10-Q

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

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2002

or

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

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

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

        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

        As of April 30, 2002, the number of shares outstanding of the registrant's $.01 par value Common Stock was 2,430,332.

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

PACIFIC CREST CAPITAL, INC.

MARCH 31, 2002 FORM 10-Q

TABLE OF CONTENTS

				Page No.
PART I. FINANCIAL INFORMATION
	ITEM 1.	Consolidated Financial Statements
		Consolidated Balance Sheets March 31, 2002 and December 31, 2001		1
		Consolidated Statements of Income Three Months Ended March 31, 2002 and 2001		2
		Consolidated Statements of Changes in Shareholders' Equity Three Months Ended March 31, 2002 and 2001		3
		Consolidated Statements of Cash Flows Three Months Ended March 31, 2002 and 2001		4
		Notes to Consolidated Financial Statements		5
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		10
			Overview	10
			Quarterly Financial Data	14
			Quarterly Income Statements	16
			Quarterly Balance Sheets	17
			Quarterly Average Balance Sheets and Spread Data	18
			Results of Operations	19
			Financial Condition	27
			Non-Performing Assets	30
			Liquidity	30
			Dividends	31
			Capital Resources	31
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		32
PART II. OTHER INFORMATION
	ITEM 1.	Legal Proceedings		34
	ITEM 2.	Changes in Securities		34
	ITEM 3.	Defaults Upon Senior Securities		34
	ITEM 4.	Submission of Matters to a Vote of Security Holders		34
	ITEM 5.	Other Information		34
	ITEM 6.	Exhibits and Reports on Form 8-K		34

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

				March 31, 2002			December 31, 2001
				(Unaudited)			(Audited)
Assets
	Cash			$	6,920		$	2,508
	Securities purchased under resale agreements				4,162			16,174
		Cash and cash equivalents			11,082			18,682
	Investment securities available for sale, at market				77,510			58,952
	Loans:
		Commercial real estate loans			422,326			430,420
		SBA loans held for investment			10,041			11,369
		SBA loans held for sale, at lower of cost or market			14,148			12,797
		Other loans			7,830			7,393
			Gross loans		454,345			461,979
		Deferred loan costs (fees)			7			(4	)
		Allowance for loan losses			(8,376	)		(7,946	)
			Net loans		445,976			454,029
	Deferred income taxes, net				5,291			5,203
	Accrued interest receivable				2,689			2,532
	Prepaid expenses and other assets				4,196			4,087
	Premises and equipment				1,260			1,273
		Total assets		$	548,004		$	544,758
Liabilities
	Deposits:
		Checking accounts		$	18,836		$	14,912
		Savings accounts			133,509			136,145
		Certificates of deposit			252,092			250,466
			Total deposits		404,437			401,523
	Borrowings:
		FHLB advances			40,000			40,000
		Term borrowings			40,000			40,000
		Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures ("Trust preferred securities")			17,250			17,250
			Total borrowings		97,250			97,250
	Accrued interest payable and other liabilities				7,223			8,010
		Total liabilities			508,910			506,783
Shareholders' Equity
	Common stock, $.01 par value (10,000,000 shares authorized, 2,986,530 shares issued at March 31, 2002 and December 31, 2001)				30			30
	Additional paid-in capital				27,712			27,780
	Retained earnings				20,469			19,140
	Accumulated other comprehensive income (loss)				(351	)		(198	)
	Common stock in treasury, at cost (561,297 shares at March 31, 2002 and 566,381 shares at December 31, 2001)				(8,766	)		(8,777	)
			Total shareholders' equity		39,094			37,975
			Total liabilities and shareholders' equity	$	548,004		$	544,758
Tangible book value per common share				$	16.12		$	15.69

See accompanying Notes to Consolidated Financial Statements.

1

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

				Three Months Ended March 31,
				2002			2001
Interest income:
	Loans			$	9,503		$	9,428
	Securities purchased under resale agreements				103			132
	Investment securities available for sale				758			3,168
			Total interest income		10,364			12,728
Interest expense:
	Deposits:
		Checking accounts			63			113
		Savings accounts			701			1,569
		Certificates of deposit			2,990			5,139
			Total interest on deposits		3,754			6,821
	Borrowings:
		Securities sold under repurchase agreements			—			154
		State of California borrowings			—			282
		FHLB advances			311			—
		Term borrowings			663			662
		Trust preferred securities			404			404
			Total interest on borrowings		1,378			1,502
			Total interest expense		5,132			8,323
Net interest income					5,232			4,405
Provision for loan losses					100			40
		Net interest income after provision for loan losses			5,132			4,365
Non-interest income:
	Loan prepayment and late fee income				206			132
	Gain on sale of SBA 7(a) loans				—			161
	Gain on sale of SBA 504 loans and broker fee income				132			98
	Loss on sale of investment securities				—			(12	)
	Other income				286			160
			Total non-interest income		624			539
Non-interest expense:
	Salaries and employee benefits				2,181			1,601
	Net occupancy expenses				405			391
	Communication and data processing				246			253
	Legal, audit, and other professional fees				(1	)		113
	Travel and entertainment				107			87
	Other expenses				138			149
			Total non-interest expense		3,076			2,594
Income before income taxes					2,680			2,310
Income tax provision					1,157			964
Net income				$	1,523		$	1,346
Earnings per common share:
	Basic			$	0.63		$	0.54
	Diluted			$	0.58		$	0.51

See accompanying Notes to Consolidated Financial Statements.

2

PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(dollars and shares in thousands)

						Common Stock in Treasury
			Common Stock														Accumulated Other Comprehensive Income (Loss)
											Additional Paid-in Capital			Retained Earnings						Total Shareholders' Equity
			Shares	Amount		Shares		Amount
Balances at December 31, 2000			2,986	$	30	(471	)	$	(6,900	)	$	27,790		$	14,542		$	(1,532	)	$	33,930
Comprehensive income:
	Net income		—		—	—			—			—			1,346			—			1,346
	Unrealized loss on investment securities available for sale, net of income taxes		—		—	—			—			—			—			1,280			1,280
		Total comprehensive income																			2,626
Issuances of common stock in treasury:
	Employee stock purchase plan		—		—	4			62			(7	)		—			—			55
	Non-employee directors' stock purchase plan		—		—	1			12			1			—			—			13
	Employee stock option plan		—		—	2			25			(7	)		—			—			18
Purchase of common stock in treasury			—		—	(39	)		(724	)		—			—			—			(724	)
Cash dividends paid ($0.08 per share)			—		—	—			—			—			(199	)		—			(199	)
Balances at March 31, 2001			2,986	$	30	(503	)	$	(7,525	)	$	27,777		$	15,689		$	(252	)	$	35,719
Balances at December 31, 2001			2,986	$	30	(566	)	$	(8,777	)	$	27,780		$	19,140		$	(198	)	$	37,975
Comprehensive income:
	Net income		—		—	—			—			—			1,523			—			1,523
	Unrealized loss on investment securities available for sale, net of income taxes		—		—	—			—			—			—			(153	)		(153	)
		Total comprehensive income																			1,370
Issuances of common stock in treasury:
	Employee stock purchase plan		—		—	3			55			(4	)		—			—			51
	Non-employee directors' stock purchase plan		—		—	1			9			4			—			—			13
	Employee stock option plan		—		—	11			170			(68	)		—			—			102
Purchase of common stock in treasury			—		—	(10	)		(223	)		—			—			—			(223	)
Cash dividends paid ($0.08 per share)			—		—	—			—			—			(194	)		—			(194	)
Balances at March 31, 2002			2,986	$	30	(561	)	$	(8,766	)	$	27,712		$	20,469		$	(351	)	$	39,094

See accompanying Notes to Consolidated Financial Statements.

3

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

					Three Months Ended March 31,
					2002			2001
Operating activities:
	Net income				$	1,523		$	1,346
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for loan losses				100			40
		Gain on sale of SBA 7(a) loans held for sale				—			(161	)
		Gain on sale of SBA 504 loans held for sale				—			(70	)
		Proceeds from sales of SBA 7(a) loans held for sale				—			2,793
		Proceeds from sales of SBA 504 loans held for sale				—			1,253
		Loss on sale of investment securities				—			12
		Depreciation and amortization of premises and equipment				99			100
		Amortization (accretion) of deferred loan costs (fees)				3			(23	)
		Amortization of premium on investment securities				227			9
		Deferred income tax expense (benefit)				23			(22	)
		Changes in operating assets and liabilities:
			Accrued interest receivable			(157	)		2,659
			Prepaid expenses and other assets			(109	)		92
			Accrued interest payable and other liabilities			(787	)		(699	)
				Net cash provided by operating activities		922			7,329
Investing activities:
	Proceeds from calls and sales of callable bonds					—			145,188
	Purchases of mortgage-backed securities					(25,462	)		(60,499	)
	Principal payments on mortgage-backed securities					6,413			294
	Loan originations					(22,554	)		(6,934	)
	Loan purchases					(2,025	)		—
	Principal payments on loans					32,529			12,844
	Purchases of premises and equipment, net					(86	)		(83	)
		Net cash (used in) provided by investing activities				(11,185	)		90,810
Financing activities:
	Net increase (decrease) in checking accounts					3,924			(1,157	)
	Net decrease in savings accounts					(2,636	)		(6,202	)
	Net increase (decrease) in certificates of deposit					1,626			(20,888	)
	Net decrease in securities sold under repurchase agreements					—			(23,500	)
	Net decrease in State of California borrowings					—			(15,000	)
	Purchase of common stock in treasury, at cost					(223	)		(724	)
	Cash dividends paid					(194	)		(199	)
	Proceeds from exercise of stock options					102			18
	Proceeds from employees and directors stock purchase plans					64			68
			Net cash provided by (used in) financing activities			2,663			(67,584	)
Net (decrease) increase in cash and cash equivalents						(7,600	)		30,555
Cash and cash equivalents at beginning of period						18,682			5,336
Cash and cash equivalents at end of period					$	11,082		$	35,891

See accompanying Notes to Consolidated Financial Statements.

4

PACIFIC CREST CAPTIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)

Note 1. Basis of Presentation

        The interim consolidated financial statements included herein have been prepared by Pacific Crest Capital, Inc., without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading.

        The consolidated financial statements include the accounts of Pacific Crest Capital, Inc. ("Pacific Crest" or the "Parent") and its wholly owned subsidiaries, Pacific Crest Bank (the "Bank") and PCC Capital I ("PCC Capital"), which together are referred to as the "Company". All significant intercompany transactions and balances have been eliminated. Certain reclassifications have been made to prior period consolidated financial statements in order to conform to the current period presentation.

        In the opinion of management, all adjustments have been included, including normal recurring adjustments necessary to present fairly the financial position of the Company and the results of its operations for the interim period presented. The results of operations for this current interim period are not necessarily indicative of the results expected for any subsequent period or for the full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

Note 2. 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 tables below present the computation of tangible book value per common share as of the dates indicated (in thousands, except share data):

	March 31, 2002			December 31, 2001
Total shareholders' equity	$	39,094		$	37,975
Common shares issued		2,986,530			2,986,530
Less: common shares held in treasury		(561,297	)		(566,381	)
Common shares outstanding		2,425,233			2,420,149
Tangible book value per common share	$	16.12		$	15.69

Note 3. 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.

5

        The tables below present the basic and diluted earnings per common share computations for the periods indicated (dollars and shares in thousands, except per share data):

		Three Months Ended March 31,
		2002		2001
Net income		$	1,523	$	1,346
Basic weighted average common shares outstanding			2,424		2,507
Dilutive effect of potential common share issuances from stock options			224		155
Diluted weighted average common shares outstanding			2,648		2,662
Earnings per common share:
	Basic	$	0.63	$	0.54
	Diluted	$	0.58	$	0.51

Note 4. Supplemental Disclosure of Cash Flow Information

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

		Three Months Ended March 31,
		2002		2001
Cash paid during the period for:
	Interest	$	5,056	$	8,517
	Income taxes		675		226

Note 5. Investment Securities

        Investment securities have been classified in the Consolidated Balance Sheets according to management's intent and ability. Securities classified as available for sale are recorded at market value. Unrealized gains or losses on securities available for sale are excluded from earnings and reported in "Accumulated other comprehensive income (loss)," net of tax effect, as a separate component of

6

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

					Gross Unrealized
			Amortized Cost							Estimated Fair Value		Weighted Average Yield
					Gains		Losses
March 31, 2002
Investment securities available for sale:
	U.S. government sponsored agency mortgage-backed securities		$	73,988	$	431	$	(288	)	$	74,131	5.93	%
	Corporate debt securities			4,128		—		(749	)		3,379	4.01	%
		Total investment securities	$	78,116	$	431	$	(1,037	)	$	77,510	5.83	%
December 31, 2001
Investment securities available for sale:
	U.S. government sponsored agency mortgage-backed securities			55,169		368		—			55,537	5.31	%
	Corporate debt securities			4,124		—		(709	)		3,415	4.21	%
		Total investment securities	$	59,293		368	$	(709	)	$	58,952	5.24	%

        The Company's investment securities portfolio at March 31, 2002 consisted of fixed rate investments in 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 Company's entire investment securities portfolio at March 31, 2002 was scheduled to mature after ten years.

        U.S. government sponsored agency securities with market values totaling $42.0 million and $47.3 million were pledged to secure borrowings aggregating $40.0 million both at March 31, 2002 and at December 31, 2001, respectively.

Note 6. SBA Loans Held for Sale

        The table below presents the Company's U.S. Small Business Administration ("SBA") loans held for sale as of the dates indicated (in thousands):

		March 31, 2002		December 31, 2001
SBA guaranteed 7(a) loans		$	12,672	$	11,308
SBA 504 loans			1,476		1,489
	Total SBA loans held for sale	$	14,148	$	12,797

7

Note 7. FHLB Advances

        As of March 31, 2002 and December 31, 2001, the Bank had fixed rate FHLB advances secured by commercial real estate loans and a required $2.0 million investment in FHLB stock. The table below describes the attributes of these FHLB advances as of the dates indicated (dollars in thousands):

		March 31, 2002 and December 31, 2001
Borrowing Date
		Amount		Rate		Maturity Date
November 2001		$	20,000	3.01	%	November 2003
November 2001			20,000	3.30	%	May 2004
	Total FHLB advances	$	40,000	3.16	%

Note 8. Term Borrowings

        The Company had fixed rate, long-term borrowings through one broker at March 31, 2002 and December 31, 2001. This debt is secured by pledging specific amounts of certain U.S. government sponsored agency securities.

        The tables below reflect the attributes of the Company's term borrowings as of the dates indicated (dollars in thousands):

		March 31, 2002 and December 31, 2001
Borrowing Date
		Amount		Rate		Maturity Date
October 2000		$	10,000	6.65	%	April 2002
September 2000			20,000	6.62	%	September 2002
October 2000			10,000	6.61	%	October 2002
	Total term borrowings	$	40,000	6.63	%

Note 9. Recent Accounting Pronouncements

        In July of 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("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 March 31, 2002, the Company had no goodwill recorded on its Consolidated Balance Sheet. The adoption of the provisions of SFAS 141 and SFAS 142 did not have an 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 144 supersedes SFAS No. 121, Accounting for the Impairment of

8

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 144 was effective January 1, 2002. The adoption of SFAS 144 did not have a material impact on the Company's consolidated financial position or results of operations.

9

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following is management's discussion and analysis of the major factors that influenced the consolidated results of operations and financial condition of the Company for the period ended March 31, 2002. This analysis should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission, and with the unaudited financial statements and notes as set forth in this report.

OVERVIEW

Forward-Looking Information

        Certain matters discussed under this caption may constitute forward-looking statements under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. There can be no assurance that the results described or implied in such forward-looking statements will, in fact, be achieved and actual results, performance, and achievements could differ materially because the business of the Company involves inherent risks and uncertainties. These risks include, but are not limited to, general economic conditions nationally and in California, unanticipated credit losses in the Company's loan portfolio, rapid changes in interest rates, and other risks discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

Capital

        As of March 31, 2002, Pacific Crest's leverage ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio were 9.53%, 11.78%, and 13.96%, respectively. The Bank's leverage ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio were 9.52%, 11.75%, and 13.00%, 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.

Stock Repurchase Plan

        During the three months ended March 31, 2002, pursuant to its common stock repurchase program, the Company repurchased 10,000 shares of its common stock at an average cost per share of $22.32. The total amount paid for these shares was approximately $223,000. During the same period, 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 15,084 shares. As of March 31, 2002, the Company had 24,500 shares remaining authorized for repurchase under its common stock repurchase program.

Sale of Interest Rate Cap Agreement

        On February 8, 2000, the Company sold its interest rate cap agreement 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 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 three months ended March 31, 2002 and 2001, the amount of deferred gain amortization totaled $137,000, which resulted in a reduction in interest

10

expense on deposits. As of March 31, 2002, the remaining, unamortized deferred gain totaled $657,000 and will be amortized as follows: $417,000 for the last nine months of 2002 and $240,000 for the first six months of 2003.

Declining Interest Rate Environment

        During the first quarter of 2002, the Federal Reserve left the federal funds rate unchanged at 1.75%. However, during 2001, the Federal Reserve lowered the federal funds rate by a total of 475 basis points, to 1.75%. The impact of this cumulative reduction led to a lower interest rate environment in 2001, which continued into the first quarter of 2002, and resulted in (i) issuer calls of $219.2 million and Company sales of $10.0 million of the Company's fixed rate, U.S. government sponsored agency callable bonds (the "callable bonds"), (ii) downward repricing of the Company's adjustable rate loans, and (iii) 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.

Loan Originations

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

				Three Months Ended March 31,
				Amounts				Increase (Decrease)
				2002		2001		$			%
Commercial real estate loans				$	20,693	$	5,400	$	15,293		283.2	%
SBA business loans:
	7(a)—guaranteed portion				1,457		354		1,103		311.6	%
	7(a)—unguaranteed portion				404		72		332		461.1	%
		Total 7(a) loans			1,861		426		1,435		336.9	%
		Total 504 loans			—		1,108		(1,108	)	(100.0	)%
			Total SBA loans		1,861		1,534		327		21.3	%
			Total loan originations	$	22,554	$	6,934	$	15,620		225.3	%

11

Earnings Performance Summary

        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 (dollars in thousands, except per share data):

		Three Months Ended March 31,
		Amounts						Increase (Decrease)
		2002			2001			$		%
Net interest income		$	5,232		$	4,405		$	827	18.8	%
Provision for loan losses			100			40			60	150.0	%
Non-interest income			624			539			85	15.8	%
Non-interest expense			3,076			2,594			482	18.6	%
	Income before income taxes		2,680			2,310			370	16.0	%
Income tax provision			1,157			964			193	20.0	%
	Net income	$	1,523		$	1,346		$	177	13.2	%
Diluted earnings per share		$	0.58		$	0.51
Cash dividends per share		$	0.08		$	0.08
Return on average shareholders'
equity (1)			15.85	%		15.20	%
Return on average total assets			1.10	%		0.88	%
Operating expense to average
total assets			2.23	%		1.71	%
Efficiency ratio			52.53	%		52.34	%

(1)

Calculation excludes average accumulated other comprehensive income (loss) from average shareholders' equity.

Three Months Ended March 31, 2002 and 2001

        Net income was $1.5 million (or $0.58 per common share on a diluted basis) for the three months ended March 31, 2002, compared to $1.3 million (or $0.51 per common share on a diluted basis) for the corresponding period in 2001. Pre-tax income was $2.7 million for the three months ended March 31, 2002 and $2.3 million for the same period in 2001. The following describes the changes in the major components of pre-tax income for the three months ended March 31, 2002 compared to the same period in 2001:

•

Net interest income increased by $827,000, to $5.2 million, primarily due to a decrease in interest expense, which was attributable to the Company's lowering of interest rates on its deposits, related deposit run-off, and the pay-down of short-term borrowings. The decreases in interest rates on the Company's deposits resulted from a lower interest rate environment due to the reduction of 475 basis points, to 1.75%, in the federal funds rate by the Board of Governors of the Federal Reserve System (the "Federal Reserve") during 2001. Partially offsetting the decrease in interest expense was a decline in interest income, which was primarily due to the calls and sales of the Company's callable bonds.



•

Provision for loan losses increased by $60,000, to $100,000, reflecting management's evaluation of the allowance for loan losses and the risk inherent in the Company's loan portfolio. During the three months ended March 31, 2002, the allowance for loan losses increased by $430,000, to $8.4 million, which reflected the $100,000 provision and recoveries of $330,000. During the three months ended March 31, 2001, the allowance for loan losses increased by $157,000, to

12

$7.4 million, which reflected a $40,000 provision and recoveries of $117,000. The allowance for loan losses as a percentage of total loans was 1.84% and 1.89% at March 31, 2002 and 2001, respectively, and 1.72% at December 31, 2001.

•

Non-interest income increased by $85,000, to $624,000, primarily due to increases of $126,000, $74,000, and $34,000 in other income, loan prepayment and late fee income, and gain on sale of SBA 504 loans and broker fee income, respectively. The change in other income was principally attributable to $114,000 of interest income that the Company recorded in connection with a favorable IRS ruling that the Company received on an income tax refund claim. Partially offsetting these factors was a $161,000 gain on sale of SBA 7(a) loans in the first quarter of 2001, which was not repeated in the first quarter of 2002, as the Company sold no SBA 7(a) loans during the latter period.



•

Non-interest expense grew by $482,000, to $3.1 million, primarily due to an increase of $580,000 in salaries and employee benefits, partially offset by a reduction of $114,000 in legal, audit, and other professional fees. The growth in salaries and employee benefits was principally attributable to (i) an increase in marketing bonuses resulting from the higher level of loan originations during the first quarter of 2002 compared to the same period in 2001, and (ii) an increase in staff and related payroll costs in connection with the expansion of the Company's SBA lending program. The reduction in legal, audit, and other professional fees was primarily due to the $175,000 reversal of a portion of an accrual originally taken in the fourth quarter of 2001 for estimated expenses relating to obtaining a favorable ruling on an IRS income tax refund claim and settling a legal claim brought against the Bank.

13

QUARTERLY FINANCIAL DATA
(dollars in thousands, except per share data)

					At or For the Three Months Ended
					March 31, 2002			December 31, 2001			September 30, 2001			June 30, 2001			March 31, 2001
Loan Originations:
	Commercial real estate loans				$	20,693		$	48,048		$	24,938		$	19,397		$	5,400
	Commercial business loans (1)					—			3,150			3,075			—			—
	SBA business loans:
		7(a) loans—guaranteed portion				1,457			2,726			4,316			3,271			354
		7(a) loans—unguaranteed portion				404			880			1,382			1,060			72
			Total 7(a) loans			1,861			3,606			5,698			4,331			426
			Total 504 loans			—			3,299			2,180			4,590			1,108
			Total SBA business loans			1,861			6,905			7,878			8,921			1,534
				Total loan originations	$	22,554		$	58,103		$	35,891		$	28,318		$	6,934
Loan Sales:
	SBA guaranteed 7(a) loans				$	—		$	—		$	1,950		$	2,760		$	2,589
	SBA 504 first lien loans					—			1,872			299			1,238			1,183
		Total SBA loan sales			$	—		$	1,872		$	2,249		$	3,998		$	3,772
Performance Ratios:
	Return on average realized shareholders' equity (2) (3)					15.85	%		14.56	%		14.29	%		15.00	%		15.20	%
	Return on average total assets (2)					1.10	%		1.02	%		0.96	%		0.97	%		0.88	%
	Net interest rate spread					3.60	%		3.73	%		3.11	%		2.89	%		2.59	%
	Net interest margin					3.90	%		4.06	%		3.48	%		3.27	%		2.96	%
	Operating expense to average total assets (4)					2.23	%		2.76	%		2.06	%		1.94	%		1.71	%
	Efficiency ratio (5)					52.53	%		58.69	%		54.76	%		53.48	%		52.34	%
Average Balances:
	Average shareholders' equity				$	38,429		$	37,743		$	36,840		$	35,775		$	34,589
	Average realized shareholders' equity (3)					38,442			37,540			36,956			36,081			35,428
	Average total assets					551,527			536,363			552,589			559,864			608,456
Per Common Share Data:
	Cash dividends				$	0.08		$	0.08		$	0.08		$	0.08		$	0.08
	Basic earnings					0.63			0.56			0.54			0.55			0.54
	Diluted earnings					0.58			0.52			0.50			0.51			0.51
	Tangible book value					16.12			15.69			15.41			14.81			14.38
Common Shares (in thousands):
	Weighted average basic					2,424			2,432			2,463			2,478			2,507
	Weighted average diluted					2,648			2,625			2,657			2,658			2,662
	End of period, net of treasury shares					2,425			2,420			2,449			2,468			2,483

(1)

Primarily represents unsecured loans to financial institutions.

(2)

Calculation is based upon annualized net income.

(3)

Calculation excludes average accumulated other comprehensive income (loss) from average shareholders' equity.

(4)

Operating expense is defined as total non-interest expense less any OREO valuation adjustments, other OREO expenses, and credit and collection expenses. Calculation is based on annualized operating expense.

(5)

Efficiency ratio is defined as operating expense divided by the sum of net 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, and other income.

14

QUARTERLY FINANCIAL DATA
(dollars in thousands)

				At or For the Three Months Ended
				March 31, 2002			December 31, 2001			September 30, 2001			June 30, 2001			March 31, 2001
Non-Performing Assets:
	Non-accrual loans			$	153		$	—		$	—		$	—		$	889
	Other real estate owned (OREO)				—			—			—			—			—
		Total non-performing assets		$	153		$	—		$	—		$	—		$	889
	Non-accrual loans to total loans				0.03	%		—			—			—			0.23	%
	Total non-performing assets to total assets				0.03	%		—			—			—			0.15	%
Allowance for Loan Losses Activity:
	Allowance at beginning of quarter			$	7,946		$	7,559		$	7,414		$	7,397		$	7,240
	Provision for loan losses				100			430			150			40			40
	Net (charge-offs) recoveries:
		Charge-offs			—			(52	)		(25	)		(34	)		—
		Recoveries			330			9			20			11			117
			Total net (charge-offs) recoveries		330			(43	)		(5	)		(23	)		117
	Allowance at end of quarter			$	8,376		$	7,946		$	7,559		$	7,414		$	7,397
	Allowance to total loans				1.84	%		1.72	%		1.78	%		1.86	%		1.89	%
	Allowance to non-accrual loans				5474.51	%		—			—			—			832.06	%
	Annualized net (charge-offs) recoveries to average loans				0.29	%		(0.04	)%		0.00	%		(0.02	)%		0.12	%
Regulatory Capital Ratios:
	Pacific Crest Capital, Inc.
		Leverage ratio			9.53	%		9.49	%		9.06	%		8.77	%		7.87	%
		Tier 1 risk-based capital ratio			11.78	%		11.11	%		11.77	%		11.74	%		11.36	%
		Total risk-based capital ratio			13.96	%		13.36	%		14.14	%		14.18	%		13.87	%
	Pacific Crest Bank
		Leverage ratio			9.52	%		9.61	%		9.17	%		8.91	%		8.12	%
		Tier 1 risk-based capital ratio			11.75	%		11.22	%		11.89	%		11.90	%		11.61	%
		Total risk-based capital ratio			13.00	%		12.47	%		13.15	%		13.16	%		12.87	%
Regulatory Capital Data:
	Pacific Crest Capital, Inc.
		Tier 1 capital		$	52,568		$	50,887		$	50,076		$	49,103		$	47,961
		Total risk-based capital			62,281			61,165			60,145			59,330			58,523
		Average total assets			551,515			536,150			552,675			560,153			609,295
		Risk-weighted assets			446,093			457,958			425,425			418,364			422,049
	Pacific Crest Bank
		Tier 1 capital		$	52,154		$	51,165		$	50,340		$	49,549		$	48,736
		Total risk-based capital			57,739			56,895			55,659			54,781			54,010
		Average total assets			547,735			532,367			548,779			556,130			600,411
		Risk-weighted assets			443,988			456,171			423,296			416,393			419,803

15

QUARTERLY INCOME STATEMENTS
(in thousands)

				Three Months Ended
				March 31, 2002			December 31, 2001			September 30, 2001		June 30, 2001		March 31, 2001
Interest income:
	Loans			$	9,503		$	9,897		$	9,428	$	9,338	$	9,428
	Securities purchased under resale agreements				103			104			135		85		132
	Investment securities available for sale				758			855			1,760		2,323		3,168
		Total interest income			10,364			10,856			11,323		11,746		12,728
Interest expense:
	Checking accounts				63			76			107		107		113
	Savings accounts				701			814			1,182		1,288		1,569
	Certificates of deposit				2,990			3,302			3,960		4,593		5,139
		Total interest on deposits			3,754			4,192			5,249		5,988		6,821
	Securities sold under repurchase agreements				—			5			29		28		154
	State of California borrowings				—			—			193		134		282
	FHLB advances				311			166			—		—		—
	Term borrowings				663			677			677		670		662
	Trust preferred securities				404			404			404		405		404
		Total interest on borrowings			1,378			1,252			1,303		1,237		1,502
		Total interest expense			5,132			5,444			6,552		7,225		8,323
Net interest income					5,232			5,412			4,771		4,521		4,405
Provision for loan losses					100			430			150		40		40
	Net interest income after provision for loan losses				5,132			4,982			4,621		4,481		4,365
Non-interest income:
	Loan prepayment and late fee income				206			88			47		78		132
	Gain (loss) on sale of SBA 7(a) loans				—			(10	)		95		149		161
	Gain on sale of SBA 504 loans and broker fee income				132			205			69		131		98
	Gain (loss) on sale of investment securities				—			—			106		1		(12	)
	Other income				286			614			219		200		160
		Total non-interest income			624			897			536		559		539
Non-interest expense:
	Salaries and employee benefits				2,181			2,179			1,718		1,654		1,601
	Net occupancy expenses				405			466			397		411		391
	Communication and data processing				246			295			247		262		253
	Legal, audit, and other professional fees				(1	)		479			261		133		113
	Travel and entertainment				107			144			105		121		87
	Other expenses				138			140			120		135		149
			Total operating expenses		3,076			3,703			2,848		2,716		2,594
	Credit and collection expenses				—			—			—		—		—
	OREO valuation adjustments and other expenses				—			—			—		—		—
			Total non-interest expense		3,076			3,703			2,848		2,716		2,594
Income before income taxes					2,680			2,176			2,309		2,324		2,310
Income tax provision					1,157			810			989		971		964
			Net income	$	1,523		$	1,366		$	1,320	$	1,353	$	1,346

16

QUARTERLY BALANCE SHEETS
(in thousands)

				March 31, 2002			December 31, 2001			September 30, 2001			June 30, 2001			March 31, 2001
Cash				$	6,920		$	2,508		$	3,298		$	4,943		$	2,185
Securities purchased under resale agreements					4,162			16,174			33,312			4,990			33,706
	Cash and cash equivalents				11,082			18,682			36,610			9,933			35,891
Investment securities available for sale:
	U.S. agency callable bonds				—			—			—			78,981			83,980
	U.S. agency mortgage-backed securities				73,988			55,169			61,363			58,748			63,992
	Corporate debt securities				4,128			4,124			4,120			4,117			4,113
		Total amortized cost			78,116			59,293			65,483			141,846			152,085
	Unrealized gain (loss)				(606	)		(341	)		284			(493	)		(435	)
		Total market value			77,510			58,952			65,767			141,353			151,650
Loans:
	Commercial real estate loans				422,326			430,420			400,275			382,292			376,015
	SBA business loans				24,189			24,166			20,356			15,712			14,077
	Other loans				7,830			7,393			4,114			959			569
		Gross loans			454,345			461,979			424,745			398,963			390,661
	Deferred loan costs (fees)				7			(4	)		13			(24	)		39
	Allowance for loan losses				(8,376	)		(7,946	)		(7,559	)		(7,414	)		(7,397	)
		Net loans			445,976			454,029			417,199			391,525			383,303
Other assets					13,436			13,095			11,586			13,114			12,159
		Total assets		$	548,004		$	544,758		$	531,162		$	555,925		$	583,003
Deposits:
	Checking accounts			$	18,836		$	14,912		$	17,296		$	13,826		$	13,257
	Savings accounts				133,509			136,145			143,551			138,541			142,145
	Certificates of deposit				252,092			250,466			265,702			271,916			315,188
		Total deposits			404,437			401,523			426,549			424,283			470,590
Borrowings:
	State of California borrowings				—			—			—			30,000			13,000
	FHLB advances				40,000			40,000			—			—			—
	Term borrowings				40,000			40,000			40,000			40,000			40,000
	Trust preferred securities				17,250			17,250			17,250			17,250			17,250
		Total borrowings			97,250			97,250			57,250			87,250			70,250
		Total interest-bearing liabilities			501,687			498,773			483,799			511,533			540,840
Other liabilities					7,223			8,010			9,619			7,838			6,444
		Total liabilities		$	508,910		$	506,783		$	493,418		$	519,371		$	547,284
Shareholders' equity:
	Common stock, at par			$	30		$	30		$	30		$	30		$	30
	Additional paid-in capital				27,712			27,780			27,778			27,779			27,777
	Beginning retained earnings				19,140			14,542			14,542			14,542			14,542
	Year-to-date earnings				1,523			5,385			4,019			2,699			1,346
	Year-to-date dividends				(194	)		(787	)		(594	)		(398	)		(199	)
	Common stock in treasury, at cost				(8,766	)		(8,777	)		(8,195	)		(7,812	)		(7,525	)
		Total realized shareholders' equity			39,445			38,173			37,580			36,840			35,971
	Accumulated other comprehensive income (loss)—unrealized gain (loss) on investment securities, net of taxes				(351	)		(198	)		164			(286	)		(252	)
			Total shareholders' equity	$	39,094		$	37,975		$	37,744		$	36,554		$	35,719

17

QUARTERLY AVERAGE BALANCE SHEETS AND SPREAD DATA
(dollars in thousands)

				Three Months Ended
				March 31, 2002			December 31, 2001			September 30, 2001			June 30, 2001			March 31, 2001
Average Interest-Earning Assets:
	Loans, net of deferred loan fees			$	458,994		$	445,169		$	413,909		$	400,013		$	396,319
	Securities purchased under resale agreements				25,620			20,353			15,719			7,655			10,237
	Investment securities available for sale:
		Callable bonds			—			—			51,714			80,410			167,388
		Mortgage-backed securities			55,187			58,861			58,951			61,770			24,708
		Corporate debt securities			4,126			4,122			4,119			4,115			4,111
			Total investment securities		59,313			62,983			114,784			146,295			196,207
			Total interest-earning assets	$	543,927		$	528,505		$	544,412		$	553,963		$	602,763
Average Interest-Bearing Liabilities:
	Checking accounts			$	14,831		$	16,779		$	15,276		$	13,789		$	13,377
	Savings accounts				135,381			140,005			141,308			139,438			145,051
	Certificates of deposit				256,477			253,219			268,154			291,460			321,878
		Total deposits			406,689			410,003			424,738			444,687			480,306
	Securities sold under repurchase agreements				—			826			2,918			2,536			9,889
	State of California borrowings				—			—			20,946			12,077			17,833
	FHLB advances				40,000			20,870			—			—			—
	Term borrowings				40,000			40,000			40,000			40,000			40,000
	Trust preferred securities				17,250			17,250			17,250			17,250			17,250
		Total borrowings			97,250			78,946			81,114			71,863			84,972
		Total interest-bearing liabilities		$	503,939		$	488,949		$	505,852		$	516,550		$	565,278
Yields on Average Interest-Earning Assets:
	Loans, net of deferred loan fees				8.40	%		8.82	%		9.04	%		9.36	%		9.65	%
	Securities purchased under resale agreements				1.63	%		2.03	%		3.41	%		4.45	%		5.23	%
	Investment securities available for sale:
		Callable bonds			—			—			6.51	%		6.56	%		6.44	%
		Mortgage-backed securities			5.21	%		5.48	%		5.81	%		6.04	%		6.35	%
		Corporate debt securities			3.78	%		4.66	%		6.02	%		7.00	%		8.08	%
			Total investment securities		5.11	%		5.43	%		6.13	%		6.35	%		6.46	%
			Total interest-earning assets		7.73	%		8.15	%		8.25	%		8.50	%		8.56	%
Rates on Average Interest-Bearing Liabilities:
	Checking accounts				1.72	%		1.80	%		2.78	%		3.11	%		3.43	%
	Savings accounts				2.10	%		2.31	%		3.32	%		3.70	%		4.39	%
	Certificates of deposit				4.73	%		5.17	%		5.86	%		6.32	%		6.47	%
		Total deposits			3.74	%		4.06	%		4.90	%		5.40	%		5.76	%
	Securities sold under repurchase agreements				—			2.40	%		3.94	%		4.43	%		6.32	%
	State of California borrowings				—			—			3.61	%		4.39	%		6.33	%
	FHLB advances				3.15	%		3.18	%		—			—			—
	Term borrowings				6.63	%		6.62	%		6.62	%		6.63	%		6.62	%
	Trust preferred securities				9.37	%		9.37	%		9.37	%		9.39	%		9.37	%
		Total borrowings			5.68	%		6.27	%		6.33	%		6.84	%		7.08	%
		Total interest-bearing liabilities			4.13	%		4.42	%		5.14	%		5.61	%		5.97	%
Net Interest Rate Spread					3.60	%		3.73	%		3.11	%		2.89	%		2.59	%
Net Interest Margin					3.90	%		4.06	%		3.48	%		3.27	%		2.96	%

18

RESULTS OF OPERATIONS

Average Balances, Interest Income and Expense, Yields and Rates
Three Months Ended March 31, 2002 and 2001

        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 presented. All average balances are daily average balances (dollars in thousands):

					Three Months Ended March 31,
					2002							2001
					Average Balance			Interest Income/ Expense		Average Yield/ Rate		Average Balance			Interest Income/ Expense		Average Yield/ Rate
Interest-Earning Assets:
	Loans (1)				$	458,994		$	9,503	8.40	%	$	396,319		$	9,428	9.65	%
	Securities purchased under resale agreements					25,620			103	1.63	%		10,237			132	5.23	%
	Investment securities available for sale (2):
		U.S. government sponsored agency securities:
			Callable bonds			—			—	0.00	%		167,388			2,693	6.44	%
			Mortgage-backed securities			55,187			719	5.21	%		24,708			392	6.35	%
		Corporate debt securities				4,126			39	3.78	%		4,111			83	8.08	%
				Total investment securities		59,313			758	5.11	%		196,207			3,168	6.46	%
				Total interest-earning assets		543,927			10,364	7.73	%		602,763			12,728	8.56	%
Non-interest-earning assets						15,788							13,041
Less: allowance for loan losses						(8,188	)						(7,348	)
		Total assets			$	551,527						$	608,456
Interest-Bearing Liabilities:
	Checking accounts				$	14,831			63	1.72	%	$	13,377			113	3.43	%
	Savings accounts					135,381			701	2.10	%		145,051			1,569	4.39	%
	Certificates of deposit					256,477			2,990	4.73	%		321,878			5,139	6.47	%
			Total deposits			406,689			3,754	3.74	%		480,306			6,821	5.76	%
	Securities sold under repurchase agreements					—			—	0.00	%		9,889			154	6.32	%
	State of California borrowings					—			—	0.00	%		17,833			282	6.33	%
	FHLB advances					40,000			311	3.15	%		—			—	0.00	%
	Term borrowings					40,000			663	6.63	%		40,000			662	6.62	%
	Trust preferred securities					17,250			404	9.37	%		17,250			404	9.37	%
			Total borrowings			97,250			1,378	5.68	%		84,972			1,502	7.08	%
			Total interest-bearing liabilities			503,939			5,132	4.13	%		565,278			8,323	5.97	%
Non-interest-bearing liabilities						9,159							8,589
Shareholders' equity						38,429							34,589
Total liabilities and shareholders' equity					$	551,527						$	608,456
Excess of interest-earning assets over interest-bearing liabilities					$	39,988						$	37,485
Net interest income								$	5,232						$	4,405
Net interest rate spread (3)										3.60	%						2.59	%
Net interest margin (4)										3.90	%						2.96	%

(1)

Average balances of loans are calculated net of deferred loan fees, but include non-accrual loans which have a zero yield.

(2)

Average balances of investment securities available for sale are presented on a historical amortized cost basis.

(3)

Net interest rate spread represents the yield earned on average total interest-earning assets less the rate paid on average total interest-bearing liabilities.

(4)

Net interest margin is computed by dividing annualized net interest income by average total interest-earning assets.

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Net Changes in Average Balances, Composition, Yields and Rates
Three Months Ended March 31, 2002 and 2001

        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):

				Three Months Ended March 31,
				2002						2001						Increase (Decrease)
				Average Balance		% of Total		Average Yield/ Rate		Average Balance		% of Total		Average Yield/ Rate		Average Balance			% of Total		Average Yield/ Rate
Interest-Earning Assets:
	Loans			$	458,994	84.4	%	8.40	%	$	396,319	65.7	%	9.65	%	$	62,675		18.7	%	(1.25	)%
	Securities purchased under resale agreements				25,620	4.7	%	1.63	%		10,237	1.7	%	5.23	%		15,383		3.0	%	(3.60	)%
	Investment securities available for sale:
		U.S. government sponsored agency securities:
			Callable bonds		—	—		0.00	%		167,388	27.8	%	6.44	%		(167,388	)	(27.8	)%	(6.44	)%
			Mortgage-backed securities		55,187	10.1	%	5.21	%		24,708	4.1	%	6.35	%		30,479		6.0	%	(1.14	)%
		Corporate debt securities			4,126	0.8	%	3.78	%		4,111	0.7	%	8.08	%		15		0.1	%	(4.30	)%
			Total investment securities		59,313	10.9	%	5.11	%		196,207	32.6	%	6.46	%		(136,894	)	(21.7	)%	(1.35	)%
			Total interest-earning assets	$	543,927	100.0	%	7.73	%	$	602,763	100.0	%	8.56	%	$	(58,836	)			(0.83	)%
Interest-Bearing Liabilities:
	Checking accounts			$	14,831	2.9	%	1.72	%	$	13,377	2.4	%	3.43	%	$	1,454		0.5	%	(1.71	)%
	Savings accounts				135,381	26.9	%	2.10	%		145,051	25.7	%	4.39	%		(9,670	)	1.2	%	(2.29	)%
	Certificates of deposit				256,477	50.9	%	4.73	%		321,878	56.9	%	6.47	%		(65,401	)	(6.0	)%	(1.74	)%
		Total deposits			406,689	80.7	%	3.74	%		480,306	85.0	%	5.76	%		(73,617	)	(4.3	)%	(2.02	)%
	Securities sold under repurchase agreements				—	—		0.00	%		9,889	1.7	%	6.32	%		(9,889	)	(1.7	)%	(6.32	)%
	State of California borrowings				—	—		0.00	%		17,833	3.2	%	6.33	%		(17,833	)	(3.2	)%	(6.33	)%
	FHLB advances				40,000	7.9	%	3.15	%		—	0.0	%	0.00	%		40,000		7.9	%	3.15	%
	Term borrowings				40,000	7.9	%	6.63	%		40,000	7.1	%	6.62	%		—		0.8	%	0.01	%
	Trust preferred securities				17,250	3.5	%	9.37	%		17,250	3.0	%	9.37	%		—		0.5	%	0.00	%
		Total borrowings			97,250	19.3	%	5.68	%		84,972	15.0	%	7.08	%		12,278		4.3	%	(1.40	)%
		Total interest-bearing liabilities		$	503,939	100.0	%	4.13	%	$	565,278	100.0	%	5.97	%	$	(61,339	)			(1.84	)%
Excess of interest-earning assets over interest-bearing liabilities				$	39,988					$	37,485					$	2,503
Net interest rate spread								3.60	%					2.59	%						1.01	%
Net interest margin								3.90	%					2.96	%						0.94	%

Volume and Rate Variance Analysis of Net Interest Income
Three Months Ended March 31, 2002 and 2001

        The following table presents the dollar amount of changes in interest income and interest expense due to changes in average balances of interest-earning assets and interest-bearing liabilities and changes in interest rates. 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

20

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 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 (dollars in thousands):

					Three Months Ended March 31, 2002 vs. 2001
					Increase (Decrease) Due To
					Volume			Rate			Total
Interest Income:
	Loans				$	1,384		$	(1,309	)	$	75
	Securities purchased under resale agreements					105			(134	)		(29	)
	Investment securities available for sale:
		U.S. government sponsored agency securities:
			Callable bonds			(2,693	)		—			(2,693	)
			Mortgage-backed securities			407			(80	)		327
		Corporate debt securities				—			(44	)		(44	)
				Total investment securities		(2,286	)		(124	)		(2,410	)
				Total interest income		(797	)		(1,567	)		(2,364	)
Interest Expense:
	Checking accounts					11			(61	)		(50	)
	Savings accounts					(99	)		(769	)		(868	)
	Certificates of deposit					(925	)		(1,224	)		(2,149	)
			Total deposits			(1,013	)		(2,054	)		(3,067	)
	Securities sold under repurchase agreements					(154	)		—			(154	)
	State of California borrowings					(282	)		—			(282	)
	FHLB advances					311			—			311
	Term borrowings					—			1			1
	Trust preferred securities					—			—			—
			Total borrowings			(125	)		1			(124	)
			Total interest expense			(1,138	)		(2,053	)		(3,191	)
			Net Interest Income		$	341		$	486		$	827

21

Net Interest Income—Three Months Analysis

        Net interest income grew by $827,000, to $5.2 million, during the three months ended March 31, 2002 compared to the same period in 2001, primarily due to a $486,000 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. This factor was 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 a cumulative 475 basis point reduction, to 1.75%, in the federal funds rate by the Federal Reserve during 2001.

        The impact of the federal funds rate decreases in 2001 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 published Wall Street Journal prime lending rate. As of March 31, 2002, 84.4% and 42.0% 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 offsetting 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.

        Contributing to the above $486,000 growth in net interest income attributable to changes in interest rates, was a $341,000 increase attributable to changes in volume. This was primarily due to (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. Partially offsetting these factors was a reduction in interest income resulting from the calls and sales of the Company's callable bonds. 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 101 basis points, to 3.60%, during the three months ended March 31, 2002, compared to the same period in 2001. This was primarily due to a decrease of 184 basis points, to 4.13%, in the rate paid on average total interest-bearing liabilities, partially offset by a decrease of 83 basis points, to 7.73%, 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 previously mentioned lowering by the Company of the interest rates on its deposits, as well as the change in the composition of the Company's average borrowings to lower rate, long-term FHLB advances during the first quarter of 2002, from higher rate, short-term borrowings during the first quarter of 2001. 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 principally from the calls and sales of the callable bonds.

Total Interest Income—Three Months Analysis

        Total interest income decreased by $2.4 million, to $10.4 million, during the three months ended March 31, 2002 compared to the same period in 2001. This was due to a decline in the yield earned on

22

average total interest-earning assets, which decreased interest income by $1.6 million, as well as to a reduction in the balance of these assets, which decreased interest income by $0.8 million.

        Average total interest-earning assets declined by $58.8 million, to $543.9 million, during the first quarter of 2002 compared to the same period in 2001, and was principally due to a reduction in average callable bonds of $167.4 million, partially offset by increases of $62.7 million and $30.5 million in average loans and average mortgage-backed securities, 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 84.4% during the three months ended March 31, 2002 from 65.7% during the same period in 2001.

        The reduction in average callable bonds of $167.4 million, to zero, was due to the liquidation of the Company's fixed rate callable bond portfolio during the first nine months of 2001. 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 lowering of the federal funds rate during the first nine months of 2001.

        The increase in average mortgage-backed securities of $30.5 million, to $55.2 million, was primarily due to fixed rate purchases of $25.5 million, in March of 2002, and $108.0 million, which occurred during the seven-month period from February of 2001 to August of 2001, partially offset by sales in May and August of 2001 totaling $42.4 million. The purchases made in March of 2002 were funded with the proceeds from the redemption of lower yielding short-term securities purchased under resale agreements, which will help to increase net interest income in future periods.

        The yield earned on average total interest-earning assets decreased by 83 basis points, to 7.73%, during the three months ended March 31, 2002 compared to the same period in 2001, primarily due to the following decreases in yields attributable to the declining interest rate environment during 2001, which continued into the first quarter of 2002:

•

The yield on average loans declined by 125 basis points, to 8.40%, primarily due to 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.



•

The yield on average short-term securities purchased under resale agreements decreased by 360 basis points, to 1.63%.



•

The yield on average fixed rate mortgage-backed securities dropped by 114 basis points, to 5.21%, primarily due to a slightly faster acceleration in the amortization of the premiums paid on the mortgage-backed securities, which was attributable to an increase in the payoffs of the underlying mortgage loans.



•

The yield on average adjustable rate corporate debt securities declined by 430 basis points, to 3.78%, reflecting the downward repricing of these adjustable rate instruments.

        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.

Total Interest Expense—Three Months Analysis

        Total interest expense decreased by $3.2 million, to $5.1 million, during the three months ended March 31, 2002 compared to the same period in 2001. This was due to a decline in the rate paid on average interest-bearing liabilities, which decreased interest expense by $2.1 million, as well as to a reduction in the balance of these liabilities, which reduced interest expense by $1.1 million.

23

        Average total interest-bearing liabilities declined by $61.3 million, to $503.9 million, during the first quarter of 2002 compared to the same period in 2001, and was primarily due to a decrease of $73.6 million in average deposits, partially offset by an increase of $12.3 million in average borrowings. 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 19.3% during the three months ended March 31, 2002 from 15.0% during the same period in 2001.

        The decline in average deposits of $73.6 million, to $406.7 million, during the first quarter of 2002 compared to the first quarter of 2001, was principally due to reductions of $65.4 million and $9.7 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 resulting deposit run-off principally with the proceeds from the calls and sales of the callable bonds.

        During the first quarter of 2002, the Company continued to lower interest rates on its checking accounts, savings accounts, and certificates of deposit with original maturities of one year or less. However, in an effort to attract long-term, fixed rate deposits during the current low interest rate environment, the Company increased the interest rates offered on its certificates of deposit with original maturities of three years or longer.

        The changes in the average balances of the Company's deposit products resulted in a shift in the composition of average deposits to lower rate checking and savings accounts from higher rate certificates of deposit. This reflected the Company's current strategy and efforts to help reduce the overall cost of its deposits. The percentage of average checking and savings accounts to average deposits rose to 36.9% during the first quarter of 2002, from 33.0% during the first quarter of 2001.

        The growth in average borrowings of $12.3 million, to $97.3 million, during the first quarter of 2002 compared to the first quarter of 2001, was principally due to $40.0 million of long-term FHLB advances obtained during the fourth quarter of 2001 and outstanding during the first quarter of 2002. This was partially offset by decreases of $17.8 million and $9.9 million in short-term average State of California borrowings and average securities sold under repurchase agreements, respectively. These short-term borrowings matured at various times during 2001 and were paid off by the Company primarily using the proceeds from the calls and sales of the callable bonds.

        The rate on average total interest-bearing liabilities decreased by 184 basis points, to 4.13%, during the three months ended March 31, 2002 compared to the same period in 2001, and was principally due to the reduction of 202 basis points, to 3.74%, in the rate on average deposits, as well as the reduction of 140 basis points, to 5.68%, in the rate on average borrowings. Partially offsetting these factors was the shift in the mix of average total interest-bearing liabilities to higher rate borrowings from lower rate deposits.

        The 202 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 171 basis points, 229 basis points, and 174 basis points in the rates on average checking accounts, average savings accounts, and average certificates of deposit, respectively. Contributing to the decrease in the rate on average deposits was the previously mentioned change in the composition of average deposits to lower rate checking and savings accounts from higher rate certificates of deposit.

        The Company anticipates that the rate on its average certificates of deposit will decline in the second quarter of 2002 and beyond, from the 4.73% average rate for the first quarter of 2002, 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, the date of the Company's

24

most recent rate changes, are 33 basis points to 250 basis points below the 4.73% average rate for the 2002 first quarter, and are listed as follows:

•

2.23% (all tiers) for both one and three month certificates.



•

2.47% (all tiers) for six month certificates.



•

2.47%—2.71% for one year certificates.



•

3.20%—3.68% for two year certificates.



•

3.44%—3.92% for three year certificates.



•

3.68%—4.16% for four year certificates.



•

3.92%—4.40% for five year certificates.

        The 140 basis point decrease in the rate on average borrowings was primarily due to the change in the composition of average borrowings resulting from (i) the payoffs and maturities during 2001 of short-term securities sold under repurchase agreements and State of California borrowings, bearing higher average rates of 6.32% and 6.33%, respectively, for the three months ended March 31, 2001, and (ii) the addition during the fourth quarter of 2001 of long-term FHLB advances, bearing a lower average rate of 3.15% for the three months ended March 31, 2002.

Provision for Loan Losses

        During the three months ended March 31, 2002, the Company increased its provision for loan losses by $60,000, to $100,000, compared to the same period in 2001. 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."

Non-interest Income

        The following table sets forth certain information with respect to the Company's non-interest income for the periods indicated (dollars in thousands):

		Three Months Ended March 31,
		Amounts					Increase (Decrease)
		2002		2001			$			%
Loan prepayment and late fee income		$	206	$	132		$	74		56.1	%
Gain on sale of SBA 7(a) loans			—		161			(161	)	(100.0	)%
Gain on sale of SBA 504 loans and broker fee income			132		98			34		100.0	%
Loss on sale of investment securities			—		(12	)		12		(100.0	)%
Other income			286		160			126		78.8	%
	Total non-interest income	$	624	$	539		$	85		15.8	%

        Non-interest income for the three months ended March 31, 2002 increased by $85,000, to $624,000, compared to the same period in 2001. This was primarily due to increases of $126,000, $74,000, and $34,000 in other income, loan prepayment and late fee income, and gain on sale of SBA 504 loans and broker fee income, respectively. The change in other income was principally attributable to $114,000 of interest income that the Company recorded in connection with a favorable IRS ruling that the Company received on an income tax refund claim. Partially offsetting these factors was a $161,000 gain on sale of SBA 7(a) loans in the first quarter of 2001, which was not repeated in the first quarter of 2002, as the Company sold no SBA 7(a) loans during the latter period.

25

Non-interest Expense

        The following table sets forth certain information with respect to the Company's non-interest expense for the periods indicated (dollars in thousands):

		Three Months Ended March 31,
		Amounts					Increase (Decrease)
		2002			2001		$			%
Salaries and employee benefits		$	2,181		$	1,601	$	580		36.2	%
Net occupancy expenses			405			391		14		3.6	%
Communication and data processing			246			253		(7	)	(2.8	)%
Legal, audit, and other professional fees			(1	)		113		(114	)	(100.9	)%
Travel and entertainment			107			87		20		23.0	%
Other expenses			138			149		(11	)	(7.4	)%
	Total non-interest expense	$	3,076		$	2,594	$	482		18.6	%

        Non-interest expense for the three months ended March 31, 2002 grew by $482,000, to $3.1 million, compared to the same period in 2001. This was primarily due to an increase of $580,000 in salaries and employee benefits, partially offset by a reduction of $114,000 in legal, audit, and other professional fees.

        The increase in salaries and employee benefits for the three months ended March 31, 2002, compared to the same period in 2001, was primarily due to the following factors:

•

In January of 2002, employee base salaries increased by approximately 4%.



•

In January of 2002, the Company hired a Senior Vice President to lead the Company's new business lending program for business professionals and small businesses.



•

Marketing bonuses increased due to the growth in loan originations to $22.6 million for the first quarter of 2002 from $6.9 million for the same period in 2001.



•

The Company expanded the staffing level of its SBA lending program. The average number of full-time SBA employees increased by six for the three months ended March 31, 2002 as compared to the same period in 2001.

        The reduction in legal, audit, and other professional fees was primarily due to the $175,000 reversal of a portion of an accrual originally taken during the fourth quarter of 2001 for estimated expenses relating to obtaining a favorable ruling on an IRS income tax refund claim and settling a legal claim brought against the Bank.

26

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)
				March 31, 2002			December 31, 2001
										$			%
Assets
	Cash and cash equivalents			$	11,082		$	18,682		$	(7,600	)	(40.7	)%
	Investment securities available for sale, at market				77,510			58,952			18,558		31.5	%
	Net loans				445,976			454,029			(8,053	)	(1.8	)%
	Other assets				13,436			13,095			341		2.6	%
		Total assets		$	548,004		$	544,758		$	3,246		0.6	%
Liabilities
	Checking accounts			$	18,836		$	14,912		$	3,924		26.3	%
	Savings accounts				133,509			136,145			(2,636	)	(1.9	)%
	Certificates of deposit				252,092			250,466			1,626		0.6	%
			Total deposits		404,437			401,523			2,914		0.7	%
	FHLB advances				40,000			40,000			—		—
	Term borrowings				40,000			40,000			—		—
	Trust preferred securities				17,250			17,250			—		—
			Total borrowings		97,250			97,250			—		—
			Total interest-bearing liabilities		501,687			498,773			2,914		0.6	%
	Other liabilities				7,223			8,010			(787	)	(9.8	)%
			Total liabilities		508,910			506,783			2,127		0.4	%
Shareholders' Equity
	Common stock, at par				30			30			—		0.0	%
	Additional paid-in capital				27,712			27,780			(68	)	(0.2	)%
	Retained earnings				20,469			19,140			1,329		6.9	%
	Accumulated other comprehensive income (loss)—unrealized gain (loss) on investment securities available for sale, net of income taxes				(351	)		(198	)		(153	)	(77.3	)%
	Common stock in treasury, at cost				(8,766	)		(8,777	)		11		0.1	%
			Total shareholders' equity		39,094			37,975			1,119		2.9	%
			Total liabilities and shareholders' equity	$	548,004		$	544,758		$	3,246		0.6	%

        Total assets grew by $3.2 million, to $548.0 million, during the three months ended March 31, 2002, primarily due to a $18.6 million increase in investment securities, partially offset by decreases of $8.1 million and $7.6 million in net loans and cash and cash equivalents, respectively.

        The $18.6 million increase in investment securities, to $77.5 million, was principally due to the $25.5 million purchases of higher yield mortgage-backed securities, using proceeds from the redemption of lower yield securities purchased under resale agreements. Partially offsetting this increase were principal payments on mortgage-backed securities totaling $6.4 million.

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        The $8.1 million decrease in net loans, to $446.0 million, was primarily due to $32.5 million of principal payments, partially offset by $22.6 million of loan originations and $2.0 million of loan purchases.

        The $7.6 million decrease in cash and cash equivalents, to $11.1 million, was principally due to the previously mentioned $25.5 million redemption of securities purchased under resale agreements to fund purchases of mortgage-backed securities, partially offset by principal payments received on loans and mortgage-backed securities.

        Total liabilities grew by $2.1 million, to $508.9 million, during the three months ended March 31, 2002, primarily due to an increase of $2.9 million in deposits.

        Shareholders' equity increased by $1.1 million, to $39.1 million, during the three months ended March 31, 2002. Changes in shareholders' equity were due to the following factors:

•

The Company recorded $1.5 million of net income for the first three months of 2002.



•

The Company declared and paid cash dividends of $194,000 for the first three months of 2002.



•

Accumulated other comprehensive loss (i.e. unrealized loss on investment securities available for sale, net of income taxes) increased by $153,000, primarily due to unrealized losses on the mortgage-backed securities purchased during the first three months of 2002.



•

Common stock in treasury decreased by $11,000 during the first three months of 2002, primarily due to the issuance of 15,084 shares of common stock in treasury, at an aggregate cost of $234,000, under the Company's employee stock purchase plan, non-employee directors stock purchase plan, and employee stock option plan. This decrease in treasury stock was partially offset by the $223,000 purchase of 10,000 shares of the Company's stock under its stock repurchase plan.

Allowance for Loan Losses

        The allowance for loan losses increased by $430,000, to $8.4 million, during the three months ended March 31, 2002, due to $100,000 in provision for loan losses and $330,000 in net recoveries. The allowance for loan losses as a percentage of loans was 1.84% at March 31, 2002, as compared to 1.72% at December 31, 2001.

        The overall economic factors and conditions affecting the Company's allowance for loan losses at March 31, 2002, are consistent with the various factors that the Company has experienced over the last 12 months. While there had been a general decline in the economy during the third and fourth quarters of 2001, there appears to have been a slight improvement in the economy during the first quarter of 2002.

        The Company's management considered the following recent loan loss and credit experience in evaluating the allowance for loan losses at March 31, 2002:

•

During the three months ended March 31, 2002, recoveries exceeded charge-offs by $330,000.



•

During the year ended December 31, 2001, recoveries exceeded charge-offs by $46,000.



•

There was only $153,000 of non-accrual loans and no other real estate owned at March 31, 2002.



•

Prior to March 31, 2002, there were no non-accrual loans at quarter end for the last three quarters.



•

During the first quarter of 2002, the prime rate remained unchanged at 4.75%. However, during 2001, the prime rate dropped 475 basis points, to 4.75%. As a result, most of the Company's adjustable rate borrowers experienced some decline in the interest payments on their loans,

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which strengthened their debt service capabilities. However, these borrowers did not realize the full impact of the prime rate reduction on their loan payments due to interest rate floors that exist on most of the Company's adjustable rate loans. As of March 31, 2002, 84.4% of the Company's loan portfolio consisted of adjustable rate loans, and 42.0% consisted of prime rate loans.

        In addition to 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. 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 ability to predict the direction of the current U.S. economy is difficult given the continued risk of terrorism, the negative impact of declines in corporate earnings, and the loss of consumer confidence. Management feels that the economy may only experience slow to modest growth during the remainder of 2002 and possibly into 2003. In considering all of the above factors, management believes that the allowance for loan losses as of March 31, 2002 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 table sets forth certain information with respect to the Company's allowance for loan losses for the periods indicated (dollars in thousands):

				Three Months Ended March 31, 2002			Three Months Ended March 31, 2001			Twelve Months Ended December 31, 2001
Allowance at beginning of period				$	7,946		$	7,240		$	7,240
	Provision for loan losses				100			40			660
	Net (charge-offs) recoveries:
		Charge-offs			—			—			(111	)
		Recoveries			330			117			157
			Total net (charge-offs) recoveries		330			117			46
Allowance at end of period				$	8,376		$	7,397		$	7,946
Allowance to total loans					1.84	%		1.89	%		1.72	%
Allowance to non-accrual loans					5474.51	%		NM			NM
Annualized net (charge-offs) recoveries to average loans					0.29	%		0.12	%		0.01	%

NM means Not Meaningful.

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NON-PERFORMING ASSETS

        The following table sets forth non-accrual loans and OREO as of the dates indicated (dollars in thousands):

		March 31, 2002			December 31, 2001		March 31, 2001
Non-accrual loans		$	153		$	—	$	889
Other real estate owned (OREO)			—			—		—
	Total non-performing assets	$	153		$	—	$	889
Non-accrual loans to total loans			0.03	%		—		0.23	%
Total non-performing assets to total assets			0.03	%		—		0.15	%

        As of March 31, 2002, the Company had non-accrual loans totaling $153,000, which consisted of two SBA 7(a) loans that had transferred from accrual status. Of this balance, $80,000 was guaranteed by the SBA.

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 March 31, 2002, the market values of U.S. government sponsored agency securities that were available for collateral purposes totaled $32.1 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 has pledged specific amounts of certain U.S. government sponsored agency securities to meet the collateral requirement under this borrowing facility. As of March 31, 2002, the Bank's unconsolidated total shareholder's equity was $51.8 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, which serves as a source 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 March 31, 2002, the Bank had pledged 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 March 31, 2002, the Bank had a required investment in FHLB stock of $2.0 million.

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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 $3.3 million in cash and investments less current liabilities and short-term debt at March 31, 2002. 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.

        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. On March 15, 2002, the Bank paid a cash dividend of $800,000 to Pacific Crest for the first quarter of 2002. At March 31, 2002, the Bank had retained earnings of $22.4 million available for future dividend payments.

        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.

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 minimum capital adequacy and minimum well capitalized category guidelines adopted by the Federal Reserve and the FDIC. These guidelines relate primarily to the leverage ratio, the Tier 1 risk-based capital ratio, and the total risk-based capital ratio. The minimum well capitalized required ratios are 5.00% leverage, 6.00% Tier 1 risk-based capital, and 10.00% total risk-based capital. The minimum capital adequacy required ratios are 4.00% leverage, 4.00% Tier 1 risk-based capital, and 8.00% total risk-based capital. At March 31, 2002, Pacific Crest and the Bank were in compliance with all such capital requirements.

        The following table presents the regulatory ratios of Pacific Crest and the Bank as of the dates indicated:

Actual			Leverage Ratio		Tier 1 Risk-Based Capital Ratio		Total Risk-Based Capital Ratio
	March 31, 2002
		Pacific Crest Capital, Inc.	9.53	%	11.78	%	13.96	%
		Pacific Crest Bank	9.52	%	11.75	%	13.00	%
	December 31, 2001
		Pacific Crest Capital, Inc.	9.49	%	11.11	%	13.36	%
		Pacific Crest Bank	9.61	%	11.22	%	12.47	%
Requirements
	Minimum Well Capitalized		5.00	%	6.00	%	10.00	%
	Minimum Capital Adequacy		4.00	%	4.00	%	8.00	%

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ITEM 3. 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 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 following table is a summary of the Company's one-year GAP as of the dates
indicated (in thousands):

	March 31, 2002			December 31, 2001			Increase (Decrease)
Total interest-sensitive assets maturing or repricing within one year ("one-year assets")	$	318,740		$	329,491		$	(10,751	)
Total interest-sensitive liabilities maturing or repricing within one year ("one-year liabilities")		406,556			408,971			(2,415	)
One-year GAP	$	(87,816	)	$	(79,480	)	$	(8,336	)

        The one-year GAP decreased by $8.3 million during the first three months of 2002, principally due to a decrease in one-year assets of $10.7 million, partially offset by a decrease in one-year liabilities of $2.4 million.

        The decline in one-year assets was primarily due to a $12.0 million decrease in securities purchased under resale agreements. This was principally attributable to the $25.5 million redemption of such securities to purchase long-term, fixed rate mortgage-backed securities, partially offset by the investment of cash received from principal payments on loans and mortgage-backed securities.

        The decline in one-year liabilities was primarily due to decreases of $3.7 million and $2.6 million in one-year certificates of deposit and savings accounts, respectively, partially offset by an increase of $3.9 million in checking accounts.

        The Company has assumed, for purposes of the GAP table below, that its checking and savings accounts reprice immediately.

        The GAP table below provides information about the Company's balance sheet non-derivative financial instruments at March 31, 2002 that are sensitive to changes in interest rates. For all financial instruments, the table presents the outstanding principal balance and the weighted average interest

32

yield/rate of the instruments by either the date that the instrument can be repriced, for adjustable rate financial instruments, or the maturity date, for fixed rate financial instruments (dollars in thousands):

			Maturity or Repricing Date
March 31, 2002			Within 6 Months			Over 6 to 12 Months			Over 12 to 18 Months			Over 18 to 24 Months			Over 24 Months			Total
Interest-Sensitive Assets:
	Securities purchased under resale agreements		$	4,162		$	—		$	—		$	—		$	—		$	4,162
		average yield (variable rate)		1.75	%		—			—			—			—			1.75	%
	U.S. government sponsored agency mortgage-backed securities			—			—			—			—			74,131			74,131
		average yield (fixed rate)		—			—			—			—			5.93	%		5.93	%
	Corporate debt securities			3,379			—			—			—			—			3,379
		average yield (variable rate)		4.01	%		—			—			—			—			4.01	%
	Loans, gross			252,783			58,416			18,347			24,254			100,545			454,345
		average yield		8.18	%		7.61	%		9.07	%		8.40	%		8.35	%		8.19	%
	Total interest-sensitive assets		$	260,324		$	58,416		$	18,347		$	24,254		$	174,676		$	536,017
Interest-Sensitive Liabilities:
	Checking accounts		$	18,836		$	—		$	—		$	—		$	—		$	18,836
		average rate (variable rate)		1.87	%		—			—			—			—			1.87	%
	Savings accounts			133,509			—			—			—			—			133,509
		average rate (variable rate)		2.41	%		—			—			—			—			2.41	%
	Certificates of deposit			167,169			47,042			5,528			12,388			19,965			252,092
		average rate (fixed rate)		4.68	%		3.67	%		4.78	%		3.92	%		6.09	%		4.57	%
	FHLB advances			—			—			—			20,000			20,000			40,000
		average rate (fixed rate)		—			—			—			3.01	%		3.30	%		3.16	%
	Term borrowings			30,000			10,000			—			—			—			40,000
		average rate (fixed rate)		6.63	%		6.61	%		—			—			—			6.63	%
	Trust preferred securities			—			—			—			—			17,250			17,250
		average rate (fixed rate)		—			—			—			—			9.38	%		9.38	%
	Total interest-sensitive liabilities		$	349,514		$	57,042		$	5,528		$	32,388		$	57,215		$	501,687
GAP			$	(89,190	)	$	1,374		$	12,819		$	(8,134	)	$	117,461		$	34,330
Cumulative GAP				(89,190	)		(87,816	)		(74,997	)		(83,131	)		34,330

33

PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

        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.

ITEM 2. Changes in Securities and Use of Proceeds

        None.

ITEM 3. Defaults upon Senior Securities

        None.

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

        None.

ITEM 5. Other Information

        None.

ITEM 6. Exhibits and Reports on Form 8-K

(a)	Exhibits
	10.14.7	Employment Agreement between the Company and Kimberlee von Disterlo.
(b)	Reports on Form 8-K
	The Company filed no reports on Form 8-K during the quarter ended March 31, 2002.

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SIGNATURES

        Pursuant to the requirements of the Security 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.
Date: May 10, 2002	/s/  GARY WEHRLE Gary Wehrle President and Chief Executive Officer
Date: May 10, 2002	/s/  ROBERT J. DENNEN Robert J. Dennen Senior Vice President, Chief Financial Officer, and Corporate Secretary

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PACIFIC CREST CAPITAL, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
PACIFIC CREST CAPITAL, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (dollars in thousands, except per share data)
PACIFIC CREST CAPITAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) (dollars and shares in thousands)
PACIFIC CREST CAPITAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
PACIFIC CREST CAPTIAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2002 (Unaudited)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
RESULTS OF OPERATIONS
FINANCIAL CONDITION
NON-PERFORMING ASSETS
LIQUIDITY
DIVIDENDS
CAPITAL RESOURCES
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
PART II—OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 3. Defaults upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES

EX-10.14-7

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Exhibit 10.14.7

EMPLOYMENT AGREEMENT

        This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of January 1, 2002, by and between PACIFIC CREST CAPITAL, INC., a Delaware corporation (herein after referred to as "EMPLOYER") and KIMBERLEE VON DISTERLO (hereinafter referred to as "EMPLOYEE"), on the following terms and conditions:

        1.    TERM OF AGREEMENT; DUTIES

        (a)  Term. EMPLOYER hereby agrees to employ EMPLOYEE as the Senior Vice President of EMPLOYER for a two year period, commencing on the date hereof, and EMPLOYEE hereby agrees to accept such employment for such period, subject to earlier termination under the circumstances provided herein. The term of this Agreement shall be extended automatically to cover successive periods of one year each unless, at least one year prior to the end of the original or any renewal term hereof, EMPLOYEE gives written notice to the President of EMPLOYER, or EMPLOYER gives written notice to EMPLOYEE, of an intent to terminate this Agreement at the end of such term.

        (b)  Duties. EMPLOYEE, subject to the direction and control of the Board of Directors, shall devote all of EMPLOYEE'S productive time, attention and energies to discharging, and shall perform, such executive duties and managerial responsibilities as may from time to time be specified by EMPLOYER, and will use EMPLOYEE'S best efforts to promote the interest of EMPLOYER and its subsidiaries and affiliates and the performance of such duties and responsibilities shall be EMPLOYEE'S exclusive employment for compensation; provided, however, that nothing herein contained shall be deemed to limit EMPLOYEE'S right to make passive investments in non-affiliated companies.

        (c)  Extension of Term of Employment Upon Certain Corporate Changes. For purposes of this paragraph (c), "Extension Date" shall mean the effective date of a transaction pursuant to which (i) EMPLOYER ceases to be an independent publicly owned corporation, (ii) all or substantially all of the assets of EMPLOYER (including by not limited to the stock of EMPLOYER'S subsidiaries) are sold, (iii) all or substantially all of the assets, or a majority of the outstanding capital stock, of Pacific Crest Bank are sold to a purchaser which is not controlled by EMPLOYER, (iv) EMPLOYER is merged with or into another corporation which is to be the surviving corporation, or (v) a majority of the outstanding capital stock of EMPLOYER becomes owned or held, directly or indirectly, in such transaction or series of transactions by a person or entity other than EMPLOYER, its subsidiary or affiliate, or by a "group" as such term is defined in Rule 13 d-1 of the Securities and Exchange Act of 1934, which prior to such transaction or series of transactions did not include EMPLOYER, its subsidiaries or affiliates. Notwithstanding paragraph (a) of this Section 1, the term of employment hereunder shall automatically be extended on the first to occur of any Extension Date. On such Extension Date, the term of employment hereunder shall be extended to cover the two-year period commencing on such Extension Date.

        2.    COMPENSATION. EMPLOYER shall compensate EMPLOYEE for the services to be rendered by EMPLOYEE hereunder during the term of EMPLOYEE'S employment, including all services to be rendered as an officer and executive of EMPLOYER, its subsidiaries and affiliates, at an annual base rate to be determined from time to time, and in no event less frequently than annually, during the term of this Agreement as follows (the "Base Rate"):

        (a)  The Base Rate shall be $95,184 per year during the period from the date hereof through December 31, 2002; and

1

        (b)  The Base Rate for each subsequent calendar year or portion thereof during which this Agreement is in effect shall be no less than the Base Rate for the prior calendar year and may be increased at the sole discretion of the Board of Directors of EMPLOYER based on the performance of EMPLOYER and the individual merit of EMPLOYEE.

        The applicable Base Rate shall be payable not less frequently than monthly in accordance with the regular salary procedure from time to time adopted by EMPLOYER. There shall be deducted from all compensation paid to EMPLOYEE such sums, including but not limited to Social Security, income tax withholding, employment insurance, and any and all other such deductions as EMPLOYER is by law obligated to withhold. Notwithstanding anything to the contrary contained herein, the salary of EMPLOYEE may be increased by the Board of Directors of EMPLOYER but shall, for any employment year covered by this Agreement, be at least at a Base Rate herein above set forth, plus any incentive arrangements to be determined by the Board of Directors.

        EMPLOYEE shall be reimbursed for EMPLOYEE'S reasonable and actual out-of-pocket expenses incurred by EMPLOYEE in performance of EMPLOYEE'S duties and responsibilities hereunder, provided EMPLOYEE shall first furnish proper vouchers and expense accounts setting forth the information required by the United States Treasury Department for deductible business expenses.

        EMPLOYEE shall be entitled to participate in and shall be included in such insurance, pension, profit sharing, stock options, stock purchase and other employee benefit plans ("Benefit Plans") of EMPLOYER as are in effect from time to time during the term of this Agreement for other employees of EMPLOYER who are employed by EMPLOYER in similar executive capacities as EMPLOYEE; provided, however, that nothing in this Agreement shall in any way require EMPLOYEE to be covered by any Benefit Plan if EMPLOYEE'S participation is not required by the terms of the Benefit Plan.

        3.    DISABILITY. If, on account of any physical or mental disability, EMPLOYEE shall fail or be unable to perform under this Agreement for any period of one hundred twenty (120) consecutive days or for an aggregate period of one hundred twenty (120) or more days during any consecutive twelve-month period, then and in that event EMPLOYER may, at its option, at any time thereafter, upon written notice to EMPLOYEE, terminate the employment relationship provided for in this Agreement. In such event, EMPLOYEE'S requirement to render services hereunder and EMPLOYER'S requirement to compensate EMPLOYEE hereunder shall terminate and come to an end upon the date such notice is given as if such date were the termination of this Agreement; provided, however, that if EMPLOYER terminates the employment relationship as a result of EMPLOYEE'S disability, then EMPLOYEE shall be entitled to receive, as disability compensation, payments at the Base Rate previously set forth for the remaining term of this Agreement payable not less frequently than monthly. The option to terminate the employment in the event of a disability herein provided is separate, distinct and additional to any right on the part of EMPLOYER to terminate this Agreement, as provided in Section 6 hereof. EMPLOYER may, at its option, apply for disability income insurance and, if so, any obligation on the part of EMPLOYER to pay EMPLOYEE any payments on account of any physical or mental disability of EMPLOYEE as specified above, shall be credited with the amount of any payments to EMPLOYEE under any such disability income policy but not any payments to EMPLOYEE under any state disability insurance.

        4.    DEATH. In the event that EMPLOYEE should die during the term hereof, this Agreement will terminate. In such event, EMPLOYEE'S personal representative shall be entitled to receive, as a death benefit, in addition to any other payments which EMPLOYEE'S personal representative may be entitled to receive under any Benefit Plans, payments for a period of 12 months at the Base Rate that would have then been payable to EMPLOYEE under this Agreement payable not less frequently than monthly.

        EMPLOYER may maintain life insurance on the life of EMPLOYEE, in favor of the EMPLOYER. EMPLOYEE shall have no interest whatsoever in any such policy or policies, except as

2

otherwise provided in any split dollar life insurance agreements, but EMPLOYEE shall at the request of EMPLOYER submit to such medical examinations, supply such information, consent to such blood tests and execute such documents as may be required by the insurance company or companies to whom EMPLOYER has applied for such insurance.

        5.    VACATION. EMPLOYEE shall be entitled to vacation time for each calendar year during the term of this Agreement in accordance with EMPLOYER'S vacation policy for senior management executives from time to time in effect.

        6.    TERMINATION FOR CAUSE. The EMPLOYER shall have the unrestricted right to discharge the EMPLOYEE at any time for cause. Cause for discharge, to be determined in the EMPLOYER'S sole discretion, shall include, but shall not be limited to, theft or embezzlement by the EMPLOYEE from the EMPLOYER or its affiliates; fraud or other acts of dishonesty by the EMPLOYEE in the conduct of the EMPLOYER'S business or the fulfillment of EMPLOYEE'S assigned responsibilities hereunder; gross neglect by the EMPLOYEE of EMPLOYEE'S duties hereunder; the EMPLOYEE'S conviction of, or plea of nolo contendere to, any felony or any crime involving moral turpitude; the EMPLOYEE'S failure to follow the lawful and reasonable instructions of the Board of Directors of EMPLOYER or the President; or any material breach by the EMPLOYEE of any term, provision or covenant of this Agreement. The occurrence of any event constituting cause for discharge shall permit but not require the EMPLOYER to terminate the EMPLOYEE for cause; provided, however, that the EMPLOYER'S decision not to terminate the EMPLOYEE upon the occurrence of an event constituting cause for discharge shall not operate as a waiver of its rights provided in this Section 6 or otherwise. The decision to so terminate the EMPLOYEE, to impose lesser discipline, to take other action, or to take no action in response to any such occurrence shall be in the EMPLOYER'S sole and exclusive discretion.

        If the EMPLOYER terminates the EMPLOYEE for cause, the EMPLOYER shall be obligated to provide to the EMPLOYEE only the Base Rate salary provided for in Section 2 through the date of termination of the EMPLOYEE at the rate in effect on the date of such termination of the EMPLOYEE.

        7.    CONFIDENTIAL INFORMATION; COMPETITION.

        (a)  EMPLOYEE acknowledges that, in the course of employment hereunder, EMPLOYEE has and will become acquainted with confidential information belonging to EMPLOYER. This information may relate to persons, firms and corporations which are or become customers or accounts of EMPLOYER or of a subsidiary or affiliate of EMPLOYER during the term of this Agreement. None of the confidential information which EMPLOYEE may have or may obtain prior to the termination of this Agreement shall be disclosed to any other person either before or after the termination of the Agreement without the prior written permission of EMPLOYER, except such disclosures as may be necessary to the performance by EMPLOYEE of EMPLOYEE'S duties hereunder or unless such information is a part of the public domain, is within the prior knowledge of any such other person or is published anywhere without EMPLOYEE'S fault. EMPLOYEE shall return all tangible evidence of all such confidential information to EMPLOYER prior to or at the termination of EMPLOYEE'S employment.

        (b)  EMPLOYEE expressly convenants and agrees that for a period of two years after the date of termination of EMPLOYEE'S employment with EMPLOYER, EMPLOYEE will not, acting alone or in conjunction with others, directly or indirectly, solicit business of any type engaged in by EMPLOYER (or any subsidiary or affiliate of EMPLOYER) from any person or business which is an account, customer of client of EMPLOYER (or any subsidiary or affiliate of EMPLOYER), or induce or attempt to influence any such account, customer or client to curtail or cancel its business with EMPLOYER (or any subsidiary or affiliate of EMPLOYER).

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        (c)  Because the remedy at law for any breach of the provisions of this Section 7 would be inadequate, EMPLOYEE hereby consents to the granting, by any court having jurisdiction and without the necessity of providing actual monetary loss, of an injunction or other equitable relief enjoining any breach of such provisions.

        (d)  EMPLOYEE and EMPLOYER recognize that the laws and public policies of the various states of the United States may differ as to the validity and enforceability of covenants and undertakings similar to those set forth in paragraph (b) of Section 7. It is the intention of EMPLOYER and EMPLOYEE that the provisions of paragraph (b) of Section 7 shall be enforced to the fullest extent permissible under the laws and public policies of each state and jurisdiction in which such enforcement is sought, and the unenforceability (or the modification to conform to such laws or public policies) of any provisions of such paragraph shall not render unenforceable, or impair, the remainder of the provisions of such paragraph. Accordingly, if any provisions of such paragraph shall be determined to be invalid or unenforceable, either in whole or in part, under the laws or public policies of any state or jurisdiction in which enforcement is sought, as to such state or jurisdiction the provisions of such paragraph shall be deemed amended to delete or modify, as necessary, the offending provision and to alter the balance hereof in order to render it valid and enforceable in such state or jurisdiction.

        (e)  Notwithstanding any termination of EMPLOYEE'S employment, all of the covenants and agreements of EMPLOYEE under this Section 7 shall continue in full force and effect in accordance with the terms hereof, even if such termination is for cause pursuant to Section 6.

        8.    NOTICES. All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be deemed to have been given at the time delivered, if personally delivered, or twenty-four hours after deposit thereof for mailing at any general or branch United States Post Office enclosed in a registered or certified postpaid envelope and addressed to either EMPLOYER or EMPLOYEE as the case may be, at 30343 Canwood Street, Agoura Hills, California 91301. The parties hereto may designate a different place at which notice shall be given, provided, however, that any such notice of change of address shall be effective only upon receipt.

        9.    ENTIRE UNDERSTANDING. This Agreement sets forth the entire understanding of the parities hereto with respect to the subject matter hereof and no other representations, warranties or agreements whatsoever have been made to EMPLOYEE, except any such incentive arrangements as may be set forth in a written Bonus Plan applicable to EMPLOYEE. This agreement shall not be modified, amended, or terminated except by another instrument in writing executed by the parties hereto.

        10.  GOVERNING LAW. This Agreement and all rights, obligations and liabilities arising hereunder shall be construed and enforced in accordance with the laws of the State of California.

        11.  ATTORNEY'S FEES. In the event it becomes necessary to commence any proceeding or action to enforce the provisions of this Agreement, the Court before whom the same shall be tried may award to the prevailing party all costs and expenses thereof, including but not limited to reasonable attorney fees, the usual, customary and lawfully recoverable Court costs, and all other expenses in connection therewith.

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        The parities hereto have executed this Agreement on the day and year first above written.

"EMPLOYEE"
/s/  KIMBERLEE VON DISTERLO KIMBERLEE VON DISTERLO
"EMPLOYER"
PACIFIC CREST CAPITAL, INC.
By:	/s/  GARY WEHRLE GARY WEHRLE Title: Chairman of the Board

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Exhibit 10.14.7
EMPLOYMENT AGREEMENT