##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549




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FORM 10-Q

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

FOR THE QUARTER ENDED SEPTEMBER 30, 2001

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

For the transition period from ______ to ______

Commission File No. 0-20862

VINEYARD NATIONAL BANCORP

(Exact Name of Registrant as Specified in its Charter)


|                                                                                              |  |                                                
|--------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|California
(State or other jurisdiction of
incorporation or organization)                     |  | 33-0309110
(IRS employer
identification number)
|                                                                                             
|9590 Foothill Boulevard
Rancho Cucamonga, California
(Address of principal executive offices) |  | 91730
(Zip Code)                               

Registrants telephone number, including area code: (909) 987-0177

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]

APPLICABLE TO CORPORATE ISSUER

Indicate the number of shares outstanding of the issuers classes of common
stock on the latest practicable date: 1,871,126 shares of common stock as of
November 08, 2001.

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TABLE OF CONTENTS



|                          |                                                                                               |                                                           |  |  |  |  |  | 
|------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|PART I                   
|                          | ITEM I. FINANCIAL STATEMENTS                                                                 
|                          |                                                                                               | CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION           
|                          |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME                        
|                          |                                                                                               | CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
|                          |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                    
|                          | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                          | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II OTHER INFORMATION
|                          | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                          | ITEM 2. CHANGES IN SECURITIES                                                                
|                          | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                          | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                          | ITEM 5. OTHER INFORMATION                                                                    
|                          | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES               



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##### Table of Contents



VINEYARD NATIONAL BANCORP

FORM 10-Q INDEX
FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000,
AND DECEMBER 31, 2000

PART I  FINANCIAL INFORMATION

|                                                                                              |                                                                                                                 |  |    |   | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- |  | -- | - | 
|ITEM 1. Financial Statements                                                                  |                                                                                                                 |  |    |  
|                                                                                              | Consolidated Statements of Financial Condition
at September 30, 2001 and December 31, 2000                      |  |    | 3 | 
|                                                                                              | Consolidated Statements of Income
for the Nine Months and Three Months Ended September 30, 2001 and 2000        |  |    | 4 | 
|                                                                                              | Consolidated Statement of Changes in Stockholders Equity
for the Nine Months Ended September 30, 2001 and 2000 |  |    | 5 | 
|                                                                                              | Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2001 and 2000                     |  |    | 6 | 
|                                                                                              | Notes to Consolidated Financial Statements                                                                      |  |    | 8 | 
|ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                 |  | 10 |  
|ITEM 3. Quantitative and Qualitative Disclosure About Market Risk                             |                                                                                                                 |  | 19 |  
|PART II  OTHER INFORMATION                                                                   |                                                                                                                 |  |    |  
|ITEM 1. Legal Proceedings                                                                     |                                                                                                                 |  | 20 |  
|ITEM 2. Changes in Securities                                                                 |                                                                                                                 |  | 20 |  
|ITEM 3. Defaults upon Senior Securities                                                       |                                                                                                                 |  | 20 |  
|ITEM 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                 |  | 20 |  
|ITEM 5. Other Information                                                                     |                                                                                                                 |  | 20 |  
|ITEM 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                 |  | 20 |  
|Signatures                                                                                    |                                                                                                                 |  | 21 |  

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements as referenced in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
inherently unreliable and actual results may vary. Factors which could cause
actual results to differ from these forward-looking statements include changes
in the competitive marketplace, changes in the interest rate environment,
economic conditions, outcome of pending litigation, risks associated with
credit quality and other factors discussed in the Companys filings with the
Securities and Exchange Commission. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.

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##### Table of Contents






PART I




ITEM I. FINANCIAL STATEMENTS

VINEYARD NATIONAL BANCORP




CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


(Unaudited except for December 31, 2000)


Assets

|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |              |            |             |             | 
|--------------------------------------------------------- | ------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------- | ---------- | ------------- | ----------- | ------------ | ---------- | ----------- | ----------- | 
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            | September 30, |             | December 31,
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            | 2001          |             | 2000        
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|Cash and due from banks                                   |                                                  | $                                                                                                                                | 9,318,252                                  |                                 |            | $             | 8,388,298   |             
|Federal funds sold                                        |                                                  |                                                                                                                                  | 3,670,000                                  |                                 |            |               | 8,405,000   |             
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          |                                                  |                                                                                                                                  |                                            | Total Cash and Cash Equivalents |            |               | 12,988,252  |              |            |             | 16,793,298  | 
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|Interest-bearing deposits in other financial institutions |                                                  |                                                                                                                                  | 0                                          |                                 |            |               | 198,000     |             
|Investment securities                                     |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          | Available-for-sale                               |                                                                                                                                  |                                            | 28,488,260                      |            |               |             | 5,527,040    |           
|Loans, net of unearned income                             |                                                  |                                                                                                                                  | 111,136,047                                |                                 |            |               | 79,288,364  |             
|Loans held for sale                                       |                                                  |                                                                                                                                  | 2,349,950                                  |                                 |            |               | 235,300     |             
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          |                                                  |                                                                                                                                  | 113,485,997                                |                                 |            |               | 79,523,664  |             
|                                                          | Less: Reserve for probable loan and lease losses |                                                                                                                                  |                                            | (1,150,898                      | )          |               |             | (784,092     | )         
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          |                                                  |                                                                                                                                  | 112,335,099                                |                                 |            |               | 78,739,572  |             
|Bank premises and equipment                               |                                                  |                                                                                                                                  | 5,379,797                                  |                                 |            |               | 5,482,187   |             
|Accrued interest                                          |                                                  |                                                                                                                                  | 839,686                                    |                                 |            |               | 570,089     |             
|Cash surrender value of life insurance                    |                                                  |                                                                                                                                  | 1,362,357                                  |                                 |            |               | 2,381,047   |             
|Other real estate owned                                   |                                                  |                                                                                                                                  | 0                                          |                                 |            |               | 0           |             
|Federal Reserve Bank and other similar stock at cost      |                                                  |                                                                                                                                  | 146,100                                    |                                 |            |               | 177,200     |             
|Other assets                                              |                                                  |                                                                                                                                  | 2,174,195                                  |                                 |            |               | 884,624     |             
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          |                                                  |                                                                                                                                  |                                            | Total Assets                    |            | $             | 163,713,746 |              |            | $           | 110,753,057 | 
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|Liabilities and Stockholders Equity                     
|Liabilities                                               |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          | Deposits                                         |                                                                                                                                  |                                            |                                 |            |               |             |              |           
|                                                          |                                                  | Demand deposits                                                                                                                  |                                            |                                 | 43,100,754 |               |             |              | 36,869,674 |            
|                                                          |                                                  | Savings and NOW deposits                                                                                                         |                                            |                                 | 27,764,545 |               |             |              | 25,947,059 |            
|                                                          |                                                  | Money market deposits                                                                                                            |                                            |                                 | 17,077,646 |               |             |              | 9,829,779  |            
|                                                          |                                                  | Time deposits in denominations
of $100,000 or more                                                                               |                                            |                                 | 24,881,997 |               |             |              | 6,526,307  |            
|                                                          |                                                  | Other time deposits                                                                                                              |                                            |                                 | 34,132,791 |               |             |              | 20,410,291 |            
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          |                                                  |                                                                                                                                  | 146,957,733                                |                                 |            |               | 99,583,110  |             
|                                                          |                                                  | Accrued employee salary benefits                                                                                                 |                                            |                                 | 1,299,205  |               |             |              | 1,114,270  |            
|                                                          |                                                  | Convertible debentures                                                                                                           |                                            |                                 | 3,750,000  |               |             |              | 0          |            
|                                                          |                                                  | Accrued interest and other liabilities                                                                                           |                                            |                                 | 1,385,880  |               |             |              | 760,644    |            
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          |                                                  |                                                                                                                                  | Total Liabilities                          |                                 |            | 153,392,818   |             |              |            | 101,458,024 |            
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|Stockholders Equity                                      |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          | Contributed Capital                              |                                                                                                                                  |                                            |                                 |            |               |             |              |           
|                                                          |                                                  | Common stock  authorized 15,000,000 shares,
no par value, issued and outstanding 1,871,126
shares in 2001 and 1,864,826 in 2000 |                                            |                                 | 2,130,621  |               |             |              | 2,112,243  |            
|                                                          |                                                  | Additional paid-in capital                                                                                                       |                                            |                                 | 3,306,684  |               |             |              | 3,306,684  |            
|                                                          |                                                  | Retained earnings                                                                                                                |                                            |                                 | 4,793,904  |               |             |              | 3,876,141  |            
|                                                          |                                                  | Accumulated other comprehensive income                                                                                           |                                            |                                 | 89,719     |               |             |              | (35        | )          
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          |                                                  |                                                                                                                                  | Total Stockholders Equity                 |                                 |            | 10,320,928    |             |              |            | 9,295,033   |            
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             
|                                                          |                                                  |                                                                                                                                  | Total Liabilities and Stockholders Equity |                                 | $          | 163,713,746   |             |              | $          | 110,753,057 |            
|                                                          |                                                  |                                                                                                                                  |                                            |                                 |            |               |             |             

See accompanying notes to financial statements

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VINEYARD NATIONAL BANCORP




CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)


|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |           |           |         |           | 
|----------------------------------- | -------------------------------------------------------------- | ------------------------------------------------------------- | -------------------------------------------------------- | --------------------- | --------- | ------------------------------- | --------- | -------------------------------- | --------- | ------- | --------- | --------- | --------- | ------- | --------- | --------- | --------- | ------- | --------- | 
|                                    |                                                                |                                                               |                                                          |                       |           | Nine Months Ended September 30, |           | Three Months Ended September 30,
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                 
|                                    |                                                                |                                                               |                                                          |                       |           | 2001                            |           | 2000                             |           | 2001    |           | 2000     
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |          
|Interest Income                     |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|                                    | Interest and fees on loans                                     |                                                               |                                                          | 7,184,813             |           |                                 |           | 6,167,359                        |           |         |           | 2,807,837 |           |         |           | 2,029,530 |          
|                                    | Interest on Investment Securities                              |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |           |          
|                                    |                                                                |                                                               | Obligations of U.S. Government
Agencies and Corporations |                       |           | 576,742                         |           |                                  |           | 390,289 |           |           |           | 309,934 |           |           |           | 121,669 |          
|                                    |                                                                |                                                               | Interest on other securities                             |                       |           | 8,401                           |           |                                  |           | 7,111   |           |           |           | 1,398   |           |           |           | 2,381   |          
|                                    | Interest on deposits                                           |                                                               |                                                          | 5,778                 |           |                                 |           | 10,147                           |           |         |           | 25        |           |         |           | 3,524     |          
|                                    | Interest on Federal funds sold                                 |                                                               |                                                          | 571,247               |           |                                 |           | 248,089                          |           |         |           | 125,215   |           |         |           | 129,079   |          
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|                                    |                                                                |                                                               |                                                          | Total Interest Income |           |                                 | 8,346,981 |                                  |           |         | 6,822,995 |           |           |         | 3,244,409 |           |           |         | 2,286,183 | 
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|Interest Expense                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|                                    | Interest on savings deposits                                   |                                                               |                                                          | 142,066               |           |                                 |           | 151,203                          |           |         |           | 49,943    |           |         |           | 51,740    |          
|                                    | Interest on NOW and money
market accounts                      |                                                               |                                                          | 408,010               |           |                                 |           | 318,024                          |           |         |           | 160,082   |           |         |           | 102,109   |          
|                                    | Interest on time deposits in
denominations of $100,000 or more |                                                               |                                                          | 667,634               |           |                                 |           | 332,401                          |           |         |           | 294,491   |           |         |           | 163,777   |          
|                                    | Interest on other time deposits                                |                                                               |                                                          | 1,154,411             |           |                                 |           | 731,582                          |           |         |           | 415,690   |           |         |           | 183,763   |          
|                                    | Interest on borrowed money                                     |                                                               |                                                          | 0                     |           |                                 |           | 1,070                            |           |         |           | 0         |           |         |           | 0         |          
|                                    | Interest on convertible debentures                             |                                                               |                                                          | 166,004               |           |                                 |           | 0                                |           |         |           | 101,127   |           |         |           | 0         |          
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|                                    |                                                                | Total Interest Expense                                        |                                                          |                       | 2,538,125 |                                 |           |                                  | 1,534,280 |         |           |           | 1,021,333 |         |           |           | 501,389   |        
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|                                    |                                                                | Net Interest Income                                           |                                                          |                       | 5,808,856 |                                 |           |                                  | 5,288,715 |         |           |           | 2,223,076 |         |           |           | 1,784,794 |        
|Provision for Loan and Lease Losses |                                                                |                                                               | (415,000                                                 | )                     |           |                                 | (256,000  | )                                |           |         | (115,000  | )         |           |         | 0         |          
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|                                    |                                                                | Net Interest Income After Provision
for Loan and Lease Losses |                                                          |                       | 5,393,856 |                                 |           |                                  | 5,032,715 |         |           |           | 2,108,076 |         |           |           | 1,784,794 |        
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|Non-Interest Revenue                |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|                                    | Fees and service charges and gain
on sale of loans             |                                                               |                                                          | 1,403,486             |           |                                 |           | 1,093,187                        |           |         |           | 505,809   |           |         |           | 365,605   |          
|                                    | Other Income                                                   |                                                               |                                                          | 18,970                |           |                                 |           | 12,380                           |           |         |           | 4,241     |           |         |           | 2,376     |          
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|                                    |                                                                |                                                               |                                                          | Total Other Income    |           |                                 | 1,422,456 |                                  |           |         | 1,105,567 |           |           |         | 510,050   |           |           |         | 367,981   | 
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|Non-Interest Expense                |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|                                    | Salaries and employee benefits                                 |                                                               |                                                          | 3,128,867             |           |                                 |           | 2,505,853                        |           |         |           | 1,084,508 |           |         |           | 706,500   |          
|                                    | Occupancy expense of premises                                  |                                                               |                                                          | 490,463               |           |                                 |           | 473,324                          |           |         |           | 180,180   |           |         |           | 162,276   |          
|                                    | Furniture and equipment expenses                               |                                                               |                                                          | 434,845               |           |                                 |           | 380,794                          |           |         |           | 153,852   |           |         |           | 107,136   |          
|                                    | Net (gain)/loss on sale of
fixed assets                        |                                                               |                                                          | 0                     |           |                                 |           | 33,390                           |           |         |           | 0         |           |         |           | 0         |          
|                                    | Net (gain)/loss on sale of
other real estate owned             |                                                               |                                                          | 0                     |           |                                 |           | 12,143                           |           |         |           | 0         |           |         |           | 0         |          
|                                    | Other expenses                                                 |                                                               |                                                          | 1,998,373             |           |                                 |           | 2,022,430                        |           |         |           | 705,550   |           |         |           | 480,771   |          
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|                                    |                                                                |                                                               |                                                          | Total Other Expenses  |           |                                 | 6,052,548 |                                  |           |         | 5,427,934 |           |           |         | 2,124,090 |           |           |         | 1,456,683 | 
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|Income Before Income Taxes          |                                                                |                                                               | 763,764                                                  |                       |           |                                 | 710,348   |                                  |           |         | 494,036   |           |           |         | 696,092   |          
|Income Taxes                        |                                                                |                                                               | 154,000                                                  |                       |           |                                 | (298,000  | )                                |           |         | (207,000  | )         |           |         | (292,000  | )        
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|Net Income                          |                                                                | $                                                             | 917,764                                                  |                       |           | $                               | 412,348   |                                  |           | $       | 287,036   |           |           | $       | 404,092   |          
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|Basic Earnings Per Share            |                                                                | $                                                             | 0.49                                                     |                       |           | $                               | 0.22      |                                  |           | $       | 0.15      |           |           | $       | 0.22      |          
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          
|Diluted Earnings Per Share          |                                                                | $                                                             | 0.44                                                     |                       |           | $                               | 0.22      |                                  |           | $       | 0.13      |           |           | $       | 0.22      |          
|                                    |                                                                |                                                               |                                                          |                       |           |                                 |           |                                  |           |         |           |           |           |         |           |          

See accompanying notes to financial statements

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VINEYARD NATIONAL BANCORP




CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY


(Unaudited)


|                                                       |                         |  |             |       |        |   |           |       |            |   |               |  |       |   |           |  |  |   |             |   |  |   |           |       | 
|------------------------------------------------------ | ----------------------- |  | ----------- | ----- | ------ | - | --------- | ----- | ---------- | - | ------------- |  | ----- | - | --------- |  |  | - | ----------- | - |  | - | --------- | ----- | 
|                                                       |                         |  |             |       |        |   |           |       |            |   |               |  |       |   |           |  |  |   | Accumulated |   |  |   |          
|                                                       |                         |  | Number of   |       |        |   |           |       | Additional |   |               |  |       |   | other     |  |  |   |            
|                                                       |                         |  | Shares      |       | Common |   | Paid-in   |       | Retained   |   | comprehensive |  |       |   |          
|                                                       |                         |  | Outstanding |       | Stock  |   | Capital   |       | Earnings   |   | income/(loss) |  | Total
|                                                       |                         |  |             |       |        |   |           |       |            |   |               |  |      
|Balance, January 1, 2000                               |                         |  | 1,862,776   |       |        | $ | 2,106,258 |       |            | $ | 3,306,684     |  |       | $ | 3,256,118 |  |  | $ | (38,825     | ) |  | $ | 8,630,235 |      
|                                                       | Stock options exercised |  |             | 2,050 |        |   |           | 5,985 |            |   |               |  |       |   |           |  |  |   |             |   |  |   |           | 5,985 | 
|Comprehensive
income                                  
|Net Income                                             |                         |  |             |       |        |   |           |       |            |   |               |  |       |   | 412,348   |  |  |   |             |   |  |   | 412,348   |      
|Unrealized security holding
gains (net of $11,525 tax) |                         |  |             |       |        |   |           |       |            |   |               |  |       |   |           |  |  |   | 22,910      |   |  |   | 22,910    |      
|                                                       |                         |  |             |       |        |   |           |       |            |   |               |  |       |   |           |  |  |   |             |   |  |   |           |      
|Total other comprehensive
income                       |                         |  |             |       |        |   |           |       |            |   |               |  |       |   |           |  |  |   |             |   |  |   | 22,910    |      
|                                                       |                         |  |             |       |        |   |           |       |            |   |               |  |       |   |           |  |  |   |             |   |  |   |           |      
|Total Comprehensive income                             |                         |  |             |       |        |   |           |       |            |   |               |  |       |   |           |  |  |   |             |   |  |   | 435,258   |      
|                                                       |                         |  |             |       |        |   |           |       |            |   |               |  |       |   |           |  |  |   |             |   |  |   |           |      
|Balance,September 30, 2000                             |                         |  | 1,864,826   |       |        | $ | 2,112,243 |       |            | $ | 3,306,684     |  |       | $ | 3,668,466 |  |  | $ | (15,915     | ) |  | $ | 9,071,478 |      
|                                                       |                         |  |             |       |        |   |           |       |            |   |               |  |       |   |           |  |  |   |             |   |  |   |           |      

|                                                       |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   |            | 
|------------------------------------------------------ |  | ----------- | --------- | ------ |  | ------- | --------- | ---------- |  | ------------- | --------- | ----- |  | ----- | --------- |  |  | ----------- | ------ | - |  | - | ---------- | 
|                                                       |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  | Accumulated |        |   |  |  
|                                                       |  | Number of   |           |        |  |         |           | Additional |  |               |           |       |  | other |           |  |  |            
|                                                       |  | Shares      |           | Common |  | Paid-in |           | Retained   |  | comprehensive |           |       |  |      
|                                                       |  | Outstanding |           | Stock  |  | Capital |           | Earnings   |  | income/(loss) |           | Total
|                                                       |  |             |           |        |  |         |           |            |  |               |           |      
|Balance, January 1, 2001                               |  |             | 1,864,826 |        |  | $       | 2,112,243 |            |  | $             | 3,306,684 |       |  | $     | 3,876,140 |  |  | $           | (35    | ) |  | $ | 9,295,032  | 
|Stock options exercised                                |  |             | 6,300     |        |  |         | 18,378    |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   | 18,378     | 
|Comprehensive
income                                  
|Net Income                                             |  |             |           |        |  |         |           |            |  |               |           |       |  |       | 917,764   |  |  |             |        |   |  |   | 917,764    | 
|Unrealized security holding
gains (net of $63,812 tax) |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             | 89,754 |   |  |   | 89,754     | 
|                                                       |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   |            | 
|Total other comprehensive
income                       |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   | 89,754     | 
|                                                       |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   |            | 
|Total Comprehensive income                             |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   | 1,007,518  | 
|                                                       |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   |            | 
|Balance, September 30, 2001                            |  |             | 1,871,126 |        |  | $       | 2,130,621 |            |  | $             | 3,306,684 |       |  | $     | 4,793,904 |  |  | $           | 89,719 |   |  | $ | 10,320,928 | 
|                                                       |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   |            | 

See accompanying notes to financial statements

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VINEYARD NATIONAL BANCORP




CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)


|                                                     |                                      |                                                                                           |                                                  |                                                  |             |               |            |               |            |            |            |  
|---------------------------------------------------- | ------------------------------------ | ----------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------ | ----------- | ------------- | ---------- | ------------- | ---------- | ---------- | ---------- | -
|                                                     |                                      |                                                                                           |                                                  |                                                  |             | September 30, |            | September 30,
|                                                     |                                      |                                                                                           |                                                  |                                                  |             | 2001          |            | 2000         
|                                                     |                                      |                                                                                           |                                                  |                                                  |             |               |            |              
|Increase/(Decrease) in Cash and Cash Equivalents     |                                      |                                                                                           |                                                  |                                                  |             |               |            |              
|                                                     | Cash Flows from Operating Activities
|                                                     |                                      | Interest and fees received                                                                |                                                  | $                                                | 7,351,731   |               |            | $             | 6,382,176  |           
|                                                     |                                      | Service fees and other income received                                                    |                                                  |                                                  | 1,422,456   |               |            |               | 1,151,100  |           
|                                                     |                                      | Interest paid                                                                             |                                                  |                                                  | (2,076,748  | )             |            |               | (1,511,093 | )         
|                                                     |                                      | Cash paid to suppliers and employees                                                      |                                                  |                                                  | (5,548,630  | )             |            |               | (6,163,143 | )         
|                                                     |                                      | Increase in loans held for sale                                                           |                                                  |                                                  | (2,114,650  | )             |            |               | (306,677   | )         
|                                                     |                                      | Income taxes (paid)/collected                                                             |                                                  |                                                  | 265,000     |               |            |               | (582,594   | )         
|                                                     |                                      |                                                                                           |                                                  |                                                  |             |               |            |              
|                                                     |                                      |                                                                                           | Net Cash Used by Operating Activities            |                                                  |             | (700,841      | )          |               |            | (1,030,231 | )         
|                                                     |                                      |                                                                                           |                                                  |                                                  |             |               |            |              
|                                                     | Cash Flows From Investing Activities |                                                                                           |                                                  |                                                  |             |               |            |               |           
|                                                     |                                      | Proceeds from maturities of investment securities
available-for-sale                      |                                                  |                                                  | 8,666,121   |               |            |               | 3,000,000  |           
|                                                     |                                      | Proceeds from sales/called investment securities                                          |                                                  |                                                  | 11,000,000  |               |            |               | 0          |           
|                                                     |                                      | Purchase of investment securities available-for-sale                                      |                                                  |                                                  | (41,773,359 | )             |            |               | (1,000,170 | )         
|                                                     |                                      | Proceeds of FRB & other stock                                                             |                                                  |                                                  | 31,100      |               |            |               | 0          |           
|                                                     |                                      | Net decrease in deposits in other financial institutions                                  |                                                  |                                                  | 198,000     |               |            |               | 297,000    |           
|                                                     |                                      | Net loans made to customers and principal collections
of loans                            |                                                  |                                                  | (31,885,518 | )             |            |               | 5,096,644  |           
|                                                     |                                      | Net decrease in other real estate owned                                                   |                                                  |                                                  | 0           |               |            |               | 125,137    |           
|                                                     |                                      | Recoveries on loans previously written off                                                |                                                  |                                                  | 14,876      |               |            |               | 18,824     |           
|                                                     |                                      | Capital expenditures                                                                      |                                                  |                                                  | (294,312    | )             |            |               | (25,168    | )         
|                                                     |                                      | Proceeds from sale of property, plant and equipment                                       |                                                  |                                                  | 0           |               |            |               | 33,973     |           
|                                                     |                                      |                                                                                           |                                                  |                                                  |             |               |            |              
|                                                     |                                      |                                                                                           | Net Cash Provided/(Used) by Investing Activities |                                                  |             | (54,043,092   | )          |               |            | 7,546,240  |           
|                                                     |                                      |                                                                                           |                                                  |                                                  |             |               |            |              
|                                                     | Cash Flows From Financing Activities |                                                                                           |                                                  |                                                  |             |               |            |               |           
|                                                     |                                      | Net increase in demand deposits, NOW
accounts savings accounts, and money market deposits |                                                  |                                                  | 15,296,433  |               |            |               | 540,600    |           
|                                                     |                                      | Net increase/(decrease) in certificates of deposit                                        |                                                  |                                                  | 32,078,190  |               |            |               | (4,291,835 | )         
|                                                     |                                      | Issuance of Convertible Debentures                                                        |                                                  |                                                  | 3,545,886   |               |            |               | 0          |           
|                                                     |                                      | Proceeds from the exercise of stock options                                               |                                                  |                                                  | 18,378      |               |            |               | 5,985      |           
|                                                     |                                      |                                                                                           |                                                  |                                                  |             |               |            |              
|                                                     |                                      |                                                                                           |                                                  | Net Cash Provided/(Used) by Financing Activities |             |               | 50,938,887 |               |            |            | (3,745,250 | )
|                                                     |                                      |                                                                                           |                                                  |                                                  |             |               |            |              
|Net Increase/(Decrease) in Cash and Cash Equivalents |                                      |                                                                                           | (3,805,046                                       | )                                                |             |               | 2,770,759  |              
|Cash and Cash Equivalents, Beginning of year         |                                      |                                                                                           | 16,793,298                                       |                                                  |             |               | 11,243,489 |              
|                                                     |                                      |                                                                                           |                                                  |                                                  |             |               |            |              
|Cash and Cash Equivalents, End of quarter            |                                      | $                                                                                         | 12,988,252                                       |                                                  |             | $             | 14,014,248 |              
|                                                     |                                      |                                                                                           |                                                  |                                                  |             |               |            |              

See accompanying notes to financial statements

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VINEYARD NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)

|                                                                             |                                                                              |                                                              |   |                                       |            |               |            |               |            |   |            |  
|---------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------ | - | ------------------------------------- | ---------- | ------------- | ---------- | ------------- | ---------- | - | ---------- | -
|                                                                             |                                                                              |                                                              |   |                                       |            | September 30, |            | September 30,
|                                                                             |                                                                              |                                                              |   |                                       |            | 2001          |            | 2000         
|                                                                             |                                                                              |                                                              |   |                                       |            |               |            |              
|Reconciliation of Net Income/(Loss) to
Net Cash Used in Operating Activities |                                                                              |                                                              |   |                                       |            |               |            |              
|                                                                             | Net Income                                                                   |                                                              | $ | 917,764                               |            |               | $          | 412,348       |           
|                                                                             |                                                                              |                                                              |   |                                       |            |               |            |              
|                                                                             | Adjustments to Reconcile Net Income to
Net Cash Used by Operating Activities
|                                                                             |                                                                              | Depreciation and amortization                                |   |                                       | (303,716   | )             |            |               | 389,790    |  
|                                                                             |                                                                              | Provision for probable credit losses                         |   |                                       | 415,000    |               |            |               | 256,000    |  
|                                                                             |                                                                              | Provision for OREO losses                                    |   |                                       | 0          |               |            |               | 31,681     |  
|                                                                             |                                                                              | (Gain)/Loss on sale of other real estate owned               |   |                                       | 0          |               |            |               | 12,143     |  
|                                                                             |                                                                              | Loss on sale of equipment                                    |   |                                       | 0          |               |            |               | 33,390     |  
|                                                                             |                                                                              | Decrease in taxes payable                                    |   |                                       | 111,000    |               |            |               | (284,594   | )
|                                                                             |                                                                              | Increase in deferred taxes                                   |   |                                       | (531,945   | )             |            |               | 0          |  
|                                                                             |                                                                              | Increase in other assets                                     |   |                                       | 401,367    |               |            |               | (146,417   | )
|                                                                             |                                                                              | Increase in loans held for sale                              |   |                                       | (2,114,650 | )             |            |               | (306,677   | )
|                                                                             |                                                                              | Decrease in unearned loan fees                               |   |                                       | (25,235    | )             |            |               | (475,718   | )
|                                                                             |                                                                              | (Increase)/decrease in interest receivable                   |   |                                       | (269,597   | )             |            |               | 59,802     |  
|                                                                             |                                                                              | Increase/(decrease) in interest payable                      |   |                                       | 461,377    |               |            |               | 23,187     |  
|                                                                             |                                                                              | Increase/(decrease) in accrued expense and other liabilities |   |                                       | 237,794    |               |            |               | (1,035,166 | )
|                                                                             |                                                                              |                                                              |   |                                       |            |               |            |              
|                                                                             |                                                                              |                                                              |   | Total Adjustments                     |            |               | (1,618,605 | )             |            |   | (1,442,579 | )
|                                                                             |                                                                              |                                                              |   |                                       |            |               |            |              
|                                                                             |                                                                              |                                                              |   | Net Cash Used by Operating Activities |            | $             | (700,841   | )             |            | $ | (1,030,231 | )
|                                                                             |                                                                              |                                                              |   |                                       |            |               |            |              
|Supplementary Information                                                    |                                                                              |                                                              |   |                                       |            |               |            |              
|                                                                             | Change in valuation allowance for investment securities                      |                                                              | $ | 151,874                               |            |               | $          | 22,910        |           
|                                                                             |                                                                              |                                                              |   |                                       |            |               |            |              

Disclosure of Accounting Policy

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and Federal funds sold. Generally, Federal funds
are purchased and sold for one-day periods.

See accompanying notes to financial statements

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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management, all adjustments considered necessary for a fair
statement of the results for the interim period presented have been included
and are of a normal recurring nature. For further information, refer to the
financial statements and footnotes thereto included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2000. The results of
operations for the nine  month period ended September 30, 2001, are not
necessarily indicative of the results to be expected for the full year.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. This new standard was originally
effective for 2000. In June 1999, the FASB issued SFAS No. 137, Accounting
for Derivative Instruments and Hedging Activities  Deferral of the effective
Date of FASB Statement No. 133. This statement establishes the effective date
of SFAS 133 for year ends beginning after June 15, 2000 and is not expected to
have a material impact on the Companys financial statements.

NOTE 2  PARENT COMPANY ITEMS

During the second quarter ended June 30, 2001, the Company issued $3.75 million
of Convertible Subordinated Debentures (the Debentures) in a private
placement offering. The majority of the net proceeds were contributed into the
Bank as additional capital to support its growth.

The Debentures are due June 30, 2008, carry an interest coupon of 10% per
annum, and may be converted into common stock at any time prior to maturity or
redemption at a price of $5.00 per share. The Debentures are redeemable at the
option of the Company beginning July 1, 2003, in whole or in part, based on
pre-determined redemption prices and contingent on satisfaction of certain
market price conditions. The private placement offering was marketed to
institutional and accredited investors, with a minimum principal amount of $3
million to become effective.

With the issuance of the Debentures and with their convertibility feature, the
Companys Diluted Earnings Per Share (EPS) calculations now contain a
measurable difference as discussed in Note 3 below.

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NOTE 3  EARNINGS PER SHARE AND BOOK VALUE

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.

The following table sets for the Companys earnings per share calculations for
the three and nine-month periods ended September 30, 2001 and 2000. In the
following table, (1) Debentures refer to the amount of possible shares that
can be issued from the conversion of the Debentures, and (2) Options refer to
stock options previously granted to employees of the Company and which were
outstanding at each measurement date.

|                            |                            |   |                                  |           |      |   |           |           | 
|--------------------------- | -------------------------- | - | -------------------------------- | --------- | ---- | - | --------- | --------- | 
|                            |                            |   | Three Months Ended September 30,
|                            |                            |   |                                 
|                            |                            |   | 2001                             |           | 2000
|                            |                            |   |                                  |           |     
|Average shares outstanding: |                            |   |                                  |           |      |   |           |          
|                            | Basic                      |   |                                  | 1,871,126 |      |   |           | 1,864,170 | 
|                            | Debentures                 |   |                                  | 750,000   |      |   |           | 0         | 
|                            | Dilutive
effect of options |   |                                  | 71,958    |      |   |           | 168       | 
|                            |                            |   |                                  |           |      |   |           |          
|                            |                            |   | 2,693,084                        |           |      |   | 1,890,542 |          
|                            |                            |   |                                  |           |      |   |           |          
|Net Income                  |                            | $ | 287,036                          |           |      | $ | 404,092   |          
|Basic earnings per share    |                            | $ | 0.15                             |           |      | $ | 0.22      |          
|Diluted earnings per share  |                            | $ | 0.13                             |           |      | $ | 0.22      |          

|                            |                            |   |                                 |           |      |   |           |           | 
|--------------------------- | -------------------------- | - | ------------------------------- | --------- | ---- | - | --------- | --------- | 
|                            |                            |   | Nine Months Ended September 30,
|                            |                            |   |                                
|                            |                            |   | 2001                            |           | 2000
|                            |                            |   |                                 |           |     
|Average shares outstanding: |                            |   |                                 |           |      |   |           |          
|                            | Basic                      |   |                                 | 1,867,589 |      |   |           | 1,864,170 | 
|                            | Debentures                 |   |                                 | 420,330   |      |   |           | 0         | 
|                            | Dilutive
effect of options |   |                                 | 35,950    |      |   |           | 14,075    | 
|                            |                            |   |                                 |           |      |   |           |          
|                            |                            |   | 2,323,869                       |           |      |   | 1,891,131 |          
|                            |                            |   |                                 |           |      |   |           |          
|Net Income                  |                            | $ | 917,764                         |           |      | $ | 412,348   |          
|Basic earnings per share    |                            | $ | 0.49                            |           |      | $ | 0.22      |          
|Diluted earnings per share  |                            | $ | 0.44                            |           |      | $ | 0.22      |          

|                               |            |   |               |           |              |   |           |           | 
|------------------------------ | ---------- | - | ------------- | --------- | ------------ | - | --------- | --------- | 
|                               |            |   | September 30, |           | December 31,
|                               |            |   | 2001          |           | 2000        
|                               |            |   |               |           |             
|Period-end shares outstanding: |            |   |               |           |              |   |           |          
|                               | Basic      |   |               | 1,871,126 |              |   |           | 1,864,826 | 
|                               | Debentures |   |               | 750,000   |              |   |           | 0         | 
|                               | Options    |   |               | 243,500   |              |   |           | 6,300     | 
|                               |            |   |               |           |              |   |           |          
|                               |            |   | 2,873,766     |           |              |   | 1,878,245 |          
|                               |            |   |               |           |              |   |           |          
|Basic book value               |            | $ | 5.52          |           |              | $ | 4.98      |          
|Diluted book value             |            | $ | 5.25          |           |              | $ | 4.97      |          

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

OVERVIEW

Vineyard National Bancorp (the Company) is a one-bank holding company. Its
principal asset is the common stock of, and its principal operations are those
conducted by, Vineyard Bank, a state banking association (the Bank). The
Bank is a community bank located in the Inland Empire region of Southern
California. The Bank focuses on the needs of commercial businesses with annual
sales of less than $10 million, retail community businesses, single family
residence developers/builders, individuals and local public and private
organizations. The Bank operates five full-service branches located in Rancho
Cucamonga, Chino, Diamond Bar, Crestline and Blue Jay, in addition to a loan
production office in Manhattan Beach. Shares of the Companys common stock are
traded on the NASDAQ SC under the ticker symbol VNBC.

RESULTS OF OPERATIONS

Net income for the quarter ended September 30, 2001, was $287,000, or $0.12 per
diluted share, compared with income of $404,000 or $0.21 per diluted share for
the three months ended September 30, 2000. Net income year-to-date was
$918,000 or $0.41 per diluted share, compared to year-to-date net income during
2000 of $412,000 or $0.22 per diluted share. The income for the nine months of
2001 produced an annualized return on average equity of 12.5% compared with a
6.2% return for the same period in 2000.

The Companys net interest income before its provision for credit losses
increased by $438,000 or 24.5% during the three months ended September 30, 2001
as compared with the same period in 2000. Noninterest income for the three
months ended September 30, 2001 increased by $142,000 or 38.6% as compared to
the same period in 2000. Total net revenues (net interest income and
noninterest income) for the three-month period ended September 30, 2001
increased by $580,000 or 27% as compared to the same period in 2000.

Total assets have increased by 47.8% to $163.7 million at September 30, 2001
over year-end 2000 results. The Company continued to have significant growth
in the loan portfolio within the third quarter of 2001, bringing gross loans
outstanding to $113.5 million at September 30, an increase of 42.7% over
year-end 2000s level of $79.5 million. The catalyst for the Companys growth
continues to be its efforts to attract stable, core deposits from within the
Banks community markets. Total deposits increased to $147.0 million at
September 30, 2001, an increase of 47.6% over year-end 2000.

During the nine month period ended September 30, 2001, the national prime rate
decreased by 350 basis points, or 36.6% from its level at year end 2000.
Despite this compression on market rates, the lagging factor of repricing the
Banks time deposits, and the absolute growth in deposits, the Companys net
interest margin remained relatively unchanged during the nine-month period.
The net interest margin at September 30, 2001 was 6.4% as compared with the
year-end level of 7.1%. The net interest margin at the Bank, which excludes
the effect of the parent company Debentures, was 6.6% for the quarter just
completed.

Total noninterest expenses for the three months ended September 30, 2001
increased by $667,000 or 45.8% over the same period in 2000. The Company has
engaged business development personnel and a cadre of seasoned managers to
support the growth. This has, in turn, increased the costs associated with
salaries and benefits for the three months ended September 30, 2001 by $378,000
or 53.5% as compared with the same period in 2000.

The Companys continued growth of its loan portfolio necessitated an increase
to the allowance for loan losses in the amount of $115,000 for the third
quarter of 2001, compared to no provision in the same period of 2000. The
increase in the allowance to 1.01% of gross loans outstanding at September 30,
2001 compares to similar levels recorded at December 31, 2000; however, the
actual increase of $367,000 recorded during the first nine months of 2001
represents an overall increase of 46.8%. At September 30, 2001, the Company
reported no non-performing loans or other real estate owned through
foreclosure, with a nominal amount of net charge-offs for the year principally
associated with consumer credit.

The Company recorded an income tax provision of $207,000 for the three months
ended September 30, 2001, as compared with an income tax provision of $292,000
for the same period in 2000. During the first nine months of 2001, the Company
benefited from the release of a valuation reserve associated with a deferred
income tax asset. The impact of this benefit has created an overall income tax
credit for the nine months ended September 30, 2001 of $154,000 versus an
income tax expense of $298,000 for the same period in 2000.

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The Company continues to be well-capitalized pursuant to the guidelines
established by regulatory agencies. To be considered well-capitalized an
institution must have total risk-based capital of 10% or greater, and a
leverage ratio of 5% or greater. The Banks total risk-based and leverage
capital ratios were 11.7% and 8.6% at September 30, 2001, respectively.

NET INTEREST INCOME

The operations of the Company are substantially dependent on its net interest
income, which is the difference between interest income earned from its
interest-earning assets and the interest expense incurred on its
interest-bearing liabilities. The Companys net interest margin is its net
interest income divided by its average interest-earning assets. Net interest
income and net interest margin are affected by several factors, including (1)
the level of, and the relationship between, the dollar amount of
interest-earning assets and interest-bearing liabilities, (2) the relationship
between repricing the repricing or maturity of the Companys adjustable rate
and fixed rate loans and short term investment securities and its deposits and
borrowings, and (3) the magnitude of the Companys non-interest-earning assets,
including nonaccrual loans and other real estate owned (OREO).

During the first nine months of 2001, the Federal Reserve Board initiated a
series of market rate decreases aimed at stimulating the general economy. In
total, market rates have been decreased by 350 basis points during this period,
which has caused compression on the Companys net interest margin due to the
immediate repricing of adjustable rate assets and the lag in liability
repricing principally associated with time certificates of deposit.

Though the Company is asset-sensitive, its loan portfolio experienced a shift
in composition and complexity during the same nine month period, which helped
it weather the effects of the market rate decreases with only a modest net
interest margin compression during this period of time. A substantial portion
of the Companys immediately repricable loan portfolio have reached their floor
rates during the third quarter. These loans did not continue to adjust
downward as the Federal Reserve Board lowered rates. The effect of this also
contributed to the minimal compression experienced. Loan fee income, which is
included in interest income, also stabilized interest income during a period of
declining interest rates. The Companys net interest margin decreased from
7.1% at year end 2000 to 6.4% at September 30, 2001, which includes the effect
of the newly issued Debentures.

The following table shows average balance sheet data, related revenues and
costs, and effective weighted average yields and costs, for the three and nine
months ended September 30, 2001 and 2000.

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|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |      |   |     |  
|------------------------------------------- | ---------------------- | ------------------------------------------ | ---------------------------------- | ------- | ---------------------- | ------- | --------------------- | ----- | ----- | ----- | ------- | ---- | -------- | --- | ------ | ------ | ------- | ------- | ------- | ----- |  | ----- | --- | ---- | - | --- | -
|                                            |                        |                                            |                                    |         | (Dollars in Thousands)
|                                           
|                                           
|                                           
|                                           
|                                            |                        |                                            |                                    |         | For the quarter ended  |         | For the quarter ended
|                                            |                        |                                            |                                    |         | September 30, 2001     |         | September 30, 2000   
|                                            |                        |                                            |                                    |         |                        |         |                      
|                                            |                        |                                            |                                    |         | Average                |         |                       |       |       |       | Average |      | Average  |     |        |        |         |         | Average
|                                            |                        |                                            |                                    |         | Balance                |         | Interest              |       | Yield |       | Balance |      | Interest |     | Yield 
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |       
|Assets                                     
|                                            | Loans                  |                                            | $                                  | 108,065 |                        |         | $                     | 2,808 |       |       |         | 10.4 | %        |     | $      | 80,098 |         |         | $       | 2,029 |  |       |     | 10.2 | %
|                                            | Investment securities  |                                            |                                    | 23,615  |                        |         |                       | 311   |       |       |         | 5.3  | %        |     |        | 8,788  |         |         |         | 128   |  |       |     | 5.8  | %
|                                            | Federal funds sold     |                                            |                                    | 10,697  |                        |         |                       | 125   |       |       |         | 4.7  | %        |     |        | 7,972  |         |         |         | 129   |  |       |     | 6.5  | %
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     
|                                            |                        |                                            | Total Interest-earning assets      |         |                        | 142,377 |                       |       |       | 3,244 |         |      |          | 9.1 | %      |        |         | 96,858  |         |       |  | 2,286 |     |      |   | 9.5 | %
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     
|Other assets                                |                        |                                            | 18,766                             |         |                        |         |                       |       |       |       |         |      |          |     | 16,732 |        |         |         |         |       |  |       |     |     
|                                            |                        | Less: allowance for loan losses            |                                    |         | (1,097                 | )       |                       |       |       |       |         |      |          |     |        |        | (753    | )       |         |       |  |       |     |      |   |    
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     
|                                            |                        |                                            | Total assets                       |         | $                      | 160,046 |                       |       |       |       |         |      |          |     |        |        | $       | 112,837 |         |       |  |       |     |      |   |     |  
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     
|Liabilities and Stockholders Equity       
|                                            | Savings deposits       |                                            | $                                  | 43,821  |                        |         |                       | 210   |       |       |         | 1.9  | %        |     | $      | 36,599 |         |         |         | 154   |  |       |     | 1.7  | %
|                                            | Time deposits          |                                            |                                    | 56,158  |                        |         |                       | 710   |       |       |         | 5.1  | %        |     |        | 26,403 |         |         |         | 347   |  |       |     | 5.3  | %
|                                            | Convertible debentures |                                            |                                    | 3,750   |                        |         |                       | 101   |       |       |         | 10.8 | %        |     |        | 0      |         |         |         | 0     |  |       |     | 0.0  | %
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     
|                                            |                        |                                            | Total interest-bearing liabilities |         |                        | 103,729 |                       |       |       | 1,021 |         |      |          | 3.9 | %      |        |         | 63,002  |         |       |  | 501   |     |      |   | 3.2 | %
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     
|                                            | Demand deposits        |                                            |                                    | 43,536  |                        |         |                       |       |       |       |         |      |          |     |        | 38,306 |         |         |         |       |  |       |     |      |  
|                                            | Other liabilities      |                                            |                                    | 2,587   |                        |         |                       |       |       |       |         |      |          |     |        | 2,652  |         |         |         |       |  |       |     |      |  
|Stockholders equity                        |                        |                                            | 10,194                             |         |                        |         |                       |       |       |       |         |      |          |     | 8,877  |        |         |         |         |       |  |       |     |     
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     
|                                            |                        | Total liabilities and
Stockholders equity |                                    | $       | 160,046                |         |                       |       |       |       |         |      |          |     |        | $      | 112,837 |         |         |       |  |       |     |      |   |    
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     
|Net Interest Spread                         |                        |                                            |                                    |         |                        |         |                       |       |       |       | 5.2     | %    |          |     |        |        |         |         |         |       |  |       | 6.3 | %   
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     
|Net Interest Income
and Net Interest Margin |                        |                                            |                                    |         |                        | $       | 2,223                 |       |       |       | 6.3     | %    |          |     |        |        |         | $       | 1,785   |       |  |       | 7.4 | %   
|                                            |                        |                                            |                                    |         |                        |         |                       |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     

|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |     |   |     |  
|------------------------------------------- | ---------------------- | ------------------------------------------ | ---------------------------------- | ------ | ------------------------- | ------- | ------------------------- | ----- | ----- | ----- | ------- | ---- | -------- | --- | ------ | ------ | ------- | ------- | ------- | ----- |  | ----- | --- | --- | - | --- | -
|                                            |                        |                                            |                                    |        | For the nine months ended |         | For the nine months ended
|                                            |                        |                                            |                                    |        | September 30, 2001        |         | September 30, 2000       
|                                           
|                                           
|                                           
|                                           
|                                            |                        |                                            |                                    |        | Average                   |         |                           |       |       |       | Average |      | Average  |     |        |        |         |         | Average
|                                            |                        |                                            |                                    |        | Balance                   |         | Interest                  |       | Yield |       | Balance |      | Interest |     | Yield 
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |       
|Assets                                      |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|                                            | Loans                  |                                            | $                                  | 90,165 |                           |         | $                         | 7,185 |       |       |         | 10.7 | %        |     | $      | 83,402 |         |         | $       | 6,167 |  |       |     | 9.9 | %
|                                            | Investment securities  |                                            |                                    | 13,148 |                           |         |                           | 591   |       |       |         | 6.0  | %        |     |        | 9,526  |         |         |         | 408   |  |       |     | 5.7 | %
|                                            | Federal funds sold     |                                            |                                    | 17,144 |                           |         |                           | 571   |       |       |         | 4.5  | %        |     |        | 5,252  |         |         |         | 248   |  |       |     | 6.3 | %
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|                                            |                        |                                            | Total Interest-earning assets      |        |                           | 120,457 |                           |       |       | 8,347 |         |      |          | 9.3 | %      |        |         | 98,180  |         |       |  | 6,823 |     |     |   | 9.3 | %
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|Other assets                                |                        |                                            | 17,718                             |        |                           |         |                           |       |       |       |         |      |          |     | 16,913 |        |         |         |         |       |  |       |     |    
|                                            |                        | Less: allowance for loan losses            |                                    |        | (914                      | )       |                           |       |       |       |         |      |          |     |        |        | (726    | )       |         |       |  |       |     |     |   |    
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|                                            |                        |                                            | Total assets                       |        | $                         | 137,261 |                           |       |       |       |         |      |          |     |        |        | $       | 114,367 |         |       |  |       |     |     |   |     |  
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|Liabilities and Stockholders Equity        |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|                                            | Savings deposits       |                                            | $                                  | 39,192 |                           |         |                           | 550   |       |       |         | 1.9  | %        |     | $      | 37,436 |         |         |         | 469   |  |       |     | 1.7 | %
|                                            | Time deposits          |                                            |                                    | 44,275 |                           |         |                           | 1,822 |       |       |         | 5.5  | %        |     |        | 28,305 |         |         |         | 1,064 |  |       |     | 5.0 | %
|                                            | Other borrowings       |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        | 24     |         |         |         | 1     |  |       |     | 5.6 | %
|                                            | Convertible debentures |                                            |                                    | 1,693  |                           |         |                           | 166   |       |       |         | 13.1 | %        |     |        | 0      |         |         |         | 0     |  |       |     |     |  
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|                                            |                        |                                            | Total interest-bearing liabilities |        |                           | 85,160  |                           |       |       | 2,538 |         |      |          | 4.0 | %      |        |         | 65,765  |         |       |  | 1,534 |     |     |   | 3.1 | %
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|                                            | Demand deposits        |                                            |                                    | 39,825 |                           |         |                           |       |       |       |         |      |          |     |        | 37,079 |         |         |         |       |  |       |     |     |  
|                                            | Other liabilities      |                                            |                                    | 2,468  |                           |         |                           |       |       |       |         |      |          |     |        | 2,713  |         |         |         |       |  |       |     |     |  
|Stockholders equity                        |                        |                                            | 9,808                              |        |                           |         |                           |       |       |       |         |      |          |     | 8,810  |        |         |         |         |       |  |       |     |    
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|                                            |                        | Total liabilities and
Stockholders equity |                                    | $      | 137,261                   |         |                           |       |       |       |         |      |          |     |        | $      | 114,367 |         |         |       |  |       |     |     |   |    
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|Net Interest Spread                         |                        |                                            |                                    |        |                           |         |                           |       |       |       | 5.3     | %    |          |     |        |        |         |         |         |       |  |       | 6.2 | %  
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    
|Net Interest Income
and Net Interest Margin |                        |                                            |                                    |        |                           | $       | 5,809                     |       |       |       | 6.4     | %    |          |     |        |        |         | $       | 5,289   |       |  |       | 7.2 | %  
|                                            |                        |                                            |                                    |        |                           |         |                           |       |       |       |         |      |          |     |        |        |         |         |         |       |  |       |     |    

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The Companys gross interest income on all interest-earning assets for the
three-month period ended September 30, 2001 was $3,244,000, an increase of
$958,000 or 41.9% as compared with the results from the same period in 2000.
The effective yield on all interest-earning assets for the three months ended
September 30, 2001 was 9.1% as compared to the 9.5% level reported for the same
period in 2000. The gross interest income and effective yields for the three
months ended September 30, 2001 take into effect the 350 basis point reductions
in market interest rates in the first nine months of 2001. The average loan
portfolio outstanding for the three months ended September 30, 2001 increased
by $27,967,000 or 34.9% over the same period in 2000. The effective yield on
the portfolio increased by 20 basis points over the same period in 2000. The
results benefited by the Companys efforts to introduce a new business line
associated with the origination of single-family residence construction lending
along the coastal communities of the Los Angeles and Orange counties, efforts
to expand commercial and industrial lending, the origination of commercial real
estate mortgage products with fixed rates for short intervals, and the
de-emphasis on consumer installment lending that historically carried lower
yielding interest rates.

The Companys gross interest income on all interest-earning assets for the
nine-month period ended September 30, 2001 was $8,347,000, an increase of
$1,524,000 or 22.3% as compared with the results from the same period in 2000.
The effective yield on all interest-earning assets for the nine months ended
September 30, 2001 was 9.3%, unchanged from the 9.3% level reported for the
same period in 2000.

The Companys funding of its operations, inclusive of all deposits and the
newly issued Debentures, increased the gross interest expense on all
interest-bearing liabilities for the three month period ended September 30,
2001 to $1,021,000, an increase of $520,000 or 103.7% as compared with the same
period in 2000. The average effective cost of funding, inclusive of demand
deposits and the Debentures, for the three months ended September 30, 2001 was
2.8% as compared with 2.0% for the same period in 2000.

For the nine months ended September 30, 2001, gross interest expense on all
interest-bearing liabilities was $2,538,000, an increase of $1,004,000 or 65.4%
as compared to the same period in 2000. The average effective cost of funding,
inclusive of demand deposits and the Debentures, for the nine months ended
September 30, 2001 was 2.7% as compared with 2.0% for the same period in 2000.

The effect of these changes to the balance sheet composition and the Companys
growth, and the compression on market interest rates has produced net interest
income and a net interest margin for the three months ended September 30, 2001
of $2,223,000 and 6.3%, respectively. For the nine months ended September 30,
2001, the net interest income and net interest margin were $5,809,000 and 6.4%,
respectively. As the Company continues to re-deploy its excess liquidity now
held in Federal funds and investment securities into higher yielding loans, the
compression effect on net interest income and the net interest margin should
reverse itself to some degree.

The following table sets forth the composition of the Companys loan portfolio
as of the dates indicated. As the table illustrates, changes in the Companys
loan portfolio have begun to take shape along the product lines consistent with
its efforts to broaden and diversify its lending operations.

|                                       |             |      |                               |         |               |         |           |     |              |   |           |        |   |        |    |     |   |  | 
|-------------------------------------- | ----------- | ---- | ----------------------------- | ------- | ------------- | ------- | --------- | --- | ------------ | - | --------- | ------ | - | ------ | -- | --- | - |  | 
|                                       |             |      |                               |         | September 30, |         | Portfolio |     | December 31, |   | Portfolio
|(Dollars
in Thousands)                 |             | 2001 |                               | %       |               | 2000    |           | %  
|                                       |             |      |                               |         |               |         |           |    
|Loans                                  |             |      |                               |         |               |         |           |     |              |   |           |        |   |        |    |    
|Commercial and industrial              |             | $    | 19,329                        |         |               |         | 17        | %   |              | $ | 10,665    |        |   |        | 13 | %  
|Real Estate  construction             |             |      | 22,166                        |         |               |         | 19        | %   |              |   | 5,588     |        |   |        | 7  | %  
|Real Estate  mortgage                
|                                       | Commercial  |      |                               | 44,750  |               |         |           | 39  | %            |   |           | 40,100 |   |        |    | 50  | %
|                                       | Residential |      |                               | 15,942  |               |         |           | 14  | %            |   |           | 11,192 |   |        |    | 14  | %
|Installment loans to individuals       |             |      | 9,242                         |         |               |         | 8         | %   |              |   | 12,049    |        |   |        | 15 | %  
|Loans held for sale                    |             |      | 2,350                         |         |               |         | 2         | %   |              |   | 235       |        |   |        | 0  | %  
|All other loans (including overdrafts) |             |      | 166                           |         |               |         | 0         | %   |              |   | 180       |        |   |        | 0  | %  
|                                       |             |      |                               |         |               |         |           |     |              |   |           |        |   |        |    |    
|                                       | Gross Loans |      |                               | 113,945 |               |         |           | 100 | %            |   |           | 80,008 |   |        |    | 100 | %
|                                       |             |      |                               |         |               |         |           |     |              |   |           |        |   |        |    |    
|Unearned income on installment loans   |             |      | (134                          | )       |               |         |           |     |              |   | (190      | )      |   |        |    |    
|Deferred loan fees                     |             |      | (325                          | )       |               |         |           |     |              |   | (294      | )      |   |        |    |    
|                                       |             |      |                               |         |               |         |           |     |              |   |           |        |   |        |    |    
|                                       |             |      | Loans, Net of Unearned Income |         | $             | 113,486 |           |     |              |   |           |        | $ | 79,523 |    |     |   |  | 
|                                       |             |      |                               |         |               |         |           |     |              |   |           |        |   |        |    |    

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PROVISIONS FOR POSSIBLE LOAN LOSSES

During the nine month period ended September 30, 2001, a provision of $415,000
was made as compared to $256,000 for the same period in 2000. Net loan
charge-offs were approximately $48,000 for the nine months ended September 30,
2001, as compared to $253,000 for the same period in 2000.

During the three month period ended September 30, 2001, a provision of $115,000
was made as compared to no provision for the same period in 2000. The Company
had net loan charge-offs of $15,000 during the recent three-month period as
compared to net loan recoveries of $8,000 for the same period in 2000.

The Companys Allowance for Loan Losses increased to $1,151,000 at September
30, 2001, or 1.01% of gross loans outstanding, compared with $784,000, or 0.98%
at December 31, 2000. Additions to the reserve are effected through the
provision for loan losses, which is an operating expense of the Company.

Although the Company maintains an allowance for possible loan losses at a level
it considers to be adequate to provide for losses, based on presently known
conditions, there can be no assurance that such losses will not exceed the
estimated amounts, thereby adversely affecting future results of operations.
The calculation for the adequacy of the allowance for possible loan losses, and
therefore the requisite amount of the provision for possible loan losses, is
based on several factors, including underlying loan collateral, delinquency
trends, borrowers cash flow and historic loan loss experience. All of these
factors can change without notice based on market and economic conditions and
other factors. See Asset Quality for an expanded discussion on the Companys
allowance for possible loan losses.

NONINTEREST INCOME

Noninterest income increased by $317,000 in the nine-month period ended
September 30, 2001, as compared to 2000. This increase was primarily due to
fees associated with mortgage loans originated for sale, which increased by
$252,000, and other income associated with Visa check card fees and services
charge, which increased by $21,000 and $15,000, respectively, over the same
period the prior year.

The Companys increase of $142,000 in noninterest income in the three month
period ended September 30, 2000, was primarily due to fees associated with
mortgage loans originated for sale, which increased by $123,000, and other
income associated with Visa check card fees and services charges, which
increased by $13,000 and $12,000, respectively, over the same period the prior
year.

The Companys efforts to increase its core deposit base during the first nine
months of 2001 produced a net increase of $6.2 million or 16.9% in demand
deposit accounts over the year-end 2000 balances. These types of depository
accounts generally are associated with service charges, or in the situation
with larger commercial relationships, are placed on account analysis.

Other income consists of service charges and fees on deposit accounts, fee
income from various services offered, sales commissions, safe deposit rental,
fee income on loans held for sale, gain or loss on the sale of securities, and
sundry other income.

NONINTEREST EXPENSES

For the three-month period ended September 30, 2001, total noninterest expenses
increased by $667,000 or 45.8% to $2,124,000 from $1,457,000 for the same
period in 2000. Noninterest expenses, consist primarily of (i) salaries and
other employee expenses, (ii) occupancy expenses, (iii) furniture and equipment
expenses, and (iv) marketing, office supplies, postage and telephone,
insurance, data processing, professional fees and other noninterest expense.
For the nine-month period ended September 30, 2001, total noninterest expenses
increased by $624,000 or 11.5% to $6,052,000 from $5,428,000 for the same
period in 2000.

Beginning with the appointment of the new Chief Executive Officer in the fourth
quarter of 2000, Management has implemented several structural changes within
the operations of the Company in order to support its strategic plan
initiatives. In each of the following areas, a seasoned and experienced
individual has been recruited during the past nine months ended September 30,
2001 from other local financial institutions to head their respective area:
credit administration, loan operations and construction support, SFR
construction business development, marketing, information technology, community
banking and human resources. Additional personnel have been placed in business
development capacities for commercial and community banking. With the addition
of these individuals and the entire cadre of existing personnel, the Company
has been able to produce significant growth in deposits and loans in the first

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nine months of 2001 while providing for the infrastructure to support
longer-term growth. These changes have increased the Companys expenses
associated with salaries and other benefits by $378,000 or 53.5% for the three
months ended September 30, 2001 as compared to the same period in 2000.

Expenses related to Furniture and Fixtures increased $47,000 for the three
months ended September 30, 2001 as compared to the same period in 2000. These
expenses are primarily attributable to the purchase and maintenance of bank
automobiles utilized for a new personalized courier service, which was
previously outsourced. Therefore, a similar decrease in other expenses was
realized.

Other expenses increased $225,000 for the three months ended September 30, 2001
as compared to the same period in 2000. The Company has mitigated these
increased costs by redeploying resources previously spent in legal,
professional and other costs into the areas outlined above, as well as
additional expenditures in marketing, product development and advertising.
Business development increased $90,000 due to our aggressive marketing efforts
and professional services decreased $137,000 due to the previously mentioned
re-deployment of resources. Other expenses increased $209,000 (or $99,000 net
of a charge-off recovery in the third quarter of 2000) due to the growth of the
Bank.

The following table sets forth the breakdown of noninterest expenses for each
of the nine and three-month periods ended September 30, 2001 and 2000:

|                                                |                                        |                             |       |                        |       |                    |       |      |       |      |       |     |       |   |     |     |       | 
|----------------------------------------------- | -------------------------------------- | --------------------------- | ----- | ---------------------- | ----- | ------------------ | ----- | ---- | ----- | ---- | ----- | --- | ----- | - | --- | --- | ----- | 
|                                                |                                        |                             |       | (Dollars in Thousands)
|                                                |                                        |                             |       | Nine Months Ended      |       | Three Months Ended
|                                                |                                        |                             |       | September 30,          |       | September 30,     
|                                                |                                        |                             |       |                        |       |                   
|                                                |                                        |                             |       | 2001                   |       | 2000               |       | 2001 |       | 2000
|                                                |                                        |                             |       |                        |       |                    |       |      |       |     
|Salaries and employee benefits                  |                                        | $                           | 3,129 |                        |       | $                  | 2,506 |      |       | $    | 1,085 |     |       | $ | 706 |    
|Occupancy expense of premises                   |                                        |                             | 490   |                        |       |                    | 473   |      |       |      | 180   |     |       |   | 162 |    
|Furniture and equipment expenses                |                                        |                             | 435   |                        |       |                    | 381   |      |       |      | 154   |     |       |   | 107 |    
|(Gain)/ Loss on sale of other
fixed assets      |                                        |                             | 0     |                        |       |                    | 33    |      |       |      | 0     |     |       |   | 0   |    
|(Gain)/ Loss on sale of other
real estate owned |                                        |                             | 0     |                        |       |                    | 12    |      |       |      | 0     |     |       |   | 0   |    
|Other Expenses:                                 |                                        |                             |       |                        |       |                    |       |      |       |      |       |     |       |   |     |    
|                                                | Data processing                        |                             |       | 513                    |       |                    |       | 459  |       |      |       | 168 |       |   |     | 150 |      
|                                                | Business Development expenses          |                             |       | 307                    |       |                    |       | 119  |       |      |       | 131 |       |   |     | 41  |      
|                                                | Office supplies, postage
and telephone |                             |       | 277                    |       |                    |       | 255  |       |      |       | 100 |       |   |     | 82  |      
|                                                | Professional expenses                  |                             |       | 275                    |       |                    |       | 656  |       |      |       | 86  |       |   |     | 223 |      
|                                                | Bank insurance and assessments         |                             |       | 136                    |       |                    |       | 102  |       |      |       | 57  |       |   |     | 32  |      
|                                                | Other                                  |                             |       | 490                    |       |                    |       | 432  |       |      |       | 163 |       |   |     | (46 | )    
|                                                |                                        |                             |       |                        |       |                    |       |      |       |      |       |     |       |   |     |    
|                                                |                                        | Total Non-Interest Expenses |       | $                      | 6,052 |                    |       | $    | 5,428 |      |       | $   | 2,124 |   |     | $   | 1,457 | 
|                                                |                                        |                             |       |                        |       |                    |       |      |       |      |       |     |       |   |     |    



FINANCIAL CONDITION, CAPITAL RESOURCES & LIQUIDITY AND ASSET QUALITY

During the nine months ended September 30, 2001, the Companys assets increased
by approximately $52,961,000 or 47.8%, compared to December 31, 2000. The
Company continued to have adequate cash resources with $9,318,000 of cash and
funds held on deposit at other financial institutions, $27,232,000 in
investment securities, and $3,670,000 in Federal funds sold at September 30,
2001. The overall levels in liquidity increased by $18,307,000 and resulted in
higher levels of cash and due from banks, Federal funds sold, and investment
securities. The Companys investment portfolio had $151,000 of unrealized
gains on estimated fair values when compared to book values at September 30,
2001. There were no loans placed on non-accrual status (not generating income
currently) at September 30, 2001.

The Bank is a member in the Federal Home Loan Bank (FHLB.) This will provide
for an alternative funding source for the Company in the form of a credit line.
This line will provide for a maximum advance of up to 15% of the Companys
total assets based on qualifying collateral. The FHLB system functions as a
source of credit to institutions that are members of the FHLB. Advances are
secured by the Companys mortgage loans, qualifying investment securities, and
the capital stock of the FHLB owned by the Company. Subject to the FHLBs
advance policies and requirements, these advances can be requested for any
business purpose in which the Company is authorized to engage. In granting
advances, the FHLB considers a members creditworthiness and other relevant
factors.

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As detailed more specifically earlier in the report, total outstanding loans
increased during the nine-month period ended September 30, 2001, by
$33,962,000.

During the nine-month period ending September 30, 2001, total deposits
increased by $47,375,000. Specifically, all areas of deposit product types
experienced growth over the year-end 2000 levels, such as: demand deposits by
$6,231,000, savings and NOW accounts by $1,817,000, money market accounts by
$7,248,000, time deposits in excess of $100,000 by $18,356,000, and other time
deposits by $13,723,000. Managements efforts to generate significant levels
of liquidity in the nine months of 2001 to support its lending activities were
a result of a targeted and focused campaign to generate deposits in the
communities the Company serves. These efforts were supported by increased
activities by the Companys business development personnel, marketing and
advertising campaigns, and promotional interest rates on certain products.

Total stockholders equity increased from approximately $9,295,000 at December
31, 2000, to approximately $10,321,000 at September 30, 2001, principally as a
result of net income generated for the nine months then ended, and to a lesser
degree by capital contributed by the exercise of stock options and an increase
in accumulated other comprehensive income.

The Companys primary regulators, the Federal Reserve Board and the Banks
primary regulators the California Department of Financial Institutions (DFI)
and the Federal Deposit Insurance Corporation (FDIC), adopted risk-based
capital guidelines which require bank holding companies and banks to maintain
minimum total capital of 8% (of which 4% must consist of Tier 1 capital) of
risk-weighted assets. Further, the Federal Reserve Board and FDIC generally
require bank and bank holding companies to have a minimum leverage ratio of at
least 4% to be considered adequately capitalized for Federal regulatory
purposes. As of September 30, 2001, the Bank had a ratio of capital to
risk-weighted assets of 11.7%, a ratio of Tier 1 capital to risk-weighted
assets of 10.8%, and a leverage capital ratio of 8.6%. The Banks capital
ratios were favorably impacted by the contribution from the Company to the Bank
of $3,250,000 in capital generated by the sale of the Debentures. As
of September 30, 2001, the Company had a ratio of capital to
risk-weighted assets of 12.0%, a ratio of Tier 1 capital to
risk-weighted assets of 8.1%, and a leverage capital ratio of 6.3%. The Companys
management believes that, under current regulations, the Company and
the Bank will continue to
meet these minimum capital requirements in the foreseeable future.

ASSET QUALITY 

NON-PERFORMING LOANS

The following table sets forth information regarding the Companys
non-performing loans at September 30, 2001 and December 31, 2000:

|                                           |                        |                                        |                                  |      |               |   |              |   |     |     | 
|------------------------------------------ | ---------------------- | -------------------------------------- | -------------------------------- | ---- | ------------- | - | ------------ | - | --- | --- | 
|                                           |                        |                                        |                                  |      | September 30, |   | December 31,
|(Dollars in Thousands)                     |                        | 2001                                   |                                  | 2000
|                                           |                        |                                        |                                  |     
|Accruing
Loans More Than 90 Days Past Due1 |                        |                                        |                                  |      |               |   |              |  
|                                           | Aggregate loan amounts |                                        |                                  |      |               |   |              |   |    
|                                           |                        |                                        | Commercial and industrial        |      | $             | 0 |              |   | $   | 0   | 
|                                           |                        |                                        | Real estate                      |      |               | 0 |              |   |     | 0   | 
|                                           |                        |                                        | Installment loans to individuals |      |               | 0 |              |   |     | 25  | 
|                                           |                        |                                        |                                  |      |               |   |              |  
|                                           |                        | Total Loans Past Due More Than 90 Days |                                  |      | 0             |   |              |   | 25  |    
|                                           |                        |                                        |                                  |      |               |   |              |  
|Renegotiated
loans2                        |                        |                                        |                                 |      |               |   |             |  
|Non-accrual loans3                         |                        |                                        |                                  |      |               |   |              |  
|                                           | Aggregate loan amounts |                                        |                                  |      |               |   |              |   |    
|                                           |                        |                                        | Commercial and industrial        |      | $             | 0 |              |   | $   | 131 | 
|                                           |                        |                                        | Real estate                      |      |               | 0 |              |   |     | 176 | 
|                                           |                        |                                        |                                  |      |               |   |              |  
|                                           |                        | Total Non-Accrual Loans                |                                  |      | 0             |   |              |   | 307 |    
|                                           |                        |                                        |                                  |      |               |   |              |  
|                                           |                        | Total Non-Performing Loans             |                                  | $    | 0             |   |              | $ | 332 |    
|                                           |                        |                                        |                                  |      |               |   |              |  

(1)  Reflects loans for which there has been no payment of interest and/or
principal for 90 days or more. Ordinarily, loans are placed on non-accrual
status (accrual of interest is discounted) when the Bank has reason to believe
that continued payment of interest and principal is unlikely.

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(2)  Renegotiated loans are those that have been renegotiated to provide a
deferral of interest or principal. The Bank had no renegotiated loans during
2001and 2000.

(3)  There were no loans on non-accrual status at September 30, 2001, and three
loans totaling approximately $307,000 at December 31, 2000.

The policy of the Company is to review each loan in the loan portfolio on an
on-going basis to identify problem credits. In addition, as an integral part
of its review process of the Bank, the DFI and the FDIC also classify problem
credits upon their scheduled examinations of the Bank. There are three
classifications for problem loans: substandard, doubtful and loss.
Substandard loans have one or more defined weaknesses and are characterized by
the distinct possibility that the Bank will sustain some loss if the
deficiencies are not corrected. Doubtful loans have the weaknesses of
substandard loans with the additional characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
conditions and values, questionable. A loan classified as loss is considered
uncollectible and of such little value that the continuance as an asset of the
institution is not warranted. Another category designated special mention is
maintained for loans which do not currently expose the Bank to a significant
degree or risk to warrant classification in a substandard, doubtful or loss but
do possess credit deficiencies or potential weaknesses deserving managements
close attention.

As of September 30, 2001, the Banks classified loans consisted of
approximately $2,803,000 of loans classified as substandard. The Banks
$2,803,000 of loans classified as substandard consisted of all performing
loans.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is a general reserve established by Management to
absorb losses inherent in the entire portfolio. The level of and ratio of
additions to the reserve are based on a continuous analysis of the loan
portfolio and, at September 30, 2001, reflected an amount, which, in
Managements judgment, was adequate to provide for known and inherent loan
losses. In evaluating the adequacy of the allowance, Management gives
consideration to the composition of the loan portfolio, the performance of
loans in the portfolio, evaluations of loan collateral, prior loss experience,
current economic conditions and the prospects or worth of respective borrowers
or guarantors.

The allowance for loan losses at September 30, 2001, was approximately
$1,151,000 or 1.01% of total loans and leases, as compared to $784,000 or 0.98%
of total loans at December 31, 2000. The following table provides certain
information with respect to the Companys allowance for loan losses as well as
charge-off and recovery activity.

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|                                                                                                              |             |          |                           |      |               |    |              |   |  |     | 
|------------------------------------------------------------------------------------------------------------- | ----------- | -------- | ------------------------- | ---- | ------------- | -- | ------------ | - |  | --- | 
|                                                                                                              |             |          |                           |      | September 30, |    | December 31,
|(Dollars in Thousands)                                                                                        |             | 2001     |                           | 2000
|                                                                                                              |             |          |                           |     
|Loans and Lease Loss Reserve Balance,
Beginning of Period                                                     |             | $        | 784                       |      |               | $  | 764          |  
|                                                                                                              |             |          |                           |      |               |    |              |  
|                                                                                                              | Charge-offs |          |                           |      |               |    |              |   | 
|                                                                                                              |             | Domestic |                           |      |               |    |              |   |  |    
|                                                                                                              |             |          | Commercial and industrial |      |               | 21 |              |   |  | 305 | 
|                                                                                                              |             |          | Real estate  mortgage    |      |               | 0  |              |   |  | 0   | 
|                                                                                                              |             |          | Consumer loans            |      |               | 42 |              |   |  | 61  | 
|                                                                                                              |             |          |                           |      |               |    |              |  
|                                                                                                              |             |          | 63                        |      |               |    | 366          |  
|                                                                                                              |             |          |                           |      |               |    |              |  
|                                                                                                              | Recoveries  |          |                           |      |               |    |              |   | 
|                                                                                                              |             | Domestic |                           |      |               |    |              |   |  |    
|                                                                                                              |             |          | Commercial and industrial |      |               | 3  |              |   |  | 110 | 
|                                                                                                              |             |          | Real estate  mortgage    |      |               | 0  |              |   |  | 0   | 
|                                                                                                              |             |          | Consumer loans            |      |               | 12 |              |   |  | 20  | 
|                                                                                                              |             |          |                           |      |               |    |              |  
|                                                                                                              |             |          | 15                        |      |               |    | 130          |  
|                                                                                                              |             |          |                           |      |               |    |              |  
|Net charge-offs                                                                                               |             |          | 48                        |      |               |    | 236          |  
|Additions charged to operations                                                                               |             |          | 415                       |      |               |    | 256          |  
|                                                                                                              |             |          |                           |      |               |    |              |  
|Loan and Lease Loss Reserve Balance, End of Period                                                            |             | $        | 1,151                     |      |               | $  | 784          |  
|                                                                                                              |             |          |                           |      |               |    |              |  
|Ratio of Net Charge-offs/(Recoveries) During the Year
to Average Loans and Leases Outstanding During the Year |             |          | 0.05                      | %    |               |    | 0.29         | %
|                                                                                                              |             |          |                           |      |               |    |              |  
|Ratio of Reserve for Loan Losses to Loans at Period End                                                       |             |          | 1.01                      | %    |               |    | 0.98         | %
|                                                                                                              |             |          |                           |      |               |    |              |  

In accordance with SFAS No. 114 (as amended by SFAS No. 118), Accounting by
Creditors for Impairment of a Loan, loans identified as impaired are
measured on the present value of expected future cash flows discounted at the
loans effective interest rate, except that as a practical expedient, a
creditor may measure impairment based on a loans observable market price, 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. Loan impairment is evaluated on a loan-by-loan basis as
part of normal loan review procedures of the Bank.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company realizes income principally from the differential or spread between
the interest earned on loans, investments, other interest-earning assets and
the interest paid on deposits and borrowings. The Company, like other
financial institutions is subject to interest rate risk (IRR) to the degree
that its interest-earning assets reprice differently than its interest-bearing
liabilities. The Companys primary objective in managing interest rate risk is
to minimize the adverse impact of changes in interest rates on the Companys
net interest income and capital, while maintaining an asset-liability balance
sheet mix that produces the most effective and efficient returns.

A sudden and substantial increase or decrease in interest rates may adversely
impact the Companys income to the extent that the interest rates associated
with the assets and liabilities do not change at the same speed, to the same
extent, or on the same basis. The Company has adopted formal policies and
practices to monitor its interest rate risk exposure. As a part of its risk
management practices, the Company uses the net portfolio value (NPV)
methodology to gauge interest risk exposure.

The Company monitors interest rate sensitivity by estimating the change in NPV
over a range of interest rate scenarios utilizing an interest rate model. The
Sensitivity Measure is the decline in the NPV ratio, as a percentage, caused by
a 200 basis point increase or decrease in interest rates, whichever produces
the largest decline. The higher the institutions Sensitivity Measure, the
greater is its exposure to IRR.

The following reflects the Companys net interest income sensitivity analysis
as of September 30, 2001

|                  |  |                 |      |          |  |                        |         |  |  |  |         | 
|----------------- |  | --------------- | ---- | -------- |  | ---------------------- | ------- |  |  |  | ------- | 
|                  |  |                 |      |          |  | (Dollars in Thousands)
|                  |  | Estimated Net   |      | Market   |  | Market                
|Simulated         |  | Interest Income |      | Value of |  | Value of              
|Rate Changes      |  | Sensitivity     |      | Assets   |  | Liabilities           
|                  |  |                 |      |          |  |                       
|+200 Basis Points |  |                 | 2.7  | %        |  |                        | 155,822 |  |  |  | 147,194 | 
|200 Basis Points |  |                 | 3.8 | %        |  |                        | 169,737 |  |  |  | 152,544 | 

These estimates are based upon a number of assumptions, including: the nature
and timing of interest rate levels including yield curve, prepayments on loans
and securities, pricing strategies on loans and deposits, replacement of asset
and liability cashflows, and other assumptions. While the assumptions used are
based on current economic and local market conditions, there is no assurance as
to the predictive nature of these conditions including how customer preferences
or competitor influences might change.

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PART II




OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

The Company is involved in litigation in the ordinary course of its business.
Management does not presently believe that any of the existing routine
litigation is likely to have a material adverse impact on the Companys
financial condition or results of operations.




ITEM 2. CHANGES IN SECURITIES

Not Applicable




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable




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

Not Applicable




ITEM 5. OTHER INFORMATION

On August 3, 2001 Vineyard National Bank was formally approved to convert from
a national to a state banking charter by the California Department of Financial
Institutions. Concurrent with this approval, Vineyard National Bank has changed
its name to Vineyard Bank. The state charter will allow the Bank increased
flexibility in meeting clients financial needs.

On October 25, 2001 the FDIC and the California Department Financial
Institutions approved the application of Vineyard Bank to acquire the assets
and assume the deposits of Pacific Business Banks La Verne branch located at
2100 Foothill Blvd. The size of the branchs deposits that Vineyard will assume
is estimated at $10 million. This acquisition will expand the Banks immediate
service area. The branch will service not only the La Verne community but those
of San Dimas and Claremont.

On October 30, 2001 the Company announced the execution of a letter of intent
for the acquisition of Life Financial Corporation (NASDAQ:LFCO), and its
wholly-owned subsidiary Life Bank (Life). It is contemplated that the
acquisition would result in the shareholders of Life Financial receiving
Vineyard shares in exchange for Life Financial shares. The transaction is
subject to the completion of due diligence, negotiation and execution of
definitive agreements, board of director, shareholder and regulatory approval,
the consummation of a financing transaction by Vineyard and the disposition by
Life of certain assets and other matters typical for transactions of this type.

Vineyard National Bancorp anticipates the issuance of Trust Preferred Stock to
principally finance this acquisition, in order to provide Life Bank with
sufficient capital to meet the regulatory definition of well-capitalized.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits: None

b) Reports on Form 8-K: None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on this 12th day of November 2001.

| |  |                           |  |                                                                   
| |  | ------------------------- |  | ------------------------------------------------------------------
| |  | VINEYARD NATIONAL BANCORP
|
|
| |  | By:                       |  | /s/ NORMAN MORALES                                                
| |  |                           |  |                                                                   
| |  |                           |  | Norman Morales
President and Chief Executive Officer              
|
| |  | By:                       |  | /s/ SARA F. AHERN                                                 
| |  |                           |  |                                                                   
| |  |                           |  | Sara F. Ahern
Executive Vice President and
Chief Financial Officer

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