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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2003

For the transition period from                      to                     

Commission File Number 000-32385

Pacifica Bancorp, Inc.

(Name of small business issuer in its charter)

(425) 637-1188

(Issuer’s telephone number, including area code)

(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  x    No  ¨

Indicate by check mark if the registrant is an accelerated filer within the meaning of Rule 12b-2 promulgated under the Securities Exchange Act of 1934.    Yes  ¨    No  x

The number of shares outstanding of the issuer’s classes of common equity as of April 30, 2003:

Common Stock—3,260,368 shares outstanding

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PACIFICA BANCORP, INC.

PART I – FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

PACIFICA BANCORP, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

See accompanying notes to these financial statements.

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PACIFICA BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

See accompanying notes to these financial statements.

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PACIFICA BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

See accompanying notes to these financial statements.

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PACIFICA BANCORP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Pacifica Bancorp, Inc. (“Pacifica” or the “Company”) is a bank holding company for Pacifica Bank (the “Bank”). The Company was organized under the laws of the State of Washington in October 2000 and is headquartered in Bellevue, Washington. Effective March 31, 2003, the Company ceased operations of its wholly owned subsidiary Pacifica Mortgage Company (“Pacifica Mortgage” or the “Mortgage Company”). Pacifica Mortgage is no longer generating new loans after March 31, 2003. The Company expects residual transactions will continue to be processed during the second quarter of 2003.

NOTE 1. BASIS OF PRESENTATION

The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments consisting only of normal recurring accruals necessary for a fair presentation of the financial condition and the results of operations for the interim periods included herein have been made. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results to be anticipated for the remainder of the year. Certain amounts in the 2002 financial statements may have been reclassified to conform to the 2003 presentation. For additional information, refer to the audited financial statements and notes thereto included in Pacifica’s annual report on Form 10-K for the year ended December 31, 2002.

The condensed consolidated financial statements include the accounts of Pacifica Bancorp, Inc. and its wholly-owned subsidiaries, Pacifica Bank and Pacifica Mortgage Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as of the date of the balance sheet, and revenues and expenses for the period. Actual results could differ from estimated amounts.

Stock Option Plans – The Company recognizes the financial effects of stock options under the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Generally, stock options are issued at a price equal to the fair value of the Company’s stock as of the grant date. Under APB 25, options issued in this manner do not result in the recognition of employee compensation in the Company’s financial statements. Disclosures required by Statement of Financial Accounting Standards No. 123, Accounting For Stock-Based Compensation, as amended, are set forth below:

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NOTE 2.    EARNINGS PER SHARE

Basic earnings per share amounts are computed based on the weighted average number of shares outstanding during the period. Diluted earnings per share are computed by determining the number of additional shares that are deemed outstanding due to stock options under the treasury stock method. However, potentially dilutive shares are not considered in reporting earnings per share when the addition of such shares would be considered antidilutive or if the Company had a net loss. Because Pacifica reported a net loss for the three months ended March 31, 2002, there is no recognition given to additional shares that may be dilutive.

NOTE 3.    INCOME TAXES

Because of unused net operating losses, Pacifica has not recognized a tax provision within the statement of income.

NOTE 4.    SEGMENT INFORMATION

The Company is organized based on the products and services that it offers. The Company has two reportable segments: Pacifica Bank and Pacifica Mortgage Company, both are wholly-owned subsidiaries of Pacifica Bancorp, Inc., the parent bank holding company. Effective March 31, 2003, the Company ceased operations of Pacifica Mortgage Company and only residual transactions are being processed after March 31, 2003. The Bank offers a full range of commercial banking services, while the Mortgage Company generated loan fee income from the origination and sale of residential mortgage loans.

The Bank and the Mortgage Company are stand-alone business entities and have their own financial statements. Certain intercompany related income and expenses are allocated to each company. Financial information for the Company’s segments is shown below including the elimination of intercompany income and expenses.

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An entity that reports a discontinued operation, an extraordinary item, or the cumulative effect of an accounting change in a period shall present basic and diluted per-share amounts for those line items either on the face of the income statement or in the notes to the financial statements. The Company’s net income for the first quarter of 2003 was $106,000, or $0.03 per diluted share. Net income would have been $231,000, or $0.06 per diluted share, without the net operating loss from the Mortgage Company. For the same period of 2002, the Company reported a net loss of ($259,000), or ($0.08) per share. Net loss would have been ($171,000), or ($0.05) per share, without the net operating loss from the Mortgage Company. The Company is actively looking for sublease opportunities for the Mortgage Company facility. Cost associated with the sublease will be estimated as more information becomes available.

NOTE 5.    NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities. This interpretation explains how to identify variable interest entities and how an enterprise assesses its interest in a variable interest entity to decide whether to consolidate that entity. This interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risks will not be consolidated unless a single party holds an interest or combination of interest that effectively recombines risks that were previously dispersed. This interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Implementation of this statement did not result in a material impact on the Company’s financial position or results of operations.

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PACIFICA BANCORP, INC.

This discussion should be read in conjunction with the unaudited condensed consolidated financial statements of Pacifica Bancorp, Inc. (“Pacifica” or the “Company”) and notes thereto presented elsewhere in this report.

Note regarding Forward-Looking Statements:    This Form 10-Q may contain “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs and assumptions based on currently available information, and we have not undertaken to update these statements except as required by the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder. Other than statements of historical fact regarding our financial position, business strategies and management’s plans and objectives for future operations are forward-looking statements. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” and “intend” and words or phrases of similar meaning, as they relate to Pacifica or management, are intended to help identify forward-looking statements. Although we believe that management’s expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct. Forward-looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include our ability to maintain or expand our market share or net interest margins, and to implement our marketing and growth strategies. Further, actual results may be affected by our ability to compete on price and other factors with other financial institutions; customer acceptance of new products and services; the regulatory environment in which we operate; general trends in the local, regional and national banking industry, as well as any further similar events. In addition, there are risks inherent in the banking industry relating to collectibility of loans and changes in interest rates. Many of these risks, as well as other risks that may have a material adverse impact on our operations and business, are identified in our other filings with the FDIC and the SEC. However, you should be aware that these factors are not an exhaustive list, and you should not assume these are the only factors that may cause our actual results to differ from our expectations.

Overview

General

Pacifica Bancorp, Inc. (“Pacifica” or the “Company”) is a bank holding company for Pacifica Bank (the “Bank”). Effective March 31, 2003, the Company ceased operations of its wholly owned subsidiary Pacifica Mortgage Company (“Pacifica Mortgage” or the “Mortgage Company”). Pacifica Mortgage is no longer generating new loans. The Company expects residual transactions will continue to be processed during the second quarter of 2003. The Company was organized under the laws of the State of Washington in October 2000 and became the parent company of the Bank on January 1, 2001 pursuant to a Plan and Agreement of Reorganization (the “Plan”). Under the Plan, the Company issued 3,258,208 shares of common stock in exchange for all outstanding shares of Pacifica Bank stock (1,629,104 shares), using a 2-for-1 ratio.

Pacifica’s main office, from which it conducts both banking and administrative functions, is located in the central business district of Bellevue, Washington, approximately 10 miles from Seattle. Pacifica’s Seattle office was opened in December 2001 and is located in the downtown/International District of Seattle. The Company’s primary market area is King County, Washington, and the Company also attracts customers from greater Seattle and communities along the I-5 corridor from Everett to Tacoma, Washington. Pacifica’s market area has undergone significant business diversification, and the regional economy has generally experienced strong growth and stability in recent years, although a distinct softening in the regional economy occurred in 2001 and continued throughout 2002 and into the first quarter of 2003. The economic slowdown appeared to have been particularly pronounced in the Pacific Northwest, including unemployment levels above the national average. The region is experiencing slow growth and recovery and management expects that to continue in 2003.

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Pacifica Bank is a Washington state-chartered commercial bank, the deposits of which are insured by the Federal Deposit Insurance Corporation (the “FDIC”). The Bank commenced banking operations in October 1998 and offers a full range of commercial banking services including internet banking and cash management. The Bank targets small to mid-sized businesses, professionals, various Asian communities and companies doing business in Asia for commercial banking services because it believes that these groups may be currently under-served by other financial institutions.

Pacifica Mortgage was incorporated on January 18, 2001 and offered a variety of residential loan options to the residents of our service area prior to ceasing operations effective March 31, 2003. The Company undertook a major restructuring of Pacifica Mortgage in the third quarter of 2002. The restructuring did not sufficiently improve profitability of the Mortgage Company, and as a result, the Company decided to close the Mortgage Company. The Company expects that residual transactions will continue to be processed during the second quarter of 2003.

Pacifica Bank provides financial solutions and services for local and international business. The Company continuously reviews products and services in order to provide its customers more service options and better quality. We successfully launched our Internet online banking service in December 2001 and Online Bill Pay service in September 2002. Further growth through branch expansion or acquisition into other geographic and product line markets may also be considered as new opportunities arise. In addition, recent banking legislation allows affiliations among securities, insurance, banking and other financial companies and provides for the creation of financial holding companies and financial subsidiaries. However, Pacifica is not currently eligible for financial holding company status owing to its current regulatory status as described below.

Business Strategies

The Board of Directors and Management are implementing our business plan which is designed to strengthen the Company’s financial performance. Our goals are to improve asset quality while increasing earnings and enhancing overall efficiency, and thereby increase shareholder value. In late 2002 and into 2003, we:

We expect positive results to occur during the rest of this year as we implement the above strategies.

Supervisory Directive

As a result of a September 2001 examination by the FDIC and the Washington State Department of Financial Institutions, Division of Banks (the “Department”), the Bank became subject to a Supervisory Directive dated March 27, 2002. In response to the Supervisory Directive, management prepared action plans, formed an Asset Quality Committee, and took other steps to improve credit quality, monitor capital ratios, increase earnings and promote stability during 2002. The Bank successfully met or exceeded substantially all of the requirements set forth in the Supervisory Directive, including the requirements regarding the Tier I Leverage Capital ratio and the targeted level of classified assets as of December 31, 2002. The FDIC and the State conducted a joint examination in late 2002 and acknowledged improvement in the condition of the Bank. The regulators determined that the Bank should remain subject to a supervisory directive at least until the next regulatory examination, which is expected to occur in the fourth quarter of 2003. As a result, the March 27, 2002 Supervisory Directive was revised effective February 25, 2003. The Board of Directors and management fully expect to be in compliance with the revised Supervisory Directive (the “Directive”) throughout the year.

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The revised Directive addresses a number of issues related to the Bank’s growth and loan quality, by:

The Company has made significant improvement in reducing the classified assets. As of March 31, 2003, the Bank has reduced by 39% the amount of its classified assets that the FDIC had identified as of September 30, 2002. We have reduced the amount of classified assets by 44% as of the end of April 2003, which exceeded the target of 40% reduction as set forth in the Directives for September 30, 2003. We do not expect the limitations of the Supervisory Directive to reduce our ability to achieve our plan for 2003.

Results of Operations

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

Pacifica also generates non-interest income, primarily through mortgage loan commissions, discount and rebate income, service charges, international service fees and other sources. With the closure of Pacifica Mortgage effective March 31, 2003, the Company expects its income from mortgage banking activities to diminish for the rest of the year. The primary components of Pacifica’s operating expenses are compensation and employee benefits expense, and occupancy expense.

Net Income (Loss)

The Company’s net income for the first quarter of 2003 was $106,000, or $0.03 per diluted share. Net income would have been $231,000, or $0.06 per diluted share, without the net operating loss from the Mortgage Company. For the same period of 2002, the Company reported a net loss of ($259,000), or ($0.08) per share. Net loss would have been ($171,000), or ($0.05) per share, without the net operating loss from the Mortgage Company. See additional discussion under Note 4 of the condensed consolidated financial statements.

The improvement results of operations was due primarily to a higher net interest margin resulting from a lower cost of funds, an improved yield on investments and a reduction in non-interest expenses, especially personnel expenses. During the quarter ended March 31, 2003, the net interest margin increased to 4.13%, as compared to 2.98% for the same period of 2002, due primarily to a lower cost of funds as a result of the repricing of time certificates of deposits. We expect $23.2 million in time certificates to reprice at slightly lower rates during the second quarter of 2003, resulting in a slightly lower cost of funds. For the quarter ended March 31, 2003, average earning assets decreased 8% to $153.2 million, down from $165.0 million for the same period of 2002, due primarily to the decrease in interest-bearing deposits as the Company continues to monitor and optimize the size and cost of interest bearing deposits.

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Net Interest Income

Net interest income is the difference between total interest income and total interest expense. Changes in net interest income are affected by several factors, including changes in average balances of earning assets and interest-bearing liabilities, changes in rates on earning assets and rates paid for interest-bearing liabilities, and the level of noninterest-bearing deposits and shareholders’ equity. Pacifica’s earning assets accounted for 98% of its total assets as of March 31, 2003 and at year-end 2002. Loans are the highest-yielding component of Pacifica’s earning assets. Loans averaged 68% of Pacifica’s total earning assets during the first quarter of 2003, compared to 64% in the same period of 2002. Our goal is to increase loans as a percentage of our total interest earning assets.

Abbreviated average balance sheet and net interest income data for the periods are shown below:

Net interest income for the first quarter of 2003 increased $352,000, or 29%, to $1.58 million, compared to $1.23 million in the first quarter of 2002. The increase in net interest income reflects the effect of the repricing of time certificates of deposit to a lower average rate over time coupled with an increase in the yield on interest-earning assets, in particular, the yield on the investment portfolio. On a dollar-for-dollar basis and percentage basis, interest-earning assets decreased more than interest-bearing liabilities during the first quarter of 2003. Compared with the first quarter of 2002, average earning assets decreased approximately $12 million, or 7%, to $153 million while average interest-bearing liabilities decreased $10.5 million, or 7%, to $130 million for the first quarter of 2003. Despite a higher yield on interest earning assets, total interest income for the first quarter of 2003 decreased $81,000, or 3%, from the same period of 2002 due to the lower average balance of interest-earning assets. Meanwhile, the repricing of time certificates combined with the low interest rate environment allowed us to lower our cost of funds. Total interest expense for the first quarter of 2003 decreased $433,000, or 35%, compared to the same quarter in 2002. Given the current rate environment and the anticipated deployment of excess cash into loans and/or investments, we expect the net interest margin and the net interest income to increase slightly during 2003.

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The net interest margin (net interest income divided by average earning assets) was 4.13% in the first quarter of 2003, compared with 2.98% for the same period of 2002, an increase of 115 basis points. The average yield on earning assets increased to 6.23% during the first quarter of 2003 from 5.97% in the same period of 2002. On the other hand, the average cost of interest-bearing liabilities, which includes interest bearing deposits and borrowed funds, as well as our mandatory redeemable preferred stock which was issued during the third quarter of 2002, decreased to 2.46% from 3.50% for the first quarter of 2003 compared to the same period of 2002. The increase in net interest margin reflects the positive effect of our efforts to lower the cost of deposits and increase our yield on earning assets. The increase in average yield on interest-earning assets is primarily due to the 162 basis point increase in yield on investments. The restructuring of the investment portfolio in 2002 has allowed us to be better positioned for future changes in interest rates while earning a higher rate of return. See the additional discussion under “Investment Activities” below. Management monitors our liquidity position closely to determine how best to deploy the excess cash to further improve the yield on earning assets. Currently, the Company is at a historically high liquidity position in anticipation of the funding needs from growth in loans and a rising interest rate environment. We are actively booking new loans and have recently added two new loan officers to our lending team to further increase loan production. During the first quarter of 2003, the Bank booked $27 million in new loans and advances on existing loans; however, principal paydowns and loan pay-offs totaled $30.8 million. With interest rates at historically low levels, the Bank expects principal prepayments to continue as borrowers refinance but we expect overall loan growth to increase throughout the remainder of the year.

To a large extent, the asset yields and cost of funds reflect the level of interest rates as set by the Federal Reserve Board and the competitive nature of the financial services industry. Currently, Pacifica’s assets tend to track the prime rate and reprice more quickly than its liabilities. Therefore, net interest margin usually increases in a rising interest rate environment. In contrast, Pacifica may experience decreasing net interest income as a result of “rate squeeze” caused by this same principle in periods of falling interest rates. Management continually monitors Pacifica’s mix of interest-earning assets and interest-bearing liabilities to maintain an appropriate balance.

Average loans (net of deferred loan fees) were approximately $106.5 million in the first quarter of 2003, down approximately $200,000 from $106.7 million for the same period of 2002. Yield on the loan portfolio (net of deferred loan fees) averaged 7.63% in the first quarter of 2003, compared to 7.70% in the same period of 2002. The Company initiated interest rate floors on certain variable rate loans during 2002, ranging from approximately 6.0% to 7.0% depending on maturity of the loans. Due to the protection of the floors, the decrease in loan yield is less substantial than the decrease in the prime rate of 50 basis points since the first quarter of 2002. Due to the amount of loan payoffs and slower growth in new loan originations during the first quarter of 2003, total loans (net of deferred loan fees) as of March 31, 2003, decreased by $900,000, or 1%, as compared to the first quarter of 2002 and by $3.7 million, or 3%, compared to December 31, 2002. Meanwhile, our deposits continued to reprice at lower rates as a result of the cuts in interest rates since 2001. During the first quarter of 2003, average interest-bearing deposits were $127.5 million, a decrease of $11.8 million, or 8%, from $139.2 million during first quarter 2002. The cost of interest-bearing deposits decreased to 2.36% in the first quarter of 2003, from 3.49% for the first quarter of 2002. Income on investments, interest-earning deposits, Federal Home Loan Bank stock and federal funds sold totaled $362,000 in the first quarter of 2003, a decrease of $77,000, or 17.5% when compared to the same period of 2002. The yield on investments was 5.66% for the first quarter of 2003, as compared to 4.04% for the same period of 2002. Average investments were approximately $20.5 million in the first quarter of 2003, down $12.6 million, or 38%, from the same period of 2002. As our goal to decrease classified loans is reached, we anticipate a higher rate of growth in our loan portfolio.

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Noninterest Income

Noninterest income decreased by $41,000 or 13%, to $285,000 in the first quarter of 2003, compared with $326,000 for the same period in 2002. The decrease was due primarily to the decrease in loan commissions and related income of $101,000, or 50% during the first quarter of 2002. Noninterest income is expected to decrease for the remainder of the year as a result of the Pacifica Mortgage closure. Service fees for first quarter 2003 were up $20,000, or 91%, compared to the same period in 2002. Gains on sale of securities were $33,000 during the first quarter of 2003 compared to $0 in the same period of 2002. These securities gains came entirely from Agency securities that were called.

Noninterest Expense

Noninterest expense decreased $54,000, or 3%, to $1.76 million in the first quarter of 2003, compared with $1.81 million in the same period of 2002. The decrease resulted primarily from the reduced personnel costs as we have decreased our staff since the first quarter of 2002.

Salaries and employee benefits expenses were approximately $1.0 million in the first quarter of 2003, compared to $1.1 million in the same period of 2002. The decrease was primarily a result of the decrease in the number of employees. Pacifica had 55 full-time equivalent employees for the first quarter of 2003, compared with 67 full-time equivalent employees for the same period of 2002. In addition to reducing the staff size during the third and fourth quarters of 2002, management is also monitoring it staffing needs and adjusting job functions internally with the goal of improving overall efficiency while continuing to focus on customer service and credit quality.

Occupancy and equipment expense was $340,000 for the first quarter of 2003, up $49,000, or 17%, from the same period of 2002. The increase in occupancy and equipment expense was due primarily to the increase in building lease expense. With the closure of Pacifica Mortgage and the reduction of personnel, the Company is currently marketing its excess space with the goal of reducing our overhead expense. With the potential sublease and consolidation of our office space, we expect occupancy and equipment expense to decrease in 2003.

Total other expenses were $424,000 in the first quarter of 2003, a decrease of $14,000, or 3%, from the same period of 2002. The decrease was due primarily to a reduction in loan collection expense, professional service fees, office supplies and other operating expenses.

Analysis of Financial Condition

During the first quarter of 2003, management continued to focus on credit quality and credit administration while working to reduce operating expense and improve efficiency. At March 31, 2003, Pacifica had assets of $157.7 million, a decrease of 4% from $164.7 million at December 31, 2002. Shareholders’ equity was $12.3 million at March 31, 2003, up 1% from $12.2 million at December 31, 2002. Net loans decreased 3% to $103.1 million at March 31, 2003 from $106.8 million at December 31, 2002. A portion of the loan portfolio decrease consisted of classified loans, which is consistent with management’s effort to continue to improve the loan portfolio’s credit quality. The Company’s investment portfolio decreased 17% to $19.3 million at March 31, 2003 from $23.3 million at December 31, 2002. Deposits decreased 4% to $141.6 million at March 31, 2003 from $148.3 million at December 31, 2002, in part due to the repricing of deposits at lower rates.

Annualized return on average assets (ROA) increase to .27% for the first quarter of 2003, compared to (0.62%) for the same period in 2002, due primarily to our positive earnings and smaller asset size. Annualized return on average shareholders’ equity (ROE) increased to 3.45% for the first quarter of 2003, compared to (8.87%) for the first quarter of 2002 due to our positive earnings. The Company’s average equity to average assets ratio was 7.86% and 6.98%, respectively, for the quarters ended March 31, 2003 and 2002.

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Investment Activities

Pacifica’s investment portfolio is an important source of liquidity and interest income. The Company’s total investment portfolio includes Federal Home Loan Bank of Seattle (“FHLB”) stock, available-for-sale securities, and time certificates with other banks. At March 31, 2003, The Company had no held-to-maturity or trading securities. All securities are classified as available-for-sale and are carried at fair value. Securities are used by management as part of its asset/liability management strategy and may be sold in response to interest rate changes or changes in investment ratings and as a source of liquidity to fund loan growth.

The Company’s total investment portfolio decreased by $4 million, or 17%, from $23.3 million at year-end 2002 to $19.3 million at March 31, 2003. The restructuring of the investment portfolio during 2002 produced a portfolio of higher yield without increasing the portfolio’s overall duration. The Company moved more funds into cash as part of the restructuring of the portfolio to maintain higher liquidity in anticipation of the decrease in time certificates of deposit. Pacifica is a stockholder in the Federal Home Loan Bank of Seattle (“FHLB”). As of March 31, 2003 and December 31, 2002, Pacifica owned FHLB stock of $133,000 and $133,000, respectively. Available-for-sale securities were $18.5 million and $22.5 million at March 31, 2003 and December 31, 2002, respectively. As of March 31, 2003, U.S. government agency securities comprised 42% of the securities portfolio, with mortgage-backed securities at 12% and corporate debt securities at 46%. Purchases totaled $12.3 million while maturities, calls and principal paydowns totaled $16.4 million. During the first quarter of 2003, the Company sold available-for-sale securities of approximately $2 million and had $13 million called and realized a net gain of $33,000. The Bank subsequently purchased $8.6 million in investment securities to settle in April and early May of 2003 to replace previously called securities.

The following table shows the amortized cost and estimated fair value of securities available-for-sale at the dates indicated: