SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-QSB T
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934For the quarterly period ended March 31,
  2001£
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934For the Transition Period from ________to Commission File No. 0-25020 HERITAGE
OAKS BANCORP(Exact name of registrant as specified in charter) STATE OF CALIFORNIA
  77-0388249(State or
  other jurisdiction of incorporation or organization)
  (I.R.S.
  Employer Identification Code)545 12th STREET, PASO ROBLES, CA
  93446(Address
  of principal office)
  (zip code)(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.YESTNO£
 Aggregate market value of Common Stock of
Heritage Oaks Bancorp at April 1, 2001: $27,198,045. 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 - 1,295,145 shares outstanding at April 1, 2001.   TABLE
  OF CONTENTSConsolidated
  Balance Sheets for periods ended December 31, 2000 and March 31, 2001Consolidated
  Statements of Income for periods ended March 31, 2000 and March 31, 2001Consolidated
  Statements of Cash Flows for periods ended March 31, 2000 and March 31, 2001Consolidated
  Statements of Stockholders Equity for periods ended March 31, 2000 and March
  31, 2001Notes
  to Consolidated Condensed Financial StatementsItem
  2. Managements Discussion and Analysis of Financial Condition and Results of
  OperationsPart 2.  Other InformationItem 1.  Legal ProceedingsSignaturesHERITAGE OAKS BANCORPCONSOLIDATED BALANCE SHEETS31-Dec-00(1)
  
  31-Mar-01(Unaudited)ASSETSCash and due from banks
  $19,435,534
  
  $16,391,899Federal funds sold
  4,600,000
  
  14,175,000Total cash and cash equivalents
  24,035,534
  
  30,566,899Interest bearing deposits other banks
  198,000
  
  198,000Securities Available for sale
  16,212,505
  
  14,839,031Federal Home Loan Bank Stock, cost
  381,600
  
  387,900Loans Held For Sale
  2,474,542
  
  3,666,250Loans, net (see note 3)
  133,680,029
  
  133,433,248Property, premises and equipment, net
  3,062,815
  
  2,877,047Other real estate owned
  0
  
  0Cash surrender value life insurance
  1,369,549
  
  2,542,490Deferred Tax Asset
  998,754
  
  877,833Other assets
  1,674,697
  
  1,393,842TOTAL ASSETS
  $184,088,025
  
  $190,782,540LIABILITIES AND STOCKHOLDERS'EQUITY
  LIABILITIESDeposits:Demand, non-interest bearing
  $51,821,233
  
  56,052,780Savings, NOW, and money market deposits
  63,715,930
  
  62,656,597Time deposits of $100,000 or more
  7,659,791
  
  4,490,106Time deposits under $100,000
  44,499,935
  
  50,309,851Total deposits
  167,696,889
  
  173,509,334Other borrowed money
  1,050,000
  
  1,050,000Securities sold under agreement to repurchase
  0
  
  0Other liabilities
  1,886,127
  
  1,947,449Total liabilities
  170,633,016
  
  176,506,783Stockholders' equityCommon stock, no parvalue; 20,000,000shares authorized; issued and outstanding
  1,224,999 and 1,295,145 for December 31, 2000 and March 31, 2001,
  respectively
  6,305,233
  
  7,489,361Accumulated other comprehensive income
  (141,364)
  
  40,017Retained earnings
  7,291,140
  
  6,746,379Total stockholders' equity
  13,455,009
  
  14,275,757TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
  $184,088,025
  
  $190,782,540





(1)  These numbers have been
derived from the audited financial statements.
See notes to condensed financial statements


HERITAGE OAKS BANCORPCONSOLIDATED STATEMENTS OF
  INCOMEFor the three months ended March
  31,2000
  2001(Unaudited)
  (Unaudited)Interest Income:Interest and fees on loans
  $2,768,281
  $3,442,390Investment securities
  270,645
  220,289Federal funds sold and commercial paper
  8,496
  63,498Time certificates of deposit
  2,788
  2,530Total interest income
  3,050,210
  3,728,707Interest Expense:Now accounts
  159,765
  204,963MMDA accounts
  46,156
  83,160Savings accounts
  76,395
  77,071Time deposits of $100,000 or more
  122,784
  38,009Other time deposits
  379,815
  695,849Other borrowed funds
  72,224
  39,773Total interest expense
  857,139
  1,138,825Net Interest Income Before Prov. for Possible Ln Losses
  2,193,071
  2,589,882Provision for loan losses
  57,000
  150,000Net interest income after provision for loan losses
  2,136,071
  2,439,882Non-interest Income:Service charges on deposit accounts
  232,618
  278,087Investment securities gains (losses), net
  (2,188)
  (1,606)Other income
  1,104,357
  1,561,735Total Non-interest Income
  1,334,787
  1,838,216Non-interest  Expense:Salaries and employee benefits
  1,001,914
  1,065,814Occupancy and equipment
  416,036
  511,313Other expenses
  1,250,217
  1,780,142Total Noninterest Expenses
  2,668,167
  3,357,269Income before provision for income taxes
  802,691
  920,829Provision for applicable income taxes
  296,587
  324,410Net Income
  $506,104
  $596,419Earnings per share:       (See note #4)Basic
  $0.40
  $0.46Fully Diluted
  $0.36
  $0.43See notes to condensed financial statements


HERITAGE OAKS BANCORPCONSOLIDATED STATEMENTS OF
  CASHFLOWSPeriods ended March 31,2000
  2001(Unaudited)
  (Unaudited)Cash Flows from Operating
  ActivitiesNet income
  $506,104
  $596,419Adjustments to reconcile
  net income tonet cash provided by operating activitiesNet cash provided by
  operating activitiesDepreciation and
  amortization
  180,424
  286,990Provision for
  possible loan losses
  57,000
  150,000Provision for
  possible OREO losses
  0
  0Realized (gain) loss
  on sales of available-for-salesecurities, net
  (2,188)
  (1,606)Gain on sales of
  property, premise and equipment
  1,979
  0Amortization of
  premiums/discounts oninvestment securities, net
  (37,905)
  (112,603)(Increase)/decrease
  in loans held for sale
  (581,588)
  (1,191,708)(Increase)/decrease in
  deferred tax asset
  22,211
  120,921(Increase)/decrease
  in other assets
  (465,451)
  257,914Increase/(decrease)
  in other liabilities
  339,895
  61,322NET CASH PROVIDED BY OPERATING ACTIVITIES
  20,481
  167,649Cash Flows From Investing
  ActivitiesPurchase of securities
  held-to-maturityPurchase of mortgage-backed
  securities held-to-maturityPurchase of securities
  available-for-sale
  (13,016)
  (14,938)Purchase of mortgage-backed
  securities available-for-sale
  0
  0Proceeds from principal
  reductions and maturitiesof securities held-to-maturity
  0
  0Proceeds from principal
  reductions and maturitiesof mortgage-backed securities held-to-maturity
  0
  0Proceeds from sales of
  securities available-for-sale
  0
  0Proceeds from principal
  reductions and maturitiesof securities available-for-sale
  1,330,864
  1,527,695Proceeds from sales of
  mortgage-backed securities available-for-sale
  0
  0Proceeds from principal
  reductions and maturitiesof mortgage-backed securities available-for-sale
  0
  0Net change in interest
  bearing deposits in other financial institutions
  0
  0Purchase of life insurance
  policies
  0
  (1,150,000)Proceeds from sale of other
  real estate ownedRecoveries on loans
  previously written off
  0
  0Increase in loans, net
  (13,027,305)
  246,781Purchase of property,
  premises and equipment, net
  (118,564)
  (101,215)NET CASH USED IN INVESTING ACTIVITIES
  (11,828,021)
  508,323Cash Flows From Financing
  ActivitiesIncrease in deposits, net
  $8,599,241
  $5,812,445Net increase/(decrease) in
  other borrowings
  4,999,000
  0Net (decrease)/increase in
  notes payable
  0
  0Proceeds from exercise of
  stock options
  41,316
  47,507Cash paid in lieu of
  fractional shares
  0
  (4,559)Cash dividends paid or
  declaredNET CASH PROVIDED BY FINANCING ACTIVITIES
  13,639,557
  5,855,393Net (Decrease)/Increase in Cash
  and Cash Equivalents
  1,832,017
  6,531,365Cash and Cash Equivalents, Beginning of year
  18,359,073
  24,035,534Cash and Cash Equivalents, End of year
  $20,191,090
  $30,566,899See notes to condensed financial statementsHERITAGE
OAKS BANCORP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
March 31, 2000 and March 31, 2001
(Unaudited)



AccumulatedOther
  
  TotalShares
  Common
  Retained
  Comprehensive
  
  Stockholders'Outstanding
  Stock
  Earnings
  Income
  
  EquityBalance December 31, 1999
  1,144,282
  $5,288,179
  $5,912,823
  ($658,840)
  
  $10,542,162Exercise of
  Stock Options
  9,997
  41,316
  0
  
  
  41,3165% Stock
  Dividend to be distributed April 17, 2000
  57,713
  865,695
  (865,695)
  
  
  0Comprehensive
  IncomeNet Income
  
  
  506,104
  
  
  506,104Unrealized Security Holding Gains (Net of $8,374 tax)
  
  
  
  (12,561)Total Other Comprehensive Income
  
  
  
  
  
  (12,561)Total
  comprehensive Income
  
  
  
  
  
  493,543Balance March 31, 2000
  1,211,992
  $6,195,190
  $5,553,232
  ($671,401)
  
  $11,077,021


AccumulatedOther
  
  TotalShares
  Common
  Retained
  Comprehensive
  
  Stockholders'Outstanding
  Stock
  Earnings
  Income
  
  EquityBalance December 31, 2000
  1,224,999
  $6,305,233
  $7,291,140
  ($141,364)
  
  $13,455,009Exercise of
  Stock Options
  8,707
  47,507
  0
  
  
  47,5075% Stock
  Divident to be distributed March 30, 2001
  61,439
  1,136,621
  (1,136,621)
  
  
  0Cash Paid in
  lieu of Fractional Shares
  
  
  (4,559)
  
  
  (4,559)Comprehensive
  IncomeNet Income
  
  
  596,419
  
  
  596,419Unrealized Security Holding Gains (Net of $120,919 tax)
  
  
  
  181,381Total Other Comprehensive Income
  
  
  
  
  
  181,381Total
  comprehensive Income
  
  
  
  
  
  777,800Balance March 31, 2001
  1,295,145
  $7,489,361
  $6,746,379
  $40,017
  
  $14,275,757

NOTES TO CONSOLIDATED CONDENSED FINANACIAL 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 December 31, 2000 and March 31, 2001, and the results of
  operations and cash flows for the three months ended March 31, 2000 and March
  31, 2001.
  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 2000 Annual Report to shareholders.  The results for the three months ended
  March 31, 2000 and March 31, 2001 may not necessarily be indicative of the
  operating results for the full year.



Note 2: INVESTMENT SECURITIES


The
  Company accounts for Investment Securities in accordance SFAS No. 115
  "Accounting for Certain Investments in Debt and Equity Securities"
  , that addresses the accounting for investments in equity securities that
  have readily deteminable 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
  March 31, 2001 and December 31, 2000 were:

Gross
  GrossAmortized
  Unrealized
  Unrealized
  
  FairMarch 31, 2001
  Cost
  Gains
  Losses
  
  ValueObligations of
  U.S. government agencies and corporations
  $1,108,943
  $9,617
  ($4,956)
  
  $1,113,604Mortgage-backed
  securities
  7,710,476
  22,920
  (139,755)
  
  7,593,641Obligations of
  State and Political Subdivisions
  5,944,279
  181,140
  (2,271)
  
  6,123,148Other
  Securities
  8,638
  0
  0
  
  8,638TOTAL
  $14,772,336
  $213,677
  ($146,982)
  
  $14,839,031December 31, 2000
  
  Gross
  GrossAmortized
  Unrealized
  Unrealized
  
  FairCost
  Gains
  Losses
  
  ValueObligations of
  U.S. government agencies and corporations
  $2,392,808
  $0
  ($76,721)
  
  $2,316,087Mortgage-backed
  securities
  7,958,658
  6,468
  (239,825)
  
  7,725,301Obligations of
  State and Political Subdivisions
  6,088,006
  90,786
  (16,313)
  
  6,162,479Other
  Securities
  8,638
  0
  0
  
  8,638TOTAL
  $16,448,110
  $97,254
  ($332,859)
  
  $16,212,505Note 3: Loans and Reserve for Possible Loan Losses



Major classifications of loans were:


December 31,
  March 31,2000
  2001Commercial,
  financial, and agricultural
  $42,931,015
  $42,165,556Real
  estate-construction
  18,599,452
  18,584,818Real
  estate-mortgage
  70,550,560
  70,859,172Installment
  loans to individuals
  3,246,214
  3,589,848All other loans
  (including overdrafts)
  160,779
  220,632135,488,020
  135,420,026Less - deferred
  loan fees
  (487,473)
  (517,445)Less - reserve
  for possible loan losses
  (1,320,518)
  (1,469,333)Total loans
  $133,680,029
  $133,433,248Loans Held For
  Sale
  $2,474,542
  $3,666,250



Concentration of Credit Risk


At March 31, 2001, $89,443,990  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
  $991,230 and $760,126 at December 31, 2000 and March 31, 2001,
  respectively.  Interest income that
  would have been recognized on non-accrual loans if they had performed in
  accordance with the terms of the loans was approximately $115,603 and
  $37,642, for the period ended December 31, 2000 and March 31, 2001,
  respectively.


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


December 31,
  March 31,2000
  2001Balance at
  beginning of year
  $1,241,016
  $1,320,518Additions
  charged to operating expense
  519,000
  150,000Loans charged
  off
  (458,920)
  (1,500)Recoveries of
  loans previously charged off
  19,422
  315Balance at end
  of year
  $1,320,518
  $1,469,333At March 31, 2001, the Bank was contingently liable for letters of credit
  accommodations made to its customers totaling $1,050,142 and undisbursed loan
  commitments in the amount of $37,079,000. 
  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.In accordance with SFAS No. 114, (as
  amended by SFAS No. 118), "Accounting by Creditors for Impairment of a
  Loan", those loans identified as "impaired" are measured on
  the present value of expected future cash flows, discounted at the loan's
  effective interest rate or the fair value of the collateralif the loan is
  collateral dependent. A loan is impaired when it is probable the creditor
  will not be able to collect all contractual principal and interest payments
  due in accordance with the terms of the loan agreement.Management believes that the
  allowance for credit losses at March 31, 2001 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 with 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 March 31, 2000 was 1,201,701
  and 1,320,354, respectively.  The
  total number of shares used for calculating basic and diluted for March 31,
  2001 was 1,289,392 and 1,386,847, respectively.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.  The
Bank is the only active subsidiary owned by the Company.

SUMMARY
OF FINANCIAL RESULTS

As
of March 31, 2001, total consolidated assets of Heritage Oaks Bancorp were
$190,782,540 compared to $184,088,025 at December 31, 2000.  This reflects an increase of 3.64%. The
growth in the first quarter of 2001 is significantly less than the 9.83% growth
in the first quarter of 2000. This comes as no surprise given the economic
slowdown being experienced throughout the nation as well as the Banks primary
market area. Management anticipates growth for the year 2001 to be about 15%
growth.

Total
cash at March 31, 2001 was $16,391,899 compared to $19,435,534 at December 31,
2000. The decrease of $3,043,635 or 15.66% is due to the Bank divesting itself
of 36 ATM sites. As of March 31, 2001, the Bank was operating approximately 29
ATMs compared to approximately 65 ATMs at December 31, 2000. This will be
discussed in more detail within this document.

Total
net loans at March 31, 2001 were $133,433,428 compared to $133,680,029 at
December 31, 2000. The Bank has been experiencing some pay-off activity along
with less than robust loan demand. Efforts are ongoing to increase activity to
meet expectations of 15% growth for the year.

Securities
available for sale, which are carried at market value, were $14,830,393 at
March 31, 2001 compared to $16,212,505 at December 31, 2000. Securities
available for sale have decreased through security maturity and principal cash
flow pay down.

Federal
funds sold were $14,175,000 at March 31, 2001 and $4,600,000 at December 31,
2000. Total deposits were  $173,509,334
at March 31, 2001 compared to $167,696,889 at December 31, 2000, which
represents an increase of 3.47%. The increase in total deposits is attributable
to increased activity with Title Company accounts and growth in the branch
offices.

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 $172,318,629 represented 99.3% of total deposits at
March 31, 2001. The Company does not purchase funds through deposit brokers.

The
Company has a $2 million revolving line of credit available with Pacific Coast
Bankers Bank. At March 31, 2001 and December 31, 2000, the balance of borrowed
funds on this line was $1,050,000.

The
Bank has established borrowing lines with the Federal Home Loan Bank (FHLB) of
approximately $4.2 million and $2.5 million secured by securities and certain
loans, respectively At March 31, 2001, the Bank has no borrowings against those
lines.

RESULTS
OF OPERATIONS

The
Company reported net income for the period ended March 31, 2001 of $596,419
compared to $506,104 for the same period in 2000. Per share earnings on a
diluted basis for March 31, 2001 and March 31, 2000 were $0.43 and $0.36,
respectively. Basic per share earnings for March 31, 2001 and March 31, 2000
were $0.46 and $0.40, respectively.

Increased
year-to-date earnings are the direct result of higher average loans within the
existing infrastructure of the Bank and the Banks expansion into Arroyo Grande
in January 2000.

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.

Net
interest income for the period ended March 31, 2001 was $2,589,882 as compared
to $2,193,071 for the same period in 2000. This represents an improvement of
$396,811 or 18.09%. As a percentage of average earning assets, the net interest
margin for the first three months of 2001 decreased to 6.48% from 6.77% from
the same period one year earlier.  The
decrease in net interest margin is primarily due to the three 50 basis point decreases in prime
during the first quarter of 2001 and the fact that the Banks rate sensitive
liabilities re-price at a slower pace than rate sensitive assets.

Average
interestearning
assets were $159,787,000 at March 31, 2001 compared to $129,503,000 at March
31, 2000.  Average interest-bearing
liabilities increased to $115,537,000 at March 31, 2001 from $99,081,000 at
March 31, 2000. For the first three months of 2001, the average yield on
interest earning assets dropped 9 basis points from the same period in 2000.
For the first three months of 2001 prime rate dropped from 9.0% to 7.5% and
increased from 8.5% to 9.0% for the same period in 2000. At March 31, 2001 the
average rate on interest-bearing liabilities was 3.94% compared to 3.46% at
March 31, 2000. During the first two quarters of 2000, loan demand was strong
while deposit growth was a challenge for our financial institution along with
most other commercial banks in the United States. In order to fund the loan
demand, the Bank offered very competitive rates on CDs that increased the cost
of funds. However, the Bank still maintains a very favorable net interest
margin. These CDs were opened primarily during the second quarter of 2000 and
will be maturing throughout 2001. The Bank will have the opportunity to lower
its cost of funds upon the maturity of these deposits.

The
table on the following page sets forth the average balance sheet information, interest
income and expense, average yields and rates and net interest income and margin
for the three months ended March 31, 2001 and 2000.



AVERAGE BALANCE SHEET
INFORMATION FOR MARCH 31,



(dollars in
thousands)


2001
  2000Average
  Average Yield
  Amount
  Average
  Average Yield
  AmountInterest
  Earning Assets:
  Balance
  Rate Paid
  Interest
  Balance
  Rate Paid
  InterestTime deposits with other
  banks
  $198
  6.06%
  $3
  $377
  3.18%
  $3Investment securities taxable
  9,701
  6.06%
  147
  11,941
  6.43%
  192Investment securities
  non-taxable
  6,146
  4.75%
  73
  6,228
  5.07%
  79Federal funds sold
  4,872
  5.25%
  64
  671
  4.77%
  8Loans (1) (2)
  138,870
  9.91%
  3,442
  110,286
  10.04%
  2,768Total interest earning assets
  159,787
  9.33%
  3,729
  129,503
  9.42%
  3,050Allowance for
  possible loan losses
  (1,386)
  
  
  (1,271)Non-earning
  assets:Cash and due from banks
  15,876
  
  
  15,886Property, premises and equipment
  3,030
  
  
  3,410Other assets
  4,496
  
  
  3,910TOTAL ASSETS
  $181,803
  
  
  $151,438Interest
  -bearing liabilities:Savings/NOW/money market
  61,294
  2.38%
  365
  54,491
  2.07%
  282Time deposits
  52,064
  5.64%
  734
  39,965
  5.03%
  503Other borrowings
  2,179
  7.34%
  40
  4,625
  6.23%
  72Total interest-bearing
  liabilities
  115,537
  3.94%
  1,139
  99,081
  3.46%
  857Non-interest
  bearing liabilities:Demand deposits
  50,089
  
  
  40,026Other liabilities
  2,248
  
  
  1,492Total liabilities
  167,874
  
  
  140,599Stockholders'
  equityCommon stock
  6,777
  
  
  5,302Retained earnings
  7,233
  
  
  6,262Valuation Allowance
  Investments
  (81)
  
  
  (725)Total stockholders' equity
  13,929
  
  
  10,839TOTAL LIABILITIES AND STOCKHOLDERS'
  EQUITY
  $181,803
  
  
  $151,438Net Interest
  Income
  
  
  $2,590
  
  
  $2,193Net Interest
  Margin (3)
  
  6.48%
  
  
  6.77%(1)
  Nonaccrual
  loans have been included in total loans.(2)
  Loan
  fees of $129,171 and $165,773 for 2001 and 2000, respectively, have been
  included in the interest income computation.(3)
  Net
  interest income has been calculated by dividing the net interest income by
  total earning assets.



Non-interest
Income



Non-interest
income consists of bankcard merchant fees, automatic teller machine
("ATM") transactions, Mortgage Department and other fees, service
charges, and gains on other real estate owned. Non-interest income for the
three months ended March 31, 2001 was $1,838,216 compared to $1,334,787 for the
same period in 2000. That represents an increase of $503,429 or 37.7%. Income
from bankcard merchant fees was $25,697 for the three months ended March 31,
2001 compared to $24,482 for the same period during 2000. Mortgage Department
income was $123,307 for the first three months of 2001 compared to $ 55,867 for
the same period in 2000. Decreasing interest rates have created a positive
environment for mortgage refinancing. The Bank looks for this to continue while
interest rates remain low. Service charge income increased from $232,618 during
the first three months of 2000 to $278,087 for the threemonths ended
March 31, 2001. This increase in service charges is a result of the Banks
growth in deposit accounts due to branch office expansion in 1999 and 2000.

ATM
transaction fees, interchange and other ATM related income were $1,243,621 for
the first three months of 2001 compared to $899,178 for the same period in
2000. Approximately 66% of the increased revenue was the result of increased
transactions in the Gaming Network, referred to as NANS. However, nearly all of
that increase was offset by additional expense to the Gaming site. The total
ATM income for 2001 includes the gross revenue obtained in the sale of the HOAK
Network (retail sites) that was offset to a great extent by expenses associated
with the divestiture. The Bank has been divesting itself of this line of
business for the past twelve months by closing unprofitable sites and selling
others. By the end of the second quarter of 2001, the remaining NANS Network
will consist of 4 locations with 5 ATMs installed.



Other
Expense



Non-interest expense was $3,357,269 and
$2,668,167 for the three months ended March 31, 2001 and March 31, 2000,
respectively. Salaries and employee benefits expense were $1,065,814 and
$1,001,914 for the threemonths ended March 31, 2001 and 2000,
respectively.  Full time equivalent
employees were 94 at March 31, 2001 compared to 92 at March 31, 2000. Occupancy
and equipment costs grew to $511,313 for the three months ended March 31, 2001
from $416,036 for the same period of 2000. This represents an increase of
$95,277 or 22.9%. Approximately $107,000 of this variance is the result of
fully depreciating equipment associated with the sold HOAK ATM Network.
Operating expense associated with the ATM network was $874,428 and $605,569 for
the three months ended March 31, 2001 and 2000, respectively. This represents
an increase of $268,859 or 44.4%. Approximately 87% of this variance is due to
the re-negotiating of a particular gaming agreement that the Bank will
discontinue processing prior to the end of the second quarter in 2001. Expense
associated with all other non-interest expense categories was $905,714 and
$644,469 for thethree months ended March 31, 2001and 2000, respectively. This represents a variance of $261,245 pr 40.5%. Nearly
40% of that variance is associated with increases in data processing expense
due to higher transaction volume. Another 27% of the variance is due to
increased outside service costs that include attorney expense and Bank
insurance.

LOCAL
ECONOMY

The
economy in the Companys service area is based primarily on agriculture,
tourism, light industry, oil and retail trade. Services supporting these
industries have also developed in the areas of medical, financial and
educational. The population in the two county areas comprising the Companys
service area, according to the U.S. Bureau of the Census, was estimated at July
1999 to be approximately 644,000. San Luis Obispo County represents about 37%
of this total with Santa Barbara County accounting for the remaining
approximately 63%. The moderate climate allows a year round growing season for
numerous vegetable and fruits. Vineyards and cattle ranches also contribute
largely to the local economy. Vineyards in production have grown significantly
over the past several years throughout the Companys service area. Access to
numerous recreational activities, including lakes, mountains and beaches,
provide a relatively stable tourist industry from many areas including the Los
Angeles/Orange County basin, the San Francisco Bay area and the San Joaquin
Valley. Principally due to the diversity of the various industries in the
Company's service area, the area, while not immune from economic fluctuations,
does tend to enjoy a more stable level of economic activity from many other
areas of California.

CAPITAL

The
Company's total stockholders equity was $14,275,757 at March 31, 2001 compared
to $13,455,009 at December 31, 2000. 
The increase in capital was from net income of $596,419, $47,507 from
stock options exercised, $181,381 net change in other comprehensive income
related to unrealized security holding gain, net of tax and $($4,559) in cash
paid in lieu of fractional shares as the result of the 5% stock dividend
distributed on March 30, 2001.

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
"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 average 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 and Company's capital ratios at March 31, 2001:

Regulatory StandardAdequately
  Capitalized
  Well
  Capitalized
  Heritage
  Oaks Bank
  Heritage
  Oaks BancorpLeverage Ratio
  4.00%
  5.00%
  7.78%
  7.83%Tier One Risk Based Captial Ratio
  4.00%
  6.00%
  9.45%
  9.68%Total Risk Based Captial Ratio
  8.00%
  10.00%
  10.43%
  10.67%It
is the intent of Management to continue to maintain well capitalized 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 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 that
serve as a secondary liquidity source in the amount of $5,000,000 and
additionally can borrow money through repurchase agreements with a brokerage
firm. During the first quarter of 2001, the average funds borrowed from
correspondent banks was $62,222. There were no borrowings through repurchase
agreements.

As
of July 1999, the bank became a member of the Federal Home Loan Bank of San
Francisco. Certain securities and loans are pledged as collateral with a
combined borrowing capacity of approximately $6.7 million. During the first
quarter of 2001, the Bank borrowed $3 million for 30 days using securities as
collateral. The bank is able to borrow at a rate that does not significantly
impact the net interest margin.

The
Bank manages its liquidity by maintaining a majority of its investment
portfolio in federal funds sold and other liquid investments.  At March 31, 2001, the ratio of liquid
assets to deposits and other liabilities was 13.8%. The ratio of gross loans to
deposits, another key liquidity ratio, was 80.3% at March 31, 2001.

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 March 31, 2001 has not been
significant to the Bank's financial position or result of operations.

PART 2.            OTHER INFORMATION

ITEM
1.            LEGAL PROCEEDINGS

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

ITEM
2.            CHANGES IN SECURITIES AND
USE OF PROCEEDS

The
Company has nothing to report.

ITEM
3.            DEFAULTS UPON SENIOR
SECURITIES

The
Company has nothing to report.

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

The
Company has nothing to report.

ITEM
5.            OTHER INFORMATION

The
Company has nothing to report.

ITEM
6.            EXHIBITS AND REPORTS ON FORM
8-K

(a)   Exhibits10.2001
  Executive
  Salary Continuation Agreement dated March 7, 2001 between Heritage Oaks Bank
  and Lawrence P. Ward, filed with the SEC in the Companys 10-QSB reported for
  March 31, 2001.(b)   Reports on Form 8-K.Michael
  J. Morris was elected Director to Heritage Oaks Bancorp and Heritage Oaks
  Bank, as filed with the SEC on February 20, 2001 on Form 8-K.



SIGNATURES

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

HERITAGE
OAKS BANCORP

DATE:
May 2, 2001



S/
  Lawrence P. WardLawrence
  P. WardPresidentChief
  Executive OfficerS/
  Margaret A. TorresMargaret
  A. TorresChief
  Financial OfficerExecutive
  Vice President