                        |                                         |  
|                                             | Consumer                                           |                                         |  
|                                             |                                                    |                                         |  
|                                             | Total loans                                        |                                         |  
|                                             |                                                    |                                         |  
|                                             | Total earning assets                               |                                         |  
|                                             | Non earning assets                                 |                                         |  
|                                             |                                                    |                                         |  
|                                             | Total average assets                               |                                         | $
|                                             |                                                    |                                         |  
|Average liabilities and shareholders equity |                                                    |                                         |  
|                                             | Interest bearing deposits                          |                                         |  
|                                             | Savings and interest bearing accounts              |                                         | $
|                                             | Time deposits                                      |                                         |  
|                                             |                                                    |                                         |  
|                                             | Total interest bearing deposits                    |                                         |  
|                                             | Demand deposits                                    |                                         |  
|                                             | Trust preferred debt                               |                                         |  
|                                             | Other borrowings                                   |                                         |  
|                                             |                                                    |                                         |  
|                                             | Total interest bearing liabilities                 |                                         |  
|                                             | Accrued expenses and other liabilities             |                                         |  
|                                             | Net shareholders equity                           |                                         |  
|                                             |                                                    |                                         |  
|                                             | Total average liabilities and shareholders equity |                                         | $
|                                             |                                                    |                                         |  
|                                             | Net interest spread                                |                                         |  
|                                             |                                                    |                                         |  
|                                             | Net interest income                                |                                         |  
|                                             |                                                    |                                         |  
|                                             | Net yield on interest earning assets               |                                         |  
|                                             |                                                    |                                         |  
|                                             |                                                    |                                         |  

Interest income for the nine months ended September 30, 2002 decreased to $18.4 million, compared to $19.1 million for the nine months ended September 30, 2001.  This
decrease was due to the 4.75% decrease in the prime rate during 2001 which resulted in a 1.90% decrease in the yield on interest earning assets for the nine months ended September 30, 2002 when compared to the nine months ended September 30, 2001,
and was partially offset by an increase in the average balance of interest earning assets.  Average interest earning assets increased to $363.3 million for the nine months ended September 30, 2002 compared to $295.1 million for the nine
months ended September 30, 2001.  The yield on interest earning assets decreased to 6.76% for the nine months ended September 30, 2002 compared to 8.66% for the nine months ended September 30, 2001.  The largest single component of
interest earning assets was real estate loans receivable, which had an average balance of $175.9 million with a yield of 7.45% for the nine months ended September 30, 2002 compared to $132.0 million with a yield of 9.49% for the nine months ended
September 30, 2001.  The increase in the average balance of loans receivable was attributable to the expansion of the Company as part of the Companys strategic plan.

Interest expense for
the nine months ended September 30, 2002 decreased to $6.7 million compared to $9.7 million for the nine months ended September 30, 2001.  This decrease was due to the 4.75% decline in the prime rate in 2001, and was partially offset by an
increase in average deposits and other borrowings.  Due to the decline in the prime rate, the cost of deposits declined from 4.71% for the nine months ended September 30, 2001 to 2.51% for the nine months ended September 30, 2002.  Average
interest-bearing

14



---

liabilities increased to $366.5 million for the nine months ended September 30, 2002 compared to $294.6 million for the nine
months ended September 30, 2001.  The largest component of interest bearing liabilities is time deposits.  Average time deposits increased to $206.6 million with a cost of 3.18% for the nine months ended September 30, 2002 compared to
$174.8 million with a cost of 5.70% for the nine months ended September 30, 2001.  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 $25.3 million with a cost of 6.03% for the nine months ended September 30, 2002, compared to $12.7 million with a cost of
10.04% for the nine months ended September 30, 2001. 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.  See Deposits and Borrowings in the FINANCIAL CONDITION section of this discussion for further information.

Net interest income
before provision for estimated loan losses

Net interest income before provision for estimated loan losses for the three months ended September 30, 2002 was $4.2 million, compared to $3.0 million
for the three months ended September 30, 2001.  This increase was primarily due to the increase in average interest earning assets coupled with an increase in the net interest margin.  Average interest earning assets were $367.5 million
for the three months ended September 30, 2002 with a net interest margin of 4.49% compared to $316.4 million with a net interest margin of 3.82% for the three months ended September 30, 2001.  For a discussion of the repricing of the
Companys assets and liabilities, see ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

Net interest income before provision for estimated loan losses for the
nine months ended September 30, 2002 was $11.6 million, compared to $9.4 million for the nine months ended September 30, 2001.  This increase was primarily due to the increase in average interest earning assets.  Average interest earning
assets were $363.3 million for the nine months ended September 30, 2002 with a net interest margin of 4.28% compared to $295.1 million with a net interest margin of 4.25% for the nine months ended September 30, 2001.  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 $306,000 for the three months ended September 30, 2002 compared to $670,000 for the three months ended September 30, 2001.  The
provision for estimated loan losses totaled $785,000 for the nine months ended September 30, 2002 compared to $764,000 for the nine months ended September 30, 2001.  As a result of the increase in total loans outstanding, combined with the
deteriorating economic conditions and the potential affects of the September 11, 2001 terrorist attacks, management increased the allowance for loan losses during the third quarter of 2001 to $2.8 million as of September 30, 2001.  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, and is adjusted by the net gain or loss on
other repossessed assets.  Other operating income was $1.6 million for the three months ended September 30, 2002 compared to $702,000 for the three months ended September 30, 2001. The increase was due to a substantial increase in net gain
on sale of loans with a small increase in loan servicing, customer service charges and other fee income.

Net gain on sale of loans increased from $246,000 for the three months ended September 30,
2001 to $1.0 million for the three months ended September 30, 2002.  During the three months ended September 30,

15



---

2002, the Company originated $22.3 million in SBA loans compared to $12.4 million during the three months ended September 30,
2001.  The Company originated $11.2 million in mortgage loans during the three months ended September 30, 2002 compared to $7.7 million during the three months ended September 30, 2001.  The Company sold $14.4 million, or approximately
65%, of the SBA loans originated and $9.3 million in mortgage loans during the three months ended September 30, 2002 compared to $6.9 million in SBA loans and $8.4 million in mortgage loans during the three months ended September 30, 2001.  See
SBA FUNDING RESTRICTIONS AND IMPACT ON FUTURE RESULTS.

Loan servicing income increased to $137,000 for the three months ended September 30, 2002 compared to $84,000 for the three months
ended September 30, 2001.  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 Company did
not sell any SBA 7a loans during the first and second quarter of 2001, and therefore did not increase its loan servicing portfolio.  In addition, the Company and the industry incurred significant prepayments during 2001, further reducing its
loan servicing portfolio.  Since the Company has reached its desired mix of SBA loans as a percentage of total gross loans, the Company is once again selling approximately 60% to 65% of the SBA loans it originates.  As sales continue with
servicing retained, loan servicing income should stabilize and eventually increase in future periods.

Customer service charges increased from $134,000 for the three months ended September 30, 2001 to
$160,000 for the three months ended September 30, 2002.  The increase is the result of a 18% increase in average demand deposits and savings and interest bearing accounts from $118.0 million for the three months ended September 30, 2001 to
$139.6 million for the three months ended September 30, 2002.

Other fee income increased to $259,000 for the three months ended September 30, 2002 compared to $238,000 for the three months ended
September 30, 2001.  The increase in other fee income reflected the recovery of unrealized losses on the Companys servicing asset during the three months ended September 30, 2002.

Other operating income was $4.7 million for the nine months ended September 30, 2002 compared to $1.9 million for the nine months ended September 30, 2001. The increase was due to a substantial increase in net gain on
sale of loans with a small increase in loan servicing fees and customer service charges, and was partially offset by a decline in other fee income and a loss on other repossessed assets.

Net gain on
sale of loans increased from $597,000 for the nine months ended September 30, 2001 to $3.4 million for the nine months ended September 30, 2002.  During the nine months ended September 30, 2002, the Company originated $60.4 million in SBA loans
compared to $39.4 million during the nine months ended September 30, 2001.  The Company originated $36.8 million in mortgage loans during the nine months ended September 30, 2002 compared to $26.1 million during the nine months ended September
30, 2001.  The Company sold $55.2 million in SBA loans and $33.7 million in mortgage loans during the nine months ended September 30, 2002 compared to $17.3 million in SBA loans and $24.9 million in mortgage loans during the nine months ended
September 30, 2001.  The Company did not sell any SBA 7a loans during the first six months of 2001.  See SBA FUNDING RESTRICTIONS AND IMPACT ON FUTURE RESULTS.

Loan servicing
income increased to $333,000 for the nine months ended September 30, 2002, compared to $287,000 for the nine months ended September 30, 2001.

Customer service charges increased from $361,000
for the nine months ended September 30, 2001 to $435,000 for the nine months ended September 30, 2002.  The increase is the result of a 26% increase in average demand deposits and savings and interest bearing accounts from $107.1 million for
the nine months ended September 30, 2001 to $134.7 million for the nine months ended September 30, 2002.

Other fee income decreased to $649,000 for the nine months ended September 30, 2002
compared to $701,000 for the nine months ended September 30, 2001.  The decrease in other fee income for the nine month period reflects the decrease in fees from brokering of loans to other financial institutions which the Company does not
directly fund, and was partially offset by the recovery of the unrealized losses on the Companys servicing asset.

16



---

During the nine months ended September 30, 2002, the Company sold a repossessed aircraft at a loss of $49,000.

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, marketing and promotions, data processing, professional services, director/officer/employee expenses, office, ESOP loan and other expenses are the major
categories of other operating expenses.  Other operating expenses increased to $4.1 million for the three months ended September 30, 2002 compared to $2.7 million for the three months ended September 30, 2001.  Other operating expenses
increased to $12.0 million for the nine months ended September 30, 2002 compared to $9.2 million for the nine months ended September 30, 2001.  During the nine months ended September 30, 2002, the Company incurred non-recurring expenses
totaling $281,000 due to the relocation of the Companys corporate headquarters and $136,000 in expenses associated with the refurbishment of a repossessed aircraft.

The increase in other
operating expenses is primarily due to the increase in salaries and employee benefits to $2.3 million for the three months ended September 30, 2002 compared to $1.3 million for the three months ended September 30, 2001.  For the nine months
ended September 30, 2002, salaries and employee benefits were $6.6 million compared to $5.0 million for the nine months ended September 30, 2001.  The Company opened two new branch offices in 2001.  As a result of the increased loan
origination and improved profitability, commissions, incentives and bonuses have increased by $528,000 when comparing the quarter ended September 30, 2002 to September 30, 2001.  For the nine months ended September 30, 2002, commissions,
incentives and bonuses have increased by $701,000 when compared with the nine months ended September 30, 2001.  Full time equivalent employees increased to 145 as of September 30, 2002 compared to 136 as of September 30, 2001.  In
addition, employee insurance benefits rates increased by 16% from 2001 to 2002.

The Companys efficiency ratio, which is the ratio of operating expenses to net interest income before provision
for loan losses plus non-interest income and excluding gain or loss on repossessed assets, decreased (improved) to 71.43% for the three months ended September 30, 2002 compared to 71.48% for the three months ended September 30, 2001.  For the
nine months ended September 30, 2002, the Companys efficiency ratio was 73.23% compared to 81.57% for the nine months ended September 30, 2001.  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.

The following table compares each of the
components of other operating expenses for the three months and nine months ended September 30, 2002 and 2001, respectively:

|                          |                                        | For the nine months ended September 30, |   | For the three months ended September 30, | 
|------------------------- | -------------------------------------- | --------------------------------------- | - | ---------------------------------------- | 
|                          |                                        |                                         |   |                                          | 
|                          |                                        | 2002                                    |   | 2001                                     | 
|                          |                                        |                                         |   |                                          | 
|Other operating expenses: |                                        |                                         |   |                                          | 
|                          | Salaries and employee benefits         |                                         | $ | 6,618                                    | 
|                          | Occupancy                              |                                         |   | 1,076                                    | 
|                          | Telephone                              |                                         |   | 230                                      | 
|                          | Premises and equipment                 |                                         |   | 770                                      | 
|                          | Marketing and promotions               |                                         |   | 207                                      | 
|                          | Data processing                        |                                         |   | 545                                      | 
|                          | Professional services                  |                                         |   | 721                                      | 
|                          | Director, officer and employee expense |                                         |   | 334                                      | 
|                          | Office expenses                        |                                         |   | 398                                      | 
|                          | ESOP loan expense                      |                                         |   |                                         | 
|                          | Other expenses                         |                                         |   | 1,119                                    | 
|                          |                                        |                                         |   |                                          | 
|                          | Total other operating expenses         |                                         | $ | 12,018                                   | 
|                          |                                        |                                         |   |                                          | 
|                          |                                        |                                         |   |                                          | 

The Company incurred non-recurring expenses as a result of the move of the Companys headquarters and other expenses increased due to the refurbishment of a repossessed
aircraft sold during the nine months

17



---

ended September 30, 2002.  The non-recurring expenses are as follows:  Occupancy, $42,000, premises and equipment,
$202,000 and other expenses, $37,000.  Other expenses also increased due to the $136,000 cost of refurbishing the aircraft.  The ESOP loan expense decreased due to the termination of the ESOP in September, 2001.  No further expense is
expected to be incurred in future periods as a result of the termination of the ESOP.

Provision for Income Taxes

The effective income tax rate
was 41.6% for the three months ended September 30, 2002 and 2001.  The effective income tax rate was 41.6% for the nine months ended September 30, 2002 compared to 41.5% for the nine months ended September 30, 2001.  Provisions for income
taxes totaled $553,000 and $166,000 for the three months ended September 30, 2002 and 2001, respectively.  Provisions for income taxes totaled $1.5 million and $549,000 for the nine months ended September 30, 2002 and 2001,
respectively.

FINANCIAL CONDITION

Summary of Changes in Consolidated Balance Sheets September 30, 2002 compared to December 31, 2001
and September 30, 2001

Total assets of the Company increased to $387.8 million as of September 30, 2002 compared to $370.2 million as of December 31, 2001 and $345.2 million as of September 30,
2001.  The increase in total assets was due to the growth in net loans to $318.7 million as of September 30, 2002, compared to $305.7 million as of December 31, 2001 and $280.7 million as of September 30, 2001.  Total assets decreased from
June 30, 2002 due to a reduction in wholesale deposits  and cash and cash equivalents.  The Company took advantage of the opportunity to reduce wholesale deposits that were maturing with excess liquidity the Company had as of June 30,
2002, which assisted in improving the Companys net interest margin.  Growth for the calendar year is expected to be approximately 15%.

Deposits, including wholesale and retail deposits,
increased to $336.1 million as of September 30, 2002 compared to $333.3 million as of December 31, 2001 and were $311.1 million as of September 30, 2001.  Wholesale deposits decreased to $34.7 million as of September 30, 2002 compared to
$81.7 million as of December 31, 2001 and were $65.1 million as of September 30, 2001.  Cash and cash equivalents decreased to $28.4 million as of September 30, 2002 compared to $38.9 million as of December 31, 2001 and were $49.5 million as of
September 30, 2001.  The decrease in cash and cash equivalents was due to the increase in investment securities combined with an increase in net loans.

Shareholders equity was $19.5
million as of September 30, 2002 compared to $16.5 million as of December 31, 2001 and was $16.2 million as of September 30, 2001.  Please refer to the CAPITAL section of this discussion for further information.

Investments

The Companys investment portfolio consists primarily of agency securities, overnight investments in the Federal Funds market and
certificates of deposit with other financial institutions.  As of September 30, 2002, certificates of deposit with other financial institutions totaled $99,000, compared to $596,000 as of December 31, 2001 and $497,000 as of September 30,
2001.  As of December 31, 2001 and September 30, 2001, $500,000 and $497,000, respectively, was pledged as collateral for the Employee Stock Ownership Plan (ESOP) loan from another California bank, which was funding the
Companys ESOP.  The ESOP was terminated as of September 30, 2001, and the remaining undistributed shares were sold in February 2002, eliminating the Companys borrowings for the leveraged ESOP.  Therefore, no certificates of
deposit were pledged as of September 30, 2002.  US Government and other securities totaled $24.7 million as of September 30, 2002 compared to $10.6 million as of December 31, 2001 and were $5.1 million as of September 30, 2001.  As of
September 30, 2002, $4.9 million were pledged as collateral for public funds and treasury, tax and loan deposits.  Average Federal Funds sold for the nine months ended September 30, 2002 were $17.8 million compared to $24.5 million for the nine
months ended September 30, 2001.

18



---

Loans

Loan balances, net of the allowance for loan losses, increased to
$318.7 million as of September 30, 2002 compared to $305.7 million as of December 31, 2001 and $280.7 million as of September 30, 2001.  A healthy loan demand resulted in a 13.5% growth rate in net loans since September 30, 2001.  The
Company services SBA 7a loans sold to other investors.  As of September 30, 2002, the Company serviced $109.6 million SBA 7a loans for other investors compared to$69.6 million as of December 31, 2001 and $71.5 million as of September 30,
2001.

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 nine months ended September 30, |         | At or for the three months ended September 30, |  
|--------------------- | ---------------------- | --------------------------------------------- | ------- | ---------------------------------------------- | -
|                      |                        |                                               |         |                                                |  
|                      |                        | 2002                                          |         | 2001                                           |  
|                      |                        |                                               |         |                                                |  
|                      |                        | (dollars in thousands)                        |         | (dollars in thousands)                         |  
|Beginning balance     |                        | $                                             | 305,686 |                                                | $
|Loans originated: (1) |                        |                                               |         |                                                |  
|                      | Commercial loans       |                                               |         | 18,857                                         |  
|                      | Real estate:           |                                               |         |                                                |  
|                      | Construction loans     |                                               |         | 63,867                                         |  
|                      | One-to four-family     |                                               |         | 37,688                                         |  
|                      | Commercial             |                                               |         | 87,788                                         |  
|                      | Consumer               |                                               |         | 2,460                                          |  
|                      |                        |                                               |         |                                                |  
|                      | Total loans originated |                                               |         | 210,660                                        |  
|Loans sold            |                        |                                               |         |                                                |  
|                      | Real estate:           |                                               |         |                                                |  
|                      | Construction loans     |                                               |         | 464                                            |  
|                      | One-to four-family     |                                               |         | 33,699                                         |  
|                      | Commercial             |                                               |         | 51,200                                         |  
|                      |                        |                                               |         |                                                |  
|                      | Total loans sold       |                                               |         | 85,363                                         |  
|Less:                 |                        |                                               |         |                                                |  
|                      | Principal repayments   |                                               |         | 114,622                                        |  
|                      | Other net changes (2)  |                                               |         | (2,351                                         | )
|                      |                        |                                               |         |                                                |  
|                      | Total Loans            |                                               | $       | 318,712                                        |  
|                      |                        |                                               |         |                                                |  
|                      |                        |                                               |         |                                                |  



| | (1) | Included in total loans originated are $10.0 million and $7.7 million of mortgage loans and $18.1 and $11.3 million of SBA loans originated for sale for the three months ended
September 30, 2002 and 2001, respectively.  Included in total loans originated are $34.0 million and $23.2 million of mortgage loans and $52.3 and $36.0 million of SBA loans originated for sale for the nine months ended September 30, 2002 and
2001, respectively.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Other net changes include changes in allowance for loan losses, deferred loan fees, loans in process and unamortized premiums and discounts.                                                                                                                                                                                                                                                                                                          

Nonperforming assets.Nonperforming assets consist of nonperforming loans and other real estate owned (OREO) and other repossessed assets.  Nonperforming loans are those loans which have
(i) been placed on nonaccrual status, (ii) been subject to troubled debt restructurings, or (iii) become contractually past due 90 days or more with respect to principal or interest and have not been restructured or placed on nonaccrual 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
nonperforming

19



---

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:

|                                                                                                                      |  | September 30, 2002     |        | December 31, 2001 |   | September 30, 2001 |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ----------------- | - | ------------------ | -
|                                                                                                                      |  |                        |        |                   |   |                    |  
|                                                                                                                      |  | (dollars in thousands) |       
|Non-accrual loans                                                                                                     |  | $                      | 2,916  |                   | $ | 3,174              |  
|Troubled debt restructurings                                                                                          |  |                        |       |                   |   |                   |  
|Loans contractually past due 90 days or more with respect to either principal or interest and still accruing interest |  |                        |       |                   |   | 29                 |  
|                                                                                                                      |  |                        |        |                   |   |                    |  
|Total non-performing loans                                                                                            |  |                        | 2,916  |                   |   | 3,203              |  
|Other real estate owned                                                                                               |  |                        | 197    |                   |   |                   |  
|Other repossessed assets                                                                                              |  |                        |       |                   |   | 1,900              |  
|                                                                                                                      |  |                        |        |                   |   |                    |  
|Total non-performing assets                                                                                           |  | $                      | 3,113  |                   | $ | 5,103              |  
|                                                                                                                      |  |                        |        |                   |   |                    |  
|Total non-performing loans/gross loans                                                                                |  |                        | 0.90   | %                 |   | 1.04               | %
|Total non-performing assets/total assets                                                                              |  |                        | 0.80   | %                 |   | 1.38               | %
|Total non-performing loans net of guarantees/gross loans                                                              |  |                        | 0.32   | %                 |   | 0.37               | %
|Total non-performing assets net of guarantees/total assets                                                            |  |                        | 0.27   | %                 |   | 0.82               | %
|ALLOWANCE FOR LOAN LOSSES                                                                                             |  |                        |        |                   |   |                    |  
|Allowance for loan losses                                                                                             |  | $                      | 3,607  |                   | $ | 2,788              |  
|Reserves for losses on commitments to extend credit                                                                   |  |                        | 145    |                   |   | 285                |  
|                                                                                                                      |  |                        |        |                   |   |                    |  
|Total allowance and reserves for commitments                                                                          |  | $                      | 3,752  |                   | $ | 3,073              |  
|                                                                                                                      |  |                        |        |                   |   |                    |  
|Loan loss allowance to loans, gross                                                                                   |  |                        | 1.11   | %                 |   | 0.90               | %
|Loan loss allowance, including reserves on commitments, to loans, gross                                               |  |                        | 1.16   | %                 |   | 1.00               | %
|Loan loss allowance/non-performing loans                                                                              |  |                        | 123.70 | %                 |   | 87.04              | %
|Loan loss allowance/non-performing assets                                                                             |  |                        | 115.87 | %                 |   | 54.63              | %
|Loan loss allowance/non-performing loans, net of guarantees                                                           |  |                        | 350.19 | %                 |   | 244.56             | %
|Loan loss allowance/non-performing assets, net of guarantees                                                          |  |                        | 350.19 | %                 |   | 91.71              | %

Nonaccrual Loans. Nonaccrual 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 September 30, 2002, December 31, 2001 and September 30, 2001 all impaired or nonaccrual loans were collateral-dependent.  The Company places loans on nonaccrual status that are
delinquent 90 days or more or when a reasonable doubt exists as to the collectibility of interest and principal.  As of September 30, 2002 the Company had fourteen loans on nonaccrual status totaling $2.9 million with $1.9 million, or 65%,
guaranteed by the SBA.  As of December 31, 2001, the Company had twelve loans on nonaccrual status totaling $3.2 million.  Of this total, $2.1 million, or 65%, was guaranteed by the SBA.  As of September 30, 2001, the Company had
seventeen loans on nonaccrual status totaling $4.7 million.  Of this total $1.6 million, or 35%, was guaranteed by the SBA.

Included in nonaccrual loans are loans less than 90 days
delinquent.  Loans 90 days or more delinquent totaled $1.0 million as of September 30, 2002, compared to $2.4 million as of December 31, 2001 and $2.5 million as of September 30, 2001.  Net of government guarantees, loans 90 days or more
delinquent as of September 30, 2002 were $164,000 compared to $487,000 as of December 31, 2001 and $2.3 million as of September 30, 2001.

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 nonaccrual loans, loans graded as substandard or
lower and other

20



---

repossessed assets) at September 30, 2002 were $2.2 million compared to $3.5 million as of December 31, 2001 and were $3.7
million at September 30, 2001.

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

21



---

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 nine months ended September 30, |      
|------------------------------------------------------------ | -------------------- | --------------------------------------------- | -----
|                                                             |                      |                                               |      
|                                                             |                      | 2002                                          |      
|                                                             |                      |                                               |      
|                                                             |                      | (dollars in thousands)                        |      
|Balance at beginning of period                               |                      | $                                             | 2,788
|Chargeoffs:                                                  |                      |                                               |      
|                                                             | Real estate loans:   |                                               |      
|                                                             | One- to four- family |                                               |      
|                                                             | Commercial           |                                               |      
|                                                             | Consumer             |                                               |      
|                                                             |                      |                                               |      
|Total chargeoffs                                             |                      |                                               | 122  
|Recoveries:                                                  |                      |                                               |      
|                                                             | Real estate loans:   |                                               |      
|                                                             | One- to four-family  |                                               |      
|                                                             | Commercial           |                                               |      
|                                                             | Consumer             |                                               |      
|                                                             |                      |                                               |      
|Total recoveries                                             |                      |                                               | 15   
|                                                             |                      |                                               |      
|Net chargeoffs                                               |                      |                                               | 107  
|Change in reserve for losses on commitments to extend credit |                      |                                               | 141  
|Provision for loan losses                                    |                      |                                               | 785  
|                                                             |                      |                                               |      
|Balance at end of period                                     |                      | $                                             | 3,607
|                                                             |                      |                                               |      
|Net charge offs to average loans                             |                      |                                               | 0.04 
|Reserve for losses on commitments to extend credit           |                      | $                                             | 145  
|                                                             |                      |                                               |      

As of September 30, 2002 the balance in the allowance for loans losses was $3.6 million compared to $2.8 million as of December 31, 2001 and $2.6 million as of September 30,
2001.  In addition, the reserve for losses on commitments to extend credit was $145,000 as of September 30, 2002, compared to $285,000 as of December 31, 2001 and was $283,000 as of September 30, 2001.  The balance of undisbursed
construction and other loans was $72.6 million as of September 30, 2002 compared to $63.9 million as of December 31, 2001 and was $64.1 million as of September 30, 2001.

During the quarter
ended September 30, 2002, the Company reevaluated its method of determining the risk associated with undisbursed construction and other loans, which resulted in a reduction in the reserve as a percentage of liability outstanding to
approximately 0.20%.  The analysis was based on a review of historical losses on undisbursed construction and other loans, combined with a review of potential future losses on the Companys liability outstanding.  As of September 30,
2002 the allowance was 1.11% of total gross loans compared to 0.90% as of December 31, 2001 and September 30, 2001.  Including the reserve for losses on commitments to extend credit, the allowance as a percentage of total gross loans was 1.16%
as of September 30, 2002 compared to 1.00% as of December 31, 2001 and September 30, 2001.  The allowance for loan losses as a percentage of nonaccrual loans was 123.70% as of September 30, 2002 compared to 87.04% as of December 31, 2001 and
was 53.98% as of September 30, 2001.  The allowance for loan losses, including reserves for losses on commitments to extend credit, to nonperforming loans, net of government guarantees was 364% as of September 30, 2002 compared to 270% as of
December 31, 2001 and was 92% as of September 30, 2001.  Management believes the allowance at September 30, 2002 is adequate based upon its ongoing analysis of the loan portfolio, historical loss trends and other factors.

Other Repossessed assets.The repossessed asset totaling $1.9 million as of December 31, 2001 was an aircraft acquired through repossession.  The aircraft was sold during the nine months ended September
30, 2002.  The Company made a loan to facilitate the sale in the amount of $1.6 million at current market rates and terms.  There was one OREO totaling $197,000 as of September 30, 2002.

22



---

Deposits and Borrowings

Total deposits increased to $336.1 million as of
September 30, 2002 compared to $333.3 million as of December 31, 2001 and $311.1 million as of September 30, 2001.  Interest bearing and non-interest bearing deposits increased to $286.5 million and $49.7 million, respectively, as of
September 30, 2002 compared to $295.1 million and $38.3 million, respectively, as of December 31, 2001 and $272.5 million and $38.6 million, respectively, as of September 30, 2001.  Retail banking deposits increased to fund SBA loan retention
and loans held for sale, and reduce wholesale deposits.  Total wholesale deposits were $34.7 million as of September 30, 2002, compared to $81.7 million as of December 31, 2001 and $65.1 million as of September 30, 2001.  Total retail
banking deposits increased to $301.4 million as of September 30, 2002 compared to $251.6 million as of December 31, 2001 and were $246.0 million as of September 30, 2001.  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 and nine months ended September 30, 2002 and 2001, 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 $18.1 million as of September 30, 2002, compared to $5.8 million as of
December 31, 2001 and $3.8 million as of September 30, 2001.  Included in other borrowings are advances from the FHLB and other banks.  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.  As of September 30, 2002, all advances from the FHLB had a maturity of six months or less.  In
addition to the FHLB advances, other lines of credit are utilized to increase capital at the Bank and, as of December 31, 2001 and September 30, 2001, to fund the Companys ESOP. The loan to the Companys ESOP was paid in full
February 14, 2002.  The Company borrowed $2.0 million from an unaffiliated lender and contributed $1.5 million of the proceeds to the equity capital of the Bank.   See the Capital discussion for further details on this
loan.

In 1997, the Company formed an ESOP, which purchased shares of the Company for the future benefit of the employees. A line of credit was established with a correspondent bank to purchase the
shares.  The ESOP was terminated in September 2001, and the unallocated shares were sold in February 2002, at which time the borrowed funds were paid in full.  See the Capital discussion for further details on this
loan.

Capital

The Companys capital increased to $19.5 million as of September 30, 2002 compared to $16.5 million as of December 31, 2001
and was $16.2 million as of September 30, 2001.  The $3.0 million increase in capital is a result of net income of $2.1 million for the nine months ended September 30, 2002, plus the repayment of $813,000 in borrowed funds as a result of the
sale of unallocated shares in the ESOP combined with $117,000 in proceeds from the exercise of stock options.

In 1997 the Company implemented an ESOP funded with borrowings of $1,000,000 that
year.  In 2000, the loan was refinanced, with an additional $325,000 being advanced on the line during 2000 and another $50,000 in 2001.  As of December 31, 2001 the indebtedness of the ESOP was $813,000.  As of
September 30, 2001, the Board of Directors elected to terminate the ESOP.   In February of 2002, the Company sold the remaining unallocated shares and repaid principal totaling $813,000, resulting in an increase in capital. 
During the years ended December 31, 2001 and 2000, the Company repaid principal totaling $153,000 and $205,000, respectively.

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, 2001 which was paid on November 30, 2001.  On
October 29, 2002 the Company declared a 5% stock dividend to shareholders of record as of November 15, 2002 which will be 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

23



---

factors.  The Companys and the Banks 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.  Growth for the calendar year is expected to be approximately 15%.  Based on current projections, management believes that the Company will continue to remain well capitalized during 2002.  Future asset
growth is dependent upon many factors, including the Companys access to capital markets, earnings growth, and overall economic conditions.  The ability to obtain capital is dependent upon the capital markets as well as performance of the
Company.  In July 2001, the Company raised $3.0 million through a private placement of common stock.  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  September 30, 2002 and
December 31, 2001, the outstanding balance on this line of credit was $2.0 million and $1.0 million, respectively.  The proceeds of such loan were invested by the Company in the Bank in the form of equity capital, or used for other operating
expenses.  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 September 30, 2002
and December 31, 2001, all capital ratios were above all current Federal capital guidelines for a well capitalized bank.   As of September 30, 2002, the Banks regulatory Total Capital to risk-weighted assets ratio was
11.03% compared to 10.89% as of December 31, 2001.  The Banks regulatory Tier 1 Capital to risk-weighted assets ratio was 9.85% as of September 30, 2002 compared to 9.82% as of December 31, 2001.  The Banks regulatory Tier 1
Capital to average assets ratio was 8.00% as of September 30, 2002 compared to 7.94% as of December 31, 2001.

As of September 30, 2002, the Companys regulatory Total capital to
risk-weighted assets ratio was 10.33% compared to 10.30% as of December 31, 2001.  The Companys regulatory Tier 1 Capital to risk-weighted assets ratio was 8.04% as of September 30, 2002, compared to 7.65% as of December 31,
2001.  The Companys regulatory Tier 1 Capital to average assets ratio was 6.53% as of September 30, 2002 and December 31, 2001.

Liquidity

The Company closely monitors its liquidity so that the cash requirements for loans and deposit withdrawals are met in an economical manner.  Management monitors liquidity in relation to trends of loans and deposits for
short term and long term requirements.  Liquidity sources are cash, deposits with other banks, overnight Federal Funds investments, unpledged interest bearing deposits at other banks, investment securities and the ability to sell loans. 
As of September 30, 2002 liquid assets as a percentage of deposits were 8.9% compared to 10.6% as of December 31, 2001.

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 the Companys 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 the Company 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.

24



---

| |  | 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | 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 current 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 September 30, 2002, the Company utilized a weighted average prepayment assumption
of approximately 7.7% and a discount rate of 12%.  In estimating fair values at December 31, 2001, the Company utilized a weighted average prepayment assumption of approximately 13.5% and a discount rate of 12%.  In estimating fair values
at September 30, 2001, the Company utilized a weighted average prepayment assumption of approximately 13.0% 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 as of September
30, 2002, December 31, 2001 and September 30, 2001.  At September 30, 2002, December 31, 2001 and September 30, 2001, the fair value of interest-only strips was estimated using a weighted average prepayment assumption of approximately
7.7%, 13.5% and 13.0%, respectively, 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 September 30, 2002 the OREO is a single family
residence.  There were no specific reserves on this asset as of September 30, 2002.  At December 31, 2001, the repossessed asset is an aircraft.  There were no specific reserves on this asset as of December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

SBA FUNDING RESTRICTIONS AND IMPACT ON FUTURE RESULTS

On October 1, 2002, the Small Business Administration (SBA) reduced the
amounts of loans and the maximum loan size under its Section 7(a) loan program.  The SBA has reduced the maximum Section 7(a) loan size it can guarantee from $1 million to $375,000.

The
origination and subsequent sale of Section 7(a) loans have significantly and positively impacted the Companys earnings for the nine months and the quarter ended September 30, 2002.  During the first nine months of 2002, the Company
originated approximately $48.8 million in Section 7(a) loans (approximately 80.8% of total SBA loan productions for the nine months) and sold approximately $50.4 million of such loans resulting in non-interest income of approximately $3.2
million.   For the three months ended September 30, 2002, the Company originated approximately $14.2 million in Section 7(a) loans

25



---

(approximately 63.7% of total SBA loan production for the three months) and sold approximately $14.4 million of such loans
resulting in non-interest income of approximately $964,000.

There are efforts ongoing in the Congress to reverse these reductions, but Congress recessed until after the November election without
taking any action on this matter.  The results and timing of Congressional action to reverse these limitations cannot presently be predicted.

Management routinely monitors developments with the
SBA and took certain actions at the end of the third quarter to mitigate any impact in the fourth quarter.  As a result, the Company expects to maintain a flow of loans for the fourth quarter of 2002 that will not be adversely impacted by the
SBAs reduction.  Based upon Managements current information and analysis, the SBAs reduction is not expected to have a material adverse impact upon either the production or sale of Section 7(a) loans during the fourth quarter
of 2002. Accordingly, management currently estimates Section 7(a) loan sales to be generally in line with levels during the third quarter of this year.

If Congressional action to reverse the
SBAs reduction is not successful or the reductions are not otherwise reversed, the Company expects that its production of Section 7(a) loans will be adversely impacted starting in the first quarter of 2003 with an eventual reduction in
non-interest income to follow as a result.  In addition to monitoring the situation and taking an active role in trade groups seeking Congressional action, the Company is seeking to develop alternative plans with which to deal with this funding
problem.  However, it is currently impossible to predict accurately the impact this situation will have upon the Companys Section 7(a) production and non-interest income in 2003.

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 the change
in 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 September 30, 2002, 82.87% 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 September 30, 2002, 56.71% 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 September 30, 2002, 35.49% of the Companys borrowings were fixed rate with a remaining term of 27 years.  The fixed rate borrowings were the $10 million Trust
Preferred Securities held at the parent holding company.

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.

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

26



---

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.

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 September 30, 2002, 66.55% of the Companys interest-bearing deposits were comprised of certificate of deposit 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 seven months at September 30, 2002.  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 $95.8 million in interest bearing transaction accounts (savings, money markets and interest bearing
checking) as of September 30, 2002, with rates being paid between 0.35% and 1.70%.  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.

27



---

The following table sets forth information concerning repricing opportunities for the Companys interest-earning assets and
interest bearing liabilities as of September 30, 2002.  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 September 30, 2002

|(dollars in thousands)                                |                                        | 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 |       
|----------------------------------------------------- | -------------------------------------- | ------------ | ------- | --------------------------------- | - | ---------------------------------- | ------ | --------------------------------- | ------- | ---------- | - | ------------- | ------
|                                                      |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|Interest sensitive assets:                            |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|Loans receivable:                                     |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|                                                      | Adjustable rate loans, gross           |              | $       | 190,410                           |   | $                                  | 11,262 |                                   | $       | 19,811     |   | $             | 45,651
|                                                      | Fixed rate loans, gross(2)             |              |         | 6,140                             |   |                                    | 11,128 |                                   |         | 1,644      |   |               | 15,592
|Investments:                                          |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|                                                      | Investment securities held-to-maturity |              |         | 8,260                             |   |                                    | 499    |                                   |         | 498        |   |               | 3,506 
|                                                      | Federal funds sold                     |              |         | 11,555                            |   |                                    |       |                                   |         |           |   |               |      
|                                                      | Other investments                      |              |         | 2,162                             |   |                                    | 99     |                                   |         |           |   |               |      
|                                                      |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|Total interest sensitive assets                       |                                        |              | 218,527 |                                   |   | 22,988                             |        |                                   | 21,953  |            |   | 64,749        |       
|                                                      |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|Interest sensitive liabilities:                       |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|Deposits:                                             |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|                                                      | Non-interest bearing                   |              |         |                                  |   |                                    |       |                                   |         |           |   |               |      
|                                                      | Interest bearing                       |              |         | 150,162                           |   |                                    | 45,894 |                                   |         | 84,541     |   |               | 5,853 
|Other Borrowings                                      |                                        |              | 18,088  |                                   |   |                                   |        |                                   |        |            |   |              |       
|                                                      |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|Total interest sensitive liabilities                  |                                        | $            | 168,250 |                                   | $ | 45,894                             |        | $                                 | 84,541  |            | $ | 5,853         |       
|                                                      |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|GAP Analysis                                          |                                        |              |         |                                   |   |                                    |        |                                   |         |            |   |               |       
|Interest rate sensitivity gap                         |                                        | $            | 50,277  |                                   | $ | (22,906                            | )      | $                                 | (62,588 | )          | $ | 58,896        |       
|GAP as% of total interest sensitive assets            |                                        |              | 13.85   | %                                 |   | -6.31                              | %      |                                   | -17.24  | %          |   | 16.23         | %     
|Cumulative interest rate sensitivity gap              |                                        | $            | 50,277  |                                   | $ | 27,371                             |        | $                                 | (35,217 | )          | $ | 23,679        |       
|Cumulative gap as% of total interest sensitive assets |                                        |              | 13.85   | %                                 |   | 7.54                               | %      |                                   | -9.70   | %          |   | 6.52          | %     

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 relation 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 noninterest-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.  On an annual
basis, management expects to experience higher net interest income when rates rise, the opposite of what is indicated by the static Gap analysis.

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.

28



---

The following table shows the effects of changes in projected net interest income for the twelve months ending September 30, 2003
under the interest rate shock scenarios stated.  The table was prepared as of September 30, 2002, at which time prime was 4.75%.

(dollars in thousands)

|Changes in Rates |           | Projected Net interest Income |   | Change from base case |  | %change from base case |      
|---------------- | --------- | ----------------------------- | - | --------------------- |  | ---------------------- | -----
|                 |           |                               |   |                       |  |                        |      
|                 | + 300 bp  |                               | $ | 24,263                |  | $                      | 4,421
|                 | + 200 BP  |                               | $ | 22,445                |  | $                      | 2,603
|                 | + 100 BP  |                               | $ | 20,733                |  | $                      | 891  
|                 | 0 BP      |                               | $ | 19,842                |  |                        |      
|                 | -   25 BP |                               | $ | 19,671                |  | $                      | (171 
|                 | -   50 BP |                               | $ | 19,485                |  | $                      | (357 
|                 | -  100 BP |                               | $ | 19,028                |  | $                      | (814 

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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

29



---

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

No matters were submitted to the security holders.

Item 5  Other
information

None to report.

Item 6  Exhibits and Reports from 8-K

Exhibit
3.1          Amendment to the Certificate of Incorporation Exhibit 99.1        Certification

30



---

SIGNATURES

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

|     | COMMUNITY BANCORP INC.                      | 
|---- | ------------------------------------------- | 
|     |                                             | 
|     | (Registrant)                                | 
|     |                                            
|    
|Date | November 12, 2002                           | 
|     |                                             | 
|     | Thomas E. Swanson                           | 
|     | President and Chief Executive Officer       | 
|     |                                             | 
|     |                                             | 
|Date | November 12, 2002                           | 
|     |                                             | 
|     | L. Bruce Mills, Jr.                         | 
|     | Sr. Vice President, Chief Financial Officer | 
|     |                                             | 

31



---

CERTIFICATION

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



|Date | November 12, 2002                     |  | /s/ THOMAS E. SWANSON | 
|---- | ------------------------------------- |  | --------------------- | 
|     |                                       |  |                       | 
|     | Thomas E. Swanson                     | 
|     | President and Chief Executive Officer | 

32



---

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



|Date | November 12, 2002                           |  | /s/ L. BRUCE MILLS, JR. | 
|---- | ------------------------------------------- |  | ----------------------- | 
|     |                                             |  |                         | 
|     | L. Bruce Mills, Jr.                         | 
|     | Sr. Vice President, Chief Financial Officer | 

33



---

EXHIBIT INDEX

|Exhibit No. |  | Exhibit                                      
|----------- |  | ---------------------------------------------
|            |  |                                              
|3.1         |  | Amendment to the Certificate of Incorporation
|99.1        |  | Certification                                

34