##### Table of Contents



UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION
  Washington D.C. 20549

---

FORM 10-Q


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

FOR THE QUARTER ENDED JUNE 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
July 30, 2001.

Page 1 of 21



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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                    
|           |                                                                                               | 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   
|           | 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 JUNE 30, 2001 AND 2000,
AND DECEMBER 31, 2000

|        |  |                                                                            |  |  |    |  |  | 
|------- |  | -------------------------------------------------------------------------- |  |  | -- |  |  | 
|        |  | PART I  FINANCIAL
        INFORMATION                                     |  |  |    | 
|       
|       
|       
|       
|        |  |                                                                            |  |  |    | 
|ITEM 1. |  | Financial Statements                                                       |  |  |    | 
|       
|       
|       
|       
|        |  |                                                                            |  |  |    | 
|        |  | Consolidated Statements of Financial
          Condition                   |  |  |    | 
|       
|       
|       
|       
|        |  | at June 30, 2001 and December 31, 2000                                     |  |  | 3  | 
|       
|       
|       
|       
|        |  | Consolidated Statements of Income                                          |  |  |    | 
|       
|       
|       
|       
|        |  | for the Six Months and Three Months Ended
          June 30, 2001 and 2000 |  |  | 4  | 
|       
|       
|       
|       
|        |  | Consolidated Statement of Changes in
          Stockholders' Equity        |  |  |    | 
|       
|       
|       
|       
|        |  | for the Six Months Ended June 30, 2001
          and 2000                  |  |  | 5  | 
|       
|       
|       
|       
|        |  | Consolidated Statements of Cash Flows                                      |  |  |    | 
|       
|       
|       
|       
|        |  | for the Six Months Ended June 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.

Page 2 of 21



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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

|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |              |            |             |             | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------------------- | ----------------------------------------- | ---------- | ----------- | ----------- | ------------ | ---------- | ----------- | ----------- | 
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            | June 30,    |             | December 31,
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            | 2001        |             | 2000        
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|Cash and
          due from banks                                                                                                                                                                                                   |                                                            | $                                                            | 10,106,969                                           |                                           |            | $           | 8,388,298   |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Federal
          funds sold                                                                                                                                                                                                        |                                                            |                                                              | 16,058,000                                           |                                           |            |             | 8,405,000   |             
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      | Total
          Cash and Cash Equivalents |            |             | 26,164,969  |              |            |             | 16,793,298  | 
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|Interest-bearing
          deposits in other financial institutions                                                                                                                                                                 |                                                            |                                                              | 198,000                                              |                                           |            |             | 198,000     |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Investment
          securities available-for-sale                                                                                                                                                                                  |                                                            |                                                              | 15,576,734                                           |                                           |            |             | 5,527,040   |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Loans,
          net of unearned income                                                                                                                                                                                             |                                                            |                                                              | 93,817,096                                           |                                           |            |             | 79,288,364  |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Loans
          held for sale                                                                                                                                                                                                       |                                                            |                                                              | 1,250,000                                            |                                           |            |             | 235,300     |             
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|                                                                                                                                                                                                                                    |                                                            |                                                              | 95,067,096                                           |                                           |            |             | 79,523,664  |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    | Less:
          Reserve for probable loan and lease losses |                                                              |                                                      | (1,050,945                                | )          |             |             | (784,092     | )         
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|                                                                                                                                                                                                                                    |                                                            |                                                              | 94,016,151                                           |                                           |            |             | 78,739,572  |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Bank premises
          and equipment                                                                                                                                                                                               |                                                            |                                                              | 5,493,919                                            |                                           |            |             | 5,482,187   |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Accrued
          interest                                                                                                                                                                                                          |                                                            |                                                              | 679,568                                              |                                           |            |             | 570,089     |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Cash surrender
          value of life insurance                                                                                                                                                                                    |                                                            |                                                              | 2,362,080                                            |                                           |            |             | 2,381,047   |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Other
          real estate owned                                                                                                                                                                                                   |                                                            |                                                              | 0                                                    |                                           |            |             | 0           |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Federal
          Reserve Bank and other similar stock at cost                                                                                                                                                                      |                                                            |                                                              | 302,800                                              |                                           |            |             | 177,200     |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Other
          assets                                                                                                                                                                                                              |                                                            |                                                              | 1,661,386                                            |                                           |            |             | 884,624     |             
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      | Total
          Assets                    |            | $           | 146,455,607 |              |            | $           | 110,753,057 | 
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|                                                                                                                                                                                                                                    | Liabilities and Stockholders
            Equity          
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|Liabilities                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                    | Deposits                                                  
|                                                                                                                                                                                                                                    |                                                            | Demand deposits                                              |                                                      |                                           | 42,715,774 |             |             |              | 36,869,674 |            
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    |                                                            | Savings
          and NOW deposits                           |                                                      |                                           | 26,935,107 |             |             |              | 25,947,059 |            
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    |                                                            | Money
          market deposits                              |                                                      |                                           | 12,817,154 |             |             |              | 9,829,779  |            
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    |                                                            | Time deposits
          in denominations of $100,000 or more |                                                      |                                           | 18,006,320 |             |             |              | 6,526,307  |            
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    |                                                            | Other
          time deposits                                |                                                      |                                           | 29,978,564 |             |             |              | 20,410,291 |            
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|                                                                                                                                                                                                                                    |                                                            |                                                              | 130,452,919                                          |                                           |            |             | 99,583,110  |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    |                                                            | Accrued
          employee salary benefits                   |                                                      |                                           | 465,794    |             |             |              | 1,114,270  |            
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    |                                                            | Convertible
          debentures                             |                                                      |                                           | 3,750,000  |             |             |              | 0          |            
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    |                                                            | Accrued
          interest and other liabilities             |                                                      |                                           | 1,828,254  |             |             |              | 760,644    |            
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|                                                                                                                                                                                                                                    |                                                            |                                                              | Total
          Liabilities                          |                                           |            | 136,496,967 |             |              |            | 101,458,024 |            
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|Stockholders
          Equity 
          Contributed Capital
            Common stock  authorized 15,000,000 shares, 
            no par value, issued and outstanding 1,866,986
            shares in 2001 and 1,864,828 in 2000 |                                                            |                                                              | 2,118,545                                            |                                           |            |             | 2,112,243   |             
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    |                                                            | Additional
          paid-in capital                         |                                                      |                                           | 3,306,684  |             |             |              | 3,306,684  |            
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    |                                                            | Retained
          earnings                                  |                                                      |                                           | 4,506,868  |             |             |              | 3,876,141  |            
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                    |                                                            | Accumulated
          other comprehensive income             |                                                      |                                           | 26,543     |             |             |              | (35        | )          
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|                                                                                                                                                                                                                                    |                                                            |                                                              | Total
          Stockholders Equity                 |                                           |            | 9,958,640   |             |              |            | 9,295,033   |            
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             
|                                                                                                                                                                                                                                    |                                                            |                                                              | Total
          Liabilities and Stockholders Equity |                                           | $          | 146,455,607 |             |              | $          | 110,753,057 |            
|                                                                                                                                                                                                                                    |                                                            |                                                              |                                                      |                                           |            |             |             |             

|                                                |             
|----------------------------------------------- | ------------
|See accompanying notes to financial
statements. | Page 3 of 21



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##### Table of Contents









VINEYARD NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |         |           |  |           | 
|-------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | --------- | --------------------- | --------- | ------------------------- | --------- | --------------------------- | --------- | ---- | --------- | ------- | --------- | - | --------- | ------- | --------- |  | --------- | 
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           | Six Months Ended June 30, |           | Three Months Ended June 30,
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                            
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           | 2001                      |           | 2000                        |           | 2001 |           | 2000   
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |        
|Interest
          Income Interest and fees on loans                                                     |                                                                                                                  |                                                                                   | 4,376,976 |                       |           |                           | 4,137,829 |                             |           |      | 2,347,069 |         |           |   | 2,060,640 |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Interest
          on Investment Securities
          Obligations of U.S.
Government   Agencies and Corporations |                                                                                   |           | 266,808               |           |                           |           | 268,620                     |           |      |           | 194,474 |           |   |           | 136,983 |          
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         |                                                                                                                  | Interest on other securities                                                      |           |                       | 7,003     |                           |           |                             | 4,730     |      |           |         | 4,645     |   |           |         | 2,372     | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Interest on deposits                                                                                             |                                                                                   |           | 5,753                 |           |                           |           | 6,623                       |           |      |           | 2,474   |           |   |           | 3,107   |          
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Interest on Federal funds sold                                                                                   |                                                                                   |           | 446,032               |           |                           |           | 119,010                     |           |      |           | 218,525 |           |   |           | 85,586  |          
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|                                                                                                         |                                                                                                                  |                                                                                   |           | Total Interest Income |           |                           | 5,102,572 |                             |           |      | 4,536,812 |         |           |   | 2,767,187 |         |           |  | 2,288,688 | 
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|Interest
          Expense 
          Interest on savings deposits                                       |                                                                                                                  |                                                                                   | 92,123    |                       |           |                           | 99,463    |                             |           |      | 46,136    |         |           |   | 50,523    |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Interest
          on NOW and money
          market accounts                                                    |                                                                                   |           | 247,928               |           |                           |           | 215,915                     |           |      |           | 135,756 |           |   |           | 105,951 |          
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Interest
          on time deposits in
          denominations of $100,000 or more                               |                                                                                   |           | 373,143               |           |                           |           | 168,624                     |           |      |           | 217,430 |           |   |           | 82,308  |          
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Interest on other time deposits                                                                                  |                                                                                   |           | 738,721               |           |                           |           | 547,819                     |           |      |           | 391,183 |           |   |           | 284,899 |          
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Interest on borrowed money                                                                                       |                                                                                   |           |                      |           |                           |           | 1,070                       |           |      |           |        |           |   |           |         |          
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Interest on convertible debentures                                                                               |                                                                                   |           | 64,877                |           |                           |           |                             |           |      |           | 64,877  |           |   |           |         |          
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|                                                                                                         |                                                                                                                  | Total Interest Expense                                                            |           |                       | 1,516,792 |                           |           |                             | 1,032,891 |      |           |         | 855,382   |   |           |         | 523,681   | 
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|                                                                                                         |                                                                                                                  | Net Interest Income                                                               |           |                       | 3,585,780 |                           |           |                             | 3,503,921 |      |           |         | 1,911,805 |   |           |         | 1,765,007 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Provision for Loan and Lease Losses                                                                      |                                                                                                                  |                                                                                   | (300,000  | )                     |           |                           | (256,000  | )                           |           |      | (300,000  | )       |           |   | (220,000  | )      
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|                                                                                                         |                                                                                                                  | Net Interest
          Income After Provision
          for Loan and Lease Losses |           |                       | 3,285,780 |                           |           |                             | 3,247,921 |      |           |         | 1,611,805 |   |           |         | 1,545,007 | 
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|Non-Interest
          Revenue
          Fees and service
             charges and gain on sale of loans |                                                                                                                  |                                                                                   | 621,460   |                       |           |                           | 606,294   |                             |           |      | 243,863   |         |           |   | 245,398   |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Other Income                                                                                                     |                                                                                   |           | 290,946               |           |                           |           | 131,292                     |           |      |           | 232,320 |           |   |           | 127,976 |          
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|                                                                                                         |                                                                                                                  |                                                                                   |           | Total Other Income    |           |                           | 912,406   |                             |           |      | 737,586   |         |           |   | 476,183   |         |           |  | 373,374   | 
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|Non-Interest
          Expense 
          Salaries and employee benefits                                 |                                                                                                                  |                                                                                   | 2,044,359 |                       |           |                           | 1,799,353 |                             |           |      | 1,089,400 |         |           |   | 928,794   |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Occupancy expense of premises                                                                                    |                                                                                   |           | 310,283               |           |                           |           | 311,048                     |           |      |           | 166,270 |           |   |           | 154,151 |          
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Furniture and equipment expenses                                                                                 |                                                                                   |           | 280,993               |           |                           |           | 307,048                     |           |      |           | 142,997 |           |   |           | 168,621 |          
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Loss on sale of other
real estate owned                                                                          |                                                                                   |           | 0                     |           |                           |           | 12,143                      |           |      |           | 0       |           |   |           | 12,143  |          
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Other
expenses (Note #2)                                                                                         |                                                                                   |           | 1,292,823             |           |                           |           | 1,541,659                   |           |      |           | 684,889 |           |   |           | 891,892 |          
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|                                                                                                         |                                                                                                                  |                                                                                   |           | Total Other Expenses  |           |                           | 3,928,458 |                             |           |      | 3,971,251 |         |           |   | 2,083,556 |         |           |  | 2,155,601 | 
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|Income/(Loss) Before Income Taxes                                                                        |                                                                                                                  |                                                                                   | 269,728   |                       |           |                           | 14,256    |                             |           |      | 4,432     |         |           |   | (237,220  | )      
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Income Taxes                                                                                             |                                                                                                                  |                                                                                   | 361,000   |                       |           |                           | (6,000    | )                           |           |      | 361,000   |         |           |   | 95,000    |        
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|Net Income/(Loss)                                                                                        |                                                                                                                  | $                                                                                 | 630,728   |                       |           | $                         | 8,256     |                             |           | $    | 365,432   |         |           | $ | (142,220  | )      
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|Basic Earnings/(Loss) Per Share                                                                          |                                                                                                                  | $                                                                                 | 0.34      |                       |           | $                         |          |                             |           | $    | 0.20      |         |           | $ | (0.08     | )      
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        
|Diluted Earnings/(Loss) Per Share                                                                        |                                                                                                                  | $                                                                                 | 0.31      |                       |           | $                         |          |                             |           | $    | 0.17      |         |           | $ | (0.08     | )      
|                                                                                                         |                                                                                                                  |                                                                                   |           |                       |           |                           |           |                             |           |      |           |         |           |   |           |        

|                                                |             
|----------------------------------------------- | ------------
|See accompanying notes to financial
statements. | Page 4 of 21



---



##### Table of Contents









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                                                   |  |  | 2,052       |  |        |   | 5,985     |  |            |   |               |  |       |   |           |  |  |   |             |   |  |   | 5,985     | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Comprehensive
          income 
          Net Income                      |  |  |             |  |        |   |           |  |            |   |               |  |       |   | 8,256     |  |  |   |             |   |  |   | 8,256     | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Unrealized
          security holding
          gains (net of $4,334 tax) |  |  |             |  |        |   |           |  |            |   |               |  |       |   |           |  |  |   | 6,501       |   |  |   | 6,501     | 
|                                                                          |  |  |             |  |        |   |           |  |            |   |               |  |       |   |           |  |  |   |             |   |  |   |           | 
|Total other comprehensive
income                                          |  |  |             |  |        |   |           |  |            |   |               |  |       |   |           |  |  |   |             |   |  |   | 6,501     | 
|                                                                          |  |  |             |  |        |   |           |  |            |   |               |  |       |   |           |  |  |   |             |   |  |   |           | 
|Total Comprehensive income                                                |  |  |             |  |        |   |           |  |            |   |               |  |       |   |           |  |  |   |             |   |  |   | 14,757    | 
|                                                                          |  |  |             |  |        |   |           |  |            |   |               |  |       |   |           |  |  |   |             |   |  |   |           | 
|Balance, June 30, 2000                                                    |  |  | 1,864,828   |  |        | $ | 2,112,243 |  |            | $ | 3,306,684     |  |       | $ | 3,264,374 |  |  | $ | (32,324     | ) |  | $ | 8,650,977 | 
|                                                                          |  |  |             |  |        |   |           |  |            |   |               |  |       |   |           |  |  |   |             |   |  |   |           | 

|                                                                           |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   |           | 
|-------------------------------------------------------------------------- |  | ----------- | --------- | ------ |  | ------- | --------- | ---------- |  | ------------- | --------- | ----- |  | ----- | --------- |  |  | ----------- | ------ | - |  | - | --------- | 
|                                                                           |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  | Accumulated |        |   |  |  
|                                                                           |  | Number of   |           |        |  |         |           | Additional |  |               |           |       |  | other |           |  |  |            
|                                                                           |  | Shares      |           | Common |  | Paid-in |           | Retained   |  | comprehensive |           |       |  |      
|                                                                           |  | Outstanding |           | Stock  |  | Capital |           | Earnings   |  | income/(loss) |           | Total
|                                                                           |  |             |           |        |  |         |           |            |  |               |           |      
|Balance, January 1, 2001                                                   |  |             | 1,864,828 |        |  | $       | 2,112,243 |            |  | $             | 3,306,684 |       |  | $     | 3,876,140 |  |  | $           | (35    | ) |  | $ | 9,295,032 | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Stock options exercised                                                    |  |             | 2,160     |        |  |         | 6,302     |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   | 6,302     | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Comprehensive
          income
          Net Income                        |  |             |           |        |  |         |           |            |  |               |           |       |  |       | 630,728   |  |  |             |        |   |  |   | 630,728   | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Unrealized
          security holding gains
          (net of $19,220 tax) |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             | 26,578 |   |  |   | 26,578    | 
|                                                                           |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   |           | 
|Total other comprehensive
income                                           |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   | 26,578    | 
|                                                                           |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   |           | 
|Total Comprehensive income                                                 |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   | 657,306   | 
|                                                                           |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   |           | 
|Balance, June 30, 2001                                                     |  |             | 1,866,988 |        |  | $       | 2,118,545 |            |  | $             | 3,306,684 |       |  | $     | 4,506,868 |  |  | $           | 26,543 |   |  | $ | 9,958,640 | 
|                                                                           |  |             |           |        |  |         |           |            |  |               |           |       |  |       |           |  |  |             |        |   |  |   |           | 

|                                                |             
|----------------------------------------------- | ------------
|See accompanying notes to financial
statements. | Page 5 of 21



---



##### Table of Contents









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

|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |           |            |           |            |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------ | ----------- | ----------- | ---------- | --------- | ---------- | --------- | ---------- | -
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             | June 30,    |            | June 30, 
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             | 2001        |            | 2000     
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |          
|Increase/(Decrease) in Cash and Cash Equivalents     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash
          Flows From Operating Activities
          Interest and fees received                                           |                                                                                                       | $                                                | 4,928,135                                        |             |             | $          | 4,352,092 |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Service fees and other income received                                                                |                                                  |                                                  | 912,406     |             |            |           | 787,239    |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Interest paid                                                                                         |                                                  |                                                  | (1,259,667  | )           |            |           | (1,025,272 | )        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Cash paid to suppliers and employees                                                                  |                                                  |                                                  | (3,981,630  | )           |            |           | (3,895,833 | )        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Income taxes paid                                                                                     |                                                  |                                                  | 265,000     |             |            |           | (297,998   | )        
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |          
|                                                     |                                                                                                                               |                                                                                                       | Net Cash Used by Operating Activities            |                                                  |             | 864,244     |            |           |            | (79,772   | )         
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |          
|                                                     | Cash
          Flows From Investing Activities
          Proceeds from maturities of investment securities available-for-sale |                                                                                                       |                                                  | 7,000,000                                        |             |             |            | 2,000,000 |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Purchase of investment securities available-for-sale                                                  |                                                  |                                                  | (16,999,900 | )           |            |           | (994,872   | )        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Purchase of FRB & other stock                                                                         |                                                  |                                                  | (125,600    | )           |            |           | (5,231     | )        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Net (increase)/decrease in deposits in other financial institutions                                   |                                                  |                                                  |             |             |            |           | 297,000    |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Net loans made to customers and principal collections
of loans                                        |                                                  |                                                  | (15,527,869 | )           |            |           | 3,813,372  |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Net decrease in other real estate owned                                                               |                                                  |                                                  |             |             |            |           | 125,137    |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Recoveries on loans previously written off                                                            |                                                  |                                                  | 12,218      |             |            |           | 11,164     |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Capital expenditures                                                                                  |                                                  |                                                  | (274,972    | )           |            |           | (25,168    | )        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Proceeds from sale of property, plant and equipment                                                   |                                                  |                                                  | 1,429       |             |            |           | 25,175     |          
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |          
|                                                     |                                                                                                                               |                                                                                                       | Net Cash Provided/(Used) by Investing Activities |                                                  |             | (25,914,694 | )          |           |            | 5,246,577 |           
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |          
|                                                     | Cash
          Flows From Financing Activities                                                                               
|                                                     |                                                                                                                               | Net
increase/(decrease) in demand deposits, NOW accounts,
savings accounts, and money market deposits |                                                  |                                                  | 14,821,523  |             |            |           | 379,346    |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Net increase/(decrease) in certificates of deposit                                                    |                                                  |                                                  | 16,048,286  |             |            |           | (1,888,853 | )        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Issuance of Convertible Debentures                                                                    |                                                  |                                                  | 3,546,010   |             |            |           |            |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                               | Proceeds from the exercise of stock options                                                           |                                                  |                                                  | 6,302       |             |            |           | 5,985      |          
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |          
|                                                     |                                                                                                                               |                                                                                                       |                                                  | Net Cash Provided/(Used) by Financing Activities |             |             | 34,422,121 |           |            |           | (1,509,507 | )
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |          
|Net Increase/(Decrease) in Cash and Cash Equivalents |                                                                                                                               |                                                                                                       | 9,371,671                                        |                                                  |             |             | 3,657,298  |          
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, Beginning of year         |                                                                                                                               |                                                                                                       | 16,793,298                                       |                                                  |             |             | 11,243,489 |          
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |          
|Cash and Cash Equivalents, End of quarter            |                                                                                                                               | $                                                                                                     | 26,164,969                                       |                                                  |             | $           | 14,900,787 |          
|                                                     |                                                                                                                               |                                                                                                       |                                                  |                                                  |             |             |            |          

|                                                |             
|----------------------------------------------- | ------------
|See accompanying notes to financial statements. | Page 6 of 21



---



##### Table of Contents









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

|                                                                                                      |  |                                                                                                   |        |                                                              |                                       |   |          |         |          |  |          |         |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | ------ | ------------------------------------------------------------ | ------------------------------------- | - | -------- | ------- | -------- |  | -------- | ------- | -
|                                                                                                      |  |                                                                                                   |        |                                                              |                                       |   | June 30, |         | June 30,
|                                                                                                      |  |                                                                                                   |        |                                                              |                                       |   | 2001     |         | 2000    
|                                                                                                      |  |                                                                                                   |        |                                                              |                                       |   |          |         |         
|Reconciliation
          of Net Income/(Loss) to 
          Net Cash Used in Operating Activities    
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  | Net Income                                                                                        |        | $                                                            | 630,728                               |   |          | $       | 8,256    | 
|                                                                                                      |  |                                                                                                   |        |                                                              |                                       |   |          |         |          | 
|                                                                                                      |  | Adjustments
          to Reconcile Net Income to 
          Net Cash Used by Operating Activities
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | Depreciation and amortization                                |                                       |   | 257,840  |         |          |  | 262,986  |        
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | Provision for probable credit losses                         |                                       |   | 300,000  |         |          |  | 256,000  |        
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | Provision for OREO losses                                    |                                       |   |          |         |          |  | 31,681   |        
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | (Gain)/Loss on sale of other real estate owned               |                                       |   |          |         |          |  | 12,143   |        
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | Loss on sale of equipment                                    |                                       |   |          |         |          |  | 37,510   |        
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | Decrease in taxes payable                                    |                                       |   | (96,000  | )       |          |  | (291,998 | )      
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | Increase in deferred taxes                                   |                                       |   | (474,945 | )       |          |  |          |        
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | Increase in other assets                                     |                                       |   | (98,107  | )       |          |  | (134,078 | )      
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | Decrease in unearned loan fees                               |                                       |   | (60,928  | )       |          |  | (203,660 | )      
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | (Increase)/decrease in interest receivable                   |                                       |   | (109,479 | )       |          |  | 34,953   |        
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | Increase/(decrease) in interest payable                      |                                       |   | 257,125  |         |          |  | 7,619    |        
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      |  |                                                                                                   |        | Increase/(decrease) in accrued expense and other liabilities |                                       |   | 258,010  |         |          |  | (101,184 | )      
|                                                                                                      |  |                                                                                                   |        |                                                              |                                       |   |          |        
|                                                                                                      |  |                                                                                                   |        |                                                              | Total Adjustments                     |   |          | 233,516 |          |  |          | (88,028 | )
|                                                                                                      |  |                                                                                                   |        |                                                              |                                       |   |          |        
|                                                                                                      |  |                                                                                                   |        |                                                              | Net Cash Used by Operating Activities |   | $        | 864,244 |          |  | $        | (79,772 | )
|                                                                                                      |  |                                                                                                   |        |                                                              |                                       |   |          |        
|Supplementary
          Information
          Change in valuation allowance for investment securities |  | $                                                                                                 | 45,764 |                                                              |                                       | $ | (42,072  | )      
|                                                                                                      |  |                                                                                                   |        |                                                              |                                       |   |          |        

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. | Page 7 of 21



---



##### Table of Contents



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 six- month period ended June 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 with their convertibility feature, the
Companys Diluted Earnings Per Share (EPS) calculations now contain a
measurable difference as discussed in Note 3 following.

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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 six-month periods ended June 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 June 30,
|                            |            |   | 2001                        |           | 2000
|                            |            |   |                             |           |     
|Average shares outstanding: |            |   |                             |           |      |   |           |          
|                           
|                           
|                           
|                           
|                            | Basic      |   |                             | 1,866,748 |      |   |           | 1,864,170 | 
|                           
|                           
|                           
|                           
|                            | Debentures |   |                             | 502,747   |      |   |           |          | 
|                           
|                           
|                           
|                           
|                            | Options    |   |                             | 37,516    |      |   |           | 26,372    | 
|                            |            |   |                             |           |      |   |           |          
|                            |            |   | 2,407,011                   |           |      |   | 1,890,542 |          
|                            |            |   |                             |           |      |   |           |          
|Net Income                  |            | $ | 365,432                     |           |      | $ | (142,220  | )        
|                           
|                           
|                           
|                           
|Basic earnings per share    |            | $ | 0.20                        |           |      | $ | (0.08     | )        
|                           
|                           
|                           
|                           
|Diluted earnings per share  |            | $ | 0.17                        |           |      | $ | (0.08     | )        

|                            |            |   |                           |           |      |   |           |           | 
|--------------------------- | ---------- | - | ------------------------- | --------- | ---- | - | --------- | --------- | 
|                            |            |   | Six Months Ended June 30,
|                            |            |   | 2001                      |           | 2000
|                            |            |   |                           |           |     
|Average shares outstanding: |            |   |                           |           |      |   |           |          
|                           
|                           
|                           
|                           
|                            | Basic      |   |                           | 1,865,792 |      |   |           | 1,864,170 | 
|                           
|                           
|                           
|                           
|                            | Debentures |   |                           | 252,762   |      |   |           |          | 
|                           
|                           
|                           
|                           
|                            | Options    |   |                           | 14,823    |      |   |           | 26,961    | 
|                            |            |   |                           |           |      |   |           |          
|                            |            |   | 2,133,377                 |           |      |   | 1,891,131 |          
|                            |            |   |                           |           |      |   |           |          
|Net Income                  |            | $ | 630,728                   |           |      | $ | 8,256     |          
|                           
|                           
|                           
|                           
|Basic earnings per share    |            | $ | 0.34                      |           |      | $ | 0.00      |          
|                           
|                           
|                           
|                           
|Diluted earnings per share  |            | $ | 0.31                      |           |      | $ | 0.00      |          

|                               |            |   |           |           |              |   |           |           | 
|------------------------------ | ---------- | - | --------- | --------- | ------------ | - | --------- | --------- | 
|                               |            |   | June 30,  |           | December 31,
|                               |            |   | 2001      |           | 2000        
|                               |            |   |           |           |             
|Period-end shares outstanding: |            |   |           |           |              |   |           |          
|                              
|                              
|                              
|                              
|                               | Basic      |   |           | 1,866,988 |              |   |           | 1,864,828 | 
|                              
|                              
|                              
|                              
|                               | Debentures |   |           | 750,000   |              |   |           |          | 
|                              
|                              
|                              
|                              
|                               | Options    |   |           | 252,640   |              |   |           | 6,300     | 
|                               |            |   |           |           |              |   |           |          
|                               |            |   | 2,869,628 |           |              |   | 1,871,128 |          
|                               |            |   |           |           |              |   |           |          
|Basic book value               |            | $ | 5.33      |           |              | $ | 4.98      |          
|                              
|                              
|                              
|                              
|Diluted book value             |            | $ | 5.24      |           |              | $ | 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 National Bank, a national 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 June 30, 2001, was $365,000, or $0.17 per
diluted share, compared with a loss of $142,000 or ($0.08) per diluted share
for the three months ended June 30, 2000. Net income year-to-date was $631,000
or $0.31 per diluted share, compared to year-to-date net income during 2000 of
$8,000 or $0.00 per diluted share. The income for the six months of 2001
produces an annualize return on average equity of 13.2% compared with a
negligible return for the same period in 2000.

The Companys net interest income before its provision for credit losses
increased by $147,000 or 8.3% during the three months ended June 30, 2001 as
compared with the same period in 2000. Noninterest income for the three months
ended June 30, 2001 increased by $103,000 or 27.6% as compared to the same
period in 2000. Total net revenues (net interest income and noninterest income)
for the three-month period ended June 30, 2001 increased by $249,000 or 11.6%
as compared to the same period in 2000.

Total assets have increased by 32.2% to $146.5 million at June 30, 2001 over
year-end 2000 results. A significant amount of the Companys loan portfolio
growth occurred within the second quarter of 2001, bringing gross loans
outstanding to $95.1 million at June 30, an increase of 19.5% 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 $130.5 million at June 30,
2001, an increase of 31.0% over year-end 2000.

During the six month period ended June 30, 2001, the national prime rate
decreased by 275 basis points, or 28.9% 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 six-month period. The
net interest margin at June 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 6.7% for the quarter just completed.

Total noninterest expenses for the three months ended June 30, 2001 decreased
by $72,000 or 3.3% over the same period in 2000. The Company has redeployed
resources from other operating areas into 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 June
30, 2001 by $161,000 or 17.3% as compared with the same period in 2000.

The Companys continued improvement in its operating performance allowed for
the elimination of a valuation allowance previously established against a
deferred tax asset in the amount of $475,000. The release of this allowance
during the first six months of 2001 effectively produced a net income tax
credit of $361,000 for the three months ended June 30, 2001. Beginning with
the third quarter of 2001, the Company will return to a fully taxable position.

The Company significantly increased its allowance for possible credit losses by
taking a provision of $300,000 during the three months ended June 30, 2001.
Management believes that the continued growth of the loan portfolio
necessitates the increase to the loan loss reserve to an amount of $1.05
million, or 1.1% of gross loans outstanding. This increase comes at a period
when the Company reported no non-performing loans or foreclosed real estate at
June 30, 2001, and net charge-offs for the first six months of 2001 of only
$33,000 and net loan recoveries of $5,000 for the just completed quarter.

The Company continues to be well-capitalized pursuant to the guidelines
established by regulatory agencies. To be

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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 13.0% and 9.5% at June 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 ad 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 half 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 275 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 six 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. The Companys net
interest margin decreased from 7.1% at year end 2000 to 6.4% at June 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 six
months ended June 30, 2001 and 2000.

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|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |     |     |     |  
|--------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------- | -------------------------------------------- | ------- | ------------------------------------------- | ------- | ------------------------------------------- | ----- | ----- | --- | ------- | ---- | -------- | --- | ------ | ------- | ------ | ------- | ------- | ----- | ----- | --- | --- | --- | --- | --- | -
|                                                                |                                                      |                                           |                                              |         | Dollars in Thousands                       
|                                                                |                                                      |                                           |                                              |         | For the quarter ended
        June 30, 2001 |         | For the quarter ended
        June 30, 2000
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                            
|                                                                |                                                      |                                           |                                              |         | Average                                     |         |                                             |       |       |     | Average |      | Average  |     |        |         |        |         | Average
|                                                                |                                                      |                                           |                                              |         | Balance                                     |         | Interest                                    |       | Yield |     | Balance |      | Interest |     | Yield 
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |       
|Assets                                                         
|                                                                | Loans                                                |                                           | $                                            | 86,650  |                                             |         | $                                           | 2,347 |       |     |         | 10.9 | %        |     | $      | 83,761  |        |         | $       | 2,061 |       |     |     | 9.9 | %  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Investment
          securities                      |                                           |                                              | 13,627  |                                             |         |                                             | 203   |       |     |         | 6.0  | %        |     |        | 9,952   |        |         |         | 143   |       |     |     | 5.8 | %  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Federal
          funds sold                         |                                           |                                              | 20,238  |                                             |         |                                             | 218   |       |     |         | 4.3  | %        |     |        | 5,368   |        |         |         | 86    |       |     |     | 6.4 | %  
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |    
|                                                                |                                                      | Total
          Interest-earning assets   |                                              |         | 120,515                                     |         |                                             |       | 2,768 |     |         |      | 9.2      | %   |        |         | 99,081 |         |         |       | 2,290 |     |     |     | 9.3 | %  
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |    
|Other
          assets                                          |                                                      |                                           | 17,874                                       |         |                                             |         |                                             |       |       |     |         |      |          |     | 17,212 |         |        |         |         |       |       |     |     |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                      | Less:
          allowance for loan losses |                                              |         | (914                                        | )       |                                             |       |       |     |         |      |          |     |        |         | (776   | )       |         |       |       |     |     |     |     |    
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |    
|                                                                |                                                      |                                           | Total
          assets                       |         | $                                           | 137,475 |                                             |       |       |     |         |      |          |     |        |         | $      | 115,517 |         |       |       |     |     |     |     |     |  
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |    
|Liabilities
          and Stockholders Equity                 
|                                                                | Savings deposits                                     |                                           | $                                            | 39,124  |                                             |         |                                             | 182   |       |     |         | 1.9  | %        |     | $      | 37,525  |        |         |         | 158   |       |     |     | 1.7 | %  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Time
deposits                                        |                                           |                                              | 43,679  |                                             |         |                                             | 609   |       |     |         | 5.6  | %        |     |        | 29,083  |        |         |         | 367   |       |     |     | 5.1 | %  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other
          borrowings                           |                                           |                                              | 2,483   |                                             |         |                                             | 65    |       |     |         | 10.5 | %        |     |        |        |        |         |         |      |       |     |     | 0.0 | %  
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |    
|                                                                |                                                      |                                           | Total
          interest-bearing liabilities |         |                                             | 85,286  |                                             |       |       | 856 |         |      |          | 4.0 | %      |         |        | 66,608  |         |       |       | 525 |     |     |     | 3.2 | %
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |    
|                                                                | Demand
          deposits                            |                                           |                                              | 39,914  |                                             |         |                                             |       |       |     |         |      |          |     |        | 37,502  |        |         |         |       |       |     |     |     |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other
          liabilities                          |                                           |                                              | 2,437   |                                             |         |                                             |       |       |     |         |      |          |     |        | 2,671   |        |         |         |       |       |     |     |     |    
|                                                               
|                                                               
|                                                               
|                                                               
|Stockholders
          equity                                  |                                                      |                                           | 9,838                                        |         |                                             |         |                                             |       |       |     |         |      |          |     | 8,736  |         |        |         |         |       |       |     |     |    
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |    
|                                                                | Total
          liabilities and Stockholders equity |                                           | $                                            | 137,475 |                                             |         |                                             |       |       |     |         |      |          |     | $      | 115,517 |        |         |         |       |       |     |     |     |    
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |    
|Net Interest
          Spread                                   |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     | 5.2     | %    |          |     |        |         |        |         |         |       |       |     | 6.1 | %  
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |    
|Net Interest
          Income
          and Net Interest Margin |                                                      |                                           |                                              |         |                                             | $       | 1,912                                       |       |       |     | 6.4     | %    |          |     |        |         |        | $       | 1,765   |       |       |     | 7.1 | %  
|                                                                |                                                      |                                           |                                              |         |                                             |         |                                             |       |       |     |         |      |          |     |        |         |        |         |         |       |       |     |     |    

|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |     |     |     |  
|-------------------------------------------------------------- | ------------------------------- | ---------------------------------------------------- | -------------------------------------------- | ------ | ------------------------------------------------------ | ------- | ------------------------------------------------------ | ----- | ----- | ----- | ------- | ---- | -------- | --- | ------ | ------ | ------- | ------- | ------- | ----- | ----- | ----- | --- | --- | --- | --- | -
|                                                               |                                 |                                                      |                                              |        | For the six months
        ended
        June 30, 2001 |         | For the six months
        ended
        June 30, 2000
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                       
|                                                               |                                 |                                                      |                                              |        | Average                                                |         |                                                        |       |       |       | Average |      | Average  |     |        |        |         |         | Average
|                                                               |                                 |                                                      |                                              |        | Balance                                                |         | Interest                                               |       | Yield |       | Balance |      | Interest |     | Yield 
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |       
|Assets                                                        
|                                                               | Loans                           |                                                      | $                                            | 82,823 |                                                        |         | $                                                      | 4,377 |       |       |         | 10.7 | %        |     | $      | 85,073 |         |         | $       | 4,138 |       |       |     | 9.8 | %  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment
          securities |                                                      |                                              | 9,550  |                                                        |         |                                                        | 280   |       |       |         | 5.9  | %        |     |        | 9,899  |         |         |         | 281   |       |       |     | 5.7 | %  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Federal
          funds sold    |                                                      |                                              | 18,693 |                                                        |         |                                                        | 446   |       |       |         | 4.8  | %        |     |        | 3,877  |         |         |         | 119   |       |       |     | 6.2 | %  
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |    
|                                                               |                                 | Total
          Interest-earning assets              |                                              |        | 111,066                                                |         |                                                        |       | 5,103 |       |         |      | 9.3      | %   |        |        | 98,849  |         |         |       | 4,538 |       |     |     | 9.3 | %  
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |    
|Other
          assets                                         |                                 |                                                      | 17,713                                       |        |                                                        |         |                                                        |       |       |       |         |      |          |     | 16,560 |        |         |         |         |       |       |       |     |    
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                 | Less:
          allowance for loan losses            |                                              |        | (837                                                   | )       |                                                        |       |       |       |         |      |          |     |        |        | (712    | )       |         |       |       |       |     |     |     |    
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |    
|                                                               |                                 |                                                      | Total
          assets                       |        | $                                                      | 127,942 |                                                        |       |       |       |         |      |          |     |        |        | $       | 114,697 |         |       |       |       |     |     |     |     |  
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |    
|Liabilities
          and Stockholders EquitySavings deposits |                                 | $                                                    | 37,306                                       |        |                                                        |         | 340                                                    |       |       |       | 1.8     | %    |          | $   | 37,867 |        |         |         | 316     |       |       |       | 1.7 | %  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Time deposits                   |                                                      |                                              | 39,345 |                                                        |         |                                                        | 1,112 |       |       |         | 5.7  | %        |     |        | 29,266 |         |         |         | 716   |       |       |     | 4.9 | %  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other
          borrowings      |                                                      |                                              | 1,242  |                                                        |         |                                                        | 65    |       |       |         | 10.6 | %        |     |        | 36     |         |         |         | 1     |       |       |     | 5.6 | %  
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |    
|                                                               |                                 |                                                      | Total
          interest-bearing liabilities |        |                                                        | 77,893  |                                                        |       |       | 1,517 |         |      |          | 3.9 | %      |        |         | 67,169  |         |       |       | 1,033 |     |     |     | 3.1 | %
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |    
|                                                               | Demand
          deposits       |                                                      |                                              | 38,046 |                                                        |         |                                                        |       |       |       |         |      |          |     |        | 36,458 |         |         |         |       |       |       |     |     |    
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other
          liabilities     |                                                      |                                              | 2,382  |                                                        |         |                                                        |       |       |       |         |      |          |     |        | 2,328  |         |         |         |       |       |       |     |     |    
|                                                              
|                                                              
|                                                              
|                                                              
|Stockholders
          equity                                 |                                 |                                                      | 9,621                                        |        |                                                        |         |                                                        |       |       |       |         |      |          |     | 8,742  |        |         |         |         |       |       |       |     |    
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |    
|                                                               |                                 | Total
          liabilities and Stockholders equity |                                              | $      | 127,942                                                |         |                                                        |       |       |       |         |      |          |     |        | $      | 114,697 |         |         |       |       |       |     |     |     |    
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |    
|Net Interest
          Spread                                  |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       | 5.3     | %    |          |     |        |        |         |         |         |       |       |       | 6.2 | %  
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |    
|Net Interest
          Income and Net Interest Margin          |                                 |                                                      |                                              |        |                                                        | $       | 3,586                                                  |       |       |       | 6.5     | %    |          |     |        |        |         | $       | 3,505   |       |       |       | 7.2 | %  
|                                                               |                                 |                                                      |                                              |        |                                                        |         |                                                        |       |       |       |         |      |          |     |        |        |         |         |         |       |       |       |     |    

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The Companys gross interest income on all interest-earning assets for the
three-month period ended June 30, 2001 was $2,768,000, an increase of $478,000
or 20.9% as compared with the results from the same period in 2000. The
effective yield on all interest-earning assets for the three months ended June
30, 2001 was 9.2%, relatively unchanged from the 9.3% level reported for the
same period in 2000. The gross interest income and effective yields for the
three months ended June 30, 2001 take into effect the 275 basis point
reductions in market interest rates in the first half of 2001. While the
average loan portfolio outstanding for the three months ended June 30, 2001
increased by $2,889,000 or 3.5% over the same period in 2000, the effective
yield on the same portfolio increased by 100 basis points over the same period
in 2000. These results were indicative of 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
six-month period ended June 30, 2001 was $5,103,000, an increase of $566,000 or
12.5% as compared with the results from the same period in 2000. The effective
yield on all interest-earning assets for the six months ended June 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 June 30, 2001 to
$855,000, an increase of $332,000 or 63.3% 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 June 30, 2001 was 2.7% as compared
with 2.0% for the same period in 2000.

For the six months ended June 30, 2001, gross interest expense on all
interest-bearing liabilities was $1,517,000, an increase of $484,000 or 46.9%
as compared to the same period in 2000. The average effective cost of funding,
inclusive of demand deposits and the Debentures, for the six months ended June
30, 2001 was 2.6% 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 June 30, 2001 of
$1,912,000 and 6.4%, respectively. For the six months ended June 30, 2001, the
net interest income and net interest margin were $3,586,000 and 6.5%,
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.

|                                       |             |             |        |           |        |              |    |           |     |   |        |        |        |  |    |    |     |   | 
|-------------------------------------- | ----------- | ----------- | ------ | --------- | ------ | ------------ | -- | --------- | --- | - | ------ | ------ | ------ |  | -- | -- | --- | - | 
|Dollars in Thousands                   |             | June 30,    |        | Portfolio |        | December 31, |    | Portfolio
|                                       |             | 2001        |        | %         |        | 2000         |    | %        
|                                       |             |             |        |           |        |              |    |          
|                                       |             |             | Loans 
|Commercial and industrial              |             | $           | 18,204 |           |        |              | 19 | %         |     | $ | 10,665 |        |        |  | 13 | % 
|                                      
|                                      
|                                      
|                                      
|Real Estate  construction             |             |             | 14,220 |           |        |              | 15 | %         |     |   | 5,588  |        |        |  | 7  | % 
|                                      
|                                      
|                                      
|                                      
|Real Estate  mortgage                
|                                      
|                                      
|                                      
|                                      
|                                       | Commercial  |             |        | 37,184    |        |              |    | 39        | %   |   |        | 40,100 |        |  |    | 50 | %  
|                                      
|                                      
|                                      
|                                      
|                                       | Residential |             |        | 14,541    |        |              |    | 15        | %   |   |        | 10,957 |        |  |    | 14 | %  
|                                      
|                                      
|                                      
|                                      
|Installment loans to individuals       |             |             | 10,030 |           |        |              | 11 | %         |     |   | 12,049 |        |        |  | 15 | % 
|                                      
|                                      
|                                      
|                                      
|Loans held for sale                    |             |             | 1,250  |           |        |              | 1  | %         |     |   | 235    |        |        |  | 0  | % 
|                                      
|                                      
|                                      
|                                      
|All other loans (including overdrafts) |             |             | 62     |           |        |              | 0  | %         |     |   | 180    |        |        |  | 0  | % 
|                                       |             |             |        |           |        |              |    |           |     |   |        |        |        |  |    |    |     |  
|                                       |             | Gross Loans |        |           | 95,491 |              |    |           | 100 | % |        |        | 79,773 |  |    |    | 100 | %
|                                       |             |             |        |           |        |              |    |           |     |   |        |        |        |  |    |    |     |   | 

PROVISIONS FOR POSSIBLE LOAN LOSSES

During the six month period ended June 30, 2001, a provision of $300,000 was
made as compared to $256,000 for the same period in 2000. Net loan charge-offs
were approximately $33,000 for the six months ended June 30, 2001, as compared
to $261,000 for the same period in 2000.

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During the three month period ended June 30, 2001, the same provision of
$300,000 was made as compared to $220,000 for the same period in 2000. The
Company received $5,000 in loan recoveries during the recent three-month period
as compared to net loan charge-offs of $245,000 for the same period in 2000.

The Companys Allowance for Loan Losses increased to $1,051,000 at June 30,
2001, or 1.10% 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 potential 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 $175,000 in the six-month period ended June 30,
2001, as compared to 2000. This increase was primarily due to fees associated
with mortgage loans originated for sale, which increased by $103,000, and other
income associated with Visa check card fees and services charges, which
increased by $27,000 and $15,000, respectively, over the same period the prior
year.

The Companys increase of $103,000 in noninterest income in the three month
period ended June 30, 2000, was primarily due to fees associated with mortgage
loans originated for sale, which increased by $80,000, and other income
associated with Visa check card fees and services charges, which increased by
$11,000 and $12,000, respectively, over the same period the prior year.

The Companys efforts to increase its core deposit base during the first six
months of 2001 produced a net increase of $5.8 million or 15.9% 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 June 30, 2001, total noninterest expenses
decreased by $72,000 or 3.3% to $2,084,000 from $2,156,000 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 six-month period ended June 30, 2001, total noninterest expenses
decrease by $43,000 or 1.1% to $3,928,000 from $3,971,000 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 June 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 half 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 $161,000 or 17.3% for the three months ended June 30,
2001 as compared to the same period in 2000.

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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.

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

|                                                          |                                                  |                                       |       |                      |       |                    |       |      |       |      |       |     |       |   |     |     |       | 
|--------------------------------------------------------- | ------------------------------------------------ | ------------------------------------- | ----- | -------------------- | ----- | ------------------ | ----- | ---- | ----- | ---- | ----- | --- | ----- | - | --- | --- | ----- | 
|                                                          |                                                  |                                       |       | Dollars in Thousands
|                                                          |                                                  |                                       |       | Six Months Ended     |       | Three Months Ended
|                                                          |                                                  |                                       |       | June 30,             |       | June 30,          
|                                                          |                                                  |                                       |       |                      |       |                   
|                                                          |                                                  |                                       |       | 2001                 |       | 2000               |       | 2001 |       | 2000
|                                                          |                                                  |                                       |       |                      |       |                    |       |      |       |     
|Salaries
          and employee benefits                  |                                                  | $                                     | 2,044 |                      |       | $                  | 1,799 |      |       | $    | 1,089 |     |       | $ | 929 |    
|                                                         
|                                                         
|                                                         
|                                                         
|Occupancy
          expense of premises                   |                                                  |                                       | 310   |                      |       |                    | 311   |      |       |      | 166   |     |       |   | 154 |    
|                                                         
|                                                         
|                                                         
|                                                         
|Furniture
          and equipment expenses                |                                                  |                                       | 281   |                      |       |                    | 307   |      |       |      | 143   |     |       |   | 169 |    
|                                                         
|                                                         
|                                                         
|                                                         
|(Gain)/
          Loss on sale of other real estate owned |                                                  |                                       |      |                      |       |                    | 12    |      |       |      |      |     |       |   | 12  |    
|                                                         
|                                                         
|                                                         
|                                                         
|Other
          Expenses:                                 |                                                  |                                       |       |                      |       |                    |       |      |       |      |       |     |       |   |     |    
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Data processing                                  |                                       |       | 345                  |       |                    |       | 309  |       |      |       | 179 |       |   |     | 156 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Marketing
          expenses                     |                                       |       | 176                  |       |                    |       | 78   |       |      |       | 100 |       |   |     | 29  |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Office
          supplies, postage and telephone |                                       |       | 177                  |       |                    |       | 119  |       |      |       | 88  |       |   |     | 61  |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Professional
          expenses                  |                                       |       | 189                  |       |                    |       | 433  |       |      |       | 106 |       |   |     | 222 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Bank insurance
          and assessments         |                                       |       | 79                   |       |                    |       | 70   |       |      |       | 43  |       |   |     | 35  |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other                                            |                                       |       | 327                  |       |                    |       | 533  |       |      |       | 170 |       |   |     | 389 |      
|                                                          |                                                  |                                       |       |                      |       |                    |       |      |       |      |       |     |       |   |     |    
|                                                          |                                                  | Total
          Non-Interest Expenses |       | $                    | 3,928 |                    |       | $    | 3,971 |      |       | $   | 2,084 |   |     | $   | 2,156 | 
|                                                          |                                                  |                                       |       |                      |       |                    |       |      |       |      |       |     |       |   |     |    

FINANCIAL CONDITION, CAPITAL RESOURCES & LIQUIDITY AND ASSET QUALITY

During the six months ended June 30, 2001, the Companys assets increased by
approximately $35,703,000 or 32%, compared to December 31, 2000. The Company
continued to have adequate cash resources with $10,107,000 of cash held on
deposit at other financial institutions, $14,926,000 in investment securities,
and $16,058,000 in Federal funds sold at June 30, 2001. The overall levels in
liquidity increased by $19,421,000 and resulted in higher levels of cash and
due from banks, Federal funds sold, and investment securities. The Companys
investment portfolio had $46,000 of unrealized gains on estimated fair values
when compared to book values at June 30, 2001. There were no loans placed on
non-accrual status (not generating income currently) at June 30, 2001.

During the second quarter of 2001, the Bank was approved for membership 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 10% 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 investments 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.

As detailed more specifically earlier in the report, total outstanding loans
increased during the six-month period ended June 30, 2001, by $15,718,000.

During the six-month period ending June 30, 2001, total deposits increased by
$30,870,000. Specifically, all areas of deposit product types experienced
growth over the year-end 2000 levels, such as: demand deposits by $5,846,000,
savings and NOW accounts by $988,000, money market accounts by $2,987,000, time
deposits in excess of $100,000 by $11,480,000, and other time deposits by
$9,569,000. Managements efforts to generate significant levels of liquidity
in the first half 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.

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Total stockholders equity increased from approximately $9,295,000 at December
31, 2000, to approximately $9,959,000 at June 30, 2001, principally as a result
of net income generated for the six 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 and the Banks primary regulators, the Federal Reserve Board and
the Office of the Comptroller of the Currency (OCC), respectively, 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
Comptroller 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 June 30, 2001, the Bank had a ratio of
capital to risk-weighted assets of 13.03%, a ratio of Tier 1 capital to
risk-weighted assets of 12.05%, and a leverage capital ratio of 9.49%. 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. The Companys management believes that, under current regulations,
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 June 30, 2001 and December 31, 2000:

|                                                                                      |                                        |                                  |   |              |   |  |   |     |     | 
|------------------------------------------------------------------------------------- | -------------------------------------- | -------------------------------- | - | ------------ | - |  | - | --- | --- | 
|(Dollars in Thousands)                                                                |                                        | June 30,                         |   | December 31,
|                                                                                      |                                        | 2001                             |   | 2000        
|                                                                                      |                                        |                                  |   |              |   | 
|Accruing
          Loans More Than 90 Days Past Due1
          Aggregate loan amounts
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      |                                        | Commercial
and industrial        |   | $            |  |  |   | $   |    | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      |                                        | Real estate                      |   | $            |  |  |   | $   |    | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      |                                        | Installment loans to individuals |   |              |  |  |   | $   | 25  | 
|                                                                                      |                                        |                                  |   |              |   |  |   |    
|                                                                                      | Total Loans Past Due More Than 90 Days |                                  |   |             |   |  |   | 25  |    
|                                                                                      |                                        |                                  |   |              |   |  |   |    
|Renegotiated loans2                                                                   |                                        |                                  |  |              |   |  |  |    
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Non-accrual
          loans3
          Aggregate loan amounts                        
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      |                                        | Commercial
and industrial        |   | $            |  |  |   | $   | 131 | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      |                                        | Real estate                      |   |              |  |  |   |     | 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.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Renegotiated loans are those that have been renegotiated to provide a
deferral of interest or principal. The Bank had no renegotiated loans during
2001 and 2000.                                                                                                                            
|   
|   
|   
|   
|(3) |  | There were no loans on non-accrual status at June 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 Comptroller also classifies 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

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##### Table of Contents



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 June 30, 2001, the Banks classified loans consisted of approximately
$3,533,000 of loans classified as substandard. The Banks $3,533,000 of loans
classified as substandard consisted of all performing loans.

ALLOWANCE FOR POSSIBLE LOAN LOSSES

The allowance for possible loan losses is a general reserve established by
Management to absorb potential 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 June 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. In addition, the Comptroller, as an integral part of its
examination process, periodically reviews the Banks allowance for possible
loan and lease losses. The Comptroller may require the Bank to recognize
additions to the allowance based upon its judgment of the information available
to it at the time of its examination. The Comptroller as of December 31, 2000
most recently examined the Bank and the reserve was found to provide adequate
coverage for potential loan losses.

The allowance for possible loan losses at June 30, 2001, was approximately
$1,051,000 or 1.1% 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 possible loan losses as
well as charge-off and recovery activity.

|                                                                                                              |                     |             |                           |              |  |    |      |     |  |     | 
|------------------------------------------------------------------------------------------------------------- | ------------------- | ----------- | ------------------------- | ------------ |  | -- | ---- | --- |  | --- | 
|(Dollars in Thousands)                                                                                        |                     | June 30,    |                           | December 31,
|                                                                                                              |                     | 2001        |                           | 2000        
|                                                                                                              |                     |             |                           |              |  |    |     
|Loans
and Lease Loss Reserve Balance,                                                                        
|                                                                                                              | Beginning of Period |             | $                         | 784          |  |    | $    | 764 | 
|                                                                                                              |                     |             |                           |              |  |    |      |    
|                                                                                                              |                     | Charge-offs |                           |              |  |    |      |     |  |    
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                     |             | Domestic                  |              |  |    |      |     |  |     | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                     |             | Commercial and industrial |              |  | 21 |      |     |  | 305 | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                     |             | Real estate  mortgage    |              |  |   |      |     |  |    | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                     |             | Consumer loans            |              |  | 24 |      |     |  | 61  | 
|                                                                                                              |                     |             |                           |              |  |    |      |     | 
|                                                                                                              |                     |             |                           | 45           |  |    |      | 366 | 
|                                                                                                              |                     |             |                           |              |  |    |      |     | 
|                                                                                                              |                     | Recoveries  |                           |              |  |    |      |     |  |    
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                     |             | Domestic                  |              |  |    |      |     |  |     | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                     |             | Commercial and industrial |              |  | 3  |      |     |  | 110 | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                     |             | Real estate  mortgage    |              |  |   |      |     |  |    | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                     |             | Consumer loans            |              |  | 9  |      |     |  | 20  | 
|                                                                                                              |                     |             |                           |              |  |    |      |     | 
|                                                                                                              |                     |             |                           | 12           |  |    |      | 130 | 
|                                                                                                              |                     |             |                           |              |  |    |      |     | 
|Net charge-offs                                                                                               |                     |             | 33                        |              |  |    | 236  |    
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Additions charged to operations                                                                               |                     |             | 300                       |              |  |    | 256  |    
|                                                                                                              |                     |             |                           |              |  |    |      |    
|Loan and Lease Loss Reserve Balance, End of Period                                                            |                     | $           | 1,051                     |              |  | $  | 784  |    
|                                                                                                              |                     |             |                           |              |  |    |      |    
|Ratio of Net Charge-offs/(Recoveries) During the Year
to Average Loans and Leases Outstanding During the Year |                     |             | 0.04                      | %            |  |    | 0.29 | %  
|                                                                                                              |                     |             |                           |              |  |    |      |    
|Ratio of Reserve for Loan Losses to Loans at Period End                                                       |                     |             | 1.10                      | %            |  |    | 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

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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 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 June 30, 2001

|                  |  |                 |      |          |  |                        |         |  |  |  |         | 
|----------------- |  | --------------- | ---- | -------- |  | ---------------------- | ------- |  |  |  | ------- | 
|                  |  |                 |      |          |  | (Dollars in Thousands)
|                  |  | Estimated Net   |      | Market   |  | Market                
|Simulated         |  | Interest Income |      | Value of |  | Value of              
|Rate Changes      |  | Sensitivity     |      | Assets   |  | Liabilities           
|                  |  |                 |      |          |  |                       
|+200 Basis Points |  |                 | 4.7  | %        |  |                        | 141,501 |  |  |  | 130,582 | 
|                 
|                 
|                 
|                 
|-200 Basis Points |  |                 | -5.7 | %        |  |                        | 147,839 |  |  |  | 135,468 | 

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.

CALIFORNIA ENERGY CRISIS

The California energy crisis is expected to worsen during the summer months,
including the threat of rolling power outages or blackouts which have
occurred during the past few months. Such outages could disrupt our
operations, increase our operating costs and reduce the productivity of staff
and operations. Power outages could also cause delays in processing banking
transactions. Unscheduled power outages could result in the shut down of
information systems that could cause financial data to be lost. The Company
has developed contingency plans to deal with such power outages, including the
review of plans and procedures of major vendors who provide processing
services. The Company cannot predict the frequency or duration of the power
outages that may occur.

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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

Not Applicable







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 2nd day of August 2001.

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

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