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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 2000

[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ________ to ___________.

                         Commission File No. 000 - 26505

                             COMMUNITY BANCORP INC.
                             ----------------------
                 (Name of Small Business Issuer in its charter)

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

  130 West Fallbrook Street, Fallbrook, CA                 92028
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(Address of principal executive offices)                  (Zip Code)

                    Issuer's telephone number: (760) 723-8811
                                              ---------------

           Securities registered under Section 12(b) of the Act: NONE

              Securities registered under Section 12(g) of the Act:

                    COMMON STOCK, $0.625 PAR VALUE PER SHARE
                    ----------------------------------------
                                (Title of class)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Bank's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State the Company's revenues for its most recent fiscal year: $23,354,000

As of February 23, 2001, the aggregate market value of the common stock held by
non-affiliates of the Company was: $16,940,000.

Number of shares of common stock of the Company outstanding as of February 23,
2001: 2,670,406 shares

Portions of the definitive proxy statement for the 2001 Annual Meeting of the
Company's shareholders are incorporated into Part III of this Report by
reference.


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TABLE OF CONTENTS

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                                     PART I

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ITEM 1.  DESCRIPTION OF BUSINESS                              PAGE   3

ITEM 2.  DESCRIPTION OF PROPERTIES                            PAGE  24

ITEM 3.  LEGAL PROCEEDINGS                                    PAGE  25

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF
         SECURITY HOLDERS                                     PAGE  25


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                                     PART II

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ITEM 5.  MARKET FOR COMMON EQUITY AND
         RELATED SHAREHOLDER MATTERS                          PAGE  26

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS
         OR PLAN OF OPERATION                                 PAGE  28

ITEM 7.  FINANCIAL STATEMENTS                                 PAGE  44

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH
         ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE                                 PAGE  72


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                                    PART III

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ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS,
         PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE
         EXCHANGE ACT                                         PAGE  72

ITEM 10. EXECUTIVE COMPENSATION                               PAGE  72

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
         OWNERS AND MANAGEMENT                                PAGE  72

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS       PAGE  72

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K                     PAGE  73


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NOTE

Certain statements contained in this Report, including, without limitation,
statements containing the words "believes", "anticipates", "intends", "expects",
and words of similar import, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such forward looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions in those areas in which the
Company operates, demographic changes, competition, fluctuations in interest
rates, changes in business strategy or development plans, changes in
governmental regulation, credit quality, the availability of capital to fund the
expansion of the Company's business, and other factors referenced in this
report, including in "Item 1. DESCRIPTION OF BUSINESS - Factors that May Affect
Future Results of Operations." The Company disclaims any obligation to update
any such factors or to publicly announce the results of any revisions to any of
the forward-looking statements contained herein to reflect future events or
developments.

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

                                     PART I

ITEM 1.        DESCRIPTION OF BUSINESS

COMMUNITY BANCORP INC.

Community Bancorp Inc. (the "Company") is a Delaware corporation organized to
act as the bank holding company for Community National Bank, formerly Fallbrook
National Bank, (the "Bank")(unless the context requires otherwise, the term
"Company" includes the "Bank"). Other than holding the shares of the Bank, the
Company conducts no significant activities, although it is authorized, with the
prior approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), the Company's principal regulator, to engage in a
variety of activities which are deemed closely related to the business of
banking. At December 31, 2000, the Company had approximately $280.5 million in
consolidated assets, $245.2 million in consolidated net loans, $252.7 million in
consolidated deposits, and $12.2 million in consolidated equity.

The Company was formed through a holding company reorganization of the Bank,
wherein the Bank became the wholly owned subsidiary of the Company as of June
25, 1999. The transaction was based on an exchange of shares in which
shareholders of the Bank exchanged their shares of the Bank for shares of the
common stock of the Company on a one share for one share basis. The transaction
was not considered a taxable event for federal income tax purposes. At the same
time, the Company was listed on the Nasdaq National Market under the symbol of
CMBC, and the Bank's stock was removed from public trading.

COMMUNITY NATIONAL BANK

The Bank was licensed by the Comptroller of the Currency (the "Comptroller") on
September 5, 1985 and commenced operation as a national banking association on
the same day. As a national banking association, the Bank is subject to primary
supervision, examination and regulation by the Comptroller. The Bank is also
subject to certain other federal laws and regulations. In addition, the Bank is
subject to applicable provisions of California law insofar as such provisions do
not conflict with or are not preempted by federal banking laws. The deposits of
the Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC")
up to the applicable limits thereof, and like all national banks, the Bank is a
member of the Federal Reserve System. The Bank presently has no subsidiaries.

The Bank has focused primarily on providing commercial banking products and
services to small and medium sized businesses in its primary service area. In
the early 1990's the Bank began its Small Business Administration (the "SBA")
lending program. The Bank is currently a "Preferred Lender" with the SBA and is
the 38th largest originator


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of SBA loans in United States, based on loan originations for SBA 7A loans
during the SBA's fiscal year ended September 30, 2000.

In January 1996, the Board of Directors appointed Thomas E. Swanson as President
and Chief Executive Officer of the Bank. The Board empowered Mr. Swanson to
develop a strategic plan for the Bank to prepare the Bank for future growth and
increased profitability. The key elements of this plan are as follows:

REORGANIZED MANAGEMENT STRUCTURE. Mr. Swanson restructured the management of the
Bank by implementing strategic planning and budgeting by department, and by
revising the Bank's incentive compensation program. Prior to 1996, incentive
compensation paid to Bank employees was based on individual production. Mr.
Swanson and current management initially revised the incentive compensation to
be based on revenues by department and by individuals within the department
rather than total production. As of January 1, 2000, management revised the
incentive compensation of the Bank further to be based on profit thereby
encouraging employees to focus not only on revenues but also on the costs
associated with the Bank's operations for which they are responsible.

DIVERSIFIED BUSINESS LINES. Current management has diversified the Bank's lines
of business primarily by hiring relationship managers and other qualified
personnel with ties to the Bank's primary market area and experienced in
specialty lending and hired loan officers with specific expertise in these
areas. In this regard, the Bank has increased its commercial lending
capabilities by adding commercial loan officers to each of its retail branches.
Additionally, the Bank has opened strategically located loan production offices
in La Mirada, Ontario, Glendale, Ventura, Huntington Beach, Sacramento and
Castro Valley, California. The Bank also commenced originating aircraft loans in
June 1998. See "--Lending Activities--Aircraft Lending."

DIVERSIFIED LENDING ACTIVITIES. For the year ended December 31, 2000, $47.2
million, or 21%, of the loans originated by the Company were SBA 504 and 7a
loans compared to $38.5 million, or 21%, of the loans originated in 1999. In
June 1998, the Company hired loan officers in an effort to build specialty
lending expertise. Since such time the Company has been originating loans
secured by aircraft. While the Company intends to continue to be a leading SBA
lender, it has and will continue to hire relationship managers experienced
within the Company's primary market area in order to increase non-SBA commercial
lending and diversify risk.

INVESTED IN INFRASTRUCTURE TO SUPPORT DIVERSIFICATION. Current management has
invested capital in technology infrastructure and in DE NOVO offices. The
Company expanded its retail banking division with additional California offices
in Temecula in May of 1996 and Vista in August of 1998. Beginning in 2001, the
Bank intends to continue its expansion of its retail banking division with the
addition of one or more additional offices per year, including a new branch
office in Escondido scheduled to open in April 2001. The Bank has also invested
in upgrades to its computer system as part of its Year 2000 compliance program
and to support future products and services. In that regard, the Bank has
developed a cash management system to offer to commercial customers and, on an
outsourced basis, home banking. The Bank has also begun creating a master
customer information file ("MCIF") in order to monitor customer profitability
and relationships.

LISTED COMMON STOCK ON NASDAQ. In order to increase the liquidity of the Bank's
common stock, the Bank filed an application with the Nasdaq SmallCap Market to
approve the quotation of the Bank's common stock. The application was approved
and the Bank's common stock began trading on the Nasdaq SmallCap Market on July
21, 1997. In connection with the formation of the Company and becoming the
holding company for the Bank, the Company's common stock was listed on Nasdaq's
National Market as of June 25, 1999, and the Bank's stock was removed from
public trading on the same date.

STRATEGY

GENERAL. The business strategy of the Company will be to continue implementing
the measures outlined above while building upon the Company's existing business.
While the Company intends to continue to be a leader in SBA loans, its strategic
plan includes the expansion and growth of other products and services for small
to mid-sized businesses, as well as consumers. The Company intends to expand
geographically and within its market areas primarily by hiring relationship
managers who have strong community ties, have experience in specialty lending
and have their own existing customer base.


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NEW STRATEGIC INITIATIVE. With the announcement of earnings for 1999, management
announced that the Company is changing its strategy for future earnings and
growth. The new strategy addressed the following areas:

     -   Retain the guaranteed portion of SBA 7A loans
         o   Fund loan growth with core deposits and use of wholesale deposits
         o   Seek additional capital sources
         o   Reduce reliance on gain on sale of SBA loans - thereby stabilizing
             quarterly earnings
         o   Expand the SBA lending operations through the addition of loan
             production offices
     -   Focused geographic expansion of the financial services organization
         o   Open additional community banking offices
         o   Add new services, including securities and investment products
         o   Enhance and expand existing core lending business lines
     -   Improve profitability and efficiency by growing core earnings and
         controlling operating costs

     In 2000, the following accomplishments were made in implementing that
strategy:

     -   The Company did not sell SBA 7A loans in 2000. This contributed
         significantly to interest income in 2000, and should continue to do
         so going forward. SBA loan retention also contributed to the 70%
         loan growth in 2000 compared to 30% for 1999. The guaranteed portion
         of SBA loans retained was $35.1 million as of December 31, 2000
         compared to $6.0 million as of December 31, 1999.
         o   Core deposits increased 20% to $101.2 million as of December 31,
             2000 compared to $84.5 million as of December 31, 1999. Retail
             certificates of deposits ("CDs") increased to $101.1 million as of
             December 31, 2000 compared to $62.8 million as of December 31,
             1999. Wholesale deposits, used to fund SBA guaranteed portions of
             loans and loans held for sale, increased to $50.4 million as of
             December 31, 2000 compared to $10.1 million as of December 31,
             1999.
         o   The Company issued $10 million in Trust Preferred Securities in
             March of 2000
         o   Gain on sale of loans decreased to $162,000 for the year ended
             December 31, 2000 compared to $3.6 million for the year ended
             December 31, 1999. Net interest income increased 33% to $11.4
             million for the year ended December 31, 2000 compared to $8.5
             million for the year ended December 31, 1999. For the quarter ended
             December 31, 2000, net interest income increased 63% to $3.4
             million compared to $2.1 million for the quarter ended December 31,
             1999.
         o   Additional SBA lending offices were established in Ventura and
             Glendale, California
     -   The Company is in the process of expanding its retail banking
         franchise, with its fourth retail banking office projected to open in
         Escondido in April, 2001.
         o   New services established in 2000 included the Invest Financial
             Services program, where customers can purchase and sell non-FDIC
             insured securities and other investment products, as well as
             obtain personal financial plans.
         o   In 2000, additional lending staff was added in the Temecula and
             Vista branch offices.

During 2001, management intends to further improve net interest income through
continued growth in loans and core deposits, while controlling operating
expenses. Further expansion of the retail banking franchise is expected to
continue, including a new branch office in Escondido opening in April 2001, and
the addition of another SBA lending office.

These initiatives are more fully addressed below:

RETENTION OF SBA 7A GUARANTEED LOANS. Prior to 2000, the Company sold most of
the guaranteed portion of SBA 7A loans, and during 1999 sold a portion of the
unguaranteed portion of SBA 7A loans. Beginning in 2000, the Company has changed
its strategy to no longer generate fee income from the gain on sale of these
loans, but to increase interest income through the retention of most of the
guaranteed portions of these loans. During 1999, 1998 and 1997, the Company sold
a total of $89.1 million in SBA guaranteed and unguaranteed loans. The total
guaranteed portions of loans held in portfolio increased to $35.1 million as of
December 31, 2000, compared to $6.0 million as of December 31, 1999.

FUND LOAN GROWTH WITH CORE DEPOSIT GROWTH AS WELL AS USE OF WHOLESALE DEPOSITS.
The Company's ratio of core deposits to total deposits was 40.1% at December 31,
2000. The Company anticipates that it will experience retail deposit growth
through the growth and development of the Temecula and Vista branch offices. Due
to the retention


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of SBA loans and continued demand for the Company's other commercial loan
products, the Company's core deposit to total deposit ratio is expected to
decline. Management's intent is to acquire deposits economically and efficiently
at competitive market rates, and utilize wholesale deposits to fund the
guaranteed portion of SBA loans and loans held for sale. As the Company makes
loans to small and mid-sized businesses, it will cross-market its core deposit
products to small and mid-sized businesses and their employees. The Company is
planning on expanding its retail deposit base either through acquisitions of
branches of institutions or opening de novo offices. Management expects to
establish a business banking center, which will be a low cost banking office
providing deposit and lending services for small to medium sized businesses, in
Escondido in the second quarter of 2001.

OBTAIN ADDITIONAL CAPITAL. Management considers capital requirements as part of
its strategic planning process. The strategic plan calls for continuing
increases in assets and liabilities, and the capital required will therefore be
in excess of retained earnings. The ability to obtain capital is dependent upon
the capital markets as well as performance of the Company. In March of 2000, the
Company issued $10 million in Trust Preferred Securities, which assisted in
maintaining the Company's and the Bank's regulatory capital ratios at
appropriate levels. Management is currently evaluating sources of capital and
the timing required to meet its strategic objectives.

REDUCE RELIANCE ON GAIN ON SALE OF SBA LOANS - STABILIZING QUARTERLY EARNINGS.
2000 was a transition year for the Company, decreasing reliance on gain on sale
of loans and increasing core earnings through net interest income. Gain on sale
of loans totaled $162,000 for the year ended December 31, 2000 compared to $3.6
million for the year ended December 31, 1999. However, interest income increased
to $11.4 million for the year ended December 31, 2000 compared to $8.5 million
for the year ended December 31, 1999. For 2001, the company will continue to
emphasize increasing core earnings as its primary source of income.

EXPAND OUR SBA LENDING OPERATIONS THROUGH THE ADDITION OF LOAN PRODUCTION
OFFICES. The Company currently has seven low cost loan production offices
outside of its primary market area in La Mirada, Ontario, Glendale, Ventura,
Huntington Beach, Sacramento and Castro Valley, California, which predominantly
originate SBA loans. The Company's business strategy includes continued
expansion of its loan production offices into markets throughout California,
which are not contiguous to the Company's primary market area. The Company has
and will continue to open such loan production offices in strategic locations
where it is able to hire a relationship manager with strong commercial lending
ties to the community to be served.

OPEN ADDITIONAL COMMUNITY BANKING OFFICES. The Company's business strategy
includes making "in-market" acquisitions of branch offices of other banks or
establishing "de novo" branch offices. The Company has hired a seasoned
management team and plans to build on the strengths of that team. The Company
has no current arrangements, understandings or agreements regarding any such
acquisitions. Further, the Company would need regulatory approval before such
acquisitions could be consummated. No assurance can be made that such regulatory
approval would be obtained. A de novo branch in Escondido is expected to open in
April 2001. The Company anticipates that additional branches will be established
as the opportunity arises.

ENHANCE AND EXPAND OUR EXISTING LOAN BUSINESS LINES. The Company has
successfully acquired individual commercial lenders from other financial
institutions as the financial services industry has continued to consolidate.
The Company intends to expand and enhance our existing loan profit centers via
this process, and add these commercial lenders to the expanding banking network,
as well as through the addition of loan production offices, as appropriate.

IMPROVE PROFITABILITY AND EFFICIENCY RATIO: As the Company expands its
operations through growth and retention of assets, management expects net
interest income to continue to improve, subject to short term variations due to
rapid interest rate changes, as the interest is earned on these additional
assets. Furthermore, since much of the infrastructure for managing this growth
is already in place, and the lending production is already built into the
overhead, the increase in operating expenses should be considerably less than
the increase in operating income, thereby improving the efficiency ratio.

MARKET AREA AND COMPETITION

The Company's primary market area is North San Diego County consisting of the
communities of Fallbrook and Vista, and Southwestern Riverside County in the
community of Temecula. In 1999, the populations of Fallbrook, Temecula and Vista
are approximately, 39,000, 54,000 and 86,000, respectively. The average
household incomes


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for Fallbrook, Temecula and Vista are $42,000, $63,000 and $61,000,
respectively. The combined population growth rate for the North San Diego County
and Southwestern Riverside Counties was approximately 18% and 7% per annum,
respectively.

The banking and financial services business in California generally, and in the
Company's primary market area specifically, is highly competitive. The
increasingly competitive environment is a result primarily of changes in
regulation, changes in technology and product delivery systems and the
accelerating pace of consolidation among financial service providers. As a
result of this consolidation, there were 12 community banks located in the
Company's primary market area as of December 31, 2000.

The Company competes for loans, deposits and customers for financial services
with other commercial banks, savings and loan associations, securities and
brokerage companies, mortgage companies, insurance companies, finance companies,
money market funds, credit unions, and other non-bank financial service
providers. Many of these competitors are much larger in total assets and
capitalization, have greater access to capital markets and offer a broader array
of financial services than the Company. In order to compete with the other
financial services providers, the Company principally relies upon local
promotional activities, personal relationships established by officers,
directors and employees with its customers, and specialized services tailored to
meet its customers' needs.

There were approximately $1.9 billion in deposits in the Company's primary
market area as of June 30, 2000. The Company maintains three full service
banking offices in Fallbrook, Temecula and Vista, California. As of June 30,
2000, the Fallbrook Office deposit market share of the Fallbrook market was
approximately 28% and the Temecula Office deposit market share of the Temecula
market was approximately 6%. The Vista Office was opened in August 1998, and as
of June 30, 1999 its market share was approximately 5%.

The Company is a "Preferred Lender" and has authority throughout the state of
California to originate SBA loans. For the SBA's fiscal year ended September 30,
2000, $2.5 billion of SBA guaranteed loans were originated in the State of
California, of which $49.9 million were originated by the Company. The Company's
typical small business customer is a small to mid-sized business with annual
sales between $1 million and $10 million.

UNDERWRITING PROCESS

The lending activities of the Company are guided by the basic lending policies
established by the Board of Directors. Each loan must meet minimum underwriting
criteria established in the Company's lending policies and must fit within the
Company's strategies for yield and portfolio enhancement.

For all newly originated loans, upon receipt of a completed loan application
from a prospective borrower, a credit report is ordered and, if necessary,
additional financial information is requested. An independent appraisal is
required on every property securing a Company loan. In addition, the loan
officer conducts a review of these appraisals for accuracy, reasonableness and
conformance to the Company's lending policy on all applications. All revisions
to the Company's approved appraiser list must be approved by the President.

Credit approval authority is segregated into three distinct levels, namely the
Directors' Loan Committee, Officers' Loan Committee and the individual lending
limits of loan officers. The limits for the various levels are determined by the
Board of Directors and/or the President and reviewed periodically. The
Directors' Loan Committee consists of the President, who is the Chairman, and at
least three outside directors of the Company. The committee meets at least once
a month or more frequently as needed. The Officers' Loan Committee consists of
the President, Executive Vice President, the Chief Credit Officer/Executive Vice
President, the First Vice President - Commercial Loans, the First Vice President
- SBA loans and the First Vice President, Corporate lending. The committee is
chaired by the Chief Credit Officer and meets twice a week or more frequently as
needed.

The Board has established loan authority guidelines, which in general state that
all loans to borrowing relationships where the aggregate amount of secured
credit is $500,000 or more, or the aggregate amount of unsecured credit is
$250,000 or more must be submitted to the Officers' Loan Committee for approval.
The President and Chief Credit Officer, together, may approve secured credits in
an aggregate amount not to exceed $2,000,000, and may approve unsecured credits
in an aggregate amount not to exceed $1,750,000. The Officers' Loan Committee
has authority to approve loans up to the Company's legal lending limit. The
Directors' Loan Committee reviews all real estate


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secured loans originated of $325,000 or more and all other loans of $100,000 or
more, as well as classification of assets, delinquencies and the current status
of the loan portfolio. See "Concentrations of Credit"

If the loan is approved, the loan commitment specifies the terms and conditions
of the proposed loan including the amount, interest rate, amortization term, a
brief description of the required collateral, and the required insurance
coverage. The borrower must provide proof of fire, flood (if applicable) and
casualty insurance on the property serving as collateral, which insurance must
be maintained during the full term of the loan. Generally, title insurance
endorsed to the Company is required on all first mortgage loans.

The Company maintains loan production offices in La Mirada, Ontario, Sacramento,
Glendale, Ventura, Castro Valley and Huntington Beach, California. The loan
production offices are typically staffed with a loan officer who prepares the
loan applications and compiles the necessary information regarding the
applicant. The completed loan file is then sent to the Company's main office in
Fallbrook where the credit decision is made. The loan production offices
predominantly originate loans guaranteed by the SBA.

SBA LENDING PROGRAMS

The SBA lending program is designed by the federal government to assist the
small business community in obtaining financing from financial institutions that
are given government guarantees as an incentive to make the loan. The Company is
a "Preferred Lender" with the SBA. As a "Preferred Lender," the Company can
approve a loan within the authority given it by the SBA without prior approval
from the SBA. "Preferred Lenders" approve, package, fund and service SBA loans
within a range of authority that is not available to other SBA lenders without
the "Preferred Lender" designation. The Company has been a "Preferred Lender"
since 1992 and has this authority throughout the state of California. For the
SBA fiscal year ended September 30, 2000, the Company was the 38th largest
originator of SBA loans in the United States.

The Company's SBA loans fall into two categories, loans originated under the
SBA's 7A Program ("7A Loans") and loans originated under the SBA's 504 Program
("504 Loans"). Historically, 7A Loans have represented approximately 80% of the
SBA Loans originated by the Company while 504 Loans have represented the
balance. During the year ended December 31, 2000, 504 Loans constituted
approximately 21% of all SBA loans originated. Of all SBA loans originated,
approximately 97% are collateralized by commercial real estate, while the
balance are commercial business loans generally for the purpose of funding
working capital, equipment purchases and accounts receivable. See "-Lending
Activities-Commercial Real Estate Lending" and "-General Business Lending."

Under the SBA's 7A Program, loans in excess of $100,000 are guaranteed 75% by
the SBA. This guarantee may become invalid only if the loan does not meet the
SBA documentation guidelines. The Company has never had a guarantee invalidated
by the SBA.

In general the Company's policy permits SBA 7A Loans in amounts up to $1.33
million. Under certain circumstances for loans in excess of $1.33 million, the
Company makes a SBA guaranteed second trust deed loan and a second financial
institution makes a first trust deed loan. Loans collateralized by real estate
have terms of up to 25 years, while loans collateralized by equipment and
working capital have terms of up to 10 years and 7 years, respectively. The
Company requires a 10% down payment on most 7A Loans, with a 15% to 20% down
payment on loans collateralized by hotels, motels and service stations.

Beginning in 2000, the Company retained the guaranteed portion of most of the
SBA loans it originates. Funding for these assets will come from a mix of
wholesale and retail deposit sources. Management's goal is to match the interest
rate sensitivity of these loans, which adjust on a quarterly basis, with
deposits that also adjust or mature with approximately the same duration. The
SBA loans generally have an interest rate of 1.5% to 2% over prime, while the
wholesale 90 day CD rates are approximately 2.25% to 2.75% under prime. The
retained portion is guaranteed by the government as to principal and up to 120
days of interest upon default, and therefore the strategy has the added benefit
of producing minimal credit risk to the Company.

Prior to 2000, the Company's strategy was to sell the guaranteed portion of most
of the SBA loans it originates. The Company retained the servicing on such
loans. This strategy was adopted to allow the Company to manage its capital
levels and to ensure that funding is always available to meet the local
community loan demand. Upon sale in the secondary market, the purchaser of the
guaranteed portion of 7A Loans pays a premium to the Company which,


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generally, is equal to 9% of the guaranteed amount. The Company also receives a
servicing fee equal to 1% to 2% of the amount sold in the secondary market. In
the event that a 7A Loan goes into default within 270 days of its sale, or
prepays within 90 days, the Company is required to repurchase the loan and
refund the premium to the purchaser. In the past three years, the Company has
repurchased 13 loans, however no refunds of premiums were made on these
repurchases.

Under the SBA's 504 Program, the Company requires a 10% down payment. The
Company then enters into a 50% first trust loan to the borrower and an interim
40% second trust loan. The first trust has a term of 20 years. The second trust
is for a term of 120 days. Within the 120 day period of entering into the loan,
the second trust deed loans are sold by SBA certified development companies as
collateral for SBA guaranteed debentures. For 504 construction loans, the 120
day period does not commence until the notice of completion is filed. The first
trust deed loans are pre-sold by the Company with no recourse, prior to
releasing the funds to the purchaser. The Company retains no servicing on 504
Loans.

In addition to SBA lending, the Company makes a limited number of building and
industrial loans ("B&I Loans") guaranteed by the Farmers Home Administration
("FmHA"). The FmHA guarantee program for B&I Loans generally provides for an 80%
guarantee of the loan amount with no maximum loan amount limitations. This
program is generally available for businesses located in rural market areas.

The Company's SBA lending program and portions of its real estate lending are
dependent on the continual funding and programs of certain federal agencies or
quasi-government corporations including the SBA, the Federal Home Loan Mortgage
Corporation (the "FHLMC"), and the Federal National Mortgage Association (the
"FNMA"). The guaranteed portion of an SBA loan does not count towards the
Company's loans-to-one-borrower limitation which, at December 31, 2000 was $3.7
million.

Lending Activities

LOAN PORTFOLIO COMPOSITION. The following table sets forth information
concerning the composition of the Company's loan portfolio at the dates
indicated:


<TABLE>
<CAPTION>
                                                                            AT DECEMBER 31,
                                               ---------------------------------------------------------------------------
                                                        2000                    1999                     1998
                                               ---------------------------------------------------------------------------

                                                  AMOUNT      PERCENT      AMOUNT      PERCENT      AMOUNT      PERCENT
                                                  ------      -------      ------      -------      ------      -------
                                                                         (dollars in thousands)
<S>                                               <C>         <C>          <C>         <C>          <C>         <C>

Loan portfolio composition:
Commercial loans                                    $ 11,024      4.46%     $  6,064       4.16%     $  7,510       6.67%
Aircraft loans                                        24,761     10.01%       17,113      11.75%        6,007       5.33%
Real estate:
     Construction loans                               51,700     20.90%       27,661      18.99%       21,046      18.68%
     Secured by one- to four-family
           residential properties                     25,407     10.27%       21,601      14.83%       14,087      12.51%
     Secured by commercial properties                120,118     48.56%       61,263      42.04%       55,788      49.54%
Consumer:
     Home equity lines of credit                       2,912      1.18%        2,649       1.82%        2,033       1.80%
     Other                                            11,417      4.62%        9,342       6.41%        6,166       5.47%
                                                      ------                   -----                    -----
Total Gross loans outstanding                        247,339    100.00%      145,693     100.00%      112,637     100.00%
Deferred loan fees, unamortized gains,
     allowance for loan losses                        (2,140)                 (1,499)                  (3,928)
                                                     -------                 -------                  -------
Net loans                                           $245,199                $144,194                 $108,709
                                                    ========                ========                 ========
</TABLE>


                                       9
<PAGE>

         LOAN MATURITY

         The following table sets forth the contractual maturities of the
Company's gross loans at December 31, 2000.

<TABLE>
<CAPTION>
                                                                                More than   More than
                                                                    One year    1 year to   3 years to   More than      Total
                                                                    or Less      3 Years     5 Years      5 Years       Loans
                                                                    -------      -------     -------      -------       -----
                                                                                   (dollars in thousands)
<S>                                                                 <C>         <C>          <C>         <C>          <C>
Loan portfolio composition:
Commercial loans                                                    $ 8,924     $ 2,087      $ 1,687     $ 23,087     $ 35,785
Real estate:
     Construction loans                                              47,622          45            -        4,033       51,700
     Secured by one- to four-family residential  properties          13,035       3,573        1,906        6,893       25,407
     Secured by commercial properties                                 9,391       8,688       10,089       91,950      120,118
Consumer:
     Home equity lines of credit                                          -         128          124        2,660        2,912
     Other                                                              701       1,174        2,528        7,014       11,417
                                                                    -------     -------      -------     --------     --------
Total Gross loans outstanding                                       $79,673     $15,695      $16,334     $135,637     $247,339
                                                                    =======     =======      =======     ========     ========
</TABLE>



The following table sets forth, as of December 31, 2000, the dollar amounts of
gross loans outstanding that are contractually due after December 31, 2001 and
whether such loans have fixed or adjustable rates.

<TABLE>
<CAPTION>
                                                                                     DUE AFTER DECEMBER 31, 2001
                                                                              ------------------------------------------
                                                                                  FIXED       ADJUSTABLE       TOTAL
                                                                              ------------   ------------   ------------
                                                                                        (dollars in thousands)
<S>                                                                           <C>            <C>            <C>
Loan portfolio composition:
Commercial loans                                                              $     16,951   $      9,910   $     26,861
Real estate:
     Construction loans                                                              1,183          2,895          4,078
     Secured by one- to four-family residential properties                           7,251          5,121         12,372
     Secured by commercial properties                                               34,393         76,334        110,727
Consumer:
     Home equity lines of credit                                                         -          2,912          2,912
     Other                                                                           9,945            771         10,716
                                                                              ------------   ------------   ------------
Gross loans outstanding                                                       $     69,723   $     97,943   $    167,666
                                                                              ============   ============   ============
</TABLE>


                                       10
<PAGE>

LOAN ORIGINATION AND SALE. The following table sets forth the Company's loan
originations by category and purchases, sales and principal repayments of loans
for the periods indicated:

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                           --------------------------------------
                                                                                2000          1999          1998
                                                                           --------------------------------------
                                                                                (dollars in thousands)
<S>                                                                         <C>           <C>           <C>
Beginning balance                                                           $144,194      $108,709      $ 73,884
Loans originated:
     Commercial loans                                                         28,134        25,292        12,298
     Real estate:
        Construction loans                                                    76,176        56,151        39,677
        One- to four-family                                                   35,214        41,605        56,868
        Commercial (1)                                                        78,388        57,787        44,996
     Consumer                                                                  8,308         5,880         5,389
                                                                               -----         -----         -----
        Total loans originated                                               226,220       186,715       159,228

Loans sold
     Real estate:
        One- to four-family                                                   11,365        24,802        32,933
        Commercial                                                             4,542        37,562        25,308
                                                                               -----        ------        ------
        Total loans sold                                                      15,907        62,364        58,241

Less:
     Principal repayments                                                    110,129        86,437        66,686
     Other net changes (2)                                                     (821)         2,429         (524)
                                                                               -----         -----         -----
        Total loans                                                         $245,199      $144,194      $108,709
                                                                            ========      ========      ========
</TABLE>




(1) See "Retention of SBA 7A Loans"
(2) Other net changes include changes in allowance for loan losses, deferred
loan fees, loans in process and unamortized premiums and discounts.

COMMERCIAL REAL ESTATE LENDING. The Company focuses on originating loans secured
by commercial real estate, such as retail centers, small office and light
industrial buildings and other mixed use commercial properties. The Company will
make loans secured by special purpose properties such as motels, and, from
time-to-time, restaurants. Pursuant to the Company's underwriting policies,
commercial real estate loans, which are not SBA loans, may be made in amounts up
to the lesser of 75% of the appraised value of the property or the sales price.
These loans may be made with terms up to 10 years and are either adjustable rate
loans or fixed with a maximum term of 5 years. The Company generally requires a
minimum debt service ratio (the ratio of net earnings on a property to debt
service) of 1.2 to 1 or more. In addition to commercial real estate lending, and
to a much lesser extent, the Company originates loans secured by multi-family
residential properties.

Loans secured by commercial real estate and multi-family residential properties
are generally larger and involve a greater degree of risk than one- to
four-family residential loans. The liquidation value of commercial and
multi-family properties may be adversely affected by risks generally incident to
interests in real property, including changes or continued weakness in general
or local economic conditions and/or specific industry segments; declines in real
estate values; declines in rental room or occupancy rates; increases in interest
rates, real estate and personal property tax rates and other operating expenses
(including energy costs); the availability of refinancing; changes in
governmental rules, regulations and fiscal policies, including rent control
ordinances, environmental legislation, taxation and other factors beyond the
control of the borrower or the lender. Because of this, the Company considers
the borrower's experience in owning and managing similar properties and the
Company's lending experience with the borrower.

GENERAL BUSINESS LENDING. The Company offers commercial business loans to
businesses operating in the Company's primary market area. The Company's
commercial business loans consist of lines of credit which require


                                       11
<PAGE>

annual renewals, adjustable-rate loans with terms of five to seven years, and
short term fixed-rate loans with terms of up to three years. Such loans are made
up to $3.7 million, the Company's loans-to-one-borrower limit at December 31,
2000. The Company will also enter into commercial loans in excess of $3.7
million but will participate out that portion in excess of its legal lending
limit.

AIRCRAFT LENDING. The Company's commercial loan portfolio also includes loans
secured by used aircraft. These loans range in size from $3,000 to $2,198,000,
have 15 or 20 year terms and are offered at variable or fixed interest rates.
The market for loans secured by used aircraft is dominated by a few financial
institutions. Typically these loans have maturities of 15 to 20 years but are
refinanced approximately every three to four years. Lenders mostly rely on
relationships with aircraft dealers to compete for aircraft loans. In April
1998, the Company hired a loan officer with 15 years experience in aircraft
lending and relationships with several aircraft dealers.

Aircraft loan customers are generally professionals and other high net worth
individuals. The primary consideration on a loan application for an aircraft
loan is the credit worthiness of the borrower and ability to repay the loan
amount. The Company's loan officers consider the costs of tie down space or
hanger rental, maintenance requirements and insurance coverage in assessing
the cash flow analysis of the borrower as such expenses can be substantial.
In addition to the credit worthiness of the borrower, the Company will review
the wholesale value of the aircraft. For loans over $200,000, an appraisal is
performed on the aircraft which provides both a wholesale value and a retail
value of the aircraft. Generally speaking, the wholesale value approximates
70% of the retail value. The Company will finance up to the lesser of 85% of
the purchase price or 100% of the wholesale value of the aircraft. A title
search is conducted on all aircraft loans. In addition, appropriate ground
and air coverage insurance and title insurance must be obtained by the
borrower. The term of the loans are generally no more than 20 years. At
December 31, 2000, the Company had $24.8 million of aircraft loans in its
commercial loan portfolio with an average size of $129,000.

CONSTRUCTION LENDING. The Company originates construction loans on both one- to
four- family residences and on commercial real estate properties. The Company
originates two types of residential construction loans, consumer and builder.
The Company originates consumer construction loans to build single family
residences. The Company will originate builder construction loans to companies
engaged in the business of constructing homes for resale. These loans may be for
homes currently under contract for sale or homes built for speculative purposes
to be marketed for sale during construction. For owner occupied single family
residences, the borrower and the property must qualify for permanent financing.
Prequalification for owner occupied single family residences can be accomplished
through the Company's Mortgage Banking Department. For commercial property, the
borrower must qualify for permanent financing and the debt service coverage must
be 1.2 to 1 or more. Qualification for commercial properties can be determined
by the loan officer as part of the credit presentation. Absent such
prequalification, a construction loan will not be approved by the Company. The
Company originates land acquisition and development loans with the source of
repayment being either the sale of finished lots or the sale of homes to be
constructed on the finished lots. Construction loans are generally offered with
terms up to twelve months.

Construction loans are generally made in amounts up to 75% of the value of the
security property for "spec" single family residences and commercial properties
and up to 80% for owner-occupied single family residences. During construction,
loan proceeds are disbursed in draws as construction progresses based upon
inspections of work in place by the loan officer and independent construction
inspectors. At December 31, 2000, the Company had construction loans, including
land acquisition and development loans totaling $51.7 million or 21% of the
Company's total loan portfolio.

Construction loans are generally considered to involve a higher degree of credit
risk than long-term financing on improved, owner-occupied real estate. Risk of
loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the security property's value upon completion of
construction as compared to the estimated costs of construction, including
interest. Also, the Company assumes certain risks associated with the borrower's
ability to complete construction timely and in a workmanlike manner. If the
estimate of value proves to be inaccurate, or if construction is not performed
timely or accurately, the Company may be confronted with a project which, when
completed, has a value which is insufficient to assure full repayment.

CONSUMER LENDING. The Company's portfolio of consumer loans primarily consists
of adjustable-rate home equity lines of credit and installment loans secured by
new or used automobiles and loans secured by deposit accounts.


                                       12
<PAGE>

Unsecured consumer loans are made with a maximum term of three years and a
maximum loan amount of $5,000. At December 31, 2000, consumer loans totaled
$14.3 million.

As of December 31, 2000, home equity loans totaled $2.9 million, or 1.2% of the
Company's gross loan portfolio. The Company's home equity loans are
adjustable-rate and reprice with changes in the WALL STREET JOURNAL prime rate.
Adjustable-rate home equity lines of credit are offered in amounts up to 75% of
the appraised value with a maximum loan amount of $150,000. Home equity lines of
credit are offered with terms up to ten years.

ONE- TO FOUR-FAMILY RESIDENTIAL LENDING. The Company presently offers
adjustable-rate mortgage ("ARM") loans secured by one- to four-family
residences, substantially all of which are owner-occupied, with loan maturities
of up to 30 years. The Company's policy is to originate one- to four-family
residential loans in amounts generally up to 80% of the lower of the appraised
value or the selling price of the property securing the loan, although this
percentage is generally lower and varies depending upon an internal credit
rating of the proposed loan and borrower, which is based upon a credit scoring
matrix.

The majority of the one-to four-family loans originated by the Company are
originated to FNMA or FHLMC standards except in the case of certain loans, as to
size. Such loans are entered into only when the Company has a firm commitment
from a purchaser to acquire the loans prior to settlement. The loans are
recorded on the Company's books for a limited period of two to three days. The
Company generally sells these loans into the secondary market without recourse,
servicing released. The Company also originates a limited number of one-to
four-family loans in its immediate market area which it retains in its
portfolio.

The Company's one- to four-family residential loan portfolio at December 31,
2000, was $25.4 million. As of December 31, 2000, the average loan size for one-
to four-family residential loans was $126,000, the average maturity was 8 years,
the average interest rate was 10.35%, and the average loan-to-value ratio was
60.5%.

The Company also operates a mortgage department that originates FNMA and FHLMC
loans, and it brokers other types of mortgage loans. Over 90% of the loans that
are originated for FNMA and FHLMC are immediately sold in the secondary market.
Many of these mortgage loans are the result of earlier interim construction
financing by the Company.

LOAN SERVICING. Loans are serviced by the loan officer except for loans secured
by single family residences and loans guaranteed by the SBA. The Company
outsources loan servicing on loans secured by first trust deeds on single family
residences. Loan servicing retained from the sale of the guaranteed portion of
SBA loans is centralized at the Company's corporate headquarters. As of December
31, 2000, the SBA Lending Department was servicing $77.6 million of loans
originated by the Company but subsequently sold to other institutions.

The Company's loan servicing operations are intended to provide prompt customer
service and accurate and timely information for account follow-up, financial
reporting and management review. Following the funding of an approved loan, all
pertinent loan data is entered into the Company's data processing system, which
provides monthly billing statements, tracks payment performance, and effects
agreed upon interest rate adjustments on loans. Regular loan service efforts
include payment processing and collection follow up, as well as tracking the
performance of additional borrower obligations with respect to the maintenance
of casualty insurance coverage, payment of property taxes and senior liens, if
any, and periodically requesting required information, including current
borrower and property financial and operating statements. When payments are not
received by their contractual due date, collection efforts begin on the tenth
day of delinquency with a telephone contact. If the borrower is non-responsive
or the loan officer feels more stringent action may be required, the Chief
Credit Officer is consulted. Notices of default are generally filed when the
loan has become 60-90 days past due.

CREDIT RISK AND LOAN REVIEW

Credit risk represents the possibility that a customer or counter-party may not
perform in accordance with contractual terms. The Company incurs credit risk
whenever it extends credit to, or enters into other transactions with, its
customers. The risks associated with extensions of credit include general risk,
which is inherent in the lending business, and risk specific to individual
borrowers. Loan review and other loan monitoring practices provide a means for
the Company's management to ascertain whether proper credit, underwriting and
loan documentation policies, procedures and practices are being followed by the
Company's loan officers and are being


                                       13
<PAGE>

applied uniformly throughout the Company. Implementation and daily
administration of loan review rests with the Chief Credit Officer and the
President who approve loan officer requests for changes in risk ratings. Loan
officers are responsible for continually grading their loans so that individual
credits properly reflect the risk inherent therein. On an annual basis, the
Board of Directors provides for a third-party outside loan review of all loans
that meet certain criteria originated since the previous review. While the
Company continues to review these and other related functional areas, there can
be no assurance that the steps the Company has taken to date will be sufficient
to enable it to identify, measure, monitor and control all credit risk.

CONCENTRATIONS OF CREDIT

The Company's primary investment is in loans, 81% of which are secured by real
estate. Therefore, although the Company monitors the real estate loan portfolio
on a regular basis to avoid undue concentrations to a single borrower or type of
real estate collateral, real estate in general is considered a concentration of
investment. The Company seeks to mitigate this risk by requiring each borrower
to have a certain amount of equity in the real estate at the time of
origination, depending on the type of real estate and the credit quality of the
borrower. Trends in the market are monitored closely by management on a regular
basis.

Under federal law, the Company's ability to make aggregate loans-to-one-borrower
is limited to 15% of unimpaired capital and surplus (as of December 31, 2000,
this amount was $3.7 million) plus an additional 10% of unimpaired capital and
surplus if a loan is secured by readily-marketable collateral (defined to
include only certain financial instruments and gold bullion).

INVESTMENT ACTIVITIES

The investment policy of the Company, as established by the Board of Directors,
attempts to provide for and maintain liquidity, generate a favorable return on
investments without incurring undue interest rate and credit risk, and
complement the Company's lending activities. Specifically, the Company's
policies generally limit investments to government and federal agency-backed
securities and other non-government guaranteed securities, including corporate
debt obligations, that are investment grade. The Company's policies provide the
authority to invest in mortgage-backed securities guaranteed by the U.S.
government and agencies thereof. The Company's policies provide that all
investment purchases which increase or decrease the levels total investment
portfolio by $2 million in any one month (not including overnight fed funds), or
that are outside the policy guidelines, be approved by the Board of Directors.
Purchases and sales under this limitation and within the guidelines of the
policies may be done at the discretion of the President, Chief Financial Officer
or Controller. At December 31, 2000, the Company had $6.8 million in U.S.
Treasury and agency securities. At December 31, 2000, the Company had federal
funds sold of $11.0 million and had interest bearing deposits in financial
institutions totaling $790,000.

The following table sets forth the carrying values and estimated fair values of
the Company's held to maturity investment portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                            At December 31,
                                           ---------------------------------------------------------------------------------
                                                     2000                        1999                         1998
                                            Amortized    Estimated      Amortized     Estimated      Amortized    Estimated
                                              Cost       Fair Value       Cost        Fair Value       Cost       Fair Value
                                           ----------    ----------     ---------     ----------     ---------    ----------
                                                                       (dollars in thousands)
<S>                                        <C>           <C>            <C>           <C>            <C>          <C>
U.S. Treasury securities and other            $6,819        $6,865        $6,710         $6,587        $1,676        $1,672
                                              ======        ======        ======         ======        ======        ======
</TABLE>








                                       14
<PAGE>

         The contractual maturities of securities held to maturity at December
31, 2000 were as follows:

<TABLE>
<CAPTION>
                                                                                         HELD TO MATURITY
                                                                                -----------------------------------
                                                                                   AMORTIZED           ESTIMATED
                                                                                     COST              FAIR VALUE
                                                                                --------------       --------------
                                                                                      (dollars in thousands)
<S>                                                                             <C>                  <C>
Due in one year or less                                                                $1,747              $1,745
,Due greater than one year through five years                                           4,473               4,508
Due greater than five years                                                               599                 612
                                                                                --------------       --------------
Total                                                                                  $6,819              $6,865
                                                                                ==============       ==============
</TABLE>




SOURCES OF FUNDS

GENERAL. Deposits, loan repayments and prepayments, proceeds from the sales of
loans, cash flows generated from operations and Federal Reserve borrowings are
the primary sources of the Company's funds for use in lending, investing and for
other general purposes.

DEPOSITS. The Company offers a variety of deposit accounts with a range of
interest rates and terms. The Company's deposits consist of checking accounts,
money market accounts, passbook accounts and certificates of deposit. As of
December 31, 2000, core deposits constituted 43.3% of total average deposits. As
of December 31, 2000, the average deposit account was $20,000. The flow of
deposits is influenced significantly by general economic conditions, changes in
money market rates, prevailing interest rates and competition. The Company's
deposits are attracted primarily from individuals and small and medium-sized
businesses.

The Company relies primarily on customer service, aggressive marketing and
cross-selling to customers and prospects to attract and retain deposits.
However, market interest rates and products, and rates offered by competing
financial institutions significantly affect the Company's ability to grow and
retain deposits.

Beginning in 2000, the Company began retaining the guaranteed portion of SBA
loans. In order to fund these retained assets, the Company began a program of
originating wholesale deposits. While the Company intends to continue funding
these loans using wholesale sources of funds, it is management's intent to
expand its retail deposit base through the acquisition of branches of other
institutions, or through the addition of de novo branches, including a de novo
branch scheduled to open in April 2001 in Escondido.

The following table sets forth the distribution of the Company's average deposit
accounts for the periods indicated and the weighted average interest rates for
each category of deposits presented.

<TABLE>
<CAPTION>
                                                                    For the Year Ended December 31,
                                  -------------------------------------------------------------------------------------------------
                                                 2000                            1999                            1998
                                  -------------------------------- -------------------------------- --------------------------------
                                               Percent                         Percent                          Percent
                                               of Total                        of Total                         of Total
                                    Average    Average    Average   Average    Average    Average    Average    Average    Average
                                    Balance    Deposits    Rate     Balance    Deposits     Rate     Balance    Deposits     Rate
                                  ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
                                                                       (dollars in thousands)
<S>                               <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
MMDA and NOW accounts              $ 49,287      23.36%      2.28%  $ 52,295      37.80%      2.36%  $ 52,816      47.85%      3.22%
Savings accounts                     11,621       5.51%      2.67%    11,580       8.37%      2.76%    10,132       9.18%      3.14%
Non-interest-bearing accounts        30,337      14.38%      0.00%    24,999      18.07%      0.00%    18,265      16.55%      0.00%
Time deposits less than $100,000     64,431      30.53%      6.25%    36,120      26.11%      5.14%    23,864      21.62%      5.53%
Time deposits of $100,000 or more    55,332      26.22%      5.97%    13,349       9.65%      5.01%     5,303       4.80%      5.46%
                                  ----------                       ----------                       ----------
Total average deposits             $211,008     100.00%      4.15%  $138,343     100.00%      3.60%  $110,380     100.00%      3.29%
                                  ==========                       ==========                       ==========
</TABLE>
The following table represents the deposit activity of the Company fo the
periods indicated.
                                       15

<PAGE>

<TABLE>
<CAPTION>

                                                                    FOR THE YEARS ENDED
                                                                        DECEMBER 31,
                                                               -------------------------------
                                                                    2000      1999       1998
                                                                    ----      ----       ----
                                                                   (dollars in thousands)
<S>                                                             <C>       <C>        <C>
Net deposits                                                     $87,828   $30,146    $24,259
Interest credited on deposit accounts                              7,477     3,970      3,518
                                                                   -----     -----      -----
Total increase in deposits                                       $95,305   $34,116    $27,777
                                                                 =======   =======    =======
</TABLE>

At December 31, 2000, the Company had $74.8 million in time deposits in amounts
of $100,000 or more, consisting of 339 accounts, maturing as follows:
<TABLE>
<CAPTION>

                                                                     WEIGHTED
                                                                      AVERAGE
MATURITY PERIOD                                             AMOUNT     RATE
---------------                                            --------  -------
                                                           (dollars in thousands)
<S>                                                         <C>         <C>
Three months or less                                         $30,504     6.41%
Greater than Three Months to Six Months                       19,660     5.58%
Greater than Six Months to Twelve Months                      24,461     6.35%
Greater than Twelve Months                                       223     5.28%
                                                             -------
Total                                                        $74,848     6.17%
                                                             =======

</TABLE>

EMPLOYEES

As of December 31, 2000 the Company had a total of 111 full-time employees and
15 part-time employees. The management of the Company believes that its employee
relations are satisfactory.

EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION

Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by the Company on its deposits and its
other borrowings and the interest rate received by the Company on loans extended
to its customers and securities held in the Company'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 Company. 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 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 combatting 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. For example,
legislation has been recently signed into law that, among other things, repeals
the statutory restrictions on affiliations between commercial banks and
securities firms. See " Financial Modernization Legislation."


SUPERVISION AND REGULATION


                                       16
<PAGE>

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

THE COMPANY

The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"), and is
registered as such with, and subject to the supervision of, the Federal Reserve
Board. 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 Bank Holding Company Act. The Federal Reserve Board
may conduct examinations of bank holding companies and their subsidiaries.

The Company is required to obtain the approval of the Federal Reserve Board
before it may acquire all or substantially all of the assets of any bank, or
ownership or control of the voting shares of any bank if, after giving effect to
such acquisition of shares, the Company would own or control more than 5% of the
voting shares of such bank. 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's ability to engage in non-banking activities is also regulated by
the Federal Reserve Board. See "Financial Modernization Legislation."

Under the Federal Reserve Board's 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 and 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.

The Company is subject to the periodic reporting requirements of Section 12(g)
of the Securities Exchange Act of 1934, as amended, and files certain reports
and proxy statements pursuant to such Act with the Securities and Exchange
Commission (the "SEC").

THE BANK

The Bank, as a national banking association, is subject to primary supervision,
examination and regulation by the 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 an 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 a 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 Bank has never been subject to any such
actions by the Comptroller or the FDIC.

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. 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


                                       17
<PAGE>

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.

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 risk-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.

For information concerning the capital ratios of the Company and the Bank, see
ITEM 6 of this report, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION."

Under applicable regulatory guidelines, the Bank was considered "Well
Capitalized" as of December 31, 2000.

PROMPT CORRECTIVE ACTION

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".


                                       18
<PAGE>

An insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
<TABLE>

<S>                                                            <C>
        "WELL CAPITALIZED"                                      "ADEQUATELY CAPITALIZED"
        Total risk-based capital of 10%;                         Total risk-based capital of 8%;
        Tier 1 risk-based capital of 6%; and                     Tier 1 risk-based capital of 4%; and
        Leverage ratio of 5%.                                    Leverage ratio of 4%.

        "UNDERCAPITALIZED"                                      "SIGNIFICANTLY UNDERCAPITALIZED"
        Total risk-based capital less than 8%;                   Total risk-based capital less than 6%;
        Tier 1 risk-based capital less than 4%; or               Tier 1 risk-based capital less than 3%; or
        Leverage ratio less than 4%.                             Leverage ratio less than 3%.

        "CRITICALLY UNDERCAPITALIZED"
        Tangible equity to total assets less than 2%.

</TABLE>

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 a 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 acquisition; (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


                                       19
<PAGE>

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 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,
however, 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.

PREMIUMS FOR DEPOSIT INSURANCE

All deposits of the Bank are insured by the FDIC and are subject to FDIC
insurance assessments. The amount of FDIC assessments paid by individual insured
depository institutions is based upon their relative risk as measured by
regulatory capital ratios and certain other factors. The Bank pays an assessment
of $0.0049 per $100 of deposits as a result of its "Well Capitalized" status.

FINANCIAL SERVICES MODERNIZATION LEGISLATION

GENERAL. On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The
Financial Services Modernization Act repeals the two affiliation provisions of
the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal
Reserve Member Banks with firms "engaged principally" in specified securities
activities; and Section 32, which restricts officer, director, or employee
interlocks between a member bank and any company or person "primarily engaged"
in specified securities activities. In addition, the Financial Services
Modernization Act also contains provisions that expressly preempt any state law
restricting the establishment of financial affiliations, primarily related to
insurance. The general effect of the law is to establish a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms, and other financial service providers by revising and
expanding the Bank Holding Company Act framework to permit a holding company
system to engage in a full range of financial activities through a new entity
known as a Financial Holding Company

The law also:
  o     broadens the activities that may be conducted by national banks, banking
        subsidiaries of bank holding companies, and their financial
        subsidiaries;
  o     provides an enhanced framework for protecting the privacy of consumer
        information;
  o     adopts a number of provisions related to the capitalization, membership,
        corporate governance, and other measures designed to modernize the
        Federal Home Loan Bank system;
  o     modifies the laws governing the implementation of the Community
        Reinvestment Act; and
  o     addresses a variety of other legal and regulatory issues affecting both
        day-to-day operations and long-term activities of financial
        institutions.

The Company and the Bank do not believe that the Financial Services
Modernization Act will have a material adverse effect on their operations in the
near-term. However, to the extent that it permits banks, securities firms, and
insurance companies to affiliate, the financial services industry may experience
further consolidation. The Financial Services Modernization Act is intended to
grant to community banks certain powers as a matter of right that larger
institutions have accumulated on an ad hoc basis. Nevertheless, this act may
have the result of increasing the amount


                                       20
<PAGE>

of competition that the Company and the Bank face from larger institutions and
other types of companies offering financial products, many of which may have
substantially more financial resources than the Company and the Bank.

FINANCIAL HOLDING COMPANIES. Bank holding companies that elect to become a
financial holding company may affiliate with securities firms and insurance
companies and engage in other activities that are financial in nature or are
incidental or complementary to activities that are financial in nature. The
Company has not yet elected to become a financial holding company.

"Financial in nature" activities include: securities underwriting; securities
dealing and market making; sponsoring mutual funds and investment companies;
insurance underwriting and agency; merchant banking; and activities that the
Federal Reserve Board, in consultation with the Secretary of the Treasury,
determines from time to time to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.

A bank holding company must meet three requirements before becoming a financial
holding company: all of the bank holding company's depository institution
subsidiaries must be (1) well capitalized, (2) well managed, and (3) in
compliance with the Community Reinvestment Act (except in limited
circumstances). In addition, the bank holding company must file with the Federal
Reserve Board a declaration of its election to become a financial holding
company, including a certification that its depository institution subsidiaries
meet the foregoing criteria.

Failure to comply with the financial holding company requirements could lead to
divestiture of subsidiary banks or require all activities of the company to
conform to those permissible for a bank holding company. No Federal Reserve
Board approval is required for a financial holding company to acquire a company
(other than a bank holding company, bank or savings association) engaged in
activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Federal Reserve Board. In December,
2000 the Federal Reserve Board approved an interim rule defining the three
categories of activities financial in nature or incidental to a financial
activity:

  o     lending, exchanging, transferring, investing for others, or safeguarding
        financial assets other than money or securities;

  o     providing any device or other instrumentality for transferring money or
        other financial assets; or

  o     arranging, effecting or facilitating financial transactions for the
        account of third parties.

The interim rule also establishes a mechanism through which financial holding
companies or other interested parties may request that the Federal Reserve Board
find that a particular activity falls within one of these three categories. For
example, the Federal Reserve Board has recently issued a proposed rule that
would grant financial holding companies the right to act as real estate brokers
and managers.

A bank holding company that is not also a financial holding company is limited
to engaging in banking and such other activities as determined by the Federal
Reserve Board to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.

PRIVACY. Under the Financial Services Modernization Act, federal banking
regulators are required to adopt rules that will limit the ability of banks and
other financial institutions to disclose non-public information about consumers
to nonaffiliated third parties. These limitations will require disclosure of
privacy policies to consumers and, in some circumstances, will allow consumers
to prevent disclosure of certain personal information to a nonaffiliated third
party. Federal banking regulators issued final rules on May 10, 2000. Pursuant
to the rules, financial institutions must provide:

  o      initial notices to customers about their privacy policies, describing
         the conditions under which they may disclose nonpublic personal
         information to nonaffiliated third parties and affiliates;
  o      annual notices of their privacy policies to current customers; and
  o      a reasonable method for customers to "opt out" of disclosures to
         nonaffiliated third parties.

The rules were effective November 13, 2000, but compliance is optional until
July 1, 2001. These privacy provisions will affect how consumer information is
transmitted through diversified financial companies and conveyed to


                                       21
<PAGE>

outside vendors. It is not possible at this time to assess the impact of the
privacy provisions on the Company's financial condition or results of
operations.

CONSUMER PROTECTION RULES--SALE OF INSURANCE. In December 2000, pursuant to the
requirements of the Financial Services Modernization Act, the federal bank and
thrift regulatory agencies adopted consumer protection rules for the sale of
insurance products by depository institutions. The rule is effective on April 1,
2001, and applies to any depository institution or any person selling,
soliciting, advertising, or offering insurance products or annuities to a
consumer at an office of the institution or on behalf of the institution. The
regulation requires oral and written disclosure, before the completion of the
sale of an insurance product or annuity, that such product:

  o     is not a deposit or other obligation of, or guaranteed by, the
        depository institution or its affiliate;
  o     is not insured by the FDIC or any other agency of the United States, the
        depository institution or its affiliates; and
  o     has certain risks of investment, including the possible loss of value.

The depository institution may not condition an extension of credit on the
consumer's purchase of an insurance product or annuity from the depository
institution or from any of its affiliates, or on the consumer's agreement not to
obtain, or a prohibition on the consumer from obtaining, an insurance product or
annuity from an unaffiliated entity. Furthermore, to the extent practicable, a
depository institution must keep insurance and annuity sales activities
physically segregated from the areas where retail deposits are routinely
accepted from the general public. Finally, the rule addresses cross marketing
and referral fees.

SAFEGUARDING CONFIDENTIAL CUSTOMER INFORMATION. In January 2000, the banking
agencies adopted guidelines requiring financial institutions to establish an
information security program to:

  o     identify and assess the risks that may threaten customer information;
  o     develop a written plan containing policies and procedures to manage and
        control these risks;
  o     implement and test the plan; and
  o     adjust the plan on a continuing basis to account for changes in
        technology, the sensitivity of customer information and internal or
        external threats to information security.

Each institution may implement a security program appropriate to its size and
complexity and the nature and scope of its operations. The guidelines are
effective July 1, 2001.

COMMUNITY REINVESTMENT ACT

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 connection with its assessment of CRA performance, the appropriate bank
regulatory agency assigns a rating of "outstanding." "satisfactory," "needs to
improve" or "substantial noncompliance." At its last examination by the
Comptroller, the Bank received a CRA rating of "Satisfactory."

SAFETY AND SOUNDNESS STANDARDS

The federal banking agencies have adopted guidelines designed to assist the
federal banking agencies in identifying and addressing potential safety and
soundness concerns before capital becomes impaired. The guidelines set forth
operational and managerial standards relating to internal controls, information
systems and internal audit systems; loan documentation; credit underwriting;
asset growth; earnings; and compensation, fees and benefits.

In addition, the federal banking agencies have also adopted safety and soundness
guidelines with respect to asset quality and earnings standards. These
guidelines provide six standards for establishing and maintaining a system to


                                       22
<PAGE>

identify problem assets and prevent those assets from deteriorating. Under these
standards, an insured depository institution should:

  o     conduct periodic asset-quality reviews to identify problem assets;
  o     estimate the inherent losses in problem assets and establish reserves
        that are sufficient to absorb estimated losses;
  o     compare problem asset totals to capital;
  o     take appropriate corrective action to resolve problem assets;
  o     consider the size and potential risks of material asset concentrations;
        and
  o     provide periodic asset quality reports with adequate information for
        management and the board of directors to assess the level of asset risk.

These guidelines also set forth standards for evaluating and monitoring earnings
and for ensuring that earnings are sufficient for the maintenance of adequate
capital and reserves.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

In addition to the other information contained in this Report, the following
risks may affect the Company. If any of these risks occur, the Company's
business, financial condition or operating results could be adversely affected.

DEPENDENCE ON REAL ESTATE. A significant portion of the loan portfolio of the
Bank is dependent on real estate. At December 31, 2000, real estate served as
the principal source of collateral with respect to approximately 81 percent of
the Bank's loan portfolio. A decline in current economic conditions or rising
interest rates could have an adverse effect on the demand for new loans, the
ability of borrowers to repay outstanding loans, the value of real estate and
other collateral securing loans and the value of real estate owned by the Bank,
as well as the Company's financial condition and results of operations in
general and the market value of the Company's common stock. Acts of nature,
including earthquakes and floods, which may cause uninsured damage and other
loss of value to real estate that secures these loans, may also negatively
impact the Company's financial condition.

EARNINGS. With the announcement of earnings for 1999, management announced that
the Company is changing its strategy for future earnings and growth. See
"Strategy - New Strategic Initiative." In general, such strategy focused on the
retention of SBA 7A loans resulting in (i) increased interest income but (ii)
decreased income from the sale of such loans. The ability of the Company to
increase its net interest income and to grow its assets through increasing its
loan portfolio by the retention of SBA 7A loans and by other loan growth is
dependent on its ability to attract deposits. To maximize net interest income,
the Company seeks to fund its growth through attracting retail deposits and
minimizing its reliance on more expensive wholesale deposits. In 2000, gross
loans grew by 70%, while retail and wholesale deposits grew by 37% and 400%,
respectively. The competition for retail deposits in the Company's market is
keen and wholesale deposits growth is largely dependent on the rates paid for
such deposits. The inability to increase its retail deposits coupled with
increased reliance on wholesale deposits could materially impact the Company's
results of operations.

Additionally, the growth of the Company's assets is also dependent on
maintaining satisfactory regulatory capital and liquidity levels. In general,
regulatory concerns increase as a financial institution's liquidity and capital
ratios decrease. The Company's liquidity and leverage capital ratios decreased
30% and 12%, respectively, in 2000. The Company is implementing various
strategies to assure adequate liquidity and maintain its capital ratios, but no
assurance can be given that such strategies will be successful. SEE "ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS."

INTEREST RATE CHANGES. The earnings of the Company and the Bank are
substantially affected by changes in prevailing interest rates. Changes in
interest rates affect the demand for new loans, the credit profile of existing
loans, the rates received on loans and securities and the rates the Bank must
pay on deposits and borrowings. The difference between the rates the Bank
receives on loans and securities and the rates it must pay on deposits and
borrowings is known as the interest rate spread. Given the Bank's current volume
and mix of interest-bearing liabilities and interest-earning assets, for the
short term the Bank's interest rate spread can be expected to increase when
market interest rates are rising, and to decline when market interest rates are
declining. The Bank's analysis indicates that the decreases in the target
federal funds rate announced by the Federal Reserve Board in January will likely
result in a drop of 50 to 75 basis points in the Bank's interest rate spread
during the first quarter of 2001. If


                                       23
<PAGE>

interest rates continue to decline, competitive pressure and other factors may
prevent the Bank from making proportionate decreases in the interest rates its
pays on deposits, especially MMDA and NOW accounts, resulting in a larger
decrease in the interest rate spread. Although the Bank believes its current
level of interest rate sensitivity is reasonable, significant fluctuations in
interest rates may have an adverse impact on the Company's and the Bank's
business, financial condition and results of operations.

COMPETITION. Competition may adversely affect the Bank's performance. The
financial services business in the Bank's market area is highly competitive, and
becoming more so due to changes in regulation, technological advances and the
accelerating pace of consolidation among financial service providers. The Bank
faces competition both in attracting deposits and in making loans. It competes
for loans principally through the interest rates and loan fees it charges and
the efficiency and quality of the services it provides. Increasing levels of
competition in the banking and financial services businesses may reduce the
Bank's market share or cause the prices it charges for its services to fall. The
Company's results may differ in future periods depending on the nature or level
of competition.

REGULATION. The Company and the Bank are subject to government regulation that
could limit or restrict their activities, adversely affecting operations. The
financial services industry is heavily regulated. Federal and state regulation
is designed to protect the deposits of consumers, not to benefit shareholders.
The regulations impose significant limitations on operations, and may be changed
at any time to impose significant new limitations, possibly causing the
Company's results to vary significantly from past results. Government policy and
regulation, particularly as implemented through the Federal Reserve Board,
significantly affects credit conditions for the Bank.

BORROWERS' FAILURE TO PERFORM. A significant number of the Bank's borrowers and
guarantors may fail to perform their obligations as required by the terms of
their loans, resulting in losses for the Company. The Bank has adopted
underwriting and credit policies, and loan monitoring procedures, including the
establishment and monitoring of allowances for credit losses. Management
believes these provisions are reasonable and adequate, and should keep credit
losses within expected limits by assessing the likelihood of nonperformance,
tracking loan performance and diversifying the credit portfolio. However, these
policies and procedures may not be adequate to prevent unexpected losses that
could materially and adversely affect the Company's results of operations.

CALIFORNIA ENERGY CRISIS. The recent California energy crisis has resulted in
higher energy costs to consumers, who have also seen disruptions in service and
face uncertainty about the future availability and cost of power. Various
legialative, regulatory and legal remedies to the California crisis are being
pursued, but their outcome is uncertain and far reaching and the solution is not
likely to be immediate. Continued deterioration of the California energy
resources could have a material adverse affect on the Company's customers, which
may result in adverse affects in the Company's business, financial condition and
results of operations.

ITEM 2. DESCRIPTION OF PROPERTIES

The Company occupies a permanent headquarters facility which is located at 130
West Fallbrook Street, Fallbrook, California. The purchase price for the
headquarters was approximately $550,000 for the land, building and improvements.
The building has approximately 4,000 square feet. The Bank also leases
approximately 9,207 square feet in a building across the parking lot from its
headquarters building. This extension houses certain of the Bank's
administrative functions.

On February 23, 2001, the Bank entered into a letter of intent to lease an
approximately 33,000 square foot building in Escondido, located at the corner of
9th and Canterbury. The building will replace administrative office space
located in Fallbrook, although the Company intends to maintain and operate the
existing Fallbrook branch, as well as operate a loan production office near the
branch. Construction of the new building is expected to be completed during the
first quarter of 2002. The Company's Escondido branch, scheduled to open in
April 2001, will also be relocated to this new building upon completion. The
Company intends to sublease a portion of the new facility to third party
tenants.

On March 24, 1997, the Bank relocated its Temecula branch office to 27541 Ynez
Road, Temecula, California. The office contains approximately 6,338 square feet
and is leased pursuant to a lease expiring in March 2007. On August 4, 1998, the
Bank opened a branch office located at 1690 S. Melrose Drive, Vista, California.
This office contains approximately 5,700 square feet and is leased pursuant to a
lease expiring on June 3, 2008. The Bank also


                                       24
<PAGE>

maintains loan production offices in leased premises at 1688 S. Melrose Drive,
Suite 203, Vista; 1440 No. Harbor Blvd., Suite 800-38, Fullerton, California;
3535 Inland Empire Blvd., Ontario, California; 920 Hampshire Road, Suite A-11,
Westlake Village, California; 17011 Beach Blvd., Suite 900, Huntington Beach,
California and 811 No. Central Ave., Glendale, California. The Bank also leases
some additional office space in Fallbrook to house administrative and lending
personnel. The branch offices and the additional offices are considered adequate
for the Bank's current needs. The Bank's rental expense for 2000 was $475,000.
See Note 13 of the Company's financial statements included in Item 7 of this
Report for certain additional information concerning the amount of the Bank's
lease commitments.

ITEM 3. LEGAL PROCEEDINGS

The Bank is, from time to time, subject to various pending and threatened legal
actions which arise out of the normal course of its business. Except as
described in the next paragraph, the Bank is not a party to any pending legal or
administrative proceedings (other than ordinary routine litigation incidental to
the Bank's business) and no such proceedings are known to be contemplated.

The Bank has been subject to a lawsuit by a former employee alleging, amongst
other things, breach of contract and fraud. Trial commenced on July 19, 1999 in
Riverside County Superior Court, with the jury rendering a verdict on August 2,
1999. The jury awarded compensatory damages of approximately $65,000, punitive
damages of $750,000, court costs and legal fees. On October 26, 1999, the
Superior Court ordered a new trial on punitive damages only, unless the
plaintiff consented to a reduction of the punitive damage award to $250,000. On
November 4, 1999, the plaintiff consented to the punitive damage verdict of
$250,000. The Bank subsequently filed a notice of appeal in connection with the
judgement. For the year ended December 31,1999, the Company accrued $298,000 in
connection with this verdict. On October 19, 2000, the Court of Appeal
overturned the judgement of fraud, and remanded the breach of contract cause of
action to the lower court for determination of damages. On December 26, 2000,
the Bank and former employee settled the action for $27,000, resulting in a
reversal of the accrual in the amount of $271,000.

There are no other material proceedings adverse to the Bank to which any
director, officer, affiliate of the Bank or 5% shareholder of the Bank, or any
associate of any such director, officer, affiliate or 5% shareholder of the Bank
is a party, and none of the above persons has a material interest adverse to the
Bank.

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

No matters were submitted to a vote of security holders during the fourth
quarter of 2000.


                                       25
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

MARKET INFORMATION

Prior to the Company's formation, the Bank's common stock was listed on the
Nasdaq SmallCap Market under the symbol "FBRK." At the effective time of the
Holding Company Formation on June 25, 1999, the Company's common stock became
listed on the Nasdaq National Market under the symbol "CMBC."

The information in the following table indicates for each quarterly period
during the last two years (i) the high and low closing sale prices of the Bank's
common stock prior to the Holding Company Formation and (ii) the high and low
closing sale prices of the Company's common stock after the Holding Company
Formation. Prices do not include retail mark-ups, markdowns or commission. The
information has been adjusted to reflect the 5% stock dividends in the fourth
quarters of 1999 and 2000.

<TABLE>
<CAPTION>

Quarter Ended                                                  Closing Prices
--------------------------------------------------------------------------------
1999                                        Low                High
--------------------------------------------------------------------------------
<S>                                        <C>                  <C>
March 31                                    $  6.689             $  7.710
June 30                                     $  6.463             $  7.483
September 30                                $  6.576             $  7.710
December 31                                 $  5.119             $  7.370

<CAPTION>

Quarter Ended                                                  Closing Prices
--------------------------------------------------------------------------------
2000                                        Low                High
--------------------------------------------------------------------------------
<S>                                        <C>                  <C>
March 31                                    $  4.643             $  5.714
June 30                                     $  4.911             $  6.190
September 30                                $  5.476             $  6.429
December 31                                 $  6.125             $  8.000

</TABLE>

HOLDERS

As of March 19, 2001, there were approximately 373 shareholders of record of
the Company's common stock, and approximately 900 beneficial shareholders,
including the shareholders of record. There are no other classes of common
equity outstanding.

DIVIDENDS

The Company is a legal entity separate and distinct from the Bank. The Company's
shareholders are entitled to receive dividends when and as declared by its Board
of Directors, out of funds legally available therefore, subject to the
restrictions set forth in the Delaware General Corporation Law (the "Corporation
Law"). The Corporation Law provides that a corporation may dividend out of any
surplus, and, if it has no surplus, out of any net profits for the fiscal year
in which the dividend was declared or for the preceding fiscal year (provided
that the payment will not reduce capital below the amount of capital represented
by all classes of shares having a preference upon the distribution of assets).

The availability of operating funds for the Company and the ability of the
Company to pay a cash dividend depends largely on the Bank's ability to pay a
cash dividend to the Company. The payment of cash dividends by the Bank is
subject to restrictions set forth in the National Bank Act. In general,
dividends may not be paid from any of the Bank's capital. Dividends must be paid
out of available net profits, after deduction of all current operating expenses,
actual losses, accrued dividends on preferred stock, if any, and all federal and
state taxes. Additionally, a national


                                       26
<PAGE>

bank is prohibited from declaring a dividend on its shares of common stock until
its surplus fund equals its common capital, or, if its surplus fund does not
equal its common capital, until at least one-tenth of such bank's net profits,
for the preceding half year in the case of quarterly or semi-annual dividends,
or the preceding two half-years in the case of an annual dividend, are
transferred to its surplus fund each time dividends are declared. The approval
of the Comptroller is required if the total of all dividends declared by a
national bank in any calendar year exceeds the total of its net profits for that
year combined with its retained net profits of the two preceding years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock. Furthermore, the Comptroller also has authority to prohibit the payment
of dividends by a national bank when it determines such payment to be an unsafe
and unsound banking practice.

Additionally, bank regulatory agencies have authority to prohibit banks from
engaging in activities that, in their respective opinions, constitute unsafe and
unsound practices in conducting its business. It is possible, depending upon the
financial condition of the bank in question and other factors, that the bank
regulatory agencies could assert that the payment of dividends or other payments
might, under some circumstances, be an unsafe or unsound practice. Further, the
bank regulatory agencies 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 may pay.

There were no cash dividends paid, other than for fractional shares on stock
dividends, during 1999 or 2000.

The Company declared a five percent (5%) stock dividend to shareholders of
record as of November 15, 1999, which was paid on November 30, 1999. The Company
declared a five percent (5%) stock dividend to shareholders of record as of
November 15, 2000, which was paid on November 30, 2000. Whether or not stock
dividends or any cash dividends will be paid in the future will be determined by
the Board of Directors after consideration of various factors. The Company's and
the Bank's profitability and regulatory capital ratios in addition to other
financial conditions will be key factors considered by the Board of Directors in
making such determinations regarding the payment of dividends.


                                       27
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

OVERVIEW

Community National Bank, formerly Fallbrook National Bank, (the "Bank")
commenced operations in 1985 and has focused primarily on providing
commercial banking products and services to small and mid-sized businesses in
its primary market area. In the early 1990's the Bank began its SBA lending
program. The Bank is currently a "Preferred Lender" with the SBA and the 7th
largest originator of SBA loans in California and 38th in the nation based on
loan originations for SBA 7A loans originated during the SBA's fiscal year
ended September 30, 2000. In January 1996, the Board of Directors promoted
Thomas E. Swanson to President of the Bank. Prior to Mr. Swanson's
appointment, the Bank employed a no growth business strategy due to local
market conditions, and did not engage in strategic planning. In 1996, Mr.
Swanson began implementing changes designed to prepare the Bank for future
growth. These changes included: (i) reorganizing the management structure;
(ii) diversifying the Bank's business lines; (iii) investing in
infrastructure to support diversification and (iv) listing the common stock
on Nasdaq.

On June 25, 1999, the Bank became the wholly owned subsidiary of Community
Bancorp Inc. (the "Company") through a holding company reorganization, where
each share of Bank stock was exchanged for a share of Company stock on a one for
one basis. The reorganization was accounted for on a basis similar to the
pooling of interest method, resulting in a tax free exchange. No additional
equity was issued as part of this transaction. In the consolidated financial
statements and footnotes presented herein, references to the Bank are references
to Community National Bank. References to the Company are references to
Community Bancorp Inc. (including the Bank), except for periods prior to June
25, 1999, in which case, references to the Company are references to the Bank.

The Company's primary market area is northern San Diego County consisting of the
communities of Fallbrook and Vista, and Southwestern Riverside County consisting
of the community of Temecula. The populations of Fallbrook, Temecula and Vista
were approximately 39,000, 54,000 and 86,000, respectively as of mid 2000. The
average household incomes for Fallbrook, Temecula and Vista were approximately
$42,000, $63,000 and, $61,000, respectively as of mid 2000. The population
growth rate for the northern San Diego County and Southwestern Riverside
Counties was approximately 18% and 7% per annum, respectively.

NEW STRATEGIC INITIATIVE.  With the announcement of earnings for 1999,
management announced that the Company changed its strategy for future
earnings and growth.  The new strategy addressed the following areas:

- Retain the guaranteed portion of SBA 7A loans
  o     Fund loan growth with core deposits and use of wholesale deposits
  o     Seek additional capital sources
  o     Reduce reliance on gain on sale of SBA loans - thereby stabilizing
        quarterly earnings
  o     Expand the SBA lending operations through the addition of loan
        production offices
- Focused geographic expansion of the financial services organization
  o     Open additional community banking offices
  o     Add new services, including securities and investment products
  o     Enhance and expand existing core lending business lines
- Improve profitability and efficiency by growing core earnings and controlling
  operating costs

In 2000, the following accomplishments were made in implementing that strategy:

- The Company did not sell SBA 7A loans in 2000. This contributed
  significantly to interest income in 2000, and should continue to do
  so going forward. SBA loan retention also contributed to the 70%
  loan growth in 2000 compared to 30% for 1999.
  The guaranteed portion of SBA loans retained was $35.1 million as of
  December 31, 2000 compared to $6.0 million as of December 31, 1999.
  o     Core deposits increased 20% to $101.2 million as of December 31, 2000
        compared to $84.5 million as of December 31, 1999. Retail
        certificates of deposits ("CDs") increased to $101.1 million as of
        December 31, 2000 compared to $62.8 million as of December 31, 1999.
        Wholesale deposits, used to fund SBA guaranteed portions of loans and
        loans held for sale, increased to $50.4 million as of December 31,
        2000 compared to $10.1 million as of December 31, 1999.
  o     The Company issued $10 million in Trust Preferred Securities in March
        of 2000


                                       28
<PAGE>

  o     Gain on sale of loans decreased to $162,000 for the year ended December
        31, 2000 compared to $3.6 million for the year ended December 31, 1999.
        Net interest income increased 33% to $11.4 million for the year ended
        December 31, 2000 compared to $8.5 million for the year ended December
        31, 1999. For the quarter ended December 31, 2000, net interest income
        increased 63% to $3.4 million compared to $2.1 million for the quarter
        ended December 31, 1999.
  o     Additional SBA lending offices were established in Ventura and Glendale,
        California
- The Company is in the process of expanding its retail banking franchise,
  with its fourth retail banking office projected to open in Escondido in
  April, 2001.
  o     New services established in 2000 included the Invest Financial
        Services program, where customers can purchase and sell non-FDIC
        insured securities and other investment products, as well as obtain
        personal financial plans.
  o     In 2000, additional lending staff was added in the Temecula and Vista
        branch offices.

During 2001, management intends to further improve net interest income
through continued growth in loans and core deposits, while controlling
operating expenses. Further expansion of the retail banking franchise is
expected to continue, including a new branch office in Escondido opening in
April 2001 and the addition of another SBA lending office.

RESULTS OF OPERATIONS

NET INCOME

Net income was $1.0 million for the year ended December 31, 2000 compared to
$1.6 million and $1.3 million for the years ended December 31, 1999 and 1998,
respectively. Basic earnings per share were $0.40, $0.62 and $0.50 for the years
ended December 31, 2000, 1999 and 1998, respectively. Diluted earnings per share
were $0.39, $0.60 and $0.49 for the years ended December 31, 2000, 1999 and
1998, respectively. Earnings per share for 1999 and 1998 have been adjusted for
the effects of the stock dividends in 2000, 1999 and 1998. The Company incurred
non-recurring expenses of $362,000 in 1999 due to the establishment of a
$298,000 reserve for a lawsuit plus the cost of formation of the holding
company. The Company recovered $271,000 in 2000 due to the court verdict being
overturned and the ultimate settlement of the lawsuit, which was partially
offset by the cost of changing the name of the Bank. Gains on sale of loans
totaled $162,000 in 2000 compared to $3.6 million in 1999 and $2.2 million in
1998, consistent with the Bank's strategic shift. Net interest income before
provision for loan losses totaled $11.4 million in 2000 compared to $8.5 million
in 1999 and $7.2 million in 1998. In addition to the retention of SBA 7a loans,
interest revenue was enhanced by growth in other areas of lending. The Company's
equity to assets ratio was 4.36%, 6.45% and 7.27% at December 31, 2000, 1999 and
1998, respectively. During 2000, the Company issued $10 million in Trust
Preferred securities to maintain the Bank's and the Company's regulatory capital
ratios and support the growth of the Company.

The return on average assets ("ROAA") for the year ended December 31, 2000 was
0.43% compared with 1.02% for the year ended December 31, 1999 and 1.04% for the
year ended December 31, 1998. The decrease in the ROAA from 2000 to 1999 was due
to the 60% growth in total assets, combined with the decline in net income due
to the change in strategy from the sale of SBA 7a loans to the retention of SBA
7a loans. The return on average equity ("ROAE") was 8.62% for the year ended
December 31, 2000 compared to 15.32% for the year ended December 31, 1999, and
14.26% for the year ended December 31, 1998.

Quarterly cash dividends of $0.05 per share were paid on January 2, April 1, and
July 1, 1998. The Bank changed its dividend policy in 1998 as part of its
strategic plan, discontinuing cash dividends in favor of retaining earnings to
support internal growth. The dividend payout ratio for the year ended December
31, 1998 was 18.22%. There were no cash dividends paid in 1999 and 2000.
Management does not anticipate that the Company will resume paying cash
dividends in the near future.


                                       29
<PAGE>

INTEREST INCOME

NET INTEREST INCOME

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

Net interest income before provision for estimated loan losses for the year
ended December 31, 2000 was $11.4 million compared to $8.5 million for the year
ended December 31, 1999 and was $7.2 million for the year ended December 31,
1998. This increase was primarily due to the increase in the average interest
earning assets, partially offset by a decrease in the net interest margin.
Average interest earning assets were $218.6 million with a net interest margin
of 5.20% for the year ended December 31, 2000 compared to $137.2 million with a
net interest margin of 6.23% for the year ended December 31, 1999, and $110.4
million with a margin of 6.53% for the year ended December 31, 1998. The decline
in net interest margin reflects the change in the composition of liabilities,
including the increased use of borrowed funds as a source of capital, combined
with an increase in the use of certificates of deposit as a funding source.

The following table sets forth a summary of average balances with corresponding
interest income and interest expense as well as average yield and cost
information for the periods presented. Average balances are derived from daily
balances, and nonaccrual loans are included as interest bearing loans for the
purpose of this table.

<TABLE>
<CAPTION>
                                          ----------------------------------------------
For the Years Ended December 31,                             2000
                                            Average        Interest         Average
   (dollars in thousands)                   Balance      Earned/Paid      Rate/Yield
                                         -----------------------------------------------
<S>                                          <C>                 <C>           <C>
Average assets:
 Securities and time deposits
      at other banks                          $  7,865              $455          5.79%
 Fed funds sold                                 12,790               788          6.16%
 Loans:
    Commercial                                  84,445             8,316          9.85%
    Real Estate                                103,818            10,926         10.52%
    Consumer                                     9,675               691          7.14%
                                              --------            ------         -------
 Total loans                                   197,938            19,933         10.07%
                                              --------            ------
 Total earning assets                          218,593            21,176          9.69%
 Non earning assets                             16,491
                                              --------
 Total average assets                         $235,084
                                              ========


Average liabilities and shareholders' equity:
 Interest bearing deposits:
    Savings and interest
         bearing accounts                     $ 60,908             1,434          2.35%
    Time deposits                              119,763             7,333          6.12%
                                              --------            ------
 Total interest bearing deposits               180,671             8,767          4.85%
 Demand deposits                                30,337                 -          0.00%
 Trust Preferred Securities                      7,705               867         11.25%
 Other borrowings                                1,661               172         10.36%
                                              --------            ------
 Total interest bearing liabilities            220,374             9,806          4.45%
 Accrued expenses and
      other liabilities                          3,101
 Net shareholders' equity                       11,609
                                              --------
 Total average liabilities and
      shareholders' equity                    $235,084
                                              ========

 Net interest spread                                                              5.24%
                                                                                  ----

 Net interest income                                             $11,370
                                                                 -------
 Net yield on interest-earning assets                                             5.20%
                                                                                  ====

<CAPTION>

                                         -------------------------------------------------------------------------------------------
For the Years Ended December 31,                               1999                                           1998
                                              Average        Interest         Average        Average        Interest       Average
 (dollars in thousands)                       Balance      Earned/Paid      Rate/Yield       Balance       Earned/Paid    Rate/Yield
                                         -------------------------------------------------------------------------------------------
<S>                                            <C>                 <C>           <C>           <C>              <C>          <C>
Average assets:
 Securities and time deposits
      at other banks                             $ 5,327              $301          5.65%        $ 1,904           $108        5.67%
 Fed funds sold                                    9,976               482          4.83%         16,169            896        5.54%
 Loans
    Commercial                                    53,404             5,128          9.60%         42,551          4,657       10.94%
    Real Estate                                   62,393             6,350         10.18%         45,747          4,878       10.66%
    Consumer                                       6,129               564          9.20%          4,014            414       10.31%
                                                --------           -------                      --------        -------
 Total loans                                     121,926            12,042          9.88%         92,312          9,949       10.78%
                                                --------           -------                      --------        -------

 Total earning assets                            137,229            12,825          9.35%        110,385         10,953        9.92%
 Non earning assets                               15,569                                          10,868
                                                --------                                        --------
 Total average assets                           $152,798                                        $121,253
                                                ========                                        ========

Average liabilities and shareholders equity:
 Interest bearing deposits:
    Savings and interest
         bearing accounts                       $ 63,875             1,556          2.44%       $ 62,948          2,015        3.20%
    Time deposits                                 49,469             2,490          5.03%         29,167          1,611        5.52%
                                                 -------             -----                       -------         ------
 Total interest bearing deposits                 113,344             4,046          3.57%         92,115          3,626        3.94%
 Demand deposits                                  24,999                 -          0.00%         18,265              -        0.00%
 Trust Preferred Securities                            -                 -          0.00%              -              -        0.00%
 Other borrowings                                  2,822               235          8.33%          1,120            114       10.18%
                                                 -------             -----                       -------         ------
 Total interest bearing liabilities              141,165             4,281          3.03%        111,500          3,740        3.35%
 Accrued expenses and
      other liabilities                            1,507                                             940
 Net shareholders equity                          10,126                                           8,813
                                                --------                                        --------
 Total average liabilities and
      shareholders equity                       $152,798                                        $121,253
                                                ========                                        ========

 Net interest spread                                                                6.32%                                      6.57%
                                                                                    ----                                       ----
 Net interest income                                                $8,544                                       $7,213
                                                                    ------                                       ------
 Net yield on interest-earning assets                                               6.23%                                      6.53%
                                                                                    ----                                       ----

</TABLE>

                                       30

<PAGE>

The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest earning assets and interest bearing liabilities,
information is provided on changes attributable to: (i) changes in volume
(change in average volume multiplied by old rate); (ii) changes in rate (change
in rate multiplied by old average volume); (iii) changes in rate-volume (change
in rate multiplied by the change in average volume). Changes due to both rate
and volume are allocated to rate.
<TABLE>
<CAPTION>


                                    -------------------------------------------------------------------------------
For the Years Ended December 31,                 2000 VS. 1999                           1999 VS. 1998

  (dollars in thousands)                 VOLUME            RATE        TOTAL     VOLUME         RATE          TOTAL
                                    -------------------------------------------------------------------------------
<S>                                      <C>             <C>          <C>        <C>            <C>          <C>
Earning assets:
  Securities and time deposits
     at other banks                      $  143           $  11       $  154     $  194        $   (1)       $  193
  Fed funds sold                            136             170          306       (343)          (71)         (414)
  Loans
   Commercial                             2,980             208        3,188      1,187          (716)          471
   Real Estate                            4,217             359        4,576      1,774          (302)        1,472
   Consumer                                 326            (199)         127        218           (68)          150
                                         ------          ------       ------     ------         ------       ------
  Total loans                             7,523             368        7,891      3,179        (1,086)        2,093
                                         ------          ------       ------     ------         ------       ------
  Total earning assets                    7,802             549        8,351      3,030        (1,158)        1,872

Interest bearing liabilities:
  Interest bearing deposits:
    Savings and interest
      bearing accounts                      (72)            (50)        (122)        30          (489)         (459)
    Time deposits                         3,536           1,307        4,843      1,121          (242)          879
                                         ------          ------       ------     ------         ------       ------
  Total interest bearing deposits         3,464           1,257        4,721      1,151          (731)          420
  Trust Preferred Securities                868              (1)         867          -             -             -
  Other borrowings                          (97)             34          (63)       168           (47)          121
                                         ------          ------       ------     ------         ------       ------
  Total interest bearing liabilities      4,235           1,290        5,525      1,319          (778)          541
                                         ------          ------       ------     ------         ------       ------
  Change in net interest income          $3,567           $(741)      $2,826     $1,711         $(380)       $1,331
                                         ======          ======       ======     ======         ======       ======
</TABLE>



INTEREST INCOME

Interest income for the year ended December 31, 2000 increased to $21.2 million,
compared to $12.8 million for the year ended December 31, 1999 and $11.0 million
for the year ended December 31, 1998. This increase was primarily due to an
increase in the average balance of interest earning assets, combined, to a
lesser extent, with an increase in the yield on those assets. Average interest
earning assets increased to $218.6 million for the year ended December 31, 2000
compared to $137.2 million for the year ended December 31, 1999, and were $110.4
million for the year ended December 31, 1998. The yield on interest earning
assets increased to 9.69% for the year ended December 31, 2000 compared to 9.35%
for the year ended December 31, 1999 and was 9.92% for the year ended December
31, 1998. The largest single component of interest earning assets was loans
receivable, which had an average balance of $197.9 million with a yield of
10.07% for the year ended December 31, 2000, compared to $121.9 million with a
yield of 9.88% for the year ended December 31, 1999 and $92.3 million with a
yield of 10.78% for the year ended December 31, 1998. The increase in the
average balance of loans receivable was attributable to the expansion of the
Company as part of the Company's strategic plan, including the change in
strategy to retain SBA 7a loans.


                                       31
<PAGE>


INTEREST EXPENSE

Interest expense for the year ended December 31, 2000 increased to $9.8
million compared to $4.3 million for the year ended December 31, 1999, and
was $3.7 million for the year ended December 31, 1998. This increase was due
to an increase in average deposits, combined with the issuance of Trust
Preferred securities. Average interest-bearing liabilities increased to
$220.4 million for the year ended December 31, 2000 from $141.2 million for
the year ended December 31, 1999 and were $111.5 million for the year ended
December 31, 1998. The increase in interest expense reflects a change in the
composition of interest-bearing liabilities, including the issuance of Trust
Preferred securities, combined with the increase in average interest-bearing
liabilities, combined with an increase in the cost of funds. Average time
deposits increased to $119.8 million with a cost of 6.12% for the year ended
December 31, 2000 from $49.5 million with a cost of 5.03% for the year ended
December 31, 1999, and were $29.2 million with a cost of 5.52% for the year
ended December 31, 1998. As part of the new strategic initiative, wholesale
CDs were utilized to fund the SBA guaranteed portions of loans retained, as
well as loans held for sale. Wholesale CDs increased to $50.4 million as of
December 31, 2000 compared to $10.1 million as of December 31, 1999. In
March, 2000, the Company's subsidiary, Community (CA) Capital Trust I, issued
$10 million of 11.0% Fixed Rate Capital Trust Pass-through Securities
("TRUPS-Registered Trademark-"), with a liquidation value of $1,000 per
share. The Company used the proceeds to pay off the $3.2 million in borrowed
funds, and contributed an additional $5.8 million in the Bank. Average other
borrowings decreased to $1.7 million with a cost of 10.36%, from $2.8 million
with a cost of 8.33% for the year ended December 31, 1999 and $1.1 million
with a cost of 10.18% for the year ended December 31, 1998. Average
borrowings decreased in 2000 from 1999 due to the payoff of certain borrowed
funds from the proceeds of the Trust Preferred securities.

PROVISION FOR ESTIMATED LOAN LOSSES

Net loans charged off totaled $66,000 for the year ended December 31, 2000
compared to $50,000 for the year ended December 31, 1999 and were $196,000 for
the year ended December 31, 1998. Due to the growth in loans, the provision for
loan losses totaled $965,000 for the year ended December 31, 2000, compared to
$385,000 for the year ended December 31, 1999 and $538,000 for the year ended
December 31, 1998. As a result of the increase in total loans outstanding,
management increased the allowance for loan losses to $2.2 million as of
December 31, 2000 compared to $1.3 million as of December 31, 1999 and $992,000
as of December 31, 1998. As of December 31, 2000 the allowance was 0.90% of
total gross loans compared to 0.91% as of December 31, 1999 and 0.88% as of
December 31, 1998. For the year ended December 31, 2000, net charge offs as a
percentage of average loans outstanding was 0.03%, compared to 0.04% for the
year ended December 31, 1999 and 0.21% for the year ended December 31, 1998. The
allowance for loan losses as a percentage of nonaccrual loans was 3905% as of
December 31, 2000, compared to 73% as of December 31, 1999 and was 102% as of
December 31, 1998. The reason for the large fluctuation between years is partly
due to the small amount of nonaccrual loans used in the calculation, whereby a
small increase or decrease in nonaccrual loans causes a significant change in
the percentage.

Nonaccrual loans as of December 31, 2000 were $57,000, of which $20,000 is
guaranteed by the SBA, compared to $1.8 million, with $1.4 million guaranteed by
the SBA as of December 31, 1999 and $969,000, with $293,000 guaranteed by the
SBA as of December 31, 1998.

In determining the adequacy of the allowance for loan losses, management
initially considers the allowances specifically allocated to individual impaired
loans, and then considers the level of general loss allowances deemed
appropriate for the balance of the portfolio based on factors including the
levels of classified assets, general portfolio trends relative to asset and
portfolio size, asset categories, potential credit concentrations, nonaccrual
loan levels, historical loss experience, risks associated with changes in
economic and business conditions, and other factors. As part of the strategic
plan, the Company began retaining the guaranteed portion of SBA loans beginning
in 2000. The government guaranteed portion of the loan portfolio increased to
$35.1 million as of December 31, 2000 compared to $6.0 million as of December
31, 1999. In general, the Company does not maintain allowance for loan losses on
the guaranteed portion of SBA loans. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company to
make additional provisions for loan losses based upon judgments which differ
from those of management.


                                       32
<PAGE>

OTHER OPERATING INCOME

Other operating income represents non-interest types of revenue and is comprised
primarily of gains from the sale of loans, other fee income, income for
servicing SBA loans, and service charges on deposit accounts. Other operating
income was $2.2 million for the year ended December 31, 2000 compared to $5.6
million for the year ended December 31, 1999 and was $3.9 million for the year
ended December 31, 1998. The decrease in other operating income is the direct
result of the change in strategy from selling SBA 7a loans to retaining them for
interest income.

Prior to 2000, a major portion of this income was generated through the sale of
loans consisting of SBA loans and mortgage loans. With the announcement of 1999
earnings, the Company announced its intention to change its strategy from
generating revenue through the gain on sale of SBA loans to generating interest
income through retaining SBA 7a loans. During the year ended December 31, 2000
the Company originated $47.2 million in SBA government guaranteed loans compared
to $38.5 million during the year ended December 31, 1999 and $33.3 million
during the year ended December 31, 1998. The Company originated $13.5 million in
mortgage loans during the year ended December 31, 2000 compared to $23.6 million
during the year ended December 31, 1999 and $28.9 million during the year ended
December 31, 1998. The Company sold approximately $4.5 million in SBA loans and
$11.4 million in mortgage loans during the year ended December 31, 2000,
compared to $37.6 million in SBA loans and $24.8 million in mortgage loans
during the year ended December 31, 1999 and $25.3 million in SBA loans and $32.9
million in mortgage loans during the year ended December 31, 1998. The decline
in origination and subsequent sale of mortgage loans is a direct result of the
rising interest rates experienced in 2000, which significantly reduced the
amount of mortgage loan refinances during the year. The sales of SBA 504 and
mortgage loans generated net gains on sale of approximately $162,000 for the
year ended December 31, 2000 compared to $3.6 million for the year ended
December 31, 1999 and $2.2 million for the year ended December 31, 1998. Sales
in 1999 and 1998 included SBA 7a loans. There were no sales of SBA 7a loans
during 2000. The decline in gain on sale of loans is in line with the new
strategic initiative for 2000, which called for the retention of the guaranteed
portion of SBA 7a loans.

Loan servicing fees, net, increased to $654,000 for the year ended December 31,
2000 compared to $321,000 for the year ended December 31, 1999 and $453,000 for
the year ended December 31, 1998. The Company and the industry experienced a
significant increase in prepayments during the year ended December 31, 1999,
compared to prior years, which resulted in a $742,000 write down of the
servicing asset. Prepayments decreased substantially in 2000 as interest rates
increased. Since the Company is now retaining SBA 7a loans, the impact of
changes in prepayment speeds will decline in the future, since servicing fees
are generated from the sale of SBA 7a loans. The Company measures its servicing
asset and Interest Only (the "IO") strips using industry prepayment speeds. The
Company's SBA servicing for others decreased to $77.6 million as of December 31,
2000 compared to $92.2 million as of December 31, 1999 and $82.8 million as of
December 31, 1998.

Customer service charges increased to $435,000 in 2000 compared to $404,000 in
1999 and $373,000 in 1998. Total deposits in transaction accounts, including
demand, savings and money market accounts, increased to $101.2 million as of
December 31, 2000 compared to $85.2 million and $83.3 million as of December 31,
1999 and 1998, respectively.

Other fee income totaled $927,000 for the year ended December 31, 2000 compared
to $1.2 million for the year ended December 31, 1999 and $870,000 for the year
ended December 31, 1998. The decrease is directly related to the decrease in
other SBA non-guaranteed loan production and mortgage loan production.

OTHER OPERATING EXPENSES

Other operating expenses are non-interest types of expenses and are incurred by
the Company in its normal course of business. Salaries and employee benefits,
occupancy, telephone, premises and equipment, marketing and promotions, data
processing, professional services, director/officer/employee expenses, office
expenses, ESOP loan expense and other expenses are the major categories of other
operating expenses. Other operating expenses, excluding non-recurring expenses,
increased to $11.0 million for the year ended December 31, 2000 compared to
$10.9 million and $8.4 million for the years ended December 31, 1999 and 1998,
respectively.

As a percentage of average assets these expenses, excluding non-recurring
expenses, decreased to 4.7% for the year ended December 31, 2000 compared to
7.1% for the year ended December 31, 1999 and 6.9% for the year ended


                                       33
<PAGE>

December 31, 1998. Salary and benefit expenses decreased to $5.8 million for the
year ended December 31, 2000 compared to $6.0 million for the year ended
December 31, 1999, and were $4.7 million for the year ended December 31, 1998.
The salary and benefit expense decrease can be attributed to the change of
estimates of the deferred cost associated with loan production. As of December
31, 2000, the Company had 111 full time employees and 15 part time employees,
compared to 104 full time employees and 11 part time employees as of December
31, 1999 and 98 full time employees and 9 part time employees as of December 31,
1998. The decrease in salaries and benefit expenses was partially offset by an
increase in other recurring operating expenses, which were $5.2 million for the
year ended December 31, 2000, compared to $4.9 million for the year ended
December 31, 1999 and were $3.7 million for the year ended December 31, 1998.
The largest increase in other recurring operating expenses was marketing and
promotions, which increased to $363,000 for the year ended December 31, 2000
compared to $230,000 for the year ended December 31, 1999 and were $389,000 for
the year ended December 31, 1998. Marketing expenses increased due to the
expansion of the Company's lending and retail banking operations.

Non-recurring expenses were incurred during the years ended December 31, 2000
and 1999. No non-recurring expenses were incurred during 1998. During 1999, the
Company accrued $298,000 for a lawsuit, which was subsequently appealed. An
additional $64,000 was expensed that year in connection with the formation of
the holding company. During 2000, due to the overturn of a portion of the
ruling, the lawsuit was settled, resulting in a recovery of $271,000. This
recovery was partially offset by the cost of changing the name of the Bank
subsidiary, which totaled $184,000 in 2000. No further expense is expected to
occur on any of these issues.

The following table compares each of the components of other operating expenses
for the years ended December 31, 2000, 1999 and 1998, respectively:
<TABLE>
<CAPTION>

                                                     FOR THE YEARS ENDED DECEMBER 31,                         NET CHANGE
                                             ------------------------------------------------   ------------------------------------
                                                   2000               1999              1998      2000 TO 1999      1999 TO 1998
<S>                                             <C>                <C>                <C>                  <C>               <C>
 Other operating expenses:
    Salaries and employee benefits              $ 5,841            $ 6,011            $4,721                $(170)           $1,290
    Occupancy                                       847                854               604                   (7)              250
    Telephone                                       270                266               175                    4                91
    Premises and equipment                          570                508               351                   62               157
    Marketing and promotions                        363                230               389                  133              (159)
    Data processing                                 825                761               606                   64               155
    Professional services                           687                667               512                   20               155
    Director, officer and employee expense          486                410               362                   76                48
    Office expenses                                 327                357               325                  (30)               32
    ESOP loan expense                               205                204               170                    1                34
    Other non-recurring expense (income)            (87)               362                 -                 (449)              362
    Other expenses                                  596                654               195                  (58)              459
                                                -------            -------            ------               -----             ------
       Total other operating expenses           $10,930            $11,284            $8,410                $(354)           $2,874
                                                =======            =======            ======               ======            ======
</TABLE>



PROVISION FOR INCOME TAXES

The effective income tax rate was 39.4%, 36.7% and 41.3% for the years ended
December 31, 2000, 1999 and 1998, respectively. Provisions for income taxes
totaled $652,000, $900,000 and $885,000 for the years ended December 31, 2000,
1999 and 1998, respectively. See Footnote 10 of the Consolidated Financial
Statements for additional information.

FINANCIAL CONDITION

GENERAL

The change in strategy from selling SBA 7a loans to retaining them, combined
with the strength of the Southern California economy in the last three years and
the community bank sales opportunities created by the large banks' continued
industry consolidation are reflected in the growth of the Company's balance
sheet in 2000. The Company attracted quality customers from the larger banks
because of the higher level of personalized service offered by community banks.
As of December 31, 2000 total assets increased 60% to $280.5 million compared to
$175.8


                                       34
<PAGE>

million as of December 31, 1999. Total gross loans increased to $247.3
million as of December 31, 2000, or 70%, compared to $145.7 million as of
December 31, 1999.

Deposits grew 61% to $252.7 million as of December 31, 2000 compared to $157.4
million as of December 31, 1999. Federal funds sold increased 59% to $11.0
million as of December 31, 2000, compared to $6.9 million as of December 31,
1999. The increase in federal funds sold is the net result of the increased in
deposits and borrowed funds, which were partially offset by the increase in
loans.

Shareholders' equity increased to $12.2 million, or 8%, as of December 31, 2000
compared to $11.3 million as of December 31, 1999. Please refer to the capital
section of this discussion for further information.

INVESTMENTS

The Company's investment portfolio consists primarily of certificates of deposit
("CDs") with other financial institutions, US Treasury and agency securities and
overnight investments in the Federal Funds market. As of December 31, 2000 and
1999, CDs with other financial institutions were $790,000 and $800,000,
respectively, of which $500,000 are securing the Employee Stock Ownership Plan
(ESOP) loan from another California bank which is funding the Company's ESOP. As
of December 31, 2000 the Company held $6.8 million in US Government agency and
other securities compared to $6.7 million as of December 31, 1999. Of these
securities, $3.2 million were held as collateral for public funds, treasury, tax
and loan deposits, and for other purposes at December 31, 2000. The Company held
$425,000 in Federal Reserve Bank stock as of December 31, 2000, compared to
$253,000 as of December 31, 1999. Average Federal Funds sold for the year ended
December 31, 2000 was $12.8 million compared to $10.0 million for the year ended
December 31, 1999.

LOANS

Loan balances, net of the allowance for loan losses, increased to $245.2 million
as of December 31, 2000 compared to $144.2 million as of December 31, 1999. A
healthy loan demand resulted in an 86.9% increase in construction lending, an
81.8% increase in commercial loans, a 17.6% increase in loans secured by one- to
four-family residences, a 96.1% increase in commercial and multi-family real
estate lending, a 9.9% increase in home equity lines of credit, a 22.2% increase
in consumer loans and a 44.7% increase in loans secured by aircraft. Aircraft
lending increased substantially because 1999 was the first full year of
operation for the aircraft lending department. The other lending areas grew due
to the expansion of the Company's core lending businesses. The servicing
portfolio, which consists primarily of SBA loans sold to other investors, being
serviced by the Company was $77.6 million as of December 31, 2000 compared to
$92.2 million as of December 31, 1999.

NONPERFORMING ASSETS. Nonperforming assets consist of nonperforming loans and
Other Real Estate Owned (OREO). Nonperforming loans are those loans which
have: (i) been placed on nonaccrual status, (ii) been subject to troubled
debt restructurings, (iii) been classified as doubtful under the Company's
asset classification system, or (iv) become contractually past due 90 days or
more with respect to principal or interest and have not been restructured or
otherwise placed on nonaccrual status. The Company has not had any Other Real
Estate Owned at year-end 2000, 1999 or 1998.

                                       35
<PAGE>


The following table sets forth the Company's nonperforming assets at the dates
indicated:
<TABLE>
<CAPTION>

At December 31,                                                                      2000              1999               1998
                                                                       --------------------------------------------------------
                                                                                       (dollars in thousands)

<S>                                                                              <C>               <C>                <C>
Non-accrual loans                                                                     $57            $1,809             $  969
Troubled debt restructurings                                                            -                 -                723
Loans contractually past due 90 days or more with respect to
   either principal or interest and still accruing interest                            -                 -                 203
                                                                                 --------          --------           --------
Total non-performing loans                                                             57             1,809              1,895
Other real estate owned                                                                -                 -                  -
                                                                                 --------          --------           --------
Total non-performing assets                                                           $57            $1,809             $1,895
                                                                                 ========          ========           ========

SUPPLEMENTAL DATA
Total Assets                                                                     $280,458          $175,773           $136,223
Total gross loans                                                                $247,339          $145,693           $112,637
Total loans held for investment                                                  $234,306          $142,667           $106,037
Government guaranteed portion of total loans                                     $ 35,058          $  5,952           $    293
Non-performing loans, net of government guarantees                               $     37          $    414           $  1,602
Allowance for loan losses                                                        $  2,226          $  1,327           $    992
Allowance for loan losses to total loans                                            0.90%             0.91%              0.88%
Allowance for loan losses to total loans held for investment,
   net of government guarantees                                                     1.12%             0.97%              0.94%
Allowance for loan losses to non-accrual loans                                      3905%               73%               102%
Allowance for loan losses to non-performing loans                                   3905%               73%                52%
Allowance for loan losses to non-performing loans, net of
   government guarantees                                                            6016%              321%                62%
Allowance for loan losses to non-performing assets                                  3905%               73%                52%
Total non-performing assets to total assets                                         0.02%             1.03%              1.39%
Total non-performing loans, net of government guarantees
   to total assets                                                                  0.01%             0.24%              1.18%
Total non-performing loans to total loans                                           0.02%             1.24%              1.68%
Total non-performing loans, net of government guarantees,
   to total loans                                                                   0.01%             0.28%              1.42%

</TABLE>


NONACCRUAL LOANS. Nonaccrual loans are impaired loans where the original
contractual amount may not be fully collectible. The Company measures its
impaired loans by using the fair value of the collateral if the loan is
collateral-dependent and the present value of the expected future cash flows
discounted at the loan's effective interest rate if the loan is not
collateral-dependent. As of December 31, 2000 and 1999, all impaired or
nonaccrual loans were collateral-dependent. The Company places loans on
nonaccrual status that are delinquent 90 days or more or when a reasonable doubt
exists as to the collectibility of interest and principal. As of December 31,
2000, the Company had five loans on nonaccrual status, totaling $57,000. Of this
total, $20,000, or 35%, is guaranteed by the government. As of December 31,
1999, the Company had eight loans on nonaccrual status, totaling $1,809,000. Of
this total, $1,395,000, or 77%, was guaranteed by the government. The Company
had four loans on nonaccrual status as of December 31, 1998, totaling $969,000.
Of this total $293,000, or 30%, was guaranteed by the government. Interest
income that would have been recorded on loans on nonaccrual status, under the
original terms of such loans, would have totaled $9,000 for the year ended
December 31, 2000, $74,000 for 1999 and $49,000 for 1998.

CLASSIFIED ASSETS. From time to time, management has reason to believe that
certain borrowers may not be able to repay their loans within the parameters of
the present repayment terms, even though, in some cases, the loans are current
at the time. These loans are graded in the classified loan grades of
"substandard," "doubtful," or "loss" and include non-performing loans. Each
classified loan is monitored monthly. Classified assets (consisting of
nonaccrual loans, loans graded as substandard or lower and REO) at December 31,
2000 and 1999 were $2.3 million and $3.8 million, respectively.


                                       36
<PAGE>


RISK MANAGEMENT. The investment of the Company's funds is primarily in loans
where a greater degree of risk is normally assumed than in other forms of
investments. Sound underwriting of loans and continuing evaluations of the
underlying collateral and performance of the borrowers are an integral part in
the maintenance of a high level of quality in the total assets of the Company.
Net loan charge-offs for the year ended December 31, 2000 were $66,000, or 0.03%
of average gross loans outstanding, compared to $50,000, or 0.04% of average
gross loans outstanding, for the year ended December 31, 1999. The continued low
level of net charge offs was due, in part, to continued refinements in the loan
review process, combined with a strong economy.

ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established through
a provision for loan losses based on management's evaluation of the risks
inherent in its loan portfolio and the general economy. The allowance is
increased by provisions charged against earnings and reduced by net loan
chargeoffs. Loans are charged off when they are deemed to be uncollectible, or
partially charged off when portions of a loan are deemed to be uncollectible.
Recoveries are generally recorded only when cash payments are received.

In determining the adequacy of the allowance for loan losses, management
initially considers the allowances specifically allocated to individual impaired
loans, and next considers the level of general loss allowances deemed
appropriate for the balance of the portfolio based on factors including the
levels of classified assets, general portfolio trends relative to asset and
portfolio size, asset categories, potential credit concentrations, nonaccrual
loan levels, historical loss experience, risks associated with changes in
economic and business conditions, and other factors. As part of the strategic
plan, the Company began retaining the guaranteed portion of SBA loans beginning
in 2000. The government guaranteed portion of the loan portfolio increased to
$35.1 million as of December 31, 2000 compared to $6.0 million as of December
31, 1999. In general, the Company does not maintain allowance for loan losses on
the guaranteed portion of SBA loans. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company to
make additional provisions for loan losses based upon judgments which differ
from those of management.


                                       37
<PAGE>


The following table sets forth information regarding the Bank's allowance for
loan losses at the dates and for the periods indicated:
<TABLE>
<CAPTION>

At or For the Years Ended December 31,                                           2000             1999             1998
                                                                    ----------------------------------------------------
                                                                                  (dollars in thousands)
<S>                                                                            <C>              <C>                <C>
Balance at beginning of period                                                 $1,327           $  992             $650
Chargeoffs:
   Real estate loans:
      One- to four- family                                                          -                -               85
      Commercial                                                                   66               67              127
   Consumer                                                                        72                5                4
                                                                               ------           ------             ----
Total chargeoffs                                                                  138               72              216

Recoveries:
   Real estate loans:
      One- to four-family                                                           -                -                -
      Commercial                                                                   53               21                9
   Consumer                                                                        19                1               11
                                                                               ------           ------             ----
Total recoveries                                                                   72               22               20
                                                                               ------           ------             ----

Net chargeoffs                                                                     66               50              196
Provision for loan losses                                                         965              385              538
                                                                               ------           ------             ----
Balance at end of period                                                       $2,226           $1,327             $992
                                                                               ======           ======             ====
Net charge offs to average loans                                                0.03%            0.04%            0.21%

</TABLE>


As of December 31, 2000 the balance in the allowance for loan losses was $2.2
million compared to $1.3 million as of December 31, 1999. As a percentage of
gross loans, the allowance was 0.90% as of December 31, 2000, and 0.91% as of
December 31, 1999. As a percentage of gross loans net of government guarantees,
the allowance was 1.12% as of December 31, 2000 compared to 0.97% as of December
31, 1999. During the year ended December 31, 2000 management charged off $66,000
(net of recoveries) to the allowance while it provided $965,000 to the provision
for loan losses. During the year ended December 31, 1999 management charged off
$50,000 (net of recoveries) and provided $385,000 to the provision for loan
losses. Management believes the allowance at December 31, 2000 is adequate based
upon its ongoing analysis of the loan portfolio, historical loss trends and
other factors.

Nonaccrual loans, net of the government guaranteed portion, decreased to $37,000
or 0.01% of total gross loans as of December 31, 2000 compared to $414,000 or
0.28% of total loans as of December 31, 1999. As of December 31, 2000 and 1999,
the Company had no Other Real Estate Owned properties.


                                       38
<PAGE>


The following table sets forth the Company's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
<TABLE>
<CAPTION>

At or For the Years Ended December 31,                         2000                                  1999
                                                ------------------------------------  ------------------------------------
                                                            Percent of     Percent of              Percent of    Percent of
                                                             Allowance    Loans in Each             Allowance   Loans in Each
                                                              to Total     Category to              to Total     Category to
                                                   Amount      Amount      Total Loans    Amount     Amount      Total Loans
                                                                           (dollars in thousands)
<S>                                                <C>        <C>           <C>          <C>        <C>           <C>
 Commercial loans                                  $  312      14.02%         4.46%      $   83       6.25%         6.67%
 Aircraft loans                                       116       5.21%        10.01%      $   58       4.37%         5.33%
 Real estate:
      Construction loans                              525      23.58%        20.90%         319      24.04%        18.68%
      Secured by one- to four-family
           residential properties                      96       4.31%        10.27%         164      12.36%        12.51%
      Secured by commercial properties                947      42.55%        48.56%         436      32.86%        49.54%
 Consumer:
      Home equity lines of credit                      86       3.86%         1.18%         163      12.28%         1.80%
      Other                                           144       6.47%         4.62%         104       7.84%         5.47%
                                                   ------                                ------
 Total allowance                                   $2,226     100.00%       100.00%      $1,327     100.00%       100.00%
                                                   ======                                ======

</TABLE>


OTHER ASSETS

Premises and equipment, accrued interest and other assets, deferred tax asset,
servicing assets, net and interest only strips, are the four major components of
other assets. Premises and equipment decreased to $2.3 million, or 3.3% as of
December 31, 2000 compared to $2.4 million as of December 31, 1999.

Accrued interest and other assets increased 47.6% to $4.4 million as of December
31, 2000 compared to $3.0 million as of December 31, 1999. The major component
of accrued interest and other assets is interest accrued and not yet received on
loans.

The deferred tax asset decreased to $672,000 as of December 31, 2000 compared to
$744,000 as of December 31, 1999.

Servicing asset, net, decreased to $1.5 million as of December 31, 2000,
compared to $1.8 million as of December 31, 1999. The decrease reflects the
amortization of the servicing asset, as there were no additions or impairment
write downs during the year ended December 31, 2000. The valuation of the
servicing asset reflects estimates as to the expected life of the underlying
loans which may be adversely affected by higher than expected levels of pay-offs
in periods of lower rates or charge-offs in periods of economic difficulty. In
addition, when property values increase due to general economic conditions,
borrowers have refinancing opportunities available to them, which may result in
higher prepayment rates. Management periodically evaluates the servicing assets
for impairment. For purposes of measuring impairment, the rights are stratified
based on original term to maturity. The amount of impairment recognized is the
amount by which the servicing assets for a stratum exceeds their fair value. See
the footnotes to the financial statements, found elsewhere in this Report, for
further information on servicing assets.

Rights to future interest income from serviced loans that exceeds contractually
specified servicing fees are classified as interest-only strips. Interest-only
strips decreased to $509,000 as of December 31, 2000, compared to $551,000 as of
December 31, 1999.


                                       39
<PAGE>


DEPOSITS AND BORROWINGS

Total deposits increased 61% to $252.7 million as of December 31, 2000 compared
to $157.4 million as of December 31, 1999. Interest bearing and non-interest
bearing deposits increased to $219.4 million and $33.3 million, respectively, as
of December 31, 2000 compared to $129.8 million and $27.6 million, respectively,
as of December 31, 1999. Retail banking deposits increased, as did wholesale
deposits, to fund SBA loan retention and loans held for sale. Total wholesale
deposits were $50.4 million as of December 31, 2000, compared to $10.1 million
as of December 31, 1999. Total retail banking deposits increased to $202.3
million as of December 31, 2000 compared to $148.0 million as of December 31,
1999.

Other borrowings totaled $916,000 as of December 31, 2000, compared to $4.0
million as of December 31, 1999. The Company repaid $3.2 million on a loan from
a correspondent bank with the proceeds of the issuance of Trust Preferred
Securities.

During the first quarter of 2000, the Company issued $10 million in Trust
Preferred Securities, which are debt instruments that act as additional capital
for regulatory purposes. The average balance outstanding for 2000 was $7.7
million. There were no Trust Preferred Securities issued or outstanding in 1999.
In addition to the $3.2 million prepayment of a loan, $5.8 million of the
proceeds were contributed as capital into the Bank subsidiary. See the Capital
discussion for further details on the Trust Preferred Securities.

The ability of the Company to meet the demand for loans as they arise, together
with the normal withdrawal requests of depositors, requires that an adequate
level of liquidity be maintained. Historically, the Company has used overnight
investments in Federal Funds and other short-term investments to assure that
these requirements are met. Additionally, the Bank has obtained an $4.0 million
line of credit with another bank to cover exceptional demands for funds that may
occur. During 2000, the average balance outstanding on this line of credit was
$5,000, compared to $25,000 during the year ended December 31, 1999. See the
footnotes to the financial statements, found elsewhere in this Report, for
further information on borrowings.

INTEREST RATE SENSITIVITY

The Company closely follows the maturities and repricing opportunities of both
assets and liabilities to reduce gaps in interest spreads. An analysis is
performed periodically for all major balance sheet items to determine the
various interest sensitivity gaps that exist. In general, on an annualized
basis, the Company is asset sensitive, meaning that when interest rates change
assets (loans) will reprice slower than short-term liabilities (deposits).
Therefore, lower interest rates will generally improve year over year profits
and higher rates will generally decrease year over year profits. On a quarterly
basis, management's analysis indicates that in the short term, a decline in
interest rates would result in a decrease in net interest income. Variable rate
assets are often tied to the prime rate, and adjust immediately with the change
in the prime rate, or in the case of SBA 7a loans, at the beginning of the
subsequent quarter after a change in the prime rate, whereas interest bearing
liabilities, specifically CDs, have maturities that extend up to twelve months.
Therefore, even though the chart below indicates that on an annual basis a
decline in interest rates will increase profits, on a quarterly basis there may
be a negative impact immediately following a decline in interest rates, which
will not be corrected for up to two to three quarters.


                                       40
<PAGE>


The following table presents the Company's contractual GAP position at December
31, 2000 and 1999 (1):
<TABLE>
<CAPTION>

Contractual GAP Position as of December 31, 2000                                     (dollars in thousands)
                                                                    2001     2002-2003    2004-2005    Thereafter    Total balance
<S>                                                            <C>             <C>         <C>           <C>             <C>
INTEREST SENSITIVE ASSETS:
LOANS RECEIVABLE:
Adjustable rate loans, gross                                    $155,338      $  5,337      $ 5,450       $   551         $166,676
Fixed rate loans, gross(2)                                        10,086         7,270       11,435        51,872           80,663
INVESTMENTS:
Investement securities held-to-maturity                            1,750         3,500        1,000           569            6,819
Federal funds sold                                                10,997             -            -             -           10,997
Other investments                                                    790            -            -             -               790
                                                                 -------        ------       ------       -------         --------
TOTAL INTEREST SENSITIVE ASSETS                                  178,961        16,107       17,885        52,992          265,945
                                                                 =======        ======       ======        ======          =======

INTEREST SENSITIVE LIABILITIES:
DEPOSITS:
Non-interest bearing                                                   -             -            -        33,326           33,326
Interest bearing                                                 217,869         1,231          271             -          219,371
OTHER BORROWINGS                                                     916            -            -         10,000           10,916
                                                                 -------        ------       ------       -------         --------
TOTAL INTEREST SENSITIVE LIABILITIES                            $218,785      $  1,231      $   271       $43,326         $263,613
                                                                ========        ======       ======       =======         ========

GAP ANALYSIS
Interest rate sensitivity gap                                   $(39,824)     $ 14,876      $17,614       $ 9,666           $2,332
GAP as % of total interest sensitive assets                       -14.97%         5.59%        6.62%         3.63%            0.88%
Cumulative interest rate sensitivity gap                        $(39,824)     $(24,948)     $(7,334)      $ 2,332           $2,332
Cumulative gap as % of total
     interest sensitive assets                                    -14.97%        -9.38%       -2.76%         0.88%            0.88%
</TABLE>

<TABLE>
<CAPTION>


Contractual GAP Position as of December 31, 1999                                  (dollars in thousands)
                                                                    2000   2001-2002     2003-2004    Thereafter   Total balance
<S>                                                            <C>             <C>         <C>           <C>             <C>
INTEREST SENSITIVE ASSETS:
LOANS RECEIVABLE:
Adjustable rate loans, gross                                    $ 82,938      $    550       $    259     $     -         $83,747
Fixed rate loans, gross(2)                                        11,195         3,982          9,740      37,029          61,946
INVESTMENTS:
Investement securities held-to-maturity                              502         3,244          2,964           -           6,710
Federal funds sold                                                 6,877             -              -           -           6,877
Other investments                                                    800            -              -           -              800
                                                                 -------        ------        -------      ------        --------
TOTAL INTEREST SENSITIVE ASSETS                                  102,312         7,776         12,963      37,029         160,080
                                                                 =======        ======        =======      ======         =======

INTEREST SENSITIVE LIABILITIES:
DEPOSITS:
Non-interest bearing                                                   -             -              -      27,597          27,597
Interest bearing                                                 124,680         4,808            307           -         129,795
OTHER BORROWINGS                                                     204         3,583            184          -            3,971
                                                                --------        ------         ------     -------        ---------
TOTAL INTEREST SENSITIVE LIABILITIES                            $124,884      $  8,391       $    491     $27,597        $161,363
                                                                ========        ======         ======     =======        =========

GAP ANALYSIS
Interest rate sensitivity gap                                   $(22,572)     $   (615)      $ 12,472     $ 9,432        $ (1,283)
GAP as % of total interest sensitive assets                       -14.10%        -0.38%          7.79%       5.89%          -0.80%
Cumulative interest rate sensitivity gap                        $(22,572)     $(23,187)      $(10,715)    $(1,283)       $ (1,283)
Cumulative gap as % of total
     interest sensitive assets                                    -14.10%       -14.48%         -6.69%      -0.80%          -0.80%

</TABLE>

LIQUIDITY

The Company closely monitors its liquidity so that the cash requirements for
loans and deposit withdrawals are met in an economical manner. Management
monitors liquidity in relation to trends of loans and deposits for short term
and long term requirements. Liquidity sources are cash, deposits with other
banks, overnight Federal Funds

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

(1) Fixed rate loans and time deposits are assumed to mature on their
contractual maturity date, and no adjustments have been assumed for historical
prepayment experience. The actual maturities of these instruments could vary
substantially if future prepayments differ from the Company's assumptions.
(2) Nonaccrual loans are included as fixed rate loans with a maturity of one
year or less for purposes of this table.

                                       41
<PAGE>

investments, unpledged interest bearing deposits at other banks, investment
securities and the ability to sell loans. As of December 31, 2000 liquid assets
were 8.4% of deposits compared to 12.1% at December 31, 1999.

CAPITAL

The Company's capital increased 8% to $12.2 million as of December 31, 2000
compared to $11.3 million as of December 31, 1999. In 1997, the Company
implemented an Employee Stock Ownership Plan, funded with borrowings of
$1,000,000 that year. In 1998, an additional loan advance of $200,000 was taken,
which was subsequently paid during the same year. In 2000, the loan was
refinanced, with an additional $325,000 being advanced on the line. An
additional $130,000 remained at December 31, 2000, which will likely be utilized
during 2001. As of December 31, 2000 the indebtedness of the ESOP in the amount
of $916,000 is shown as a deduction from shareholders' equity. In future years
capital will be increased as the unearned ESOP contributions are made by the
Company. During the years ended December 31, 2000 and 1999, the Company repaid
principal totaling $205,000 and $204,000, respectively, and is planning to
contribute approximately $200,000 annually to this program.

As part of the Company's strategic plan, during the third quarter of 1998 the
Board elected to eliminate cash dividends in favor of retaining earnings to
support future growth. Prior to the policy change, the Company paid $229,000 in
dividends during the year ended December 31, 1998. A 5% stock dividend was
declared and paid to shareholders of record as of November 30, 1998, and an
additional 5% stock dividend was declared and paid to shareholders of record as
of November 15, 1999. A 5% stock dividend was also declared and paid to
shareholders of record as of November 15, 2000.

The Company's strategic plan addresses the future capital needs of the Company.
During March, 2000, the Company's wholly owned subsidiary, Community (CA)
Capital Trust I (the "Trust"), a Delaware business trust, issued $10 million of
11.0% Fixed Rate Capital Trust Pass-through Securities ("TRUPS-Registered
Trademark-")("Trust Preferred Securities"), with a liquidation value of $1,000
per share. The securities have semi-annual interest payments, with principal due
at maturity in 2030. The Trust used the proceeds from the sale of the Trust
Preferred securities to purchase junior subordinated debentures of the Company.
The Company received $9.7 million from the Trust upon issuance of the junior
subordinated debentures, of which $3.2 million was used to pay off borrowings of
the Company, and $5.8 million was contributed to the Bank to increase its
capital. The $10 million is shown as other borrowings on the Company's books.

At the end of 2000, all Bank capital ratios were above all current Federal
capital guidelines for a "well-capitalized" bank. During 1999, the Bank
increased its capital through the formation of a holding company, which borrowed
money from a correspondent lending institution and invested $3.0 million of that
money in the Bank, thereby improving the Bank's capital ratios. During the first
quarter of 2000, the Company issued $10 million in Trust Preferred Securities,
which were used as follows: $3.2 million to pay off the aforementioned line,
$5.8 million as additional investment in the Bank subsidiary, and $1.0
million to cover expenses and other purposes. As of December 31, 2000 the Bank's
regulatory Total Capital to risk-weighted assets ratio was 10.75% compared to
10.87% as of December 31, 1999. The regulatory Tier 1 Capital to risk-weighted
assets ratio was 9.76% as of December 31, 2000 compared to 9.94% as of December
31, 1999. The regulatory Tier 1 Capital to average assets ratio was 8.53% as of
December 31, 2000 compared to 8.50% as of December 31, 1999.

Management considers capital requirements as part of its strategic planning
process. The strategic plan calls for continuing increases in assets and
liabilities, and the capital required will therefore be in excess of retained
earnings. The ability to obtain capital is dependent upon the capital markets as
well as performance of the Company. In March of 2000, the Company issued $10
million in Trust Preferred Securities, which assisted in maintaining the
Company's and the Bank's regulatory capital ratios at appropriate levels.
Management is currently evaluating sources of capital and the timing required to
meet its strategic objectives.

As of December 31, 2000, the Company's capital ratios were above all current
Federal capital guidelines for capital adequacy purposes. As of December 31,
2000, the Company's regulatory Total Capital to risk-weighted assets ratio was
10.68%, compared to 8.71% as of December 31, 1999. The regulatory Tier 1 Capital
to risk-weighted assets ratio was 7.12% as of December 31, 2000, compared to
7.78% as of December 31, 1999, and the Tier 1 Capital to average assets ratio
was 5.88% as of December 31, 2000, compared to 6.67% as of December 31, 1999.


                                       42
<PAGE>


RECENT ACCOUNTING DEVELOPMENTS

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", is effective for all fiscal
years beginning after June 15, 2000. SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. The
Company adopted SFAS No. 133 effective January 1, 2001. The adoption of SFAS
No. 133 did not have a significant impact on the financial position, results
of operations, or cash flows of the Company.

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

In March 2000, the FASB issued Interpretation No. 44 (FIN-44), "Accounting for
Certain Transactions involving Stock Compensation." FIN-44 is an interpretation
of Accounting Principles Board (APB) Opinion No. 25. Among other matters, FIN-44
clarifies the application of APB No. 25 regarding the definition of employee for
purposes of applying APB No. 25, the criteria for determining whether a plan
qualifies as noncompensatory and the accounting consequences of modifications to
the terms of a previously issued stock options or similar awards. The Company
adopted the provisions of FIN-44 in the third quarter of 2000. The adoption of
FIN-44 did not have a material impact on the Company's financial condition,
results of operations or cash flows.

NOTE

Certain statements contained in this Report, including, without limitation,
statements containing the words "believes", "anticipates", "intends", "expects",
and words of similar import, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Such forward looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions in those areas in which the Company
operates, demographic changes, competition, fluctuations in interest rates,
changes in business strategy or development plans, changes in governmental
regulation, credit quality, the availability of capital to fund the expansion of
the Company's business, and other factors referenced in this report. Given these
uncertainties, shareholders are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.

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



                                       43
<PAGE>



ITEM 7.  FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>

(dollars in thousands, except per share amounts)
<S>                                                                                         <C>                         <C>
ASSETS                                                                                         2000                        1999
                                                                        --------------------------------------------------------
Cash and cash equivalents                                                                   $17,830                     $15,376
Interest bearing deposits in financial institutions                                             790                         800
Federal Reserve Bank stock                                                                      425                         253
Investment securities held-to-maturity, at amortized cost; estimated
  fair value of $6,865 (2000) and $6,587  (1999)                                              6,819                       6,710

Loans held for investment                                                                   234,306                     142,667
  Less allowance for loan losses                                                             (2,226)                     (1,327)
                                                                                           --------                    --------
       NET LOANS HELD FOR INVESTMENT                                                        232,080                     141,340
Loans held for sale                                                                          13,119                       2,854
Premises and equipment, net                                                                   2,313                       2,392
Accrued interest and other assets                                                             4,364                       2,957
Deferred tax asset                                                                              672                         744
Servicing asset, net                                                                          1,537                       1,796
Interest-only strip, at fair value                                                              509                         551
                                                                                           --------                    --------

       TOTAL ASSETS                                                                        $280,458                    $175,773
                                                                                           ========                    ========

LIABILITIES AND SHAREHOLDERS' EQUITY

DEPOSITS

      Interest bearing                                                                     $219,371                    $129,795
      Non-interest bearing                                                                   33,326                      27,597
                                                                                           --------                    --------

        TOTAL DEPOSITS                                                                      252,697                     157,392

Trust Preferred Securities                                                                   10,000                           -
Other borrowings                                                                                916                       3,971
Accrued expenses and other liabilities                                                        4,609                       3,073
                                                                                           --------                    --------

       TOTAL LIABILITIES                                                                    268,222                     164,436

COMMITMENTS AND CONTINGENCIES (NOTE 14)

SHAREHOLDERS' EQUITY
  Common stock, $ .625 par value;
   authorized 10,000,000 shares,
   issued and outstanding, 2,670,000 at December 31, 2000 and
   2,537,000 at December 31, 1999                                                             1,669                       1,585
Additional paid-in capital                                                                    5,551                       4,609
Unearned ESOP contribution                                                                     (797)                       (692)
Retained earnings                                                                             5,813                       5,835
                                                                                           --------                    --------


       TOTAL SHAREHOLDERS' EQUITY                                                            12,236                      11,337
                                                                                           --------                    --------

       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                          $280,458                    $175,773
                                                                                           ========                    ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       44
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                                         2000           1999         1998
                                                                              --------------------------------------------
<S>                                                                                   <C>            <C>           <C>
Interest Income:
   Interst and fees on loans                                                          $19,933        $12,042       $9,949
   Interest on cash equivalents                                                           788            482          896
   Interest on interest bearing deposits in financial institutions                         47             39           42
   Interest on investment securities                                                      408            262           66
                                                                                      -------        -------       ------
     Total interest income                                                             21,176         12,825       10,953

Interest Expense:
  Interest expense - deposits                                                           8,767          4,046        3,626
  Interest expense - other borrowed money                                               1,039            235          114
                                                                                      -------        -------       ------
     Total interest expense                                                             9,806          4,281        3,740

Net interest income before provision for loan losses                                   11,370          8,544        7,213

Provision for loan losses                                                                 965            385          538
                                                                                      -------        -------       ------

Net interest income after provision for loan losses                                    10,405          8,159        6,675

Other operating income:
   Net gain on sale of loans                                                              162          3,631        2,181
   Loan servicing fees, net                                                               654            321          453
   Customer service charges                                                               435            404          373
   Other fee income                                                                       927          1,220          870
                                                                                      -------        -------       ------
     Total other operating income                                                       2,178          5,576        3,877

Other operating expenses:
   Salaries and employee benefits                                                       5,841          6,011        4,721
   Occupancy                                                                              847            854          604
   Telephone                                                                              270            266          175
   Premises and equipment                                                                 570            508          351
   Marketing and promotions                                                               363            230          389
   Data processing                                                                        825            761          606
   Professional services                                                                  687            667          512
   Director, officer and employee expenses                                                486            410          362
   Office expenses                                                                        327            357          325
   ESOP loan expense                                                                      205            204          170
   Other non-recurring expenses (income)                                                  (87)           362            -
   Other expenses                                                                         596            654          195
                                                                                      -------        -------       ------
     Total other operating expenses                                                    10,930         11,284        8,410
                                                                                      -------        -------       ------

Income before taxes                                                                     1,653          2,451        2,142

Income taxes                                                                              652            900          885
                                                                                      -------        -------       ------

NET INCOME                                                                             $1,001         $1,551       $1,257
                                                                                       ======         ======       ======

COMPREHENSIVE INCOME                                                                   $1,001         $1,551       $1,257
                                                                                       ======         ======       ======

BASIC EARNINGS PER SHARE                                                                $0.40          $0.62        $0.50
                                                                                       ======         ======       ======
DILUTED EARNINGS PER SHARE                                                              $0.39          $0.60        $0.49
                                                                                       ======         ======       ======
</TABLE>

See accompanying notes to consolidated financial statements.


                                       45


CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                        Additional    Unearned
                                                    Common Stock          Paid-In       ESOP       Retained
                                                 Shares       Amount      Capital   Contribution   Earnings      Total
                                              ----------------------------------------------------------------------------
<S>                                           <C>          <C>          <C>          <C>          <C>          <C>
Balance at January 1, 1998                     2,284,000       $1,428      $2,972       $(1,000)      $5,073       $8,473
Dividends paid
     ($.05 per share, 2 quarters only)                -            -           -             -          (229)        (229)
Options exercised                                  8,000            6          39            -            -            45
Stock dividend (5% of outstanding)               115,000           71         845            -          (916)          -
Unearned contributions to ESOP                        -            -           -           (200)          -          (200)
Allocation of contributions to ESOP                   -            -          (25)          225           -           200
Net income                                            -            -           -             -         1,257        1,257
                                              -----------  -----------  -----------  -----------  -----------  -----------
Balance at December 31, 1998                   2,407,000        1,505       3,831          (975)       5,185        9,546
                                              -----------  -----------  -----------  -----------  -----------  -----------
Options exercised                                  9,000            6          30            -            -            36
Stock dividend (5% of outstanding)               121,000           74         827                       (901)          -
Allocation of contributions to ESOP                   -            -          (79)          283           -           204
Net income                                            -            -           -             -         1,551        1,551
                                              -----------  -----------  -----------  -----------  -----------  -----------
Balance at December 31, 1999                   2,537,000        1,585       4,609          (692)       5,835       11,337
                                              -----------  -----------  -----------  -----------  -----------  -----------
Options exercised                                  7,000            5          20            -            -            25
Dividends paid (fractional shares only)                                                                   (1)          (1)
Stock dividend (5% of outstanding)               127,000           79         937            -        (1,016)          -
Unearned contributions to ESOP                        -            -           -           (325)          -          (325)
Allocation of contributions to ESOP                   -            -          (15)          220           -           205
Repurchase and cancellation of shares             (1,000)          -           -             -            (6)          (6)
Net income                                            -            -           -             -         1,001        1,001
                                              -----------  -----------  -----------  -----------  -----------  -----------
Balance at December 31, 2000                   2,670,000       $1,669      $5,551         $(797)      $5,813      $12,236
                                              ===========  ==========   ===========  ===========  ==========   ===========
</TABLE>












See accompanying notes to consolidated financial statements.


                                       46
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2000, 1999 and 1998
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                                   2000        1999         1998
                                                                               ----------   ----------   ----------
<S>                                                                            <C>          <C>          <C>
Cash flows from operating activities:
  Net income                                                                      $1,001       $1,551       $1,257
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Depreciation and amortization                                                    519          657          737
    Provision for loan losses                                                        965          385          538
    Net gain on sale of loans                                                       (162)      (3,631)      (2,181)
    Gain on sale of other real estate owned                                            -          (93)         (58)
    Deferred income taxes                                                             72         (367)        (221)
    Loans originated for sale                                                    (26,030)     (42,328)     (60,751)
    Net decrease (increase) in interest only strip                                    42          212           (9)
    Capitalization of servicing asset                                                 -          (472)        (344)
    Amortization of servicing asset                                                  259          121          286
    Writedown of servicing asset                                                      -           742           -
    Proceeds from sale of loans                                                   16,068       63,840       60,699
    Decrease (increase) in accrued interest and other assets                      (1,407)        (101)          10
    Increase in accrued expenses and other liabilities                             1,536          811          404
                                                                               ----------   ----------   ----------

         Net cash (used in) provided by operating activities                      (7,137)      21,327          367
                                                                               ----------   ----------   ----------

Cash flows from investing activities:
  Net increase in loans                                                          (91,382)     (54,232)     (33,784)
  Net maturities of interest bearing deposits                                         10           -            -
  Maturities of securities held-to-maturity                                          500        1,401           -
  Purchases of securities held-to-maturity                                          (567)      (6,435)        (973)
  Purchases of Federal Reserve Bank stock                                           (172)        (121)          -
  Proceeds from sale of other real estate owned                                       -           610          258
  Net additions to premises and equipment                                           (447)        (472)      (1,117)
                                                                               ----------   ----------   ----------

         Net cash used in investing activities                                   (92,058)     (59,249)     (35,616)
                                                                               ----------   ----------   ----------

Cash flows from financing activities:
  Net increase in deposits:
    Interest bearing                                                              89,576       26,926       22,768
    Non-interest bearing                                                           5,729        7,051        5,009
  Exercise of stock options                                                           25           36           45
  Cash dividends paid                                                                 (1)          -          (229)
  Repayment of borrowings                                                         (3,380)        (204)        (200)
  Proceeds from borrowings                                                        10,025        3,175          200
  Unearned contributions to ESOP                                                    (325)          -            -
                                                                               ----------   ----------   ----------

         Net cash provided by financing activities                               101,649       36,984       27,593
                                                                               ----------   ----------   ----------

         Net increase (decrease) in cash and cash equivalents                      2,454         (938)      (7,656)

Cash and cash equivalents at beginning of year                                    15,376       16,314       23,970
                                                                               ----------   ----------   ----------

Cash and cash equivalents at end of year                                         $17,830      $15,376      $16,314
                                                                               ==========   ==========   ==========

Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Interest                                                                      $7,477       $3,934       $3,622
                                                                               ==========   ==========   ==========

    Income Taxes                                                                  $1,050       $1,765         $818
                                                                               ==========   ==========   ==========

Supplemental disclosure of noncash investing activities:
  Loans transferred to other real estate owned                                      $ -          $517         $742
                                                                               ==========   ==========   ==========

  Loans to facilitate the sale of other real estate owned                           $ -          $ -          $542
                                                                               ==========   ==========   ==========

  Loans held for investment transferred to held for sale                            $ -       $16,290         $ -
                                                                               ==========   ==========   ==========
</TABLE>

    See accompanying notes to consolidated financial statements.


                                       47
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 2000

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Community Bancorp
Inc. and its wholly owned subsidiaries, Community National Bank, formerly
Fallbrook National Bank, (the "Bank") and Community (CA) Capital Trust I (the
"Trust"), (collectively the "Company"). Intercompany accounts and transactions
have been eliminated in consolidation.

Community Bancorp Inc. is a bank holding company, incorporated in the state of
Delaware, that was organized for the purpose of acquiring all the capital stock
of the Bank through a holding company reorganization (the "Reorganization") of
the Bank, which was consummated on June 25, 1999. The Reorganization was based
on a one for one exchange of shares of Bank stock for shares of common stock of
Community Bancorp Inc. Such business combination was accounted for at historical
cost similar to a pooling of interests. The consolidated financial condition and
results of operations of the Company for the periods prior to the date of the
Reorganization consist of those of the Bank.

NATURE OF OPERATIONS

The accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America ("generally
accepted accounting principles") and to general practices within the banking
industry. The Company is headquartered in Fallbrook, California and operates
additional branch offices in Temecula and Vista, California. The Company's
primary sources of revenue are Small Business Administration ("SBA"),
construction, and other real estate based loans to individuals and small to
middle-market businesses. The following is a description of the more significant
policies.

INVESTMENT SECURITIES

Management determines the appropriate classification of securities at the time
of purchase. If management has the intent and the Company has the ability at the
time of purchase to hold securities until maturity, they are classified as
held-to-maturity. Investment securities held-to-maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts over the period
to maturity of the related security using the interest method. Securities to be
held for indefinite periods of time, but not necessarily to be held-to-maturity
or on a long-term basis, are classified as available-for-sale and carried at
fair value with unrealized gains or losses reported as a separate component of
accumulated other comprehensive income, net of deferred taxes. Realized gains or
losses on the sale of securities available-for-sale, if any, are determined
using the amortized cost of the specific securities sold.

LOANS AND LOAN FEES

Loans held for investment are stated at the principal amount outstanding. Loans
held for sale are carried at the lower of cost or market, determined on an
aggregate basis, where market is determined based on market prices and dealer
quotes.

Interest income on loans is recorded on an accrual basis in accordance with the
terms of the respective loan. The accrual of interest on loans is discontinued
when, in management's judgment, a reasonable doubt exists as to the
collectibility of interest and principal or when the principal and interest due
on a loan becomes delinquent for 90 days. When loans are placed on nonaccrual
status, all interest previously accrued, but not collected, is reversed against
current period interest income. Income on nonaccrual loans is subsequently
recognized only to the extent that cash is received and the loan's principal
balance is deemed collectible. Nonaccrual loans that become current as to both
principal and interest are returned to accrual status.

Nonrefundable fees and related direct costs associated with the origination of
loans are deferred and netted against outstanding loan balances. Net deferred
fees and costs are recognized into interest income over the contractual life of
the loan using the interest method. The amortization of loan fees is
discontinued on nonaccrual loans.


                                       48
<PAGE>

Other fees on loans are recorded as income when earned.

LOAN SALES AND SERVICING

The Company originates loans to customers under a SBA program that generally
provides for SBA guarantees of 70% to 90% of each loan. Beginning in 2000, the
Company retained both the guaranteed and unguaranteed portions of SBA 7a loans
originated. Prior to 2000, the Company routinely sold the guaranteed portion of
these loans to third parties and retained the unguaranteed portion of the loans
sold. The Company allocated the carrying value of such loans between the portion
sold and the portion retained, based upon estimates of their relative fair value
at the time of sale. The difference between the adjusted carrying value and the
face amount of the portion retained is amortized to interest income over the
life of the related loan using the interest method.

Servicing assets were recognized when loans were sold with servicing retained.
Servicing assets are amortized in proportion to and over the period of estimated
future net servicing income. The fair value of servicing assets is estimated by
discounting the future cash flows at estimated future current market rates for
the expected life of the loans. The Company uses industry prepayment statistics
in estimating the expected life of the loan. Management periodically evaluates
servicing assets for impairment. For purposes of measuring impairment, the
rights are stratified based on original term to maturity. The amount of
impairment recognized is the amount by which the servicing asset for a stratum
exceeds its fair value. In estimating fair values at December 31, 2000, the
Company utilized a weighted average prepayment assumption of approximately 9%
and a discount rate of 12%. In estimating fair values at December 31, 1999, the
Company utilized a weighted average prepayment assumption of approximately 11%
and a discount rate of 12%.

Rights to future interest income from serviced loans that exceeds contractually
specified servicing fees are classified as interest-only strips. The
interest-only strips are accounted for as trading securities and recorded at
fair value with any unrealized gains or losses recorded in earnings in the
period of change of fair value. Unrealized gains or losses on interest-only
strips were not material during the years ended December 31, 2000, 1999 and
1998. At December 31, 2000 and 1999, the fair value of interest-only strips was
estimated using a weighted average prepayment assumption of approximately 9% and
11%, respectively, and a discount rate of 12%.

The Company originates and services certain loans sold to the Federal National
Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC"), the SBA and Farmers Home Administration ("FmHA"). The principal
balances of loans serviced was $77,580,000, $92,210,000 and $82,836,000 at
December 31, 2000, 1999 and 1998, respectively.

REAL ESTATE OWNED

Real estate acquired through foreclosure or deed-in-lieu of foreclosure are
initially recorded at the lower of cost or fair value less estimated costs to
sell through a charge to the allowance for estimated loan losses. Subsequent
declines in value are charged to operations.

ALLOWANCE FOR LOAN LOSSES

An allowance for loan losses is maintained at a level deemed appropriate by
management to adequately provide for known and inherent risks in the loan
portfolio and other extensions of credit, including off-balance sheet credit
extensions. The allowance is based upon a continuing review of the portfolio,
past loan loss experience and current economic conditions, which may affect the
borrowers' ability to pay, guarantees by government agencies and the underlying
collateral value of the loans. Loans which are deemed to be uncollectible are
charged off and deducted from the allowance. The provision for loan losses and
recoveries on loans previously charged off are added to the allowance.

The Company's impaired loans comprise all nonaccrual loans and any loan where
the original contractual amount may not be fully collectible. The Company
measures its impaired loans by using the fair value of the collateral if the
loan is collateral-dependent and the present value of the expected future cash
flows discounted at the loan's effective interest rate if the loan is not
collateral-dependent.


                                       49
<PAGE>

A loan is considered impaired when it is probable that a creditor will be unable
to collect all amounts due according to the original contractual terms of the
loan agreement. If the measure of the impaired loan is less than the recorded
investment in the loan, a valuation allowance is established with a
corresponding charge to the provision for loan losses.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to operating expense using the straight-line method over
the estimated useful lives of the assets, which range from three to twenty-five
years. Leasehold improvements are capitalized and amortized to operating expense
on a straight-line basis over the terms of the leases or the estimated useful
lives of the improvements, whichever is less. Expenditures for maintenance and
repairs are charged to expense as incurred.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average
number of shares of common stock, common stock equivalents, and other
potentially dilutive securities outstanding during the period.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, cash and cash equivalents include
cash, due from banks, federal funds sold and liquid investments with original
maturities of three months or less. At December 31, 2000 and 1999, cash and cash
equivalents included federal funds sold of $10,997,000 and $6,877,000,
respectively.

USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period to
prepare these financial statements in conformity with generally accepted
accounting principles. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the allowance
for loan losses. Actual results could differ from those estimates.

STOCK OPTION PLANS

The Company accounts for stock options under the provisions of Accounting
Principles Board (APB) Opinion No. 25 and provides proforma net income and
proforma earnings per share disclosures for employee stock option grants as if
the fair-value-based method, defined in Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", had been
applied.


                                       50
<PAGE>

RECENT ACCOUNTING DEVELOPMENTS

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
is effective for all fiscal years beginning after June 15, 2000. SFAS No.
133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. Under SFAS No. 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company adopted SFAS No. 133 effective
January 1, 2001. The adoption of SFAS No. 133 did not have a significant
impact on the financial position, results of operations, or cash flows of the
Company.

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

In March 2000, the FASB issued Interpretation No. 44 (FIN-44), "Accounting for
Certain Transactions involving Stock Compensation." FIN-44 is an interpretation
of APB No. 25. Among other matters, FIN-44 clarifies the application of APB No.
25 regarding the definition of employee for purposes of applying APB No. 25, the
criteria for determining whether a plan qualifies as noncompensatory and the
accounting consequences of modifications to the terms of a previously issued
stock options or similar awards. The Company adopted the provisions of FIN-44 in
the third quarter of 2000. The adoption of FIN-44 did not have a material impact
on the Company's financial condition, results of operations or cash flows.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current
year's presentation.

2.  FEDERAL RESERVE STOCK:

As of December 31, 2000 and 1999, the amortized cost of Federal Reserve Bank
stock approximates the fair value and there were no sales of these securities
during 2000, 1999 or 1998.

3.  INVESTMENT SECURITIES HELD-TO-MATURITY:

The amortized cost, gross unrealized gains and losses, and estimated fair value
of investment securities held-to-maturity as of December 31, 2000 and 1999 are
as follows:

<TABLE>
<CAPTION>
                                                                            Gross           Gross         Estimated
                                                          Amortized      Unrealized      Unrealized         Fair
                                                             Cost           Gains           Losses          Value
                                                        -------------------------------------------------------------
                                                                          (dollars in thousands)
<S>                                                     <C>             <C>             <C>             <C>
2000
US Government agency and other securities                     $6,819             $53             $(7)         $6,865
                                                        -------------   -------------   -------------   -------------
Total                                                         $6,819             $53             $(7)         $6,865
                                                        =============   =============   =============   =============

1999
US Government agency and other securities                     $6,710            $ -            $(123)         $6,587
                                                        -------------   -------------   -------------   --------------
Total                                                         $6,710            $ -            $(123)         $6,587
                                                        ============    =============   =============   =============
</TABLE>



The scheduled maturities of US Government agencies and other securities as of
December 31, 2000 were as follows:


                                       51
<PAGE>

<TABLE>
<CAPTION>
                                                                       Amortized   Estimated
                                                                         Cost      Fair Value
                                                                     ---------------------------
Year maturing                                                         (dollars in thousands)
<S>                                                                      <C>        <C>
Due in one year or less                                                  $1,747     $1,745
Due greater than one year through five years                              4,473      4,508
Due greater than five years                                                 599        612
                                                                         ------     ------
Total                                                                    $6,819     $6,865
                                                                         ======     ======
</TABLE>

As of December 31, 2000, the Bank had pledged $3.2 million of its securities for
public deposits and other purposes.

4.  LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES:

A summary of loans as of December 31 is as follows:

<TABLE>
<CAPTION>
                                                                   2000               1999
                                                                ------------------------------
                                                                    (dollars in thousands)
<S>                                                             <C>                 <C>
Construction loans                                               $ 51,700            $ 27,661
Real estate one- to four-family                                    25,407              21,601
Real estate commercial and multi-family                           120,118              61,263
Consumer home equity lines of credit                                2,912               2,649
Other consumer                                                     11,417               9,342
Commercial                                                         11,024               6,064
Aircraft                                                           24,761              17,113
                                                                ----------          ----------
Total Gross loans                                                 247,339             145,693

Deferred loan origination costs                                       767                 688
Discount on unguaranteed portion of SBA loans retained               (681)               (860)
Allowance for loan losses                                          (2,226)             (1,327)
                                                                ----------          ----------
NET LOANS                                                        $245,199            $144,194
                                                                ==========          ==========
</TABLE>


Included in net loans are $398,000 and $478,000 in mortgage loans and
$12,721,000 and $2,376,000 in SBA loans held for sale at December 31, 2000 and
1999, respectively. The Company's lending activities are concentrated primarily
in Riverside and San Diego counties of Southern California. Although the Company
seeks to avoid undue concentrations of loans to a single industry based upon a
single class of collateral, real estate and real estate associated business
areas are among the principal industries in the Company's market area. As a
result, the Company's loan and collateral portfolios are, to a significant
degree, concentrated in those industries. The Company evaluates each credit on
an individual basis and determines collateral requirements accordingly. When
real estate is taken as collateral, advances are generally limited to a certain
percentage of the appraised value of the collateral at the time the loan is
made, depending on the type of loan, the underlying property and other factors.

As of December 31, 2000 and 1999, the Company had loans in process of $53.8
million and $46.7 million, respectively.

The maturity distribution of the loan portfolio as of December 31, 2000 is as
follows:

<TABLE>
<CAPTION>
                                            (dollars in thousands)
<S>                                         <C>
Less than one year                                       $ 79,673
One to five years                                          32,029
After five years                                          135,637
                                            ----------------------
Total gross loans                                        $247,339
                                            ======================
</TABLE>




                                       52
<PAGE>

The interest rate sensitivity of the loan portfolio as of December 31, 2000 is
as follows:

<TABLE>
<CAPTION>
                                            (dollars in thousands)
<S>                                         <C>
Fixed rate loans                                         $ 80,663
Variable rate loans                                       166,676
                                            ----------------------
Total gross loans                                        $247,339
                                            ======================
</TABLE>


As of December 31, 2000 and 1999, the government guaranteed portion of total
gross loans was $35.1 million and $5.6 million, respectively.

As of December 31, 2000, the loans to one borrower limit was $3.7 million.

A summary of the activity in the allowance for loan losses, which includes
provisions for impaired loans, is as follows:

<TABLE>
<CAPTION>
                                   2000           1999          1998
                                         (dollars in thousands)
<S>                              <C>            <C>            <C>
Balance, beginning of year        $1,327         $  992           $650
Provision for loan losses            965            385            538
Losses charged off                  (138)           (72)          (216)
Recoveries                            72             22             20
                                 --------       --------       --------
Balance, end of year              $2,226         $1,327           $992
                                 ========       ========       ========
</TABLE>


Loans with principal balances of $57,000 ($20,000 guaranteed by the SBA),
$1,809,000 ($1,395,000 guaranteed by the SBA), and $969,000 ($293,000 guaranteed
by the SBA) were on nonaccrual status as of December 31, 2000, 1999, and 1998,
respectively. Additional interest income of $9,000, $74,000, and $49,000 would
have been recorded for the years ended December 31, 2000, 1999, and 1998,
respectively, if nonaccrual loans had been performing in accordance with their
original terms. Interest income of $53,000, $150,000, and $145,000 was recorded
on loans subsequently transferred to nonaccrual status for the years ended
December 31, 2000, 1999, and 1998, respectively.

Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize estimated losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions and the repayment capabilities of the borrowers. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance based on their
judgments related to information available to them at the time of their
examinations.

The Company's allowance for loan losses consists of a specific and general
allowance. The specific allowance is further broken down to provide for those
impaired loans and the remaining internally classified loans. The impairment
allowance is defined as the difference between the recorded value and the fair
value of the impaired loans. The general allowance is determined by an
assessment of the overall quality of the unclassified portion of the loan
portfolio as a whole, and by loan type. Management maintains the percentage
assigned to the general allowance based on charge-off history and management's
knowledge of the quality of the portfolio.

Loans are evaluated for impairment as part of the Company's normal internal
asset review process. The Company evaluates all loans in its portfolio on an
individual basis with the exception of one- to four-family residential mortgage
loans and consumer loans, which are evaluated on a collective basis. Also loans
which have delays in payments of less than four months are not necessarily
considered impaired unless other factors apply to the loans such as the
knowledge that the collection of the loan will only come from the collateral and
that collateral is known to have deteriorated. Where impairment is considered
permanent, a charge-off is recorded; where impairment is considered temporary,
an allowance is established. Impaired loans which are performing under the
contractual terms are reported as performing loans, and cash payments are
allocated to principal and interest in accordance with the terms of the loan.


                                       53
<PAGE>

The following table presents a breakdown of impaired loans and any impairment
allowance related to impaired loans as of December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                        2000                     1999
                                              -----------------------   -----------------------
                                                             (dollars in thousands)
                                               Impaired     Impairment   Impaired    Impairment
                                                 Loans      Allowance      Loans      Allowance
<S>                                             <C>          <C>          <C>          <C>
SBA                                                $29         $ -        $1,713         $ -
Real Estate                                         -            -            75          130
Consumer                                            28           15           21           21
                                                ------       ------       ------       ------
Total impaired loans                               $57          $15       $1,809         $151
                                                ======       ======       ======       ======
</TABLE>



Based on the Company's evaluation process to determine the level of the
allowance for loan losses mentioned previously and the fact that a majority of
the Company's nonperforming loans are secured, management believes the allowance
level to be adequate as of December 31, 2000 to absorb the estimated known and
inherent risks identified through its analysis. For the years ended December 31,
2000, 1999 and 1998 interest income of $56,000, $75,000 and $76,000 was recorded
on impaired loans on a cash basis, respectively, and the average balance of
impaired loans was $1,575,000, $2,251,000 and $1,459,000, respectively. Loans
contractually past due 90 days or more and still accruing as of December 31,
2000, 1999 and 1998 were none, none and $203,000, respectively.

In the normal course of business, the Company has granted loans to certain
directors and their affiliates under terms which are consistent with the
Company's general lending policies.

The activity for loans outstanding with these directors and their affiliates
as of December 31, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                         2000         1999
                                       (dollars in thousands)
<S>                                     <C>          <C>
Balance, beginning of year               $730         $495
Loans granted, including renewals         250          263
Repayments                               (281)         (28)
                                        ------       ------
Balance, end of year                     $699         $730
                                        ======       ======
</TABLE>

The Company had no additional commitments for loans to affiliates as of December
31, 2000 and 1999.

5.  PREMISES AND EQUIPMENT:

Premises and equipment as of December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                              2000             1999
                                              (dollars in thousands)
<S>                                         <C>               <C>
Land                                          $  357           $  357
Building                                         200              200
Furniture, fixtures and equipment              2,862            2,522
Leasehold improvements                           933              826
                                            --------          --------
                                               4,352            3,905
Accumulated depreciation and amortization     (2,039)          (1,513)
                                            --------          --------
                                              $2,313           $2,392
                                            ========          ========
</TABLE>


                                       54
<PAGE>

6.  SALES AND SERVICING OF SBA LOANS:

The Company generates revenues from the origination of loans guaranteed by the
SBA and the sale of guaranteed portions of those loans in the secondary market.
The Company retains the servicing on the sale of SBA guaranteed loans that
creates loan servicing income. The Company did not sell any SBA guaranteed loans
in 2000.

The activity for the servicing asset for the years ended December 31, 2000, 1999
and 1998 is summarized as follows:

<TABLE>
<CAPTION>
                                                                                2000              1999              1998
                                                                                        (dollars in thousands)
<S>                                                                           <C>               <C>               <C>
Balance at beginning of year                                                   $1,796            $2,187            $2,129
Servicing assets recognized on SBA loans sold                                      -                472               344
Amortization                                                                     (259)             (121)             (286)
Direct write down                                                                  -               (742)               -
                                                                              --------          --------          --------
Balance at end of year                                                         $1,537            $1,796            $2,187
                                                                              ========          ========          ========
</TABLE>


The direct write down is included in loan servicing fees in the consolidated
statements of income and comprehensive income in 1999. The Company and the
industry experienced a significant increase in prepayments during the year ended
December 31, 1999, compared to prior years, which resulted in a $742,000 write
down of the servicing asset.

7.  DEPOSITS AND INTEREST EXPENSE:

Deposits by major classification as of December 31, 2000 and 1999 are as
follows:

<TABLE>
<CAPTION>
                                               2000             1999
                                               (dollars in thousands)
<S>                                         <C>              <C>
Non-interest bearing demand                  $ 33,326         $ 27,597
Interest bearing demand                        23,558           20,354
Money market savings                           34,273           25,356
Savings                                        10,088           11,175
Time deposits $100,000 or more                 74,848           17,445
Time deposits under $100,000                   76,604           55,465
                                            ----------       ----------
Total                                        $252,697         $157,392
                                            ==========       ==========
</TABLE>


Interest expense on deposits for the years ended December 31, 2000, 1999, and
1998 is comprised of the following:

<TABLE>
<CAPTION>
                                          2000            1999            1998
                                             (dollars in thousands)
<S>                                      <C>             <C>             <C>
Interest bearing demand                  $  228          $  184          $  145
Money market savings                        896           1,052           1,552
Savings                                     310             320             318
Time deposits, $100,000 or more           3,304             669             290
Time deposits under $100,000              4,029           1,821           1,321
                                         ------          ------          ------
Total                                    $8,767          $4,046          $3,626
                                         ======          ======          ======
</TABLE>









                                       55
<PAGE>

The following summarizes the scheduled maturity of time deposits as of
December 31, 2000:

<TABLE>
<CAPTION>
                                           (dollars in thousands)
<S>                                               <C>
2001                                              $149,949
2002                                                 1,011
2003                                                   220
2004                                                    41
2005                                                   231
                                                  --------
Total                                             $151,452
                                                  ========
</TABLE>


<TABLE>
<CAPTION>
                                           (dollars in thousands)
<S>                                               <C>
Three months or less                              $ 66,512
Over three months to six months                     45,547
Over six months to twelve months                    37,890
Over twelve months                                   1,503
                                                  --------
Total                                             $151,452
                                                  ========
</TABLE>


8.  OTHER BORROWED FUNDS:

During 1997, the Fallbrook National Bank Employee Stock Ownership Plan obtained
a line of credit with a lender which provides up to $1,200,000 through March 1,
2004 bearing interest at the prime rate plus one percent, as defined in the
agreement. The line of credit was obtained to fund the Bank's employee stock
ownership plan (ESOP). The loan was refinanced in April of 2000, allowing
advances up to the original $1,200,000. Interest is payable monthly beginning
September 1, 1997 and the effective rate at December 31, 2000 and 1999 was
9.50%. The weighted average interest rate was 11.06%, 9.27% and 9.36% for the
years ended December 31, 2000, 1999 and 1998, respectively. Under this
agreement, $916,000 and $796,000 in borrowings were outstanding at December 31,
2000 and 1999, respectively. Maximum borrowings during the year ended December
31, 2000 and 1999, respectively, were $1,070,000 and $1,000,000. The line of
credit is collateralized by the Company's common stock purchased by the ESOP and
$475,000 in certificates of deposit with the lender.

The ESOP will repay the loan in accordance with the defined payment schedule,
which as of December 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                          (dollars in thousands)
<S>                                               <C>
2001                                              $171
2002                                               171
2003                                               171
2004                                               171
2005                                               171
Thereafter                                          61
                                                  ----
Total                                             $916
                                                  ====
</TABLE>


During 1999, the Company obtained a line of credit with a lender which provides
up to $3,175,000 through August 1, 2005 bearing interest at the prime rate plus
one percent, as defined in the agreement. The line of credit was obtained to
increase capital at the Bank. Interest is payable quarterly beginning November
1, 1999 and the effective rate at December 31, 1999 was 9.50%. Principal and
interest payments began on November 1, 2000. The weighted average interest rate
was 9.81% and 9.35% for the years ended December 31, 2000 and 1999,
respectively. The loan was paid in full on March 26, 2000. Under this agreement,
$3,175,000 in borrowings were outstanding at December 31, 1999 and maximum
borrowings during the years ended December 31, 2000 and 1999 were $3,175,000.
The line of credit is collateralized by the Bank's common stock.


                                       56
<PAGE>

On March 23, 2000, the Company's wholly owned subsidiary, Community (CA) Capital
Trust I (the "Trust"), a Delaware business trust, issued $10 million of 11.0%
Fixed Rate Capital Trust Pass-through Securities ("TRUPS-Registered Trademark"),
with a liquidation value of $1,000 per share. The securities have semi-annual
interest payments, with principal due at maturity in 2030. The Trust used the
proceeds from the sale of the trust preferred securities to purchase junior
subordinated debentures of the Company. The Company received $9.7 million from
the Trust upon issuance of the junior subordinated debentures, of which $3.2
million was used to pay off borrowings of the Company, and $5.8 million was
contributed to the Bank to increase its capital. As of December 31, 2000, $10
million of Trust Preferred Securities were outstanding. There were no securities
outstanding as of December 31, 1999.

The Company maintains a line of credit with a lender which provides up to
$4,000,000 through July 31, 2001 bearing a variable interest rate as established
by the lender on a daily basis. The line of credit was obtained to provide
additional liquidity on a short term basis to the Bank. Interest is payable on
the daily basis, and the principal is callable at any time by the lender. The
weighted average interest rate was 6.93% for the year ended December 31, 2000.
Under this agreement, there were no borrowings outstanding at December 31, 2000
or 1999 and maximum borrowings during the years ended December 31, 2000 and 1999
were $2,000,000 and $3,000,000, respectively. The average balance outstanding
during the years ended December 31, 2000 and 1999 were $5,000 and $25,000,
respectively. There were no borrowings on this line of credit during the year
ended December 31, 1998. The line of credit is unsecured.

9.  FAIR VALUE OF FINANCIAL INSTRUMENTS:

Estimated fair values for the Company's financial instruments and a description
of the methodologies and assumptions used to determine such amounts follows:

Cash and Cash Equivalents and Interest Bearing Deposits: The carrying amount is
assumed to be the fair value because of the liquidity of these instruments.

Federal Reserve Bank stock: The carrying value approximates the fair value
because the stock can be redeemed at par.

Investment Securities: Fair values are based on quoted market prices available
as of the balance sheet date. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.

Loans: Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type and further segmented into fixed
and adjustable rate interest terms and by credit risk categories. The fair value
estimates do not take into consideration the value of the loan portfolio in the
event the loans had to be sold outside the parameters of normal operating
activities.

The fair value of fixed rate loans and non-performing or adversely classified
adjustable rate loans is calculated by discounting scheduled cash flows through
the estimated maturity using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loans. The discount rates used for
performing fixed rate loans are the Bank's current offer rates for comparable
instruments with similar terms.

The fair value of performing adjustable rate loans is estimated to be the
carrying value. These loans reprice frequently at market rates and the credit
risk is not considered to be greater than normal.

The fair value of loans held for sale is determined based on quoted market
prices or dealer quotes.

Interest only strips: The fair value of the interest-only strips have been
determined by discounted cash flow methods, using market discount rates and
prepayment factors.

Deposits: The fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings and checking accounts, is equal to
the amount payable on demand as of the balance sheet date. The fair value of
time deposits is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits with
similar remaining maturities.


                                       57
<PAGE>

Borrowings: The carrying amount is assumed to be the fair value because the
interest rate is the same as rates currently offered for borrowings with similar
remaining maturities and characteristics.

Commitments to Extend Credit and Standby Letters of Credit: The fair value of
commitments to extend credit is estimated to be zero since the current
competitive financial community does not routinely charge fees for commitments
to extend credit. The fair value of standby letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them or otherwise settle the obligations with the counterparties.

Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a portion of the Company's
financial instruments, fair value estimates are based on what management
believes to be conservative judgments regarding expected future cash flows,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. Since the fair values have been estimated as of December 31, 2000
and 1999, the amounts that will actually be realized or paid at settlement or
maturity of the instruments could be significantly different.

The fair values of the Company's financial instruments as of December 31, 2000
and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                  2000                           1999
                                                                         (dollars in thousands)
                                                       Carrying or                    Carrying or
                                                         Contract      Fair Value       Contract       Fair Value
                                                          Amount        Estimates         Amount       Estimates
<S>                                                        <C>            <C>             <C>             <C>
Financial Assets:
Cash and cash equivalents                                  $17,830        $17,830         $15,376         $15,376
Interest bearing deposits                                      790            790             800             800
Federal Reserve Bank stock                                     425            425             253             253
Investment securities held-to-maturity                       6,819          6,865           6,710           6,587
Loans held for investment, net                             232,080        234,274         141,340         137,712
Loans held for sale                                         13,119         13,220           2,854           2,859
Interest-only strip                                            509            509             551             551

Financial Liabilities:
Deposits                                                   252,697        252,698         157,392         157,380
Other borrowings                                            10,916         10,916           3,971           3,971

Off-Balance Sheet Financial Instruments:
Commitments to extend credit                                29,248             -            8,450              -
Standby letters of credit                                      734             -              289               3
</TABLE>


                                       58
<PAGE>

10.  INCOME TAXES:

The components of income taxes for the years ended December 31, 2000, 1999, and
1998 are as follows:

<TABLE>
<CAPTION>
                       2000              1999              1998
                                 (dollars in thousands)
<S>                   <C>               <C>               <C>
Current:
     Federal             $422              $944              $814
     State                158               323               292
                      -------           -------           -------
                          580             1,267             1,106
                      -------           -------           -------

Deferred:
     Federal               49              (304)             (162)
     State                 23               (63)              (59)
                      -------           -------           -------
                           72              (367)             (221)
                      -------           -------           -------
                         $652              $900              $885
                      =======           =======           =======
</TABLE>



A reconciliation of the difference between the expected federal statutory income
tax expense and the actual income tax expense for the three years ended December
31, 2000 is shown in the following table:

<TABLE>
<CAPTION>
                                                               2000            1999            1998
                                                                     (dollars in thousands)
<S>                                                            <C>             <C>             <C>

Computed "expected" federal income taxes                        $562            $833            $728
State income taxes, net of federal income tax benefit            120             172             154
Other, net                                                       (30)           (105)              3
                                                               ------          ------          ------
                                                                $652            $900            $885
                                                               ======          ======          ======
</TABLE>



The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31, 2000
and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                               2000             1999
                                                                                 (dollars in thousands)
<S>                                                                           <C>               <C>
Deferred tax assets:

Loan loss allowance, due to differences in computation of bad debts              $795              $436
Nonaccrual interest recognized as income for taxes but not for books                4                -
Loan servicing asset                                                               79                -
State taxes                                                                        17                47
Deferred loan fees                                                                 -                 99
Accrued expenses                                                                  245               153
Litigation reserve                                                                 -                134
                                                                              --------          --------
                                                                                1,140               869
Deferred tax liabilities:

Deferred loan fees                                                               (348)               -
Differences in depreciation                                                      (120)             (125)
                                                                              --------          --------
                                                                                 (468)             (125)
                                                                              --------          --------

                                                                                 $672              $744
                                                                              ========          ========
</TABLE>


                                       59
<PAGE>

Based upon the level of historical taxable income and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize the
benefits of these deductible differences.

As of December 31, 2000 and 1999 income taxes payable totaled approximately
$198,000 and $471,000, respectively.

11.  STOCK DIVIDEND:

In November 2000, the Board of Directors declared a 5% stock dividend to
shareholders of record on November 15, 2000. In November 1999, the Board of
Directors declared a 5% stock dividend to shareholders of record on November 15,
1999. In November 1998, the Board of Directors announced a 5% stock dividend to
shareholders of record on November 30, 1998. All share and per share amounts
have been restated to reflect retroactively the stock dividends.

12.  STOCK OPTION PLANS:

In 1985 and 1993, the Bank adopted stock option plans ("the 1985 Plan" and "the
1993 Plan")(collectively, the "Plans") pursuant to which the Bank's Board of
Directors may grant stock options to officers and key employees. As part of the
Reorganization, the Company adopted the Bank's Plans.

The 1985 Plan, which expired in September 1996, authorized grants of options to
purchase up to 427,858 shares of common stock after adjustments for stock
dividends and stock splits (original authorized number of shares was 42,000) and
the 1993 Plan authorizes grants of options to purchase up to 769,820 shares of
common stock after adjustments for stock dividends and stock splits (original
authorized number of shares was 51,000). Stock options are granted with an
exercise price equal to the stock's fair market value at the date of grant. All
stock options have 10 year terms and generally one-fifth vest annually over the
five years following date of grant, subject to certain restrictions.

As of December 31, 2000, there were no additional shares available for grant
under the 1985 Plan. There were no stock options granted under the 1985 Plan
during 2000, 1999 or 1998.

At the shareholders' meeting held on May 27, 1998, the shareholders approved an
amendment to the 1993 Plan increasing the maximum number of shares under the
plan to 769,820 from the 247,401 share maximum then outstanding (after adjusting
for the stock dividends).

As of December 31, 2000 there were 77,398 shares available for grant under the
1993 Plan. The per share weighted-average fair value of stock options granted
under the 1993 Plan during 2000, 1999 and 1998 were $3.12, $3.05 and $2.76,
respectively, on the date of the grant, using a Black-Scholes option pricing
model with the following weighted-average assumptions: 2000- no expected
dividend yield, risk free interest rate of 5.37%. expected life of 5.0 years and
a volatility of 56%; 1999- no expected dividend yield, risk-free interest rate
of 6.58%, expected life of 5.0 years, and volatility of 48%; 1998- no expected
dividend yield, risk-free interest rate of 4.71%, expected life of 5.0 years,
and volatility of 37%.

                                       60

<PAGE>

Stock option activity for the periods indicated is as follows:

<TABLE>
<CAPTION>

                                                              1985 Plan                         1993 Plan
                                                                       Weighted                         Weighted
                                                       Number          Average          Number           Average
                                                      of Shares     Exercise Price     of Shares     Exercise Price
<S>                                                       <C>               <C>           <C>                 <C>
Balance as of January 1, 1998                               25,235            $3.59         171,247             $4.17
Granted                                                          -                -         328,981              7.73
Exercised                                                        -                -          (9,800)             4.52
Expired                                                     (1,157)            7.46         (20,759)             5.78
                                                           -------             ----        --------              ----
Balance as of December 31, 1998                             24,078             3.41         469,669              6.58
Granted                                                          -                -          76,859              7.00
Exercised                                                  (10,187)            3.19               -                 -
Expired                                                          -                -         (11,353)             7.08
                                                             -----             ----        --------              ----
Balance as of December 31, 1999                             13,891             3.57         535,175              6.63
Granted                                                          -                -          99,775              5.63
Exercised                                                   (7,640)            3.29               -                 -
Expired                                                          -                -          (7,618)             5.94
                                                             -----             ----         -------              ----
Balance as of December 31, 2000                              6,251            $3.90         627,332             $6.48
                                                             =====            =====         =======             =====

</TABLE>

As of December 31, 2000, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were $3.09 to $7.46 and 1.3
years, respectively, for the 1985 Plan. As of December 31, 2000, the range of
exercise prices and weighted-average remaining contractual life of outstanding
options were $3.54 to $8.10 and 6.8 years, respectively, for the 1993 Plan.

As of December 31, 2000, 1999 and 1998, the number of options exercisable was
6,251, 13,891 and 24,078, respectively, and the weighted-average exercise price
of those options was $3.90, $3.57 and $3.41, respectively for the 1985 Plan. As
of December 31, 2000, 1999 and 1998, the number of options exercisable was
445,993, 377,020 and 324,736, respectively, and the weighted-average exercise
price of those options was $6.60, $6.63 and $6.67, respectively, for the 1993
Plan.

The Company applies the intrinsic value method in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>

                                                                               2000             1999             1998

<S>                                                                     <C>              <C>              <C>
Net Income, as reported                                                  $1,001,000       $1,551,000       $1,257,000
Proforma net income                                                        $763,000       $1,365,000       $1,107,000

Basic income per share, as reported                                           $0.40            $0.62            $0.50
Proforma basic income per share                                               $0.30            $0.54            $0.44

Diluted income per share, as reported                                         $0.39            $0.60            $0.49
Proforma diluted income per share                                             $0.30            $0.53            $0.43

</TABLE>


                                       61
<PAGE>

13.  RENTAL COMMITMENTS:

As of December 31, 2000, aggregate minimum rental commitments for certain real
property under non-cancellable operating leases having an initial or remaining
term of more than one year are as follows:
<TABLE>
<CAPTION>

                                                                                     (dollars in
                                                                                      thousands)
<S>                                                                                        <C>
2001                                                                                           $471
2002                                                                                            310
2003                                                                                            274
2004                                                                                            289
2005                                                                                            289
Thereafter                                                                                      548
                                                                                                ---
Total                                                                                        $2,181
                                                                                             ======

</TABLE>

Total rental expense was $475,000, $433,000, and $301,000 in 2000, 1999, and
1998, respectively. Management expects that in the normal course of business,
leases that expire will be renewed or replaced by other leases.

14.  COMMITMENTS AND CONTINGENCIES:

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

Commitments to extend credit amounting to $29,248,000 and $8,450,000 were
outstanding at December 31, 2000 and 1999, respectively. Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements.

Standby letters of credit and financial guarantees amounting to $734,000 and
$289,000 were outstanding at December 31, 2000 and 1999, respectively. Standby
letters of credit and financial guarantees are conditional commitments issued by
the Company to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support private borrowing arrangements. Most
guarantees carry a one year term or less.

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

As of December 31, 2000 and 1999, the Company had non-mandatory commitments to
sell loans of $395,000 and $478,000, respectively.

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

The Bank has been subject to a lawsuit by a former employee alleging, amongst
other things, breach of contract and fraud. Trial commenced on July 19, 1999 in
Riverside County Superior Court, with the jury rendering a verdict on August 2,
1999. The jury awarded compensatory damages of approximately $65,000, punitive
damages of $750,000, court costs and legal fees. On October 26, 1999, the
Superior Court ordered a new trial on punitive damages only, unless the
plaintiff consented to a reduction of the punitive damage award to $250,000. On


                                       62
<PAGE>

November 4, 1999, the plaintiff consented to the punitive damage verdict of
$250,000. The Bank filed a notice of appeal in connection with the judgement.
During the year ended December 31, 1999, the Company accrued $298,000 in
connection with this verdict. On October 19, 2000, the Court of Appeal
overturned the judgement of fraud, and remanded the breach of contract cause of
action to the lower court for determination of damages. On December 26, 2000,
the Bank and former employee settled the action for $27,000, resulting in a
reversal of the accrual in the amount of $271,000.

The Company has negotiated employment agreements with certain officers. These
agreements provide for the payment of base salaries plus incentives based on
agreed upon minimum standards of performance. While there is no provision for
payment due to termination for cause, the agreements specify payment of the base
salary for up to 12 months for termination without cause, and up to 24 months
upon a change in control, as defined in the agreements.

15.  EMPLOYEE BENEFIT PLANS:

The Bank's employee savings and retirement plan (the "401k Plan") is for the
benefit of substantially all employees. Contributions to the 401k Plan by the
Bank are at the discretion of the Board of Directors and are subject to certain
limitations described in the plan. The Bank made contributions to the 401k Plan
of $116,000, $121,000 and $78,000 in 2000, 1999 and 1998, respectively.
Beginning in 1998, Bank employees were able to choose Bank (now Company) stock
as an investment option. Also, beginning in 1998, the Bank contributions to this
401k Plan, if any, were made in Bank (now Company) stock purchased in the open
market rather than in cash.

In July 1997, the Bank established the Fallbrook National Bank Employee Stock
Ownership Plan (ESOP) for substantially all employees. The ESOP authorizes the
Trust to purchase shares of the Bank's (now Company's) common stock in the open
market or in privately negotiated transactions from time to time. In July 1997,
the ESOP entered into a line of credit borrowing agreement in the amount of
$1,200,000 with another bank in order to fund the ESOP. The loan was refinanced
in March of 2000, returning the available line to the original $1,200,000, which
allowed for additional advances of up to $455,000. Advances during 2000 totaled
$325,000. This line of credit is payable in annual installments through 2006
(Note 8). During 1998, the ESOP made open market purchases of 22,277 shares at
an average cost of $8.12 per share. During 2000, the Bank made open market
purchases of 55,055 shares at an average cost of $5.82 per share. There were no
purchases of stock by the ESOP during 1999. All amounts have been adjusted for
stock dividends. Future Bank contributions to the ESOP plus dividends earned
will be used to service the debt. The Bank absorbs the administrative costs of
this program, which totaled approximately $9,000, $20,000 and $5,000 in 2000,
1999 and 1998, respectively.

On December 31, 2000, 1999 and 1998, the Board of Directors allocated 27,119,
30,188 and 25,729 shares to the ESOP for distribution to the participants,
leaving 135,916 unallocated shares in the ESOP trust as of December 31, 2000
with a fair market value of $1,002,000. As of December 31, 2000, the ESOP owned
8.3% of the total outstanding shares of the Company's common stock.

According to the terms of the ESOP, contributions to the ESOP from the Bank's
net income are determined at the Bank's discretion. Management expects that the
amount and timing of these contributions will be tied into the loan repayment
schedule. Dividend income for the ESOP was approximately $19,000 in 1998. During
2000, 1999 and 1998, the Bank repaid principal totaling $205,000, $204,000 and
$170,000, and the interest expense on the outstanding loan totaled $100,000,
$83,000 and $114,000, respectively.

As of December 31, 2000 and 1999, the indebtedness of the ESOP in the amounts
of $916,000 and $796,000 respectively, is shown as a deduction from
shareholders' equity in the balance sheets. Dividends paid on ESOP shares are
recorded as reductions in retained earnings in the balance sheets. The number
of average shares outstanding used in the computation of earnings per share
is reduced by the average unallocated ESOP shares.

The Company entered into salary continuation agreements in 1996 with certain
members of its Board of Directors. The agreements provide monthly cash payment
to the board members or their beneficiaries in the event of death or disability,
beginning in the month after retirement date or upon death, and extending for a
minimum period of 3 years, or until death, whichever is greater. The commitment
is funded by a life insurance policy owned by the Company, and the present value
of the Company's liability under the agreement is included in accrued expenses
and other liabilities in the accompanying consolidated balance sheets.


                                       63
<PAGE>

16.  RESTRICTED CASH BALANCES:

The Bank is required to maintain reserve balances with the Federal Reserve Bank.
Reserve requirements are based on a percentage of deposit liabilities. The
average reserves held at the Federal Reserve Bank for the years ended December
31, 2000 and 1999 were approximately $637,000 and $452,000, respectively.

17.  REGULATORY MATTERS:

The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the 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 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 their assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The 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 I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2000 and 1999, that the Company and the Bank met all capital adequacy
requirements to which they are subject.

As of December 31, 2000 and 1999, the most recent notification from the Office
of the Comptroller of the Currency (OCC) categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratios as set forth in the table.

The Bank's actual capital amounts and ratios are presented in the table as of
December 31, 2000 and 1999.

<TABLE>
<CAPTION>

                                                                                                To Be Well Capitalized
                                                                            For Capital         Under Prompt Corrective
                                                    Actual               Adequacy Purposes         Action Provisions
                                           ------------------------------------------------------------------------------
                                                                      (dollars in thousands)
                                              Amount       Ratio        Amount       Ratio        Amount       Ratio

<S>                                           <C>           <C>         <C>            <C>        <C>           <C>
As of December 31, 2000
     Total Capital (to Risk weighted
       Assets)                                  $24,242       10.75%      $18,044        8.00%      $22,555       10.00%
     Tier 1 Capital (to Risk weighted
       Assets)                                  $22,016        9.76%       $9,022        4.00%      $13,533        6.00%
     Tier 1 Capital (to Average
       Assets)                                  $22,016        8.53%      $10,324        4.00%      $12,905        5.00%
As of December 31, 1999
     Total Capital (to Risk weighted
       Assets)                                  $15,485       10.87%      $11,395        8.00%      $14,244       10.00%
     Tier 1 Capital (to Risk weighted
       Assets)                                  $14,158        9.94%       $5,698        4.00%       $8,546        6.00%
     Tier 1 Capital (to Average
       Assets)                                  $14,158        8.50%       $6,662        4.00%       $8,327        5.00%
</TABLE>

Under federal banking law, dividends declared by the Bank in any calendar year
may not, without the approval of the OCC, exceed its net income for that year
combined with its retained income from the preceding two years. However, the OCC
has previously issued a bulletin to all national banks outlining guidelines
limiting the circumstances under which national banks may pay dividends even if
the banks are otherwise statutorily authorized to pay dividends. The limitations
impose a requirement or in some cases suggest that prior approval of the OCC


                                       64
<PAGE>

should be obtained before a dividend is paid if a national bank is the subject
of administrative action or if the payment could be viewed by the OCC as unsafe
or unusual.

The holding company's actual capital amounts and ratios are presented in the
table as of December 31, 2000 and 1999. There are no prompt corrective action
thresholds at the holding company.

<TABLE>
<CAPTION>

                                                                                                       For Capital
                                                                               Actual               Adequacy Purposes
                                                                      ----------------------------------------------------
                                                                                    (dollars in thousands)
                                                                           Amount       Ratio        Amount       Ratio

<S>                                                                      <C>           <C>         <C>            <C>
As of December 31, 2000
     Total Capital (to Risk weighted Assets)                               $24,438       10.68%      $18,307        8.00%
     Tier 1 Capital (to Risk weighted Assets)                              $16,291        7.12%       $9,153        4.00%
     Tier 1 Capital (to Average Assets)                                    $16,291        5.88%      $11,087        4.00%

As of December 31, 1999
     Total Capital (to Risk weighted Assets)                               $12,429        8.71%      $11,415        8.00%
     Tier 1 Capital (to Risk weighted Assets)                              $11,102        7.78%       $5,707        4.00%
     Tier 1 Capital (to Average Assets)                                    $11,102        6.67%       $6,662        4.00%

</TABLE>

18.  NET EARNINGS PER SHARE:

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (EPS):

<TABLE>
<CAPTION>

                                                                                    Income       Shares     Per Share
                                                                                 (numerator)  (denominator)  Amounts

<S>                                                                              <C>           <C>              <C>
Basic 2000 EPS

Net Income available to common shareholders                                        $1,001,000    2,521,000        $0.40
Effect of dilutive stock options                                                           -        47,000        (0.01)
                                                                                       ------       ------       ------
Diluted 2000 EPS                                                                   $1,001,000    2,568,000        $0.39
                                                                                   ==========    =========        =====

Basic 1999 EPS

Net Income available to common shareholders                                        $1,551,000    2,521,000        $0.62
Effect of dilutive stock options                                                           -        57,000        (0.02)
                                                                                       ------       ------       ------
Diluted 1999 EPS                                                                   $1,551,000    2,578,000        $0.60
                                                                                   ==========    =========        =====

Basic 1998 EPS

Net Income available to common shareholders                                        $1,257,000    2,490,000        $0.50
Effect of dilutive stock options                                                           -        70,000        (0.01)
                                                                                       ------       ------       ------
Diluted 1998 EPS                                                                   $1,257,000    2,560,000        $0.49
                                                                                   ==========    =========        =====

</TABLE>


                                       65
<PAGE>

19.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

<TABLE>
<CAPTION>

                                                                                            Quarters Ended

                                                      ---------------------------------------------------------------------------
                                                               December 31,      September 30,         June 30,          March 31,
                                                                  2000               2000               2000               2000
                                                      ---------------------------------------------------------------------------
                                                                        (In thousands, except per share data)
<S>                                                             <C>                <C>                <C>                <C>
Interest income                                                  $6,607             $5,811             $4,823             $3,935
Interest expense                                                  3,226              2,672              2,206              1,702
                                                                  -----              -----              -----              -----
Net interest income                                               3,381              3,139              2,617              2,233
Provision for loan losses                                           428                200                177                160
                                                                    ---                ---                ---                ---
Net interest income after provision for loan losses               2,953              2,939              2,440              2,073
Other income                                                        541                550                477                610
Other expenses                                                    2,805              2,933              2,584              2,608
                                                                  -----              -----              -----              -----
Income before income tax provision                                  689                556                333                 75
Income tax provision                                                255                230                136                 31
                                                                    ---                ---                ---                 --
Net income                                                         $434               $326               $197                $44
                                                                   ====               ====               ====                ===
Earnings per share:
     Basic                                                        $0.18              $0.13              $0.08              $0.01
                                                                  =====              =====              =====              =====
     Fully diluted                                                $0.17              $0.13              $0.08              $0.01
                                                                  =====              =====              =====              =====
Cash dividends per common share declared and paid                  $  -                $ -                $ -                $ -
                                                                  ======             =====              =====              =====

<CAPTION>

                                                                                   Quarters Ended

                                                      ---------------------------------------------------------------------------
                                                              December 31,      September 30,         June 30,          March 31,
                                                                   1999               1999               1999               1999
                                                      ---------------------------------------------------------------------------
                                                                        (In thousands, except per share data)
<S>                                                             <C>                <C>                <C>                <C>
Interest income                                                  $3,338             $3,331             $3,203             $2,953
Interest expense                                                  1,268              1,116              1,006                891
                                                                  -----              -----              -----                ---
Net interest income                                               2,070              2,215              2,197              2,062
Provision for loan losses                                            -                  70                165                150
                                                                  -----              -----              -----              -----
Net interest income after provision for loan losses               2,070              2,145              2,032              1,912
Other income                                                      2,029                721              1,414              1,412
Other expenses                                                    2,831              2,934              2,797              2,722
                                                                  -----              -----              -----              -----
Income before income tax provision                                1,268                (68)               649                602
Income tax provision                                                412                (28)               267                249
                                                                    ---               ----                ---                ---
Net income                                                         $856               $(40)              $382               $353
                                                                   ====              =====               ====               ====
Earnings per share:
     Basic                                                        $0.34             $(0.02)             $0.16              $0.14
                                                                  =====            =======              =====              =====
     Fully diluted                                                $0.33             $(0.02)             $0.15              $0.14
                                                                  =====            =======              =====              =====
Cash dividends per common share declared and paid                   $ -                $ -                $ -                $ -
                                                                  =====             ======              =====              =====

</TABLE>


                                       66
<PAGE>


20.  SEGMENT INFORMATION

The following disclosure about segments of the Company is made in accordance
with the requirements of SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company changed its internal reporting
during 1999, and now segregates its operations into two primary segments:
Banking Division and SBA Lending Division. The Company determines operating
results of each segment based on an internal management system that allocates
certain expenses to each segment.

<TABLE>
<CAPTION>

                                                                                                 2000
                                                                                   Banking    SBA Lending
                                                                                   Division     Division      Total
                                                                                 ---------------------------------------
                                                                                           (dollars in thousands)
<S>                                                                                 <C>           <C>         <C>
Interest income                                                                      $ 15,413      $ 5,763     $ 21,176
Interest expense                                                                        5,724        4,082        9,806
                                                                                        -----        -----        -----
Net interest income before provision for loan losses                                    9,689        1,681       11,370
Provision for loan losses                                                                 917           48          965
Other operating income                                                                  1,151        1,027        2,178
Other operating expenses                                                                8,064        2,866       10,930
                                                                                        -----        -----       ------
Income (loss) before income taxes                                                       1,859         (206)       1,653
Income taxes                                                                              737          (85)         652
                                                                                        -----       ------       ------
Net income (loss)                                                                    $  1,122      $  (121)    $  1,001
                                                                                       ======       ======       ======
Assets employed at year end                                                          $203,543      $76,915     $280,458
                                                                                     ========      =======     ========

<CAPTION>

                                                                                                 1999
                                                                                   Banking    SBA Lending
                                                                                   Division     Division      Total
                                                                                 ---------------------------------------
                                                                                           (dollars in thousands)
<S>                                                                                 <C>           <C>         <C>
Interest income                                                                      $  9,174      $ 3,651     $ 12,825
Interest expense                                                                        2,268        2,013        4,281
                                                                                        -----        -----        -----
Net interest income before provision for loan losses                                    6,906        1,638        8,544
Provision for loan losses                                                                 385            -          385
Other operating income                                                                  2,353        3,223        5,576
Other operating expenses                                                                8,826        2,458       11,284
                                                                                        -----        -----       ------
Income before income taxes                                                                 48        2,403        2,451
Income taxes                                                                                6          894          900
                                                                                        -----        -----          ---
Net income                                                                           $     42      $ 1,509     $  1,551
                                                                                      =======       ======       ======
Assets employed at year end                                                          $140,796      $34,977     $175,773
                                                                                     ========      =======     ========

<CAPTION>

                                                                                                 1998
                                                                                   Banking    SBA Lending
                                                                                   Division     Division      Total
                                                                                 ---------------------------------------
                                                                                           (dollars in thousands)
<S>                                                                                  <C>          <C>         <C>
Interest income                                                                       $ 6,042      $ 4,911     $ 10,953
Interest expense                                                                        1,893        1,847        3,740
                                                                                        -----        -----        -----
Net interest income before provision for loan losses                                    4,149        3,064        7,213
Provision for loan losses                                                                 538            -          538
Other operating income                                                                  2,214        1,663        3,877
Other operating expenses                                                                6,574        1,836        8,410
                                                                                        -----        -----        -----
Income before income taxes                                                               (749)       2,891        2,142
Income taxes                                                                             (309)       1,194          885
                                                                                       ------       ------       ------
Net income                                                                            $  (440)     $ 1,697     $  1,257
                                                                                       ======       ======       ======
Assets employed at year end                                                           $95,036      $41,187     $136,223
                                                                                      =======      =======     ========

</TABLE>


                                       67
<PAGE>

21.  PARENT COMPANY FINANCIAL INFORMATION

The following presents unconsolidated financial information of the parent
company only, Community Bancorp Inc. (Note 1) as of and for the years ended
December 31:

Community Bancorp Inc. (Parent company only)
<TABLE>
<CAPTION>

                                                                                               2000             1999
                                                                                   ----------------------------------
BALANCE SHEETS                                                                          (dollars in thousands)

<S>                                                                                       <C>              <C>
ASSETS:

     Cash                                                                                   $ 1,182          $    34
     Interest bearing deposits in financial institutions                                        490                -
     Accrued interest and other assets                                                            2               84
     Investment in subsidiaries                                                              22,532           14,394
                                                                                             ------           ------
          TOTAL ASSETS                                                                      $24,206          $14,512
                                                                                            =======          =======

LIABILITIES:

     Accounts payable                                                                       $   744          $     -
     Borrowings from subsidiary                                                              10,310                -
     Other borrowings                                                                           916            3,175
                                                                                                ---            -----
     TOTAL LIABILITIES                                                                       11,970            3,175
     TOTAL SHAREHOLDERS' EQUITY                                                              12,236           11,337
                                                                                             ------           ------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $24,206          $14,512
                                                                                            =======          =======

<CAPTION>

COMMUNITY BANCORP INC. (PARENT COMPANY ONLY)

                                                                             2000             1999             1998
                                                                 ---------------------------------------------------
STATEMENTS OF INCOME                                                           (dollars in thousands)

<S>                                                                      <C>              <C>              <C>
 Interest income                                                           $   33           $    -           $    -
 Interest expense                                                             954              150                -
 Other operating expenses                                                     209              205                -
 Equity in net income of subsidiaries                                       1,582            1,774            1,257
                                                                            -----            -----            -----
 Earnings before income taxes                                                 452            1,419            1,257
 Income tax benefit                                                           549              132               -
                                                                              ---             ----               -
 NET INCOME                                                                $1,001           $1,551           $1,257
                                                                           ======           ======           ======

</TABLE>


                                       68
<PAGE>

COMMUNITY BANCORP INC. (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>

                                                                                         2000          1999           1998
                                                                               --------------------------------------------
STATEMENTS OF CASH FLOWS                                                                 (dollars in thousands)

<S>                                                                                  <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                                            $1,001        $1,551        $ 1,257
 Adjustments to reconcile net income to cash provided by (used in)
      operating activities:
 Decrease (increase) in accrued interest and other assets                                  82           (84)             -
 Increase in accounts payable                                                             744             -              -
 Equity in net income of subsidiaries                                                  (1,582)       (1,774)        (1,257)
                                                                                      -------       -------        -------
      Net cash provided by (used in) operating activities                                 245          (307)             -

 CASH FLOWS FROM INVESTING ACTIVITIES
 Investment in interest bearing deposits at other financial institutions                 (475)            -              -
 Capital contributions to subsidiaries                                                 (6,110)       (3,000)             -
                                                                                      -------       --------       -------
     Net cash used in investing activities                                             (6,585)       (3,000)             -

 CASH FLOWS FROM FINANCING ACTIVITIES
 Net proceeds from other borrowings                                                    10,820         3,175              -
 Repayment of other borrowings                                                         (3,381)            -              -
 Unearned contributions to ESOP                                                          (325)            -              -
 Cash dividends received from subsidiary                                                  350           150              -
 Cash dividends paid                                                                       (1)            -              -
 Exercise of stock options                                                                 25            16              -
                                                                                       ------        ------        -------
     Net cash provided by financing activities                                          7,488         3,341              -
                                                                                       ------        ------        -------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                               1,148            34              -
CASH AND CASH EQUIVALENTS, beginning of year                                               34             -              -
                                                                                          ---           ---        -------
CASH AND CASH EQUIVALENTS, end of year                                                 $1,182        $   34        $     -
                                                                                       ======        ======        =======

</TABLE>


                                       69
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Community Bancorp Inc.


We have audited the accompanying consolidated balance sheets of Community
Bancorp Inc. and subsidiaries (the Company) as of December 31, 2000 and 1999 and
the related consolidated statements of income and comprehensive income,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Community Bancorp Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP



Costa Mesa, California
 January 24, 2001


                                       70
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Community Bancorp Inc.

         We have audited the accompanying consolidated statements of income and
         comprehensive income, shareholders' equity and cash flows of Community
         Bancorp Inc. and subsidiaries (formerly Fallbrook National Bank) (the
         Company) for the year ended December 31, 1998. 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 audit.

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

         In our opinion, the consolidated financial statements referred to above
         present fairly, in all material respects, the results of operations and
         cash flows of Community Bancorp Inc. and subsidiaries for the year
         ended December 31, 1998 in conformity with accounting principles
         generally accepted in the United States of America.

                                    KPMG LLP



         San Diego, California
         January 13, 1999


                                       71
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

On October 8, 1999, the Company dismissed KPMG LLP as the Company's certifying
accountant. The decision to dismiss KPMG LLP was made by the Board of Directors
upon the recommendation of the Audit Committee.

For the years ended December 31, 1998 and 1997, the audit report of KPMG LLP did
not contain an adverse opinion nor a disclaimer of opinion on the financial
statements of the Bank, the subsidiary of the Company (the Company commenced
operation on June 25, 1999). There were also no qualifications or modifications
as to uncertainty, audit scope or accounting principles. Additionally, during
the two most recent fiscal years and the subsequent interim period preceding
their dismissal, there have been no disagreements with KPMG LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures.

On October 8, 1999, the Company appointed Deloitte & Touche, LLP as its
certifying accountants (as approved by the Board of Directors and recommended by
its Audit Committee).

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
         PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The information required by Item 9 of Form 10-KSB is incorporated by reference
from the information contained in the Company's Proxy Statement for the 2001
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 10. EXECUTIVE COMPENSATION

The information required by Item 10 of Form 10-KSB is incorporated by reference
from the information contained in the Company's Proxy Statement for the 2001
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 11 of Form 10-KSB is incorporated by reference
from the information contained in the Company's Proxy Statement for the 2001
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 12 of Form 10-KSB is incorporated by reference
from the information contained in the Company's Proxy Statement for the 2001
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.


                                       72
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>

<S>     <C>
(A)      EXHIBITS:

3.1      Certificate of Incorporation, as amended, of Community Bancorp Inc*

3.2      Bylaws of Community Bancorp Inc.*

4.1      Specimen Share Certificate for Common Stock****

10.1     Data Processing Service Agreement, dated December 21, 2000 between Community National Bank and First National Bank as
         amended

10.2     1993 Stock Option Plan **

10.3     Form of stock option agreement for use pursuant to 1993 Stock Option Plan**

10.4     Head Office Extension Leases****

10.5     Temecula Branch Office Lease****

10.6     Vista Branch Lease****

10.7     Fallbrook National Bank 401(k) Profit Sharing Plan***

10.8     Director Indexed Fee Continuation Program****

10.9     Employment Agreement with Thomas E. Swanson****

10.10    Employment Agreement with Gary M. Youmans****

10.11    Employment Agreement with L. Bruce Mills, Jr.****

10.12    Employment Agreement with Donald W. Murray****

10.13    Employment Agreement with Barbara C. Ernst****

10.14    Fallbrook National Bank Employee Stock Ownership Plan****

10.15    Employment Agreement with F. Michael Patterson

23.1     Consent of KPMG LLP

23.2     Consent of Deloitte & Touche LLP

</TABLE>

---------------------
*    Previously filed with the Company's 10-QSB for the quarter ended June
     30,1999
**   Previously filed with the Company's S-8 Registration Statement (333-88473)
***  Previously filed with the Company's S-8 Registration Statement (333-88457)
**** Previously filed with the Company's 10-KSB for the year ended December
     31, 1999

(b)      Reports on Form 8-K

         On November 9, 2000, the Company filed an 8-K report, pursuant to
         Item 5 thereof, reporting the declaration of a 5% stock dividend
         payable on November 30, 2000 to Shareholders of record on November
         15, 2000.

         The Company did not file any other 8-K reports during the fourth
         quarter of 2000.

                                       73
<PAGE>

                                   SIGNATURES

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

COMMUNITY BANCORP INC.


By: /s/ Thomas E. Swanson
   ----------------------
THOMAS E. SWANSON
President and Chief Executive Officer

Dated:            March 21, 2001




By:  /s/ L. Bruce Mills, Jr.
    -----------------------
L. BRUCE MILLS, JR.
Senior Vice President and Chief Financial Officer

Dated:            March 21, 2001


<PAGE>

         In accordance with the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the Bank and in the capacities
and on the dates indicated.

<TABLE>
<CAPTION>

                                                                       Dated:


<S>                                <C>                                        <C>
 /s/ Granger Haugh                  Chairman of the Board                       March 21, 2001
------------------
GRANGER HAUGH

/s/ Mark N. Baker                   Director                                    March 21, 2001
-----------------
MARK N. BAKER


/s/ Gary W. Deems                   Director                                    March 21, 2001
-----------------
GARY W. DEEMS


/s/ G. Bruce Dunn                   Director                                    March 21, 2001
-----------------
G. BRUCE DUNN


/s/ E.Steve Lefevre                 Director                                    March 21, 2001
 --------------------
E. STEVE LEFEVRE


 /s/ Robert H. S. Kirkpatrick       Director                                    March 21, 2001
-----------------------------
ROBERT H.S. KIRKPATRICK


 /s/ Philip D. Oberhansley          Director                                    March 21, 2001
--------------------------
PHILIP D. OBERHANSLEY


/s/ Corey A. Seale                 Director                                    March 21, 2001
 ------------------
COREY A. SEALE


 /s/ Thomas E. Swanson              Director                                    March 21, 2001
---------------------------
THOMAS E. SWANSON


 /s/ Gary M. Youmans                Director                                    March 21, 2001
--------------------------
GARY M. YOUMANS

</TABLE>


<PAGE>

                                  EXHIBIT INDEX

Exhibit

         NUMBER DESCRIPTION
         ------ -----------

10.1     Data Processing Service Agreement, dated December 21, 2000 between
         Community National Bank and First National Bank

10.15    Employment Agreement with F. Michael Patterson

23.1     Consent of KPMG LLP

23.2     Consent of Deloitte & Touche LLP