<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB

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

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

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

FOR THE TRANSITION PERIOD FROM           TO
                               --------     ----------

COMMISSION FILE NO. 0-25020
                    -------

                              HERITAGE OAKS BANCORP
-----------------------------------------------------------------------------
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

                               STATE OF CALIFORNIA
-----------------------------------------------------------------------------
         (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)

                                   77-0388249
-----------------------------------------------------------------------------
                     (I.R.S. EMPLOYER IDENTIFICATION CODE)

                     545 12TH STREET, PASO ROBLES, CA 93446
-----------------------------------------------------------------------------
                          (ADDRESS OF PRINCIPAL OFFICE)

                                 (805) 239-5200
-----------------------------------------------------------------------------
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

          INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL 
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES 
EXCHANGE ACT OF 1934 DURING THE PRECEDING TWELVE (12) MONTHS (OR FOR SUCH 
SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND 
(2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST NINETY (90) 
DAYS.

                              YES  X   NO 
                                  ---     ---

AGGREGATE MARKET VALUE OF COMMON STOCK OF HERITAGE OAKS BANCORP AT NOVEMBER 
11, 1998: $16,673,504.

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF 
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:

NO PAR VALUE COMMON STOCK - 1,042,094 SHARES OUTSTANDING AT NOVEMBER 11, 1998

<PAGE>

                              HERITAGE OAKS BANCORP
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                           09/30/98       12/31/97       09/30/97
ASSETS                                                   (unaudited)            (1)    (unaudited)
                                                         -----------------------------------------
<S>                                                      <C>            <C>            <C>
Cash and due from banks                                  $11,816,738    $12,491,388    $12,868,700
Federal funds sold                                         6,275,000        500,000      2,000,000
                                                         -----------------------------------------
   Total cash and cash equivalents                        18,091,738     12,991,388     14,868,700
                                                         -----------------------------------------

Interest bearing deposits other banks                        464,676        610,119        495,000

Securities-Available- for-sale                             5,792,826      8,303,218      6,747,813
Securities-held-to-maturity (see note 2)                  16,054,820     11,590,592     11,466,386
Commercial paper                                           4,984,214              0              0
Loans, net ( see note 3)                                  68,342,793     54,697,484     55,088,173

Property, premises and equipment, net                      2,401,698      2,072,711      1,946,276
Other real estate owned                                       55,000         62,000         77,059
Cash surrender value life insurance                        1,007,991        970,318        758,702
Other assets                                               1,959,442      2,021,592      2,376,917
                                                         -----------------------------------------
     TOTAL ASSETS                                        119,155,198    $93,319,422    $93,825,026
                                                         -----------------------------------------
                                                         -----------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Demand, non-interest bearing                             $26,555,852    $18,407,169    $17,410,098
Savings, NOW, and money market deposits                   50,533,140     46,633,837     46,086,777
Time deposits of $100,000 or more                          4,596,689        970,300      1,071,337
Time deposits under $100,000                              26,678,516     17,538,351     19,616,077
                                                         -----------------------------------------
    Total deposits                                       108,364,197     83,549,657     84,184,289

Other borrowed money                                         580,000              0              0
Other liabilities                                          1,427,227      1,642,687      1,923,547
                                                         -----------------------------------------
   Total liabilities                                     110,371,424     85,192,344     86,107,836

Stockholders' equity
 Common stock, no par value;
 20,000,000 shares authorized; issued and outstanding
 1,042,094; 1,036,626 and 1,036,626 for
 September 30, 1998, Deecember 31, 1997, and
 September 30, 1997, respectively                          4,201,428      4,180,486      4,180,486
Valuation allowance on securities available for sale        (262,455)      (381,329)      (431,145)
Retained earnings                                          4,844,801      4,327,921      3,967,849
                                                         -----------------------------------------
    Total stockholders' equity                             8,783,774      8,127,078      7,717,190
                                                         -----------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                 119,155,198    $93,319,422    $93,825,026
                                                         -----------------------------------------
                                                         -----------------------------------------
</TABLE>

 (1) These numbers have been derived from the audited financial statements.

                  See notes to condensed financial statements.
<PAGE>

                              HERITAGE OAKS BANCORP
                        CONSOLIDATED STATEMENTS OF INCOME
                    For the three months ended September 30,

<TABLE>
<CAPTION>
                                                                  1998              1997
                                                            (unaudited)       (unaudited)
                                                            ----------------------------
<S>                                                         <C>               <C>
Interest Income:

Interest and fees on loans                                  $1,691,873        $1,381,906
Investment securities                                          306,953           225,919
Federal funds sold and commercial paper                        115,486            80,438
Time certificates of deposit                                     4,004               257
                                                            ----------------------------
   Total interest income                                     2,118,316         1,688,520

Interest Expense:

   Now accounts                                                180,130           184,134
   MMDA accounts                                                52,907            57,518
   Savings accounts                                             68,041            63,962
   Time deposits of $100,000 or more                            62,649            15,447
   Other time deposits                                         337,923           253,950
   Other borrowed funds                                              0                 0
                                                            ----------------------------
   Total interest expense                                      701,650           575,011

Net Interest Income Before Provision for Possible Loan Losse 1,416,666         1,113,509
Provision for loan losses                                       58,000            43,000
                                                            ----------------------------
   Net interest income after provision for loan losses       1,358,666         1,070,509

Non-interest Income:
Service charges on deposit accounts                            192,434           143,891
Investment securities gains (losses), net                        1,916            (2,500)
Other income                                                 1,500,315         1,477,925
                                                            ----------------------------
   Total Non-interst Income                                  1,694,665         1,619,316

Non-interest  Expense:
Salaries and employee benefits                                 775,386           637,181
Occupancy and equipment                                        276,424           242,880
Other expenses                                               1,424,572         1,236,815
                                                            ----------------------------
   Total Noninterest Expenses                                2,476,382         2,116,876
                                                            ----------------------------
   Income before provision for income taxes                    576,949           572,949
   Provision for applicable income taxes                       201,718           221,850
                                                            ----------------------------
         Net Income                                           $375,231          $351,099
                                                            ----------------------------
                                                            ----------------------------

   Earnings per share:
     Basic                                                       $0.32             $0.24
     Diluted (see note 4)                                        $0.30             $0.23
</TABLE>

                   See notes to condensed financial statements
<PAGE>

                              HERITAGE OAKS BANCORP
                        CONSOLIDATED STATEMENTS OF INCOME
                     For the nine months ended September 30,

<TABLE>
<CAPTION>
                                                                      1998           1997
Interest Income:                                                (unaudited)    (unaudited)
                                                                -------------------------
<S>                                                             <C>            <C>
Interest and fees on loans                                      $4,706,687     $4,065,402
Investment securities                                              872,277        681,983
Federal funds sold and commercial paper                            175,893        134,634
Interest bearing deposits other banks                               14,025          1,570
                                                                -------------------------
   Total interest income                                         5,768,882      4,883,589

Interest Expense:

   Now accounts                                                    553,945        412,308
   MMDA accounts                                                   131,828        141,634
   Savings accounts                                                198,125        179,624
   Time deposits of $100,000 or more                               152,379         98,854
   Other time deposits                                             789,526        758,250
   Other borrowed funds                                             51,048         56,212
                                                                -------------------------
   Total interest expense                                        1,876,851      1,646,882

Net Interest Income Before Provision for Possible Loan Losses    3,892,031      3,236,707
Provision for loan losses                                          104,000        129,000
                                                                -------------------------
   Net interest income after provision for loan losses           3,788,031      3,107,707

Non-interest Income:
Service charges on deposit accounts                                521,067        391,614
Investment securities gains, net                                    10,504        (11,094)
Other income                                                     4,388,259      2,986,226
                                                                -------------------------
   Total Non-interst Income                                      4,919,830      3,366,746

Non-interest  Expense:
Salaries and employee benefits                                   2,178,088      1,834,818
Occupancy and equipment                                            806,451        702,744
Other expenses                                                   4,113,781      2,477,736
                                                                -------------------------
   Total Noninterest Expenses                                    7,098,320      5,015,298
                                                                -------------------------
   Income before provision for income taxes                      1,609,541      1,459,155
   Provision for applicable income taxes                           572,944        558,163
                                                                -------------------------
         Net Income                                             $1,036,597       $900,992
                                                                -------------------------
                                                                -------------------------

   Earnings per share:  (see note 4) :
     Basic                                                           $0.99          $0.88
     Diluted                                                         $0.93          $0.82
</TABLE>

                 See notes to condensed financial statements ::
<PAGE>

                              HERITAGE OAKS BANCORP
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Periods ended September 30, 1998 and 1997

<TABLE>
<CAPTION>
                                                                        1998           1997
                                                                  (unaudited)    (unaudited)
                                                                 --------------------------
<S>                                                              <C>            <C>
Cash flows from operating activities:
   (dollars in thousands
  Net Income                                                      $1,036,597       $900,992
    Adjustments to reconcile net income to net cash
         provided by operating activities:
       Depreciation and amortization                                 306,861        250,512
       Provision for possible loan loss                              104,000        129,000
       Increase (decrease) in deferred loan fees                     184,301        125,922
       Net gain on sales of investment securities                    (10,504)        11,094
       Amortization of premiums (Discount accretion)
         on investment securities, net                               (68,763)       (48,930)
       Loss on sale of other real estate owned                                            0
       Gain on sale of property, premises, and equipment              (9,555)        (3,264)
       Decrease (increase) in other assets                            62,150       (498,434)
       Increase (decrease) in other liabilities                     (215,460)       575,676
                                                                 --------------------------
         Net cash provided by operating activities                 1,389,627      1,442,568


Cash flows from investing activities:
   Purchase of investment securities                             (16,529,316)    (6,536,640)
   Proceeds from sales, princ reductions and maturities
     from investment securities                                    9,808,518      4,776,798
  Increase (decrease) in time deposits with other banks              145,443       (395,000)
   Net additions to real estate acquired in settlement of loans        7,000        (77,059)
   Purchase of insurance policies                                    (37,673)       (28,782)
   Increase in loans, net                                        (13,933,610)    (5,763,242)
   Purchase of property, premises and equipment, net                (645,403)      (440,689)
                                                                 --------------------------
         Net cash provided by investing activities               (21,185,041)    (8,464,614)


Cash flows from financing activities:
   Increase (decrease) in deposits, net                           24,814,539     12,192,990
   Net increase in other borrowings                                  580,000     (4,730,000)
   Proceeds from exercise of stock options                            20,942         91,241
   Cash Dividends Paid                                              (519,717)      (339,138)
                                                                 --------------------------
         Net cash provided by (used in) financing activities      24,895,764      7,215,093
                                                                 --------------------------

Net increase (decrease) in cash and cash equivalents               5,100,350        193,047
Cash and cash equivalents at beginning of year                    12,991,388     14,675,653
                                                                 --------------------------
Cash and cash equivalents at end of period                       $18,091,738    $14,868,700
                                                                 --------------------------
                                                                 --------------------------
</TABLE>

                  See notes to condensed financial statements
<PAGE>

                               HERITAGE OAKS BANCORP
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                               September 30, 1998
                                   (unaudited)

<TABLE>
<CAPTION>
(Dollars in thousands)                                                 Valuation                           Total
                                            Shares        Common      Allowance for     Retained     Stockholders'
                                         outstanding       Stock       Investments      Earnings         Equity
                                         -----------     ---------    ------------      --------     -------------
<S>                                        <C>          <C>              <C>           <C>              <C>
Balances, December 31, 1997                1,036,626    $4,180,486       ($381,329)    $4,327,921       $8,127,078

  Change in unrealized loss on
       Investment securities                     ---           ---         118,874            ---         $118,874

  Exercise of stock options                    5,468        20,942             ---            ---          $20,942

  Cash dividends paid - $.50 per share           ---           ---             ---       (519,717)       ($519,717)


  Net income through September 30, 1998          ---           ---             ---      1,036,597        1,036,597
                                         -------------------------------------------------------------------------
Balances, September 30, 1998               1,042,094    $4,201,428       ($262,455)    $4,844,801       $8,783,774
                                         -------------------------------------------------------------------------
                                         -------------------------------------------------------------------------
</TABLE>

See notes to condensed financial statements
<PAGE>

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1: CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of Management, the unaudited consolidated condensed financial 
statements contain all (consisting of only normal recurring adjustments) 
adjustments necessary to present fairly the Company's consolidated financial 
position at September 30, 1998, December 31, 1997, and September 30, 1997 and 
the results of operations and cash flows for the nine months ended September 
30, 1998 and 1997.

Certain information and footnote disclosures normally presented in financial 
statements prepared in accordance with generally accepted accounting 
principles have been omitted. These interim consolidated condensed financial 
statements should be read in conjunction with the consolidated financial 
statements and notes thereto included in the Company's 1997 Annual Report to 
shareholders. The results for the nine months ended September 30, 1998 may 
not necessarily be indicative of the operating results for the full year.

Note 2: INVESTMENT SECURITIES

The Company adopted SFAS No. 115 "Accounting for Certain Investments in Debt 
and Equity Securities" on January 1, 1994, which addresses the accounting for 
investments in equity securities that have readily determinable fair values 
and for investments in all debt securities. Securities are classified in 
three categories and accounted for as follows: debit and equity securities 
that the company has the positive intent and ability to hold to maturity are 
classified as held-to-maturity and are measured at amortized cost; debt and 
equity securities bought and held principally for the purpose of selling in 
the near term are classified as trading securities and are measured at fair 
value, with unrealized gains and losses included in earnings;, debt and 
equity securities not classified as either held-to-maturity or trading 
securities are deemed as available-for-sale and are measured at fair value, 
with unrealized gains and losses, net of applicable taxes, reported in a 
separate component of stockholders' equity. Any gains and losses on sales of 
investments are computed on a specific identification basis.

The amortized cost and fair values of investment 
securities-available-for-sale at September 30, 1998 and December 31, 1997 
were:

<TABLE>
<CAPTION>
                                                                             Gross         Gross               
                                                           Amortized    Unrealized    Unrealized          Fair
     September 30, 1998                                         Cost         Gains        Losses         Value
<S>                                                       <C>               <C>        <C>          <C>
U.S. Treasury securities                                          $0           $0             $0              $0 
Obligations of U.S. government agencies and corporations           0            0              0               0 
Mortgage-backed securities                                 5,961,273       23,265       (195,512)      5,789,026 
Other securities                                               3,800            0              0           3,800 
                                                          ------------------------------------------------------ 
     TOTAL HELD-TO-MATURITY                               $5,965,073      $23,265      ($195,512)     $5,792,826 
                                                          ------------------------------------------------------ 
                                                          ------------------------------------------------------ 

<CAPTION>

December 31, 1997                                                            Gross         Gross
                                                           Amortized    Unrealized    Unrealized          Fair
                                                                Cost         Gains        Losses         Value
<S>                                                       <C>               <C>        <C>          <C>
U.S. Treasury securities                                  $1,000,269            $0       ($6,519)     $993,750
Obligations of U.S. government agencies and corporations   2,500,000         3,888       (11,573)    2,492,315
Mortgage-backed securities                                 5,167,677         3,442      (355,966)    4,815,153
Obligations of State and political subdivisions                2,000             0             0         2,000
                                                          ----------------------------------------------------
     TOTAL HELD-TO-MATURITY                               $8,669,946        $7,330     ($374,058)   $8,303,218
                                                          ----------------------------------------------------
                                                          ----------------------------------------------------
</TABLE>

<PAGE>

Note 2: INVESTMENT SECURITIES  (continued)

The amortized cost and fair values of investment securities-held-to-maturity 
at September 30, 1998 and December 31, 1997 were:

<TABLE>
<CAPTION>
                                                                              Gross          Gross                
     September 30, 1998                                      Amortized   Unrealized     Unrealized           Fair
                                                                  Cost        Gains         Losses           Value
<S>                                                        <C>             <C>            <C>         <C>
U.S. Treasury securities                                       $97,528           $0           ($28)        $97,500
Obligations of U.S. government agencies and corporations     1,222,372       27,421       (124,920)      1,124,873
Mortgage-backed securities                                   8,439,088      315,111         (3,000)      8,751,199
Obligations of State and political subdivisions              6,295,832       12,617         (7,929)     16,300,520
                                                           -------------------------------------------------------
     TOTAL HELD-TO-MATURITY                                $16,054,820     $355,149      ($135,877)    $16,274,092
                                                           -------------------------------------------------------
                                                           -------------------------------------------------------
<CAPTION>

                                                                              Gross          Gross
                                                             Amortized   Unrealized     Unrealized            Fair
December 31, 1997                                                 Cost        Gains         Losses           Value
<S>                                                        <C>             <C>            <C>          <C>
U.S. Treasury securities                                       $99,209           $0          ($209)         99,000
Obligations of U.S. government agencies and corporations     3,051,500      236,577         (8,273)      3,279,804
Mortgage-backed securities                                   4,980,125       16,086         (3,182)      4,993,029
Obligations of state and political subdivisions              3,459,758       10,898         (3,328)      3,467,328
                                                           -------------------------------------------------------
     TOTAL HELD-TO-MATURITY                                $11,590,592     $263,561       ($14,992)    $11,839,161
                                                           -------------------------------------------------------
                                                           -------------------------------------------------------
</TABLE>

Note 3: Loans and Reserve for Possible Loan Losses

Major classifications of loans were:

<TABLE>
<CAPTION>
                                           September 30,    December 31,
                                                    1998            1997
<S>                                          <C>             <C>
Commercial, financial, and agricultural      $37,332,793     $25,325,584
Real estate-construction                       7,070,375       6,953,512
Real estate-mortgage                          21,508,083      19,143,755
Installment loans to individuals               3,605,427       4,296,204
All other loans (including overdrafts)           146,379         152,606
                                           -----------------------------
                                              69,663,057      55,871,661

Less - deferred loan fees                       (311,851)       (243,893)
Less - reserve for possible loan losses       (1,008,413)       (930,284)
                                           -----------------------------
                                           -----------------------------
     Total loans                             $68,342,793     $54,697,484
                                           -----------------------------
                                           -----------------------------
</TABLE>

Concentration of Credit Risk

At September 30 1998, approximately $28,578,458 of the Bank's loan portfolio 
was collateralized by various forms of real estate. Such loans are generally 
made to borrowers located in San Luis Obispo County. The Bank attempts to 
reduce its concentration of credit risk by making loans which are diversified 
by project type. While management believes that the collateral presently 
securing this portfolio is adequate, there can be no assurances that 
significant deterioration in the California real estate market would not 
expose the Bank to significantly greater credit risk.

Loans on nonaccrual status totaled $863,917 and $864,488 at September 30, 
1998 and December 31, 1997, respectively. Interest income that would have 
been recognized on nonaccrual loans if they had performed in accordance with 
the terms of the loans was approximately $64,614, $94,762, for the period 
ended September 30, 1997 and December 31, 1997, respectively.

<PAGE>

Note 3: Loans and Reserve for Possible Loan Losses (continued)

An analysis of the changes in the reserve for possible loan losses is as 
follows:

<TABLE>
<CAPTION>
                                              September 30,    December 31,
                                                       1998            1997
<S>                                              <C>               <C>
Balance at beginning of year                       $930,284        $771,925
Additions charged to operating expense              104,000         164,000
Loans charged off                                   (40,861)        (48,849)
Recoveries of loans previously charged off           14,990          43,208
                                              ------------------------------
     Balance at end of the period                $1,008,413        $930,284
                                              ------------------------------
                                              ------------------------------
</TABLE>

At September 30, 1998, the Bank was contingently liable for letters of credit 
accommodations made to its customers totaling $80,055 and undisbursed loan 
commitments in the amount of $29,412,607 The Bank makes commitments to extend 
credit in the normal course of business to meet the financing needs of its 
customers. 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 
outstanding commitment amount does not necessarily represent future cash 
requirements. Standby letters of credit written are conditional commitments 
issued by the Bank to guarantee the performance of a customer to a third 
party. The credit risk involved in issuing letters of credit is essentially 
the same as that involved in extending loan facilities to customers. The Bank 
anticipates no losses as a result of such transactions.

Beginning in 1995, the Company adopted Financial Accounting Standards Board 
(FASB) Statement No. 114, Accounting by Creditors for Impairment of a Loan." 
Under the new standard, the 1995 allowance for credit losses related to loans 
that are identified for evaluation in accordance with Statement 114 is based 
on discounted cash flows using the loan's initial effect interest rate or the 
fair value of the collateral for certain collateral dependent loans. Prior to 
1995, the allowance for credit losses related to these loans was based on 
undiscounted cash flows or the fair value of the collateral for collateral 
dependent loans.

Management believes that the allowance for credit losses at September 30, 
1998 is prudent and warranted, based on information currently available. 
However, no prediction of the ultimate level of loans charged-off in future 
years can be made any certainty.

Note 4: Earnings Per Share:

Basic earnings per share are based on the weighted average number of shares 
outstanding before any dilution from common stock equivalents. Diluted 
earnings per share includes common stock equivalents from the effect of the 
exercise of stock options. The total number of share used for calculating 
basic and diluted for September 30, 1998 was 1,042,094 and 1,115,035, 
respectively. The total number of shares used for calculating basic and 
diluted for September 30, 1997 was 1,034,049 and 1,101,625, respectively.

<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Heritage Oaks Bancorp (the "Company") commenced operations on November 15, 
1994 with the acquisition of Heritage Oaks Bank (the "Bank"). Each 
shareholder of the Bank received one share of stock in the Company in 
exchange for each share of Heritage Oaks Bank stock owned. The Bank became a 
wholly owned subsidiary of the Company. This is the only subsidiary owned by 
the Company.

SUMMARY OF FINANCIAL RESULTS

As of September 30, 1998, total consolidated assets of Heritage Oaks Bancorp 
were $119,155,198 compared to $93,825,026 as of September 30, 1997. Total 
consolidated assets at December 31, 1997 were $93,319,422. The 27.00% 
increase in total assets from September 30, 1997 to September 30, 1998 was 
attributable to the growth of the new branches the Bank had opened during 
1996 and the February 22, 1997, acquisition of Wells Fargo Bank's branch 
located in Cambria, California.

Total cash at September 30, 1998 was $11,816,738. The large cash balance 
reflects the cash needed to fund the Bank's automatic teller machine ("ATM") 
network. As of September 30, 1998, the Bank was operating approximately 77 
ATMs.

Total net loans at September 30, 1998 were $68,342,793 which was up 
$12,491,388 from the $54,697,484 at December 31, 1997. Management intends to 
aggressively increase the level of loans outstanding. The total net loans 
outstanding are up $13,254,620 September 30, 1997. This increase from a year 
ago is as a result of the expansion in the number of branches and the 
reputation our Bank has established in our market area. During September 
1998, the Bank will be opening a loan production office in the five cities 
area. This is located in the southern part of San Luis Obispo County.

Securities available for sale are carried at market value which was 
$5,792,826 at September 30, 1998 compared to $8,303,218 at December 31, 1997. 
Securities held to maturity are carried at their amortized cost of 
$16,054,820 at September 30, 1998 compared to $11,590,592 at December 31, 
1997.

Federal funds sold were $6,275,000 at September 30, 1998 and $500,000 at 
December 31, 1997.

<PAGE>

Total deposits were $108,364,197 at September 30, 1998 as compared to 
$83,549,657 in deposits at December 31, 1997. The increase in total deposits 
is primarily attributable to an aggressive marketing campaign and 
consolidation of branches by our competitors. The Bank has received 
regulatory approval to open full service branches in Atascadero and Santa 
Maria, California. The branch in Atascadero is in a heavily populated area of 
the county not currently being serviced by the Bank. The branch in Santa 
Maria will be our first branch penetration into another county. It is 
anticipated that these branches will open during the first quarter of 1999.

Core deposits (time deposits less than $100,000, demand, and savings) 
gathered in the local communities served by the Bank continue to be the 
Bank's primary source of funds for loans and investments. Core deposits of 
$103,767,508 represented 95.76% of total deposits at September 30, 1998. The 
Company does not purchase funds through deposit brokers.

There was no other borrowed money September 30, 1998 or December 31, 1997.

RESULTS OF OPERATIONS

The Company reported net income for the nine months ended September 30, 1998 
was $1,036,597 or $.93 per share compared to $900,992 or $.82 per share. The 
following discussion highlights changes in certain items in the consolidated 
statements of income.

NET INTEREST INCOME

Net interest income, the primary component of the net earnings of a financial 
institution, refers to the difference between the interest paid on deposits 
and borrowings, and the interest earned on loans and investments. The net 
interest margin is the amount of net interest income expressed as a 
percentage of average earning assets. Factors considered in the analysis of 
net interest income are the composition and volume of earning assets and 
interest-bearing liabilities, the amount of non-interest bearing liabilities 
and non-accrual loans, and changes in market interest rates.

<PAGE>

                 AVERAGE BALANCE SHEET INFORMATION SEPTEMBER 30,

<TABLE>
<CAPTION>
          (dollars in thousands)                               1998                                    1997
                                               Average   Avg. Yield       Amount   Average       Avg. Yield        Amount
                                               Balance    Rate Paid     Interest   Balance        Rate Paid      Interest
                                               -------   ----------     --------   -------       ----------      --------
<S>                                            <C>          <C>          <C>       <C>              <C>           <C>
Interest Earning Assets:
  Time deposits with other banks                  $224        6.57%          $11       $84            3.18%            $2
  Investment securities taxable                 16,236        6.07%          737    14,712            5.54%           610
  Investment securities non-taxable              4,945        4.84%          179     2,748            4.91%           101
  Federal funds sold                             3,165        5.58%          132     2,590            5.47%           106
  Loans (1)(2)                                  62,149       10.13%        4,707    52,486           10.18%         3,996
                                              --------                   -----------------                       --------

   Total interest earning assets                86,719        8.89%        5,766    72,620            8.86%         4,815
                                              --------                   -----------------                       --------

Allowance for possible loan losses                (937)                               (830)
Non-earning assets:
  Cash and due from banks                       10,806                              11,042
  Property, premises and equipment               2,058                               1,945
  Other assets                                   2,984                               2,866
                                              --------                           ---------
TOTAL ASSETS                                  $101,630                             $87,643
                                              --------                           ---------
                                              --------                           ---------

Interest-bearing liabilities
  Savings/NOW/money market                     $47,641        2.48%         $884   $39,468            2.49%          $734
  Time deposits                                 24,371        5.17%          942    23,011            4.98%           857
  Other borrowings                               1,155        5.90%           51     1,295            5.78%            56
                                              --------                   -----------------                       --------

   Total interest-bearing
     liabilities                                73,167        3.43%        1,877    63,774            3.45%         1,647
                                              --------                   -----------------                       --------

Non-interest bearing liabilities
  Demand deposits                               18,485                              15,048
  Other liabilities                              1,770                               1,436
                                              --------                           ---------

   Total liabilities                            93,422                              80,258
                                              --------                           ---------

Stockholder's equity
  Common stock                                   4,190                               4,135
  Retained earnings                              4,399                               3,687
  Valuation Allowance Investments                 (381)                               (437)
                                              --------                           ---------

   Total stockholders' equity                    8,208                               7,385
                                              --------                           ---------

TOTAL LIABILITIES AND STOCKHOLDERS'
   EQUITY                                     $101,630                             $87,643
                                              --------                           ---------
                                              --------                           ---------

Net interest income                                                       $3,889                                   $3,168
                                                                         -------                                   ------
                                                                         -------                                   ------

Net interest margin (3)                                       5.98%                                   5.82%
</TABLE>

(1) Nonaccrual loans have been included in total loans.
(2) Loan fees of $215,000 and $192,000 for 1998 and 1997, respectively have
    been included in the interest income computation.
(3) Net interest margin has been calculated by dividing the net interest income
    by total earning assets.

Note:  Average balances have been computed using daily balances.

<PAGE>

Net interest income for the nine months ended September 30, 1998 was 
$3,892,031. This represents an improvement of $655,324 or 20.25% more than 
the $3,236,707 for the comparable period in 1997. As a percentage of average 
earning assets, net interest margin for the first nine months of 1998 
increased to 5.98% from 5.82% in the same period one year earlier. The 
increase in net interest margin is primarily due to an $14,099,000 increase 
in average interest earning assets and an increase of only $9,393,000 in 
interest bearing liabilities. This improvement was as a result of the bank's 
marketing efforts to attract non-interest bearing demand deposit accounts. 
The average balance of demand deposits at September 30, 1998 has grown 
$3,437,000 from the previous year.

Average interest earning assets were $86,719,000 for September 30, 1998 
compared to $72,620,000 for September 30, 1997. Average interest-bearing 
liabilities increased to $73,167,000 at September 30, 1998 from $63,774,000 
at September 30, 1997. Average interest rates on interest-bearing liabilities 
dropped from 3.45% for the first nine months of 1997 to 3.43% for the first 
nine months of 1998.

The preceding table sets forth average balance sheet information, interest 
income and expense, average yields and rates and net interest income and 
margin for the nine months ended September 30, 1998 and 1997.

Non-interest Income

Non-interest income consists of bankcard merchant fees, automatic teller 
machine ("ATM") transactions, and other fees, service charges, and gains on 
other real estate owned. Non-interest income for the nine months ended 
September 30, 1998 was $4,919,830 compared to $3,366,746 for the comparable 
period in 1997. Service charge income increased from $391,614 during the 
first nine months of 1997 to $521,067 for the nine months ended September 30, 
1998. The increase in service charges is a direct result of the bank's growth 
in deposit accounts. ATM transaction fees and interchange income were 
$3,277,600 during the nine months ended September 30, 1998 compared to 
$2,174,116 during the same period for 1997. The Bank receives income for each 
transaction. Approximately, half of the ATMs are located at gaming sites on 
Native American lands. The competition related to the installation of ATM 
machines has been increasing and could reduce future income from these 
machines. One of our most 

<PAGE>

profitable Native American ATM sites has recently restricted access to some 
of our ATM machines on their reservation. The total net income from this one 
site for the first nine months of 1998 was approximately $408,442. The bank 
has filed a lawsuit to enforce our contract. While management is confident it 
will prevail in this lawsuit, the financial impact can not accurately be 
determined at the present time. In an attempt to minimize the impact of 
potentially losing this site the Bank is aggressively trying to add new ATM 
sites. The increase in ATM revenue for the current year reflects the 
acquisition by the Bank of the two operating entities that had previously 
shared in the income. In order for non-financial institutions to utilize the 
various regional, national and international networks, they need a financial 
institution to sponsor them on these networks. The bank has entered an 
agreement with a few non-financial institutions to sponsor them on these 
networks. The bank receives a nominal sponsorship fee for each transaction 
run through the networks. The sponsorship revenue for the six months ended 
September 30, 1998 was $92,797 compared to $103,667 for the same period 
during 1997. Income from bancard merchant fees increased to $627,567 for the 
nine months ended September 30, 1998 compared to $464,476 for the same period 
during 1997. The Bank has been adding approximately 5 to 10 new customers a 
month for the bancard business.

Other Expense

The Bank acquired a new branch in Cambria on February 22, 1997. The bank also 
established a mortgage banking subsidiary that originates and sells loans in 
the secondary market. The Bank receives a fee for each loan processed. The 
bank has established a loan production office in the southern part of the 
county. Other expenses have grown as a result of the additional branch, 
departments, and rapid growth of the Bank. Salaries and employee benefits 
expense were $2,178,088 and $1,834,818 for September 30, 1998 and 1997, 
respectively. Full time equivalent employees were 71 at September 30, 1998 
compared to 60 at September 30, 1997. The increase is related to the 
additional staff that has been hired for our two new branches to be open 
during the first quarter of next year. The bank has also open a loan 
production office in the southern part of the county.

Occupancy and equipment costs grew to $806,451 for the nine months ended 
September 30, 1998 from $702,744 for the comparable period of 1997. The Bank 
had one more branch and department at September 30, 1998 compared to 
September 30, 1997. The Bank is 

<PAGE>

continuing to upgrade its equipment and services. The Bank is actively 
working to resolve the potential impact of the year 2000 on the processing of 
date-sensitive information by the Company's computerized information systems.

Other expense increased to $4,113,781 for the nine months ended September 30, 
1998 compared to $2,477,736 for the nine months ended September 30, 1997. The 
increase in other expenses reflected increases associated with the growth of 
the new branch and increased expenses related to the operation of the Bank's 
ATM networks and an increase in the bankcard expenses. Since the Bank 
acquired the interest of the two entities that shared in the revenue and 
expense from the ATM network the Bank's portion of the expense has increased 
this year. The ATM expenses were $1,921,793 for the nine months ended 
September 30, 1998 compared to $1,226,892 for the same period during 1997.

LOCAL ECONOMY

The California economy is expected to continue growing at a modest rate. The 
local economy in the Bank's primary service area is anticipated to show 
higher rates of growth than the state as a whole. The Bank's branch locations 
have been located to take advantage of this growing economy. The Bank has 
received regulatory approval to open a new branch in Atascadero, California 
and another branch in Santa Maria, California.

Capital

The Company's total stockholders equity was $8,783,774 as of September 30, 
1998 compared to $8,127,078 as of December 31, 1997. The increase in capital 
was from net income of $1,036,597 and a $118,874 improvement in the valuation 
allowance for investments. The valuation allowance was a result of the 
company's adoption of SFAS No. 115 "Accounting for Certain Investment in Debt 
and Equity Securities." The changes in market value for investments held as 
Available for Sale are measured at fair value, with unrealized gains and 
losses, net of applicable taxes shown as a separate component of 
stockholders' equity. The increase in capital was offset by a $.50 per share 
dividend that was paid during February. The total dividend paid was $519,717.

Capital ratios for commercial banks in the United States are generally 
calculated using nine different formulas. These calculations are referred to 
as the "Leverage Ratio" and two 

<PAGE>

"risk based" calculations known as: "Tier One Risk Based Capital Ratio" and 
the "Total Risk Based Capital Ratio." These standards were developed through 
joint efforts of banking authorities from 12 different countries around the 
world. The standards essentially take into account the fact that different 
types of assets have different levels of risk associated with them. Further, 
they take into account the off-balance sheet exposures of banks when 
assessing capital adequacy.

The Leverage Ratio calculation simply divides common stockholders' equity 
(reduced by any Goodwill a bank may have) by the total assets of the bank. In 
the Tier One Risk Based Capital Ratio, the numerator is the same as the 
leverage ratio, but the denominator is the total "risk-weighted assets" of 
the bank. Risk weighted assets are determined by segregating all the assets 
and off balance sheet exposures into different risk categories and weighing 
them by a percentage ranging from 0% (lowest risk) to 100% (highest risk). 
The Total Risk Based Capital Ratio again uses "risk-weighted assets" in the 
denominator, but expands the numerator to include other capital items besides 
equity such as a limited amount of the loan loss reserve, long-term capital 
debt, preferred stock and other instruments. Summarized below are the bank's 
capital ratios at September 30, 1998. Additionally, the standards for a 
well-capitalized institution are displayed (note that standards for 
adequately capitalized institutions are even lower.)

<TABLE>
<CAPTION>
                               Well-Capitalized        Heritage
                              Regulator Standard       Oaks Bank
<S>                                 <C>                 <C>
Leverage Ratio                       5.00%               7.27%

Tier One Risk Based Capital Ratio    6.00%               9.66%

Total Risk Based Capital Ratio      10.00%              10.67%
</TABLE>

It is the intent of Management to continue to maintain strong capital ratios.

LIQUIDITY

The objective of liquidity management is to ensure the continuous 
availability of funds to meet the demands of depositors, investors and 
borrowers. Asset liquidity is primarily derived from loan payments and the 
maturity of other earning assets. Liquidity from liabilities is obtained 
primarily from the receipt of new deposits. The Bank's Asset Liability 
Committee (ALCO) is 

<PAGE>

responsible for managing the on-and off-balance sheet commitments to meet the 
needs of customers while achieving the Bank's financial objectives. ALCO 
meets regularly to assess the projected funding requirements by reviewing 
historical funding patterns, current and forecasted economic conditions, and 
individual customer funding needs. Deposits generated from Bank customers 
serve as the primary source of liquidity. The Bank has credit arrangements 
with correspondent banks which serve as a secondary liquidity source in the 
amount of $3,500,000 and additional can borrow money through repurchase 
agreements with two brokerage firms.

The Bank manages its liquidity by maintaining a majority of its investment 
portfolio in federal funds sold and other liquid investments. At September 
30, 1998, the ratio of liquid assets to deposits and other liabilities was 
31.48%. The ratio of gross loans to deposits, another key liquidity ratio, 
was 63.70% at September 30, 1998.

INFLATION

The assets and liabilities of a financial institution are primarily monetary 
in nature. As such, they represent obligations to pay or receive fixed and 
determinable amounts of money which are not affected by future changes in 
prices. Generally, the impact of inflation on a financial institution is 
reflected by fluctuations in interest rates, the ability of customers to 
repay debt and upward pressure on operating expenses. In addition, inflation 
affects the growth of total assets by increasing the level of loan demand, 
and may potentially adversely affect the Bank's capital adequacy because loan 
growth in inflationary periods may increase more rapidly than capital. The 
effect on inflation during the period ended September 30, 1998 has not been 
significant to the Bank's financial position or result of operations.

PART 2.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Bank is not aware of any legal proceeding against it that will have a 
material effect on the Company's financial statements.

<PAGE>

SIGNATURES

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

HERITAGE OAKS BANCORP

DATE: November 12, 1998



                                    S/ Lawrence P. Ward
                                    ------------------------
                                    Lawrence P. Ward
                                    President
                                    Chief Executive Officer



                                    S/ Robert E. Bloch
                                    ------------------------
                                    Robert E. Bloch
                                    Chief Financial Officer
                                    Executive Vice President