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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington,D.C. 20549**

**Form 10-QSB**
| **ý**                                                                           | **Quarterly report  pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for  the quarterly period ended June 30, 2001**     |
|--------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                 |                                                                                                                                                |
| **o**                                                                                | **Transition report  under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the  transition period from ________ to ______________.** |
|                                                                                 |                                                                                                                                                |
| **Commission File No. 000 – 26505**                                             |
|                                                                                 |
| **COMMUNITY BANCORP INC.**                                                           |
| ****                                                                                 |
| (Exact name of  registrant as specified in its charter)                              |
|                                                                                 |                                                                                                                                                |
| **Delaware**                                                                         | **33-0859334**                                                                                                                                      |
| ****                                                                                 | ****                                                                                                                                                |
| (State or other  jurisdiction of incorporation                                       | (I.R.S. Employer  Identification No.)                                                                                                               |
| or organization)                                                                     |                                                                                                                                                |
|                                                                                 |                                                                                                                                                |
| **130 West Fallbrook Street, Fallbrook, CA**                                         | **92028**                                                                                                                                           |
| ****                                                                                 | ****                                                                                                                                                |
| (Address of principal  executive offices)                                            | (Zip Code)                                                                                                                                          |
|                                                                                 |                                                                                                                                                |
| Issuer’s telephone number:                                                      | **   (760) 723-8811**                                                                                                                     |
| ****                                                                                 |
|                                                                                 |
| **None**                                                                             |
| ****                                                                                 |
| (Former name, former  address and former fiscal year, if changed  since last report) |
|                                                                                      |                                                                                                                                                     |  |  |

             Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.   Yes ý   No o

             Numberof shares of common stock outstanding as of June 30, 2001: 2,675,456

             TransitionalSmall Business Disclosure Format (check one): Yes oNo ý

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**PART 1: FINANCIAL INFORMATIONItem 1: FINANCIAL STATEMENTS**

| **COMMUNITY BANCORP INC.**                                                                                                                                 |                                       |    |             |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|---------|------------------|------------|
| **CONSOLIDATED BALANCE SHEETS**                                                                                                                            |                                       |    |             |       |
| **(dollars in thousands)**                                                                                                                                 | **June 30,**                               |    | **December 31,** |       |
| **(unaudited)**                                                                                                                                            | **2001**                                   |    | **2000**         |       |
| ****                                                                                                                                                       |
| **ASSETS**                                                                                                                                                 |                                       |    |             |       |
|                                                                                                                                                       |                                       |    |             |       |
| Cash and cash equivalents                                                                                                                                  | $                                          | 47,839  |             | $          | 17,830 |   |
| Interest bearing deposits in financial institutions                                                                                                        | 497                                        |    | 790              |       |
| Federal Reserve Bank & FHLB stock                                                                                                                      | 1,082                                      |    | 425              |       |
| Investment securities held-to-maturity, at amortized cost                                                                                                  | 5,073                                      |    | 6,819            |       |
| Interest-only strip, at fair value                                                                                                                         | 466                                        |    | 509              |       |
| Loans held for investment                                                                                                                                  | 247,985                                    |    | 234,306          |       |
|                                                                                                                                                       | Less allowance for loan losses             | (2,230  | )                | (2,226     | ) |
|                                                                                                                                                       |                                       |         |             |            |   |
|                                                                                                                                                       | Net loans held for investment              | 245,755 |             | 232,080    |   |
| Loans held for sale                                                                                                                                        | 16,585                                     |    | 13,119           |       |
| Premises and equipment, net                                                                                                                                | 2,344                                      |    | 2,313            |       |
| Accrued interest and other assets                                                                                                                          | 4,135                                      |    | 4,364            |       |
| Deferred tax asset                                                                                                                                         | 672                                        |    | 672              |       |
| Servicing asset, net                                                                                                                                       | 1,249                                      |    | 1,537            |       |
|                                                                                                                                                       |                                            |    |                  |       |
|                                                                                                                                                       | Total Assets                               | **$**   | **325,697**      | ** ** | **$** | **280,458** | ** ** |
|                                                                                                                                                       |                                            |    |                  |       |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                                                                                   |                                       |    |             |       |
|                                                                                                                                                       |                                       |    |             |       |
| Deposits:                                                                                                                                                  |                                       |    |             |       |
|                                                                                                                                                       | Interest bearing                           | $       | 257,335          |       | $ | 219,371 |   |
|                                                                                                                                                       | Non-interest bearing                       | 33,375  |             | 33,326     |   |
|                                                                                                                                                       |                                       |         |             |            |   |
|                                                                                                                                                       | Total deposits                             | 290,710 |             | 252,697    |   |
| Other borrowings                                                                                                                                           | 17,829                                     |    | 10,916           |       |
| Accrued expenses and other liabilities                                                                                                                     | 4,259                                      |    | 4,609            |       |
|                                                                                                                                                       |                                            |    |                  |       |
|                                                                                                                                                       | Total liabilities                          | 312,798 |             | 268,222    |   |
|                                                                                                                                                       |                                       |    |             |       |
| **Shareholders' equity**                                                                                                                                   |                                       |    |             |       |
| Common stock, $0.625 par value; authorized 10,000,000  shares, issued and outstanding, 2,675,456 at June  30, 2001 and 2,670,406 at December 31, 2000 | 1,672                                      |    | 1,669            |       |
| Additional paid-in capital                                                                                                                                 | 5,567                                      |    | 5,551            |       |
| Unearned ESOP contribution                                                                                                                                 | (694                                       | )       | (797             | )          |
| Retained earnings                                                                                                                                          | 6,354                                      |    | 5,813            |       |
|                                                                                                                                                       |                                            |    |                  |       |
|                                                                                                                                                       | Total shareholders' equity                 | 12,899  |             | 12,236     |   |
|                                                                                                                                                       |                                            |    |                  |       |
|                                                                                                                                                       | Total Liabilities and Shareholders' Equity | **$**   | **325,697**      | ** ** | **$** | **280,458** | ** ** |
|                                                                                                                                                       |                                       | ****    |             | ****       |   |
|                                                                                                                                                            |                                            |         |                  |            |  |  |  |  |  |

See accompanying notes to unauditedconsolidated financial statements.**COMMUNITY BANCORP INC.**        **CONSOLIDATED STATEMENTS OF INCOME****For the six months** **For the three months** **(dollars in thousands, except for per  share amounts)****ended June 30,** **ended June 30,** **(unaudited)****2001** **2000** **2001** **2000** Interest income:         Interest and fees on loans$12,334 $8,186 $6,077 $4,461  Interest on cash equivalents400 345 216 242  Interest on interest bearing deposits in financial institutions18 24 7 15  Interest on investment securities232 203 109 105        **Total interest income**12,984 8,758 6,409 4,823      Interest expense on deposits6,020 3,487 2,945 1,899 Interest expense on other borrowed money632 421 327 307       **Total interest expense**6,652 3,908 3,272 2,206      Net interest income before provision for loan losses6,332 4,850 3,137 2,617 Provision for loan losses94 337 75 177      **Net interest income after provision for  loan losses**6,238 4,513 3,062 2,440          Other operating income:         Net gain on sale of loans351 93 281 46  Loan servicing fees, net203 323 93 163  Customer service charges227 198 113 101  Other fee income474 473 211 167        **Total other operating income**1,255 1,087 698 477      Other operating expenses:         Salaries and employee benefits3,662 2,628 1,832 1,259  Occupancy452 399 236 202  Telephone151 131 73 63  Premises and equipment331 285 169 140  Marketing and promotions166 152 82 83  Data processing472 410 240 196  Professional services392 352 194 160  Director, officer and employee expenses271 239 147 129  Office expenses242 154 98 73  ESOP loan expense102 102 51 51  Other expenses328 340 201 228        **Total other operating expenses**6,569 5,192 3,323 2,584      Income before income taxes924 408 437 333 Income taxes383 167 198 136      **Net Income**$541 $241 $239 $197      **Comprehensive Income**$541 $241 $239 $197      Basic earnings per share$0.21 $0.09 $0.09 $0.08 Diluted earnings per share$0.21 $0.09 $0.09 $0.08 
See accompanying notes to unauditedconsolidated financial statements.**COMMUNITY BANCORP INC.**    **CONSOLIDATED STATEMENTS OF CASH FLOWS**    **(dollars in thousands)****For the six months** **(unaudited)****ended June 30,**  **2001** **2000** ******Cash flows from operating activities:**    Net income$541 $241 Adjustments to reconcile net income to net cash provided  by (used in) operating activities:     Depreciation and amortization295 289  Provision for loan losses94 337  ESOP Compensation103 103  Net gain on sale of loans(351)(93) Loans originated for sale(26,469)(10,268) (Gain)/Loss on interest-only strips9 (33) Amortization of interest-only strips34 41  Capitalization of servicing asset(26)-  Amortization of servicing asset113 136  Impairment of servicing asset202 -  Proceeds from sale of loans27,276 9,067  Increase in accrued interest and other assets244 (683) Increase (decrease) in accrued expenses and other  liabilities(350)63      **Net cash provided by (used in) operating  activities**1,715 (800)     **Cash flows from investing activities:**     Net increase in loans(17,692)(50,596) Net maturities of interest bearing time deposits293 (477) Maturities of securities held-to-maturity1,752 -  Purchase of securities held-to-maturity(657)-  Net additions to premises and equipment(332)(194)     **Net cash used in investing activities**(16,636)(51,267)     **Cash flows from financing activities:**     Net increase in deposits:     Interest bearing37,964 45,379  Non-interest bearing49 5,117  Purchase of treasury stock- (5) Exercise of stock options19 -  Repayment of line of credit(102)(3,277) Advances to ESOP- 325  Proceeds from other borrowings7,000 9,700      **Net cash provided by financing activities**44,930 57,239      **Net increase in cash and cash equivalents**30,009 5,172 **Cash and cash equivalents at beginning of  period**$17,830 $15,376    **Cash and cash equivalents at end of  period**$47,839 $20,548    
See accompanying notes to unauditedconsolidated financial statements.
**COMMUNITY BANCORP INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2001(unaudited)**

**Note 1 Basis of Presentation:**

The interim financial statements includedherein have been prepared by Community Bancorp Inc. without audit, pursuant tothe rules and regulations of the Securities and Exchange Commission (the“SEC”).  The interim financialstatements include Community Bancorp Inc. and its wholly owned subsidiariesCommunity National Bank (formerly Fallbrook National Bank) (the"Bank") and Community (CA) Capital Trust I (the "Trust"),(collectively, the "Company") as consolidated with the elimination ofall intercompany transactions.  Certaininformation and footnote disclosures, normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America, have been condensed or omitted pursuant to such SECrules and regulations.   Nevertheless,the Company believes that the disclosures are adequate to make the informationpresented not misleading.  Thesefinancial statements should be read in conjunction with the audited financialstatements and notes thereto included in the Company’s latest Annual Report onForm 10KSB.  In the opinion ofmanagement, all adjustments, including normal recurring adjustments necessaryto present fairly the financial position of the Company with respect to theinterim financial statements and the results of its operations for the interimsix month period ended June 30, 2001, have been included.  Certain reclassifications may have been madeto prior year amounts to conform to the 2001 presentation.  The results of operations for interimperiods are not necessarily indicative of results for the full year.

On October 10, 2000, Fallbrook NationalBank, subsidiary of Community Bancorp Inc., officially changed its name toCommunity National Bank.

**Note 2 Loans and Related Allowance for Loan Losses:**

A summary of loans as of June 30, 2001 and December 31, 2000is as follows:
 June 30, December 31,  2001 2000   (dollars in thousands) Construction loans$49,662 $51,700 Real estate one- to four-family29,287 25,407 Real estate commercial and multi-family137,325 120,118 Consumer home equity lines of credit2,595 2,912 Consumer other11,380 11,417 Aircraft25,014 24,761 Commercial8,859 11,024    Total gross loans264,122 247,339 Deferred loan fees900 767 Discounts on unguaranteed portion of loans retained(452)(681)Allowance for loan losses(2,230)(2,226)   Net loans$262,340 $245,199    
 

The Company’s lending activities areconcentrated primarily in Southern California. Although the Company seeks to avoid undue concentrations of loans to asingle industry based upon a single class of collateral, real estate and realestate associated business areas are among the principal industries in theCompany’s market area.  As a result, theCompany’s loan and collateral portfolios are, to some degree, concentrated inthose industries.  The Company evaluateseach credit on an individual basis and determines collateral requirementsaccordingly.  When real estate is takenas collateral, advances are generally limited to a certain percentage of theappraised value of the collateral at the time the loan is made, depending onthe type of loan, the underlying property and other factors.

**Note 3 Sales and Servicing of SBA Loans:**

Starting in the first quarter of 2000,the Company changed its policy to hold to maturity the guaranteed portion ofSBA 7a loans until a certain asset mix had been reached.  The Company recently announced that it willreturn to selling a portion of the guaranteed portion of SBA 7a loans beginningin the third quarter of 2001.  TheCompany generates revenues from the origination of loans guaranteed by the SBAand the sale of guaranteed and unguaranteed portions of those loans in thesecondary market.  The Company retainsthe servicing on the sale of SBA loans that creates loan servicing income.  The Company measures the servicing asset bydiscounting the respective cash flow for the estimated expected life of theloans.  The Company uses industryprepayment statistics in estimating the expected life.

If the fair value of the servicing assetsis less than the amortized carrying value, the asset is consideredimpaired.  A valuation allowance must beestablished for the impaired asset by a charge against income for thedifference between the amortized carrying value and the fair value.  As of June 30, 2001, an impairment allowanceof $202,000 had been provided for, representing the difference between theCompany’s amortized carrying value for the servicing assets and the fair value.

**Note 4 Contingencies:**

Because of the nature of its activities,the Company is at all times subject to pending and threatened legal actionswhich arise out of the normal course of its business.  In the opinion of management, the ultimate disposition of thesematters will not have a material adverse effect on the Company’s financialposition, results of operations or liquidity.

**Note 5**  **Earnings per share**

Thefollowing tables are a reconciliation of the numerators and denominators of thebasic and diluted EPS computations for the net earnings for the Company(dollars in thousands, except share data):
 For the six months  ended June 30,    2001 2000     Earnings Shares Per Share Earnings Shares Per Share  (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount        Net  Earnings$541     $241                Basic  EPS Earnings available to common shareholders$541 2,536,077 $0.21 $241 2,539,754 $0.09 Effect  of Dilutive Securities Options- 87,335** ****-** - 35,492 -    ****    Diluted  EPS Earnings Available to common Shareholders plus assumed Conversions$541 2,623,412 $0.21 $241 2,575,246 $0.09        
 

 
 For the three months  ended June 30,    2001 2000     Earnings Shares Per Share Earnings Shares Per Share  (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount        Net  Earnings$239     $197                Basic  EPS Earnings available to common shareholders$239 2,537,823 $0.09 $197 2,523,659 $0.08 Effect  of Dilutive Securities Options- 82,644** ****-** - 41,582 -    ****    Diluted  EPS Earnings Available to common shareholders plus assumed conversions$239 2,620,467 $0.09 $197 2,565,241 $0.08        
**Note 6 Segment Information**The following disclosure about segments of theCompany is made in accordance with the requirements of Statement of FinancialAccounting Standards ("SFAS") No. 131, "Disclosures aboutSegments of an Enterprise and Related Information."  The Company changed its internal reportingin 1999, and now segregates its operations into two primary segments: BankingDivision and SBA Lending Division.  TheCompany determines operating results of each segment based on an internalmanagement system that allocates certain expenses to each.
 For the six months ended June 30,    2001   2000    **Banking** **Small Business** **Total** **Banking** **Small Business** **Total**  **Division** **Administration** **Company** **Division** **Administration** **Company**    **Lending**     **Lending**      **Division**     **Division**      **("SBA")**     **("SBA")**    ****  (dollars in thousands)              Interest income$8,782 $4,202 $12,984 $6,675 $2,083 $8,758 Interest expense4,247 2,405 6,652 2,377 1,531 3,908   Net interest income before provision4,535 1,797 6,332 4,298 552 4,850 Provision for loan losses89 5 94 268 69 337 Other income730 525 1,255 550 537 1,087 Other expenses4,980 1,589 6,569 3,718 1,474 5,192   Income (loss) before income taxes196 728 924 862 (454)408 Income taxes82 301 383 355 (188)167   Net income (loss)$114 $427 $541 $507 $(266)$241   Asset employed at quarter end$235,687 $90,010 $325,697 $174,113 $59,279 $233,392   
 

 
              For the three months ended June  30,    2001   2000    **Banking** **Small Business** **Total** **Banking** **Small Business** **Total**** ** **Division** **Administration** **Company** **Division** **Administration** **Company**** **   **Lending**     **Lending**      **Division**     **Division**      **("SBA")**     **("SBA")**      (dollars in thousands)    Interest income$4,303 $2,106 $6,409 $3,634 $1,189 $4,823 Interest expense2,147 1,125 3,272 1,317 889 2,206   Net interest income before provision2,156 981 3,137 2,317 300 2,617 Provision for loan losses129 (54)75 147 30 177 Other income425 273 698 269 208 477 Other expenses2,473 850 3,323 1,829 755 2,584   Income (loss) before income taxes(21)458 437 610 (277)333 Income taxes9 189 198 251 (115)136   Net income (loss)$(30)$269 $239 $359 $(162)$197   Asset employed at quarter end$235,687 $90,010 $325,697 $174,113 $59,279 $233,392   
 

**Note 7 Recent Accounting Developments**

SFAS No. 133, "Accounting forDerivative Instruments and Hedging Activities", is effective for allfiscal years beginning after June 15, 2000. SFAS No. 133, as amended, establishes accounting and reporting standardsfor derivative instruments, including certain derivative instruments embeddedin other contracts and for hedging activities. Under SFAS No. 133, certain contracts that were not formerly consideredderivatives may now meet the definition of a derivative.  The Company adopted SFAS No. 133 effectiveJanuary 1, 2001.  The adoption of SFASNo. 133 did not have a significant impact on the financial position, results ofoperations, or cash flows of the Company.

In September 2000, the FinancialAccounting Standards Board (FASB) issued SFAS No. 140 "Accounting forTransfers and Servicing of Financial Assets and Extinguishments ofLiabilities", which revises the standards for accounting forsecuritizations and other transfers of financial assets and collateral andrequires certain disclosures, but carries over most of the provisions of SFASNo. 125 without reconsideration.  SFASNo. 140 is effective for transfers and servicing of financial assets andextinguishments of liabilities occurring after March 31, 2001.  The Statement is effective for recognitionand reclassification of collateral and for disclosures relating tosecuritization transactions and collateral for fiscal years ending afterDecember 15, 2000.  SFAS No. 140 is notexpected to have a material effect on the Company's financial position, resultsof operations or cash flows.

On July 20, 2001, the FASB issued SFASNo. 141, "Business Combinations", and SFAS No. 142, "Goodwilland Other Intangible Assets." These Statements make significant changes to the accounting for businesscombinations, goodwill, and intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of accountingfor business combinations with limited exceptions for combinations initiatedprior to July 1, 2001.  In addition, itfurther clarifies the criteria for recognition of intangible assets separatelyfrom goodwill.  This statement iseffective for business combinations completed after June 30, 2001.  The Company does not believe that theadoption of SFAS No. 141 and SFAS No. 142 will have a significant impact on theCompany's financial condition, results of operations or cash flows.

SFAS No. 142 discontinues the practice ofamortizing goodwill and indefinite lived intangible assets and initiates anannual review for impairment. Impairment would be examined more frequently if certain indicators areencountered.  Intangible assets with adeterminable useful life will continue to be amortized over that period.  The amortization provisions apply togoodwill and intangible assets acquired after June 30, 2001.   Goodwill and intangible assets on the booksat June 30, 2001 will be affected when the Company adopts the Statement.   The Company did not have any goodwill orintangible assets on its books as of June 30, 2001.

**Note 8 Subsequent Events**

On July 27, 2001, the Company completedthe private placement of 473,504 shares of common stock at an average price of$6.63 per share to certain “accredited investors” including certain directorsand an officer of the Company and the Bank and their related interests.  An investment banking firm retained by theCompany issued a fairness opinion in connection with the transaction.  The Company used $1.0 million of the netproceeds to repay debt and $2.0 million of the net proceeds were invested asequity capital in the Bank.  Theremaining net proceeds were retained by the Company as working capital.
**ITEM 2:  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following is management’s discussionand analysis of the major factors that influenced the financial performance ofthe Company for the six and three months ended June 30, 2001.  This analysis should be read in conjunctionwith the Company’s 2000 Annual Report as filed on Form 10KSB and with theunaudited financial statements and notes as set forth in this report.

Statements concerning future performance,developments or events, expectations for growth and income forecasts, and anyother guidance on future periods, constitute forward-looking statements thatare subject to a number of risks and uncertainties.  Actual results may differ materially from stated expectations.Specific factors include, but are not limited to, increased profitability, theability to control costs and expenses, interest rates and financial policies ofthe United States government, and general economic conditions.  Additional information on these and otherfactors that could affect financial results are included in its Securities andExchange Commission filings. The Company disclaims any obligation to update anysuch factors or to publicly announce the results of any revisions to anyforward-looking statements contained herein to reflect future events ordevelopments.

**RESULTS OF OPERATIONS**

**Net Income**

Net income increased 125% to $541,000 forthe six months ended June 30, 2001 compared to $241,000 for the six monthsended June 30, 2000.  Basic earnings pershare were $0.21 and $0.09 for the six months ended June 30, 2001 and 2000,respectively.  Diluted earnings pershare were $0.21 and $0.09 for the six months ended June 30, 2001 and 2000, respectively.  Earnings per share for the six months endedJune 30, 2000 were adjusted for the effects of a stock dividend paid inNovember 2000.  The increase in netincome was mainly due to the increase in net interest income and otheroperating income, partially offset by an increase in other operating expenses,and the impact of a $202,000 impairment allowance provided for the servicingasset.  Interest income increased due toan increase in average interest earning assets, and other operating income increasedduring the six months ended June 30, 2001 due to the sale of $2.7 million inunguaranteed portions of SBA 7a loans during the second quarter of 2001.

Return on average assets for the sixmonths ended June 30, 2001 was 0.36% compared to 0.23% for the six months endedJune 30, 2000.  The increase in thereturn on average assets from 2000 to 2001 was due to the increase in netincome noted above, partially offset by the 45.5% growth in average assets,which was part of the Company’s strategic plan.  The return on average equity was 8.83% for the six months endedJune 30, 2001 compared to 4.27% for the six months ended June 30, 2000.

Net income increased to $239,000 for thethree months ended June 30, 2001 compared to $197,000 for the three monthsended June 30, 2000.  Basic earnings pershare were $0.09 and  $0.08 for thethree months ended June 30, 2001 and 2000, respectively.  Diluted earnings per share were $0.09 and$0.08 for the three months ended June 30, 2001 and 2000, respectively.  Earnings per share for the three monthsended June 30, 2000 were adjusted for the effects of a stock dividend paid inNovember 2000.  The increase in netincome was mainly due to an increase in net interest income after provision forloan loss combined with an increase in other operating income, partially offsetby an increase in other operating expenses and the impact of a $202,000impairment allowance provided for the servicing asset.  Interest income increased due to an increasein average interest earning assets, and other operating income increased duringthe three months ended June 30, 2001 due to the Company’s sale of $2.7 millionin unguaranteed portions of SBA 7a loans during the second quarter of 2001.
Return on average assets for the threemonths ended June 30, 2001 was 0.31% compared to  0.36% for the three months ended June 30, 2000.  The decrease in the return on average assetsfrom 2000 to 2001 was due to the increase average assets.  The return on average equity was 7.81% forthe three months ended June 30, 2001 compared to 7.07% for the three monthsended June 30, 2000.

**Interest Income**

Net interest income is the mostsignificant component of the Company’s income from operations.  Net interest income is the difference (the“interest rate spread”) between the gross interest and fees earned on the loanand investment portfolios and the interest paid on deposits and otherborrowings.  Net interest income dependson the volume of and interest rate earned on interest earning assets and thevolume of and interest rate paid on interest bearing liabilities.

The following table sets forth a summaryof average balances with corresponding interest income and interest expense aswell as average yield and cost information for the periods presented. Averagebalances are derived from daily balances, and nonaccural loans are included asinterest earning assets for purposes of this table.
 **For the six months ended June 30,**  ****  **2001** **2000**  ****  **Balance** **Earned/Paid** **Rate/Yield** **Balance** **Earned/Paid** **Rate/Yield**  **** Average assets             Securities and time at other banks$7,863 $250 6.41%$7,924 $227 5.76% Fed funds sold16,904 400 4.77%12,085 345 5.74% Loans             Commercial120,889 5,652 9.43%72,642 3,257 9.02% Real Estate130,776 6,341 9.78%90,792 4,610 10.21% Consumer7,939 341 8.66%7,259 319 8.84%           Total loans259,604 12,334 9.58%170,693 8,186 9.64%           Total earning assets284,371 12,984 9.21%190,702 8,758 9.24% Non earning assets16,829     16,289                  Total average assets$301,200     $206,991                             Average liabilities and shareholders  equity             Interest bearing deposits             Savings and interest bearing accounts$70,748 923 2.63%$58,749 654 2.24% Time deposits170,487 5,097 6.03%98,028 2,833 5.81%           Total interest bearing deposits241,235 6,020 5.03%156,777 3,487 4.47% Demand deposits30,954 -   28,850 -    Trust preferred debt10,000 556 11.21%5,440 302 11.16% Other borrowings2,536 76 6.04%2,360 119 10.14%           Total borrowings12,536 632 10.17%7,800 421 10.91%           Total interest bearing liabilities284,725 6,652 4.71%193,427 3,908 4.06% Accrued expenses and other  liabilities4,233     2,289      Net shareholders' equity12,242     11,275                  Total average liabilities  shareholders' equity$301,200     $206,991                  Net interest spread    4.50%    5.18%             Net interest income  $6,332     $4,850                Net yield on interest earnings assets    4.49%    5.11%            
Interest income for the six months endedJune 30, 2001 increased to $13.0 million, compared to $8.8 million for the six monthsended June 30, 2000.  This increase wasdue to an increase in the average balance of interest earning assets.  Average interest earning assets increased to$284.4 million for the six months ended June 30, 2001 compared to $190.7million for the six months ended June 30, 2000.  The yield on interest earning assets decreased to 9.21% for thesix months ended June 30, 2001 compared to 9.24% for the six months ended June30, 2000.  The largest single componentof interest earning assets was loans receivable, which had an average balanceof $259.6 million with a yield of 9.58% for the six months ended June 30, 2001compared to $170.7 million with a yield of 9.64% for the six months ended June30, 2000.  The increase in the averagebalance of loans receivable was attributable to the expansion of the Company aspart of the Company’s strategic plan, including the retention of SBA 7a loans.

Interest expense for the six months endedJune 30, 2001 increased to $6.7 million compared to $3.9 million for the sixmonths ended June 30, 2000.  Thisincrease was due to an increase in average deposits and other borrowings,combined with a change in the composition of those liabilities, and by anincrease in the cost of those liabilities. Average interest-bearing liabilities increased to $284.7 million for thesix months ended June 30, 2001 compared to $193.4 million for the six monthsended June 30, 2000.  Average timedeposits increased to $170.5 million with a cost of 6.03% for the six monthsended June 30, 2001 compared to $98.0 million with a cost of 5.81% for the sixmonths ended June 30, 2000.  Beginningon January 1, 2000, the Company changed its policy regarding the sale of SBA 7aloans from one of selling the guaranteed and unguaranteed portions to retaininga majority of these portions.  Theresulting increase in total loans is being funded by both retail and wholesalecertificates of deposit, with the wholesale deposits having a higher interestrate than the retail deposits.  Althoughthe wholesale deposits have a higher interest rate, there is limited operatingcosts associated with acquiring and managing these liabilities.  As of June 30, 2001 wholesale depositstotaled $63.9 million and have maturities ranging from three months to oneyear.

Other average borrowings increased to$12.5 million with a cost of 10.17% for the six months ended June 30, 2001,compared to $7.8 million with a cost of 10.91% for the six months ended June30, 2000. The Company borrowed $3.2 million in June, 1999, of which $3.0million was used to increase capital at its Bank subsidiary.  In March, 2000, the Company's subsidiary,Community (CA) Capital Trust I, issued $10 million of 11.0% Fixed Rate CapitalTrust Pass-through Securities ("TRUPS-Registered Trademark-"), with aliquidation value of $1,000 per share. The Company used the proceeds to pay off the $3.2 million in borrowedfunds, and invested an additional $5.8 million in the Bank. In March of 2001,the Company entered into a secured line of credit with the Federal Home LoanBank (“FHLB”), which had an average outstanding balance of $2.5 million for thefirst six months of 2001.  In June of2001, the Company borrowed $1.0 million, which was used to increase capital atits Bank subsidiary. **For the three months ended June 30,**  ****  **2001** **2000**  ****  **Balance** **Earned/Paid** **Rate/Yield** **Balance** **Earned/Paid** **Rate/Yield** Average Assets             Securities and time at other banks$7,290 $116 6.38%$8,086 $120 5.97% Fed funds sold20,423 216 4.24%16,443 242 5.92% Loans             Commercial126,765 2,873 9.09%78,089 1,790 9.22% Real Estate130,753 3,043 9.33%96,203 2,510 10.49% Consumer7,647 161 8.44%7,287 161 8.89%           Total loans265,165 6,077 9.19%181,579 4,461 9.88%           Total earning assets292,878 6,409 8.78%206,108 4,823 9.41% Non earning assets16,528     15,732                  Total average assets$309,406     $221,840                             Average liabilities and shareholders  equity             Interest bearing deposits             Savings and interest bearing accounts$71,454 404 2.27%$59,352 311 2.11% Time deposits175,982 2,541 5.79%108,014 1,588 5.91%           Total interest bearing deposits247,436 2,945 4.77%167,366 1,899 4.56% Demand deposits31,466 -   30,026 -    Trust preferred debt10,000 278 11.15%10,000 277 11.14% Other borrowings3,798 49 5.17%1,055 30 11.44%           Total borrowings13,798 327 9.51%11,055 307 11.17%           Total interest bearing liabilities292,700 3,272 4.48%208,447 2,206 4.26% Accrued expenses and other  liabilities4,467     2,240      Net shareholders' Equity12,239     11,153                  Total average liabilities  shareholders' equity$309,406     $221,840                  Net interest spread    4.29%    5.15% ..          Net interest income  $3,137     $2,617                Net yield on interest earnings assets    4.30%    5.11%            
Interest income for the three monthsended June 30, 2001 increased to $6.4 million, compared to $4.8 million for thethree months ended June 30, 2000.  Thisincrease was due to an increase in the average balance of interest earning assets,partially offset by a decrease in the yield on those assets.  Average interest earning assets increased to$292.9 million for the three months ended June 30, 2001 compared to $206.1million for the three months ended June 30, 2000.  The yield on interest earning assets decreased to 8.78% for thethree months ended June 30, 2001 compared to 9.41% for the three months endedJune 30, 2000.  The largest singlecomponent of interest earning assets was loans receivable, which had an averagebalance of $265.2 million with a yield of 9.19% for the three months ended June30, 2001 compared to $181.6 million with a yield of 9.88% for the three monthsended June 30, 2000.  The increase inthe average balance of loans receivable was attributable to the expansion ofthe Company as part of the Company’s strategic plan, including the retention ofa portion of SBA 7a loans.  The declinein the yield on average assets was primarily due to the 2.75% decline ininterest rates that has occurred during the first six months of 2001.  Since a significant portion of the loans aretied to prime, these assets reprice immediately with changes in interest rates,or in the case of SBA 7a loans, on the first day of the quarter following achange in interest rates.  Furtherdecline in the yields on loans is expected to occur beginning in the thirdquarter of 2001, as the SBA 7a loans will not adjust for the 1.25% decline ininterest rates during the second quarter of 2001 until July 1, 2001.
Interest expense for the three monthsended June 30, 2001 increased to $3.3 million compared to $2.2 million for thethree months ended June 30, 2000.  Thisincrease was due to an increase in average deposits and other borrowings,combined with a change in the composition of those liabilities, and by anincrease in the cost of those liabilities. Average interest-bearing liabilities increased to $292.7 million for thethree months ended June 30, 2001 compared to $208.4 million for the threemonths ended June 30, 2000.  Averagetime deposits increased to $176.0 million with a cost of 5.79% for the threemonths ended June 30, 2001 compared to $108.0 million with a cost of 5.91% forthe three months ended June 30, 2000. Beginning on January 1, 2000, the Company changed its policy regardingthe sale of SBA 7a loans from one of selling the guaranteed and unguaranteedportions to retaining a major portion of the guaranteed and unguaranteedportions.  The resulting increase intotal loans is being funded by both retail and wholesale certificates ofdeposit, with the wholesale deposits having a higher interest rate than theretail deposits.  Although the wholesaledeposits have a higher interest rate, there is limited operating costsassociated with acquiring and managing these liabilities.

Other average borrowings increased to$13.8 million with a cost of 9.51% for the three months ended June 30, 2001,compared to $11.1 million with a cost of 11.17% for the three months ended June30, 2000.  In March, 2000, the Company'ssubsidiary, Community (CA) Capital Trust I, issued $10 million of 11.0% FixedRate Capital Trust Pass-through Securities ("TRUPS-RegisteredTrademark-"), with a liquidation value of $1,000 per share.  The Company used the proceeds to pay off$3.2 million in borrowed funds, and invest an additional $5.8 million in theBank. In March of 2001, the Company entered into a secured line of credit withthe Federal Home Loan Bank (“FHLB”), which had an average outstanding balanceof $3.8 million for the three months ended June 30, 2001.  In June of 2001, the Company obtained a $2.0million line of credit from a correspondent bank.  During the quarter ended June 30, 2001 the Company advanced $1.0million on this line, which was used to increase capital at its Banksubsidiary.

**Net interest income before provision for estimated loanlosses**

Net interest income before provision forestimated loan losses for the six months ended June 30, 2001 was $6.3 million,compared to $4.9 million for the six months ended June 30, 2000.  This increase was primarily due to theincrease in average interest earning assets and partially offset by a decreasein the net interest margin.  Averageinterest earning assets were $284.4 million for the six months ended June 30,2001 with a net interest margin of 4.49% compared to $190.7 million with a netinterest margin of 5.11% for the six months ended June 30, 2000.  The decline in the net interest margin wasprimarily due to the falling interest rate environment, combined with theincreased use of certificates of deposits, as well as other borrowed funds, inorder to support its expanding loan portfolio.

Net interest income before provision forestimated loan losses for the three months ended June 30, 2001 was $3.1million, compared to $2.6 million for the three months ended June 30,2000.  This increase was primarily dueto the increase in average interest earning assets and was partially offset bya decrease in the net interest margin. Average interest earning assets were $292.9 million for the three monthsended June 30, 2001 with a net interest margin of 4.30% compared to $206.1million with a net interest margin of 5.11% for the three months ended June 30,2000.  The decline in the net interestmargin was primarily due to the falling interest rate environment, combinedwith the increased use of certificates of deposits as well as other borrowedfunds in order to support its expanding loan portfolio.

**Provision for Loan Losses**

Net charge offs totaled $90,000 for thesix months ended June 30, 2001 compared to $27,000 during the six months endedJune 30, 2000.  The provision for loanlosses totaled $94,000 for the six months ended June 30, 2001 compared to$337,000 for the six months ended June 30, 2000.  As a result of the increase in total loans outstanding,management increased the allowance for loan losses to $2.2 million as of June30, 2001 compared to $1.6 million as of June 30, 2000.  As of June 30, 2001, the allowance was 0.84%of total gross loans compared to 0.83% as of June 30, 2000.  When excluding the guaranteed portions ofloans and loans held for sale, the allowance was 1.12% and 1.00% respectivelyas a percentage of total gross loans as of June 30, 2001 and June 30,2000.  The allowance for loan losses asa percentage of nonaccrual loans was 95% as of June 30, 2001 compared to 93% asof June 30, 2000.  When excluding theguaranteed portion of nonaccrual loans, the allowance for loan losses as apercentage of nonaccrual loans was 370% as of June 30, 2001 compared to 293% asof June 30, 2000.
For the three months ended June 30, 2001,net charge offs totaled $87,000 compared to $68,000 for the three months endedJune 30, 2000.  Provisions for loanlosses totaled $75,000 for the three months ended June 30, 2001 compared to$177,000 for the three months ended June 30, 2000.

Nonaccrual loans as of June 30, 2001 were$2.4 million, of which $1.8 million is guaranteed by the SBA, compared to$57,000, with $20,000 guaranteed by the SBA as of December 31, 2000 and$1.8 million, with $1.2 million guaranteed by the SBA as of June 30, 2000.

In determining the adequacy of the allowancefor loan losses, management initially considers the allowances specificallyallocated to individual impaired loans, and next considers the level of generalloss allowances deemed appropriate for the balance of the portfolio based onfactors including the levels of classified assets, general portfolio trendsrelative to asset and portfolio size, asset categories, potential creditconcentrations, nonaccrual loan levels, historical loss experience, risksassociated with changes in economic and business conditions, and otherfactors.  In addition, variousregulatory agencies, as an integral part of their examination process,periodically review the Company’s allowance for loan losses.  Such agencies may require the Company tomake additional provisions for loan losses based upon judgments which differfrom those of management.

**Other Operating Income**

Other operating income representsnon-interest types of revenue and is comprised primarily of gains on sale ofloans, loan servicing fees, service charges on deposits (customer servicecharges), and other fee income.  Otheroperating income was $1.3 million for the six months ended June 30, 2001compared to $1.1 million for the six months ended June 30, 2000.  Other operating income was negativelyimpacted by a $202,000 impairment allowance provided for the servicingasset.  The increase was mainly due toan increase in the gain on sale of loans, which totaled $351,000 for the sixmonth period ended June 30, 2001 compared to $93,000 for the six month periodended June 30, 2000.  The increase ingain on sale of loans was due to the sale of $2.7 million in unguaranteedportions of SBA 7a loans, as well as an increase in the origination and sale ofmortgage loans. The Company sold $16.5 million in mortgage loans and $10.4million in SBA 504 and the unguaranteed portion of 7a loans during the sixmonths ended June 30, 2001 compared to $6.4 million in mortgage loans and $2.6million in SBA 504 and the unguaranteed portion 7a loans during the six monthperiod ended June 30, 2000.

Other operating income was $698,000 forthe three months ended June 30, 2001 compared to $477,000 for the three monthsended June 30, 2000.  This represents anincrease of $221,000, or 46.33%, when comparing the three month period endedJune 30, 2001 to the three month period ended June 30, 2000.  The increase was mainly due to an increasein the gain on sale of loans, which totaled $281,000 for the three month periodended June 30, 2001 compared to $46,000 for the three month period ended June30, 2000.  The Company sold $11.3million in mortgage loans and $7.7 million in SBA 504 and unguaranteed portionsof SBA 7a loans during the three months ended June 30, 2001 compared to $3.2million in mortgage loans and $1.6 million in SBA 504 loans during the threemonth period ended June 30, 2000.

Prior to January 1, 2000, a major portionof other operating income was generated through the sale of loans consisting ofSBA loans and mortgage loans.  Beginningon January 1, 2000, the Company began its SBA 7a retention program in order toincrease interest income and decrease reliance on gain on sale of loans.  The Company recently announced that it isentering the next phase of this retention program, whereby a portion of the SBA7a guaranteed and unguaranteed loans will be sold in the future to maintain theSBA loans to under 40% of total loans in order to maintain a diversifiedbalance sheet.  During the six monthsended June 30, 2001, the Company originated $27.0 million in SBA governmentguaranteed loans compared to $28.1 million during the six months ended June 30,2000.  The Company originated $18.4million in mortgage loans during the six months ended June 30, 2001 compared to$7.2 million for the six months ended June 30, 2000.  The Company sold approximately $10.4 million in SBA 504 andunguaranteed 7a loans and $16.5 million in mortgage loans during the six monthperiod ended June 30, 2001, compared to sales of $2.6 million in SBA loans and$6.4 million in mortgage loans sold during the six month period ended June 30,2000.  The sales for the six monthperiod ended June 30, 2001 resulted in a gain of $351,000, compared to $93,000for the six month period ended June 30, 2000. The Company recently announced a new phase in its SBA guaranteed loanretention program, in which it intends to sell a portion of the guaranteed andunguaranteed SBA 7a loans generated in order to diversify its lending portfolioand maintain SBA loans under 40% of total loans outstanding.
During the three months ended June 30,2001, the Company originated $8.8 million in SBA government guaranteed loanscompared to $17.8 million during the three months ended June 30, 2000.  The Company originated $9.9 million inmortgage loans during the three months ended June 30, 2001 compared to $3.6million for the three months ended June 30, 2000.  The Company sold approximately $7.7 million in SBA 504 andunguaranteed 7a loans and $11.3 million in mortgage loans during the threemonth period ended June 30, 2001, compared to sales of $1.6 million in SBAloans and $3.3 million in mortgage loans sold during the three month periodended June 30, 2000.  The sales for thethree month period ended June 30, 2001 resulted in a gain of $281,000, comparedto $46,000 for the three month period ended June 30, 2000.

Servicing fees, net, totaled $203,000 forthe six months ended June 30, 2001 compared to $323,000 for the six monthsended June 30, 2000.  For the quarterended June 30, 2001, servicing fees totaled $93,000 compared to $163,000 forthe quarter ended June 30, 2000.  Thedecrease in loan servicing fees, net, is due to the decrease in SBA loansserviced for others.  As of January 1,2000, the Company implemented its SBA retention program, whereby the Companyretained a major portion of its SBA 7a loans in order to increase itsportfolio.  The servicing portfolio,which generates loan servicing fees, has declined as the loans have paidoff.  The Company recently announcedthat it is entering the next phase of this program, whereby it intends to sella portion of its SBA 7a loans in order to diversify its lending portfolio, andkeep SBA loans under 40% of total loans. Accordingly, the servicing portfolio should increase as the loans arebeing sold.  Loans serviced for otherstotaled $92.0 million as of January 1, 2000, compared to $72.1 million as ofJune 30, 2001, resulting in the decrease in loan servicing income for the sixmonth and three month periods ending June 30, 2001 when compared to the sameperiods in 2000.

Customer service charges totaled $227,000for the six months ended June 30, 2001 compared to $198,000 for the six monthsended June 30, 2000.  For the threemonths ended June 30, 2001, customer service charges totaled $113,000 comparedto $101,000 for the three months ended June 30, 2000.

Other fee income totaled approximately$474,000 for the six months ended June 30, 2001, compared to $473,000 for thesix months ended June 30, 2000.  For thethree months ended June 30, 2001 and 2000 other fee income totaled $211,000 and$167,000 respectively.  Other fee incomewas for the six months and three months ended June 30, 2001 was negativelyimpacted by the $202,000 impairment allowance for the Company’s servicingasset.****Other Operating Expenses**

Other operating expenses are non-interesttypes of expenses and are incurred by the Company in its normal course ofbusiness.  Salaries and employeebenefits, occupancy, telephone, premises and equipment, marketing andpromotions, data processing, professional services, director, officer andemployee expenses, office, ESOP loan and other expenses are the majorcategories of other operating expenses. Other operating expenses increased to $6.6 million for the six monthsended June 30, 2001 compared to $5.2 million for the six months ended June 30,2000.  For the three months ended June30, 2001 other operating expenses totaled $3.3 million compared to $2.6 millionfor the three months ended June 30, 2000.

The Company’s efficiency ratio, which isthe ratio of recurring operating expenses to net interest income beforeprovision for loan losses plus non-interest income, decreased (improved) to86.58% for the six months ended June 30, 2001 compared to 87.45% for the sixmonths ended June 30, 2000.  Thedecrease in efficiency ratio was due to the increase in other operating income,and was partially offset by the increase in operating expenses.  The most significant operating expense issalary and benefit expenses, which increased to $3.7 million for the six monthsended June 30, 2001 compared to $2.6 million for the six months ended June 30,2000.  The increase in salaries andbenefit expenses was due to the expansion of the Company’s operations,including increased commissions for mortgage loan production, the addition of anew branch in Escondido, California, which opened in April 2001, and theaddition of SBA loan production offices in Los Angeles during the latter halfof 2000.

The following table compares each of thecomponents of other operating expenses for the six months ended June 30, 2001and 2000, respectively:
 **For the six months  ended June 30,** **For the three months  ended June 30,**  **** ****  **2001** **2000** **Change $** **2001** **2000** **Change $** Other operating expenses:             Salaries and employee benefits$3,662 $2,628 $1,034 $1,832 $1,259 $573  Occupancy452 399 53 236 202 34  Telephone151 131 20 73 63 10  Premises and equipment331 285 46 169 140 29  Marketing and promotions166 152 14 82 83 (1) Data processing472 410 62 240 196 44  Professional services392 352 40 194 160 34  Director, offcr and employee expense271 239 32 147 129 18  Office expenses242 154 88 98 73 25  ESOP loan expense102 102 - 51 51 -  Other expenses328 340 (12)201 228 (27)         Total other operating expenses$6,569 $5,192 $1,377 $3,323 $2,584 $739         
 

**Provision for Income Taxes**

Theeffective income tax rate was 41.5% for the six months ended June 30, 2001compared to 40.9% for the six months ended June 30, 2000.  Provisions for income taxes totaled $383,000and $167,000 for the six months ended June 30, 2001 and 2000, respectively.

Forthe three months ended June 30, 2001 and 2000, the effective income tax ratewas 45.2% and 40.8%, respectively. Provisions for income taxes totaled $198,000 and $136,000 for the threemonths ended June 30, 2001 and 2000, respectively.

**FINANCIAL CONDITION**

**Summary of Changes in Consolidated Balance SheetsJune 30, 2001 compared to December 31, 2000 and June 30, 2000**

Total assets of the Company increased to$325.7 million as of June 30, 2001 compared to $280.5 million as of December31, 2000 and $233.4 million as of June 30, 2000.  This increase was due to the growth in net loans to $262.3million as of June 30, 2001, compared to $245.2 million as of December 31,2000, and were $195.7 million as of June 30, 2000.

Deposits grew to $290.7 million as ofJune 30, 2001 compared to $252.7 million as of December 31, 2000 and were$208.6 million as of June 30, 2000. Cash and cash equivalents increased to $47.8 million as of June 30, 2001compared to $17.8 million as of December 31, 2000 and were $20.5 million as ofJune 30, 2000.  The increase in cash andcash equivalents was due to the increase in deposits and other borrowings,partially offset by the increase in total loans.
Shareholders’ equity was $12.9 million asof June 30, 2001 compared to $12.2 million as of December 31, 2000, and was$11.3 million as of June 30, 2000. Please refer to the capital section of this discussion for furtherinformation.

**Investments**

The Company’s investment portfolioconsists primarily of certificates of deposit with other financialinstitutions, agency securities and overnight investments in the Federal Fundsmarket.  As of June 30, 2001,certificates of deposit with other financial institutions totaled $497,000,compared to $790,000 as of December 31, 2000 and $1.3 million as of June 30,2000.  At each of the periodsapproximately $500,000 was pledged as collateral for the Employee StockOwnership Plan (“ESOP”) loan from another California bank, which was fundingthe Company’s ESOP.  US Government andother securities totaled $5.1 million as of June 30, 2001 compared to $6.8 millionas of December 31, 2000, and were $6.7 million at June 30, 2000.  These securities are held as collateral forpublic funds and treasury, tax and loan deposits.  Average Federal Funds sold for the six months ended June 30, 2001was $16.9 million compared to $12.1 million for the six months ended June 30,2000.

**Loans**

Loanbalances, net of the allowance for loan losses, increased to $262.3 million asof June 30, 2001, compared to $245.2 million as of December 31, 2000 and $195.7million as of June 30, 2000.  A healthyloan demand resulted in a 13.6% annualized growth rate in total gross loans forthe six months ended June 30, 2001, led by a 28.7% annualized increase in realestate commercial and multi-family loans. This rapid increase is due to the retention of the SBA 7a loans, as partof the Company’s change in strategy, which became effective January 1,2000.  The Company recently announcedthat it is entering the next phase of the SBA 7a retention program, whereby aportion of the future production of SBA 7a loans will be sold in order tomaintain the SBA loan portfolio at under 40% of total loans.  The servicing portfolio, which consistsprimarily of SBA loans sold to other investors, being serviced by the Companywas $72.1 million as of June 30, 2001 compared to$77.6 million as ofDecember 31, 2000 and was $87.8 million as of June 30, 2000.  The future sales of SBA 7a loans will resultin increases in the servicing portfolio.**Loan Origination and Sale.*  The following table sets forth the Company’sloan originations by category and purchases, sales and principal repayments ofloans for the periods indicated:
 At or for the six months At or for the three months  ended June 30, ended June 30,    2001 2000 2001 2000    (dollars in thousands) Beginning balance$245,199 $144,194 $264,866 $169,228 Loans originated:         Commercial loans6,357 9,686 4,320 6,429  Real estate:         Construction loans34,265 39,280 15,808 26,176  One-to four-family23,871 22,041 13,058 8,972  Commercial37,586 41,132 14,758 23,625  Consumer2,629 4,294 1,404 2,136        Total loans originated104,708 116,433 49,348 67,338 Loans sold         Real estate:         Construction loans1,783 - 1,783 -  One- To Four-Family16,500 6,372 11,257 3,263  Commercial10,405 2,601 7,674 1,562        Total loans sold28,688 8,973 20,714 4,825 Less:         Principal repayments58,341 56,195 30,936 36,014  Other net charges (1)538 (263)224 5        Total loans$262,340 $195,722 $262,340 $195,722       (1)Other net changes include changes in allowance  for loan losses, deferred loan fees, loans in process and unamortized  premiums and discounts.
*Nonperforming assets. *Nonperforming assetsconsist of nonperforming loans and other real estate owned (“OREO”).  Nonperforming loans are those loans whichhave (i) been placed on nonaccrual status, (ii) been subject to troubled debtrestructurings, or (iii) become contractually past due 90 days or more withrespect to principal or interest and have not been restructured or placed onnonaccrual status.
             The following table sets forth theCompany’s non-performing assets at the dates indicated:
 **June 30,** **December 31,** **June 30,**  **2001** **2000** **2000**  ****  **(dollars in  thousands)**        Non-accrual loans$2,356 $57 $1,765 Troubled debt restructurings- - - Loans contractually past due 90 days or more with respect  to either principal or interest and still accruing interest- - -     Total non-performing loans2,356 57 1,765 Other real estate owned- - -     Total non-performing assets$2,356 $57 $1,765     SUPPLEMENTAL DATA      Total Assets$325,697 $280,458 $233,392 Total gross loans$264,122 $247,339 $197,359 Total loans held for investment$247,985 $234,306 $187,749 Government guaranteed portion of total loans$48,181 $35,058 $24,495 Non-performing loans, net of government guarantees$602 $37 $559 Allowance for loan losses$2,230 $2,226 $1,637 Allowance for loan losses to total loans0.84%0.90%0.83%Allowance for loan losses to total loans held for  investment, net of government guarantees1.12%1.12%1.00%Allowance for loan losses to non-accrual loans95%3905%93%Allowance for loan losses to non-performing loans95%3905%93%Allowance for loan losses to non-performing loans, net of  government guarantees370%6016%293%Allowance for loan losses to non-performing assets95%3905%93%Total non-performing assets to total assets0.72%0.02%0.76%Total non-performing loans, net of government guarantees  to total assets0.18%0.01%0.24%Total non-performing loans to total loans0.89%0.02%0.89%Total non-performing loans, net of government guarantees,  to total loans0.23%0.01%0.28%
*Nonaccrual Loans.* Nonaccrual loans are impaired loans where theoriginal contractual amount may not be fully collectible.  The Company measures its impaired loans byusing the fair value of the collateral if the loan is collateral-dependent andthe present value of the expected future cash flows discounted at the loan’seffective interest rate if the loan is not collateral-dependent.  As of June 30, 2001, December 31, 2000 andJune 30, 2000 all impaired or nonaccrual loans were collateral-dependent.  The Company places loans on nonaccrual statusthat are delinquent 90 days or more or when a reasonable doubt exists as to thecollectibility of interest and principal. The Company had fifteen loans on nonaccrual status as of June 30, 2001,totaling $2.4 million.  Of this total$1.8 million is guaranteed by the SBA. As of December 31, 2000, the Company had eight loans on nonaccrualstatus, totaling $1.8 million, with $1.4 million guaranteed by the SBA. TheCompany had seven loans on nonaccrual status as of June 30, 2000, totaling $1.8million.  Of this total $1.2 million wasguaranteed by the SBA.

*Allowance for Loan Losses*.  The allowance for loan losses is establishedthrough a provision for loan losses based on management’s evaluation of therisks inherent in its loan portfolio and the general economy.  The allowance is increased by provisionscharged against earnings and reduced by net loan chargeoffs.  Loans are charged off when they are deemedto be uncollectible, or partially charged off when portions of a loan aredeemed to be uncollectible.   Recoveriesare generally recorded only when cash payments are received.
In determining the adequacy of theallowance for loan losses, management initially considers the allowancesspecifically allocated to individual impaired loans, and next considers thelevel of general loss allowances deemed appropriate for the balance of theportfolio based on factors including the levels of classified assets, generalportfolio trends relative to asset and portfolio size, asset categories,potential credit concentrations, nonaccrual loan levels, historical lossexperience, risks associated with changes in economic and business conditions,and other factors.  In addition, variousregulatory agencies, as an integral part of their examination process,periodically review the Company’s allowance for loan losses.  Such agencies may require the Company tomake additional provisions for loan losses based upon judgments which differfrom those of management.

The following table sets forthinformation regarding the Company’s allowance for loan losses at the dates andfor the periods indicated:
 At or for the six months  ended June 30,    2001 2000    (dollars in thousands)      Balance at beginning of period$2,226 $1,327 Chargeoffs:     Real estate loans:     One- to four- family- -  Commercial96 58  Consumer1 19     Total chargeoffs97 77      Recoveries:     Real estate loans:     One- to four-family- -  Commercial6 49  Consumer1 1     Total recoveries7 50    Net chargeoffs90 27 Provision for loan losses94 337    Balance at end of period$2,230 $1,637    Net charge offs to average loans0.07%0.03%
The balance in the allowance for loanlosses was $2.2 million as of June 30, 2001 and December 31, 2000, and was $1.6million as of June 30, 2000.  As apercentage of total loans the allowance was 0.84% as of June 30, 2001 comparedto 0.90% as of December 31, 2000 and was 0.83% as of June 30, 2000.  As a percentage of total loans held forinvestment, net of the government guarantees, the allowance was 1.12% as ofJune 30, 2001, compared to 1.12% as of December 31, 2000 and was 1.00% as ofJune 30, 2000.  Management believes theallowance at June 30, 2001 is adequate based upon its ongoing analysis of theloan portfolio, historical loss trends and other factors.

*Other Real Estate Owned.*Therewas no other real estate owned at June 30, 2001 and December 31, 2000.****Capital**

TheCompany’s capital was approximately $12.9 million as of June 30, 2001 comparedto $12.2 million as of December 31, 2000 and was $11.3 million as of June 30,2000.  In 1997 the Company adopted anEmployee Stock Ownership Plan ("ESOP") which was funded with a $1.2million line of credit.  As of June 30,2001 the indebtedness of the ESOP in the amount of $694,000 million is shown asa deduction from shareholders’ equity. In future years capital will be increased as the unearned ESOPcontributions are made by the Company. During the three month period ended June 30, 2001, the Company repaidprincipal totaling $51,000.  The Companyanticipates advancing an additional $147,000 during the third quarter of 2001,and is planning to contribute approximately $204,000 annually to this program untilthe loan is repaid.

As part of the Company’s strategic plan,during the third quarter of 1998 the Board elected to eliminate cash dividendsin favor of retaining earnings to support future growth. A 5% stock dividendwas declared on October 17, 2000 to be paid on November 30, 2000 toshareholders of record as of November 15, 2000.

The Company’s strategic plan addressesthe future capital needs of the Company. During March, 2000, the Company's wholly owned subsidiary, Community(CA) Capital Trust I (the "Trust"), a Delaware business trust, issued$10 million of 11.0% Fixed Rate Capital Trust Pass-through Securities("TRUPS-Registered Trademark-"), with a liquidation value of $1,000per share.  The securities havesemi-annual interest payments, with principal due at maturity in 2030.  The Trust used the proceeds from the sale ofthe trust preferred securities to purchase junior subordinated debentures ofthe Company.  The Company received $9.7million from the Trust upon issuance of the junior subordinated debentures, ofwhich $3.2 million was used to pay off borrowings of the Company, and $5.8million was contributed to the Bank to increase its capital. The $10 million isshown as other borrowings on the books of the Company.

In June of 2001, the Company obtained a$2.0 million line of credit from a correspondent bank.  At the end of June, $1.0 million wasadvanced on this line, and all of the proceeds from this advance were investedin the Bank subsidiary as additional paid in capital.

Management considers capital requirementsas part of its strategic planning process. The strategic plan calls for continuing increases in assets andliabilities, subject to market conditions and competition, and the capitalrequired will therefore be in excess of retained earnings. The ability toobtain capital is dependent upon the capital markets as well as performance ofthe Company.  Management regularlyevaluates sources of capital and the timing required to meet its strategic objectives.As part of its strategic planning process, the Company completed a privateplacement of $3.1 million in common stock at the end of July 2001.  See, “ITEM 2 – CHANGE IN SECURITIES AND USEOF PROCEEDS.”

At June 30, 2001 and December 31, 2000,all capital ratios were above all current Federal capital guidelines for a“well capitalized” bank.   As of June30, 2001, the Bank’s regulatory Total Capital to risk-weighted assets ratio was11.29% compared to 10.75% as of December 31, 2000.  The Bank’s regulatory Tier 1 Capital to risk-weighted assetsratio was 10.33% as of June 30, 2001 compared to 9.76% as of December 31,2000.  The Bank’s regulatory Tier 1Capital to average assets ratio was 7.77% as of June 30, 2001 compared to 8.53%as of December 31, 2000.

As of June 30, 2001, the Company’s regulatoryTotal capital to risk-weighted assets ratio was 10.77% compared to 10.68% as ofDecember 31, 2000.  The Company’sregulatory Tier 1 Capital to risk-weighted assets ratio was 7.37% as of June30, 2001, compared to 7.12% as of December 31, 2000.  The Company’s regulatory Tier 1 Capital to average assets ratiowas 5.55% as of June 30, 2001, compared to 5.88% as of December 31, 2000.
**Liquidity**

The Bank closely monitors its liquidityso that the cash requirements for loans and deposit withdrawals are met in aneconomical manner.  Management monitorsliquidity in relation to trends of loans and deposits for short term and longterm requirements.  Liquidity sourcesare cash, deposits with other banks, overnight Federal Funds investments,unpledged interest bearing deposits at other banks, investment securities andthe ability to sell loans.   As of June30, 2001 liquid assets as a percentage of deposits were 13.34% compared to 8.4%as of December 31, 2000.

**Part II OTHER INFORMATION**

**Item 1**  **Legal Proceedings**

None to report

**Item 2**  **Changes in Securities**

On July 27, 2001, the Company completedthe private placement of 473,504 shares of common stock at an average price of$6.63 per share to certain “accredited investors” including certain directorsand an officer of the Company and the Bank and their related interests.  An investment banking firm retained by theCompany issued a fairness opinion in connection with the transaction.

Of the $3,137,498 in gross proceeds fromthe sale of the stock, the Company used $1.0 million of the proceeds to repaydebt and $2.0 million of the proceeds were invested as equity capital in theBank.  The remaining net proceeds wereretained by the Company as working capital.

The sale of the common stock is exemptfrom the registration provisions of the Securities Act of 1933 by virtues ofSection 4(2) of such Act and Regulation D promulgated pursuant thereto inasmuchas the sale was limited to 14 investors of which all were “accreditedinvestors” within the meaning of Regulation D. No underwriter or placement agent was used in the transaction.

**Item 3**  **Defaults upon senior securities**

None to report

**Item 4**  **Submission of matters to security holders**

On May 30, 2001 the Company had itsannual Shareholders Meeting.  At themeeting the shareholders elected the following directors:
DirectorsVotes  For Votes  Withheld Shares  Not Voted    Mark N. Baker2,315,750 2,729 351,927 Gary W. Deems2,315,750 2,729 351,927 G. Bruce Dunn2,315,750 2,729 351,927 Granger Haugh2,315,225 3,254 351,927 Robert H. S.  Kirkpatrick2,308,683 9,796 351,927 E. Steve LeFevre2,314,995 3,484 351,927 Philip D. Oberhansley2,290,709 27,770 351,927 Corey A. Seale2,311,585 6,894 351,927 Thomas E. Swanson2,315,094 3,385 351,927 Gary M. Youmans2,289,623 28,856 351,927 
 

No other matters were submitted to thesecurity holders.

**Item 5**  **Other information**

None to report

**Item 6  Exhibits andReports from 8-K**

None to report
(SIGNATURES)

             Pursuantto the requirements of the Exchange Act, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
  Community  Bancorp Inc.    (Registrant)      Date   August  14, 2001/s/  Thomas E. Swanson      Thomas  E. Swanson  President  and Chief Executive Officer      Date   August  14, 2001/s/  L. Bruce Mills, Jr.      L.  Bruce Mills, Jr.  Sr.  Vice President, Chief Financial Officer
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