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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-KSB



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(Mark One)

|x | Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



| ̈ | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------



For the transition period from  to



Commission File Number 000-32385



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Pacifica Bancorp, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Washington                                                     |  | 91-2094365                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



Skyline Tower, 10900
NE 4thStreet, Suite 200, Bellevue, WA 98004

(Address of principal executive offices) (Zip Code)



Registrants Telephone Number: (425) 637-1188



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Securities Registered Pursuant to Section 12(b) of the Act: None



Securities Registered Pursuant to Section 12(g) of the
Act:



Common Stock

(Title of class)



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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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    Yes  x    No ̈



Indicate by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-B (17 C.F.R. 228.405) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.    Yes ̈No  x



Registrants revenues for its most recent fiscal year: $11,076,000.



The aggregate market value of common stock held by non-affiliates of
registrant at February 28, 2005 was $22,881,222 based upon the most recent known sale price of the registrants common stock. The registrants securities are not listed on a national securities exchange nor are sale, bid or ask information
recorded by any automated quotation system.



The number of shares of
registrants common stock outstanding at March 1, 2005 was 3,520,188.



Documents incorporated by reference and parts of Form 10-KSB into which incorporated:



Registrants definitive Proxy Statement Dated March 17, 2005  Part III, except part
of Item 9, as indicated. The Audit Committee Report contained in the Proxy Statement is not incorporated into this Form 10-KSB.



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TABLE OF CONTENTS



|                                  |  |                                                                                                                                                                                                                                       |  |                                                                                                                |  |   
|--------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | --
|SELECTED FINANCIAL DATA           |  |                                                                                                                                                                                                                                      
|                                  | 
|MESSAGE TO OUR SHAREHOLDERS       |  |                                                                                                                                                                                                                                      
|                                  | 
|COMPANY PROFILE                   |  |                                                                                                                                                                                                                                      
|                                  | 
|FORM 10-KSB                       |  |                                                                                                                                                                                                                                      
|                                  | 
|Part I                            |  |                                                                                                                                                                                                                                      
|                                  |  | Item 1                                                                                                                                                                                                                                |  | Description of Business                                                                                        |  | 1 
|                                  |  | Item 2                                                                                                                                                                                                                                |  | Properties                                                                                                     |  | 6 
|                                  |  | Item 3                                                                                                                                                                                                                                |  | Legal Proceedings                                                                                              |  | 6 
|                                  |  | Item 4                                                                                                                                                                                                                                |  | Submission of Matters to a Vote of Security Holders                                                            |  | 6 
|                                  | 
|Part II                           |  |                                                                                                                                                                                                                                      
|                                  |  | Item 5                                                                                                                                                                                                                                |  | Market for Common Equity and Related Stockholder Matters                                                       |  | 7 
|                                  |  | Item 6                                                                                                                                                                                                                                |  | Managements Discussion and Analysis or Plan of Operation                                                      |  | 8 
|                                  |  |                                                                                                                                                                                                                                       | 
|                                  |  | Item 7                                                                                                                                                                                                                                |  | Financial Statements                                                                                           |  |   
|                                  |  |                                                                                                                                                                                                                                       |  | Report of Independent Registered Public Accounting Firm                                                        |  | 26
|                                  |  |                                                                                                                                                                                                                                       |  | Balance Sheet                                                                                                  |  | 27
|                                  |  |                                                                                                                                                                                                                                       |  | Statement of Income                                                                                            |  | 28
|                                  |  |                                                                                                                                                                                                                                       |  | Statement of Changes in Stockholders Equity                                                                   |  | 29
|                                  |  |                                                                                                                                                                                                                                       |  | Statement of Cash Flows                                                                                        |  | 30
|                                  |  |                                                                                                                                                                                                                                       |  | Notes to Financial Statements                                                                                  |  | 31
|                                  |  | Item 8                                                                                                                                                                                                                                |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                           |  | 52
|                                  |  | Item 8A                                                                                                                                                                                                                               |  | Controls and Procedures                                                                                        |  | 52
|                                  |  | Item 8B                                                                                                                                                                                                                               |  | Other Information                                                                                              |  | 52
|                                  | 
|Part III                          |  |                                                                                                                                                                                                                                      
|                                  |  | Item 9                                                                                                                                                                                                                                |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of theExchange Act |  | 52
|                                  |  | Item 10                                                                                                                                                                                                                               |  | Executive Compensation                                                                                         |  | 53
|                                  |  | Item 11                                                                                                                                                                                                                               |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                 |  | 53
|                                  |  | Item 12                                                                                                                                                                                                                               |  | Certain Relationships and Related Transactions                                                                 |  | 53
|                                  |  | Item 13                                                                                                                                                                                                                               |  | Exhibits                                                                                                       |  | 53
|                                  |  | Item 14                                                                                                                                                                                                                               |  | Principal Accountant Fees and Services                                                                         |  | 54
|                                  | 
|FORM 10-KSB CROSS-REFERENCE INDEX |  | 55                                                                                                                                                                                                                                   
|                                  | 
|SIGNATURES                        |  |                                                                                                                                                                                                                                      
|CERTIFICATIONS                    |  |                                                                                                                                                                                                                                      
|                                  | 
|NOTE:                             |  | This annual report serves as the Banks annual disclosure statement under requirements of the Federal Deposit InsuranceCorporation (FDIC). This statement has not been
reviewed, or confirmed for accuracy or relevance, by the FDIC.



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##### Table of Contents

The following table presents certain selected balance sheet and income statement data, as well as certain key
financial ratios, for the five year period ended December 31, 2004. Certain income and expense items for 2002 and 2001 have been adjusted to reflect the closure of the Companys subsidiary, Pacifica Mortgage Company, during 2003. Income and
expenses for Pacifica Mortgage Company are reported as Loss from Discontinued Operations. The Bank became a wholly-owned subsidiary of Pacifica Bancorp, Inc. effective January 1, 2001. Data for 2000 reflects only the financial
information and business operations of the Bank.



|                                                            |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|----------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|(Dollars in thousands, except ratios and per share amounts) |  | 2004 |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Statement of Operations Data                                |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net interest income                                         |  | $    | 8,020   |   |      | $ | 6,735   |      |  | $ | 5,900   |   |  | $    | 5,286   |   |  | $ | 5,485   |  
|Provision for loan losses                                   |  |      | (725    | ) |      |   | (900    | )    |  |   | (603    | ) |  |      | 4,642   |   |  |   | 717     |  
|Non-interest income                                         |  |      | 790     |   |      |   | 823     |      |  |   | 566     |   |  |      | 2,234   |   |  |   | 415     |  
|Non-interest expense                                        |  |      | 6,710   |   |      |   | 7,092   |      |  |   | 6,508   |   |  |      | 5,576   |   |  |   | 4,305   |  
|Net income (loss) available to shareholders                 |  |      | 3,085   |   |      |   | 1,178   |      |  |   | 94      |   |  |      | (2,965  | ) |  |   | 878     |  
|                                                            |  |      |         |   |     
|Per Share                                                   |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss) - basic                                   |  | $    | 0.90    |   |      | $ | 0.34    |      |  | $ | 0.03    |   |  | $    | (0.86   | ) |  | $ | 0.26    |  
|Net income (loss) - diluted                                 |  |      | 0.87    |   |      |   | 0.34    |      |  |   | 0.03    |   |  |      | (0.86   | ) |  |   | 0.23    |  
|Book value                                                  |  |      | 4.68    |   |      |   | 3.68    |      |  |   | 3.55    |   |  |      | 3.44    |   |  |   | 4.60    |  
|                                                            |  |      |         |   |     
|Averages                                                    |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total assets                                                |  | $    | 165,575 |   |      | $ | 155,881 |      |  | $ | 161,972 |   |  | $    | 161,323 |   |  | $ | 110,689 |  
|Earning assets                                              |  |      | 159,626 |   |      |   | 151,211 |      |  |   | 159,558 |   |  |      | 157,760 |   |  |   | 107,070 |  
|Loans, net of deferred loan fees                            |  |      | 124,900 |   |      |   | 108,663 |      |  |   | 109,757 |   |  |      | 111,850 |   |  |   | 82,860  |  
|Securities                                                  |  |      | 23,786  |   |      |   | 25,347  |      |  |   | 22,253  |   |  |      | 23,749  |   |  |   | 12,150  |  
|Deposits                                                    |  |      | 139,355 |   |      |   | 137,632 |      |  |   | 146,405 |   |  |      | 143,007 |   |  |   | 95,031  |  
|Shareholders equity                                        |  |      | 14,144  |   |      |   | 12,514  |      |  |   | 11,739  |   |  |      | 15,179  |   |  |   | 14,287  |  
|                                                            |  |      |         |   |     
|Financial Ratios                                            |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net interest margin                                         |  |      | 5.02    | % |      |   | 4.45    | %    |  |   | 3.71    | % |  |      | 3.35    | % |  |   | 5.12    | %
|Return on average assets                                    |  |      | 1.86    | % |      |   | 0.76    | %    |  |   | 0.06    | % |  |      | -1.84   | % |  |   | 0.79    | %
|Return on average equity                                    |  |      | 21.81   | % |      |   | 9.41    | %    |  |   | 0.80    | % |  |      | -19.53  | % |  |   | 6.15    | %
|Efficiency ratio                                            |  |      | 76.16   | % |      |   | 93.83   | %    |  |   | 100.65  | % |  |      | 74.15   | % |  |   | 72.97   | %
|Average equity to average assets                            |  |      | 8.54    | % |      |   | 8.03    | %    |  |   | 7.25    | % |  |      | 9.41    | % |  |   | 12.91   | %
|                                                            |  |      |         |   |     
|Balance Sheet Data                                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total assets                                                |  | $    | 170,097 |   |      | $ | 161,869 |      |  | $ | 164,688 |   |  | $    | 171,364 |   |  | $ | 138,650 |  
|Loans                                                       |  |      | 133,596 |   |      |   | 116,770 |      |  |   | 109,735 |   |  |      | 105,878 |   |  |   | 105,822 |  
|Allowance for loan losses                                   |  |      | 2,116   |   |      |   | 2,230   |      |  |   | 2,919   |   |  |      | 3,530   |   |  |   | 1,306   |  
|Available for sale securities                               |  |      | 21,888  |   |      |   | 27,360  |      |  |   | 22,518  |   |  |      | 33,177  |   |  |   | 17,661  |  
|Deposits                                                    |  |      | 137,267 |   |      |   | 133,712 |      |  |   | 148,320 |   |  |      | 155,969 |   |  |   | 120,411 |  
|Shareholders equity                                        |  |      | 15,992  |   |      |   | 12,614  |      |  |   | 12,176  |   |  |      | 11,797  |   |  |   | 15,626  |  
|                                                            |  |      |         |   |     
|Nonperforming Assets                                        |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Nonperforming assets                                        |  | $    | 257     |   |      | $ |        |      |  | $ | 214     |   |  | $    | 478     |   |  | $ | 22      |  
|Net loan chargeoffs/(recoveries)                            |  |      | (611    | ) |      |   | (211    | )    |  |   | 8       |   |  |      | 2,418   |   |  |   |        |  
|                                                            |  |      |         |   |     
|Capital Ratios                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Leverage ratio                                              |  |      | 9.61    | % |      |   | 8.27    | %    |  |   | 7.81    | % |  |      | 6.82    | % |  |   | 11.45   | %
|Tier 1 risk-based capital ratio                             |  |      | 10.69   | % |      |   | 9.80    | %    |  |   | 9.47    | % |  |      | 9.82    | % |  |   | 12.00   | %
|Total risk-based capital ratio                              |  |      | 11.94   | % |      |   | 11.06   | %    |  |   | 11.98   | % |  |      | 11.09   | % |  |   | 13.05   | %



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PART I



The following discussion includes
forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the Exchange Act). Forward-looking statements are managements beliefs and assumptions based on currently
available information and are subject to various risks and uncertainties. Other than statements of historical fact regarding our financial position, business strategies and managements plans and objectives for future operations are
forward-looking statements. When used in this report, the words anticipate, believe, estimate, expect, and intend and words or phrases of similar meaning, as they relate to Pacifica or
management, are intended to help identify forward-looking statements. Although we believe that managements expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to
be correct. Actual results may vary materially and adversely. The risks and uncertainties that affect our forward-looking statements include the geographic concentration of our customers, our ability to maintain or expand our market share or net
interest margins, and competitive and economic issues that impact our ability to implement our marketing and growth strategies. Further, actual results may be affected by our ability to compete on price and other factors with other financial
institutions; customer acceptance of new products and services; the regulatory environment in which we operate; and general trends in the local, regional and national banking industry as those factors relate to our cost of funds and return on
assets. In addition, there are risks inherent in the banking industry relating to collectibility of loans and changes in interest rates. Many of these risks, as well as other risks that may have a material adverse impact on our operations and
business, are identified in our filings with the FDIC and those identified from time to time in our filings with the SEC. Please also see Managements Discussion and Analysis or Plan of Operation  Factors That May Affect our
Financial Condition and Results of Operations in this Form10-KSB.



A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those events or circumstances may not occur. Users should not place undue reliance on the forward-looking statements, which speak
only as of the date of this report. The Company is under no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.



ITEM 1. DESCRIPTION OF BUSINESS



General



Pacifica Bancorp, Inc. (the
Bancorp) is a bank holding company for Pacifica Bank (the Bank), (collectively Pacifica or the Company). The Bancorp was organized under the laws of the State of Washington in October 2000 and is
headquartered in Bellevue, Washington. The Bank commenced banking operations in October 1998. The Bank is a Washington state-chartered commercial bank, the deposits of which are insured by the Federal Deposit Insurance Corporation (the
FDIC). The Company closed its wholly-owned subsidiary Pacifica Mortgage Company effective March 31, 2003, and processed residual transactions throughout the rest of 2003. The Company currently provides mortgage services via referrals to
select mortgage brokers to serve our customers efficiently and to generate fee income.



Our Internet website address is http://www.pacificabank.com. Our Securities Exchange Act reports are available free of charge on our Internet website. Our reports can also be obtained through the Securities and Exchange
Commissions (the SEC) EDGAR database at http://www.sec.gov. The contents of our Internet website are not incorporated into this report or into any other communication delivered to security holders or furnished to the SEC.



The Company offers a full range of commercial banking services primarily to
customers in the Bellevue and Seattle, Washington business districts. Pacificas marketing strategy and general business plan are similar to strategies that have proven successful in comparable situations involving new banks organized in the
Pacific Northwest during the last several years. Pacifica targets small to mid-sized businesses, professionals, and various Asian communities and companies doing business in Asia for commercial banking services because we believe these groups may be
currently under-served by other financial institutions.



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##### Table of Contents

We continue to focus on loans to small and medium-sized businesses while serving the Asian community with a high level of
personal customer service. Our loan products include inventory and receivable financing, owner occupied real-estate loans and real estate investment loans, real estate development loans, and custom construction loans. We enhance our business banking
services with products such as Internet banking, cash management, and Merchant Visa with special emphasis on developing deposit relationships with our loan customers; particularly, as it relates to increased demand deposit balances to help fund our
growth. Our international department focuses on continuing to meet the growing trade related requirements of our customers.



Management regularly reviews our products and services and those of our competitors in order to provide customers more options and higher quality service. Our Internet
online banking services include Cash Management and Online Bill Pay. We converted all of our ATM card service to a Visa Debit Card service in order to enhance our products for our customers.



The Company opened its branch office in Seattle in December 2001. This allows Pacifica to
expand our network and better serve our customers in Seattles industrial and downtown areas as well as the international district.



Business Strategies



The Board of Directors and Management developed a Five-Year Strategic Plan (the Strategic Plan) in the second quarter of 2003. The Strategic Plan was designed to increase shareholder value by strengthening the
Companys financial performance through improved asset quality and operating efficiences and resulting improved earnings.



Pursuant to the Strategic Plan we:



| |  |  | Restructured our lending team and added two experienced loan officers and a business development officer to help generate more new loans;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Strengthened our credit administration function and improved our overall loan quality, while putting forth a significant effort to grow the loan portfolio;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Took various measures to cut operating costs;
| | - |  | ---------------------------------------------



| |  |  | Continued to monitor and adjust our staffing needs while restructuring job responsibilities to increase overall productivity and efficiency;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Formed a Funds Management Committee consisting of executive management and members from credit administration, lending, operations and private banking to analyze the asset and
liability management strategies of the Company, including the continuing evaluation of pricing for loans and deposits with a goal of increasing our net interest margin;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continued to focus on structuring the balance sheet more efficiently to decrease our funding costs.
| | - |  | ---------------------------------------------------------------------------------------------------



During 2004, as part of our effort to restructure and enhance our lending team, the Board of Directors promoted the Senior Vice President
and Manager, Emily Yeh, from our Bellevue commercial banking center to Chief Lending Officer.



The Company continues to look at various ways to enhance our core earnings and reduce operational expenses in order to improve overall efficiency without losing our focus on customer service, regulatory compliance and
credit quality.



Supervisory Directive



Due to the improved condition of the Bank, effective February 17, 2005, the bank regulators
removed the supervisory directive (as discussed beginning at page 4 below). The removal of the supervisory directive will allow for greater flexibility going forward as the Company continues its efforts to further penetrate its market area and grow
the loan portfolio with good quality loans originated from our core constituencies.





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Staffing and Compensation Assessment



During the first half of 2004, we conducted a bank-wide staffing assessment with the assistance of Milliman U.S.A., Inc., a national global
actuarial and benefit firm. As a result of this assessment, we restructured certain staffing areas to increase efficiency throughout the Company. We also restructured our compensation philosophy to include a greater emphasis on performance based
incentives such as bonuses and stock based compensation.



Pacifica Bancorp,
Inc. and Pacifica Bank Board of Directors and Officers



See inside back
cover of the annual report.



Market Area



The primary market area from which we attract the majority of our customers is King County,
Washington. Pacifica has its main office in the central business district of Bellevue, Washington, located approximately 10 miles east of Seattle, with a branch office in downtown Seattle. We also attract customers from the greater Bellevue area,
the greater Seattle area and from communities along the I-5 corridor from Everett to Olympia, Washington. Pacificas market area has undergone significant business diversification, and the regional economy experienced strong growth and
stability during the 1990s, fueled largely by the technology and aerospace sectors. However, the regional economy slowed noticeably during 2001, with a number of large employers, including Boeing, the largest employer in the Pacific Northwest,
announcing layoffs and other workforce reductions. During 2002, Pacificas market area continued to feel the effects of the countrys overall economic slowdown, which appears to have been particularly pronounced in the Pacific Northwest,
including unemployment levels above the national average. During 2003 and the first half of 2004, the region experienced relatively slow growth and recovery. In the second half of 2004 and into 2005, the economy appears to have revived and is moving
in a more robust trend.



Competition



The Company operates in a highly competitive environment, competing for deposits, loans and
other financial services with both banking and non-financial institutions. Competition among financial institutions in Pacificas primary market area is diverse, with the strongest competition coming from commercial banks, savings banks,
savings and loan associations and brokerage firms.



Our banking competitors
include national and super-regional banks, as well as a number of regional and community banks. Major banks have competitive advantages over Pacifica in that they have high public visibility and are able to maintain advertising and marketing
activity on a much larger scale than Pacifica. Since single borrower lending limits imposed by law are dependent upon the capital of a banking institution, the branches of larger banks with substantial capital bases are also at an advantage with
respect to loan applications that exceed Pacificas legal lending limit. However, these larger institutions generally serve a different customer base than that targeted by Pacifica, thus management believes we can compete effectively based upon
our marketing plan, which targets small businesses, professionals and consumers who demand better service and more personalized products than larger institutions are willing to provide to small customers.



New start-up banks continue to enter our market which can result in significant challenges to
existing banks, including Pacifica, to maintain a competitive level. Further, an increase in competition with community banks will require us to focus carefully on customer service while maintaining asset mixes and competitive rates to maintain
growth.



In order to compete with other financial institutions in our primary
market area, whenever possible, Pacifica uses the flexibility that is typical of being a locally-owned and managed community bank. Pacifica emphasizes personal, professional, responsive, accessible, flexible and innovative service. Loan and consumer
banking products and services are packaged so that Pacificas loan, deposit and fee structures are competitive with the rest of the industry.



3



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##### Table of Contents

Management continues to believe bank competition may change dramatically over the next several years as the major
regional banks continue to consolidate. In addition, we will continue to experience increased competition from non-banking companies especially in light of the changes in federal banking laws that eliminate certain barriers between banking and
commercial firms.



Employees



At December 31, 2004, the Company employed 47 full-time employees. None of our employees are
represented by a collective bargaining group. Management considers its relationship with employees to be satisfactory.



Regulation and Supervision



General



The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (BHC Act) registered with and subject to examination by the Board of Governors of the Federal Reserve System
(the FRB). The Bank is a Washington state-chartered commercial bank and is subject to examination, supervision and regulation by the Washington State Department of Financial Institutions (the State or the
Department) and by the FDIC, which insures the Banks deposits.



Banking is a highly regulated industry. Pacificas earnings and activities are affected by legislation, by actions of the FRB, the Department, the FDIC and other regulators, and by local legislative and administrative bodies and
decisions of courts in Washington State. That legislation and regulation, do and will continue in the future to potentially:



| |  |  | limit Pacificas ability to pay a dividend;
| | - |  | -------------------------------------------



| |  |  | impose additional requirements on the making, enforcement and collection of consumer loans;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | limit or expand Pacificas permissible activities, including Pacificas ability to sell mutual funds and other uninsured investment products to customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit the finance charges or other fees or charges Pacifica can earn in such activities;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | increase Pacificas cost of doing business by changing the laws and regulations governing the operations and taxation of banks and other financial institutions;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | affect the competitive balance between banks and other financial and non-financial institutions; or
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | further regulate banking and financial services.
| | - |  | ------------------------------------------------



The likelihood of any such changes and their impact on us are impossible to predict. There can be no assurance whether any legislation or regulation will place additional
limitations on Pacificas operations or adversely affect Pacificas earnings. The earnings of Pacifica are also affected by general economic conditions and the conduct of monetary policy by the U.S. government.



Supervisory Directive



Due to the improved condition of the Bank, effective February 17, 2005, the bank regulators
removed the Supervisory Directive originally imposed in March 2002 and amended in 2003 and 2004. The Supervisory Directive addressed a number of issues related to the Banks growth, earnings, and capital, by:



| |  |  | temporarily limiting the Banks ability to declare or pay dividends, which limited the Bancorps ability to derive income from that subsidiary;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | temporarily limiting the Banks maximum asset size to $180 million;
| | - |  | -------------------------------------------------------------------



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##### Table of Contents

| |  |  | requiring the Banks Tier I Leverage Capital ratio to be maintained at 8% or greater and the Bank to maintain a well-capitalized designation as defined by FDIC
regulations; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requiring the Bank to discuss certain growth, earnings and capital augmentation strategies in its strategic and capital plans and by continuously monitoring its progress in
achieving its goals.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Recent Reform Legislation



Congress enacted major federal financial institution legislation in
1999. Among other things, the legislation allows certain affiliations among securities, insurance, banking and other financial companies and provides for the creation of financial holding companies and financial subsidiaries.



Affiliate Transactions



Federal law imposes certain restrictions on transactions between insured depository
institutions and their nonbank subsidiaries. With certain exceptions, federal law also imposes limitations on, and requires collateral for, extensions of credit by insured depository institutions to their nonbank affiliates. As an FDIC insured
depository institution, the Bank is subject to these restrictions and limitations.



Branching and Interstate Acquisitions



Federal law
allows (a) banks in states that do not prohibit out-of-state mergers to merge with the approval of the appropriate federal banking agency, and (b) state banks to establish de novo branches out of their state if such branching is expressly permitted
by the other state.



Banking Activities



Federal and Washington state law and regulations govern the Banks minimum capital
requirements, required reserves against deposits, investments, loans (including loans to directors, officers and principal shareholders), legal lending limits, mergers and consolidations, borrowings, payment of dividends, establishment of branches
and other aspects of its operations. The Department and the FDIC also have extensive authority to prohibit banks under their supervision from engaging in what they consider to be unsafe and unsound practices.



Capital Adequacy Requirements



The FDIC has adopted regulations establishing minimum requirements for the capital adequacy
of insured banks which address both risk-based capital and leverage capital. See Note 8- Stockholders Equity. The FRB has also established capital adequacy requirements for bank holding companies similar to those for banks.



Reports and Examinations



Pacifica is required to file periodic reports with the FDIC, the FRB and the Department and
is subject to periodic examinations and evaluations by those regulatory authorities. These examinations must be conducted every 12 to 18 months. It is the policy of the Department to conduct joint examinations with the FDIC whenever possible.



Priority of Claims



In the liquidation or other resolution of a failed insured depository institution, deposits
in offices and certain claims for administrative expenses and employee compensation are afforded a priority over other general unsecured claims, including non-deposit claims. Such priority creditors would include the FDIC, which succeeds to the
position of insured depositors.



Securities Reporting



Pacifica is subject to the information, proxy solicitation, insider trading restrictions
and other requirements of the Securities Exchange Act of 1934 and the Sarbanes Oxley Act of 2002. Prior to December 31, 2000, the Bank filed recurring reports under the Securities Exchange Act with the FDICs Registration, Disclosure and
Securities Information Unit. After that date, all recurring reports relating to Pacifica Bancorp Inc. are filed with the Securities and Exchange Commission and are available on the SECs EDGAR database at http://www.sec.gov.



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##### Table of Contents

USA Patriot Act of 2001



Under the USA Patriot Act of 2001, adopted by the U.S. Congress on October 26, 2001 to combat terrorism, FDIC insured banks and commercial
banks will be required to increase their due diligence efforts for correspondent accounts and private banking customers. The USA Patriot Act requires the Bank to engage in additional record keeping or reporting, requiring identification of owners of
accounts, or of the customers of foreign banks with accounts, and restricting or prohibiting certain correspondent accounts.



ITEM 2. DESCRIPTION OF PROPERTY



Pacificas
banking operations and administrative functions are carried on at its main office, located in the Skyline Tower, 10900 NE 4thStreet, Bellevue, Washington 98004, in the central business district of Bellevue. Pacificas Seattle Office is located at 705 5thAvenue South, Seattle, Washington 98104. Pacifica currently leases approximately 21,648 square feet for operations of the Bank and does not plan to rent additional space during 2005.



ITEM 3. LEGAL PROCEEDINGS



From time to time,
Pacifica may be a party to routine litigation incidental to its business. Pacifica is not currently a party to any litigation, the adverse determination of which would be likely to have a material adverse effect upon its business operations or
assets.



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



NONE.



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PART II



ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



Market for Common Equity



Pacificas stock is not listed on any exchange or quoted on any inter-dealer quotation system or traded on an over-the-counter market. We have not been notified that any broker makes a market in Pacificas common stock, and sales
are minimal. Due to the limited information available, the following price information may not accurately reflect the actual market value of Pacificas shares. The following are the high and low sale prices for Pacificas stock sold
between individual investors in transactions known to Pacifica, during 2004 and 2003.



|                    |  |                          |         |      |     |   |      |  |   |         |     |  |   |     
|------------------- |  | ------------------------ | ------- | ---- | --- | - | ---- |  | - | ------- | --- |  | - | ----
|                    |  | Years Ended December 31,
|                    |  | 2004                     |         | 2003
|                    |  | High                     |         |      | Low |   | High |  |   | Low    
|First quarter       |  | $                        | 6.50    |      |     | $ | 5.50 |  | $ | 5.15    |     |  | $ | 4.00
|Second quarter      |  |                          | 6.00    |      |     |   | 6.00 |  |   | 5.00    |     |  |   | 4.00
|Third quarter       |  |                          | 7.00    |      |     |   | 5.50 |  |   | 4.75    |     |  |   | 3.90
|Fourth quarter      |  |                          | 6.50    |      |     |   | 6.00 |  |   | 5.25    |     |  |   | 4.80
|                    |  |                          |         |     
|Total shares traded |  |                          | 2004    |      |     |   |      |  |   | 2003    |     |  |   |     
|                    |  |                          |         |      |     |   |      |  |   |         |     |  |   |     
|                    |  |                          | 129,482 | (1)  |     |   |      |  |   | 132,655 | (2) |  |   |     

---

|(1) | Exclusive of the exercise of stock options by existing and former employees totaling 47,795 shares at $4.88 per share.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(2) | Exclusive of the exercise of stock options by existing and former employees totaling 7,000 shares at $5.00 per share.
|--- | ---------------------------------------------------------------------------------------------------------------------



As of December 31, 2004, Pacificas common stock was held of record by approximately 558
shareholders, a number that does not include beneficial owners who hold shares in street name.



Cash Dividends



Federal and applicable state banking laws and regulations limit the Banks ability to pay dividends to the Company, and as a result, those laws and regulations indirectly limit the Companys ability to meet
its expenses or to pay dividends to shareholders. The Companys dividend policy provides that the Board of Directors will declare dividends only if the Company is considered to have adequate capital and adequate earnings. The Company plans to
retain earnings to support planned growth over the near term and does not anticipate paying dividends in the foreseeable future.



During 2004, the Bank requested authorization from the bank regulators to pay a dividend to the Company in order to pay-off debt the Company previously incurred due to
the redemption of the Companys preferred stock (see additional discussion under Borrowings). The Bank received approval and paid a $2.5 million dividend to the Company in April 2004 to pay down the Companys outstanding debt.



Stock Dividends



The Company paid a 5% common stock dividend to shareholders of record as of September 15,
2004. The stock dividend was paid on September 30, 2004, with each shareholder receiving the equivalent of 5 additional shares of common stock for every 100 shares owned at the close of business on September 15, 2004. No fractional shares were
issued. Stock options were adjusted to reflect the stock dividend. All prior period per share data were adjusted to reflect this stock dividend.





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Stock Option Plans



In order to attract and retain highly qualified personnel, the Company adopted the Banks Employee Stock Option Plan (the Option Plan), which was
approved by the Banks shareholders in 1998 and by Pacificas shareholders in April 2001. At the time of approval, 1,000,000 shares of common stock (adjusted for the 2-for-1 split as a result of the reorganization effective January 1,
2001) were reserved for issuance under the Option Plan. Upon closing of the reorganization, each outstanding and unexercised option to purchase one share of the Banks common stock was converted to an option to purchase two shares of the
Companys common stock on substantially the same terms as the Option Plan. Also in connection with the reorganization, the Option Plan was amended to cover issuances of future options by the Company, and otherwise continues in form and
substance similar to the Option Plan in effect before the reorganization. The Option Plan is administered by the Board of Directors of Pacifica (or a committee thereof). At the 2002 Annual Meeting of Shareholders, Pacifica shareholders approved an
amendment to the Option Plan, to increase the total number of shares available for issuance under the Option plan by 200,000 to 1,200,000. For additional information pertaining to the Companys stock option plan see Pacificas proxy
statement for the annual meeting of shareholders to be held April 26, 2005.



Stock Grants



On November 30, 2004, the Company granted a
total of 2,258 shares of the Companys common stock among four of the Companys senior management members including the Chief Financial Officer, the Chief Credit Officer, the Chief Lending Officer, and the Senior Vice President in charge
of private banking and mortgage services in recognition of performance for 2004. The grants vested immediately. Further disclosure regarding the stock grants for the Companys named executive officers is contained in the Companys proxy
statement for the annual meeting of shareholders to be held April 26, 2005.



Stock Repurchase Program



The Company did not repurchase any
stock during 2004.



On October 28, 2003, the Board of Directors adopted a Stock
Repurchase Program, authorizing the Company to repurchase up to 5 percent, or approximately 162,000 shares, of the outstanding shares of its common stock from shareholders that expressed an interest in selling their Pacifica common stock. The
purpose of the program was to provide shareholders with a means to sell their shares of Company common stock at a fair price, to achieve some degree of liquidity for the Companys common stock and to accumulate shares of common stock that can
be used in connection with the Companys equity based compensation plans without further dilution of common shareholders equity. The Company repurchased 34,360 shares in 2003 with prices ranging from $5.00 to $5.25 per share. The Stock
Repurchase Program expired on December 15, 2003, and any additional stock repurchases are subject to prior board approval.



ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto presented elsewhere in this report.



Overview



Note. As a result of the closure of Pacifica Mortgage Company effective March 31, 2003, operating
results for Pacifica Mortgage were reported as Loss from Discontinued Operations for the year ended December 31, 2003.



During our sixth full year of operation, we continued to focus on improving asset quality, increasing earnings and growing capital. We also focused on shifting the
balance sheet to include an asset base with a larger concentration of loans and a liability mix to include more demand deposits and less reliance on time certificates of deposit as a funding source. Total assets were $170.2 million at December 31,
2004, an increase of 5% from $161.9 million at December 31, 2003. This increase was primarily attributable to the increases in the loan portfolio which was funded by existing overnight investments and increased deposits and borrowed funds. Gross
loans were $133.6 million at December 31, 2004, an increase of 14% compared



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to $116.8 million at the end of 2003. Securities decreased 20% to $21.9 million at year-end 2004, from $27.4 million at
the end of 2003. Deposits increased to $137.3 million at December 31, 2004 from $133.7 million at year-end 2003, an increase of $3.6 million, or 3%, during 2004. This increase is due to our continued focus on increasing our customer base and working
on developing deposit relationships with our loan customers. Pacifica reported net income available to shareholders of $3.1 million, or $0.87 per diluted share for 2004, up $1.9 million, or 162%, from net income available to common shareholders of
$1.2 million, or $0.34 per share in 2003. The Company transferred $725,000 of its excess loan loss reserve into earnings during 2004 as compared to $900,000 in 2003. The reduction of the allowance for loan losses resulted from higher than
anticipated net recoveries on previously charged off loans and continued improvement in our asset quality which is discussed in more detail below under Analysis of Provision and Allowance for Loan Losses. Exclusive of the transfers from
the allowance for loan losses, our operating results would have shown a net income of $2.4 million, or $0.66 per diluted share for 2004 and a net income of $278,000 or $0.08 per share for 2003. Shareholders equity increased to $16 million at
the end of 2004 from $12.6 million at December 31, 2003, up 27%, primarily due to the 2004 net income. Our capital ratios are at levels above the federal regulatory criteria for well-capitalized institutions.



Return on average assets (ROA) was 1.87% for the year 2004 and 0.76% for 2003. Return on
average stockholders equity (ROE) was 21.85% for the year 2004, and 9.41% for 2003. Excluding the transfer of excess reserves into earnings, ROA was 1.43% for 2004 compared to 0.18% for 2003. ROE excluding the transfer of excess reserves was
16.72% for 2004 compared to 2.22% for 2003. The Banks average equity to average assets ratio was 8.54% and 8.03, respectively, for 2004 and 2003. The improvements in ROA and ROE were due primarily to the increase in net income achieved, which
included transfers of excess loan loss reserves into earnings. Other factors that have lead to Pacificas financial performance include the recognition of a deferred tax asset that had been previously reserved, which resulted in a $260,000
increase to net income, as well as continued improvements in asset quality. Management expects that Pacifica will incur higher tax expenses commencing in early 2005 as our unused tax credits will be minimal. The continued improvement in our asset
quality has allowed for a decrease in loan collection expenses as well as a decrease in the allocation of funds to the reserve for loan losses for the year.



Results of Operations



Pacificas results of operations depend to a large degree on its net interest income. Net interest income is the difference between interest income, principally from loan and investment securities portfolios, and
interest expense, primarily on customer deposits and borrowings. Changes in net interest income are influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities. Interest income and expense are affected
significantly by general economic conditions, particularly changes in market interest rates, and by government policies and the actions of regulatory authorities.



Pacifica also generates non-interest income, primarily through service charges, international service fees and other sources. The primary
components of Pacificas operating expenses are compensation and employee benefits expenses, and occupancy expense.



Pacifica reported net income of $3.1 million, or $0.87 per diluted share for 2004, compared to a net income of $1.2 million or $0.34 per diluted share for 2003. The
improvement was due primarily to higher average loan balances, a higher net interest margin, a one-time reversal of a deferred tax asset valuation allowance and a decrease in losses from discontinued operations. The increase in net income for 2004
as compared to 2003 is particularly significant due to the impact of the transfer of excess funds from the allowance for loan losses into earnings. Specifically, $725,000 of excess funds from the allowance for loan losses was transferred to earnings
during 2004 while $900,000 of excess funds from the allowance for loan losses was transferred to earnings in 2003. Net income excluding the transfer of excess loan loss reserve to earnings was $2.4 million for 2004, up $2.1 million from $278,000 for
the same period of 2003. See below under Analysis of Provision and Allowance for Loan Losses for a discussion of the changes in the allowance during 2004 and 2003. During 2004, net interest margin increased to 5.02%, as compared to 4.45%
for the same period of 2003, up 57 basis points. Average earning assets and average interest-bearing liabilities increased during 2004 while the corresponding yields increased slightly on earning assets and decreased substantially on
interest-bearing liabilities.





9



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Net Interest Income



Net interest income is the difference between total interest income and total interest expense. Changes in net interest income are affected by several factors, including
changes in average balances of earning assets and interest-bearing liabilities, changes in rates on earning assets and rates paid for interest-bearing liabilities, and the level of noninterest-bearing deposits and stockholders equity. Loans
are the highest-yielding component of Pacificas earning assets. Loans averaged 78% of Pacificas total interest-earning assets during 2004, compared to 72% during 2003.



Our summary average balance sheet and net interest income data for the periods are as follows:



|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|-------------------------------------------------------- |  | --------------- | ------- | - | -------------------- | - | ----------- |  | ---- | --------------- |  | - | -------------------- | - | ---------- | - | ----- |  | ---- | -
|(Dollars in thousands)                                   |  | 2004            |         |   | 2003                 |  
|                                                         |  | Average Balance |         |   | Interest Earned/Paid |   | Rate/ Yield |  |      | Average Balance |  |   | Interest Earned/Paid |   | Rate/Yield |  
|ASSETS                                                   |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Interest-earning assets                                  |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Loans                                                    |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Commercial                                               |  | $               | 33,472  |   |                      | $ | 2,080       |  | 6.21 | %               |  | $ | 34,056               |   |            | $ | 2,190 |  | 6.43 | %
|Real estate                                              |  |                 | 91,036  |   |                      |   | 6,191       |  | 6.80 | %               |  |   | 73,913               |   |            |   | 5,346 |  | 7.23 | %
|Consumer                                                 |  |                 | 958     |   |                      |   | 56          |  | 5.85 | %               |  |   | 1,169                |   |            |   | 67    |  | 5.73 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Total loans                                              |  |                 | 125,466 |   |                      |   | 8,327       |  | 6.64 | %               |  |   | 109,138              |   |            |   | 7,603 |  | 6.97 | %
|Fees on loans                                            |  |                 | (566    | ) |                      |   | 509         |  |      |                 |  |   | (475                 | ) |            |   | 382   |  |      |  
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Total loans, net of fees                                 |  |                 | 124,900 |   |                      |   | 8,836       |  | 7.07 | %               |  |   | 108,663              |   |            |   | 7,985 |  | 7.35 | %
|                                                         |  |                 |         |   |                      |  
|Receivable                                               |  |                 |        |   |                      |   |            |  | 0.00 | %               |  |   | 401                  |   |            |   |      |  | 0.00 | %
|                                                         |  |                 |         |   |                      |  
|Investments                                              |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Taxable                                                  |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Agencies                                                 |  |                 | 18,786  |   |                      |   | 1,061       |  | 5.65 | %               |  |   | 15,188               |   |            |   | 924   |  | 6.08 | %
|Mortgage backed                                          |  |                 | 3,519   |   |                      |   | 155         |  | 4.40 | %               |  |   | 3,021                |   |            |   | 73    |  | 2.42 | %
|Corporate                                                |  |                 | 1,481   |   |                      |   | 87          |  | 5.87 | %               |  |   | 7,138                |   |            |   | 374   |  | 5.24 | %
|Tax-exempt                                               |  |                 |        |   |                      |   |            |  |     |                 |  |   |                     |   |            |   |      |  |     |  
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Total investments                                        |  |                 | 23,786  |   |                      |   | 1,303       |  | 5.48 | %               |  |   | 25,347               |   |            |   | 1,371 |  | 5.41 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Interest-earning deposits with banks                     |  |                 | 5,413   |   |                      |   | 60          |  | 1.11 | %               |  |   | 7,094                |   |            |   | 82    |  | 1.16 | %
|Federal funds sold                                       |  |                 | 4,902   |   |                      |   | 68          |  | 1.39 | %               |  |   | 9,450                |   |            |   | 105   |  | 1.11 | %
|Correspondent Bank Stock                                 |  |                 | 625     |   |                      |   | 19          |  | 3.04 | %               |  |   | 256                  |   |            |   | 11    |  | 4.30 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Cash equivalent and FHLB stock                           |  |                 | 10,940  |   |                      |   | 147         |  | 1.34 | %               |  |   | 16,800               |   |            |   | 198   |  | 1.18 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Total interest-earning assets                            |  |                 | 159,626 |   |                      |   | 10,286      |  | 6.44 | %               |  |   | 151,211              |   |            |   | 9,554 |  | 6.32 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Noninterest-earning assets                               |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Cash and due from banks                                  |  |                 | 2,248   |   |                      |   |             |  |      |                 |  |   | 2,337                |   |            |   |       |  |      |  
|Premises and equipment, net of depreciation              |  |                 | 1,831   |   |                      |   |             |  |      |                 |  |   | 2,396                |   |            |   |       |  |      |  
|Other, less allowance for loan losses                    |  |                 | 1,870   |   |                      |   |             |  |      |                 |  |   | (63                  | ) |            |   |       |  |      |  
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Total noninterest-earning assets                         |  |                 | 5,949   |   |                      |   |             |  |      |                 |  |   | 4,670                |   |            |   |       |  |      |  
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|TOTAL ASSETS                                             |  | $               | 165,575 |   |                      |   |             |  |      |                 |  | $ | 155,881              |   |            |   |       |  |      |  
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY                     |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Interest-bearing liabilities                             |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Deposits                                                 |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|NOW, savings and money market accounts                   |  | $               | 48,218  |   |                      | $ | 499         |  | 1.03 | %               |  | $ | 40,423               |   |            | $ | 500   |  | 1.24 | %
|Time deposits < $100,000                                 |  |                 | 12,716  |   |                      |   | 240         |  | 1.89 | %               |  |   | 14,789               |   |            |   | 358   |  | 2.42 | %
|Time deposits3$100,000                                   |  |                 | 62,881  |   |                      |   | 1,247       |  | 1.98 | %               |  |   | 69,079               |   |            |   | 1,777 |  | 2.57 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Total interest-bearing deposits                          |  |                 | 123,815 |   |                      |   | 1,986       |  | 1.60 | %               |  |   | 124,291              |   |            |   | 2,635 |  | 2.12 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Other borrowed funds                                     |  |                 | 11,040  |   |                      |   | 280         |  | 2.54 | %               |  |   | 2,974                |   |            |   | 69    |  | 2.32 | %
|Mandatory redeemable preferred stock                     |  |                 |        |   |                      |   |            |  | 0.00 | %               |  |   | 1,490                |   |            |   | 115   |  | 7.72 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Total interest-bearing liabilities                       |  |                 | 134,855 |   |                      |   | 2,266       |  | 1.68 | %               |  |   | 128,755              |   |            |   | 2,819 |  | 2.19 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Noninterest-bearing liabilities                          |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Demand deposits                                          |  |                 | 15,540  |   |                      |   |             |  |      |                 |  |   | 13,342               |   |            |   |       |  |      |  
|Other liabilities                                        |  |                 | 1,036   |   |                      |   |             |  |      |                 |  |   | 1,270                |   |            |   |       |  |      |  
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|                                                         |  |                 | 16,576  |   |                      |   |             |  |      |                 |  |   | 14,612               |   |            |   |       |  |      |  
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Stockholders equity                                     |  |                 | 14,144  |   |                      |   |             |  |      |                 |  |   | 12,514               |   |            |   |       |  |      |  
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|TOTAL LIABILITIES AND EQUITY                             |  | $               | 165,575 |   |                      |   |             |  |      |                 |  | $ | 155,881              |   |            |   |       |  |      |  
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Net interest income and net interest spread              |  |                 |         |   |                      | $ | 8,020       |  | 4.76 | %               |  |   |                      |   |            | $ | 6,735 |  | 4.13 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  
|Net interest margin (net interest income/earning assets) |  |                 |         |   |                      |   |             |  | 5.02 | %               |  |   |                      |   |            |   |       |  | 4.45 | %
|                                                         |  |                 |         |   |                      |   |             |  |      |                 |  |   |                      |   |            |   |       |  |      |  





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Net interest income before provision for loan losses for the year 2004 increased by $1.3 million, or 19%, to $8.0
million, compared to an increase of $835,000, or 14% to $6.7 million in 2003. The increase in net interest income in 2004 reflects the effect of the repricing of time certificates of deposit to a lower average rate over time coupled with a balance
sheet shift from time certificates of deposits to demand deposits and a shift from cash equivalents to loans. On a dollar-for-dollar and percentage basis, average interest-earning assets increased more than interest-bearing liabilities during 2004.
Compared with 2003, average interest-earning assets increased approximately $8.4 million, or 6%, to $159.6 million while average interest-bearing liabilities increased $6.1 million, or 5%, to $134.9 million. Total interest income for 2004 increased
$733,000, or 8%, from 2003 due primarily to the increase in average interest earning assets. Meanwhile, the repricing of time certificates and the shift in funding sources to include more demand deposit and borrowings and less time certificates
allowed us to lower our cost of funds. Total interest expense for 2004 decreased $552,000, or 20%, as compared to 2003. Given the current rate environment and the anticipated repricing in the balance sheet, we expect our net interest margin will
remain relatively constant during 2005.



Net interest margin (net interest
income divided by average earning assets) was 5.02% in 2004, compared with 4.45% in 2003. The increase in net interest margin reflects the positive effect of our efforts to lower the cost of deposits and the shift in funding sources to include more
demand deposits and borrowed funds. During 2004, the average yield on earning assets increased to 6.44% from 6.32% in 2003. At the same time, the average cost of interest-bearing liabilities for 2004 decreased significantly to 1.68% from 2.19% in
2003.



The increase in yield on our interest earning assets is a direct result
of the deployment of a portion of our short-term investments into the loan portfolio. Yields on investments remained relatively stable in 2004 compared to 2003. The Companys continued focus on efficient funding of its assets has resulted in
continued improvement in the net interest margin. At December 31, 2004, Pacifica had $70.4 million in time certificates of deposits as compared to $76.3 million at year-end 2003. During 2004, Pacifica replaced certain interest-bearing deposits with
demand deposits. In addition, Pacifica had $15.6 million of borrowed funds at December 31, 2004, of which $7.8 million have the potential of repricing during 2005 which could impact the Companys cost of funds. See additional information under
the Borrowings section.



To a large extent, the asset yields and cost of
funds reflect the level of interest rates as set by the Federal Reserve Board and the competitive nature of the financial services industry. In the past, Pacificas assets have tended to track the Prime rate and reprice more quickly than its
liabilities. However, due to historically low interest rates, borrowers have been increasingly interested in our fixed rate products. We also maintain floors on a portion of our loans to protect our interest earnings in times of a downward rate
cycle; however, these floors can have a lagging effect in an increasing rate cycle which can cause a squeeze on our net interest margin as rates increase. This extends the repricing terms of our loans and moves the Company away from
being asset sensitive to a slightly more liability sensitive position. In response to the increased demand on fixed rate assets, Pacifica borrowed longer term funds from the Federal Home Loan Bank in order to mitigate potential fluctuations in our
net interest margin. Also, as short-term interest rates have moved up 125 basis points in the second half of 2004, most of Pacificas loans with floors have moved above their floor rate and are currently floating which places Pacifica back into
a slightly asset sensitive position. Management continually monitors Pacificas mix of interest-earning assets and interest-bearing liabilities to maintain an appropriate balance.



Average loans (net of deferred loan fees) were approximately $124.9 million in 2004, up $16.2 million, or 15%, from $108.7 million in 2003.
The yield on the loan portfolio (net of deferred loan fees) averaged 7.08% in 2004, compared to 7.35% in 2003. The yield on the loan portfolio decreased due to the low interest rate environment during the first half of 2004 and due to strong
competition among financial institutions, but the decrease in yield was offset by the increase in loan volume. During 2004, average interest-bearing deposits were $123.8 million, a decrease of $476,000 compared to 2003. The cost of interest-bearing
deposits decreased from 2.12% for 2003 to 1.60% for 2004.



Income on
investments, interest-earning deposits, Federal Home Loan Bank stock and federal funds sold totaled $1.45 million in 2004, a decrease of $119,000, or 7.6%, when compared to 2003. The yield on investments was 5.48% for 2004, as compared to 5.41% for
2003.





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##### Table of Contents

Rate/Volume Analysis.The dollar amounts of interest income and interest expense fluctuate depending upon
changes in interest rates and upon changes in amounts (volume) of Pacificas interest-earning assets and interest-bearing liabilities. Changes attributable to: (i) changes in volume (changes in average outstanding balances multiplied by the
prior periods rate); (ii) changes in rate (changes in average interest rate multiplied by the prior periods volume); and (iii) changes in rate/volume (changes in rate times the change in volume that were allocated proportionately to the
changes in volume and the changes in rate) were as follows:



|                                         |  |                            |       |   |             |   |      |   |  |   |       |  
|---------------------------------------- |  | -------------------------- | ----- | - | ----------- | - | ---- | - |  | - | ----- | -
|                                         |  | 2004 vs 2003               |      
|                                         |  | Increase/(decrease) due to |       |   | Totalchange |  
|(Dollars in thousands)                   |  | Volume                     |       |   | Rate        |   |     
|Interest income                          |  |                            |       |   |             |   |      |   |  |   |       |  
|Loans                                    |  |                            |       |   |             |   |      |   |  |   |       |  
|Commercial                               |  | $                          | (37   | ) |             | $ | (73  | ) |  | $ | (110  | )
|Real estate                              |  |                            | 1,180 |   |             |   | (335 | ) |  |   | 845   |  
|Consumer                                 |  |                            | (12   | ) |             |   | 1    |   |  |   | (11   | )
|                                         |  |                            |       |   |             |   |      |   |  |   |       |  
|Interest income - loans (excluding fees) |  |                            | 1,130 |   |             |   | (406 | ) |  |   | 724   |  
|Fees on loans                            |  |                            | 127   |   |             |   |     |   |  |   | 127   |  
|                                         |  |                            |       |   |             |   |      |   |  |   |       |  
|Interest income - loans (including fees) |  |                            | 1,130 |   |             |   | (279 | ) |  |   | 851   |  
|                                         |  |                            |      
|Investments                              |  |                            |       |   |             |   |      |   |  |   |       |  
|Taxable                                  |  |                            |       |   |             |   |      |   |  |   |       |  
|Agencies                                 |  |                            | 207   |   |             |   | (70  | ) |  |   | 137   |  
|Mortgage backed                          |  |                            | 14    |   |             |   | 68   |   |  |   | 82    |  
|Corporate                                |  |                            | (328  | ) |             |   | 41   |   |  |   | (287  | )
|Tax-exempt                               |  |                            |      |   |             |   |     |   |  |   |      |  
|                                         |  |                            |       |   |             |   |      |   |  |   |       |  
|Total interest income - investments      |  |                            | (107  | ) |             |   | 39   |   |  |   | (68   | )
|                                         |  |                            |      
|Interest-earning deposits with banks     |  |                            | (19   | ) |             |   | (3   | ) |  |   | (22   | )
|Federal funds sold                       |  |                            | (59   | ) |             |   | 22   |   |  |   | (37   | )
|Federal Home Loan Bank stock             |  |                            | 8     |   |             |   |     |   |  |   | 8     |  
|Interest income-other                    |  |                            | (1    | ) |             |   | 1    |   |  |   |      |  
|                                         |  |                            |       |   |             |   |      |   |  |   |       |  
|Interest income - other                  |  |                            | (71   | ) |             |   | 20   |   |  |   | (51   | )
|                                         |  |                            |       |   |             |   |      |   |  |   |       |  
|Total interest income                    |  |                            | 953   |   |             |   | (221 | ) |  |   | 732   |  
|                                         |  |                            |      
|Interest expense                         |  |                            |       |   |             |   |      |   |  |   |       |  
|Deposits                                 |  |                            |       |   |             |   |      |   |  |   |       |  
|NOW, savings and money market accounts   |  |                            | 88    |   |             |   | (89  | ) |  |   | (1    | )
|Time Deposits <$100,000                  |  |                            | (46   | ) |             |   | (72  | ) |  |   | (118  | )
|Time deposits3$100,000                   |  |                            | (149  | ) |             |   | (381 | ) |  |   | (530  | )
|                                         |  |                            |       |   |             |   |      |   |  |   |       |  
|Total interest expense on deposits       |  |                            | (107  | ) |             |   | (542 | ) |  |   | (649  | )
|                                         |  |                            |      
|Other borrowed funds                     |  |                            | 187   |   |             |   | 24   |   |  |   | 211   |  
|Mandatory redeemable preferred stock     |  |                            | (115  | ) |             |   |     |   |  |   | (115  | )
|                                         |  |                            |       |   |             |   |      |   |  |   |       |  
|Total interest expense                   |  |                            | 80    |   |             |   | (633 | ) |  |   | (553  | )
|                                         |  |                            |       |   |             |   |      |   |  |   |       |  
|Net interest income                      |  | $                          | 873   |   |             | $ | 412  |   |  | $ | 1,285 |  
|                                         |  |                            |       |   |             |   |      |   |  |   |       |  

---

|(1) | Loans include nonaccrual loans, but unpaid interest on nonaccrual loans has not been included for purposes of determining interest income.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------





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##### Table of Contents

Asset/Liability Management



Our results of operations depend substantially on our net interest income. Like most financial institutions, our interest income and cost of
funds are affected by general economic conditions and by competition, and in addition, our community banking focus makes our results of operations particularly dependent on the Washington economy.



The purpose of asset/liability management is to provide stable net interest income growth by
protecting our earnings from undue interest rate risk, which arises from volatile interest rates and changes in the balance sheet mix, and by managing the risk/return relationships between liquidity, interest rate risk, market risk, and capital
adequacy. We maintain an asset/liability management policy that provides guidelines for controlling exposure to interest rate risk by setting a target range and minimum for the net interest margin and running simulation models under different
interest rate scenarios to measure the risk to earnings over the next 12-month period.



In order to control interest rate risk in a rising interest rate environment, our philosophy is to lengthen the average maturity of our liabilities through term advances and offering longer-term time certificates of deposit and emphasize
the pricing of new loans on a floating rate basis, when possible, in order to achieve a more asset sensitive position, therefore, allowing quicker repricings and maximizing net interest margin. Conversely, in a declining interest rate environment,
our philosophy is to lengthen the average maturity of the investment portfolio and emphasize fixed rate loans and loans with floors, thereby becoming more liability sensitive. In each case, the goal is to exceed our targeted net interest margin
range without exceeding earnings risk parameters.



The excess of our
interest-earning assets over interest-bearing liabilities has generally been invested in securities, primarily securities issued by governmental agencies. The securities portfolio contributes to our profits and plays an important part in the overall
interest rate management. The primary tool used to manage interest rate risk is determination of mix, maturity and repricing characteristics of the loan portfolios. The loan and securities portfolios must be used in combination with management of
deposits and borrowing liabilities and other asset/liability techniques to actively manage the applicable components of the balance sheet. In doing so, we estimate our future needs, taking into consideration historical periods of high loan demand
and low deposit balances, estimated loan and deposit increases, and estimated interest rate changes.



Although analysis of interest rate gap (the difference between the repricing of interest-earning assets and interest-bearing liabilities during a given period of time) is one standard tool for the measurement of
exposure to interest rate risk, we believe that because interest rate gap analysis does not address all factors that can affect earnings performance, such as early withdrawal of time deposits and prepayment of loans, it should not be used as the
primary indicator of exposure to interest rate risk and the related volatility of net interest income in a changing interest rate environment. Interest rate gap analysis is primarily a measure of liquidity based upon the amount of change in
principal amounts of assets and liabilities outstanding, as opposed to a measure of changes in the overall net interest margin.



The following table sets forth the estimated maturity or repricing, and the resulting interest rate gap, of our interest-earning assets and interest-bearing liabilities
at December 31, 2004. The amounts in the table are derived from internal data based upon regulatory reporting formats and, therefore, may not be wholly consistent with financial information appearing elsewhere in the audited financial statements
that have been prepared in accordance with generally accepted accounting principles. The amounts shown below could also be significantly affected by external factors such as changes in prepayment assumptions, early withdrawals of deposits and
competition.



13



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##### Table of Contents

|                                             |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  |   |         |  
|-------------------------------------------- |  | ------------------------------------------------- | ------- | - | ---------- | - | ------- | --------- |  | - | ---------- | - |  | ----- | ------ | - |  | - | ------- | -
|                                             |  | December 31, 2004 Estimated Maturity or Repricing |        
|(Dollars in thousands)                       |  | 0-3months                                         |         |   | 4-12months |   |         | 1-5 years |  |   | Thereafter |   |  | Total |       
|Interest-earning assets                      |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  |   |         |  
|Interest-earning deposits                    |  | $                                                 | 4,796   |   |            | $ | 257     |           |  | $ |           |   |  | $     |       |   |  | $ | 5,053   |  
|Federal funds sold                           |  |                                                   | 2,020   |   |            |   |        |           |  |   |           |   |  |       |       |   |  |   | 2,020   |  
|Correspondent bank stock                     |  |                                                   | 633     |   |            |   |        |           |  |   |           |   |  |       |       |   |  |   | 633     |  
|Investment securities, at amortized value    |  |                                                   | 6,919   |   |            |   | 3,673   |           |  |   | 4,451      |   |  |       | 7,097  |   |  |   | 22,140  |  
|Loans, gross                                 |  |                                                   | 59,964  |   |            |   | 21,002  |           |  |   | 47,338     |   |  |       | 5,932  |   |  |   | 134,236 |  
|                                             |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  |   |         |  
|Total interest-earning assets                |  | $                                                 | 74,332  |   |            | $ | 24,932  |           |  | $ | 51,789     |   |  | $     | 13,029 |   |  | $ | 164,082 |  
|                                             |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  |   |         |  
|Percent of total interest-earning assets     |  |                                                   | 45.30   | % |            |   | 15.19   | %         |  |   | 31.56      | % |  |       | 7.94   | % |  |   | 100.00  | %
|                                             |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  |   |         |  
|Interest-bearing liabilities                 |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  |   |         |  
|Deposits                                     |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  |   |         |  
|NOW, savings and money market accounts       |  | $                                                 | 51,678  |   |            | $ |        |           |  |   |            |   |  | $     |       |   |  | $ | 51,678  |  
|Time deposits                                |  |                                                   | 30,321  |   |            |   | 31,869  |           |  |   | 8,251      |   |  |       |       |   |  |   | 70,441  |  
|Other short-term borrowed funds              |  |                                                   | 5,455   |   |            |   | 2,378   |           |  |   | 7,802      |   |  |       |       |   |  |   | 15,635  |  
|                                             |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  |   |         |  
|Total interest-bearing liabilities           |  | $                                                 | 87,454  |   |            | $ | 34,247  |           |  | $ | 16,053     |   |  | $     |       |   |  | $ | 137,754 |  
|                                             |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  |   |         |  
|Percent of total interest-earning assets     |  |                                                   | 53.30   | % |            |   | 20.87   | %         |  |   | 9.78       | % |  |       | 0.00   | % |  |   | 83.95   | %
|                                             |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  |   |         |  
|Rate Sensitivity Gap                         |  | $                                                 | (13,122 | ) |            | $ | (9,315  | )         |  | $ | 35,736     |   |  | $     | 13,029 |   |  | $ | 26,328  |  
|Cumulative rate sensitivity gap              |  | $                                                 | (13,122 | ) |            | $ | (22,437 | )         |  | $ | 13,299     |   |  | $     | 26,328 |   |  | $ |        |  
|Cumulative gap as percentage of total assets |  |                                                   | -7.71   | % |            |   | -13.19  | %         |  |   | 7.82       | % |  |       | 15.48  | % |  |   |        |  
|Total assets                                 |  |                                                   |         |   |            |   |         |           |  |   |            |   |  |       |        |   |  | $ | 170,097 |  



As stated previously, certain
shortcomings, including those described below, are inherent in the method of analysis presented in the foregoing table. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market interest rates.
Certain assets have features, which restrict changes in their interest rates, both on a short-term basis and over the lives of the assets. In the event of a change in market interest rates, prepayment and early withdrawal levels could deviate
significantly from those assumed in calculating the tables as can the relationship of rates between different loan and deposit categories. The ability of many borrowers to service their adjustable-rate debt may decrease in the event of an increase
in market interest rates.



We utilize a simulation model to monitor and manage
interest rate risk within parameters established by our internal policy. The model projects the impact of a 100 basis point increase and a 100 basis point decrease, from prevailing interest rates, on the balance sheet over a period of 12 months.
Generalized assumptions are made on how investment securities, classes of loans and various deposit products might respond to the interest rate changes. These assumptions are inherently uncertain, and as a result, the model cannot precisely estimate
net interest income nor precisely predict the impact of higher or lower interest rates on net interest income. Actual results would differ from simulated results due to factors such as timing, magnitude and frequency of rate changes, customer
reaction to rate changes, changes in market conditions and management strategies, among other factors. We periodically test our models output verses the output of third party models to validate and back-test our models output and
assumptions to help management reach a greater comfort level with our models results.



Based on the results of the simulation models at December 31, 2004, we expect an increase in net interest income of $126,000 and a decrease of $84,000 in net interest income over a 12-month period, if interest rates increased or decreased a
gradual 100 basis points, respectively.



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##### Table of Contents

Noninterest Income



Noninterest income decreased by $33,000, or 4%, to $790,000 in 2004, compared with $823,000 for the same period in 2003. The decrease was
due primarily to the $98,000 decline of gains on sold and called investment securities during 2004. International banking service fee income, bank owned life insurance, wire transfer fees and other fee income all increased while service fees, gains
on securities, and overdraft fees were down. The following table presents a breakdown of various components of Pacificas noninterest income for 2004 and 2003.



|                                           |  |                          |     |        |   |     |      |  |   |    
|------------------------------------------ |  | ------------------------ | --- | ------ | - | --- | ---- |  | - | ---
|                                           |  | Years Ended December 31,
|(Dollars in thousands)                     |  | 2004                     |     | Change |   |     | 2003
|International trade finance fees           |  | $                        | 307 |        | $ | 38  |      |  | $ | 269
|Bank owned life insurance appreciation     |  |                          | 139 |        |   | 52  |      |  |   | 87 
|Other fee income                           |  |                          | 118 |        |   | 31  |      |  |   | 87 
|Service fees                               |  |                          | 100 |        |   | (52 | )    |  |   | 152
|Gain on sale of securities and derivatives |  |                          | 61  |        |   | (98 | )    |  |   | 159
|Overdraft fees                             |  |                          | 37  |        |   | (10 | )    |  |   | 47 
|Wire transfer fees                         |  |                          | 28  |        |   | 6   |      |  |   | 22 
|                                           |  |                          |     |        |   |     |      |  |   |    
|                                           |  | $                        | 790 |        | $ | (33 | )    |  | $ | 823
|                                           |  |                          |     |        |   |     |      |  |   |    



Noninterest Expense



Noninterest expense decreased $382,000, or 5%, in 2004 to $6.7 million from
$7.1 million. The decrease resulted primarily from the decrease in loan collection expense, losses from impaired assets, losses from disposal of assets and lease termination cost, as well as a decline in FDIC assessment expense. The decreases
primarily relate to lower costs as a result of better credit quality in the loan portfolio and no costs related to the closure of the Mortgage Company.



Set forth below is a schedule showing additional detail concerning changes in the Companys noninterest expense between 2004 and 2003:



|                                                         |  |                          |       |   |        |   |      |      |  |   |       |  
|-------------------------------------------------------- |  | ------------------------ | ----- | - | ------ | - | ---- | ---- |  | - | ----- | -
|                                                         |  | Years Ended December 31, |      
|(Dollars in thousands)                                   |  | 2004                     |       |   | Change |   |      | 2003 | 
|Compensation and employee benefits                       |  | $                        | 4,151 |   |        | $ | (3   | )    |  | $ | 4,154 |  
|Loan origination costs                                   |  |                          | (315  | ) |        |   | 26   |      |  |   | (341  | )
|                                                         |  |                          |       |   |        |   |      |      |  |   |       |  
|Net compensation and employee benefits                   |  |                          | 3,836 |   |        |   | 23   |      |  |   | 3,813 |  
|                                                         |  |                          |      
|Occupancy expense                                        |  |                          | 1,245 |   |        |   | (53  | )    |  |   | 1,298 |  
|Professional services                                    |  |                          | 284   |   |        |   | 12   |      |  |   | 272   |  
|Other expenses                                           |  |                          | 260   |   |        |   | 27   |      |  |   | 233   |  
|Data processing                                          |  |                          | 181   |   |        |   | 19   |      |  |   | 162   |  
|B&O taxes                                                |  |                          | 173   |   |        |   | 17   |      |  |   | 156   |  
|Director fees                                            |  |                          | 145   |   |        |   | 54   |      |  |   | 91    |  
|Insurance expense                                        |  |                          | 123   |   |        |   | 16   |      |  |   | 107   |  
|Advertising, marketing and bank promotions               |  |                          | 100   |   |        |   | 33   |      |  |   | 67    |  
|Telephone and data communications                        |  |                          | 76    |   |        |   | (5   | )    |  |   | 81    |  
|Office supplies, stationary and printing                 |  |                          | 76    |   |        |   | 4    |      |  |   | 72    |  
|Couriers, postage and mail service                       |  |                          | 72    |   |        |   | (6   | )    |  |   | 78    |  
|FDIC assessment                                          |  |                          | 63    |   |        |   | (104 | )    |  |   | 167   |  
|State assessment                                         |  |                          | 50    |   |        |   | (17  | )    |  |   | 67    |  
|Travel and entertainment                                 |  |                          | 35    |   |        |   | (2   | )    |  |   | 37    |  
|Loss from disposal of assets and lease termination costs |  |                          | 2     |   |        |   | (106 | )    |  |   | 108   |  
|Losses from impaired assets                              |  |                          |      |   |        |   | (130 | )    |  |   | 130   |  
|Loan collection expense / (recovery)                     |  |                          | (11   | ) |        |   | (164 | )    |  |   | 153   |  
|                                                         |  |                          |       |   |        |   |      |      |  |   |       |  
|Total noninterest expense                                |  | $                        | 6,710 |   |        | $ | (382 | )    |  | $ | 7,092 |  
|                                                         |  |                          |       |   |        |   |      |      |  |   |       |  





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##### Table of Contents

Salaries and employee benefits expenses were approximately $4.1 million in 2004 and 2003. We anticipate the salary
expense to increase slightly during 2005 as certain benefits such as employee insurance continue to rise. Pacificas average number of employees was 48 for the year 2004 compared with 49 for 2003.



Occupancy and equipment expense was $1.2 million in 2004 and $1.3 million in 2003. The slight
decrease in 2004 is primarily due to the lower building lease expense, furniture repair expense, and the lower depreciation expense on fixed assets and computer software. The Company sublet the Pacifica Mortgage Company facility to a third party
effective June 1, 2003. That lease was a month-to-month lease which terminated in May 2004. In July 2004, the Company sublet the space to a new tenant with a sublease agreement that expires December 31, 2005, with a monthly rent of $4,003. The
tenant has the option to renew the lease at that time through the remainder of Pacificas obligation to the space which expires August 31, 2007. In addition, the Bank consolidated its office space and entered into an agreement effective August
1, 2003, to sublease surplus office space for the remaining term of the lease. This sublease agreement has an average monthly rent of $4,645 and expires on September 1, 2007.



The Company incurred miscellaneous losses of $108,000 during 2003 resulting from the above-mentioned subleases and disposal of the furniture
previously occupied by the Bank office. As part of the sublease of the Bank space, the Company sold its furniture associated with the sublease space to the lessee at a loss of $10,000. The Company implemented the Financial Accounting Standards
Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment
to an exit or disposal plan. As a result, the Company also recognized a lease termination cost of $98,000 in 2003, representing the sublease income shortfalls as compared to the lease payment the Company is liable for. The associated accretion
expense will be recognized monthly for the remainder of the lease term and will reduce the Companys future occupancy expense. This accounted for approximately a $27,000 decrease in building and lease expense during 2004.



Upon the closure of its wholly owned subsidiary Pacifica Mortgage, leasehold improvements and
furniture for Pacifica Mortgage Company space were transferred to the Company and the other fixed assets which can be utilized by the Bank were transferred from the Company to the Bank as a capital contribution. The Company deemed the leasehold
improvement and furniture items impaired and wrote off the assets in 2003 according to FASB No. 144 and 147 which are related to accounting for the impairment or disposal of long-lived assets. Impairment amount totaled approximately $130,000,
representing net book value of the assets being written off. There were no such write-offs during 2004 and we do not anticipate any during 2005.



Financial Condition



Investment Activities



Pacificas investment portfolio is an important source of liquidity and interest income. The Companys total investment portfolio includes Federal Home Loan Bank of Seattle (FHLB) stock, available-for-sale securities,
time certificates with other banks, and a nominal amount of correspondent bank stock. The Company had no held-to-maturity or trading securities. All securities are classified as available-for-sale and are carried at fair value. Securities are used
by management as part of its asset/liability management strategy and may be sold in response to interest rate changes or significant prepayment risk.



The Companys total investment portfolio decreased by $5.4 million, or 19%, to $22.3 million at year-end 2004 from $28.2 million at year-end 2003. The investment
portfolio during 2004 continued to be a portfolio of higher yield, however, during the second half of 2004 the Company began to position the portfolio to include a greater level of liquidity to complement the forecasted loan growth. This increased
liquidity is expected to come with a lower yield on the investment portfolio. Going forward, as the loan portfolio continues to grow the Company plans to rely less on the investment portfolio as a source of earnings. Pacifica is a stockholder in the
Federal Home Loan Bank of Seattle (FHLB). As of December 31, 2004 and 2003, Pacifica owned FHLB stock of $533,000 and $454,000, respectively. Pacifica also owns $100,000 stock in a bankers bank that has no readily
available market price and is carried at cost. Available-for-sale securities were $21.9 million and $27.4 million at December 31, 2004 and 2003,



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respectively. As of December 31, 2004, U.S. government agency securities comprised 75% of the securities portfolio, with
mortgage-backed securities comprising the remaining 25%. Purchases totaled $7.6 million while maturities, calls and principal paydowns totaled $13.1 million. During 2004, the Company sold available-for-sale securities of approximately $4 million and
had called securities totaling $5.3 million and realized net gains of $61,000. Pacifica realized gains from both called securities that were originally purchased at a discount and from sold securities. Gains from sold and called securities were
$38,000 and $23,000, respectively, for 2004 and 2003. For further information on investments securities, see Note 2 to the consolidated financial statements.



Lending Activities



Loan Portfolio Composition.Pacifica originates a wide variety of loans to small and medium-sized businesses and individuals. The following table sets forth
the loan portfolio composition by type of loan at the dates indicated:



|                                |  |              |         |   |           |     |   |      |   |         |           |  |     |  
|------------------------------- |  | ------------ | ------- | - | --------- | --- | - | ---- | - | ------- | --------- |  | --- | -
|                                |  | December 31, |        
|(Dollars in thousands)          |  | 2004         |         |   | % ofTotal |     |   | 2003 |   |         | % ofTotal | 
|Commercial and industrial loans |  | $            | 35,129  |   |           | 26  | % |      | $ | 33,106  |           |  | 28  | %
|Real estate - construction      |  |              | 22,594  |   |           | 17  | % |      |   | 24,137  |           |  | 21  | %
|Real estate - mortgage          |  |              | 75,447  |   |           | 56  | % |      |   | 59,069  |           |  | 51  | %
|Consumer and other              |  |              | 1,066   |   |           | 1   | % |      |   | 1,049   |           |  | 1   | %
|                                |  |              |         |   |           |     |   |      |   |         |           |  |     |  
|                                |  |              | 134,236 |   |           | 100 | % |      |   | 117,361 |           |  | 101 | %
|Less deferred loan fees         |  |              | (640    | ) |           | 0   | % |      |   | (591    | )         |  | -1  | %
|                                |  |              |         |   |           |     |   |      |   |         |           |  |     |  
|Total loans                     |  | $            | 133,596 |   |           | 100 | % |      | $ | 116,770 |           |  | 100 | %
|                                |  |              |         |   |           |     |   |      |   |         |           |  |     |  



At December 31, 2004, total loans
increased by $16.8 million to $133.6 million from $116.8 million at year-end 2003. Commercial loans, real estate mortgage loans, and consumer and other loans contributed to the increase, while real-estate construction loans decreased due to loan
maturities and payoffs. Commercial and industrial loans increased $2 million, or 6%; commercial and residential real estate mortgage loans increased $16.4 million, or 28%; and consumer and other loans increased $17,000, or 2%, while real-estate
construction loans decreased $1.5 million, or 6%. Funding for the growth in loans in 2004 came primarily from the deployment of the excess liquidity which resided in interest-bearing cash and federal funds sold, and growth in our demand deposit
portfolio.



Pacificas commercial loan portfolio includes loans to
businesses in the manufacturing, wholesale, retail, service, agricultural and construction industries, primarily located in King County. As of December 31, 2004, there was no significant concentration of loans to any particular group of customers
engaged in similar activities and having similar economic characteristics. However, due to the limited scope of Pacificas primary market area, a substantial geographic concentration of credit risk exists and, as a result, localized economic
downturns can be expected to have a more pronounced effect on Pacifica than they might with a similar but more geographically diversified business.



Asset Quality



Nonperforming Assets.Nonperforming loans include non-accrual loans, restructured loans, and loans 90 days or more past due. Pacificas policy
generally is to place loans on a non-accrual basis when, in managements judgment, the collateral value and the financial condition of the borrower do not justify accruing interest as an income item. Interest previously recorded but not deemed
collectible is reversed and charged against current income. Interest income on these loans is then recognized when collected. Restructured loans are loans for which the contractual interest rate has been reduced or other concessions are granted to
the borrower because of deterioration in the financial condition of the borrower resulting in the borrowers inability to meet the original contractual terms of the loans. At December 31, 2004, the Company had $257,000 in nonperforming loans,
and no nonperforming loans at year-end 2003. The $257,000 balance was made up of two loans which were to the same borrower. During the first week of 2005 this borrower paid-off the $257,000 in full. Nonperforming loans are also considered impaired
loans (see Note 3 to the Consolidated Financial Statements). The Company considers loans impaired when it is



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probable the Company will not be able to collect all amounts as scheduled under a loan agreement. The Company had
$816,000 of impaired loans as of December 31, 2004. The impaired loan balance is made up of three loans, the above mentioned nonperforming loans which subsequently paid-off and one loan in the amount of $559,000 which is currently in compliance with
the terms of the loan but with which management has concerns about an adequate source of repayment. At December 31, 2004, the Company had specific reserves for these loans of $386,000 and collateral of approximately $442,000 in equity value of a
residential real-estate property. The Company had one impaired loan at year-end 2003 in the amount of $624,000 which is still considered impaired by the Company and is mentioned above with a balance of $559,000 at year-end. This loan paid down
$115,000 of principal during 2004.



Potential problem loans are loans that are
performing and are not nonaccrual, past due, or restructured, but about which there are significant doubts about the borrowers ability to comply with the present repayment terms in the future and which later may be included in nonaccrual, past
due, or restructured loans. We had $642,000 in potential problem loans at December 31, 2004, compared to $943,000 at year-end 2003, a reduction of $301,000, or 32%. One of the problem loans from year-end 2003 paid-off and the other is the above
mentioned $559,000 impaired loan. We continued to make significant improvement in 2004 as we maintained focus on asset quality and achieved workout plans with our customers. The Company will continue to focus on asset quality while continuing to
emphasize continued growth in the loan portfolio.



The following table sets
forth, at the dates indicated, information with respect to potential problem loans and nonperforming loans of the Company:



|                                                     |  |              |      |   |      |   |      |      |  |   |       |  
|---------------------------------------------------- |  | ------------ | ---- | - | ---- | - | ---- | ---- |  | - | ----- | -
|                                                     |  | December 31, |     
|(Dollars in thousands)                               |  | 2004         |      |   | 2003 |   |      | 2002 | 
|Potential problem loans                              |  | $            | 642  |   |      | $ | 943  |      |  | $ | 4,289 |  
|                                                     |  |              |     
|Nonperforming loans:                                 |  |              |      |   |      |   |      |      |  |   |       |  
|Nonaccrual loans                                     |  | $            | 257  |   |      | $ |     |      |  | $ | 110   |  
|Restructured loans                                   |  |              |     |   |      |   |     |      |  | $ |      |  
|Accruing loans 90 days or more past due              |  |              |     |   |      |   |     |      |  | $ | 104   |  
|                                                     |  |              |      |   |      |   |      |      |  |   |       |  
|Total nonperforming loans                            |  |              | 257  |   |      |   |     |      |  |   | 214   |  
|Other real estate owned                              |  |              |     |   |      |   |     |      |  |   |      |  
|                                                     |  |              |      |   |      |   |      |      |  |   |       |  
|Total nonperforming assets                           |  | $            | 257  |   |      | $ |     |      |  | $ | 214   |  
|                                                     |  |              |      |   |      |   |      |      |  |   |       |  
|Nonperforming loans as a percentage of total loans   |  |              | 0.19 | % |      |   | 0.00 | %    |  |   | 0.18  | %
|Nonperforming assets as a percentage of total assets |  |              | 0.16 | % |      |   | 0.00 | %    |  |   | 0.12  | %



Other Real Estate Owned



Other real estate owned (OREO) is carried at the lesser of book value or
market value. The costs related to completion, repair, maintenance, or other costs of such properties, are generally expensed with any gains or inadvertent shortfalls from the ultimate sale of OREO being shown as other income or expense.



As of December 31, 2004, Pacifica had no OREO assets on the books. At December 31, 2003,
OREO assets consisted of one property, which was two residential lots located in Madras, Oregon. The Company obtained this property in 2003 as a result of the Banks foreclosure on collateral of a previously charged off loan.



During 2004, Pacifica sold this OREO property for approximately $20,000. The sale was
finalized in February 2004 with net proceeds to the bank of approximately $17,000 which was treated as a recovery on a previously charged off loans and thus added back to the allowance for loan loss reserve account.



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##### Table of Contents

Analysis of Provision and Allowance for Loan Losses.



The allowance for loan losses is established to absorb potential loan losses inherent in a
loan portfolio. The allowance is increased by a provision for loan losses and reduced by loans charged off (net of recoveries). The provision for loan losses is charged directly against earnings in the corresponding period. On the balance sheet, the
loan loss reserve is applied against gross loans to arrive at net loans outstanding. If a loan is charged off, the charge-off reduces net loans on the balance sheet only to the extent the charge-off exceeds the established reserve; from the income
statement perspective, the charge-off in excess of the reserve ordinarily is charged against operating revenues.



Management reviews and evaluates the appropriate level of the allowance for loan losses and determines the provision on a monthly basis. The evaluation by management
includes consideration of changes in the nature and volume of the portfolio as well as commitments and standby letters of credit, overall portfolio quality, past loan loss experience, peer bank experience, loan concentrations, specific problem
loans, internal and external credit examination results, and the current economic conditions that may affect borrowers ability to pay. Management monitors delinquencies closely. Loan loss reserve calculations and delinquencies are reported to
the Board of Directors and the Bank Loan Committee at least quarterly. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require Pacifica to
increase the allowance for loan losses based on their judgment about information available to them at the time of their examination. Management has made provisions for loan losses aimed at maintaining a reasonable reserve against outstanding loans.



While management believes that it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could result in adjustments to the allowance for loan losses, and net income could be significantly affected if circumstances differ substantially from the assumptions used in
making the determination.



Pacificas loan loss analysis procedure
emphasizes early detection of loan losses. The Company significantly increased its allowance for loan losses through additional provisions during 2001, and no additions to the allowance for loan losses were made during 2002, 2003, or 2004 except
from recoveries on previously charged-off loans. During 2002 and 2003, we achieved significantly greater net recoveries on charged-off loans than expected, including a large insurance settlement in 2002, and significantly reduced the amount of our
classified assets. We continued to improve our asset quality and reduce the amount of classified assets during 2004. During 2004, we charged off one loan in the amount of $12,000 and received recoveries of $623,000. At December 31, 2004, the
allowance for loan losses was $2.12 million, or 1.58% of total loans, compared to $2.23 million, or 1.91% of the total loans, at December 31, 2003. The $114,000 decrease from year-end 2003 represents net recoveries from previously charged off loans
of $611,000 and the transfer of excess funds of $725,000 from the allowance for loan loss reserve account into earnings. The significant improvement in asset quality during the past two years has reduced the reserve requirement for our loan
portfolio. Management believes the current balance of the allowance for loan losses is adequate to provide against current potential losses that are reasonably likely in light of our current loan portfolio and existing expected economic conditions.
We anticipate moderate additions to the allowance for loan losses in 2005, as we continue to grow the loan portfolio. We do not expect large recoveries from previously charged-off loans to continue into 2005.



The following table shows the allocation of the allowance for loan losses at December 31,
2004 and 2003:



|                                |  |              |       |   |      |   |          |   |       |  |     |  
|------------------------------- |  | ------------ | ----- | - | ---- | - | -------- | - | ----- |  | --- | -
|                                |  | December 31, |      
|(Dollars in thousands)          |  | 2004         |       |   | 2003 |  
|                                |  | $ Amount     |       | % |      |   | $ Amount |   | %     | 
|Balance applicable to:          |  |              |       |   |      |   |          |   |       |  |     |  
|Commercial and industrial loans |  | $            | 931   |   | 44   | % |          | $ | 1,169 |  | 52  | %
|Real estate - construction      |  |              | 317   |   | 15   | % |          |   | 349   |  | 16  | %
|Real estate - mortgage          |  |              | 804   |   | 38   | % |          |   | 705   |  | 32  | %
|Consumer and other              |  |              | 64    |   | 3    | % |          |   | 7     |  | 0   | %
|                                |  |              |       |   |      |   |          |   |       |  |     |  
|Total                           |  | $            | 2,116 |   | 100  | % |          | $ | 2,230 |  | 100 | %
|                                |  |              |       |   |      |   |          |   |       |  |     |  



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The following table provides an analysis of Pacificas allowance for loan losses for the fiscal years ending
December 31, 2004, 2003, and 2002:



|                                                            |  |              |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                            |  | December 31, |        
|(Dollars in thousands)                                      |  | 2004         |         |   | 2003 |   |         | 2002 | 
|Total loans                                                 |  | $            | 133,596 |   |      | $ | 116,770 |      |  | $ | 109,735 |  
|Average loans                                               |  |              | 124,900 |   |      |   | 108,663 |      |  |   | 108,663 |  
|                                                            |  |              |        
|Balance of allowance for loan losses at beginning of period |  | $            | 2,230   |   |      | $ | 2,919   |      |  | $ | 3,530   |  
|Charge-offs:                                                |  |              |         |   |      |   |         |      |  |   |         |  
|Commercial loans                                            |  |              | (12     | ) |      |   | (287    | )    |  |   | (2,141  | )
|Recoveries:                                                 |  |              |         |   |      |   |         |      |  |   |         |  
|Commercial loans                                            |  |              | 623     |   |      |   | 498     |      |  |   | 2,133   |  
|                                                            |  |              |         |   |      |   |         |      |  |   |         |  
|Net (charge-offs)/recoveries                                |  |              | 611     |   |      |   | 211     |      |  |   | (8      | )
|Provision/(recovery) charged to expense                     |  |              | (725    | ) |      |   | (900    | )    |  |   | (603    | )
|                                                            |  |              |         |   |      |   |         |      |  |   |         |  
|Balance of allowance for loan losses at end of period       |  | $            | 2,116   |   |      | $ | 2,230   |      |  | $ | 2,919   |  
|                                                            |  |              |         |   |      |   |         |      |  |   |         |  
|Net charge-off/(recovery) to average loans outstanding      |  |              | -0.49   | % |      |   | -0.19   | %    |  |   | 0.01    | %
|Allowance as a percentage of total loans                    |  |              | 1.58    | % |      |   | 1.91    | %    |  |   | 2.66    | %
|Allowance as a percentage of nonperforming loans            |  |              | 823     | % |      |   | N/A     |      |  |   | 1364    | %



Maturities and Sensitivities of
Loans to Changes in Interest Rate.For information on the aggregate contractual maturities of loans as of December 31, 2004 and the amounts of variable and fixed rate loans that mature after one year, see Note 3 of the consolidated financial
statements.



Premises and Equipment



During 2004, fixed assets decreased by $349,000, to $1.67 million at year-end 2004 from
$2.02 million at year-end 2003. The net change included purchases of $101,000, losses from the sale of fixed assets of $2,000, and depreciation expenses of $448,000.



Deposits



Pacifica offers various types of deposit accounts, including checking, savings, money market accounts and a variety of certificate of deposit accounts. Total deposits
increased $3.6 million, or 3%, to $137.3 million at December 31, 2004, compared to $133.7 million at December 31, 2003. Pacifica seeks to attract deposits in its primary market area by pricing its products competitively and delivering quality
service.



Time deposits accounted for 58% of the total interest-bearing
deposits at December 31, 2004, and 64% at December 31, 2003. Money market deposits made up 32% and 29% of the total interest-bearing deposits at December 31, 2004 and 2003, respectively. NOW accounts made up 10% and 6% of the interest-bearing
deposits at December 31, 2004 and 2003, respectively.



Noninterest-bearing
deposits were $15.1 million at December 31, 2004, an increase of $302,000, or 2% compared to year-end 2003. During the same period, interest-bearing deposits increased $3.3 million, or 3%, to $122.1 million, with the increase being attributable to
money market and NOW accounts. During the year 2004, time deposits decreased $5.9 million to $70.4 million, of which $4.2 million was the decrease in jumbo time certificates. Money market accounts increased $3.8 million to $38.7 million, while NOW
accounts increased $5.2 million to $12.2 million.



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##### Table of Contents

The following table sets forth the average balances outstanding and average interest rates for each major category of our
deposits for the periods indicated:



|                                                           |  |                          |         |              |      |   |                 |   |              |  |      |  
|---------------------------------------------------------- |  | ------------------------ | ------- | ------------ | ---- | - | --------------- | - | ------------ |  | ---- | -
|                                                           |  | Years ended December 31, |        
|                                                           |  | 2004                     |         |              | 2003 |  
|(Dollars in thousands)                                     |  | Averagebalances          |         | Averageyield |      |   | Averagebalances |   | Averageyield | 
|Interest-bearing demand accounts                           |  | $                        | 8,810   |              | 0.37 | % |                 | $ | 6,608        |  | 0.45 | %
|Money market accounts                                      |  |                          | 38,904  |              | 1.18 | % |                 |   | 33,398       |  | 1.39 | %
|Savings accounts                                           |  |                          | 505     |              | 1.02 | % |                 |   | 417          |  | 1.17 | %
|Certificates of deposit                                    |  |                          | 75,597  |              | 1.97 | % |                 |   | 83,868       |  | 2.55 | %
|                                                           |  |                          |         |              |      |   |                 |   |              |  |      |  
|Total interest-bearing accounts                            |  |                          | 123,815 |              | 1.60 | % |                 |   | 124,291      |  | 2.12 | %
|Noninterest-bearing demand accounts Total average deposits |  |                          | 15,540  |              |     |   |                 |   | 13,341       |  |     |  
|                                                           |  |                          |         |              |      |   |                 |   |              |  |      |  
|Total average deposits                                     |  | $                        | 139,355 |              | 1.42 | % |                 | $ | 137,632      |  | 1.91 | %
|                                                           |  |                          |         |              |      |   |                 |   |              |  |      |  



The only deposit category with stated
maturity dates is certificates of deposit. At December 31, 2004, Pacifica had $70.4 million in certificates of deposit. Approximately all of Pacificas certificates of deposits renew automatically at maturity, unless otherwise directed by the
customer.



The following table sets forth the amounts and maturities of
certificates of deposit with balances of $100,000 or more at December 31, 2004:



|                       |  |                   |       
|---------------------- |  | ----------------- | ------
|(Dollars in thousands) |  | December 31, 2004
|Remaining maturity:    |  |                   |       
|Less than three months |  | $                 | 26,076
|Three to six months    |  |                   | 8,211 
|Six to twelve months   |  |                   | 17,394
|Over twelve months     |  |                   | 7,081 
|                       |  |                   |       
|                       |  | $                 | 58,762
|                       |  |                   |       



Borrowings



At December 31, 2004 and December 31, 2003, Pacifica had liabilities to the U.S. Treasury
in the amount of $164,000 and $6,000, respectively, representing Treasury Tax and Loan balances.



In addition, Pacifica obtained a $3.5 million line of credit through one of our correspondent banks in September 2003, of which $2.35 million was used to redeem all of the Companys outstanding Limited Life
Preferred stock and Perpetual Preferred stock on September 30, and December 29, 2003, respectively. An additional $150,000 of this line was used to pay dividends on the preferred stock and to cover other expenses associated with the holding company.
Due to our improved financial performance as well as our relatively strong capital position, we requested and received regulatory approval for the Bank to pay a dividend to the Company in order to pay down up to $2.5 million of our outstanding
balance on this line. We paid down $2.5 million of this line by the end of April 2004. The Company renewed the existing line in December of 2004. At December 31, 2004, there was no outstanding balance on this line of credit.



The current line of credit is collateralized by the Companys Pacifica Bank stock and
subject to certain restrictive covenants including, among others, requirements with regards to capital ratios, ROA, loan loss reserve ratios and lenders prior approval on certain transactions. As of December 31, 2004, the Company was in
compliance with its covenants. Interest on this loan is at the lenders prime rate minus 0.50% and is paid quarterly and matures March 15, 2007. Pacifica renewed this line of credit in order to ensure adequate flexibility for future capital
strategies.



At December 31, 2004, the Company had additional short-term
funding sources available totaling $31.5 million with variable interest rates and collateralized by $18 million of investment securities. There were $15.4 million and $11.8 outstanding under these agreements as of December 31, 2004 and 2003,



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##### Table of Contents

respectively. Of the $15.4 million outstanding, $10.3 million was attributed to Federal Home Loan Bank (FHLB) fixed rate advances with maturities ranging
from 9 months to 3 years with an average rate of 2.40%, while $5.2 million represented the purchase of Federal Funds. We anticipate additional borrowings to total between $2 and $3 million during 2005 to fund our loan growth and replace a portion of
the Companys time certificates of deposit.



Capital



Pacificas shareholders equity at December 31, 2004 was
$16.0 million, compared with $12.6 million at year-end 2003. Shareholders equity was 9.40% and 7.79% of total assets at December 31, 2004 and 2003, respectively.



The primary reason for the increase in the Companys shareholders equity since December 31, 2003 was the net income for the year
of $3.1 million which included the reversal of a tax valuation credit of $260,000. The Company also received approximately $233,000 in proceeds from certain employees who exercised stock options during 2004. The accumulated deficit decreased from
$3.1 million at year-end 2003 to $1.1 million as of year-end 2004 due primarily to a net income of $3.1 million. The accumulated deficit was also affected by the 5% stock dividend which increased the deficit by approximately $1.1 million.
Accumulated other comprehensive losses decreased by $41,000 to $(166,000) as of December 31, 2004 from $(207,000) at December 31, 2003, due to a decrease in unrealized losses on available-for-sale securities, net of tax effect.



Preferred Stock



At December 31, 2004, the Company had no outstanding preferred stock. On September 30, 2003, the Company redeemed the outstanding balance of
the Limited Life Preferred Stock in its entirety with proceeds from a $2 million borrowing from a correspondent bank. On December 29, 2003, the Company redeemed the outstanding balance of the Perpetual Preferred stock in its entirety with proceeds
from a $350,000 borrowing from the same correspondent bank.



Contractual
Obligations and Commitments



The following table sets forth
Pacificas long-term contractual obligations:



|                        |  |       |        |                         |   |           |  |           |       |            |   |     |  |   |    
|----------------------- |  | ----- | ------ | ----------------------- | - | --------- |  | --------- | ----- | ---------- | - | --- |  | - | ---
|                        |  |       |        | Payments Due Per Period
|(Dollars in Thousands)  |  | Total |        | Less than 1 year        |   | 1-3 years |  | 3-5 years |       | Thereafter
|Debt                    |  | $     | 15,635 |                         | $ | 7,833     |  | $         | 7,802 |            | $ |    |  | $ |   
|Fixed interest on debt1 |  |       | 355    |                         |   | 237       |  |           | 118   |            |   |    |  |   |   
|Operating leases        |  |       | 2,440  |                         |   | 625       |  |           | 1,149 |            |   | 400 |  |   | 266
|                        |  |       |        |                         |   |           |  |           |       |            |   |     |  |   |    
|Total                   |  | $     | 18,430 |                         | $ | 8,695     |  | $         | 9,069 |            | $ | 400 |  | $ | 266
|                        |  |       |        |                         |   |           |  |           |       |            |   |     |  |   |    

---

|(1) | Amount excludes interest expense on adjustable rate debt.
|--- | ---------------------------------------------------------



At December 31, 2004, the Companys obligations related to debt totaled $15.6 million to be paid over the next 3 years. Included in this amount is an amortizing
advance which we will pay-down monthly over the remaining three year period. The weighted-average interest rate related to the long-term debt is 2.40%. See additional discussion under the Borrowing section.



The Company also has operating leases comprised of leases for office space. See additional
discussion under Note 11 of the financial statements.



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Off-Balance Sheet Commitments



Standby letters of credit, commercial letters of credit and financial guarantees written are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party or payment by a customer to a third party. Those guarantees are primarily issued in international trade or to support public and private borrowing arrangements, including commercial paper,
bond financing, and similar transactions. Except for certain long-term guarantees, the majority of guarantees expire in one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan
facilities to customers. Collateral supporting those commitments, for which collateral is deemed necessary, generally amounts to one hundred percent of the commitment amount at December 31, 2004. The Company routinely charges a fee for these credit
facilities. The Company has not been required to perform on any financial guarantees.



|                                         |  |       |        |                                            |   |           |  |           |       |            |   |    |  |   |    
|---------------------------------------- |  | ----- | ------ | ------------------------------------------ | - | --------- |  | --------- | ----- | ---------- | - | -- |  | - | ---
|                                         |  |       |        | Amount of Commitment Expiration Per Period
|(Dollars in Thousands)                   |  | Total |        | Less than 1 year                           |   | 1-3 years |  | 3-5 years |       | Thereafter
|Off-Balance Sheet Commitments            |  |       |        |                                            |   |           |  |           |       |            |   |    |  |   |    
|Commitments to extend credit             |  | $     | 26,780 |                                            | $ | 23,391    |  | $         | 2,978 |            | $ | 15 |  | $ | 396
|Commercial and standby letters of credit |  |       | 1,321  |                                            |   | 1,139     |  |           | 182   |            |   |   |  |   |   
|                                         |  |       |        |                                            |   |           |  |           |       |            |   |    |  |   |    
|Total                                    |  | $     | 28,101 |                                            | $ | 24,530    |  | $         | 3,160 |            | $ | 15 |  | $ | 396
|                                         |  |       |        |                                            |   |           |  |           |       |            |   |    |  |   |    



Liquidity and Capital Resources



The primary function of asset/liability management is to ensure adequate
liquidity and maintain an appropriate balance between interest sensitive earning assets and liabilities. Liquidity management focuses on Pacificas ability to meet the financial demands of depositors, creditors and borrowers. Pacifica actively
manages the levels, types and maturities of earning assets in relation to the funding sources available to ensure that adequate funding will be available at all times. Management believes that Pacificas liquidity is adequate to meet operating
and funding requirements.



Pacificas primary source of new funds is
customer deposits. These funds, together with loan repayments, retained earnings, equity and other borrowed funds are used to make loans, to acquire investment securities and other assets and to fund continuing operations. The primary source of
demands on our capital are customer demand for withdrawal of deposits and borrowers demands that we advance funds against unfunded lending commitments. Our total unfunded lending commitments at December 31, 2004 were $26.8 million, and we do
not expect all of these loans to be fully drawn upon at any one time. Pacifica also may use advances from the Federal Home Loan Bank and borrowings at correspondent banks to meet short-term liquidity needs. At December 31, 2004 we had unused credit
lines totaling approximately $16 million. Certain borrowings have collateral requirements and are subject to availability of funds.



Cash. Cash and cash equivalents at December 31, 2004 totaled $9.6 million, down 26% from $13.1 million at year-end 2003.



Cash from (used by) Operating Activities.Net cash provided by
operating activities totaled $2.3 million in 2004, up from net cash used by operating activities of $772,000 in the same period of 2003. This increase of funds was caused primarily by the $3.1 million net income. Net cash used to pay accrued
interest declined significantly again in 2004 due to the lowing of the cost of funds in 2004 and 2003.



Cash from (used by) Investing Activities.Net cash used by investing activities was $10.8 million during 2004, as compared to net cash used by
investing activities of $12 million in 2003. Net funding for new loans and investments in 2004 primarily came from the Companys excess liquidity and the increase in deposits as well as proceeds from sold, called and matured investments. The
Company experienced less activity related to the sales of investment securities during 2004 as compared to 2003.



Cash from (used by) Financing Activities.In 2004, net cash provided by financial activities totaled $5.1 million, up substaintially from net cash
used by financing activities of $3.8 million in 2003. This increase in cash provided by financing activities was primarily a result of an increase in interest bearing deposits of $3.25 million and an increase in borrowings of $1.3 million. In 2003,
cash used by financing activities came mainly from the decrease in interest-bearing deposits of $15.5 million and the redemption of the Companys preferred stock.



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Effects of Inflation and Changing Prices



The primary impact of inflation on our operations is increased operating costs. Unlike most industrial companies, virtually all the assets
and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institutions performance than the effects of general levels of inflation. Although interest
rates do not necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally have resulted in increased interest rates.



New Accounting Pronouncements



See Note 18 on page 50 of this report.



Factors That May Impact Our Financial Condition and Results of Operations



In addition to the other information contained in this report, one or more of the following risks may affect our business, financial condition and results of
operations, and in some cases these effects could be material and adverse. Readers are cautioned that the factors described here are not an exhaustive list of potential occurrences or conditions that may have an adverse impact. Instead, we are
subject to the general risks facing banking and financial services businesses and to other unforeseen risks that, alone or in combination with one or more potential events described below, may cause us to fall short of our expected performance.



Our markets are geographically concentrated and regional economic factors
that impact our markets will affect our business more than they might a bank holding company with more diverse markets.



Our market is located almost exclusively in the Seattle and Bellevue, Washington, business districts. Our customers are directly and indirectly dependent upon the
economies of these areas and upon the technology, manufacturing, aerospace and tourism industries, which are the primary employers and revenue sources in our markets. National, regional, and local economic factors that affect these industries will
have a disproportionately negative impact on our customers. Localized economic declines will thus adversely impact our customers, and in exacerbated circumstances may increase the rate at which our borrowers default on their loans. The vast majority
of our loans are secured by real and personal property located in this same region, and continuing or worsening economic conditions in this area could make it more difficult for us to realize full value on the collateral that secures our loans. A
deterioration in economic and business conditions in our market areas, particularly in the technology and aerospace sectors, could have a material adverse impact on the quality of our loan portfolio and the demand for our products and services,
which in turn may have a material adverse effect on our results of operations. Further, a downturn in the national economy might further exacerbate local economic conditions. The extent of the future impact of these events on economic and business
conditions cannot be predicted.



Our earnings depend upon the spread between
the interest rate we receive on loans and securities and the interest rates we pay on deposits and borrowings. If interest rates shift, our business may be impacted more severely than would be experienced in a diversified business.



Our earnings are impacted by changing interest rates. Changes in interest rates affect
the demand for new loans, the credit profile of existing loans, the rates received on loans and securities, and rates paid on deposits and borrowings. The relationship between the rates received on loans and securities and the rates paid on deposits
and borrowings is known as interest rate spread. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, our interest rate spread could be expected to increase during times of rising interest rates and,
conversely, to decrease during times of falling interest rates. This shift in our interest rate exposure is largely contributable to the current rising interest rate environment in which our prime based or other adjustable rate products float upward
faster than the Companys cost of funds. Exposure to interest rate risk is managed by monitoring the re-pricing frequency of the Banks rate-sensitive assets and rate-sensitive liabilities over any given period. Although we believe our
current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates may have an adverse affect on our business, financial condition and results of operations.



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##### Table of Contents

Our business is heavily regulated and the creation of additional regulations may negatively affect our operations.



We are subject to government regulation that could limit or restrict our
activities, which could adversely impact our operations. The financial services industry is regulated extensively. Federal and state regulation is designed primarily to protect the deposit insurance funds and consumers, and not to benefit our
stockholders. These regulations can sometimes impose significant limitations on our operations. In addition, these regulations are constantly evolving and may change significantly over time. Significant new laws or changes in existing laws or repeal
of existing laws may cause our results to differ materially. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions for us.



In our intensely competitive markets many of our competitors offer similar services, which
could impair our ability to attract new customers and retain existing customers.



The financial services business in our market areas is highly competitive. It is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services
providers. We face competition both in attracting deposits and in making loans, and our competitors include more traditional financial services companies such as national and super-regional banks, community banks and credit unions, as well as more
recent competitors such as investment companies, mortgage companies, insurance firms and brokerage firms. We compete for customers principally through the interest rates we pay on deposits and the interest rates and loan fees we charge on loans, and
while we target customers who seek the efficiency and quality of services we provide, that level of service limits our ability to compete on price while continuing to operate profitably. Increasing levels of competition in the banking and financial
services industries may reduce our market share or cause the prices we charge for our services to fall. Our results may differ in future periods depending upon the nature or level of competition.



Our earnings depend to a large extent upon the ability of our borrowers to repay their
loans. If we were unable to manage this credit risk our business would be negatively impacted.



A source of risk arises from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. We have
adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for loan losses, that management believes are appropriate to minimize this risk by assessing the likelihood of
nonperformance, tracking loan performance and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could materially affect our results of operations. We have therefore been required to
adopt measures to address regulatory concerns, and if these measures are not sufficient, we may face additional regulatory action or may experience additional loan charge-offs or reserves.



ITEM 7. FINANCIAL STATEMENTS



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders

Pacifica Bancorp, Inc.



We have audited the accompanying consolidated balance sheet of Pacifica Bancorp, Inc. and Subsidiary (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of income,
changes in stockholders equity and cash flows for each of the two years in the periods ended December 31, 2004 and 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.



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



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pacifica Bancorp, Inc. and
Subsidiary as of December 31, 2004 and 2003 and the results of their operations and cash flows for each of the two years in the periods ended December 31, 2004 and 2003, in conformity with accounting principles generally accepted in the United
States of America.



LOGO



Los Angeles, California

January 28, 2005



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PACIFICA BANCORP, INC.

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2004
AND 2003



|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|ASSETS                                                                                                                                                                   |  |                   |         |   |                   |   |         |  
|                                                                                                                                                                         |  | December 31, 2004 |         |   | December 31, 2003 |  
|(Dollars in thousands)                                                                                                                                                   |  |                   |         |   |                   |  
|ASSETS                                                                                                                                                                   |  |                   |         |   |                   |   |         |  
|Cash and due from banks                                                                                                                                                  |  | $                 | 2,820   |   |                   | $ | 3,658   |  
|Interest-bearing cash                                                                                                                                                    |  |                   | 4,796   |   |                   |   | 5,010   |  
|Federal funds sold                                                                                                                                                       |  |                   | 2,020   |   |                   |   | 4,425   |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Total cash and cash equivalents                                                                                                                                          |  |                   | 9,636   |   |                   |   | 13,093  |  
|Interest-bearing deposits in banks                                                                                                                                       |  |                   | 257     |   |                   |   | 257     |  
|Securities available-for-sale, at fair value                                                                                                                             |  |                   | 21,888  |   |                   |   | 27,360  |  
|Correspondent bank stock, at cost                                                                                                                                        |  |                   | 633     |   |                   |   | 554     |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Total investments                                                                                                                                                        |  |                   | 22,778  |   |                   |   | 28,171  |  
|Loans                                                                                                                                                                    |  |                   | 133,596 |   |                   |   | 116,770 |  
|Less allowance for loan losses                                                                                                                                           |  |                   | (2,116  | ) |                   |   | (2,230  | )
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Total loans, net                                                                                                                                                         |  |                   | 131,480 |   |                   |   | 114,540 |  
|Bank premises and equipment, net                                                                                                                                         |  |                   | 1,670   |   |                   |   | 2,019   |  
|Accrued interest receivable                                                                                                                                              |  |                   | 752     |   |                   |   | 762     |  
|Other                                                                                                                                                                    |  |                   | 3,781   |   |                   |   | 3,284   |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Total other assets                                                                                                                                                       |  |                   | 6,203   |   |                   |   | 6,065   |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|TOTAL ASSETS                                                                                                                                                             |  | $                 | 170,097 |   |                   | $ | 161,869 |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                     |  |                   |         |   |                   |   |         |  
|Deposits                                                                                                                                                                 |  |                   |         |   |                   |   |         |  
|Noninterest-bearing                                                                                                                                                      |  | $                 | 15,148  |   |                   | $ | 14,846  |  
|Interest-bearing                                                                                                                                                         |  |                   | 122,119 |   |                   |   | 118,866 |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Total deposits                                                                                                                                                           |  |                   | 137,267 |   |                   |   | 133,712 |  
|Accrued interest payable                                                                                                                                                 |  |                   | 564     |   |                   |   | 615     |  
|Other accrued liabilities                                                                                                                                                |  |                   | 639     |   |                   |   | 608     |  
|Other borrowings                                                                                                                                                         |  |                   | 15,635  |   |                   |   | 14,320  |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Total other liabilities                                                                                                                                                  |  |                   | 16,838  |   |                   |   | 15,543  |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                        |  |                   | 154,105 |   |                   |   | 149,255 |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|STOCKHOLDERS EQUITY                                                                                                                                                     |  |                   |         |   |                   |   |         |  
|Preferred stock, no par value, 3,000,000 shares authorized;no shares issued and outstanding at December 31, 2004 and December 31,
2003                                   |  |                   |        |   |                   |   |        |  
|Common stock, no par value, 10,000,000 shares authorized, 3,445,988 and 3,233,008 shares issued and outstanding at December 31, 2004 and
December 31, 2003, respectively |  |                   | 17,252  |   |                   |   | 15,914  |  
|Accumulated deficit                                                                                                                                                      |  |                   | (1,094  | ) |                   |   | (3,093  | )
|Accumulated other comprehensive income (loss), net of tax                                                                                                                |  |                   | (166    | ) |                   |   | (207    | )
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                                               |  |                   | 15,992  |   |                   |   | 12,614  |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                               |  | $                 | 170,097 |   |                   | $ | 161,869 |  
|                                                                                                                                                                         |  |                   |         |   |                   |   |         |  



See accompanying notes to these
consolidated financial statements.



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PACIFICA BANCORP, INC.

CONSOLIDATED STATEMENT OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



|                                                         |  |                                                      |           |   |      |   |           |  
|-------------------------------------------------------- |  | ---------------------------------------------------- | --------- | - | ---- | - | --------- | -
|                                                         |  | (Dollars in Thousands, except for per share amounts) |          
|                                                         |  | 2004                                                 |           |   | 2003 |  
|INTEREST                                                 |  |                                                      |           |   |      |   |           |  
|Loans, including fees                                    |  | $                                                    | 8,836     |   |      | $ | 7,985     |  
|Investments and interest-bearing deposits                |  |                                                      | 1,382     |   |      |   | 1,464     |  
|Federal funds sold                                       |  |                                                      | 68        |   |      |   | 105       |  
|                                                         |  |                                                      |           |   |      |   |           |  
|Total interest income                                    |  |                                                      | 10,286    |   |      |   | 9,554     |  
|                                                         |  |                                                      |           |   |      |   |           |  
|INTEREST EXPENSE                                         |  |                                                      |           |   |      |   |           |  
|Deposits                                                 |  |                                                      | 1,986     |   |      |   | 2,635     |  
|Borrowings                                               |  |                                                      | 280       |   |      |   | 69        |  
|Mandatory redeemable preferred stock                     |  |                                                      |          |   |      |   | 115       |  
|                                                         |  |                                                      |           |   |      |   |           |  
|Total interest expense                                   |  |                                                      | 2,266     |   |      |   | 2,819     |  
|                                                         |  |                                                      |           |   |      |   |           |  
|NET INTEREST INCOME                                      |  |                                                      | 8,020     |   |      |   | 6,735     |  
|PROVISION/(RECOVERY) FOR LOAN LOSSES                     |  |                                                      | (725      | ) |      |   | (900      | )
|                                                         |  |                                                      |           |   |      |   |           |  
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES      |  |                                                      | 8,745     |   |      |   | 7,635     |  
|                                                         |  |                                                      |           |   |      |   |           |  
|NONINTEREST INCOME                                       |  |                                                      |           |   |      |   |           |  
|Service fees                                             |  |                                                      | 100       |   |      |   | 152       |  
|Foreign trade fees                                       |  |                                                      | 308       |   |      |   | 269       |  
|Other income                                             |  |                                                      | 321       |   |      |   | 243       |  
|Net gain on sale of investments                          |  |                                                      | 61        |   |      |   | 159       |  
|                                                         |  |                                                      |           |   |      |   |           |  
|Total noninterest income                                 |  |                                                      | 790       |   |      |   | 823       |  
|                                                         |  |                                                      |           |   |      |   |           |  
|NONINTEREST EXPENSES                                     |  |                                                      |           |   |      |   |           |  
|Salaries and employee benefits                           |  |                                                      | 3,836     |   |      |   | 3,813     |  
|Occupancy and equipment                                  |  |                                                      | 1,245     |   |      |   | 1,298     |  
|Professional services                                    |  |                                                      | 284       |   |      |   | 272       |  
|State business taxes                                     |  |                                                      | 173       |   |      |   | 156       |  
|Data processing                                          |  |                                                      | 181       |   |      |   | 162       |  
|Loan collection expense / (recovery)                     |  |                                                      | (11       | ) |      |   | 153       |  
|FDIC assessment                                          |  |                                                      | 63        |   |      |   | 167       |  
|Insurance expense                                        |  |                                                      | 123       |   |      |   | 107       |  
|Loss on impaired assets                                  |  |                                                      |          |   |      |   | 130       |  
|Loss on disposal of equipment and lease termination cost |  |                                                      | 2         |   |      |   | 108       |  
|Other expenses                                           |  |                                                      | 814       |   |      |   | 726       |  
|                                                         |  |                                                      |           |   |      |   |           |  
|Total noninterest expenses                               |  |                                                      | 6,710     |   |      |   | 7,092     |  
|                                                         |  |                                                      |           |   |      |   |           |  
|INCOME FROM CONTINUING OPERATIONS                        |  |                                                      | 2,825     |   |      |   | 1,366     |  
|Loss from discontinued operations                        |  |                                                      |          |   |      |   | (157      | )
|                                                         |  |                                                      |           |   |      |   |           |  
|INCOME BEFORE INCOME TAXES                               |  |                                                      | 2,825     |   |      |   | 1,209     |  
|INCOME TAXES / (BENEFIT)                                 |  |                                                      | (260      | ) |      |   |          |  
|                                                         |  |                                                      |           |   |      |   |           |  
|NET INCOME                                               |  |                                                      | 3,085     |   |      |   | 1,209     |  
|Less perpetual preferred stock dividends                 |  |                                                      |          |   |      |   | (31       | )
|                                                         |  |                                                      |           |   |      |   |           |  
|NET INCOME AVAILABLE TO COMMON SHAREHOLDERS              |  | $                                                    | 3,085     |   |      | $ | 1,178     |  
|                                                         |  |                                                      |           |   |      |   |           |  
|NET INCOME PER SHARE AVAILABLE TO COMMON SHAREHOLDERS    |  |                                                      |           |   |      |   |           |  
|Basic                                                    |  |                                                      |           |   |      |   |           |  
|Continuing operations, net of tax                        |  | $                                                    | 0.90      |   |      | $ | 0.39      |  
|Discontinued operations                                  |  | $                                                    |          |   |      | $ | (0.05     | )
|                                                         |  |                                                      |           |   |      |   |           |  
|Total                                                    |  | $                                                    | 0.90      |   |      | $ | 0.34      |  
|                                                         |  |                                                      |           |   |      |   |           |  
|Diluted                                                  |  |                                                      |           |   |      |   |           |  
|Continuing operations, net of tax                        |  | $                                                    | 0.87      |   |      | $ | 0.38      |  
|Discontinued operations                                  |  | $                                                    |          |   |      | $ | (0.05     | )
|                                                         |  |                                                      |           |   |      |   |           |  
|Total                                                    |  | $                                                    | 0.87      |   |      | $ | 0.34      |  
|                                                         |  |                                                      |           |   |      |   |           |  
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING            |  |                                                      |           |   |      |   |           |  
|Basic                                                    |  |                                                      | 3,411,281 |   |      |   | 3,423,386 |  
|                                                         |  |                                                      |           |   |      |   |           |  
|Diluted                                                  |  |                                                      | 3,565,289 |   |      |   | 3,485,239 |  
|                                                         |  |                                                      |           |   |      |   |           |  



See accompanying notes to these
consolidated financial statements.



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##### Table of Contents

PACIFICA BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|-------------------------------------------------------------------------------------------------- |  | -------------- | - |  | ------------ | ---- | - | --------------- | --------- | - | ------ | - | ------ | - |  | --------------------------------------- | - |  | ------------------------------------------------------- | ------ | - | -------------------------- | - | ---- | - |  | - | ------ | - |  | - | ----- | -
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  | Retained Earnings (Accumulated Deficit) |   |  | AccumulatedOther Comprehensive Income (Loss) Net of Tax |        |   | Total Stockholders Equity |   |      |   | 
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  | Comprehensive Income (Loss)                             |       
|                                                                                                   |  | PreferredStock |   |  | Common Stock |      |   | Capital Surplus |           |   |        |  
|(In Thousands)                                                                                     |  | Shares         |   |  | Amount       |      |   | Shares          |           |   | Amount |   |        |   |  |                                         |  
|BALANCE,December 31, 2002                                                                          |  | 350            |   |  | $            | 350  |   |                 | 3,260,368 |   |        | $ | 16,054 |   |  | $                                       |  |  | $                                                       | (4,271 | ) |                            | $ | 43   |   |  | $ | 12,176 |   |  |   |       |  
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Comprehensive income                                                                               |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Net income                                                                                         |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         | 1,209  |   |                            |   |      |   |  |   | 1,209  |   |  | $ | 1,209 |  
|Other comprehensive income                                                                         |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Change in unrealized gains (losses) on available-for-sale securities, net of tax effects of ($129) |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   | (250 | ) |  |   | (250   | ) |  |   | (250  | )
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Total comprehensive income (loss)                                                                  |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  | $ | 959   |  
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Common stock repurchased                                                                           |  |                |   |  |              |      |   |                 | (34,360   | ) |        |   | (175   | ) |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   | (175   | ) |  |   |       |  
|Stock options exercised                                                                            |  |                |   |  |              |      |   |                 | 7,000     |   |        |   | 35     |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   | 35     |   |  |   |       |  
|Preferred stock repurchased                                                                        |  | (350           | ) |  |              | (350 | ) |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   | (350   | ) |  |   |       |  
|Preferred stock dividends accrued and paid                                                         |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         | (31    | ) |                            |   |      |   |  |   | (31    | ) |  |   |       |  
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|BALANCE,December 31, 2003                                                                          |  |               |   |  | $            |     |   |                 | 3,233,008 |   |        | $ | 15,914 |   |  | $                                       |  |  | $                                                       | (3,093 | ) |                            | $ | (207 | ) |  | $ | 12,614 |   |  |   |       |  
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Comprehensive income                                                                               |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Net income                                                                                         |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         | 3,085  |   |                            |   |      |   |  |   | 3,085  |   |  | $ | 3,085 |  
|Other comprehensive income                                                                         |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Change in unrealized gains (losses) on available-for-sale securities, net of tax effects of ($107) |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   | 41   |   |  |   | 41     |   |  |   | 41    |  
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Total comprehensive income (loss)                                                                  |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  | $ | 3,126 |  
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Stock options exercised                                                                            |  |                |   |  |              |      |   |                 | 47,795    |   |        |   | 233    |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   | 233    |   |  |   |       |  
|Stock option tax effect                                                                            |  |                |   |  |              |      |   |                 |           |   |        |   | 5      |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   | 5      |   |  |   |       |  
|Stock grants                                                                                       |  |                |   |  |              |      |   |                 | 2,258     |   |        |   | 14     |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   | 14     |   |  |   |       |  
|Stock dividend (5% increase)                                                                       |  |                |   |  |              |      |   |                 | 162,927   |   |        |   | 1,086  |   |  |                                         |   |  |                                                         | (1,086 | ) |                            |   |      |   |  |   |        |   |  |   |       |  
|Preferred stock repurchased                                                                        |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|Preferred stock dividends accrued and paid                                                         |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  
|BALANCE,December 31, 2004                                                                          |  |               |   |  | $            |     |   |                 | 3,445,988 |   |        | $ | 17,252 |   |  | $                                       |  |  | $                                                       | (1,094 | ) |                            | $ | (166 | ) |  | $ | 15,992 |   |  |   |       |  
|                                                                                                   |  |                |   |  |              |      |   |                 |           |   |        |   |        |   |  |                                         |   |  |                                                         |        |   |                            |   |      |   |  |   |        |   |  |   |       |  



See accompanying notes to these
consolidated financial statements.



29



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##### Table of Contents

PACIFICA BANCORP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



Increase (Decrease) In Cash



|                                                                                        |  |                |         |   |      |   |         |  
|--------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                                                        |  | (In Thousands) |        
|                                                                                        |  | 2004           |         |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                    |  |                |         |   |      |   |         |  
|Net income                                                                              |  | $              | 3,085   |   |      | $ | 1,209   |  
|Adjustments to reconcile net income to net cash flows from operating activities         |  |                |         |   |      |   |         |  
|Provision for loan losses                                                               |  |                | (725    | ) |      |   | (900    | )
|Net amortization (accretion) of securities                                              |  |                | 56      |   |      |   | 125     |  
|Realized gain on sale of available-for-sale securities, net                             |  |                | (61     | ) |      |   | (159    | )
|Loss on sale of fixed assets                                                            |  |                | 2       |   |      |   | 10      |  
|Impairment provision - bank premises                                                    |  |                |        |   |      |   | 130     |  
|Correspondent bank stock dividends                                                      |  |                | (15     | ) |      |   | (10     | )
|Depreciation                                                                            |  |                | 448     |   |      |   | 480     |  
|Changes in operating assets and liabilities                                             |  |                |         |   |      |   |         |  
|Accrued interest receivable                                                             |  |                | 10      |   |      |   | 16      |  
|Other assets                                                                            |  |                | (518    | ) |      |   | (1,713  | )
|Accrued interest payable                                                                |  |                | (51     | ) |      |   | (333    | )
|Other liabilities, net                                                                  |  |                | 31      |   |      |   | 373     |  
|                                                                                        |  |                |         |   |      |   |         |  
|Net cash flows from (used by) operating activities                                      |  |                | 2,262   |   |      |   | (772    | )
|                                                                                        |  |                |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                    |  |                |         |   |      |   |         |  
|Net change in interest-bearing deposits in banks                                        |  |                |        |   |      |   | 400     |  
|Purchases of available-for-sale investment securities                                   |  |                | (7,598  | ) |      |   | (38,152 | )
|Proceeds from sales, maturities and principal payments of available-for-sale securities |  |                | 13,137  |   |      |   | 32,964  |  
|Purchases of correspondent bank stock                                                   |  |                | (64     | ) |      |   | (413    | )
|Net change in loans                                                                     |  |                | (16,215 | ) |      |   | (6,824  | )
|Redemption of Federal Home Loan Bank stock                                              |  |                |        |   |      |   | 2       |  
|(Additions) to premises and equipment                                                   |  |                | (101    | ) |      |   | (30     | )
|                                                                                        |  |                |         |   |      |   |         |  
|Net cash flows from (used by) investing activities                                      |  |                | (10,841 | ) |      |   | (12,053 | )
|                                                                                        |  |                |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                    |  |                |         |   |      |   |         |  
|Increase in noninterest-bearing deposits                                                |  |                | 302     |   |      |   | 885     |  
|Increase (decrease) in interest-bearing deposits                                        |  |                | 3,253   |   |      |   | (15,493 | )
|Increase (decrease) in other borrowings                                                 |  |                | 1,315   |   |      |   | 13,348  |  
|Repurchase of common stock                                                              |  |                |        |   |      |   | (175    | )
|Proceeds from exercise of stock options                                                 |  |                | 233     |   |      |   | 35      |  
|Tax effect of stock options                                                             |  |                | 5       |   |      |   |         |  
|Proceeds from stock grants                                                              |  |                | 14      |   |      |   |        |  
|Dividends of perpetual preferred stock                                                  |  |                |        |   |      |   | (45     | )
|Redemption of mandatory redeemable preferred stock                                      |  |                |        |   |      |   | (2,000  | )
|Redemption of perpetual preferred stock                                                 |  |                |        |   |      |   | (350    | )
|                                                                                        |  |                |         |   |      |   |         |  
|Net cash flows from (used by) financing activities                                      |  |                | 5,122   |   |      |   | (3,795  | )
|                                                                                        |  |                |         |   |      |   |         |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                                 |  |                | (3,457  | ) |      |   | (16,620 | )
|CASH AND CASH EQUIVALENTS, beginning of year                                            |  |                | 13,093  |   |      |   | 29,713  |  
|                                                                                        |  |                |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, end of year                                                  |  | $              | 9,636   |   |      | $ | 13,093  |  
|                                                                                        |  |                |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                        |  |                |         |   |      |   |         |  
|Cash paid during the period for interest                                                |  | $              | 2,318   |   |      | $ | 3,152   |  
|                                                                                        |  |                |         |   |      |   |         |  
|Cash paid during the period for income taxes                                            |  | $              | 16      |   |      | $ |        |  
|                                                                                        |  |                |         |   |      |   |         |  



See accompanying notes to these
consolidated financial statements.



30



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##### Table of Contents

NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature of Operations  Pacifica Bancorp, Inc.(the Company),
through its wholly-owned subsidiary, Pacifica Bank (the Bank) provides a full range of commercial and mortgage lending services as well as banking services to individuals and small-to-medium sized businesses through its offices in
Bellevue and Seattle, Washington. The Company is subject to significant competition from other financial institutions. The Company is also subject to the regulations of certain Federal and State of Washington agencies and undergoes periodic
examinations by those regulatory authorities.



Plan of
Reorganization  In October 2000, Pacifica Bancorp, Inc. was formed. On January 1, 2001 under a plan of reorganization, Pacifica Bancorp, Inc. became the parent company of Pacifica Bank by issuing 3,258,208 shares of common stock in
exchange for all outstanding shares of Pacifica Bank stock (1,629,104 shares) using a 2-for-1 ratio (stock split). On January 18, 2001, the Company created an additional wholly-owned subsidiary, Pacifica Mortgage Company. Effective March 31, 2003,
the Company ceased operations of its wholly owned subsidiary Pacifica Mortgage Company (Pacifica Mortgage or the Mortgage Company). The Company processed residual transactions throughout the second and third quarters of 2003.
The Company currently provides mortgage services via referrals to correspondent banks to generate fee income and serve our customers efficiently.



Principles of Consolidation  For the years ended December 31, 2004, 2003 and 2002, the consolidated financial statements include the accounts of
Pacifica Bancorp, Inc., and its wholly-owned subsidiary, Pacifica Bank. Due to the closure of Pacifica Mortgage effective March 31, 2003, operating results for Pacifica Mortgage were reported as loss from discontinued operations for the
year ended December 31, 2003. All material intercompany balances and transactions have been eliminated. For the year ended December 31, 2000 the financial statements include Pacifica Bank only.



Financial Statement Presentation and Use of Estimates  The financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reporting practices applicable to the banking industry. In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and liabilities, as of the date of the balance sheet, and revenues and expenses for the period. Actual results could differ from estimated amounts. Material estimates that are
particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans.



Cash and Cash Equivalents  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. Investments in federal funds sold are made with major banks as approved by the Board of
Directors.



The Company maintains cash balances at several banks. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation up to $100,000.



Interest bearing cash represents funds on deposit in a demand account with the Federal Home Loan Bank of Seattle in the amount of $4.8 million and $5 million as of December 31, 2004 and 2003, respectively.



Included in cash and due from banks are legally reserved amounts which are required to be
maintained on an average basis in the form of cash and balances due from the Federal Reserve Bank and other banks. Average clearing balance reserve requirements approximate $200,000 for the years ended December 31, 2004 and 2003, respectively.



Interest-bearing Deposits in Banks  Interest-bearing
deposits in banks mature within one year and are carried at cost.



31



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##### Table of Contents

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)



Investments  The Companys investments are classified into one of three categories: (1) held-to-maturity, (2) available-for-sale, or (3) trading. Investment securities are categorized as
held-to-maturity when the Company has the positive intent and ability to hold those securities to maturity. Securities which are held-to-maturity are stated at cost and adjusted for amortization of premiums and accretion of discounts which are
recognized as adjustments to interest income.



Investment securities
categorized as available-for-sale are generally held for investment purposes (to maturity), although unanticipated future events may result in the sale of some securities. Available-for-sale securities are recorded at estimated fair value, with the
net unrealized gain or loss (net of the related tax effect) reported as other comprehensive income (loss) within the statement of stockholders equity. Realized gains or losses on dispositions are based on the net proceeds and the
adjusted carrying amount of securities sold, using the specific identification method.



Declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that are other than temporary are recognized by write-downs of the individual securities to their fair value. Such write-downs
would be included in earnings as realized losses.



Premiums and discounts are
recognized in interest income using the interest method over the period to maturity.



The Company had no held-to-maturity or trading securities at December 31, 2004 and 2003.



Federal Home Loan Bank Stock  The Banks investment in Federal Home Loan Bank (the FHLB) stock is carried at par value ($100 per share), which reasonably approximates its fair
value. As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on specific percentages of outstanding FHLB advances. The Bank may request redemption at par value of any stock in excess of
the amount the Bank is required to hold. Stock redemptions are at the discretion of the FHLB and have currently been suspended due to capital restructuring currenly taking place at the FHLB of Seattle. At December 31, 2004, Pacifica Bank owned
approximately $533,000 of FHLB stock.



Correspondent Bank Stock
 The Banks investment in correspondent bank stock is carried at cost ($200 per share), which reasonably approximates its fair value. The $100,000 investment in correspondent bank stock represents an investment in common stock of
a bankers bank of which Pacifica is a member. These shares are not traded on any exchanges and have no readily available market price. Any additional purchases of correspondent bank stock would be minimal.



Loans Receivable  Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.



Interest income is accrued on the
unpaid principal balance. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the related loan using the interest method.



The Company considers loans impaired when it is probable the Company will not be able to collect all amounts as scheduled under a loan
agreement. Impaired loans are measured based on the present value of expected future cash flows, discounted at the loans effective interest rate, or, as a practical expedient, at the loans observable market price or the fair value of the
collateral if the loan is collateral dependent. Changes in these values will be reflected in income and as adjustments to the allowance for possible loan losses.



32



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##### Table of Contents

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)



The accrual of interest on impaired loans is discontinued when, in managements opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received, or payment is considered certain.



The Companys policy is to place loans on a nonaccrual basis when, in managements judgment, the collateral value and the financial condition of the borrower do
not justify accruing interest as an income item. Interest previously recorded but not deemed collectible is reversed and charged against current income. Interest income on these loans is then recognized when collected.



Allowance for Loan Losses  The allowance for loan losses is established
as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.



The allowance for loan losses is evaluated
on a regular basis by management and is based upon managements periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the
borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information
becomes available. Additionally, loans are subject to examinations by state and federal regulators, who, based upon their judgment, may require the Company to make additional provisions or adjustments to its allowance for loan losses.



Bank Premises and Equipment  Company premises and equipment are stated at
cost and depreciated using the straight-line method over the estimated useful lives of the related assets, which range from three to ten years. Total depreciation expense was $448,000 and $480,000 at December 31, 2004 and 2003, respectively.



Income Taxes  Deferred tax assets and liabilities are
reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes. Deferred taxes result from temporary differences in the recognition of certain income and expense amounts between the Companys financial statements and its tax returns. The principal items
giving rise to these differences include depreciation, investment income and loan loss reserves. Because of unused net operating losses and preopening expenses and improvement in the Companys financial performance, the Company recognized a tax
credit within the statement of income.



Gain and Loss on Sale of
Loans  Gains and losses on sales of loans are recognized when loans are considered sold to investors. The gain or loss is determined by the difference between expected sales proceeds and the carrying value of the loans. Such carrying
costs include principal advanced and related costs of origination, less loan and discount fees collected.



Financial InstrumentsCredit Related Financial Instruments  In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of commitments
to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.



Advertising Costs  The Company expenses advertising costs as they are
incurred. Total advertising expenses were $97,000 and $48,000 in 2004 and 2003, respectively.



33



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##### Table of Contents

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)



Stock Option Plans  The Company recognizes the financial effects of stock options under the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25). Generally, stock options are issued at a price equal to the fair value of the Companys stock as of the grant date. Under APB 25, options issued in this manner do not result in the recognition of employee
compensation in the Companys financial statements. Disclosures required by Statement of Financial Accounting Standards No. 123, Accounting For Stock-Based Compensation, are as follows. The pro forma information recognizes as
compensation, the value of stock options granted using an option valuation model known as the Black-Scholes model. The estimated fair value for options issued in 2004 and 2003 is estimated at $268,000 and $350,000.



The following assumptions were used to estimate the fair value of the options:



|                                          |  |                  |   |  |                  |  
|----------------------------------------- |  | ---------------- | - |  | ---------------- | -
|                                          |  | 2004             |   |  | 2003             |  
|                                          |  | (5 Year Vesting) |   |  | (5 Year Vesting) |  
|Weighted average risk-free interest rate  |  | 4.46             | % |  | 3.75             | %
|Dividend yield rate                       |  | 0.00             | % |  | 0.00             | %
|Price volatility                          |  | 30.29            | % |  | 31.06            | %
|Weighted average expected life of options |  | 10 Years         |   |  | 10 Years         |  



Management believes that the
assumptions used in the option pricing model are highly subjective and represent only one estimate of possible value, as there is no active market for the options granted. The fair value of the options granted in 2004 and 2003 are allocated to pro
forma earnings over the vesting period of the options. The pro forma effect on the Companys earnings as a result of options issued in 2004 and 2003 is as follows:



|                                                        |  |                                              |       |   |                  |   |       |  
|------------------------------------------------------- |  | -------------------------------------------- | ----- | - | ---------------- | - | ----- | -
|                                                        |  | (In Thousands, except for per share amounts) |      
|                                                        |  | 2004 (Pro Forma)                             |       |   | 2003 (Pro Forma) |  
|Net income from Company operations                      |  | $                                            | 3,085 |   |                  | $ | 1,209 |  
|Less accrued perpetual preferred stock dividends        |  |                                              |      |   |                  |   | (31   | )
|                                                        |  |                                              |       |   |                  |   |       |  
|Net income available to common shareholders             |  |                                              | 3,085 |   |                  |   | 1,178 |  
|Additional compensation for fair value of stock options |  |                                              | (327  | ) |                  |   | (188  | )
|                                                        |  |                                              |       |   |                  |   |       |  
|Pro forma net income from Company operations            |  | $                                            | 2,758 |   |                  | $ | 990   |  
|                                                        |  |                                              |       |   |                  |   |       |  
|Net income per share available to common shareholders   |  |                                              |       |   |                  |   |       |  
|Basic                                                   |  |                                              |       |   |                  |   |       |  
|As reported                                             |  | $                                            | 0.90  |   |                  | $ | 0.34  |  
|                                                        |  |                                              |       |   |                  |   |       |  
|Pro forma                                               |  | $                                            | 0.81  |   |                  | $ | 0.29  |  
|                                                        |  |                                              |       |   |                  |   |       |  
|Diluted                                                 |  |                                              |       |   |                  |   |       |  
|As reported                                             |  | $                                            | 0.87  |   |                  | $ | 0.34  |  
|                                                        |  |                                              |       |   |                  |   |       |  
|Pro forma                                               |  | $                                            | 0.77  |   |                  | $ | 0.28  |  
|                                                        |  |                                              |       |   |                  |   |       |  



The remaining unrecognized
compensation for fair value of stock options was $224,000 and $276,000 as of December 31, 2004, and 2003, respectively.



34



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##### Table of Contents

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)



Net Income (Loss) Per Share Available to Common Shareholders  Basic earnings (loss) per share amounts are computed based on the weighted average number of shares outstanding during the period after
giving retroactive effect to the stock split at time of reorganization. Diluted earnings per share are computed by determining the number of additional shares that are deemed outstanding due to stock options under the treasury stock method.
Information concerning additional shares that may be dilutive, consisting of stock options, is contained in Note 16.



Segments  Pursuant to Statement of Financial Accounting Standards (SFAS) No. 131, Disclosure about Segments of an Enterprise and Related
Information, the Company has evaluated the requirements of this standard and has identified no reportable segments: Pacifica Bank is the sole wholly-owned subsidiary of Pacifica Bancorp, Inc. Disclosures required by this standard have not been
included in the financial statements. For information related to the Parent Companys financial statements see Note 17.



Reclassifications  Certain amounts in the prior years financial statements have been reclassified to conform to the 2004 presentation.



NOTE 2  INVESTMENT
SECURITIES



Carrying amounts and approximate fair values of
investment securities are summarized as follows:



|                              |  |                   |        |                      |   |                                           |  |   |                                            |   |  |                     |      |   |  |   |       
|----------------------------- |  | ----------------- | ------ | -------------------- | - | ----------------------------------------- |  | - | ------------------------------------------ | - |  | ------------------- | ---- | - |  | - | ------
|                              |  | (In Thousands)   
|                              |  | December 31, 2004
|                              |  | Amortized Cost    |        | GrossUnrealizedGains |   | Gross UnrealizedLosses Less Than12 Months |  |   | GrossUnrealizedLosses GreaterThan 12Months |   |  | EstimatedFair Value
|Available-for-Sale Securities |  |                   |        |                      |   |                                           |  |   |                                            |   |  |                     |      |   |  |   |       
|U.S. Government agencies      |  | $                 | 16,526 |                      | $ | 2                                         |  | $ | (12                                        | ) |  | $                   | (146 | ) |  | $ | 16,370
|Mortgage-backed securities    |  |                   | 5,614  |                      |   |                                          |  |   | (49                                        | ) |  |                     | (47  | ) |  |   | 5,518 
|Corporate debt securities     |  |                   |       |                      |   |                                          |  |   |                                           |   |  |                     |     |   |  |   |      
|                              |  |                   |        |                      |   |                                           |  |   |                                            |   |  |                     |      |   |  |   |       
|TOTAL INVESTMENT SECURITIES   |  | $                 | 22,140 |                      | $ | 2                                         |  | $ | (61                                        | ) |  | $                   | (193 | ) |  | $ | 21,888
|                              |  |                   |        |                      |   |                                           |  |   |                                            |   |  |                     |      |   |  |   |       



Certain investment securities shown
above currently have fair values less than amortized cost and therefore contain unrealized losses. The Company has evaluated these securities and has determined that the decline in value is temporary and is related to the change in market interest
rates since purchase. The decline in value is not related to any company or industry specific event. There are approximately 15 investment securities with unrealized losses. The Company anticipates full recovery of amortized cost with respect to
these securities at maturity or sooner in the event of a more favorable market interest rate environment.



35



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##### Table of Contents

NOTE 2  INVESTMENT SECURITIES (Continued)



|                               |  |                               |        |                    |                               |                      |  |      |               |  |                    |        |                      |   |        |  |      |  
|------------------------------ |  | ----------------------------- | ------ | ------------------ | ----------------------------- | -------------------- |  | ---- | ------------- |  | ------------------ | ------ | -------------------- | - | ------ |  | ---- | -
|                               |  | (In Thousands)                |       
|                               |  | December 31, 2004             |        |                    | December 31, 2003             |                     
|                               |  | Available-For-Sale Securities |        |                    | Available-For-Sale Securities |                     
|                               |  | AmortizedCost                 |        | EstimatedFairValue |                               | WeightedAverageYield |  |      | AmortizedCost |  | EstimatedFairValue |        | WeightedAverageYield |  
|U.S. Government agencies       |  |                               |        |                    |                               |                      |  |      |               |  |                    |        |                      |   |        |  |      |  
|One year or less               |  | $                             | 3,048  |                    | $                             | 3,042                |  | 2.28 | %             |  | $                  |       |                      | $ |       |  |     | %
|Over 1 year through 5 years    |  |                               | 2,517  |                    |                               | 2,506                |  | 3.48 |               |  |                    | 988    |                      |   | 984    |  | 3.61 |  
|After 5 years through 10 years |  |                               | 2,984  |                    |                               | 2,960                |  | 6.33 |               |  |                    | 4,970  |                      |   | 4,880  |  | 6.34 |  
|Over 10 years                  |  |                               | 7,977  |                    |                               | 7,862                |  | 5.53 |               |  |                    | 13,200 |                      |   | 12,953 |  | 6.13 |  
|Mortgage-backed securities     |  |                               |        |                    |                               |                      |  |      |               |  |                    |        |                      |   |        |  |      |  
|One year or less               |  |                               | 589    |                    |                               | 579                  |  | 3.58 |               |  |                    | 199    |                      |   | 196    |  | 5.05 |  
|Over 1 year through 5 years    |  |                               | 5,025  |                    |                               | 4,939                |  | 4.03 |               |  |                    | 1,856  |                      |   | 1,806  |  | 4.83 |  
|After 5 years through 10 years |  |                               |       |                    |                               |                     |  |     |               |  |                    | 1,940  |                      |   | 1,896  |  | 3.89 |  
|Over 10 years                  |  |                               |       |                    |                               |                     |  |     |               |  |                    |       |                      |   |       |  |     |  
|Corporate debt securities      |  |                               |        |                    |                               |                      |  |      |               |  |                    |        |                      |   |        |  |      |  
|One year or less               |  |                               |       |                    |                               |                     |  |     |               |  |                    | 3,522  |                      |   | 3,572  |  | 4.96 |  
|Over 1 year through 5 years    |  |                               |       |                    |                               |                     |  |     |               |  |                    | 999    |                      |   | 1,073  |  | 6.15 |  
|After 5 years through 10 years |  |                               |       |                    |                               |                     |  |     |               |  |                    |       |                      |   |       |  |     |  
|                               |  |                               |        |                    |                               |                      |  |      |               |  |                    |        |                      |   |        |  |      |  
|                               |  | $                             | 22,140 |                    | $                             | 21,888               |  | 4.17 | %             |  | $                  | 27,674 |                      | $ | 27,360 |  | 5.68 | %
|                               |  |                               |        |                    |                               |                      |  |      |               |  |                    |        |                      |   |        |  |      |  



Proceeds from sales of investments and
gross realized gains and losses on investment sales were as follows for the years ended December 31, 2004 and 2003.



|                                              |  |                |       |      |   |       
|--------------------------------------------- |  | -------------- | ----- | ---- | - | ------
|                                              |  | (In Thousands)
|                                              |  | 2004           |       | 2003
|Proceeds from sales and called investments    |  | $              | 9,280 |      | $ | 28,473
|                                              |  |                |       |      |   |       
|Gross gains realized on sales of investments  |  | $              | 102   |      | $ | 179   
|                                              |  |                |       |      |   |       
|Gross losses realized on sales of investments |  | $              | 41    |      | $ | 20    
|                                              |  |                |       |      |   |       



Investment securities with a fair
value of approximately $17.9 and $22.7 million as of December 31, 2004 and 2003, respectively, were pledged to secure borrowings, U.S. government and public deposits, and for other purposes as required by law.



NOTE 3  LOANS



The major classifications of loans at December 31 are summarized as follows:



|                           |  |                |         |   |      |   |         |      |  |   |         |  
|-------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                           |  | (In Thousands) |        
|                           |  | 2004           |         |   | 2003 |   |         | 2002 | 
|Commercial                 |  | $              | 35,129  |   |      | $ | 33,106  |      |  | $ | 38,594  |  
|Real estate - construction |  |                | 22,594  |   |      |   | 24,137  |      |  |   | 23,112  |  
|Real estate - mortgage     |  |                | 75,447  |   |      |   | 59,069  |      |  |   | 47,477  |  
|Consumer and other         |  |                | 1,066   |   |      |   | 1,049   |      |  |   | 957     |  
|                           |  |                |         |   |      |   |         |      |  |   |         |  
|                           |  |                | 134,236 |   |      |   | 117,361 |      |  |   | 110,140 |  
|Less deferred loan fees    |  |                | (640    | ) |      |   | (591    | )    |  |   | (405    | )
|                           |  |                |         |   |      |   |         |      |  |   |         |  
|Total loans                |  | $              | 133,596 |   |      | $ | 116,770 |      |  | $ | 109,735 |  
|                           |  |                |         |   |      |   |         |      |  |   |         |  



36



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##### Table of Contents

NOTE 3  LOANS (Continued)



Contractual maturities of loans as of December 31, 2004, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have the right to prepay loans with or without prepayment penalties.



|                           |  |                     |        |                  |   |                 |  |       |        |  |   |        
|-------------------------- |  | ------------------- | ------ | ---------------- | - | --------------- |  | ----- | ------ |  | - | -------
|                           |  | 2004 (In Thousands)
|                           |  | Within OneYear      |        | One to FiveYears |   | After FiveYears |  | Total
|Contractual Maturities     |  |                     |        |                  |   |                 |  |       |        |  |   |        
|Commercial                 |  | $                   | 21,686 |                  | $ | 5,542           |  | $     | 7,901  |  | $ | 35,129 
|Real estate - construction |  |                     | 18,005 |                  |   | 4,589           |  |       |       |  |   | 22,594 
|Real estate - mortgage     |  |                     | 7,428  |                  |   | 39,662          |  |       | 28,357 |  |   | 75,447 
|Consumer and other         |  |                     | 749    |                  |   | 317             |  |       |       |  |   | 1,066  
|                           |  |                     |        |                  |   |                 |  |       |        |  |   |        
|Total                      |  | $                   | 47,868 |                  | $ | 50,110          |  | $     | 36,258 |  | $ | 134,236
|                           |  |                     |        |                  |   |                 |  |       |        |  |   |        



Variable interest rate loans maturing
after one year are $44.2 million and $76.3 million at December 31, 2004 and 2003, respectively, and fixed interest rate loans maturing after one year are $42.1 million and $37.9 million, respectively, as of such dates.



The Company initiated interest rate floors on certain variable rate loans during 2002 through
2004, ranging from approximately 5.5% to 7.0% depending on maturity of the loans. The Company does not typically offer interest rate caps on its variable rate loans.



The allowance for loan losses at December 31 and changes during the period are as follows:



|                                                                   |  |                |       |   |      |   |       |  
|------------------------------------------------------------------ |  | -------------- | ----- | - | ---- | - | ----- | -
|                                                                   |  | (In Thousands) |      
|                                                                   |  | 2004           |       |   | 2003 |  
|Balance, beginning of year                                         |  | $              | 2,230 |   |      | $ | 2,919 |  
|Charge-offs                                                        |  |                | (12   | ) |      |   | (287  | )
|Recoveries                                                         |  |                | 623   |   |      |   | 498   |  
|Provision (credited) charged to operating expenses for loan losses |  |                | (725  | ) |      |   | (900  | )
|                                                                   |  |                |       |   |      |   |       |  
|Balance, end of year                                               |  | $              | 2,116 |   |      | $ | 2,230 |  
|                                                                   |  |                |       |   |      |   |       |  



A summary of impaired loans is as
follows:



|                                                                  |  |                |       |      |   |      
|----------------------------------------------------------------- |  | -------------- | ----- | ---- | - | -----
|                                                                  |  | (In Thousands)
|                                                                  |  | 2004           |       | 2003
|Impaired loans                                                    |  | $              | 816   |      | $ | 674  
|                                                                  |  |                |       |      |   |      
|Average balance of impaired loans                                 |  | $              | 1,308 |      | $ | 1,389
|                                                                  |  |                |       |      |   |      
|Allowance for loan losses related to impaired loans               |  | $              | 386   |      | $ | 489  
|                                                                  |  |                |       |      |   |      
|Nonaccruing loans                                                 |  | $              | 257   |      | $ |     
|                                                                  |  |                |       |      |   |      
|Interest income collected on impaired loans and nonaccruing loans |  | $              | 90    |      | $ | 91   
|                                                                  |  |                |       |      |   |      



37



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##### Table of Contents

NOTE 3  LOANS (Continued)



The Company had $816,000 of impaired loans as of December 31, 2004. Impaired loans are made
up of three loans. Two of these loans totaling $257,000 paid-off subsequent to year-end. The other loan is currently in compliance with the terms of the loan agreement, however, management has concerns about an adequate source of repayment. At
December 31, 2004, the Company had specific reserves for these loans of $386,000 and collateral comprising of real-estate with a value of $442,000.



A summary of past due loans follows:



|                  |  |                                           |     |                                             |   |  
|----------------- |  | ----------------------------------------- | --- | ------------------------------------------- | - | -
|                  |  | (In Thousands)                           
|                  |  | 30 to 89 Days Past Due and Still Accruing |     | 90 Days or More Past Due and Still Accruing
|December 31, 2004 |  | $                                         | 344 |                                             | $ | 
|December 31, 2003 |  | $                                         | 884 |                                             | $ | 



NOTE 4 
BANK PREMISES AND EQUIPMENT



Bank premises and equipment at December 31 are classified as follows:



|                                               |  |                |        |   |      |   |        |  
|---------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                               |  | (In Thousands) |       
|                                               |  | 2004           |        |   | 2003 |  
|Leasehold improvements                         |  | $              | 1,743  |   |      | $ | 1,707  |  
|Furniture and fixtures                         |  |                | 934    |   |      |   | 934    |  
|Office equipment                               |  |                | 309    |   |      |   | 309    |  
|Computer software                              |  |                | 535    |   |      |   | 563    |  
|Computer equipment                             |  |                | 448    |   |      |   | 568    |  
|                                               |  |                |        |   |      |   |        |  
|                                               |  |                | 3,969  |   |      |   | 4,081  |  
|Less accumulated depreciation and amortization |  |                | (2,299 | ) |      |   | (2,062 | )
|                                               |  |                |        |   |      |   |        |  
|                                               |  | $              | 1,670  |   |      | $ | 2,019  |  
|                                               |  |                |        |   |      |   |        |  



NOTE 5 
DEPOSITS



Deposits as of December 31 consisted of the
following:



|                                                          |  |                |         |      |   |        
|--------------------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                                          |  | (In Thousands)
|                                                          |  | 2004           |         | 2003
|Savings accounts                                          |  | $              | 779     |      | $ | 603    
|Certificates of deposit under $100,000                    |  |                | 11,679  |      |   | 13,397 
|Certificates of deposit equal to or greater than $100,000 |  |                | 58,762  |      |   | 62,922 
|Demand accounts                                           |  |                |         |      |   |        
|Noninterest-bearing                                       |  |                | 15,148  |      |   | 14,846 
|Interest-bearing                                          |  |                | 12,168  |      |   | 6,997  
|Money market accounts                                     |  |                | 38,731  |      |   | 34,947 
|                                                          |  |                |         |      |   |        
|                                                          |  | $              | 137,267 |      | $ | 133,712
|                                                          |  |                |         |      |   |        



38



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##### Table of Contents

NOTE 5  DEPOSITS (Continued)



At December 31, 2004, scheduled maturities of certificates of deposit are as follows:



|                         |  |                |       
|------------------------ |  | -------------- | ------
|Year Ending December 31, |  | (In Thousands)
|2005                     |  | $              | 62,190
|2006                     |  |                | 8,072 
|2007                     |  |                | 21    
|2008                     |  |                | 52    
|2009                     |  |                | 106   
|                         |  |                |       
|                         |  | $              | 70,441
|                         |  |                |       



NOTE 6 
OTHER BORROWINGS



At December 31, 2004 and
2003, Pacifica had liabilities to the U.S. Treasury in the amount of $164,000 and $6,000, respectively, representing the Treasury Tax and Loan note balance and is collateralized by a $634,000 and $113,000 pledged security, respectively. These
borrowings are callable daily and interest is calculated at the Federal Funds rate minus 25 basis points and payable weekly.



The Company has a $3.5 million revolving line of credit which was renewed in December 2004 with approximately a two year term. The line of credit matures in March of 2007
and is collateralized by the Banks stock and subject to certain restrictive covenants including, among others, requirements with regards to capital ratios, loan loss reserve ratios and lenders prior approval on certain transactions. The
Company was in compliance with all of these covenants at December 31, 2004. Interest on this line is at the banks prime rate minus 0.50% and is paid quarterly. Borrowings under these lines of credit totaled $0 and $2.5 million at December 31,
2004 and 2003, respectively.



At December 31, 2004, the Company had short-term
funding sources available totaling $31.5 million with variable interest rates and collateralized by $17.9 million of investment securities. There were $15.6 million outstanding under these agreements as of December 31, 2004 and $9.8 million at
year-end 2003. Of the $15.6 million, $10.3 million was in fixed rate FHLB advances with interest rates ranging from 2.01% to 3.30% while $5.2 million was from overnight Federal Funds purchases. The remaining $100,000 consisted of short-term
borrowings from the Federal Reserve.



NOTE 7 
INCOME TAXES



A reconciliation of the
effective income tax rate with the federal statutory tax rate is as follows:



|                                                     |  |                |        |   |      |       |   |        |   |      |      |  |       |  
|---------------------------------------------------- |  | -------------- | ------ | - | ---- | ----- | - | ------ | - | ---- | ---- |  | ----- | -
|                                                     |  | (In Thousands) |       
|                                                     |  | 2004           |        |   | 2003 |      
|                                                     |  | Amount         |        |   | Rate |       |   | Amount |   |      | Rate | 
|Income tax provision at statutory rate               |  | $              | 964    |   |      | 34.0  | % |        | $ | 411  |      |  | 34.0  | %
|Increase (decrease) in tax resulting from:           |  |                |        |   |      |       |   |        |   |      |      |  |       |  
|Non-qualified stock options                          |  |                |       |   |      |      |   |        |   | (1   | )    |  |      |  
|Increase in cash surrender value of life insurance   |  |                | (47    | ) |      | (1.7  | ) |        |   | (30  | )    |  | (2.4  | )
|Disallowed expenses                                  |  |                | 11     |   |      | 0.4   |   |        |   | 5    |      |  | 0.4   |  
|Other                                                |  |                | (1     | ) |      |      |   |        |   | (5   | )    |  | (0.4  | )
|Adjustments to defered tax asset valuation allowance |  |                | (1,187 | ) |      | (41.9 | ) |        |   | (381 | )    |  | (31.0 | )
|                                                     |  |                |        |   |      |       |   |        |   |      |      |  |       |  
|                                                     |  | $              | (260   | ) |      |      | % |        | $ |     |      |  |      | %
|                                                     |  |                |        |   |      |       |   |        |   |      |      |  |       |  



39



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##### Table of Contents

NOTE 7  INCOME TAXES (Continued)



Total deferred tax assets and liabilities as of December 31, 2004 are as follows:



|                                                                                                   |  |                |      |   |      |   |        |  
|-------------------------------------------------------------------------------------------------- |  | -------------- | ---- | - | ---- | - | ------ | -
|                                                                                                   |  | (In Thousands) |     
|                                                                                                   |  | 2004           |      |   | 2003 |  
|Deferred Tax Assets                                                                                |  |                |      |   |      |   |        |  
|AMT Credit                                                                                         |  | $              | 102  |   |      | $ | 4      |  
|Net operating loss carryforward                                                                    |  |                | 76   |   |      |   | 761    |  
|Allowance for possible loan losses in excess of tax reserves                                       |  |                | 306  |   |      |   | 552    |  
|Tax effect of unrealized gains on available for sale securities                                    |  |                | 68   |   |      |   |       |  
|Other deferred tax assets                                                                          |  |                | 52   |   |      |   | 22     |  
|                                                                                                   |  |                |      |   |      |   |        |  
|Total deferred assets                                                                              |  |                | 604  |   |      |   | 1,339  |  
|Deferred Tax Liabilities                                                                           |  |                |      |   |      |   |        |  
|Deferred loan fees for tax purposes in excess of deferred amounts for financial reporting purposes |  |                | (92  | ) |      |   | (87    | )
|Tax effect of unrealized gains on available-for-sale securities                                    |  |                |     |   |      |   | (107   | )
|Bank premises and equipment                                                                        |  |                | (24  | ) |      |   | (23    | )
|Prepaid expenses                                                                                   |  |                | (26  | ) |      |   |       |  
|Other deferred tax liabilities                                                                     |  |                | (27  | ) |      |   | (42    | )
|                                                                                                   |  |                |      |   |      |   |        |  
|Total deferred liabilities                                                                         |  |                | (169 | ) |      |   | (259   | )
|                                                                                                   |  |                |      |   |      |   |        |  
|Net deferred tax asset                                                                             |  |                | 435  |   |      |   | 1,080  |  
|Less valuation allowance on net deferred tax asset                                                 |  |                |     |   |      |   | (1,187 | )
|                                                                                                   |  |                |      |   |      |   |        |  
|Net deferred tax (liability) / asset                                                               |  | $              | 435  |   |      | $ | (107   | )
|                                                                                                   |  |                |      |   |      |   |        |  



The Company recognized a net deferred
tax asset due to the improvement in our financial performance, and accordingly, management has not reduced net deferred tax assets by a valuation allowance.



The Company has a small net operating loss carryforward that may be utilized to offset future federal taxable income but not to the extent experienced during 2004. Net
operating loss carryforwards will expire as follows:



|                         |  |                |    
|------------------------ |  | -------------- | ---
|Year Ending December 31, |  | (In Thousands)
|2018                     |  | $              |   
|2019                     |  |                |   
|2021                     |  |                |   
|2022                     |  |                | 249
|                         |  |                |    
|                         |  | $              | 249
|                         |  |                |    



NOTE 8 
STOCKHOLDERS EQUITY



Regulatory
Capital  The Company, on a consolidated basis, and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatoryand possibly additional discretionaryactions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and
classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.



40



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##### Table of Contents

NOTE 8  STOCKHOLDERS EQUITY (Continued)



As of December 31, 2004, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the table.



Quantitative measures established
by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier
I (as defined) capital to average assets (as defined).



The Companys and
the Banks actual capital amounts and ratios are also presented in the table.



|                                |  |                        |        |       |                               |   |        |                                                                  |        |       |  |      |        |  |   |        |   |  |       |  
|------------------------------- |  | ---------------------- | ------ | ----- | ----------------------------- | - | ------ | ---------------------------------------------------------------- | ------ | ----- |  | ---- | ------ |  | - | ------ | - |  | ----- | -
|                                |  | (Amounts In Thousands) |       
|                                |  | Actual                 |        |       | For Capital Adequacy Purposes |   |        | To Be Well Capitalized Under Prompt Corrective Action Provisions |       
|                                |  | Amount                 |        | Ratio |                               |   | Amount |                                                                  |        | Ratio |  |      | Amount |  |   | Ratio  |  
|As of December 31, 2004         |  |                        |        |       |                               |   |        |                                                                  |        |       |  |      |        |  |   |        |   |  |       |  
|Total Risk-based Capital Ratio  |  |                        |        |       |                               |   |        |                                                                  |        |       |  |      |        |  |   |        |   |  |       |  
|Consolidated                    |  | $                      | 18,050 |       | 11.94                         | % |        | $                                                                | 12,094 | 3     |  | 8.00 | %      |  | $ | 15,117 | 3 |  | 10.00 | %
|Pacifica Bank                   |  | $                      | 17,641 |       | 11.67                         | % |        | $                                                                | 12,093 | 3     |  | 8.00 | %      |  | $ | 15,117 | 3 |  | 10.00 | %
|Tier I Risk-based Capital Ratio |  |                        |        |       |                               |   |        |                                                                  |        |       |  |      |        |  |   |        |   |  |       |  
|Consolidated                    |  | $                      | 16,158 |       | 10.69                         | % |        | $                                                                | 6,046  | 3     |  | 4.00 | %      |  | $ | 9,069  | 3 |  | 6.00  | %
|Pacifica Bank                   |  | $                      | 15,749 |       | 10.42                         | % |        | $                                                                | 6,046  | 3     |  | 4.00 | %      |  | $ | 9,069  | 3 |  | 6.00  | %
|Tier I Leverage Ratio           |  |                        |        |       |                               |   |        |                                                                  |        |       |  |      |        |  |   |        |   |  |       |  
|Consolidated                    |  | $                      | 16,158 |       | 9.61                          | % |        | $                                                                | 6,725  | 3     |  | 4.00 | %      |  | $ | 8,407  | 3 |  | 5.00  | %
|Pacifica Bank                   |  | $                      | 15,749 |       | 9.37                          | % |        | $                                                                | 6,723  | 3     |  | 4.00 | %      |  | $ | 8,404  | 3 |  | 5.00  | %
|As of December 31, 2003         |  |                        |        |       |                               |   |        |                                                                  |        |       |  |      |        |  |   |        |   |  |       |  
|Total Risk-based Capital Ratio  |  |                        |        |       |                               |   |        |                                                                  |        |       |  |      |        |  |   |        |   |  |       |  
|Consolidated                    |  | $                      | 14,463 |       | 11.06                         | % |        | $                                                                | 10,461 | 3     |  | 8.00 | %      |  | $ | 13,077 | 3 |  | 10.00 | %
|Pacifica Bank                   |  | $                      | 17,028 |       | 13.02                         | % |        | $                                                                | 10,463 | 3     |  | 8.00 | %      |  | $ | 13,078 | 3 |  | 10.00 | %
|Tier I Risk-based Capital Ratio |  |                        |        |       |                               |   |        |                                                                  |        |       |  |      |        |  |   |        |   |  |       |  
|Consolidated                    |  | $                      | 12,821 |       | 9.80                          | % |        | $                                                                | 5,233  | 3     |  | 4.00 | %      |  | $ | 7,850  | 3 |  | 6.00  | %
|Pacifica Bank                   |  | $                      | 15,386 |       | 11.77                         | % |        | $                                                                | 5,229  | 3     |  | 4.00 | %      |  | $ | 7,843  | 3 |  | 6.00  | %
|Tier I Leverage Ratio           |  |                        |        |       |                               |   |        |                                                                  |        |       |  |      |        |  |   |        |   |  |       |  
|Consolidated                    |  | $                      | 12,821 |       | 8.27                          | % |        | $                                                                | 6,201  | 3     |  | 4.00 | %      |  | $ | 7,752  | 3 |  | 5.00  | %
|Pacifica Bank                   |  | $                      | 15,386 |       | 9.94                          | % |        | $                                                                | 6,192  | 3     |  | 4.00 | %      |  | $ | 7,739  | 3 |  | 5.00  | %



Directive 
Effective February 17, 2005, the Bank is no longer subject to the Supervisory Directive previously imposed. This decision by our regulators came as a result of continued improvements in the financial strength of the Bank.



The previously imposed Directive addressed a number of issues related to the Banks
growth, earnings, and capital, by:



| |  |  | Temporarily limiting the Banks ability to declare or pay dividends, which limited the Companys ability to derive income from that subsidiary;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Temporarily limiting the Banks maximum asset size to $180 million;
| | - |  | -------------------------------------------------------------------



| |  |  | Requiring the Banks Tier I Leverage Capital ratio to be maintained at 8% or greater and maintain a well-capitalized designation as defined by FDIC regulations; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Requiring the Bank to discuss certain growth, earnings and capital augmentation strategies in its strategic and capital plans and by continuously monitoring its progress in
achieving its goals.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

NOTE 8  STOCKHOLDERS EQUITY(Continued)



Preferred Stock During 2002, the Company received subscriptions
totaling $2.35 million from the offering of its Series A Preferred Stock: $350,000 in sales of its Perpetual Preferred and $2 million in Limited Life Preferred. The proceeds of the Series A Preferred Stock offering were applied to increase the
Banks capital and to pay down the outstanding advances on the Companys commercial line of credit.



On July 1, 2003, the Company paid out its first annual dividend payments, which had been accruing since the issuance date through June 30, 2003. Dividends on A-1 Preferred Stock and A-2 Preferred Stock totaled $29,000
and $151,000, respectively.



At December 31, 2004, the Company had no
outstanding preferred stock. On September 30, 2003, the Company redeemed the outstanding balance of the Limited Life Preferred Stock in its entirety with proceeds from a $2 million borrowing from a correspondent bank. On December 29, 2003, the
Company redeemed the outstanding balance of the Perpetual Preferred stock in its entirety with proceeds from a $350,000 borrowing from the same correspondent bank. The Company also paid accrued dividends on the Limited Life Preferred Stock and the
Perpetual Preferred Stock in the amounts of $15,000 and $38,000, respectively. The Company no longer has any outstanding preferred stock. See additional discussion under Other Borrowings.



NOTE 9  STOCK OPTION
PLAN



Stock Option Plan  The Company
has an Employee Stock Option Plan (the Plan), which provides for nonqualified stock options for non-officer directors and incentive stock options for officers and employees for a maximum of 1,200,000 as restated, shares of authorized
common stock. Pursuant to the Plan, the Company has awarded options to officers, employees and directors at prices no less than fair market value at the date of grant. Options generally vest and become exercisable in incremental percentages over
five years from the grant date and expire after ten years, while certain options vest over three years.



During 2004, the Company granted 134,989 options to purchase shares, including 84,000 to outside Directors at $5.40 per share with immediate vesting, 21,000 to certain members of the Companys senior management
team at $5.40 per share with immediate vesting and 29,989 to new hires at various prices with a vesting period of five years. Prices for the options granted during the year range from $5.24 to $7.00. All options were offered at fair market prices at
the time of the grant. Stock option figures have been adjusted to reflect the 5% stock dividend paid during the third quarter of 2004.



Stock option transactions were:



|                           |  |                             |   |  |                                  |   |  |                                                      |     
|-------------------------- |  | --------------------------- | - |  | -------------------------------- | - |  | ---------------------------------------------------- | ----
|                           |  | Options Available for Grant |   |  | Granted Options for Common Stock |   |  | Weighted Average Exercise Price of Shares Under Plan
|BALANCE, December 31, 2002 |  | 259,272                     |   |  | 853,568                          |   |  | $                                                    | 5.94
|                           |  |                             |   |  |                                  |   |  |                                                      |     
|Authorized                 |  |                            |   |  |                                 |   |  |                                                      |    
|Granted                    |  | (151,489                    | ) |  | 151,489                          |   |  |                                                      | 4.69
|Exercised                  |  |                            |   |  | (7,000                           | ) |  |                                                      | 5.00
|Expired/Forfeited          |  | 234,850                     |   |  | (234,850                         | ) |  |                                                      | 6.49
|                           |  |                             |   |  |                                  |   |  |                                                      |     
|BALANCE, December 31, 2003 |  | 342,633                     |   |  | 763,207                          |   |  | $                                                    | 5.79
|                           |  |                             |   |  |                                  |   |  |                                                      |     
|Authorized                 |  |                            |   |  |                                 |   |  |                                                      |    
|Granted                    |  | (176,085                    | ) |  | 176,085                          |   |  |                                                      | 5.45
|Exercised                  |  |                            |   |  | (47,795                          | ) |  |                                                      | 4.88
|Expired/Forfeited          |  | 51,627                      |   |  | (51,627                          | ) |  |                                                      | 8.09
|                           |  |                             |   |  |                                  |   |  |                                                      |     
|BALANCE, December 31, 2004 |  | 218,175                     |   |  | 839,870                          |   |  | $                                                    | 5.34
|                           |  |                             |   |  |                                  |   |  |                                                      |     



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##### Table of Contents

NOTE 9  STOCK OPTION PLAN
(Continued)



The following table summarizes information concerning currently
outstanding and exercisable options:



|                        |  |                     |  |                                         |  |                              |      |                   |         |                              |   |     
|----------------------- |  | ------------------- |  | --------------------------------------- |  | ---------------------------- | ---- | ----------------- | ------- | ---------------------------- | - | ----
|2004                   
|Options Outstanding     |  | Options Exercisable
|Range ofExercise Prices |  | NumberOutstanding   |  | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice |      | NumberExercisable |         | WeightedAverageExercisePrice
|$3.81-$4.86             |  | 565,056             |  | 4.62 years                              |  | $                            | 4.68 |                   | 477,634 |                              | $ | 4.74
|$5-$6.19                |  | 170,467             |  | 9.15 years                              |  | $                            | 5.51 |                   | 125,419 |                              | $ | 5.48
|$7.86-$8.81             |  | 56,764              |  | 5.47 years                              |  | $                            | 8.62 |                   | 44,671  |                              | $ | 8.68
|$9.52-$10.48            |  | 47,583              |  | 6.67 years                              |  | $                            | 9.83 |                   | 26,618  |                              | $ | 9.85
|                        |  |                     |  |                                         |  |                              |      |                   |         |                              |   |     
|                        |  | 839,870             |  |                                         |  |                              |      |                   | 674,342 |                              |   |     
|                        |  |                     |  |                                         |  |                              |      |                   |         |                              |   |     



NOTE 10 
EMPLOYEE BENEFIT PLAN



All
regular full-time and part-time employees are eligible to participate in the Companys 401(k) Plan (the Plan). Participation in the Plan begins on the first day of the month following the date of hire. Plan participants may
contribute up to 15% of their compensation subject to certain limits based on federal tax laws. The Company makes matching contributions equal to 100% of an employees contribution, up to 4% of his/her compensation. Matching contributions are
vested immediately for employees hired prior to May 2002 and over a three year vesting period for employees hired on or after May 1, 2002, with 25% vesting after one year of employment, 50% vesting after two years, and 100% vesting after three
years. Total 401(k) matching contributions totaled $104,000 and $103,000 during 2004 and 2003, respectively.



NOTE 11  LEASE COMMITMENTS



Operating Lease Commitments The Company leases its office premises for its operations. The Bellevue office space lease was entered into in
1998 and was amended in 2000, 2001, 2002, 2003, and 2004. The lease expires on August 31, 2007. The Company has, at its option the right to renew the lease for two additional five-year terms at rates to be mutually determined. The Company also
entered into a lease agreement for the Seattle office space in June 2001. The Seattle lease agreement expires on April 29, 2011. Rental expense charged to operations was $666,000 and $685,000 for the years ended 2004 and 2003, respectively. Future
monthly rent for the leased space is detailed in the table below:



|                         |  |                |      
|------------------------ |  | -------------- | -----
|Year Ending December
31, |  | (In Thousands)
|2005                     |  | $              | 625  
|2006                     |  |                | 649  
|2007                     |  |                | 500  
|2008                     |  |                | 200  
|2009                     |  |                | 200  
|Thereafter               |  |                | 266  
|                         |  |                |      
|                         |  | $              | 2,440
|                         |  |                |      



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##### Table of Contents

NOTE 12  RELATED PARTY TRANSACTIONS



Certain directors, executive officers and principal stockholders are Bank customers, and
have had banking transactions with the Bank. All loans and commitments included in such transactions were made in compliance with applicable laws on substantially the same terms (including interest rates and collateral) as those prevailing at the
time for comparable transactions with other persons and do not involve more than the normal risk of collectibility or present any other unfavorable features.



The aggregate balances and activity are as follows:



|                           |  |                |      |   |      |   |        |  
|-------------------------- |  | -------------- | ---- | - | ---- | - | ------ | -
|                           |  | (In Thousands) |     
|                           |  | 2004           |      |   | 2003 |  
|Balance, beginning of year |  | $              | 424  |   |      | $ | 741    |  
|New loans or advances      |  |                | 771  |   |      |   | 816    |  
|Repayments                 |  |                | (343 | ) |      |   | (1,133 | )
|                           |  |                |      |   |      |   |        |  
|Balance, end of year       |  | $              | 852  |   |      | $ | 424    |  
|                           |  |                |      |   |      |   |        |  
|Interest earned on loans   |  | $              | 30   |   |      | $ | 25     |  
|                           |  |                |      |   |      |   |        |  



Deposits from related parties totaled
$961,000 and $1.2 million at December 31, 2004 and 2003, respectively.



NOTE 13  SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK



Most of the Companys business activity is with customers located within King County. The Company originates commercial, real estate
and consumer loans. Generally, loans are secured by accounts receivable, inventory, deposit accounts, personal property or real estate. Rights to collateral vary and are legally documented to the extent practicable. Although the Company has a
diversified loan portfolio, local economic conditions may affect borrowers ability to meet the stated repayment terms.



The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to
commercial borrowers. The Company, as a matter of policy, does not currently extend credit in excess of $2,500,000 to any single borrower or group of related borrowers.



NOTE 14  FINANCIAL INSTRUMENTS



The Company is a party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees.
Those instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of the Companys
involvement in particular classes of financial instruments.



The Companys
exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and financial guarantees written is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.



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##### Table of Contents

NOTE 14  FINANCIAL INSTRUMENTS (Continued)



Commitments to Extend Credit, Standby Letters of Credit and Financial
Guarantees Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on managements credit evaluation of the counterparty. Collateral held varies but may
include accounts receivable, inventory, property, plant, and equipment, and commercial and residential real estate properties.



Standby letters of credit and financial guarantees written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Company maintains various levels of collateral supporting those commitments for which collateral is deemed necessary.



The Company has not been required to perform on any financial guarantees. The Company has not incurred any losses on its commitments in 2004
and 2003.



Derivative Instruments and Hedging Activities As part
of the Companys asset/liability management, the Company may use interest rate swaps to hedge interest rate exposure. Interest rate swaps are contracts in which a series of interest rate flows in a single currency are exchanged over a
prescribed period. The notional amounts are amounts on which calculations of payments are based. Notional amounts do not represent direct credit exposure. Direct credit exposure is limited to the net difference between the calculated amounts to be
received and paid, if any.



The Company minimizes the credit risk in derivative
instruments by entering into transactions with high-quality counterparties that are reviewed and approved by management.



A summary of the notional amounts of the Companys financial instruments with off-balance sheet risk at December 31, 2004 follows:



|                                         |  |                                |       
|---------------------------------------- |  | ------------------------------ | ------
|                                         |  | Notional Amount (In Thousands)
|Commitments to extend credit             |  | $                              | 26,780
|Commercial and standby letters of credit |  |                                | 1,321 
|                                         |  |                                |       
|                                         |  | $                              | 28,101
|                                         |  |                                |       



NOTE 15 
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS



FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement on the instrument. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.



45



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##### Table of Contents

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial
instruments:



NOTE 15  DISCLOSURE
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)



Cash, Due From Banks, Federal Funds Soldand Interest Bearing Deposits The carrying value amounts reported in the
balance sheet for cash and short-term instruments approximate those assets fair values.



Investment Securities  Fair values for investment securities are based on quoted market prices, where available. If quoted market values are not available, fair values are based on quoted market prices of
comparable instruments.



Correspondent Bank Stock Correspondent
Bank Stock includes both Federal Home Loan Bank stock and bankers bank stock. The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank. The carrying value of
bankers bank stock is based on the cost or amortized value due to the limited market for this type of stock. Banks are the primary shareholders of bankers bank stock.



Loans  For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on
carrying values. The fair values of fixed-rate commercial, real estate mortgage, installment, and other loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest approximates its fair value.



Accrued Interest Due to their short-term nature, the carrying value of accrued interest is considered to approximate fair value.



Off-Balance-Sheet Instruments  The Companys off-balance-sheet instruments include unfunded commitments to extend credit,
standby letters of credit, and financial guarantees. The fair value of these instruments is not considered practicable to estimate because of the lack of quoted market price and the inability to estimate fair value without incurring excessive costs.



Deposit Liabilities  The estimated fair values disclosed
for deposits are estimated using a discounted cash flow analysis that applies interest rates currently being offered on deposits to a schedule of aggregated expected maturities on deposits. The carrying amount of interest payable approximates its
fair value.



Other Borrowings  The carrying amount of the other
borrowings is considered a reasonable estimate of their fair value due to the short-term nature of the advances.



46



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##### Table of Contents

The carrying amounts and estimated fair values of the Companys financial instruments at December 31, 2004 and 2003,
are as follows:



|                                          |  |                 |         |            |   |                 |  |            |         |  |   |        
|----------------------------------------- |  | --------------- | ------- | ---------- | - | --------------- |  | ---------- | ------- |  | - | -------
|                                          |  | (In Thousands) 
|                                          |  | 2004            |         | 2003      
|                                          |  | Carrying Amount |         | Fair Value |   | Carrying Amount |  | Fair Value
|Financial Assets                          |  |                 |         |            |   |                 |  |            |         |  |   |        
|Cash and due from banks                   |  | $               | 7,616   |            | $ | 7,616           |  | $          | 8,668   |  | $ | 8,668  
|Federal funds sold                        |  |                 | 2,020   |            |   | 2,020           |  |            | 4,425   |  |   | 4,425  
|Interest bearing deposits                 |  |                 | 257     |            |   | 257             |  |            | 257     |  |   | 257    
|Investment securities                     |  |                 | 21,888  |            |   | 21,888          |  |            | 27,360  |  |   | 27,360 
|Correspondent Bank stock                  |  |                 | 633     |            |   | 633             |  |            | 554     |  |   | 554    
|Loans                                     |  |                 | 131,480 |            |   | 132,999         |  |            | 114,540 |  |   | 117,224
|Accrued interest receivable               |  |                 | 752     |            |   | 752             |  |            | 762     |  |   | 762    
|                                          |  |                 |         |           
|Financial Liabilities                     |  |                 |         |            |   |                 |  |            |         |  |   |        
|Demand, money market and savings deposits |  |                 | 66,825  |            |   | 65,321          |  |            | 57,393  |  |   | 52,540 
|Time deposits                             |  |                 | 70,441  |            |   | 69,476          |  |            | 76,319  |  |   | 75,688 
|Accrued interest payable                  |  |                 | 564     |            |   | 564             |  |            | 615     |  |   | 615    
|Other borrowings                          |  |                 | 15,635  |            |   | 14,952          |  |            | 14,320  |  |   | 13,371 
|                                          |  |                 |         |            |   |                 |  |            |         |  |   |        



2004 and 2003, are as follows:



NOTE 16  EARNINGS PER
SHARE



The numerators and denominators of basic and diluted
earnings (loss) per share are as follows:



|                                                              |  |                                                      |           |      |   |           |  
|------------------------------------------------------------- |  | ---------------------------------------------------- | --------- | ---- | - | --------- | -
|                                                              |  | (Dollars in Thousands, except for per share amounts) |          
|                                                              |  | 2004                                                 |           | 2003 |  
|Net income (numerator)                                        |  | $                                                    | 3,085     |      | $ | 1,209     |  
|Less accrued perpetual preferred stock dividends              |  |                                                      |          |      |   | (31       | )
|                                                              |  |                                                      |           |      |   |           |  
|Net income available to common shareholders                   |  | $                                                    | 3,085     |      | $ | 1,178     |  
|                                                              |  |                                                      |           |      |   |           |  
|Shares used in the calculation (denominator)                  |  |                                                      |           |      |   |           |  
|Weighted average shares outstanding                           |  |                                                      | 3,411,281 |      | $ | 3,423,386 |  
|Effect of dilutive stock options                              |  |                                                      | 154,008   |      |   | 4,251     |  
|                                                              |  |                                                      |           |      |   |           |  
|Diluted shares                                                |  |                                                      | 3,565,289 |      |   | 3,426,356 |  
|                                                              |  |                                                      |           |      |   |           |  
|Net income per share available to common shareholders         |  |                                                      |           |      |   |           |  
|Basic (adjusted for stock splits effective January 1, 2001)   |  | $                                                    | 0.90      |      | $ | 0.34      |  
|                                                              |  |                                                      |           |      |   |           |  
|Diluted (adjusted for stock splits effective January 1, 2001) |  |                                                      | 0.87      |      | $ | 0.34      |  
|                                                              |  |                                                      |           |      |   |           |  



At December 31, 2004 and 2003, there
were options to purchase 839,870 and 763,207 shares of common stock outstanding.



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##### Table of Contents

NOTE 17  PARENT COMPANY (ONLY)
FINANCIAL INFORMATION



Condensed statement
of operations for the years ended December 31:



|                                           |  |                |        |      |   |       
|------------------------------------------ |  | -------------- | ------ | ---- | - | ------
|                                           |  | (In Thousands)
|                                           |  | 2004           |        | 2003
|Condensed balance sheet at December 31:    |  |                |        |      |   |       
|Cash and due from banks                    |  | $              | 125    |      | $ | 4     
|Investments in subsidiaries                |  |                | 15,582 |      |   | 15,178
|Due from related bank company              |  |                | 305    |      |   |      
|Other assets                               |  |                | 116    |      |   | 14    
|                                           |  |                |        |      |   |       
|Total assets                               |  | $              | 16,128 |      | $ | 15,196
|                                           |  |                |        |      |   |       
|Accrued interest                           |  | $              |       |      | $ | 4     
|Borrowings                                 |  |                |       |      |   | 2,508 
|Other liabilities                          |  |                | 136    |      |   | 70    
|                                           |  |                |        |      |   |       
|Total other liabilities                    |  |                | 136    |      |   | 2,582 
|                                           |  |                |        |      |   |       
|Total liabilities                          |  |                | 136    |      |   | 2,582 
|                                           |  |                |        |      |   |       
|Stockholders equity                       |  |                | 15,992 |      |   | 12,614
|                                           |  |                |        |      |   |       
|Total liabilities and stockholders equity |  | $              | 16,128 |      | $ | 15,196
|                                           |  |                |        |      |   |       



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##### Table of Contents

NOTE 17  PARENT COMPANY (ONLY)
FINANCIAL INFORMATION(Continued)



|                                                           |  |                |       |   |      |   |       |  
|---------------------------------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | -
|                                                           |  | (In Thousands) |      
|                                                           |  | 2004           |       |   | 2003 |  
|Income                                                     |  |                |       |   |      |   |       |  
|Interest                                                   |  | $              |      |   |      | $ | 1     |  
|Other income                                               |  |                | 150   |   |      |   | 154   |  
|Dividend from subsidiary                                   |  |                |      |   |      |   |      |  
|                                                           |  |                |       |   |      |   |       |  
|Total income                                               |  |                | 150   |   |      |   | 155   |  
|                                                           |  |                |       |   |      |   |       |  
|Expenses                                                   |  |                |       |   |      |   |       |  
|                                                           |  |               
|Interest                                                   |  |                | 37    |   |      |   | 138   |  
|Professional services                                      |  |                | 154   |   |      |   | 153   |  
|Loss from impaired assets                                  |  |                |      |   |      |   | 130   |  
|Other                                                      |  |                | 61    |   |      |   | 133   |  
|                                                           |  |                |       |   |      |   |       |  
|Total expenses                                             |  |                | 252   |   |      |   | 554   |  
|                                                           |  |                |       |   |      |   |       |  
|Loss before equity in undistributed income of subsidiaries |  |                | (102  | ) |      |   | (399  | )
|Equity in undistributed income of subsidiaries             |  |                | 2,863 |   |      |   | 1,765 |  
|                                                           |  |                |       |   |      |   |       |  
|Net income (loss) from continuing operations               |  |                | 2,761 |   |      |   | 1,366 |  
|                                                           |  |                |       |   |      |   |       |  
|Income tax (expense)/benefit                               |  |                | 324   |   |      |   |      |  
|                                                           |  |                |       |   |      |   |       |  
|Net income (loss)                                          |  |                | 3,085 |   |      |   | 1,209 |  
|                                                           |  |                |       |   |      |   |       |  
|Less loss from discontinued operations                     |  |                |      |   |      |   | (157  | )
|                                                           |  |                |       |   |      |   |       |  
|Net income (loss)                                          |  |                | 3,085 |   |      |   | 1,209 |  
|                                                           |  |                |       |   |      |   |       |  
|Less accrued perpetual preferred stock dividends           |  |                |      |   |      |   | (31   | )
|                                                           |  |                |       |   |      |   |       |  
|Net income (loss) available to common shareholders         |  | $              | 3,085 |   |      | $ | 1,178 |  
|                                                           |  |                |       |   |      |   |       |  



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NOTE 17  PARENT COMPANY (ONLY)
FINANCIAL INFORMATION(Continued)



Condensed statement of cash flows for the years ended December 31:



|                                                                                       |  |                |        |   |      |   |        |  
|-------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                                                       |  | (In Thousands) |       
|                                                                                       |  | 2004           |        |   | 2003 |  
|Cash flows from operating activities                                                   |  |                |        |   |      |   |        |  
|Net income (loss)                                                                      |  | $              | 3,085  |   |      | $ | 1,209  |  
|Adjustments to reconcile net income (loss) to net cash flows from operating activities |  |                |        |   |      |   |        |  
|Equity in undistributed income (loss) of subsidiaries                                  |  |                | (2,863 | ) |      |   | (1,765 | )
|Provision for deferred income taxes                                                    |  |                | (324   | ) |      |   |       |  
|Net change in other assets                                                             |  |                | 9      |   |      |   | (2     | )
|Net change in other liabilities                                                        |  |                | (25    | ) |      |   | (4     | )
|                                                                                       |  |                |        |   |      |   |        |  
|Net cash flows from operating activities                                               |  |                | (118   | ) |      |   | (562   | )
|                                                                                       |  |                |        |   |      |   |        |  
|Cash flows from investing activities                                                   |  |                |        |   |      |   |        |  
|Contribution of capital - bank subsidiary                                              |  |                | 2,500  |   |      |   | (26    | )
|Proceeds from liquidation of nonbank subsidiary                                        |  |                |       |   |      |   | 290    |  
|Increase in advances to nonbank subsidiary                                             |  |                |       |   |      |   | 1,113  |  
|                                                                                       |  |                |        |   |      |   |        |  
|Net cash flows from investing activities                                               |  |                | 2,500  |   |      |   | 1,377  |  
|                                                                                       |  |                |        |   |      |   |        |  
|Cash flows from financing activities                                                   |  |                |        |   |      |   |        |  
|Proceeds from borrowings                                                               |  |                | 106    |   |      |   | 5,612  |  
|Repayment of borrowings                                                                |  |                | (2,614 | ) |      |   | (3,913 | )
|Redemption of mandatory redeemable preferred stock                                     |  |                |       |   |      |   | (2,000 | )
|Proceeds from subsidiary for stock grants                                              |  |                | 14     |   |      |   |       |  
|Redemption of perpetual preferred stock                                                |  |                |       |   |      |   | (350   | )
|Payment of preferred stock dividends                                                   |  |                |       |   |      |   | (44    | )
|Proceeds from exercise of stock options                                                |  |                | 233    |   |      |   | 35     |  
|Repurchase of common stock                                                             |  |                |       |   |      |   | (175   | )
|                                                                                       |  |                |        |   |      |   |        |  
|Net cash flows from financing activities                                               |  |                | (2,261 | ) |      |   | (835   | )
|                                                                                       |  |                |        |   |      |   |        |  
|Net change in cash                                                                     |  |                | 121    |   |      |   | (20    | )
|Cash, beginning of year                                                                |  |                | 4      |   |      |   | 24     |  
|                                                                                       |  |                |        |   |      |   |        |  
|Cash, end of year                                                                      |  | $              | 125    |   |      | $ | 4      |  
|                                                                                       |  |                |        |   |      |   |        |  



NOTE 18 
NEW ACCOUNTING PRONOUNCEMENTS



In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment (SFAS No. 123R). SFAS No. 123R requires that compensation cost relating to share-based payment transactions be recognized in financial statements
based on the fair value of the equity or liability instruments issued. We will be required to apply SFAS No. 123R as of the interim reporting period beginning January 1, 2006. SFAS No. 123R covers a wide range of share-based compensation
arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. However, we do not anticipate that the adoption of SFAS No. 123R will have a material impact on our
financial position or results of operations. Based on the current options issued under the Plan, we anticipate recognizing approximately $74,000 in compensation expense related to the adoption of SFAS No. 123R during the year ended December 31,
2006. This figure does not include options granted in the future nor does it include potential forfeitures.



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NOTE 19  SELECTED QUARTERLY FINANCIAL
DATA



|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|------------------------------------------------------------ |  | -------------------------------------------- | ----- | - | ----------- | - | ----- | ----------- |  | - | ----------- | - |  | - | ----- | -
|                                                             |  | (In Thousands, except for per share amounts) |      
|                                                             |  | Year Ended December 31, 2004                 |      
|                                                             |  | 1st Quarter                                  |       |   | 2nd Quarter |   |       | 3rd Quarter |  |   | 4th Quarter |  
|Interest income                                              |  | $                                            | 2,519 |   |             | $ | 2,567 |             |  | $ | 2,564       |   |  | $ | 2,636 |  
|Interest expense                                             |  |                                              | 586   |   |             |   | 557   |             |  |   | 555         |   |  |   | 568   |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Net interest income                                          |  |                                              | 1,933 |   |             |   | 2,010 |             |  |   | 2,009       |   |  |   | 2,068 |  
|Provision for loan losses                                    |  |                                              | (395  | ) |             |   | (330  | )           |  |   |            |   |  |   |      |  
|Other income                                                 |  |                                              | 219   |   |             |   | 201   |             |  |   | 171         |   |  |   | 199   |  
|Other expenses                                               |  |                                              | 1,659 |   |             |   | 1,779 |             |  |   | 1,617       |   |  |   | 1,655 |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Income before loss from discontinued operations              |  |                                              | 888   |   |             |   | 762   |             |  |   | 563         |   |  |   | 612   |  
|Loss from discontinued operations                            |  |                                              |      |   |             |   |      |             |  |   |            |   |  |   |      |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Income before income taxes                                   |  |                                              | 888   |   |             |   | 762   |             |  |   | 563         |   |  |   | 612   |  
|Income taxes                                                 |  |                                              | (16   | ) |             |   |      |             |  |   |            |   |  |   | 276   |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Net income (loss)                                            |  |                                              | 872   |   |             |   | 762   |             |  |   | 563         |   |  |   | 888   |  
|Less accrued perpetual preferred stock dividends             |  |                                              |      |   |             |   |      |             |  |   |            |   |  |   |      |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Net income (loss) available to common shareholders           |  | $                                            | 872   |   |             | $ | 762   |             |  | $ | 563         |   |  | $ | 888   |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Net income (loss) per share available to common shareholders |  |                                              |       |   |             |   |       |             | 
|Basic                                                        |  | $                                            | 0.26  |   |             | $ | 0.22  |             |  | $ | 0.17        |   |  | $ | 0.25  |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Diluted                                                      |  | $                                            | 0.25  |   |             | $ | 0.21  |             |  | $ | 0.16        |   |  | $ | 0.25  |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|                                                             | 
|                                                             |  | (In Thousands, except for per share amounts) |      
|                                                             |  | Year Ended December 31, 2003                 |      
|                                                             |  | 1st Quarter                                  |       |   | 2nd Quarter |   |       | 3rd Quarter |  |   | 4th Quarter |  
|Interest income                                              |  | $                                            | 2,367 |   |             | $ | 2,360 |             |  | $ | 2,385       |   |  | $ | 2,442 |  
|Interest expense                                             |  |                                              | 802   |   |             |   | 742   |             |  |   | 683         |   |  |   | 592   |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Net interest income                                          |  |                                              | 1,565 |   |             |   | 1,618 |             |  |   | 1,702       |   |  |   | 1,850 |  
|Provision for loan losses                                    |  |                                              |      |   |             |   | (90   | )           |  |   |            |   |  |   | (810  | )
|Other income                                                 |  |                                              | 201   |   |             |   | 227   |             |  |   | 184         |   |  |   | 211   |  
|Other expenses                                               |  |                                              | 1,535 |   |             |   | 1,717 |             |  |   | 1,660       |   |  |   | 2,180 |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Income before loss from discontinued operations              |  |                                              | 231   |   |             |   | 218   |             |  |   | 226         |   |  |   | 691   |  
|Loss from discontinued operations                            |  |                                              | (125  | ) |             |   | (23   | )           |  |   | (9          | ) |  |   |      |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Income before income taxes                                   |  |                                              | 106   |   |             |   | 195   |             |  |   | 217         |   |  |   | 691   |  
|Income taxes                                                 |  |                                              |      |   |             |   |      |             |  |   |            |   |  |   |      |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Net income (loss)                                            |  |                                              | 106   |   |             |   | 195   |             |  |   | 217         |   |  |   | 691   |  
|Less accrued perpetual preferred stock dividends             |  |                                              | (8    | ) |             |   | (8    | )           |  |   | (7          | ) |  |   | (8    | )
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Net income (loss) available to common shareholders           |  | $                                            | 98    |   |             | $ | 187   |             |  | $ | 210         |   |  | $ | 683   |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Net income (loss) per share available to common shareholders |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Basic                                                        |  | $                                            | 0.03  |   |             | $ | 0.05  |             |  | $ | 0.06        |   |  | $ | 0.20  |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  
|Diluted                                                      |  | $                                            | 0.03  |   |             | $ | 0.05  |             |  | $ | 0.06        |   |  | $ | 0.20  |  
|                                                             |  |                                              |       |   |             |   |       |             |  |   |             |   |  |   |       |  





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



None.



ITEM 8A. CONTROLS AND PROCEDURES



The
Companys management, including the Chief Executive Officer and the Chief Financial Officer, are responsible for establishing and maintaining disclosure controls and procedures for the Company and its subsidiaries. Management has designed such
controls to ensure that all material information relating to the Company and its subsidiaries is made known to them by others within the organization. Management evaluated the Companys disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934) as of the end of the period covered by this annual report. Based on the evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure
controls and procedures are functioning properly and effectively. There are no significant deficiencies or material weaknesses with the controls and procedures that required modification. There were no significant changes in the Companys
internal controls that could significantly affect its disclosure controls and procedures since the date of the evaluation.



ITEM 8B. OTHER INFORMATION



None.



PART III



The information required by Part III of
this Form 10-KSB, except the part of Item 10 requiring a description of executive officers which description is provided below, and of the report of the Audit Committee in Item 14, is incorporated by reference to the definitive proxy statement for
Pacificas Annual Meeting of Shareholders to be held on April 26, 2005. (the Proxy Statement). The Proxy Statement is expected to be sent to shareholders along with this Annual Report and Form 10-KSB beginning on or about March 9,
2005 and will concurrently be filed with the Securities Exchange Commission on Schedule 14A.



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



Certain portions of the response to this item are incorporated by reference to Pacificas Proxy Statement for the annual meeting of shareholders scheduled for April
26, 2005.



|                   |  |     |  |                                                                               |  |                                
|------------------ |  | --- |  | ----------------------------------------------------------------------------- |  | -------------------------------
|Name               |  | Age |  | Position/Title                                                                |  | Has Served theBank/CompanySince
|John A. Kennedy    |  | 64  |  | President, Chief Executive Officer and Director                               |  | 2002                           
|                   |  |     | 
|John D. Huddleston |  | 51  |  | Executive Vice President, Chief Financial Officer and Chief Operating Officer |  | 1998                           



John A. Kennedy. In September
2002, Mr. Kennedy joined the Company as the Chief Executive Officer and President of the Company and the Bank. He currently serves as a Director of the Company and the Bank. He previously served as a director of the Bank between 1998 and 2000, until
resigning to take an executive position with HomeStreet Bank in their business banking division in 2000. His career has



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included senior positions with Bank of America, United California Bank (predecessor to First Interstate), Bank of
Scotland (New York office), and the Manager and SVP of Hong Kong and Shanghai Banks Seattle Office for over thirteen years. In addition, from 1997 to 2000, he served as Executive Director of the World Trade Center of Tacoma. He has also served
as the board chairman of the Washington State International Trade Fair, and as a board member on the Washington Council of International Trade, the World Trade Center of Tacoma, and the Washington State China Relations Council. He has also served as
an advisory board member at North Seattle Community College and Pacific Lutheran Universitys China studies program. He holds a bachelors degree in Economics from the University of Oregon.



John D. Huddleston. Mr. Huddleston has been a Senior Vice President and Chief
Financial Officer of the Company and Pacifica Bank since their respective inceptions and was promoted to the position of Executive Vice President, Chief Financial Officer, and Chief Operating Officer in 2001. Prior to joining Pacifica, he was
Managing Partner for JCH Development, a real estate development and investment group in Yelm, Washington from 1986 to 1998. He served as Vice President and Manager of the Asset Liability Department of the United Bank from 1980 to 1986. Mr.
Huddleston has over 26 years experience in the banking and financial management industry. Mr. Huddleston holds a bachelors degree in Business Administration, with an emphasis in Accounting, from the University of Puget Sound.



ITEM 10. EXECUTIVE COMPENSATION



The response to
this item is incorporated by reference to Pacificas Proxy Statement for the annual meeting of shareholders scheduled for April 26, 2005.



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The response to this item is incorporated by reference to Pacificas Proxy Statement for the annual meeting of shareholders scheduled to be held April 26, 2005.



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The response to this item is incorporated by reference to Pacificas Statement for the annual meeting of shareholders scheduled to be held April 26, 2005, under the caption.



ITEM 13. EXHIBITS



Exhibits



|            |  |                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                
|3.1         |  | Articles of Incorporation(1)                                                                                                                                                                                                                                                                                                                                               
|            | 
|3.2         |  | Bylaws(1)                                                                                                                                                                                                                                                                                                                                                                  
|            | 
|3.3         |  | Amendment No. 1 to the Bylaws(6)                                                                                                                                                                                                                                                                                                                                           
|            | 
|4.1         |  | Form of Stock Certificate(1)                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.1        |  | Employee Stock Option Plan(3)                                                                                                                                                                                                                                                                                                                                              
|            | 
|10.2        |  | Office Lease between Registrant, as Tenant, and The Trustees under the Will and of the Estate of James Campbell, Deceased, as Landlord, dated March 31, 1998; as amended by the First Amendment
to Lease dated May 1, 1998, Second Amendment to Lease dated June 12, 1998, Third Amendment to Lease dated May 28, 1999, and Fourth Amendment to Lease dated May 24, 2000(1)
|            | 
|10.3        |  | Fifth Amendment to Lease dated October 19, 2000(2)                                                                                                                                                                                                                                                                                                                         
|            | 
|10.4        |  | Data Processing Services Agreement between Registrant and Fiserv Solutions, Inc. effective September 27, 2001(4)                                                                                                                                                                                                                                                           



53



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|            |  |                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                          
|10.5        |  | Plan and Agreement of Reorganization between the Registrant and Pacifica Bank dated as of October 2, 2000(1)                         
|            | 
|10.6        |  | Office Sublease Agreement, between the Registrant, as Subtenant, and Amazon.com Holdings, Inc., as Sublandlord, dated June 6, 2001(4)
|            | 
|10.7        |  | Sixth Amendment to Lease dated October 15, 2002(6)                                                                                   
|            | 
|10.8        |  | Resignation and release agreement for Jeffery C. Low(5)                                                                              
|            | 
|11.         |  | Computation of basic and diluted earnings per share.(8)                                                                              
|            | 
|14.         |  | Code of Ethics(7)                                                                                                                    
|            | 
|21.         |  | Subsidiary: Pacifica Bank                                                                                                            
|            | 
|23.         |  | Consent of Moss Adams LLP.(8)                                                                                                        
|            | 
|24.         |  | Power of attorney(8)                                                                                                                 
|            | 
|31.1 & 31.2 |  | Certification of Chief Executive Officer and Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002(8)          
|            | 
|32.1 & 32.2 |  | Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002(8)          

---

|(1) | Incorporated by reference to the Companys Form 8-A, filed with the SEC on February 26, 2001.
|--- | ---------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Companys Form 10-KSB for the fiscal year ending December 31, 2000.
|--- | ----------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the Companys Form S-8, filed with the SEC on September 4, 2001.
|--- | ---------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Companys Form 10-KSB for the fiscal year ending December 31, 2001.
|--- | ----------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Companys Form 10-Q for the quarter ended September 30, 2002.
|--- | ----------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Companys Form 10-K for the fiscal year ending December 31, 2002.
|--- | --------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Companys Form 10-K for the fiscal year ending December 31, 2003.
|--- | --------------------------------------------------------------------------------------------------

|(8) | Filed with this Form 10-KSB.
|--- | ----------------------------



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The response to this item is incorporated by reference to Pacificas Proxy Statement for the annual meeting of shareholders scheduled to be held April 26, 2005.



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FORM 10-KSB CROSS-REFERENCE INDEX



This Annual
Report and Form 10-KSB and the Companys definitive Proxy Statement for its 2005 Annual Meeting of Shareholders, together contain the requirements of the accounting profession and the Securities and Exchange Commission, including a
comprehensive explanation of 2004 results.



|            |  |                                                                                                                 |  |                          |  |                            
|----------- |  | --------------------------------------------------------------------------------------------------------------- |  | ------------------------ |  | ---------------------------
|Form 10-KSB |  | Caption                                                                                                         |  | Annual Report PageNumber |  | Proxy Statement Page Number
|Part 1      |  |                                                                                                                 |  |                          |  |                            
|Item 1      |  | Business                                                                                                        |  | 1-6,Inside Cover         |  |                           
|Item 2      |  | Properties                                                                                                      |  | 6                        |  |                           
|Item 3      |  | Legal Proceedings                                                                                               |  | 6                        |  |                            
|Item 4      |  | Submission of Matters to a Vote of Security Holders                                                             |  | 6                        |  |                           
|            |  |                                                                                                                 | 
|Part II     |  |                                                                                                                 |  |                          |  |                            
|Item 5      |  | Market for the Registrants Common Equity and Related Stockholder Matters                                       |  | 7-8                      |  |                           
|Item 6      |  | Managements Discussion and Analysis or Plan of Operations                                                      |  | 8-25                     |  |                           
|Item 7      |  | Financial Statements                                                                                            |  | 25-51                    |  |                           
|Item 8      |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 52                       |  |                           
|Item 8A     |  | Controls and Procedures                                                                                         |  | 52                       |  |                            
|Item 8B     |  | Other Information                                                                                               |  | 52                       |  |                            
|            |  |                                                                                                                 | 
|Part III    |  |                                                                                                                 |  |                          |  |                            
|Item 9      |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 52-53                    |  | 6-9                        
|Item 10     |  | Executive Compensation                                                                                          |  | 53                       |  | 10-15                      
|Item 11     |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  |  | 53                       |  | 4-5                        
|Item 12     |  | Certain Relationships and Related Transactions                                                                  |  | 53                       |  | 16                         
|Item 13     |  | Exhibits                                                                                                        |  | 53-54                    |  |                            
|Item 14     |  | Principal Accountant Fees and Services                                                                          |  | 54                       |  | 16-17                      



None of the foregoing incorporation by
reference shall include the Audit Committee Report contained in the Companys Proxy Statement.





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SIGNATURES



Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 17th of March 2005.



Principal Executive OfficerBy

/s/ John A. KennedyJohn A. KennedyPresident andChief Executive OfficerPrincipal Financial Officer:By

/s/ John D. HuddlestonJohn D. HuddlestonExecutive Vice President,Chief Financial Officer andChief Operating Officer




I, John A. Kennedy, pursuant to
a power of attorney which is being filed with the Annual Report on Form 10-KSB, have signed this report on March 17, 2005 as attorney in fact for the following directors who constitute the Board.



|                         |  |                      
|------------------------ |  | ---------------------
|Lyle K. Snyder, Chairman |  | George J. Pool       
|Yi-Heng Lee              |  | Fannie Kuei-Fang Tsai
|Mark P. Levy             |  | Mark W. Weber        
|Robert E. Peterson       |  | Edwin R. Young       



|                   
|-------------------
|/s/ John A. Kennedy
|John A. Kennedy    
|Attorney-in-fact