As filed with the Securities and Exchange Commission on April 1, 2002

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number: 0-22732

PACIFIC CREST CAPITAL, INC.(Exact name of registrant as specified in its charter)

|Delaware                                                                              | 95-4437818                          
|------------------------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of
incorporation or organization)                        | (I.R.S. Employer
Identification No.)
|30343 Canwood Street
Agoura Hills, California(Address of principal executive offices) | 91301(Zip Code)                     

Registrant's
telephone number, including area code:(818) 865-3300

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
9.375% Cumulative Trust Preferred Securities of PCC Capital I
Guarantee of Pacific Crest Capital, Inc. with respect to the
9.375% Cumulative Trust Preferred Securities of PCC Capital I(Title of Class)

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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-K or any amendment to this
Form 10-K. ý

As
of March 15, 2002, the aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price of such stock on the Nasdaq
National Market, was $52,125,462.

As
of March 15, 2002, the number of shares outstanding of the registrant's $.01 par value Common Stock was 2,422,519.

Documents Incorporated by Reference

Portions of the Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 10, 2002 are incorporated by reference into
Part III of this Form 10-K.

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PACIFIC CREST CAPITAL, INC.

2001 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

|           |  |                                                                                       |  |                                                               |  | Page
|---------- |  | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- |  | ----
|ITEM 1.    |  | Business                                                                              |  | 1                                                            
|           |  |                                                                                       |  | General                                                       |  | 1   
|           |  |                                                                                       |  | Loans                                                         |  | 2   
|           |  |                                                                                       |  | Asset Quality Review                                          |  | 7   
|           |  |                                                                                       |  | Allowance for Loan Losses                                     |  | 9   
|           |  |                                                                                       |  | Investments                                                   |  | 12  
|           |  |                                                                                       |  | Deposits                                                      |  | 13  
|           |  |                                                                                       |  | Borrowings                                                    |  | 13  
|           |  |                                                                                       |  | Asset/Liability Management                                    |  | 14  
|           |  |                                                                                       |  | Employees                                                     |  | 15  
|           |  |                                                                                       |  | Regulation                                                    |  | 15  
|           |  |                                                                                       |  | Factors that May Affect the Company's Business or Stock Value |  | 24  
|ITEM 2.    |  | Properties                                                                            |  | 27                                                           
|ITEM 3.    |  | Legal Proceedings                                                                     |  | 27                                                           
|ITEM 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 27                                                           
|ITEM 4(a). |  | Executive Officers of the Registrant                                                  |  | 27                                                           
|PART II   
|ITEM 5.    |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 29                                                           
|ITEM 6.    |  | Selected Financial Data                                                               |  | 29                                                           
|ITEM 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 33                                                           
|           |  |                                                                                       |  | General                                                       |  | 33  
|           |  |                                                                                       |  | Results of Operations                                         |  | 36  
|           |  |                                                                                       |  | Financial Condition                                           |  | 53  
|           |  |                                                                                       |  | Non-performing Assets                                         |  | 57  
|           |  |                                                                                       |  | Liquidity                                                     |  | 57  
|           |  |                                                                                       |  | Dividends                                                     |  | 58  
|           |  |                                                                                       |  | Capital Resources                                             |  | 59  
|ITEM 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 59                                                           
|ITEM 8.    |  | Financial Statements and Supplementary Data                                           |  | 65                                                           
|ITEM 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 98                                                           
|PART III   |  |                                                                                      
|ITEM 10.   |  | Directors and Executive Officers of the Registrant                                    |  | 98                                                           
|ITEM 11.   |  | Executive Compensation                                                                |  | 98                                                           
|ITEM 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 98                                                           
|ITEM 13.   |  | Certain Relationships and Related Transactions                                        |  | 98                                                           
|PART IV    |  |                                                                                      
|ITEM 14.   |  | Exhibits, Financial Statements and Reports on Form 8-K                                |  | 98                                                           

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PART I

ITEM 1.    Business

GENERAL

Pacific Crest Capital, Inc. ("Pacific Crest" or the "Parent") is a bank holding company principally engaged in commercial real estate lending and U.S.
Small Business Administration ("SBA") lending through its wholly owned subsidiary, Pacific Crest Bank (the "Bank"). During the fourth quarter of 1999, Pacific Crest became a bank holding company
regulated by the Board of Governors of the Federal Reserve System (the "Federal Reserve") as part of the conversion of the Bank's charter to that of a California state chartered commercial bank. See
"Pacific Crest Bank" below. Unless the context otherwise indicates, the "Company" refers to Pacific Crest together with its wholly owned subsidiaries, Pacific Crest Bank and PCC Capital I.

Forward-Looking Information

Certain matters discussed in this Annual Report on Form 10-K may constitute forward-looking statements under Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements may involve risks and
uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived
opportunities in the market and statements regarding the Company's mission and vision. Forward-looking statements include, but are not limited to, statements preceded by, followed by or that include
the word "will," "believes," "expects," "anticipates," "intends," "plans," "estimates" or similar expressions. The Company's actual results, performance or achievements may differ significantly from
the results, performance or achievements expressed or implied in such forward-looking statements. For discussion of the factors that might cause such a difference, see "Factors That
May Affect the Company's Business or Stock Value." Management of the Company believes that these forward-looking statements are reasonable; however, undue reliance should not be placed on such
statements, which are based on current expectations.

Pacific Crest Bank

Pacific Crest Bank is a California state chartered commercial bank that is supervised and regulated by the California Commissioner of Financial Institutions (the
"Commissioner"), the California Department of Financial Institutions (the "Department" or "DFI"), and the Federal Deposit Insurance Corporation ("FDIC"). The Bank's deposits are insured by the FDIC up
to applicable limits. In September of 1999, the Bank filed an application with the DFI to convert from a California state chartered industrial bank to a California state chartered commercial bank. In
December of 1999, the Bank received all of the necessary regulatory approvals, and, on December 15, 1999 completed its conversion from a California state chartered industrial bank to a
California state chartered commercial bank. The Bank converted to a California state chartered commercial bank primarily in order to better serve its business customers, diversify its business
lending, and offer full-service checking accounts and online banking. The Bank introduced full-service, consumer demand deposit checking accounts to all of its retail customers
in the fourth quarter of 2000 and intends to offer full-service on-line banking in 2002. During the second quarter of 2001, the Bank became a member of the Federal Home Loan
Bank ("FHLB").

Pacific
Crest Bank is a business bank that concentrates on marketing to and serving the needs of investors, entrepreneurs, and small businesses located predominantly in California. The
Bank conducts its deposit operations through three branch offices located in Beverly Hills, Encino, and San Diego, California. The Bank currently offers consumer demand deposit checking accounts,
money market checking accounts, savings accounts, and certificates of deposit. The Bank has focused its lending activities on loans secured by commercial real estate and small business loans under
various federal

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SBA loan programs. The Bank conducts its lending operations in Southern California through its lending and marketing representatives and through its correspondent loan brokers located in areas
outside of Southern California. To a lesser extent, and on a very selective basis, the Bank makes commercial real estate loans in other western states generally based on the quality of the borrowers.

PCC Capital I

PCC Capital I ("PCC Capital") is a statutory business trust that was created under Delaware law for the exclusive purpose of issuing and selling 9.375% Cumulative
Trust Preferred Securities (the "Trust Preferred Securities"). On September 22, 1997, PCC Capital completed a $17.25 million public offering of the Trust Preferred Securities and
invested the gross proceeds from the offering in junior subordinated debentures issued by Pacific Crest bearing interest at 9.375%. The junior subordinated debentures were issued concurrent with the
issuance of the Trust Preferred Securities. The interest on the junior subordinated debentures paid by Pacific Crest to PCC Capital represents the sole revenues of PCC Capital and the sole source of
dividend distributions to the holders of the Trust Preferred
Securities. Pacific Crest has fully and unconditionally guaranteed all of PCC Capital's obligations under the Trust Preferred Securities.

Pacific
Crest has the right, assuming no default has occurred, to defer payments of interest on the junior subordinated debentures at any time for a period not to exceed 20 consecutive
quarters. The Trust Preferred Securities will mature on October 1, 2027, but can be called in part or in total anytime after October 1, 2002 by PCC Capital.

The
Trust Preferred Securities are presented on a separate line on the Consolidated Balance Sheets under the caption "Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely junior subordinated debentures." For financial reporting purposes, the Company records the dividend distributions on the Trust Preferred Securities as "Interest
expensetrust preferred securities" on its Consolidated Statements of Income.

LOANS

Lending Activities

The Bank's primary focus in lending activities is the origination of adjustable rate and fixed rate commercial real estate loans and SBA loans. As of
December 31, 2001, the Bank held 572 commercial real estate loans with an average balance of $752,000, as well as 128 SBA loans with an average balance of $189,000. Loans generally are made for
terms from three to 20 years.

In
order to manage interest rate risk, the Company endeavors to underwrite most of its commercial real estate loans on an adjustable rate or short-term fixed rate basis. All
of the Company's SBA 7(a) and 504 second lien loans are adjustable rate and generally reprice either monthly or quarterly based upon theWall Street
Journalprime lending rate, while the Company's SBA 504 first lien loans are generally fixed rate. The Company generally sells its SBA 504 first lien loans in the
secondary market within 90 days of funding the loan.

The
Company's adjustable rate loans reprice on either a quarterly, semi-annual, or annual basis. A portion of these adjustable rate loans were initially fixed rate for a
period of one to five years, but thereafter will reprice on either a quarterly, semi-annual, or annual basis. A number of loans have interest rate floors and ceilings that limit the
interest rate repricing of the loans. For more information on the Company's loan repricing, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk ".

Commercial Real Estate Lending

The Bank's loans have been originated primarily through either direct contacts with borrowers by Bank marketing representatives or referrals from commercial loan
brokers, other banks, realtors, and

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other third parties, for which the borrower generally pays a referral fee ranging from 1/2% to 2% of the loan amount. The Bank employs commercial marketing representatives who maintain
contacts with loan referral sources, screen referred transactions, and provide customer service. To a lesser extent, the Bank also uses correspondent loan brokers (independent contractors who are not
Bank employees) who represent the Bank in geographic regions outside of Southern California. However, the Bank retains all underwriting responsibility in these lending transactions.

The
Bank's credit approval process includes an examination of the cash flow and debt service coverage of the property serving as loan collateral, as well as the financial condition and
credit references of the borrower. Following analysis of the borrower's credit, cash flows and collateral, loans are submitted to the Bank's Credit Committee for approval. The Bank's senior management
is actively involved in its commercial lending activities and collateral valuation and review process. The Bank obtains independent third party appraisals of all properties securing its loans. In
addition, the Bank employs an individual who serves as internal property analyst to inspect properties and review the third party appraisals for the benefit of the Credit Committee.

The
Bank currently offers commercial real estate loans that generally fall within a range of $200,000 to $4.0 million. Management, in consultation with the Bank's Board of
Directors, periodically adjusts and modifies its underwriting criteria and lending and underwriting policies in response to economic conditions and business opportunities.

As
of December 31, 2001, $430.4 million, or 93.2% of the Company's loans were categorized as commercial real estate loans. The Company's emphasis over the past five years
in its commercial real estate lending operations (except for SBA 504 lending) has been on originating income producing property loans, where the borrower is not a tenant. The Company has been
specializing in this type of lending for over 20 years and believes that it has developed exceptional risk diversification policies as well as exceptionally strong credit and collateral
analysis skills in this area. During the five-year period ended December 31, 2001, total cumulative net charge-offs and other real estate owned valuation adjustments for
commercial real estate loans totaled $777,000, an extremely low credit loss figure for this category of lending. The management of the Company believes that its excellent history of credit losses over
the past five years has been due to a strong, diversified regional economy as well as the intense focus by the Company on risk management for commercial real estate lending. For additional information
on the Company's asset quality and allowance for loan losses activity for the last five years, see "Asset Quality Review" and "Allowance for Loan Losses".

The
Company believes that it manages credit risk tightly in its commercial real estate loan portfolio and uses a variety of policy guidelines and analytical tools to achieve its asset
quality objectives. Key risk control features include:



3

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SBA Lending

During 1997, the Company initiated an SBA 7(a) loan program. Loans made by the Company under this program generally are made to small businesses to provide
working capital or to provide funding for the purchase of businesses, real estate, or machinery and equipment. These loans generally are secured by a combination of assets that may include equipment,
receivables, inventory, business real
property, and sometimes a lien on the personal residence of the borrower. SBA 7(a) loans are all adjustable rate loans based upon theWall Street
Journalprime lending rate. The SBA generally guarantees 75%-85% of the loan balance. Under the SBA 7(a) program, the Company can sell in the secondary market the
guaranteed portion of selected SBA 7(a) loans that it originates and can retain the unguaranteed portion of the loans, as well as the servicing on such loans, for which it is paid a fee. The loan
servicing spread is generally a minimum of 1.00% on all loans. The Company generally offers SBA 7(a) loans within a range of $50,000 to $1.0 million.

During
the fourth quarter of 2000, the Company initiated an SBA 504 loan program. Loans made by the Company under this program generally are made to small businesses to provide funding
for the purchase of real estate. Under this program, the Company generally provides up to 90% financing of the total purchase cost, represented by two loans to the borrower. The first lien loan is
generally a long-term, fully amortizing, fixed rate loan and made in the amount of 50% of the total purchase cost. The second lien loan is a short-term, interest only,
adjustable rate loan, based upon theWall Street Journalprime lending rate, and made in the amount of 40% of the total purchase cost. The Company's
second lien loan serves as an interim bridge loan to the borrower until the Certified Development Corporation ("CDC") obtains bond funding, pays off the Company's second lien loan, and provides
long-term, fixed rate financing directly to the borrower. The CDC pays off the Company's second lien loan generally within three to six months after the loan proceeds have been fully
disbursed by the Company to the borrower. The CDC is a non-profit corporation established to contribute to the economic development of its community by working together with the SBA and
private sector lenders such as the Bank, to provide financing to small businesses. The Company generally offers SBA 504 loans within a range of $300,000 to $3.0 million.

The
Company's intent is to sell its SBA 504 first lien loans to other banks, and since the SBA 504 second lien loans are ultimately funded by the CDC, the SBA 504 loan program has been
functioning as fee income vehicle for the Company, as it generally does not retain any portion of these loans.

As
of December 31, 2001, the Company had achieved SBA "Preferred Lender" status in the entire state of Oregon, as well as in all Southern California SBA lending areas from Santa
Barbara to San Diego counties. Preferred Lender status is the highest designation awarded to lenders by the SBA, and accordingly, grants such lenders full lending authority to approve SBA loans.

Lending to Professionals and Small Businesses

During 2002, the Company plans to introduce a business lending program for business professionals and small businesses, which will complement the Company's SBA
lending programs. Products offered under the new lending program will include a business line of credit and a business term loan. The business line of credit will be an interest-only loan, with
principal due at maturity, and will generally range in size from $25,000 to $3.0 million. The line of credit loan would frequently be secured by a blanket lien on all available assets, including
accounts receivable and inventory, as well as physical plant and equipment. The business term loan would be made for the purchase or refinance of machinery and equipment and will generally range in
size from $25,000 to $500,000 with terms up to seven years.

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Loan Portfolio

The following table presents the categories of the Bank's loans at the dates indicated (in thousands):

|                                   |                                 | December 31,             |        
|---------------------------------- | ------------------------------- | ------------------------ | -------
|
|Commercial real estate loans       |                                 | $                        | 430,420
|SBA business loans:                |                                 |                          |        
|                                   | SBA 7(a) program                |                          |        
|                                   | SBA 504 program                 |                          |        
|                                   |                                 |                          |        
|                                   |                                 | Total SBA business loans |        
|                                   |                                 |                          |        
|Other loans:                       |                                 |                          |        
|                                   | Construction loans              |                          |        
|                                   | Single-family residential loans |                          |        
|                                   | Commercial business/other loans |                          |        
|                                   |                                 |                          |        
|                                   |                                 | Total other loans        |        
|                                   |                                 |                          |        
|Gross loans                        |                                 |                          | 461,979
|Deferred loan (fees) costs         |                                 |                          | (4     
|Allowance for loan losses          |                                 |                          | (7,946 
|                                   |                                 |                          |        
|                                   |                                 | Net loans                |        
|                                   |                                 |                          |        
|Loans as a percent of gross loans: |                                 |                          |        
|Commercial real estate loans       |                                 |                          | 93.17  
|SBA business loans                 |                                 |                          | 5.23   
|Other loans                        |                                 |                          | 1.60   
|                                   |                                 |                          |        
|                                   |                                 | Total gross loans        |        
|                                   |                                 |                          |        

The
following table presents the Bank's loan originations for the periods indicated (in thousands):

|                             |                | Years Ended December 31,
|---------------------------- | -------------- | ------------------------
|
|Commercial real estate loans |                | $                       
|Commercial business loans(1) |                |                         
|SBA business loans:          |                |                         
|                             | SBA 7(a) loans |                         
|                             | SBA 504 loans  |                         
|                             |                |                         
|                             |                | Total SBA business loans
|                             |                |                         
|                             |                |                         
|                             |                |                         

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The
table below sets forth the contractual maturities of the Bank's outstanding gross loans, less deferred loan fees, at December 31, 2001. Loans that have
adjustable or floating interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments or enforcement of
due-on-sale clauses (dollars in thousands):

|                                      |       | Maturity
Date |  | Loan
Balance
|------------------------------------- | ----- | ------------- |  | ------------
|Due in one year or less               |       | 2002          |  | $           
|Due after one year through five years |       | 20032006     |  |             
|Due after five years                  |       | After 2006    |  |             
|                                      |       |               |  |             
|                                      | Total |               |  |             
|                                      |       |               |  |             

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The
table below presents the geographic locations and concentrations, as well as average size, of the Bank's outstanding gross loans, net of deferred loan fees, at
December 31, 2001 (dollars in thousands):

|                             |                                | Percent
of Total                                  |                                     | Amount |       | Number
of Loans |        | Average
Loan Size
|---------------------------- | ------------------------------ | ------------------------------------------------- | ----------------------------------- | ------ | ----- | --------------- | ------ | -----------------
|Southern California Counties |                                |                                                   |                                     |        |       |                 |        |                  
|                             | Los Angeles County:            |                                                   |                                     |        |       |                 |        |                  
|                             |                                | Los Angeles County North                          |                                     | 12.3   | %     | $               | 56,748 |                  
|                             |                                | Los Angeles County South                          |                                     | 7.5    | %     |                 | 34,547 |                  
|                             |                                | Los Angeles County East                           |                                     | 6.1    | %     |                 | 28,312 |                  
|                             |                                | Los Angeles County West                           |                                     | 4.7    | %     |                 | 21,797 |                  
|                             |                                | Jefferson Park, Crenshaw, Leimert Park, Hyde Park |                                     | 2.7    | %     |                 | 12,522 |                  
|                             |                                | Mid-City, Koreatown, Westlake                     |                                     | 1.6    | %     |                 | 7,467  |                  
|                             |                                | Hollywood, Silverlake, Glassell Park, Echo Park   |                                     | 1.5    | %     |                 | 6,897  |                  
|                             |                                | South Los Angeles City, Inglewood                 |                                     | 0.9    | %     |                 | 4,327  |                  
|                             |                                | Downtown Area, Chinatown                          |                                     | 0.7    | %     |                 | 3,463  |                  
|                             |                                | Los Angeles County Other                          |                                     | 4.5    | %     |                 | 20,559 |                  
|                             |                                |                                                   |                                     |        |       |                 |        |                  
|                             |                                |                                                   | Total Los Angeles County            |        | 42.6  | %               |        | 196,639          
|                             |                                |                                                   |                                     |        |       |                 |        |                  
|                             | Outside of Los Angeles County: |                                                   |                                     |        |       |                 |        |                  
|                             |                                | Orange                                            |                                     | 11.9   | %     |                 | 55,189 |                  
|                             |                                | San Diego                                         |                                     | 7.2    | %     |                 | 33,484 |                  
|                             |                                | San Bernardino                                    |                                     | 4.7    | %     |                 | 21,822 |                  
|                             |                                | Riverside                                         |                                     | 4.4    | %     |                 | 20,188 |                  
|                             |                                | Ventura                                           |                                     | 2.0    | %     |                 | 9,314  |                  
|                             |                                | All other counties (2)                            |                                     | 0.9    | %     |                 | 4,105  |                  
|                             |                                |                                                   |                                     |        |       |                 |        |                  
|                             |                                |                                                   | Total outside of Los Angeles County |        | 31.2  | %               |        | 144,102          
|                             |                                |                                                   |                                     |        |       |                 |        |                  
|                             |                                |                                                   | Total Southern California Counties  |        | 73.8  | %               |        | 340,741          
|                             |                                |                                                   |                                     |        |       |                 |        |                  
|Northern California Counties |                                |                                                   |                                     |        |       |                 |        |                  
|                             | Santa Clara                    |                                                   | 2.2                                 | %      |       | 10,191          |        | 12               
|                             | Sacramento                     |                                                   | 1.8                                 | %      |       | 8,167           |        | 11               
|                             | San Joaquin                    |                                                   | 0.9                                 | %      |       | 4,029           |        | 2                
|                             | Sonoma                         |                                                   | 0.8                                 | %      |       | 3,636           |        | 3                
|                             | Solano                         |                                                   | 0.8                                 | %      |       | 3,563           |        | 4                
|                             | Butte                          |                                                   | 0.7                                 | %      |       | 3,353           |        | 2                
|                             | Alameda                        |                                                   | 0.5                                 | %      |       | 2,454           |        | 4                
|                             | San Mateo                      |                                                   | 0.4                                 | %      |       | 1,707           |        | 4                
|                             | San Francisco                  |                                                   | 0.3                                 | %      |       | 1,351           |        | 2                
|                             | All other counties (10)        |                                                   | 1.3                                 | %      |       | 5,950           |        | 10               
|                             |                                |                                                   |                                     |        |       |                 |        |                  
|                             |                                |                                                   | Total Northern California Counties  |        | 9.6   | %               |        | 44,401           
|                             |                                |                                                   |                                     |        |       |                 |        |                  
|                             |                                |                                                   | Total California                    |        | 83.4  | %               |        | 385,142          
|                             |                                |                                                   |                                     |        |       |                 |        |                  
|Outside of California        |                                |                                                   |                                     |        |       |                 |        |                  
|                             | Arizona                        |                                                   | 7.2                                 | %      |       | 33,063          |        | 30               
|                             | Texas                          |                                                   | 2.3                                 | %      |       | 10,773          |        | 11               
|                             | Oregon                         |                                                   | 1.7                                 | %      |       | 7,838           |        | 23               
|                             | Washington                     |                                                   | 1.7                                 | %      |       | 7,834           |        | 15               
|                             | All other states (9)           |                                                   | 3.8                                 | %      |       | 17,325          |        | 17               
|                             |                                |                                                   |                                     |        |       |                 |        |                  
|                             |                                |                                                   | Total outside of California         |        | 16.6  | %               |        | 76,833           
|                             |                                |                                                   |                                     |        |       |                 |        |                  
|                             |                                |                                                   | Total loans                         |        | 100.0 | %               | $      | 461,975          
|                             |                                |                                                   |                                     |        |       |                 |        |                  

6

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ASSET QUALITY REVIEW

Non-performing assets consist of non-accrual loans and other real estate owned. The following table sets forth non-performing
assets as of the dates indicated (dollars in thousands):

|                                                            |                             | December 31, |  
|----------------------------------------------------------- | --------------------------- | ------------ | -
|
|Non-accrual loans                                           |                             | $            | 
|Other real estate owned                                     |                             |              | 
|                                                            |                             |              |  
|                                                            | Total non-performing assets |              | $
|                                                            |                             |              |  
|Non-accrual loans to total loans, net of deferred loan fees |                             |              | 
|Total non-performing assets to total assets                 |                             |              | 
|                                                            |                             |              |  

The
following table presents net (charge-offs) recoveries, OREO valuation adjustments, and related asset quality ratios as of the dates or for the periods indicated (dollars
in thousands):

|                                                                                      |                                                                   | At or For the Years Ended December 31, |     
|------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | -------------------------------------- | ----
|
|Net (charge-offs) recoveries                                                          |                                                                   | $                                      | 46  
|OREO valuation adjustments                                                            |                                                                   |                                        |    
|                                                                                      |                                                                   |                                        |     
|                                                                                      | Total net (charge-offs) recoveries and OREO valuation adjustments |                                        | $   
|                                                                                      |                                                                   |                                        |     
|Net (charge-offs) recoveries to average loans                                         |                                                                   |                                        | 0.01
|Net (charge-offs) recoveries and OREO valuation adjustments to average loans and OREO |                                                                   |                                        | 0.01
|Allowance for loan losses to total loans, net of deferred fees                        |                                                                   |                                        | 1.72
|Allowance for loan losses to non-accrual loans                                        |                                                                   |                                        |    
|                                                                                      |                                                                   |                                        |     

Non-accrual Loans

Non-accrual loans are loans not classified as "troubled debt restructurings" that show little or no current payment ability. These loans, however, are
backed by collateral or cash flow that supports the collectibility of the Company's remaining book balance. Non-accrual loan balances are net of any prior write-offs, but any
specifically assigned general allowance for loan losses is not deducted from the non-accrual loan balances.

The
Company's general policy is to discontinue the accrual of interest on commercial real estate loans when any installment payment is 61 days or more past due, or when management
otherwise determines the collectibility of principal or interest is unlikely prior to the loan becoming 61 days past due. On the guaranteed portion of SBA 7(a) loans, interest on delinquent
loans is guaranteed by the SBA up to 120 days. The Company's policy is to continue accruing interest up to 120 days, at which time the guaranteed portion of the loan would be placed on
non-accrual status. The unguaranteed portion of the SBA 7(a) loan would be placed on non-accrual status when it becomes 61 days past due.

Interest
income on non-accrual loans is subsequently recognized when the loan becomes contractually current. Accounts that are deemed uncollectible by management are charged
off for the amount that exceeds management's estimated net realizable value of the underlying real estate collateral.

The
Company's general policy is to begin initiating foreclosure proceedings when loans become more than 30 days past due. In some instances, loans that are more than
30 days past due are never

7

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actually foreclosed upon, because the borrower brings the account current either before a formal notice of default is filed or before the property goes to foreclosure sale.

On
loans that are more than 60 days past due, an updated third party appraisal generally is ordered to ascertain the current fair market value of the collateral securing the loan.
Between the time that the appraisal is ordered and the time that it is received, (normally about a 60 day period), management evaluates the collateral securing the loan in order to ascertain
the amount of general loan loss reserves that should be allocated to the loan. Upon receipt of the third party appraisal, further general loan loss reserves are allocated, if necessary, based on the
estimated net realizable value of the collateral (which is calculated based on the estimated sales price of the collateral less all selling costs).

The
calculation of the adequacy of the allowance for loan losses is based on a variety of factors, including loan classifications and underlying loan collateral values, and is not tied
directly to the level of non-accrual loans. Therefore, changes in the amount of non-accrual loans will not necessarily result in an associated increase or decrease in the
allowance for loan losses.

The
following table represents the changes in non-accrual loans for the periods indicated (in thousands):

|                                       |                                  | Years Ended December 31, |  
|-------------------------------------- | -------------------------------- | ------------------------ | -
|
|Non-accrual loans at beginning of year |                                  | $                        | 
|                                       | Additions                        |                          |  
|                                       | Reinstatements to accrual status |                          |  
|                                       | Transfers to OREO                |                          |  
|                                       | Charge-offs                      |                          |  
|                                       | Payments/payoffs/other           |                          |  
|                                       |                                  |                          |  
|                                       |                                  | Net increase (decrease)  |  
|                                       |                                  |                          |  
|Non-accrual loans at end of year       |                                  | $                        | 
|                                       |                                  |                          |  

Other Real Estate Owned

Assets classified as other real estate owned ("OREO") include foreclosed real estate owned by the Company. The Company records and carries its OREO at the lower
of cost or fair value, which may require the Company to make valuation adjustments to its OREO, based on current collateral appraisal data and other relevant information, which may effectively reduce
the book value of such assets to their estimated fair value less selling cost. The fair value of the real estate takes into account the real estate values net of expenses such as brokerage
commissions, past due property taxes, property repair expenses, and other items. The estimated sale price utilized by the Company to help determine fair value may not necessarily reflect the appraisal
value, which management believes, in some cases, to be higher than what could be realized in a sale of the OREO.

8

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The
following table represents the changes in OREO for the periods indicated (in thousands):

|                                  |                                  | Years Ended December 31, |  
|--------------------------------- | -------------------------------- | ------------------------ | -
|
|OREO balance at beginning of year |                                  | $                        | 
|                                  | Transfers from non-accrual loans |                          |  
|                                  | Write-downs                      |                          |  
|                                  | Payments/other                   |                          |  
|                                  | Sales                            |                          |  
|                                  |                                  |                          |  
|                                  |                                  | Net decrease             |  
|                                  |                                  |                          |  
|OREO balance at end of year       |                                  | $                        | 
|                                  |                                  |                          |  

Troubled Debt Restructurings

A troubled debt restructuring ("TDR") is a loan for which the Company, for reasons related to the borrower's financial difficulties, grants a permanent concession
to the borrower, such as a reduction in the loan's fully-indexed interest rate, a reduction in the face amount of the debt, or an extension of the maturity date of the loan, that the Company would not
otherwise consider. TDR balances are reflected net of any prior write-offs, but any specifically assigned general allowance for loan losses is not deducted from TDR balances.

The
following table represents the changes in TDRs for the periods indicated (in thousands):

|                                 |                             | Years Ended December 31,
|-------------------------------- | --------------------------- | ------------------------
|
|TDR balance at beginning of year |                             | $                       
|                                 | Transfers to accruing loans |                         
|                                 | Charge-offs/other           |                         
|                                 |                             |                         
|                                 |                             | Net (decrease) increase 
|                                 |                             |                         
|TDR balance at end of year       |                             | $                       
|                                 |                             |                         

Potential Problem Loans

In addition to loans disclosed above as non-accrual and TDR at December 31, 2001, of which the Company had none, the Company had six loans
totaling $518,000 that have been categorized as potential problem loans by the Company. These loans have been so classified as a result of known information about the possible credit problems of the
borrowers, which has caused management to have doubts about the ability of such borrowers to comply with current loan repayment terms, and which may result in the future inclusion of these loans in
either the non-accrual loan or TDR categories. The loss exposure on these six loans is mitigated in that these loans are all SBA 7(a) loans, of which $390,000 is fully secured and guaranteed by the
SBA. Further, the collateral securing the loans would generally be liquidated in a workout situation, and would provide some recovery in addition to the SBA guarantee.

ALLOWANCE FOR LOAN LOSSES

Classified Assets

In connection with examinations of insured institutions, the FDIC and the DFI examiners have the authority to identify problem assets and, if necessary, require
them to be classified. There are three primary classifications for problem assets: "substandard," "doubtful" and "loss." "Substandard" assets

9

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are assets that are characterized by the distinct possibility that the institution will sustain some loss if deficiencies are not corrected. "Doubtful" assets have all of the weaknesses inherent in
"substandard" loans, but also have the characteristic that, on the basis of existing facts, conditions and values, collection or liquidation in full is highly questionable and improbable. "Loss"
assets are assets that are considered uncollectible. Assets that are classified "loss" require the institution either to establish a specific reserve in the amount of 100% of the portion of the asset
classified "loss" or to charge-off the asset. In addition, the FDIC characterizes certain assets as "special mention." These are assets that do not currently warrant classification in one
of the three primary problem assets categories but that do possess weaknesses deserving management's close attention.

The
Company utilizes an internally developed loan classification and monitoring system in determining the appropriate level of the allowance for loan losses. This system involves
periodic reviews of the loan portfolio and loan classifications based on that review.

Allowance for Loan Losses

The Company's allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risk inherent in the loan
portfolio. General loan loss reserves typically are established by assigning all loans to specified risk categories and then determining the appropriate levels of reserve for each risk category. A
special management "Reserve Committee" meets monthly to review the loan portfolio, delinquency trends, collateral value trends, non-performing asset data and other material information.
The amount of the allowance is based upon management's evaluation of numerous factors, including the adequacy of collateral securing the loans in the Company's portfolio, delinquency trends,
historical loan loss experience, and existing economic conditions.

The
full Board of Directors reviews the adequacy of the allowance for loan losses set by management on a quarterly basis. Management utilizes its best judgment in providing for possible
loan losses and establishing the allowance for loan losses. However, the allowance is an estimate, which is inherently uncertain and depends on the outcome of future events. In addition, regulatory
agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance
based upon their judgment of the information available to them at the time of their examination.

Adverse
economic conditions or a declining real estate market could adversely affect certain borrowers' abilities to contractually repay their loans. A decline in the economy could
result in deterioration in the quality of the loan portfolio and could result in high levels of non-performing assets and charge-offs, which would adversely affect the
financial condition and results of operations of the Company.

10

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The
following table sets forth the allocation of the Company's allowance for loan losses among the Company's loan categories by dollar amount and as a percent of the total allowance as
of the dates indicated (dollars in thousands):

|                             |                                 | December 31, |      
|---------------------------- | ------------------------------- | ------------ | -----
|
|Commercial real estate loans |                                 | $            | 7,376
|SBA business loans           |                                 |              | 477  
|Other loans                  |                                 |              | 93   
|                             |                                 |              |      
|                             | Total allowance for loan losses |              | $    
|                             |                                 |              |      
|Commercial real estate loans |                                 |              | 92.83
|SBA business loans           |                                 |              | 6.00 
|Other loans                  |                                 |              | 1.17 
|                             |                                 |              |      
|                             | Total allowance for loan losses |              |      
|                             |                                 |              |      

The
following table sets forth activity in the Company's allowance for loan losses for the periods indicated (in thousands):

|                               |                               | Years Ended December 31, |                             
|------------------------------ | ----------------------------- | ------------------------ | ----------------------------
|
|Allowance at beginning of year |                               | $                        | 7,240                       
|                               | Provision for loan losses     |                          |                             
|                               | Net (charge-offs) recoveries: |                          |                             
|                               |                               | Charge-offs:             |                             
|                               |                               |                          | Commercial real estate loans
|                               |                               |                          | SBA business loans          
|                               |                               | Recoveries:              |                             
|                               |                               |                          | Commercial real estate loans
|                               |                               |                          | SBA business loans          
|                               |                               |                          |                             
|                               |                               |                          |                             
|                               |                               |                          |                             
|Allowance at end of year       |                               | $                        | 7,946                       
|                               |                               |                          |                             

11

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INVESTMENTS

The Company's investment portfolio is used for both liquidity purposes and for investment income. The following table sets forth certain information regarding the
Company's investment securities available for sale, which are recorded and carried at market value, as well as its short-term investments in repurchase agreements, as of the dates
indicated (in thousands):

|                                                                       |                                   | December 31,              
|---------------------------------------------------------------------- | --------------------------------- | --------------------------
|
|Securities purchased under resale agreements ("repurchase agreements") |                                   | $                         
|                                                                       |                                   |                           
|Investment securities available for sale, at market value:             |                                   |                           
|                                                                       | U.S. government sponsored agency: |                           
|                                                                       |                                   | Callable bonds (1)        
|                                                                       |                                   | Mortgage-backed securities
|                                                                       | Corporate debt securities         |                           
|                                                                       |                                   |                           
|                                                                       |                                   |                           
|                                                                       |                                   |                           

---

Investment Securities

The Company's investment securities portfolio at December 31, 2001 consisted of fixed rate U.S. government sponsored agency mortgage-backed securities
issued by Fannie Mae and Ginnie Mae, as well as adjustable rate investments in investment grade corporate debt securities. The index of the corporate debt securities is based upon the three month
London Interbank Offered Rate ("LIBOR"), which reprices on a quarterly basis.

During
2001, the entire portfolio of the Company's callable bonds was liquidated, which had a total amortized cost of $229.2 million as of December 31, 2000. This occurred
primarily through issuer calls of $219.2 million, as well as Company sales of $10.0 million. The Company used part of the proceeds from these calls and sales to purchase U.S. government
sponsored agency mortgage-backed securities, which enabled the Bank to meet the FHLB membership test for housing-related assets in its successful application for FHLB membership.

The
following table sets forth the composition of the Company's investment securities available for sale portfolio at December 31, 2001 (dollars in thousands):

|                                      |            | December 31, 2001                |      
|------------------------------------- | ---------- | -------------------------------- | -----
|
|Mortgage-backed securities issued by: |            |                                  |      
|                                      | Fannie Mae |                                  | $    
|                                      | Ginnie Mae |                                  |      
|                                      |            |                                  |      
|                                      |            | Total mortgage-backed securities |      
|Corporate debt securities             |            |                                  | 4,124
|                                      |            |                                  |      
|                                      |            | Total investment securities      |      
|                                      |            |                                  |      

12

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Securities Purchased Under Resale Agreements

The Company invests excess cash overnight and up to three months in securities purchased under resale agreements ("repurchase agreements"). The Company has master
repurchase agreements with several nationally recognized investment banks, commercial banks, and broker-dealers. The maximum investment with one brokerage firm or bank is generally limited to
$25 million. Collateral securing the repurchase agreements is limited to U.S. Treasury bonds, notes and bills, and securities issued by either U.S. government agencies or U.S. government
sponsored agencies. Collateral securing the repurchase agreements is held for safekeeping under third-party custodial agreements and is required to be segregated from, and separately accounted for as
compared to, all other securities held by the custodian for its other customers or for its own account.

DEPOSITS

The following table sets forth information regarding the composition of the Company's deposits as of the dates indicated (in thousands):

|                        |                | December 31,
|----------------------- | -------------- | ------------
|
|Checking accounts       |                | $           
|Savings accounts        |                |             
|Certificates of deposit |                |             
|                        |                |             
|                        | Total deposits |             
|                        |                |             

The
Company's primary source of funds is FDIC-insured deposits collected by the Bank. The Company has deposit-gathering branches located in Beverly Hills, Encino and San
Diego, California. The Company's headquarters office in Agoura Hills is an administrative office and does not take deposits. The Company's current deposit products include consumer demand deposit
checking accounts, limited draft money market checking accounts, savings accounts, and term certificates of deposit with 30-day to
five-year maturities. Included among these deposit programs are individual retirement accounts and Keogh retirement accounts. The Company also conducts a wholesale deposit operation
through which deposits from other financial institutions located throughout the United States are solicited. Management believes its deposits are a stable and reliable funding source.

During
2001, total deposits decreased primarily due to the Company's lowering of its deposit rates in response to significant reductions in the federal funds rate by the Federal Reserve.

BORROWINGS

The following table sets forth information regarding the composition of the Company's borrowings as of the dates indicated (in thousands):

|                                            |                  | December 31,
|------------------------------------------- | ---------------- | ------------
|
|Securities sold under repurchase agreements |                  | $           
|State of California borrowings              |                  |             
|FHLB advances                               |                  |             
|Term borrowings                             |                  |             
|Trust preferred securities (1)              |                  |             
|                                            |                  |             
|                                            | Total borrowings |             
|                                            |                  |             

---

13

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Securities Sold Under Repurchase Agreements

A secondary source of funds for the Company consists of short-term borrowings in the form of securities sold under repurchase agreements ("reverse
repurchase agreements"). The Company has set up short-term borrowing relationships with several brokers. The repayment terms on this short-term debt generally range from one
day to up to three months. The interest rate paid can vary daily, but typically approximates the federal funds rate plus 25 basis points. These borrowings are secured by pledging specific amounts of
certain U.S. government sponsored agency securities. The Company utilizes these borrowings to cover short-term financing needs.

State of California Borrowings

The Bank has a fixed rate borrowing facility with the State of California Treasurer's Office under which the Bank can borrow an amount not to exceed its
unconsolidated total shareholder's equity. Borrowing maturity dates under this program cannot exceed one year. The State of California requires collateral with a value of at least 110% of the
outstanding borrowing amount. The Bank pledges specific amounts of its U.S. government sponsored agency securities to meet the collateral requirement under this borrowing facility. As of
December 31, 2001, the Bank's unconsolidated total shareholder's equity was $51.0 million and the Bank had no outstanding borrowings from the State of California.

FHLB Advances

During the second quarter of 2001, the Bank became a member of the FHLB. FHLB membership enhances the Bank's sources of liquidity as well as the availability of
both fixed rate and adjustable rate borrowings, with maturities ranging from one day to 30 years. Under the FHLB's borrowing program, the Bank has the option to use either its commercial real
estate loans or U.S. government sponsored agency mortgage-backed securities as collateral for FHLB borrowings. As of December 31, 2001, the Bank's FHLB credit facility totaled
$105.4 million, based on 20% of the Bank's unconsolidated total assets of $526.9 million. Against this facility, the Bank had long-term, fixed rate advances totaling
$40.0 million, which consisted of $20.0 million at 3.01% maturing in November of 2003 and $20.0 million at 3.30% maturing in May of 2004. These advances were secured by commercial
real estate loans. As of December 31, 2001, the Bank held a required investment in the capital stock of the FHLB totaling $2.0 million.

Term Borrowings

The Company has a borrowing relationship with one broker, whereby the Company is able to obtain fixed rate, long-term borrowings. As of
December 31, 2001, the Company's outstanding term borrowings totaled $40.0 million, with a weighted average interest rate of 6.63%, and maturing at various times between April and
October of 2002. This debt was secured by U.S. government sponsored agency securities with a market value of $47.3 million.

ASSET/LIABILITY MANAGEMENT

The Company's earnings depend primarily on its net interest income, which is the difference between the interest income it earns on its loans and securities (its
"interest-earning assets"), and the interest expense it pays on its deposits and borrowings (its "interest-bearing liabilities"). Net interest income is affected by (i) the difference between
the interest rate earned on its interest-earning assets and the interest rate paid on its interest-bearing liabilities, (ii) the difference between the balance, or volume, of its
interest-earning assets and the balance, or volume, of its interest-bearing liabilities, and (iii) changes in the composition of interest-earning assets and interest-bearing liabilities, for
example, if higher yielding loans were to replace lower yielding securities.

14

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The
Company is subject to potential net interest income contraction or expansion, particularly in times of changing interest rates. Management has established an Asset/Liability
Committee ("ALCO"), comprised of senior executive officers, to monitor interest rate risk on a regular basis. The Company
attempts to minimize the effect on net interest income of changing interest rates through a variety of asset and liability management strategies that include:



See
Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" for additional information regarding maturity and repricing characteristics of the Company's interest-earning
assets and interest-bearing liabilities.

EMPLOYEES

As of December 31, 2001, the Company employed 81 persons on a full-time basis. Management believes that its relations with its employees are
good. The Company is not a party to any collective bargaining agreement.

REGULATION

General

Bank holding companies and banks are extensively regulated under both federal and state law. This regulation is intended primarily for the protection of
depositors and the deposit insurance fund and not for the benefit of stockholders of Pacific Crest. Set forth below is a summary description of the material laws and regulations which relate to the
operations of Pacific Crest and the Bank. The description is qualified in its entirety by reference to the applicable laws and regulations.

Pacific Crest Capital, Inc.

Pacific Crest, as a registered bank holding company, is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Pacific Crest
is required to file with the Federal Rerserve periodic reports and such additional information as the Federal Reserve may require pursuant to the BHCA. The Federal Reserve may conduct examinations of
Pacific Crest and its subsidiaries.

The
Federal Reserve may require that Pacific Crest terminate an activity or terminate control of or liquidate or divest certain subsidiaries or affiliates when the Federal Reserve
believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. The Federal
Reserve also has the authority to regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt. Under certain
circumstances, Pacific Crest must file written notice and obtain approval from the Federal Reserve prior to purchasing or redeeming its equity securities.

15

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Further,
Pacific Crest is required by the Federal Reserve to maintain certain levels of capital. See "Capital Standards."

Pacific
Crest is required to obtain the prior approval of the Federal Reserve for the acquisition of more than 5% of the outstanding shares of any class of voting securities or
substantially all of the assets of any bank or bank holding company. Prior approval of the Federal Reserve is also required for the merger or consolidation of Pacific Crest and another bank holding
company.

Pacific
Crest is prohibited by the BHCA, except in certain statutorily prescribed instances, from acquiring direct or indirect ownership or control of more than 5% of the outstanding
voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or furnishing
services to its
subsidiaries. However, Pacific Crest, subject to the prior approval of the Federal Reserve, may engage in any, or acquire shares of companies engaged in, activities that are deemed by the Federal
Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

Under
Federal Reserve regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations
in an unsafe or unsound manner. In addition, it is the Federal Reserve's policy that a bank holding company should stand ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary
banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks generally will be considered by the Federal Reserve to be an unsafe and unsound
banking practice or a violation of the Federal Reserve's regulations or both.

Pacific
Crest is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, Pacific Crest and its subsidiaries are subject to
examination by, and may be required to file reports with, the California Department of Financial Institutions.

Pacific
Crest's securities are registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As such, Pacific Crest
is subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of the Exchange Act.

Pacific Crest Bank

The Bank is a California chartered bank, subject to primary supervision, periodic examination, and regulation by the California Commissioner of Financial
Institutions ("Commissioner") and the Federal Deposit Insurance Corporation ("FDIC"). To a lesser extent, the Bank is also subject to certain regulations promulgated by the Federal Reserve. If, as a
result of an examination of the Bank, the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the
Bank's operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, various remedies are available to the FDIC. Such remedies include the power
to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially
enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors, and ultimately to terminate the Bank's deposit
insurance, which for a California chartered bank would result in a revocation of the Bank's charter. The Commissioner has many of the same remedial powers.

16

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USA Patriot Act of 2001

On October 26, 2001, President Bush signed the USA Patriot Act of 2001. Enacted in response to the terrorist attacks in New York, Pennsylvania and
Washington, D.C. on September 11, 2001, the Patriot Act is intended to strengthen U.S law enforcement's and the intelligence communities' abilities to work cohesively to combat terrorism on a
variety of fronts. The potential impact of the Act on financial institutions of all kinds is significant and wide ranging. The Act contains sweeping anti-money laundering and financial
transparency laws and requires various regulations, including:



Financial Services Modernization Legislation



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

The
FSMA also:



The
FSMA made significant reforms to the FHLB system, including:



17

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



Bank holding companies that elect to become a financial holding company may affiliate with securities firms and insurance companies and engage in other activities
that are financial in nature or are incidental or complementary to activities that are financial in nature. "Financial in nature" activities include:



Prior
to filing a declaration of its election to become a financial holding company, all of the bank holding company's depository institution subsidiaries must be well capitalized, well
managed, and, except in limited circumstances, in compliance with the Community Reinvestment Act.

Failure
to comply with the financial holding company requirements could lead to divestiture of subsidiary banks or require all activities of such company to conform to those permissible
for a bank holding company. No Federal Reserve approval is required for a financial holding company to acquire a company (other than a bank holding company, bank or savings association) engaged in
activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve:



18

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A
bank holding company that is not also a financial holding company can only engage in banking and such other activities determined by the Federal Reserve to be so closely related to
banking or managing
or controlling banks as to be a proper incident thereto. Financial holding companies also may engage in all of these activities, as well as the expanded powers authorized by the FSMA.

Pacific
Crest is not currently a financial holding company. Management of Pacific Crest has not determined at this time whether it will seek an election to become a financial holding
company.



The FSMA also permits national banks to engage in expanded activities through the formation of financial subsidiaries. A national bank may have a subsidiary
engaged in any activity authorized for national banks directly or any financial activity, except for insurance underwriting, insurance investments, real estate investment or development, or merchant
banking, which, for at least five years under the FSMA, may only be conducted through a subsidiary of a financial holding company. Financial activities include all activities permitted under new
sections of the BHCA or permitted by regulation.

A
national bank seeking to have a financial subsidiary, and each of its depository institution affiliates, must be "well-capitalized," "well-managed" and in
compliance with the Community Reinvestment Act. The total assets of all financial subsidiaries may not exceed the lesser of 45% of a bank's total assets, or $50 billion. A national bank must
exclude from its assets and equity all equity investments, including retained earnings, in a financial subsidiary. The assets of the subsidiary may not be consolidated with the bank's assets. The bank
must also have policies and procedures to assess financial subsidiary risk and protect the bank from such risks and potential liabilities.

The
FSMA also includes a new section of the Federal Deposit Insurance Act governing subsidiaries of state banks that engage in "activities as principal that would only be permissible"
for a national bank to conduct in a financial subsidiary. It expressly preserves the ability of a state bank to retain all existing subsidiaries. Because, California permits commercial banks chartered
by the state to engage in any activity permissible for national banks, the Bank will be permitted to form subsidiaries to engage in the activities authorized by the FSMA, to the same extent as a
national bank. In order to form a financial subsidiary, the Bank must be well-capitalized, and the Bank would be subject to the same capital deduction, risk management and affiliate
transaction rules as applicable to national banks.



Under the FSMA, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public
information about consumers to nonaffiliated third parties. Pursuant to these rules, effective July 1, 2001, financial institutions must provide:



These
privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

Dividends and Other Transfers of Funds

Dividends from the Bank constitute the principal source of income to Pacific Crest. Pacific Crest is a legal entity separate and distinct from the Bank. The Bank
is subject to various statutory and regulatory restrictions on its ability to pay dividends to Pacific Crest. In addition, the California

19

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Department of Financial Institutions and the FDIC have the authority to prohibit the Bank from paying dividends, depending upon the Bank's financial condition, if such payment is deemed to constitute
an unsafe or unsound practice.

Transactions with Affiliates

The Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf
of, Pacific Crest or other affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of
Pacific Crest or other affiliates. Such restrictions prevent Pacific Crest and such other affiliates from borrowing from the Bank unless the loans are secured by marketable
obligations of designated amounts. Further, such secured loans and investments by the Bank to or in Pacific Crest or to or in any other affiliate are limited, individually, to 10.0% of the Bank's
capital and surplus (as defined by federal regulations), and such secured loans and investments are limited, in the aggregate, to 20.0% of the Bank's capital and surplus (as defined by federal
regulations). California law also imposes certain restrictions with respect to transactions involving Pacific Crest and other controlling persons of the Bank. Additional restrictions on transactions
with affiliates may be imposed on the Bank under the prompt corrective action provisions of federal law. See "Prompt Corrective Action and Other Enforcement Mechanisms."

Capital Standards

The federal banking agencies have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of
risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions which are recorded as off balance sheet items. Under these
guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with
low credit risk federal banking agencies, to 100% for assets with relatively high credit risk.

The
guidelines require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of
4%. In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the
leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets
must be 3%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum
capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.

In
addition, federal banking regulators may set capital requirements higher than the minimums described above for financial institutions whose circumstances warrant it. For example, a
financial institution experiencing or anticipating significant growth may be expected to maintain capital positions substantially above the minimum supervisory levels without significant reliance on
intangible assets.

At
December 31, 2001, both Pacific Crest and the Bank exceeded all minimum required capital ratios. See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of OperationsCapital Resources."

Predatory Lending

The term "predatory lending," much like the terms "safety and soundness" and "unfair and deceptive practices," is far-reaching and covers a
potentially broad range of behavior. As such, it does

20

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not lend itself to a concise or a comprehensive definition. But typically predatory lending involves at least one, and perhaps all three, of the following elements:



On
December 14, 2001, the Federal Reserve amended its regulations aimed at curbing such lending. Compliance is not mandatory until October 1, 2002. The rule significantly
widens the pool of high-cost home-secured loans covered by the Home Ownership and Equity Protection Act of 1994, a federal law that requires extra disclosures and consumer
protections to borrowers. The following triggers coverage under the act:



In
addition, the regulation bars loan flipping by the same lender or loan servicer within a year. Lenders also will be presumed to have violated the lawwhich says loans
should not be made to people unable to
repay themunless they document that the borrower has the ability to repay. Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid.

Prompt Corrective Action and Other Enforcement Mechanisms

Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions,
including but not limited to those institutions that fall below one or more prescribed minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five
categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized.

At
December 31, 2001, both Pacific Crest and the Bank exceeded the required ratios for classification as "well capitalized." See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of OperationsCapital Resources."

An
institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower
capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly
undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.

In
addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators
for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the
agency. Finally, pursuant to an interagency agreement, the FDIC can examine any institution that has a substandard regulatory

21

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examination score or is considered undercapitalizedwithout the express permission of the institution's primary regulator.

Safety and Soundness Standards

The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness
concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to:



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



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

Premiums for Deposit Insurance

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

FDIC-insured
depository institutions pay an assessment rate equal to the rate assessed on deposits insured by the Savings Association Insurance Fund ("SAIF").

The
assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The FDIC may increase or decrease the assessment rate schedule on a semi-annual
basis. An increase in

22

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the assessment rate could have a material adverse effect on Pacific Crest's earnings, depending on the amount of the increase. The FDIC is authorized to terminate a depository institution's deposit
insurance upon a finding by the FDIC that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable
rule, regulation, order or condition enacted or imposed by the institution's regulatory agency. The termination of deposit insurance for one or more of Pacific Crest's subsidiary depository
institutions could have a material adverse effect on Pacific Crest's earnings, depending on the collective size of the particular institutions involved.

All
FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal
corporation chartered under the authority of the Federal Housing Finance Board. The bonds, commonly referred to as FICO bonds, were issued to capitalize the Federal Savings and Loan Insurance
Corporation. The FDIC established the FICO assessment rates effective for the fourth quarter of 2001 at approximately $0.0184 per $100 of assessable deposits. The FICO assessments are adjusted
quarterly to reflect changes in the assessment bases of the FDIC's insurance funds and do not vary depending on a depository institution's capitalization or supervisory evaluations.



From time to time, new laws are proposed that could have an effect on the financial institutions industry. For example, deposit insurance reform legislation has
recently been introduced in the U.S. Senate and House of Representatives that would:



The
Company cannot predict whether such proposals will eventually become law.

Interstate Banking and Branching

The BHCA permits bank holding companies from any state to acquire banks and bank holding companies located in any other state, subject to certain conditions,
including certain nationwide- and state-imposed concentration limits. The Bank has the ability, subject to certain restrictions, to acquire by acquisition or merger banks or branches outside its home
state. The establishment of new interstate branches is also possible in those states with laws that expressly permit it. Interstate branches are subject to certain laws of the states in which they are
located. Competition may increase further as banks branch across state lines and enter new markets.

Community Reinvestment Act and Fair Lending Developments

The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act
("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including
low- and moderate-income neighborhoods. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies
may take compliance with such laws and CRA obligations into account

23

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when regulating and supervising other activities. Furthermore, financial institutions are subject to annual reporting and public disclosure requirements for certain written agreements that are
entered into between insured depository institutions or their affiliates and nongovernmental entities or persons that are made pursuant to, or in connection with, the fulfillment of the CRA.

A
bank's compliance with its CRA obligations is based a performance-based evaluation system which bases CRA ratings on an institution's lending service and investment performance. When a
bank holding company applies for approval to acquire a bank or other bank holding company, the Federal Reserve will review the assessment of each subsidiary bank of the applicant bank holding company,
and such records may be the basis for denying the application. Based on its most recent examination conducted in January of 2000, the Bank received a "Satisfactory" rating.

Federal Reserve System

The Federal Reserve requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW, and Super NOW checking accounts) and non-personal time deposits. At December 31, 2001, the Bank was in compliance with these requirements.

Nonbank Subsidiaries

Pacific Crest's nonbank subsidiary, PCC Capital, is also subject to regulation by the Federal Reserve and other applicable federal and state agencies.

FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS OR STOCK VALUE

Certain matters discussed in this Annual Report on Form 10-K may constitute forward-looking statements under
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. These statements may involve risks and uncertainties. These forward-looking statements relate to, among
other things, expectations of the business environment in which the Company operates in, projections of future performance, perceived opportunities in the market and statements regarding the Company's
mission and vision. The Company's actual results, performance, or achievements may differ significantly from the results, performance, or achievements expressed or implied in such forward-looking
statements. The following is a summary of some of the important factors that could affect the Company's future results of operations and/or stock price, and should be considered
carefully.

Competition

The banking and financial services industry in California generally, and in Pacific Crest's market areas specifically, is highly competitive. The competitive
environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers. The Bank
competes for loans, deposits, and customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies,
money market funds, credit unions, and other nonbank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets
and offer a broader range of financial services than the Bank. In addition, recent federal legislation may have the effect of further increasing the pace of consolidation within the financial services
industry. See "RegulationFinancial Services Modernization Legislation."

Economic Conditions, Government Policies, Legislation, and Regulation

The Company's profitability, like most financial institutions, primarily depends on interest rate differentials. In general, the difference between the interest
rates paid by the Bank on interest-bearing

24

---

liabilities, such as deposits and other borrowings, and the interest rates received by the Bank on its interest-earning assets, such as loans extended to its clients and securities held in its
investment
portfolio, comprise the major portion of the Company's earnings. These rates are highly sensitive to many factors that are beyond the control of the Company, such as inflation, recession and
unemployment, and the impact which future changes in domestic and foreign economic conditions might have on the Company cannot be predicted.

The
Company's business also is influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Federal Reserve. The
Federal Reserve implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities
by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by
depository institutions. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates earned on interest-earning
assets and paid on interest-bearing liabilities. The nature and impact on the Company of any future changes in monetary and fiscal policies cannot be predicted.

From
time to time, legislation, as well as regulations, are enacted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or
affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding
companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and before various regulatory agencies. This
legislation may change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing
business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict
whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on its financial condition or results of operations.

Interest Rates

The Company is subject to possible interest rate spread compression, which would adversely impact net interest income, particularly in times of rising or volatile
interest rates. The amount of such interest rate spread compression would depend upon the frequency, magnitude and duration of such interest rate increases or fluctuations. The Company's senior
management continually attempts to minimize the effect of interest rate changes in net interest income through a variety of asset/liability strategies that are modified from time to time based on a
variety of factors. See "Asset/Liability Management", and Item 7A. "Quantitative and Qualitative Disclosures About Market Risk."

Economic Conditions

The Company's results are strongly influenced by general economic conditions in its market areas. Accordingly, a deterioration in these conditions could have a
material adverse impact on the quality of
the Company's loan portfolio and the demand for its products and services. In particular, changes in economic conditions in the real estate industry may affect its performance.

Credit Quality

A significant source of risk arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in
accordance with the terms of their loans. The Company has adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit
losses, that its management believes

25

---

are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying credit portfolios, but such policies and procedures may not prevent
unexpected losses that could materially adversely affect the Company's results. See "Asset Quality Review" and "Allowance for Loan Losses."

Government Regulation and Monetary Policy

All forward-looking statements presume a continuation of the existing regulatory environment and United States government monetary policies. The banking industry
is subject to extensive federal and state regulations, and significant new laws or changes in, or repeals of, existing laws may cause results to differ materially. See "Regulation."

Dependence on Key Employees

If the Company were to lose key employees temporarily or permanently, particularly if they went to work for competitors, it could hurt the Company's business. The
Company's future success depends on the continued contributions of existing senior management personnel.

Environmental Concerns

The cost of cleaning up or paying damages and penalties associated with environmental problems could increase operating expenses. When a borrower defaults on a
loan secured by real property, the Bank often purchases the property in foreclosure or accepts a deed to the property surrendered by the borrower. The Bank may also take over the management of
commercial properties whose owners have defaulted on loans. The Bank also leases premises where its branches and other facilities are located. Although the Company has lending, foreclosure and
facilities guidelines intended to exclude properties
with an unreasonable risk of contamination, hazardous substances may exist on some of the properties that the Bank owns, manages or occupies. The Company may face the risk that environmental laws
could force it to clean up the properties at its expense. It may cost much more to clean a property than the property is worth. The Company could also be liable for pollution generated by a borrower's
operations if the Bank takes a role in managing those operations after a default. The Bank also may find it difficult or impossible to sell contaminated properties.

Natural Disasters

The Company's most significant operations are concentrated in Southern California. A major earthquake could result in material loss to the Company. A significant
percentage of the Bank's loans are and will be secured by real estate. California is an earthquake-prone region. Many of the Bank's borrowers could suffer uninsured property damage, experience
interruption of their business or lose their jobs after an earthquake. Those borrowers might not be able to repay their loans, and the collateral for loans could decline significantly in value. Unlike
a bank with operations that are more geographically diversified, the Bank is vulnerable to greater losses if an earthquake, fire, flood or other natural catastrophe occurs in Southern California.

The
Company has developed a disaster recovery plan for its information systems. However, if these systems fail, such failure could adversely affect business operations should a major
physical disaster occur. The Company is dependent upon functioning information systems to conduct business. A system failure or malfunction may result in an inability to process transactions or
otherwise lead to disrupted operations. The Company attempts to minimize the impact of such a failure by regularly backing up programs and data and maintaining off-site data processing
resources in Costa Mesa, California, available to the Company within 24 hours of a major physical disaster.

26

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Other Risks

From time to time, the Company details other risks with respect to its businesses and/or its financial results in its filings with the Securities and Exchange
Commission (the "SEC"), the FDIC and the DFI, respectively.

ITEM 2.    Properties

The Company's principal executive offices are located at 30343 Canwood Street, Agoura Hills, California 91301. The Bank conducts its deposit and lending
operations through three branch offices
located in Beverly Hills, Encino and San Diego, California. Additionally, the Company has a separate SBA administrative office located in San Diego. The Company leases all of its offices.

Information
with respect to the Company's principal executive, branch, and SBA administrative offices is as follows:

|Location                                        |  | Square
Footage |  | Annual
Rent |         | Lease
Expiration
Date
|----------------------------------------------- |  | -------------- |  | ----------- | ------- | ---------------------
|Corporate HeadquartersAgoura Hills, California |  | 16,361         |  | $           | 312,034 |                      
|Branch OfficeBeverly Hills, California         |  | 3,102          |  |             | 132,566 |                      
|Branch OfficeEncino, California                |  | 3,310          |  |             | 72,659  |                      
|Branch OfficeSan Diego, California             |  | 4,505          |  |             | 126,684 |                      
|SBA Administrative OfficeSan Diego, California |  | 4,107          |  |             | 88,990  |                      
|                                                |  |                |  |             |         |                      

ITEM 3.    Legal Proceedings

On September 29, 2000, a complaint was filed against the Bank in which the plaintiff alleged that he deposited $50,000 with the Bank in 1984 and that the
funds were never returned. The plaintiff was seeking the principal amount plus accrued interest and punitive damages. On January 31, 2002, the
Bank settled this complaint in full. The Bank fully accrued the settlement amount at December 31, 2001.

There
are claims currently pending against the Company, other than discussed above, that management considers to be merely incidental to normal operations. In addition, management, after
review, including consultation with counsel, believes that the ultimate liability, if any, that could arise from such claims would not materially affect the Company's financial position or results of
operations.

ITEM 4.    Submission of Matters to a Vote of Security Holders

Not applicable.

ITEM 4(a).    Executive Officers of the Registrant

The following individuals are executive officers of the Company. Pertinent information relating to these individuals is set forth below. There are no family
relationships between any of the officers. All of the Company's officers hold their respective offices at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under any
contract of employment.



27

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28

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PART II

ITEM 5.    Market for Registrant's Common Equity and Related Stockholder Matters

As of March 15, 2002, there were approximately 1,700 beneficial owners of the Company's $0.01 par value common stock (the "Common Stock"). The Common Stock
is traded on the Nasdaq National Market under the Nasdaq symbol "PCCI."

The
following tables present the high and low Common Stock sales prices as well as the cash dividends declared and paid per common share during each quarter for the last two years.

|               |              | Year Ended December 31, 2001
|-------------- | ------------ | ----------------------------
|
|Quarter Ended: |              |                             
|               | December 31  |                             
|               | September 30 |                             
|               | June 30      |                             
|               | March 31     |                             
|               |              |                             

|               |              | Year Ended December 31, 2000
|-------------- | ------------ | ----------------------------
|
|Quarter Ended: |              |                             
|               | December 31  |                             
|               | September 30 |                             
|               | June 30      |                             
|               | March 31     |                             
|               |              |                             

The
Company's ability to pay dividends is subject to restrictions set forth in the Delaware General Corporation Law. The Delaware General Corporation Law provides that a Delaware
corporation may pay dividends either (i) out of the corporation's surplus (as defined by Delaware law), or (ii) if there is no surplus, out of the corporation's net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year. The Company's ability to pay cash dividends to its shareholders in the future will depend in large part on the Bank's
ability to pay dividends on its capital stock to the Parent. The Bank's ability to pay dividends to the Parent is subject to restrictions set forth in the California Financial Code. See Item 1.
"BusinessRegulationDividends and Other Transfers of Funds."

ITEM 6.    Selected Financial Data

The following selected consolidated financial data of the Company and its subsidiaries has been derived from and should be read in conjunction with the Company's
audited consolidated financial statements and related notes which are included in this Annual Report on Form 10-K.

29

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FIVE YEAR BALANCE SHEETS

|                                               |                                                                                                                                       | December 31,                               |                            
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------------
|
|
|Cash                                           |                                                                                                                                       | $                                          | 2,508                      
|Securities purchased under resale agreements   |                                                                                                                                       |                                            | 16,174                     
|                                               |                                                                                                                                       |                                            |                            
|                                               | Cash and cash equivalents                                                                                                             |                                            |                            
|                                               |                                                                                                                                       |                                            |                            
|Investment securities:                         |                                                                                                                                       |                                            |                            
|                                               | Held to maturityU.S. agency callable bonds                                                                                           |                                            |                            
|                                               | Available for sale:                                                                                                                   |                                            |                            
|                                               |                                                                                                                                       | U.S. agency callable bonds                 |                            
|                                               |                                                                                                                                       | U.S. agency mortgage-backed securities     |                            
|                                               |                                                                                                                                       | Corporate debt securities                  |                            
|                                               |                                                                                                                                       |                                            |                            
|                                               |                                                                                                                                       |                                            | Total investment securities
|                                               |                                                                                                                                       |                                            |                            
|Loans:                                         |                                                                                                                                       |                                            |                            
|                                               | Commercial real estate loans                                                                                                          |                                            |                            
|                                               | SBA business loans                                                                                                                    |                                            |                            
|                                               | Other loans                                                                                                                           |                                            |                            
|                                               |                                                                                                                                       |                                            |                            
|                                               |                                                                                                                                       | Gross loans                                |                            
|                                               | Deferred loan (fees) costs                                                                                                            |                                            |                            
|                                               | Allowance for loan losses                                                                                                             |                                            |                            
|                                               |                                                                                                                                       |                                            |                            
|                                               |                                                                                                                                       | Net loans                                  |                            
|                                               |                                                                                                                                       |                                            |                            
|Accrued interest receivable and other assets   |                                                                                                                                       |                                            | 13,095                     
|Other real estate owned (OREO)                 |                                                                                                                                       |                                            |                           
|                                               |                                                                                                                                       |                                            |                            
|                                               |                                                                                                                                       | Total assets                               |                            
|                                               |                                                                                                                                       |                                            |                            
|Deposits:                                      |                                                                                                                                       |                                            |                            
|                                               | Checking accounts                                                                                                                     |                                            | $                          
|                                               | Savings accounts                                                                                                                      |                                            |                            
|                                               | Certificates of deposit                                                                                                               |                                            |                            
|                                               |                                                                                                                                       |                                            |                            
|                                               |                                                                                                                                       | Total deposits                             |                            
|                                               |                                                                                                                                       |                                            |                            
|Borrowings:                                    |                                                                                                                                       |                                            |                            
|                                               | Securities sold under repurchase agreements                                                                                           |                                            |                            
|                                               | State of California borrowings                                                                                                        |                                            |                            
|                                               | FHLB advances                                                                                                                         |                                            |                            
|                                               | Term borrowings                                                                                                                       |                                            |                            
|                                               | Trust preferred securities                                                                                                            |                                            |                            
|                                               |                                                                                                                                       |                                            |                            
|                                               |                                                                                                                                       | Total borrowings                           |                            
|                                               |                                                                                                                                       |                                            |                            
|                                               |                                                                                                                                       | Total interest-bearing liabilities         |                            
|Accrued interest payable and other liabilities |                                                                                                                                       |                                            | 8,010                      
|                                               |                                                                                                                                       |                                            |                            
|                                               |                                                                                                                                       | Total liabilities                          |                            
|                                               |                                                                                                                                       |                                            |                            
|Shareholders' equity:                          |                                                                                                                                       |                                            |                            
|                                               | Common stock, at par                                                                                                                  |                                            |                            
|                                               | Additional paid-in capital                                                                                                            |                                            |                            
|                                               | Retained earnings                                                                                                                     |                                            |                            
|                                               | Accumulated other comprehensive income (loss)unrealized gain (loss) on investment securities available for sale, net of income taxes |                                            |                            
|                                               | Common stock in treasury, at cost                                                                                                     |                                            |                            
|                                               |                                                                                                                                       |                                            |                            
|                                               |                                                                                                                                       | Total shareholders' equity                 |                            
|                                               |                                                                                                                                       |                                            |                            
|                                               |                                                                                                                                       | Total liabilities and shareholders' equity |                            
|                                               |                                                                                                                                       |                                            |                            

30

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FIVE YEAR INCOME STATEMENTS

|                           |                                                     | Years Ended December 31,                           
|-------------------------- | --------------------------------------------------- | ---------------------------------------------------
|
|
|Interest income:           |                                                     |                                                    
|                           | Loans                                               |                                                    
|                           | Investment securities                               |                                                    
|                           | Securities purchased under resale agreements        |                                                    
|                           |                                                     |                                                    
|                           |                                                     | Total interest income                              
|                           |                                                     |                                                    
|Interest expense:          |                                                     |                                                    
|                           | Deposits:                                           |                                                    
|                           |                                                     | Checking accounts                                  
|                           |                                                     | Savings accounts                                   
|                           |                                                     | Certificates of deposit                            
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           | Borrowings:                                         |                                                    
|                           |                                                     | Securities sold under repurchase agreements        
|                           |                                                     | State of California borrowings                     
|                           |                                                     | FHLB advances                                      
|                           |                                                     | Term borrowings                                    
|                           |                                                     | Trust preferred securities                         
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|Net interest income        |                                                     |                                                    
|Provision for loan losses  |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     | Net interest income after provision for loan losses
|                           |                                                     |                                                    
|Non-interest income:       |                                                     |                                                    
|                           | Loan prepayment and late fee income                 |                                                    
|                           | Gain on sale of SBA 7(a) loans                      |                                                    
|                           | Gain on sale of SBA 504 loans and broker fee income |                                                    
|                           | Gain (loss) on sale of investment securities        |                                                    
|                           | Gain on sale of commercial real estate loans        |                                                    
|                           | Gain on sale of other real estate owned (OREO)      |                                                    
|                           | Other income                                        |                                                    
|                           |                                                     |                                                    
|                           |                                                     | Total non-interest income                          
|                           |                                                     |                                                    
|Non-interest expense:      |                                                     |                                                    
|                           | Salaries and employee benefits                      |                                                    
|                           | Net occupancy expenses                              |                                                    
|                           | Communication and data processing                   |                                                    
|                           | Legal, audit, and other professional fees           |                                                    
|                           | Advertising and promotion                           |                                                    
|                           | Other expenses                                      |                                                    
|                           |                                                     |                                                    
|                           |                                                     | Total operating expenses                           
|                           | Credit and collection expenses                      |                                                    
|                           | OREO expenses                                       |                                                    
|                           | OREO valuation adjustments                          |                                                    
|                           |                                                     |                                                    
|                           |                                                     | Total non-interest expense                         
|                           |                                                     |                                                    
|Income before income taxes |                                                     |                                                    
|Income tax expense         |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     | Net income                                         
|                           |                                                     |                                                    

31

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FIVE YEAR SELECTED RATIOS AND FINANCIAL DATA

|                                                |                                                                                            | At or For the Years Ended December 31, |  
|----------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------- | -
|
|
|Performance Ratios:                             |                                                                                            |                                        |  
|                                                | Return on average shareholders' equity (1)                                                 |                                        |  
|                                                | Return on average total assets                                                             |                                        |  
|                                                | Net interest rate spread (2)                                                               |                                        |  
|                                                | Net interest margin (3)                                                                    |                                        |  
|                                                | Operating expenses to average total assets                                                 |                                        |  
|                                                | Efficiency ratio (4)                                                                       |                                        |  
|                                                | Dividend payout ratio (5)                                                                  |                                        |  
|                                                | Average shareholders' equity to average total assets                                       |                                        |  
|                                                |                                                                                            |                                        |  
|Asset Quality Data:                             |                                                                                            |                                        |  
|                                                | Non-accrual loans                                                                          |                                        | $
|                                                | Non-performing assets (6)                                                                  |                                        |  
|                                                | Net loan (charge-offs) recoveries                                                          |                                        |  
|                                                | Non-accrual loans to total loans                                                           |                                        |  
|                                                | Non-performing assets to total assets (6)                                                  |                                        |  
|                                                | Allowance for loan losses to total loans                                                   |                                        |  
|                                                | Allowance for loan losses to non-accrual loans                                             |                                        |  
|                                                | Net loan (charge-offs) recoveries to average loans                                         |                                        |  
|                                                | Net loan (charge-offs) recoveries and OREO valuation adjustments to average loans and OREO |                                        |  
|                                                |                                                                                            |                                        |  
|Capital RatiosPacific Crest Capital, Inc. (7): |                                                                                            |                                        |  
|                                                | Leverage ratio                                                                             |                                        |  
|                                                | Tier 1 risk-based capital ratio                                                            |                                        |  
|                                                | Total risk-based capital ratio                                                             |                                        |  
|                                                |                                                                                            |                                        |  
|Capital RatiosPacific Crest Bank(7):           |                                                                                            |                                        |  
|                                                | Leverage ratio                                                                             |                                        |  
|                                                | Tier 1 risk-based capital ratio                                                            |                                        |  
|                                                | Total risk-based capital ratio                                                             |                                        |  
|                                                |                                                                                            |                                        |  
|Per Share Data:                                 |                                                                                            |                                        |  
|                                                | Cash dividends per common share                                                            |                                        | $
|                                                | Diluted earnings per common share                                                          |                                        |  
|                                                | Basic earnings per common share                                                            |                                        |  
|                                                | Tangible book value per common share                                                       |                                        |  
|                                                |                                                                                            |                                        |  
|Share Information (in thousands):               |                                                                                            |                                        |  
|                                                | Weighted average basic common shares outstanding                                           |                                        |  
|                                                | Weighted average diluted common shares outstanding                                         |                                        |  
|                                                | Common shares outstanding at year-end, net of treasury                                     |                                        |  
|                                                |                                                                                            |                                        |  

---

32

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ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

Pacific Crest Capital, Inc. ("Pacific Crest or the "Parent"), a Delaware corporation, is a bank holding company and owns 100% of the stock of Pacific Crest
Bank (the "Bank"), and 100% of the common stock of PCC Capital I ("PCC Capital"). The consolidated financial statements and financial data included herein include the accounts of Pacific Crest and its
wholly owned subsidiaries and are referred to as the consolidated financial statements of the "Company."

The
following discussion should be read in conjunction with the information under Item 6. "Selected Financial Data" and the Company's consolidated financial statements and related notes
contained elsewhere herein. Certain statements under this Item 7 constitute "forward-looking statements" under Section 27A of the Securities Act and Section 21E of the Exchange Act,
which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in these forward-looking statements. Factors that might cause such a difference,
include but are not limited to, credit quality, economic conditions, competition in the geographic and business areas in which the Company conducts its operations, fluctuations in interest rates and
government regulation. For additional information concerning these factors, see Item 1. "BusinessFactors That May Affect the Company's Business or Stock Value."

Capital

As of December 31, 2001, Pacific Crest's leverage ratio, Tier 1 risk-based capital ratio and total risk-based ratio were 9.49%,
11.11% and 13.36%, respectively. The Bank's leverage ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio were 9.61%, 11.22% and 12.47%, respectively.
These ratios placed Pacific Crest and the Bank in the "well-capitalized" category as defined by federal regulations, which require corresponding capital ratios of 5%, 6% and 10%,
respectively, to qualify for that designation.

Dividends

On January 23, 2002, the Company announced that the Board of Directors had declared a cash dividend of $0.08 per common share for the first quarter of
2002. The dividend was paid on March 15, 2002 to shareholders of record at the close of business on March 1, 2002. During the year ended December 31, 2001, the Company declared
and paid cash dividends in the aggregate of $0.32 per common share for a total of $787,000. During the year ended December 31, 2000, the Company declared and paid cash dividends in the
aggregate of $0.28 per common share for a total of $706,000.

Stock Repurchase Plan

As of December 31, 2001, the Company had 34,500 remaining shares authorized for repurchase under its common stock repurchase program. During the year ended
December 31, 2001, the Company repurchased 104,500 shares of its common stock. The total cost of the shares purchased in 2001 was approximately $2,013,000, which resulted in an average cost per
share of $19.27. During 2001, the Company utilized repurchased shares for all of its common stock issuances under the Company's employee stock purchase plan, non-employee directors stock
purchase plan and employee stock option plan, which totaled 9,229 shares.

Sale of Interest Rate Cap Agreement

On February 8, 2000, the Company sold its interest rate cap agreement for $2.5 million and recognized a deferred gain of $1.8 million, which
was reported in the Consolidated Balance Sheets under the caption "Accrued interest payable and other liabilities". The interest rate cap agreement had

33

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originally been purchased on June 8, 1998, at a price of $925,000. The deferred gain is being amortized as a credit to "Interest expensedeposits" over the remaining life of the
original interest rate cap agreement, which had a maturity date of June 8, 2003. During the years ended December 31, 2001 and 2000, the amount of deferred gain amortization totaled
$554,000 and $495,000, respectively, which resulted in a reduction in interest expense on deposits. Conversely, during the year ended December 31, 1999, amortization of the purchase price of
the interest rate cap totaled $185,000, which resulted in an increase in interest expense on deposits. As of December 31, 2001, the remaining unamortized balance of the deferred gain resulting
from the sale of the interest rate cap totaled $794,000 and will be amortized as follows: $554,000 in 2002 and $240,000 in 2003.

Declining Interest Rate Environment

During the year ended December 31, 2001, the Federal Reserve lowered the federal funds rate by 475 basis points, to 1.75%, which consisted of the following
reductions in chronological order:



The
impact of these decreases led to a lower interest rate environment in 2001 and resulted in issuer calls of $219.2 million of the Company's fixed rate, U.S. government
sponsored agency callable bonds (the "callable bonds"), downward repricing of the Company's adjustable rate loans, and the Company's lowering of interest rates on all of its deposit products.
Additionally, the interest rates declined on the Company's adjustable rate investments and borrowings.

Liquidation of Callable Bonds

During the first nine months of 2001, the entire portfolio of the Company's fixed rate callable bonds was liquidated, which had a total amortized cost of
$229.2 million and a weighted average yield of 6.42% at December 31, 2000. The liquidation occurred primarily through issuer calls of $219.2 million, as well as Company sales of
$10.0 million. The issuer calls were attributable to the declining interest rate environment caused by the Federal Reserve's 350 basis point lowering of the federal funds rate during the first
nine months of 2001.

The
Company used the proceeds from these calls and sales to fund deposit run-off and loan growth, as well as to pay off short-term borrowings. The Company also
used these proceeds to purchase U.S. government sponsored agency mortgage-backed securities, which enabled the Bank to meet the FHLB membership test for housing-related assets in its successful
application for FHLB membership.

FHLB Membership

During the second quarter of 2001, the Bank became a member of the FHLB. FHLB membership enhances the Bank's sources of liquidity, as well as the availability of
both fixed rate and adjustable rate borrowings, with maturities ranging from one day to 30 years. Under the FHLB's borrowing program, the Bank has the option to use either its commercial real
estate loans or U.S. government sponsored agency mortgage-backed securities as collateral for FHLB borrowings.

During
the fourth quarter of 2001, the Bank borrowed $40.0 million from the FHLB, which consisted of $20.0 million at 3.01% maturing in November of 2003 and
$20.0 million at 3.30% maturing in May of 2004. These advances were secured by commercial real estate loans. As of December 31, 2001, the Bank held a required investment in the capital
stock of the FHLB totaling $2.0 million.

34

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SBA Lending Program

The following items represent the significant activity of the Bank's SBA lending program during 2001:



SBA Loan Sales

The following table presents the Company's SBA loan sales for the periods indicated (in thousands):

|               |                      | Years Ended December 31,
|-------------- | -------------------- | ------------------------
|
|SBA 7(a) loans |                      | $                       
|SBA 504 loans  |                      |                         
|               |                      |                         
|               | Total SBA loan sales |                         
|               |                      |                         

IRS Income Tax Refund Claim and Certain Litigation

During the fourth quarter of 2001, the Company received a favorable ruling from the Internal Revenue Service ("IRS") regarding an income tax refund claim of
approximately $800,000. In connection with this ruling, the Company recorded $300,000 of interest income on the refund claim in "Other income". Additionally, the Company recorded $350,000 in "Legal,
audit, and other professional fees" related to expenses incurred to obtain the favorable IRS ruling, as well as costs incurred and estimated to settle a claim filed against the Bank in which the
plaintiff alleged that he deposited $50,000 with the Bank in 1984 and that the principal and accrued interest were never returned.

35

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RESULTS OF OPERATIONS

The following table presents condensed statements of income and related performance data for the periods indicated and the dollar and percentage changes between
the periods (in thousands):

|                                           |                            | Years Ended December 31, |        | Increase
(Decrease)
2001 vs. 2000 |   | Increase
(Decrease)
2000 vs. 1999 |      
|------------------------------------------ | -------------------------- | ------------------------ | ------ | --------------------------------- | - | --------------------------------- | -----
|
|Net interest income                        |                            | $                        | 19,109 |                                   | $ | 17,979                            |      
|Provision for loan losses                  |                            |                          | 660    |                                   |   | 604                               |      
|Non-interest income                        |                            |                          | 2,531  |                                   |   | 1,713                             |      
|Non-interest expense                       |                            |                          | 11,861 |                                   |   | 10,046                            |      
|                                           |                            |                          |        |                                   |   |                                   |      
|                                           | Income before income taxes |                          |        | 9,119                             |   |                                   | 9,042
|Income tax provision                       |                            |                          | 3,734  |                                   |   | 3,772                             |      
|                                           |                            |                          |        |                                   |   |                                   |      
|                                           | Net income                 |                          | $      | 5,385                             |   | $                                 | 5,270
|                                           |                            |                          |        |                                   |   |                                   |      
|Diluted earnings per share                 |                            | $                        | 2.03   |                                   | $ | 2.01                              |      
|Cash dividends per share                   |                            | $                        | 0.32   |                                   | $ | 0.28                              |      
|Tangible book value per share              |                            | $                        | 15.69  |                                   | $ | 13.49                             |      
|Return on average shareholders' equity (1) |                            |                          | 14.75  | %                                 |   | 15.98                             | %    
|Return on average total assets             |                            |                          | 0.95   | %                                 |   | 0.82                              | %    
|                                           |                            |                          |        |                                   |   |                                   |      

---

2001 COMPARED WITH 2000

Earnings Performance Summary

Net income was $5.4 million (or $2.03 per common share on a diluted basis) for the year ended December 31, 2001, compared to $5.3 million (or
$2.01 per common share on a diluted basis) for the year ended December 31, 2000. Pre-tax income was $9.1 million compared to $9.0 million for the years ended
December 31, 2001 and 2000, respectively. The following describes the changes in the major components of pre-tax income:



36

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37

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The following table presents the Company's consolidated average balance sheets, together with the total dollar amounts of interest income and interest expense and
the weighted average interest yields/rates for the periods indicated. All average balances are daily average balances (dollars in thousands):

|                                                                    |                                              | Years Ended December 31,                     |        
|------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | -------
|
|
|Interest-Earning Assets:                                            |                                              |                                              |        
|                                                                    | Loans(1)                                     |                                              | $      
|                                                                    | Securities purchased under resale agreements |                                              |        
|                                                                    | Investment securities available for sale(2): |                                              |        
|                                                                    |                                              | U.S. government sponsored agency securities: |        
|                                                                    |                                              | Callable bonds                               |        
|                                                                    |                                              | Mortgage-backed securities                   |        
|                                                                    |                                              | Corporate debt securities                    |        
|                                                                    |                                              |                                              |        
|                                                                    |                                              | Total investment securities                  |        
|                                                                    |                                              |                                              |        
|                                                                    |                                              | Total interest-earning assets                |        
|Non-interest-earning assets                                         |                                              |                                              | 14,396 
|Less: allowance for loan losses                                     |                                              |                                              | (7,479 
|                                                                    |                                              |                                              |        
|                                                                    |                                              | Total assets                                 |        
|                                                                    |                                              |                                              |        
|Interest-Bearing Liabilities:                                       |                                              |                                              |        
|                                                                    | Checking accounts                            |                                              | $      
|                                                                    | Savings accounts                             |                                              |        
|                                                                    | Certificates of deposit                      |                                              |        
|                                                                    |                                              |                                              |        
|                                                                    |                                              | Total deposits                               |        
|                                                                    |                                              |                                              |        
|                                                                    | Securities sold under repurchase agreements  |                                              |        
|                                                                    | State of California borrowings               |                                              |        
|                                                                    | FHLB advances                                |                                              |        
|                                                                    | Term borrowings(3)                           |                                              |        
|                                                                    | Trust preferred securities                   |                                              |        
|                                                                    |                                              |                                              |        
|                                                                    |                                              | Total borrowings                             |        
|                                                                    |                                              |                                              |        
|                                                                    |                                              | Total interest-bearing liabilities           |        
|Non-interest-bearing liabilities                                    |                                              |                                              | 8,929  
|Shareholders' equity                                                |                                              |                                              | 36,247 
|                                                                    |                                              |                                              |        
|Total liabilities and shareholders' equity                          |                                              | $                                            | 564,088
|                                                                    |                                              |                                              |        
|Excess of interest-earning assets over interest-bearing liabilities |                                              | $                                            | 38,259 
|Net interest income                                                 |                                              |                                              |        
|Net interest rate spread(4)                                         |                                              |                                              |        
|Net interest margin(5)                                              |                                              |                                              |        
|                                                                    |                                              |                                              |        

---

38

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Net Changes in Average Balances, Composition, Yields and Rates

The following table sets forth the composition of average interest-earning assets and average interest-bearing liabilities by category and by the percentage of
each category to the total for the periods indicated, including the change in average balance, composition, and yield/rate between these respective periods (dollars in thousands):

|                                                                    |                                              | Years Ended December 31,                     |                              
|------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | -----------------------------
|
|
|Interest-Earning Assets:                                            |                                              |                                              |                              
|                                                                    | Loans                                        |                                              | $                            
|                                                                    | Securities purchased under resale agreements |                                              |                              
|                                                                    | Investment securities available for sale:    |                                              |                              
|                                                                    |                                              | U.S. government sponsored agency securities: |                              
|                                                                    |                                              |                                              | Callable bonds               
|                                                                    |                                              |                                              | Mortgage-backed securities   
|                                                                    |                                              | Corporate debt securities                    |                              
|                                                                    |                                              |                                              |                              
|                                                                    |                                              |                                              | Total investment securities  
|                                                                    |                                              |                                              |                              
|                                                                    |                                              |                                              | Total interest-earning assets
|                                                                    |                                              |                                              |                              
|Interest-Bearing Liabilities:                                       |                                              |                                              |                              
|                                                                    | Checking accounts                            |                                              | $                            
|                                                                    | Savings accounts                             |                                              |                              
|                                                                    | Certificates of deposit                      |                                              |                              
|                                                                    |                                              |                                              |                              
|                                                                    |                                              | Total deposits                               |                              
|                                                                    |                                              |                                              |                              
|                                                                    | Securities sold under repurchase agreements  |                                              |                              
|                                                                    | State of California borrowings               |                                              |                              
|                                                                    | FHLB advances                                |                                              |                              
|                                                                    | Term borrowings                              |                                              |                              
|                                                                    | Trust preferred securities                   |                                              |                              
|                                                                    |                                              |                                              |                              
|                                                                    |                                              | Total borrowings                             |                              
|                                                                    |                                              |                                              |                              
|                                                                    |                                              | Total interest-bearing liabilities           |                              
|                                                                    |                                              |                                              |                              
|Excess of interest-earning assets over interest-bearing liabilities |                                              | $                                            | 38,259                       
|Net interest rate spread                                            |                                              |                                              |                              
|Net interest margin                                                 |                                              |                                              |                              
|                                                                    |                                              |                                              |                              

Volume and Rate Variance Analysis of Net Interest Income

The following table presents the dollar amount of changes in interest income and interest expense due to (i) changes in average balances of
interest-earning assets and interest-bearing liabilities, as well as (ii) changes in interest rates, for the periods indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to: (i) changes in volume (i.e. changes in average balance multiplied by prior period rate) and (ii) changes in rate (i.e.
changes in rate multiplied by prior period average balance). For purposes of this table, changes attributable to

39

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both rate and volume which cannot be segregated, have been allocated proportionately based on the absolute dollar amounts of the changes due to volume and rate (in thousands):

|                    |                                              | Years Ended December 31,                     |                            
|------------------- | -------------------------------------------- | -------------------------------------------- | ---------------------------
|
|
|Interest Income:    |                                              |                                              |                            
|                    | Loans(1)                                     |                                              | $                          
|                    | Securities purchased under resale agreements |                                              |                            
|                    | Investment securities available for sale:    |                                              |                            
|                    |                                              | U.S. government sponsored agency securities: |                            
|                    |                                              |                                              | Callable bonds             
|                    |                                              |                                              | Mortgage-backed securities 
|                    |                                              | Corporate debt securities                    |                            
|                    |                                              |                                              |                            
|                    |                                              |                                              | Total investment securities
|                    |                                              |                                              |                            
|                    |                                              |                                              | Total interest income      
|                    |                                              |                                              |                            
|Interest Expense:   |                                              |                                              |                            
|                    | Checking accounts                            |                                              |                            
|                    | Savings accounts                             |                                              |                            
|                    | Certificates of deposit                      |                                              |                            
|                    |                                              |                                              |                            
|                    |                                              | Total deposits                               |                            
|                    |                                              |                                              |                            
|                    | Securities sold under repurchase agreements  |                                              |                            
|                    | State of California borrowings               |                                              |                            
|                    | FHLB advances                                |                                              |                            
|                    | Term borrowings                              |                                              |                            
|                    | Trust preferred securities                   |                                              |                            
|                    |                                              |                                              |                            
|                    |                                              | Total borrowings                             |                            
|                    |                                              |                                              |                            
|                    |                                              | Total interest expense                       |                            
|                    |                                              |                                              |                            
|Net interest income |                                              | $                                            | (677                       
|                    |                                              |                                              |                            

---

Net Interest Income

The Company's earnings depend primarily on its net interest income, which is the difference between the interest income it earns on its loans and securities (its
"interest-earning assets"), and the interest expense it pays on its deposits and borrowings (its "interest-bearing liabilities"). Net interest income is affected by (i) the difference between
the interest rate earned on its interest-earning assets and the interest rate paid on its interest-bearing liabilities, (ii) the difference between the balance, or volume, of its
interest-earning assets and the balance, or volume, of its interest-bearing liabilities, and (iii) changes in the composition of interest-earning assets and interest-bearing liabilities, for
example, if higher yielding loans were to replace lower yielding securities.

Net
interest income grew by $1.1 million to $19.1 million, during the year ended December 31, 2001 compared to the same period in 2000, primarily due to a
$1.8 million increase attributable to changes in interest rates. This was principally due to a decrease in interest expense resulting from the Company's lowering of the interest rates on its
deposits, as well as the reduction of interest rates on its borrowing facilities. These factors were partially offset by a decrease in interest income on loans resulting from the downward repricing of
the Company's adjustable rate loans and the weighted average interest rate on loan payoffs exceeding the weighted average interest rate on loan originations. All of these factors resulted from a lower
interest rate environment attributable to the Federal Reserve's 475 basis point reduction in the federal funds rate, to 1.75%, during 2001.

40

---

The
impact of the federal funds rate decrease caused downward repricing on the Company's adjustable rate loans, especially those tied to the prime rate. The federal funds rate is the
rate at which banks lend to each other in the overnight market. Reductions in the federal funds rate generally result in reductions of the prime rates offered by major banks, including Bank of
America. The Company's prime rate loans are priced at a margin above either Bank of America's prime lending rate or the publishedWall Street Journalprime lending rate. As of December 31, 2001, 84.2% and 45.5% of the Company's loan portfolio consisted of adjustable rate loans and prime rate loans, respectively.

The
downward repricing of the Company's adjustable rate loans was partially offset by the impact of the interest rate floors that exist on most of the Company's adjustable rate loans.
Interest rate floors protect the Company in a declining interest rate environment, as affected loans do not reprice downward to their fully indexed rate when interest rates fall. Another contributing
factor was that the Company's adjustable rate loans generally can reprice only up to a maximum of 200 basis points in a year, and thus did not reprice downward the full 475 basis points of the federal
funds rate.

Partially
offsetting the above $1.8 million growth in net interest income attributable to changes in interest rates, was a $677,000 decrease attributable to changes in volume.
This was primarily due to a reduction in interest income resulting from the calls and sales of the Company's callable bonds. Partially offsetting this factor was (i) an increase in interest
income due to loan growth and the
purchases of U.S. government sponsored agency mortgage-backed securities (the "mortgage-backed securities"), and (ii) a reduction of interest expense resulting from deposit run-off
and the pay-down of short-term borrowings. The funding for the loan growth, mortgage-backed securities purchases, deposits outflows, and borrowings pay-downs was
obtained principally from the proceeds of the calls and sales of callable bonds.

The
net interest rate spread grew by 58 basis points, to 3.06%, during the year ended December 31, 2001, compared to the same period last year. This was primarily due to a
decrease of 59 basis points, to 5.31%, in the rate paid on average total interest-bearing liabilities, partially offset by a decrease of one basis point, to 8.37%, in the yield earned on average total
interest-earning assets. The decrease in the rate paid on average total interest-bearing liabilities was principally attributable to the above mentioned lowering by the Company of the interest rates
on its deposits and the reduction in rates on the Company's short-term borrowing facilities. The decrease in the yield earned on average total interest-earning assets was primarily due to
a decline in the yield on loans, partially offset by a change in the composition of average total interest-earning assets to higher yield loans from lower yield investment securities, which resulted
primarily from the calls and sales of callable bonds.



Total interest income decreased by $7.1 million, to $46.7 million, during the year ended December 31, 2001 compared to the same period in
2000. This was primarily due to a reduction in average total interest-earning assets, which decreased interest income by $5.4 million, as well as to a decline in yield earned on these assets,
which decreased interest income by $1.7 million.

Average
total interest-earning assets declined by $83.9 million, to $557.2 million, during 2001 compared to 2000, principally due to a reduction in average callable bonds
of $168.8 million, partially offset by increases of $47.3 million, $26.2 million, and $11.5 million in average mortgage-backed securities, average loans, and average
securities purchased under resale agreements, respectively. The changes in average investment securities and average loans resulted in a shift in the mix of average total interest-earning assets to
higher yield loans from lower yield investment securities. The percentage of average loans to average total interest-earning assets increased to 74.3% during the year ended December 31, 2001
from 60.5% during the same period last year.

The
reduction in average callable bonds of $168.8 million, to $74.4 million, was due to calls and sales of $229.2 million with a weighted average yield of 6.42%,
which occurred during the first nine

41

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months of 2001. This was comprised of issuer calls of $219.2 million, with a weighted average yield of 6.46%, and sales in January of 2001 of $10.0 million, with a weighted average
yield of 5.63%. The issuer calls of these fixed rate securities were attributable to the declining interest rate environment caused by the Federal Reserve's lowering of the federal funds rate during
2001.

The
increase in average mortgage-backed securities of $47.3 million, to $51.2 million, was primarily due to fixed rate purchases of $108.0 million, which occurred
during the seven-month period from February to August of 2001, partially offset by sales in May and August of 2001 totaling $42.4 million. The purchases made in the first quarter of 2001 were
funded primarily with the proceeds from the calls and sale of the callable bonds and enabled the Bank to meet the FHLB membership test for housing-related assets in its successful application for
membership in the FHLB.

The
increase in average securities purchased under resale agreements of $11.5 million, to $13.5 million, was primarily due to the investment of the proceeds from
(1) the calls and sales of callable bonds during the first nine months of 2001, and (2) the $40.0 million long-term FHLB advances during the fourth quarter of 2001.

The
yield earned on average total interest-earning assets decreased by one basis point, to 8.37%, during the year ended December 31, 2001 compared to the same period in 2000,
primarily due to the following decreases in yields attributable to the declining interest rate environment during 2001:



Partially
offsetting the decline in the yield earned on average total interest-earning assets was the change in the composition of average total interest-earning assets to higher yield
loans from lower yield investment securities, which resulted primarily from the calls and sales of callable bonds.



Total interest expense decreased by $8.2 million, to $27.5 million, during the year ended December 31, 2001 compared to the same period in
2000. This was due to a reduction in average interest-bearing liabilities, which decreased interest expense by $4.7 million, as well as to a decline in the interest rate paid on these
liabilities, which reduced interest expense by $3.5 million.

Average
total interest-bearing liabilities declined by $87.2 million, to $518.9 million, during 2001 compared to 2000, due to decreases of $55.4 million and
$31.8 million in average deposits and average borrowings, respectively. The changes in average deposits and average borrowings resulted in a shift in the mix of average total interest-bearing
liabilities to lower rate deposits from higher rate borrowings.

42

---

The percentage of average deposits to average total interest-bearing liabilities increased to 84.7% during 2001 from 81.7% during 2000.

The
decline in average deposits of $55.4 million, to $439.7 million, during 2001 compared to 2000, was principally due to reductions of $30.4 million and
$24.3 million in average certificates of deposit and average savings accounts, respectively. These decreases were primarily attributable to the Company's lowering of interest rates on all of
its deposit products in anticipation of and in response to the 475 basis point reduction in the federal funds rate by the Federal Reserve during 2001. The Company funded the deposit
run-off primarily with the proceeds from the calls and sales of the callable bonds.

The
decline in average borrowings of $31.8 million, to $79.2 million, during 2001 compared 2000, was principally due to decreases of $27.1 million and
$17.5 million in short-term average securities sold under repurchase agreements and average State of California borrowings, respectively, partially offset by increases of
$7.6 million and $5.2 million in average term borrowings and average FHLB advances, respectively. The Company used the proceeds from the calls and sales of the callable bonds in order to
fund the reductions in the short-term borrowings, which resulted in a shift in the composition of average borrowings to the long-term, higher rate trust preferred securities.
The percentage of average trust preferred securities to average borrowings rose to 21.8% during 2001, from 15.5% during 2000.

The
rate on average total interest-bearing liabilities decreased by 59 basis points, to 5.31%, during the year ended December 31, 2001 compared to the same period in 2000, and was
principally due to the reduction of 66 basis points, to 5.06%, in the rate on average deposits, as well as the reduction of three
basis points, to 6.68%, in the rate on average borrowings, and a shift in the mix of average total interest-bearing liabilities to lower rate deposits from higher rate borrowings.

The
66 basis point decline in the rate on average deposits reflected the Company's lowering of interest rates on its deposit products, which resulted in reductions of 152 basis points,
161 basis points, and 14 basis points in the rates on average checking accounts, average savings accounts, and average certificates of deposit, respectively.

The
Company anticipates that the rate on its average certificates of deposit will decline in the first quarter of 2002 and beyond, from the 5.17% average rate for the fourth quarter of
2001, as older, higher rate certificates mature and are replaced by newer, lower rate certificates. The current tiered certificate of deposit rates offered by the Company as of March 6, 2002
are 77 basis points to 294 basis points below the 5.17% average rate for the fourth quarter of 2001, and are listed as follows:



The
three basis point decrease in the rate on average borrowings was primarily due to the reductions in the rates on the Company's short-term borrowing facilities, which were
attributable to the declining interest rate environment during 2001. Contributing to the decrease in the rate on average borrowings was the addition during the fourth quarter of 2001 of
$40.0 million long-term FHLB advances with a low weighted average rate of 3.16%. The interest rates on average securities sold under

43

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repurchase agreements and average State of California borrowings declined by 111 basis points and 118 basis points, respectively, and were reflected in the following events:



Partially
offsetting the decline in the rate on average borrowings was the above mentioned shift in the composition of average borrowings to higher rate trust preferred securities, as
well as the increase of 55 basis points, to 6.72%, in the rate on average term borrowings. The $40.0 million of term borrowings were obtained during the rising interest rate environment of 2000
and mature in 2002.

Provision for Loan Losses

During 2001, the Company increased its provision for loan losses by $56,000, to $660,000, compared to 2000. The Company uses the provision for loan losses to
establish the allowance for loan losses based
on management's evaluation of the risk inherent in the loan portfolio. See "Financial ConditionAllowance for Loan Losses" and Item 1. "BusinessAllowance for Loan Losses."

Although
the Company maintains its allowance for loan losses at a level which it considers to be adequate to provide for potential losses, there can be no assurance that any actual
losses will not exceed the estimated amounts, thereby adversely affecting future results of operations. The calculation of the adequacy of the allowance for loan losses is based on a variety of
factors, including adequacy of collateral, which includes an evaluation of loan balance to collateral value, loan debt service coverage ratio and secondary collateral, if applicable. In addition,
management evaluates the following factors: current delinquency trends, historical Company loan loss experience, regional real estate economic conditions and overall economic trends impacting the
Company's real estate lending portfolio.

44

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Non-interest Income

The following table reflects the major components of non-interest income for the periods indicated and the dollar and percentage changes between the
periods (dollars in thousands):

|                                                    |                           |   |       |       |   |     |       | Increase (Decrease) |    
|--------------------------------------------------- | ------------------------- | - | ----- | ----- | - | --- | ----- | ------------------- | ---
|
|
|Loan prepayment and late fee income                 |                           | $ | 345   |       | $ | 346 |       | $                   | 662
|Gain on sale of SBA 7(a) loans                      |                           |   | 395   |       |   | 112 |       |                     | 250
|Gain on sale of SBA 504 loans and broker fee income |                           |   | 503   |       |   |    |       |                     |   
|Gain (loss) on sale of investment securities        |                           |   | 95    |       |   | (2  | )     |                     | 661
|Gain on sale of commercial real estate loans        |                           |   |      |       |   | 561 |       |                     |   
|Gain on sale of other real estate owned             |                           |   |      |       |   | 115 |       |                     | 25 
|Other income                                        |                           |   | 1,193 |       |   | 581 |       |                     | 861
|                                                    |                           |   |       |       |   |     |       |                     |    
|                                                    | Total non-interest income |   | $     | 2,531 |   | $   | 1,713 |                     | $  
|                                                    |                           |   |       |       |   |     |       |                     |    

Non-interest
income for the year ended December 31, 2001 increased by $818,000, to $2.5 million, compared to the same period in 2000. This was primarily due to
$503,000 in gain on sale of SBA 504 loans and broker fee income, which were new programs for the Company in 2001, and a $283,000 increase in the gain on sale of SBA 7(a) loans. Also contributing to
the increase in non-interest income was $300,000 of interest income that the Company recorded in "Other Income" in connection with the favorable IRS ruling received on the Company's income
tax refund claim. Partially offsetting these factors were gains in 2000 of $561,000 and $115,000 on the sale of a commercial real estate loan and an OREO, respectively, which were not repeated in
2001.

Non-interest Expense

The following table reflects the major components of non-interest expense for the periods indicated and the dollar and percentage changes between the
periods (dollars in thousands):

|                                          |                            |   |       |        |   |       |        | Increase (Decrease) |      
|----------------------------------------- | -------------------------- | - | ----- | ------ | - | ----- | ------ | ------------------- | -----
|
|
|Salaries and employee benefits            |                            | $ | 7,152 |        | $ | 6,407 |        | $                   | 6,652
|Net occupancy expense                     |                            |   | 1,665 |        |   | 1,422 |        |                     | 1,687
|Communication and data processing         |                            |   | 1,057 |        |   | 880   |        |                     | 933  
|Legal, audit, and other professional fees |                            |   | 986   |        |   | 563   |        |                     | 526  
|Advertising and promotion                 |                            |   | 218   |        |   | 223   |        |                     | 598  
|Credit and collections expenses           |                            |   |      |        |   | (134  | )      |                     | 43   
|OREO expense                              |                            |   |      |        |   | (10   | )      |                     | 28   
|Valuation adjustments to OREO             |                            |   |      |        |   |      |        |                     | 43   
|Other expenses                            |                            |   | 783   |        |   | 695   |        |                     | 973  
|                                          |                            |   |       |        |   |       |        |                     |      
|                                          | Total non-interest expense |   | $     | 11,861 |   | $     | 10,046 |                     | $    
|                                          |                            |   |       |        |   |       |        |                     |      

Non-interest
expense for the year ended December 31, 2001 increased by $1.8 million, to $11.9 million, compared to the same period in 2000. This was
primarily due to decreases of $745,000,

45

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$423,000, $243,000 in salaries and employee benefits; legal, audit, and other professional fees; and net occupancy expense, respectively.

Salaries
and employee benefits for the year ended December 31, 2001 increased by $745,000, to $7.2 million, compared to the same period in 2000, and was primarily due to
the following:



Legal,
audit, and other professional fees for the year ended December 31, 2001 increased by $423,000, to $986,000, compared to the same period in 2000, primarily due to $350,000
of expenses recorded in connection with obtaining the favorable ruling on the Company's IRS income tax refund claim and settling a claim brought against the Bank in which the plaintiff alleged that he
deposited $50,000 with the Bank in 1984 and that the principal and accrued interest were never returned. Also contributing to the increase in legal, audit, and other professional fees was the
outsourcing of the Company's internal audit function, which replaced the Company's in-house internal audit department.

Net
occupancy expense for the year ended December 31, 2001 increased by $243,000, to $1.7 million, compared to the same period in 2000. This was primarily due to the
inclusion in 2001 of a full year of rent and related expenses for an office opened in Laguna Hills during June of 2000 for the above mentioned commercial real estate marketing representative, as well
as an office opened in San Diego during November of 2000 for the above mentioned SBA lending personnel.

Communications
and data processing for the year ended December 31, 2001 increased by $177,000, to $1.1 million, compared to the same period in 2000, primarily due to
expenses incurred in connection with the above mentioned increases in personnel and office facilities.

2000 COMPARED WITH 1999

Earnings Performance Summary

Net income was $5.3 million (or $2.01 per common share on a diluted basis) for the year ended December 31, 2000, compared to $5.1 million (or
$1.82 per common share on a diluted basis) for the year ended December 31, 1999. Pre-tax income was $9.0 million compared to $8.5 million for the years ended
December 31, 2000 and 1999, respectively. The $0.5 million increase in pre-tax income reflects the following:



46

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The following table sets forth the composition of average interest-earning assets and average interest-bearing liabilities by category and by the percentage of
each category to the total for the periods indicated, including the change in average balance, composition, and yield/rate between these respective periods (dollars in thousands):

|                                                                    |                                              | Years Ended December 31,                     |                              
|------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | -----------------------------
|
|
|Interest-Earning Assets:                                            |                                              |                                              |                              
|                                                                    | Loans                                        |                                              | $                            
|                                                                    | Securities purchased under
resale agreements |                                              |                              
|                                                                    | Investment securities
available for sale:    |                                              |                              
|                                                                    |                                              | U.S. government
sponsored agency
securities: |                              
|                                                                    |                                              |                                              | Callable bonds               
|                                                                    |                                              |                                              | Mortgage-backed
securities   
|                                                                    |                                              | Corporate debt securities                    |                              
|                                                                    |                                              |                                              |                              
|                                                                    |                                              |                                              | Total investment securities  
|                                                                    |                                              |                                              |                              
|                                                                    |                                              |                                              | Total interest-earning assets
|                                                                    |                                              |                                              |                              
|Interest-Bearing Liabilities:                                       |                                              |                                              |                              
|                                                                    | Checking accounts                            |                                              | $                            
|                                                                    | Savings accounts                             |                                              |                              
|                                                                    | Certificates of deposit                      |                                              |                              
|                                                                    |                                              |                                              |                              
|                                                                    |                                              | Total deposits                               |                              
|                                                                    |                                              |                                              |                              
|                                                                    | Securities sold under repurchase agreements  |                                              |                              
|                                                                    | State of California borrowings               |                                              |                              
|                                                                    | Term borrowings                              |                                              |                              
|                                                                    | Trust preferred securities                   |                                              |                              
|                                                                    |                                              |                                              |                              
|                                                                    |                                              | Total borrowings                             |                              
|                                                                    |                                              |                                              |                              
|                                                                    |                                              | Total interest-bearing liabilities           |                              
|                                                                    |                                              |                                              |                              
|Excess of interest-earning assets over interest-bearing liabilities |                                              | $                                            | 34,968                       
|Net interest rate spread                                            |                                              |                                              |                              
|Net interest margin                                                 |                                              |                                              |                              
|                                                                    |                                              |                                              |                              

47

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Net Interest Income

Net interest income decreased by $1.2 million, to $18.0 million, during the year ended December 31, 2000 compared to the same period in 1999.
This decrease was comprised of a $2.1 million decrease attributable to changes in interest rates, partially offset by a $0.9 million increase attributable to changes in volume. This was
primarily due to the reduction in the net interest rate spread of 46 basis points, to 2.48%, partially offset by the $5.5 million increase, to $35.0 million, in the excess of
interest-earning assets over interest-bearing liabilities during the year ended December 31, 2000 compared to the same period in 1999.

The
reduction in the net interest rate spread was principally due to an increase of 62 basis points, to 5.90%, in the rate paid on average total interest-bearing liabilities, partially
offset by an increase of 16 basis points, to 8.38%, in the yield on average total interest-earning assets. The rate paid on average total interest-bearing liabilities increased primarily due to the
rise in interest rates, which started during the second half of 1999. The yield earned on average total interest-earning assets increased principally due to an increase of 11 basis points, to 9.59%,
in the yield earned on average loans, as well as to a shift in the mix of average total interest-earning assets to higher yielding loans from lower yielding securities. The growth in the excess of
interest-earning assets over interest-bearing liabilities was primarily due to an increase of $40.2 million, to $641.1 million, in average total interest-earning assets, partially offset
by an increase of $34.7 million, to $606.1 million, in average total interest-bearing liabilities.



Total interest income increased by $4.4 million, to $53.7 million, during the year ended December 31, 2000 compared to the same period in
1999. This was due to the growth in average total interest-earning assets and to the increase in yield earned on these assets, which contributed $3.9 million and $0.4 million,
respectively, to interest income.

The
growth in average total interest-earning assets of $40.2 million during the year ended December 31, 2000 compared to the same period in 1999, was principally due to an
increase in average loans of $41.1 million, to $387.8 million, and an increase in average investment securities of $5.3 million, to $251.2 million, partially offset by a
decrease of $6.2 million, to $2.1 million, in average securities
purchased under resale agreements. The growth in loans was funded by deposits and borrowings as well as through liquidation of securities purchased under resale agreements. The relatively larger
growth in average loans compared to that of average investment securities, as well as the reduction in average securities purchased under resale agreements, resulted in a shift in the mix of average
total interest-earning assets to higher yielding loans from lower yielding securities. The percentage of average loans to average total interest-earning assets increased to 60.5% in 2000 from 57.7% in
1999.

The
yield on average total interest-earning assets increased by 16 basis points, to 8.38%, during the year ended December 31, 2000 compared to the same period in 1999, primarily
due to the above mentioned shift in the mix of average total interest-earning assets to higher yielding loans from lower yielding securities, as well as to increases of 11 basis points and 144 basis
points in the yields on average loans and average securities purchased under resale agreements, respectively. Partially offsetting these factors was a decrease of 2 basis points in the yield on
average investment securities.

Contributing
to the increase in the yield on average loans was the increase of 75 basis points, to 5.50%, in the federal funds rate by the Federal Reserve, which took place during the
second half of 1999, the increase of 50 basis points, to 6.00%, which took place during the first quarter of 2000, and the additional increase of 50 basis points to 6.50%, which took place during the
second quarter of 2000. The impact of these increases in the federal funds rate caused upward repricing on the Company's adjustable rate loans, especially those tied to the prime rate. The federal
funds rate is the rate at which

48

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banks lend to each other in the overnight market. Increases in the federal funds rate generally result in increases of the prime rates offered by major banks, including Bank of America. The Company's
prime rate loans are priced at a margin above either Bank of America's prime lending rate or the publishedWall Street Journalprime lending rate.



Total interest expense increased by $5.6 million, to $35.7 million, during the year ended December 31, 2000, compared to the same period in
1999. This was due to the growth in average interest-bearing liabilities and to the increase in rate on these liabilities, which contributed $3.0 million and $2.6 million, respectively,
to interest expense.

The
growth in average total interest-bearing liabilities of $34.7 million during 2000 compared to 1999, was primarily due to an increase in average deposits of
$19.3 million, to $495.1 million, and an increase in average borrowings of $15.4 million, to $111.0 million. The changes in average deposits and average borrowings resulted
in a shift in the mix of average total interest-bearing liabilities to higher rate borrowings from lower rate deposits. The percentage of average borrowings to average total interest-bearing
liabilities increased to 18.3% during 2000 from 16.7% during 1999.

The
increase in average deposits of $19.3 million during the year ended December 31, 2000 compared to the year ended December 31, 1999, was principally due to an
increase in average certificates of deposit of $101.1 million, partially offset by decreases of $75.3 million and $6.5 million in average savings accounts and average checking
accounts, respectively.

The
changes in the average balances of the Company's deposit products during the year ended December 31, 2000 compared to the same period in 1999, were primarily attributable to
the Company's deposit strategy which started in the middle of 1999 and continued through the first half of 2000, when short-term interest rates were rising. The Company pursued a strategy
of limiting interest rate increases on its liquid savings accounts, while paying higher market interest rates on its term certificates of deposit. This strategy was intended to better control total
interest costs during a rising interest rate environment as well as to better match fixed rate liabilities with fixed rate assets. As a result, the balances of higher rate certificates of deposit
increased, while the balances of lower rate savings accounts and checking accounts decreased, thus changing the mix of deposits. The percentage of average certificates of deposit to average total
deposits increased to 63.4% during 2000 from 44.7% during 1999.

The
increase in average borrowings of $15.4 million during the year ended December 31, 2000 compared to the year ended December 31, 1999, was principally due to
increases of $27.4 million and $15.4 million in average State of California borrowings and average securities sold under repurchase agreements, respectively, partially offset by a
reduction in average term borrowings of $27.4 million.

The
$15.4 million increase in the average balance of securities sold under repurchase agreements reflected the use of these borrowings primarily to cover deposit
run-off and to fund loans during 2000. The maximum amount outstanding at any month-end during 2000 was $51.1 million at March 31, 2000.

The
$27.4 million increase in the average balance of State of California borrowings was attributable to the initial borrowings of $20.0 million obtained during the fourth
quarter of 1999, and the growth in these borrowings up to $33.0 million during 2000, before they were paid down to $28.0 million by December 31, 2000. Thus, the average balance
for these borrowings reflected only one quarter for 1999 versus a higher average balance for an entire year for 2000.

The
$27.4 million decrease in the average balance of term borrowings was due to a higher balance of these borrowings maintained during 1999. The balance of term borrowings at
December 31, 1998 was $79.5 million, and the first reduction of these borrowings in 1999 was a $24.5 million maturity in April, followed by a $5.0 million pay down in the
third quarter of 1999 and a $10.0 million call by the

49

---

lender in the fourth quarter of 1999, finally resulting in a $40.0 million balance at December 31, 1999. These borrowings were further reduced in the first quarter of 2000, when the
lender called $10.0 million, but the Company borrowed $10.0 million during the fourth quarter of 2000, which resulted in a $40.0 million balance at December 31, 2000.

The
increase in the rate on average total interest-bearing liabilities of 62 basis points, to 5.90%, during the year ended December 31, 2000 compared to the same period in 1999,
was principally due to the following factors:



The
increase in the rate on average deposits of 66 basis points during 2000 compared to 1999, was primarily due to the following factors:



The
increase in the rate on average borrowings of 33 basis points during the year ended December 31, 2000 compared to the same period in 1999, was primarily due to the following
factors:



50

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Provision for Loan Losses

During 2000, the Company decreased its provision for loan losses by $1.1 million, to $0.6 million, compared to 1999. The Company uses the provision
for loan losses to establish the allowance for loan losses based on management's evaluation of the risk inherent in the loan portfolio. The allowance for loan losses as a percentage of total loans
increased to 1.81% at December 31, 2000 from 1.76% at December 31, 1999. See Item 1. "BusinessAllowance for Loan Losses."

Non-interest Income

Non-interest income for the year ended December 31, 2000 decreased by $0.7 million to $1.7 million, compared to the same period
in 1999. This was primarily due to a decrease in the gains on sales of investment securities and SBA loans and lower loan prepayment and late fee income, partially offset by a gain on the sale of a
commercial real estate loan and an increase in the gain on sale of other real estate owned.

Non-interest Expense

Non-interest expense for the year ended December 31, 2000 decreased by $1.4 million, to $10.0 million, compared to the same
period in 1999. This was primarily due to decreases of $245,000, $265,000, $375,000, $177,000, and $292,000 in salaries and employee benefits, net occupancy expense, advertising and promotion, credit
and collection expense, and other expenses, respectively.

Salaries
and employee benefits for the year ended December 31, 2000 decreased by $245,000, to $6.4 million, compared to the same period in 1999, and was primarily due to
the following:



Partially
offsetting the decrease in salaries and employee benefits was the approximate 4% increase to employee base salaries in January 2000, as well as the hiring in
June 2000 of a commercial marketing
representative in Laguna Hills, California to handle lending in Orange County and the Inland Empire. Additionally, during the last seven months of 2000, the Company hired one Senior Vice

51

---

President, four Vice Presidents and four other personnel in San Diego to expand the Company's SBA lending capabilities in that area.

Net
occupancy expenses for the year ended December 31, 2000, decreased by $265,000, to $1.4 million, compared to the same period in 1999. This decrease was primarily due to
aforementioned closures of the five loan production offices located outside of Southern California as well as the secondary market loan sales office in Orange County. Partially offsetting the decrease
in net occupancy expenses was the opening of an office in Laguna Hills during June 2000 for the recently hired commercial marketing representative, as well as the opening of an office in San
Diego during November 2000 for the new SBA lending personnel.

Credit
and collection expenses for the year ended December 31, 2000, decreased by $177,000, to $(134,000), compared to the same period in 1999 primarily due to a $140,000 recovery
of property taxes, which had been paid on behalf of a borrower and expensed by the Company in a prior year.

Other
expenses for the year ended December 31, 2000, decreased by $292,000, to $1.2 million, compared to the same period in 1999 primary due to increased expenses in 1999
relating to loan servicing and the loan application and approval process.

52

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FINANCIAL CONDITION

Balance Sheet Analysis

The following table presents condensed balance sheets as of the dates indicated and the dollar and percentage changes between the periods (dollars in thousands):

|                     |                                                                                                    |                                            |                       |                             |         |         |         | Increase (Decrease) |        
|-------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------------------- | --------------------------- | ------- | ------- | ------- | ------------------- | -------
|
|
|Assets               |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     | Cash and cash equivalents                                                                          |                                            | $                     | 18,682                      |         | $       | 5,336   |                     | $      
|                     | Investment securities available for sale, at market:                                               |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    | U.S. agency callable bonds                 |                       |                             |        |         |         | 229,180             |        
|                     |                                                                                                    | U.S. agency MBS                            |                       |                             | 55,169  |         |         | 3,800               |        
|                     |                                                                                                    | Corporate debt securities                  |                       |                             | 4,124   |         |         | 4,109               |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    |                                            | Total amortized cost  |                             |         | 59,293  |         |                     | 237,089
|                     |                                                                                                    |                                            | Total unrealized loss |                             |         | (341    | )       |                     | (2,641 
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    |                                            |                       | Total investment securities |         |         | 58,952  |                     |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     | Loans:                                                                                             |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    | Total loans, net of deferred fees          |                       |                             | 461,975 |         |         | 400,285             |        
|                     |                                                                                                    | Allowance for loan losses                  |                       |                             | (7,946  | )       |         | (7,240              | )      
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    |                                            | Net loans             |                             |         | 454,029 |         |                     | 393,045
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     | Other assets                                                                                       |                                            |                       | 13,095                      |         |         | 15,831  |                     |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    |                                            | Total assets          |                             | $       | 544,758 |         | $                   | 648,660
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|Liabilities          |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     | Checking accounts                                                                                  |                                            | $                     | 14,912                      |         | $       | 14,414  |                     | $      
|                     | Savings accounts                                                                                   |                                            |                       | 136,145                     |         |         | 148,347 |                     |        
|                     | Certificates of deposit                                                                            |                                            |                       | 250,466                     |         |         | 336,076 |                     |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    | Total deposits                             |                       |                             | 401,523 |         |         | 498,837             |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     | Securities sold under repurchase agreements                                                        |                                            |                       |                            |         |         | 23,500  |                     |        
|                     | State of California borrowings                                                                     |                                            |                       |                            |         |         | 28,000  |                     |        
|                     | FHLB advances                                                                                      |                                            |                       | 40,000                      |         |         |        |                     |        
|                     | Term borrowings                                                                                    |                                            |                       | 40,000                      |         |         | 40,000  |                     |        
|                     | Trust preferred securities                                                                         |                                            |                       | 17,250                      |         |         | 17,250  |                     |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    | Total borrowings                           |                       |                             | 97,250  |         |         | 108,750             |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     | Other liabilities                                                                                  |                                            |                       | 8,010                       |         |         | 7,143   |                     |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    | Total liabilities                          |                       |                             | 506,783 |         |         | 614,730             |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|Shareholders' Equity |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     | Common stock, at par                                                                               |                                            |                       | 30                          |         |         | 30      |                     |        
|                     | Additional paid-in capital                                                                         |                                            |                       | 27,780                      |         |         | 27,790  |                     |        
|                     | Retained earnings                                                                                  |                                            |                       | 19,140                      |         |         | 14,542  |                     |        
|                     | Accumulated other comprehensive lossunrealized loss on investment securities, net of income taxes |                                            |                       | (198                        | )       |         | (1,532  | )                   |        
|                     | Common stock in treasury, at cost                                                                  |                                            |                       | (8,777                      | )       |         | (6,900  | )                   |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    | Total shareholders' equity                 |                       |                             | 37,975  |         |         | 33,930              |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        
|                     |                                                                                                    | Total liabilities and shareholders' equity |                       | $                           | 544,758 |         | $       | 648,660             |        
|                     |                                                                                                    |                                            |                       |                             |         |         |         |                     |        



Total assets declined by $103.9 million, to $544.8 million, during the year ended December 31, 2001, primarily due to a $175.5 million
decrease in investment securities, partially offset by increases of $61.0 million and $13.3 million in net loans and cash and cash equivalents, respectively.

The
$175.5 million decrease in investment securities, to $59.0 million, was principally due to the $229.2 million liquidation of the Company's callable bonds, which
consisted of issuer calls of $219.2 million and Company sales of $10.0 million. Partially offsetting the reduction in callable bonds was an increase of $51.4 million in
mortgage-backed securities, to $55.2 million, which was primarily due to $108.0 million of purchases, partially offset by sales of $42.3 million.

The
$61.0 million increase in net loans, to $454.0 million, was principally due to $129.2 million of originations, partially offset by $58.4 million of
principal payments and $11.9 million in sales of SBA loans.

53

---

The
$13.3 million increase in cash and cash equivalents, to $18.7 million, was primarily due to the remaining investment of the proceeds from the $40.0 million of
long-term FHLB advances, with a low weighted average rate of 3.16%, obtained during the fourth quarter of 2001.

Total
liabilities declined by $107.9 million, to $506.8 million, during the year ended December 31, 2001, principally due to reductions of $97.3 million and
$11.5 million in deposits and borrowings, respectively.

The
$97.3 million decrease in deposits, to $401.5 million, was primarily due to reductions of $85.6 million and $12.2 million in certificates of deposit and
savings accounts, respectively. The overall decline in deposits was principally attributable to the Company's lowering of its deposits rates in anticipation of and in response to the 475 basis point
reduction in the federal funds rate by the Federal Reserve during 2001. The reduction in deposits was funded primarily with the proceeds from the calls and sales of callable bonds.

The
changes in the balances of the Company's deposit products resulted in a shift in the composition of deposits to lower rate checking and savings accounts from higher rate certificates
of deposit. This reflected the Company's strategy and efforts to help reduce the overall cost of its deposits. The percentage of checking and savings accounts to total deposits increased to 37.6% at
December 31, 2001 from 32.6% at December 31, 2000.

The
$11.5 million decline in borrowings, to $97.3 million, was principally due to decreases of $23.5 million and $28.0 million in short-term
securities sold under repurchase agreements and State of California borrowings, respectively. The reduction in these short-term borrowings, which took place during the first nine months of
2001, was funded primarily with the proceeds from the calls and sales of the callable bonds. Partially offsetting the decline in borrowings was an increase of $40.0 million in
long-term FHLB advances, obtained during the fourth quarter of 2001.

Shareholders'
equity increased by $4.0 million, to $38.0 million, during the year ended December 31, 2001. Changes in shareholders' equity were due to the following:





Total assets increased by $25.4 million, to $648.7 million, during the year ended December 31, 2000, primarily due to an increase in net
loans of $33.5 million, partially offset by decreases in investment securities and other assets of $6.3 million and $2.4 million, respectively. The increase in net loans was
primarily due to originations of $80.3 million, partially offset by principal payments of $42.8 million and SBA loan sales of $2.6 million. The decrease in investment securities
was primarily due to the sale in December of 2000 of $14.5 million of U.S. government sponsored agency callable bonds, partially offset by an increase in market value of $8.3 million.

54

---

Total
liabilities increased by $17.0 million, to $614.7 million, during the year ended December 31, 2000, primarily due to increases in deposits, borrowings, and
other liabilities of $14.5 million, $1.0 million, and $1.5 million, respectively.

The
$14.5 million increase in total deposits during the year ended December 31, 2000 reflected a $66.8 million increase in certificates of deposit, partially offset
by decreases of $48.0 million and $4.4 million in savings accounts and checking accounts, respectively. The changes in the balances of the Company's deposit products during 2000 resulted
in a shift in the mix of deposits from lower yielding checking/savings accounts to higher yielding certificates of deposit. The percentage of total certificates of deposit to total deposits increased
to 67.4% at December 31, 2000 from 55.6% at December 31, 1999, and served to increase interest expense during 2000.

The
increase in deposits was primarily due to the Company's strategy during the first half of 2000 of limiting interest rate increases on savings accounts and paying higher market rates
on its certificates of deposit. However, during the second half of 2000, the Company started making limited interest rate decreases on its certificate of deposit accounts, and ultimately, on
December 22, 2000, the Company significantly reduced the rates on this product. This last reduction was in anticipation of a lowering of the federal funds rate by the Federal Reserve, which
occurred on January 3, 2001. During 2000, total deposits reached their highest month-end balance of $518.3 million at August 31, 2000, and then decreased
$19.8 million during the next four months to $498.8 million at December 31, 2000.

The
$1.0 million increase in borrowings during 2000 was primarily due to an $8.0 million increase in State of California borrowings, partially offset by a
$7.0 million decrease in securities sold under repurchase agreements.

Shareholders'
equity increased by $8.4 million, to $33.9 million, during the year ended December 31, 2000. Changes in shareholders' equity were due to the following:



Allowance for Loan Losses

The allowance for loan losses increased by $706,000, to $7.9 million, during the year ended December 31, 2001, due to $660,000 recorded in provision
for loan losses and net recoveries of $46,000. The allowance for loan losses as a percentage of loans was 1.72% at December 31, 2001, as compared to 1.81% at December 31, 2000.

The
Company's management considered the following recent loan loss and credit experience in evaluating the allowance for loan losses at December 31, 2001:



55

---



Besides
recent loan loss and credit experience, management considers historical loan loss experience as well as changes within the loan portfolio in evaluating the adequacy of the
allowance for loan losses. Changes in the loan portfolio include (i) the growth in SBA lending, (ii) changes in geographic concentration, (iii) changes in the collateral mix of
the loan portfolio, and (iv) the debt service ability of borrowers. In addition, management attempts to factor in the changes that relate to the economy in specific cities or locations, as well
as economic differences in this current recession versus the most recent prior recession of 1991 - 1993. While most of these factors (geographic concentration, collateral
concentration, debt service coverage of borrowers, and current vacancy rates) are favorable to the Company's current loan portfolio as compared to the loan portfolio of the
1991 - 1993 recessionary economic period, management believes that the nature of the danger to the national economy with the risk of terrorism, the negative impact of
declines in corporate earnings, and the loss of consumer confidence, could cause this national recession to be deeper than the recession of 1991 - 1993. In considering all of
the above factors, management believes that the allowance for loan losses as of December 31, 2001 is adequate.

Although
the Company maintains its allowance for loan losses at a level which it considers to be adequate to provide for potential losses, there can be no assurance that such losses will
not exceed the estimated amounts, thereby adversely affecting future results of operations.

The
following tables set forth allowance for loan losses activity for the periods indicated (in thousands):

|                                                                    |                               | Years Ended December 31, |      
|------------------------------------------------------------------- | ----------------------------- | ------------------------ | -----
|
|Allowance at beginning of year                                      |                               | $                        | 7,240
|                                                                    | Provision for loan losses     |                          |      
|                                                                    | Net (charge-offs) recoveries: |                          |      
|                                                                    |                               | Charge-offs              |      
|                                                                    |                               | Recoveries               |      
|                                                                    |                               |                          |      
|                                                                    |                               |                          |      
|                                                                    |                               |                          |      
|Allowance at end of year                                            |                               | $                        | 7,946
|                                                                    |                               |                          |      
|Net (charge-offs) recoveries to average loans                       |                               |                          | 0.01 
|Allowance for loan losses to total loans, net of deferred loan fees |                               |                          | 1.72 
|                                                                    |                               |                          |      

56

---



NON-PERFORMING ASSETS

The following tables set forth non-accrual loans and OREO as of the dates indicated (in thousands):

December 31,2001

2000

1999Non-accrual loans

$


$


$
210Other real estate owned








Total non-performing assets

$


$


$
210Non-accrual loans to total loans, net of deferred loan fees








0.06
%Total non-performing assets to total assets








0.03
%


Total
non-performing assets declined by $210,000, to $0, during the year ended December 31, 2000. The decrease was due to the transfer of a $210,000
non-accrual loan to other real estate owned, which was then sold for a gain of $115,000. The minimal balances in non-performing assets was largely due to continued emphasis by
management on problem credits.

LIQUIDITY

The Company's primary sources of funds are deposits, borrowings, and payments of principal and interest on loans and investment securities. While maturities and
scheduled principal amortization on loans are a reasonably predictable source of funds, deposit flows and mortgage loan prepayments are greatly influenced by the level of interest rates, economic
conditions, and competition. As a measure of protection against these uncertainties, the Company maintains borrowing relationships with several brokers, whereby the Company is able to borrow funds
that are secured by pledging specific amounts of certain U.S. government sponsored agency securities. The Company is generally able to borrow up to 98% of the market value of these securities. As of
December 31, 2001, the market values of U.S. government sponsored agency securities that were available for collateral purposes totaled $8.2 million.

The
Bank also has a fixed rate borrowing facility with the State of California Treasurer's Office under which the Bank can borrow an amount not to exceed its unconsolidated total
shareholder's equity. Borrowing maturity dates under this program cannot exceed one year. The State of California requires collateral with a value of at least 110% of the outstanding borrowing amount.
The Bank pledges specific amounts of its U.S. government sponsored agency securities to meet the collateral requirement under this borrowing facility. As of December 31, 2001, the Bank's
unconsolidated total shareholder's equity was $51.0 million and the Bank had no outstanding borrowings from the State of California.

During
the second quarter of 2001, the Bank became a member of the FHLB. FHLB membership enhances the Bank's sources of liquidity as well as the availability of both fixed rate and
adjustable rate borrowings, with maturities ranging from one day to 30 years. Under the FHLB's borrowing program, the Bank has the option to use either its commercial real estate loans or U.S.
government sponsored agency mortgage-backed securities as collateral for FHLB borrowings. As of December 31, 2001, the Bank had pledged $312.4 million of its commercial real estate loans
to secure this credit facility, which totaled $105.4 million based on 20% of its unconsolidated total assets of $526.9 million. Against this facility, the Bank had long-term,
fixed rate advances totaling $40.0 million, which consisted of $20.0 million at 3.01% maturing in November of 2003 and $20.0 million at 3.30% maturing in May of 2004. As of
December 31, 2001, the Bank held a required investment in the capital stock of the FHLB totaling $2.0 million.

The
Company's primary lending and investment activities have generally been the origination of commercial real estate and SBA business loans, the purchase of investment securities, and,
to a lesser

57

---

extent, the purchase of short-term securities purchased under resale agreements. The purchase of investment securities and short-term securities purchased under resale
agreements provides a source of long and short-term liquidity.

The
Company's most liquid assets are cash and securities purchased under resale agreements. The levels of these assets depend on the Company's operating, investing and financing
activities during any
given period. Liquidity for the Company is monitored daily and evaluated monthly. Excess funds are invested in short-term securities purchased under resale agreements.

During
the year ended December 31, 2001, the Company's cash and cash equivalents increased by $13.3 million to $18.6 million. This increase was the result of the
addition of $116.0 million and $8.8 million in cash from investing and operating activities, respectively, partially offset by the use of $111.5 million in cash for financing
activities. The $116.0 million source of cash from investing activities was principally due to $271.6 million from the calls and sales of callable bonds and mortgage-backed securities,
as well as $58.4 million from principal payments on loans. This investing activity was partially offset by uses of cash for $129.2 million of loan originations and $108.0 million
of mortgage-backed securities purchases. The $111.5 million use of cash in financing activities was primarily for the funding of deposit run-off of $97.3 million, as well as
the payment of $23.5 million and $28.0 million in short-term securities sold under repurchase agreements and State of California borrowings, respectively. This financing
activity was partially offset by proceeds from the $40.0 million of long-term FHLB advances obtained during the fourth quarter of 2001.

During
the year ended December 31, 2000, the Company's cash and cash equivalents increased by $0.6 million to $5.3 million. This increase was the result of the
addition of $13.7 million and $6.1 million in cash from financing and operating activities, respectively, partially offset by the use of $19.2 million in cash for investing
activities. The $13.7 million source of cash from financing activities was principally due to an increase in deposits of $14.5 million. The $19.2 million use of cash in investing
activities was primarily the result of $80.3 million in loan originations, partially offset by $42.8 million of principal payments on loans and $14.5 million of proceeds from
sales of investment securities.

DIVIDENDS

As a Delaware corporation, Pacific Crest may pay common dividends out of surplus or, if there is no surplus, from net profits for the current and preceding fiscal
year. Pacific Crest, on an unconsolidated basis, had approximately $3.1 million in cash and investments less current liabilities and short-term debt at December 31, 2001.
However, these funds are necessary to pay future operating expenses of Pacific Crest, service all outstanding debt, including the $17.25 million junior subordinated debentures payable to PCC
Capital, and fund possible future capital infusions into the Bank. Without dividends from the Bank, Pacific Crest must rely solely on existing cash, investments and the ability to secure borrowings.

On
January 23, 2002, the Company announced that the Board of Directors had declared a cash dividend of $0.08 per common share for the first quarter of 2002. The dividend was paid
on March 15, 2002, to shareholders of record at the close of business on March 1, 2002. During 2001, the Company declared and paid aggregate cash dividends of $0.32 per common share for
a total of $787,000. During 2000, the Company declared and paid aggregate cash dividends of $0.28 per common share for a total of $706,000.

The
Bank's ability to pay dividends to Pacific Crest is restricted by California State law, which requires that sufficient retained earnings be available to pay the dividend. At
December 31, 2001, the Bank had retained earnings of $21.4 million available for future dividend payments.

58

---

On
March 15, 2002, the Bank paid a cash dividend of $800,000 to Pacific Crest for the first quarter of 2002. During 2001, the Bank declared and paid aggregate cash dividends of
$3.0 million to Pacific Crest. During 2000, the Bank declared and paid aggregate cash dividends of $2.2 million to Pacific Crest.

CAPITAL RESOURCES

The Company's objective is to maintain a level of capital that will support sustained asset growth, provide for anticipated credit risks, and ensure that
regulatory guidelines and industry standards are met.

Pacific
Crest and the Bank are subject to certain leverage and risk-based capital guidelines adopted by the Federal Reserve and the FDIC. Risk-based capital
consists of a core capital component (Tier 1), essentially total shareholders' equity excluding accumulated other comprehensive income (loss), and a supplemental component (Tier 2), which includes the
allowance for loan losses up to 1.25% of risk-weighted assets, and a system for assigning assets and off-balance sheet items to one of four risk-weighted
categories. These capital standards require a minimum Tier 1 risk-based capital ratio of 4.00% and total risk-based capital ratio (Tier 1 plus Tier 2) of 8.00%.

In
addition to the risked-based guidelines, federal banking agencies require banking organizations to maintain a minimum amount of Tier 1 capital to average total assets, referred to as
the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to average
total assets must be 3.00%. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3.00% minimum, or 4.00% to
5.00%.

Under
the prompt corrective action provisions, an insured depository institution is placed in one of five categories based on its capital ratios, the highest category being well
capitalized. The minimum required ratios for this well capitalized category are 5.00% leverage, 6.00% Tier 1 risk-based capital and 10.00% total risk-based capital.

At
December 31, 2001 and 2000, Pacific Crest and the Bank were classified as "well capitalized" and were in compliance with all such requirements. The following tables sets forth
the regulatory capital ratios for Pacific Crest and the Bank as of the dates indicated:

Actual

Leverage
Ratio

Tier 1
Risk-Based
Capital
Ratio

Total
Risk-Based
Capital
RatioDecember 31, 2001Pacific Crest Capital, Inc.

9.49
%
11.11
%
13.36
%Pacific Crest Bank

9.61
%
11.22
%
12.47
%December 31, 2000Pacific Crest Capital, Inc.

7.16
%
10.63
%
13.11
%Pacific Crest Bank

7.36
%
10.82
%
12.07
%RequirementsMinimum Well Capitalized

5.00
%
6.00
%
10.00
%Minimum Capital Adequacy

4.00
%
4.00
%
8.00
%


ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company's primary market risk is interest rate risk. Interest rate risk is the potential of economic losses due to future interest rate changes. These
economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the
balance sheet to minimize the inherent risk while at the

59

---

same time to maximize income. Management realizes certain risks are inherent and that the goal is to identify and minimize the risks. The Company's exposure to market risk is reviewed on a regular
basis by the Asset/Liability Committee. Tools used by management include an interest rate shock analysis and to a lesser extent, the standard GAP report, which measures the estimated difference
between the amount of interest-sensitive assets and interest-sensitive liabilities anticipated to mature or reprice during future periods, based on certain assumptions. The Company has no market risk
sensitive instruments held for trading purposes and is not currently engaged in transactions involving derivative financial instruments. Management believes that the Company's market risk is
reasonable at this time.

The
purpose of asset/liability management is to minimize the risk of loss resulting from changes in interest rates. To the extent consistent with its interest rate spread objectives, the
Company attempts to manage its interest rate risk and has taken actions to minimize the potential negative impact of changing interest rates. In addition to focusing on making commercial real estate
loans which generally provide for quarterly repricing, the Company has written a significant amount of its loans with interest rate floors. Interest rate floors protect the Company in a declining
interest rate environment as affected loans do not reprice downward to their fully indexed rate when interest rates fall.

The
Company primarily uses an interest rate shock analysis to evaluate and manage interest rate risk and measure the impact of fluctuations in interest rates on the Company's net
interest income. This analysis is generated from an asset/liability system that reprices loans and deposits utilizing hypothetical market interest rates on the date of repricing.

Another
method of assessing the potential risk associated with changes in interest rates used to a lesser extent by the Company is to examine the extent to which assets and liabilities
are "interest rate sensitive" by monitoring the institution's interest rate sensitivity "GAP." An asset or liability is said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity GAP is defined as the difference between the amount of interest-earning assets anticipated to mature or reprice within a
specific time period and the amount of interest-bearing liabilities anticipated to mature or reprice within that same time period, based upon certain assumptions. A GAP is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A GAP is considered negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest rates, a negative GAP would generally tend to adversely affect net interest income, while a positive GAP would generally
tend to result in an increase in net interest income. During a period of declining interest rates, a negative GAP would generally tend to result in increased net interest income, while a positive GAP
would generally tend to adversely affect net interest income.

The
GAP analysis tables presented below were based on certain assumptions. Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of the repricing timing or maturity date of the asset or liability. The Company has assumed, for purposes of these GAP analysis tables, that its
checking accounts and savings accounts reprice immediately. The Company has also assumed for purposes of the 2000 GAP analysis table, that its U.S. government sponsored agency callable bonds
matured/repriced at the initial call date, due to the 100 basis point lowering of the federal funds rate by the Federal Reserve in January of 2001, and thus the likelihood that these securities would
be called.

Certain
shortcomings are inherent in the method of using GAP analysis to evaluate interest rate risk as presented in the following tables. For example, GAP analysis assumes that when
interest rates change, all rates change by the same amount and at the same time. Although certain assets and liabilities may be available for repricing at the same time, assets and liabilities often
react independently to market interest rate changes, resulting in variable degrees of change dependent on the type of asset or liability. Also, 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

60

---

changes in market rates. Additionally, some adjustable rate loans have features, which restrict changes in interest rates on a short-term basis and over the life of the asset. Loan
prepayments and early withdrawal of certificates of deposit could also cause the interest sensitivities to vary from those reflected in the table. Due to these factors, the GAP analysis may not
provide a complete or accurate assessment of the Company's exposure to changes in interest rates.

The
following table is a summary of the Company's one-year GAP as of the dates indicated (in thousands):

December 31,
2001

December 31,
2000

Increase
(Decrease)Total interest-sensitive assets maturing or repricing within one year ("one-year assets")

$
329,491

$
442,686

$
(113,195
)Total interest-sensitive liabilities maturing or repricing within one year ("one-year liaiblities")


408,971


466,415


(57,444
)One-year GAP

$
(79,480
)
$
(23,729
)
$
(55,751
)


The
one-year GAP decreased by $55.8 million during the year ended December 31, 2001, principally due to a decrease in one-year assets of
$113.2 million, partially offset by a decrease in one-year liabilities of $57.4 million.

The
decrease in one-year assets was primarily due to the calls and sale of $227.1 million (market value) of the Company's entire portfolio of fixed rate callable
bonds, which were reported in the one-year category at December 31, 2000. The proceeds from these calls and sale were partially reinvested into long-term, fixed rate
mortgage-backed securities.

Partially
offsetting the decease in one-year callable bonds was an increase of $100.9 million, to $309.9 million, in loans in the one-year category.
This was due to the Company's originations of primarily adjustable rate loans during the year ended December 31, 2001, as well as the movement of loans into the one-year category
from categories with longer terms. Additionally, short-term securities purchased under resale agreements increased by $13.2 million, to $16.2 million, principally due to the
investment of proceeds from the $40.0 million, fixed rate, long-term borrowings with the FHLB during the fourth quarter of 2001.

The
decrease in one-year liabilities was primarily due to decreases of $23.5 million, $28.0 million, and $34.2 million in securities sold under
repurchase agreements, State of California borrowings, and certificates of deposit in the one-year category, respectively. The reductions in these categories were primarily funded with
proceeds from the calls and sale of callable bonds.    Partially offsetting these decreases was the movement of $40.0 million of fixed rate term borrowings into the
one-year category from categories with longer terms, as the remaining maturity of these borrowings shortened to within one year.

For
information on the estimated fair values of the Company's interest-sensitive assets and liabilities as of December 31, 2001 and 2000, see Note 26, "Estimated Fair Value
of Financial Instruments".

In
order to manage interest rate risk, the Company endeavors to underwrite most of its loans on an adjustable rate or short-term fixed rate basis. The Company's adjustable
rate loans reprice on either a quarterly, semi-annual or annual basis. A portion of these adjustable rate loans were initially fixed rate for a period of one to five years, but thereafter
will reprice on either a quarterly, semi-annual, or

61

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annual basis. The table below presents the Company's adjustable rate loans by index as well as fixed rate loans as of the dates indicated (dollars in thousands):

December 31, 2001

December 31, 2000Amount

Percent
of Total

Amount

Percent
of TotalAdjustable Rate:Prime rate

$
209,998

45.46
%
$
221,133

55.25
%6-month LIBOR


161,996

35.07
%

86,629

21.64
%1-year and 10-year U.S. Treasury Bill rates


9,869

2.14
%

10,130

2.53
%11th District Cost of Funds index


7,238

1.57
%

13,126

3.28
%Total adjustable rate


389,101

84.22
%

331,018

82.70
%Fixed Rate


72,878

15.78
%

69,245

17.30
%Total gross loans

$
461,979

100.00
%
$
400,263

100.00
%


The
GAP tables below provide information about the Company's balance sheet non-derivative financial instruments at December 31, 2001 and 2000 that are sensitive to
changes in interest rates. For all outstanding financial instruments, the tables presents the outstanding principal balance and the weighted average interest yield/rate of the instruments by either
the date the instrument can be

62

---

repriced for variable rate financial instruments, or the maturity date, for fixed rate financial instruments (dollars in thousands):

|                                |                                                             | Maturity or Repricing Date    |        
|------------------------------- | ----------------------------------------------------------- | ----------------------------- | -------
|
|Interest-Sensitive Assets:      |                                                             |                               |        
|                                | Securities purchased under resale agreements                |                               | $      
|                                |                                                             | average yield (variable rate) |        
|                                | U.S. government sponsored agency mortgage-backed securities |                               |        
|                                |                                                             | average yield (fixed rate)    |        
|                                | Corporate debt securities                                   |                               |        
|                                |                                                             | average yield (variable rate) |        
|                                | Loans, gross(1)                                             |                               |        
|                                |                                                             | average yield                 |        
|                                |                                                             |                               |        
|                                | Total interest-sensitive assets                             |                               | $      
|                                |                                                             |                               |        
|Interest-Sensitive Liabilities: |                                                             |                               |        
|                                | Checking accounts                                           |                               | $      
|                                |                                                             | average rates (variable rate) |        
|                                | Savings accounts                                            |                               |        
|                                |                                                             | average rates (variable rate) |        
|                                | Certificates of deposit(2)                                  |                               |        
|                                |                                                             | average rates (fixed rate)    |        
|                                | FHLB advances                                               |                               |        
|                                |                                                             | average rates (fixed rate)    |        
|                                | Term borrowings                                             |                               |        
|                                |                                                             | average rates (fixed rate)    |        
|                                | Trust preferred securities                                  |                               |        
|                                |                                                             | average rates (fixed rate)    |        
|                                |                                                             |                               |        
|                                | Total interest-sensitive liabilities                        |                               | $      
|                                |                                                             |                               |        
|GAP                             |                                                             | $                             | (51,463
|Cumulative GAP                  |                                                             |                               | (51,463
|                                |                                                             |                               |        

---

63

---



|                                |                                                             | Maturity or Repricing Date    |       
|------------------------------- | ----------------------------------------------------------- | ----------------------------- | ------
|
|Interest-Sensitive Assets:      |                                                             |                               |       
|                                | Securities purchased under resale agreements                |                               | $     
|                                |                                                             | average yield (variable rate) |       
|                                | U.S. government sponsored agency callable bonds             |                               |       
|                                |                                                             | average yield (fixed rate)    |       
|                                | U.S. government sponsored agency mortgage-backed securities |                               |       
|                                |                                                             | average yield (fixed rate)    |       
|                                | Corporate debt securities                                   |                               |       
|                                |                                                             | average yield (variable rate) |       
|                                | Loans, gross                                                |                               |       
|                                |                                                             | average yield                 |       
|                                |                                                             |                               |       
|                                | Total interest-sensitive assets                             |                               | $     
|                                |                                                             |                               |       
|Interest-Sensitive Liabilities: |                                                             |                               |       
|                                | Checking accounts                                           |                               | $     
|                                |                                                             | average rates (variable rate) |       
|                                | Savings accounts                                            |                               |       
|                                |                                                             | average rates (variable rate) |       
|                                | Certificates of deposit                                     |                               |       
|                                |                                                             | average rates (fixed rate)    |       
|                                | Securities sold under repurchase agreements                 |                               |       
|                                |                                                             | average rates (variable rate) |       
|                                | State of California borrowings                              |                               |       
|                                |                                                             | average rates (fixed rate)    |       
|                                | Term borrowings                                             |                               |       
|                                |                                                             | average rates (fixed rate)    |       
|                                | Trust preferred securities                                  |                               |       
|                                |                                                             | average rates (fixed rate)    |       
|                                |                                                             |                               |       
|                                | Total interest-sensitive liabilities                        |                               | $     
|                                |                                                             |                               |       
|GAP                             |                                                             | $                             | 16,800
|Cumulative GAP                  |                                                             |                               | 16,800
|                                |                                                             |                               |       

64

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ITEM 8.    Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                |  | Page
|--------------------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Balance Sheets at December 31, 2001 and 2000                                                       |  | 66  
|Consolidated Statements of Income for the years ended December 31, 2001, 2000, and 1999                         |  | 67  
|Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999 |  | 68  
|Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999                      |  | 69  
|Notes to Consolidated Financial Statements                                                                      |  | 70  
|Report of Deloitte & Touche LLP, Independent Auditors                                                           |  | 97  

65

---

PACIFIC CREST CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)

|                                     |                                                                                                                    | December 31,                                                                                                                                                   |                                           
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------
|
|Assets                               |                                                                                                                    |                                                                                                                                                                |                                           
|                                     | Cash                                                                                                               |                                                                                                                                                                | $                                         
|                                     | Securities purchased under resale agreements                                                                       |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     |                                                                                                                    | Cash and cash equivalents                                                                                                                                      |                                           
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     | Investment securities available for sale, at market                                                                |                                                                                                                                                                |                                           
|                                     | Loans:                                                                                                             |                                                                                                                                                                |                                           
|                                     |                                                                                                                    | Commercial real estate loans                                                                                                                                   |                                           
|                                     |                                                                                                                    | SBA loans held for investment                                                                                                                                  |                                           
|                                     |                                                                                                                    | SBA loans held for sale, at lower of cost or market                                                                                                            |                                           
|                                     |                                                                                                                    | Other loans                                                                                                                                                    |                                           
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                | Gross loans                               
|                                     |                                                                                                                    | Deferred loan (fees) costs                                                                                                                                     |                                           
|                                     |                                                                                                                    | Allowance for loan losses                                                                                                                                      |                                           
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                | Net loans                                 
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     | Deferred income taxes, net                                                                                         |                                                                                                                                                                |                                           
|                                     | Accrued interest receivable                                                                                        |                                                                                                                                                                |                                           
|                                     | Prepaid expenses and other assets                                                                                  |                                                                                                                                                                |                                           
|                                     | Premises and equipment                                                                                             |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     |                                                                                                                    | Total assets                                                                                                                                                   |                                           
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|Liabilities                          |                                                                                                                    |                                                                                                                                                                |                                           
|                                     | Deposits:                                                                                                          |                                                                                                                                                                |                                           
|                                     |                                                                                                                    | Checking accounts                                                                                                                                              |                                           
|                                     |                                                                                                                    | Savings accounts                                                                                                                                               |                                           
|                                     |                                                                                                                    | Certificates of deposit                                                                                                                                        |                                           
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                | Total deposits                            
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     | Borrowings:                                                                                                        |                                                                                                                                                                |                                           
|                                     |                                                                                                                    | Securities sold under repurchase agreements                                                                                                                    |                                           
|                                     |                                                                                                                    | State of California borrowings                                                                                                                                 |                                           
|                                     |                                                                                                                    | FHLB advances                                                                                                                                                  |                                           
|                                     |                                                                                                                    | Term borrowings                                                                                                                                                |                                           
|                                     |                                                                                                                    | Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures ("Trust preferred securities") |                                           
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                | Total borrowings                          
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     | Accrued interest payable and other liabilities                                                                     |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                | Total liabilities                         
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|Shareholders' Equity                 |                                                                                                                    |                                                                                                                                                                |                                           
|                                     | Common stock, $.01 par value (10,000,000 shares authorized, 2,986,530 shares issued at December 31, 2001 and 2000) |                                                                                                                                                                |                                           
|                                     | Additional paid-in capital                                                                                         |                                                                                                                                                                |                                           
|                                     | Retained earnings                                                                                                  |                                                                                                                                                                |                                           
|                                     | Accumulated other comprehensive income (loss)                                                                      |                                                                                                                                                                |                                           
|                                     | Common stock in treasury, at cost (566,381 shares at December 31, 2001 and 471,110 shares at December 31, 2000)    |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                | Total shareholders' equity                
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|                                     |                                                                                                                    |                                                                                                                                                                | Total liabilities and shareholders' equity
|                                     |                                                                                                                    |                                                                                                                                                                |                                           
|Tangible book value per common share |                                                                                                                    | $                                                                                                                                                              | 15.69                                     

See accompanying Notes to Consolidated Financial Statements.

66

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PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)

|                           |                                                     | Years Ended December 31,                           
|-------------------------- | --------------------------------------------------- | ---------------------------------------------------
|
|Interest income:           |                                                     |                                                    
|                           | Loans                                               |                                                    
|                           | Investment securities available for sale            |                                                    
|                           | Securities purchased under resale agreements        |                                                    
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|Interest expense:          |                                                     |                                                    
|                           | Deposits:                                           |                                                    
|                           |                                                     | Checking accounts                                  
|                           |                                                     | Savings accounts                                   
|                           |                                                     | Certificates of deposit                            
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           | Borrowings:                                         |                                                    
|                           |                                                     | Securities sold under repurchase agreements        
|                           |                                                     | State of California borrowings                     
|                           |                                                     | FHLB advances                                      
|                           |                                                     | Term borrowings                                    
|                           |                                                     | Trust preferred securities                         
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     |                                                    
|Net interest income        |                                                     |                                                    
|Provision for loan losses  |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     | Net interest income after provision for loan losses
|                           |                                                     |                                                    
|Non-interest income:       |                                                     |                                                    
|                           | Loan prepayment and late fee income                 |                                                    
|                           | Gain on sale of SBA 7(a) loans                      |                                                    
|                           | Gain on sale of SBA 504 loans and broker fee income |                                                    
|                           | Gain (loss) on sale of investment securities        |                                                    
|                           | Gain on sale of commercial real estate loans        |                                                    
|                           | Gain on sale of other real estate owned             |                                                    
|                           | Other income                                        |                                                    
|                           |                                                     |                                                    
|                           |                                                     | Total non-interest income                          
|                           |                                                     |                                                    
|Non-interest expense:      |                                                     |                                                    
|                           | Salaries and employee benefits                      |                                                    
|                           | Net occupancy expenses                              |                                                    
|                           | Communication and data processing                   |                                                    
|                           | Legal, audit, and other professional fees           |                                                    
|                           | Advertising and promotion                           |                                                    
|                           | Credit and collection expenses                      |                                                    
|                           | Other real estate owned expenses                    |                                                    
|                           | Valuation adjustments to other real estate owned    |                                                    
|                           | Other expenses                                      |                                                    
|                           |                                                     |                                                    
|                           |                                                     | Total non-interest expense                         
|                           |                                                     |                                                    
|Income before income taxes |                                                     |                                                    
|Income tax provision       |                                                     |                                                    
|                           |                                                     |                                                    
|                           |                                                     | Net income                                         
|                           |                                                     |                                                    
|Earnings per common share: |                                                     |                                                    
|                           | Basic                                               |                                                    
|                           | Diluted                                             |                                                    

See accompanying Notes to Consolidated Financial Statements.

67

---



PACIFIC CREST CAPITAL, INC.        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY        (dollars in thousands, except per share data)

|                                       |                                             | Common
Stock                                                                     |    | Common
Stock in
Treasury   |   | Additional
Paid-in
Capital |     | Retained
Earnings |        | Accumulated
Other
Comprehensive
Income (Loss) |   | Total
Shareholders'
Equity |      
|-------------------------------------- | ------------------------------------------- | -------------------------------------------------------------------------------- | -- | -------------------------- | - | -------------------------- | --- | ----------------- | ------ | --------------------------------------------- | - | -------------------------- | -----
|Balance at December 31, 1998           |                                             | $                                                                                | 30 |                            | $ | (4,705                     | )   | $                 | 28,057 |                                               | $ | 5,559                      |      
|                                       |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|Comprehensive income (loss):           |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       | Net income                                  |                                                                                  |    |                           |   |                            |    |                   |        |                                              |   |                            | 5,055
|                                       | Other comprehensive loss:                   |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       |                                             | Unrealized loss on investment securities available for sale, net of income taxes |    |                            |  |                            |     |                  |        |                                               |  |                            |      
|                                       |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       |                                             |                                                                                  |    | Total comprehensive loss   |   |                            |     |                   |        |                                               |   |                            |      
|Issuances of common stock:             |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       | Employee stock purchase plan                |                                                                                  |    |                           |   |                            | 66  |                   |        | (12                                           | ) |                            |     
|                                       | Non-employee directors' stock purchase plan |                                                                                  |    |                           |   |                            | 51  |                   |        |                                              |   |                            |     
|                                       | Employee stock option plan                  |                                                                                  |    |                           |   |                            | 264 |                   |        | (160                                          | ) |                            |     
|Purchase of common stock in treasury   |                                             |                                                                                  |   |                            |   | (1,665                     | )   |                   |       |                                               |   |                           |      
|Cash dividends paid ($0.24 per share)  |                                             |                                                                                  |   |                            |   |                           |     |                   |       |                                               |   | (636                       | )    
|                                       |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|Balance at December 31, 1999           |                                             | $                                                                                | 30 |                            | $ | (5,989                     | )   | $                 | 27,885 |                                               | $ | 9,978                      |      
|                                       |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|Comprehensive income:                  |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       | Net income                                  |                                                                                  |    |                           |   |                            |    |                   |        |                                              |   |                            | 5,270
|                                       | Other comprehensive income:                 |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       |                                             | Unrealized gain on investment securities available for sale, net of income taxes |    |                            |  |                            |     |                  |        |                                               |  |                            |      
|                                       |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       |                                             |                                                                                  |    | Total comprehensive income |   |                            |     |                   |        |                                               |   |                            |      
|Issuances of common stock in treasury: |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       | Employee stock purchase plan                |                                                                                  |    |                           |   |                            | 55  |                   |        | (14                                           | ) |                            |     
|                                       | Non-employee directors' stock purchase plan |                                                                                  |    |                           |   |                            | 61  |                   |        | (11                                           | ) |                            |     
|                                       | Employee stock option plan                  |                                                                                  |    |                           |   |                            | 122 |                   |        | (70                                           | ) |                            |     
|Purchase of common stock in treasury   |                                             |                                                                                  |   |                            |   | (1,149                     | )   |                   |       |                                               |   |                           |      
|Cash dividends paid ($0.28 per share)  |                                             |                                                                                  |   |                            |   |                           |     |                   |       |                                               |   | (706                       | )    
|                                       |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|Balance at December 31, 2000           |                                             | $                                                                                | 30 |                            | $ | (6,900                     | )   | $                 | 27,790 |                                               | $ | 14,542                     |      
|                                       |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|Comprehensive income:                  |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       | Net income                                  |                                                                                  |    |                           |   |                            |    |                   |        |                                              |   |                            | 5,385
|                                       | Other comprehensive income:                 |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       |                                             | Unrealized gain on investment securities available for sale, net of income taxes |    |                            |  |                            |     |                  |        |                                               |  |                            |      
|                                       |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       |                                             |                                                                                  |    | Total comprehensive income |   |                            |     |                   |        |                                               |   |                            |      
|Issuances of common stock in treasury: |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|                                       | Employee stock purchase plan                |                                                                                  |    |                           |   |                            | 62  |                   |        | (7                                            | ) |                            |     
|                                       | Non-employee directors' stock purchase plan |                                                                                  |    |                           |   |                            | 42  |                   |        | 7                                             |   |                            |     
|                                       | Employee stock option plan                  |                                                                                  |    |                           |   |                            | 32  |                   |        | (10                                           | ) |                            |     
|Purchase of common stock in treasury   |                                             |                                                                                  |   |                            |   | (2,013                     | )   |                   |       |                                               |   |                           |      
|Cash dividends paid ($0.32 per share)  |                                             |                                                                                  |   |                            |   |                           |     |                   |       |                                               |   | (787                       | )    
|                                       |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      
|Balance at December 31, 2001           |                                             | $                                                                                | 30 |                            | $ | (8,777                     | )   | $                 | 27,780 |                                               | $ | 19,140                     |      
|                                       |                                             |                                                                                  |    |                            |   |                            |     |                   |        |                                               |   |                            |      

See accompanying Notes to Consolidated Financial Statements.

68

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PACIFIC CREST CAPITAL, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (dollars in thousands)

|                                                     |                                                                                   | Years Ended December 31,                                    |                                               
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------- | ----------------------------------------------
|
|Operating activities:                                |                                                                                   |                                                             |                                               
|                                                     | Net income                                                                        |                                                             | $                                             
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities: |                                                             |                                               
|                                                     |                                                                                   | Provision for loan losses                                   |                                               
|                                                     |                                                                                   | Gain on sale of SBA 7(a) loans                              |                                               
|                                                     |                                                                                   | Gain on sale of SBA 504 loans                               |                                               
|                                                     |                                                                                   | (Gain) loss on sale of investment securities                |                                               
|                                                     |                                                                                   | Gain on sale of commercial real estate loans                |                                               
|                                                     |                                                                                   | Gain on sale of other real estate owned                     |                                               
|                                                     |                                                                                   | Valuation adjustments to other real estate owned            |                                               
|                                                     |                                                                                   | Depreciation and amortization of premises and equipment     |                                               
|                                                     |                                                                                   | Accretion of deferred loan fees                             |                                               
|                                                     |                                                                                   | Amortization of premium (discount) on investment securities |                                               
|                                                     |                                                                                   | Deferred income tax expense (benefit)                       |                                               
|                                                     |                                                                                   | Changes in operating assets and liabilities:                |                                               
|                                                     |                                                                                   |                                                             | Accrued interest receivable                   
|                                                     |                                                                                   |                                                             | Prepaid expenses and other assets             
|                                                     |                                                                                   |                                                             | Accrued interest payable and other liabilities
|                                                     |                                                                                   |                                                             |                                               
|                                                     |                                                                                   |                                                             |                                               
|                                                     |                                                                                   |                                                             |                                               
|Investing activities:                                |                                                                                   |                                                             |                                               
|                                                     | Proceeds from sales and calls of investment securities available for sale         |                                                             |                                               
|                                                     | Purchases of investment securities available for sale                             |                                                             |                                               
|                                                     | Principal payments on investment securities available for sale                    |                                                             |                                               
|                                                     | Loan originations                                                                 |                                                             |                                               
|                                                     | Loan purchases                                                                    |                                                             |                                               
|                                                     | Proceeds from sales of SBA 7(a) loans                                             |                                                             |                                               
|                                                     | Proceeds from sales of SBA 504 loans                                              |                                                             |                                               
|                                                     | Proceeds from sales of commercial real estate loans                               |                                                             |                                               
|                                                     | Principal payments on loans                                                       |                                                             |                                               
|                                                     | Proceeds from sales of other real estate owned                                    |                                                             |                                               
|                                                     | Purchases of premises and equipment, net                                          |                                                             |                                               
|                                                     |                                                                                   |                                                             |                                               
|                                                     |                                                                                   |                                                             |                                               
|                                                     |                                                                                   |                                                             |                                               
|Financing activities:                                |                                                                                   |                                                             |                                               
|                                                     | Net increase (decrease) in checking accounts                                      |                                                             |                                               
|                                                     | Net decrease in savings accounts                                                  |                                                             |                                               
|                                                     | Net (decrease) increase in certificates of deposit                                |                                                             |                                               
|                                                     | Net decrease in securities sold under repurchase agreements                       |                                                             |                                               
|                                                     | Net (decrease) increase in State of California borrowings                         |                                                             |                                               
|                                                     | Net increase in FHLB advances                                                     |                                                             |                                               
|                                                     | Net decrease in term borrowings                                                   |                                                             |                                               
|                                                     | Purchases of common stock in treasury, at cost                                    |                                                             |                                               
|                                                     | Cash dividends paid                                                               |                                                             |                                               
|                                                     | Proceeds from exercise of stock options                                           |                                                             |                                               
|                                                     | Proceeds from employees and directors stock purchase plans                        |                                                             |                                               
|                                                     |                                                                                   |                                                             |                                               
|                                                     |                                                                                   |                                                             |                                               
|                                                     |                                                                                   |                                                             |                                               
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                             | 13,346                                        
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                             | 5,336                                         
|                                                     |                                                                                   |                                                             |                                               
|Cash and cash equivalents at end of period           |                                                                                   | $                                                           | 18,682                                        
|                                                     |                                                                                   |                                                             |                                               

See accompanying Notes to Consolidated Financial Statements.

69

---



PACIFIC CREST CAPITAL, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2001

Note 1. Organization

Pacific Crest Capital, Inc. ("Pacific Crest" or the "Parent") is a bank holding company principally engaged in commercial real estate lending and SBA
lending through its wholly owned subsidiary, Pacific Crest Bank (the "Bank"). During the fourth quarter of 1999, Pacific Crest became a bank holding company regulated by the Federal Reserve as part of
the conversion of the Bank's charter to that of a California state chartered commercial bank. Unless the context otherwise indicates, the "Company" refers to Pacific Crest together with its wholly
owned subsidiaries, Pacific Crest Bank and PCC Capital I.

Pacific
Crest Bank is a California state chartered commercial bank that is supervised and regulated by the California Commissioner of Financial Institutions, the California Department of
Financial Institutions (the "DFI"), and the FDIC. The Bank's deposits are insured by the FDIC up to applicable limits. In September of 1999, the Bank filed an application with the DFI to convert from
a California state chartered industrial bank to a California state chartered commercial bank. In December of 1999, the Bank received all of the necessary regulatory approvals, and, on
December 15, 1999 completed its conversion from a California state chartered industrial bank to a California state chartered commercial bank. The Bank converted to a California state chartered
commercial bank primarily in order to better serve its business customers, diversify its business lending, and offer full-service checking accounts and online banking. The Bank introduced
full-service, consumer demand deposit checking accounts to all of its retail customers in the fourth quarter of 2000 and intends to offer full-service on-line
banking in 2002. During the second quarter of 2001, the Bank became a member of the FHLB.

Pacific
Crest Bank is a business bank that concentrates on marketing to and serving the needs of investors, entrepreneurs, and small businesses located predominantly in California. The
Bank conducts its deposit operations through three branch offices located in Beverly Hills, Encino, and San Diego,
California. The Bank currently offers consumer demand deposit checking accounts, money market checking accounts, savings accounts, and certificates of deposit. The Bank has focused its lending
activities on loans secured by commercial real estate and small business loans under various federal SBA loan programs. The Bank conducts its lending operations in Southern California through its
lending and marketing representatives and through its correspondent loan brokers located in areas outside of Southern California. To a lesser extent, and on a very selective basis, the Bank makes
commercial real estate loans in other western states generally based on the quality of the borrowers.

PCC
Capital I ("PCC Capital") is a statutory business trust that was created under Delaware law for the exclusive purpose of issuing and selling $17.25 million of 9.375%
Cumulative Trust Preferred Securities (the "Trust Preferred Securities"). The Trust Preferred Securities are presented on a separate line on the Consolidated Balance Sheets under the caption "Company
obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures." For financial reporting purposes, the Company records the dividend
distributions on the Trust Preferred Securities as "Interest expensetrust preferred securities" on its Consolidated Statements of Income.

Note 2. Summary of Significant Accounting Policies



The Consolidated Financial Statements include the accounts of Pacific Crest and its wholly owned subsidiaries, the Bank and PCC Capital. All significant
intercompany transactions and balances have

70

---

been eliminated. Certain reclassifications have been made to the prior years' Consolidated Financial Statements in order to conform to the current year presentation.

The
Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the Consolidated
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 sheets and revenues and expenses
for the year. Actual results in future years could differ from those estimates by management in the current year. Material estimates that are particularly susceptible to significant change relate to
the determination of the allowance for loan losses and the valuation allowance for other real estate owned.



The Company is organized and operated as a single reporting segment principally engaged in commercial real estate lending and SBA lending. The Company's lending
activities concentrate on marketing to and serving the needs of investors, entrepreneurs, and small businesses located predominantly in California. The Company conducts its deposit operations through
three branch offices, located in Southern California. The Consolidated Financial Statements, as they appear in this document, represent the grouping of revenue and expense items as they are presented
to executive management of the Company, for use in strategically directing the operations of the Company.



For purposes of the Consolidated Balance Sheets and Consolidated Statements of Cash Flows, "Cash and cash equivalents" include cash and securities purchased under
resale agreements, which have original maturities of three months or less and are carried at cost.



The Company invests excess cash overnight and up to three months in securities purchased under resale agreements ("repurchase agreements"). Collateral securing
the repurchase agreements is limited to U.S. Treasury bonds, notes and bills, and securities issued by either U.S. government agencies or U.S. government sponsored agencies. Collateral securing the
repurchase agreements is held for safekeeping under third-party custodial agreements and is required to be segregated from, and separately accounted for as compared to, all other securities held by
the custodian for its other customers or for its own account.



The Company invests in U.S. government sponsored agency securities, and to a lesser extent, investment grade corporate debt securities. At the date of purchase,
the Company elects to segregate the security into either the held to maturity portfolio or the available for sale portfolio, depending upon management's ability and intent to hold such securities to
maturity. Debt securities classified as held to maturity are recorded at amortized cost while securities classified as available for sale are recorded at market. Unrealized gains or losses on
securities available for sale are excluded from earnings and reported in "Accumulated other comprehensive income (loss)" as a separate component of Shareholders' Equity, net of tax effect. Realized
gains or losses are recorded using the specific
identification method. Purchase premiums and discounts are recognized in interest income using the level yield method.



Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their
outstanding unpaid principal balances adjusted for

71

---

charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of
certain estimated indirect origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method over the term of the loan.



SBA loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to income.



The Company charges current income in amounts necessary to maintain a general allowance for loan losses deemed adequate to cover potential losses on loans. The
amount of the allowance is based on management's evaluation of numerous factors including adequacy of collateral, which includes loan balance to collateral value, loan debt service coverage ratio and
secondary collateral, if applicable. Other factors include an evaluation of the strengths and weaknesses of the borrower's financial position, and strengths and weaknesses of the tenants in the
properties. In addition, management evaluates current delinquency trends, historical Company loan loss experience, regional real estate economic conditions and overall economic trends impacting the
Company's real estate lending portfolio. The combination of these factors are utilized in establishing the allowance for loan losses.



Assets classified as other real estate owned ("OREO") include foreclosed real estate owned by the Company. The Company records and carries its OREO at the lower
of cost or fair value, which may require the Company to make valuation adjustments to its OREO, based on current collateral appraisal data and other relevant information, which may effectively reduce
the book value of such assets to their estimated fair value less selling cost. The fair value of the real estate takes into account the real estate values net of expenses such as brokerage
commissions, past due property taxes, property repair expenses, and other items. The estimated sale price utilized by the Company to help determine fair value may not necessarily reflect the appraisal
value, which management believes, in some cases, to be higher than what could be realized in a sale of the OREO.



Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the temporary differences between the financial statement amounts of assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years when those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.



Office furniture, fixtures, equipment, and leasehold improvements are carried at cost, less accumulated depreciation. Depreciation and amortization are provided
principally on the straight-line method over the estimated useful lives of the property. Office furniture, fixtures and equipment are generally estimated to have useful lives of between
three and eight years. Leasehold improvements are amortized over either the useful life or the life of the lease, whichever is shorter.

72

---



In September of 2000, Statement of Financial Accounting Standards ("SFAS") No. 140,Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities("SFAS 140"), was issued and replaced SFAS No. 125,Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities("SFAS 125"). SFAS 140 revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures, but it carries over most of the provisions of SFAS 125 without reconsideration. SFAS 140 was effective for
transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement was effective for recognition and reclassification of collateral
and for disclosures related to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of SFAS 140 did not have a material impact on the
Company's results of operations or financial position.

In
July of 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141,Business Combinations("SFAS 141"),
and SFAS No. 142,Goodwill and Other Intangible Assets("SFAS 142"). SFAS 141 eliminates the
pooling-of-interests method of accounting for business combinations, although certain combinations initiated prior to July 1, 2001 are exempt from the provisions of
SFAS 141. In addition, SFAS 141 further clarifies the criteria for recognition of intangible assets separately from goodwill. This statement is effective for business combinations
completed after June 30, 2001. SFAS 142 requires that upon adoption, amortization of goodwill will cease and the carrying value of goodwill shall be evaluated for impairment on an annual
basis. Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment. SFAS 142 is effective for fiscal years beginning after
December 15, 2001. As of December 31, 2001, the Company had no goodwill recorded on its Consolidated Balance Sheet. Therefore, the adoption of the provisions of SFAS 141 and
SFAS 142 is not expected to have a material impact on the Company's consolidated financial position or results of operations.

In
June of 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived
Assets("SFAS 144"). SFAS No. 144 supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 was effective
January 1, 2002. The Company does not expect the adoption of SFAS No. 144 to have a material impact on its consolidated financial position or results of operations.

Note 3. Computation of Tangible Book Value per Common Share

Tangible book value per common share was calculated by dividing total shareholders' equity by the number of common shares issued less common shares held in
treasury. The table below presents the

73

---

computation of tangible book value per common share as of the dates indicated (in thousands, except per share data):

December 31,2001

2000Total shareholders' equity

$
37,975

$
33,930Common shares issued


2,986,530


2,986,530Less: common shares held in treasury


(566,381
)

(471,110
)Common shares outstanding


2,420,149


2,515,420Tangible book value per common share

$
15.69

$
13.49


Note 4. Computation of Earnings per Common Share

Basic and diluted earnings per common share were determined by dividing net income by the applicable basic and diluted weighted average common shares outstanding.
For the diluted earnings per share computation, the basic weighted average common shares outstanding were increased to include additional common shares that would have been outstanding if dilutive
stock options had been exercised. The dilutive effect of stock options was calculated using the treasury stock method.

The
table below presents the basic and diluted earnings per share computations for the periods indicated (in thousands, except per share data):

Years Ended December 31,2001

2000

1999Net income

$
5,385

$
5,270

$
5,055Basic weighted average common shares outstanding


2,470


2,525


2,662Dilutive effect of stock options


180


97


116Diluted weighted average common shares outstanding


2,650


2,622


2,778Earnings per common share:Basic

$
2.18

$
2.09

$
1.90Diluted

$
2.03

$
2.01

$
1.82


Note 5. Supplemental Disclosure of Cash Flow Information

Supplemental disclosure of cash flow information is as follows for the periods indicated (in thousands):

Years Ended December 31,2001

2000

1999Cash paid during the year for:Interest

$
28,162

$
35,390

$
30,275Income taxes

$
2,935

$
5,400

$
3,775Non-cash investing and financing activities:Transfers from loans to other real estate owned

$


$
210

$
Loans made to facilitate the sale of OREO

$


$
250

$
225


74

---

Note 6. Securities Purchased Under Resale Agreements

The table below presents securities purchased under resale agreements as of the dates or for the periods indicated (dollars in thousands):

At or For the Years Ended December 31,2001

2000

1999Balance at year-end

$
16,174

$
3,017

$
3,501Average balance during the year


13,525


2,058


8,303Maximum month-end balance during the year


33,706


4,025


22,836Weighted average interest rate during the year


3.37
%

6.41
%

4.97
%Weighted average interest rate at end of year


1.65
%

6.10
%

4.45
%


Note 7. Investment Securities Available for Sale

The Company's investment securities portfolio at December 31, 2001 consisted of fixed rate U.S. government sponsored agency mortgage-backed securities
issued by Fannie Mae and Ginnie Mae, as well as adjustable rate investments in investment grade corporate debt securities. The index of the corporate debt securities is based upon the three month
London Interbank Offered Rate ("LIBOR"), which reprices on a quarterly basis.

During
2001, the entire portfolio of the Company's callable bonds was liquidated, primarily through issuer calls of $219.2 million, as well as Company sales of
$10.0 million. The Company used part of the proceeds from these calls and sales to purchase U.S. government sponsored agency mortgage-backed securities, which enabled to Bank to meet the FHLB
membership test for housing-related assets in its successful application for FHLB membership.

U.S.
government sponsored agency securities with market values totaling $47.3 million and $109.9 million were pledged to secure borrowings aggregating $40.0 million
and $91.5 million at December 31, 2001 and
2000, respectively. As of December 31, 2001, the Company's entire investment securities portfolio was scheduled to mature after ten years.

75

---

The
following tables present the amortized cost and estimated fair values of the Company's investment securities available for sale as of the dates indicated (dollars in thousands):

|                                          |                                                             | December 31, 2001           |  
|----------------------------------------- | ----------------------------------------------------------- | --------------------------- | -
|
|
|
|Investment securities available for sale: |                                                             |                             |  
|                                          | U.S. government sponsored agency mortgage-backed securities |                             | $
|                                          | Corporate debt securities                                   |                             |  
|                                          |                                                             |                             |  
|                                          |                                                             | Total investment securities |  
|                                          |                                                             |                             |  

|                                          |                                              | December 31, 2000          |                            
|----------------------------------------- | -------------------------------------------- | -------------------------- | ---------------------------
|
|
|
|Investment securities available for sale: |                                              |                            |                            
|                                          | U.S. government sponsored agency securities: |                            |                            
|                                          |                                              | Callable bonds             |                            
|                                          |                                              | Mortgage-backed securities |                            
|                                          | Corporate debt securities                    |                            |                            
|                                          |                                              |                            |                            
|                                          |                                              |                            | Total investment securities
|                                          |                                              |                            |                            

The
following table presents gross realized gains and losses on sales of investment securities and proceeds from sales and calls of investment securities for the periods indicated (in
thousands):

Years Ended December 31,2001

2000

1999Gross realized gains

$
108

$


$
848Gross realized losses


(13
)

(2
)

(187
)Net gain (loss)

$
95

$
(2
)
$
661Applicable income tax (provision) benefit

$
(39
)
$
1

$
(267
)Proceeds from sales and calls

$
271,610

$
14,453

$
166,006


76

---

Note 8. Loans

The Company is engaged primarily in commercial real estate lending in the state of California. Loans are principally secured by commercial real estate and are
generally contractually due over periods of up to ten years. As of December 31, 2001, the Bank had pledged $312.4 million of its commercial real estate loans to secure its credit
facility with the FHLB.

The
activity in the allowance for loan losses for the periods indicated are presented in the table below (in thousands):

Years Ended December 31,2001

2000

1999Allowance for loan losses at beginning of period

$
7,240

$
6,450

$
5,024Provision for loan losses


660


604


1,677Net loan (charge-offs) recoveries:Charge-offs


(111
)

(123
)

(287
)Recoveries


157


309


36Net loan (charge-offs) recoveries


46


186


(251
)Allowance for loan losses at end of period

$
7,946

$
7,240

$
6,450


Accounts
which are deemed uncollectible by management or for which no payment has been received for five consecutive months are charged-off for the amount that is not
collateralized by the estimated fair value less selling costs of the underlying real estate collateral.



The Company classifies certain loans as impaired. A loan is considered impaired when, based on current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impaired loans are generally measured by the Company based on the present value of expected future cash flows discounted at the loan's
effective rate unless the loan is fully collateralized.

The
table below summarizes loan impairment data as of the dates or for the periods indicated (in thousands):

At or For the Years Ended December 31,2001

2000

1999Investment in impaired loans

$


$


$
210Valuation reserveimpaired loans








(29
)Average recorded investment in impaired loans





279


70


77

---



It is the Company's policy to suspend the recognition of income on any loan when any installment payment is 61 days or more contractually delinquent or
when management otherwise determines that collectibility of principal or interest is unlikely prior to the loan becoming 61 days past due. Recognition of income generally is resumed, and
suspended income is recognized, when the loan becomes contractually current.

There
were no non-accrual loans at December 31, 2001 and 2000. At December 31, 1999, the Company had non-accrual loans totaling $210,000. Foregone
interest on these non-accrual loans that was due but not recorded in income was $24,000 for the year ended December 31, 1999. Actual interest that was recognized on these
non-accrual loans was $24,000 for the year ended December 31, 1999.



During 1997, the Company initiated an SBA 7(a) loan program. Loans made under this program generally are made to small businesses to provide working capital or to
provide funding for the purchase of businesses, real estate, or machinery and equipment. SBA 7(a) loans are all adjustable rate based upon theWall Street
Journalprime lending rate. The SBA generally guarantees 75% - 85% of the loan balance. Under the SBA 7(a) program, the Company can sell in the secondary market the guaranteed
portion of selected SBA loans that it originates and can retain the unguaranteed portion of
the loans, as well as the servicing on the loans, for which it is paid a fee. The loan servicing spread is generally a minimum of 1.00% on all loans.

During
the fourth quarter of 2000, the Company initiated an SBA 504 loan program. Loans made by the Company under this program generally are made to small businesses to provide funding
for the purchase of real estate. Under this program, the Company generally provides up to 90% financing of the total purchase cost, represented by two loans to the borrower. The first lien loan is
generally a long-term, fixed rate loan and made in the amount of 50% of the total purchase cost. The Company's intent is to sell the first lien loans to other banks. The second lien loan
is a short-term, adjustable rate loan, based upon theWall Street Journalprime lending rate, and made in the amount of 40% of the total
purchase cost. The Company's second lien loan serves as an interim bridge loan to the borrower until the Certified Development Corporation ("CDC") obtains bond funding, pays off the Company's second
lien loan, and provides long-term, fixed rate financing directly to the borrower. The CDC pays off the Company's second lien loan generally within three months after the loan proceeds have
been fully disbursed by the Company to the borrower. The CDC is a non-profit corporation established to contribute to the economic development of its community by working together with the
SBA and private sector lenders such as the Bank, to provide financing to small businesses.

The
table below presents information related to SBA loan sales for the periods indicated (in thousands):

Years Ended December 31,2001

2000

1999Gains on SBA loan sales:SBA guaranteed 7(a) loans

$
395

$
112

$
250SBA 504 first lien loans


244





Total gains on SBA loan sales

$
639

$
112

$
250SBA loan sales:SBA guaranteed 7(a) loans

$
7,299

$
2,601

$
4,748SBA 504 first lien loans


4,592





Total SBA loan sales

$
11,891

$
2,601

$
4,748


78

---

As
of December 31, 2001, the Company had $12.8 million of SBA loans in its loan portfolio that were designated as held for sale, which consisted of $11.3 million of
the guaranteed portion of 7(a) loans and $1.5 million of 504 loans. As of December 31, 2000, the Company had $10.9 million of SBA loans held for sale, which consisted of
$8.8 million of the guaranteed portion of 7(a) loans and $2.1 million of 504 loans.

The
guaranteed portion of SBA loans that the Company had sold and was servicing for others at December 31, 2001 and 2000 was $13.2 million and $8.5 million,
respectively. These balances were not included in the Consolidated Balance Sheets.

Note 9. Other Real Estate Owned (OREO)

The Company accounts for other real estate owned ("OREO") in the Consolidated Balance Sheets at the lower of cost or fair value less estimated selling costs and
any associated valuation allowance. The Company had no OREO and no OREO valuation allowance as of December 31, 2001, 2000, and 1999. There was no activity in the OREO valuation allowance for
2001 and 2000. During 1999, the Company's OREO valuation allowance started the year with a balance of $235,000, then increased by $43,000 for valuation adjustments (reflected in the Consolidated
Statements of Income), and finally decreased by $278,000 for net charge-offs, resulting in a zero balance as of December 31, 1999.

Note 10. Premises and Equipment

Premises and equipment of the Company is presented in the table below as of the dates indicated (in thousands):

December 31,2001

2000Office furniture, fixtures and equipment

$
2,706

$
2,386Leasehold improvements


912


885Premises and equipment, gross


3,618


3,271Less: accumulated depreciation and amortization


(2,345
)

(1,959
)Premises and equipment, net

$
1,273

$
1,312


Depreciation
expense for the years ended December 31, 2001, 2000 and 1999 amounted to $386,000, $326,000, and $329,000, respectively.

Note 11. Deposits

Checking accounts and savings accounts have no contractual maturity. Certificates of deposit have maturities ranging from 30 days to five years. The
approximate remaining maturities of certificates of deposit in amounts less than $100,000 and $100,000 or more as of December 31, 2001 were as follows (in thousands):

Certificates of DepositLess Than
$100,000

$100,000
Or More

TotalThree months or less

$
35,003

$
15,152

$
50,155Over three months through twelve months


115,325


52,368


167,693Over one year through three years


20,748


10,030


30,778Over three years through five years


1,240


600


1,840Total

$
172,316

$
78,150

$
250,466


79

---

Note 12. Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreements are summarized as follows as of the dates or for the periods indicated (dollars in thousands):

At or For the Years Ended December 31,2001

2000

1999Balance at year-end

$


$
23,500

$
30,500Average balance during the year


4,015


31,153


15,741Maximum month-end balance during the year


10,000


51,100


32,500Weighted average interest rate during the year


5.38
%

6.49
%

5.53
%Weighted average interest rate at end of year





6.61
%

6.02
%


The
Company has short-term borrowing relationships with several brokers. The repayment terms on this short-term debt range from one day to three months. The
interest rate paid can vary daily, but typically approximates the federal funds rate plus 25 basis points. These borrowings are secured by pledging specific amounts of certain U.S. government
sponsored agency securities. The Company utilizes these borrowings to cover short-term financing needs.

Note 13. State of California Borrowings

The Bank has a fixed rate borrowing facility with the State of California Treasurer's Office under which the Bank can borrow an amount not to exceed its
unconsolidated total shareholder's equity. Borrowing maturity dates under this program cannot exceed one year. The State of California requires collateral with a market value of at least 110% of the
outstanding borrowing amount. The Bank pledges specific amounts of its U.S. government sponsored agency securities to meet the collateral requirement under this borrowing facility. As of
December 31, 2001, the Bank's total unconsolidated shareholder's equity was $51.0 million and the Bank had no outstanding borrowings from the State of California.

The
table below describes the attributes of the Bank's fixed rate borrowings from the State of California as of the date indicated (dollars in thousands):

December 31, 2000Borrowing DateAmount

Rate

Maturity DateOctober 2000

$
10,000

6.24
%
January 2001August 2000


5,000

6.43
%
February 2001October 2000


8,000

6.33
%
April 2001December 2000


5,000

6.24
%
June 2001Total State of California borrowings

$
28,000

6.30
%


80

---

Note 14. FHLB Advances

As of December 31, 2001, the Bank had fixed rate FHLB advances secured by commercial real estate loans. The table below describes the attributes of these
FHLB advances as of the date indicated (dollars in thousands):

December 31, 2001Borrowing DateAmount

Rate

Maturity DateNovember 2001

$
20,000

3.01
%
November 2003November 2001


20,000

3.30
%
May 2004Total FHLB advances

$
40,000

3.16
%


Note 15. Term Borrowings

The Company had fixed rate borrowings through one broker at December 31, 2001 and 2000. This debt is secured by pledging specific amounts of certain U.S.
government sponsored agency securities. The table below describe the attributes of the Company's term borrowings as of the dates indicated (dollars in thousands):

December 31, 2001 and 2000Borrowing DateAmount

Rate

Maturity DateOctober 2000

$
10,000

6.65
%
April 2002September 2000


20,000

6.62
%
September 2002October 2000


10,000

6.61
%
October 2002Total term borrowings

$
40,000

6.63
%


Note 16. Company Obligated Mandatorily Redeemable Preferred Security of Subsidiary of Trust Holding Solely Junior Subordinated Debentures

On September 22, 1997, PCC Capital completed a $17.25 million public offering of the Trust Preferred Securities and invested the gross proceeds from
the offering in junior subordinated debentures issued by Pacific Crest bearing interest at 9.375%. The junior subordinated debentures were issued concurrent with the issuance of the Trust Preferred
Securities. The interest on the junior subordinated debentures paid by Pacific Crest to PCC Capital represents the sole revenues of PCC Capital and the sole source of dividend distributions to the
holders of the Trust Preferred Securities. Pacific Crest has fully and unconditionally guaranteed all of PCC Capital's obligations under the Trust Preferred Securities. Pacific Crest has the right,
assuming no default has occurred, to defer payments of interest on the junior subordinated debentures at any time for a period not to exceed 20 consecutive quarters. The Trust Preferred Securities
will mature on October 1, 2027, but can be called in part or in total anytime after October 1, 2002 by PCC Capital.

81

---

Note 17. Income Taxes

The income tax provision for the periods indicated is presented in the table below (in thousands):

|          |         | Years Ended December 31,              |  
|--------- | ------- | ------------------------------------- | -
|
|Current:  |         |                                       |  
|          | Federal |                                       | $
|          | State   |                                       |  
|          |         |                                       |  
|          |         | Current income tax expense            |  
|          |         |                                       |  
|Deferred: |         |                                       |  
|          | Federal |                                       |  
|          | State   |                                       |  
|          |         |                                       |  
|          |         | Deferred income tax expense (benefit) |  
|          |         |                                       |  
|Total:    |         |                                       |  
|          | Federal |                                       |  
|          | State   |                                       |  
|          |         |                                       |  
|          |         | Income tax provision                  |  
|          |         |                                       |  

The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets as of the dates indicated are presented in the table below (in thousands):

|                     |                                                             | December 31,                                          |    
|-------------------- | ----------------------------------------------------------- | ----------------------------------------------------- | ---
|
|Deferred tax assets: |                                                             |                                                       |    
|                     | Unrealized loss on investment securities available for sale |                                                       | $  
|                     | Allowance for loan losses                                   |                                                       |    
|                     | Federal net loss carryback                                  |                                                       |    
|                     | Deferred gain on interest rate cap sale                     |                                                       |    
|                     | Reserves and accruals                                       |                                                       |    
|                     | State income taxes                                          |                                                       |    
|                     |                                                             |                                                       |    
|                     |                                                             | Total deferred tax assets                             |    
|Valuation allowance  |                                                             |                                                       | (45
|                     |                                                             |                                                       |    
|                     |                                                             | Total deferred tax assets, net of valuation allowance |    
|                     |                                                             |                                                       |    

The
table below presents a reconciliation between the federal statutory income tax rate and the effective income tax rate implicit in the Consolidated Statements of Income for the
periods indicated:

|                                                    |                           | Years Ended December 31, |      
|--------------------------------------------------- | ------------------------- | ------------------------ | -----
|
|Federal statutory income tax rate                   |                           | 35.00                    | %    
|State franchise tax rate, net of federal tax effect |                           | 7.26                     | %    
|Other, net                                          |                           | (1.31                    | %)   
|                                                    |                           |                          |      
|                                                    | Effective income tax rate |                          | 40.95
|                                                    |                           |                          |      

82

---

Note 18. Common Stock

The following table presents the activity in the number of shares of common stock and common stock in treasury for the periods indicated:

|                                      |                                        | Common
Stock                                |   | Common
Stock in
Treasury |          | Total (1) |         
|------------------------------------- | -------------------------------------- | ------------------------------------------- | - | ------------------------ | -------- | --------- | --------
|Number of shares at December 31, 1998 |                                        | 2,986,530                                   |   | (295,500                 | )        | 2,691,030 |         
|                                      |                                        |                                             |   |                          |          |           |         
|                                      | Issuances of common stock in treasury: |                                             |   |                          |          |           |         
|                                      |                                        | Employee stock purchase plan                |   |                         |          | 4,132     |         
|                                      |                                        | Non-employee directors' stock purchase plan |   |                         |          | 3,392     |         
|                                      |                                        | Employe stock option plan                   |   |                         |          | 16,670    |         
|                                      | Purchases of common stock in treasury  |                                             |  |                          | (113,500 | )         | (113,500
|                                      |                                        |                                             |   |                          |          |           |         
|Number of shares at December 31, 1999 |                                        | 2,986,530                                   |   | (384,806                 | )        | 2,601,724 |         
|                                      |                                        |                                             |   |                          |          |           |         
|                                      | Issuances of common stock in treasury: |                                             |   |                          |          |           |         
|                                      |                                        | Employee stock purchase plan                |   |                         |          | 3,520     |         
|                                      |                                        | Non-employee directors' stock purchase plan |   |                         |          | 4,096     |         
|                                      |                                        | Employe stock option plan                   |   |                         |          | 8,080     |         
|                                      | Purchases of common stock in treasury  |                                             |  |                          | (102,000 | )         | (102,000
|                                      |                                        |                                             |   |                          |          |           |         
|Number of shares at December 31, 2000 |                                        | 2,986,530                                   |   | (471,110                 | )        | 2,515,420 |         
|                                      |                                        |                                             |   |                          |          |           |         
|                                      | Issuances of common stock in treasury: |                                             |   |                          |          |           |         
|                                      |                                        | Employee stock purchase plan                |   |                         |          | 4,237     |         
|                                      |                                        | Non-employee directors' stock purchase plan |   |                         |          | 2,824     |         
|                                      |                                        | Employe stock option plan                   |   |                         |          | 2,168     |         
|                                      | Purchases of common stock in treasury  |                                             |  |                          | (104,500 | )         | (104,500
|                                      |                                        |                                             |   |                          |          |           |         
|Number of shares at December 31, 2001 |                                        | 2,986,530                                   |   | (566,381                 | )        | 2,420,149 |         
|                                      |                                        |                                             |   |                          |          |           |         

---

Note 19. Stock Option Plan and Stock Purchase Plans



The 1993 Equity Incentive Plan (the "Plan") is designed to promote and advance the interests of the Company and its shareholders by enabling the Company to
attract, retain and reward key employees. The Plan offers stock and cash incentive awards, as well as stock options. The maximum number of shares of common stock with respect to which awards may be
granted under the Plan was initially 150,000 shares as of December 1993. The number of shares under the Plan are to be increased by two percent (2%) of the total issued and outstanding shares
of the Company's common stock as of the first day of each year, beginning on January 1, 1995. The 2% per year increase of shares available under the Plan continues through the term of the Plan,
which expires on December 31, 2002.

The
maximum number of shares of common stock to which awards may be granted under the Plan at December 31, 2001 was 504,220, of which 492,931 stock options have been issued
through December 31, 2001. Of the stock options that have been issued through December 31, 2001, 35,906 have been exercised. The number of common shares added under the Plan on
January 1, 2002 was 48,403, increasing the cumulative number of shares that may be awarded under the Plan to 552,623 after January 1, 2002.

83

---

The
table below summarizes the activity of the Plan for the periods indicated:

|                                 |                   | Number of
Option
Shares |         | Range of
Exercise
Prices |             | Weighted
Average
Exercise
Price
|-------------------------------- | ----------------- | ----------------------- | ------- | ------------------------ | ----------- | -------------------------------
|Outstanding at December 31, 1998 |                   | 340,568                 |         | $3.50-$20.25             |             | $                              
|                                 |                   |                         |         |                          |             |                                
|                                 | Options granted   |                         | 56,050  |                          | 13.75-15.00 |                                
|                                 | Options cancelled |                         | (25,755 | )                        | 7.50-18.00  |                                
|                                 | Options exercised |                         | (16,670 | )                        | 3.50-12.00  |                                
|                                 |                   |                         |         |                          |             |                                
|Outstanding at December 31, 1999 |                   | 354,193                 |         | $3.50-$20.25             |             | $                              
|                                 |                   |                         |         |                          |             |                                
|                                 | Options granted   |                         | 73,150  |                          | 10.39-12.75 |                                
|                                 | Options cancelled |                         | (13,186 | )                        | 7.56-18.00  |                                
|                                 | Options exercised |                         | (8,080  | )                        | 3.50-12.00  |                                
|                                 |                   |                         |         |                          |             |                                
|Outstanding at December 31, 2000 |                   | 406,077                 |         | $3.50-$20.25             |             | $                              
|                                 |                   |                         |         |                          |             |                                
|                                 | Options granted   |                         | 55,800  |                          | 14.56-19.85 |                                
|                                 | Options cancelled |                         | (2,684  | )                        | 11.38-18.00 |                                
|                                 | Options exercised |                         | (2,168  | )                        | 7.56-12.00  |                                
|                                 |                   |                         |         |                          |             |                                
|Outstanding at December 31, 2001 |                   | 457,025                 |         | $3.50-$20.25             |             | $                              
|                                 |                   |                         |         |                          |             |                                

The
following table presents information on outstanding and exercisable stock options at December 31, 2001:

|              |  |           |  | Stock Options Outstanding |  | Stock Options Exercisable
|------------- |  | --------- |  | ------------------------- |  | -------------------------
|
|
|$3.50 - $4.00 |  | 3.1 years |  | 5,300                     |  | $                        
|4.01 - 6.00   |  | 2.3 years |  | 105,567                   |  |                          
|6.01 - 8.00   |  | 3.6 years |  | 75,435                    |  |                          
|10.00 - 12.00 |  | 6.6 years |  | 114,842                   |  |                          
|12.01 - 14.00 |  | 8.2 years |  | 11,500                    |  |                          
|14.01 - 16.00 |  | 7.2 years |  | 41,950                    |  |                          
|16.01 - 18.00 |  | 7.6 years |  | 97,431                    |  |                          
|18.01 - 20.25 |  | 8.3 years |  | 5,000                     |  |                          
|              |  |           |  |                           |  |                          
|              |  | 5.4 years |  | 457,025                   |  | $                        
|              |  |           |  |                           |  |                          

The
Company applies Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees("APB
25"), in accounting for the Plan, whereby compensation cost is measured as the excess, if any, of the quoted market price of the stock at the grant date
over the amount an employee must pay to acquire the stock. Stock options issued under the Plan have no intrinsic value at the grant date, and accordingly, under APB 25, no compensation cost is
recognized for them. Had compensation cost for the Plan been determined based on the fair value at the grant dates for awards under the Plan, consistent with the method prescribed by SFAS
No. 123,Accounting for Stock-based Compensation, the Company's net income and earnings per share would have been reduced to the pro forma
amounts

84

---

indicated in the following table for the periods presented (dollars and shares in thousands, except per share data):

|                                            |                         | Years Ended December 31, |  
|------------------------------------------- | ----------------------- | ------------------------ | -
|
|Net income:                                 |                         |                          |  
|                                            | As reported             |                          | $
|                                            | Pro forma               |                          | $
|Basic earnings per common share:            |                         |                          |  
|                                            | As reported             |                          | $
|                                            | Pro forma               |                          | $
|Diluted earnings per common share:          |                         |                          |  
|                                            | As reported             |                          | $
|                                            | Pro forma               |                          | $
|Weighted average common shares outstanding: |                         |                          |  
|                                            | Basic                   |                          |  
|                                            | Diluted                 |                          |  
|                                            |                         |                          |  
|Assumptions:                                |                         |                          |  
|                                            | Dividend yield          |                          |  
|                                            | Expected volatility     |                          |  
|                                            | Risk free interest rate |                          |  
|                                            | Expected life           |                          |  
|                                            |                         |                          |  

The
estimated weighted average fair value of stock options granted during 2001, 2000, and 1999 was $5.44, $4.00, and $5.68 per share, respectively.



The Company maintains an Employee Stock Purchase Plan ("ESPP") which allows employees to purchase shares of the Company's common stock at the lower of fair value
at the beginning of the plan year, or 90% of fair value at the end of the plan year. Employees' purchases may not exceed the lesser of $25,000 or 15% of their annual base compensation. Shares of
common stock purchased under the ESPP are not issuable until the end of the year. The maximum number of shares of common stock that may be issued under the ESPP is 75,000 shares. During 2001, the
Company issued 4,237 treasury shares under the ESPP, for a value of approximately $55,000. There were 41,674 shares available for issuance under the ESPP as of December 31, 2001.



The Company maintains a Non-Employee Directors' Stock Purchase Plan (the "Directors' Plan"). The Directors' Plan allows the directors to purchase the
stock of the Company from proceeds of their directors' fees. The directors purchased 2,824, 4,096 and 3,392 shares of common stock for a value of $49,800, $49,870 and $49,900 during the years ended
December 31, 2001, 2000, and 1999, respectively, under this plan.

Note 20. Dividends

As a Delaware corporation, Pacific Crest may pay common dividends out of surplus or, if there is no surplus, from net profits for the current and preceding fiscal
year. Pacific Crest, on an unconsolidated basis, had approximately $3.1 million in cash and investments less current liabilities and short-term debt at December 31, 2001.
However, these funds are necessary to pay future operating expenses of Pacific Crest, service all outstanding debt, including the $17.25 million junior subordinated

85

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debentures payable to PCC Capital, and fund possible future capital infusions into the Bank. Without dividends from the Bank, Pacific Crest must rely solely on existing cash, investments and the
ability to secure borrowings.

On
January 23, 2002, the Company announced that the Board of Directors had declared a cash dividend of $0.08 per common share for the first quarter of 2002. The dividend was paid
on March 15, 2002 to shareholders of record as of March 1, 2002. During 2001, the Company declared and paid aggregate cash dividends of $0.32 per common share for a total of $787,000.
During 2000, the Company declared and paid aggregate cash dividends of $0.28 per common share for a total of $706,000.

The
Bank's ability to pay dividends to Pacific Crest is restricted by California State law, which requires that sufficient retained earnings are available to pay the dividend. At
December 31, 2001, the Bank had retained earnings of $21.4 million available for future dividend payments. During 2001, the Bank declared and paid aggregate cash dividends of
$3.0 million to Pacific Crest. During 2000, the Bank declared and paid aggregate cash dividends of $2.2 million to Pacific Crest.

Note 21. Accumulated Other Comprehensive Income (Loss)

The following table presents accumulated other comprehensive income (loss) and the components of other comprehensive income (loss) for the periods indicated (in
thousands):

|                                                                   |                                                                                | Years Ended December 31,                                                           |                                                             
|------------------------------------------------------------------ | ------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------- | ------------------------------------------------------------
|
|Accumulated other comprehensive income (loss) at beginning of year |                                                                                | $                                                                                  | (1,532                                                      
|Other comprehensive income (loss), net of income taxes:            |                                                                                |                                                                                    |                                                             
|                                                                   | Unrealized holding gains (losses) on investment securities available for sale: |                                                                                    |                                                             
|                                                                   |                                                                                | Unrealized holding gains (losses) arising during the period                        |                                                             
|                                                                   |                                                                                | Reclassification of realized net (gains) losses included in net income             |                                                             
|                                                                   |                                                                                |                                                                                    |                                                             
|                                                                   |                                                                                |                                                                                    | Total other comprehensive income (loss), before income taxes
|                                                                   |                                                                                | Income tax (expense) benefit on unrealized holding gains (losses)                  |                                                             
|                                                                   |                                                                                | Income tax expense (benefit) on realized net (gains) losses included in net income |                                                             
|                                                                   |                                                                                |                                                                                    |                                                             
|                                                                   |                                                                                |                                                                                    |                                                             
|                                                                   |                                                                                |                                                                                    |                                                             
|Accumulated other comprehensive loss at end of year                |                                                                                | $                                                                                  | (198                                                        
|                                                                   |                                                                                |                                                                                    |                                                             

86

---

Note 22. Regulatory Capital Requirements

Pacific Crest is subject to legal and regulatory requirements of the Federal Reserve, while the Bank is subject to legal and regulatory requirements of the
California Financial Code, California General Corporation Law and the FDIC. These legal and regulatory requirements specify certain minimum capital ratios and place limits on the size and type of
loans that may be made.

The
Bank may establish and maintain capital, surplus and undivided profits accounts and may from time to time allocate its shareholder's equity among such accounts so long as no part of
its contributed capital is allocated to the undivided profits account and the undivided profits account never exceeds the Bank's retained earnings.

Both
Pacific Crest and the Bank are subject to various regulatory capital requirements administered by the Federal Reserve and the FDIC. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on Pacific Crest's and the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both Pacific Crest and the 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. Capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.

Quantitative
measures established by regulation to ensure capital adequacy require both Pacific Crest and the Bank to maintain minimum amounts and ratios as set forth in the table below
of total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average quarterly assets. Management believes that both Pacific Crest and the Bank met all capital adequacy
requirements to which they were subject as of December 31, 2001 and 2000.

As
of December 31, 2001 and 2000, both Pacific Crest and the Bank maintained capital ratios that categorized them as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, a company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the
table below. There are no conditions known to management that would have changed either institution's category.

87

---

The
following tables present the amounts of regulatory capital and capital ratios for Pacific Crest and the Bank compared to their minimum well capitalized and capital adequacy
requirements as of the dates indicated (dollars in thousands):

|                                 |                                          | Actual                      |  | Minimum
Well Capitalized
Requirements |         | Minimum
Capital Adequacy
Requirements |      
|-------------------------------- | ---------------------------------------- | --------------------------- |  | ------------------------------------- | ------- | ------------------------------------- | -----
|
|December 31, 2001                |                                          |                             |  |                                       |         |                                       |      
|Leverage ratio                  |                                          |                             |  |                                       |         |                                       |      
|                                 | (Tier 1 capital to average total assets) |                             |  |                                       |         |                                       |      
|                                 |                                          | Pacific Crest Capital, Inc. |  | $                                     | 50,887  |                                       | 9.49 
|                                 |                                          | Pacific Crest Bank          |  | $                                     | 51,165  |                                       | 9.61 
|Tier 1 risk-based capital ratio |                                          |                             |  |                                       |         |                                       |      
|                                 | (Tier 1 capital to risk-weighted assets) |                             |  |                                       |         |                                       |      
|                                 |                                          | Pacific Crest Capital, Inc. |  | $                                     | 50,887  |                                       | 11.11
|                                 |                                          | Pacific Crest Bank          |  | $                                     | 51,165  |                                       | 11.22
|Total risk-based capital ratio  |                                          |                             |  |                                       |         |                                       |      
|                                 | (Total capital to risk-weighted assets)  |                             |  |                                       |         |                                       |      
|                                 |                                          | Pacific Crest Capital, Inc. |  | $                                     | 61,165  |                                       | 13.36
|                                 |                                          | Pacific Crest Bank          |  | $                                     | 56,895  |                                       | 12.47
|Average total assets            |                                          |                             |  |                                       |         |                                       |      
|                                 |                                          | Pacific Crest Capital, Inc. |  | $                                     | 536,150 |                                       |      
|                                 |                                          | Pacific Crest Bank          |  | $                                     | 532,367 |                                       |      
|Risk-weighted assets            |                                          |                             |  |                                       |         |                                       |      
|                                 |                                          | Pacific Crest Capital, Inc. |  | $                                     | 457,958 |                                       |      
|                                 |                                          | Pacific Crest Bank          |  | $                                     | 456,171 |                                       |      
|                                 |                                          |                             |  |                                       |         |                                       |      
|December 31, 2000                |                                          |                             |  |                                       |         |                                       |      
|Leverage ratio                  |                                          |                             |  |                                       |         |                                       |      
|                                 | (Tier 1 capital to average total assets) |                             |  |                                       |         |                                       |      
|                                 |                                          | Pacific Crest Capital, Inc. |  | $                                     | 47,263  |                                       | 7.16 
|                                 |                                          | Pacific Crest Bank          |  | $                                     | 47,704  |                                       | 7.36 
|Tier 1 risk-based capital ratio |                                          |                             |  |                                       |         |                                       |      
|                                 | (Tier 1 capital to risk-weighted assets) |                             |  |                                       |         |                                       |      
|                                 |                                          | Pacific Crest Capital, Inc. |  | $                                     | 47,263  |                                       | 10.63
|                                 |                                          | Pacific Crest Bank          |  | $                                     | 47,704  |                                       | 10.82
|Total risk-based capital ratio  |                                          |                             |  |                                       |         |                                       |      
|                                 | (Total capital to risk-weighted assets)  |                             |  |                                       |         |                                       |      
|                                 |                                          | Pacific Crest Capital, Inc. |  | $                                     | 58,270  |                                       | 13.11
|                                 |                                          | Pacific Crest Bank          |  | $                                     | 53,238  |                                       | 12.07
|Average total assets            |                                          |                             |  |                                       |         |                                       |      
|                                 |                                          | Pacific Crest Capital, Inc. |  | $                                     | 659,899 |                                       |      
|                                 |                                          | Pacific Crest Bank          |  | $                                     | 648,488 |                                       |      
|Risk-weighted assets            |                                          |                             |  |                                       |         |                                       |      
|                                 |                                          | Pacific Crest Capital, Inc. |  | $                                     | 444,524 |                                       |      
|                                 |                                          | Pacific Crest Bank          |  | $                                     | 441,009 |                                       |      
|                                 |                                          |                             |  |                                       |         |                                       |      

88

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Note 23. Retirement Savings and Supplemental Executive Retirement Plans

Company employees participate in the Company's 401(k) Plan (the "Retirement Plan"). The Retirement Plan covers substantially all employees. Employees may
contribute up to 15% of their salary up to a maximum of $10,500 for 2001, $10,500 for 2000, and $10,000 for 1999. The Company matches employee contribution amounts equal to 100% of the first 6% of
compensation contributed by each participant. Amounts charged to expense under the Retirement Plan for these matching
contributions were $255,000, $233,000, and $243,000 for the years ended December 31, 2001, 2000, and 1999, respectively.

At
December 31, 2001, four executive officers of the Company participated in the Company's Supplemental Executive Retirement Plan (the "Executive Retirement Plan"). The Executive
Retirement Plan provides for annual retirement benefits that would be payable to the executives on their normal retirement date. The Executive Retirement Plan provides for the offset for social
security benefits and matching 401(k) contributions made under the Retirement Plan. Offsets for social security and 401(k) matching contributions may be substantial.

The
following table presents activity in the Executive Retirement Plan for the periods indicated (in thousands):

Years Ended December 31,2001

2000

1999Change in Benefit ObligationBenefit obligation at beginning of the period

$
1,071

$
949

$
880Service cost


55


50


47Interest cost


87


78


65Actuarial (gain) loss


(90
)

(6
)

(43
)Benefit obligation at end of the period


1,123


1,071


949Change in Plan AssetsFair value of plan assets at beginning and end of period








Funded Status


(1,123
)

(1,071
)

(949
)Unrecognized prior service cost


159


175


191Unrecognized net actuarial (gain) loss


(116
)

(26
)

(20
)Accrued pension cost

$
(1,080
)
$
(922
)
$
(778
)


The
following table presents the components of net periodic pension cost for the periods indicated (in thousands):

Years Ended December 31,2001

2000

1999Service cost

$
55

$
50

$
47Interest cost


87


78


65Amortization of prior service cost


16


16


16Net periodic pension cost

$
158

$
144

$
128


Accrued
pension cost was reported in the Consolidated Balance Sheets under the caption "Accrued interest payable and other liabilities". Net periodic pension cost was reported in the
Consolidated Statements of Income under the caption "Salaries and employee benefits".

89

---

Note 24. Interest Rate Cap

On February 8, 2000, the Company sold its interest rate cap agreement for $2.5 million and recognized a deferred gain of $1.8 million, which
is reported in the Consolidated Balance Sheets under the caption, "Accrued interest payable and other liabilities". The interest rate cap agreement had originally been purchased on June 8,
1998, at a price of $925,000. The deferred gain is being amortized as a credit to "Interest expensedeposits" over the remaining life of the original interest rate cap agreement, which had
a maturity date of June 8, 2003. During the years ended December 31, 2001 and 2000, the amount of deferred gain amortization totaled $554,000 and $495,000, respectively, which resulted
in a reduction in interest expense on deposits. Conversely, during the year ended December 31, 1999, the amortization of the purchase price of the interest rate cap totaled $185,000, which
resulted in an increase in interest expense on deposits. As of December 31, 2001, the remaining unamortized balance of the deferred gain resulting from the sale of the interest rate cap totaled
$794,000.

Note 25. Commitments and Contingencies



The Company leases its office facilities. Future minimum rental payments required under operating leases that have initial and remaining
non-cancelable terms in excess of one year are approximately as indicated in the table below as of December 31, 2001 (in thousands):

Year ended December 31,2002

$
7422003


7532004


6112005


5752006


409Thereafter


743Total

$
3,833


Certain
leases contain rental escalation clauses based on increases in the Consumer Price Index and renewal options, which may be exercised by the Company. Rent expense for the years
ended December 31, 2001, 2000 and 1999 totaled $836,000, $743,000, and $829,000, respectively.



The Bank makes unfunded commitments with its commercial real estate term lending activities for building improvements to property. At December 31, 2001 and
2000, the Bank had unfunded commitments to fund loans secured by commercial real estate of $1.7 million and $1.8 million, respectively. The Bank's unfunded commercial real estate loan
commitments may involve to varying degrees, elements of credit and interest rate risk that are not recognized in the Consolidated Balance Sheets. The Company's exposure to credit loss is represented
by the contractual amount of these commitments. These risks are generally mitigated by the real estate collateral securing the commercial real estate loan commitments and the SBA guarantee on SBA loan
commitments.



During the fourth quarter of 2001, the Company received a favorable ruling from the Internal Revenue Service ("IRS") regarding an income tax refund claim of
approximately $800,000. In connection with this ruling, the Company recorded $300,000 of interest income on the refund claim in "Other income".

90

---



There are claims currently pending against the Company that management considers to be merely incidental to normal operations. In addition, management, after
review, including consultation with counsel, believes that the ultimate liability, if any, that could arise from such claims would not materially affect the Company's financial position or results of
operations.

Note 26. Estimated Fair Value of Financial Instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is
best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. 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. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS No. 107,Disclosures
About Fair Value of Financial Instruments, excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Because
no conventional market exists for a significant portion of the Company's financial instruments, and because of the inherent imprecision of estimating fair values for financial
instruments for which no conventional trading market exists, management believes that the fair market value estimates should be viewed as only approximate values that the Company would receive if the
Company's assets and liabilities were sold.

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

Securities purchased under resale agreementsThe carrying amounts of securities purchased under resale agreements approximate
their fair values due to the short maturity of these investments.

Investment securities available for saleFair value is based on the quoted market price of these securities by broker dealers
making a market for these securities on a national exchange.

LoansThe Company established the fair market value of the loan portfolio by segregating the loan portfolio into categories by
utilizing selected factors (i.e., payment history, collateral values, risk classification, cash flows) and then forecasting an estimated fair market value sale price for each of the established loan
categories. The estimated market value of the loan portfolio includes categories of loans the Company believes would sell at a premium between 0% and 3.0%, and categories of loans that would sell at a
discount between 0% and 25%. A significant number of the Company's variable rate loans contain "floors" or minimum interest rates. The Company's variable rate loans generally reprice on a quarterly
basis. Many of these same loans also contain covenants requiring penalties for early repayment. The Company believes that loans with these characteristics, as well as being well collateralized, with
no history of delinquencies, would sell at a premium. On the other hand, loans on a non-accrual basis, or loans that have been classified due to an identified weakness, even though fully
secured, could normally only be sold for a discount depending on the anticipated level of ultimate recovery upon liquidation of the collateral. Fair value then, is based upon the estimated sales
prices less cost of sales of these loans.

DepositsFair value of the Company's fixed maturity deposits are estimated using rates currently offered for deposits of
similar remaining maturities. The fair value of deposits with no stated maturity such as checking accounts and savings accounts are disclosed as the amount payable on demand.

91

---

Securities sold under repurchase agreementsThe carrying amounts of securities sold under repurchase agreements approximate
their fair values due to the short maturity of these borrowings.

State of California borrowings, FHLB advances, and term borrowingsThe fair values of the Company's debt are estimated using
discounted cash flow analysis based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Trust preferred securitiesFair value is based on the quoted market price of these securities by broker dealers making a
market for these securities on a national exchange.

Accrued interest receivable and payableThe carrying amounts of accrued interest receivable and payable approximate their fair
value.

The
carrying amounts and estimated fair values for certain of the Company's financial instruments as of the dates indicated are summarized in the following table (in thousands):

|            |                                              | December 31, 2001                           |                             | December 31, 2000
|----------- | -------------------------------------------- | ------------------------------------------- | --------------------------- | -----------------
|
|Assets      |                                              |                                             |                             |                  
|            | Securities purchased under resale agreements |                                             | $                           | 16,174           
|            | Investment securities available for sale:    |                                             |                             |                  
|            |                                              | U.S. agency callable bonds                  |                             |                  
|            |                                              | U.S. agency mortgage-backed securities      |                             |                  
|            |                                              | Corporate debt securities                   |                             |                  
|            |                                              |                                             |                             |                  
|            |                                              |                                             | Total investment securities |                  
|            |                                              |                                             |                             |                  
|            | Loans, net                                   |                                             |                             | 454,029          
|            | Accrued interest receivable                  |                                             |                             | 2,532            
|Liabilities |                                              |                                             |                             |                  
|            | Deposits:                                    |                                             |                             |                  
|            |                                              | Checking accounts                           |                             |                  
|            |                                              | Savings accounts                            |                             |                  
|            |                                              | Certificates of deposit                     |                             |                  
|            |                                              |                                             |                             |                  
|            |                                              |                                             | Total deposits              |                  
|            |                                              |                                             |                             |                  
|            | Borrowings:                                  |                                             |                             |                  
|            |                                              | Securities sold under repurchase agreements |                             |                  
|            |                                              | State of California borrowings              |                             |                  
|            |                                              | FHLB advances                               |                             |                  
|            |                                              | Term borrowings                             |                             |                  
|            |                                              | Trust preferred securities                  |                             |                  
|            |                                              |                                             |                             |                  
|            |                                              |                                             | Total borrowings            |                  
|            |                                              |                                             |                             |                  
|            | Accrued interest payable                     |                                             |                             | 995              
|            |                                              |                                             |                             |                  

92

---

Note 27. Parent Company Financial Information

The following table represents the condensed balance sheets of Pacific Crest Capital, Inc. (Parent company only) as of the dates indicated (in thousands):

|                     |                                                     | December 31,                               |  
|-------------------- | --------------------------------------------------- | ------------------------------------------ | -
|
|
|Assets               |                                                     |                                            |  
|                     | Cash and cash equivalents                           |                                            | $
|                     | Investment securities available for sale, at market |                                            |  
|                     | Other assets                                        |                                            |  
|                     | Investment in Pacific Crest Bank                    |                                            |  
|                     | Investment in PCC Capital I                         |                                            |  
|                     |                                                     |                                            |  
|                     |                                                     | Total assets                               |  
|                     |                                                     |                                            |  
|Liabilities          |                                                     |                                            |  
|                     | Securities sold under repurchase agreements         |                                            | $
|                     | Subordinated debentures due to PCC Capital I        |                                            |  
|                     | Other liabilities                                   |                                            |  
|                     |                                                     |                                            |  
|                     |                                                     | Total liabilities                          |  
|                     |                                                     |                                            |  
|Shareholders' Equity |                                                     |                                            |  
|                     | Common stock, at par                                |                                            |  
|                     | Additional paid-in capital                          |                                            |  
|                     | Retained earnings                                   |                                            |  
|                     | Accumulated other comprehensive income (loss)       |                                            |  
|                     | Common stock in treasury, at cost                   |                                            |  
|                     |                                                     |                                            |  
|                     |                                                     | Total shareholders' equity                 |  
|                     |                                                     |                                            |  
|                     |                                                     | Total liabilities and shareholders' equity |  
|                     |                                                     |                                            |  

The
following table presents the condensed statements of income of Pacific Crest Capital, Inc. (Parent company only) for the periods indicated (in thousands):

|                                      |                            | Years Ended December 31, |       
|------------------------------------- | -------------------------- | ------------------------ | ------
|
|
|Net interest expense                  |                            | $                        | (1,554
|Equity incomePacific Crest Bank      |                            |                          | 6,451 
|Dividend incomePCC Capital I         |                            |                          | 50    
|Loss on sale of investment securities |                            |                          |      
|Other income                          |                            |                          | 2     
|Non-interest expense                  |                            |                          | (409  
|                                      |                            |                          |       
|                                      | Income before income taxes |                          |       
|Income tax benefit                    |                            |                          | 845   
|                                      |                            |                          |       
|                                      | Net income                 |                          | $     
|                                      |                            |                          |       

93

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The
following table presents the condensed statements of cash flows of Pacific Crest Capital, Inc. (Parent company only) for the periods indicated (in thousands):

|                                                     |                                                                               | Years Ended December 31,                         |                                      
|---------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------------------
|
|
|Operating activities:                                |                                                                               |                                                  |                                      
|                                                     | Net income                                                                    |                                                  | $                                    
|                                                     | Adjustments to reconcile net income to net cash used in operating activities: |                                                  |                                      
|                                                     |                                                                               | Loss on sale of investment securities            |                                      
|                                                     |                                                                               | Equity incomePacific Crest Bank                 |                                      
|                                                     |                                                                               | Net change to other assets and other liabilities |                                      
|                                                     |                                                                               |                                                  |                                      
|                                                     |                                                                               |                                                  | Net cash used in operating activities
|                                                     |                                                                               |                                                  |                                      
|Investing activities:                                |                                                                               |                                                  |                                      
|                                                     | Purchase of investment securities                                             |                                                  |                                      
|                                                     | Proceeds from sales of investment securities                                  |                                                  |                                      
|                                                     | Dividends received from Pacific Crest Bank                                    |                                                  |                                      
|                                                     |                                                                               |                                                  |                                      
|                                                     |                                                                               | Net cash provided by investing activities        |                                      
|                                                     |                                                                               |                                                  |                                      
|Financing activities:                                |                                                                               |                                                  |                                      
|                                                     | Increase (decrease) in securities sold under repurchase agreements            |                                                  |                                      
|                                                     | Increase (decrease) in term borrowings                                        |                                                  |                                      
|                                                     | Proceeds from issuance of common stock                                        |                                                  |                                      
|                                                     | Purchase of common stock in treasury, at cost                                 |                                                  |                                      
|                                                     | Cash dividends paid                                                           |                                                  |                                      
|                                                     |                                                                               |                                                  |                                      
|                                                     |                                                                               | Net cash used in financing activities            |                                      
|                                                     |                                                                               |                                                  |                                      
|Net increase (decrease) in cash and cash equivalents |                                                                               |                                                  | 2,999                                
|Cash and cash equivalents at beginning of period     |                                                                               |                                                  | 227                                  
|                                                     |                                                                               |                                                  |                                      
|                                                     |                                                                               | Cash and cash equivalents at end of period       |                                      
|                                                     |                                                                               |                                                  |                                      

94

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Note 28. Selected Quarterly Financial Data (Unaudited)

The following table presents selected quarterly financial data for the periods indicated (in thousands, except per share data):

|                           |                                                     | Year Ended December 31, 2001
|-------------------------- | --------------------------------------------------- | ----------------------------
|
|Interest income            |                                                     | $                           
|Interest expense           |                                                     |                             
|                           |                                                     |                             
|                           | Net interest income                                 |                             
|Provision for loan losses  |                                                     |                             
|                           |                                                     |                             
|                           | Net interest income after provision for loan losses |                             
|Non-interest income        |                                                     |                             
|                           |                                                     |                             
|Non-interest expense:      |                                                     |                             
|                           | Salaries and employee benefits                      |                             
|                           | Other operating expenses                            |                             
|                           |                                                     |                             
|                           |                                                     | Total operating expenses    
|                           | OREO and collection expense                         |                             
|                           |                                                     |                             
|                           |                                                     | Total non-interest expense  
|                           |                                                     |                             
|Income before income taxes |                                                     |                             
|Income tax provision       |                                                     |                             
|                           |                                                     |                             
|                           | Net income                                          |                             
|                           |                                                     |                             
|Earnings per common share: |                                                     |                             
|                           | Basic                                               |                             
|                           | Diluted                                             |                             
|                           |                                                     |                             

95

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|                           |                                                     | Year Ended December 31, 2000
|-------------------------- | --------------------------------------------------- | ----------------------------
|
|Interest income            |                                                     | $                           
|Interest expense           |                                                     |                             
|                           |                                                     |                             
|                           | Net interest income                                 |                             
|Provision for loan losses  |                                                     |                             
|                           |                                                     |                             
|                           | Net interest income after provision for loan losses |                             
|Non-interest income        |                                                     |                             
|                           |                                                     |                             
|Non-interest expense:      |                                                     |                             
|                           | Salaries and employee benefits                      |                             
|                           | Other operating expenses                            |                             
|                           |                                                     |                             
|                           |                                                     | Total operating expenses    
|                           | OREO and collection expense                         |                             
|                           |                                                     |                             
|                           |                                                     | Total non-interest expense  
|                           |                                                     |                             
|Income before income taxes |                                                     |                             
|Income tax provision       |                                                     |                             
|                           |                                                     |                             
|                           | Net income                                          |                             
|                           |                                                     |                             
|Earnings per common share: |                                                     |                             
|                           | Basic                                               |                             
|                           | Diluted                                             |                             
|                           |                                                     |                             

96

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INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Pacific Crest Capital, Inc.

We have audited the accompanying consolidated balance sheets of Pacific Crest Capital, Inc. and subsidiaries (the "Company") as of December 31, 2001
and 2000, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the 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, such consolidated financial statements present fairly, in all material respects, the financial position of Pacific Crest Capital, Inc. and subsidiaries at
December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

DELOITTE &
TOUCHE LLP

Los
Angeles, California
January 31, 2002

97

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ITEM 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

PART III

ITEM 10.    Directors and Executive Officers of the Registrant

Incorporated herein by reference is the information from the section entitled "Election of Directors" from the Company's definitive Proxy Statement, to be filed
with the SEC within 120 days after December 31, 2001. Reference is also made in connection with the list of Executive Officers which is provided under Item 4(a), "Executive Officers of
the Registrant."

ITEM 11.    Executive Compensation

Incorporated herein by reference is the information from the sections entitled "Board of Directors Compensation," "Executive Compensation" and "Certain
Relationships and Related TransactionsCompensation Committee Interlocks and Insider Participation" from the Company's definitive Proxy Statement, to be filed with the SEC within
120 days after December 31, 2001.

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management

Incorporated herein by reference is the information from the section entitled "Beneficial Ownership of Principal Shareholders and Management" from the Company's
definitive Proxy Statement, to be filed with the SEC within 120 days after December 31, 2001.

ITEM 13.    Certain Relationships and Related Transactions

Incorporated herein by reference is the information from the section entitled "Certain Relationships and Related Transactions" from the Company's definitive Proxy
Statement, to be filed with the SEC within 120 days after December 31, 2001.

PART IV

ITEM 14.    Exhibits, Financial Statements, Schedules, and Reports on Form 8-K



|Number  |  | Description                                                  
|------- |  | -------------------------------------------------------------
|3(i).1  |  | Amended and restated Certificate of Incorporation(1)         
|3(ii).1 |  | Amended and restated Bylaws of Pacific Crest Capital, Inc.(1)
|        |  |                                                              

98

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|4.1     |  | Subordinated Indenture dated as of September 22, 1997, by and between Pacific Crest Capital and Wilmington Trust Company, as indenture trustee(10)
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|4.2     |  | Officers' Certificate and Company Order dated September 22, 1997(10)                                                                              
|4.3     |  | Certificate of Trust of PCC Trust I dated August 18, 1997(10)                                                                                     
|4.4     |  | Trust Agreement of PCC Trust I dated as of August 18, 1997(10)                                                                                    
|4.5     |  | Certificate of Amendment to Certificate of Trust of PCC Trust I dated August 20, 1997(10)                                                         
|4.6     |  | Amended and Restated Trust Agreement of PCC Capital I, dated as of September 22, 1997(10)                                                         
|4.7     |  | Form of Trust Preferred Certificate of PCC Capital I (included as an exhibit to exhibit 4.6)(10)                                                  
|4.8     |  | Form of Common Securities Certificate of PCC Capital I (included as an exhibit to exhibit 4.6)(10)                                                
|4.9     |  | Guarantee Agreement dated as of September 22, 1997(10)                                                                                            
|4.10    |  | Agreement as to Expenses and Liabilities(10)                                                                                                      
|10.1    |  | Form of Indemnification Agreement(3)*                                                                                                             
|10.2    |  | Pacific Crest Capital, Inc. 1993 Equity Incentive Plan, as amended(5)*                                                                            
|10.3    |  | Pacific Crest Capital, Inc. Retirement Plan and Trust(3)*                                                                                         
|10.4    |  | 1994 Employee Stock Purchase Plan, as amended(6)*                                                                                                 
|10.5    |  | Form of Split Dollar Agreement(3)*                                                                                                                
|10.6    |  | Pacific Crest Capital, Inc. Supplemental Executive Retirement Plan(3)*                                                                            
|10.7    |  | Form of Distribution Agreement(1)                                                                                                                 
|10.8    |  | Form of Tax Sharing Agreement between Pacific Crest Capital, Inc. and The Foothill Group, Inc.(3)                                                 
|10.9    |  | Office lease between 9320 Wilshire Associates and Pacific Crest Bank, dated May 16, 2001 (Beverly Hills Branch)(12)                               
|10.10   |  | Office lease between Gulf Construction Company and Pacific Crest Bank, dated December 4, 1998 (San Diego Branch)(12)                              
|10.11   |  | Office lease between Robert Sarno, Trustee and Frances Sarno, Trustee and Pacific Crest Bank, dated December 31, 1997 (Encino Branch)(12)         
|10.12   |  | Office lease between The Klussman Family Trust and Pacific Crest Bank, dated December 16, 1998 (Agoura Hills Corporate Office)(12)                
|10.13   |  | Office lease between American Brewing Company, Ltd. and Pacific Crest Bank, dated October 17, 2000 (San Diego SBA Loan Production Office)(12)     
|10.14.1 |  | Employment Agreement between the Company and Gary Wehrle(12)*                                                                                     
|10.14.2 |  | Employment Agreement between the Company and Barry Otelsberg(4)*                                                                                  
|10.14.3 |  | Employment Agreement between the Company and Lyle Lodwick(4)*                                                                                     
|10.14.4 |  | Employment Agreement between the Company and Robert J. Dennen(4)*                                                                                 
|        |  |                                                                                                                                                   

99

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|10.14.5 |  | Employment Agreement between the Company and Gonzalo Fernandez(7)*                                                                          
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|10.14.6 |  | Employment Agreement between the Company and M. Carolyn Reinhart(11)*                                                                       
|10.15   |  | 1996 Non-Employee Directors' Stock Plan(8)*                                                                                                 
|21.1    |  | Subsidiaries of the Registrant(2)                                                                                                           
|23.1    |  | Consent of Independent Auditors(2)                                                                                                          
|25.1    |  | Form T-1 Statement of Eligibility of Wilmington Trust Company to act as Trustee under the Subordinated Indenture(9)                         
|25.2    |  | Form T-1 Statement of Eligibility of Wilmington Trust Company to act as Trustee under the Amended and Restated Trust Agreement(9)           
|25.3    |  | Form T-1 Statement of Eligibility of Wilmington Trust Company to act as Trustee under the Trust Preferred Securities Guarantee Agreements(9)

---

Notes

100

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SIGNATURES

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

| |  | PACIFIC CREST CAPITAL, INC.
| |  | ---------------------------
| |  | By:                        

Date: March 28, 2002

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated:

|Signature                               |  | Title                                                                                                     |  | Date          
|--------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | --------------
|                                        |  |                                                                                                           |  |               
|/s/GARY WEHRLEGary Wehrle               |  | Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)                |  | March 28, 2002
|/s/ROBERT J. DENNENRobert J. Dennen     |  | Senior Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) |  | March 28, 2002
|/s/RUDOLPH I. ESTRADARudolph I. Estrada |  | Director                                                                                                  |  | March 28, 2002
|/s/MARTIN J. FRANKMartin J. Frank       |  | Director                                                                                                  |  | March 28, 2002
|/s/RICHARD S. ORFALEARichard S. Orfalea |  | Director                                                                                                  |  | March 28, 2002
|/s/STEVEN J. ORLANDOSteven J. Orlando   |  | Director                                                                                                  |  | March 28, 2002

102

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