<PAGE>

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

         /X/   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 for the Year ended DECEMBER 31, 1999

                                       OR

         / /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 For the transition period from    to

                                 Commission file number        0-25020

                             HERITAGE OAKS BANCORP
             (Exact name of registrant as specified in its charter)

   STATE OF CALIFORNIA                                  77-0388249
(State or other jurisdiction of                         (I.R.S. Identification
employee incorporation or organization)                  No.)

545 12TH STREET, PASO ROBLES, CALIFORNIA 93446          (805) 239-5200
(Address of principal executive offices) (Zip Code)     Registrant's telephone
                                                        number, including
                                                        area code

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

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

TITLE OF EACH CLASS                  NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, (no par value)                             None

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

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

Registrant's revenue for 1999 was $15,400,259. The aggregate market value of the
voting stock held by non-affiliates of the Registrant at March 1st, 2000 was
$11,861,346. As of March 1st, 2000, the Registrant had 1,144,282 shares of
Common Stock outstanding.

The following documents are incorporated by reference in Part III, Items 9
through 12 of Registrant's definitive proxy statement for the 2000 annual
meeting of shareholders.

Transitional Small Business Disclosure Format (check one)    Yes / /    No /X/

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                                TABLE OF CONTENTS

<TABLE>

PART I                                                                                                    Page
<S>                                                                                                       <C>
Item 1.  Description of Business                                                                           3 - 11

Item 2.  Description of Properties                                                                        11 - 12

Item 3.  Legal Proceedings                                                                                     12

Item 4.  Submission of Matters to a Vote of Security Holders                                                   12

PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholders Matters                           13 - 14

Item 6.  Management's Discussion and Analysis of Financial Condition and Results of Operations            14 - 27

Item 7.  Financial Statements                                                                             28-F-34

Item 8.  Changes and Disagreements with Accountants on Accounting and Financial Disclosure                     28

PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;                                        28

Item 10.  Executive Compensation                                                                               28

Item 11.  Security Ownership of Certain Beneficial Owners and Management                                       28

Item 12.  Certain Relationships and Related Transactions                                                       28

Item 13.  Exhibits and Reports on Form 8-K                                                                28 - 30

</TABLE>

                                        2

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                                     PART I


ITEM 1.   DESCRIPTION OF BUSINESS

General

Heritage Oaks Bancorp (the "Company") is a California corporation organized in
1994 to act as the bank holding company of Heritage Oaks Bank (the "Bank"). In
1994, the Company acquired all of the outstanding common stock of the Bank in a
holding company formation transaction. Other than holding the shares of the
Bank, the Company conducts no significant activities, although it is authorized,
with the prior approval of the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), the Company's principal regulator, to engage in a
variety of activities which are deemed closely related to the business of
banking.

Banking Services

The Bank was licensed by the California Department of Financial Institutions
(ADFI) and commenced operation in January 1983. As a California state bank,
the Bank is subject to primary supervision, examination and regulation by the
DFI and the Federal Deposit Insurance Corporation (AFDIC). The Bank is also
subject to certain other federal laws and regulations. The deposits of the
Bank are insured by the FDIC up to the applicable limits thereof. The Bank is
not a member of the Federal Reserve System. At December 31, 1999, the Company
had approximately $147.3 million in assets, $102.4 million in net loans,
$132.9 million in deposits, and $10.5 million in stockholders' equity.

The Bank is headquartered in Paso Robles with a branch office in Paso Robles,
two branches in San Luis Obispo, one branch office in Cambria, a loan
production office in Arroyo Grande, one branch located in Santa Maria and a
branch located in Atascadero. The Bank conducts a commercial banking business
in San Luis Obispo County, Northern Santa Barbara County and Southern
Monterey County, including accepting demand, savings and time deposits, and
making commercial, real estate, SBA, agricultural, credit card, and consumer
loans. It also offers installment note collection, issues cashiers checks and
money orders, sells travelers checks, and provides bank-by-mail, night
depository, safe deposit boxes, and other customary banking services. The
Bank does not offer trust services or international banking services and does
not plan to do so in the near future. On January 13, 2000, the Bank opened a
full service branch office in Arroyo Grande, California. Concurrent with
this, the Bank closed the loan production office in the same city and
included it in the new full service branch office.

The Bank's operating policy since its inception has emphasized small business
commercial and retail banking. Most of the Bank's customers are retail
customers, farmers and small to medium-sized businesses. The Bank takes real
estate, listed and unlisted securities, savings and time deposits, automobiles,
machinery and equipment as collateral for loans. The areas in which the Bank has
directed virtually all of its lending activities are (i) commercial and
agricultural loans, (ii) installment loans, (iii) construction loans, and (iv)
other real estate loans or commercial loans secured by real estate. As of
December 31, 1999, these four categories accounted for approximately 36.89%,
2.67%, 12.23% and 48.07% respectively, of the Bank's loan portfolio. As of
December 31, 1999, $62,805,191 or 60.3% of the Bank's $104,152,682 in gross
loans consisted of interim construction and real estate loans, primarily for
single family residences or for commercial development. Commercial and
agricultural loans grew $.2 million (approximately .50%) between year-end 1998
and year-end 1999. See AItem 6 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Most of the Bank's deposits are attracted by local promotional activities and
advertising in the local media. A material portion of the Bank's deposits
have not been obtained from a single person or a few persons, the loss of any
one or more

                                     3

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of which would have a materially adverse effect on the business of the Bank.
As of December 31, 1999, the Bank had approximately 11,630 deposit accounts
consisting of non-interest bearing (demand), interest-bearing demand and
money market accounts with balances totaling $81.6 million for an average
balance per account of approximately $7,016; 5,012 savings accounts with
balances totaling $13.5 million for an average balance per account of
approximately $2,694; and 1,260 time certificate of deposit accounts with
balances totaling $37.8 million, for an average balance per account of
approximately $30,000.

The principal sources of the Banks revenues are (i) interest and fees on
loans, (ii) interest on investments, (iii) service charges on deposit
accounts and other charges and fees, (iv) ATM transaction fees, sponsorship
fees and interchange income, (v ) mortgage origination fees and (vi)
miscellaneous income. For the year ended December 31, 1999, these sources
comprised 54.7%, 9.7%, 4.9%, 20.3%, 1.9% and 8.5%, respectively, of the
Bank's total operating income.

The Bank has arranged to install 82 cash dispensing machines for the purpose
of dispensing cash, 14 of which are on Native American lands where bingo
games and other gaming operations are conducted, with the remaining 68 at
other commercial locations, and at the Bank's 8 offices. The Bank receives a
transaction fee for each completed transaction on the cash dispensing
machines at all off premise locations. In regard to the Native American
sites, in previous years, the Bank shared a portion of the fees with two
individuals who had helped to make these arrangements and with the tribes on
whose lands the cash dispensing machines are installed. During September
1996, the Bank bought out the interest of one of the individuals. During
April 1997, the Bank bought out the interest of the other individual. In
prior years, the Bank only received the net earnings from the surcharge
revenue received from the gaming network. After the Bank had purchased the
interest of the two individuals, it then assumed all direct costs and
received all of the revenue net of the amounts that are still paid to the
tribes on whose land the casinos are located. The contract buy-outs were
fully amortized over a period of 18 and 36 months. The total amortization
expense for 1999 was approximately $90,000.

The Company has also caused to be incorporated a proposed subsidiary, CCMS
Systems, Inc. which is currently inactive and has not been capitalized. The
Company has no present plans to activate the proposed subsidiary.

The Bank has not engaged in any material research activities relating to the
development of new services or the improvement of existing bank services. There
has been no significant change in the types of services offered by the Bank
since its inception. The Bank has no present plans regarding "a new line of
business" requiring the investment of a material amount of total assets. Most of
the Banks business originates from San Luis Obispo, Northern Santa Barbara and
Southern Monterey Counties and there is no emphasis on foreign sources and
application of funds. The Banks business, based upon performance to date, does
not appear to be seasonal. Management of the Bank is unaware of any material
effect upon the Banks capital expenditures, earnings or competitive position as
a result of federal, state or local environmental regulations.

The Bank holds no patents, licenses (other than licenses obtained from bank
regulatory authorities), franchises or concessions.

When the Company uses or incorporates by reference in this Annual Report on
Form 10-KSB ("Annual Report") the words "anticipate", "estimate", "expect",
"project", "intend", "commit", "believe" and similar expressions, the Company
intends to identify forward-looking statements. Such statements are subject
to certain risks, uncertainties and assumptions, including those described in
this Annual Report. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, expected, projected,
intended, committed or believed.

Employees

As of February 1, 2000, the Bank had a total of 92 full-time equivalent
employees. The management of the Bank believes that its employee relations
are satisfactory. The Company has only one salaried employee (the internal
auditor). The Company's officers all hold similar positions at the Bank and
receive compensation from the Bank.

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Competition

The banking and financial services business in California generally, and in the
Banks market area specifically, is highly competitive. The increasingly
competitive environment is a result primarily of changes in regulation, changes
in technology and product delivery systems, and the accelerating pace of
consolidation among financial services providers.

The Bank's business is concentrated in its service area, which encompasses San
Luis Obispo County, Northern Santa Barbara County and Southern Monterey County.
In order to compete with other financial institutions in its service area, the
Bank relies principally upon local advertising programs; direct personal contact
by officers, directors, employees, and shareholders; and specialized services
such as courier pick-up and delivery of non-cash banking items. The Bank
emphasizes to its customers the advantages of dealing with a locally owned and
community oriented institution. The Bank also seeks to provide special services
and programs for individuals in its primary service area who are employed in the
agricultural, professional and business fields, such as loans for equipment,
furniture, tools of the trade or expansion of practices or businesses. Larger
banks may have a competitive advantage because of higher lending limits and
major advertising and marketing campaigns. They also perform services, such as
trust services, international banking, discount brokerage and insurance services
that the Bank is not authorized or prepared to offer currently. The Bank has
made arrangements with its correspondent banks and with others to provide such
services for its customers. For borrowers requiring loans in excess of the
Bank's legal lending limits, the Bank has offered, and intends to offer in the
future, such loans on a participating basis with its correspondent banks and
with other independent banks, retaining the portion of such loans which is
within its lending limits. As of December 31, 1999, the Bank's legal lending
limits to a single borrower and such borrower's related parties were $1,680,150
on an unsecured basis and $2,800,250 on a fully secured basis based on
regulatory capital of $11,201,002.

Commercial banks compete with savings and loan associations, credit unions,
other financial institutions, securities and brokerage firms, and other entities
for funds. For instance, yields on corporate and government debt securities and
other commercial paper affect the ability of commercial banks to attract and
hold deposits. Commercial banks also compete for loans with savings and loan
associations, credit unions, consumer finance companies, mortgage companies and
other lending institutions.

In recent years competition for cash dispensing machines on Native American
lands in connection with gaming operations has increased. Further competition
for ATM machines at retail sites has also increased creating reduced profit
margins. The Bank is becoming less reliant on ATM generated revenue than in
previous years and the trend is expected to continue in this direction.

Effect of Governmental Policies and Recent Legislation

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

The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Federal Reserve Board. The Federal Reserve Board implements national monetary
policies (with objectives such as curbing inflation and combating recession)
by its open-market operations in United States Government securities, by
adjusting the required level of reserves for financial institutions subject
to its reserve requirements and by varying the discount rates applicable to
borrowings by depository institutions. The actions of the Federal Reserve
Board in these areas

                                     5
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influence the growth of bank loans, investments and deposits and also affect
interest rates charged on loans and paid on deposits. The nature and impact
of any future changes in monetary policies cannot be predicted.

From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, in the California legislature and
before various bank regulatory and other professional agencies. For example,
legislation has been introduced in Congress that would repeal the current
statutory restrictions on affiliations between commercial banks and securities
firms. See "Financial Modernization Act".


Supervision and Regulation

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

The Company

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

The Company is required to obtain the approval of the Federal Reserve Board
before it may acquire all or substantially all of the assets of any bank, or
ownership or control of the voting shares of any bank if, after giving effect
to such acquisition of shares, the Company would own or control more than 5%
of the voting shares of such bank. Prior approval of the Federal Reserve
Board is also required for the merger or consolidation of the Company and
another bank holding company.

The Company is prohibited by the Bank Holding Company Act, except in certain
statutorily prescribed instances, from acquiring direct or indirect ownership
or control of more than 5% of the outstanding voting shares of any company
that is not a bank or bank holding company and from engaging, directly or
indirectly, in activities other than those of banking, managing or
controlling banks or furnishing services to its subsidiaries. However, the
Company may, subject to the prior approval of the Federal Reserve Board,
engage in any, or acquire shares of companies engaged in, activities that are
deemed by the Federal Reserve Board to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. See
discussion under "Financial Modernization Act" below for additional
information.

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

Under the Federal Reserve Board's regulations, a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe and unsound
manner.

                                     6
<PAGE>

In addition, it is the Federal Reserve Board's policy that in serving as a
source of strength to its subsidiary banks, a bank holding company should
stand ready to use available resources to provide adequate capital funds to
its subsidiary banks during periods of financial stress or adversity and
should maintain the financial flexibility and capital-raising capacity to
obtain additional resources for assisting its subsidiary banks. A bank
holding company's failure to meet its obligations to serve as a source of
strength to its subsidiary banks will generally be considered by the Federal
Reserve Board to be an unsafe and unsound banking practice or a violation of
the Federal Reserve Board's regulations or both.

The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, and filed reports and proxy
statements pursuant to such Act with the Securities and Exchange Commission
(ASEC)

The Bank

The Bank is chartered under the laws of the State of California and its deposits
are insured by the FDIC to the extent provided by law. The Bank is subject to
the supervision of, and is regularly examined by, the DFI and the FDIC. Such
supervision and regulation include comprehensive reviews of all major aspects of
the Banks business and condition.

Various requirements and restrictions under the laws of the United States and
the State of California affect the operations of the Bank. Federal and
California statutes relate to many aspects of the Banks operations, including
reserves against deposits, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends and locations of
branch offices. Further, the Bank is required to maintain certain levels of
capital.

Capital Standards

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

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

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

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

The following table presents the amounts of regulatory capital and the capital
ratios for the Bank and the Company, compared to its minimum regulatory capital
requirements as of December 31, 1999.


                                   DECEMBER 31, 1999

                                 BANK        COMPANY            MINIMUM
                                ACTUAL        ACTUAL       CAPITAL REQUIREMENTS

    LEVERAGE RATIO               7.22%        7.62%              4.0%
    TIER 1 RISK-BASED RATIO      9.60%        9.80%              4.0%
    TOTAL RISK-BASED RATIO      10.75%       10.89%              8.0%


Under applicable regulatory guidelines, the Bank was considered "Well
Capitalized" at December 31, 1998. Under existing regulations of the Federal
Reserve Board, the capital ratios of the bank holding company with total
assets of less than $150 million, such as the Company, are deemed to be the
same as those of the Bank.

On January 1, 1998 legislation became effective which, among other things,
gave the power to the DFI to take possession of the business and properties
of a bank in the event that the tangible shareholders' equity of the bank is
less than the greater of (i) 4% of the banks total assets or (ii) $1,000,000.

Prompt Corrective Action and Other Enforcement Mechanisms

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

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

<TABLE>

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

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

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

</TABLE>


An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or

                                     8
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undercapitalized" may be treated as though it were in the next lower capital
category if the appropriate federal banking agency, after notice and
opportunity for hearing, determines that an unsafe or unsound condition or an
unsafe or unsound practice warrants such treatment. At each successive lower
capital category, an insured depository institution is subject to more
restrictions. The federal banking agencies, however, may not treat an
institution as "critically undercapitalized" unless its capital ratio
actually warrants such treatment.

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

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

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

                                     9

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regulator.

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

Premiums for Deposit Insurance

All deposits of the Bank are insured by the FDIC through the Bank Insurance
Fund (ABIF) which are subject to FDIC insurance assessment. The amount of
FDIC assessment paid by individual insured depository institutions is based
upon their relative risk as measured by regulatory capital ratios and certain
other factors. During 1995, the FDIC significantly reduced premium rates
assessed on deposits insured by the BIF. As a result of its AWell
Capitalized status, the Bank paid $30,515 in 1999.


Financial Modernization Legislation

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

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

                                     11
<PAGE>

to bank common trust fund and mutual fund activities, and amends the
Investment Advisers Act of 1940 to require registration of banks that act as
investment advisers for mutual funds.

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

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

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


Community Reinvestment Act

The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.

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

Accounting Change

From time to time the Financial Accounting Standards Board (AFASB) issues
pronouncements which govern the accounting treatment for the Company's financial
statements. For a description of the recent pronouncements applicable to the
Company (see the Notes to the Financial Statements included in Item 7 of this
Report). The FASB recently proposed for comment a change in the accounting rules
relating to mergers and acquisitions. Specifically, the Apooling method of
accounting for mergers would be eliminated. Financial institutions often prefer
to account for mergers using this method and many of the mergers in the
financial institutions industry in the last several years have been accounted
for using the pooling method. The impact of such accounting change, if adopted,
on mergers and acquisitions involving financial institutions and upon the
Company and the value of its Common Stock can not presently be predicted.

                                     11

<PAGE>

Potential Enforcement Actions

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

ITEM 2.  DESCRIPTION OF PROPERTIES

The Bank and the Company occupy a permanent headquarters facility that is
located at 545 Twelfth Street, Paso Robles, Ca. The purchase price for the
headquarters, was approximately $1,000,000 for the building and land. This
building has approximately 9,000 square feet of space and off-street parking.
The Bank has remodeled this building at an approximate cost of $300,000.

The Bank has a non-banking office, located at 600 Twelfth Street, Paso Robles
(directly across from its present headquarters) which was purchased by the
Bank on December 23, 1986, for approximately $400,000 from an unaffiliated
party.

In June of 1994, the Bank opened a branch at 171 Niblick Rd., Paso Robles,
Ca. The Bank leases this 1,400 square foot branch for $2,135 per month. On
February 24, 2000, the Bank renewed the lease for an additional five-year
term.

On June 26, 1997 the Bank executed a lease for its branch office at 297
Madonna Road, San Luis Obispo. The branch was previously located in premises
that were acquired from La Cumbre Savings, which lease expired in 1997. The
new branch lease is for 6,200 square feet of which the Bank subleases
approximately 58% to another firm and uses 42%. The other firm pays 58% of
the rent and expenses and the Bank pays 42%. The rent under the lease for the
entire space starts at $6,200/month for the first year; $6,280/month for the
next two years; $7,750/month for the next two years the rent is then repriced
in year six of the lease to 95% of the prevailing fair market value and then
increases each year thereafter at the greater of the consumer price index or
2.5% until the lease expires on June 30, 2009.

The Bank opened a branch office at 1135 Santa Rosa Street in downtown San
Luis Obispo, Ca in April 1996. The Bank is leasing a building containing
approximately 5,618 square feet for $5,555 per month for the next four years.
The lease payment will increase by approximately $500 per month during the
next 4 years. The lease will expire on February 28, 2001 at which time the
Bank has an option to renew the lease for an additional 5 years.

On February 21, 1997, the Bank acquired the Cambria branch of Wells Fargo
Bank located at 1276 Tamson Drive, Cambria. The Bank leases this 2,916 square
foot branch for $2,208 per month, subject to adjustments for cost of living
increases and certain pass-throughs. The lease will expire in 2004 at which
time the Bank has an option to renew the lease for two additional five-year
terms.

On August 26, 1998, the Company purchased property located at 9900 El Camino
Real, Atascadero. The purchase price was $271,160. The Company entered into a
contract with Sabaloni Construction to construct a building with a total of
3,500 square feet of floor space. The total cost of improvements was $440,765
plus furniture and fixtures. On April 1, 1999, the Company entered into a
five-year lease agreement, with three five year options to renew, with the
Bank at the rate of $4,725 per month or $1.35 per square foot. Comparatives
were obtained to ensure that the lease amount was at fair market value.

                                      12
<PAGE>

On November 1, 1998, the bank entered into a 10 year lease with an
unaffiliated party to lease property known as 1660 South Broadway, Santa
Maria, Ca. The lease calls for monthly payments based on a triple net price
of $1.15 per square foot or $5,395 per month. The rent will adjust each
November by the Consumer Price Index or a maximum of 6%. The lease will
expire on October 31, 2008, with the banking having three five year options
to renew.

On October 14, 1999 the bank entered into a 18 month Sublease with an
unaffiliated party to lease property located at 1360 Grand Avenue, Arroyo
Grande, Ca. The lease calls for monthly payment based on a triple net price
of $1.00 per square foot or $3,375 per month. It is the bank's intention to
enter into a longer-term lease when the sublease expires.

ITEM 3.  LEGAL PROCEEDINGS

The Bank is, from time to time, subject to various pending and threatened
legal actions which arise out of the normal course of its business. Neither
the Company nor the Bank is a party to any pending legal or administrative
proceedings (other than ordinary routine litigation incidental to the
Company's or the Bank's business) and no such proceedings are known to be
contemplated.

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

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

No matters were submitted to a vote of security holders during the fourth
quarter of 1999.




                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

Market Information

There is a limited over-the-counter market for the Company's Common Stock.
The Company's Common Stock is not listed on any exchange or market. However,
Maguire Investments, Inc., Hoefer & Arnett, Inc., Pacfic Crest Securities and
Sutro & Co. make a market in the Company's Common Stock. Certain information
concerning the Common Stock is reported on the NASDAQ electronic bulletin
board under the symbol AHEOP.

The information in the following table indicates the high and low bid prices
of the Company's Common Stock for each quarterly period during the last two
years based upon information provided by Maguire Investments, Inc., Hoefer &
Arnett, Inc., Pacific Crest Securities and Sutro & Co. These prices do not
include retail mark-ups, mark-downs or commission.

                                      13
<PAGE>

<TABLE>
<CAPTION>

Quarter Ended                                    Bid Prices
<S>                                        <C>               <C>
1998                                        Low               High
March 31                                   $13.50            $16.00
June 30                                     15.75             16.75
September 30                                16.00             17.75
December 31                                 16.00             17.00

1999                                        Low               High
March 31                                   $16.25            $16.25
June 30                                     16.25             17.00
September 30                                16.00             16.75
December 31                                 15.75             16.75

</TABLE>

Holders

As of March 1, 2000, there were approximately 585 holders of the Company's
Common Stock. There are no other classes of equity outstanding.

Dividends

The Company is a legal entity separate and distinct from the Bank. The
Company's shareholders are entitled to receive dividends when and as declared
by its Board of Directors, out of funds legally available therefore, subject
to the restrictions set forth in the California General Corporation Law (the
"Corporation Law"). The Corporation Law provides that a corporation may make
a distribution to its shareholders if the corporation's retained earnings
equal at least the amount of the proposed distribution. The Corporation Law
also provides that, in the event that sufficient retained earnings are not
available for the proposed distribution, a corporation may nevertheless make
a distribution to its shareholders if it meets two conditions, which
generally stated are as follows: (i) the corporation's assets equal at least
1-1/4 times its liabilities, and (ii) the corporation's current assets equal
at least its current liabilities or, if the average of the corporation's
earnings before taxes on income and before interest expenses for the two
preceding fiscal years was less than the average of the corporation's
interest expenses for such fiscal years, then the corporation's current
assets must equal at least 1-1/4 times its current liabilities.


The ability of the Company to pay a cash dividend depends largely on the
Bank's ability to pay a cash dividend to the Company. The payment of cash
dividends by the Bank is subject to restrictions set forth in the California
Financial Code (the "Financial Code"). The Financial Code provides that a
bank may not make a cash distribution to its shareholders in excess of the
lesser of (a) the bank's retained earnings; or (b) the bank's net income for
its last three fiscal years, less the amount of any distributions made by the
bank or by any majority-owned subsidiary of the bank to the shareholders of
the bank during such period. However, a bank may, with the approval of the
DFI, make a distribution to its shareholders in an amount not exceeding the
greater of (x) its retained earnings; (y) its net income for its last fiscal
year; or (z) its net income for its current fiscal year. In the event that
the DFI determines that the shareholders' equity of a bank is inadequate or
that the making of a distribution by the bank would be unsafe or unsound, the
DFI may order the bank to refrain from making a proposed distribution. The
FDIC may also restrict the payment of dividends if such payment would be
deemed unsafe or unsound or if after the payment of such dividends, the Bank
would be included in one of the "undercapitalized" categories for capital
adequacy purposes pursuant to federal law. (See, "Item 1 - Description of
Business - Prompt Corrective Action and Other Enforcement Mechanisms.")
Additionally, while the Federal Reserve Board has no general restriction with
respect to the payment of cash dividends by an adequately capitalized bank to
its parent holding company, the Federal Reserve Board might, under certain
circumstances, place restrictions on the ability of a particular bank to pay
dividends based upon peer group averages and the performance and maturity of
the particular bank, or object to management fees to be paid by a subsidiary
bank to its holding company

                                      14

<PAGE>

on the basis that such fees cannot be supported by the value of the services
rendered or are not the result of an arm's length transaction.

Under these provisions and considering minimum regulatory capital
requirements, the amount available for distribution from the Bank to the
Company was approximately $2,548,502 at December 31, 1999.

The following table sets forth the per share amount and month of payment for
all cash dividends paid since January 1, 1997 (Per share information has been
retroactively adjusted for the three-for-two stock split paid on November 5,
1997):

<TABLE>
<CAPTION>

Month Paid                                           Amount Per Share
<S>                                                  <C>
      February, 1997                                        $ .33
      February, 1998                                        $ .50

</TABLE>

On January 28, 1999, the Board of Directors declared a 4% stock dividend, in
lieu of a cash dividend, for shareholders of record as of February 15, 1999.
The stock dividend was distributed on February 26, 1999.

Whether or not stock dividends or any cash dividends will be paid in the
future will be determined by the Board of Directors after consideration of
various factors. The Company's profitability and regulatory capital ratios in
addition to other financial conditions will be key factors considered by the
Board of Directors in making such determinations regarding the payment of
dividends by the Company.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

The following is an analysis of the financial condition and results of
operations of the Company for the two years ended December 31, 1999. The
analysis should be read in connection with the consolidated financial
statements and notes thereto appearing elsewhere in this report.

 On November 15, 1994, the Company acquired all of the assets and assumed all
of the liabilities of the Bank. Each shareholder of the Bank received one
share of stock in the Company in exchange for one share of Bank stock. The
Bank became a wholly owned subsidiary of the Company. The Bank is the only
active subsidiary owned by the Company.

EARNINGS OVERVIEW

The Company reported net income for 1999 of $1,430,928. This was a 6.3%
increase from the $1,346,595 reported in 1998. Net income reported for 1998
represented an increase of $85,531 or 6.8% more than 1997 net income of
$1,261,064. Basic earnings per share were $1.27, $1.24 and $1.18 at December
31, 1999, 1998 and 1997, respectively. Diluted earnings per share were $1.15,
$1.13 and $1.11 at December 31, 1999, 1998 and 1997, respectively.


                                       RETURN ON EQUITY AND ASSETS

<TABLE>
<CAPTION>

                                                              DECEMBER 31,
                                                          1998             1999
                                                          ----             ----
         <S>                                              <C>              <C>
         Return on Average Assets                          1.24%            1.07%

         Return on Average Equity                         16.11%           14.87%

         Average Equity to

</TABLE>

                                      15

<PAGE>

<TABLE>

         <S>                                              <C>              <C>
         Average Assets Ratio                              8.04%            7.78%


         Return on Average Interest
         Bearing Assets                                    5.94%            6.42%

         Average Loans to Average Deposits                65.84%           71.20%

</TABLE>

NET INTEREST INCOME AND INTEREST MARGIN

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 nonaccrual loans, and changes in market interest rates.

Net interest income before provision for possible loan losses for 1999 was
$7,312,558, an increase of $1,866,193 or 34.3% more than the $5,446,365 in
1998. The increase in net interest income for 1999 compared to 1998 was
attributable to a $22,163,000 increase in average earning assets at an
average rate of 8.7%. The average interest-bearing liabilities for 1999
increased by $9,818,000. The increase in net interest income resulted
primarily from the large increase in interest earning assets over the
increase in interest bearing liabilities. The average rate paid on interest
bearing liabilities in 1999 was 3.05% compared to 3.37% in 1998. Average
non-interest bearing demand deposits increased by $15,027,000 over 1998.
Other low cost deposits such as savings, now and money market accounts grew
an average $6,208,000 with a weighted average rate of 2.08%. The higher cost
time deposits increased an average of $3,447,000. These changes reflect a
major effort by the Bank to adjust its liability mix to increase its level of
demand deposits and savings accounts. Total income on the loan portfolio
increased from $6,459,394 in 1998 to $8,424,833 in 1999. This was due to an
increase in average loans of $21,844,000.

The average yield on earning assets was 8.71% for both 1999 and 1998. The
average yield on interest bearing liabilities was 3.05% for 1999, compared to
3.37% for 1998. The net interest margin was 6.42% in 1999 compared to 5.94%
in 1998.

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 years ended December 31, 1999 and 1998.
The average balance of non-accruing loans has been included in loan totals.

                                      16
<PAGE>

<TABLE>
<CAPTION>

                                                                    1999                                    1998
(DOLLARS IN THOUSANDS)                               AVERAGE   AVERAGE YIELD   AMOUNT         AVERAGE  AVERAGE YIELD   AMOUNT
Interest Earning Assets:                             BALANCE     RATE PAID    INTEREST        BALANCE    RATE PAID    INTEREST
                                                    ---------  -------------  --------        -------  -------------  --------
<S>                                                 <C>        <C>            <C>             <C>      <C>            <C>
             Time deposits with other banks            $409        5.38%         $22             $425         5.65%         $24
             Investment securities taxable           15,977        5.86%         937           17,522         6.04%       1,058
             Investment securities non-taxable        6,505        4.77%         310            5,266         4.80%         253
             Federal funds sold                       4,390        5.01%         220            3,749         5.25%         197
             Loans (1) (2)                           86,578        9.73%       8,425           64,734         9.98%       6,459
                                                    -------                    -----           ------                     -----

             Total interest earning assets          113,859        8.71%       9,914           91,696         8.71%       7,991
                                                    -------                    -----           ------                     -----

Allowance for possible loan losses                   (1,150)                                     (974)
Non-earning assets:
             Cash and due from banks                 14,984                                    11,993
             Property, premises and equipment         3,045                                     2,245
             Other assets                             3,558                                     3,258
                                                     ------                                    ------

TOTAL ASSETS                                       $134,296                                  $108,218
                                                   ========                                  ========

Interest -bearing liabilities:
             Savings/NOW/money market                54,717        2.08%       1,137           48,509         2.35%       1,142
             Time deposits                           29,370        4.69%       1,377           25,923         5.16%       1,338
             Other borrowings                         1,267        6.87%          87            1,104         5.80%          64
                                                      -----                    -----           ------                     -----

             Total interest-bearing liabilities      85,354        3.05%       2,601           75,536         3.37%       2,544
                                                     ------                    -----           ------                     -----

Non-interest bearing liabilities:
             Demand deposits                         37,472                                    22,445
             Other liabilities                        1,343                                     1,876
                                                     ------                                    ------

             Total liabilities                      124,169                                    99,857
                                                    -------                                    ------

Stockholders' equity
             Common stock                             5,148                                     4,232
             Retained earnings                        5,299                                     4,468
             Valuation Allowance Investments           (320)                                     (339)
                                                    -------                                    ------

             Total stockholders' equity              10,127                                     8,361
                                                    -------                                    ------

TOTAL LIABILITIES AND STOCKHOLDERS'
             EQUITY                                $134,296                                  $108,218
                                                   ========                                  ========

Net Interest Income                                                           $7,313                                     $5,447
                                                                              ======                                     ======
Net Interest Margin (3)                                           6.42%                                       5.94%

</TABLE>

     (1)  Nonaccrual loans have been included in total loans.

     (2)  Loan fees of $483 and $312 for 1999 and 1998, 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.

          Note: All average balances have been computed using daily balances.

                                      17
<PAGE>

<TABLE>
<CAPTION>

                                                   RATE/VOLUME ANALYSIS

                                                                   1999                                       1998
                                                                   ----                                       ----
                                                    Average      Average                       Average      Average
Increase (decrease) in:                             Bal/Vol        Rate        Total           Bal/Vol       Rate        Total
<S>                                                 <C>           <C>          <C>              <C>          <C>          <C>
Interest income:

  Loans (1)                                          $2,180        ($215)      $1,965           $1,154       ($201)        $953
  Investment securities taxable                         (93)         (28)        (121)             115          44          159
  Investment securities non-taxable (2):                 90           (3)          87              189           6          195
    Taxable equivalent adjustment (2):                  (31)           1          (30)             (67)         (2)         (69)
  Interest-bearing deposits                              (1)          (1)          (2)              14          (1)          13
  Federal funds sold                                     34          (10)          24               60          (5)          55
                                                       ------       ------      -----           ------       ------      -------
       Total                                          2,179         (256)       1,923            1,465        (159)       1,306

Interest expense:
  Savings, now, money market                            146         (151)          (5)             156         (64)          92
  Time deposits                                         178         (139)          39              192          40          232
  Other borrowings                                        9           14           23                8           -            8
                                                       ------       ------      -----           ------        -----      -------
       Total                                            333         (276)          57              356          (24)        332
                                                       ------       ------      -----           ------        -----      -------

Increase (decrease) in net
  Interest income                                    $1,846          $20       $1,866           $1,109        ($135)       $974
                                                     =======         ====      =======          =======       ======       =====
</TABLE>

(1) Loan fees of $483 and $312 for 1999 and 1998, respectively have been
included in the interest income computation.
(2) Adjusted to a fully taxable equivalent basis using a tax rate of 34%.

Note A: Average balances of all categories in each period were included in the
volume computations.

Note B: Average yield rates in each period were used in rate computations. Any
change attributable to changes in both volume and rate which cannot be
segregated has been allocated.


Non-Interest Income

Non-interest income consists of bankcard merchant fees, automatic teller
machines ("ATM") transactions, and other fees, service charges, and gains on
other real estate owned. Non-interest income for 1999 was $5,444,241 compared
to $6,360,803 for 1998. The primary decrease in non-interest income is
attributable to ATM transaction fees, ATM interchange income, and ATM
sponsorship fees. These fees decreased by $1,128,978 from 1998. ATM
transaction fees, interchange income, and sponsorship fees were $3,133,847
for 1999 compared to $4,262,825 for 1998. During the fourth quarter of 1998,
6 ATMs in a particular gaming facility were shut down due to the owner's
change in operating policy. These machines were removed creating lost revenue
opportunity for the remainder of 1998 of approximately $125,000. Gross
revenue in 1999 was further impacted by increased competition resulting in
re-negotiation of certain gaming agreements. Profit margins decreased,
however, all gaming sites remain acceptably profitable. In previous years the
Bank shared a portion of the gaming fees with two individuals who had helped
to make these arrangements and with the tribes on whose lands the cash
dispensing machines are installed. During September 1996, the Bank bought out
the interest of one of the individuals. During April 1997, the Bank bought
out the interest of the other individual. In prior years, the Bank only
received the net earnings from the surcharge revenue received from the gaming
network. After the bank had purchased the interest of the two individuals, it
then assumed all direct costs and received

                                     18
<PAGE>

all of the revenue net of the amounts that are still paid to the tribes on
whose land the casinos are located. The contract buy-outs were amortized over
a period of 18 to 36 months, with the final amortized amount of approximately
$90,000 in 1999.

The competition relating to ATM machines at retail sites has also increased
creating reduced profit margins. With this in mind, the Bank is utilizing
upcoming ATM equipment lease terminations in the months of March, October,
November and December of 2000 to reduce overhead and retain only the most
profitable sites.

The Bank is becoming less reliant on ATM generated revenue than in previous
years and the trend is expected to continue in this direction. The net
earnings from all ATM operations before deducting for overhead expenses and
salaries were $1,053,720, $1,506,032, and $1,493,778, for the years ended
December 31, 1999, 1998, and 1997, respectively.

During 1999, certain cities in California passed local laws prohibiting
Surcharging by financial institutions at ATMs located within their
municipalities. To counteract these actions, there has been considerable efforts
put forth by financial institutions represented by numerous banking
organizations. These efforts have resulted in a delay in any implementation of
these laws. Even though the Bank is confident that such laws will not be able to
be implemented, the Bank took action to divest itself of ownership in seven
sites located in San Francisco, California. The Bank assigned the site
agreements to a marketing firm while retaining the servicing. This resulted in
no change to the net revenue stream of these seven sites.

Bankcard merchant fees were $623,930 in 1999 compared to $757,380 in 1998. Up
until September 1999, the Bank accounted for merchant bankcard transactions by
posting the gross revenue to income that was offset by expenses contained within
the "Other Expense" category. In September 1999, the Bank entered into an
agreement to sell the merchant agreements to the existing processor, whereby the
Bank would no longer incur liability for transactions and would receive net
income monthly based on net sales volumes. For 1998, net income (loss) from this
line of business was ($107,590) while in 1999, the Bank posted positive net
income of $50,606.

Non-Interest Expenses

Non-interest expense increased to $10,406,243 for 1999 from $9,568,547 in
1998, primarily due to the Banks growth. During the first quarter of 1999,
the Bank opened a denovo, full service branch office in Santa Maria,
California and Atascadero, California. During the fourth quarter, the Bank
was in process of opening a full service, denovo branch office in Arroyo
Grande, California. This office opened on January 13, 2000.

Salaries and employee benefit expenses were $3,562,023 and $2,892,921 for
1999 and 1998 respectively. Full time equivalent employees were 92 for 1999
and 68 for 1998. The increase in salary and benefit expense is due to
increased staffing attributable to the Banks branch office growth during the
year. The ratio of "assets per employee, one of the measures of operational
efficiency, was $1,601,465 and $1,924,245 for 1999, and 1998 respectively.
Occupancy, furniture and equipment expenses were $1,484,919 during 1999,
compared to $923,207 incurred in 1998. The new branches along with
preparation for Year 2000 compliance resulted in a significant portion of the
increase in equipment expense for 1999.

Other expenses decreased to $5,359,301 in 1999 as compared to $5,752,419 in
1998. The decrease in other expenses reflects costs associated with growth of
the Bank, and $676,666 decrease in cost associated with the ATM network.

Bankcard merchant expenses were $573,324 for 1999, compared to $864,970 for
1998. The decrease was the result of selling the portfolio in September 1999.
Instead of accounting for gross revenue and gross expense, the Bank now receives
net income based on the net sales volumes. The total net income for 1999 was
$50,606, compared to a net loss of ($107,590) for 1998.

Provision for Income Taxes

The provision for income taxes was $754,128 for 1999 compared to $728,026 in
1998. The decrease in the provision is the result of tax-exempt investments. The
Bank's effective tax rate was 34.5% and 35.1% in 1999 and 1998, respectively.

Provision and Allowance for Credit Losses

The allowance for credit losses is based upon management's evaluation of the
adequacy of the existing allowance for outstanding loans. This allowance is
increased by provisions charged to expense and reduced by loan charge-offs net
of recoveries. Management determines an appropriate provision based upon loan
growth during the period, a comprehensive grading and review formula for loans
outstanding and historical loss experience. In addition, management periodically
reviews the condition of the

                                     19
<PAGE>

loan portfolio including the value of security interest related to portfolio
loans and the economic circumstances which may affect the value of portfolio
loans to determine the adequacy of the allowance. The evaluation of the
allowance is reviewed by management and reported on an ongoing basis to the
Company's Loan Committee, Audit Committee and Board of Directors. A provision
for credit losses of $165,500 and $164,000 was expended for 1999 and 1998,
respectively. Net loan charge-offs (loans charged off, net of loans
recovered) were ($5,981) in 1999 and $24,749 during 1998, respectively. The
allowance for credit losses as a percent of total gross loans at year-end
1999 and 1998 was 1.19% and 1.47%, respectively. Monitoring of all credits
enables management to analyze any inherent risks in the portfolio which may
result from changes in economic conditions.

The following table summarizes the analysis of the allowance for loan losses
as of December 31, 1999 and 1998.



                                         ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>

                                                              1999                            1998
                                                              ----                            ----
<S>                                                           <C>                             <C>
BALANCE AT BEGINNING OF PERIOD                            $1,069,535                        $930,284

CHARGE-OFFS:
  COMMERCIAL, FINANCIAL AND AGRICULTURAL                       7,623                          32,431
  REAL ESTATE- CONSTRUCTION                                        -                               -
  REAL ESTATE-MORTGAGE                                             -                               -
  INSTALLMENT LOANS TO INDIVIDUALS:
     MONEY PLUS                                                6,592                               -
     CREDIT CARDS                                                  -                           6,801
     OTHER INSTALLMENT                                             -                           6,045
                                                             -------                         -------
TOTAL CHARGE-OFFS                                             14,215                          45,277
                                                             -------                         -------

RECOVERIES:
  COMMERCIAL, FINANCIAL AND AGRICULTURAL                      19,682                           8,632
  REAL ESTATE- CONSTRUCTION                                        -                               -
  REAL ESTATE-MORTGAGE                                             -                               -
  INSTALLMENT LOANS TO INDIVIDUALS:                                -
     MONEY PLUS                                                    -                              25
     CREDIT CARDS                                                  -                           5,160
     OTHER INSTALLMENT                                           514                           6,711
                                                             -------                         -------
TOTAL RECOVERIES                                              20,196                          20,528
                                                             -------                         -------
  NET CHARGE-OFFS                                             (5,981)                         24,749
ADDITIONS CHARGED TO OPERATIONS                              165,500                         164,000
                                                             -------                         -------
BALANCE AT END OF PERIOD                                   1,241,016                       1,069,535
                                                          ==========                       =========
GROSS LOANS AT END OF PERIOD                           $ 104,273,064                    $ 72,840,372

RATIO OF NET CHARGE-OFFS DURING THE
YEAR TO AVERAGE LOANS OUTSTANDING                              -0.01%                           0.30%

RATIO OF RESERVES TO GROSS LOANS                                1.19%                           1.47%

RATIO OF NON-PERFORMING LOANS TO
THE ALLOWANCE FOR CREDIT LOSSES                                72.91%                          93.17%

</TABLE>

The Bank adopted SFAS No. 114 (as amended by SFAS No. 118), AAccounting by
Creditors for Impairment of a Loan on January 1, 1996. In accordance with SFAS
No. 114, 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 collateral if the loan is collateral dependent. A loan
is impaired when it is probable the creditor will not be able to collect all
contractual principal and interest payments due in accordance with terms of the
loan agreement.

                                     20
<PAGE>

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

Included in non- performing loans for the last three years is a loan for
$747,069. This loan is secured by real estate with an appraised value of
approximately $1,500,000. Even though this loan is on a non-accrual status,
management does not believe that there will be any loss of the principal due.

The following table summarizes the analysis of the allowance for loan losses
as of December 31, 1999 and

                                          ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                                              1999                            1998
                                                              ----                            ----
<S>                                                           <C>                             <C>
BALANCE AT BEGINNING OF PERIOD                            $1,069,535                        $930,284

CHARGE-OFFS:

  COMMERCIAL, FINANCIAL AND AGRICULTURAL                       7,623                          32,431
  REAL ESTATE- CONSTRUCTION                                        -                               -
  REAL ESTATE-MORTGAGE                                             -                               -
  INSTALLMENT LOANS TO INDIVIDUALS:
     MONEY PLUS                                                6,592                               -
     CREDIT CARDS                                                  -                           6,801
     OTHER INSTALLMENT                                             -                           6,045
                                                             -------                         -------
TOTAL CHARGE-OFFS                                             14,215                          45,277
                                                             -------                         -------

RECOVERIES:

  COMMERCIAL, FINANCIAL AND AGRICULTURAL                      19,682                           8,632
  REAL ESTATE- CONSTRUCTION                                        -                               -


</TABLE>

In evaluating the allowance for the credit losses, management takes into
consideration the composition of its loan portfolio, loan growth during the
period, risk and collectibility of loans, and economic conditions. The allowance
is maintained at a sufficient level to cover all potential loan charge-offs in
addition to a cumulative, annual amount based upon the factors outlined above.
Management utilizes an internal loan classification system to grade portfolio
loans as a part of its analysis of the adequacy of the allowance. In addition,
management periodically reviews the condition of the loan portfolio including
the value of security interests related to the portfolio loan to determine the
adequacy of the allowance. The evaluation of the adequacy of the allowance is
reviewed by management and reported on an ongoing basis to the Bank's Loan
Committee, Audit Committee and Board of Directors.

Local Economy

According to the 1999 San Luis Obispo County Economic Outlook, prepared by
the UCSB Economic Forecast Project, the apparent slowdown of the U.S. economy
has not obviously influenced the local San Luis Obispo County economy, yet.
The healthy rate of U.S. economic growth during 1998 has been interrupted,
predominantly by events and financial problems abroad. Consumer confidence
and spending, industrial production, and employment growth have been sliding
recently.

The publication goes on to say that to date, however, the local economy has
not experienced any pronounced weakness in any particular sector. Growth in
employment, resident spending, tourism spending, and income have remained
solid. Residential building activity is currently higher than any year of the
1990s. The home sales market is especially strong. At this point, the San
Luis Obispo County economy does not appear affected by the spreading
international weakness.

A five year expansion of the California economy, the seven year expansion of
the U.S. economy, the unprecedented returns from financial and equity
markets, and the steady growth of visitor travel along the central coast of
California, are the principal reasons for the current prosperity of San Luis
Obispo County. According to this study, more job opportunities, and an
increase in migration to San Luis Obispo County, resulting in higher demand
for housing are also responsible for increased economic growth this year.

The continuing health of the San Luis Obispo County economy is confirmed by a
variety of indicators. The recent evidence is both clear and consistent.
Employment growth is quite healthy, visitor spending continues to rise, and
retail markets are recording

                                     21
<PAGE>

solid gains. Because there is little new commercial building, available
office and industrial space is evaporating. The farm sector set another
record for both crop sales in 1997 and employment in 1998, and per capita
income continued to rise to historical highs. Just since 1995, the number of
jobs in Agriculture has doubled; to over 6,300 in the County and average
wages for farm workers jumped 11% in 1998.

The Bank's branch locations have been located to take advantage of this
growing economy, as evidenced by the two de novo branches opened during the
first quarter of 1999 and more recently on January 13, 2000 in Arroyo Grande.

FINANCIAL CONDITION ANALYSIS

Total assets of the Company were $147,299,268 at December 31, 1999 compared to
$131,168,498 in 1998. A major portion of the Banks loans are adjustable.
Approximately 73% of the loans are adjustable. The majority of those loans that
reprice are tied to changes in the prime rate. If interest rates change, the
yield on these loans will also change. A 1.00% increase in the prime rate would
increase net interest income approximately $769,731 a year and a 1.00% decrease
in the prime rate would decrease net interest income by $158,098 a year.

The following table summarizes the composition of the loan portfolio as of
December 31, 1999 and 1998:


                                      COMPOSITION OF LOAN PORTFOLIO

<TABLE>
<CAPTION>

                                                          1999                            1998
                                                          ----                            ----
                                                 AMOUNT          PERCENT         AMOUNT          PERCENT
                                               ----------        -------      ----------         -------
<S>                                             <C>              <C>           <C>                <C>
COMMERCIAL, FINANCIAL AND AGRICULTURAL       $ 38,419,611         36.89%    $ 38,220,932          53.69%

REAL ESTATE- CONSTRUCTION                      12,741,477         12.23%       8,357,701          11.74%

REAL ESTATE-MORTGAGE                           50,063,714         48.07%      21,672,158          30.44%

INSTALLMENT LOANS TO INDIVIDUALS                2,786,034          2.67%       2,611,325           3.67%

ALL OTHER LOANS (INCLUDING OVERDRAFTS)            141,846          0.14%         323,493           0.45%
                                               -----------                    ----------

       TOTAL LOANS, GROSS                     104,152,682        100.00%      71,185,609         100.00%

DEFERRED LOAN FEES                               (485,474)                      (313,032)
RESERVE FOR POSSIBLE LOAN LOSSES               (1,241,016)                    (1,069,535)
                                               -----------                    ----------

       TOTAL LOANS, NET                     $ 102,426,192                    $ 69,803,042
                                            ==============                   ============

LOANS HELD FOR SALE                              $120,382                      $1,654,765

</TABLE>

Net loans totaled $102,426,192 at December 31, 1999, compared to $69,803,042 at
December 31, 1998. Loans increased during the year as the result of the new
branch offices in expanded market areas for the bank. To capture market share in
these new areas, the Bank hired three additional commercial loan officers, all
of whom had previously worked in these markets. The primary growth was
approximately $28,391,556 in real estate related loans.

                                     22

<PAGE>

The following are the approximate maturities and sensitivity to change in
interest rates for the loans at December 31, 1999:

<TABLE>
<CAPTION>
                                                                          AFTER ONE
                                                          DUE WITHIN       YEAR BUT          AFTER
LOAN CATEGORY                                              ONE YEAR       WITHIN FIVE     FIVE YEARS         TOTAL
(In thousands)
<S>                                                         <C>            <C>             <C>               <C>
  Commercial, Financial and Agricultural                    $ 25,864         $ 5,483         $ 7,072        $ 38,419

  Real Estate-Construction                                    12,252             490               -          12,742

  Real Estate-Mortgage                                        25,562          13,804          10,818          50,184

  Installment Loans to Individuals                               156           1,807             823           2,786

  All Other Loans (including overdrafts)                         142               -               -             142
                                                           ---------       ---------       ---------      ----------

               Totals                                       $ 63,976        $ 21,584        $ 18,713       $ 104,273
                                                           =========       =========       =========      =========

INTEREST RATE PROVISION:
Predetermined Rates                                          $ 6,236         $ 6,617        $ 12,979        $ 25,832

Floating or Adjustable Rates                                  57,740          14,967           5,734          78,441
                                                           ---------       ---------       ---------      ----------

               Totals                                       $ 63,976        $ 21,584        $ 18,713       $ 104,273
                                                           =========       =========       =========      ==========
</TABLE>

RISK ELEMENTS:
Risk elements on loans are presented in the following table for December 31:

<TABLE>
                                                                             1999            1998
                                                                             ----            ----
<S>                                                                          <C>             <C>
Non-Accrual Loans (Impaired Loans)                                          $904,773        $934,389
Accruing Loans Past Due 90 Days                                                    0               0
Restructured Loans                                                                 0         396,506
Interest Excluded on Non-Accrual Loans                                        91,207         103,164
Interest Recognized on Non-Accrual Loans and
Troubled Debt Restructured Loans                                             165,000          31,723

</TABLE>

At December 31, 1999, the Bank had no foreign loans outstanding. The Bank did
not have any concentrations of loans except as disclosed above.

The Banks management is responsible for monitoring loan performance which is
done through various methods, including a review of loan delinquencies and
personal knowledge of customers. Additionally, the Bank, maintains both a
watch list of loans which, for a variety of reasons, management believes
requires regular review as well as an internal loan classification process.
Semi-annually, the loan portfolio is also reviewed by an experienced, outside
loan reviewer not affiliated with the Bank. A list of delinquencies, the
watch list, loan grades and the outside loan review are reviewed regularly by
the Board of Directors. Except as set forth in the preceding table, there are
no loans which management has serious doubts as to the borrower's ability to
comply with present loan repayment terms.

The Bank has a non-accrual policy which requires a loan greater than 90 days
past due to be placed on non-accrual status unless such loan is
well-collateralized and in the process of collection. When loans are placed on
non-accrual status, all uncollected interest accrued is reversed from earnings.
Once on non-accrual status, interest on a loan is only recognized on a cash
basis. Loans may be returned to accrual status if management believes that all
remaining principal and interest is fully collectible and

                                     23
<PAGE>

there has been at least six months of sustained repayment performance since
the loan was placed on non-accrual.

If a loan's credit quality deteriorates to the point that collection of
principal is believed by management to be doubtful and the value of
collateral securing the obligation is sufficient the Bank generally takes
steps to protect and liquidate the collateral. Any loss resulting from the
difference between the loan balance and the fair market value of the property
is recognized by a charge to the reserve for loan losses. When the property
is held for sale after foreclosure, it is subject to a periodic appraisal. If
the appraisal indicates that the property will sell for less than its
recorded value, the Bank recognizes the loss by a charge to non-interest
expense.

Total Cash and Due from Banks

Total cash and due from banks decreased from $17,239,179 at December 31, 1998
to $17,159,073 at December 31, 1999. The large amount of cash and due from
banks is to fund the operations of the Banks ATM networks. If the Bank were
to sell these networks, the portion of this cash would then be invested in
securities and loans, subject to the Bank's liquidity policy limitations.

Other Earning Assets

Other earning assets are comprised of Federal Funds sold (funds lent on a
short-term basis to other banks), investment securities and short term
certificates of deposit at other financial institutions. These assets are
maintained for short-term liquidity needs of the Bank, collateralization of
public deposits, and diversification of the earning asset mix.

Other earning assets decreased to $20,634,059 at December 31, 1999 compared
to $36,988,232 at December 31, 1998. The decrease in 1999 is a direct factor
of the strong loan demand and funding throughout the year. Other earning
assets represented 16.5% of the earning asset portfolio at December 31, 1999,
compared to 33.7% in 1998. On December 31, 1998, one particular customer of
the bank had an extraordinary deposit of approximately $5 million. These
excess funds that remained on deposit for less than one week, are reflected
in Fed Funds Sold on December 31, 1998.

The following table summarizes the composition of other earning assets at
December 31:


                                       COMPOSITION OF OTHER EARNING ASSETS
<TABLE>
<CAPTION>

                                                          1999                                1998
                                                AMOUNT            PERCENT           AMOUNT           PERCENT
<S>                                             <C>                <C>             <C>               <C>
Held-to-Maturity Investments                          $ -             0.00%     $ 15,758,151            42.60%

Available-For-Sale Investments                  19,058,804           92.37%       12,863,106            34.78%

Federal Funds Sold                               1,200,000            5.82%        7,700,000            20.82%

Certificates of Deposit                            375,255            1.82%          666,975             1.80%
                                               -------------                      -------------

Total Other Earning Assets                    $ 20,634,059            100.00%   $ 36,988,232           100.00%
                                               =============                      =============

</TABLE>

                                     24


<PAGE>

The Amortized cost, fair value, and maturities at December 31, 1999 are as
follows:

<TABLE>
<CAPTION>

                               SECURITIES AVAILABLE-FOR-SALE    SECURITIES HELD-TO-MATURITY
                                AMORTIZED        FAIR            AMORTIZED           FAIR
                                  COST           VALUE             COST             VALUE
<S>                            <C>               <C>             <C>               <C>
Due in One Year or Less       $  1,663,526      $  1,662,918      $          -     $          -

Due after One Year
through Five Years               2,728,424         2,681,029                 -                -

Due after Five Years
through Ten Years                1,527,622         1,491,207                 -                -

Due after Ten Years              4,377,751         3,940,635                 -                -

Mortgage-backed
Securities                       9,494,832         8,887,715                 -                -
                                ----------        ----------       -----------       ----------

Total                         $ 19,792,155      $ 18,663,504      $          -     $          -
                              ============     =============       ===========       ==========

</TABLE>


Deposits

Total deposits increased to $132,961,573 at December 31, 1999. Total deposits at
December 31, 1998 were $119,407,706. The addition of the two new branch offices
during the first quarter of 1999 accounted for approximately $10,000,000 of the
deposit growth.

The following table sets forth information for the last two fiscal years
regarding the composition of deposits at December 31, and the average rates paid
on each of these categories:


                                           COMPOSITION OF DEPOSITS


<TABLE>
<CAPTION>
                                                           1999                             1998
                                                                  AVERAGE                         AVERAGE
                                                  BALANCE        RATE PAID        BALANCE        RATE PAID
<S>                                               <C>            <C>              <C>             <C>
Non-Interest Bearing Demand                    $  39,901,884          0.00%    $  38,672,576          0.00%

Interest Bearing Demand                           35,058,015          1.85%       34,601,620          2.19%

Savings                                           13,537,416          2.18%       11,592,945          2.40%

Money Market                                       6,655,897          3.11%        5,410,316          3.21%

Time Deposits                                     37,808,361          4.69%       29,130,249          5.16%
                                                --------------                  --------------

Total Deposits                                 $ 132,961,573          2.07%    $ 119,407,706          2.56%
                                                ==============                  ==============

</TABLE>

Set forth below is a maturity schedule of domestic time certificates of
deposits of $100,000 and over at December 31, 1999.

                                     25
<PAGE>

<TABLE>

TIME DEPOSITS $100,000 AND OVER:
--------------------------------
(DOLLARS IN THOUSANDS)
<S>                                <C>
LESS THAN 3 MONTHS                 $   4,626
3 TO 12 MONTHS                         5,871
OVER 1 YEAR                              100

     TOTAL                         $  10,597
</TABLE>

Capital

The Company's total stockholders equity was $10,542,162 as of December 31,
1999 compared to $9,436,670 as of December 31, 1998. The increase in capital
during 1999 was due to net income of $1,430,928, ($3,025) cash paid to
stockholders in lieu of fractional shares on a 4% stock dividend paid
February 26,1999, stock options exercised in the amount of $148,263 and a
decrease in the valuation allowance for investments of ($470,674). The
valuation allowance was a result of the company's adoption of SFAS No. 115
"Accounting for Certain Investment in Debt and Equity Securities."

Capital ratios for commercial banks in the United States are generally
calculated using 3 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. Furthermore, 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 weighting
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 December 31,
1999.

<TABLE>
<CAPTION>
                                        Minimum Regulatory          Heritage        Heritage
                                       Capital Requirements         Oaks Bank      Oaks Bancorp
<S>                                    <C>                          <C>            <C>
Leverage Ratio                                4.00%                    7.22%          7.62%
Tier One Risk Based Capital Ratio             4.00%                    9.60%          9.80%
Total Risk Based Capital Ratio                8.00%                   10.75%         10.89%
</TABLE>

Generally speaking, the primary source of new capital will be generated from
retained earnings. However, to provide for instances when retained earnings
may not keep pace with asset growth, additional sources of capital need to be
made available. To that end, on September 11, 1998, Heritage Oaks Bancorp
executed a Promissory Note for a $2 million line of credit with Pacific Coast
Bankers= Bank. On September 8, 1999, the Company requested that the revolving
nature be extended for an additional year. This request was granted resulting
in a Change in Terms Agreement. The characteristics of the note are as
follows:

        -Collateralized with 339,332 shares of Heritage Oaks Bank common stock
        -Maturity of August 15, 2005.
        -Interest only for first year of quarterly payments
        -Subsequent payments to be fully amortized to maturity based on
         outstanding balance owed.

On September 28, 1998, October 30, 1998 and December 30, 1998, the Bancorp
drew on the line for $200,000, $200,000 and $350,000, respectively. On
January 29, 1999 and February 26, 1999, the Company drew $50,000 and
$50,0000, respectively. On March 19, 1999 and May 21, 1999, the Company
repaid principal on the line of $350,000 and $200,000, respectively. On

                                      26

<PAGE>

September 29, 1998, October 30, 1998, December 30, 1998 and December 31,
1998, Bancorp invested $150,000, $200,000, $300,000 and $50,000,
respectively, in Heritage Oaks Bank as paid in Capital, Surplus.

In addition to this and pursuant to the Strategic Plan, the Board of
Directors is reviewing other sources of capital for the bank.

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 $5,500,000. The Bank has also established a
borrowing line of approximately $3,700,000 with the Federal Reserve Bank of
San Francisco whereby the Bank has pledged certain loans as collateral for
short-term borrowings. The Bank also has established certain repurchase
agreements that allow for borrowing using securities pledged as collateral.
The Bank became a member of the Federal Home Loan Bank (FHLB) in July 1999.
As of December 31,1999, the Bank had not pledged collateral or utilized any
of the services of the FHLB.

The Bank manages its liquidity by maintaining a majority of its investment
portfolio in federal funds sold and other liquid investments. At December 31,
1999, the ratio of liquid assets not pledged for collateral and other
purposes to deposits and other liabilities was 22.4% compared to 26.3% in
1998. At December 31, 1999 and December 31, 1998, the Bank had borrowings of
securities sold under agreement to repurchase in the amount of $2,211,000 and
$0, respectively. The ratio of gross loans to deposits, another key liquidity
ratio, was 78.0% at year end 1999 compared to 59.6% at December 31, 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 that 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. The effect on inflation
during the three-year period ended December 31, 1999 has not been significant
to the Bank's financial position or results of operations.

Outstanding Risks With the Year 2000

As a result of the banking industry's comprehensive Year 2000-readiness
preparations, no substantive problems occurred during the date change period.
However, while the industry can generally claim success, some associated
risks remain. They involve certain critical dates, the expiration of
temporary remediation techniques, record retention and customer risk. STATE
OF READINESS. The Bank began implementation of its Year 2000 Plan in 1997. It
complied with all timeframes associated with that Plan. Testing of the
various systems and implementations of compliant systems was substantially
complete by early 1999 with all testing completed by year-end. The Company
also spent a great deal of time assessing the state of readiness of its
customers, especially those to whom it had extended credit, and conducting
various public awareness campaigns.

There were no significant withdrawals experienced by the Bank as a result of
concerns surrounding the Y2K issue. There were no disruptions of service
experienced by Bank customers because of Y2K related problems. There have
been no unusual losses experienced by the Bank as a result of extensions of
credit to Bank customers. In summary, there was nothing unusual in the Bank's
operations either during the date change rollover, or since that time.
Management does not expect any future Y2K related disruptions and no material
concerns related to this area exist at this time.

COST TO ADDRESS Y2K COMPLIANCE. The total budgeted cost for Y2K compliance
was $256,000. As of December 31, 1999, 89 % of this budget was spent. The
costs associated with the mailings, questionnaires, seminars and other public
awareness campaign activities, which the Company conducted, did not have a
material effect on the financial position or results of operations of the
Company

                                      27

<PAGE>

THE COMPANY'S CONTINGENCY PLANS. The Company completed development of
contingency plans in preparation for the Y2K event during 1999.

CRITICAL DATES
The following are critical dates that may cause system problems. Many of the
dates were included in test scenarios. Institutions are to review processing
results closely.

<TABLE>

     <S>                   <C>                                        <C>
     February 29, 2000     Leap year date                             Included in Testing
     March 31, 2000        End of first quarter of 2000               Included in Testing
     October 10, 2000      First date to require eight-digit field    Included in Testing
     December 31, 2000     Last date of year
     January 1, 2001       First date of year
     December 31, 2001     Ensure 365-day year
</TABLE>

TEMPORARY REMEDIATION TECHNIQUES
The company and its mission critical vendors did not utilize temporary
remediation techniques.

RECORDS RETENTION
Each institution is to retain the documentation of its Year 2000 efforts to
demonstrate it has satisfied its fiduciary, contractual and regulatory
responsibilities.

CUSTOMER RISK
In 1998, the Federal Financial Institution Council issued guidance to
institutions about the Year 2000's potential impact on customers. The statement
provided guidelines for controlling both general and specific risks related to
borrowers, depositors and capital markets/asset management counterparties.
Management is to continue to monitor the potential customer risk for the
remainder of the year 2000.

           In April of 1998, the Company initiated a credit risk assessment
          program, with loan officers completing a Year 2000 questionnaire for
          all new and renewed credits in amounts over $150,000.00. These
          questionnaires were designed to provide the Company's management with
          information by which it could evaluate the borrower's awareness of and
          sensitivity to Year 2000 risk. Questionnaires are reviewed and
          discussed at weekly Officer Loan Committee meetings and are further
          reviewed by Credit Administration and Senior Lender to ascertain Year
          2000 risk associated with the credit. As a result of this review,
          $135,721 has been allocated to the Company's loan loss provision as of
          December 31, 1999. In addition, legal Year 2000 issues are included in
          significant commitment letters and loan documentation for certain
          borrowers. Finally, on loan participations purchased, the Company
          requires assurances from the lead lender that it has obtained a Year
          2000 questionnaire from the borrower and also that the lead lender is
          satisfactorily progressing toward Year 2000 compliance.


                                      28

<PAGE>

ITEM 7.   FINANCIAL STATEMENTS

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES

                        DECEMBER 31, 1999, 1998 AND 1997





                                    CONTENTS

<TABLE>

<S>                                                                        <C>
INDEPENDENT AUDITORS' REPORT................................................F-1


FINANCIAL STATEMENTS

    Consolidated Balance Sheets
    December 31, 1999 and 1998..............................................F-2

    Consolidated Statements of Income
    For the Years Ended December 31, 1999, 1998 and 1997....................F-3

    Consolidated Statement of Changes in Stockholders' Equity
    For the Years Ended December 31, 1999, 1998 and 1997....................F-4

    Consolidated Statements of Cash Flows
    For the Years Ended December 31, 1999, 1998 and 1997....................F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................F-7
</TABLE>


                                      29

<PAGE>


                          INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
Heritage Oaks Bancorp and Subsidiaries
Paso Robles, California

We have audited the accompanying consolidated balance sheets of Heritage Oaks
Bancorp and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income and changes in stockholders' equity and
statements of cash flows for each of the three years in the period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Heritage
Oaks Bancorp as of December 31, 1999 and 1998, the results of their
operations and changes in their stockholders' equity and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles.

/S/ VAVRINEK, TRINE, DAY & CO., LLP
Vavrinek, Trine, Day & Co., LLP
Rancho Cucamonga, California
February 2, 2000




                                      F-1-
<PAGE>

                      HERITAGE OAKS BANCORP AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>

                                    ASSETS
                                                                                          1999                  1998
                                                                                   -------------------   -------------------
<S>                                                                                <C>                   <C>
Cash and due from banks (Note #1M)                                                        $17,159,073           $17,239,179
Federal funds sold                                                                          1,200,000             7,700,000
                                                                                   -------------------   -------------------
                      Total Cash and Cash Equivalents                                      18,359,073            24,939,179
Interest-bearing deposits in other financial institutions                                     375,255               666,975
Investment securities (Notes #1D and #2)
      Available-for-sale                                                                   18,663,504            12,863,106
      Held-to-maturity                                                                                           15,758,151
Federal Home Loan Bank Stock, at cost                                                         395,300
Loans held for sale (Notes #1F and #3)                                                        120,382             1,654,765
Loans, net of deferred fees and allowance for loan
  losses of $1,726,490 and $1,382,568 at December 31, 1999
  and 1998, respectively (Notes #1E and 3)                                                102,426,192            69,803,041
Property premises and equipment, net (Notes #1H and #6)                                     3,427,289             2,447,385
Net deferred tax asset (Notes #1J and #7)                                                   1,168,983               563,699
Cash surrender value of life insurance (Note #14)                                           1,305,787             1,020,576
Other assets                                                                                1,057,503             1,451,621
                                                                                   -------------------   -------------------
                      Total Assets                                                       $147,299,268          $131,168,498
                                                                                   ===================   ===================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
      Deposits
          Demand non-interest bearing                                                      39,901,884            38,672,576
          Savings, NOW and money market deposits                                           55,251,328            51,604,881
          Time deposits of $100,000 or more (Note #21)                                     10,596,650             4,673,298
          Time deposits under $100,000 (Note #21)                                          27,211,711            24,456,951
                                                                                   -------------------   -------------------
                      Total Deposits                                                      132,961,573           119,407,706
      Notes payable (Note #9)                                                                 350,000               750,000
      Securities sold under agreements to repurchase                                        2,211,000
      Other liabilities                                                                     1,234,533             1,574,122
                                                                                   -------------------   -------------------
                      Total Liabilities                                                   136,757,106           121,731,828
                                                                                   -------------------   -------------------

COMMITMENTS AND CONTINGENCIES (Note #8)

Stockholders' Equity
      Common stock, no par value; 20,000,000 shares authorized;
         1,144,282 and 1,069,791 shares issued and
         outstanding for 1999 and 1998, respectively                                        5,288,179             4,470,170
      Retained earnings                                                                     5,912,823             5,154,666
      Accumulated other comprehensive income                                                 (658,840)             (188,166)
                                                                                   -------------------   -------------------
                      Total Stockholders' Equity                                           10,542,162             9,436,670
                                                                                   -------------------   -------------------
                      Total Liabilities and Stockholders' Equity                         $147,299,268          $131,168,498
                                                                                   ===================   ===================

</TABLE>

The accompanying notes are an integral part of these financial statements.

                                      F-2-
<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                              1999              1998              1997
                                                                        -----------------  ---------------   ---------------
<S>                                                                     <C>                <C>               <C>
INTEREST INCOME
      Interest and fees on loans (Note #1E)                                  $ 8,424,833      $ 6,459,394       $ 5,505,740
      Interest on Investment Securities (Note #1D)
          U.S. Treasury Securities                                                 1,032           27,396            51,472
          Obligations of U.S. Government Agencies                                812,696          907,482           777,718
          Corporate Bonds, Mutual Funds, Commercial Paper                        110,467          123,003            69,907
          Obligations of State and Political Subdivisions                        310,436          253,148           126,916
      Interest on time deposits with other banks                                  29,971           23,515            11,016
      Interest on Federal funds sold                                             220,170          196,727           142,484
Interest on other securities                                                       3,888
                                                                        -----------------  ---------------   ---------------
                      Total Interest Income                                    9,913,493        7,990,665         6,685,253
                                                                        -----------------  ---------------   ---------------

INTEREST EXPENSE
      Interest on savings, NOW and money market deposits                       1,136,841        1,142,163         1,049,847
      Interest on time deposits in denominations of
       $100,000 or more                                                          292,401          204,986           112,009
      Interest on time deposits under $100,000                                 1,084,896        1,133,271           993,941
      Other                                                                       86,797           63,880            56,453
                                                                        -----------------  ---------------   ---------------
                      Total Interest Expense                                   2,600,935        2,544,300         2,212,250
                                                                        -----------------  ---------------   ---------------
      Net interest income before provision for
        possible loan losses                                                   7,312,558        5,446,365         4,473,003
                      Provision for Possible Loan Losses                         165,500          164,000           164,000
                                                                        -----------------  ---------------   ---------------
                                                                               7,147,058        5,282,365         4,309,003
                                                                        -----------------  ---------------   ---------------
NON-INTEREST INCOME
      Service charges on deposit accounts                                        757,448          690,710           559,874
      Investment securities gain/(loss), net                                                       10,504           (16,719)
      Other (Note #12)                                                         4,686,793        5,659,589         4,423,027
                                                                        -----------------  ---------------   ---------------
                      Total Non-interest Income                                5,444,241        6,360,803         4,966,182
                                                                        -----------------  ---------------   ---------------
NON-INTEREST EXPENSES
      Salaries and employee benefits                                           3,562,023        2,892,921         2,402,600
      Equipment expenses                                                         790,862          382,316           275,745
      Occupancy expenses                                                         694,057          540,891           506,472
      Other expenses (Note #12)                                                5,359,301        5,752,419         4,047,572
                                                                        -----------------  ---------------   ---------------
                      Total Non-interest Expenses                             10,406,243        9,568,547         7,232,389
                                                                        -----------------  ---------------   ---------------
Income Before Provision for Income Taxes                                       2,185,056        2,074,621         2,042,796
Provision for Income Taxes (Notes #1J and #7)                                    754,128          728,026           781,732
                                                                        -----------------  ---------------   ---------------
Net Income                                                                   $ 1,430,928      $ 1,346,595       $ 1,261,064
                                                                        =================  ===============   ===============

Earnings Per Share (Notes #1O and #16)
       Basic                                                                    $   1.27         $   1.24          $   1.18
                                                                        =================  ===============   ===============
       Diluted                                                                  $   1.15         $   1.13          $   1.11
                                                                        =================  ===============   ===============

</TABLE>

The accompanying notes are an integral part of these financial statements.

                                     F-3-
<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997



<TABLE>
<CAPTION>

                                                                          Common Stock
                                                                    ---------------------
                                                                     Number of              Comprehensive   Retained
                                                                      Shares      Amount       Income       Earnings
                                                                    ----------  ----------  -------------  ------------
<S>                                                                 <C>         <C>         <C>            <C>
BALANCE, January 1, 1997                                              675,296   $4,089,245                   $3,405,995
   Exercise of stock options                                           15,868       91,241
   Cash dividends paid - $.33 per share                                                                        (337,787)
   Three-for-two stock split                                          345,462
   Cash paid to stockholders in lieu of
     fractional shares on three-for-two
     stock split                                                                                                 (1,351)
   Comprehensive income
       Net income                                                                            $ 1,261,064      1,261,064
       Unrealized security holding gains (net of $37,563 tax)                                     49,896
           plus reclassification adjustments for gains
           (net of $5,852 tax)                                                                    10,867
                                                                                            -------------
       Total comprehensive income                                                            $ 1,321,827
                                                                    ----------  ----------  =============  ------------
BALANCE, December 31, 1997                                          1,036,626    4,180,486                    4,327,921
   Exercise of stock options                                           33,165      289,684
   Cash dividends paid - $.50 per share                                                                        (519,850)
   Comprehensive income
       Net income                                                                            $ 1,346,595      1,346,595
       Unrealized security holding gains (net of $141,588 tax)                                   199,991
           less reclassification adjustments for losses
           (net of $3,676 tax)                                                                    (6,828)
                                                                                            -------------
       Total comprehensive income                                                            $ 1,539,758
                                                                    ----------  ----------  =============  ------------
BALANCE, December 31, 1998                                          1,069,791    4,470,170                    5,154,666
   Exercise of stock options                                           31,832      148,263
   Stock dividends paid - 4%                                           42,659      669,746                     (669,746)
   Cash paid to stockholders in lieu of
     fractional shares on 4% stock dividend                                                                      (3,025)
   Comprehensive income
       Net income                                                                            $ 1,430,928      1,430,928
       Unrealized security holding losses (net of $344,368 tax)                                 (470,674)
                                                                                            -------------
       Total comprehensive income                                                             $  960,254
                                                                    ----------  ----------  =============  ------------
BALANCE, December 31, 1999                                          1,144,282   $5,288,179                   $5,912,823
                                                                    ==========  ==========                 ============
</TABLE>



<TABLE>
<CAPTION>

                                                                  Accumulated
                                                                     Other
                                                                 Comprehensive   Stockholders'
                                                                    Income          Equity
                                                                 --------------  -------------
<S>                                                              <C>             <C>
Balance, January 1, 1997                                          $  (442,092)    $ 7,053,148
   Exercise of stock options                                                           91,241
   Cash dividends paid - $.33 per share                                              (337,787)
   Three-for-two stock split
   Cash paid to stockholders in lieu of
     fractional shares on three-for-two
     stock split                                                                       (1,351)
   Comprehensive income
       Net income                                                                   1,261,064
       Unrealized security holding gains (net of $37,563 tax)          49,896          49,896
           plus reclassification adjustments for gains
           (net of $5,852 tax)                                         10,867          10,867
                                                                 --------------  -------------
       Total comprehensive income
Balance, December 31, 1997                                           (381,329)      8,127,078
   Exercise of stock options                                                          289,684
   Cash dividends paid - $.50 per share                                              (519,850)
   Comprehensive income
       Net income                                                                   1,346,595
       Unrealized security holding gains (net of $141,588 tax)        199,991         199,991
           less reclassification adjustments for losses
           (net of $3,676 tax)                                         (6,828)         (6,828)
       Total comprehensive income                                --------------  -------------
Balance, December 31, 1998                                           (188,166)      9,436,670
   Exercise of stock options                                                          148,263
   Stock dividends paid - 4%
   Cash paid to stockholders in lieu of
     fractional shares on 4% stock dividend                                            (3,025)
   Comprehensive income
       Net income                                                                   1,430,928
       Unrealized security holding losses (net of $344,368 tax)      (470,674)       (470,674)
       Total comprehensive income                                --------------  -------------
Balance, December 31, 1999                                        $  (658,840)    $10,542,162

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-4-
<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


<TABLE>
<CAPTION>

                                                                                      1999              1998             1997
                                                                                 ----------------  ---------------  ----------------
<S>                                                                              <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                      $1,430,928       $1,346,595        $1,261,064
   Adjustments to reconcile net income to
    net cash provided by operating activities
      Net cash provided by operating activities
        Depreciation and amortization                                                 658,998          427,759           351,303
        Provision for possible loan losses                                            165,500          164,000           164,000
        Provision for possible OREO losses                                                               7,369
        Realized (gain) loss on sales of available-for-sale
         securities, net                                                                               (10,504)           16,719
        Amortization of premiums/discounts on
         investment securities, net                                                  (235,382)        (161,672)          (74,194)
        (Increase)/decrease in loans held for sale                                  1,534,383       (1,159,415)          120,650
        Increase in deferred tax asset                                               (269,788)        (135,000)
        (Increase)/decrease in other assets                                           394,118            3,359          (145,068)
        Increase/(decrease) in other liabilities                                     (339,589)         (68,565)          257,944
                                                                                 ----------------  ---------------  ----------------

                      NET CASH PROVIDED BY OPERATING ACTIVITIES                     3,339,168          413,926         1,952,418
                                                                                 ----------------  ---------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of securities held-to-maturity                                                           (3,607,551)       (3,976,013)
  Purchase of mortgage-backed securities held-to-maturity                                           (6,143,140)       (2,080,158)
  Purchase of securities available-for-sale                                       (14,335,101)     (10,098,137)       (1,500,000)
  Purchase of mortgage-backed securities available-for-sale                        (2,532,299)        (696,825)       (3,355,847)
  Proceeds from sales of securities held-to-maturity                                                                   1,250,000
  Proceeds from principal reductions and maturities
   of securities held-to-maturity                                                                    2,379,076         2,125,000
  Proceeds from principal reductions and maturities
   of mortgage-backed securities held-to-maturity                                                    3,013,646           534,864
  Proceeds from sales of securities available-for-sale                              2,978,217        4,431,186         3,483,281
  Proceeds from principal reductions and maturities
   of securities available-for-sale                                                18,065,264
  Proceeds from sales of mortgage-backed securities
   available-for-sale                                                                                  733,835
  Proceeds from principal reductions and maturities
   of mortgage-backed securities available-for-sale                                 4,815,584        1,763,715           184,441
  Purchase of deposits with other banks                                               291,720          (56,856)         (510,119)
  Purchase of life insurance policies                                                (285,211)         (50,258)         (240,398)
  Proceeds from sale of other real estate owned                                                         54,631
  Recoveries on loans previously written off                                           20,196           20,528            43,208
  Increase in loans, net                                                          (32,808,847)     (15,785,435)       (5,507,489)
  Purchase of property, premises and equipment, net                                (1,638,902)        (802,433)         (667,915)
                                                                                 ----------------  ---------------  ----------------

                      NET CASH USED IN INVESTING ACTIVITIES                       (25,429,379)     (24,844,018)      (10,217,145)
                                                                                 ----------------  ---------------  ----------------

</TABLE>

The accompanyning notes are an integral part of these financial statements.

                                      F-5-
<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


<TABLE>
<CAPTION>

                                                                                      1998              1998             1997
                                                                                 ----------------  ---------------  ----------------
<S>                                                                              <C>               <C>              <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Increase in deposits, net                                                        $13,553,867       $35,858,049      $11,558,359
  Net increase/(decrease) in other borrowings                                        2,211,000                         (4,730,000)
  Net (decrease)/increase in notes payable                                            (400,000)          750,000
  Proceeds from exercise of stock options                                              148,263           289,684           91,241
  Cash paid in lieu of fractional shares                                                (3,025)
  Cash dividends paid or declared                                                                       (519,850)        (339,138)
                                                                                 ----------------  ---------------  ----------------

                      NET CASH PROVIDED BY FINANCING ACTIVITIES                     15,510,105        36,377,883        6,580,462
                                                                                 ----------------  ---------------  ----------------

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS                                (6,580,106)       11,947,791       (1,684,265)

CASH AND CASH EQUIVALENTS, Beginning of year                                        24,939,179        12,991,388       14,675,653
                                                                                 ----------------  ---------------  ----------------

CASH AND CASH EQUIVALENTS, End of year                                             $18,359,073       $24,939,179      $12,991,388
                                                                                 ================  ===============  ================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Interest paid                                                                    $ 2,649,170       $ 2,383,618      $ 2,445,815
  Income taxes paid                                                                $   716,000       $   976,129      $  847,000

SUPPLEMENTAL DISCLOSURES OF NON-CASH FLOW INFORMATION
  Change in other comprehensive income                                             $  (470,674)      $   193,163      $   60,763
  Transfer of loan to other real estate owned through foreclosure                                           -         $   62,000
  Transfer of held-to-maturity securities to avaliable-for-sale                     15,758,151              -               -

</TABLE>

The accompanying notes are an integral part of these financial statements.

                                     F-6-
<PAGE>







                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997





Note #1 - Summary of Significant Accounting Policies

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

A.  PRINCIPLES OF CONSOLIDATION
    ---------------------------

    The consolidated financial statements include the Company and its wholly
    owned subsidiaries, Heritage Oaks Bank and CCMS Systems, Inc. Intercompany
    balances and transactions have been eliminated.

B.  NATURE OF OPERATIONS
    --------------------

                  The Bank has been organized with two primary operating
           segments, which consist of the Bank and the Bank's Electronic Funds
           Transfer (EFT) Department. The segments are identified as such based
           upon the percentage of operating net income, management
           responsibility, and the types of products and services offered. The
           Bank operates seven branches and one loan production office within
           San Luis Obispo County. The Bank offers traditional banking products
           such as checking, savings and certificates of deposit, as well as
           mortgage loans and commercial and consumer loans to customers who are
           predominately small to medium-sized businesses and individuals. The
           EFT Department has installed automatic teller machines located in
           retail outlets and gaming facilities and point of sale machines
           located in retail outlets. Income is based upon total customer usage
           of the machines and the applicable transaction charge.

C.  USE OF ESTIMATES
    ----------------

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

    Estimates that are particularly susceptible to significant change relate to
    the determination of the allowance for loan losses on loans and the
    valuation of real estate acquired in connection with foreclosures or in
    satisfaction of loans. In connection with the determination of the
    allowances for losses on loans and foreclosed real estate, management
    obtains independent appraisals for significant properties.

    While management uses available information to recognize losses on loans and
    foreclosed real estate, future additions to the allowances may be necessary
    based on changes in local economic conditions. In addition, regulatory
    agencies, as an integral part of their examination process, periodically
    review

                                     F-7-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997


    the Bank's allowances for losses on loans and foreclosed real estate.
    Such agencies may require the Bank to recognize additions to the allowances
    based on their judgments about information available to them at the time of
    their examination. Because of these factors, it is reasonably possible that
    the allowances for losses on loans and foreclosed real estate may change.

NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

D.  INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES

    In accordance with Statement of Financial Accounting Standards (SFAS) No.
    115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES,"
    which addresses the accounting for investments in equity securities that
    have readily determinable fair values and for investments in all debt
    securities. Securities and mortgage-backed securities are classified in
    three categories and accounted for as follows: debt, equity, and
    mortgage-backed 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. Gains or losses on sales of investment securities and
    mortgage-backed securities are determined on the specific identification
    method. Premiums and discounts are amortized or accreted using the interest
    method over the expected lives of the related securities.

E.  LOANS AND INTEREST ON LOANS
    ---------------------------

    Loans are stated at unpaid principal balances, less the allowance for loan
    losses and net deferred loan fees and unearned discounts. The Bank
    recognizes loan origination fees to the extent they represent reimbursement
    for initial direct costs, as income at the time of loan boarding. The excess
    of fees over costs, if any, is deferred and credited to income over the term
    of the loan.

    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 collateral if
    the loan is collateral dependent. A loan is impaired when it is probable the
    creditor will not be able to collect all contractual principal and interest
    payments due in accordance with the terms of the loan agreement.

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

                                     F-8-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997


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

NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

F.  LOANS HELD FOR SALE
    -------------------

                  Loans held for sale are carried at the lower of aggregate cost
           or market value, which is determined by the specified value in the
           commitments. Net unrealized losses, if any, are recognized through a
           valuation allowance by charges to income.

G.  ALLOWANCE FOR LOAN LOSSES

    The allowance for loan losses is maintained at a level which, in
    management's judgment, is adequate to absorb credit losses inherent in the
    loan portfolio. The amount of the allowance is based on management's
    evaluation of the collectibility of the loan portfolio, including the nature
    of the portfolio, credit concentrations, trends in historical loss
    experience, specific impaired loans, and economic conditions. Allowances for
    impaired loans are generally determined based on collateral values or the
    present value of estimated cash flows. The allowance is increased by a
    provision for loan losses, which is charged to expense and reduced by
    charge-offs, net of recoveries. Changes in the allowance relating to
    impaired loans are charged or credited to the provision for loan losses.
    Because of uncertainties inherent in the estimation process, management's
    estimate of credit losses inherent in the loan portfolio and the related
    allowance may change.

H.  PROPERTY, PREMISES AND EQUIPMENT

    Land is carried at cost. Premises and equipment are carried at cost less
    accumulated depreciation and amortization. Depreciation is computed using
    the straight-line method over the estimated useful lives, which ranges from
    three to ten years for furniture and fixtures and forty years for buildings.
    Leasehold improvements are amortized using the straight-line method over the
    estimated useful lives of the improvements of the remaining lease term,
    whichever is shorter. Expenditures for betterments or major repairs are
    capitalized and those for ordinary repairs and maintenance are charged to
    operations as incurred. Total depreciation expense for the reporting periods
    ending December 31, 1999, 1998 and 1997 were approximately $659,000,
    $428,000, and $351,000, respectively.

I.  OTHER REAL ESTATE OWNED

    Other real estate owned, which represents real estate acquired through
    foreclosure, is stated at the lower of the carrying value of the loan or the
    estimated fair market value less estimated selling costs of the related real
    estate. Loan balances in excess of the fair market value of the real estate
    acquired at the date of acquisition are charged against the allowance for
    loan losses. Any subsequent declines

                                     F-9-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997


    in estimated fair value, operation income, and gains or losses on
    disposition of such properties are expensed or charged to current
    operations.
Note #1 - Summary of Significant Accounting Policies, Continued

J.  INCOME TAXES

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

K.  COMPREHENSIVE INCOME

    BEGINNING IN 1998, THE BANK ADOPTED SFAS NO. 130, "REPORTING COMPREHENSIVE
    INCOME", WHICH REQUIRES THE DISCLOSURE OF COMPREHENSIVE INCOME AND ITS
    COMPONENTS. CHANGES IN UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE
    SECURITIES NET OF INCOME TAXES IS THE ONLY COMPONENT OF ACCUMULATED OTHER
    COMPREHENSIVE INCOME FOR THE BANK.

L.  CASH AND CASH EQUIVALENTS

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

M.  CASH AND DUE FROM BANKS

    Banking regulations require that all banks maintain a percentage of their
    deposits as reserves in cash or on deposit with the Federal Reserve Bank.
    The Bank complied with the reserve requirements as of December 31, 1999.

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

N.  RECLASSIFICATIONS

             Certain amounts in the 1998 and 1997 financial statements have
    been reclassified to conform to the 1999 presentation.

O.  EARNINGS PER SHARE (EPS)

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

                                     F-10-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997



Note #1 - Summary of Significant Accounting Policies, Continued

P.  NEW ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
    133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." This
    statement establishes accounting and reporting standards for derivative
    instruments and for hedging activities. This new standard was originally
    effective for 2000. In June 1999, the FASB issued SFAS No. 137, "ACCOUNTING
    FOR DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE
    EFFECTIVE DATE OF FASB STATEMENT NO. 133". This Statement establishes the
    effective date of SFAS 133 for 2001. During 1999, the Bank adopted SFAS 133.


NOTE #2 - INVESTMENT SECURITIES

At December 31, 1999 and 1998, the investment securities portfolio was comprised
of securities classified as available-for-sale and held-to-maturity, in
accordance with SFAS No. 115, resulting in investment securities
available-for-sale being carried at fair value and investment securities
held-to-maturity being carried at cost, adjusted for amortization of premiums
and accretions of discounts, and fair market value adjustments for securities
transferred from available-for-sale.

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

<TABLE>
<CAPTION>

                                                                           Gross              Gross
                                                       Amortized         Unrealized         Unrealized
                                                         Cost              Gains              Losses            Fair Value
                                                   ------------------  ---------------   -----------------   -----------------
<S>                                                    <C>                 <C>               <C>                 <C>
Obligations of U.S. Government
  agencies and corporations                            $3,642,261                            $(138,788)          $3,503,473
Mortgage-backed securities                              9,494,832          $3,294             (610,411)           8,887,715
Obligations of state and political
  subdivisions                                          6,651,262           4,119             (386,865)           6,268,516
Other securities                                            3,800                                                     3,800
                                                   ------------------  ---------------   -----------------   -----------------
                      Total                           $19,792,155          $7,413           $(1,136,064)        $18,663,504
                                                   ==================  ===============   =================   =================
</TABLE>

Available-for-sale securities in the amount of $2,089,375 were transferred to
held-to-maturity during 1994. The unrealized loss of $330,165 net of tax of
$137,098 was reflected in a separate component of stockholders' equity and was
being amortized over the remaining life of the securities as a yield adjustment.
During 1999 all securities were transferred from held-to-maturity to
available-for-sale upon implementation of SFAS No. 133.

There were no investment securities held-to-maturity at December 31, 1999.

                                     F-11-

<PAGE>

                    HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997


NOTE #2 - INVESTMENT SECURITIES, (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                             Gross             Gross
                                                         Amortized         Unrealized        Unrealized
                                                           Cost              Gains             Losses          Fair Value
                                                     ------------------  ---------------   ---------------  ------------------
<S>                                                      <C>                <C>              <C>                <C>
Obligations of U.S. Government
  agencies and corporations                              $1,650,875         $163,545                            $1,814,420
Mortgage-backed securities                                3,286,605            2,903          $(214,455)         3,075,053
Commercial paper                                          7,969,833                                              7,969,833
Other securities                                              3,800                                                  3,800
                                                     ------------------  ---------------   ---------------  ------------------
                      Total                                $12,911,113         $166,448         $(214,455)        $12,863,106
                                                     ==================  ===============   ===============  ==================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                             Gross            Gross
                                                        Amortized          Unrealized       Unrealized
                                                          Cost               Gains            Losses           Fair Value
                                                    ------------------   ---------------  ---------------   -----------------
<S>                                                      <C>                <C>                <C>                <C>
U.S. Treasury securities                                 $98,777                               $(777)             $98,000
Obligations of U.S. government
  agencies and corporations                            1,235,905            $25,798             (132)           1,261,571
Mortgage-backed securities                             8,168,695            283,004          (12,759)           8,438,940
Obligations of state and
  political subdivisions                               6,254,774             14,059           (8,337)           6,260,496
                                                    ------------------   ---------------  ---------------   -----------------
                      Total                          $15,758,151            $322,861        $(22,005)         $16,059,007
                                                    ==================   ===============  ===============   =================
</TABLE>

The amortized cost and fair values of investment securities available-for-sale
at December 31, 1999, by contractual maturity are shown below. Actual maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                               Securities
                                                           Available-for-Sale
                                                  -------------------------------------
                                                      Amortized
                                                        Cost             Fair Value
                                                  ------------------ ------------------
<S>                                                   <C>                <C>
Due in one year or less                               $1,663,526         $1,662,918
Due after one year through five years                  2,728,424          2,681,029
Due after five years through ten years                 1,527,622          1,491,207
Due after ten years                                    4,377,751          3,940,635
Mortgage-backed securities                             9,494,832          8,887,715
                                                  ------------------ ------------------
                      Total Securities               $19,792,155        $18,663,504
                                                  ================== ==================
</TABLE>

                                     F-12-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997




NOTE #2 - INVESTMENT SECURITIES, (CONTINUED)

Proceeds from sales and maturities of investment securities available-for-sale
during 1999, 1998 and 1997, were $2,978,217, $4,431,186, and $3,483,281,
respectively. There were no gross gains or losses in 1999. In 1998, gross losses
and gross gains on these sales were $9,970; and $13,365, respectively. In 1997,
gross losses on these sales were $16,719; there were no gross gains.

Proceeds from maturities and sales of investment securities held-to-maturity
during 1999, 1998 and 1997, were $0, $2,379,076, and $3,375,000, respectively.
There were no gains or losses on those sales and maturities in 1999, 1998 and
1997. Proceeds from sales and maturities and principal reductions of
mortgage-backed securities in 1999, 1998 and 1997, were $4,815,584, $5,511,196
and $719,305, respectively. Gross gains on these sales during 1998 were $7,041.
There were no gross gains or losses on these sales during 1999 and 1997.
Unrealized losses on investment securities and mortgage-backed securities
included in shareholders' equity net of tax at December 31, 1999, 1998 and 1997
were $658,840, $188,166, $381,329, respectively.

Securities having a carrying value of approximately $5,115,000 and $2,249,000
and a fair value of approximately $5,115,000 and $2,261,000 at December 31, 1999
and 1998, respectively, were pledged to secure public deposits and for other
purposes as required by law.



Note #3 - Loans

Major classifications of loans were:

<TABLE>
<CAPTION>

                                                                                             1999                 1998
                                                                                      -------------------   -----------------
<S>                                                                                          <C>                 <C>
Commercial, financial and agricultural                                                     $38,419,611           $38,220,932
Real Estate - construction                                                                  12,741,477             8,357,701
Real Estate - mortgage                                                                      50,063,714            21,672,158
Installment loans to individuals                                                             2,786,034             2,611,325
All other loans (including overdrafts)                                                         141,846               323,493
                                                                                      -------------------   -----------------
                                                                                           104,152,682            71,185,609
Less:  Deferred loan fees                                                                    (485,474)             (313,033)
Less:  Allowance for loan losses                                                           (1,241,016)           (1,069,535)
                                                                                      -------------------   -----------------
                      Total Loans                                                         $102,426,192           $69,803,041
                                                                                      ===================   =================

Loans held for sale                                                                           $120,382            $1,654,765
                                                                                      ===================   =================
</TABLE>

                                     F-13-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997


NOTE #3 - LOANS, (CONTINUED)

Concentration of Credit Risk

At December 31, 1999, approximately $62,805,000 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.

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

<TABLE>
<CAPTION>

                                                                           1999                 1998
                                                                      ----------------   -------------------
<S>                                                                      <C>                   <C>
Impaired loans with a valuation allowance                                $904,773              $902,669
Impaired loans without a valuation allowance                                                     93,807
                                                                      ----------------   -------------------
Total impaired loans                                                      $904,773             $996,476
                                                                      ================   ===================
Valuation allowance related to impaired loans                             $122,847             $117,285
                                                                      ================   ===================


                                                                           1999                 1998                 1997
                                                                      ----------------   -------------------   -----------------

Average recorded investment in impaired loans                              $914,298           $1,028,128           $955,187
                                                                      ================   ===================   =================

Cash receipts applied to reduce principal balance                           $28,691               $5,023                $ -
                                                                      ================   ===================   =================

Interest income recognized for cash payments                                    $ -              $20,226                 $ -
                                                                      ================   ===================   =================

</TABLE>

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

Nonaccruing loans totaled $904,773 and $934,389 at December 31, 1999 and 1998,
respectively. As of December 31, 1999 and 1998, all loans on nonaccrual were
classified as impaired. If interest on nonaccrual loans had been recognized at
the original interest rates, interest income would have increased $91,207,
$103,164, and $94,762 in 1999, 1998 and 1997, respectively. No additional funds
are committed to be advanced in connection with impaired loans.

                                     F-14-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997



At December 31, 1999 and 1998, the Bank had no loans past due 90 days or more in
interest or principal and still accruing interest.

At December 31, 1999, loans totaling approximately $165,000 were classified as
troubled debt restructurings.


NOTE #4 - ALLOWANCE FOR LOAN LOSSES

Transactions in the allowance for loan losses are summarized as follows:

<TABLE>
<CAPTION>

                                                                            1999              1998               1997
                                                                       ----------------  ----------------   ----------------
<S>                                                                         <C>                <C>                <C>
Balance, Beginning of year                                               $1,069,535          $930,284            $771,925
Additions charged to operating expense                                      165,500           164,000             164,000
Loans charged off                                                           (14,215)          (45,277)            (48,849)
Recoveries of loans previously charged off                                   20,196            20,528              43,208
                                                                       ----------------  ----------------   ----------------
Balance, End of year                                                     $1,241,016        $1,069,535           $ 930,284
                                                                       ================  ================   ================

</TABLE>


Note #5 - Related Party Transactions

The Bank has entered into loan and deposit transactions with certain directors
and executive officers of the Company. These loans were made and deposits were
taken in the ordinary course of the Bank's business and, in management's
opinion, were made at prevailing rates and terms.

An analysis of loans to directors and executive officers is as follows:

<TABLE>
<CAPTION>

                                                                                              1999               1998
                                                                                        -----------------  -----------------
<S>                                                                                         <C>                 <C>
Outstanding Balance, Beginning of year                                                      $698,732            $322,130
Additional loans made                                                                        218,911             548,264
Repayments                                                                                  (625,103)           (148,785)
Loans sold                                                                                                       (22,877)
                                                                                        -----------------  -----------------
Outstanding Balance, End of year                                                            $292,540            $698,732
                                                                                        =================  =================
</TABLE>

Deposits from related parties held by the Bank at December 31, 1999 and 1998
amounted to approximately $2,026,000 and $1,841,000, respectively.

                                     F-15-

<PAGE>

                   HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     DECEMBER 31, 1999, 1998 AND 1997


NOTE #6 - PROPERTY, PREMISES AND EQUIPMENT

Property, premises and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                                              1999                1998
                                                                                      ------------------  ------------------
<S>                                                                                        <C>                 <C>
Land                                                                                      $  668,877          $  671,070
Building and improvements                                                                  3,009,455           2,294,000
Furniture and equipment                                                                    3,795,974           2,755,760
Construction in Progress                                                                                         135,663
                                                                                      ------------------  ------------------
                                                                                           7,474,306           5,856,493
      Less:  Accumulated depreciation and amortization                                     4,047,017           3,409,108
                                                                                      ------------------  ------------------
                      Total                                                               $3,427,289          $2,447,385
                                                                                      ==================  ==================
</TABLE>

The Company leases land, buildings, and equipment under noncancelable operating
leases expiring at various dates through 2009. The following is a schedule of
future minimum lease payments based upon obligations at year-end.

<TABLE>
<CAPTION>
       Year Ending
      December 31,                                                                                               Amount
--------------------------                                                                                 -----------------
      <S>                                                                                                      <C>
          2000                                                                                                 $ 580,989
          2001                                                                                                   591,264
          2002                                                                                                   385,903
          2003                                                                                                   331,333
          2004                                                                                                   302,124
    More than 5 years                                                                                          1,052,145
                                                                                                           -----------------
          Total                                                                                                $3,243,758
                                                                                                           =================
</TABLE>

Total expenditures charged for leases for the reporting periods ended December
31, 1999, 1998 and 1997, were $345,582, $312,467 and $309,034, respectively.

                                     F-16-

<PAGE>


                   HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     DECEMBER 31, 1999, 1998 AND 1997


NOTE #7 - INCOME TAXES

The current and deferred amounts of the provision (benefit) for income taxes
were:

<TABLE>
<CAPTION>
                                                                                      Year Ending December 31,
                                                                         ---------------------------------------------------
                                                                              1999              1998             1997
                                                                         ---------------   ---------------  ----------------
<S>                                                                         <C>               <C>               <C>
Federal Income Tax
      Current                                                              $ 655,522          $474,820           $551,554
      Deferred                                                              (133,240)            2,557             (3,143)
                                                                         ---------------   ---------------  ----------------
                      Total Federal Taxes                                    522,282           477,377            548,411
                                                                         ---------------   ---------------  ----------------

State Franchise Tax
      Current                                                                276,364           250,293            236,760
      Deferred                                                               (44,518)              356             (3,439)
                                                                         ---------------   ---------------  ----------------
                      Total State Franchise Tax                              231,846           250,649            233,321
                                                                         ---------------   ---------------  ----------------
                      Total Income Taxes                                   $ 754,128          $728,026           $781,732
                                                                         ===============   ===============  ================
</TABLE>

The principal items giving rise to deferred taxes were:

<TABLE>
<CAPTION>
                                                                              1999              1998             1997
                                                                          ---------------   ---------------  ---------------
<S>                                                                         <C>                <C>              <C>
Use of different depreciation for tax purposes                              $ (29,948)        $  29,374           $15,100
Difference in loan loss provision for tax purposes                            (67,855)           59,991            32,781
Differences arising from changes in accruals                                  (83,831)           51,762           (35,621)
Other, net                                                                      3,876          (138,214)          (18,802)
                                                                          ---------------   ---------------  ---------------
                      Total                                                 $(177,758)        $   2,913           $(6,542)
                                                                          ===============   ===============  ===============
</TABLE>

The provision for taxes on income differed from the amounts
computed using the federal statutory tax rate of 34 percent as follows:

<TABLE>
<CAPTION>

                                                             1999                       1998                     1997
                                                           --------                   --------                 --------
                                                            Amount      Percent        Amount      Percent      Amount     Percent
                                                           --------    ---------      --------    ---------    --------   --------
<S>                                                        <C>          <C>           <C>          <C>         <C>         <C>
Tax provision at federal statutory tax rate                $ 742,919       34.0       $ 705,371      34.0       $ 694,551     34.0
State income taxes, net of federal income tax benefit        153,019        7.0         148,335       7.1         146,060      7.2
Tax exempt income and Other, Net                            (141,810)      (6.5)       (125,680)     (6.0)        (58,879)    (2.9)
                                                          ------------  ----------  -------------  ---------  ----------- ----------
                      Total Tax Provision                  $ 754,128       34.5       $ 728,026      35.1       $ 781,732     38.3
                                                          ============  ==========  =============  =========  ============ =========
</TABLE>

                                     F-17-

<PAGE>

                   HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     DECEMBER 31, 1999, 1998 AND 1997


NOTE #7 - INCOME TAXES, (CONTINUED)

The net deferred tax asset is determined as follows:

<TABLE>
<CAPTION>
                                                                                              (In Thousands)
                                                                                          --------------------------
                                                                                           1999            1998
<S>                                                                                        <C>             <C>
                                                                                          --------------------------
Deferred Tax Assets
     Reserves for loan losses                                                                $  423          $  353
     Fixed Assets                                                                                67              24
     Accruals                                                                                   318             158
     Investment securities valuation                                                            464             132
                                                                                      -------------   -------------
Total Deferred tax assets arising from cumulative
  timing differences                                                                           1,272             667
Valuation allowance*                                                                           (103)           (103)
                                                                                      -------------   -------------
                      Net Deferred Tax Asset                                                $ 1,169          $  564
                                                                                       =============   =============
</TABLE>

                *The valuation allowance is estimated based upon amounts less
than likely of future realization.


NOTE #8 - COMMITMENTS AND CONTINGENCIES

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

At December 31, 1999 and 1998, the Bank was contingently liable for letters of
credit accommodations made to its customers totaling $530,967 and $889,684,
respectively. At December 31, 1999 and 1998, the Bank had undisbursed loan
commitments in the amount of $48,235,109 and $26,363,856, respectively. 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 confidential 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 loans to customers. The Bank anticipates no losses as
a result of such transactions.

                                     F-18-

<PAGE>

                   HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     DECEMBER 31, 1999, 1998 AND 1997


NOTE #9 - NOTES PAYABLE

On September 11, 1998, the Bancorp obtained a revolving line of credit in the
amount of $2,000,000 through Pacific Coast Bankers' Bank. The note is secured by
339,332 shares of the Bank's stock. The note matures August 15, 2005, and bears
interest at a variable rate of 1.00% over the Wall Street Journal prime rate.
The outstanding principal balance at December 31, 1999, was $350,000 and the
current interest rate was 9.5%. Payments on the note will be fully amortizing to
maturity, based on the outstanding balance owed.


NOTE #10 - STOCK SPLIT

On September 4, 1997, the Board of Directors approved a three-for-two stock
split of its common stock. The outstanding shares and related calculations
included in these financial statements reflect retroactive adjustments for this
stock split.

                                     F-19-

<PAGE>

                    HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      DECEMBER 31, 1999, 1998 AND 1997

Note #11 - Stock Option Plans

At December 31, 1998, the Bank had two stock option plans, which are described
below. The Bank applies APB Opinion 25 and related interpretations in accounting
for the stock option plans.

Accordingly, no compensation costs have been recognized. Had compensation costs
for these plans been determined on the fair value at the grant dates consistent
with the method prescribed by SFAS No. 123, the Company's net income and
earnings per share would have been adjusted to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                                             1999               1998               1997
                                                                        ----------------   ----------------  -----------------
<S>                                             <C>                          <C>                <C>                <C>
Net Income                                      As reported                  $1,430,928         $1,346,595         $1,261,064
                                                Pro forma                    $1,373,874         $1,285,931         $1,261,604

Earnings per share                              As reported                      $ 1.27             $ 1.24             $ 1.18
                                                Pro forma                        $ 1.22             $ 1.13             $ 1.18

Earnings per share -                            As reported                      $ 1.15             $ 1.13             $ 1.11
assuming dilution                               Pro forma                        $ 1.10             $ 1.08             $ 1.11


The Company adopted the Bank's 1990 stock option plan, which is
a tandem stock option plan permitting options to be granted either as "Incentive
Stock Options" or as Non-Qualified Stock options under the Internal Revenue
Code. All outstanding options were granted at prices which equal the fair market
value on the day of grant. Options granted vest at a rate of 25 percent per year
for four years, and expire no later than ten years from the date of grant. The
plan provides for issuance of up to 144,004 shares (after giving retroactive
effect for a three-for-two stock split in 1997 and a 4% stock dividend in 1999)
of the Company's unissued common stock and is subject to the specific approval
of the Board of Directors.

</TABLE>

                                     F-20-


<PAGE>


                    HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      DECEMBER 31, 1999, 1998 AND 1997


NOTE #11 - STOCK OPTION PLANS, (CONTINUED)

The fair value of each option granted was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for 1997:
risk-free rate of 5.78% and dividend yield of 3.22%, expected life of five
years; and volatility of 34%. No options were granted during 1998 and 1999.

The following tables summarize information about the 1990 stock option plan
outstanding at December 31, 1999.

<TABLE>
<CAPTION>
                                                1999                       1998                      1997
                                            --------------------------  ------------------------- --------------------------
                                                          Weighted-                   Weighted-                 Weighted-
                                                           Average                     Average                   Average
                                                           Exercise                   Exercise                   Exercise
                                               Shares       Price         Shares        Price       Shares        Price
                                            --------------------------  ------------ ------------ ------------ -------------
<S>                                               <C>           <C>         <C>            <C>        <C>            <C>
Outstanding at beginning of year                  72,562        $4.13       103,738        $4.05      124,224         $3.77
Granted                                                                                                 4,268        $10.26
Cancelled                                           (878)      $10.26          (584)      $10.26
Exercised                                        (28,232)       $3.84       (30,592)       $3.75      (24,754)        $3.68
                                            -------------               ------------              ------------
Outstanding at end of year                        43,452        $4.13        72,562        $4.13      103,738         $4.05
                                            =============               ============              ============

Options available for granting at
  end of year                                        881                          3                         3
Options exercisable at year-end                   42,293        $3.97        69,947     $ 3.89         99,471     $ 3.78
Weighted-average fair value of
  options granted during the year                -                           -                          $2.96
</TABLE>

<TABLE>
<CAPTION>
    Options Outstanding                                                                          Options Exercisable


                                                        Weighted-           Weighted-                           Weighted-
                                                         Average             Average                             Average
        Exercise                  Number               Remaining           Exercise           Number           Exercise
           Price                Outstanding         Contractual Life          Price          Exercisable          Price
        <S>                     <C>                 <C>                    <C>               <C>               <C>
           $3.68                        31,774            3.09                    $3.68             31,774            $3.68
           $4.16                         9,360            0.55                    $4.16              9,360            $4.16
          $10.26                         2,318            7.53                   $10.26              1,159           $10.26
                              -----------------                                            ----------------
                                        43,452            2.78                    $4.14             42,293            $3.97
                              =================                                            ================
</TABLE>

                                     F-21-

<PAGE>

                    HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      DECEMBER 31, 1999, 1998 AND 1997


The Company adopted the Bank's 1997 stock option plan, which is a tandem stock
option plan permitting options to be granted either as "Incentive Stock Options"
or as "Non-Qualified Stock Options" under the Internal Revenue Code. All
outstanding options were granted at prices which equal the fair market value on
the day of the grant. Options granted vest at a rate of 20 percent per year for
five years, and expire no later than ten years from the date of grant. The plan
provides for issuance of up to 167,491 shares (after giving retroactive effect
for a three-for-two stock split in 1997 and a 4% stock dividend in 1999) of the
Company's unissued common stock and is subject to the specific approval of the
Board of Directors.

                                     F-22-

<PAGE>


                    HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      DECEMBER 31, 1999, 1998 AND 1997


NOTE #11 - STOCK OPTION PLANS, (CONTINUED)

During 1999, the Board of Directors approved an amendment to the 1997 Stock
Option Plan. Under this amendment, the plan provides for issuance of up to
99,254 additional shares of the Company's common stock.

The fair value of each option granted was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for 1999
and 1998, respectively: risk-free rates of 6.60% and 4.80%, dividend yields of
0% and 10%, expected life of eight years; and volatility of 30%, and 25%. No
options were granted for this plan prior to 1997.

The following summarizes information about the 1997 stock option plan
outstanding at December 31, 1999. These tables have been retroactively adjusted
for the 4% stock dividend.

<TABLE>
<CAPTION>
                                                  1999                        1998                        1997
                                              ---------------------------  --------------------------  -------------------------
                                                             Weighted-                   Weighted-                  Weighted-
                                                               Average                     Average                    Average
                                                              Exercise                    Exercise                   Exercise
                                                 Shares         Price        Shares         Price        Shares        Price
                                              -------------  ------------  ------------  ------------  -----------  ------------
<S>                                              <C>           <C>           <C>           <C>          <C>            <C>
Outstanding at beginning of year                 135,715       $10.47        144,712       $10.26
Granted                                           35,500       $16.35          6,760       $14.57        144,712       $10.26
Cancelled                                        (6,240)       $10.26       (11,857)       $10.26
Exercised                                        (3,660)       $10.41        (3,900)       $10.26
                                              -------------                ------------                -----------  ------------
Outstanding at end of year                       161,315       $11.83        135,715       $10.47        144,712       $10.26
                                              =============                ============                ===========

Options available for grant end of year           97,869                      27,875                       22,779
Options exercisable at year-end                   47,714        $10.41        25,791      $ 10.26             -        $10.26
</TABLE>

<TABLE>
<CAPTION>

   Options Outstanding                                                                          Options Exercisable
----------------------------------------------------------------------------------------------------------------------------
                                                     Weighted-           Weighted-                              Weighted-
                                                      Average             Average                                Average
        Exercise                 Number              Remaining            Exercise            Number            Exercise
          Price               Outstanding         Contractual Life         Price           Exercisable            Price
----------------------    ------------------   ----------------------  --------------   -----------------   -----------------
        <S>                   <C>                 <C>                     <C>              <C>                  <C>
         $10.26                 119,155                 7.53               $10.26             46,462              $10.26
     $15.63 - $16.35             42,160                 9.10               $16.26              1,252              $15.82
                                161,315                 7.94                $9.10             47,714               10.41
                             =================                                            =================

</TABLE>
                                     F-23-


<PAGE>

                   HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997

NOTE #12 - OTHER INCOME/EXPENSE

The following is a breakdown of fees and other income and expenses for the years
ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                           1999               1998               1997
                                                                      ----------------   ----------------   ----------------
<S>                                                                   <C>                <C>                <C>
Fees and Other Income
      ATM transaction fees                                                $ 2,421,635        $ 3,380,117        $ 2,433,051
      ATM interchange income                                                  629,711            767,192            808,901
      ATM sponsorship fees                                                     82,501            115,516            139,628
      Bankcard merchant fees                                                  623,930            757,380            697,159
      Mortgage broker fees                                                    290,940            301,988            127,411
      Other                                                                   638,076            337,396            216,877
                                                                      ----------------   ----------------   ----------------
                                                                          $ 4,686,793        $ 5,659,589        $ 4,423,027
                                                                      ================   ================   ================

Other Expenses
      Data processing                                                         930,861            801,943            615,809
      Advertising and promotional                                             301,388            217,719            110,418
      Regulatory fees                                                          50,517             47,756             28,779
      Other professional fees and outside services                            392,174             58,144             66,850
      Legal fees and other litigation expenses                                142,515            187,863            152,351
      Stationery and supplies                                                 169,908            107,595            111,942
      Bankcard merchant expense                                               573,324            864,970            604,011
      Director fees                                                           174,645            158,476             96,275
      ATM costs at gaming sites                                             1,149,478          2,076,345          1,053,056
      ATM costs at retail sites                                               930,649            680,448            695,118
      Other                                                                   543,842            551,160            512,963
                                                                      ----------------   ----------------   ----------------
                             Total                                        $ 5,359,301        $ 5,752,419        $ 4,047,572
                                                                      ================   ================   ================
</TABLE>


Note #13 - Restriction on Transfers of Funds to Parent

There are legal limitations on the ability of the Bank to provide funds to
the Company. Dividends declared by the Bank may not exceed, in any calendar
year, without approval of the State Banking Department, net income for the
year and the retained net income for the preceding two years. Section 23A of
the Federal Reserve Act restricts the Bank from extending credit to the
Company and other affiliates amounting to more than 20 percent of its
contributed capital and retained earnings. During 1999, the Bank paid the
parent $705,276 in dividends.

                                     F-24-

<PAGE>


                   HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997

NOTE #14 - SALARY CONTINUATION PLAN

The Bank established a salary continuation plan agreement with the President,
Chief Financial Officer, Chief Lending Officer, and Chief Administrative
Officer, as authorized by the Board of Directors. This agreement provides for
annual cash payments for a period not to exceed 15 years, beginning at
retirement age 60. In the event of death prior to retirement age, annual cash
payments would be made to the beneficiaries for a determined number of years.
The present values of the Company's liability under this Agreement were
$183,512 and $185,353 at December 31, 1999 and 1998, respectively, and are
included in other liabilities in the Company's Consolidated Financial
Statements. The Company maintains life insurance policies, which are intended
to fund all costs of the plan. The cash surrender values of these life
insurance policies totaled $1,305,787 and $1,020,576, at December 31, 1999
and 1998, respectively.

NOTE #15 - 401(K) PENSION PLAN

During 1994, the Bank established a savings plan for employees which allows
participants to make contributions by salary deduction equal to 15% or less
of their salary pursuant to section 401(k) of the Internal Revenue Code.
Employee contributions are matched up to 25% of the employee's contribution.
Employees vest immediately in their own contributions and they vest in the
Bank's contribution based on years of service. Expenses of the savings plan
were $35,924, $34,619, and $24,048, for the years ended December 31, 1999,
1998 and 1997, respectively.

NOTE #16 - EARNINGS PER SHARE (EPS)

The following is a reconciliation of net income and shares outstanding to the
income and number of shares used to compute EPS. Share information has been
retroactively adjusted for the stock dividend as discussed in Note #24.

<TABLE>
<CAPTION>
                                                  1999                          1998                         1997
                                      ------------------------------ ---------------------------- ----------------------------
                                           Net                            Net                          Net
                                         Income          Shares         Income         Shares        Income         Shares
                                      -------------- --------------- -------------- ------------- -------------- -------------
<S>                                   <C>            <C>             <C>            <C>           <C>            <C>
Net income as reported                   $1,430,928                     $1,346,595                   $1,261,064
Shares outstanding at year-end                            1,144,282                    1,112,583                    1,078,091
Impact of weighting shares
 purchased during the year                                  (18,289)                     (25,307)                      (9,096)
                                      -------------- --------------- -------------- ------------- -------------- -------------
Used in Basic EPS                         1,430,928       1,125,993      1,346,595     1,087,276      1,261,064     1,068,995
Dilutive effect of outstanding
 stock options                                              120,225                      104,712                       66,695
                                      -------------- --------------- -------------- ------------- -------------- -------------
Used in Dilutive EPS                     $1,430,928       1,246,218     $1,346,595     1,191,988     $1,261,064     1,135,690
                                      ============== =============== ============== ============= ============== =============
</TABLE>

                                     F-25-

<PAGE>


                   HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997

NOTE #17 - REGULATORY MATTERS

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

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1999, that the Company and the Bank meets all capital adequacy
requirements to which it is subject.

As of the most recent notification from the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events
since that notification that management believes have changed the Bank's
category. To be categorized as well-capitalized, the Bank must maintain
minimum capital ratios as set forth in the table below. The following table
also sets forth the Company's and the Bank's actual regulatory capital
amounts and ratios (dollar amounts in thousands):

                                     F-26-

<PAGE>

                   HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997

NOTE #17 - REGULATORY MATTERS, (CONTINUED)

<TABLE>
<CAPTION>
                                                                                             Capital Needed
                                                                           ---------------------------------------------------
                                                                                                            To Be Well
                                                                                                         Capitalized Under
                                                                                 For Capital             Prompt Corrective
                                                    Actual Regulatory         Adequacy Purposes          Action Provisions
                                                 ------------------------  ------------------------   ------------------------
                                                   Capital                   Capital                    Capital
                                                   Amount       Ratio         Amount       Ratio        Amount       Ratio
                                                 ------------ -----------  ------------- ----------   ------------ -----------
<S>                                              <C>          <C>          <C>           <C>          <C>          <C>
As of December 31, 1999
Total capital to risk-weighted assets:
Company                                              $12,415      10.89%        $ 9,122       8.0%        N/A         N/A
Bank                                                 $11,620      10.75%        $ 8,648       8.0%       $ 10,810     10.0%

Tier 1 capital to risk-weighted assets:
Company                                              $11,174       9.80%        $ 4,561       4.0%        N/A         N/A
Bank                                                 $10,378       9.60%        $ 4,324       4.0%        $ 6,486     6.0%

Tier 1 capital to average assets:
Company                                              $11,174       7.62%        $ 5,869       4.0%        N/A         N/A
Bank                                                 $10,378       7.22%        $ 5,747       4.0%        $ 7,184     5.0%

As of December 31, 1998
Total capital to risk-weighted assets:
Company                                              $10,666      12.68%        $ 6,728       8.0%        N/A         N/A
Bank                                                 $10,342      10.81%        $ 7,656       8.0%        $ 9,570     10.0%

Tier 1 capital to risk-weighted assets:
Company                                               $9,568      11.38%        $ 3,364       4.0%        N/A         N/A
Bank                                                  $9,272       9.69%        $ 3,828       4.0%        $ 5,742     6.0%

Tier 1 capital to average assets:
Company                                               $9,568       7.72%        $ 4,960       4.0%        N/A         N/A
Bank                                                  $9,272       7.55%        $ 4,915       4.0%        $ 6,144     5.0%
</TABLE>

                                     F-27-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997


Note #18 - Acquisition of Assets and Liabilities

On February 21, 1997, the Bank acquired certain assets and liabilities of the
Wells Fargo Bank branch located in Cambria, California. The total assets
acquired were $5,255,161, which consisted of $316,610 of leasehold
improvements and fixed assets, $4,863,150 of cash and $15,267 of loans. In
addition, the Bank also assumed $5,255,161 of deposits. The Bank paid a
premium of $60,134 for the deposits. On September 2, 1994, the Bank had paid
a premium of $173,102 for a branch acquisition. Both of these premiums are
being amortized over a five-year period. Amortization of the premiums for
1999, 1998 and 1997, was $35,107, $46,647, and $43,641, respectively. The
remaining unamortized premiums at December 31, 1999, 1998 and 1997, were
$27,061, $62,168, $108,815.

NOTE #19 - OTHER REAL ESTATE OWNED

As discussed in Note #1I, Other Real Estate Owned is carried at the estimated
fair value of the real estate. An analysis of the transactions for December
31, 1998, were as follows:

<TABLE>
<CAPTION>
                                                               1998
                                                          -------------
<S>                                                         <C>
Balance, Beginning of year                                  $ 62,000
Additions                                                          -
Sales                                                        (62,000)
                                                          -------------
Balance, End of year                                        $      -
                                                          =============
</TABLE>

There were no Other Real Estate Owned transactions during 1999.


NOTE #20 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                     F-28-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997


NOTE #20 - FAIR VALUE OF FINANCIAL INSTRUMENTS, (CONTINUED)

The following table presents the carrying amounts and fair values of financial
instruments at December 31, 1999 and 1998. SFAS No. 107, "DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS," defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.

<TABLE>
<CAPTION>
                                                                       1999                                1998
                                                          ------------------------------       ----------------------------
                                                             Carrying                            Carrying
                                                              Amount         Fair Value           Amount        Fair Value
                                                          ------------      ------------       -----------     ------------
<S>                                                       <C>               <C>                <C>             <C>
Assets
      Cash and cash equivalents                           $ 18,359,073      $ 18,359,073       $24,939,179      $24,939,179
      Investment bearing deposits                              375,255           375,255           666,975          666,975
      Investment and mortgage-backed securities             19,058,804        19,058,804        28,621,257       28,922,113
      Loans receivable                                     104,152,682       108,896,652        70,559,543       70,623,774
      Loans held for sale                                      120,382           120,382         1,654,765        1,654,765
      Accrued interest receivable                              796,852           796,852           680,859          680,859
      Liabilities
      Non-interest bearing deposits                         39,901,884        39,901,884        38,672,576       38,672,576
      Interest bearing deposits                             93,059,689        93,252,991        80,735,130       80,749,292
      Notes Payable                                            350,000           350,000           750,000          750,000
      Repurchase agreements                                  2,211,000         2,211,000
      Accrued interest payable                                 520,742           520,742           568,977          568,977

                                                             Notional        Cost to Cede        Notional      Cost to Cede
                                                              Amount          or Assume           Amount        or Assume
                                                          ------------      ------------       -----------     ------------
Off-Balance Sheet Instruments
      Commitments to extend credit and
        standby letters of credit                         $ 40,526,310        $  405,263       $ 2,723,540      $   272,535

</TABLE>

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

-   CASH AND CASH EQUIVALENTS

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

-   INTEREST BEARING DEPOSITS

    Fair values for time deposits are estimated using a discounted cash flow
    analysis that applies interest rates currently being offered on certificates
    to a schedule of aggregated contractual maturities on such time deposits.

                                     F-29-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997


NOTE #20 - FAIR VALUE OF FINANCIAL INSTRUMENTS, (CONTINUED)

-   INVESTMENT AND MORTGAGE-BACKED SECURITIES

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

-   LOANS AND LOANS HELD FOR SALE

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

-   DEPOSITS

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

-   LONG-TERM DEBT - NOTES PAYABLE

    The fair value disclosed for notes payable is based on carrying amounts. The
    note is a variable-rated note that reprices frequently.

-   REPURCHASE AGREEMENTS

    The fair value disclosed for repurchase agreements is based on carrying
    amount. These agreements are short-term and the carrying amount approximates
    the fair value.

-   OFF-BALANCE SHEET INSTRUMENTS

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

                                     F-30-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997

Note #21 - Time Deposit Liabilities

At December 31, 1999, the Bank had time certificates of deposit with maturity
distributions as follows:

<TABLE>

<S>                                                                    <C>
Due in one year or less                                                   $ 36,690,307
Due after one year through three years                                         958,971
Due after three years                                                          159,083
                                                                       ----------------
                                                                          $ 37,808,361
                                                                       ================
</TABLE>


NOTE #22 - OTHER BORROWED MONEY

Other borrowed money consisted of the following:

<TABLE>
<CAPTION>
                                                  1999                                 1998
                                                 Average                              Average
                                               Balance (1)                          Balance (1)
                                             ----------------                     ----------------
<S>                            <C>           <C>                   <C>            <C>
Securities sold under
  agreements to repurchase                      $ 792,668                            $ 738,318
Federal funds purchased                            11,507                              128,302
                                             ----------------                     ----------------
                                                $ 804,175                            $ 866,620
                                             ================                     ================

The maximum outstanding
   balance at any month
   end during the year         $2,428,000                          $2,002,500

(1) Average balances are computed using the daily balances outstanding during the year.
</TABLE>


At December 31, 1999, the book value including accrued interest receivable on
securities sold under agreements to repurchase was $2,211,711. The securities
dealer has possession of the security during the term of the loan. The Bank may
be required to provide additional collateral based upon the fair value of the
underlying securities. There was no balance as of December 31, 1998.

Interest expense on federal funds purchased was $752, $5,090 and $2,572 and
interest expense on securities sold under agreements to repurchase was $42,430,
$46,158, and $53,880 for the years ended December 31, 1999, 1998 and 1997,
respectively.

The Bank has a fed funds borrowing line with a correspondent bank. The credit
limit available on that line is $5,500,000.

The Bank has pledged approximately $4,708,000 in loans to the Federal Reserve
Bank for a borrowing line at the federal discount window.

                                     F-31-

<PAGE>


                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997


NOTE #23 - OPERATING SEGMENTS

In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION," which the Bank has adopted during 1998. The Company has two
primary reportable segments. The segments reported herein apply to the Bank
and the Bank's EFT Department. The segments are identified as such based upon
the percentage of operating net income, management responsibility, and the
types of products and services offered.

The segments consist of the Bank and four separately classified components
within the EFT Department referred to as networks. The Bank offers
traditional banking products such as checking, savings, and certificates of
deposit, as well as mortgage, commercial, and consumer loans. The EFT
Department has installed 82 automatic teller machines located in retail
outlets and gaming facilities, and approximately 320 point of sale machines
located in retail outlets. Income is based upon total customer usage of the
machines and the applicable transaction charge. Income is allocated to the
Bank via contractual agreement. The Bank measures segment profit as operating
net income which is defined as income before provision for income taxes.

Presented below is comparative financial information relating to the Bank's
operating segments:

<TABLE>
<CAPTION>
                                                                                                 Total
                                                        EFT                                    Operating
                                                    Department               Bank              Segments
                                                 ------------------   -------------------  ------------------
<S>                                              <C>                  <C>                  <C>
FISCAL YEAR ENDED DECEMBER 31, 1999
      Revenues                                       $4,152,475           $11,205,259         $15,357,734
      Depreciation and amortization                     133,222               657,640             790,862
      Operating income                                  958,484             1,383,796           2,342,280
      Total assets                                    6,700,862           139,515,240         146,216,102

                                                                                                 Total
                                                        EFT                                    Operating
                                                    Department               Bank              Segments
                                                 ------------------   -------------------  ------------------
FISCAL YEAR ENDED DECEMBER 31, 1998
      Revenues                                       $5,085,276           $ 9,266,192         $14,351,468
      Depreciation and amortization                       2,247               564,806             567,053
      Operating income                                1,069,050             1,138,141           2,207,191
      Total assets                                    7,999,357           122,610,685         130,610,042
</TABLE>

                                     F-32-

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                                  Total
                                                         EFT                                    Operating
                                                     Department               Bank              Segments
                                                  ------------------   -------------------  ------------------
<S>                                               <C>                  <C>                  <C>
FISCAL YEAR ENDED DECEMBER 31, 1997
      Revenues                                        $4,094,762           $ 7,556,673         $11,651,435
      Depreciation and amortization                                            463,653             463,653
      Operating income                                 1,367,429               768,322           2,135,751
      Total assets                                     7,408,302            85,833,670          93,241,972
</TABLE>

Note #24 - Dividends

On January 29, 1998, the Board of Directors declared a cash dividend of $.50
per share to stockholders' of record on February 9, 1998. The dividend paid
was $519,850.

On January 23, 1997, the Board of Directors declared a cash dividend of $.33 per
share (after retroactive adjustment for 1997 stock split) to stockholders' of
record on February 7, 1997. The dividend paid was $337,787.

On January 28, 1999, the Board of Directors declared a 4% stock dividend payable
on February 26, 1999 to stockholders of record on February 15, 1999. Cash was
paid in lieu of fractional shares at the rate of $15.70 per share and amounted
to $3,025.


                                     F-33-

<PAGE>

                   HERITAGE OAKS BANCORP AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     DECEMBER 31, 1999, 1998 AND 1997


NOTE #25 - CONDENSED FINANCIAL INFORMATION OF HERITAGE OAKS BANCORP (PARENT
           COMPANY)

                                                  BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                            1999                1998
                                                                     ------------------  ------------------
<S>                                                                  <C>                 <C>
ASSETS
      Cash                                                                   $ 115,369           $ 108,161
      Prepaid and other assets                                                 336,104             286,723
      Property and premises                                                    698,980             406,733
      Investment in subsidiary                                               9,745,842           9,398,102
                                                                     ------------------  ------------------

                      Total Assets                                         $10,896,295         $10,199,719
                                                                     ==================  ==================

LIABILITIES AND STOCKHOLDERS' EQUITY
      Notes payable                                                            350,000             750,000
      Other Liabilities                                                          4,133              13,049
                                                                     ------------------  ------------------

                      Total Liabilities                                        354,133             763,049
                                                                     ------------------  ------------------

      Stockholders' Equity
      Common stock                                                           5,288,179           4,470,170
      Retained earnings                                                      5,253,983           4,966,500
                                                                     ------------------  ------------------

                      Total Stockholders' Equity                            10,542,162           9,436,670
                                                                     ------------------  ------------------
                      Total Liabilities and
                         Stockholders' Equity                              $10,896,295         $10,199,719
                                                                     ==================  ==================

</TABLE>

                                      F-34-
<PAGE>

                    HERITAGE OAKS BANCORP AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997


NOTE #25 - CONDENSED FINANCIAL INFORMATION OF HERITAGE OAKS BANCORP (PARENT
           COMPANY), (CONTINUED)

                                                    STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                                           1999                1998                1997
                                                                     ------------------  ------------------   ----------------
<S>                                                                  <C>                 <C>                  <C>
INCOME
      Equity in undisbursed income of subsidiary                            $1,523,690          $1,423,886        $ 1,317,202
      Other                                                                     42,525
                                                                     ------------------  ------------------   ----------------
                      Total Income                                           1,566,215           1,423,886          1,317,202
                                                                     ------------------  ------------------   ----------------
EXPENSE
      Salary expense                                                            30,498              35,284             32,283
      Equipment expense                                                         13,180
      Other professional fees and outside services                              52,024              44,930             22,785
      Interest expense                                                          43,615              12,632
      Other                                                                     60,432              39,724             37,887
                                                                     ------------------  ------------------   ----------------
                      Total Expense                                            199,749             132,570             92,955
                                                                     ------------------  ------------------   ----------------
                      Total Operating Income                                 1,366,466           1,291,316          1,224,247

Tax benefit of parent                                                          (64,462)            (55,279)           (36,817)
                                                                     ------------------  ------------------   ----------------

                      Net Income                                            $1,430,928          $1,346,595        $ 1,261,064
                                                                     ==================  ==================   ================

</TABLE>

                                     F-35-
<PAGE>

                    HERITAGE OAKS BANCORP AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1999, 1998 AND 1997



                           STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                         1999                1998                1997
                                                                   -----------------   -----------------   -----------------
<S>                                                                <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                                         $1,430,928          $1,346,595          $1,261,064
      Adjustments to Reconcile Net Income
       to Net Cash Provided By Operating Activities
          Depreciation                                                       13,180
          Increase in other assets                                          (49,381)           (197,699)            (31,217)
          Increase/(decrease) in other liabilities                           (8,916)              4,399             (24,825)
          Undistributed income of subsidiary                             (1,523,690)         (1,423,886)         (1,317,202)
                                                                   -----------------   -----------------   -----------------
                      Net Cash Used In
                        Operating Activities                               (137,879)           (270,591)           (112,180)
                                                                   -----------------   -----------------   -----------------


CASH FLOWS FROM INVESTING ACTIVITIES
      Purchase of property and premises                                    (305,427)           (406,733)
                                                                   -----------------   -----------------   -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
      Cash dividends declared                                                                  (519,850)           (339,138)
      Cash dividends received                                               705,276             665,355             345,985
      Cash paid in lieu of fractional shares                                 (3,025)
      Additional contributed capital                                                           (700,000)
      Increase (decrease) in long-term borrowings                          (400,000)            750,000
      Proceeds from the exercise of options                                 148,263             289,684              91,241
                                                                   -----------------   -----------------   -----------------
                      Net Cash Provided By
                         Financing Activities                               450,514             485,189              98,088
                                                                   -----------------   -----------------   -----------------

NET INCREASE/(DECREASE) IN CASH                                               7,208            (192,135)            (14,092)

CASH, Beginning of year                                                     108,161             300,296             314,388
                                                                   -----------------   -----------------   -----------------

CASH, End of year                                                         $ 115,369           $ 108,161           $ 300,296
                                                                   =================   =================   =================

</TABLE>

                                       F-36-
<PAGE>

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

NONE.

PART III

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

The information required by Item 9 of Form 10-KSB is incorporated by reference
from the information contained in the Company's Proxy Statement for the 2000
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 10.  EXECUTIVE COMPENSATION

The information required by Item 10 of Form 10-KSB is incorporated by reference
from the information contained in the Company's Proxy Statement for the 2000
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 11 of Form 10-KSB is incorporated by reference
from the information contained in the Company's Proxy Statement for the 2000
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 12 of Form 10-KSB is incorporated by reference
from the information contained in the Company's Proxy Statement for the 2000
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS:

(2.1)     PLAN OF REORGANIZATION AND MERGER AGREEMENT DATED AS OF MARCH 22,
1994, INCORPORATED BY REFERENCE FROM EXHIBIT 2 TO REGISTRATION STATEMENT ON
FORM S-4 NO. 33-77504, FILED WITH THE SEC ON APRIL 8, 1994.

(3.1A)    ARTICLES OF INCORPORATION INCORPORATED BY REFERENCE FROM EXHIBIT
3.1A TO REGISTRATION STATEMENT ON FORM S-4 NO. 33-77504 FILED WITH THE SEC ON
APRIL, 1994.

(3.1B)    AMENDMENT TO THE ARTICLES OF INCORPORATION FILED WITH THE
SECRETARY OF STATE ON OCTOBER 16, 1997.

(3.2)     BYLAWS INCORPORATED BY REFERENCE FROM EXHIBIT 3.2 TO REGISTRATION
STATEMENT ON FORM S-4 NO. 33-77504, FILED WITH THE SEC ON APRIL 8, 1994.

(4.1)     SPECIMEN FORM OF HERITAGE OAKS BANCORP STOCK CERTIFICATE
INCORPORATED BY REFERENCE FROM EXHIBIT 4.1 TO REGISTRATION STATEMENT ON FORM
S-4 NO. 33-77504 FILED WITH THE SEC ON APRIL 8, 1994.

                                      30
<PAGE>

(10.1)    AGREEMENT TO PURCHASE ASSETS AND ASSUME LIABILITIES BETWEEN
HERITAGE OAKS BANK AND LA CUMBRE SAVINGS BANK, DATED MARCH 28, 1994,
INCORPORATED BY REFERENCE FROM EXHIBIT 10.1 TO REGISTRATION STATEMENT ON FORM
S-4 NO. 33-77504, FILED WITH THE SEC ON APRIL 8, 1994.

*(10.2)   1990 STOCK OPTION PLAN INCORPORATED BY REFERENCE FROM EXHIBIT 10.2
TO REGISTRATION STATEMENT ON FORM S-4 NO. 33-77504, FILED WITH THE SEC ON
APRIL 8, 1994.

*(10.3)   FORM OF STOCK OPTION AGREEMENT INCORPORATED BY REFERENCE FROM
EXHIBIT 4.2 TO REGISTRATION STATEMENT ON FORM S-4 NO. 33-77504, FILED WITH
THE SEC ON APRIL 8, 1994.

*(10.4)   LAWRENCE P. WARD EMPLOYMENT LETTER AGREEMENT, DATED NOVEMBER 17,
1992, INCORPORATED BY REFERENCE FROM EXHIBIT 10.3 TO REGISTRATION STATEMENT
ON FORM S-4 NO. 33-77504, FILED WITH THE SEC ON APRIL 8, 1994.

(10.5)    SERVICE AGREEMENT, DATED NOVEMBER 10, 1992, BETWEEN HERITAGE OAKS BANK
AND MESCOM ENTERPRISES, INC. DBA NATIVE AMERICAN NETWORK SYSTEM, INCORPORATED BY
REFERENCE FROM EXHIBIT 10.4 TO REGISTRATION STATEMENT ON FORM S-4 NO. 33-77504,
FILED WITH THE SEC ON APRIL 8, 1994.

(10.6)    LETTER AGREEMENT, DATED OCTOBER 23, 1992, BETWEEN HERITAGE OAKS
BANK AND PETER GHEORGHIU, INCORPORATED BY REFERENCE FROM EXHIBIT 10.5 TO
REGISTRATION STATEMENT ON FORM S-4 NO. 33-77504, FILED WITH THE SEC ON APRIL
8, 1994.

(10.7)    ITEM PROCESSING AND BACK OFFICES SERVICING AGREEMENT, DATED AUGUST
11, 1993, BETWEEN HERITAGE OAKS BANK AND SYSTEMATICS FINANCIAL SERVICES,
INC., INCORPORATED BY REFERENCE FROM EXHIBIT 10.6 TO REGISTRATION STATEMENT
ON FORM S-4 NO. 33-77504, FILED WITH THE SEC ON APRIL 8, 1995.

(10.8)    DATA PROCESSING AGREEMENT, DATED OCTOBER 1, 1992, BETWEEN HERITAGE
OAKS BANK AND CITY NATIONAL INFORMATION SYSTEMS, INCORPORATED BY REFERENCE
FROM EXHIBIT 10.7 TO REGISTRATION STATEMENT ON FORM S-4 NO. 33-77504, FILED
WITH THE SEC ON APRIL 8, 1994.

*(10.9)   401(K) PENSION AND PROFIT SHARING PLAN FILED WITH THE SEC IN THE
COMPANY'S 10K REPORT FOR THE YEAR ENDED DECEMBER 31, 1994.

*(10.10)  HERITAGE OAKS BANCORP 1995 BONUS PLAN, FILED WITH THE SEC IN THE
COMPANY'S 10K REPORT FOR THE YEAR ENDED DECEMBER 31, 1994.

*(10.11)  SALARY CONTINUATION PLAN OF HERITAGE OAKS BANK, FILED WITH THE SEC
IN THE COMPANY'S 10K REPORT FOR THE YEAR ENDED DECEMBER 31, 1994.

                                      31
<PAGE>

*(10. 12) SALARY CONTINUATION AGREEMENT WITH LAWRENCE P. WARD, FILED WITH THE
SEC IN THE COMPANY'S 10K REPORT FOR THE YEAR ENDED DECEMBER 31, 1994.

*(10. 13) SALARY CONTINUATION AGREEMENT WITH GWEN R. PELFREY, FILED WITH THE
SEC IN THE COMPANY'S 10K REPORT FOR THE YEAR ENDED DECEMBER 31, 1994.

*(10. 14) SALARY CONTINUATION AGREEMENT WITH ROBERT E. BLOCH, FILED WITH THE
SEC IN THE COMPANY'S 10K REPORT FOR THE YEAR ENDED DECEMBER 31, 1994.

(10.15)   WOODLAND SHOPPING CENTER LEASE, FILED WITH THE SEC IN THE COMPANY'S
10K REPORT FOR THE YEAR ENDED DECEMBER 31, 1994.

(10.16)   LAGUNA VILLAGE SUBLEASE, FILED WITH THE SEC IN THE COMPANY'S 10K
REPORT FOR THE YEAR ENDED DECEMBER 31, 1994.

*(10.17)  LAWRENCE P. WARD EMPLOYMENT LETTER AGREEMENT, DATED FEBRUARY 27,
1996, FILED WITH THE SEC IN THE COMPANY'S 10KSB REPORT FOR THE YEAR ENDED
DECEMBER 31, 1995.

(10.18)   1135 SANTA ROSA STREET LEASE, FILED WITH THE SEC IN THE COMPANY'S
10KSB REPORT FOR THE YEAR ENDED DECEMBER 31, 1995.

(10.19)   PURCHASE AND ASSUMPTION BETWEEN WELLS FARGO BANK, N.A. AND HERITAGE
OAKS BANK, DATED AS OF OCTOBER 15, 1996, FILED WITH THE SEC IN THE COMPANY'S
8-K REPORT, DATED DECEMBER 2, 1996.

(10.20)   LEASE AGREEMENT FOR CAMBRIA BRANCH OFFICE DATED FEBRUARY 21, 1997
FILED WITH THE SEC IN THE COMPANY'S 10KSB REPORTED FOR THE YEAR ENDED
DECEMBER 1996.

(10.21)   1997 STOCK OPTION PLAN INCORPORATED BY REFERENCE FROM EXHIBIT 4A TO
REGISTRATION STATEMENT ON FORM S-8 NO.333-31105 FILED WITH THE SEC ON JULY
11, 1997 AS AMENDED, INCORPORATED BY REFERENCE, FROM REGISTRATION STATEMENT
ON FORM S-8, FILE NO. 333-83235 FILED WITH THE SEC ON JULY 20, 1999.

(10.22)   FORM OF STOCK OPTION AGREEMENT INCORPORATED BY REFERENCE FROM
EXHIBIT 4B TO REGISTRATION STATEMENT ON FORM S-8 NO. 333-31105 FILED WITH THE
SEC ON JULY 11, 1997.

(10.23)   MADONNA ROAD LEASE FILED WITH THE SEC IN THE COMPANY'S 10KSB FOR
THE YEAR ENDED DECEMBER 31, 1997.

(10.24)   SANTA MARIA LEASE COMMENCING NOVEMBER 1, 1998.

(10.24)   SERVICE AGREEMENT WITH ONLINE RESOURCES AND COMMUNICATION CORP. DATED
DECEMBER 18, 1998 (INTERNET BANKING PRODUCT FOR CUSTOMERS).

(10.25)   MASTER DATA PROCESSING AGREEMENT WITH MID WEST PAYMENT SYSTEMS, INC.
COMMENCING OCTOBER 1, 1998.

                                      32

<PAGE>

(10.26)   SALARY CONTINUATION AGREEMENT WITH MARGARET A. TORRES, FILED WITH THE
SEC IN THE COMPANY'S 10K REPORT FOR THE YEAR ENDED DECEMBER 31, 1999.

(10.27)   ATASCADERO BRANCH LEASE ENTERED INTO ON MARCH 31, 1999. FILED WITH
THE SEC IN THE COMPANY'S 10KSB REPORTED FOR THE YEAR ENDED DECEMBER 31, 1999.

(10.28)   SERVICE BUREAU PROCESSING AGREEMENT ENTERED INTO BETWEEN ALLTEL
INFORMATIONS SERVICES, INC. AND HERITAGE OAKS BANK, DATED AUGUST 1, 1999.
FILED WITH THE SEC IN THE COMPANY'S 10KSB REPORTED FOR THE YEAR ENDED
DECEMBER 31, 1999.

(21)      SUBSIDIARIES OF HERITAGE OAKS BANCORP. HERITAGE OAKS BANK IS THE ONLY
SUBSIDIARY OF HERITAGE OAKS BANCORP.

(23)      CONSENT OF INDEPENDENT ACCOUNTANTS

(27)      FINANCIAL SCHEDULE

*DENOTES MANAGEMENT CONTRACTS, COMPENSATORY PLANS OR ARRANGEMENTS.


REPORTS ON FORM 8-K:


DURING THE FOURTH QUARTER OF 1999, THE COMPANY DID NOT FILE ANY REPORTS ON FORM
8-K.



SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.

HERITAGE OAKS BANCORP


BY:       /s/ LAWRENCE P. WARD
    ----------------------------------
LAWRENCE P. WARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATED:    MARCH 21, 2000


BY:       /s/MARGARET A. TORRES
    ----------------------------------
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
DATED:    MARCH 21, 2000



                                      33

<PAGE>

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
DATED: MARCH 21, 2000

/s/ B.R. BRYANT                     CHAIRMAN OF THE           MARCH 21  , 2000
--------------------------          BOARD OF
B.R. BRYANT                         DIRECTORS

/s/ DONALD H. CAMPBELL              VICE CHAIRMAN             MARCH 21  , 2000
--------------------------          OF THE BOARD
DONALD H. CAMPBELL                  OF DIRECTORS

/s/ KENNETH DEWAR                   DIRECTOR                  MARCH  21 , 2000
--------------------------
KENNETH DEWAR

/s/ DOLORES T. LACEY                DIRECTOR                  MARCH  21  , 2000
--------------------------
DOLORES T. LACEY

/s/ MERLE F. MILLER                 DIRECTOR                  MARCH 21  , 2000
--------------------------
MERLE F. MILLER

/s/ JOHN PALLA                      DIRECTOR                  MARCH 21  , 2000
--------------------------
JOHN  PALLA

/s/ OLE K. VIBORG                   DIRECTOR                  MARCH 21  , 2000
--------------------------
OLE K. VIBORG

/s/ LAWRENCE P. WARD                DIRECTOR                  MARCH 21  , 2000
--------------------------
LAWRENCE P. WARD

/s/ DAVID WEYRICH                   DIRECTOR                  MARCH  21 , 2000
--------------------------
DAVID WEYRICH





EXHIBIT INDEX

                                       34

<PAGE>

EXHIBIT
SEQUENTIAL
NUMBER                     DESCRIPTION                               PAGE NUMBER

(10.26)   SALARY CONTINUATION AGREEMENT WITH MARGARET A. TORRES, FILED WITH THE
          SEC IN THE COMPANY'S 10K REPORT FOR THE YEAR ENDED DECEMBER 31, 1999.

(10.27)   ATASCADERO BRANCH LEASE ENTERED INTO ON MARCH 31, 1999.

(10.28)   PROCESSING AGREEMENT WITH ALLTEL INFORMATION SERVICES, INC., DATED
          AUGUST 1, 1999.


23        CONSENT OF INDEPENDENT ACCOUNTANTS

27        FINANCIAL DATA SCHEDULE







                                       35