Prepared by MERRILL CORPORATION

10-Q 1 a2056159z10-q.htm 10-Q Prepared by MERRILL CORPORATION
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2001
or

/ /	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 00-30747

FIRST COMMUNITY BANCORP

(Exact name of registrant as specified in its charter)

CALIFORNIA
(State or other jurisdiction of incorporation or
organization)

33-0885320
(IRS Employer Identification No.)

6110 El Tordo
Rancho Santa Fe, California 92067
(Address of principal executive offices)

Registrant's telephone number: (858) 756-3023

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, as amended 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 the number of shares outstanding of each of the issuer's classes of common stock, as of August 10, 2001: 4,609,619 shares of common stock, no par value.

TABLE OF CONTENTS

				Page
PART I—FINANCIAL INFORMATION
		ITEM 1. Consolidated Financial Statements (unaudited)		3
			Unaudited Condensed Consolidated Balance Sheets	3
			Unaudited Condensed Consolidated Statements of Income	4
			Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	5
			Unaudited Condensed Consolidated Statements of Cash Flows	6
			Notes to Unaudited Condensed Consolidated Financial Statements	8
		ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		13
		ITEM 3. Quantitative and Qualitative Disclosure About Market Risk		26
PART II—OTHER INFORMATION
		ITEM 1. Legal Proceedings		26
		ITEM 2. Changes in Securities and Use of Proceeds		26
		ITEM 3. Defaults Upon Senior Securities		26
		ITEM 4. Submission of Matters to a Vote of Security Holders		26
		ITEM 5. Other Information		27
		ITEM 6. Exhibits and Reports on Form 8-K		27
	SIGNATURES			29

PART I—FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements (unaudited)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

			June 30, 2001			December 31, 2000
			(In thousands, except per share data)
Assets:
Cash and due from banks			$	56,624		$	35,752
Federal funds sold				73,327			16,903

		Total cash and cash equivalents		129,951			52,655
Interest-bearing deposits in financial institutions				285			495
Federal Reserve Bank and Federal Home Loan Bank stock, at cost				1,536			913
Securities held to maturity (fair value of $13,249,000 at June 30, 2001 and $4,996,000 at December 31, 2000)				13,020			4,972
Securities available-for-sale (amortized cost of $85,105,000 at June 30, 2001 and $40,536,000 at December 31, 2000)				85,717			40,428

		Total securities		100,273			46,313
Gross loans				377,037			251,185
Deferred fees and costs				(535	)		(633	)

		Loans, net of deferred fees and costs		376,502			250,552
Allowance for loan losses				(10,424	)		(3,930	)

		Net loans		366,078			246,622
Premises and equipment				5,573			5,027
Other real estate owned, net				654			1,031
Goodwill				4,227			—
Other assets				12,629			6,144

		Total Assets	$	619,670		$	358,287

Liabilities and Shareholders' Equity:
Liabilities:
Noninterest-bearing deposits			$	214,148		$	114,042
Interest-bearing deposits				344,149			202,896

		Total deposits		558,297			316,938
Accrued interest payable and other liabilities				6,960			3,888
Short-term borrowings				7,009			1,689
Convertible debt				673			—
Trust preferred securities				8,000			8,000

		Total Liabilities		580,939			330,515
Shareholders' Equity:
Preferred stock; authorized 5,000,000 shares, no shares issued and outstanding				—			—
Common stock, no par value; authorized 15,000,000 shares, issued and outstanding 4,577,119 and 3,971,421 at June 30, 2001 and December 31, 2000, respectively				28,690			20,402
Retained earnings				9,682			7,432
Accumulated other comprehensive income (loss):
	Unrealized gains (losses) on securities available-for-sale, net			359			(62	)

		Total Shareholders' Equity		38,731			27,772

		Total Liabilities and Shareholders' Equity	$	619,670		$	358,287

Shares outstanding				4,577.1			3,971.4
Book value per share			$	8.46		$	6.99

See "Notes to Unaudited Condensed Consolidated Financial Statements."

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

				3 Months Ended June 30,					6 Months Ended June 30,
				2001		2000			2001		2000
				(In thousands, except per share data)
Interest income:
	Interest and fees on loans			$	7,986	$	5,978		$	16,648	$	11,553
	Interest on interest-bearing deposits in financial institutions				7		62			17		167
	Interest on investment securities				1,396		703			2,974		1,439
	Interest on federal funds sold				1,138		525			2,393		676

		Total interest income			10,527		7,268			22,032		13,835
Interest expense:
	Interest expense on deposits				2,511		1,930			5,212		3,495
	Interest expense on short-term borrowings				112		15			201		53
	Interest expense on convertible debt				13		—			24		—
	Interest expense on trust preferred securities				218		—			433		—

		Total interest expense			2,854		1,945			5,870		3,548

Net interest income					7,673		5,323			16,162		10,287
	Provision for loan losses				325		—			639		—

		Net interest income after provision for loan losses			7,348		5,323			15,523		10,287
Noninterest income:
	Service charges and fees on deposit accounts				567		285			1,118		595
	Merchant discount fees				94		34			163		51
	Other commissions and fees				285		157			569		312
	Gain on sale of loans				64		124			169		179
	Other income				90		92			199		136

		Total noninterest income			1,100		692			2,218		1,273
Noninterest expense:
	Salaries and employee benefits				3,036		1,651			6,509		3,329
	Occupancy				719		377			1,449		773
	Furniture and equipment				334		236			690		478
	Legal expenses				189		75			299		159
	Other professional services				575		464			1,256		913
	Stationery, supplies and printing				148		90			297		135
	FDIC assessment				140		17			284		32
	Cost of other real estate owned				2		33			32		33
	Advertising				98		95			237		196
	Insurance				63		32			142		63
	Loss on sale of securities				—		—			—		11
	Goodwill amortization				76		—			134		—
	Merger costs				—		3,561			—		3,561
	Other				542		668			1,194		951

		Total noninterest expense			5,922		7,299			12,523		10,634

	Income (loss) before income taxes				2,526		(1,284	)		5,218		926
	Income taxes				1,039		207			2,154		1,125

		Net income (loss)		$	1,487	$	(1,491	)	$	3,064	$	(199	)

Per share information:
		Number of shares (weighted average)
			Basic		4,546.7		3,883.7			4,474.1		3,880.9
			Diluted		4,794.3		4,082.6			4,705.6		4,093.5
		Income (loss) per share
			Basic	$	0.33	$	(0.38	)	$	0.68	$	(0.05	)
			Diluted	$	0.31	$	(0.38	)	$	0.65	$	(0.05	)

See "Notes to Unaudited Condensed Consolidated Financial Statements."

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

		3 Months Ended June 30,					6 Months Ended June 30,
		2001		2000			2001		2000
Net income (loss)		$	1,487	$	(1,491	)	$	3,064	$	(199	)
Other comprehensive income (loss), net of related income taxes:
Unrealized gains (losses) on securities:
	Unrealized holding gains (losses) arising during the period		58		85			421		(28	)
	Less reclassifications of realized losses included in income		—		—			—		(3	)
			58		85			421		(31	)

Comprehensive income (loss)		$	1,545	$	(1,406	)	$	3,485	$	(230	)

See "Notes to Unaudited Condensed Consolidated Financial Statements."

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

				Six Months Ended June 30,
				2001			2000
				(In thousands)
Cash flows from operating activities:
	Net income (loss)			$	3,064		$	(199	)
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Depreciation and amortization			952			492
		Provision for loan losses			639			—
		Loss on sale of OREO			13			—
		Gain on sale of loans			(169	)		(179	)
		Proceeds from loans held for sale			1,500			—
		Gain on sale of premises and equipment			(19	)		—
		Loss (gain) on sale or calls of securities available-for-sale			(17	)		11
		Decrease (increase) in other assets			969			(1,240	)
		Increase (decrease) in accrued interest payable and other liabilities			(1,152	)		954

			Net cash provided by (used in) operating activities		5,780			(161	)
Cash flows from investing activities:
	Net cash and cash equivalents acquired in acquisition of Professional Bancorp				84,017			—
	Net increase in loans outstanding				(22,867	)		(17,597	)
	Net decrease in interest-bearing deposits in financial institutions				535			3,554
	Securities held-to-maturity:
		Maturities			6,144			4,002
		Purchases			—			(2,000	)
	Securities available-for-sale:
		Proceeds from sale			—			1,489
		Maturities			31,968			1,624
		Purchases			(30,291	)		(501	)
	Net change in FRB and FHLB stock				(208	)		159
	Proceeds from sale of OREO				518			—
	Purchases of premises and equipment, net				(636	)		—
	Proceeds from sale of premises and equipment				147			(206	)

			Net cash provided by (used in) investing activities		69,327			(9,476	)
Cash flows from financing activities:
	Net increase (decrease) in deposits:
		Non-interest bearing			(34,686	)		12,298
		Interest bearing			31,562			23,813
	Proceeds from exercise of stock options				807			114
	Net increase in short-term borrowings				5,320			815
	Cash dividends paid				(814	)		(448	)

			Net cash provided by financing activities		2,189			36,592

			Net increase in cash and cash equivalents		77,296			26,955
Cash and cash equivalents at beginning of period					52,655			32,037

Cash and cash equivalents at end of period				$	129,951		$	58,992

Supplemental disclosure of cash flow information:
	Cash paid during period for:
		Interest		$	4,108		$	3,511
		Income taxes			—		$	1,145
Supplemental disclosure of noncash investing and financing activities:
	Transfers from retained earnings to common stock				—		$	341

See "Notes to Unaudited Condensed Consolidated Financial Statements."

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—CONTINUED

Supplemental Disclosure of Acquisition of Professional Bancorp (In Thousands)

		2001
Assets Acquired:
	Cash	$	31,202
	Federal funds sold		61,245
	Interest-bearing deposits in other banks		325
	Investment securities		61,447
	Loans		98,713
	Premises and equipment		673
	Goodwill		4,358
	Other assets		7,753

			265,716
Liabilities Assumed:
	Non-interest bearing deposits		(134,792	)
	Interest bearing deposits		(109,691	)
	Accrued interest payable and other liabilities		(4,224	)
	Convertible debt		(679	)

			(249,386	)
Cash paid for common stock			8,430
Fair value of common stock issued for common stock			7,900

		$	16,330

See "Notes to Unaudited Condensed Consolidated Financial Statements."

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001

NOTE 1—BASIS OF PRESENTATION

First Community Bancorp (the "Company") is the holding company for Rancho Santa Fe National Bank ("Rancho"), First Professional Bank, N.A. ("First Professional") and First Community Bank of the Desert ("First Community" and together with Rancho and First Professional, the "Banks"). The unaudited condensed consolidated financial statements of the Company included herein reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods indicated. Certain reclassifications have been made to the unaudited condensed consolidated financial statements for 2000 to conform to the 2001 presentation. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

The preparation of unaudited condensed consolidated 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates subject to change include the allowance for loan losses, the carrying value of other real estate owned and the deferred tax asset.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report filed on Form 10-K on March 21, 2001 for the year ended December 31, 2000.

NOTE 2—ACQUISITIONS

First Community Acquisition

On May 31, 2000, a subsidiary of the Company merged with and into First Community pursuant to an Agreement and Plan of Merger, dated as of October 22, 1999, as amended (the "First Community Merger Agreement"), by and between the Company, Rancho and First Community, (the "First Community Merger"). As a result of the First Community Merger, First Community became a wholly-owned subsidiary of the Company.

Pursuant to the First Community Merger Agreement, each issued and outstanding share of common stock of First Community ("First Community Common Stock") prior to the First Community Merger (other than as provided in the First Community Merger Agreement) was converted into the right to receive 0.3 shares (the "Conversion Number") of common stock of the Company ("Company Common Stock"). In addition, each option and each warrant to acquire shares of First Community Common Stock outstanding immediately prior to the Effective Time (as defined in the First Community Merger Agreement) was converted into an option and warrant, respectively, to acquire 0.3 shares of Company Common Stock. Upon consummation of the First Community Merger, the Company issued approximately 1,392,799 shares of Company Common Stock to former holders of First Community Common Stock, and as a result, the former shareholders of First Community Common Stock own shares of Company Common Stock representing approximately 35.9% of the outstanding shares of Company Common Stock.

The financial information as of all dates and for all periods prior to the First Community Merger presented herein has been restated to present the combined consolidated financial condition and results of operations of the Company and First Community as if the First Community Merger had been in effect as of all dates and for all periods presented.

Professional Bancorp Acquisition

On January 16, 2001, Professional Bancorp, Inc. ("Professional Bancorp") merged (the "Professional Merger") with and into the Company, with the Company as the surviving entity. The Professional Merger was consummated pursuant to the terms of an Agreement and Plan of Merger, dated as of August 7, 2000, by and between the Company and Professional Bancorp (the "Professional Merger Agreement"). At that time First Professional became a wholly owned subsidiary of the Company.

Pursuant to the Professional Merger Agreement, each issued and outstanding share of common stock of Professional Bancorp prior to the Professional Merger (other than as provided in the Professional Merger Agreement) was converted into the right to receive either 0.55 shares of Company common stock or $8.00 in cash. Upon consummation of the Professional Merger, the Company issued approximately 504,747 shares of common stock to former holders of Professional Bancorp common stock and approximately $8.4 million in cash. As a result, at the time of the Professional Merger the former shareholders of Professional Bancorp common stock owned shares of Company common stock representing approximately 11.3% of the outstanding shares of Company common stock.

This acquisition was accounted for using the purchase method of accounting.

First Charter Acquisition

On May 22, 2001 the Company announced the signing of a definitive merger agreement (the "Agreement") to acquire all of the outstanding common and convertible preferred stock of First Charter Bank, N.A. ("First Charter").

The Agreement provides that the fully diluted outstanding common shares of First Charter will be exchanged for shares of common stock of the Company. First Charter common and preferred shareholders will receive a total of 710,000 shares in the Company, which, valued at the $19.10 closing price of Company common stock on May 22, 2001, would equally approximately $13.6 million. As a result of the restructuring of First Charter in 1996, the preferred shareholders of First Charter will receive approximately 97% of this consideration on a fully diluted and as converted basis. The Agreement calls for the shares issued to be at an exchange ratio of 0.008635 with a termination clause subject to First Community's share price dropping 20% and dropping 20% below an agreed upon bank index. First Charter has issued to the Company a stock option exercisable under certain circumstances for newly issued shares of First Charter equal to 19.9% of First Charter's fully diluted outstanding common shares.

The transaction is expected to close in the fourth quarter of the year and will be accounted for using pooling-of-interests accounting.

NOTE 3—NET INCOME (LOSS) PER SHARE

The following is a summary of the calculation of basic and diluted net income (loss) per share for the three- and six-month periods ended June 30, 2001 and 2000:

	3 Months Ended June 30,					6 Months Ended June 30,
	2001		2000			2001		2000
	(In thousands, except per share data)
Net income (loss)	$	1,487	$	(1,491	)	$	3,064	$	(199	)

Weighted average shares outstanding		4,546.7		3,883.7			4,474.1		3,880.9

Basic net income (loss) per share	$	0.33	$	(0.38	)	$	0.68	$	(0.05	)

Weighted average shares outstanding		4,546.7		3,883.7			4,474.1		3,880.9
Effect of dilutive stock options and warrants		247.6		198.9			231.5		212.6

Diluted shares outstanding		4,794.3		4,082.6			4,705.6		4,093.5

Diluted net income (loss) per share	$	0.31	$	(0.38	)	$	0.65	$	(0.05	)

NOTE 4—LONG-TERM DEBT

Trust Preferred Securities

In September 2000 the Company issued $8,000,000 of trust preferred securities bearing a fixed interest rate of 10.60% and maturing in thirty years. This security is considered tier 1 capital for regulatory purposes. These instruments were issued to fund part of the Professional Merger.

Convertible Debt

The Company acquired $679,000 of convertible debt in the Professional Merger. Approximately $6,000 was converted during the six month period ended June 30, 2001. The interest rate on this debt was 8.0% through March 1, 2001 and will be 6.26% for the remainder of 2001. Each $23.088 of principal is convertible into one share of Company Common Stock.

NOTE 5—PRO FORMA INFORMATION FOR PURCHASE ACQUISITIONS

On January 16, 2001 the Company acquired Professional Bancorp, Inc. ("Professional") and its wholly-owned subsidiary, First Professional Bank, N.A. ("First Professional").

The following table presents unaudited results for the three and six months ended June 30, 2001 and pro forma results of operations of the Company for the three and six months ended June 30, 2000 and 1999 as if the acquisition of Professional had been effective at the beginning of 2000. The unaudited pro forma combined summary of operations is intended for informational purposes only and

is not necessarily indicative of the future operating results of the Company or operating results that would have occurred had this acquisition been in effect for all the periods presented.

		3 Months Ended June 30,					6 Months Ended June 30,
		2001		Pro Forma 2000			2001		Pro Forma 2000
		(In thousands, except per share information)
Interest income		$	10,527	$	11,971		$	22,032	$	23,598
Interest expense			2,854		3,018			5,870		5,842

	Net interest income		7,673		8,953			16,162		17,756
Provision for loan losses			325		650			639		1,743

	Net interest income after provision for loan losses		7,348		8,303			15,523		16,013
Noninterest income			1,100		1,168			2,218		2,199
Noninterest expense			5,922		11,086			12,523		17,889

	Income (loss) before income taxes		2,526		(1,615	)		5,218		323
Income taxes (benefit)			1,039		118			2,154		947

	Net income (loss)	$	1,487	$	(1,733	)	$	3,064	$	(624	)

Net income (loss) per share:
	Basic	$	0.33	$	(0.39	)	$	0.68	$	(0.14	)
	Diluted	$	0.31	$	(0.39	)	$	0.65	$	(0.14	)
Weighted average shares outstanding:
	Basic		4,546.7		4,388.4			4,474.1		4,385.6
	Diluted		4,794.3		4,587.3			4,705.6		4,598.2

NOTE 6—IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets, which supersedes APB Opinion 17, Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. As permitted by Statement 142, the Company plans to adopt the new standard in the first quarter of the fiscal year 2002. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments and/or impairment adjustments by the end of the first interim period after adoption. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. Beginning on January 1, 2002, amortization of goodwill and intangibles with indefinite lives will cease. We are currently evaluating the impact that adopting the provisions of Statement 142 will have on our results of operations and financial position.

In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a replacement of FASB Statement No. 125," which revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures. Although it replaces FASB Statement No. 125, it carries over most of Statement 125's provisions without reconsideration. The accounting provisions are effective for fiscal years beginning after March 15, 2001. The reclassification and disclosure provisions are effective for fiscal years beginning after December 15, 2000. It is not anticipated that the financial impact of this statement will have a material effect on the Company.

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

Forward Looking Statement

This Quarterly Report on Form 10-Q includes forward-looking information, which is subject to the "safe harbor" created by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When the Company uses or incorporates by reference in this Quarterly Report on Form 10-Q (the "Quarterly Report") the words "anticipate," "estimate," "expect," "project," "intend," "commit," "believe" and similar expressions, the Company intends to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. Such risks and uncertainties include, but are not limited to, the following factors:

•: Competitive pressure in the banking industry and changes in the regulatory environment.
•: Changes in the interest rate environment and volatility of rate sensitive loans and deposits.
•: A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of the Company's loans.
•: Credit quality deterioration which could cause an increase in the provision for loan losses.
•: Dividend restrictions.
•: Regulatory discretion.
•: Material losses in the Company's merchant credit card processing business from card holder fraud or merchant business failure.
•: Changes in the securities markets.
•: Asset/liability repricing risks and liquidity risks.

The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.

Overview

The following tables and data set forth certain statistical information relating to the Company as of June 30, 2001, and for the three- and six-month periods ended June 30, 2001 and June 30, 2000. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto as of June 30, 2001, included herein, and the consolidated financial statements and notes thereto included in the Company's financial statements filed on Form 10-K for the year ended December 31, 2000.

Since December 31, 2000, the Company's total assets have increased by approximately $261.4 million, or 73.0%. Of this increase in assets, approximately $257.0 million relates to assets acquired in the Professional Merger. The major components of the approximately $4.4 million increase in assets, before the assets acquired in the Professional Merger, are a decrease of approximately $4.8 million in federal funds sold, a decrease in cash of approximately $1.9 million, a decrease of approximately $7.1 million in securities and an increase in net loans of approximately $20.7 million.

Since December 31, 2000, the Company's total deposits have increased by approximately $241.4 million. Of this increase in deposits, approximately $244.5 million relates to deposits acquired in the Professional Merger. Before the increase in deposits acquired as a result of the Professional Merger

deposits decreased approximately $3.1 million from December 31, 2000. Short-term borrowings increased by approximately $5.3 million from December 31, 2000.

On September 8, 2000 the Company issued $8 million of trust preferred securities. These securities are considered Tier I capital. The Company also acquired $679,000 of convertible debt in the Professional Merger. Approximately $6,000 was converted during the six month period ended June 30, 2001.

Consolidated operating income (net income before goodwill amortization and after-tax merger costs) for the three months ended June 30, 2001 was $1,563,000 or $0.33 per diluted share. This compares with consolidated operating income of $1,307,000 or $0.32 per diluted share, for the three months ended June 30, 2000, a growth of approximately 1.8%.

Consolidated net income, including goodwill amortization of $76,000, for the three months ended June 30, 2001 was $1,487,000 or $0.31 per diluted share. This compares with a net loss, including after-tax merger costs of $2,798,000, of $1,491,000 or $0.38 per diluted share, for the three months ended June 30, 2000.

Consolidated operating income (net income before goodwill amortization and after-tax merger costs) for the six months ended June 30, 2001 was $3,198,000 or $0.68 per diluted share. This compares with consolidated operating income of $2,599,000 or $0.63 per diluted share, for the six months ended June 30, 2000, a growth of approximately 7.0%.

Consolidated net income, including goodwill amortization of $134,000, for the six months ended June 30, 2001 was $3,064,000 or $0.65 per diluted share. This compares with a net loss, including after-tax merger costs of $2,798,000, of $199,000 or $0.05 per diluted share, for the six months ended June 30, 2000.

On July 19, 2001 the Company Board of Directors approved a quarterly dividend of $0.09 per common share which is payable on August 31, 2001 to shareholders of record on August 15, 2001.

Results of Operations

Operating Income. The Company defines operating income as net income before goodwill amortization and after-tax merger costs. After-tax merger costs were $2,798,000 for the three and six-month periods ended June 30, 2000. There were no merger costs in the three or six-month periods ended June 30, 2001. The Company's operating return on average assets was 0.99% in the second quarter of 2001 versus 1.55% in the second quarter of 2000. The Company's operating return on average assets was 1.03% in first six months of 2001 versus 1.60% in the first six months of 2000. These decreases were due to a substantial growth in average assets as a result of the Professional Merger with a moderate growth in net operating income between the two periods. The operating efficiency ratio increased from 62.1% in the second quarter of 2000 to 66.6% in the second quarter of 2001. Operating revenues grew 45.9% from the second quarter of 2000 to the second quarter of 2001 while operating expense grew 56.4% during the same period. The operating efficiency ratio increased from 61.2% in the first six months of 2000 to 67.4% in the first six months of 2001. Operating revenues grew 59.0% from the first six months of 2000 to the first six months of 2001 while operating expense grew 75.2% during the same period. The changes in the operating profitability ratios were a result of several factors: The Company incurred expenses as it developed the infrastructure to smoothly absorb Professional Bancorp; the loan to deposit ratio at First Professional is substantially lower than the other two banks, resulting in a lower net interest margin; and the interest rate reductions implemented by the Federal Reserve Bank in the first half of 2001 negatively impact the Company's yield on earning assets. The Company is working on various efficiency and revenue initiatives that are now possible as a result of the First Community Merger and the Professional Merger.

RESULTS OF OPERATIONS

		3 Months Ended June 30,						6 Months Ended June 30,
		2001			2000			2001			2000
Per share information:
Number of shares (weighted average, in thousands)			4,546.7			3,883.7			4,474.1			3,880.9
Diluted shares (weighted average, in thousands)			4,794.3			4,082.6			4,705.6			4,093.5
Basic income (loss) per share		$	0.33		$	(0.38	)	$	0.68		$	(0.05	)
Diluted income (loss) per share		$	0.31		$	(0.38	)	$	0.65		$	(0.05	)
Per share information before after-tax merger costs and goodwill amortization:
Basic income per share		$	0.34		$	0.34		$	0.71		$	0.67
Diluted income per share		$	0.33		$	0.32		$	0.68		$	0.63
Profitability measures before after-tax merger costs and goodwill amortization:
Return on average assets			0.99	%		1.55	%		1.03	%		1.60	%
Return on average equity			16.6	%		20.2	%		17.7	%		19.9	%
Efficiency ratio			66.6	%		62.1	%		67.4	%		61.2	%
Adjustments to net income (loss) (in thousands):
Net income		$	1,487		$	(1,491	)	$	3,064		$	(199	)
Goodwill amortization			76			—			134			—
Merger costs			—			3,561			—			3,561
	Tax benefits		—			763			—			763

After-tax merger costs			—			2,798			—			2,798

	Operating income	$	1,563		$	1,307		$	3,198		$	2,599

Operating revenues (in thousands):
Net interest income		$	7,673		$	5,323		$	16,162		$	10,287
Noninterest income			1,100			692			2,218			1,273

	Operating revenues	$	8,773		$	6,015		$	18,380		$	11,560

Adjustments to expenses (in thousands):
Noninterest expense		$	5,922		$	7,299		$	12,523		$	10,634
Goodwill amortization			(76	)		—			(134	)		—
Merger costs			—			(3,561	)		—			(3,561	)

	Operating expenses	$	5,846		$	3,738		$	12,389		$	7,073

Income for the Company is dependent on loan growth, controlling costs and continual efforts to prevent any unexpected loan losses that would require additions to the allowance for loan losses ("ALL"). The Company believes that the demand for loans has increased in the Company's primary market areas due to the growth in the Southern California economy along with the ability of the Company's customers to participate in that growth. However, the perceived increase in the demand for loans is tempered by the highly competitive banking marketplace and the Company's desire to maintain strong credit quality standards. In spite of these factors, the Company's business development efforts resulted in an increase in loans since December 31, 2000. After allowing for the $110.6 million of loans, net of deferred fees and costs, acquired in the Professional Merger, loans, net of deferred fees and costs, have grown approximately $15.4 million since December 31, 2000, a growth of approximately 6.1%. This increase is after loan charge offs related to First Professional of approximately $4.8 million. As a result of the increase in gross loans of 50.1%, including loans acquired in the First Professional

Merger, and the approximate 76.2% increase in deposits, the Company's loan-to-deposit ratio, has decreased from 79.1% as of December 31, 2000, to 67.4% as of June 30, 2001.

Net Interest Income. Net interest income is the difference between interest earned on assets and interest paid on liabilities. Net interest margin is net interest income expressed as a percentage of average interest-earning assets. The following tables provide information concerning average interest-earning assets and interest-bearing liabilities and yields and rates thereon for the three and six months ended June 30, 2000 and June 30, 2000. Nonaccrual loans are included in the average earning assets amounts.

UNAUDITED AVERAGE BALANCE SHEETS

			3 Months Ended June 30,						6 Months Ended June 30,
			2001			2000			2001			2000
			(In thousands)
Average Assets:
Loans, net of deferred fees and costs			$	367,149		$	222,041		$	362,920		$	219,892
Investment securities				92,023			46,795			96,503			48,035
Federal funds sold				106,829			34,492			98,865			22,524
Interest-bearing deposits in financial institutions				176			5,107			308			6,125

	Average earning assets			566,177			308,435			558,596			296,576
Other assets				66,531			30,358			64,515			29,995

		Average total assets	$	632,708		$	338,793		$	623,111		$	326,571

Average Liabilities and Shareholders' Equity:
Average Liabilities:
Noninterest-bearing deposits			$	223,844		$	104,102		$	227,246		$	101,337
Time deposits of $100,000 or more				53,199			19,727			52,728			25,483
Other interest-bearing deposits				286,229			186,141			279,968			169,836

	Average deposits			563,272			309,970			559,942			296,656
Other interest-bearing liabilities				14,953			1,288			14,369			1,991
Other liabilities				16,729			1,486			12,434			1,734

	Average liabilities			594,954			312,744			586,745			300,381
Average equity				37,754			26,049			36,366			26,190

		Average liabilities and shareholders' equity	$	632,708		$	338,793		$	623,111		$	326,571

Yield Analysis:
	(Dollars in thousands)
Average earning assets			$	566,177		$	308,435		$	558,596		$	296,576
	Yield			7.46	%		9.48	%		7.95	%		9.36	%
Average interest-bearing deposits			$	339,428		$	205,868		$	332,696		$	195,319
	Cost			2.97	%		3.77	%		3.16	%		3.59	%
Average deposits			$	563,272		$	309,970		$	559,942		$	296,656
	Cost			1.79	%		2.50	%		1.88	%		2.36	%
Average interest-bearing liabilities			$	354,381		$	207,156		$	347,065		$	197,310
	Cost			3.23	%		3.78	%		3.41	%		3.61	%
Interest spread				4.23	%		5.70	%		4.54	%		5.75	%
Net interest margin				5.44	%		6.94	%		5.83	%		6.96	%
Average interest sensitive liabilities				578,225			311,258			574,311			298,647
	Cost			1.98	%		2.51	%		2.06	%		2.38	%

Three month periods ended June 30, 2001 and June 30, 2000:

Interest income increased by approximately $3.3 million from $7.3 million for the second quarter of 2000 to $10.5 million for the same period of 2001. The increase in interest income was due largely to the increase of approximately $257.7 million in average earning assets. This increase in average earnings assets was mostly a result of the earning assets acquired in the Professional Merger. During this same period the yield on earning assets decreased from 9.48% to 7.46%, a reduction of 202 basis

points. The Federal Reserve lowered interest rates three times during this period and since a substantial portion of the Company's earning assets reprice with the general level of interest rates, the yield on the Company's earning assets declined significantly.

Interest expense increased by approximately $0.9 million from $1.9 million for the second quarter of 2000 to $2.9 million for the same period of 2001. This increase is due mostly to the increase in average interest-bearing liabilities from $207.2 million to $354.4 million. This increase in average interest-bearing liabilities was mostly as a result of interest-bearing liabilities acquired in the Professional Merger. The cost of interest-bearing liabilities decreased from 3.78% to 3.23% over the same periods of time as a result of a decrease in the cost of interest-bearing deposits partially offset by (i) customers shifting deposits to higher costing deposits; (ii) the lag of deposit repricing versus asset repricing; and (iii) the addition of higher costing interest-bearing liabilities such as the trust preferred securities and the revolving line of credit.

Six month periods ended June 30, 2001 and June 30, 2000:

Interest income increased by approximately $8.2 million from $13.8 million for the first six months of 2000 to $22.0 million for the same period of 2001. The increase in interest income was due largely to the increase of approximately $262.0 million in average earning assets. This increase in average earnings assets was mostly a result of the earning assets acquired in the Professional Merger. During this same period the yield on earning assets decreased from 9.36% to 7.95%, a reduction of 141 basis points. The Federal Reserve lowered interest rates six times during this period and since a substantial portion of the Company's earning assets reprice with the general level of interest rates, the yield on the Company's earning assets declined significantly.

Interest expense increased by approximately $2.3 million from $3.5 million for the first six months of 2000 to $5.9 million for the same period of 2001. This increase is due mostly to the increase in average interest-bearing liabilities from $197.3 million to $347.1 million. This increase in average interest-bearing liabilities was mostly as a result of liabilities acquired in the Professional Merger. The cost of interest-bearing liabilities decreased from 3.61% to 3.41% over the same periods of time as a result of a decrease in the cost of interest-bearing deposits partially offset by (i) customers shifting deposits to higher costing deposits; (ii) the lag of deposit repricing versus asset repricing; and (iii) the addition of higher costing interest-bearing liabilities such as the trust preferred securities and the revolving line of credit.

Noninterest Income.

The following table sets forth the details of noninterest income for the three months ended June 30, 2001 and June 30, 2000. Due to the fact that the Professional Merger was accounted for using the purchase method of accounting, Professional Bancorp noninterest income is not included in the three-month periods ended June 30, 2000. The pro forma column below includes the unaudited Professional Bancorp noninterest income for that period. Comparisons are then performed on a pro forma basis with the 2001 amounts:

			3 Months Ended June 30,
			2001 Company		2000 Company		2000 Professional		2000 Pro Forma		Increase (Decrease)
			(In thousands)
Noninterest income:
	Service charges and fees on deposit accounts		$	567	$	285	$	234	$	519	$	48
	Merchant discount fees			94		34		71		105		(11	)
	Other commissions and fees			285		157		3		160		125
	Gain on sale of loans			64		124		—		124		(60	)
	Other income			90		92		168		260		(170	)

		Total noninterest income	$	1,100	$	692	$	476	$	1,168	$	(68	)

Total noninterest income decreased by approximately $68,000 from $1,168,000 on a pro forma basis to $1,100,000, or approximately (5.8%), from the three months ended June 30, 2000 to the three months ended June 30, 2001. There was a change in the mix of noninterest income. Other commissions and fees increased by approximately $125,000 due to commissions on various referral arrangements and servicing of SBA loans. Other income includes ATM fees, debit card fees and several other miscellaneous categories. Other income decreased by approximately $170,000 due to decreases in many of these areas. Gain on sale of loans decreased by approximately $60,000 due mainly to a decrease in SBA loan activity in the 2001 period. In addition the funding and sale of SBA loans does not occur smoothly over the year.

The following table sets forth the details of noninterest income for the six months ended June 30, 2001 and June 30, 2000. Due to the fact that the Professional Merger was accounted for using the purchase method of accounting, Professional Bancorp noninterest income is not included in the six-month periods ended June 30, 2000. The pro forma column below includes the unaudited Professional Bancorp noninterest income for that period. Comparisons are then performed on a pro forma basis with the 2001 amounts:

			6 Months Ended June 30,
			2001 Company		2000 Company		2000 Professional		2000 Pro Forma		Increase (Decrease)
			(In thousands)
Noninterest income:
	Service charges and fees on deposit accounts		$	1,118	$	595	$	469	$	1,064	$	54
	Merchant discount fees			163		51		143		194		(31	)
	Other commissions and fees			569		312		8		320		249
	Gain on sale of loans			169		179		—		179		(10	)
	Other income			199		136		306		442		(243	)

		Total noninterest income	$	2,218	$	1,273	$	926	$	2,199	$	19

Total noninterest income increased by approximately $19,000 from $2,199,000 on a pro forma basis to $2,218,000, or approximately 0.9%, from the six months ended June 30, 2000 to the six months ended June 30, 2001. There was a change in the mix of noninterest income. Other commissions and fees increased by approximately $249,000 due to various referral arrangements and SBA servicing fees. Other income includes ATM fees, debit card fees and several other miscellaneous categories. Other income decreased by approximately $243,000 due to decreases in many of these areas.

Noninterest Expense.

The following table sets forth the details of noninterest expense for the three months ended June 30, 2001 and June 30, 2000. Due to the fact that the Professional Merger was accounted for using the purchase method of accounting, Professional Bancorp noninterest expense is not included in the three month period ended June 30, 2000. The pro forma column below includes the unaudited Professional Bancorp noninterest expense for that period. Comparisons are then done on a pro forma basis with the 2001 amounts:

		3 Months Ended June 30,
		2001 Company		2000 Company		2000 Professional		2000 Pro Forma		Increase (Decrease)
		(In thousands)
Noninterest expense:
	Salaries and employee benefits	$	3,036	$	1,651	$	1,960	$	3,611	$	(575	)
	Occupancy		719		377		366		743		(24	)
	Furniture and equipment		334		236		79		315		19
	Legal expenses		189		75		297		372		(183	)
	Other professional services		575		464		359		823		(248	)
	Stationery, supplies and printing		148		90		61		151		(3	)
	FDIC assessment		140		17		30		47		93
	Cost of other real estate owned		2		33		—		33		(31	)
	Advertising		98		95		11		106		(8	)
	Insurance		63		32		83		115		(52	)
	Other		542		668		469		1,137		(595	)

	Operating expense		5,846		3,738		3,715		7,453		(1,607	)
	Merger costs		—		3,561		—		3,561		(3,561	)
	Goodwill amortization		76		—		—		—		76

Total noninterest expense		$	5,922	$	7,299	$	3,715	$	11,014	$	(5,092	)

Total operating expense (noninterest expenses before the amortization of goodwill and merger costs) decreased approximately $1,607,000 from $7,453,000, on a pro forma basis, to $5,846,000, or (21.6%), from the three months ended June 30, 2000 to the three months ended June 30, 2001. The decrease in almost all categories of expense is primarily a result of the efficiencies associated with the consolidation of functions, partially offset by the increased level of economic activity in the Company's markets and the Company's response to this increased level of customers and customer activity. The decline in legal expenses and other professional services expense is a result of less activity related to working out troubled loans. The increase in FDIC assessment is a result of First Professional's regulatory rating. The merger costs in the 2000 period relate to the First Community Acquisition.

The following table sets forth the details of noninterest expense for the six months ended June 30, 2001 and June 30, 2000. Due to the fact that the Professional Merger was accounted for using the purchase method of accounting, Professional Bancorp noninterest expense is not included in the six-month period ended June 30, 2000. The pro forma column below includes the unaudited

Professional Bancorp noninterest expense for that period. Comparisons are then done on a pro forma basis with the 2001 amounts:

		6 Months Ended June 30,
		2001 Company		2000 Company		2000 Professional		2000 Pro Forma		Increase (Decrease)
		(In thousands)
Noninterest expense:
	Salaries and employee benefits	$	6,509	$	3,329	$	3,791	$	7,120	$	(611	)
	Occupancy		1,449		773		733		1,506		(57	)
	Furniture and equipment		690		478		283		761		(71	)
	Legal expenses		299		159		427		586		(287	)
	Other professional services		1,256		913		752		1,665		(409	)
	Stationery, supplies and printing		297		135		113		248		49
	FDIC assessment		284		32		59		91		193
	Cost of other real estate owned		32		33		—		33		(1	)
	Advertising		237		196		24		220		17
	Insurance		142		63		111		174		(32	)
	Loss on sale of securities		—		11		—		11		(11	)
	Other		1,194		951		818		1,769		(575	)

	Operating expense		12,389		7,073		7,111		14,184		(1,795	)
	Merger costs		—		3,561		—		3,561		(3,561	)
	Goodwill amortization		134		—		—		—		134

	Total noninterest expense	$	12,523	$	10,634	$	7,111	$	17,745	$	(5,222	)

Total operating expense (noninterest expenses before the amortization of goodwill) decreased approximately $1,795,000 from $14,184,000, on a pro forma basis, to $12,389,000, or (12.7%), from the six months ended June 30, 2000 to the six months ended June 30, 2001. The decrease in almost all categories of expense is primarily a result of the efficiencies associated with the consolidation of functions, partially offset by the increased level of economic activity in the Company's markets and the Company's response to this increased level of customers and customer activity. The decline in legal expenses and other professional services expense is a result of less activity related to working out troubled loans. The increase in FDIC assessment is a result of First Professional's regulatory rating. The merger costs in the 2000 period relate to the First Community Acquisition.

The efficiency ratio (operating expense divided by net interest income plus noninterest income) is a measure of how effective the Company is at using its expense dollars. A lower or declining ratio indicates improving efficiency. The increase in the efficiency ratio from 62.1% in the second quarter of 2000 to 66.6% in the second quarter of 2001 is mostly a result of building the infrastructure to absorb Professional Bancorp, the decline in the net interest margin and the operation consolidations related to the Professional Merger which will not be fully implemented until the second half of 2001.

Income Taxes. The Company's normal effective income tax rate is approximately 42.0%, representing a blend of the statutory Federal income tax rate of 35.0% and the California income tax rate of 10.84%. Due to the non deductibility of goodwill and certain merger costs, the Company's actual effective income tax rates were 41.1% and (16.1%)% for the three months ended June 30, 2001 and 2000, respectively, and 41.3% and 121.5% for the six months ended June 30, 2001 and 2000, respectively.

Balance Sheet Analysis

Credit Quality. The Company defines nonperforming assets to include (i) loans past due 90 days or more and still accruing; (ii) loans on which it has ceased to accrue interest ("Nonaccrual Loans") and (iii) assets acquired through foreclosure including other real estate owned. "Impaired loans" are commercial, commercial real estate, and individually significant mortgage and consumer loans for which it is probable that the Company will not be able to collect all amounts due according to the original contractual terms of the loan agreement. The category of "impaired loans" is not coextensive with the category of "nonaccrual loans," although the two categories overlap. "Nonaccrual loans" include impaired loans and are those on which the accrual of interest is discontinued when collectibility of principal or interest is uncertain or payments of principal or interest have become contractually past due 90 days. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility, while not classifying the loan impaired, if (i) it is probable that the Company will collect all amounts due in accordance with the original contractual terms of the loan or (ii) the loan is not a commercial, commercial real estate or an individually significant mortgage or consumer loan.

Planned workout arrangements are currently in place or in negotiation for all nonperforming assets. Management is not aware of any additional significant loss potential that has not already been included in the estimation of the allowance for loan losses ("ALL").

CREDIT QUALITY MEASURES

The following table shows the historical trends in nonperforming assets and key credit quality statistics for the Company:

		As of or for the Periods Ending
		3 Months 3/31/00			6 Months 6/30/00			9 Months 9/30/00			Year 12/31/00			3 Months 3/31/01			6 Months 6/30/01
		(Dollars in thousands)
Loans past due 90 days or more and still accruing		$	—		$	218		$	3		$	—		$	250		$	—
Nonaccrual loans and leases			442			2,268			2,650			2,271			11,340			11,225
Other real estate owned			1,315			1,315			1,315			1,031			654			654

	Nonperforming assets	$	1,757		$	3,801		$	3,968		$	3,302		$	12,244		$	11,879

Impaired loans, gross		$	434		$	2,268		$	2,650		$	2,271		$	11,340		$	11,225
Allocated allowance for loan losses			(201	)		(574	)		(456	)		(368	)		(3,161	)		(3,026	)

	Net investment in impaired loans	$	233		$	1,694		$	2,194		$	1,903		$	8,179		$	8,199

Charged off loans year-to-date (normalized)		$	15		$	92		$	361		$	708		$	119		$	1,798
Recoveries year-to-date			(42	)		(54	)		(70	)		(93	)		(182	)		(618	)

	Net charge offs (recoveries)	$	(27	)	$	38		$	291		$	615		$	(63	)	$	1,180

Allowance for loan losses to loans, net of deferred fees and costs			1.82	%		1.78	%		1.64	%		1.57	%		3.12	%		2.77	%
Allowance for loan losses to nonaccrual loans and leases			916.7	%		175.8	%		147.7	%		173.1	%		98.9	%		92.9	%
Nonperforming assets to loans and OREO			0.79	%		1.69	%		1.65	%		1.31	%		3.40	%		3.15	%
Annualized net charge offs (recoveries) to average loans (normalized)			(0.05	)%		0.03	%		0.17	%		0.27	%		(0.07	)%		0.66	%
Nonaccrual loans to loans, net of deferred fees and costs			0.20	%		1.01	%		1.11	%		0.91	%		3.16	%		2.98	%
Allowance for loan losses to nonperforming assets			230.6	%		104.9	%		98.6	%		119.0	%		91.6	%		87.8	%
Loans, net of deferred fees and costs		$	222,342		$	223,840		$	239,015		$	250,552		$	359,393		$	376,502
Allowance			4,052			3,987			3,914			3,930			11,215			10,424
Average loans			217,743			219,892			223,253			228,638			358,644			362,920

With the Professional Merger nonaccrual loans increased during the quarter ended March 31, 2001 by $9,069,000 from 0.91% to 3.16% of gross outstanding loans. This ratio declined to 2.98% at June 30, 2001. As of March 31, 2001, $9,323,000 of the nonaccrual loans were at First Professional. Nonaccrual loans declined slightly in the quarter ended June 30, 2001. At June 30, 2001 $7,503,000 of the nonaccrual loans are at First Professional. The Allowance for Loan Losses at June 30, 2001 of $10,424,000 represents 92.9% of nonaccrual loans and has been deemed by management to be adequate to cover any shortfall that may occur upon disposition of the collateral along with the remaining nonaccrual loans.

Net charge offs for second quarter of 2001 were $1,243,000 ($1,279,000 of net charge offs were at First Professional). Normalized net charge offs for the six-month period were $1,180,000. This represents 0.66% of average loans for the six-month period ended June 30, 2001. In addition to the $1,798,000 of charge offs through June 30, 2001, $4,805,000 of First Professional loans were also charged off during the first quarter in a one-time charge associated with the Professional Merger.

Loans past due 90 days and still accruing represent loans which are past due 90 days or more as to interest or principal, but not included in the nonaccrual or restructured categories. All loans in this category are well-secured and in the process of collection or renewal.

As of June 30, 2001, the Company had approximately $11,225,000 of loans which were considered impaired, all of which were on nonaccrual status, compared to $2,271,000 at December 31, 2000. Of the loans considered impaired, $7,503,000 of these loans were acquired as part of the Professional Merger. The ALL at June 30, 2001 includes allocated allowances of approximately $3,026,000 established for certain impaired loans. Nonperforming assets increased approximately $8,577,000 from $3,302,000 at December 31, 2000, to $11,879,000 at June 30, 2001. This increase is mostly a result of nonaccrual loans increasing $8,954,000 to $11,225,000 due primarily to nonaccrual loans acquired as part of the Professional Merger. During the three month period ended June 30, 2001, nonaccrual loans declined approximately $115,000. During the three month period ended March 31, 2001 the Company sold approximately $531,000 of other real estate and added approximately $154,000 of other real estate.

Allowance for Loan Losses. The Company has established a monitoring system for its loans in order to identify impaired loans and potential problem loans and to permit periodic evaluation of impairment and the adequacy of the ALL in a timely manner. The monitoring system and ALL methodology have evolved over a period of years, and loan classifications have been incorporated into the determination of the ALL. This monitoring system and allowance methodology include a loan-by-loan analysis for all classified loans as well as loss factors for the balance of the portfolio that are based on migration analysis relative to the Company's unclassified portfolio. This analysis includes such factors as historical loss experience, current portfolio delinquency and trends, and other inherent risk factors such as economic conditions, concentrations in the portfolio risk levels of particular loan categories, internal loan review and management oversight.

The percentage of ALL to gross loans, net of deferred fees and costs, was 2.77% at June 30, 2001, down from 3.12% at March 31, 2001, but an increase from 1.57% at December 31, 2000. The increase in the percentage in the first quarter of 2001 is almost entirely a result of the ALL acquired in the merger of Professional into the Company. Nonaccrual loans increased by $9,069,000 during the quarter ended March 31, 2001, from 0.91% to 3.16% of loans, net of deferred fees and costs. At June 30, 2001 this percentage declined to 2.98%. Net OREO remained flat at $654,000 during the second quarter of 2001. Total nonperforming assets increased by $8,942,000 during the first quarter of 2001, increasing from 1.31% to 3.40% of total loans and OREO at December 31, 2000 and March 31, 2001, respectively. Nonperforming assets declined by $365,000 during the quarter ended June 30, 2001 resulting in a ratio of 3.15%. The Company had net charge offs of $1,243,000 during the three months ended June 30, 2001 represented by charge offs of $1,679,000 and recoveries of $436,000 during the period. The allowance for loan losses increased by $7,285,000 from $3,930,000 at December 31, 2000 to $11,215,000 at March 31, 2001 and declined to $10,424,000 at June 30, 2001. The allowance as a percentage of nonperforming assets decreased from 91.6% at March 31, 2001 to 87.8% at June 30, 2001 mainly due to the decline in the ALL. Management believes that the allowance for loan losses at June 30, 2001 is adequate based on the Company's quarterly migration analysis of loan losses, improved economic conditions and continued adherence to established credit policies.

Regulatory Matters. The regulatory capital guidelines as well as the actual regulatory capital ratios for Rancho, First Community and the Company on a consolidated basis as of June 30, 2001, are as follows:

	Regulatory Requirements (Greater than or equal to stated percentage)				Actual
	Adequately Capitalized		Well Capitalized		Rancho		First Community		First Professional		Consolidated
Detailed computations of
Tier 1 leverage capital ratio	4.00	%	5.00	%	8.92	%	7.30	%	5.95	%	6.54	%
Tier 1 risk-based capital ratio	4.00	%	6.00	%	10.54	%	9.44	%	11.56	%	9.43	%
Total risk-based capital	8.00	%	10.00	%	11.79	%	10.70	%	12.86	%	10.85	%

On September 8, 2000 the Company issued $8 million of trust preferred securities. These securities are considered Tier I capital. The proceeds from the trust preferred securities were used for the purchase of Professional.

Liquidity, Interest Rate Sensitivity and Market Risk. On a stand-alone basis, the Company's sources of liquidity include dividends from the Banks and outside borrowings. The amount of dividends that the Banks can pay to the Company is restricted by regulatory guidelines.

The primary function of asset/liability management is to ensure adequate liquidity and maintain an appropriate balance between interest-sensitive earning assets and interest-bearing liabilities at the Banks. Liquidity management involves the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers who may need assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity management seeks to avoid fluctuating interest margins and to enhance consistent growth of net interest income through periods of changing interest rates.

Historically, the overall liquidity of the Banks is based on the core deposit base of the Banks. The Banks have not relied on large denomination time deposits. To meet short-term liquidity needs, the Company has maintained at the Banks what it believes are adequate balances in federal funds sold, interest-bearing deposits in financial institutions and investment securities having maturities of five years or less. On a consolidated basis, liquid assets (cash, federal funds sold and investment securities available-for-sale) as a percent of total deposits were 38.6% and 29.4% as of June 30, 2001 and December 31, 2000, respectively.

Market risk sensitive instruments are generally defined as on and off balance sheet derivatives and other financial instruments. At December 31, 2000 and June 30, 2001, the Company had no material on or off balance sheet derivatives. The Company's financial instruments include loans receivable, federal funds sold, interest-bearing deposits in financial institutions, FRB and FHLB stock, investment securities, deposits, short-term borrowings, convertible debt and trust preferred securities. At December 31, 2000, the Company had approximately $314 million in interest sensitive assets and approximately $327 million in interest sensitive liabilities. At June 30, 2001, the Company's interest sensitive assets and interest sensitive liabilities totaled approximately $550 million and $574 million, respectively. The increase in interest sensitive assets and interest sensitive liabilities resulted mostly from assets and liabilities acquired in the Professional Merger.

The yield on interest sensitive assets and the cost of interest sensitive liabilities for the three month period ended June 30, 2001 was 7.46% and 1.98%, respectively, compared to 9.43% and 2.80%, respectively, for the three month period ended December 31, 2000. The decrease in the yield on interest sensitive assets during the quarter is primarily a result of the decrease of interest rates associated with the Federal Reserve interest rate reductions during the first six months of 2001. The

decrease in the cost of interest sensitive liabilities during the quarter is primarily a result of both the decrease of interest rates associated with the Federal Reserve interest rate reductions during the quarter and high percentage of noninterest-bearing deposits acquired in the Professional Merger.

The Company's interest sensitive assets and interest sensitive liabilities were reported to have estimated fair values of $307.4 million and $326.2 million, respectively, at December 31, 2000. Because of the floating and short-term nature of its interest sensitive assets and liabilities, management believes that there has been no material change in the difference between the book value of the interest sensitive assets and liabilities and their estimated fair values.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

Information concerning our exposure to market risk, which has remained relatively unchanged from December 31, 2000, is incorporated by reference from the text under the caption "Qualitative and Quantitative Disclosure About Market Risk" in the Form 10-K for the year ended December 31, 2000. In addition, see the section titled "Liquidity, Interest Rate Sensitivity and Market Risk" in the Management's Discussion and Analysis of Financial Condition and Results of Operations.

PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

None

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

On May 21, 2001 the Company had its Annual Meeting of shareholders. There were 4,505,158 shares eligible to vote. Of these shares, 4,092,263 shares were represented by proxy at the meeting. The meeting was held for the following purposes:

1. To elect ten (10) members of the Board of Directors who shall hold office until the next annual meeting of shareholders and thereafter until their successors are duly elected and qualified.

Director	Votes For	Votes Against
Harold W. Clark	4,082,271	9,992
Stephen Dunn	4,082,721	9,542
John M. Eggemeyer, III	4,082,721	9,542
Barry C. Fitzpatrick	4,082,719	9,544
Robert E. Herrmann	4,082,269	9,994
Robert A. Schoellhorn	4,082,271	9,992
Robert A. Stine	4,082,271	9,992
Matthew P. Wagner	4,082,721	9,542
Dale E. Walter	4,082,721	9,542
David S. Williams	4,082,721	9,542

2. To approve an amendment to the Company's 2000 Stock Option Plan to increase the number of shares subject to the Plan from 780,000 to 1,075,079 shares.

For		Against		Abstain		Broker Non-Vote
3,284,866		52,387		73,590		681,420

3. To consider and act upon such other business and matters or proposals as may properly come before the Annual Meeting or any adjournment or adjournments thereof.

For		Against		Abstain		Broker Non-Vote
3,433,017		565,636		93,610		0

Other than adjournment, there were no other matters or proposals that came before the Annual Meeting.

ITEM 5. Other Information

None

ITEM 6. Exhibits and Reports on Form 8-K

A. Exhibits

Exhibit Number		Description
2.1		Third Amended and Restated Agreement and Plan of Merger, dated as of October 22, 1999, by and among Rancho Santa Fe National Bank, First Community Bancorp and First Community Bank of the Desert (Appendix A to Registration Statement No. 333-93827 filed on Form S-4/A on May 5, 2000 and incorporated herein by this reference).
2.2		Agreement and Plan of Merger, dated as of August 7, 2000, by and between First Community Bancorp and Professional Bancorp, Inc. (Annex A to Registration Statement No. 333-47242 filed on Form S-4/A on November 16, 2000 and incorporated herein by this reference).
2.3		Agreement and Plan of Merger, dated as of May 22, 2001, by and between First Community Bancorp and First Charter Bank, N.A. (Appendix A of Registration Statement No. 333-65582 filed on Form S-4 on July 20, 2001 and incorporated herein by this reference).
3.1		Articles of Incorporation of First Community Bancorp (Exhibit 3.1 to a Form 8-A filed on June 2, 2000 and incorporated herein by this reference).
3.2		Bylaws of First Community Bancorp (Exhibit 3.2 to a Form 8-A filed on June 2, 2000 and incorporated herein by this reference).
10.		First Community Bancorp 2000 Stock Incentive Plan; Form of Incentive Stock Option Agreement, Form of Nonstatutory Stock Option Agreement for directors and Form of Nonstatutory Stock Option agreement for consultants (Exhibit 10.1 of a Form 10-Q filed on August 10, 2000 and incorporated herein by this reference).
10.1		Revolving Credit Agreement and Pledge Agreement and Waiver, dated June 26, 2000 (Exhibit 10.2 of a Form 10-Q filed on August 10, 2000 and incorporated herein by this reference).
10.2		Directors' Deferred Compensation Plan (Exhibit 10.3 of a Form 10-Q filed on August 10, 2000 and incorporated herein by this reference).
10.3		Guarantee Agreement By and Between First Community Bancorp and State Street Bank and Trust Company of Connecticut, National Association Dated as of September 7, 2000 (Exhibit 10.4 of a Form 10-Q filed on November 13, 2000 and incorporated herein by this reference).
10.4		Amended and Restated Declaration of Trust By and Among State Street Bank and Trust Company of Connecticut, National Association as Institutional Trustee, First Community Bancorp, as Sponsor and Mark Christian and Arnold C. Hahn, as Administrators dated September 7, 2000 (Exhibit 10.5 of a Form 10-Q filed on November 13, 2000 and incorporated herein by this reference).
10.5		Indenture between State Street Bank and Trust Company of Connecticut, National Association and First Community Bancorp dated as of September 7, 2000 (Exhibit 10.6 of a Form 10-Q filed on November 13, 2000 and incorporated herein by this reference).
10.7		First Amendment to Revolving Credit Agreement dated January 12, 2001 (Exhibit 10.7 of a Form 10-K filed on March 21, 2001 and incorporated herein by this reference).
10.8		First Community Bancorp Executive Severance Policy (Exhibit 10.8 of a Form 10-K filed on March 21, 2001 and incorporated herein by this reference).
10.9		First Community Bancorp Employee Severance Policy (Exhibit 10.9 of a Form 10-K filed on March 21, 2001 and incorporated herein by this reference).
10.10		Gaines Employment Contract (Exhibit 10.10 of a Form 10-K filed on March 21, 2001 and incorporated herein by this reference).
10.11		Second Amendment to Revolving Credit Agreement dated June 25, 2001
21.		Subsidiaries of First Community Bancorp (Exhibit 10.10 of a Form 10-K filed on March 21, 2001 and incorporated herein by this reference).

B. Reports on Form 8-K

On May 30, 2001 the Company filed a current report on Form 8-K disclosing information related to the announcement of the acquisition of First Charter Bank, N.A.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FIRST COMMUNITY BANCORP
		/s/ MATTHEW P. WAGNER Matthew P. Wagner President and Chief Executive Officer
Date: August 10, 2001		/s/ ARNOLD C. HAHN Arnold C. Hahn Executive Vice President, Chief Financial Officer and Assistant Secretary

EXHIBIT INDEX

Exhibit Number		Description
2.1		Third Amended and Restated Agreement and Plan of Merger, dated as of October 22, 1999, by and among Rancho Santa Fe National Bank, First Community Bancorp and First Community Bank of the Desert (Appendix A to Registration Statement No. 333-93827 filed on Form S-4/A on May 5, 2000 and incorporated herein by this reference).
2.2		Agreement and Plan of Merger, dated as of August 7, 2000, by and between First Community Bancorp and Professional Bancorp, Inc. (Annex A to Registration Statement No. 333-47242 filed on Form S-4/A on November 16, 2000 and incorporated herein by this reference).
2.3		Agreement and Plan of Merger, dated as of May 22, 2001, by and between First Community Bancorp and First Charter Bank, N.A. (Appendix A of Registration Statement No. 333-65582 filed on Form S-4 on July 20, 2001 and incorporated herein by this reference).
3.1		Articles of Incorporation of First Community Bancorp (Exhibit 3.1 to a Form 8-A filed on June 2, 2000 and incorporated herein by this reference).
3.2		Bylaws of First Community Bancorp (Exhibit 3.2 to a Form 8-A filed on June 2, 2000 and incorporated herein by this reference).
10.		First Community Bancorp 2000 Stock Incentive Plan; Form of Incentive Stock Option Agreement, Form of Nonstatutory Stock Option Agreement for directors and Form of Nonstatutory Stock Option agreement for consultants (Exhibit 10.1 of a Form 10-Q filed on August 10, 2000 and incorporated herein by this reference).
10.1		Revolving Credit Agreement and Pledge Agreement and Waiver, dated June 26, 2000 (Exhibit 10.2 of a Form 10-Q filed on August 10, 2000 and incorporated herein by this reference).
10.2		Directors' Deferred Compensation Plan (Exhibit 10.3 of a Form 10-Q filed on August 10, 2000 and incorporated herein by this reference).
10.3		Guarantee Agreement By and Between First Community Bancorp and State Street Bank and Trust Company of Connecticut, National Association Dated as of September 7, 2000 (Exhibit 10.4 of a Form 10-Q filed on November 13, 2000 and incorporated herein by this reference).
10.4		Amended and Restated Declaration of Trust By and Among State Street Bank and Trust Company of Connecticut, National Association as Institutional Trustee, First Community Bancorp, as Sponsor and Mark Christian and Arnold C. Hahn, as Administrators dated September 7, 2000 (Exhibit 10.5 of a Form 10-Q filed on November 13, 2000 and incorporated herein by this reference).
10.5		Indenture between State Street Bank and Trust Company of Connecticut, National Association and First Community Bancorp dated as of September 7, 2000 (Exhibit 10.6 of a Form 10-Q filed on November 13, 2000 and incorporated herein by this reference).
10.7		First Amendment to Revolving Credit Agreement dated January 12, 2001 (Exhibit 10.7 of a Form 10-K filed on March 21, 2001 and incorporated herein by this reference).
10.8		First Community Bancorp Executive Severance Policy (Exhibit 10.8 of a Form 10-K filed on March 21, 2001 and incorporated herein by this reference).
10.9		First Community Bancorp Employee Severance Policy (Exhibit 10.9 of a Form 10-K filed on March 21, 2001 and incorporated herein by this reference).
10.10		Gaines Employment Contract (Exhibit 10.10 of a Form 10-K filed on March 21, 2001 and incorporated herein by this reference).
10.11		Second Amendment to Revolving Credit Agreement dated June 25, 2001
21.		Subsidiaries of First Community Bancorp (Exhibit 10.10 of a Form 10-K filed on March 21, 2001 and incorporated herein by this reference).

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TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (unaudited)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—CONTINUED
Supplemental Disclosure of Acquisition of Professional Bancorp (In Thousands)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001
NOTE 1—BASIS OF PRESENTATION
NOTE 2—ACQUISITIONS
First Community Acquisition
Professional Bancorp Acquisition
First Charter Acquisition
NOTE 3—NET INCOME (LOSS) PER SHARE
NOTE 4—LONG-TERM DEBT
NOTE 5—PRO FORMA INFORMATION FOR PURCHASE ACQUISITIONS
NOTE 6—IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
RESULTS OF OPERATIONS
UNAUDITED AVERAGE BALANCE SHEETS
Balance Sheet Analysis
CREDIT QUALITY MEASURES
ITEM 3. Quantitative and Qualitative Disclosure 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
A. Exhibits
B. Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX