<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, 2000

                                       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  No.)
employee incorporation or organization)

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 2000 was $19,652,351. The aggregate market value of the
voting stock held by non-affiliates of the Registrant at March 1, 2001 was
$15,252,680. As of March 1, 2001, the Registrant had 1,233,199 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]


                                                                               1
<PAGE>


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                         PAGE
<S>                                                                      <C>

PART I

Item 1.  Description of Business                                         3 - 14

Item 2.  Description of Properties                                       14 - 15

Item 3.  Legal Proceedings                                               15

Item 4.  Submission of Matters to a Vote of Security Holders             15


PART II

Item 5.  Market for Registrant's Common Equity and Related
         Stockholders Matters                                            15 - 17

Item 6.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations                   17 - 29

Item 7.  Financial Statements                                            29 - 58

Item 8.  Changes and Disagreements with Accountants on
         Accounting and Financial Disclosure                             59


PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons   59

Item 10.  Executive Compensation                                         59

Item 11.  Security Ownership of Certain Beneficial Owners and Management 59

Item 12.  Certain Relationships and Related Transactions                 59

Item 13.  Exhibits and Reports on Form 8-K                               59 - 63

</TABLE>


                                                                               2
<PAGE>


                                     PART I


CERTAIN STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-KSB ("ANNUAL
REPORT"), INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS
"BELIEVES", "ANTICIPATES", "INTENDS", "EXPECTS", AND WORDS OF SIMILAR IMPACT,
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES AND EXCHANGE ACT OF
1934. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING:
GENERAL ECONOMIC AND BUSINESS CONDITIONS IN THOSE AREAS IN WHICH THE COMPANY
OPERATES, DEMOGRAPHIC CHANGES, COMPETITION, FLUCTUATIONS IN INTEREST RATES,
CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS, CHANGES IN GOVERNMENTAL
REGULATION, CREDIT QUALITY, THE AVAILABILITY OF CAPITAL TO FUND THE EXPANSION OF
THE COMPANY'S BUSINESS, AND OTHER FACTORS REFERENCED IN THIS REPORT, INCLUDING
IN "ITEM 1. DESCRIPTION OF BUSINESS-FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS". THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY SUCH FACTORS OR
TO PUBLICLY ANNOUNCE THE RESULTS OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.

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
("DFI") 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 ("FDIC"). 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, 2000, the Company had
approximately $184.1 million in assets, $133.7 million in net loans, $167.7
million in deposits, and $13.5 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, one branch office
in Arroyo Grande, one branch located in Santa Maria and one branch located in
Atascadero. The Bank conducts a commercial banking business in San Luis Obispo
County and Northern Santa Barbara 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.


                                                                               3
<PAGE>


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, 2000, these four categories accounted for approximately 31.68%,
2.40%, 13.73% and 52.07%, respectively, of the Bank's loan portfolio. As of
December 31, 2000, $89,150,012 or 65.80% of the Bank's $135,488,020 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 $4.5 million (approximately 12%) between year-end 1999
and year-end 2000. See "Item 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 of which would have a materially adverse effect on the business of the
Bank. As of December 31, 2000, the Bank had approximately 12,938 deposit
accounts consisting of non-interest bearing (demand), interest-bearing demand
and money market accounts with balances totaling $101.3 million for an average
balance per account of approximately $7,830; 5,542 savings accounts with
balances totaling $14.1 million for an average balance per account of
approximately $2,545; and 1,975 time certificate of deposit accounts with
balances totaling $52.1 million, for an average balance per account of
approximately $26,380.

The principal sources of the Bank's 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, 2000, these sources comprised 64.6%,
6.5%, 5.5%, 18.4%, 1.6% and 3.4%, respectively, of the Bank's total operating
income.

The Bank has approximately 65 cash dispensing machines for the purpose of
dispensing cash, 15 of which are on Native American lands where bingo games and
other gaming operations are conducted, with the remaining 50 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 off premise commercial locations, in November 2000,
the Bank entered into a sales agreement to divest itself of 46 sites. The sale
is expected to be finalized during the first quarter of 2001. Please see "Item
6. Management's Discussion and Analysis of Financial Condition and Results of
Operations."

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 Bank's business originates from San Luis Obispo and Northern Santa Barbara
Counties and there is no emphasis on foreign sources and application of funds.
The Bank's business, based upon performance to date, does not appear to be
seasonal. Management of the Bank is unaware of any material effect upon the
Bank's 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.


                                                                               4
<PAGE>


EMPLOYEES

As of February 1, 2001, the Bank had a total of 93 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.

LOCAL ECONOMIC CLIMATE

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


COMPETITION

The banking and financial services business in California generally, and in the
Company's service 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 Company's business is concentrated in its service area, which encompasses
San Luis Obispo County and Northern Santa Barbara 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, 2000, the Bank's legal lending
limits to a single borrower and such borrower's related parties were $2,216,329
on an unsecured basis and $3,693,882 on a fully secured basis, based on
regulatory capital plus reserves of $14,775,527.


Commercial banks compete with savings and loan associations, credit unions,
other financial institutions, securities 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.


                                                                               5
<PAGE>


In recent years competition for cash dispensing machines on Native American
lands in connection with gaming operations has greatly increased. Further
competition for ATM machines at retail sites has also increased creating reduced
profit margins. This trend has led the Bank to be less dependent upon ATM
generated revenues over the past several years and is part of the reason for the
Bank's decision to sell a portion of its sites. See "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations",
below.

EFFECT OF GOVERNMENT 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
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 on
the Company 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. See "1
Description of Business-Financial Services Modernization Legislation".

GENERAL

The Company and the Bank are 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.


                                                                               6
<PAGE>


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. 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 (SEC).


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 California Department of
Financial Institutions (the "DFI") and the FDIC. Such supervision and regulation
include comprehensive reviews of all major aspects of the Bank's 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 Bank's 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.

If, as a result of an examination of a bank, the Federal Deposit Insurance
Corporation or the Department of Financial Institutions should determine that
the financial condition, capital resources, asset quality, earnings prospects,
management, liquidity, or other aspects of the Bank's operations are
unsatisfactory or that the Bank or its management is violating or has violated
any law or regulation, various remedies are available to these regulatory
agencies. Such remedies include the power to enjoin "unsafe or unsound"
practices, to require affirmative action to correct any conditions resulting
from any violation or practice, to issue an administrative order that can be
judicially enforced, to direct an increase in capital, to restrict the growth of
the Bank, to assess civil monetary penalties, to remove officers and directors,
and ultimately to terminate the Bank's deposit insurance, which for a California
chartered bank would result in a revocation of the bank's charter.


                                                                               7

<PAGE>

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
3%. 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. 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 Company to grow and could restrict the amount of
profits, if any, available for the payment of dividends.

The following table presents the amounts of the capital ratios for the Company
and the requirements for a well-capitalized company compared to its minimum
regulatory capital requirements as of December 31, 2000:

<TABLE>
<CAPTION>
                                                     Regulatory Requirements
                                                    --------------------------
                                        Company        Well-        Minimum
                                        Actual      Capitalize    Requirement
                                        --------    ----------    ------------
<S>                                      <C>            <C>           <C>
      LEVERAGE RATIO                     7.56%          5.00%         4.0%
      TIER 1 RISK-BASED RATIO            9.35%          6.00%         4.0%
      TOTAL RISK-BASED RATIO            10.26%         10.00%         8.0%

</TABLE>

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


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.


                                                                               8

<PAGE>

PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS

Federal banking agencies possess broad powers to take corrective and other
supervisory action to resolve the problems of insured depository institutions,
including but not limited to those institutions that fall below one or more
prescribed minimum capital ratios described above. An institution that, based
upon its capital levels, is classified as well capitalized, adequately
capitalized, or undercapitalized may be treated as though it were in the next
lower capital category if the appropriate federal banking agency, after notice
and opportunity for hearing, determines that an unsafe or unsound condition or
an unsafe or unsound practice warrants such treatment. At each successive lower
capital category, an insured depository institution is subject to more
restrictions. The federal banking agencies, however, may not treat a
significantly undercapitalized institution as critically undercapitalized unless
its capital ratio actually warrants such treatment.

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.

SAFETY AND SOUNDNESS STANDARDS

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

In addition, the federal banking agencies have also adopted safety and soundness
guidelines with respect to asset quality and earnings standards. These
guidelines provide six standards for establishing and maintaining a system to
identify problem assets and prevent those assets from deteriorating. Under these
standards, an insured depository institution should:

     o    conduct periodic asset-quality reviews to identify problem assets;

     o    estimate the inherent losses in problem assets and establish reserves
          that are sufficient to absorb estimated losses;

     o    compare problem asset totals to capital;

     o    take appropriate corrective action to resolve problem assets;

     o    consider the size and potential risks of material asset
          concentrations; and

     o    provide periodic asset quality reports with adequate information for
          management and the board of directors to assess the level of asset
          risk.

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


PREMIUMS FOR DEPOSIT INSURANCE

Through the Bank Insurance Fund ("BIF"), the FDIC insures the deposits of the
Bank up to prescribed limits for each depositor. The amount of FDIC assessments
paid by each BIF member institution is based on its relative risk of default as
measured by regulatory capital ratios and other factors. Specifically, the
assessment rate is based on the institution's capitalization risk category and
supervisory subgroup category. An institution's capitalization risk category is
based on the FDIC's determination of whether the institution is well
capitalized, adequately capitalized or less than adequately capitalized. An
institution's supervisory


                                                                               9

<PAGE>

subgroup category is based on the FDIC's assessment of the financial condition
of the institution and the probability that FDIC intervention or other
corrective action will be required.

The assessment rate currently ranges from zero to 27 cents per $100 of domestic
deposits. The FDIC may increase or decrease the assessment rate schedule on a
semi-annual basis. An increase in the assessment rate could have a material
adverse effect on the Company's earnings, depending on the amount of the
increase. The FDIC is authorized to terminate a depository institution's deposit
insurance upon a finding by the FDIC that the institution's financial condition
is unsafe or unsound or that the institution has engaged in unsafe or unsound
practices or has violated any applicable rule, regulation, order or condition
enacted or imposed by the institution's regulatory agency.

All FDIC-insured depository institutions must pay an annual assessment to
provide funds for the payment of interest on bonds issued by the Financing
Corporation, a federal corporation chartered under the authority of the Federal
Housing Finance Board. The bonds, commonly referred to as FICO bonds, were
issued to capitalize the Federal Savings and Loan Insurance Corporation.The FICO
assessments are adjusted quarterly to reflect changes in the assessment bases of
the FDIC's insurance funds and do not vary depending on a depository
institution's capitalization or supervisory evaluations.


FINANCIAL SERVICES MODERNIZATION LEGISLATION

GENERAL

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

The law also:

     o    broadens the activities that may be conducted by national banks,
          banking subsidiaries of bank holding companies, and their financial
          subsidiaries;

     o    provides an enhanced framework for protecting the privacy of consumer
          information;

     o    adopts a number of provisions related to the capitalization,
          membership, corporate governance, and other measures designed to
          modernize the Federal Home Loan Bank system;

     o    modifies the laws governing the implementation of the Community
          Reinvestment Act; and

     o    addresses a variety of other legal and regulatory issues affecting
          both day-to-day operations and long-term activities of financial
          institutions.

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

                                                                              10
<PAGE>


FINANCIAL HOLDING COMPANIES

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

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

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

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

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

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

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

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

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

PRIVACY

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

     o    initial notices to customers about their privacy policies, describing
          the conditions under which they may

     o    disclose nonpublic personal information to nonaffiliated third parties
          and affiliates;


                                                                              11

<PAGE>


     o    annual notices of their privacy policies to current customers; and

     o    a reasonable method for customers to "opt out" of disclosures to
          nonaffiliated third parties.

The rules were effective November 13, 2000, but compliance is optional until
July 1, 2001. These privacy provisions will affect how consumer information is
transmitted through diversified financial companies and conveyed to outside
vendors. It is not possible at this time to assess the impact of the privacy
provisions on the Company's financial condition or results of operations.


CONSUMER PROTECTION RULES--SALE OF INSURANCE

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

     o    is not a deposit or other obligation of, or guaranteed by, the
          depository institution or its affiliate;

     o    is not insured by the FDIC or any other agency of the United States,
          the depository institution or its affiliates; and

     o    has certain risks of investment, including the possible loss of value.

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

SAFEGUARDING CONFIDENTIAL CUSTOMER INFORMATION

In January 2000, the banking agencies adopted guidelines requiring financial
institutions to establish an information security program to:

     o    identify and assess the risks that may threaten customer information;

     o    develop a written plan containing policies and procedures to manage
          and control these risks;

     o    implement and test the plan; and

     o    adjust the plan on a continuing basis to account for changes in
          technology, the sensitivity of customer information and internal or
          external threats to information security.

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

COMMUNITY REINVESTMENT ACT

The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities. In connection with its assessment
of CRA performance, the appropriate bank regulatory agency assigns a rating of
"outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance." At its last examination by the FDIC, the Bank received a CRA
rating of "Satisfactory."


                                                                              12
<PAGE>


FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

IN ADDITION TO OTHER INFORMATION CONTAINED IN THIS ANNUAL REPORT, THE FOLLOWING
RISKS MAY AFFECT THE COMPANY AND/OR THE BANK. IF ANY OF THESE RISKS OCCUR, THE
COMPANY'S OR BANK'S BUSINESS, FINANCIAL CONDITION OR OPERATION RESULTS COULD BE
ADVERSELY AFFECTED.

DEPENDENCE ON REAL ESTATE

A significant portion of the loan portfolio of the Bank is dependent on real
estate. At December 31, 2000, real estate served as the principal source of
collateral with respect to approximately 65.80% percent of the Bank's loan
portfolio. A decline in current economic conditions or rising interest rates
could have an adverse effect on the demand for new loans, the ability of
borrowers to repay outstanding loans, the value of real estate and other
collateral securing loans and the value of real estate owned by the Bank, as
well as the Company's financial condition and results of operations in general
and the market value of the Company's common stock. Acts of nature, including
earthquakes and floods, which may cause uninsured damage and other loss of value
to real estate that secures these loans, may also negatively impact the
Company's financial condition.

INTEREST RATE CHANGES

The earnings of the Company and the Bank are substantially affected by changes
in prevailing interest rates. Changes in interest rates affect the demand for
new loans, the credit profile of existing loans, the rates received on loans and
securities and the rates the Bank must pay on deposits and borrowings. The
difference between the rates the Bank receives on loans and securities and the
rates it must pay on deposits and borrowings is known as the interest rate
spread. Given the Bank's current volume and mix of interest-bearing liabilities
and interest-earning assets, the Bank's interest rate spread can be expected to
increase when market interest rates are rising, and to decline when market
interest rates are declining. Our analysis indicates that the decreases in the
target federal funds rate announced by the Federal Reserve Board in January will
likely result in a drop of 30 to 40 basis points in the Bank's interest rate
spread. If interest rates continue to decline, competitive pressure and other
factors may prevent us from making proportionate decreases in the interest rates
we pay on deposits, especially MMDA and NOW accounts, resulting in a larger
decrease in our interest rate spread. Although the Bank believes its current
level of interest rate sensitivity is reasonable, significant fluctuations in
interest rates may have an adverse impact on our business, financial condition
and results of operations.

COMPETITION

Competition may adversely affect our performance. The financial services
business in our market area is highly competitive, and becoming more so due to
changes in regulation, technological advances and the accelerating pace of
consolidation among financial service providers. We face competition both in
attracting deposits and in making loans. We compete for loans principally
through the interest rates and loan fees we charge and the efficiency and
quality of the services we provide. Increasing levels of competition in the
banking and financial services businesses may reduce our market share or cause
the prices we charge for our services to fall. Our results may differ in future
periods depending on the nature or level of competition.

REGULATION

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


                                                                              13

<PAGE>


BORROWERS' FAILURE TO PERFORM

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

CALIFORNIA ENERGY CRISIS

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


ITEM 2.  DESCRIPTION OF PROPERTIES

The Bank and the Company occupy a permanent headquarters facility that is
located at 545 Twelfth Street, Paso Robles, Ca. The purchase price for the
headquarter office, 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) that 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 is $7,750/month
for until June 26, 2002. The rent is then repriced in year six of the lease to
95% of the prevailing fair market value and 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 original lease expired on February 28, 2001.The Bank has executed
its option to extend for a period of five 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 constructed a
building with a total of 3,500 square feet of floor


                                                                              14

<PAGE>


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.

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. As of the date of this report,
the rent is $5,920.

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. The Bank and landlord have come to an
agreement to enter into a five-year lease commencing on July 2, 2001. The
agreement calls for $1.25 per square foot on a triple net basis. The lease will
contain three five-year extension options. As indicated, these terms have been
agreed to with the actual lease document not yet in draft form.

The Company believes its present facilities are adequate for its present needs.


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 material legal or administrative
proceedings (other than ordinary routine litigation incidental to the Company's
or the Bank's business).


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

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

                                     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., Pacific 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 "HEOP."

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.


                                                                              15
<PAGE>

<TABLE>
<CAPTION>

Quarter Ended                                        Bid Prices

1999                                        Low               High
----                                        ---               ----
<S>                                        <C>               <C>
March 31                                   $16.25            $16.25
June 30                                     16.25             17.00
September 30                                16.00             16.75
December 31                                 15.75             16.75

<CAPTION>

2000                                        Low               High
----                                        ---               ----
<S>                                       <C>                <C>
March 31                                  $14.63             $15.00
June 30                                    13.35              14.00
September 30                               17.25              17.75
December 31                                17.25              17.75

</TABLE>


Holders

As of March 1, 2001, there were approximately 579 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 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.


                                                                              16

<PAGE>


Under these provisions, the amount available for distribution from the Bank to
the Company was approximately $3,650,912 at December 31, 2000.

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

On March 21, 2000, the Board of Directors declared a 5% stock dividend for
shareholders of record as of April 3, 2000. The stock dividend was distributed
on April 17, 2000. Cash paid in lieu of fractional shares at the rate of $15.00
per share and amounted to $3,923.

On March 2, 2001, the Board of Directors declared a 5% stock dividend for
shareholders of record as of March 16, 2001. The stock dividend will be
distributed on March 30, 2001.

Whether 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, 2000. 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 was organized as a holding company for the
Bank. The Bank is the only active subsidiary owned by the Company.

EARNINGS OVERVIEW

The Company reported net income for 2000 of $2,244,020. This was a 56.8%
increase from the $1,430,928 reported in 1999. Net income reported for 1999
represented an increase of $84,333 or 6.3% more than 1998 net income of
$1,346,595. Basic earnings per share were $1.85, $1.21 and $1.18 at December 31,
2000, 1999 and 1998, respectively. Diluted earnings per share were $1.73, $1.10
and $1.08 at December 31, 2000, 1999 and 1998, respectively.

The Company made a strategic decision commencing in 1999 to expand its full
service branch office coverage of its primary market area, realizing that during
the first year, net earnings would be impacted by the growth of infrastructure.
Two offices were opened during the first quarter of 1999. The expected result
was that net earnings in 1999 grew by only 6.3% from 1998, however, the ground
work had been set to allow for significant growth without additional overhead.
Another full service branch office was opened in January 2000. This strategic
"investment in the future" paid off in the year 2000 as the Company was able to
increase its average earning assets by 27.5%.

The significant increase in net earnings for the year 2000 compared to 1999 is
the result of growth in average earning assets of $31.3 million. This, coupled
with an average net interest margin of 6.78% in 2000 compared to 6.42% in 1999,
contributed to the Company's healthy net earnings increase.


                                                                              17

<PAGE>

                           RETURN ON EQUITY AND ASSETS

<TABLE>
<CAPTION>


                                                DECEMBER 31,
                                           -----------------------
                                             1999         2000
                                           -------        -------
<S>                                        <C>            <C>
Return on Average Assets                     1.07%         1.34%

Return on Average Equity                    14.87%        20.03%

Average Equity to
Average Assets Ratio                         7.78%         7.11%


Return on Average Interest
Bearing Assets                               6.42%         6.78%

Average Loans to Average Deposits           71.20%        82.18%

</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 non-accrual loans, and
changes in market interest rates.

Net interest income before provision for possible loan losses for 2000 was
$9,838,303, an increase of $2,525,745 or 34.5% more than the $7,312,558 in 1999.
The increase in net interest income for 2000 compared to 1999 was attributable
to a $31,317,000 increase in average earning assets and only a $22,038,000
increase in interest bearing liabilities. In addition to this, prime rate
increased 100 basis points during the first two quarters of 2000 having a
positive impact to the earning assets tied to prime. This was evident in that
average earning assets posted a 9.62% yield for 2000 compared to 8.71% for 1999.
The average rate paid on interest bearing liabilities in 2000 was 3.85% compared
to 3.05% in 1999. Average non-interest bearing demand deposits increased by
$9,208,000 over 1999. Other low cost deposits such as savings, now and money
market accounts grew an average of $3,360,000 with a weighted average rate of
2.37%. The higher cost time deposits increased an average of $16,502,000. These
changes reflect the difficulty faced by nearly all financial institutions to
attract new and retain existing core deposits sufficient to fund loan demand.

Total income on the loan portfolio increased from $8,424,833 in 1999 to
$12,699,866 in 2000. Approximately 89.3% of this increase was due to an increase
in average loans of $37,200,000. The remainder was due to an increase in the
prime rate of 100 basis points throughout the first two quarters of 2000.

The average yield on earning assets was 9.62% for 2000 and 8.71% for 1999. The
average yield on interest bearing liabilities was 3.85% for 2000, compared to
3.05% for 1999. The net interest margin was 6.78% in 2000 compared to 6.42% in
1999.


                                                                              18
<PAGE>


The table below 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, 2000 and 1999. The average balance of
non-accruing loans has been included in loan totals.

<TABLE>
<CAPTION>

                                                               2000                                      1999
                                             ------------------------------------         -----------------------------------
                                             AVERAGE      AVG YIELD       AMOUNT           AVERAGE     AVG YIELD      AMOUNT
                                             BALANCE      RATE PAID      INTEREST          BALANCE     RATE PAID     INTEREST
                                             ---------    ---------      --------         ----------   ----------    --------
<S>                                          <C>           <C>           <C>              <C>          <C>           <C>

(DOLLARS IN THOUSANDS)
Interest Earning Assets:

  Time deposits with other banks              $    257        7.39%      $   19         $    409        5.38%       $   22
  Investment securities taxable                 11,117        6.26%         696           15,977        5.86%          937
  Investment securities non-taxable              6,087        5.03%         306            6,505        4.77%          310
  Federal funds sold                             3,921        6.32%         248            4,390        5.01%          220
  Loans(1)(2)                                  123,794       10.26%      12,700           86,578        9.73%        8,425
                                               -------                   ------           ------                     -----

  Total interest earning assets                145,176        9.62%      13,969          113,859        8.71%        9,914
                                               -------                   ------          -------                     -----

Allowance for possible loan losses              (1,344)                                   (1,150)
Non-earning assets:
  Cash and due from banks                       16,376                                    14,984
  Property, premises and equipment               3,274                                     3,045
  Other assets                                   4,179                                     3,558
                                              --------                                  --------

TOTAL ASSETS                                  $167,661                                  $134,296
                                              ========                                  ========

Interest-bearing liabilities:
  Savings/NOW/Money Market                      58,077        2.37%       1,376           54,717        2.08%        1,137
  Time deposits                                 45,872        5.50%       2,523           29,370        4.69%        1,377
  Other borrowings                               3,443        6.74%         232            1,267        6.87%           87
                                               -------                   ------          -------                     -----

  Total interest-bearing liabilities           107,392        3.85%       4,131           85,354        3.05%        2,601
                                               -------                   ------          -------                     -----

Non-interest bearing liabilities:
  Demand deposits                               46,680                                    37,472
  Other liabilities                              1,664                                     1,343
                                              --------                                  --------

  Total liabilities                            155,736                                   124,169
                                              --------                                  --------

Stockholders' equity
  Common stock                                   5,996                                     5,148
  Retained earnings                              6,457                                     5,299
  Valuation Allowance Investments                 (528)                                     (320)
                                              --------                                  --------

  Total stockholders' equity                    11,925                                    10,127
                                              --------                                  --------

TOTAL LIABILITIES AND STOCKHOLDERS'
  EQUITY                                      $167,661                                  $134,296
                                              ========                                  ========

Net Interest Income                                                      $9,838                                     $7,313
                                                                         ======                                     ======
Net Interest Margin(3)                                        6.78%                                     6.42%

</TABLE>


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

(2)  Loan fees of $587 and $483 for 2000 and 1999, 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.


                                                                              19

<PAGE>


                                                         RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>

                                                     2000                             1999
                                          -----------------------------    -----------------------------
                                          Average    Average               Average    Average
                                          Bal/Vol     Rate       Total     Bal/Vol     Rate       Total
                                          -------    -------    -------    -------    -------    -------
<S>                                       <C>        <C>        <C>        <C>        <C>        <C>
Increase (decrease) in:

Interest income:
  Loans(1)                                $ 3,620    $   655    $ 4,275    $ 2,180     $ (215)   $ 1,965
  Investment securities taxable              (286)        45       (241)       (93)       (28)      (121)
  Investment securities non-taxable(2):       (30)        24         (6)        90         (3)        87
  Taxable equivalent adjustment (2):           10         (8)         2        (31)         1        (30)
  Interest-bearing deposits                    (8)         5         (3)        (1)        (1)        (2)
  Federal funds sold                          (23)        51         28         34        (10)        24
                                          -------    -------    -------    -------    -------    -------
       Total                                3,283        772      4,055      2,179       (256)     1,923

Interest expense:
  Savings, NOW, money market                   70        169        239        146       (151)        (5)
  Time deposits                               774        372      1,146        178       (139)        39
  Other borrowings                            150         (5)       145          9         14         23
                                          -------    -------    -------    -------    -------    -------
       Total                                  994        536      1,530        333       (276)        57
                                          -------    -------    -------    -------    -------    -------

Increase (decrease) in net
  Interest income                         $ 2,289    $   236    $ 2,525    $ 1,846    $    20    $ 1,866
                                          =======    =======    =======    =======    =======    =======
</TABLE>

(1)  Loan fees of $587 and $483 for 2000 and 1999, 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 service charges on deposit accounts, bankcard
merchant fees, automatic teller machines ("ATM") transactions, other fees, and
gains on sold SBA loans. Non-interest income for 2000 was $5,683,427 compared to
$5,444,241 for 1999. This represents an increase of $239,186 or 4.4%.

Service charges on deposit accounts increased to $1,082,757 in 2000 from
$757,448 in 1999. During the first quarter of 1999, the Bank opened two full
service branch offices and in January 2000 another full service branch office
was opened. Service charge income for 2000 reflects a full year of revenue from
that growth.

Bankcard merchant fees were $110,483 in 2000 compared to $623,930 in 1999. 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 2000, net income from this line
of business was $110,483 while in 1999 the Bank posted net income of $50,606.

ATM transaction fees, ATM interchange income, and ATM sponsorship fees was
$3,609,502 and $3,133,847 for the year 2000 and 1999, respectively. These fees
increased by $475,655 or 15.2% from 1999, however, expenses associated with this
line (detailed in the Non-Interest Expense section of this document) of business
increased by a similar amount. The Bank operates two networks referred to as the
Gaming Network and the Retail Network.

The Gaming Network consists of ATM placements located in authorized California
gaming sites and accounts for approximately 60% of the gross revenue for ATMs in
2000. For the past several years, the


                                                                              20
<PAGE>


number of Gaming contracts has decreased as the result of highly aggressive
competition, however, some remaining sites have actually increased the number of
machines. In order to retain certain sites, agreements have been renegotiated
that narrow the profit margin for the Bank. During the third and fourth quarter
of 2000, the Banks agreement with two site were not renewed and the five
machines were de-installed. The revenue associated with these sites represents
approximately 9.6% of total ATM gross revenue for 2000. Another site with three
machines is set for de-installations in April 2001. In 2000, that site produced
approximately 27% of total ATM revenue. The remaining five agreements, with
twelve ATMs installed, have termination dates from March 2001 to November 2005.
The Bank expects revenue from this line of business to decrease for the coming
years with the number of site contracts abating, however, off-setting expense
for the business will also decrease. It is anticipated as having a minimal
impact to the Bank's overall net earnings.

The Retail Network consists of ATM placements in locations, such as malls and
individual business sites throughout the United States. The Bank operates 46
ATMs at these locations that account for approximately 40% of the gross revenue
for ATMs in 2000. Cash in the machines and multiple third party vendor costs
required to maintain this network have created very narrow profit margins.
During the first half of 2000, the Bank terminated agreements with several sites
that were individually unprofitable. Pre-tax profit in the Retail Network
decreased by nearly 46% in 2000 to $231,670. This equates to a 5.2% return on
the approximate $4.4 million in average cash used to operate the system in 2000.
Because of the very narrow profit margins and the internal resources required to
run this network, the Bank decided to sell this particular piece of business to
a company who would have the economies of scale to realize a greater profit
margin.

In November 2000, the Bank entered into an agreement to sell these 46 location
agreements, inclusive of their equipment. Refer to Exhibit 10.29, ASSET PURCHASE
AGREEMENT. As a result of the Asset Purchase Agreement, the Bank will have a
contingent liability to re-purchase the equipment if a site does not remain with
the new owner for a period of one year from the conversion date. The repurchase
price is to be pro-rated according to the length of time the equipment was in
service before the site was lost to the new owner. The amount of the contingent
liability will be held in reserve from the proceeds of the sale and amortized
out over the one-year period. It is expected that all of the locations will be
converted to the new owner by March 31, 2001.

Overall, the Bank has become 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 $1,031,719, $1,053,720, and $1,506,032, for the years ended
December 31, 2000, 1999, and 1998, respectively.


NON-INTEREST EXPENSES

Non-interest expense consists of salary and other compensation, occupancy and
equipment and other expense. Non-interest expense for 2000 increased to
$11,515,523 from $10,406,243 in 1999. This represents an increase of $1,109,280
or 10.7%.

Salaries and employee benefit expense were $4,115,549 and $3,562,023 for 2000
and 1999, respectively. Full time equivalent employees were 93 for 2000 and 92
for 1999. For the year 2000, salaries and employee benefits increased by
$553,526 or 15.5%. The Bank has addressed employee recognition and retention by
rewarding staff with various bonus and incentive programs. During 2000, bonus
accruals increased $290,000 over those of 1999. Bonus accruals are based on
achieving certain rates of Return on Beginning Equity (ROE) and factor other
ratios such as growth and asset quality. The ratio of "assets per employee", one
of the measures of operational efficiency, was $1,979,441 and $1,601,465 for
2000 and 1999, respectively.

Occupancy, furniture and equipment expenses were $1,708,394 during 2000,
compared to $1,484,919 for 1999. This represents an increase of $223,475 or
15.1%. The two branches opened in the first quarter of 1999 and one in January
2000, have had a full year impact to this category for 2000.


                                                                              21

<PAGE>


Other non-interest expense consists of bankcard, ATM network related, data
processing and other operating expense. Other non-interest expense was
$5,691,580 for 2000, compared to $5,359,301 in 1999. This represents an increase
of $332,279 or 6.2%.

Bankcard merchant expense was $0 for 2000 compared to $573,324 for 1999. 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 Merchant Processing in
2000 was $110,483 compared to $50,606 in 1999.

ATM network related expense was $2,577,782 in 2000, compared to $2,080,127 in
1999. This represents an increase of $497,655 or 23.9%. Income in this line of
business, as well as expense, is driven by transaction volume. However, expense
has other driving factors, such as third party vendors and the structure of
individual site agreements. For 2000, expenses increased by $22,000 more than
gross revenue increased over 1999 for these transactions. See discussion of the
ATM networks in "Non-Interest Income", above.

Data processing expense was $1,327,397 in 2000 compared to $930,861 in 1999.
This represents an increase of $396,536 or 42.6%. The 29.9% growth in the Bank's
demand deposit base along with the 15.3% increase in interest bearing deposit
accounts (excluding Certificates of Deposit) for the year 2000 is the primary
factor for the increase in associated processing fees for services performed by
third party vendors.

PROVISION FOR INCOME TAXES

The provision for income taxes was $1,243,187 for 2000, compared to $754,128 in
1999. The increase is commensurate with growth in pre-tax income for the year
2000 from that of 1999. The Bank's effective tax rate was 35.6% and 34.5% in
2000 and 1999, 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 loan portfolio including the value of security
interest related to portfolio loans and the economic circumstances that 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 $519,000 and $165,500 was expensed
for 2000 and 1999, respectively. Net loan charge-offs (loans charged off, net of
loans recovered) were $439,498 in 2000 and ($5,981) during 1999, respectively.
The allowance for credit losses as a percent of total gross loans at year-end
2000 and 1999 was 0.96% and 1.19%, respectively. Monitoring of all credits
enables management to analyze any inherent risks in the portfolio that may
result from changes in economic conditions.


                                                                              22

<PAGE>


The following table summarizes the analysis of the allowance for loan losses as
of December 31, 2000 and 1999:

                      ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>

                                                               2000                       1999
                                                               ----                       ----
<S>                                                          <C>                        <C>
Balance at Beginning of Period                               $1,241,016                 $1,069,535

Charge-offs:
  Commercial, Financial and Agricultural                        454,085                      7,623
  Real Estate-Construction                                            -                          -
  Real Estate-Mortgage                                                -                          -
  Installment Loans to Individuals:                               4,370
     Money Plus                                                     465                      6,592
     Credit Cards                                                     -                          -
     Other Installment                                                -                          -
                                                             ----------                 ----------
Total charge-offs                                               458,920                     14,215
                                                             ----------                 ----------

Recoveries:
  Commercial, Financial and Agricultural                         16,745                     19,682
  Real Estate-Construction                                            -                          -
  Real Estate-Mortgage                                                -                          -
  Installment Loans to Individuals:                                 488                          -
     Money Plus                                                   2,189                          -
     Credit Cards                                                     -                          -
     Other Installment                                                -                        514
                                                            -----------                 ----------
Total recoveries                                                 19,422                     20,196
                                                            -----------                 ----------
  Net Charge-offs                                               439,498                     (5,981)
Additions Charged to Operations                                 519,000                    165,500
                                                            -----------                 ----------
Balance at End of Period                                      1,320,518                  1,241,016
                                                            ===========                  =========

Gross Loans at End of Period                               $135,488,020               $104,152,682

Ratio of Net Charge-offs During the
Year to Average Loans outstanding                                  0.44%                     -0.01%

Ratio of Reserves to Gross Loans                                   0.97%                      1.19%

Ratio of Non-performing Loans to
the Allowance for Credit Losses                                   75.01%                     72.91%

</TABLE>

The Bank adopted SFAS No. 114 (as amended by SFAS No. 118), "Accounting 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 loans 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.

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 are two loans that account for approximately
90% of the total. Even though these two loans are on a non-accrual status,
management does not believe that there will be any loss of the principal due.

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

                                                                              23

<PAGE>

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

The economy in the Company's trade area is based primarily on agriculture,
tourism, light industry, oil and retail trade. Services supporting these
industries have also developed in the areas of medical, financial and
educational. The population in the two county areas comprising the Company's
trade area, according to the U.S. Bureau of the Census, was estimated at July
1999 to be approximately 644,000. San Luis Obispo County represents about 37% of
this total with Santa Barbara County accounting for the remaining approximately
63%. The moderate climate allows a year round growing season for numerous
vegetable and fruits. Vineyards and cattle ranches also contribute largely to
the local economy. Vineyards in producti0on have grown significantly over the
past several years throughout the Company's trade area. Access to numerous
recreational activities, including lakes, mountains and beaches, provide a
relatively stable tourist industry from many areas including the Los
Angeles/Orange County basin, the San Francisco Bay area and the San Joaquin
Valley. Principally due to the diversity of the various industries in the
Company's trade area, the area, while not immune from economic fluctuations,
does tend to enjoy a more stable level of economic activity from many other
areas of California.

The Bank's branch locations have been strategically placed throughout the
Central Coast. In addition to the two new full service branches opened in Santa
Maria and Atascadero during the first quarter of 1999, the Bank opened a full
service branch Arroyo Grande in January 2000.

FINANCIAL CONDITION ANALYSIS

Total assets of the Company were $184,088,025 at December 31, 2000 compared to
$147,299,268 at December 31, 1999.

A significant portion of total assets is the Banks gross loans that were
$135,488,020 and $104,152,682 at December 31, 2000 and 1999, respectively.
Approximately 74% of gross loans at December 31, 2000 are adjustable rate loans.
Nearly all the adjustable rate loans are tied to changes in the prime rate. If
interest rates change, the yield on these loans and other loans renewing during
the one-year time frame will also change. A 1.00% increase in the prime rate
would increase net interest income approximately $526,623 a year and a 1.00%
decrease in the prime rate would decrease net interest income by $528,463 a
year.

The following table summarizes the composition of the loan portfolio as of
December 31, 2000 and 1999:

                                               COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
                                                                        2000                               1999
                                                                        ----                               ----
                                                            AMOUNT             PERCENT           AMOUNT           PERCENT
                                                            ------             -------           ------           -------
<S>                                                        <C>                 <C>          <C>                   <C>
Commercial, Financial and Agricultural                     $ 42,931,015         31.69%       $ 38,419,611          36.89%

Real Estate-Construction                                     18,599,452         13.73%         12,741,477          12.23%

Real Estate-Mortgage                                         70,550,560         52.07%         50,063,714          48.07%

Installment Loans to Individuals                              3,246,214          2.40%          2,786,034           2.67%

All Other Loans (including overdrafts)                          160,779          0.11%            141,846           0.14%
                                                           ------------                     -------------
      Total Loans, Gross                                    135,488,020        100.00%        104,152,682         100.00%

Deferred Loan Fees
                                                               (487,473)                        (485,474)
Reserve for Possible Loan Losses                             (1,320,518)                      (1,241,016)
                                                           ------------                     -------------

      Total Loans, Net                                     $133,680,029                     $102,426,192
                                                           ============                     ============

Loans Held For Sale                                          $2,474,542                         $120,382

</TABLE>

                                                                              24

<PAGE>


Net loans totaled $133,680,029 at December 31, 2000, compared to $102,426,192 at
December 31, 1999. Loans increased during the year as the result of relatively
the new branch offices in the expanded market areas of Santa Maria, Atascadero
and Arroyo Grande. To add market share in these new areas, the Bank increased
the number of commercial loan officers, all of whom had previously worked in
these markets. The primary growth was approximately $26,344,821 in real estate
related loans.

The following are the approximate maturities and sensitivity to change in
interest rates for the loans at December 31, 2000:

<TABLE>
<CAPTION>

                                                          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                    $     28,541      $      6,473      $      7,917     $    42,931

Real Estate-Construction                                        16,074             1,127             1,398          18,599

Real Estate-Mortgage                                            38,526            21,598            10,427          70,551

Installment Loans to Individuals                                   611             2,188               447           3,246

All Other Loans (including overdrafts)                             161                 -                 -             161
                                                          -------------     ------------      -------------    -----------
            Totals                                        $     83,913      $     31,386      $     20,189     $   135,488
                                                          =============     =============     =============    ===========

INTEREST RATE PROVISION:
-----------------------
Predetermined Rates                                       $      7,477      $      8,466      $     19,760     $    35,703

Floating or Adjustable Rates
                                                          -------------     -------------     -------------   -------------
                                                                76,436            22,920               429          99,785
                                                          -------------     -------------     -------------   -------------

            Totals                                        $     83,913      $     31,386      $     20,189     $   135,488
                                                          =============     =============     =============    ============
</TABLE>

RISK ELEMENTS:
-------------

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

<TABLE>
<CAPTION>

                                                               2000             1999
                                                               ----             ----

<S>                                                            <C>               <C>
Non-Accrual Loans (Impaired Loans)                             $991,230          $904,773
Accruing Loans Past Due 90 Days                                       0                 0
Restructured Loans                                              194,914           251,729
Interest Excluded on Non-Accrual Loans                          115,603            91,207
Interest Recognized on Non-Accrual Loans and
Troubled Debt Restructured Loans                                 85,806           165,000

</TABLE>

At December 31, 2000, 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 that, 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 borrowers ability to comply
with present loan repayment terms.

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

If a loans credit quality deteriorates to the point that collection of principal
is believed by management to be

                                                                              25
<PAGE>


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 increased from $17,159,073 at December 31, 1999 to
$19,435,534 at December 31, 2000. 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 Home Loan Bank stock, 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 increased to $21,392,105 at December 31, 2000 compared to
$20,634,059 at December 31, 1999. Other earning assets represented 13.6% of the
earning asset portfolio at December 31, 2000, compared to 16.5% in 1999.

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

                                                                              26

<PAGE>

                                             COMPOSITION OF OTHER EARNING ASSETS

<TABLE>
<CAPTION>

                                                                        2000                               1999
                                                              ------------------------           ------------------------
                                                              AMOUNT           PERCENT           AMOUNT           PERCENT
                                                              ------           -------           ------           -------
<S>                                                            <C>             <C>               <C>              <C>
Federal Home Loan Bank and other                             $    381,600             1.78%     $    395,300             1.92%

Available-for-Sale Investments                                 16,212,505            75.79%       18,663,504            90.45%

Federal Funds Sold                                              4,600,000            21.50%        1,200,000             5.82%

Certificates of Deposit                                           198,000             0.93%          375,255             1.81%
                                                             ------------                       ------------

Total Other Earning Assets                                   $ 21,392,105           100.00%     $ 20,634,059           100.00%
                                                             ============                       ============
</TABLE>

The Amortized cost, fair value, and maturites at December 31, 2000 are as
follows:

<TABLE>
<CAPTION>

                                             Securities Available-for-Sale
                                             ------------------------------
                                               Amortized           Fair
                                                 Cost              Value
                                              -----------      -----------
<S>                                           <C>              <C>
Due in One Year or Less                       $  476,623       $  477,620

Due after One Year
through Five Years                             2,312,641        2,292,786

Due after Five Years
through Ten Years                              1,187,402        1,209,549

Due after Ten Years                            4,512,786        4,507,249

Mortgage-backed
Securities                                     7,958,658        7,725,301
                                          --------------     ------------
Total                                       $ 16,448,110     $ 16,212,505
                                          ==============     ============
</TABLE>

DEPOSITS

Total deposits were $167,696,890 at December 31, 2000, compared to $132,961,573
at December 31, 1999. 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>

                                                           2000                             1999
                                                  ------------------------        -------------------------
                                                                  Average                         Average
                                                  Balance        Rate Paid        Balance        Rate Paid
                                                  -----------    ---------        -----------    ----------
<S>                                               <C>                   <C>       <C>                   <C>
Non-Interest Bearing Demand                       $ 51,821,234          0.00%     $ 39,901,884          0.00%

Interest Bearing Demand                             39,711,917          2.16%       35,058,015          1.85%

Savings                                             14,133,471          2.19%       13,537,416          2.18%

Money Market                                         9,870,541          3.81%        6,655,897          3.11%

Time Deposits                                       52,159,727          5.50%       37,808,361          4.69%
                                                 -------------                   --------------

Total Deposits                                   $ 167,696,890          3.75%    $ 132,961,573          2.07%
                                                 =============                   ==============
</TABLE>


Set forth is a maturity schedule of domestic time certificales of deposit of
$100,000 and over at December 31, 2000.

                                                                              27

<PAGE>

<TABLE>
<CAPTION>

TIME DEPOSITS $100,000 AND OVER:
--------------------------------
(dollars in thousands)
<S>                                                  <C>
Less than 3 months                                   $   4,521
3 to 12 months                                           2,939
Over 1 year                                                200
                                                     ---------
          Total                                      $   7,660
                                                     =========
</TABLE>

CAPITAL

The Company's total stockholders equity was $13,455,009 at December 31, 2000
compared to $10,542,162 at December 31, 1999. The increase in capital during
2000 was due to net income of $2,244,020, ($3,923) cash paid to stockholders in
lieu of fractional shares on a 5% stock dividend paid April 17, 2000, stock
options exercised in the amount of $155,274 and an increase in accumulated other
comprehensive income of $517,476.

Capital ratios for commercial banks in the United States are generally
calculated using three 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,
2000.

<TABLE>
<CAPTION>
                                            Minimum
                                          Regulatory
                                           Capital      Heritage     Heritage
                                          Requirements  Oaks Bank  Oaks Bancorp
<S>                                          <C>          <C>          <C>
Leverage Ratio                               4.00%        7.53%        7.56%
Tier One Risk Based Capital Ratio            4.00%        9.13%        9.35%
Total Risk Based Capital Ratio               8.00%       10.03%       10.26%
</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. In September 1999, and September 2000, 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, 2006.
-Interest only for first year of quarterly payments
-Subsequent payments to be fully amortized to maturity based on outstanding
balance owed.

                                                                              28
<PAGE>


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 $5,000,000.
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 31,2000, the Bank
had approximately $7,300,000 available for borrowing using certain securities
and loans as collateral. As of December 31, 2000, the Bank did not have any
borrowings against any of these sources.

The Bank manages its liquidity by maintaining a majority of its investment
portfolio in federal funds sold and other liquid investments. At December 31,
2000, the ratio of liquid assets not pledged for collateral and other purposes
to deposits and other liabilities was 14.2% compared to 22.4% in 1999. At
December 31, 2000 and December 31, 1999, the Bank had borrowings of securities
sold under agreement to repurchase in the amount of $0 and $2,211,000,
respectively. The ratio of gross loans to deposits, another key liquidity ratio,
was 82.3% at year-end 2000 compared to 78.0% at December 31, 1999.


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, 2000 has not been significant to the Bank's
financial position or results of operations.

                                                                              29
<PAGE>


ITEM 7. FINANCIAL STATEMENTS

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES

                        DECEMBER 31, 2000, 1999 AND 1998





                                    CONTENTS

<TABLE>
<CAPTION>

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


FINANCIAL STATEMENTS

    Consolidated Balance Sheets
    December 31, 2000 and 1999............................................2

    Consolidated Statements of Income
    For the Years Ended December 31, 2000, 1999 and 1998..................3

    Consolidated Statement of Changes in Stockholders' Equity
    For the Years Ended December 31, 2000, 1999 and 1998..................4

    Consolidated Statements of Cash Flows
    For the Years Ended December 31, 2000, 1999 and 1998..................5


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................7

</TABLE>

                                                                              30
<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, 2000 AND 1999, 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, 2000. THESE CONSOLIDATED FINANCIAL STATEMENTS ARE THE
RESPONSIBILITY OF THE COMPANY'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN
OPINION ON THESE CONSOLIDATED FINANCIAL STATEMENTS BASED ON OUR AUDITS.

WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING
STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDITS TO OBTAIN
REASONABLE ASSURANCE ABOUT WHETHER THE CONSOLIDATED FINANCIAL STATEMENTS ARE
FREE OF MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS,
EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE CONSOLIDATED FINANCIAL
STATEMENTS. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND
SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL
CONSOLIDATED FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS
PROVIDE A REASONABLE BASIS FOR OUR OPINION.

IN OUR OPINION, THE CONSOLIDATED FINANCIAL STATEMENTS REFERRED TO ABOVE PRESENT
FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF HERITAGE OAKS
BANCORP AS OF DECEMBER 31, 2000 AND 1999, 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, 2000, IN CONFORMITY WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES.


/s/ VAVRINEK, TRINE, DAY & CO., LLP
VAVRINEK, TRINE, DAY & CO., LLP
RANCHO CUCAMONGA, CALIFORNIA
JANUARY 12, 2001

                                                                              31
<PAGE>


                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                          ASSETS
                                                                                          2000                  1999
                                                                                  -------------------   -------------------
<S>                                                                                <C>                   <C>
Cash and due from banks (Note #1D)                                                 $       19,435,534    $       17,159,073
Federal funds sold                                                                          4,600,000             1,200,000
                                                                                  -------------------   -------------------
      Total Cash and Cash Equivalents                                                      24,035,534            18,359,073
Interest-bearing deposits in other financial institutions                                     198,000               375,255
Investment securities (Notes #1F and #2)
  Available-for-sale                                                                       16,212,505            18,663,504
Federal Home Loan Bank Stock, at cost                                                         381,600               395,300
Loans held for sale (Notes #1H and #3)                                                      2,474,542               120,382
Loans, net of deferred fees and allowance for loan
      losses of $1,807,991 and $1,726,490 at December 31, 2000
      and 1999, respectively (Notes #1G and #3)                                           133,680,029           102,426,192
Property premises and equipment, net (Notes #1J and #5)                                     3,062,815             3,427,289
Net deferred tax asset (Notes #1K and #9)                                                     998,754             1,168,983
Cash surrender value of life insurance (Note #12)                                           1,369,549             1,305,787
Other assets                                                                                1,674,697             1,057,503
                                                                                   -------------------   -------------------
      Total Assets                                                                 $      184,088,025    $      147,299,268
                                                                                   ===================   ===================
                                           LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
  Deposits
    Demand non-interest bearing                                                    $       51,821,234    $       39,901,884
    Savings, NOW and money market deposits                                                 63,715,930            55,251,328
    Time deposits of $100,000 or more (Note #6)                                             7,659,791            10,596,650
    Time deposits under $100,000 (Note #6)                                                 44,499,935            27,211,711
                                                                                   -------------------   -------------------
      Total Deposits                                                                      167,696,890           132,961,573
Notes payable (Note #8)                                                                     1,050,000               350,000
Securities sold under agreements to repurchase                                                                    2,211,000
Other liabilities                                                                           1,886,126             1,234,533
                                                                                   -------------------   -------------------
      Total Liabilities                                                                   170,633,016           136,757,106
                                                                                   -------------------   -------------------

COMMITMENTS AND CONTINGENCIES (Note #10)


Stockholders' Equity
  Common stock, no par value; 20,000,000 shares authorized;
   1,224,999 and 1,144,282 shares issued and
   outstanding for 2000 and 1999, respectively                                              6,305,233             5,288,179
  Retained earnings                                                                         7,291,140             5,912,823
  Accumulated other comprehensive income                                                     (141,364)             (658,840)
                                                                                   -------------------   -------------------
      Total Stockholders' Equity                                                           13,455,009            10,542,162
                                                                                   -------------------   -------------------
      Total Liabilities and Stockholders' Equity                                   $      184,088,025    $      147,299,268
                                                                                   ===================   ===================
</TABLE>

                                                                              32
<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                  2000              1999              1998
                                                              --------------    -------------     -------------
<S>                                                           <C>                <C>               <C>
INTEREST INCOME
  Interest and fees on loans (Note #1G)                        $ 12,699,866      $ 8,424,833       $ 6,459,394
  Interest on Investment Securities (Note #1F)
    U.S. Treasury Securities                                                           1,032            27,396
    Obligations of U.S. Government Agencies                         669,617          812,696           907,482
    Corporate Bonds, Mutual Funds, Commercial Paper                                  110,467           123,003
    Obligations of State and Political Subdivisions                 305,674          310,436           253,148
  Interest on time deposits with other banks                         18,805           29,971            23,515
  Interest on Federal funds sold                                    248,283          220,170           196,727
  Interest on other securities                                       26,680            3,888
                                                              --------------    -------------     -------------
      Total Interest Income                                      13,968,925        9,913,493         7,990,665
                                                              --------------    -------------     -------------

INTEREST EXPENSE
  Interest on savings, NOW and money market deposits              1,376,114        1,136,841         1,142,163
  Interest on time deposits in denominations of
    $100,000 or more                                                382,506          292,401           204,986
  Interest on time deposits under $100,000                        2,139,906        1,084,896         1,133,271
  Other                                                             232,096           86,797            63,880
                                                              --------------    -------------     -------------
      Total Interest Expense                                      4,130,622        2,600,935         2,544,300
                                                              --------------    -------------     -------------
  Net interest income before provision for
    possible loan losses                                          9,838,303        7,312,558         5,446,365
      Provision for Possible Loan Losses                            519,000          165,500           164,000
                                                              --------------    -------------     -------------
                                                                  9,319,303        7,147,058         5,282,365
                                                              --------------    -------------     -------------
NON-INTEREST INCOME
  Service charges on deposit accounts                             1,082,757          757,448           690,710
  Investment securities gain/(loss), net                             (2,188)                            10,504
  Other (Note #19)                                                4,602,858        4,686,793         5,659,589
                                                              --------------    -------------     -------------
    Total Non-interest Income                                     5,683,427        5,444,241         6,360,803
                                                              --------------    -------------     -------------
NON-INTEREST EXPENSES
  Salaries and employee benefits                                  4,115,549        3,562,023         2,892,921
  Equipment expenses                                                908,859          790,862           382,316
  Occupancy expenses                                                799,535          694,057           540,891
  Other expenses (Note #19)                                       5,691,580        5,359,301         5,752,419
                                                              --------------    -------------     -------------
    Total Non-interest Expenses                                  11,515,523       10,406,243         9,568,547
                                                              --------------    -------------     -------------
Income Before Provision for Income Taxes                          3,487,207        2,185,056         2,074,621
Provision for Income Taxes (Notes #1K and #9)                     1,243,187          754,128           728,026
                                                              --------------    -------------     -------------
Net Income                                                      $ 2,244,020      $ 1,430,928       $ 1,346,595
                                                              ==============    =============     =============
Earnings Per Share (Notes #14 and #18)
  Basic                                                         $      1.85      $      1.21       $      1.18
                                                              ==============    =============     =============
  Diluted                                                       $      1.73      $      1.10       $      1.08
                                                              ==============    =============     =============
</TABLE>

                                                                              33

<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                       COMMON STOCK                                      ACCUMULATED
                                                 --------------------------                                 OTHER         TOTAL
                                                  NUMBER OF                 COMPREHENSIVE    RETAINED   COMPREHENSIVE  STOCKHOLDERS'
                                                   SHARES         AMOUNT       INCOME        EARNINGS       INCOME        EQUITY
                                                 ------------  ------------  ------------  ------------  ------------  ------------
<S>                                              <C>           <C>           <C>           <C>           <C>           <C>
BALANCE, January 1, 1998                           1,036,626   $ 4,180,486                 $ 4,327,921   $  (381,329)  $ 8,127,078
  Exercise of stock options                           33,165       289,684                                                 289,684
  Cash dividends paid - $.50 per share                                                          (519,850)                 (519,850)
  Comprehensive income
    Net income                                                               $ 1,346,595     1,346,595                   1,346,595
    Unrealized security holding gains
     (net of $41,588 tax)                                                        199,991                     199,991       199,991
    Less reclassification adjustments for gains
     (net of $3,676 tax)                                                          (6,828)                     (6,828)       (6,828)
                                                                             -----------
    Total comprehensive income                                               $ 1,539,758
                                                 ------------  ------------  ============  ------------  ------------  ------------
BALANCE, December 31, 1998                         1,069,791     4,470,170                   5,154,666      (188,166)    9,436,670
  Exercise of stock options                           31,832       148,263                                                 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)                     (3,025)
  Comprehensive income
    Net income                                                                 1,430,928     1,430,928                   1,430,928
    Unrealized security holding losses
     (net of $344,368 tax)                                                      (470,674)                   (470,674)     (470,674)
                                                                             -----------
    Total comprehensive income                                               $   960,254
                                                 ------------  ------------  ============  ------------  ------------  ------------
BALANCE, December 31, 1999                         1,144,282     5,288,179                   5,912,823      (658,840)   10,542,162
  Exercise of stock options                           23,265       155,274                                                 155,274
  Stock dividends paid - 5%                           57,452       861,780                    (861,780)
  Cash paid to stockholders in lieu of
    fractional shares on 5% stock dividend                                                      (3,923)                     (3,923)
  Comprehensive income
    Net income                                                                 2,244,020     2,244,020                   2,244,020
    Unrealized security holding gains
     (net of $374,790 tax)                                                       515,996                     515,996       515,996
    Less reclassification adjustments for losses
     (net of $780 tax)                                                             1,480                       1,480         1,480
                                                                             -----------
    Total comprehensive income                                               $ 2,761,496
                                                 ------------  ------------  ============  ------------  ------------  ------------
BALANCE, December 31, 2000                         1,224,999   $ 6,305,233                 $ 7,291,140   $  (141,364)  $13,455,009
                                                 ============  ============                ============  ============  ============
</TABLE>


                                                                              34


<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>

                                                                                     2000              1999              1998
                                                                               ----------------  ----------------  ----------------
<S>                                                                            <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                   $      2,244,020  $      1,430,928  $      1,346,595
  Adjustments to reconcile net income to
   net cash provided by operating activities
    Net cash provided by operating activities
     Depreciation and amortization                                                      711,120           658,998           427,759
     Provision for possible loan losses                                                 519,000           165,500           164,000
     Provision for possible OREO losses                                                                                       7,369
     Realized (gain) loss on sales of available-for-sale
       securities, net                                                                    2,188                             (10,504)
     Amortization of premiums/discounts on
      investment securities, net                                                       (148,180)         (235,382)         (161,672)
     (Increase)/decrease in loans held for sale                                      (2,354,160)        1,534,383        (1,159,415)
     Increase in deferred tax asset                                                    (205,339)         (269,788)         (135,000)
     (Increase)/decrease in other assets                                               (617,194)          394,118             3,359
     Increase/(decrease) in other liabilities                                           651,593          (339,589)          (68,565)
                                                                               ----------------  ----------------  ----------------

       NET CASH PROVIDED BY OPERATING ACTIVITIES                                        803,048         3,339,168           413,926
                                                                               ----------------  ----------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of securities held-to-maturity                                                                                (3,607,551)
  Purchase of mortgage-backed securities held-to-maturity                                                                (6,143,140)
  Purchase of securities available-for-sale                                              (4,838)      (14,335,101)      (10,098,137)
  Purchase of mortgage-backed securities available-for-sale                                            (2,532,299)         (696,825)
  Proceeds from principal reductions and maturities
    of securities held-to-maturity                                                                                        2,379,076
  Proceeds from principal reductions and maturities
    of mortgage-backed securities held-to-maturity                                                                        3,013,646
  Proceeds from sales of securities available-for-sale                                1,011,512         2,978,217         4,431,186
  Proceeds from principal reductions and maturities
    of securities available-for-sale                                                    933,726        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                                  1,563,335         4,815,584         1,763,715
  Net change in interest bearing deposits in
    other financial institutions                                                        177,255           291,720           (56,856)
  Purchase of life insurance policies                                                   (63,762)         (285,211)          (50,258)
  Proceeds from sale of other real estate owned                                                                              54,631
  Recoveries on loans previously written off                                             19,422            20,196            20,528
  Increase in loans, net                                                            (31,792,259)      (32,808,847)      (15,785,435)
  Purchase of property, premises and equipment, net                                    (346,646)       (1,638,902)         (802,433)
                                                                               ----------------  ----------------  ----------------

       NET CASH USED IN INVESTING ACTIVITIES                                        (28,502,255)      (25,429,379)      (24,844,018)
                                                                               ----------------  ----------------  ----------------
</TABLE>


                                                                              35


<PAGE>

                     HERITAGE OAKS BANCORP AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>

                                                                                2000              1999              1998
                                                                           ----------------  ----------------  ----------------
<S>                                                                        <C>               <C>               <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Increase in deposits, net                                                $    34,735,317    $    13,553,867   $    35,858,049
  Net increase/(decrease) in other borrowings                                   (2,211,000)         2,211,000
  Net (decrease)/increase in notes payable                                         700,000           (400,000)          750,000
  Proceeds from exercise of stock options                                          155,274            148,263           289,684
  Cash paid in lieu of fractional shares                                            (3,923)            (3,025)
  Cash dividends paid or declared                                                                                      (519,850)
                                                                           ----------------  ----------------  ----------------

    NET CASH PROVIDED BY FINANCING ACTIVITIES                                   33,375,668         15,510,105        36,377,883
                                                                           ----------------  ----------------  ----------------

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS                             5,676,461         (6,580,106)       11,947,791

CASH AND CASH EQUIVALENTS, Beginning of year                                    18,359,073         24,939,179        12,991,388
                                                                           ----------------  ----------------  ----------------

CASH AND CASH EQUIVALENTS, End of year                                     $    24,035,534   $     18,359,073  $     24,939,179
                                                                           ================  ================  ================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Interest paid                                                            $     3,734,904   $      2,649,170  $      2,383,618
  Income taxes paid                                                        $     1,595,000   $        716,000  $        976,129

SUPPLEMENTAL DISCLOSURES OF NON-CASH FLOW INFORMATION
  Change in other comprehensive income                                     $       517,476   $       (470,674) $        193,163
  Transfer of held-to-maturity securities to available-for-sale                      -             15,758,151             -
</TABLE>


                                                                              36


<PAGE>


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. Inter-company
    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 eight branches within San
    Luis Obispo and Santa Barbara counties. 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 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.

D.       CASH AND DUE FROM BANKS

    Banking regulations require that all banks maintain a percentage of their
    deposits as reserves in cash or on deposit with the Federal Reserve Bank.
    The Bank complied with the reserve requirements as of December 31, 2000.
    The Bank maintains amounts due from banks that exceed federally insured
    limits. The Bank has not experienced any losses in such accounts.

                                                                              37

<PAGE>


NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)

E.       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.

F.       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.

G.       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 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 of the loan principal
    balance.

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

                                                                              38

<PAGE>


NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)

H.       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.

I.       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.

J.       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, 2000, 1999 and 1998 were approximately $711,000,
    $659,000, and $428,000, respectively.

K.       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."

L.       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.

M.       RECLASSIFICATIONS

    Certain amounts in the 1999 and 1998 financial statements have been
    reclassified to conform to the 2000 presentation.

                                                                              39

<PAGE>


NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)

N.       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.

O.       NEW ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board ("FASB") issued
    SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
    ACTIVITIES," as amended by SFAS No. 138 in 2000. This statement
    establishes accounting and reporting standards for derivative instruments
    and for hedging activities. This new standard was originally effective
    for 2000. In June 1999, the FASB issued SFAS No. 137, "ACCOUNTING FOR
    DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE
    EFFECTIVE DATE OF FASB STATEMENT NO. 133." This Statement establishes the
    effective date of SFAS No. 133 for 2001. During 1999, the Bank adopted
    SFAS No. 133. SFAS No. 133 did not have a material impact on the Bank's
    financial STATEMENTS.

NOTE #2 - INVESTMENT SECURITIES

At December 31, 2000 and 1999, the investment securities portfolio was comprised
of securities classified as available-for-sale, in accordance with SFAS No. 115,
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, 2000, 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                        $ 2,392,808                          $   (76,721)         $  2,316,087
Mortgage-backed securities                           7,958,658         $  6,468            (239,825)            7,725,301
Obligations of state and political
  subdivisions                                       6,088,006           90,786             (16,313)            6,162,479
Other securities                                         8,638                                                      8,638
                                                 -----------------   ---------------   -----------------  ------------------
                      Total                        $16,448,110         $ 97,254         $  (332,859)         $ 16,212,505
                                                 =================   ===============   =================  ==================
</TABLE>

There were no investment securities held-to-maturity at December 31, 2000.

                                                                              40

<PAGE>


NOTE #2 - INVESTMENT SECURITIES, (CONTINUED)

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>

The amortized cost and fair values of investment securities available-for-sale
at December 31, 2000, 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                                                                      $   476,623        $   477,620
Due after one year through five years                                                          2,312,641          2,292,786
Due after five years through ten years                                                         1,187,402          1,209,549
Due after ten years                                                                            4,512,786          4,507,249
Mortgage-backed securities                                                                     7,958,658          7,725,301
                                                                                        -----------------  -----------------
                      Total Securities                                                       $16,448,110        $16,212,505
                                                                                        =================  =================

</TABLE>

Proceeds from sales and maturities of investment securities available-for-sale
during 2000, 1999 and 1998, were $1,011,512, $2,978,217, and $4,431,186,
respectively. In 2000, gross losses on these sales were $2,188; there were no
gross gains. There were no gross gains or losses in 1999. In 1998, gross losses
and gross gains on these sales were $9,970, and $13,433, respectively.

Proceeds from maturities and sales of investment securities held-to-maturity
during 2000, 1999, and 1998, were $0, $0, and $2,379,076, respectively. There
were no gains or losses on those sales and maturities. Proceeds from sales and
maturities and principal reductions of mortgage-backed securities in 2000, 1999,
and 1998, were $1,563,335, $4,815,584, and $5,511,196, respectively. There were
no gross gains or losses on these sales during 2000 and 1999. Gross gains on
these sales during 1998 were $7,041. Unrealized losses on investment securities
and mortgage-backed securities included in shareholders' equity net of tax at
December 31, 2000, 1999 and 1998 were $141,364, $658,840, and $188,166,
respectively.

Securities having a carrying value and a fair value of approximately $10,687,000
and $5,115,000 at December 31, 2000 and 1999, respectively, were pledged to
secure public deposits and for other purposes as required by law.

                                                                              41

<PAGE>


NOTE #3 - LOANS

<TABLE>
<CAPTION>

Major classifications of loans were:
                                                                                           2000                  1999
                                                                                    --------------------  --------------------
<S>                                                                                 <C>                   <C>
Commercial, financial and agricultural                                                     $ 42,931,015          $ 38,419,611
Real Estate - construction                                                                   18,599,452            12,741,477
Real Estate - mortgage                                                                       70,550,560            50,063,714
Installment loans to individuals                                                              3,246,214             2,786,034
All other loans (including overdrafts)                                                          160,779               141,846
                                                                                    --------------------  --------------------
                                                                                            135,488,020           104,152,682
Less:  Deferred loan fees                                                                      (487,473)             (485,474)
Less:  Allowance for loan losses                                                             (1,320,518)           (1,241,016)
                                                                                    --------------------  --------------------
                      Total Loans                                                          $133,680,029          $102,426,192
                                                                                    ====================  ====================

Loans held for sale                                                                        $  2,474,542          $    120,382
                                                                                    ====================  ====================

</TABLE>

CONCENTRATION OF CREDIT RISK

At December 31, 2000, approximately $89,150,000 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>
                                                                       2000                 1999                 1998
                                                                  ----------------   -------------------   -----------------
<S>                                                               <C>                <C>                   <C>
Impaired loans with a valuation allowance                           $ 905,313            $  904,773           $  902,669
Impaired loans without a valuation allowance                           85,917                                     93,807
                                                                  ----------------   -------------------   -----------------
Total impaired loans                                                $ 991,230            $  904,773           $  996,476
                                                                  ================   ===================   =================
Valuation allowance related to impaired loans                       $ 314,633            $  122,847           $  117,285
                                                                  ----------------   -------------------   -----------------


                                                                       2000                 1999                 1998
                                                                  ----------------   -------------------   -----------------

Average recorded investment in impaired loans                       $ 731,963            $  914,298           $1,028,128
                                                                  ================   ===================   =================

Cash receipts applied to reduce principal balance                   $ 654,797            $   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.

                                                                              42

<PAGE>

NOTE #3 - LOANS, (CONTINUED)

Nonaccruing loans totaled $991,230 and $904,773 at December 31, 2000 and 1999,
respectively. As of December 31, 2000 and 1999, all loans on nonaccrual were
classified as impaired. If interest on nonaccrual loans had been recognized at
the original interest rates, interest income would have increased $115,603,
$91,207, and $103,164, in 2000, 1999 and 1998, respectively. No additional funds
are committed to be advanced in connection with impaired loans.

At December 31, 2000 and 1999, the Bank had no loans past due 90 days or more in
interest or principal and still accruing interest.

At December 31, 2000, loans totaling approximately $196,000 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>
                                                                            2000              1999               1998
                                                                       ----------------  ----------------   ----------------
<S>                                                                    <C>               <C>                <C>
Balance, Beginning of year                                                  $1,241,016        $1,069,535          $  930,284
Additions charged to operating expense                                         519,000           165,500             164,000
Loans charged off                                                             (458,920)          (14,215)            (45,277)
Recoveries of loans previously charged off                                      19,422            20,196              20,528
                                                                       ----------------  ----------------   ----------------
Balance, End of year                                                        $1,320,518        $1,241,016          $1,069,535
                                                                       ================  ================   ================
</TABLE>

NOTE #5 - PROPERTY, PREMISES AND EQUIPMENT

Property, premises and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                                            2000                1999
                                                                                      ------------------  ------------------
<S>                                                                                   <C>                 <C>
Land                                                                                     $  668,877          $  668,877
Building and improvements                                                                 3,044,914           3,009,455
Furniture and equipment                                                                   4,024,113           3,795,974
                                                                                      ------------------  ------------------
                                                                                          7,737,904           7,474,306
       Less:  Accumulated depreciation and amortization                                   4,675,089           4,047,017
                                                                                      ------------------  ------------------
Total                                                                                    $3,062,815          $3,427,289
                                                                                      ==================  ==================
</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>
          2001                                                                                                    344,117
          2002                                                                                                    315,007
          2003                                                                                                    315,007
          2004                                                                                                    289,346
          2005                                                                                                    262,686
    More than 5 years                                                                                             554,992
                                                                                                           -----------------
          Total                                                                                                $2,081,155
                                                                                                           =================
</TABLE>
                                                                              43

<PAGE>


NOTE #5 - PROPERTY, PREMISE AND EQUIPMENT, (CONTINUED)

Total expenditures charged for leases for the reporting periods ended December
31, 2000, 1999 and 1998, were $491,937, $345,582, and $312,467, respectively.


NOTE #6 - TIME DEPOSIT LIABILITIES

At December 31, 2000, the Bank had time certificates of deposit with maturity
distributions as follows:

<TABLE>
<CAPTION>

<S>                                                                                                       <C>
Due in one year or less                                                                                        $ 18,905,254
Due after one year through three years                                                                           33,050,809
Due after three years                                                                                               203,663
                                                                                                          ------------------
                                                                                                               $ 52,159,726
                                                                                                          ==================
</TABLE>

NOTE #7 - OTHER BORROWED MONEY

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, 2000.

Interest expense on federal funds purchased was $15,875, $752, and $5,090 and
interest expense on securities sold under agreements to repurchase was $18,779,
$42,430, and $46,158, for the years ended December 31, 2000, 1999 and 1998,
respectively.

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

The Bank has pledged approximately $4,591,000 in loans to the Federal Reserve
Bank for a borrowing line at the federal discount window.


NOTE #8 - 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, 2006, and bears
interest at a variable rate of 1.00% over the Wall Street Journal prime rate.
The outstanding principal balance at December 31, 2000 and 1999, was $1,050,000
and $350,000, respectively, and the current interest rate was 10.5%. Payments on
the note will be fully amortizing to maturity, based on the outstanding balance
owed.

                                                                              44

<PAGE>

NOTE #9 - INCOME TAXES

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

<TABLE>
<CAPTION>

                                                                                      YEAR ENDING DECEMBER 31,
                                                                         ----------------------------------------------------
                                                                              2000               1999              1998
                                                                         ----------------   ---------------   ---------------
<S>                                                                      <C>                <C>               <C>
Federal Income Tax
  Current                                                                $       966,100    $      655,522    $      474,820
  Deferred                                                                       (74,141)         (133,240)            2,557
                                                                         ----------------   ---------------   ---------------
    Total Federal Taxes                                                          891,959           522,282           477,377
                                                                         ----------------   ---------------   ---------------

State Franchise Tax
  Current                                                                        375,906           276,364           250,293
  Deferred                                                                       (24,678)          (44,518)
                                                                                                                         356
                                                                         ----------------   ---------------   ---------------
    Total State Franchise Tax                                                    351,228           231,846           250,649
                                                                         ----------------   ---------------   ---------------
    Total Income Taxes                                                   $     1,243,187    $      754,128    $      728,026
                                                                         ================   ===============   ===============
</TABLE>

The principal items giving rise to deferred taxes were:

<TABLE>
<CAPTION>

                                                                                2000             1999              1998
                                                                           ---------------  ----------------  ---------------
<S>                                                                        <C>              <C>               <C>
Use of different depreciation for tax purposes                             $     (11,330)   $      (29,948)   $       29,374
Difference in loan loss provision for tax purposes                               (32,596)          (67,855)           59,991
Differences arising from changes in accruals                                     (32,819)          (83,831)           51,762
Other, net                                                                       (22,074)            3,876          (138,214)
                                                                           ---------------  ----------------  ---------------
    Total                                                                  $     (98,819)   $     (177,758)   $        2,913
                                                                           ---------------  ----------------  ---------------
</TABLE>

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

<TABLE>
<CAPTION>

                                                               2000                      1999                    1998
                                                       ---------------------      --------------------      ------------------
                                                         AMOUNT      PERCENT        AMOUNT     PERCENT       AMOUNT    PERCENT
                                                       ----------    -------      ---------    -------      --------   -------
<S>                                                    <C>           <C>          <C>          <C>          <C>        <C>
Tax provision at federal statutory tax rate            $1,185,650       34.0      $ 742,919       34.0      $705,371     34.0
State income taxes, net of federal
  income tax benefit                                      231,810        6.7        153,019        7.0       148,335      7.1
Tax exempt income and Other, Net                         (174,273)      (5.0)      (141,810)      (6.5)     (125,680)    (6.0)
                                                       ----------    -------      ---------    -------      --------   -------
    Total Tax Provision                                $1,243,187       35.7      $ 754,128       34.5      $728,026     35.1
                                                       ----------    -------      ---------    -------      --------   -------
</TABLE>


                                                                              45
<PAGE>

NOTE #9 - INCOME TAXES, (CONTINUED)

The net deferred tax asset is determined as follows:

<TABLE>
<CAPTION>


                                                                                                        (IN THOUSANDS)
                                                                                                  -------------------------
                                                                                                   2000              1999
                                                                                                  -------          --------
<S>                                                                                               <C>              <C>
Deferred Tax Assets
  Reserves for loan losses                                                                        $   456          $    423
  Fixed Assets                                                                                          6                67
  Accruals                                                                                            443               318
  Investment securities valuation                                                                      94               464
                                                                                                  -------          --------
Total Deferred tax assets arising from cumulative
  timing differences                                                                                  999             1,272
Valuation allowance*                                                                                                   (103)
                                                                                                  -------          --------
    Net Deferred Tax Asset                                                                        $   999          $  1,169
                                                                                                  =======          ========
</TABLE>

*The valuation allowance is estimated based upon amounts less than likely of
future realization. The valuation allowance of $103,000 was eliminated during
the 2000 year due to the continued level of earnings.

NOTE #10 - 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, 2000 and 1999, the Bank was contingently liable for letters
of credit accommodations made to its customers totaling $861,969 and
$530,967, respectively. At December 31, 2000 and 1999, the Bank had
undisbursed loan commitments in the amount of $43,834,315 and $48,235,109,
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.


                                                                              46
<PAGE>

NOTE #11 - 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, 2000, 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):

<TABLE>
<CAPTION>

                                                                                                  CAPITAL NEEDED
                                                                                ---------------------------------------------------
                                                                                                                 TO BE WELL
                                                                                                              CAPITALIZED UNDER
                                                                                      FOR CAPITAL             PROMPT CORRECTIVE
                                                         ACTUAL REGULATORY         ADEQUACY PURPOSES          ACTION PROVISIONS
                                                      ------------------------  ------------------------   ------------------------
                                                        CAPITAL                   CAPITAL                    CAPITAL
                                                        AMOUNT       RATIO         AMOUNT      RATIO         AMOUNT       RATIO
                                                      ------------ -----------  ------------- ----------   ------------ -----------
<S>                                                   <C>          <C>          <C>           <C>          <C>          <C>
           As of December 31, 2000
           Total capital to risk-weighted assets:
             Company                                      $14,903      10.26%       $ 11,616       8.0%         N/A         N/A
             Bank                                         $14,799      10.03%       $ 11,806       8.0%       $ 14,757      10.0%

           Tier 1 capital to risk-weighted assets:
             Company                                      $13,582       9.35%        $ 5,808       4.0%         N/A         N/A
             Bank                                         $13,478       9.13%        $ 5,903       4.0%       $ 8,854       6.0%

           Tier 1 capital to average assets:
             Company                                      $13,582       7.56%        $ 7,184       4.0%         N/A         N/A
             Bank                                         $13,478       7.53%        $ 7,156       4.0%       $ 8,945       5.0%

           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%
</TABLE>


                                                                              47
<PAGE>

NOTE #12 - 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
$243,560 and $183,512 at December 31, 2000 and 1999, 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 $1,369,549 and $1,305,787, at December 31, 2000
and 1999, respectively.

NOTE #13 - 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 $48,843, $35,924, and $34,619, for the years ended December 31, 2000,
1999 and 1998, respectively.

NOTE #14 - STOCK OPTION PLANS

At December 31, 2000, 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>
                                                                             2000               1999              1998
                                                                        ----------------  -----------------  ----------------
<S>                                            <C>                      <C>               <C>                <C>
Net Income                                     As reported              $     2,244,020   $      1,430,928   $     1,346,595
                                               Pro forma                $     2,149,036   $      1,373,874   $     1,285,931

Earnings per share                             As reported              $          1.85   $           1.21   $          1.18
                                               Pro forma                $          1.77   $           1.17   $          1.13

Earnings per share -                           As reported              $          1.73   $           1.10   $          1.08
assuming dilution                              Pro forma                $          1.66   $           1.05   $          1.03
</TABLE>


                                                                              48


<PAGE>

NOTE #14 - STOCK OPTION PLANS, (CONTINUED)

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 provided for issuance of up to 151,204 shares (after giving
retroactive effect for a 4% stock dividend in 1999 and a 5% stock dividend in
2000) of the Company's unissued common stock and is subject to the specific
approval of the Board of Directors. The Bank's 1990 stock option plan expired
in July 2000.

No options were granted during 1998 and 1999 and 2000.

The following tables summarize information about the 1990 stock option plan
outstanding at December 31, 2000.

<TABLE>
<CAPTION>
                                                2000                          1999                         1998
                                     --------------------------    --------------------------    --------------------------
                                                     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       45,625         $3.93         76,191          $3.93       108,926           $3.86
Granted
Cancelled                                 (407)        $9.77           (922)         $9.77          (613)          $9.77
Exercised                              (22,759)        $3.92        (29,644)         $3.66       (32,122)          $3.57
                                     -----------                   ----------                   -----------
Outstanding at end of year              22,459         $3.84         45,625          $3.93        76,191           $3.93
                                     ===========                   ==========                   ===========

Options available for granting at
  end of year                            -                            1,538                          616
Options exercisable at year-end         22,152         $3.77         44,408          $3.78        73,445           $3.71
Weighted-average fair value
  of options granted during the year     -                            -                            -
</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>
     $3.51           21,230               2.08                $3.51                 21,230             $3.51
     $9.77            1,229               6.51                $9.77                    921             $9.77
                  ------------                                                  -------------
                     22,459                                                         22,151
                  ============                                                  =============
</TABLE>

                                                                              49
<PAGE>

NOTE #14 - STOCK OPTION PLANS, (CONTINUED)

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 175,866 shares (after giving
retroactive effect for a 4% stock dividend in 1999 and a 5% stock dividend in
2000) of the Company's unissued common stock and is subject to the specific
approval of the Board of Directors.

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
104,214 additional shares (after giving retroactive effect for a 5% stock
dividend in 2000) 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 2000, 1999 and 1998, respectively: risk-free rates of 5.17%, 6.60% and
4.8%, dividend yields of 0% for all years presented, expected life of eight
years; and volatility of 28%, 30% and 25%.

The following summarizes information about the 1997 stock option plan
outstanding at December 31, 2000. These tables have been retroactively
adjusted for the 4% stock dividend in 1999 and the 5% stock dividend in 2000.

<TABLE>
<CAPTION>
                                                        2000                       1999                       1998
                                              -------------------------  -------------------------  --------------------------
                                                            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                 169,381        $11.27      142,502         $9.97       151,948         $9.77
Granted                                           31,500        $14.82       37,275        $15.57         7,098        $13.87
Cancelled                                         (3,610)       $12.30       (6,552)        $9.77       (12,448)        $9.77
Exercised                                         (1,006)       $10.88       (3,844)        $9.91        (4,096)        $9.77
                                              -----------                -----------                ------------
Outstanding at end of year                        196,265       $11.82      169,381        $11.27       142,502         $9.97
                                              ===========                ===========                ============

Options available for grant end of year           74,873                    102,763                      29,269
Options exercisable at year-end                   82,957        $10.45       50,100         $9.91        27,081         $9.77
Weighted-average fair value of
  options granted during the year                  $6.77                      $8.10                       $3.61
</TABLE>

                                                                              50
<PAGE>


NOTE #14 - STOCK OPTION PLANS, (CONTINUED)


<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>
          $9.77                 123,043                 6.51                $9.77             72,986               $9.77
     $13.5 - $15.83              69,722                 8.54               $15.16              9,971              $15.45
         $17.25                   3,500                 9.65               $17.25               -                 $17.25
                              -----------                                                  ------------
                                196,265                                                       82,957
                              ===========                                                  ============
</TABLE>


NOTE #15 - 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>
                                                                                              2000               1999
                                                                                        -----------------  -----------------
<S>                                                                                     <C>                <C>
Outstanding Balance, Beginning of year                                                         $ 292,540          $ 698,732
Additional loans made                                                                            350,000            218,911
Repayments                                                                                      (430,719)          (625,103)
                                                                                        -----------------  -----------------
Outstanding Balance, End of year                                                               $ 211,821          $ 292,540
                                                                                        =================  =================
</TABLE>


Deposits from related parties held by the Bank at December 31, 2000 and 1999
amounted to approximately $1,684,000 and $2,026,000, respectively.

NOTE #16 - 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.

NOTE #17 - 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.

                                                                              51
<PAGE>

NOTE #17 - FAIR VALUE OF FINANCIAL INSTRUMENTS, (CONTINUED)

The following table presents the carrying amounts and fair values of financial
instruments at December 31, 2000 and 1999. 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>
                                                                       2000                                1999
                                                         --------------------------------   --------------------------------
                                                            Carrying                          Carrying
                                                             Amount         Fair Value         Amount           Fair Value
                                                         ---------------  ---------------   ----------------  --------------
<S>                                                      <C>              <C>               <C>               <C>
Assets
  Cash and cash equivalents                                 $24,035,534      $24,168,338       $18,359,073      $18,359,073
  Investment bearing deposits                                   198,000          198,000           375,255          375,255
  Investment and mortgage-backed securities                  16,594,105       16,594,105        19,058,804       19,058,804
  Loans receivable                                          135,000,547      132,435,464       104,152,682      108,896,652
  Loans held for sale                                         2,474,542        2,474,542           120,382          120,382
  Accrued interest receivable                                 1,107,598        1,107,598           796,852          796,852

Liabilities
  Non-interest bearing deposits                              51,821,234       51,821,234        39,901,884       39,901,884
  Interest bearing deposits                                 115,875,656      116,134,080        93,059,689       93,252,991
  Notes Payable                                               1,050,000        1,050,000           350,000          350,000
  Repurchase agreements                                                                          2,211,000        2,211,000
  Accrued interest payable                                      907,544          907,544           520,742          520,742


                                                              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                               $44,696,284        $ 446,963         $40,526,310      $ 405,263
</TABLE>

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

o   CASH AND CASH EQUIVALENTS

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

o   INTEREST BEARING DEPOSITS

    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.

                                                                              52
<PAGE>


NOTE #17 - FAIR VALUE OF FINANCIAL INSTRUMENTS, (CONTINUED)

o   INVESTMENT AND MORTGAGE-BACKED SECURITIES

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

o   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.

o   DEPOSITS

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

o   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.

o   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.

o   OFF-BALANCE SHEET INSTRUMENTS

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

                                                                              53

<PAGE>

NOTE #18 - 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>
                                                 2000                           1999                          1998
                                     ------------------------------ ----------------------------- ------------------------------
                                          Net                            Net                           Net
                                         Income         Shares         Income         Shares          Income         Shares
                                     --------------- -------------- -------------- -------------- ----------------  -------------
<S>                                  <C>             <C>            <C>            <C>            <C>               <C>
Net income as reported                   $2,244,020                    $1,430,928                     $1,346,595
Shares outstanding at year-end                           1,224,999                     1,201,496                      1,168,212
Impact of weighting shares
 purchased during the year                                  (9,195)                      (19,203)                       (26,572)
                                     --------------- -------------- -------------- -------------- ----------------  ------------
Used in Basic EPS                         2,244,020      1,215,804      1,430,928      1,182,293       1,346,595      1,141,640
Dilutive effect of outstanding
 stock options                                              82,029                       126,237                        109,948
                                     --------------- -------------- -------------- -------------- ----------------  ------------
Used in Dilutive EPS                     $2,244,020      1,297,833     $1,430,928      1,308,530      $1,346,595      1,251,588
                                     =============== ============== ============== ============== ================  ============
</TABLE>

NOTE #19 - OTHER INCOME/EXPENSE

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

<TABLE>
<CAPTION>
                                                                           2000               1999               1998
                                                                      ----------------   ----------------   ----------------
<S>                                                                   <C>                <C>                <C>
Fees and Other Income
  ATM transaction fees                                                    $ 2,896,700        $ 2,421,635        $ 3,380,117
  ATM interchange income                                                      695,017            629,711            767,192
  ATM sponsorship fees                                                         17,785             82,501            115,516
  Bankcard merchant fees                                                      110,483            623,930            757,380
  Mortgage broker fees                                                        318,360            290,940            301,988
  Other                                                                       564,513            638,076            337,396
                                                                      ----------------   ----------------   ----------------
                                                                          $ 4,602,858        $ 4,686,793        $ 5,659,589
                                                                      ================   ================   ================

Other Expenses
  Data processing                                                           1,327,397            930,861            801,943
  Advertising and promotional                                                 323,433            301,388            217,719
  Regulatory fees                                                              64,598             50,517             47,756
  Other professional fees and outside services                                266,172            392,174             58,144
  Legal fees and other litigation expenses                                    210,838            142,515            187,863
  Stationery and supplies                                                     193,921            169,908            107,595
  Bankcard merchant expense                                                                      573,324            864,970
  Director fees                                                               188,728            174,645            158,476
  ATM costs at gaming sites                                                 1,374,108          1,149,478          2,076,345
  ATM costs at retail sites                                                 1,203,674            930,649            680,448
  Other                                                                       538,711            543,842            551,160
                                                                      ----------------   ----------------   ----------------
    Total                                                                 $ 5,691,580        $ 5,359,301        $ 5,752,419
                                                                      ================   ================   ================
</TABLE>


NOTE #20 - 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. As of December 31, 2000, the EFT
Department

                                                                              54

<PAGE>

NOTE #20 - OPERATING SEGMENTS, (CONTINUED)

has installed 60 automatic teller machines located in retail outlets and gaming
facilities. 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, 2000
      Revenues                                                         $3,654,553           $15,997,798         $19,652,351
      Depreciation and amortization                                        99,864               596,544             696,408
      Operating income                                                    491,542             1,796,260           2,287,712
      Total assets                                                      4,415,253           178,980,170         183,395,423

                                                                                                                Total
                                                                       EFT                                    Operating
                                                                   Department               Bank              Segments
                                                                ------------------   -------------------  ------------------
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>


NOTE #21 - 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 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.

On March 21, 2000, the Board of Directors declared a 5% stock dividend
payable on April 17, 2000 to stockholders of record on April 3, 2000. Cash
was paid in lieu of fractional shares at the rate of $15.00 per share and
amounted to $3,923.

                                                                              55

<PAGE>

NOTE #22 - CONDENSED FINANCIAL INFORMATION OF HERITAGE OAKS BANCORP
           (PARENT COMPANY)

                                   BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                           2000                1999
                                                                                     ---------------     -----------------
<S>                                                                                  <C>                 <C>
ASSETS
  Cash                                                                                    $  51,190            $ 115,369
  Prepaid and other assets                                                                  423,111              336,104
  Property and premises                                                                     684,268              698,980
  Investment in subsidiaries                                                             13,351,030            9,745,842
                                                                                        -----------          -----------
      Total Assets                                                                      $14,509,599          $10,896,295
                                                                                        ===========          ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
  Notes payable                                                                           1,050,000              350,000
  Other Liabilities                                                                           4,590                4,133
                                                                                        -----------          -----------
      Total Liabilities                                                                   1,054,590              354,133
                                                                                        -----------          -----------
  Stockholders' Equity
    Common stock                                                                          6,305,233            5,288,179
    Retained earnings                                                                     7,149,776            5,253,983
                                                                                        -----------          -----------
      Total Stockholders' Equity                                                         13,455,009           10,542,162
                                                                                        -----------          -----------
      Total Liabilities and
       Stockholders' Equity                                                             $14,509,599          $10,896,295
                                                                                        ============         ============
</TABLE>

                                                                              56


<PAGE>

NOTE #22 - CONDENSED FINANCIAL INFORMATION OF HERITAGE OAKS BANCORP PARENT
COMPANY, (CONTINUED)

                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                          2000                 1999                1998
                                                                    ------------------   -----------------   -----------------
<S>                                                                 <C>                  <C>                 <C>
INCOME
  Equity in undisbursed income of subsidiary                               $2,287,712          $1,523,690         $ 1,423,886
  Other                                                                        56,700              42,525
                                                                    ------------------   -----------------   -----------------
    Total Income                                                            2,344,412           1,566,215           1,423,886
                                                                    ------------------   -----------------   -----------------
EXPENSE
  Salary expense                                                               41,194              30,498              35,284
  Equipment expense                                                            14,712              13,180
  Other professional fees and outside services                                 16,084              52,024              44,930
  Interest expense                                                             35,856              43,615              12,632
  Other                                                                        22,908              60,432              39,724
                                                                    ------------------   -----------------   -----------------
    Total Expense                                                             130,754             199,749             132,570
                                                                    ------------------   -----------------   -----------------
    Total Operating Income                                                  2,213,658           1,366,466           1,291,316

Tax benefit of parent                                                         (30,362)            (64,462)            (55,279)
                                                                    ------------------   -----------------   -----------------

    Net Income                                                             $2,244,020          $1,430,928         $ 1,346,595
                                                                    ==================   =================   =================
</TABLE>

                                                                              57

<PAGE>

NOTE #22- CONDENSED FINANCIAL INFORMATION OF HERITAGE OAKS BANCORP PARENT
          COMPANY, (CONTINUED)

                             STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                         2000                1999                1998
                                                                   -----------------   -----------------   -----------------
<S>                                                                <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                           $ 2,244,020         $ 1,430,928         $ 1,346,595
  Adjustments to Reconcile Net Income
    to Net Cash Provided By Operating Activities
    Depreciation                                                            14,712              13,180
    Increase in other assets                                               (87,007)            (49,381)           (197,699)
    Increase/(decrease) in other liabilities                                   457              (8,916)              4,399
    Undistributed income of subsidiary                                  (2,287,712)         (1,523,690)         (1,423,886)
                                                                   -----------------   -----------------   -----------------
      Net Cash Used In
        Operating Activities                                              (115,530)           (137,879)           (270,591)
                                                                   -----------------   -----------------   -----------------

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

CASH FLOWS FROM FINANCING ACTIVITIES
  Cash dividends declared                                                                                         (519,850)
  Cash dividends received                                                                      705,276             665,355
  Cash paid in lieu of fractional shares                                    (3,923)             (3,025)
  Additional contributed capital                                          (800,000)                               (700,000)
  Increase (decrease) in long-term borrowings                              700,000            (400,000)            750,000
  Proceeds from the exercise of options                                    155,274             148,263             289,684
                                                                   -----------------   -----------------   -----------------
    Net Cash Provided By
     Financing Activities                                                   51,351             450,514             485,189
                                                                   -----------------   -----------------   -----------------

NET INCREASE/(DECREASE) IN CASH                                            (64,179)              7,208            (192,135)

CASH, Beginning of year                                                    115,369             108,161             300,296
                                                                   -----------------   -----------------   -----------------

CASH, End of year                                                        $  51,190          $  115,369          $  108,161
                                                                   =================   =================   =================
</TABLE>

                                                                              58

<PAGE>

ITEM 8.   CHANGES 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 2001
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 10.  EXECUTIVE COMPENSATION

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

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
Exhibits:
<S>               <C>
(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.
</TABLE>

                                                                              59

<PAGE>

<TABLE>
<S>               <C>
(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)1.1.1.       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.

(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.
</TABLE>

                                                                              60

<PAGE>

<TABLE>
<S>               <C>
(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.*

(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.
</TABLE>

                                                                              61

<PAGE>

<TABLE>
<S>               <C>
(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 31,1996.

(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.

(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 Information 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.

(10.29)           ASSET PURCHASE AGREEMENT entered into between Travelex America, Inc. and Heritage Oaks Bank, dated
                  November 21 , 2000 filed with the SEC in the Company's 10KSB reported for the year ended
                  December 31, 2000.

(10.30)           Heritage Oaks Bancorp Bylaws as amended November 16, 2000 filed with the SEC in the Company's 10KSB for
                  the year ended December 31, 2000.
</TABLE>

                                                                              62

<PAGE>

<TABLE>
<S>               <C>
(21)              Subsidiaries of Heritage Oaks Bancorp. Heritage Oaks Bank is the only subsidiary of Heritage
                  Oaks Bancorp.

(23)              Consent of Independent Accountants
</TABLE>

*Denotes management contracts, compensatory plans or arrangements.


Reports on Form 8-K:

During the fourth quarter of 2000, 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, 2001


By: /s/ Margaret A. Torres
Executive Vice President and Chief Financial officer
Dated: March 21, 2001


                                                                              63

<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, 2001


<TABLE>
<S>                                 <C>                                <C>
/s/ B.R. Bryant                     Chairman of the                    March 21, 2001
B.R. BRYANT                         Board of
                                    Directors

/s/ Donald H. Campbell              Vice Chairman                      March 21, 2001
DONALD H. CAMPBELL                  of the Board
                                    of Directors

/s/ Kenneth Dewar                   Director                           March 21, 2001
KENNETH DEWAR

/s/ Dolores T. Lacey                Director                           March 21, 2001
DOLORES T. LACEY

/s/ Merle F. Miller                 Director                           March 21, 2001
MERLE F. MILLER

/s/ John Palla                      Director                           March 21, 2001
JOHN  PALLA

/s/ Ole K. Viborg                   Director                           March 21, 2001
OLE K. VIBORG

/s/ Lawrence P. Ward                Director                           March 21, 2001
LAWRENCE P. WARD

/s/ David Weyrich                   Director                           March 21, 2001
DAVID WEYRICH
</TABLE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Sequential
Number    Description
<S>       <C>
(10.29)   ASSET PURCHASE AGREEMENT entered into between Travelex America, Inc. and Heritage Oaks Bank,
          dated November 21, 2000 filed with the SEC in the Company's 10KSB reported for the year
          ended December 31, 2000.

(10.30)   Heritage Oaks Bancorp Bylaws as amended November 16, 2000 filed with the SEC in the Company's
          10KSB for the year ended December 31, 2000.

23        Consent of Independent Accountants
</TABLE>

                                                                              64