<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                 ----------------------------------------------

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000          Commission File No. 0-20862

                            VINEYARD NATIONAL BANCORP
             (Exact Name of Registrant as Specified in its Charter)


             California                                    33-0309110
   (State of other jurisdiction of                        (IRS Employer
   incorporation or organization)                     Identification Number)

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

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

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, no par value

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     As of March 16, 2001, the aggregate market value of the voting shares held
by non-affiliates of the registrant was approximately $6,008,829. Solely for the
purposes of this calculation, shares held by directors, executive officers, and
each person owning more than 10% of the outstanding Common Stock of the
registrant have been excluded.

     1,864,826 shares of Common Stock of the registrant were outstanding at
March 16, 2001.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's Definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders, which will be filed on or before April 30, 2001, are
incorporated by reference in Part III of this Form 10-K.



                                                                               1

<PAGE>   2


                                     PART I


ITEM I.  DESCRIPTION OF BUSINESS

Vineyard National Bancorp (referred to herein on an unconsolidated basis as
"VNB" and on a consolidated basis as the "Company") is a corporation that was
incorporated under the laws of the State of California on May 18, 1988 and
commenced business on December 16, 1988 when, pursuant to a reorganization, the
Bancorp acquired all of the voting stock of Vineyard National Bank (the "Bank").
As a bank holding company, the Company is registered under and subject to the
Bank Holding Company Act of 1956, as amended. The Company's principal asset is
the capital stock of Vineyard National Bank, a nationally chartered bank (the
"Bank"), and the business of the Bank is carried on as a wholly-owned subsidiary
of the Company.

VNB's principal business is to serve as a holding company for the Bank and its
subsidiaries and for other banking or banking-related subsidiaries which the
Company may establish or acquire. Although the Company may, in the future,
consider acquiring other businesses or engaging in other activities as permitted
under Federal Reserve Board regulations, the Company has no specific plans to do
so.

VNB's principal source of income is dividends from the Bank. Legal limitations
are imposed on the amount of dividends that may be paid and loans that may be
made by the Bank to VNB. (See Item. 1 - Description of Business; Supervision and
Regulation; Restrictions of Dividends by the Company and Transfers of Funds to
the Company by the Bank)

As of December 31, 2000, the Company had total consolidated assets of
approximately $110.1 million, total consolidated net loans of approximately
$79.5 million, total consolidated deposits of approximately $99.6 million and
total stockholders' equity of approximately $9.3 million.

THE BANK

The Bank was organized as a national banking association under federal law and
commenced operations under the name Vineyard National Bank on September 10,
1981.

The Bank's deposit accounts are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to the maximum amount permitted under law. The Bank is a
member of the Federal Reserve System.

The Bank presently operates five offices, one in each of the communities of
Rancho Cucamonga, Chino, Diamond Bar, Crestline, and Blue Jay, California, which
are located between approximately 30 to 70 miles east of Los Angeles,
California. In February, 2001 the Bank opened a loan production office in
Manhattan Beach which is located approximately 20 miles southwest of Los
Angeles.

VINEYARD SERVICE COMPANY, INC.

The Bank owns 100% of the capital stock of Vineyard Service Company, Inc., which
conducts operations out of the Bank's office in Rancho Cucamonga, California.
The Company was formed to provide services to both customers of the Bank and
others, including life and disability insurance. At present, the assets,
revenues and earnings of Vineyard Service Company, Inc., are not material in
amount compared to the Bank.

SERVICES PROVIDED BY VINEYARD NATIONAL BANK

The Bank's organization and operations have been designed to meet the banking
needs of individuals and small-to-medium sized businesses located in the area
known as the Inland Empire in Southern California, in which the Bank conducts
its operations. The Bank emphasizes personalized service and convenience of
banking and attracts banking customers by offering morning through early evening
and Saturday banking hours. Drive-up or walk-up facilities are available at all
but one of its banking offices, and the Bank has 24-hour Automated Teller
Machines ("ATM's") at all five of its banking offices.

The Bank offers a full range of commercial banking services including the
acceptance of checking and savings deposits, and the making of various types of
installment, commercial and real estate loans. In addition, the Bank provides
safe deposit, collection, traveler's checks, notary public and other customary
non-deposit banking services.


                                                                               2

<PAGE>   3

DEPOSITS OF VINEYARD NATIONAL BANK

Deposits represent the Bank's primary source of funds. As of December 31, 2000,
the Bank had approximately 5,577 demand deposit accounts representing aggregate
deposits of approximately $36,856,000 with an average account balance of $6,611,
approximately 2,312 accounts representing approximately $25,825,000 in "NOW",
super "NOW" and money market checking accounts with an average account balance
of $11,170, approximately 3,561 accounts representing approximately $9,966,000
in savings deposits with an average account balance of $2,799 and approximately
1,432 accounts representing approximately $26,937,000 in time deposits ("TCD's")
with an average account balance of $18,811. Of the total deposits at December
31, 2000, $6,526,000 were in the form of TCD's in denominations greater than
$100,000 and $378,000 were municipal and other governmental deposits.

During the 12 months ended December 31, 2000, average demand deposits increased
by approximately $2,962,000 or 8.7%, and "NOW", super "NOW" and money market
checking accounts decreased by approximately $2,549,000 or 8.65%. Average
savings deposits increased by approximately $427,000 or 4.4%, while average time
deposits decreased by approximately $5,561,000 or 16.7%, including a decrease of
$2,096,000 in average time certificates of deposits of $100,000 or more.

The Bank is not dependent on a single customer or a few customers for its
deposits. Most of the Bank's deposits are obtained from individuals and
small-to-moderate size businesses. This results in relatively small average
deposit balances, but makes the Bank less subject to the adverse effects
resulting from the loss of a substantial depositor. At December 31, 2000, no
individual, corporate or public depositor accounted for more than approximately
1.5% of the Bank's total deposits, and the five largest deposit accounts
collectively represented 5% of total deposits.

DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY: INTEREST RATES AND
INTEREST DIFFERENTIAL

The following table sets forth the Company's condensed average balances for each
principal category of assets and liabilities and also for stockholders' equity
for each of the past two years. Average balances are based on daily averages for
the Bank and quarterly averages for VNB, since VNB did not maintain daily
average information. Management believes that the difference between quarterly
and daily average data (where quarterly data has been used) is not significant.


                                                                               3
<PAGE>   4

<TABLE>
<CAPTION>

(Dollars in Thousands)                                                  Year Ended December 31,
                                                                      2000                   1999
                                                              --------------------   -------------------
                                                               Average    Percent     Average     Percent
                                                               Balance    of Total    Balance     of Total
                                                              --------    --------    --------    -------
<S>                                                          <C>          <C>        <C>             <C>
Assets
      Investment Securities
          Taxable                                            $   8,650       7.6     $   9,177       7.8
      Federal funds sold                                         5,709       5.0         6,278       5.3
      Due from banks-time deposits                                 209       0.2           865       0.7
      FRB & Other Stock                                            182       0.2           177       0.2
      Loans                                                     82,436      72.8        84,781      72.2
      Reserve for loan and lease losses                           (735)     (0.6)         (676)     (0.6)
                                                             ---------     -----     ---------     -----
               Net Loans and Leases                             81,701      72.2        84,105      71.6
                                                             ---------     -----     ---------     -----
               Total Interest Earning Assets                    96,451      85.2       100,602      85.6
      Cash and non-interest earning deposits                     7,265       6.4         7,339       6.2
      Net premises, furniture and equipment                      5,773       5.1         6,282       5.4
      Other assets                                               3,676       3.3         3,267       2.8
                                                             ---------     -----     ---------     -----
               Total Assets                                  $ 113,165     100.0     $ 117,490     100.0
                                                             =========     =====     =========     =====
Liabilities and Stockholders' Equity
      Savings deposits 1                                        37,046      32.7        39,173      33.1
      Time deposits                                             27,719      24.5        33,279      31.9
      Short-term borrowings                                         18       0.0             0       0.0
                                                             ---------     -----     ---------     -----
               Total Interest-bearing Liabilities               64,783      57.2        72,452      65.0
      Demand deposits                                           37,097      32.8        34,134      26.2
      Other liabilities                                          2,372       2.1         1,909       1.3
                                                             ---------     -----     ---------     -----
               Total Liabilities                               104,252      92.1       108,495      92.5
Stockholders' Equity                                             8,913       7.9         8,995       7.5
                                                             ---------     -----     ---------     -----
               Total Liabilities and Stockholders' Equity    $ 113,165     100.0     $ 117,490     100.0
                                                             =========     =====     =========     =====
</TABLE>

(1) Includes Savings, NOW, Super NOW and Money Market Accounts.

INTEREST RATES AND DIFFERENTIALS

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

Information concerning average interest earning assets and interest bearing
liabilities, along with the average interest rates earned and paid thereon is
set forth in the following table. Averages were computed based upon daily
balances.



                                                                               4
<PAGE>   5

<TABLE>
<CAPTION>

(Dollars in Thousands)                                            2000                          1999
                                                      ----------------------------   -----------------------------
                                                      Average              Average   Average               Average
                                                      Balance    Interest   Yield    Balance     Interest    Yield
                                                      -------    --------   -----    -------     --------    -----
<S>                                                  <C>         <C>        <C>      <C>         <C>        <C>
Earning Asset
      Investment Securities
          U.S. Treasury(2)                           $      0           0    0.0%    $     63           3    4.8%
          U.S. Government agencies(2)                   8,706         495    5.7%       9,118         500    5.5%
                                                     --------    --------            --------    --------
              Total Investment Securities               8,706         495    5.7%       9,181         503    5.5%
      Federal funds sold                                5,709         365    6.4%       6,278         301    4.8%
      Due from banks - time deposits                      209          14    6.7%         865          45    5.2%
      FRB & Other Stock                                   182           9    4.9%         177           9    5.1%
      Loans(1)                                         82,436       8,082    9.8%      84,781       8,137    9.6%
                                                     --------    --------            --------    --------
               Total Interest Earning Assets         $ 97,242    $  8,965    9.2%    $101,282    $  8,995    8.9%
                                                     ========    ========            ========    ========
Interest Bearing Liabilities
      Domestic Deposits and Borrowed Funds
          Savings deposits(3)                          37,046         622    1.7%      39,173         661    1.7%
          Time deposits                                27,719       1,426    5.1%      33,279       1,543    4.6%
          Short-term borrowings                            18           1    5.6%           0           0    0.0%
                                                     --------    --------            --------    --------
               Total Interest Bearing Liabilities    $ 64,783    $  2,049    3.2%    $ 72,452    $  2,204    3.0%
                                                     ========    ========            ========    ========

</TABLE>

The table below shows the net interest earnings and the net yield on average
earning assets (net of the allowance for loan and lease losses).

<TABLE>
<CAPTION>

(Dollars in Thousands)                                              2000        1999
                                                                  ----------  ---------
<S>                                                                 <C>         <C>
Total interest income(1)                                             $ 8,965     $ 8,994
Total interest expense(4)                                              2,049       2,204
Total interest earnings(1)                                             6,916       6,790
Total average earning assets                                          97,238     101,282
Net yield on average earning assets(1)                                   7.1%        6.7%
Net yield on average earning assets (excluding loan fees)(1)             6.6%        6.1%
</TABLE>


(1) Loans, net of unearned income, include non-accrual loans but do not reflect
average allowance for loan and lease losses of $735,000 in 2000 and $676,000 in
1999. Loan fees of $463,000 in 2000 and $585,000 in 1999, are included in loan
interest income. There were three non-accruing loans totaling approximately
$307,000 at December 31, 2000 and three non-accruing loans totaling
approximately $495,000 at December 31, 1999.

(2) The yield for securities that are classified as available-for-sale is based
on historical amortized cost balances.

(3) Savings deposits includes savings, NOW, Super NOW and Money Market deposit
accounts.

(4) Includes Savings, NOW, Super NOW and Money Market Deposit Accounts, Time
Deposits and Federal Funds Purchased.

The following table sets forth the changes in interest earned, including loan
fees and interest paid. The net increase/(decrease) is segmented into the change
attributable to variations in volume and variations in interest rates. Changes
in the interest earned and interest paid due to both the rate and volume have
been allocated to the change due to volume and the change due to rate in
proportion to the relationship of the absolute dollar amounts of the changes in
each.


                                                                               5

<PAGE>   6

<TABLE>
<CAPTION>


(Dollars in Thousands)                 Investment  Federal            FRB &
                                       Securities   Funds             Other      Time
                                         Taxable    Sold   Loans(1)   Stock    Deposits    Total
                                       ---------- -------- -------- ---------  --------   -------
<S>                                    <C>        <C>      <C>      <C>        <C>        <C>
Interest Earned On:
2000 compared to 1999
      Increase/(decrease) due to:
          Volume changes                  $ (30)    $ (24)    $(248)    $--       $ (44)    $(346)
          Rate changes                       22        88       193      --          13       316
                                          -----     -----     -----     -----     -----     -----
               Net Increase/(Decrease)    $  (8)    $  64     $ (55)    $--       $ (31)    $ (30)
                                          =====     =====     =====     =====     =====     =====

Interest Earned On:
1999 compared to 1998
      Increase/(decrease) due to:
          Volume changes                  $ 202     $   9     $(194)    $   1     $  26     $  44
          Rate changes                      (14)       (8)     (201)       (2)       (1)     (226)
                                          -----     -----     -----     -----     -----     -----
               Net Increase/(Decrease)    $ 188     $   1     $(395)    $  (1)    $  25     $(182)
                                          =====     =====     =====     =====     =====     =====

</TABLE>


(1) Includes decrease in loan fees of $122,000 in 2000 and a decrease of $93,000
in 1999.

<TABLE>
<CAPTION>

(Dollars in Thousands)                            Savings        Time     Short-term
                                                Deposits(3)    Deposits   Borrowings(2)   Total
                                                -----------    --------   -------------   -----
<S>                                              <C>           <C>        <C>             <C>
Interest Paid On:
2000 compared to 1999
      Increase/(decrease) due to:
          Volume changes                            $ (35)       $(340)       $   1        $(374)
          Rate changes                                 (4)         223            0          219
                                                    -----        -----        -----        -----
                      Net Increase/(Decrease)       $ (39)       $(117)       $   1        $(155)
                                                    =====        =====        =====        =====

Interest Paid On:
1999 compared to 1998
      Increase/(decrease) due to:
          Volume changes                            $  22        $(150)                    $(128)
          Rate changes                                (17)        (203)                     (220)
                                                    -----        -----        -----        -----
                      Net Increase/(Decrease)       $   5        $(353)                    $(348)
                                                    =====        =====        =====        =====
</TABLE>


(2) Short-term Borrowings consist of Federal Funds Purchased.
(3)Savings deposits include saving, NOW, Super NOW and Money Market deposit
accounts.




INVESTMENT PORTFOLIO

The following table shows the book value of the portfolio of investment
securities at the end of each of the past two years. The Bank accounts for
investments in accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," which addresses the accounting for investments
in equity securities that have readily determinable fair values and for
investments in all debt securities. Securities are classified in three
categories and accounted for as follows: debt and equity securities that the
Bank has the positive intent and ability to hold to maturity are classified as
held-to-maturity and are measured at amortized cost; debt and equity securities
bought and held principally for the purpose of selling in the near term are
classified as trading securities and are measured at fair value, with unrealized
gains and losses included in earnings; debt and equity securities not classified
as either held-to-maturity or trading securities are deemed as
available-for-sale and are measured at fair value, with unrealized gains and
losses, net of applicable taxes, reported in a separate component of
stockholders' equity.


                                                                               6

<PAGE>   7


<TABLE>
<CAPTION>


                                            2000                  1999
                                       Available-for-Sale    Available-for-Sale
                                       ------------------    -----------------
<S>                                    <C>                   <C>
U.S. Agency Securities                       5,520                9,423
Other securities                                 7                    5
                                         ---------              -------
                                         $   5,527              $ 9,428
                                         =========              =======
</TABLE>


The following table shows the maturities of investment securities at December
31, 2000, and the weighted average yields of such securities.

<TABLE>
<CAPTION>



        (Dollars in Thousands)                     Due In          Due After One But
                                              One Year or Less     Within Five Years
                                              ------------------   ------------------
                                              Available-for-Sale   Available-for-Sale
                                              ------------------   ------------------
                                               Amount    Yield      Amount    Yield
                                              ---------  -------   ---------  -------
<S>                                           <C>        <C>       <C>        <C>
U.S. Agencies                                   $5,024    5.50%       $ 496    5.52%
</TABLE>


Other securities do not have a predetermined maturity date.

LOAN PORTFOLIO

The following table sets forth the amount of loans outstanding for each of the
past two years.


<TABLE>
<CAPTION>

              (Dollars in Thousands)                     December 31,
                                                  --------------------------
                                                      2000           1999
                                                  ----------      ----------
<S>                                               <C>             <C>
Types of Loans
      Domestic
      Commercial, financial and agricultural        $ 10,665        $ 14,671
      Real estate construction                         5,588           6,602
      Real estate mortgage                            51,291          45,370
      Installment loans to individuals                12,049          18,852
      Loans held for sale                                235             835
      All other loans (including overdrafts)             180             170
                                                    --------        --------
                                                      80,008          86,500
      Less:
          Unearned income                               (484)           (783)
          Allowance for loan and lease losses           (784)           (764)
                                                    --------        --------
                      Total                         $ 78,740        $ 84,953
                                                    ========        ========
</TABLE>


Real estate mortgage loans are comprised of multi-family real estate loans,
SFR's and commercial real estate loans which represent 1.3%, 12.2% and 49.5% of
total loan commitments respectively. The growth of commercial real estate loans
is the result of consistent promotions and competitive pricing.

Installment loan concentrations remain in auto loans, both indirect and direct.
The auto financing area exhibits a good diversity in customers and smaller loan
totals. Indirect dealer loans represent approximately 28% of total installment
loans. Approximately 90% of all indirect loans are "A/B" paper. While the Bank
goes to adequate lengths to assess its auto dealers, the risks are evident with
this type of financing.

MATURITIES AND SENSITIVITIES TO INTEREST RATES

The following table shows the maturities and sensitivities to changes in
interest rates on loans outstanding at December 31, 2000.



                                                                               7
<PAGE>   8

<TABLE>
<CAPTION>

               (Dollars in Thousands)                                         Maturing
                                                                 ------------------------------------
                                                                   Within       One to         After
                                                                  One Year     Five Years    Five Years      Total
                                                                 ----------   ----------    ----------     --------
<S>                                                              <C>          <C>           <C>           <C>
Domestic
      Commercial, financial and agricultural                      $ 7,067       $ 3,176       $   422       $10,665
      Real estate construction                                      5,588         5,588
      Real estate mortgage                                          9,555        24,992        16,979        51,526
      Installment loans to individuals                              2,550         8,634           865        12,049
      All other loans                                                 180                                       180
                                                                  -------       -------       -------       -------
                      Total                                       $24,940       $36,802       $18,266       $80,008
                                                                  =======       =======       =======       =======

Loans and leases with predetermined interest rates                  4,677        17,754        18,266        40,697
Loans and leases with floating or adjustable interest rates        20,263        19,048        39,311
                                                                  -------       -------       -------       -------
                      Total                                       $24,940       $36,802       $18,266       $80,008
                                                                  =======       =======       =======       =======

</TABLE>


ASSET/LIABILITY MANAGEMENT

The table below sets forth information concerning the interest rate sensitivity
of the Company's consolidated assets and liabilities as of December 31, 2000.
Assets and liabilities are classified by the earliest possible repricing date or
maturity, whichever comes first.

Generally, where rate-sensitive assets exceed rate-sensitive liabilities, the
net interest margin is expected to be positively impacted during periods of
increasing interest rates and negatively impacted during periods of decreasing
interest rates. When rate-sensitive liabilities exceed rate-sensitive assets
generally the net interest margin will be negatively affected during periods of
increasing interest rates and positively affected during periods of decreasing
interest rates. However, because interest rates for different asset and
liability products offered by depository institutions respond in a different
manner, both in terms of the responsiveness as well as the extent of the
responsiveness to changes in the interest rate environment, the interest rate
sensitivity gap is only a general indicator of interest rate sensitivity. Based
upon the interest rate sensitivity gap set forth below and the fact that the
Bank's demand and savings deposits, which comprised more than 47% of its total
deposits at December 31, 2000, have tended to be relatively insensitive to
rising interest rates, management believes that the Company's net interest
margin will not be significantly impacted by changes in interest rates.

RISK ELEMENTS

<TABLE>
<CAPTION>

(Dollars in Thousands)                         Three      Over Three      Over One
                                               Months      Through         Through        Over       Non-interest
                                              or Less     12 Months       Five Years    Five Years       Bearing        Total
                                              -------     ---------       ----------    ----------    -------------    -------
<S>                                           <C>         <C>             <C>           <C>           <C>              <C>
Assets
      Interest-bearing deposits
        in other financial institutions                      $    198                                                  $    198
      Federal funds Sold                      $  8,405                                                                    8,405
      Investment securities                      2,998       $  2,026       $    496                    $      7          5,527
      Net loans and leases                      16,865          7,805         36,765      $ 18,266          (961)        78,740
      Noninterest-bearing assets                                                                          17,883         17,883
                                              --------       --------       --------      --------      --------       --------
             Total Assets                     $ 28,268       $ 10,029       $ 37,261      $ 18,266      $ 16,929       $110,753
                                              ========       ========       ========      ========      ========       ========
Liabilities and Stockholders' Equity
      Noninterest-bearing deposits                                                                        36,856         36,856
      Interest-bearing deposits                 45,176         15,773          1,778                                     62,727
      Other liabilities                                                                                    1,875          1,875
Stockholders' Equity                                                                                       9,295          9,295
                                              --------       --------       --------      --------      --------       --------
             Total Liabilities and
             Stockholders' Equity             $ 45,176       $ 15,773       $  1,778      $      0      $ 48,026       $110,753
                                              ========       ========       ========      ========      ========       ========

Interest Rate Sensitivity Gap                 $(16,908)      $ (5,744)      $ 35,483      $ 18,266      $(31,097)      $      0
                                              ========       ========       ========      ========      ========       ========
Cumulative Interest Rate Sensitivity Gap      $(16,908)      $(22,652)      $ 12,831      $ 31,097      $      0       $      0
                                              ========       ========       ========      ========      ========       ========

</TABLE>

                                                                               8

<PAGE>   9




The Company's management also utilizes the results of a dynamic simulation model
to quantify the estimated exposure of net interest income to sustained interest
rate changes. The simulation model estimates the impact of changing interest
rates on the interest income from all interest earning assets and the interest
expense paid on all interest bearing liabilities reflected on the Company's
balance sheet. This sensitivity analysis is compared to policy limits which
specify a maximum tolerance level for net interest income exposure over a one
year horizon assuming no balance sheet growth, given both a 200 basis point
upward and downward shift in interest rates. A parallel and pro rata shift in
rates over a 12-month period is assumed.

The following reflects the Company's net interest income sensitivity analysis as
of December 31, 2000:

<TABLE>
<CAPTION>
            (Dollars in Thousands)           Estimated Net           Market Value
          Simulated                         Interest Income     ------------------------
         Rate Changes                         Sensitivity       Assets       Liabilities
         ------------                       ---------------     ------       -----------
<S>                                         <C>                <C>           <C>
         +200 Basis Points                       3.9%          $108,408        $100,487
         -200 Basis Points                      -4.6%          $112,680        $103,482

</TABLE>

The estimated sensitivity does not necessarily represent a Company forecast and
the results may not be indicative of actual changes to the Company's net
interest income. These estimates are based upon a number of assumptions
including: the nature and timing of interest rate levels including yield curve
shape, prepayments on loans and securities, pricing strategies on loans and
deposits, replacement of asset and liability cashflows, and other assumptions.
While the assumptions used are based on current economic and local market
conditions, there is no assurance as to the predictive nature of these
conditions including how customer preferences or competitor influences might
change.

NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS

<TABLE>
<CAPTION>

                  (Dollars in Thousands)                 December 31,
                                                     --------------------
                                                       2000         1999
                                                     --------     -------
<S>                                                   <C>         <C>
Accruing Loans More Than 90 Days Past Due(1)
      Aggregate loan amounts
          Commercial, financial and agricultural
          Real estate
          Installment loans to individuals              $ 25        $ 14
      Aggregate leases
Renegotiated loans(2)
Non-accrual loans(3)
      Aggregate loan amounts
          Commercial                                     131         269
          Real estate                                    176         226
                                                        ----        ----
                                                        $332        $509
                                                        ====        ====
</TABLE>


(1) Reflects loans for which there has been no payment of interest and/or
principal for 90 days or more. Ordinarily, loans are placed on non-accrual
status (accrual of interest is discontinued) when the Bank has reason to believe
that continued payment of interest and principal is unlikely.

(2) Renegotiated loans are those which have been renegotiated to provide a
deferral of interest or principal.

(3) There were three loans on non-accrual status totaling approximately $307,000
at December 31, 2000, and three loans totaling approximately $495,000 at
December 31, 1999. The amount of interest that would have been collected on
these loans had they remained current in accordance with their original terms
was $9,000 in 2000 and $23,000 in 1999, respectively.



                                                                               9
<PAGE>   10


POTENTIAL PROBLEM LOANS

The policy of the Company is to review each loan in the portfolio to identify
problem credits. In addition, as an integral part of its regular examination of
the Bank, the Comptroller also identifies problem loans. There are three
classifications for problem loans: "substandard," "doubtful," and "loss."
Substandard loans have one or more defined weaknesses and are characterized by
the distinct possibility that the Bank will sustain some loss if the
deficiencies are not corrected. Doubtful loans have the weaknesses of
substandard loans with the additional characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
conditions and values, questionable.

A loan classified loss is considered uncollectible and of such little value that
the continuance as an asset of the institution is not warranted. Another
category designated "special mention" is maintained for loans which do not
currently expose the Bank to a sufficient degree of risk to warrant
classification as substandard, doubtful or loss but do possess credit
deficiencies for potential weaknesses deserving management's close attention.

As of December 31, 2000, the Bank's classified loans consist of $3,692,000 of
loans classified as substandard and $21,000 of loans classified as loss. The
Bank's $3,692,000 in loans classified as substandard consisted of $3,406,000 of
performing loans and $311,000 of non-accrual loans and loans delinquent 90 days
or more but still accruing.

Consumer loans which are 120 days or more delinquent and not insured or
guaranteed by the U.S. Government, are generally charged off. All other loans
are charged off at such time the loan is classified as loss. Losses are
recognized in the period in which the asset is deemed uncollectible.

With the exception of these loans, management is not aware of any loans as of
December 31, 2000, where the known credit problems of the borrower would cause
it to have serious doubts as to the ability of such borrowers to comply with
their present loan repayment terms and which would result in such loans being
included in the non-accrual, past due and restructured loan table set forth
above at some future date. Management cannot, however, predict the extent to
which the current economic environment may persist or worsen or the full impact
such environment may have on the Bank's loan portfolio. Furthermore, management
cannot predict the results of any subsequent examinations of the Bank's loan
portfolio by the Comptroller. Accordingly, there can be no assurance that other
loans will not become included in the table above in the future. FOREIGN
OUTSTANDINGS

The Bank did not have any loans, acceptances, interest-bearing deposits or other
monetary assets of any foreign country.

LOAN CONCENTRATIONS

The Bank does not have loans made to borrowers who are engaged in similar
activities where the aggregate amount of the loans exceeds 10% of their loan
portfolio that are not broken out as a separate category in the loan portfolio.

OTHER INTEREST-BEARING ASSETS

The Bank does not have any interest-bearing assets for which management believes
that recovery of the interest on and principal thereof is at significant risk.

SUMMARY OF LOAN AND LEASE LOSS EXPERIENCE

The following table sets forth an analysis of the Bank's loan and lease
experience, by category, for the past two years.



                                                                              10
<PAGE>   11

<TABLE>
<CAPTION>

(Dollars in Thousands)                                                                   December 31,
                                                                                    -----------------------
                                                                                      2000           1999
                                                                                    -------         -------
<S>                                                                                <C>             <C>
Loans and Leases Outstanding, Year-end(1)                                           $79,524         $85,717
                                                                                    =======         =======
Average Amount of Loans and Leases Outstanding(1)                                   $82,436         $84,791
                                                                                    =======         =======
Loans and Lease Loss Reserve Balance, Beginning of year                             $   764         $   686
                                                                                    -------         -------
Allowance on Loans Acquired in Business Combination
      Charge-offs
          Domestic
              Commercial, financial and agricultural                                    305              94
              Real estate - construction
              Real estate - mortgage
              Consumer loans                                                             61             103
              Lease financing
                                                                                    -------         -------
                                                                                        366             197
      Foreign
                                                                                    -------         -------
                                                                                        366             197
                                                                                    -------         -------
      Recoveries
          Domestic
              Commercial, financial and agricultural                                    110              27
              Real estate - construction
              Real estate - mortgage
              Consumer loans                                                             20              82
              Lease financing
                                                                                    -------         -------
                                                                                        130             109
      Foreign
                                                                                    -------         -------
                      Net Charge-offs/(recoveries)                                      236              88
                                                                                    -------         -------
      Additions/(Reductions) charged to operations                                      256             166
                                                                                    -------         -------
Allowance for Loan and Lease Loss, End of year                                      $   784         $   764
                                                                                    =======         =======
Ratio of Net Charge-offs/(Recoveries) During the Year
 to Average Loans and Leases Outstanding During the Year                               0.29%           0.10%
                                                                                    =======         =======
Ratio of Allowance for Loan and Lease Losses to Loans and Leases at Year-end           0.99%           0.89%
                                                                                    =======         =======
</TABLE>


(1) Net of unearned income

The allowance for loan losses is maintained through provisions, charged to
operating expenses, at a level considered adequate to provide for potential loan
losses, based on management's evaluation of the composition of the loan
portfolio, the performance of the loans in the portfolio, evaluations of loan
collateral, prior loss experience, current economic conditions and the prospects
or worth of respective borrowers or guarantors. In addition, the Comptroller, as
an integral part of its examination process, periodically reviews the Bank's
allowance for loan losses. The Comptroller may require the Bank to recognize
additions to the allowance based upon its judgment of the information available
to it at the time of examination. The Bank was most recently examined by the
Comptroller as of December 31, 2000. Although, as yet, a report of examination
has not been issued which, when subsequently issued, may require the Bank to
recognize additions to the allowance.

The risk of non-payment of loans is an inherent feature of the banking business.
That risk varies with the type and purpose of the loan, the collateral which is
utilized to secure payment, and, ultimately, the creditworthiness of the
borrower. In order to minimize this credit risk, the Bank has established
lending limits for each of its officers having lending authority, in each case
based upon the officer's experience level and prior performance. Whenever a
proposed loan by itself, or when aggregated with outstanding extensions of
credit to the same borrower, exceeds the officer's lending limits, the loan must
be approved by the Bank's lending committee which is comprised of three
directors, the President and Executive Vice President/Chief Credit Officer of
the Bank. In addition, each loan officer has primary responsibility to conduct
credit documentation reviews of all loans made by that officer.

The Bank also maintains a program of periodic review of all existing loans. The
Bank retains an outside consultant to review all loans and leases made, with
emphasis placed on large credits. Loans and leases are reviewed for
creditworthiness as well as documentation and compliance with the Bank's lending
policies. Problem loans or leases identified in the review process are scheduled
for special attention and remedial action and, where appropriate, reserves


                                                                              11
<PAGE>   12




are established for such loans and leases. For a discussion of the Bank's
problem credits as of December 31, 2000, see "RISK ELEMENTS - Non-accrual, Past
Due and Restructured Loans and Potential Problem Loans."

The Bank accounts for impaired loans in accordance with SFAS No. 114, (as
amended by SFAS No. 118), "Accounting by Creditors for Impairment of a Loan."
Under SFAS No. 114, a loan is impaired when it is "probable" that the creditor
will be unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. All loans identified as
"impaired" are to be measured on the present value of expected future cash flows
discounted at the loan's effective interest rate, except that as a practical
expedient, a creditor may measure impairment based on a loan's observable market
price, or the fair value of the collateral if the loan is collateral dependent.
Loan impairment is evaluated on a loan-by-loan basis as part of normal loan
review procedures at the Bank.

Loans are placed on non-accrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more or when
the loan is fully secured and in process of collection. Any unpaid interest
previously accrued on those loans is reversed from income. Interest income
generally is not recognized on specific impaired loans unless the likelihood of
further loss is remote. Interest payments received on such loans are applied as
a reduction of the loan principal balance.

All loans on non-accrual are measured for impairment. The Bank applies the
measurement provision of SFAS No. 114 to all loans in its portfolio except for
installment loans which are charged off after 120 days of delinquency. All other
loans are generally charged off at such time the loan is classified loss.

At December 31, 2000 and 1999, the Bank had loans amounting to approximately
$307,000 and $495,000, respectively, that were specifically classified as
impaired. The average balance of these loans amounted to approximately $245,000
and $164,000 for the year ended December 31, 2000 and 1999, respectively. The
allowance for loan losses related to these impaired loans amounted to $21,000 at
December 31, 2000 and $0 at December 31, 1999.

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

Although the Bank does not normally allocate the allowance for loan and lease
losses to specific loan categories, an allocation to the major categories has
been made for the purposes of this report as set forth in the following table.
The allocations are estimates based upon historical loss experience and
management's judgment.

<TABLE>
<CAPTION>

(Dollars in Thousands)                                                Year Ended December 31,
                                                         --------------------------------------------------
                                                                   2000                      1999
                                                         -------------------------  -----------------------
                                                                      Percent of               Percent of
                                                                       Loans in                 Loans in
                                                         Allowance       Each       Allowance     Each
                                                         for Loan     Category to   for Loan   Category to
                                                          Losses      Total Loans    Losses    Total Loans
                                                         ----------   ------------  ---------  ------------
<S>                                                      <C>          <C>           <C>        <C>
Domestic
      Commercial, financial and agricultural                $  180           15.8      $  78          17.0
      Real estate                                              145           66.0                     61.2
      Installment loans to individuals                          24           18.2         10          21.8
      Lease financing
Foreign
Unallocated allowance                                          435                       676
                                                           --------      --------    --------       -------
                      Total                                 $  784          100.0      $ 764         100.0
                                                           ========      ========    ========       =======
</TABLE>



The allocation of the allowance for loan and lease losses should not be
interpreted as an indication that charge-offs will occur in these amounts or
proportions, or that the allocation indicates future charge-off trends.
Furthermore, the portion allocated to each loan category is not the total amount
available for future losses that might occur within such categories, since even
in the reserve there is an unallocated portion, and, as previously stated, the
total reserve is a general reserve applicable to the entire portfolio.




                                                                              12
<PAGE>   13


DEPOSITS

The average amount of and the average rate paid on deposits is summarized below:

<TABLE>
<CAPTION>

(Dollars in Thousands)                                        Year Ended December 31,
                                                     ------------------------------------------
                                                            2000                   1999
                                                     --------------------  --------------------
                                                     Average    Average     Average     Average
                                                     Balance      Rate      Balance      Rate
                                                     ---------  ---------  ----------   -------
<S>                                                   <C>       <C>         <C>         <C>
In Domestic Offices
      Noninterest bearing demand deposits             $37,097                $34,134
      Savings deposits(1)                              37,046       1.7%      39,173       1.7%
      Time deposits                                    27,719       5.1%      33,279       4.6%
                                                     --------              ---------
                      Total Deposits                 $101,862       3.2%    $106,586       3.0%
                                                     ========              =========

</TABLE>


(1) Includes Savings, NOW, Super NOW and Money Market Deposit Accounts.

Set forth below is a maturity schedule of domestic time certificates of deposit
of $100,000 or more:

<TABLE>
<CAPTION>

(Dollars In Thousands)                                    December 31,
                                                              2000
                                                          ------------
<S>                                                       <C>
Three months or less                                       $   2,483
Over three through 12 months                                   3,835
Over one through Five Years                                      208
                                                           $   6,526
                                                           ==========
</TABLE>


RETURN ON EQUITY AND ASSETS

The following table sets forth the ratios of net income to average total
assets/(return on assets), net income to average equity/(return on equity),
dividends declared per share to net income per share/(dividend payout ratio),
and average equity to average total assets/(equity to asset ratio).

<TABLE>
<CAPTION>

                                                 2000         1999
                                               --------     --------
<S>                                            <C>          <C>
Return on assets                                 0.55%       -0.02%
Return on equity                                 6.96%       -0.28%
Dividend payout ratio
Equity to asset ratio                            7.88%        7.65%

</TABLE>

COMPETITION

The Bank faces substantial competition for deposits and loans throughout its
market areas. The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings institutions, credit unions, money market
funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of
lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings institutions, mortgage banking
firms, credit unions and other financial intermediaries. The Bank faces
competition for deposits and loans throughout its market areas not only from
local institutions but also from out-of-state financial intermediaries which
have opened loan production offices or which solicit deposits in its market
areas. Many of the financial intermediaries operating in the Bank's market areas
offer certain services, such as trust, investment and international banking
services, which the Bank does not offer directly. Additionally, banks with
larger capitalization and financial intermediaries not subject to bank
regulatory restrictions have large lending limits and are thereby able to serve
the needs of larger customers.



                                                                              13
<PAGE>   14


Neither the deposits nor loans of any office of the Bank exceed 1% of the
aggregate loans or deposits of all financial intermediaries located in the
counties in which such offices are located.

EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION

Banking is a business which depends largely on rate differentials. In general,
the difference between the interest rate paid by the Bank on its deposits and
its other borrowings and the interest rate received by the Bank on loans
extended to its customers and securities held in the Bank's portfolio comprise
the major portion of the Company's earnings. These rates are highly sensitive to
many factors that are beyond the control of the Bank. Accordingly, the earnings
and growth of the Company are subject to the influence of domestic and foreign
economic conditions, including inflation, recession and unemployment.

The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Federal Reserve Board. The Federal Reserve Board implements national monetary
policies (with objectives such as curbing inflation and combating recession) by
its open-market operations in United States Government securities, by adjusting
the required level of reserves for financial institutions subject to its reserve
requirements and by varying the discount rates applicable to borrowings by
depository institutions. The actions of the Federal Reserve Board in these areas
influence the growth of bank loans, investments and deposits and also affect
interest rates charged on loans and paid on deposits. The nature and impact of
any future changes in monetary policies cannot be predicted.

From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, in the California legislature and
before various bank regulatory and other professional agencies. The likelihood
of any major legislative changes and the impact such changes might have on the
Company are impossible to predict. See "ITEM 1. BUSINESS - Supervision and
Regulation."

SUPERVISION AND REGULATION

Bank holding companies and banks are extensively regulated under both federal
and state law. Set forth below is a summary description of certain laws and
regulations which relate to the regulation of the Company and the Bank. The
description does not purport to be a complete summary of all such authority and
is qualified in its entirety by reference to the applicable laws and
regulations.

THE COMPANY. The Company, as a registered bank holding company, is subject to
regulation under the Bank Holding Company Act of 1956, as amended (the "BHCA").
The Company is required to file with the Federal Reserve Board quarterly and
annual reports and such additional information as the Federal Reserve Board may
require pursuant to the BHCA. The Federal Reserve Board may conduct examinations
of the Company and its subsidiaries.

The Federal Reserve Board may require that the Company terminate an activity or
terminate control of or liquidate or divest certain subsidiaries or affiliates
when the Federal Reserve Board believes the activity or the control of the
subsidiary or affiliate constitutes a significant risk to the financial safety,
soundness or stability of any of its banking subsidiaries. The Federal Reserve
Board also has the authority to regulate provisions of certain bank holding
company debt, including authority to impose interest ceilings and reserve
requirements on such debt. Under certain circumstances, the Company must file
written notice and obtain approval from the Federal Reserve Board prior to
purchasing or redeeming its equity securities.

Under the BHCA and regulations adopted by the Federal Reserve Board, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. Further, the Company is required by
the Federal Reserve Board to maintain certain levels of capital. See "ITEM 1.
BUSINESS - Supervision and Regulation - Capital Standards." The Company is
required to obtain the prior approval of the Federal Reserve Board for the
acquisition of more than 5% of the outstanding shares of any class of voting
securities or substantially all of the assets of any bank or bank holding
company. Prior approval of the Federal Reserve Board is also required for the
merger or consolidation of the Company and another bank holding company.

The Company is prohibited by the BHCA, except in certain statutorily prescribed
instances, from acquiring direct or indirect ownership or control of more than
5% of the outstanding voting shares of any company that is not a bank or bank
holding company and from engaging directly or indirectly in activities other
than those of banking, managing or



                                                                              14
<PAGE>   15




controlling banks or furnishing services to its subsidiaries. However, the
Company, subject to the prior approval of the Federal Reserve Board, may engage
in any, or acquire shares of companies engaged in, activities that are deemed by
the Federal Reserve Board to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making any such
determination, the Federal Reserve Board is required to consider whether the
performance of such activities by the Company or an affiliate can reasonably be
expected to produce benefits to the public, such as greater convenience,
increased competition or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The Federal
Reserve Board is also empowered to differentiate between activities commenced DE
NOVO and activities commenced by acquisition, in whole or in part, of a going
concern.

Under Federal Reserve Board regulations, a bank holding company is required to
serve as a source of financial and managerial strength to its subsidiary banks
and may not conduct its operations in an unsafe or unsound manner. In addition,
it is the Federal Reserve Board's policy that in serving as a source of strength
to its subsidiary banks, a bank holding company should stand ready to use
available resources to provide adequate capital funds to its subsidiary banks
during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve Board to be an unsafe and
unsound banking practice or a violation of the Federal Reserve Board's
regulations or both. This doctrine has become known as the "source of strength"
doctrine. Although the United States Court of Appeals for the Fifth Circuit
found the Federal Reserve Board's source of strength doctrine invalid in 1990,
stating that the Federal Reserve Board had no authority to assert the doctrine
under the BHCA, the decision, which is not binding on federal courts outside the
Fifth Circuit, was recently reversed by the United States Supreme Court on
procedural grounds. The validity of the source of strength doctrine is likely to
continue to be the subject of litigation until definitively resolved by the
courts or by Congress.

The Company is also a bank holding company within the meaning of Section 3700 of
the California Financial Code. As such, the Company and its subsidiaries are
subject to examination by, and may be required to file reports with, the
California State Banking Department.

Finally, the Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, including but not limited to,
filing annual, quarterly and other current reports with the Securities and
Exchange Commission.

THE BANK. The Bank, as a national banking association, is subject to primary
supervision, examination and regulation by the Office of the Comptroller of the
Currency ("Comptroller"). If, as a result of an examination of a Bank, the
Comptroller should determine that the financial condition, capital resources,
asset quality, earnings prospects, management, liquidity or other aspects of the
Bank's operations are unsatisfactory or that the Bank or its management is
violating or has violated any law or regulation, various remedies are available
to the Comptroller. Such remedies include the power to enjoin "unsafe or unsound
practices," to require affirmative action to correct any conditions resulting
from any violation or practice, to issue an administrative order that can be
judicially enforced, to direct and increase in capital, to restrict the growth
of the Bank, to assess civil monetary penalties, and to remove officers and
directors. The FDIC has similar enforcement authority, in addition to its
authority to terminate a Bank's deposit insurance in the absence of action by
the Comptroller and upon finding that a Bank is in an unsafe or unsound
condition, is engaging in unsafe or unsound activities, or that its conduct
poses a risk to the deposit insurance fund or make prejudice the interest of its
depositors.

The deposits of the Bank are insured by the FDIC in the manner and to the extent
provided by law. For this protection, the Bank pays a semiannual statutory
assessment. See "ITEM 1. BUSINESS - Supervision and Regulation Premiums for
Deposit Insurance." The Bank is also subject to certain regulations of the
Federal Reserve Board and applicable provisions of California law, insofar as
they do not conflict with or are not preempted by federal banking law.

Various other requirements and restrictions under the laws of the United States
and the State of California affect the operations of the Bank. Federal and
California statutes and regulations relate to many aspects of the Bank's
operations, including reserves against deposits, interest rates payable on
deposits, loans, investments, mergers and acquisitions, borrowings, dividends,
locations of branch offices, capital requirements and disclosure obligations to
depositors and borrowers. Further, the Bank is required to maintain certain
levels of capital. See "ITEM 1. BUSINESS - Supervision and Regulation - Capital
Standards."

RESTRICTIONS ON DIVIDENDS BY THE COMPANY AND TRANSFERS OF FUNDS TO THE COMPANY
BY THE BANK. The Company is a legal entity separate and distinct from the Bank.
The Company's ability to pay cash dividends is limited by California law. Under
California law, shareholders of the Company may receive dividends when and as
declared by the Board of


                                                                              15
<PAGE>   16

Directors out of funds legally available for such purpose. With certain
exceptions, a California corporation may not pay a dividend to its shareholders
unless (i) its retained earnings equal at least the amount of the proposed
dividend, or (ii) after giving effect to the dividend, the corporation's assets
would equal at least 1.25 times its liabilities and, for corporations with
classified balance sheets, the current assets of the corporation would be at
least equal to its current liabilities or, if the average of the earnings of the
corporation before taxes on income and before interest expense for the two
preceding fiscal years was less than the average of the interest expense of the
corporation for those fiscal years, at least equal to 1.25 times its current
liabilities.

Federal Reserve Board policy prohibits a bank holding company from declaring or
paying a cash dividend which would impose undue pressure on the capital of
subsidiary banks or would be funded only through borrowings or other
arrangements that might adversely affect the holding company's financial
position. The policy further declares that a bank holding company should not
continue its existing rate of cash dividends on its common stock unless its net
income is sufficient to fully fund each dividend and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality and
overall financial condition. Other Federal Reserve Board policies forbid the
payment by bank subsidiaries to their parent companies of management fees which
are unreasonable in amount or exceed the fair market value of the services
rendered.

There are statutory and regulatory limitations on the amount of dividends which
may be paid to the Company by the Bank. The prior approval of the Comptroller is
required if the total of all dividends declared by a national bank in any
calendar year exceeds the bank's net profits (as defined) for that year combined
with its retained net profits (as defined) for the preceding two years, less any
transfers to surplus.

The Comptroller has authority to prohibit the Bank from engaging in activities
that, in the Comptroller's opinion, constitute unsafe or unsound practices in
conducting its business. It is possible, depending upon the financial condition
of the bank in question and other factors, that the Comptroller could assert
that the payment of dividends or other payments might, under some circumstances,
be such an unsafe or unsound practice. Further, the Comptroller and the Federal
Reserve Board have established guidelines with respect to the maintenance of
appropriate levels of capital by banks or bank holding companies under their
jurisdiction. Compliance with the standards set forth in such guidelines and the
restrictions that are or may be imposed under the prompt corrective action
provisions of federal law could limit the amount of dividends which the Bank or
the Company may pay. See "ITEM 1. BUSINESS - Supervision and Regulation - Prompt
Corrective Regulatory Action and Other Enforcement Mechanisms" and - "Capital
Standards" for a discussion of these additional restrictions on capital
distributions.

At present, substantially all of the Company's revenues, including funds
available for the payment of dividends and other operating expenses, is, and
will continue to be, primarily dividends paid by the Bank.

The Bank is subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, the Company or other affiliates, the purchase of or investments in
stock or other securities thereof, the taking of such securities as collateral
for loans and the purchase of assets of the Company or other affiliates. Such
restrictions prevent the Company and such other affiliates from borrowing from
the Bank unless the loans are secured by marketable obligations of designated
amounts. Further, such secured loans and investments by the Bank to or in the
Company or to or in any other affiliate is limited to 10% of the Bank's capital
and surplus (as defined by federal regulations) and such secured loans and
investments are limited, in the aggregate, to 20% of the Bank's capital and
surplus (as defined by federal regulations). California law also imposes certain
restrictions with respect to transactions involving the Company and other
controlling persons of the Bank. Additional restrictions on transactions with
affiliates may be imposed on the Bank under the prompt corrective action
provisions of federal law. See "ITEM 1. BUSINESS - Supervision and Regulation
Prompt Corrective Regulatory Action and Other Enforcement Mechanisms."

POTENTIAL AND EXISTING ENFORCEMENT ACTIONS. Commercial banking organizations,
such as the Bank, and their institution-affiliated parties, which include the
Company, may be subject to potential enforcement actions by the Federal Reserve
Board, and the Comptroller for unsafe or unsound practices in conducting their
businesses or for violations of any law, rule, regulation or any condition
imposed in writing by the agency or any written agreement with the agency.
Enforcement actions may include the imposition of a conservator or receiver, the
issuance of a cease-and-desist order that can be judicially enforced, the
termination of insurance of deposits, the imposition of civil money penalties,
the issuance of directives to increase capital, the issuance of formal and
informal agreements, the issuance of removal and prohibition orders against
institution-affiliated parties and the imposition of restrictions and sanctions
under the prompt corrective action provisions of the FDIC Improvement Act of
1991. Additionally, a holding company's inability to serve as a source of
strength to its subsidiary banking organizations could serve as an additional
basis for a regulatory action against the holding company.


                                                                              16
<PAGE>   17



CAPITAL STANDARDS. The Federal Reserve Board and the Comptroller have adopted
risk-based minimum capital guidelines intended to provide a measure of capital
that reflects the degree of risk associated with a banking organization's
operations for both transactions reported on the balance sheet as assets and
transactions, such as letters of credit and recourse arrangements, which are
recorded as off balance sheet items. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off balance sheet items are
multiplied by one of several risk adjustment percentages, which range from 0%
for assets with low credit risk, such as certain U.S. Treasury securities, to
100% for assets with relatively high credit risk, such as business loans.

A banking organization's risk-based capital ratios are obtained by dividing its
qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which includes off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. Tier 1 capital consists primarily of common stock,
retained earnings, noncumulative perpetual preferred stock (cumulative perpetual
preferred stock for bank holding companies) and minority interests in certain
subsidiaries, less most intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for possible loan and lease losses, cumulative
preferred stock, long term preferred stock, eligible term subordinated debt and
certain other instruments with some characteristics of equity. The inclusion of
elements of Tier 2 capital is subject to certain other requirements and
limitations of the federal banking agencies. The federal banking agencies
require a minimum ratio of qualifying total capital to risk-adjusted assets of
8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%.

In addition to the risked-based guidelines, federal banking regulators require
banking organizations to maintain a minimum amount of Tier 1 capital to total
assets, referred to as the leverage ratio. For a banking organization rated in
the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. For all banking organizations not rated in the highest category, the minimum
leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or
4% to 5%. In addition to these uniform risk-based capital guidelines and
leverage ratios that apply across the industry, the regulators have the
discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.

Future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of the Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends.

The following table presents the amounts of regulatory capital and the capital
ratios for the Bank, compared to its minimum regulatory capital requirements, as
of December 31, 2000. [GRAPHIC OMITTED]At December 31, 2000 , the Company's
capital ratios were substantially the same as the Bank.

<TABLE>
<CAPTION>

(Dollars in Thousands)                              December 31, 2000
                                            --------------------------------
                                                  Actual           Minimum
                                            -------------------    Capital
                                             Amount     Ratio    Requirement
                                            --------   --------  -----------
<S>                                         <C>        <C>       <C>
Leverage ratio                               $9,281      8.41%        4.0%
Tier 1 risk-based ratio                       9,281     10.44%        4.0%
Total risk-based ratio                       10,065     11.33%        8.0%
</TABLE>


PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS. Federal law requires
each federal banking agency to take prompt corrective action to resolve the
problems of insured depository institutions, including but not limited to those
that fall below one or more prescribed minimum capital ratios. The law required
each federal banking agency to promulgate regulations defining the following
five categories in which an insured depository institution will be placed, based
on the level of its capital ratios: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.

In September 1992, the federal banking agencies issued uniform final regulations
implementing the prompt corrective action provisions of federal law. Under these
regulations, an insured depository institution will be classified in the
following categories:

     o    "well capitalized" if it (i) has total risk-based capital of 10% or
          greater, Tier I risk-based capital of 6% or greater and a leverage
          ratio of 5% or greater, and (ii) is not subject to an order, written
          agreement, capital directive or prompt corrective action directive to
          meet and maintain a specific capital level for any capital measure;


                                                                              17

<PAGE>   18

     o    "adequately capitalized" if it has total risk-based capital of 8% or
          greater, Tier 1 risk-based capital of 4% or greater and a leverage
          ratio of 4% or greater (or a leverage ratio of 3% or greater if the
          institution is rated Composite I under the applicable regulatory
          rating system in its most recent report of examination);

     o    "undercapitalized" if it has total risk-based capital that is less
          than 8%, Tier 1 risk-based capital that is less than 4% or a leverage
          ratio that is less than 4% (or a leverage ratio that is less than 3%
          if the institution is rated Composite I under the applicable
          regulatory rating system in its most recent report of examination);

     o    "significantly undercapitalized" if it has total risk-based capital
          that is less than 6%, Tier 1 risk-based capital that is less than 3%
          or a leverage ratio that is less than 3%; and

     o    "critically undercapitalized" if it has a ratio of tangible equity to
          total assets that is equal to or less than 2%.

An institution that, based upon its capital levels, is classified as "`well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.

The law prohibits insured depository institutions from paying management fees to
any controlling persons or, with certain limited exceptions, making capital
distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized;
(ii) is based on realistic assumptions; and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at the
time the institution became undercapitalized, or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt correction action provisions.

An insured depository institution that is significantly undercapitalized, or is
undercapitalized and fails to submit, or in a material respect to implement, an
acceptable capital restoration plan, is subject to additional restrictions and
sanctions. These include, among other things (i) a forced sale of voting shares
to raise capital or, if grounds exist for appointment of a receiver or
conservator, a forced merger; (ii) restrictions on transactions with affiliates;
(iii) further limitations on interest rates paid on deposits; (iv) further
restrictions on growth or required shrinkage; (v) modification or termination of
specified activities; (vi) replacement of directors or senior executive
officers; (vii) prohibitions on the receipt of deposits from correspondent
institutions; (viii) restrictions on capital distributions by the holding
companies of such institutions; (ix) required divestiture of subsidiaries by the
institution; or (x) other restrictions as determined by the appropriate federal
banking agency. Although the appropriate federal banking agency has discretion
to determine which of the foregoing restrictions or sanctions it will seek to
impose, it is required to force a sale of voting shares or merger, impose
restrictions on affiliate transactions and impose restrictions on rates paid on
deposits unless it determines that such actions would not further the purpose of
the prompt corrective action provisions. In addition, without the prior written
approval of the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to its senior executive
officers or provide compensation to any of them at a rate that exceeds such
officer's average rate of base compensation during the 12 calendar months
preceding the month in which the institution became undercapitalized.

Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in



                                                                              18

<PAGE>   19
any material transaction other than in the ordinary course of business without
prior regulatory approval and could not, with certain exceptions, make any
payment of principal or interest on its subordinated debt beginning 60 days
after becoming critically undercapitalized. Most importantly, except under
limited circumstances, the appropriate federal banking agency, not later than 90
days after an insured depository institution becomes critically
undercapitalized, is required to appoint a conservator or receiver for the
institution. The board of directors of an insured depository institution would
not be liable to the institution's shareholders or creditors for consenting in
good faith to the appointment of a receiver or conservator or to an acquisition
or merger as required by the regulator.

In addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement actions
by the federal regulators for unsafe or unsound practices in conducting their
businesses or for violations of any law, rule, regulation or any condition
imposed in writing by the agency or any written agreement with the agency.
Enforcement actions may include the imposition of a conservator or receiver, the
issuance of a cease and desist order that can be judicially enforced, the
termination of insurance of deposits (in the case of a depository institution),
the imposition of civil money penalties, the issuance of directives to increase
capital, the issuance of formal and informal agreements, the issuance of removal
and prohibition orders against institution-affiliated parties and the
enforcement of such actions through injunctions or restraining orders based upon
a judicial determination that the agency would be harmed if such equitable
relief was not granted.

SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have adopted safety
and soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings.

Additionally, the federal banking agencies have adopted guidelines with respect
to asset quality and earnings standards. These guidelines provide six standards
for establishing and maintaining a system to identify problem assets and prevent
those assets from deteriorating. Under these standards, an insured depository
institution is expected to conduct periodic asset quality reviews, estimate the
inherent losses in problem assets and establish reserves that are sufficient to
absorb estimated losses; compare problem asset totals to capital; take
appropriate a corrective action to resolve problem assets, consider the size and
potential risks of material asset concentration, and provide periodic asset
quality reports with adequate information for management and the board of
directors to assess the level of asset risk.

PREMIUMS FOR DEPOSIT INSURANCE. Te FDIC has adopted final regulations
implementing a risk-based premium system required by federal law. On November
14, 1995, the FDIC issued regulations that establish a new assessment rate
schedule ranging from 0 cents per $100 of deposit to 27 cents per $100 of
deposits applicable to members of BIF. To determine the risk-based assessment
for each institution, the FDIC will categorize an institution as well
capitalized, adequately capitalized or undercapitalized based on its capital
ratios using the same standard used by the FDIC for its prompt corrective action
regulations. A well capitalized institution is generally one that has at least a
10% total risk-based capital ratio, a 6% Tier 1 risk-based capital ratio and a
5% Tier 1 leverage capital ratio. An adequately capitalized institution will
generally have at least an 8% total risk-based capital ratio, a 4% Tier 1
risk-based capital ratio and a 4% Tier 1 leverage capital ratio. An
undercapitalized institution will generally be one that does not meet either of
the above definitions. The FDIC will also assign each institution to one of
three subgroups based upon reviews by the institution's primary federal or state
regulator, statistical analysis of financial statements and other information
relevant to evaluating the risk posed by the institution. The three supervisory
categories are: financially sound with only a few minor weaknesses (Group A),
demonstrates weaknesses that could result in significant deterioration (Group
B), and poses a substantial probability of loss (Group C).

The BIF assessment rates are set forth below for institutions based on their
risk-based assessment categorization.

<TABLE>
<CAPTION>

                                      Assessment Rates Effective January 1, 1996*
                                      -------------------------------------------
                                        Group A        Group B        Group C
                                      -------------  -------------  -------------
<S>                                   <C>            <C>            <C>
Well capitalized                          0               3              17
Adequately capitalized                    3              10              24
Undercapitalized                         10              24              27

</TABLE>

* Assessment figures are expressed in terms of cents per $100 of deposits.

                                                                              19

<PAGE>   20


INTERSTATE BANKING AND BRANCHING. On September 29, 1994, the President signed
into law the Riegel-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act"). Under the Interstate Act, beginning one year after the
date of enactment, a bank holding company that is adequately capitalized and
managed may obtain approval under the BHCA to acquire an existing bank located
in another state without regard to state law. A bank holding company would not
be permitted to make such an acquisition if, upon consummation, it would control
(a) more than 10% of the total amount of deposits of insured depository
institutions in the United States or (b) 30% or more of the deposits in the
state in which the bank is located. A state may limit the percentage of total
deposits that may be held in that state by any one bank or bank holding company
if application of such limitation does not discriminate against out-of-state
banks. An out-of-state bank holding company may not acquire a state bank in
existence for less than a minimum length of time that may be prescribed by state
law except that a state may not impose more than a five year existence
requirement.

The Interstate Act also permits mergers of insured banks located in different
states and conversion of the branches of the acquired bank into branches of the
resulting bank. Each state may permit such combinations earlier than June 1,
1997, and may adopt legislation to prohibit interstate mergers after that date
in that state or in other states by that state's banks. The same concentration
limits discussed in the preceding paragraph apply. The Interstate Act also
permits a national or state bank to establish branches in a state other than its
home state if permitted by the laws of that state, subject to the same
requirements and conditions as for a merger transaction.

The Interstate Act is likely to increase competition in the Company's market
areas especially from larger financial institutions and their holding companies.
It is difficult to assess the impact such likely increased competition will have
on the Company's operations.

FINANCIAL MODERNIZATION LEGISLATION. On November 12, 1999, the President signed
into law the Gramm-Leach-Bliley Act, or GLB Act, which significantly changed the
regulatory structure and oversight of the financial services industry. The GLB
Act revises the Bank Holding Company Act of 1956 and repeals the affiliation
provisions of the Glass-Steagall Act of 1933, prohibiting a qualifying holding
company, called a financial holding company, to engage in a full range of
financial activities, including banking, insurance, and securities activities,
as well as merchant banking and additional activities that are "financial in
nature" or "complementary" to such financial activities. The GLB Act thus
provides expanded financial affiliation opportunities for existing bank holding
companies and permits various non-bank financial services providers to acquire
banks by allowing bank holding companies to engage in activities such as
securities underwriting, and underwriting and brokering of insurance products.
The GLB Act also expands passive investments by financial holding companies in
any type of company, financial or non-financial, through merchant banking and
insurance company investments. In order for a bank holding company to qualify as
a financial holding company, its subsidiary depository institutions must be
"well-capitalized" and "well-managed" and have at least a "satisfactory"
Community Reinvestment Act rating.

The GLB Act also reforms the regulatory framework of the financial services
industry. Under the GLB Act, financial holding companies are subject to primary
supervision by the Federal Reserve Board while current federal and state
regulators of financial holding company regulated subsidiaries such as insurers,
broker-dealers, investment companies and banks generally retain their
jurisdiction and authority. In order to implement its underlying purposes, the
GLB Act preempts state laws restricting the establishment of financial
affiliations authorized or permitted under the GLB Act, subject to specified
exceptions for state insurance regulators. With regard to securities laws, the
GLB Act removes the current blanket exemption for banks from the broker-dealer
registration requirements under the Securities Exchange Act of 1934, amends the
Investment Company Act of 1940 with respect to bank common trust fund and mutual
fund activities, and amends the Investment Advisers Act of 1940 to require
registration of banks that act as investment advisers for mutual funds.

The GLB Act also includes provisions concerning subsidiaries of national banks,
permitting a national bank to engage in most financial activities through a
financial subsidiary, provided that the bank and its depository institution
affiliates are "well capitalized" and "well managed" and meet certain other
qualification requirements relating to total assets, subordinated debt, capital,
risk management, and affiliate transactions. With respect to subsidiaries of
state banks, new activities as "principal" would be limited to those permissible
for a national bank financial subsidiary. The GLB Act requires a state bank with
a financial subsidiary permitted under the GLB Act as well as its depository
institution affiliates to be "well capitalized," and also subjects the bank to
the same capital, risk management and affiliate transaction rules as applicable
to national banks. The provisions of the GLB Act relating to financial holding
companies become effective 120 days after its enactment, or about March 15,
2000, excluding, the federal preemption provisions, which became effective on
the date of enactment.

The GLB Act will likely increase competition in the markets in which the Company
operates, although it is difficult to assess the impact that such increased
competition may have on the Company's operations.


                                                                              20

<PAGE>   21

The Company currently meets all the requirements for financial holding company
status. However, the Company does not expect to elect financial holding company
status unless and until it intends to engage in any of the expanded activities
under the GLB Act which require such status. Unless and until it elects such
status, the Company will only be permitted to engage in non-banking activities
that were permissible for bank holding companies as of the date of the enactment
of the GLB Act.

COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS. The Bank is subject to
certain fair lending requirements and reporting obligations involving home
mortgage lending operations and Community Reinvestment Act ("CRA") activities.
The CRA generally requires the federal banking agencies to evaluate the record
of a financial institution in meeting the credit needs of their local
communities, including low and moderate income neighborhoods. In addition to
substantial penalties and corrective measures that may be required for a
violation of certain fair lending laws, the federal banking agencies may take
compliance with such laws and CRA into account when regulating and supervising
other activities. In May 1995, the federal banking agencies issued final
regulations which change the manner in which they measure a bank's compliance
with its CRA obligations. The final regulations adopt a performance-based
evaluation system which bases CRA ratings on an institution's actual lending
service and investment performance, rather than the extent to which the
institution conducts needs assessments, documents community outreach activities
or complies with other procedural requirements.

RISK-BASED EXAMINATIONS. In accordance with the OCC's "supervision by risk"
program, the OCC's examination philosophy is a way of allocating examiner
resources to focus on those functions or activities of the bank that pose the
most risk-ultimately to capital and earnings of the bank. The OCC has identified
nine risk categories and definitions to measure risk: credit, interest rate,
liquidity, price, foreign exchange, transaction, compliance, reputation and
strategic. The risk management program is not a substitute for capital, assets,
management, earnings, liquidity, an sensitivity (CAMELS) nor is it meant to
change the way the bank manages it business. The OCC's supervision by risk
examination procedures differentiate between large banks and community banks. A
community bank is defined as a national bank with total assets of less than $1
billion or one that is part of a holding company where none of the bank's assets
exceed $1 billion. Community banks can be further categorized as complex or
non-complex. The rating system for the bank is based on the size and complexity
of the institution. Community banks will receive only a composite risk rating
and a rating on the direction or trend of the risk. The community bank risk
assessment system (RAS) is meant to be a less stringent exam than the large bank
exam.

ACCOUNTING CHANGES

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities", (as amended
by SFAS 138 in 2000.) This Statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. This new
standard was originally effective for 2000. In June 1999, the FASB issued SFAS
NO. 137,"Accounting for Derivatives Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133". This Statement
establishes the effective date of SFAS 133 for 2001. SFAS No. 133 is not
expected to have a material impact on the Company's financial statements.

EMPLOYEES

At March 16, 2001, the Company had approximately 64 full-time and 28 part-time
employees. Total full-time equivalent employees at March 16, 2001, were
approximately 77. The Company believes that its employee relations are
satisfactory.



                                                                              21

<PAGE>   22


EXECUTIVE OFFICERS OF THE COMPANY

Set forth below is certain information regarding the executive officers of the
Company and the Bank:


<TABLE>
<CAPTION>

      Name                      Position With Company                    Position With Bank
      ----                      ---------------------                    ------------------
<S>                         <C>                                      <C>
Norman A. Morales                   President and                           President and
                               Chief Executive Officer                 Chief Executive Officer

Richard S. Hagan                                                      Executive Vice President/
                                                                        Chief Credit Officer

Sara F. Ahern                Chief Financial Officer and              Executive Vice President/
                                      Secretary                        Chief Financial Officer
</TABLE>

All officers hold office at the pleasure of the Board of Directors.

Mr. Morales has served as President and Chief Executive of the Company since
October 2000. Mr. Morales has been President and Chief Executive Officer of the
Bank since October 2000.

Mr. Hagan was appointed Executive Vice President/Chief Credit Officer of the
Bank in March 2001, and has been with the Bank since December 2000.

Mrs. Ahern has served as the Chief Financial Officer and Secretary of the
Company since 2000. She has been with the Bank since 1993.

ITEM 2.  PROPERTIES

The Company's executive offices are located at the Bank's main banking office at
9590 Foothill Boulevard, Rancho Cucamonga, California.

The Bank also owns the land and building where its Chino and Crestline offices
are located, and leases the facilities in which its Diamond Bar office, Blue Jay
office, and Manhattan Beach loan production office are located under leases
expiring in two years, three years and three years, respectively. The Bank's
total occupancy expense for 2000, excluding furniture and equipment expense,
approximated $622,000. Management believes that the Bank's present facilities
are adequate for its present purposes.

ITEM 3.  LEGAL PROCEEDINGS

On October 25, 1999, a jury rendered a verdict against the Bank in the amount of
approximately $3.5 million arising from a lawsuit by a borrower who also leased
to the Bank a branch office. The Bank foreclosed on the real property securing
its loan to the borrower. The borrower claimed that the foreclosure was
wrongful. On February 25, 2000, the trial judge found that the jury verdict was
excessive and ordered a new trial on damages if the borrower did not agree to a
reduction to $860,000. The Bank had filed an appeal. The Bank had accrued a loss
of $860,000 in recognition of the amount of liability determined by the court
which is included in litigation expense. During 2000 the lawsuit was settled.

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

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

None.



                                                                              22



<PAGE>   23

PART II


ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Trading in the Company's Common Stock has been relatively inactive and the
trades that do occur from time to time cannot be characterized as constituting
an active trading market. The Common Stock is not listed on any national or
regional stock exchange or with NASDAQ. At March 16, 2001, the Company had 571
shareholders.

The following table summarizes the high and low prices at which the shares of
Common Stock of the Company have traded during the periods indicated, based upon
trades of which management of the Company has knowledge. Quoted prices reflect
inter-dealer prices, without retail mark-up, mark-down, or commission and may
not necessarily represent actual transactions.

<TABLE>
<CAPTION>

                                            Sales Prices of
                                          Common Stock(1, 2, 3)
                                          --------------------
                                            High       Low
                                          --------   --------
<S>                                        <C>        <C>
1999
      First Quarter                        $ 6.38     $ 5.00
      Second Quarter                         6.75       4.25
      Third Quarter                          7.88       4.88
      Fourth Quarter                         8.50       4.75

2000
      First Quarter                        $ 6.25     $ 4.00
      Second Quarter                         6.00       3.50
      Third Quarter                          4.50       2.75
      Fourth Quarter                         4.25       2.38
</TABLE>


(1) Adjusted to reflect all stock splits by the Company.

(2) Trades by directors and/or executive officers of the Company did not account
for any of the trades reflected in the above table.

(3) There were no cash dividends paid during 1999 and 2000.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below for the fiscal years ended December
31, 2000, 1999 and 1998, are derived from the audited consolidated and Bank
financial statements of the Company examined by Vavrinek, Trine, Day & Co., LLP,
Certified Public Accountants, included elsewhere in this Report and should be
read in conjunction with those consolidated financial statements. The selected
financial data for the fiscal years ended December 31, 1997 and 1996, are
derived from audited financial statements examined by Vavrinek, Trine, Day &
Co., LLP which are not included in this Report.


                                                                              23

<PAGE>   24

<TABLE>
<CAPTION>

                                                                                Year Ended December 31,
                                                 ---------------------------------------------------------------------------------
                                                     2000             1999              1998             1997            1996
                                                 ------------    -------------     ------------      ------------     ------------
<S>                                              <C>             <C>               <C>               <C>              <C>
Interest Income                                  $   8,965,241   $   8,994,503     $   9,178,049     $  9,213,228     $  9,011,147
Interest Expense                                     2,048,573       2,204,034         2,551,992        2,942,507        2,860,834
Net Interest Income                                  6,916,668       6,790,469         6,626,057        6,270,721        6,150,313
(Provision)/Credit  for Loan and Lease Losses         (256,000)       (166,000)         (142,982)        (143,782)        (416,900)
Other Income                                         1,581,908       1,903,441         1,915,801        1,741,588        1,837,933
Other Expenses                                      (7,173,553)     (8,564,374)       (7,648,693)      (7,330,591)      (7,437,768)
                                                 -------------   -------------     -------------     ------------     ------------
Income/(Loss) Before Taxes                           1,069,023         (36,464)          750,183          537,936          133,578
Income Taxes                                          (449,000)         11,600          (306,800)        (133,800)         (28,000)
                                                 -------------   -------------     -------------     ------------     ------------
Net Income/(Loss)                                $     620,023   $     (24,864)    $     443,383     $    404,136     $    105,578
                                                 =============   =============     =============     ============     ============
Earnings/(Loss) Per Share of Common Stock(1)
   Basic                                         $        0.33   $       (0.01)    $        0.24     $       0.22     $       0.06
   Diluted                                       $        0.33   $       (0.01)    $        0.22     $       0.21     $       0.06
Weighted Average Number of Shares(1)
   Basic                                             1,864,170       1,862,776         1,862,776        1,862,776        1,862,776
   Diluted                                           1,865,434       1,988,616         1,994,255        1,882,986        1,874,852

Balance Sheet Data
      Assets                                     $ 110,753,057   $ 116,228,156     $ 115,863,031     $111,510,812     $119,523,686
                                                 =============   =============     =============     ============     ============
      Deposits                                   $  99,583,110   $ 104,523,178     $ 105,314,990     $101,741,356     $106,602,789
                                                 =============   =============     =============     ============     ============
      Loans and Leases/(Net)                     $  78,739,572   $  84,953,459     $  87,246,922     $ 88,419,559     $ 96,737,786
                                                 =============   =============     =============     ============     ============
      Stockholders' Equity                       $   9,295,033   $   8,630,235     $   8,728,159     $  8,266,503     $  7,851,412
                                                 =============   =============     =============     ============     ============

</TABLE>


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

Management's discussion and analysis of financial condition and results of
operations is intended to provide a better understanding of the significant
changes in trends relating to the Company's financial condition, results of
operations, liquidity and interest rate sensitivity. The following discussion
and analysis should be read in conjunction with the Consolidated Financial
Statements of the Company.

Vineyard National Bancorp is operating as a bank holding company whose only
operating subsidiary is Vineyard National Bank. The Bank was acquired by the
holding company on December 16, 1988, and comprises substantially all of the
Company's revenues and expenses. Accordingly, management's discussion and
analysis is focused on and results from the financial condition and operations
of the Bank.

For the year ended December 31, 2000, Vineyard National Bancorp on a
consolidated basis reported Net Income of $620,000 compared to a Net Loss of
$25,000 and Net Income of $443,000 in the comparable 1999 and 1998 periods.
Basic Earnings Per Share was $0.33 in 2000 compared to Loss Per Share of $(0.01)
in 1999 and Earnings Per Share of $0.24 in 1998. Diluted Earnings Per Share was
$0.33 compared to Loss Per Share of $(0.01) in 1999 and Earnings Per Share of
$0.22 in 1998. Consolidated total assets at December 31, 2000 were $110,753,000
compared to $116,247,000 at December 31, 1999, a decrease of 4.7%. Total
deposits decreased from $104,523,000 as of December 31, 1999 to $99,583,000 at
year-end 2000. Stockholders' equity was $9,295,000 at December 31, 2000, up from
its $8,630,000 level a year earlier, owing primarily to net income of $620,000
plus the decrease in accumulated other comprehensive income of $38,000 from the
year before.

The allowance for loan and lease losses, which serves as a "buffer" against
possible future losses, had losses totaling $366,000 charged against it during
2000. Recoveries of loans previously charged-off amounted to $130,000, which
were credited back to the reserve. A provision for loan and lease losses of
$256,000 was recorded in 2000 compared to a provision of $166,000 in 1999 and
$143,000 in 1998.


                                                                              24

<PAGE>   25

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income represents the difference between interest and fees
generated on all earning assets and interest paid on interest bearing
liabilities which include customer deposits and borrowed funds. Net interest
income for 2000 was $6,917,000, up from the $6,790,000 reported in 1999 and
$6,626,000 reported in 1998. This represents an increase of 1.9% in 2000 and
2.5% in 1999, respectively. The components of net interest income change in
response to changes in rate, average balance and mix on both earning assets and
liabilities.

The increase in net interest income in 2000 from 1999 was due to the decrease in
interest expense exceeding the decrease in interest income. Interest income
decreased $30,000 to $8,965,000 in 2000 from $8,995,000 in 1999 while interest
expense decreased $155,000 to $2,049,000 from $2,204,000 in 1999. The resulting
increase in net interest income can be attributed to a number of factors. First,
average earning assets decreased $4,092,000. Average loans decreased from
$84,781,000 in 1999 to $82,436,000. Average investment securities decreased from
$9,177,000 in 1999 to $8,650,000 in 2000. Average federal funds sold decreased
from $6,278,000 in 1999 to $5,709,000. Interest-earning deposits with other
financial institutions decreased from $865,000 in 1999 to $209,000 in 2000.
Secondly, although the volume of interest earning assets was lower on average in
2000 than in 1999, the average yield earned on these assets increased .3% from
8.9% in 1999 to 9.2% in 2000. Third, average interest-bearing liabilities
decreased 10.6% from $72,452,000 in 1999 to $64,783,000 in 2000. Average savings
deposits, the Bank's lowest interest paying deposit account, decreased 5.4% from
$39,173,000 in 1999 to $37,046,000 in 2000. Time deposits, the Bank's highest
interest paying deposit account, decreased 16.7% from $33,279,000 in 1999 to
$27,719,000 in 2000 due partially to the reduction in account balances of a
major public funds depositor. Fourth, the average yield paid on interest-bearing
liabilities increased to 3.2% in 2000 from 3.0% in 1999.

The increase in net interest income in 1999 from 1998 was due to the decrease in
interest expense exceeding the decrease in interest income. Interest income
decreased $184,000 to $8,994,000 in 1999 from $9,178,000 in 1998 while interest
expense decreased $348,000 to $2,204,000 from $2,552,000 in 1998. The resulting
increase in net interest income can be attributed to a number of factors. First,
average loans, the Bank's highest yielding asset, decreased from $86,782,000 in
1998 to $84,781,000. This was offset by increases in average investment
securities of $3,698,000, federal funds sold of $429,000 and $493,000 in
interest-earning deposits with other financial institutions. Secondly, although
the volume of interest earning assets was higher on average in 1999 than in
1998, the average yield earned on these assets decreased .4% from 9.3% in 1998
to 8.9% in 1999. Third, average interest-bearing liabilities decreased 2.1% from
$74,004,000 in 1998 to $72,452,000 in 1999. This decrease is attributable to a
shift in the composition of the Bank's deposit liabilities. Average savings
deposits, the Bank's lowest interest paying deposit account, increased 3.8% from
$37,710,000 in 1998 to $39,173,000 in 1999. Time deposits, the Bank's highest
interest paying deposit account, decreased 8.3% from $36,292,000 in 1998 to
$33,279,000 in 1999. The Bank offered higher time deposit rates at different
times during 1998. Fourth, the average yield paid on interest-bearing
liabilities decreased to 3.0% in 1999 from 3.4% in 1998.



                                                                              25


<PAGE>   26



The following table presents the distribution of the Company's average assets,
liabilities and shareholders' equity in combination with the total dollar
amounts of interest income from average interest-earning assets and the
resultant yields without giving effect for any tax exemption, and the dollar
amounts of interest expense and average interest-bearing liabilities, expressed
both in dollars and rates. Loans include non-accrual loans whereas non-accrual
interest is excluded.

<TABLE>
<CAPTION>

(Dollars in Thousands)                                             2000                                  1999
                                                ---------------------------------------  ----------------------------------
                                                 Average                        Average  Average                    Average
                                                 Balance          Interest       Yield   Balance       Interest      Yield
                                                ----------      ----------     -------  --------      --------     -------
<S>                                             <C>             <C>            <C>      <C>           <C>          <C>
Assets
Loans                                              $ 82,436       $ 8,082         9.8%   $84,781        $ 8,137        9.6%
      Investment securities(3)                        8,650           495         5.7%     9,177            503        5.5%
      Federal funds sold                              5,709           365         6.4%     6,278            301        4.8%
      Interest-earning deposits with
       other financial institutions                     209            14         6.7%       865             45        5.2%
      FRB & Other Stock                                 182             9         4.9%       177              9        5.1%
                                                  ---------        ------               --------        -------
            Total Interest-earning Assets            97,186         8,965         9.2%   101,278          8,995        8.9%
                                                  ---------        ------               --------         ------
Other Assets                                         16,714                               16,888
            Less: Allowance for Loan Losses            (735)                                (676)
                                                  ---------                             --------
            Total Average Assets                  $ 113,165                             $117,490
                                                  =========                             ========

Liabilities and Shareholders' Equity
      Savings deposits                               37,046           622         1.7%    39,173            661        1.7%
      Time deposits                                  27,719         1,426         5.1%    33,279          1,543        4.6%
      Other                                              18             1                      0        0.0%
                                                  ---------        ------               --------         ------
            Total Interest-bearing Liabilities       64,783         2,049         3.2%    72,452          2,204        3.0%
                                                                   ------
      Demand deposits                                37,097                               34,134
      Other liabilities                               2,372                                1,909
Shareholders' equity                                  8,913                                8,995
                                                  ---------                           ----------
            Total Average Liabilities
            and Shareholders' Equity              $ 113,165                            $ 117,490
                                                  =========                            =========
Net Interest Spread(1)                                                              6.1%                             5.8%
                                                                                  ======                             ====
Net Interest Income and Net Interest Margin(2)                  $   6,916           7.1%            $   6,791        6.7%
                                                                =========         ======            =========        ====
</TABLE>



(1) Net interest spread represents the average yield earned on interest-earning
assets less the average rate paid on interest-bearing liabilities.

(2) Net interest margin is computed by dividing net interest income by total
average earning assets.

(3) The yield for securities that are classified as available-for-sale is based
on historical amortized cost balances.



                                                                              26

<PAGE>   27

<TABLE>
<CAPTION>

(Dollars in Thousands)                                      1998
                                                -----------------------------
                                                 Average              Average
                                                 Balance   Interest    Yield
                                                ---------  ---------  -------
<S>                                               <C>      <C>         <C>
Assets
      Loans                                       $86,782  $ 8,532     9.8%
      Lease financing                                  13        1     7.7%
      Investment securities 3                       5,483      315     5.7%
      Federal funds sold                            5,849      300     5.1%
      Interest-earning deposits with
       other financial institutions                   372       20     5.4%
      FRB & Other Stock                               175       10     5.7%
                                                 --------  -------     ----
             Total Interest-earning Assets         98,674    9,178     9.3%
                                                           -------     ----
Other Assets                                       15,864
             Less: Allowance for Loan Losses         (661)
                                                 --------
             Total Average Assets                $113,877
                                                 ========

Liabilities and Shareholders' Equity
      Savings deposits                             37,710      656     1.7%
      Time deposits                                36,292    1,896     5.2%
      Other                                             2              0.0%
                                                 --------    -----    -----
             Total Interest-bearing Liabilities    74,004    2,552     3.4%
                                                             -----    -----
      Demand deposits                              29,890
      Other liabilities                             1,521
Shareholders' equity                                8,462
                                                  -------
             Total Average Liabilities
             and Shareholders' Equity             $113,877
                                                  ========
Net Interest Spread(1)                                   -             5.9%
                                                                      =====
Net Interest Income and Net Interest Margin(2)              $6,626     6.7%
                                                            ======    =====

</TABLE>

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


                                                                              27
<PAGE>   28


The following table sets forth changes in interest income and interest expense
for each major category of interest-earning asset and interest-bearing
liability, and the amount of change attributable to volume and rate changes for
the year indicated. The changes due to rate and volume have been allocated in
proportion to the relationship between their absolute dollar amounts.

<TABLE>
<CAPTION>

(Dollars in Thousands)                              2000 - 1999                   1999 - 1998
                                             ---------------------------   ---------------------------
                                             Volume     Rate     Total     Volume     Rate     Total
                                             --------  --------  -------   --------  --------  -------
<S>                                          <C>       <C>       <C>       <C>       <C>       <C>
Increase/(Decrease) In
      Interest Income
          Loans(1)                            $(248)    $ 193     $ (55)    $(194)    $(201)    $(395)
          Leases(2)                            --        --       $   0        (1)     --       $  (1)
          Investment securities(2)              (30)       22        (8)      202       (14)      188
          Deposits                              (44)       13       (31)       25        (1)       24
          FRB & Other Stock                    --           0         0         1        (2)       (1)
          Federal funds sold                    (24)       88        64         9        (8)        1
                                              -----     -----     -----     -----     -----     -----
                                               (346)      316       (30)       42      (226)     (184)
                                              -----     -----     -----     -----     -----     -----
Increase/(Decrease) In
      Interest Expense
          Savings deposits                      (35)       (4)      (39)       22       (17)        5
          Time deposits                        (340)      223      (117)     (150)     (203)     (353)
          Short-term borrowings                   1      --        --        --        --        --
                                              -----     -----     -----     -----     -----     -----
                                               (374)      219      (155)     (128)     (220)     (348)
                                              -----     -----     -----     -----     -----     -----
                   Increase/(Decrease)
                    in Net Interest Income    $  28     $  97     $ 125     $ 170     $  (6)    $ 164
                                              =====     =====     =====     =====     =====     =====
</TABLE>


(1) Does not include interest income which would have been earned on non-accrual
loans. The amount that would have been collected on these loans had they
remained current in accordance with their terms was $9,000 in 2000, $23,000 in
1999 and $6,000 in 1998.

(2) Interest income includes the effects of tax equivalent adjustments on tax
exempt securities and leases using tax rates which approximate 41.0% for 1998.
There were no tax exempt securities or leases in 2000 or 1999.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses, which is an operating expense of the
Company, creates an allowance for estimated future loan and lease losses. When
losses occur they are charged against the allowance for probable loan and lease
losses.

A provision for loan and lease losses of $256,000 was recorded in 2000. This is
compared to a provision of $166,000 in 1999 and $143,000 in 1998. The provision
for loan and lease losses recorded in 2000, 1999 and 1998 is a result of
management's assessment of the potential losses inherent in the loan portfolio.
The need for additional provision for loan and lease losses in 2001 will be
contingent upon management's on-going analysis of the adequacy of the allowance
for loan and lease losses. While management believes it to be adequately funded
at the present time, the appropriate value can fluctuate in response to economic
conditions and the subjective decisions which must be made in response to those
conditions.

During 2000, the Bank's non-accrual loans decreased from $495,000 to $307,000.
For further information regarding charge-offs, non-performing and classified
loans and the allowance for probable loan and lease losses, see MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -
"Financial Condition - Non-performing Loans" and "Allowance for Loan and Lease
Losses."




                                                                              28
<PAGE>   29



NON-INTEREST INCOME

Non-interest income decreased $321,000 from $1,903,000 in 1999 to $1,582,000 in
2000. The decrease was partially due to a decrease in service charges on deposit
accounts. This decrease was a result of decreased volumes and a realignment of
service fees structured to generate deposit growth during the fourth quarter.
Income on the sale of loans decreased $80,000 during 2000 due to a decrease in
volume. Other non-interest income was down $150,000 from 1999 to 2000, primarily
due to lesser gains in the Bank's corporate owned life insurance policies during
2000. The Bank had no securities gains or losses during 2000 and 1999. Loss on
sale of OREO was $12,000 during 2000 versus a gain of $6,000 in 1999.

Non-interest income decreased $13,000 from $1,916,000 in 1998 to $1,903,000 in
1999. The Bank posted securities gains of $49,000 in 1998 and posted a loss of
$108 in 1999. This was offset by a gain on sale of OREO of $6,000 in 1999 versus
a $32,000 loss in 1998.

NON-INTEREST EXPENSES

Non-interest expense consists primarily of (i) salaries and employee benefits,
(ii) occupancy expenses of premises, (iii) furniture and equipment expense and
(iv) litigation expense and (v) other expenses which include data processing
costs, marketing expenses, professional expenses, office supplies, insurance and
assessments and other loan and administrative expenses. Total non-interest
expense for 2000 was $7,174,000 compared to $8,564,000 in 1999 and $7,649,000 in
1998. The change in 2000 was primarily due to a decrease in salaries and
employee benefits of $441,000 and a decrease of $920,000 in litigation expense.
The change in 1999 was due to an increase in salaries and employee benefits of
$260,000 and an increase of $841,000 in litigation expense.

Salaries and employees benefits totaled $3,325,000 in 2000 compared to
$3,766,000 in 1999 and $3,506,000 in 1998. The decrease in 2000 was primarily
attributable to a decrease in full-time equivalent employees, decreases in
employee bonuses and in performance compensation, and decreases in certain
deferred compensation expenses. These decreases were offset in part by an
increase in certain salaries. The increase in 1999 was attributable to employee
bonus, performance compensation and deferred compensation.

Occupancy expenses of premises totaled $622,000 in 2000 compared to $616,000 in
1999 and $624,000 in 1998. Expenses of furniture and equipment were $547,000 in
2000 compared to $606,000 in 1999 and $673,000 in 1998. There was no litigation
expense in 2000 compared to $920,000 in 1999 and $79,000 in 1998. The Bank
recognized approximately $102,000 in 2000 in legal settlement recoveries, which
was a decrease to other non-interest expenses. Other non-interest expenses were
$2,680,000 in 2000 compared to $2,656,000 and $2,767,000 in 1999 and 1998
respectively. Additions to fully fund the former CEO's supplemental retirement
plan increased $100,000 during 2000. In addition, contributions to the
directors' retirement plan decreased $40,000.

Non-interest expense as a percentage of total income was 68% in 2000 compared to
79% in 1999 and 69% in 1998.

INCOME TAXES

Total income tax expense for 2000 was $449,000 which approximated 42% of pre-tax
income. In 1999 a tax credit of $12,000 was posted because of the net loss
before income taxes. This approximated 31.8% of pre-tax loss. Total income tax
expense for 1998 was $307,000 which approximated 40.9% of pre-tax income.

FINANCIAL CONDITION

ASSETS

Total consolidated assets decreased $5,494,000 or 4.7% to $110,753,000 as of
December 31, 2000 from $116,247,000 as of December 31, 1999.




                                                                              29
<PAGE>   30




LOANS

The Company's loan portfolio has decreased by approximately $6,193,000 during
the year ended December 31, 2000. This decrease was primarily due to a decrease
in installment loans to individuals, which decreased $6,803,000 from $18,852,000
in 1999 to $12,048,000 in 2000. This decrease also resulted in a $276,000
decrease in unearned income on installment loans. Loans held for sale also
decreased $600,000 from $835,000 in 1999 to $235,000 in 2000. Commercial loans
decreased $2,151,000 from $14,671,000 in 1999 to $12,520,000 in 2000. These
decreases were partially offset by a $2,798,000 increase in commercial real
estate loans. The Company's installment portfolio is comprised of predominantly
auto loans, both indirectly and directly funded. Indirect auto loans represent
approximately 36.6% and 36.6% of total installment loans at December 31, 2000
and 1999, respectively. Approximately 90% of all indirect loans are "A/B" paper.
It is the Bank's intent to divest itself of indirect dealer installment loans.

NON-PERFORMING LOANS

The following table sets forth information regarding the Bank's non-performing
loans at year-end 2000 and 1999.

<TABLE>
<CAPTION>

(Dollars in Thousands)                                                  December 31,
                                                                     -----------------
                                                                     2000       1999
                                                                     -------  --------
<S>                                                                  <C>      <C>
Accruing Loans More Than 90 Days Past Due(1)
      Aggregate Loan Amounts
          Commercial, financial and agricultural
          Real estate
          Installment loans to individuals                             $ 25       $ 14
                                                                     -------  --------
                      Total Loans Past Due More Than 90 Days             25         14
                                                                     -------  --------
Renegotiated loans(2)                                                     -          -
                                                                     -------  --------
Non-accrual loans(3)
      Aggregate Loan Amounts
          Commercial, financial and agricultural                        131        269
          Real estate                                                   176        226
          Installment loans to individuals
                                                                     -------  --------
                      Total Non-accrual Loans                           307        495
                                                                     -------  --------
                      Total Non-performing Loans                      $ 332      $ 509
                                                                     =======  ========
</TABLE>



(1) Reflects loans for which there has been no payment of interest and/or
principal for 90 days or more. Ordinarily, loans are placed on non-accrual
status (accrual of interest is discounted) when the Bank has reason to believe
that continued payment of interest and principal is unlikely.

(2) Renegotiated loans are those which have been renegotiated to provide a
deferral of interest or principal. The Bank had no renegotiated loans during
2000 and 1999.

(3) There were three loans on non-accrual status totaling approximately $307,000
at December 31, 2000 and three loans on non-accrual status totaling
approximately $495,000 at December 31, 1999.

The policy of the Company is to review each loan in the loan portfolio to
identify problem credits. In addition, as an integral part of its review process
of the Bank, the Comptroller also classifies problem credits. There are three
classifications for problem loans: "substandard", "doubtful" and "loss".
Substandard loans have one or more defined weaknesses and are characterized by
the distinct possibility that the Bank will sustain some loss if the
deficiencies are not corrected. Doubtful loans have the weaknesses of
substandard loans with the additional characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
conditions and values, questionable. A loan classified as loss is considered
uncollectible and of such little value that the continuance as an asset of the
institution is not warranted. Another category designated "special mention" is
maintained for loans which do not currently expose the Bank to a significant
degree or risk to warrant classification in a substandard, doubtful or loss but
do possess credit deficiencies or potential weaknesses deserving management's
close attention.

As of December 31, 2000, the Bank's classified loans consist of $3,692,000 of
loans classified as substandard and $21,000 loans classified as loss. The Bank's
$3,692,000 in loans classified as substandard consisted of $3,406,000 of
performing loans and $311,000 of non-accrual loans and loans delinquent 90 days
or more but still accruing.



                                                                              30
<PAGE>   31





RESERVE FOR PROBABLE LOAN AND LEASE LOSSES

The allowance for probable loan and lease losses is a general allowance
established by management to absorb potential losses inherent in the entire
portfolio. The level of and ratio of additions to the allowance are based on a
continuous analysis of the loan and lease portfolio and, at December 31, 2000,
reflected an amount which, in management's judgment, was adequate to provide for
known and inherent loan losses. In evaluating the adequacy of the allowance,
management gives consideration to the composition of the loan portfolio, the
performance of loans in the portfolio, evaluations of loan collateral, prior
loss experience, current economic conditions and the prospects or worth of
respective borrowers or guarantors. In addition, the Comptroller, as an integral
part of its examination process, periodically reviews the Bank's allowance for
possible loan and lease losses. The Comptroller may require the Bank to
recognize additions to the allowance based upon its judgment of the information
available to it at the time of its examination. The Bank was most recently
examined by the Comptroller as of December 31, 2000.

The allowance for loan and lease losses at December 31, 2000, was $784,000 or
 .99%, of total loans and leases, as compared to $764,000 or .89%, of total
credits at December 31, 1999. Additions to the allowance are effected through
the provision for loan and lease losses which is an operating expense of the
Company.

The following table provides certain information with respect to the Company's
allowance for loan losses as well as charge-off and recovery activity.

<TABLE>
<CAPTION>

(Dollars in Thousands)                              2000     1999
                                                  -------   ------
<S>                                                 <C>      <C>
Allowance For Loan Losses
      Balance, Beginning of period                  $764     $686
                                                    ----     ----
      Charge-offs
          Commercial, financial and agricultural     305       94
          Real estate construction
          Real estate mortgage
          Consumer loans                              61      103
          Lease financing
                                                    ----     ----
                      Total Charge-offs              366      197
                                                    ----     ----
      Recoveries
          Commercial, financial and agricultural     110       27
          Real estate construction
          Real estate mortgage
          Consumer loans                              20       82
          Lease financing
                                                    ----     ----
                      Total Recoveries               130      109
                                                    ----     ----
Net Charge-offs/(Recoveries)                         236       88
Provision/(Credit) Charged to Operations             256      166
                                                    ----     ----
Balance, End of period                              $784     $764
                                                    ====     ====
Net Charge-offs During the Year to Average Loans
 Outstanding During the Year                        0.29%    0.10%
                                                    ====     ====
Allowance For Loan Losses to Total Loans            0.99%    0.89%
                                                    ====     ====
</TABLE>


The Bank accounts for impaired loans in accordance with SFAS No. 114 (as amended
by SFAS No. 118), "Accounting by Creditors for Impairment of a Loan." The
statement generally requires those loans identified as "impaired" to be measured
on the present value of expected future cash flows discounted at the loan's
effective interest rate, except that as a practical expedient, a creditor may
measure impairment based on a loan's observable market price, or the fair value
of the collateral if the loan is collateral dependent. A loan is impaired when
it is probable the creditor will not be able to collect all contractual
principal and interest payments due in accordance with the terms of the loan
agreement. Loan impairment is evaluated on a loan-by-loan basis as part of
normal loan review procedures of the Bank.



                                                                              31
<PAGE>   32




INVESTMENT SECURITIES

The Company's investment portfolio primarily consists of U.S. Agency Securities.
As of December 31, 2000, the Company categorized their investment securities as
available-for-sale (which requires continual mark to market adjustments to the
Company's capital account, but no impact on the income statement). The Company
holds no securities that should be classified as trading securities and has
determined that since its securities may be sold prior to maturity because of
interest rate changes, to meet liquidity needs, or to better match the repricing
characteristics of funding sources, its entire portfolio should be classified as
available-for-sale. No securities are classified as held-to-maturity.

The Company had unrealized gains of $6,000 and $4,000 in 2000 and 1999,
respectively, and unrealized losses for the same corresponding periods of $6,000
and $71,000.

In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which addresses the accounting for investments in equity
securities that have readily determinable fair values and for investments in all
debt securities, securities are classified in three categories and accounted for
as follows: debt and equity securities that the Company has the positive intent
and ability to hold to maturity are classified as held-to-maturity and
securities are measured at amortized cost; debt and equity securities bought and
held principally for the purpose of selling in the near term are classified as
trading securities and are measured at fair value, with unrealized gains and
losses included in earnings; debt and equity securities not classified as either
held-to-maturity or trading securities are deemed as available-for-sale and are
measured at fair value, with unrealized gains and losses, reported as a separate
component of stockholders' equity.

SOURCES OF FUNDS

The Bank primarily funds its assets with deposits. Total deposits at December
31, 2000 were $99,583,000 compared with $104,523,000 in 1999. The $4,940,000
decrease represents a 4.7% decrease. This represents a decrease in most
interest-bearing deposit categories and an increase in non-interest bearing
deposits. There was a decrease of $2,375,000 or 8.3% in savings and NOW
deposits, a decrease of $2,296,000 or 18.9% in money market deposits, and a
decrease of $3,561,000 or 35.3% in time deposits in denominations of $100,000 or
more. These decreases were partially offset by an increase in demand deposits of
$2,647,000 or 7.7% and an increase in other time deposits of $645,000 or 3.3%.
The decreases in savings and NOW, money market accounts, and time deposits in
denominations of $100,000 or more is a result of a decrease in the volume of
customer accounts. The increase in demand deposits was a result of the Bank's
effort to increase core deposits and improve liquidity.

LIQUIDITY

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

The Bank's Asset-Liability Management Committee (ALCO) manages the Company's
liquidity position, the parameters of which are approved by the Board of
Directors. The liquidity position of the Bank is monitored weekly. Vineyard
National Bank had liquid assets (cash, deposits in other financial institutions
and investment securities not pledged as collateral) as a percent of total
deposits and borrowed funds of 22% and 15% as of December 31, 2000 and 1999
respectively. The Bank's loan to deposit ratio was 80% and 82% as of December
31, 2000 and 1999, respectively. The Bank's policy is to strive for a loan to
deposit ratio between 70% and 90%. During 2000, loan balances decreased
$6,193,000 and deposits decreased by $4,940,000.

Liquidity has increased from $16,175,000 at December 31, 1999 to $21,921,000 at
December 31, 2000 due to increases in investment securities not pledged as
collateral, cash and due from banks, and federal funds sold of $446,000,
$535,000, and 5,015,000, respectively. This was offset by decreases in
interest-bearing deposits in other financial institutions of $297,000.

Management believes the level of liquid assets it is sufficient to meet current
and anticipated funding needs. Liquid assets represent approximately 19.8% of
total assets. The liquidity contingency process outlines authorities and a


                                                                              32

<PAGE>   33



reasonable course of action in case of unexpected liquidity needs. The Bank has
borrowing lines with four correspondent banks totaling $3.5 million and a
secured line at the Federal Reserve.

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

CAPITAL RESOURCES

Neither the Company nor the Bank has any significant commitments for capital
expenditures. The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average
assets (as defined).

The Bank will be categorized as well- capitalized based upon its year-end
ratios. To be categorized as well-capitalized, the Bank must maintain minimum
ratios as set forth in the table below. The following table also sets forth the
Bank's actual capital amounts and ratios (dollar amounts in thousands):

<TABLE>
<CAPTION>

                                                                                Capital Needed
                                                                     --------------------------------------
                                                                                            To Be Well
                                                                                         Capitalized Under
                                                                       For Capital       Prompt Corrective
                                                    Actual           Adequacy Purposes       Provisions
                                               --------------------  -----------------   ------------------
                                               Amount      Ratio      Amount    Ratio     Amount    Ratio
                                               --------   ---------  ---------  ------   ---------  -------
<S>                                            <C>        <C>        <C>       <C>       <C>       <C>
As of December 31, 2000
      Total capital to risk-weighted assets    $10,065      11.33%     $7,109    8.0%      $8,886    10.0%
      Tier 1 capital to risk-weighted assets     9,281      10.44%      3,554    4.0%       5,331     6.0%
      Tier 1 capital to average assets           9,281       8.41%      4,412    4.0%       5,515     5.0%

As of December 31, 1999
      Total capital to risk-weighted assets     $9,426       9.96%     $7,573    8.0%      $9,466    10.0%
      Tier 1 capital to risk-weighted assets     8,662       9.15%      3,783    4.0%       5,675     6.0%
      Tier 1 capital to average assets           8,662       7.46%      4,675    4.0%       5,843     5.0%

</TABLE>

ECONOMIC CONCERNS

The Bank concentrates on marketing to, and serving the needs of, small and
medium-sized businesses, professionals and individuals located in San Bernardino
County and the Western portion of Los Angeles County of Southern California. In
February 2001, the Bank opened a loan production office in Manhattan Beach to
primarily service the single family residence construction business line.

The financial condition of the Bank has been, and is expected to continue to be,
affected by the overall general economic conditions and the real estate market
in California. The future success of the Bank is dependent, in large part, upon
the quality of its assets. Although management of the Bank has devoted
substantial time and resources to the identification, collection and workout of
non-performing assets, the real estate markets and the overall economy in
California are likely to have a significant effect on the Bank's assets in
future periods and, accordingly, the Company's financial condition and results
of operations.



                                                                              33
<PAGE>   34



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements and Financial Statement Schedules
covered by Independent Auditors' Report.

<TABLE>
<CAPTION>

                                                                            Page Reference
                                                                            --------------
<S>                                                                         <C>
Independent Auditors' Report                                                     35


Financial Statements

    Consolidated Balance Sheets                                                  36
    December 31, 2000 and 1999

    Consolidated Statements of Income                                            37
    For the Years Ended December 31, 2000, 1999 and 1998

    Consolidated Statement of Changes in Stockholders' Equity                    38
    For the Years Ended December 31, 2000, 1999 and 1998

    Consolidated Statements of Cash Flows                                        39
    For the Years Ended December 31, 2000, 1999 and 1998


Notes to Consolidated Financial Statements                                       41

</TABLE>














                                                                              34
<PAGE>   35



                          INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
Vineyard National Bancorp and Subsidiary

We have audited the accompanying consolidated balance sheets of Vineyard
National Bancorp and Subsidiary as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in stockholders' equity and
statements of cash flows for each of the three years in the period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vineyard National
Bancorp and Subsidiary as of December 31, 2000 and 1999, the results of their
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2000, in conformity with generally
accepted accounting principles.



/s/ Vavrinek, Trine, Day & Co, LLP
Rancho Cucamonga, California
March 2, 2001



                                                                              35

<PAGE>   36

                    VINEYARD NATIONAL BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999

                                     ASSETS

<TABLE>
<CAPTION>

                                                                                       2000              1999
                                                                                  --------------    --------------
<S>                                                                                <C>               <C>
Cash and due from banks                                                            $   8,388,298     $   7,853,489
Federal funds sold                                                                     8,405,000         3,390,000
                                                                                   -------------     -------------
                      Total Cash and Cash Equivalents                                 16,793,298        11,243,489
                                                                                   -------------     -------------
Interest-bearing deposits in other financial institutions                                198,000           495,000
Investment securities
      Available-for-sale                                                               5,527,040         9,428,297
Loans, net of unearned income                                                         79,288,364        84,881,774
Loans held for sale                                                                      235,300           835,323
                                                                                   -------------     -------------
                                                                                      79,523,664        85,717,097
            Less:  Allowance for loan losses                                            (784,092)         (763,638)
                                                                                   -------------     -------------
                                                                                      78,739,572        84,953,459
Bank premises and equipment, net                                                       5,482,187         6,051,588
Accrued interest                                                                         570,089           573,189
Cash surrender value of life insurance                                                 2,381,047         2,262,934
Other real estate owned                                                                     --             262,714
Federal Reserve Bank and other stock at cost                                             177,200           177,200
Other assets                                                                             884,624           799,220
                                                                                   -------------     -------------
                      TOTAL ASSETS                                                 $ 110,753,057     $ 116,247,090
                                                                                   =============     =============

                            LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
      Deposits
          Non-interest-bearing                                                        36,855,546        34,208,093
          Interest-bearing                                                            62,727,564        70,315,085
                                                                                   -------------     -------------
Total deposits                                                                        99,583,110       104,523,178
      Accrued employee salary and benefits                                             1,114,270         1,229,117
      Accrued interest and other liabilities                                             760,644         1,864,560
                                                                                   -------------     -------------
                      TOTAL LIABILITIES                                              101,458,024       107,616,855
                                                                                   -------------     -------------

COMMITMENTS AND CONTINGENCIES (Note #8)

Stockholders' Equity
      Contributed capital
          Common stock - no par value, authorized 15,000,000 shares, issued and
            outstanding 1,864,826 shares in 2000 and
            1,862,774 shares in 1999                                                   2,112,243         2,106,258
      Additional paid-in capital                                                       3,306,684         3,306,684
      Retained earnings                                                                3,876,141         3,256,118
      Accumulated other comprehensive income                                                 (35)          (38,825)
                                                                                   -------------     -------------
                      TOTAL STOCKHOLDERS' EQUITY                                       9,295,033         8,630,235
                                                                                   -------------     -------------
                      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 110,753,057     $ 116,247,090
                                                                                   =============     =============
</TABLE>



                                                                              36


<PAGE>   37


                    VINEYARD NATIONAL BANCORP AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>

                                                                             2000           1999            1998
                                                                        ------------    -----------     ------------
<S>                                                                     <C>             <C>             <C>
INTEREST INCOME
      Interest and fees on loans                                        $ 8,083,023     $ 8,136,750     $ 8,531,979
      Interest on Investment Securities
        Obligations of U.S. Treasury and Agencies                           494,567         502,636         315,532
        Other securities                                                      9,491           9,533           9,948
      Interest on deposits                                                   13,660          44,739          20,268
      Interest on Federal funds sold                                        364,500         300,845         299,538
      Direct lease financing income                                            --              --               784
                                                                        -----------     -----------     -----------
         TOTAL INTEREST INCOME                                            8,965,241       8,994,503       9,178,049
                                                                        -----------     -----------     -----------

INTEREST EXPENSE
      Interest on savings deposits                                          200,989         192,135         206,686
      Interest on NOW and money market deposits                             420,189         468,995         448,803
      Interest on time deposits in denominations of $100,000 or more        426,463         370,207         323,822
      Interest on other time deposits                                       999,331       1,172,368       1,572,361
      Interest on Federal funds purchased and other interest                  1,601             329             320
                                                                        -----------     -----------     -----------
         TOTAL INTEREST EXPENSE                                           2,048,573       2,204,034       2,551,992
                                                                        -----------     -----------     -----------
         NET INTEREST INCOME                                              6,916,668       6,790,469       6,626,057

PROVISION FOR LOAN AND LEASE LOSSES                                        (256,000)       (166,000)       (142,982)
                                                                        -----------     -----------     -----------
         NET INTEREST INCOME AFTER
         PROVISION FOR LOAN
         AND LEASE LOSSES                                                 6,660,668       6,624,469       6,483,075
                                                                        -----------     -----------     -----------

OTHER  INCOME
      Fees and service charges, gain on sale of loans
        and loan servicing income                                         1,563,082       1,716,881       1,709,063
      Net (loss) gain on sale of investment securities                         --              (108)         49,072
      Other income                                                           18,826         186,668         157,666
                                                                        -----------     -----------     -----------
         TOTAL OTHER INCOME                                               1,581,908       1,903,441       1,915,801
                                                                        -----------     -----------     -----------

OTHER EXPENSES
      Salaries and employee benefits                                      3,324,910       3,766,182       3,505,857
      Occupancy expense of premises                                         622,220         616,437         623,994
      Furniture and equipment expense                                       546,877         606,183         672,893
Litigation expense (Note #8)                                                   --           920,000          79,236
      Other expenses                                                      2,679,546       2,655,572       2,766,713
                                                                        -----------     -----------     -----------
         TOTAL OTHER EXPENSES                                             7,173,553       8,564,374       7,648,693
                                                                        -----------     -----------     -----------
         INCOME/(LOSS) BEFORE INCOME
            TAXES                                                         1,069,023         (36,464)        750,183
         INCOME TAXES                                                       449,000         (11,600)        306,800
                                                                        -----------     -----------     -----------
         NET INCOME/(LOSS)                                              $   620,023     $   (24,864)    $   443,383
                                                                        ===========     ===========     ===========

EARNINGS/(LOSS) PER SHARE
  BASIC                                                                 $      0.33     $     (0.01)    $      0.24
                                                                        ===========     ===========     ===========
  DILUTED                                                               $      0.33     $     (0.01)    $      0.22
                                                                        ===========     ===========     ===========

</TABLE>



                                                                              37


<PAGE>   38


                    VINEYARD NATIONAL BANCORP AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>

                                         Common Stock                                                   Accumulated
                                   -----------------------  Additional                                    Other
                                     Number of                Paid-in      Comprehensive    Retained   Comprehensive
                                      Shares      Amount      Capital      Income/(Loss)    Earnings       Income        Total
                                   ----------- -----------   -----------   -------------    --------   -------------  -----------
<S>                                <C>         <C>           <C>            <C>           <C>          <C>            <C>
BALANCE, December 31, 1997         1,862,774   $ 2,106,258    $3,306,684                  $ 2,837,599  $    15,962    $ 8,266,503
  Comprehensive income
    Net Income                                                             $   443,383        443,383                     443,383
    Unrealized security holding
        gains (net of $33,840 tax)                                              46,735                      46,735         46,735
    less reclassification
        adjustments for gains
        (net of $20,610 tax)                                                   (28,462)                    (28,462)       (28,462)
                                                                           -----------
  Total Comprehensive income                                               $   461,656
                                   ---------    ----------    ----------   ===========     ----------   ----------    -----------
BALANCE, December 31, 1998         1,862,774     2,106,258     3,306,684                    3,280,982       34,235      8,728,159
  Comprehensive loss
     Net loss                                                                  (24,864)       (24,864)                    (24,864)
     Unrealized security
       holding losses
       (net of $52,887 tax)                                                    (73,123)                    (73,123)       (73,123)
       less reclassification
       adjustments for losses
       (net of $45 tax)                                                             63                          63             63
                                                                           -----------
  Total Comprehensive loss                                                 $   (97,924)
                                   ---------    ----------    ----------   ===========     ----------  -----------    -----------
BALANCE, December 31, 1999         1,862,774     2,106,258     3,306,684                    3,256,118      (38,825)     8,630,235
  Comprehensive income
     Stock options exercised           2,052         5,985                                                                  5,985
     Net income                                                                620,023        620,023                     620,023
     Unrealized security holding
      gains (net of $28,025 tax)                                                38,790                      38,790         38,790
                                                                           -----------
  Total Comprehensive income                                               $   658,813
                                   ---------   -----------   -----------   ===========    - ---------- -----------    -----------
BALANCE, December 31, 2000         1,864,826   $ 2,112,243   $ 3,306,684                  $ 3,876,141  $       (35)   $ 9,295,033
                                   =========   ===========   ===========                  ===========  ===========    ===========


</TABLE>



                                                                              38
<PAGE>   39


                    VINEYARD NATIONAL BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>

                                                                     2000               1999               1998
                                                                 ------------       ------------       ------------
<S>                                                              <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Interest and fees received                                 $  8,638,637       $  8,332,313       $  7,693,391
      Service fees and other income received                        1,594,051          1,897,087          1,900,070
      Financing revenue received under leases                             784
      Interest paid                                                (2,001,257)        (2,286,942)        (2,605,020)
      Cash paid to suppliers and employees                         (7,957,524)        (6,930,145)        (7,575,320)
      Decrease/(increase) in loans held for sale                      600,023          1,342,369         (1,752,742)
      Income taxes paid                                              (582,594)          (517,929)          (185,435)
                                                                 ------------       ------------       ------------
                      NET CASH PROVIDED BY/(USED IN)
                        OPERATING ACTIVITIES                          291,336          1,836,753         (2,524,272)
                                                                 ------------       ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES
      Proceeds from maturities of investment securities,
       available-for-sale                                           5,000,000          4,000,000          4,050,000
      Proceeds from sales of investment securities,
       available-for-sale                                                --            1,008,492            549,197
      Purchase of investment securities available-for-sale         (1,000,170)        (8,467,993)        (6,010,595)
      Purchase of other investment securities                            --                 --               (5,000)
      Net decrease/(increase) in deposits in other
       financial institutions                                         297,000            198,000           (693,000)
      Recoveries on loans previously written off                      130,167            108,877            101,283
      Net loans made to customers and principal
        collections of loans                                        5,525,643          1,226,495          4,060,850
      Net decrease in leases to customers                                --                 --               14,354
      Capital expenditures                                               --             (274,784)          (427,218)
      Proceeds from sale of property, plant and equipment              21,025             79,400             76,198
      Proceeds from sale of OREO                                      218,891             31,102            169,182
                                                                 ------------       ------------       ------------
                      NET CASH PROVIDED BY/(USED IN)
                       INVESTING ACTIVITIES                        10,192,556         (2,090,411)         1,885,251
                                                                 ------------       ------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES
      Net (decrease)/increase in demand deposits, NOW
       accounts savings accounts, and money market deposits        (2,024,798)         6,008,535          1,491,152
      Net (decrease)/increase in certificates of deposits          (2,915,270)        (6,800,347)         2,082,482
Stock options exercised                                                 5,985               --                 --
                                                                 ------------       ------------       ------------
                      NET CASH (USED IN)/PROVIDED BY
                       FINANCING ACTIVITIES                        (4,934,083)          (791,812)         3,573,634
                                                                 ------------       ------------       ------------

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                5,549,809         (1,045,470)         2,934,613

CASH AND CASH EQUIVALENTS, Beginning of year                       11,243,489         12,288,959          9,354,346
                                                                 ------------       ------------       ------------

CASH AND CASH EQUIVALENTS, End of year                           $ 16,793,298       $ 11,243,489       $ 12,288,959
                                                                 ============       ============       ============

</TABLE>


                                                                              39

<PAGE>   40


                    VINEYARD NATIONAL BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>

                                                                    2000              1999              1998
                                                                ------------      ------------      -------------
<S>                                                              <C>               <C>               <C>
RECONCILIATION OF NET INCOME TO NET CASH

      Net Income/(loss)                                          $   620,023       $   (24,864)      $   443,383
                                                                 -----------       -----------       -----------
      Adjustments to Reconcile Net Income/(Loss)
       to Net Cash Provided by Operating Activities
          Depreciation and amortization                              548,376           581,142           650,375
          Investment securities accretion/amortization               (31,758)          (34,818)          (38,724)
          Provision for loan and lease losses                        256,000           166,000           142,982
          Provision for OREO losses                                   31,680              --               4,400
          (Gain)/loss on sale of equipment                              --                (734)            5,334
          (Decrease)/increase in taxes payable                      (146,594)         (104,129)          120,565
          Increase in other assets                                  (231,542)         (866,317)         (820,311)
          Decrease/(increase) in loans held for sale                 600,023         1,342,369        (1,752,742)
          Decrease in unearned loan fees                            (297,946)         (550,278)       (1,394,090)
          Decrease/(increase) in interest receivable                   3,100           (77,094)          (51,060)
          Increase/(decrease) in interest payable                     47,316           (82,908)          (53,028)
          Increase in accrued expense and other liabilities       (1,119,485)        1,494,738           236,160
          (Gain)/loss on sale of investment securities, net             --                 108           (49,072)
          (Gain)/loss on sale of OREO                                 12,143            (6,462)           31,556
                                                                 -----------       -----------       -----------
                      Total Adjustments                             (328,687)        1,861,617        (2,967,655)
                                                                 -----------       -----------       -----------
                      NET CASH PROVIDED BY/(USED IN)
                       OPERATING ACTIVITIES                      $   291,336       $ 1,836,753       $(2,524,272)
                                                                 ===========       ===========       ===========

SUPPLEMENTARY INFORMATION
      Change in valuation allowance
        for investment securities                                $    66,815       $   (73,060)      $    18,273
                                                                 ===========       ===========       ===========
</TABLE>



                                                                              40

<PAGE>   41



NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Vineyard National Bancorp (the Company)
and Subsidiary conform to generally accepted accounting principles and to
general practices within the banking industry. A summary of the Company's
significant accounting and reporting policies consistently applied in the
preparation of the accompanying financial statements follows:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the Company and its wholly owned
subsidiary, Vineyard National Bank (the Bank). Intercompany balances and
transactions have been eliminated.

NATURE OF OPERATIONS

The Company was organized and operates as a single reporting segment. The
Company operates five branches within San Bernardino and Los Angeles Counties
and provides a variety of financial services to individuals and small-to-medium
sized businesses. The Company offers a full range of commercial banking services
including the acceptance of checking and savings deposits, and the making of
various types of installment, commercial and real estate loans. The financial
information for the Company has been aggregated into one reporting segment.

USE OF ESTIMATES

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

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

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

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include cash,
due from banks and federal funds sold. Generally, federal funds are sold for
one-day periods.

CASH AND DUE FROM BANKS

Banking regulations require that all banks maintain a percentage of their
deposits as reserves in cash or on deposit with the Federal Reserve Bank. The
Bank complied with the reserve requirements as of December 31, 2000.

The Bank maintains amounts due from banks that exceed federally insured limits.
The Bank has not experienced any losses in such accounts.


                                                                              41

<PAGE>   42




NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

INVESTMENT SECURITIES

IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 115,
"ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES," WHICH
ADDRESSES THE ACCOUNTING FOR INVESTMENTS IN EQUITY SECURITIES THAT HAVE READILY
DETERMINABLE FAIR VALUES AND FOR INVESTMENTS IN ALL DEBT SECURITIES, SECURITIES
ARE CLASSIFIED IN THREE CATEGORIES AND ACCOUNTED FOR AS FOLLOWS: DEBT SECURITIES
THAT THE COMPANY HAS THE POSITIVE INTENT AND ABILITY TO HOLD TO MATURITY ARE
CLASSIFIED AS HELD-TO-MATURITY AND ARE MEASURED AT AMORTIZED COST; DEBT AND
EQUITY SECURITIES BOUGHT AND HELD PRINCIPALLY FOR THE PURPOSE OF SELLING IN THE
NEAR TERM ARE CLASSIFIED AS TRADING SECURITIES AND ARE MEASURED AT FAIR VALUE,
WITH UNREALIZED GAINS AND LOSSES INCLUDED IN EARNINGS; DEBT AND EQUITY
SECURITIES DEEMED AS AVAILABLE-FOR-SALE ARE MEASURED AT FAIR VALUE, WITH
UNREALIZED GAINS AND LOSSES REPORTED IN A SEPARATE COMPONENT OF STOCKHOLDERS'
EQUITY. GAINS OR LOSSES ON SALES OF INVESTMENT SECURITIES ARE DETERMINED ON THE
SPECIFIC IDENTIFICATION METHOD. PREMIUMS AND DISCOUNTS ON INVESTMENT SECURITIES
ARE AMORTIZED OR ACCRETED USING THE INTEREST METHOD OVER THE EXPECTED LIVES OF
THE RELATED SECURITIES.

LOANS AND INTEREST ON LOANS

Loans are stated at unpaid principal balances, less the reserve for probable
loan losses and net deferred loan fees and unearned discounts. Interest income
is accrued monthly as earned on all loans not discounted. The Bank recognizes
loan origination fees, to the extent they represent reimbursement for initial
direct costs, as income at the time of loan boarding. The excess of fees over
costs, if any, is deferred and credited to income over the term of the loan.
Unearned discounts on installment loans is recognized as income over the term of
the loans by the sum-of-the-month-digits method (Rule of 78's).

THE BANK ACCOUNTS FOR IMPAIRED LOANS IN ACCORDANCE WITH SFAS NO. 114, (AS
AMENDED BY SFAS NO. 118), "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN."
THE STATEMENT GENERALLY REQUIRES THOSE LOANS IDENTIFIED AS "IMPAIRED" TO BE
MEASURED ON THE PRESENT VALUE OF EXPECTED FUTURE CASH FLOWS DISCOUNTED AT THE
LOAN'S EFFECTIVE INTEREST RATE, EXCEPT THAT AS A PRACTICAL EXPEDIENT, A CREDITOR
MAY MEASURE IMPAIRMENT BASED ON A LOAN'S OBSERVABLE MARKET PRICE, OR THE FAIR
VALUE OF THE COLLATERAL IF THE LOAN IS COLLATERAL DEPENDENT. A LOAN IS IMPAIRED
WHEN IT IS PROBABLE THE CREDITOR WILL NOT BE ABLE TO COLLECT ALL CONTRACTUAL
PRINCIPAL AND INTEREST PAYMENTS DUE IN ACCORDANCE WITH THE TERMS OF THE LOAN
AGREEMENT.

Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance.

All loans on nonaccrual are measured for impairment. The Bank applies the
measurement provision of SFAS No. 114 to all loans in its portfolio except for
installment loans which are charged off after 120 days of delinquency. All other
loans are generally charged off at such time the loan is classified as a loss.

LOANS HELD FOR SALE

Loans held for sale are carried at the lower of aggregate cost or market. Net
unrealized losses are recognized through a valuation allowance by charges to
income.

ALLOWANCE FOR LOAN AND LEASE LOSSES

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



                                                                              42

<PAGE>   43



NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

PREMISES AND EQUIPMENT

Land is carried at cost. Premises and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives, which ranges from three to
ten years for furniture and fixtures and forty years for buildings. Leasehold
improvements are amortized using the straight-line method over the estimated
useful lives of the improvements or the remaining lease term, whichever is
shorter. Expenditures for betterments or major repairs are capitalized and those
for ordinary repairs and maintenance are charged to operations as incurred.
Total depreciation expense for the reporting periods ending December 31, 2000,
1999 and 1998, was approximately $548,000, $581,000, and $650,000, respectively.

OTHER REAL ESTATE OWNED

Other real estate owned, which represents real estate acquired through
foreclosure, is stated at the lower of the carrying value of the loan or the
estimated fair value less estimated selling costs of the related real estate.
Loan balances in excess of the fair value of the real estate acquired at the
date of acquisition are charged against the allowance for loan losses. Any
subsequent declines in estimated fair value less selling costs, operating
expenses or income and gains or losses on disposition of such properties are
charged to current operations.

INCOME TAXES

Provisions for income taxes are based on amounts reported in the statements of
income (after exclusion of non-taxable income such as interest on state and
municipal securities) and include deferred taxes on temporary differences in the
recognition of income and expense for tax and financial statement purposes.
Deferred taxes are computed on the liability method as prescribed in SFAS No.
109, "Accounting for Income Taxes".

EARNINGS PER SHARE (EPS)

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

STOCK-BASED COMPENSATION

SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees", and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. The pro forma effects of adoption are disclosed in
Note #9.

COMPREHENSIVE INCOME

Beginning in 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which requires the disclosure of comprehensive income and its
components. Changes in unrealized gains/(losses) on available-for-sale
securities, net of income taxes, is the only component of accumulated other
comprehensive income for the Company.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1999 and 1998 financial
statements to conform to 2000 classifications.



                                                                              43
<PAGE>   44


NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

CURRENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities", (as amended by
SFAS 138 in 2000). This Statement establishes accounting and reporting standards
for derivative instruments and for hedging activities. This new standard was
originally effective for 2000. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivatives Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133". This Statement establishes the
effective date of SFAS 133 for 2001. SFAS No. 133 is not expected to have a
material impact on the Company's financial statements.

NOTE #2 - INVESTMENT SECURITIES

At December 31, 2000 and 1999, the investment securities portfolio was comprised
of securities classified as available-for-sale. In accordance with SFAS No. 115,
investment securities available-for-sale are carried at fair value and adjusted
for amortization of premiums and accretions of discounts.

The amortized cost and fair values of investment securities available-for-sale
at December 31, 2000, were:


<TABLE>
<CAPTION>

                                                 Gross         Gross
                               Amortized      Unrealized    Unrealized
                                  Cost           Gains         Losses     Fair Value
                               -----------   ------------    ----------   -----------
<S>                            <C>           <C>             <C>          <C>
U.S. Agency securities         $ 5,525,762       $ 706 62    $ (6,414)6    $ 5,520,054
Other                                1,340          5,646                        6,986
                               -----------    -----------    ----------    -----------
              Total            $ 5,527,102    $     6,352    $    (6,414)  $ 5,527,040
                               ===========    ===========    ==========    ===========

</TABLE>


The amortized cost and fair values of investment securities available-for-sale
at December 31, 1999, were:

<TABLE>
<CAPTION>

                                                Gross        Gross
                               Amortized     Unrealized   Unrealized
                                  Cost          Gains        Losses      Fair Value
                               ----------   -----------    -----------   -----------
<S>                            <C>           <C>           <C>            <C>
U.S. Agency securities         $9,493,833    $     --      $  (71,328)    $9,422,505
Other                               1,340         4,452          --            5,792
                               ----------    ----------    ----------     ----------
            Total              $9,495,173    $    4,452    $  (71,328)    $9,428,297
                               ==========    ==========    ==========     ==========
</TABLE>






                                                                              44
<PAGE>   45


NOTE #2 - INVESTMENT SECURITIES, Continued

The amortized cost and fair values of investment securities available-for-sale
at December 31, 2000, by expected maturity are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>

                                                     Securities
                                                 Available-for-Sale
                                              -------------------------
                                              Amortized
                                                  Cost       Fair Value
                                              -----------    ----------
<S>                                            <C>           <C>
Due in one year or less                        $5,030,006    $5,024,116
Due after one year but less than five years       495,756       495,938
                                               ----------    ----------
                                                5,525,762     5,520,054
Other securities                                    1,340         6,986
                                               ----------    ----------
               Total Securities                $5,527,102    $5,527,040
                                               ==========    ==========

</TABLE>


Included in shareholders' equity at December 31, 2000, is $35 of net unrealized
losses (net of $27 estimated tax benefit) on investment securities
available-for-sale.

Proceeds from sales of investment securities available-for-sale during 1999 were
$1,008,492. Gross losses on those sales were $108. There were no gains during
1999. Included in shareholders' equity at December 31, 1999 is $38,825 of net
unrealized losses (net of $28,051 estimated tax benefit) on investment
securities available-for-sale.

Proceeds from sales of investment securities available-for-sale during 1998 were
$549,197. Gross gains on those sales were $49,072. There were no losses during
1998. Included in shareholders' equity at December 31, 1998 is $34,235 of net
unrealized gains (net of $24,791 estimated tax expense) on investment securities
available-for-sale.

Securities with a carrying value and fair value of $597,422 and $4,945,408 at
December 31, 2000 and 1999, respectively, were pledged to secure public monies
as required by law.


NOTE #3 - LOANS

All the Bank's loans, commitments, and commercial and standby letters of credit
have been granted to customers in the Company's market area, which includes the
Counties of San Bernardino and Los Angeles. These loans are collateralized in
accordance with Company policy. The concentrations of credit by type of loan are
outlined as follows:

<TABLE>
<CAPTION>

                                                           2000             1999
                                                       ------------     ------------
<S>                                                    <C>              <C>
Commercial, financial and agricultural                 $ 10,665,007     $ 14,670,727
Real Estate - construction                                5,587,730        6,602,104
Real Estate - mortgage
      Commercial                                         40,099,693       36,181,308
      Residential                                        11,191,920        9,188,841
Installment loans to individuals                         12,048,790       18,851,726
All other loans (including overdrafts)                      179,903          169,693
                                                       ------------     ------------
                                                         79,773,043       85,664,399
Unearned income on installment loans                       (190,377)        (466,051)
Deferred loan fees                                         (294,302)        (316,574)
                                                       ------------     ------------
                      Loans, Net of Unearned Income    $ 79,288,364     $ 84,881,774
                                                       ============     ============

Loans held for sale                                    $    235,300     $    835,323
                                                       ============     ============
</TABLE>




                                                                              45


<PAGE>   46



NOTE #3 - LOANS, Continued

The following is a summary of the investment in impaired loans, the related
allowance for loan losses, and income recognized thereon as of December 31:

<TABLE>
<CAPTION>

                                                   2000        1999
                                                 --------    --------
<S>                                              <C>         <C>
Impaired loans without a valuation allowance     $227,000    $495,000
Impaired loans with a valuation allowance          80,000        --
                                                 --------    --------
Total impaired loans                             $307,000    $495,000
                                                 ========    ========
Valuation allowance related to impaired loans    $ 21,000    $   --
                                                 ========    ========

<CAPTION>
                                                    Years Ended December 31,
                                               ---------------------------------
                                                  2000        1999        1998
                                               ---------    --------    --------
<S>                                             <C>         <C>         <C>
Average investment in impaired loans            $245,000    $164,000    $106,000
Interest income recognized on impaired loans        --          --          --
Interest income recognized on a cash
  basis on impaired loans                           --         5,000       5,000

</TABLE>


No additional funds are committed to be advanced in connection with impaired
loans.

The provisions of SFAS No. 114 and SFAS No. 118 permit the valuation allowance
reported above to be determined on a loan-by-loan basis or by aggregating loans
with similar risk characteristics. Because the loans currently identified as
impaired have unique risk characteristics, the valuation allowance was
determined on a loan-by-loan basis.

Nonaccruing loans totaled approximately $307,000 and $495,000 at December 31,
2000 and 1999, respectively. As of December 31, 2000 and 1999, all loans on
nonaccrual were classified as impaired. If interest on nonaccrual loans had been
recognized at the original interest rates, interest income would have increased
approximately $9,000, $23,000, and $6,000 for the years ended 2000, 1999 and
1998, respectively.

At December 31, 2000 and 1999, the Company had approximately $25,000 and
$14,000, respectively, in loans past due 90 days or more in interest or
principal and still accruing interest. These loans are well secured and in the
process of collection, or are secured by 1-4 single-family residences.

At December 31, 2000, no loans were classified as troubled debt restructurings.

Loans with a carrying amount of approximately $3,900,000 have been pledged to
secure a line of credit at the Federal Reserve Bank.

NOTE #4 - ALLOWANCE FOR LOAN AND LEASE LOSSES

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

<TABLE>
<CAPTION>

                                                           2000          1999         1998
                                                         ----------   -----------  -----------
<S>                                                       <C>           <C>          <C>
Balance, Beginning of year                                $763,638      $686,016     $694,880
Recoveries on loans previously charged off                 130,167       108,877      101,283
Loans charged off                                         (365,713)     (197,255)    (253,129)
Provision/(credit) charged to operating expense            256,000       166,000      142,982
                                                         ----------   -----------  -----------
Balance, End of year                                      $784,092      $763,638     $686,016
                                                         ==========   ===========  ===========
</TABLE>



                                                                              46


<PAGE>   47




NOTE #5 - LOANS TO DIRECTORS AND OFFICERS

In the ordinary course of business, the Company has granted loans to certain
Directors and Officers and the companies with which they are associated. All
such loans were made under the terms which are consistent with the Bank's normal
lending policies. The outstanding loans to Directors and Officers at December
31, 2000 and 1999, amounted to approximately $1,609,000 and $2,757,000,
respectively. Not included in the balances outstanding at December 31, 2000 and
1999, were undisbursed commitments to lend of approximately $205,000. There were
no non-accruing loans to Directors and Officers and loans classified by the
Company's regulatory agency or by the Company in 2000 and 1999.

Deposits from related parties held by the Bank at December 31, 2000 and 1999
amounted to approximately $704,000 and $3,453,000, respectively.

NOTE #6 - PREMISES AND EQUIPMENT

Major classifications of Company premises and equipment are summarized as
follows:

<TABLE>
<CAPTION>

                                                             2000            1999
                                                          -----------     -----------
<S>                                                       <C>             <C>
Building                                                  $ 3,641,990     $ 3,868,395
Furniture and equipment                                     3,083,590       3,524,261
Leasehold improvements                                      1,284,084       1,264,014
                                                          -----------     -----------
                                                            8,009,664       8,656,670
      Less:  Accumulated depreciation and amortization     (3,812,477)     (3,890,082)
Land                                                        1,285,000       1,285,000
                                                          -----------     -----------
                      Total                               $ 5,482,187     $ 6,051,588
                                                          ===========     ===========
</TABLE>


The Company is obligated under leases for equipment and property. The original
terms of the leases range from three to ten years. The leases contain options to
extend for periods from twelve months to sixty-seven months. All options to
extend have been exercised and the related lease costs are included below. The
following is a schedule of future minimum lease payments based upon obligations
at year-end.


<TABLE>
<CAPTION>

       Year Ending
       December 31,
       ------------
       <S>                                          <C>
         2001                                       $ 115,315
         2002                                         120,465
         2003                                          52,601
                                                    ---------
        Total                                       $ 288,381
                                                    =========
</TABLE>



Total property and equipment expenditures charged to leases for the years ended
December 31, 2000, 1999 and 1998, were approximately $112,000, $110,000, and
$110,000, respectively.



                                                                              47
<PAGE>   48



NOTE #7 - INCOME TAXES

<TABLE>
<CAPTION>

                                                          Year Ending December 31,
                                                   ------------------------------------
                                                      2000         1999         1998
                                                   ---------    ---------     ---------
<S>                                                <C>          <C>           <C>
Tax provision (credit) applicable to
  income before income taxes                       $ 449,000    $ (11,600)    $ 306,800
                                                   =========    =========     =========

Federal Income Tax
      Current                                        298,900      421,600       330,700
      Deferred (credit)                                2,100     (433,200)      (92,200)
                                                   ---------    ---------     ---------
                      Total Federal Income Tax       301,000      (11,600)      238,500
                                                   ---------    ---------     ---------

State Franchise Tax
      Current                                        107,200      144,200        98,800
      Deferred (credit)                               40,800     (144,200)      (30,500)
                                                   ---------    ---------     ---------
                      Total State Franchise Tax      148,000         --          68,300
                                                   ---------    ---------     ---------
                      Total Income Taxes           $ 449,000    $ (11,600)    $ 306,800
                                                   =========    =========     =========


</TABLE>


Deferred tax expense/(credits) result from timing differences in the recognition
of revenues and expenses for tax and financial statement purposes. The sources
of these differences and the tax effect of each are as follows:

<TABLE>
<CAPTION>

                                                2000                      1999                        1998
                                     ------------------------    ------------------------    -----------------------
                                        Federal       State        Federal        State       Federal        State
                                     -----------    ---------    ----------     ---------    ---------     ---------
<S>                                  <C>            <C>           <C>           <C>           <C>           <C>
Tax Effect Of
Revenue and expenses
 reported on a different basis
 for tax purposes                     $  45,300     $  43,800     $(313,300)    $ (97,800)    $  66,100     $   1,500
Depreciation computed
 differently on tax returns than
 for financial statements               (16,400)        5,600       (10,700)       (4,300)      (25,300)        4,600
Deferred compensation plan               60,200        19,200       (72,400)      (28,900)      (84,400)      (26,300)
Provision for loan loss deduction
 in tax return over/(under) amount
 charged for financial
 statement purposes                     (87,000)      (27,800)      (36,800)      (13,200)      (48,600)      (10,300)
                                      ---------     ---------     ---------     ---------     ---------     ---------
                      Total           $   2,100     $  40,800     $(433,200)    $(144,200)    $ (92,200)    $ (30,500)
                                      =========     =========     =========     =========     =========     =========

</TABLE>


                                                                              48

<PAGE>   49



NOTE #7 - INCOME TAXES, Continued

As a result of the following items, the total income tax expense/(credit) for
2000, 1999 and 1998, was different than the amount computed by applying the
statutory U.S. Federal income tax rate to income before taxes:

<TABLE>
<CAPTION>

                                             2000                  1999                  1998
                                     --------------------- ---------------------  -------------------
                                                 Percent                Percent               Percent
                                                of Pretax              of Pretax             of Pretax
                                       Amount     Income     Amount     Income      Amount     Income
                                     ---------- ---------- ---------- ---------   ---------   --------
<S>                                  <C>        <C>        <C>        <C>         <C>         <C>
Federal rate                          $ 363,468    34.0    $ (12,398)    (34.0)   $ 255,062     34.0
Changes due to State income
   tax, net of Federal tax benefit       75,901     7.1       (2,609)    (7.1)       45,078      6.1
Exempt interest                            --      --           --       --          (2,180)    (0.3)
Other                                     9,631     0.9        3,407      9.3         8,840      1.1
                                      ---------    ----    ---------     ----     ---------     ----
                      Total           $ 449,000    42.0    $ (11,600)    (31.8)   $ 306,800     40.9
                                      =========    ====    =========     ====     =========     ====
</TABLE>



The deferred tax assets and liabilities of the Company are composed of the
following tax-affected cumulative timing differences.

<TABLE>
<CAPTION>

                                                         2000           1999
                                                     -----------     -----------
<S>                                                  <C>             <C>
Deferred Tax Assets
      Reserve for loan losses                        $   195,000     $    90,000
      Real estate owned writedowns                          --            12,000
      Deferred compensation                              275,000         358,000
      Deferred fees                                      121,000         110,000
      Non-deductible reserves                            374,000         426,000
      Other assets                                        26,000            --
      Other Unrealized Loss on Securities                   --            28,000
                                                     -----------     -----------
                                                         991,000       1,024,000
                     Less:  Valuation allowance 1       (475,000)       (475,000)
                                                     -----------     -----------
                                                         516,000         549,000
Deferred Tax Liabilities
      Fixed assets                                      (113,000)       (105,000)
                                                     -----------     -----------
                      Net Deferred Tax Assets        $   403,000     $   444,000
                                                     ===========     ===========
</TABLE>


(1) The valuation allowance is management's estimate of amounts more likely than
not of being realized due to uncertainty regarding future income based on prior
results. The allowance is largely attributable to unused losses previously
incurred and overall limitations on other deferred tax assets. The allowance was
not changed during 2000 or 1999.

NOTE #8 - COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk. These financial instruments include
commitments to extend credit and standby letters of credit. To varying degrees,
these instruments involve elements of credit and interest rate risk in excess of
the amount recognized in the statement of financial position. The Company's
exposure to credit loss in the event of non-performance by the other party to
the financial instruments for commitments to extend credit and standby letters
of credit is represented by the contractual amount of those instruments. At
December 31, 2000 and 1999, the Company had commitments to extend credit of
approximately $9,112,000 and $10,165,000 and obligations under standby letters
of credit of approximately $151,000 and $174,000.



                                                                              49
<PAGE>   50



NOTE #8 - COMMITMENTS AND CONTINGENCIES, Continued

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, income-producing
commercial properties, residential properties and properties under construction.

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

On October 25, 1999, a jury rendered a verdict against the Bank in the amount of
approximately $3.5 million arising from a lawsuit by a borrower who also leased
to the Bank a branch office. The Bank foreclosed on the real property securing
its loan to the borrower. The borrower claimed that the foreclosure was
wrongful. On February 25, 2000, the trial judge found that the jury verdict was
excessive and ordered a new trial on damages if the borrower did not agree to a
reduction to $860,000. During 1999, the Bank accrued a loss of $860,000 in
recognition of the amount of liability determined by the court which is included
in litigation expense. During 2000, the lawsuit was settled.

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

As discussed in Note #15, Regulatory Contingent Matters, the Bank has potential
contingencies due to the effects, if any, from the forthcoming report of
examination to be issued by the Office of the Comptroller of the Currency at the
conclusion of their examination currently in progress.

NOTE #9 - STOCK OPTION PLAN

At December 31, 2000, the Company has one stock-based compensation plan, which
is described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plan. Accordingly, no compensation cost
has been recognized for its incentive stock option plan. Had compensation cost
for the Company's stock option plan been determined on the fair value at the
grant dates for awards under the plan consistent with the method prescribed by
SFAS 123, the Company's net income and earnings per share would have been
adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                                  2000           1999            1998
                                                             -------------  --------------  --------------
<S>                                  <C>                      <C>             <C>             <C>
Net income/(loss)                    As reported               $  620,023      $  (24,864)     $  443,383
                                     Pro forma                 $  618,042      $  (30,895)     $  437,325

Earnings/(loss) per share            As reported                $    0.33       $   (0.01)      $    0.24
                                     Pro forma                  $    0.33       $   (0.02)      $    0.23

Earnings/(loss) per share -          As reported                $    0.33       $   (0.01)      $    0.22
   assuming dilution                 Pro forma                  $    0.33       $   (0.02)      $    0.22


</TABLE>



                                                                              50
<PAGE>   51




NOTE #9 - STOCK OPTION PLAN, Continued

An incentive stock option plan was approved by the stockholders in 1987 covering
an aggregate of 126,000 shares (after giving retroactive effect for stock
splits). The plan provides that options of the Company's unissued common stock
may be granted to officers and key employees at prices not less than the fair
market value of such shares at dates of grant. Options vest at a rate of 33.33%
every two years with all options vesting at the end of the sixth year after the
date of grant. Options granted expire on such date as the Stock Option Committee
or Board of Directors may determine, but not later than the sixth anniversary of
the date on which the option is granted.

During 1996, the Board of Directors of Vineyard National Bancorp elected to
modify the existing incentive stock option plan. Under the new agreement the
options granted expire on such date as the Stock Option Committee or Board shall
determine, but not later than the seventh anniversary of the date on which the
option is granted.

During 1997, the Board of Directors and stockholders of Vineyard National
Bancorp elected to terminate the existing 1987 Incentive Stock Option Plan and
approve the 1997 Incentive Stock Option Plan. The new Plan authorizes an
additional 200,000 shares of the Bancorp's authorized but unissued common stock
to be combined with the 53,316 shares which remain under the 1987 Plan for a
total of 253,316 shares. Directors of the Bancorp are eligible to participate
under the new Plan. Options vest at a rate of 33.33% every two years with all
options vesting at the end of the sixth year after the date of grant. Options
granted expire on such date as the Option Committee or Board of Directors may
determine, but not later than the tenth anniversary date on which the option is
granted.

The fair value of each option granted during 2000, 1999 and 1998, respectively,
were estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions; risk-free rates of 5.26%, 6.56%, and 4.75%,
dividend yield of 0.0% for all years; volatility of 33%, 30%, and 28%, expected
life of 10 years for 2000 and 7 years for 1999 and 1998.

A summary of the status of the Company's incentive stock option plan as of
December 31, 2000, 1999 and 1998, respectively, and changes during the years
ending on those dates is presented below:

<TABLE>
<CAPTION>

                                                 2000                                  1999
                                 -----------------------------------   -----------------------------------
                                     Number of Shares                     Number of Shares
                                 ------------------------  Weighted-   ----------------------    Weighted-
                                 Available                  Average    Available                  Average
                                    For                     Exercise      For                     Exercise
                                  Granting    Outstanding    Price      Granting    Outstanding    Price
                                 ----------   -----------  ---------   ---------    -----------   ---------
<S>                              <C>          <C>          <C>         <C>           <C>          <C>
Outstanding at beginning of year    116,128       210,324    $5.25        152,188       174,264    $5.23
Exercised                                          (2,052)   $2.92
Cancelled                           256,472      (256,472)   $5.17          8,940        (8,940)   $5.51
Granted                            (191,500)      191,500    $4.47        (45,000)       45,000    $5.75
                                 -----------   -----------               --------    ----------
Outstanding at end of year          181,100       143,300    $4.39        116,128       210,324    $5.25
                                 ===========    ==========               ========     =========

Options exercisable at year-end                    10,666                                84,824
Weighted-average fair value of
   Options granted during the year              $    2.49                                $ 2.13

</TABLE>




                                                                              51


<PAGE>   52


NOTE #9 - STOCK OPTION PLAN, Continued

<TABLE>
<CAPTION>

                                                                          1998
                                                      ------------------------------------------
                                                             Number of Shares
                                                      -----------------------------    Weighted-
                                                       Available                        Average
                                                          For                          Exercise
                                                       Granting       Outstanding        Price
                                                      ------------   --------------   ----------
<S>                                                    <C>           <C>              <C>
Outstanding at beginning of year                          250,188           76,264       $2.97
Granted                                                   (98,000)          98,000       $6.90
                                                        ----------      ----------
Outstanding at end of year                                152,188          174,264       $5.23
                                                        ==========      ==========

Options exercisable at year-end                                             81,264
Weighted-average fair value of
   Options granted during the year                                          $ 2.05

</TABLE>


The following table summarizes information about incentive stock options
outstanding at December 31, 2000:

<TABLE>
<CAPTION>

         Options Outstanding                                                      Options Exercisable
------------------------------------------------------------------------       ---------------------------
                                             Weighted-       Weighted-                        Weighted-
                                              Average         Average                          Average
     Exercise             Number             Remaining        Exercise           Number        Exercise
      Price             Outstanding       Contractual Life     Price           Exercisable      Price
-------------------  ------------------   ----------------   -----------       -----------   -------------
<S>                   <C>                 <C>                <C>               <C>            <C>
      $2.92               6,300                3.49               $2.92             6,300           $2.92
  $4.00 - $7.00         137,000                9.39               $4.46             4,666           $7.00
                    ------------                                                --------
                        143,300                9.13               $4.39            10,966           $4.65
                    ============                                                ========
</TABLE>



NOTE #10 - OTHER INCOME/EXPENSES

The following is a breakdown of fees and other servicing income and expenses for
the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>

                                                          2000               1999               1998
                                                      -------------      -------------      ------------
<S>                                                    <C>                <C>                <C>
Fees and Other Servicing Income
      Fees and service charges                         $  1,457,820       $  1,531,882       $  1,451,626
      Premium on sale of loans                              105,262            184,999            257,437
                                                       ------------       ------------       ------------
                      Total                            $  1,563,082       $  1,716,881       $  1,709,063
                                                       =============      =============      =============

Other Expenses
      Data processing                                   $   617,658        $   668,228        $   663,553
      Marketing expenses                                    207,601            252,808            287,876
      Professional expenses                                 797,336            687,931            629,466
      Office supplies, postage and telephone                361,177            319,614            366,833
      Insurance and assessment expense                      139,310            160,149            167,040
      Loan related expense                                   88,731             51,759             77,022
      Administrative expense                                381,291            315,354            373,276
      Other                                                  86,442            199,729            201,647
                                                       ------------       ------------       ------------
                      Total                            $  2,679,546       $  2,655,572       $  2,766,713
                                                       ============       ============       ============
</TABLE>



                                                                              52

<PAGE>   53



NOTE #11 - RESTRICTION ON TRANSFERS OF FUNDS TO PARENT

There are legal limitations on the ability of the Bank to provide funds to the
Company. Dividends declared by the Bank may not exceed, in any calendar year,
without approval of the Comptroller of the Currency, net income for the year and
the retained net income for the preceding two years. Section 23A of the Federal
Reserve Act restricts the Bank from extending credit to the Company and other
affiliates amounting to more than 20 percent of its contributed capital and
retained earnings. At December 31, 2000, the combined amount of funds available
from these two sources amounted to approximately $2,894,000 or 31%.

NOTE #12 - DEFERRED COMPENSATION

The Company has a deferred compensation plan for certain key management
personnel and non-employee directors whereby they may defer compensation which
will then provide for certain payments upon retirement, death or disability. The
plan provides for payments for fifteen years commencing upon retirement, death
or disability. The plan provides for reduced benefits upon early retirement,
disability or termination of employment. The Company may make matching
contributions of officers' deferrals up to a maximum of 25% and 50% of senior
officers' deferrals to a maximum of 10% of before-tax compensation. The
Company's contribution, in the aggregate, for all participants shall not exceed
4% of compensation of all Company employees. Each participant contributes a
minimum of $1,000 annually to the plan. The deferred compensation expense was
$11,488 ($6,664 net of income taxes), $23,787 ($13,463 net of income taxes), and
$22,124 ($18,186 net of income taxes) for the years ended December 31, 2000,
1999 and 1998, respectively.

NOTE #13 - DEFINED CONTRIBUTION PLAN

The Company has a qualified defined contribution plan (401(k) Retirement Savings
Plan) for all eligible employees. Employees contribute from 1% to 15% of their
compensation with a maximum of $10,000 annually. The Company's contribution to
the plan is based upon an amount equal to 25% of each participant's eligible
contribution for the plan year not to exceed 4% of the employee's compensation.
The Company's matching contribution becomes vested at 20% per year with full
vesting after five years. The expense was $12,420 ($7,203 net of income taxes),
$16,121 ($9,129 net of income taxes), and $15,321 ($12,563 net of income taxes),
for the years ended December 31, 2000, 1999 and 1998, respectively.

NOTE #14 - INCOME/(LOSS) PER COMMON AND COMMON EQUIVALENT SHARE

The following is a reconciliation of net income/(loss) and shares outstanding to
the income/(loss) and number of shares used to compute EPS:

<TABLE>
<CAPTION>

                                           2000                     1999                     1998
                                  -----------------------  -----------------------  ------------------------
                                     Net                      Net                      Net
                                    Income      Shares        Loss       Shares       Income      Shares
                                  ----------- -----------  ----------- -----------  ----------- ------------
<S>                                <C>        <C>          <C>          <C>         <C>         <C>
Net income/(loss) as reported      $ 620,023                 $(24,864)               $ 443,383
Shares outstanding at year-end                 1,864,826                1,862,776                 1,862,776
Impact ofweighting shares
 purchased during the year                          (656)
                                  ----------- -----------  ----------- -----------  ----------- ------------
Used in Basic EPS                    620,023   1,864,170      (24,864)  1,862,776      443,383    1,862,776
Dilutive effect of outstanding
  stock options                                    1,264                  125,840                   131,479
                                  ----------- -----------  ----------- -----------  ----------- ------------
Used in Diluted EPS                $ 620,023   1,865,434     $(24,864)  1,988,616    $ 443,383    1,994,255
                                  =========== ===========  =========== ===========  =========== ============

</TABLE>



                                                                              53


<PAGE>   54



NOTE #15 - REGULATORY MATTERS

GENERAL

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

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2000, that the Company and the Bank meets all capital adequacy requirements to
which it is subject.

Although, as of the most recent formal notification from the Office of the
Comptroller of the Currency, the Bank was categorized as adequately capitalized
under the regulatory framework for prompt corrective action; the Bank will be
categorized as well capitalized based upon its year-end ratios. To be
categorized as well-capitalized, the Bank must maintain minimum capital ratios
as set forth in the table below. The following table also sets forth the Bank's
actual regulatory capital amounts and ratios (dollar amounts in thousands):

<TABLE>
<CAPTION>

                                                                             Capital Needed
                                                                 ----------------------------------------
                                                                                          To Be Well
                                                                                      Capitalized Under
                                                                    For Capital       Prompt Corrective
                                          Actual Regulatory      Adequacy Purposes    Action Provisions
                                         ---------------------   -------------------  -------------------
                                          Capital                Capital              Capital
                                           Amount     Ratio      Amount     Ratio      Amount    Ratio
                                         ----------- ---------   --------  ---------  --------- ---------
<S>                                       <C>        <C>         <C>       <C>        <C>       <C>
As of December 31, 2000
Total capital to risk-weighted assets:      $10,065    11.33%    $ 7,109       8.0%    $ 8,886     10.0%
Tier 1 capital to risk-weighted assets:     $ 9,281    10.44%    $ 3,554       4.0%    $ 5,331      6.0%
Tier 1 capital to average assets:           $ 9,281     8.41%    $ 4,412       4.0%    $ 5,515      5.0%

As of December 31, 1999
Total capital to risk-weighted assets:      $ 9,426     9.96%    $ 7,573       8.0%    $ 9,466     10.0%
Tier 1 capital to risk-weighted assets:     $ 8,662     9.15%    $ 3,783       4.0%    $ 5,675      6.0%
Tier 1 capital to average assets:           $ 8,662     7.46%    $ 4,645       4.0%    $ 5,806      5.0%

</TABLE>


At December 31, 2000 and 1999, the Company's capital ratios were substantially
the same as the Bank.

CONTINGENT MATTERS

The primary regulator of the Bank, The Office of the Comptroller of the Currency
(OCC), is performing a safety and soundness examination of the Bank and has not,
as yet, concluded its work or issued its corresponding report of examination.
Accordingly, the OCC may include matters in its forthcoming report of
examination that could have an effect on the Bank's policies and procedures to
be followed, the classification of some of the credits in the loan portfolio,
the level of its allowance for loan and lease losses, and/or its composite
rating as a regulated financial institution. The impact of any such matters
noted by the OCC could have an effect on the financial performance and condition
of the Bank.






                                                                              54

<PAGE>   55




NOTE #16 - OTHER REAL ESTATE OWNED

As discussed in Note #1, Other Real Estate Owned is carried at the estimated
fair value of the real estate. An analysis of the transactions for December 31,
were as follows:
<TABLE>
<CAPTION>

                                                             2000             1999
                                                          ----------       ----------
<S>                                                       <C>              <C>
Balance, Beginning of year                                $  262,714       $  287,354
Sales and other deletions                                   (231,034)         (24,640)
Valuation adjustments and other                              (31,680)         -
                                                           ----------       ----------
Balance, End of year                                       $       -        $  262,714
                                                           ==========       ==========

</TABLE>


The balances at December 31, 2000 and 1999, are shown net of reserves.


NOTE #17 - RESERVE FOR LOSSES ON OTHER REAL ESTATE OWNED

Transactions in the reserve for other real estate owned are summarized for 2000,
1999 and 1998:

<TABLE>
<CAPTION>
                                                            2000              1999            1998
                                                        ------------      -----------      -----------
<S>                                                     <C>               <C>               <C>
Balance, Beginning of year                              $   35,213        $  55,873        $   51,473
Provision charged to other expense                          31,680                -             4,400
Charge-offs and other reductions                           (66,893)         (20,660)                -
                                                       -----------       ----------        ----------
Balance, End of year                                   $         -       $   35,213        $   55,873
                                                       ===========       ==========        ==========

</TABLE>


NOTE #18 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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



                                                                              55
<PAGE>   56




NOTE #18 - FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued

The following table presents the carrying amounts and fair values of financial
instruments at December 31, 2000. SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale.

<TABLE>
<CAPTION>

                                                 December 31, 2000           December 31, 1999
                                            --------------------------   ---------------------------
                                             Carrying                      Carrying
                                              Amount       Fair Value        Amount      Fair Value
                                            -----------   ------------    ------------   -----------
<S>                                         <C>            <C>            <C>            <C>
Assets
      Cash and cash equivalents             $ 8,388,298    $ 8,388,298    $11,243,489    $11,243,489
      Interest-bearing deposits in other
        financial institutions                  198,000        198,000        495,000        495,000
      Investment securities                   5,527,040      5,527,040      9,428,297      9,428,297
      Loans receivable                       78,504,272     78,253,098     84,118,136     84,094,640
      Loans held for sale                       235,300        235,300        835,323        835,323
      Accrued interest receivable               570,089        570,089        573,187        573,187

Liabilities
      Non-interest bearing deposits          36,855,546     36,855,546     34,208,093     34,208,093
      Interest bearing deposits              62,727,564     62,728,346     70,315,085     70,312,424
      Accrued interest payable                  323,676        323,676        276,360        276,360

<CAPTION>

                                             Notional      Cost to Cede    Notional       Cost to Cede
                                              Amount        or Assume       Amount         or Assume
                                           -------------   -----------   ------------    ------------
<S>                                         <C>            <C>            <C>            <C>
Off-Balance Sheet Instruments
      Commitments to extend credit and
       standby letters of credit            $ 9,263,000     $   92,630   $ 10,339,000     $  103,390

</TABLE>

The following methods and assumptions were used by the Bank in estimating fair
value disclosures:

o    CASH AND CASH EQUIVALENTS

     The carrying amounts reported in the balance sheet for cash and cash
     equivalents approximate those assets' fair values due to the short-term
     nature of the assets.

o    INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS

     Interest-bearing deposits in other financial institutions mature within
     ninety days from the date of deposit and, therefore, the carrying amounts
     approximate those assets' fair values.

o    INVESTMENT SECURITIES

     Fair values are based upon quoted market prices, where available.

o    LOANS

     For variable-rate loans that reprice frequently and with no significant
     change in credit risk, fair values are based on carrying amounts. The fair
     values for other loans (for example, fixed rate commercial real estate and
     rental property mortgage loans and commercial and industrial loans) are
     estimated using discounted cash flow analysis, based on interest rates
     currently being offered for loans with similar terms to borrowers of
     similar credit quality. Loan fair value estimates include judgments
     regarding future expected loss experience and risk characteristics. The
     carrying amount of accrued interest receivable approximates its fair value.



                                                                              56

<PAGE>   57




NOTE #18 - FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued

o    LOANS HELD FOR SALE

     Loans held for sale are recorded at the lower of cost or estimated fair
     value and, therefore, the carrying amount approximates fair value.

o    DEPOSITS

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

o    OFF-BALANCE SHEET INSTRUMENTS

     Fair values of loan commitments and financial guarantees are based upon
     fees currently charged to enter similar agreements, taking into account the
     remaining terms of the agreement and the counterparties' credit standing.

NOTE #19 - TIME DEPOSIT LIABILITIES

     The aggregate amount of time certificates of deposit in denominations of
     $100,000 or more at December 31, 2000 and 1999 was $6,526,308 and
     $10,087,216, respectively. At December 31, 2000, the scheduled maturities
     of time certificates of deposit are as follows:

<TABLE>

                     <S>                  <C>
                     2001                  $ 25,158,330
                     2002                     1,742,700
                     2003                        35,569
                                           ------------
                                           $ 26,936,599
                                           ============
</TABLE>


NOTE #20 - BORROWINGS

The Bank has borrowing lines with four correspondent banks totaling $3.5 million
and another line at the Federal Reserve. Loans with a carrying amount of
approximately $3.9 million have been pledged to secure the line at the Federal
Reserve.

NOTE #21 - DIRECTOR RETIREMENT PLAN

The Company has a Director Retirement Plan, which will provide retirement
benefits to one or more Directors of the Bank. During 2000 and 1999
approximately $42,000 (approximately $24,000 net of income taxes), and $154,000
(approximately $87,000 net of income taxes), respectively, were expensed for
this plan. The benefits to be paid are based upon the individual director's
years of service to the Bank and decision to forego director fees for the
respective years of participation.

NOTE #22 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

The Company has a Supplemental Executive Retirement Plan, which will provide
retirement benefits for the former chief executive officer of the Bank. Benefits
under this plan are fully vested upon participation. During 2000 and 1999,
approximately $244,000 (approximately $142,000 net of income taxes) and $104,000
(approximately $59,000 net of income taxes), respectively, were expensed for
this plan. The benefits to be paid amount to $75,000 per year for 15 years
commencing at age 60.

NOTE #23 - CONDENSED FINANCIAL INFORMATION OF VINEYARD NATIONAL BANCORP (PARENT
           COMPANY)



                                                                              57
<PAGE>   58

                                 BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                2000          1999          1998
                                                            -----------    ----------    -----------
<S>                                                          <C>           <C>           <C>
ASSETS
      Cash in Vineyard National Bank                         $   14,128    $    7,811    $    7,661
      Prepaid expenses                                             --             269           489
      Investment in subsidiary                                9,281,038     8,623,041     8,721,116
                                                             ----------    ----------    ----------

               Total Assets                                  $9,295,166    $8,631,121    $8,729,266
                                                             ==========    ==========    ==========

LIABILITIES
      Due to shareholders in lieu of
       fractional shares on stock splits                            133           886         1,107
                                                             ----------    ----------    ----------

STOCKHOLDERS' EQUITY
      Common stock                                            2,112,243     2,106,258     2,106,258
      Additional paid-in capital                              3,306,684     3,306,684     3,306,684
      Retained earnings                                       3,876,106     3,217,293     3,315,217
                                                             ----------    ----------    ----------

               Total Stockholders' Equity                     9,295,033     8,630,235     8,728,159
                                                             ----------    ----------    ----------

               Total Liabilities and Stockholders' Equity     9,295,166    $8,631,121    $8,729,266
                                                             ==========    ==========    ==========
</TABLE>


                              STATEMENTS OF INCOME

<TABLE>


INCOME
<S>                                                             <C>           <C>           <C>
      Equity in income/(loss) of subsidiary                     $ 619,207     $ (25,014)    $ 443,218
      Interest                                                        998           950           965
      Other income                                                    618          --            --
                                                                ---------     ---------     ---------
                                                                  620,823       (24,064)      444,183
                                                                ---------     ---------     ---------

INCOME TAXES                                                          800           800           800
                                                                ---------     ---------     ---------

                      Net Income/(loss)                         $ 620,023     $ (24,864)    $ 443,383
                                                                =========     =========     =========
</TABLE>



                                                                              58

<PAGE>   59




NOTE #23 - CONDENSED FINANCIAL INFORMATION OF VINEYARD NATIONAL BANCORP (PARENT
           COMPANY), Continued

<TABLE>
<CAPTION>

                                                            2000          1999          1998
                                                         ----------   -----------    ----------
<S>                                                      <C>           <C>           <C>
INCREASE IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
      Interest received                                  $     198     $     950     $     965
      Other income received                                    134          --            --
      Income taxes paid                                       --            (800)         (800)
                                                         ---------     ---------     ---------
                      Net Cash Provided
                       By Operating Activities                 332           150           165
                                                         ---------     ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised                                      5,985          --            --
                      Net Cash Provided
                                                         ---------     ---------     ---------
                       By Financing Activities               5,985          --            --
                                                         ---------     ---------     ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS                    6,317           150           165

CASH, Beginning of year                                      7,811         7,661         7,496
                                                         ---------     ---------     ---------

CASH, End of year                                        $  14,128     $   7,811     $   7,661
                                                         =========     =========     =========

RECONCILIATION OF NET INCOME TO NET CASH
 PROVIDED BY OPERATING ACTIVITIES
      Net Income                                           620,023       (24,864)      443,383
      Adjustments to Reconcile Net Income
       to Net Cash Provided By Operating Activities
          Decrease in other assets                             269           220            54
          Undistributed (earnings)/loss of subsidiary     (619,207)       25,014      (443,218)
          Decrease in other liabilities                       (753)         (220)          (54)
                                                         ---------     ---------     ---------
                      Net Cash Provided
                       By Operating Activities           $     332     $     150     $     165
                                                         =========     =========     =========

</TABLE>




                                                                              59
<PAGE>   60




SELECTED QUARTERLY FINANCIAL DATA

     The selected quarterly data for 2000 is based on the unaudited financial
     statements of the Company as presented by management.


<TABLE>
<CAPTION>

                                                                 Quarter Ended 2000
                                           ---------------------------------------------------------------
                                             March 31         June 30       September 30     December 31
                                           --------------  --------------   --------------  --------------
<S>                                          <C>            <C>              <C>             <C>
Net Interest Income                         $  1,738,914    $  1,765,007      $ 1,784,794    $  1,627,953
Provision for Loan and Lease Losses              (36,000)       (220,000)      -               -
Other Income                                     364,212         373,374          367,981    $    476,341
Other Expenses                                (1,815,650)     (2,155,601)      (1,456,683)   $ (1,745,619)
                                           --------------   -------------    -------------  --------------

Income/(Loss) Before Taxes                       251,476        (237,220)         696,092         358,675
Income Taxes                                    (101,000)         95,000         (292,000)       (151,000)
                                           --------------   -------------   --------------   -------------

Net Income/(Loss)                           $    150,476    $   (142,220)    $    404,092    $    207,675
                                           =============    ============     ============    ============

Earnings/(Loss) Per Share
 of Common Stock
      Basic                                 $       0.08    $      (0.08)    $       0.22    $       0.11
                                           =============    ============     ============    ============
      Diluted                               $       0.08    $      (0.08)    $       0.22    $       0.11
                                           =============    ============     ============    ============

Weighted Average Shares
 in Per Share Calculation
      Basic                                    1,862,774       1,864,239        1,864,826       1,864,826
      Diluted                                  1,910,706       1,864,641        1,864,641       1,864,620

Balance Sheet Data
      Assets                                $117,807,277    $114,411,015     $111,577,621    $110,753,057
                                           =============    ============     ============    ============
      Deposits                              $106,127,272    $103,013,671     $ 10,771,943    $ 99,583,110
                                           =============    ============     ============    ============
      Loans and Leases/(Net)                $ 84,912,960    $ 81,076,583     $ 80,364,451    $ 78,739,572
                                           =============    ============     ============    ============
      Stockholders' Equity                  $  8,779,771    $  8,650,977     $  9,071,478    $  9,295,033
                                           =============    ============     ============    ============

</TABLE>



                                                                              60

<PAGE>   61



     The selected quarterly data for 1999 is based on the unaudited financial
     statements of the Company as presented by management.

<TABLE>
<CAPTION>

                                                                 Quarter Ended 1999
                                           ---------------------------------------------------------------
                                             March 31         June 30       September 30     December 31
                                           --------------  --------------   --------------  --------------
<S>                                          <C>            <C>              <C>             <C>
Net Interest Income                         $  1,704,296    $  1,745,299     $  1,729,198    $  1,611,676
Provision for Loan and Lease Losses              (41,000)        -                -              (125,000)
Other Income                                     355,491         384,004          384,285    $    779,769
Other Expenses                                (1,810,610)     (1,870,440)      (1,893,046)   $ (2,990,386)
                                            ------------    ------------     ------------    ------------

Income/(Loss) Before Taxes                       208,177         258,863          220,437        (723,941)
Income Taxes                                     (85,000)       (104,000)         (93,000)        293,600
                                            ------------    ------------     ------------    -------------

Net Income/(Loss)                           $    123,177    $    154,863     $    127,437    $   (430,341)
                                            ============    ============     ============    ============

Earnings/(Loss) Per Share
 of Common Stock
      Basic                                 $       0.07    $       0.08        $    0.07    $      (0.23)
                                            ============    ============     ============    ============
      Diluted                               $       0.06    $       0.08     $       0.06    $      (0.22)
                                            ============    ============     ============    ============

Weighted Average Shares
 in Per Share Calculation
      Basic                                    1,862,776       1,862,776        1,862,776       1,862,776
      Diluted                                  1,990,354       1,990,008        1,998,439       1,986,014

Balance Sheet Data
      Assets                                $115,783,879    $117,272,009     $115,247,963    $116,228,156
                                            ============    ============     ============    ============
      Deposits                              $105,269,935    $106,750,822     $104,160,124    $104,523,178
                                            ============    ============     ============    ============
      Loans and Leases/(Net)                $ 86,491,564    $ 83,594,909     $ 82,858,891    $ 84,953,459
                                            ============    ============     ============    ============
      Stockholders' Equity                  $  8,831,169    $  8,964,127     $  9,076,759    $  8,630,235
                                            ============    ============     ============    ============
</TABLE>


                                                                              61




<PAGE>   62


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Except for information regarding the Registrant's executive officers which is
included in Part I of this Report, the information called for by Item 10 is
incorporated herein by reference from the Company's definitive proxy statement
to be filed with the Commission on or before April 30, 2001, for the Company's
2000 annual shareholders' meeting.

ITEM 11.  EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference from the
Company's definitive proxy statement to be filed with the Commission on or
before April 30, 2001, for the Company's 2000 annual shareholders' meeting.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is incorporated herein by reference from the
Company's definitive proxy statement to be filed with the Commission on or
before April 30, 2001, for the Company's 2000 annual shareholders' meeting.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated herein by reference from the
Company's definitive proxy statement to be filed with the Commission on or
before April 30, 2001, for the Company's 2000 annual shareholders' meeting.




                                                                              62
<PAGE>   63




                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

     a)   The following documents are filed as part of this Form 10-K:

          1)   Financial Statements:

               See Index to Financial Statements in Item 8 on Page 34 of this
               Report.

          2)   All schedules are omitted as the information is not required, is
               not material or is otherwise furnished.

          3)   Exhibits:

               See Index to Exhibits on Page 65 of this Form 10-K. Included
               among the Exhibits filed as part of this Report on Form 10-K are
               the following Executive Compensation Plans and arrangements:


          A)   Vineyard National Bank Deferred Compensation Plan. Exhibit 10.4

          B)   Incentive Stock Option Plan for Vineyard National Bank, 1997.
               Exhibit 10.17

          C)   Employment Agreement between Vineyard National Bank and Norman A.
               Morales. Exhibit 10.18


     b)   Reports on Form 8-K:

          None.

     c)   Exhibits:

          See Index to Exhibits on Page 65 of this Form 10-K.



                                                                              63

<PAGE>   64




                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf of the undersigned, thereunto duly authorized, on the 30th day of March
2001.


                                 VINEYARD NATIONAL BANCORP
                                 (Registrant)



                                 By   /s/ NORMAN A. MORALES
                                      --------------------------------------
                                      Norman A. Morales,
                                      President and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 30, 2001.


<TABLE>

<S>                                 <C>
                                    President, Chief Executive Officer (Principal
  /s/ NORMAN A. MORALES             Executive Officer) and Director
-----------------------------
                                    Executive Vice President, Chief Financial Officer,
  /s/ SARA F. AHERN                 (Principal Financial and Accounting Officer)
------------------------------

  /s/ FRANK S. ALVAREZ              Chairman of the Board of Directors
------------------------------

  /s/ CHARLES KEAGLE                Director
------------------------------

  /s/ JOEL H. RAVITZ                Director
------------------------------

  /s/ LESTER STROH, M.D             Director
------------------------------
</TABLE>



                                                                              64

<PAGE>   65




                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

   EXHIBIT                                                                           SEQUENTIALLY
   NUMBER                     DESCRIPTION                                            NUMBERED PAGE
   ------                     -----------                                            -------------
   <S>      <C>                                                                       <C>
     3.1    Registrant's Articles of Incorporation                                         (R-1)
     3.2    Registrant's Bylaws                                                            (R-1)
     3.3    Plan of Reorganization and Agreement of Merger                                 (R-1)
     4.0    Specimen Common Stock Certificate of Registrant                                (R-1)
    10.4    Vineyard National Bank Deferred Compensation Plan                              (R-1)
    10.9    Lease Agreement Between Vineyard National Bank and Landlord                    (R-1)
            Regarding Diamond Bar Office 1987                                              (R-1)
    10.15   Buy/Sell Agreement Between Vineyard National Bank and Wells Fargo 1984         (R-1)
    10.16   Buy/Sell Agreement Between Vineyard National Bank and Arrowhead                (R-1)
            Pacific Savings Bank 1988
    10.17   Incentive Stock Option Plan for Vineyard National Bank 1997                    (R-3)
    10.18   Employment Agreement Between Vineyard National Bank and                        (R-3)
            Norman A. Morales
    10.19   Lease Agreement Between Vineyard National Bank and Landlord                    (R-3)
            Regarding Manhattan Beach Loan Office 2001
    10.20   Registration of Securities Pursuant to Registrant's 1997 Incentive Stock       (R-3)
            Option Plan
    21      Subsidiaries of the Registrant                                                 (R-2)
    23      Consent of Vavrinek, Trine, Day & Co., LLP                                        66

</TABLE>

(R-1) Incorporated by reference to the same numbered exhibit to Registrant's
      Annual Report on Form 10-K for the year ended December 31, 1988.

(R-2) Incorporated by reference to the same numbered exhibit to Registrant's
      Annual Report on Form 10-K for the year ended December 31, 1989.

(R-3) Incorporated by reference to the same numbered exhibit to Registrant's
      Annual Report on Form 10-K for the year ended December 31, 2000.




                                                                              65
<PAGE>   66




               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To Vineyard National Bancorp:

We consent to the incorporation of our Report dated March 21 2000, on the
consolidated financial statements of Vineyard National Bancorp as of December
31, 2000 and 1999, and for each of the three years in the period ended December
31, 2000, included in its Annual Report on Form 10-K for the year ended December
31, 2000.




/S/ VAVRINEK, TRINE, DAY & CO., LLP
----------------------------------------------
VAVRINEK, TRINE, DAY & CO., LLP
Certified Public Accountants
Rancho Cucamonga, California
March 23, 2001





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