-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IL3+Ux3FtSNLDrKmx2SnvwYsTd/iI5JIQDiKm/aQwRfiN1YLrOJ4nZNrEqSOaP1Y cmWkOTrbWxhsN6kqXSfI1A== 0000912057-02-020304.txt : 20020514 0000912057-02-020304.hdr.sgml : 20020514 ACCESSION NUMBER: 0000912057-02-020304 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020307 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COMMUNITY BANCORP /CA/ CENTRAL INDEX KEY: 0001102112 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 330885320 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-30747 FILM NUMBER: 02647617 BUSINESS ADDRESS: STREET 1: 6110 EL TORDO CITY: RANCHO SANTA FE STATE: CA ZIP: 92067 BUSINESS PHONE: 8587563023 8-K/A 1 a2076589z8-ka.htm FORM 8-K/A
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A

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

March 7, 2002
Date of Report (Date of Earliest Event Reported)

FIRST COMMUNITY BANCORP
(Exact Name of Registrant As Specified In Its Charter)

CALIFORNIA
(State or Other Jurisdiction of Incorporation)

00-30747		33-0885320
(Commission File Number)		(IRS Employer Identification No.)

6110 El Tordo
Rancho Santa Fe, California 92067
(Address of Principal Executive Offices)(Zip Code)

(858) 759-8300
(Registrant's Telephone Number, including Area Code)

Item 2. Acquisition or Disposition of Assets.

On March 7, 2002, First Community Bancorp ("FCB") completed its merger (the "Merger") with W.H.E.C., Inc. ("WHEC"). The Merger was consummated pursuant to the terms of the Agreement and Plan of Merger, dated as of November 12, 2001, by and between FCB and WHEC (the "Merger Agreement").

As a result of the Merger, each issued and outstanding share of common stock of WHEC was converted into the right to receive 0.2353 of a share of FCB common stock.

Based upon the March 7, 2002 closing price of FCB common stock, the approximate value of consideration to be received by WHEC shareholders in the Merger is $24.5 million.

The description of the Merger Agreement contained herein is qualified in its entirety by reference to the Merger Agreement which is incorporated as Exhibit 2.1 to the current report filed on Form 8-K filed by FCB on March 21, 2002. After giving effect to the Merger, and the merger with Pacific Western National Bank, the total assets of FCB increased to approximately $1.20 billion, total deposits increased to approximately $1.05 billion and total shareholder equity increased to approximately $102.8 million as of December 31, 2001, on a pro forma basis.

Item 5. Other Events

On January 31, 2002, FCB completed its merger with Pacific Western National Bank. The audited consolidated balance sheets as of December 31, 2001 and 2000 and related audited consolidated statements of income, changes in shareholders' equity and cash flows of Pacific Western National Bank for each of the three years in the period ended December 31, 2001 are incorporated herein in their entirety by this reference to Exhibit 99.3.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

Items 7(a) and 7(b) of the Current Report on Form 8-K filed by First Community Bancorp on March 21, 2002 are hereby amended and restated in their entirety as set forth on Exhibits 99.2 hereto and 99.4.

(a): The financial statements required by this current report are incorporated herein in their entirety by this reference to Exhibit 99.2.
(b): The pro forma financial information required by this current report is incorporated herein in its entirety by this reference to Exhibit 99.4 hereto.

Exhibit Number		Description
23.1		Consent of Vavrinek, Trine, Day & Co., LLP, with respect to W.H.E.C., Inc.
23.2		Consent of Vavrinek, Trine, Day & Co., LLP, with respect to Pacific Western National Bank.
99.2		Audited consolidated balance sheets as of December 31, 2001 and 2000 and related audited consolidated statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 2001 and 2000 of W.H.E.C., Inc.
99.3		Audited statements of financial condition as of December 31, 2001 and 2000 and related audited statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001 of Pacific Western National Bank.
99.4		Pro forma condensed balance sheet as of December 31, 2001 and related pro forma combined condensed statement of operations for the year ended December 31, 2001 of First Community Bancorp.

* * *

This report includes forward-looking statements that involve inherent risks and uncertainties. First Community Bancorp cautions readers that a number of important factors could cause actual results to differ materially from those in the forward-looking statements. These factors include economic conditions generally, including those resulting from the terrorist attacks of September 11, 2001 and their aftermath, and competition in the geographic and business areas in which First Community Bancorp operates, inflation or deflation, fluctuations in interest rates, legislation and governmental regulation and the progress of integrating the operations of the banks acquired by First Community Bancorp, including Capital Bank of North County. We make no promise to update any forward-looking statement, whether as a result of changes in underlying factors, new information, future events or otherwise.

SIGNATURE

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 hereunder duly authorized.

Dated: May 8, 2002


FIRST COMMUNITY BANCORP

By:	/s/ MATTHEW P. WAGNER

	Name:	Matthew P. Wagner
	Title:	President and Chief Executive Officer

The following exhibits are filed with this Current Report on Form 8-K.

Exhibit Index

Exhibit Number		Description
23.1		Consent of Vavrinek, Trine, Day & Co., LLP, with respect to W.H.E.C., Inc.
23.2		Consent of Vavrinek, Trine, Day & Co., LLP, with respect to Pacific Western National Bank.
99.2		Audited consolidated balance sheets as of December 31, 2001 and 2000 and related audited consolidated statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 2001 and 2000 of W.H.E.C., Inc.
99.3		Audited statements of financial condition as of December 31, 2001 and 2000 and related audited statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001 of Pacific Western National Bank.
99.4		Pro forma condensed balance sheet as of December 31, 2001 and related pro forma combined condensed statement of operations for the year ended December 31, 2001 of First Community Bancorp.

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FORM 8-K/A
SIGNATURE
Exhibit Index
EX-23.1 3 a2076589zex-23_1.htm EXHIBIT 23.1
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CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the inclusion of our Independent Auditors' Report dated January 15, 2002 regarding the consolidated balance sheets of W.H.E.C., Inc. and Subsidiary as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years then ended in the Form 8-K/A of First Community Bancorp, filed with the Securities and Exchange Commission.

We also hereby consent to the incorporation by reference of this report in the registration statements on Form S-8, registration number 333-43330 and on Form S-8 POS, registration number 333-47242, of First Community Bancorp.

/s/ Vavrinek, Trine, Day & Co., LLP

Laguna Hills, California
May 13, 2002

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CONSENT OF INDEPENDENT AUDITORS
EX-23.2 4 a2076589zex-23_2.htm EXHIBIT 23.2
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CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the inclusion of our Independent Auditors' Report dated January 23, 2002 regarding the statements of financial condition of Pacific Western National Bank as of December 31, 2001 and 2000, and the related statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001, included in the Form 8-K/A of First Community Bancorp, filed with the Securities and Exchange Commission.

/s/ Vavrinek, Trine, Day & Co., LLP

Laguna Hills, California
May 13, 2002

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CONSENT OF INDEPENDENT ACCOUNTANTS
EX-99.2 5 a2076589zex-99_2.htm EXHIBIT 99.2
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EXHIBITS 99.2

W.H.E.C., INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT

DECEMBER 31, 2001 and 2000

CONTENTS


INDEPENDENT AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS		2

CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets		3
	Consolidated Statements of Income	4
	Consolidated Statement of Changes in Shareholders' Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7 through 19

[LETTERHEAD FROM VAVRINEK, TRINE, DAY & CO., LLP]

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
W.H.E.C., Inc. and Subsidiary

We have audited the consolidated balance sheets of W.H.E.C., Inc. and Subsidiary ("the Company") as of December 31, 2001 and 2000 and the related consolidated statements of income, changes in shareholders' equity, and cash flows of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of W.H.E.C., Inc. and Subsidiary as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Vavrinek, Trine, Day & Co., LLP

Laguna Hills, California
January 15, 2002

W.H.E.C., INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000

		2001		2000
ASSETS
Cash and due from banks		$	6,250,353	$	7,723,261
Federal funds sold			14,380,000		30,545,000

Total cash and cash equivalents			20,630,353		38,268,261
Certificates of deposit			450,000		549,000
Investment securities available for sale			25,192,542		8,789,386
Federal Reserve Bank stock, at cost			119,050		119,050
Loans—net			92,129,990		72,368,322
Bank premises and equipment — net			1,225,289		1,384,770
Accrued interest receivable			715,553		588,028
Cash surrender value of life insurance			2,424,145		2,328,266
Other assets			591,763		652,114

		$	143,478,685	$	125,047,197

LIABILITIES & SHAREHOLDERS' EQUITY
Deposits
	Demand—non-interest bearing	$	47,493,045	$	40,315,230
	Money market and NOW		57,228,841		45,339,239
	Savings		4,464,959		3,777,358
	Time certificates $100,000 or more		12,604,680		11,694,536
	Other time certificates		10,248,137		14,228,292

Total deposits			132,039,662		115,354,655
Other liabilities			954,114		866,685

Total liabilities			132,993,776		116,221,340
Commitments and contingencies—Notes 4 and 12			—		—
Shareholders' equity
	Common stock, $1.00 par value: authorized Shares-5,000,000 issued and outstanding 4,079,171 in 2001 and 4,015,341 in 2000		4,079,171		4,015,341
	Retained earnings		6,158,693		4,810,232
	Accumulated other comprehensive income — unrecognized income on available-for-sale securities, net of taxes of $171,675 in 2001 and $197 in 2000		247,045		284

Total shareholders' equity			10,484,909		8,825,857

		$	143,478,685	$	125,047,197

The accompanying notes are an integral part of these consolidated financial statements.

W.H.E.C., INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2001 and 2000

		2001		2000
Interest income:
	Loans	$	7,114,417	$	7,369,981
	Investment securities		1,043,997		441,683
	Federal funds sold		723,416		1,005,035
	Deposits with financial institutions		28,329		31,950

Total interest income			8,910,159		8,848,649
Interest expense:
	Time certificates of deposit of $100,000 or more		669,988		610,352
	Other deposits		1,822,542		1,765,161

Total interest expense			2,492,530		2,375,513

Net interest income			6,417,629		6,473,136
Provision for loan losses			95,000		125,000

Net interest income after provision for loan losses			6,322,629		6,348,136
Noninterest income:
	Service charges on deposit accounts		954,908		892,483
	Gain on sale of mortgage loans		38,870		30,843
	Dividends on cash surrender value life insurance		111,427		109,829
	Other		511,533		360,697

			1,616,738		1,393,852
Noninterest expense:
	Compensation and employee benefits		3,090,319		3,246,497
	Occupancy expense of bank premises		642,220		620,629
	Equipment expenses		289,687		303,830
	Other administrative		1,366,205		1,375,944

			5,388,431		5,546,900

Income before income tax provision			2,550,936		2,195,088
Income tax provision			919,150		865,390

NET INCOME		$	1,631,786	$	1,329,698

Per share data:
	Net income—basic	$	0.41	$	0.33

	Net income—diluted	$	0.36	$	0.31

The accompanying notes are an integral part of these consolidated financial statements.

W.H.E.C., INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2001 and 2000

		Common Stock
		Common Stock								Accumulated Other Comprehensive Income
		Number of Shares	Amount		Comprehensive Income		Retained Earnings			Accumulated Other Comprehensive Income			Total
Balance at January 1, 2000		4,015,341	$	4,015,341			$	3,480,534		$	(120,513	)	$	7,375,362
Comprehensive Income:
	Net income				$	1,329,698		1,329,698						1,329,698
	Net unrealized appreciation on available-for-sale securities, net of taxes of $83,944					120,797					120,797			120,797

Total Comprehensive Income					$	1,450,495


Balance at December 31, 2000		4,015,341		4,015,341				4,810,232			284			8,825,857
Comprehensive Income:
	Dividends paid							(282,460	)					(282,460	)
	Exercise of stock options	63,830		63,830				(865	)					62,965
	Net income				$	1,631,786		1,631,786						1,631,786
	Net unrealized appreciation on available-for-sale securities, net of taxes of $171,478					246,761					246,761			246,761

Total Comprehensive Income					$	1,878,547


Balance at December 31, 2001		4,079,171	$	4,079,171			$	6,158,693		$	247,045		$	10,484,909

The accompanying notes are an integral part of these consolidated financial statements.

W.H.E.C., INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001 and 2000

				2001			2000
Cash flows from operating activities:
	Net income			$	1,631,786		$	1,329,698
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			270,876			278,490
		Provision for loan losses			95,000			125,000
		Gain on sales of loans			(38,870	)		(30,843	)
		Deferred income taxes			(121,000	)		(158,000	)
		Net increase in cash surrender value life insurance			(95,879	)		(95,190	)
		Changes in operating assets and liabilities:
			Accrued interest receivable		(127,525	)		(94,237	)
			Other assets		190,865			228,125
			Other liabilities		87,429			229,732

Net cash provided by operating activities					1,892,682			1,812,775
Cash flows from investing activities:
	Net increase in certificates of deposit				99,000			—
	Purchases of available-for-sale investment securities				(22,114,943	)		—
	Proceeds from maturities and calls of issuer of available-for-sale investment securities				5,949,034			206,552
	Net increase in loans made to customers				(19,817,798	)		(8,804,541	)
	Capital expenditures				(111,395	)		(353,585	)

Net cash used for investing activities					(35,996,102	)		(8,951,574	)
Cash flows from financing activities:
	Net increase in demand and savings deposits				19,755,018			23,752,643
	Net decrease in time deposits				(3,070,011	)		(1,981,752	)
	Dividends paid				(282,460	)		—
	Proceeds from the issuance of common stock				62,965			—

Net cash provided by financing activities					16,465,512			21,770,891

Net increase (decrease) in cash and cash equivalents					(17,637,908	)		14,632,092
Cash and cash equivalents at beginning of year					38,268,261			23,636,169

Cash and cash equivalents at end of year				$	20,630,353		$	38,268,261

Cash paid during the year for:
	Interest			$	2,538,473		$	2,358,757
	Income taxes			$	1,031,964		$	934,080

The accompanying notes are an integral part of these consolidated financial statements.

W.H.E.C., INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Details of Consolidation

The financial statements include the accounts of W.H.E.C., Inc. (the "Company") and Capital Bank of North County (the "Bank"). W.H.E.C., Inc. has no significant business operations other than holding the stock of Capital Bank of North County.

Nature of Operations

The Bank has been organized and operates as a single reporting segment and operates five branches and one loan production office in San Diego County. The Bank's principal lines of business are real estate, commercial and SBA guaranteed loans. The Bank's commercial loan portfolio is diverse as to the industries represented. The real estate portfolio includes credits to many different borrowers for a variety of projects and for residential real estate.

Use of Estimates in the Preparation of Financial Statements

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 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.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, due from banks and federal funds sold. Generally, federal funds are sold for one day periods.

Cash and Due From Banks

Banking regulations require that all banks maintain a percentage of their deposits as reserves in cash or on deposit with the Federal Reserve Bank. The Bank complied with the reserve requirements as of December 31, 2001.

The Bank maintains amounts due from banks, which exceed federally insured limits. The Bank has not experienced any losses in such accounts.

Investment Securities

Bonds, notes, and debentures for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.

Investments not classified as trading securities nor as held to maturity securities are classified as available-for-sale securities and recorded at fair value. Unrealized gains or losses on available-for-sale securities are excluded from net income and reported as an amount net of taxes as a separate component of other comprehensive income included in shareholders' equity. Premiums or discounts on held-to-maturity and available-for-sale securities are amortized or accreted into income using the interest method. Realized gains or losses on sales of held-to-maturity or available-for-sale securities are recorded using the specific identification method.

Loans Held for Sale

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

Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding unpaid principal balances reduced by any charge-offs or specific valuation accounts and net of any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans.

Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan.

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

For impairment recognized in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, the entire change in the present value of expected cash flows is reported as either provision for loan losses in the same manner in which impairment initially was recognized, or as a reduction in the amount of provision for loan losses that otherwise would be reported.

Allowance for Loan Losses

The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions.

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives, which ranges from three to ten years for furniture and fixtures. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements or the remaining lease term, whichever is shorter. Expenditures for betterments or major repairs are capitalized and those for ordinary repairs and maintenance are charged to operations as incurred.

Other Real Estate Owned

Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value minus estimated costs to sell. Revenue and expenses from operations and additions to the valuation allowance are included in other expenses.

Income Taxes

Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Financial Instruments

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

Disclosure About Fair Value of Financial Instruments

SFAS No. 107 specifies the disclosure of the estimated fair value of financial instruments. The Bank's estimated fair value amounts have been determined by the Bank using available market information and appropriate valuation methodologies.

However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates are not necessarily indicative of the amounts the Bank could have realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since the balance sheet date and, therefore, current estimates of fair value may differ significantly from the amounts presented in the accompanying notes.

Earnings Per Shares (EPS)

Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Current Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets"effective starting with fiscal years beginning after December 15, 2001. This statement establishes new accounting standards for goodwill and continues to require the recognition of goodwill as an asset but does not permit amortization of goodwill as previously required by the Accounting Principles Board (APB) Opinion No. 17. The statement also establishes a new method of testing goodwill for impairment. It requires goodwill to be separately tested for impairment at a reporting unit level. The amount of goodwill determined to be impaired would be expensed to current operations. Management believes that the adoption of the statement will not have a material effect on the Bank's financial statements

Reclassifications

Certain reclassifications were made to prior years' presentations to conform to the current year. These classifications are of a normal recurring nature.

NOTE 2—INVESTMENTS

Debt and equity securities have been classified according to management's intent. The carrying amount of securities and their approximate fair value at December 31 were as follows:

			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
Available-for-sale:
	December 31, 2001
		US Treasury securities and obligations of US government	$	13,027,476	$	226,422	$	—	$	13,253,898
		Municipalities		11,737,222		200,999		8,336		11,929,885
		Mortgage-backed securities		9,124		—		365		8,759

	Total securities available-for-sale		$	24,773,822	$	427,421	$	8,701	$	25,192,542

	December 31, 2000
		US Treasury securities and obligations of US government	$	5,048,083	$	9,094	$	2,284	$	5,054,893
		Municipalities		3,725,559		7,797		13,822		3,719,534
		Mortgage-backed securities		15,264		—		305		14,959

	Total securities available-for-sale		$	8,788,906	$	16,891	$	16,411	$	8,789,386

Investment securities carried at approximately $10,735,000 and $7,655,000 at December 31, 2001 and December 31, 2000, respectively, were pledged to secure public deposits and other purposes as required by law.

The amortized cost and estimated market value of investment securities available for sale at December 31, 2001, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Market Value
Due in one year or less	$	4,015,976	$	4,094,999
Due in one year to five years		12,533,243		12,755,690
Due in five years to ten years		7,266,480		7,373,207
Due in greater than ten years		948,999		959,887
Mortgage-backed securities		9,124		8,759

	$	24,773,822	$	25,192,542

NOTE 3—LOANS

The Bank's loan portfolio consists primarily of loans to borrowers within San Diego County in Southern California. Although the Bank seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, commercial and industrial loans are among the principal industries in the Bank's market area, and as a result, the Bank's loan portfolio and related collateral are, to some degree, concentrated in those industries.

Loans consist of the following:

		December 31,
		2001			2000
Real estate loans:
	Construction	$	21,242,096		$	13,135,824
	Other		32,334,178			24,254,107
Commercial and industrial loans			36,724,786			33,275,771
Consumer and other			2,807,404			2,717,197

			93,108,464			73,382,899
Less allowance for loan losses			(928,678	)		(838,678	)
Less deferred loan fees			(49,796	)		(175,899	)

		$	92,129,990		$	72,368,322

Activity in the allowance for loan losses is as follows:

	Year ended December 31,
	2001			2000
Balance at beginning of year	$	838,678		$	691,658
Provision for loan losses charged to expense		95,000			125,000
Loans charged off		(5,000	)		—
Recoveries		—			22,020

Balance at end of year	$	928,678		$	838,678

The following is a summary of the investment in impaired loans, the related allowance for loan losses, and income recognized thereon as of December 31:

	2001		2000
Recorded investment in impaired loans	$	49,000	$	12,000
Related allowance for loan losses	$	8,500	$	3,300
Average recorded investment in impaired loans	$	1,420,000	$	98,000
Interest income recognized for cash payments	$	213,000		None

The Bank also originates loans for sale to governmental agencies and institutional investors. At December 31, 2001 and 2000, the Bank was servicing approximately $9,757,000 and $12,957,000, respectively in loans previously sold.

NOTE 4—BANK PREMISES AND EQUIPMENT

Bank premises and equipment consist of the following:

	December 31,
	2001			2000
Leasehold improvements	$	962,094		$	989,808
Furniture, fixtures and equipment		1,336,040			1,338,159

		2,298,134			2,327,967
Less accumulated depreciation and amortization		(1,072,845	)		(943,197	)

Total	$	1,225,289		$	1,384,770

The Bank leases its facilities under non-cancelable operating leases expiring through 2011. Rent expense was $401,680 and $393,148 for 2001 and 2000, respectively.

At December 31, 2001, the future minimum annual payments for these leases are as follows:

Year	Amount
2002	$	432,000
2003		422,000
2004		267,000
2005		167,000
2006		167,000
Thereafter		381,000

	$	1,836,000

NOTE 5—DEPOSITS

At December 31, 2001, the scheduled maturities of time deposits are as follows:

2002	$	20,627,473
2003 to 2004		2,136,886
Thereafter		88,458

	$	22,852,817

NOTE 6—OTHER ADMINISTRATIVE EXPENSES

Other administrative expenses are as follows:

	2001		2000
Data processing	$	384,505	$	302,738
Promotional expenses		262,248		348,992
Telephone and postage		152,228		152,160
Professional fees		118,851		147,153
Stationery and supplies		91,100		83,035
Insurance		78,464		66,481
Messenger service		71,756		73,045
Other		207,053		202,340

	$	1,366,205	$	1,375,944

NOTE 7—INCOME TAXES

The provision for income taxes is comprised of the following:

		Year Ended December 31,
		2001			2000
Taxes—current
	Federal	$	748,101		$	749,239
	State		292,049			274,151

Total current			1,040,150			1,023,390
Deferred taxes			(121,000	)		(158,000	)

Total income tax expense		$	919,150		$	865,390

A comparison of the federal statutory income tax rates to the effective income tax rates follows:

	2001					2000
	Amount			Rate		Amount			Rate
Federal tax rate	$	867,318		34.0	%	$	746,330		34.0	%
California franchise taxes, net of federal tax benefit		178,254		7.0	%		153,945		7.0	%
Tax savings from exempt loan and investment income		(116,083	)	(4.6	)%		(48,498	)	(2.2	)%
Other items—net		(10,339	)	(0.4	)%		13,613		0.6	%

	$	919,150		36.0	%	$	865,390		39.4	%

The tax effected temporary differences giving rise to the deferred tax assets and liabilities at December 31, are as follows:

		2001		2000
Deferred tax assets:
	Allowance for loan losses	$	252,000	$	213,000
	Deferred compensation		367,000		294,000
	California franchise tax		103,000		93,000
	Other		58,000		64,000

			780,000		664,000
Less deferred tax liabilities:
	Accumulated depreciation		51,000		56,000
	Market value adjustment on investment securities		172,000		—

			223,000		56,000

Net deferred tax asset		$	557,000	$	608,000

NOTE 8—STOCK OPTION PLAN

Employees and Directors of the Company are eligible to participate in two fixed option plans. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its participation in these plans. Accordingly, no compensation cost has been recognized. Had compensation costs for these plans been determined based on the fair value at the grant dates consistent with the method of SFAS No. 123, the impact would not have materially affected net income.

The Company has an expired stock option plan under which options were previously granted to key employees. Options were granted at prices equal to at least 100% of the market price of the shares at date of grant and are exercisable at time of grant. No further grants may be made under the plan at this time, however existing options may be exercised.

In December 1997, the shareholders approved the 1997 Stock Option Plan. Under the terms of this plan, directors are granted nonqualified stock options and employees may be granted either nonqualified or incentive stock options. Options to purchase 383,100 shares of common stock are available for grant at a price not less than 100% of the fair market value of the Parent's stock on the date of grant. All options expire no later than ten years from the date of grant.

In November 2000, the shareholders approved the 2000 Stock Option Plan. The terms of the 2000 Stock Option are substantially the same as those of the 1997 Stock Option Plan. There are 50,000 options available for future grants under the 2000 Stock Option Plan.

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions; risk-free rates of 6.0%, no dividends, disregarding volatility and expected lives of 10 years. The weighted-average fair value of options granted during 2000 was $0.96.

A summary of the status of the Company's participation in these plans as of December 31, 2001 and 2000 and changes during the years ending on those dates is presented below:

	2001				2000
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at Beginning of Year	741,600		$	1.25	718,100		$	1.21
Granted	—			—	31,000			2.17
Exercised	(63,830	)		0.99	—			—
Forfeited	(2,000	)		2.17	(7,500	)		1.37

Outstanding at End of Year	675,770			1.27	741,600			1.25

At December 31, 2001, all options were exercisable with a weighted-average exercise price of $1.27 and a weighted-average remaining contractual life of 5.0 years.

NOTE 9—EARNINGS PER SHARE (EPS)

The following is a reconciliation of net income and shares outstanding to the income and number of share used to compute EPS:

	2001				2000
	Income		Shares		Income		Shares
Net Income as Reported	$	1,631,786			$	1,329,698
Shares Outstanding at Year End			4,079,171				4,015,341
Impact of Weighting Shares Purchased During the Year			(51,224	)			—

Used in Basic EPS		1,631,786	4,027,947			1,329,698	4,015,341
Dilutive Effect of Outstanding Stock Options			503,699				314,107

Used in Dilutive EPS	$	1,631,786	4,531,646		$	1,329,698	4,329,448

NOTE 10—FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on financial instruments both on and off the balance sheet without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and have not been considered in many of the estimates.

The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Financial Assets

The carrying amounts of cash, short term investments, due from customers on acceptances, and Bank acceptances outstanding are considered to approximate fair value. Short term investments include federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with Banks. The fair values of investment securities, including available-for-sale, are generally based on quoted market prices. The fair value of loans are estimated using a combination of techniques, including discounting estimated future cash flows and quoted market prices of similar instruments where available.

Financial Liabilities

The carrying amounts of deposit liabilities payable on demand, commercial paper, and other borrowed funds are considered to approximate fair value. For fixed maturity deposits, fair value is estimated by discounting estimated future cash flows using currently offered rates for deposits of similar remaining maturities. The fair value of long term debt is based on rates currently available to the Bank for debt with similar terms and remaining maturities.

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material.

The estimated fair value of financial instruments is summarized as follows: (dollar amounts in thousands)

		December 31,
		2001				2000
		Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
	Cash and due from banks	$	6,269	$	6,269	$	7,723	$	7,723
	Federal funds sold		14,380		14,380		30,545		30,545
	Interest-bearing deposits		450		450		549		549
	Investment securities, available for sale		25,193		25,193		8,789		8,789
	Federal reserve bank stock		119		119		119		119
	Loans, net		92,112		92,223		72,368		72,527
	Accrued interest receivable		716		716		588		588
	Cash value of life insurance		2,424		2,424		2,328		2,328
Financial Liabilities:
	Deposits		132,040		132,453		115,355		115,385
	Other liabilities		1,126		1,126		867		867

NOTE 11—DEFERRED COMPENSATION BENEFITS

In January 1996, the Bank established a deferred compensation plan for certain senior officers providing for fixed annual benefits ranging from $10,000 to $17,000 payable over 5 or 10 years in the event of death, full disability, or retirement at age 65. Under the Plan, participants defer a portion of their current compensation and the Bank provides a matching contribution. During the year ended December 31, 2001, the Bank's matching contribution was $22,692. This amount is charged to expense. Benefits will be funded by life insurance contracts purchased by the Bank.

In March 1998, the Bank entered into retirement benefit agreements with certain officers providing for future benefits aggregating approximately $6,600,000, payable in equal annual installments for twenty years from the death or retirement dates of each participating officer. During 2001, $140,921 has been accrued in conjunction with these agreements. This amount is charged to expense. Benefits will be funded by life insurance contracts purchased by the Bank.

NOTE 12—COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements.

The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management's credit evaluation of the counter-party. Collateral held

varies but may include accounts receivable, inventory, property, plant, and equipment, and other income-producing commercial properties.

At December 31, 2001, the Bank had standby letters of credit of approximately $462,000 and commitments to extend credit of approximately $29,193,000. Management does not anticipate that any material losses will result from these commitments.

NOTE 13—REGULATORY MATTERS

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2001 that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2001 the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action (there are no conditions or events since that notification that management believes have changed the Bank's category). To be categorized as well-capitalized, the Bank must maintain minimum ratios as set forth in the table below. The following table also sets forth the Bank's actual capital amounts and ratios (dollar amounts in thousands):

						Amount of Capital Required
		Actual				To Be Adequately Capitalized				To Be Well- Capitalized
		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2000:
	Total Capital (to Risk-Weighted Assets)	$	11,127	11.9	%	$	7,513	8.0	%	$	9,392	10.0	%
	Tier 1 Capital (to Risk-Weighted Assets)	$	10,198	10.9	%	$	3,757	4.0	%	$	5,635	6.0	%
	Tier 1 Capital (to Average Assets)	$	10,198	7.4	%	$	5,529	4.0	%	$	6,912	5.0	%
As of December 31, 2001:
	Total Capital (to Risk-Weighted Assets)	$	9,649	12.0	%	$	6,433	8.0	%	$	8,041	10.0	%
	Tier 1 Capital (to Risk-Weighted Assets)	$	8,810	11.0	%	$	3,216	4.0	%	$	4,825	6.0	%
	Tier 1 Capital (to Average Assets)	$	8,810	7.5	%	$	4,724	4.0	%	$	5,905	5.0	%

The California Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of the Bank's undivided profits or the profits of the Bank's net income for its last three fiscal years less the amount of any distribution made by the Bank to shareholders during the same period.

NOTE 14—PROPOSED MERGER

On November 13, 2001, the Company announced the signing of a definitive merger agreement ("the Agreement") whereby First Community Bancorp will acquire all of the outstanding common stock of the Company.

The Agreement provides that the shareholders of the outstanding common shares will receive approximately 1.08 million shares of First Community Bancorp common stock for a total purchase price of approximately $21 million. The merger is subject to standard conditions, including the approval of the shareholders of the Company and bank regulatory agencies. The transaction is expected to close in the first quarter of 2002.

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EXHIBITS 99.2

EX-99.3 6 a2076589zex-99_3.htm EXHIBIT 99.3
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EXHIBIT 99.3

PACIFIC WESTERN NATIONAL BANK

FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT

DECEMBER 31, 2001, 2000, and 1999

PACIFIC WESTERN NATIONAL BANK

DECEMBER 31, 2001, 2000, and 1999

CONTENTS

		Page
INDEPENDENT AUDITORS' REPORT		1
FINANCIAL STATEMENTS
	Statements of Financial Condition December 31, 2001 and 2000	2
	Statements of Income For the Years Ended December 31, 2001, 2000, and 1999	3
	Statement of Changes in Shareholders' Equity For the Years Ended December 31, 2001, 2000, and 1999	4
	Statements of Cash Flows For the Years Ended December 31, 2001, 2000, and 1999	5
	Notes to Financial Statements	6

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Pacific Western National Bank

We have audited the accompanying statements of financial condition of Pacific Western National Bank as of December 31, 2001 and 2000, and the related statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pacific Western National Bank as of December 31, 2001 and 2000, and the results of its operations, and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

/s/ Vavrimek, Trime, Day & Co., LLP

Laguna Hills, California
January 23, 2002

PACIFIC WESTERN NATIONAL BANK
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2001 and 2000

			2001			2000
ASSETS
Cash and Due from Banks			$	9,996,350		$	12,187,734
Federal Funds Sold				31,200,000			2,800,000

Total Cash and Cash Equivalents				41,196,350			14,987,734
Investment Securities Available for Sale				20,263,402			5,504,001
Loans, Net of Unearned Income and Deferred Loan Fees				192,576,831			165,835,425
Allowance for Loan Losses				(2,054,962	)		(1,791,215	)

Net Loans				190,521,869			164,044,210
Bank Premises and Equipment				3,102,993			2,720,222
Federal Reserve Bank and Federal Home Loan Bank Stock, at Cost				349,900			261,350
Accrued Interest Receivable and Other Assets				2,972,456			2,693,214

Total Assets			$	258,406,970		$	190,210,731

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
	Demand Deposits		$	39,777,600		$	33,455,668
	NOW Accounts			21,754,901			19,317,694
	Money Market and Savings			78,200,486			53,418,275
	Certificates of Deposit:
		Under $100,000		50,846,230			31,334,555
		$100,000 and Over		47,644,187			34,084,010

Total Deposits				238,223,404			171,610,202
Accrued Interest Payable and Other Liabilities				802,724			938,597

Total Liabilities				239,026,128			172,548,799

Commitments—Notes 4 and 7				—			—
Shareholders' Equity
	Common Stock—$1.67 Par Value; Authorized 2,000,000 Shares; Issued and Outstanding, 921,185 in 2001 and 877,404 in 2000			1,538,379			1,465,264
	Paid-in Capital			5,858,065			4,984,415
	Retained Earnings			11,911,831			11,208,103
	Accumulated Other Comprehensive Income			72,567			4,150

Total Shareholders' Equity				19,380,842			17,661,932

Total Liabilities and Shareholders' Equity			$	258,406,970		$	190,210,731

The accompanying notes are an integral part of these financial statements.

PACIFIC WESTERN NATIONAL BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, and 1999

		2001		2000		1999
Interest Income
	Interest and Fees on Loans	$	18,606,094	$	16,430,394	$	12,440,445
	Interest on Investment Securities		551,921		433,840		540,249
	Other Interest Income		819,031		503,463		296,814

Total Interest Income			19,977,046		17,367,697		13,277,508
Interest Expense
	Interest on Deposits		7,606,511		5,641,096		3,633,248
	Other		15,625		9,470		2,541

Total Interest Expense			7,622,136		5,650,566		3,635,789

Net Interest Income			12,354,910		11,717,131		9,641,719
Provision for Loan Losses			1,260,000		840,000		750,000

Net Interest Income After Provision for Loan Losses			11,094,910		10,877,131		8,891,719
Other Income
	Service Charges on Deposit Accounts		948,301		847,345		864,959
	Other Service Charges and Income		206,919		241,830		253,010
	Gain on Sale of Loans		200,745		109,405		—
	Gain on Sale of Bank Premises and Equipment		—		—		28,047

			1,355,965		1,198,580		1,146,016

Other Expenses
	Salaries and Employee Benefits		4,533,736		4,022,046		3,536,362
	Occupancy Expenses		947,359		656,325		535,980
	Furniture and Equipment Expenses		889,487		939,559		724,091
	Stationery and Other Office Expenses		787,191		699,890		533,045
	Data Processing and Other Professional Services		1,495,835		1,290,605		1,121,750
	Advertising and Business Promotion Expense		393,946		354,889		347,483
	Other Expenses		595,700		530,779		496,443

			9,643,254		8,494,093		7,295,154

Income Before Income Taxes			2,807,621		3,581,618		2,742,581
Income Taxes			1,155,200		1,461,540		1,126,410

Net Income		$	1,652,421	$	2,120,078	$	1,616,171

Earnings Per Share:
	Net Income—Basic	$	1.79	$	2.30	$	1.75
	Net Income—Diluted	$	1.75	$	2.24	$	1.71

The accompanying notes are an integral part of these financial statements.

PACIFIC WESTERN NATIONAL BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, and 1999

			Shares	Common Stock		Paid-In Capital		Comprehensive Income			Retained Earnings			Accumulated Other Comprehensive Income
Balance, January 1, 1999			795,969	$	1,329,268	$	3,400,839				$	9,194,562		$	75,859
	Five Percent Stock Dividend		39,729		66,347		787,826					(854,173	)
	Cash Paid in Lieu of Fractional Shares											(1,499	)
	Comprehensive Income:
		Unrealized Loss on Securities Available for Sale, Net of Taxes of $55,476						$	(78,737	)					(78,737	)
		Net Income for the Year							1,616,171			1,616,171

	Total Comprehensive Income							$	1,537,434

Balance, December 31, 1999			835,698		1,395,615		4,188,665					9,955,061			(2,878	)
	Five Percent Stock Dividend		41,706		69,649		795,750					(865,399	)
	Cash Paid in Lieu of Fractional Shares											(1,637	)
	Comprehensive Income:
		Unrealized Gain on Securities Available for Sale, Net of Taxes of $4,883						$	7,028						7,028
		Net Income for the Year							2,120,078			2,120,078

	Total Comprehensive Income							$	2,127,106

Balance, December 31, 2000			877,404		1,465,264		4,984,415					11,208,103			4,150
	Five Percent Stock Dividend		43,781		73,115		873,650					(946,764	)
	Cash Paid in Lieu of Fractional Shares											(1,929	)
	Comprehensive Income:
		Unrealized Gain on Securities Available for Sale, Net of Taxes of $47,544						$	68,417						68,417
		Net Income for the Year							1,652,421			1,652,421

	Total Comprehensive Income							$	1,720,838

Balance, December 31, 2001			921,185	$	1,538,379	$	5,858,065				$	11,911,831		$	72,567

The accompanying notes are an integral part of these financial statements.

PACIFIC WESTERN NATIONAL BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, and 1999

			2001			2000			1999
Cash Flows From Operating Activities
	Net Income		$	1,652,421		$	2,120,078		$	1,616,171
	Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
		Depreciation and Amortization		713,143			630,599			583,693
		Premium Amortization on Investments		28,651			14,485			50,027
		Provision for Loan Losses		1,260,000			840,000			750,000
		Gain on Sale of Loans		(200,745	)		(109,405	)		—
		Deferred Income Taxes		(119,000	)		(174,000	)		(133,000	)
		Net Change in Other Assets and Liabilities		(194,165	)		(1,067,727	)		(64,624	)

Net Cash Provided by Operating Activities				3,140,305			2,254,030			2,802,267
Cash Flows From Investing Activities
	Proceeds From Sales and Maturities of Investment Securities			11,181,139			1,755,666			6,287,177
	Purchase of Investment Securities			(25,853,230	)		—			(2,787,676	)
	Net Change in Federal Reserve Bank and Federal Home Loan Stock			(88,550	)		324,300			(443,700	)
	Net Increase in Loans			(27,683,791	)		(29,625,596	)		(40,145,258	)
	Proceeds From Sale of Bank Premises and Equipment			6,000			964,723			504,791
	Expenditures For Bank Premises and Equipment			(1,104,530	)		(1,047,047	)		(3,143,741	)

Net Cash Used in Investing Activities				(43,542,962	)		(27,627,954	)		(39,728,407	)
Cash Flows From Financing Activities
	Net Change in Federal Funds			—			(3,500,000	)		3,500,000
	Net Increase in Demand Accounts, Money Market, NOW and Savings Accounts			33,541,350			11,073,659			13,537,848
	Net Increase in Certificates of Deposit			33,071,852			24,611,551			13,656,354
	Cash Paid in Lieu of Fractional Shares			(1,929	)		(1,637	)		(1,499	)

Net Cash Provided by Financing Activities				66,611,273			32,183,573			30,692,703

Net Increase (Decrease) in Cash and Cash Equivalents				26,208,616			6,809,649			(6,233,437	)
Cash and Cash Equivalents, Beginning of Year				14,987,734			8,178,085			14,411,522

Cash and Cash Equivalents, End of Year			$	41,196,350		$	14,987,734		$	8,178,085

Supplemental Disclosures of Cash Flow Information
	Interest Payments		$	7,724,794		$	5,770,953		$	3,250,862
	Income Tax Payments		$	1,372,626		$	1,562,925		$	1,518,366
	Net Change in Valuation Allowance For Investment Securities		$	68,417		$	7,028		$	78,737
	Reclassification from Retained Earnings to Common Stock for Stock Dividend		$	946,764		$	865,399		$	854,173

The accompanying notes are an integral part of these financial statements.

PACIFIC WESTERN NATIONAL BANK

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, and 1999

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Pacific Western National Bank has been organized and operates as a single operating segment. The Bank maintains four branches in Los Angeles County and one in Orange County. The Bank's primary source of revenue is providing loans to customers, who are predominately small and middle-market businesses and individuals.

Use of Estimates in the Preparation of Financial Statements

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, due from banks and federal funds sold. Generally, federal funds are sold for one-day periods.

Cash and Due From Banks

The Bank maintains amounts due from banks, which exceed federally insured limits. The Bank has not experienced any losses in such accounts.

Investment Securities

The Bank applies Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which addresses the accounting for investments in equity securities that have readily determinable fair values and for investments in all debt securities. Pursuant to SFAS No. 115, securities are classified in three categories and accounted for as follows: debt securities that the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity and are measured at amortized cost; debt and equity securities bought and held principally for the purpose of selling in the near term are classified as trading securities and are measured at fair value, with unrealized gains and losses included in earnings; debt and equity securities not classified as either held-to-maturity or trading securities are deemed available-for-sale and are measured at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of stockholders' equity.

Loans and Interest on Loans

Loans are reported at the principal amount outstanding, net of any deferred loan origination fee income and deferred direct loan origination costs, and net of any unearned interest on discounted loans. Deferred loan origination fee income and direct loan origination costs are amortized to interest

income over the life of the loan using the interest method. Interest on loans is accrued to income daily based upon the outstanding principal balances.

Loans for which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on such loans is discontinued when there exists a reasonable doubt as to the full and timely collection of either principal or interest. Income on such loans is then only recognized to the extent that cash is received and where the future collection of principal is probable. Accrual of interest is resumed only when principal and interest are brought fully current and when such loans are considered to be collectible as to both principal and interest.

For impairment recognized in accordance with Financial Accounting Standards Board (FASB) SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS No. 114), as amended by SFAS No. 118, the entire change in the present value of expected cash flows is reported as either provision for loan losses in the same manner in which impairment initially was recognized, or as a reduction in the amount of provision for loan losses that otherwise would be reported.

Allowance For Loan Losses

The allowance for loan losses is established by a provision charged to current period income. Loan losses are charged against the allowance when the loan's principal is deemed uncollectible. Loan recoveries are only recognized to the extent that cash is received. The allowance is maintained at a level considered adequate, in management's judgment, to provide for loan losses that can be reasonably anticipated. The evaluation of the adequacy of the allowance takes into consideration several factors including but not exclusively, current economic conditions, historical loan loss experience, and factors affecting collectibility on specific borrowers based upon regular credit reviews.

Loans Held for Sale

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

Premises and Equipment

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives, which ranges from three to ten years for furniture and fixtures and forty years for buildings. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements or the remaining lease term, whichever is shorter. Expenditures for betterments or major repairs are capitalized and those for ordinary repairs and maintenance are charged to operations as incurred.

Income Taxes

Provisions for income taxes are based on amounts reported in the statements of income (after exclusion of nontaxable income such as interest on state and municipal securities) and include deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes. Deferred taxes are computed on the liability method as prescribed in SFAS No. 109, "Accounting for Income Taxes".

Comprehensive Income

Beginning in 1998, the Bank adopted SFAS No. 130, "Reporting Comprehensive Income", which requires the disclosure of comprehensive income and its components. Changes in unrealized gain (loss) on available-for-sale securities net of income taxes is the only component of accumulated other comprehensive income for the Bank.

Earnings Per Shares (EPS)

Disclosure About Fair Value of Financial Instruments

SFAS No. 107 specifies the disclosure of the estimated fair value of financial instruments. The Bank using available market information and appropriate valuation methodologies has determined the Bank's estimated fair value amounts.

Stock-Based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, banks to record compensation cost for stock-based employee compensation plans at fair value. The Bank has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Bank's stock at the date of the grant over the amount an employee must pay to acquire the stock. The pro forma effects of adoption are disclosed in Note 10.

Current Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets" effective starting with fiscal years beginning after December 15, 2001. This Statement establishes new accounting standards for goodwill and continues to require the recognition of goodwill as an asset but does not permit amortization of goodwill as previously required by the APB Opinion No. 17. The Statement also establishes a new method of testing goodwill for impairment. It requires goodwill to be separately tested for impairment at a reporting unit level. The amount of goodwill

determined to be impaired would be expensed to current operations. Management believes that the adoption of the statement will not have a material effect on the Bank's financial statements.

Reclassifications

Certain reclassifications were made to prior years' presentations to conform to the current year. These reclassifications are of a normal recurring nature.

NOTE 2—INVESTMENTS

Debt and equity securities have been classified in the statements of condition according to management's intent. The carrying amount of securities and their approximate fair values at December 31 were as follows:

			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-Sale Securities:
	December 31, 2001
		Obligations of U.S. Government Agencies and Corporations	$	18,502,813	$	99,876	$	(33,833	)	$	18,568,856
		Municipal Securities		281,153		7,960		—			289,113
		Mortgage-Backed Securities		1,112,290		43,434		—			1,155,724
		Other Securities		244,129		5,580		—			249,709

			$	20,140,385	$	156,850	$	(33,833	)	$	20,263,402

	December 31, 2000
		Obligations of U.S. Government Agencies and Corporations	$	3,000,000	$	179	$	(4,375	)	$	2,995,804
		Municipal Securities		760,644		1,921		(10,212	)		752,353
		Mortgage-Backed Securities		1,425,127		12,547		(1,607	)		1,436,067
		Other Securities		311,195		8,582		—			319,777

			$	5,496,966	$	23,229	$	(16,194	)	$	5,504,001

The amortized cost and fair values of investment securities available for sale at December 31, 2001, by expected maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
Due in One Year or Less	$	86,348	$	87,679
Due After One Year but Less Than Five Years		12,197,618		12,279,336
Due in Greater Than Five Years		6,500,000		6,490,954
Mortgage-Backed Securities		1,112,290		1,155,724
Other Securities		244,129		249,709

	$	20,140,385	$	20,263,402

Securities with a carrying value of $4,418,872 and $5,127,467 at December 31, 2001 and 2000, respectively, were pledged to secure public deposits, short-term borrowings and lines-of-credit, or other items required by law.

NOTE 3—LOANS AND THE RELATED ALLOWANCE FOR LOAN LOSSES

The Bank's loan portfolio consists primarily of loans to borrowers within the counties of Los Angeles and Orange. Although the Bank seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate is among the principal industries in the Bank's market area and, as a result, the Bank's loan and collateral portfolios are, to some degree, concentrated in that industry. The majority of the Bank's consumer loans are auto loans purchased through automobile dealers.

The following is a summary of the major components of loans outstanding at December 31, 2001 and 2000:

		December 31,
		2001			2000
Consumer Loans—Primarily Auto Financing		$	55,790,799		$	53,123,649
Commercial Loans			32,077,060			28,053,092
Real Estate Loans—Construction Financing			45,366,788			33,737,927
Real Estate Loans—Other			60,602,249			52,502,349

	Total Loans		193,836,896			167,417,017
Unearned Interest on Discounted Loans			(283,415	)		(933,022	)
Net Deferred Loan Fees			(976,650	)		(648,570	)

		$	192,576,831		$	165,835,425

The Bank also originates SBA loans for sale to institutional investors. At December 31, 2001 and 2000 the Bank was servicing approximately $3,599,000 and $1,877,000, respectively in loans preciously sold.

Changes in the allowance for loan losses as of December 31:

	2001			2000			1999
Balance at Beginning of Year	$	1,791,215		$	1,494,568		$	1,157,534
Provisions Charged to Operating Expense		1,260,000			840,000			750,000
Recovery of Principal on Loans Previously Charged Off		137,440			125,790			160,612
Principal on Loans Charged Off		(1,133,693	)		(669,143	)		(573,578	)

	$	2,054,962		$	1,791,215		$	1,494,568

The following is a summary of the investment in impaired loans, the related allowance for loan losses, and income recognized thereon as of December 31:

	2001		2000		1999
Recorded Investment in Impaired Loans	$	1,116,779	$	304,664	$	170,071

Related Allowance for Loan Losses	$	12,000	$	5,000	$	5,000

Average Recorded Investment in Impaired Loans	$	623,000	$	353,000	$	135,000

Interest Income Recognized for Cash Payments		None		None		None

NOTE 4—BANK PREMISES AND EQUIPMENT

Bank premises and equipment at December 31, consist of the following:

	2001			2000
Land	$	453,024		$	453,024
Bank Premises		892,777			892,777
Leasehold Improvements		2,256,483			1,621,323
Furniture, Fixtures and Equipment		3,565,339			3,151,636
Bank Automobiles		222,781			187,280

		7,390,404			6,306,040
Less Accumulated Depreciation and Amortization		(4,287,411	)		(3,585,818	)

	$	3,102,993		$	2,720,222

During 1999 and 2000 the Bank constructed a building to house a new branch and administrative center in Brea California. This facility was completed and occupied in early 2000. The Bank has entered into a sale-leaseback transaction subject to a 20-year lease with two 10-year options to renew. The Bank received a below market rate rent for the initial term as part of overall sales consideration. Prepaid rent of approximately $529,800 at December 31, 2001 is included in other assets and will be amortized to lease expense over the initial term of the lease.

The Bank possesses premises and equipment under noncancelable long-term operating leases expiring on various dates through 2011 with renewal options through 2021. At December 31, 2001, the approximate future minimum rental commitments under these leases are as follows:

2002	$	367,000
2003		307,000
2004		307,000
2005		281,000
2006		273,000
Thereafter		3,094,000

Total	$	4,629,000

Rental payments for premises charged to operating expense amounted to approximately $460,000, $347,000, and $193,000, for the years ended December 31, 2001, 2000, and 1999, respectively.

NOTE 5—DEPOSITS

At December 31, 2001, the scheduled maturities of certificates of deposit are as follows:

Due in One Year	$	91,764,519
Due After One Year But Less Than Five Years		6,725,898

	$	98,490,417

Interest expense as of December 31, relating to interest bearing deposits and other borrowings is as follows:

	2001		2000		1999
Interest on Money Market and NOW Accounts	$	401,041	$	476,134	$	364,915
Interest Savings Accounts		1,915,875		1,805,948		1,595,958
Interest on Certificates of Deposit Under $100,000		2,638,975		1,796,067		756,276
Interest on Certificates of Deposit of $100,000 or More		2,650,620		1,562,947		916,099
Interest on Short-Term Borrowings		15,625		9,470		2,541

	$	7,622,136	$	5,650,566	$	3,635,789

NOTE 6—INCOME TAXES

The provisions for income tax for the years ended December 31, 2001, 2000, and 1999, were as follows:

		2001			2000			1999
Current
	Federal	$	925,200		$	1,209,375		$	915,125
	State		349,000			426,165			344,285

			1,274,200			1,635,540			1,259,410
Deferred			(119,000	)		(174,000	)		(133,000	)

		$	1,155,200		$	1,461,540		$	1,126,410

The provision for income taxes for 2001, 2000, and 1999 reflects effective rates of 41.1%, 40.8%, and 41.1% respectively. A reconciliation of the statutory income tax of 34% to the income tax provision is as follows:

	2001			2000			1999
Federal Income Tax at the Statutory Rate	$	955,000		$	1,217,000		$	932,000
State Franchise Tax, Net of the Federal Income Tax Benefit		207,000			256,000			196,000
Tax Exempt Interest		(10,000	)		(20,000	)		(26,000	)
Other		3,200			8,540			24,410

Total Income Tax Provision	$	1,155,200		$	1,461,540		$	1,126,410

Deferred taxes arise primarily from timing differences in the recognition of income and expenses for tax and financial reporting purposes.

The following is a summary of the components of the net deferred tax assets included in other assets on the balance sheet:

		2001		2000
Deferred Tax Assets:
	Allowance for Loan Losses Due to Tax Limitations	$	454,000	$	457,000
	Premises and Equipment Due to Depreciation Difference		208,000		107,000
	Other Assets/Liabilities		123,000		149,000

Net Deferred Taxes		$	785,000	$	713,000

NOTE 7—COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Bank is a party to financial instruments with off-balance-sheet risk. These financial instruments include commitments to extend credit and standby and commercial letters of credit. To varying degrees, these instruments involve elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. The Bank's exposure to credit loss in the event of non-performance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. At December 31, 2001 and 2000, the Bank had commitments of approximately $45,059,000 and $35,663,000, respectively.

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

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

The Bank is involved in various litigation. In the opinion of management and the Bank's legal counsel, the disposition of all litigation pending will not have a material effect on the Bank's financial statements.

NOTE 8—TRANSACTIONS WITH DIRECTORS

In the ordinary course of business, the Bank has granted loans to certain directors and the companies with which they are associated. In the Bank's opinion, all loans and loan commitments to such parties are made on substantially the same terms including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. The balance of these loans outstanding was approximately $2,096,000, $878,000, and $1,041,000, at December 31, 2001, 2000, and 1999, respectively.

Legal fees of approximately $123,000, $68,000, and $94,000, were paid during 2001, 2000, and 1999 to a law firm with which a director of the Bank is affiliated.

NOTE 9—RISK-BASED CAPITAL ADEQUACY

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2001, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2001, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action (there are no conditions or events since that notification that management believes have changed the Bank's category). To be categorized as well-capitalized, the Bank must maintain minimum ratios as set forth in the table below. The following table also sets forth the Bank's actual capital amounts and ratios (dollar amounts in thousands):

						Amount of Capital Required
		Actual				For Capital Adequacy Purposes				To Be Well- Capitalized Under Prompt Corrective Provisions
		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2001:
	Total Capital (to Risk-Weighted Assets)	$	21,353	10.2	%	$	16,675	8.0	%	$	20,844	10.0	%
	Tier 1 Capital (to Risk-Weighted Assets)	$	19,298	9.3	%	$	8,337	4.0	%	$	12,506	6.0	%
	Tier 1 Capital (to Average Assets)	$	19,298	7.4	%	$	10,487	4.0	%	$	13,108	5.0	%
As of December 31, 2000:
	Total Capital (to Risk-Weighted Assets)	$	19,360	11.3	%	$	13,769	8.0	%	$	17,211	10.0	%
	Tier 1 Capital (to Risk-Weighted Assets)	$	17,568	10.2	%	$	6,885	4.0	%	$	10,327	6.0	%
	Tier 1 Capital (to Average Assets)	$	17,568	9.4	%	$	7,509	4.0	%	$	9,386	5.0	%

The Bank is restricted as to the amount of dividends, which can be paid. Dividends declared by national banks that exceed the net income (as defined) for the current year plus retained net income for the preceding two years must be approved by the OCC. The Bank may not pay dividends that would result in its capital levels being reduced below the minimum requirements shown above.

NOTE 10—STOCK OPTION PLAN

At December 31, 2001, the Bank had a fixed option plan under which 129,953 shares of the Bank's common stock, retroactively adjusted for stock dividends, may be issued at not less than 100% of the fair value at the date the options are granted. The Bank applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans.

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions; risk-free rates of 6% in 2000, and 5.0% in 1999, volatility of 5% and expected lives of 5 years. The weighted-average fair value of options granted was $5.10 in 2000, and $5.74 in 1999.

A summary of the status of the Bank's fixed stock option plan, retroactively adjusted for all stock dividends, as of December 31, 2001, 2000, and 1999 and changes during the years ending on those dates is presented below:

	2001			2000				1999
	Shares	Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at Beginning of Year	111,797	$	15.61	112,121		$	15.61	102,372		$	15.19
Forfeited	—		—	(3,474	)		19.96	(3,647	)		17.68
Granted	—		—	3,150			19.29	13,396			19.35

Outstanding at End of Year	111,797		15.61	111,797			15.61	112,121			15.61

The following table summarizes information about fixed options outstanding at December 31, 2001:

	Options Outstanding				Options Exercisable
Exercise Price	Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
$9.00 - $12.00	44,030	4.1 Years	$	9.86	41,353	$	9.86
$18.00 - $21.00	67,767	6.7 Years		18.90	59,294		18.90

	111,797	5.6 Years		15.61	100,647		15.45

Had the Bank determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Bank's net income would have been reduced to the following pro forma amount:

			2001		2000		1999
Net Income:
	As Reported		$	1,652,421	$	2,120,078	$	1,616,171
	Pro Forma			1,604,600		2,053,409		1,558,190
Per Share Data:
	Net Income—Basic
		As Reported		1.79		2.30		1.75
		Pro Forma		1.74		2.22		1.69
	Net Income—Diluted
		As Reported		1.75		2.24		1.71
		Pro Forma		1.70		2.17		1.65

NOTE 11—STOCK DIVIDENDS

The Bank issued 5% stock dividends in 2001, 2000, and 1999. All references in the accompanying financial statements and notes to the financial statements to the number of common shares and per share amounts have been restated to reflect the stock dividends.

NOTE 12—EARNINGS PER SHARE (EPS)

The following is a reconciliation of net income and shares outstanding to the income and number of share used to compute EPS:

		2001			2000			1999
		Income		Shares	Income		Shares	Income		Shares
Net Income as Reported		$	1,652,421		$	2,120,078		$	1,616,171
Shares Outstanding at Year End				921,185			921,185			921,185

	Used in Basic EPS		1,652,421	921,185		2,120,078	921,185		1,616,171	921,185
Dilutive Effect of Outstanding Stock Options				22,310			21,299			20,706

	Used in Dilutive EPS	$	1,652,421	943,495	$	2,120,078	942,484	$	1,616,171	941,891

NOTE 13—FAIR VALUE OF FINANCIAL INSTRUMENTS

subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Financial Assets

The carrying amounts of cash, short term investments, due from customers on acceptances, and Bank acceptances outstanding are considered to approximate fair value. Short term investments include federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with Banks. The fair values of investment securities, including available for sale, are generally based on quoted market prices. The fair value of loans are estimated using a combination of techniques, including discounting estimated future cash flows and quoted market prices of similar instruments where available.

Financial Liabilities

Off-Balance Sheet Financial Instruments

The estimated fair value of financial instruments at December 31, 2001 and 2000 are summarized as follows (dollar amounts in thousands):

		2001				2000
		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets
	Cash and Due From Banks	$	9,996	$	9,996	$	12,188	$	12,188
	Federal Funds Sold		31,200		31,200		2,800		2,800
	Investment Securities		20,263		20,263		5,504		5,504
	Loans		190,669		193,983		164,044		164,179
	Federal Reserve Bank and Federal Home Loan Bank Stock		350		350		261		261
Financial Liabilities
	Deposits		238,223		238,552		171,610		171,629

NOTE 14—PROPOSED MERGER

On August 22, 2001, the Bank announced the signing of a definitive merger agreement ("the Agreement") where by First Community Bancorp will acquire all of the outstanding common stock of the Bank.

The Agreement provides that the shareholder of the outstanding common shares and options to purchase common shares of the Bank will be paid $37.15 per share, for a total purchase price of $36.6 million. The merger is subject to standard conditions, including the approval of the shareholders of the Bank and bank regulatory agencies. The transaction is expected to close in the first quarter of 2002.

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EXHIBIT 99.3

PACIFIC WESTERN NATIONAL BANK DECEMBER 31, 2001, 2000, and 1999 CONTENTS
INDEPENDENT AUDITORS' REPORT
PACIFIC WESTERN NATIONAL BANK STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 2001 and 2000
PACIFIC WESTERN NATIONAL BANK STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, and 1999
PACIFIC WESTERN NATIONAL BANK STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, and 1999
PACIFIC WESTERN NATIONAL BANK STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, and 1999
PACIFIC WESTERN NATIONAL BANK NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, and 1999
EX-99.4 7 a2076589zex-99_4.htm EXHIBIT 99.4
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Exhibit 99.4

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA

The following tables present financial data for First Community Bancorp ("First Community"), Pacific Western National Bank ("Pacific Western") and W.H.E.C., Inc ("WHEC") after giving effect to (i) the mergers, (ii) the proceeds received from the rights offering First Community completed in January 2002, and (iii) the separate offering of trust preferred securities described in Note 2, which we refer to as pro forma information. The pro forma financial data gives effect to the mergers under the purchase accounting method in accordance with accounting principles generally accepted in the United States of America. The unaudited pro forma combined condensed financial data combines the historical consolidated condensed financial statements of First Community, the historical condensed financial statements of Pacific Western, and the historical consolidated condensed financial statements of WHEC giving effect to the mergers as if such transactions had been effective on December 31, 2001, with respect to the Unaudited Pro Forma Combined Condensed Balance Sheet, and as of the beginning of the period indicated with respect to the Unaudited Pro Forma Combined Condensed Statement of Operations. The information as of and for the year ended December 31, 2001 is derived from and should be read in conjunction with (i) the historical audited consolidated financial statements, including the notes thereto, of WHEC, included herein; (ii) the historical audited financial statements of Pacific Western, including the notes thereto, included herein and (iii) the historical audited consolidated financial statements, including the notes thereto, of First Community filed on Form 10-K and incorporated by reference.

First Community expects that it will incur reorganization and restructuring expenses as a result of combining Pacific Western and WHEC with First Community. The effect of the estimated merger and reorganization costs expected to be incurred in connection with the mergers has been reflected in the pro forma combined condensed balance sheet. First Community also anticipates that the mergers will provide the combined company with certain financial benefits that include reduced operation expenses and opportunities to earn more revenue. However, First Community does not reflect any of these anticipated cost savings or benefits in the pro forma information. Finally, the pro forma financial information does not reflect any divestures of branches or deposits that may be required in connection with the mergers. Therefore, the pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not attempt to predict or suggest future results. The pro forma information also does not attempt to show how the combined company would actually have performed had the companies been combined throughout the period presented. All the adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results of the audited historical period have been included.

Given the consummation of the respective mergers, the actual consolidated financial position and results of operations will differ, perhaps significantly, from the pro forma amounts reflected herein because (i) assumptions used in preparing such pro forma data may be revised in the future due to changes in values of assets and changes in operating results between the date of the unaudited pro forma financial data and the dates on which the respective mergers take place, (ii) adjustments may need to be made to the unaudited historical financial data upon which such pro forma data are based, or (iii) a variety of other factors.

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

			As of December 31, 2001
			First Community Bancorp (Historical)			Pacfic Western National Bank (Historical)			Pro Forma Adjustments			First Community Bancorp with Pacific Western (Pro Forma)			W.H.E.C (Historical)			W.H.E.C., Inc. Pro Forma Adjustments			First Community Bancorp with W.H.E.C., Inc. (Pro Forma)
			(In thousands)
Assets:
Cash and due from banks			$	68,513		$	9,996		$	(13,625	)(a)	$	64,884		$	6,250		$	—		$	71,134
Federal funds sold				36,190			31,200			—			67,390			14,380			—			81,770

	Total cash and cash equivalents			104,703			41,196			(13,625	)		132,274			20,630			—			152,904
Interest-bearing deposits in financial institutions				190			—			—			190			450			—			640
Federal Reserve Bank and Federal Home Loan Bank stock, at cost				2,137			—			—			2,137			119			—			2,256
Securities held to maturity				9,681			—			—			9,681			—			—			9,681
Securities available-for-sale				116,775			20,263			—			137,038			25,193			—			162,231

	Total securities			128,593			20,263			—			148,856			25,312			—			174,168
Gross loans				502,090			193,554			—			695,644			93,108			—			788,752
Deferred fees and costs				(350	)		(977	)		—			(1,327	)		(50	)		—			(1,377	)

	Loans, net of deferred fees and costs			501,740			192,577			—			694,317			93,058			—			787,375
Reserve for possible loan losses				(11,209	)		(2,055	)		—			(13,264	)		(929	)		—			(14,193	)

	Net loans			490,531			190,522			—			681,053			92,129			—			773,182
Property, plant and equipment				5,914			3,103			—			9,017			1,225			—			10,242
Other real estate owned				3,075			—			—			3,075			—			—			3,075
Goodwill				9,793			—			20,463	(b)		30,256			—			16,344	(k)		46,600
Other assets				27,418			3,323			855	(c)		31,596			3,733			651	(l)		35,980

	Total Assets		$	770,217		$	258,407		$	7,693		$	1,036,317		$	143,479		$	16,995		$	1,196,791

Liabilities and Shareholders' Equity:
Liabilities:
Non-interest bearing deposits			$	275,616		$	39,778		$	—		$	315,394		$	47,493		$	—		$	362,887
Interest bearing deposits				401,551			198,445			—			599,996			84,547			—			684,543

	Total deposits			677,167			238,223			—			915,390			132,040			—			1,047,430
Accrued interest payable and other liabilities				8,651			803			4,074	(d)		13,528			954			2,957	(m)		17,439
Short-term borrowings				431			—			—			431			—			—			431
Convertible debt				671			—			—			671			—			—			671
Turst preferred securities				28,000			—			—			28,000			—			—			28,000

	Total liabilities			37,753			803			4,074			42,630			954			2,957			46,541
Shareholders' Equity:
Common stock				43,137			1,538			21,462	(e)		66,137			4,079			20,444	(n)		90,660
Additional paid-in-capital				—			5,858			(5,858	)(f)		—			—			—			—
Retained earnings				11,852			11,912			(11,912	)(g)		11,852			6,159			(6,159	)(o)		11,852
Accumulated other comprehensive income (loss):
	Net unrealized gains (losses) on securities available-for-sale, net			308			73			(73	)(h)		308			247			(247	)(p)		308

	Total Shareholders' Equity			55,297			19,381			3,619			78,297			10,485			14,038			102,820

		Total Liabilities and Shareholders' Equity	$	770,217		$	258,407		$	7,693		$	1,036,317		$	143,479		$	16,995		$	1,196,791

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

			For the year ended December 31, 2001
			First Community Bancorp (Historical)		Pacfic Western National Bank (Historical)		Pro Forma Adjustments			First Community Bancorp with Pacific Western (Pro Forma)		W.H.E.C (Historical)		W.H.E.C., Inc. Pro Forma Adjustments		First Community Bancorp with W.H.E.C., Inc. (Pro Forma)
			(In thousands except per share data)
Interest income:
	Interest and fees on loans		$	33,052	$	18,606	$	—		$	51,658	$	7,115	$	—	$	58,773
	Interest on interest-bearing deposits in other banks			14		—		—			14		28		—		42
	Interest on investment securities			6,335		564		—			6,899		1,044		—		7,943
	Interest on federal funds sold			3,713		807		—			4,520		723		—		5,243

		Total interest income		43,114		19,977		—			63,091		8,910		—		72,001
Interest expense:
	Interest expense on deposits			9,860		7,606		—			17,466		2,493		—		19,959
	Interest expense on short-term borrowings			383		16		—			399		—		—		399
	Interest expense on convertible debt			46		—		—			46		—		—		46
	Interest expense on trust preferred securities			962		—		1,046	(i)		2,008		—		—		2,008

		Total interest expense		11,251		7,622		1,046			19,919		2,493		—		22,412

Net interest income				31,863		12,355		(1,046	)		43,172		6,417		—		49,589
	Less: provision for loan losses			639		1,260		—			1,899		95		—		1,994

		Net interest income after provision for loan losses		31,224		11,095		(1,046	)		41,273		6,322		—		47,595
Non-interest income:
	Service charges and fees on deposit accounts			2,560		948		—			3,508		955		—		4,463
	Merchant discount fees			327		—		—			327		—		—		327
	Other commissions and fees			1,367		16		—			1,383		—		—		1,383
	Gain on sale of loans			444		201		—			645		39		—		684
	Other income			479		191		—			670		623		—		1,293

		Total non-interest income		5,177		1,356		—			6,533		1,617		—		8,150
Non-interest expense:
	Salaries and employee benefits			13,285		4,534		—			17,819		3,090		—		20,909
	Occupancy			3,365		947		—			4,312		642		—		4,954
	Furniture and equipment			1,438		889		—			2,327		290		—		2,617
	Legal expenses			605		266		—			871		21		—		892
	Other professional services			2,964		1,229		—			4,193		481		—		4,674
	Stationery, supplies and printing			662		501		—			1,163		243		—		1,406
	FDIC assessment			366		33		—			399		21		—		420
	Cost of other real estate owned			47		—		—			47		—		—		47
	Advertising			490		431		—			921		262		—		1,183
	Insurance			288		65		—			353		78		—		431
	Other			2,198		662		—			2,860		258		—		3,118
	Goodwill amortization			207		86		—			293		2		—		295

		Total non-interest expense		25,915		9,643		—			35,558		5,388		—		40,946

Income before income taxes				10,486		2,808		(1,046	)		12,248		2,551		—		14,799
Income taxes				4,376		1,155		(445	)(j)		5,086		919		—		6,005

		Net income	$	6,110	$	1,653	$	(601	)	$	7,162	$	1,632	$	—	$	8,794

Per share information
	Number of shares (weighted average):
		Basic		4,696.00		921.19		1,194.81			5,890.81		4,027.95				6,934.61
		Diluted		4,958.00		943.50		1,194.81			6,152.81		4,531.65				7,208.71
	Income per share:
		Basic	$	1.30	$	1.79				$	1.22	$	0.41			$	1.27
		Diluted	$	1.23	$	1.75				$	1.16	$	0.36			$	1.22

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA

NOTE 1: BASIS OF PRESENTATION OF PACIFIC WESTERN BANK ACQUISITION

On January 31, 2002, First Community completed the acquisition of Pacific Western in a transaction accounted for using purchase accounting.

NOTE 2: PURCHASE PRICE AND FUNDING

The shareholders and option holders of Pacific Western were paid approximately $36,625,000 based on each issued and outstanding share of common stock of Pacific Western prior to the acquisition of Pacific Western being converted into the right to receive $37.15 in cash. The purchase price was financed through a combination of (i) funds of approximately $20.0 million raised in two separate trust preferred offerings, which closed during the fourth quarter of 2001; (ii) additional funds of $23.0 million raised through a rights offering of 1,194,805 shares of First Community's common stock in first quarter of 2002; and (iii) $6.6 million from a special dividend from cash available at Pacific Western. The excess funds will be used for the operations of the holding company and possible future acquisition activity.

As a result of the issuance of trust preferred, historical interest expense of First Community's pro forma combined condensed statement of operations for year ended December 31, 2001 has been increased by $1,046,000 representing the interest expense on the trust preferred.

NOTE 3: ALLOCATION OF PURCHASE PRICE

The purchase price of Pacific Western has been allocated as follows:

Cash and cash equivalents	$	41,196,000
Securities		20,263,000
Net Loans		190,670,000
Premises and equipment		3,103,000
Other assets		4,177,000
Goodwill		20,463,000
Deposits		(238,223,000	)
Other liabilities		(4,074,000	)

Total purchase price	$	36,625,000

In allocating the purchase price, the following adjustments were made to Pacific Western's historical amounts: (i) other assets were increased by $855,000 representing the tax effects of the estimated merger costs; (ii) other liabilities were increased $4,074,000, representing the estimated merger costs; and (iii) all of the other asset and liability categories are either variable rate or short-term in nature and fair market value adjustments were considered to be immaterial to the financial presentation.

The purchase price adjustments are subject to further refinement, including the determination of a core deposit intangible and its life for amortization purposes. In accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets", goodwill and intangible with indefinite lives are not amortized for acquisitions initiated after June 30, 2001 and therefore no goodwill amortization is presented in the pro formas included herein.

NOTE 4: MERGER COSTS OF PACIFIC WESTERN

The table below reflects First Community's current estimate, for purposes of pro forma presentation, of the aggregate estimated merger costs of $4,074,000 ($3,219,000 net of taxes, computed using the combined federal and state tax rate of 42%) expected to be incurred in connection with the merger. While a portion of these costs may be required to be recognized over time, the current estimate of these costs has been recorded in the pro forma combined costs, primarily comprised of anticipated cash charges, include the following:

Employee costs (severance and retention costs)	$	1,065,000
Conversion costs		400,000
Other costs		570,000

Deductible merger costs		2,035,000
Tax benefits		855,000

Deductible merger costs, net of tax benefits		1,180,000
Investment banking and other professional fees		2,039,000

Total merger costs, net of tax benefits	$	3,219,000

First Community management's cost estimates are forward-looking. While the costs represent First Community management's current estimate of merger costs associated with the merger that will be incurred, the ultimate level and timing of recognition of such costs will be based on the final integration in connection with consummation of the merger. Readers are cautioned that the completion of this integration and other actions that may be taken in connection with the merger will impact these estimates. The type and amount of actual costs incurred could vary materially from these estimates if future developments differ from the underlying assumptions used by management in determining the current estimate of these costs.

NOTE 5: KEY TO PRO FORMA ADJUSTMENTS OF PACIFIC WESTERN ACQUISITION

Summarized below are the pro forma adjustments necessary to reflect the acquisition of Pacific Western based on the purchase method of accounting:

a): Use cash for the purchase price. This amount is reduced by the $23,000,000 raised through the issuance of common stock in the rights offering in January 2002. See Note 2.
b): Reflect goodwill resulting from the purchase method of accounting. See Note 3.
c): Reflect the deferred tax asset related to the deductible merger costs. See Note 4.
d): Adjust liabilities for accrued merger costs. See Note 4.
e): Reflect the $23,000,000 raised through the issuance of common stock in the rights offering in January 2002 less existing Pacific Western common stock of $1,538,000.
f): Eliminate Pacific Western additional paid-in capital.
g): Eliminate Pacific Western retained earnings.
h): Eliminate Pacific Western unrealized gains on securities available for sale.
i): Interest expense related to the issuance of trust preferred as if it was outstanding from the beginning of the period presented.
j): Tax benefits associated with the additional interest expense.

NOTE 6: BASIS OF PRESENTATION OF WHEC ACQUISITION

On March 7, 2002, First Community completed the acquisition of all of the outstanding common stock of W.H.E.C., Inc, the holding company of Capital Bank of North County ("WHEC"), in a transaction accounted for using purchase accounting.

NOTE 7: PURCHASE PRICE AND FUNDING

The purchase was based on each issued and outstanding share of common stock of WHEC prior to the acquisition of WHEC receiving approximately 0.2353 shares of First Community's common stock for each share of WHEC common stock. First Community issued 1,043,799 shares and the aggregate purchase price amounted to approximately $24,523,000.

NOTE 8: ALLOCATION OF PURCHASE PRICE

The purchase price of WHEC has been allocated as follows:

Cash and cash equivalents	$	21,080,000
Securities		25,312,000
Net Loans		92,129,000
Premises and equipment		1,225,000
Other assets		4,384,000
Goodwill		16,344,000
Deposits		(132,040,000	)
Other liabilities		(3,911,000	)

Total purchase price	$	24,523,000

In allocating the purchase price, the following adjustments were made to WHEC's historical amounts: (i) other assets were increased by $651,000 representing the tax effects of the estimated merger costs; (ii) other liabilities were increased $ 2,957,000, representing the estimated merger costs; and (iii) all of the other asset and liability categories are either variable rate or short-term in nature and fair market value adjustments were considered to be immaterial to the financial presentation.

The purchase price adjustments are subject to further refinement, including the determination of a core deposit intangible and its life for amortization purposes. In accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets", goodwill and intangible with indefinite lives are not amortized for acquisition initiated after June 30, 2001 and therefore no goodwill amortization is presented in the pro formas included herein.

NOTE 9: MERGER COSTS OF WHEC

The table below reflects First Community's current estimate, for purposes of pro forma presentation, of the aggregate estimated merger costs of $2,957,000 ($2,306,000 net of taxes, computed using the combined federal and state tax rate of 42%) expected to be incurred in connection with the merger. While a portion of these costs may be required to be recognized over time, the current

estimate of these costs has been recorded in the pro forma combined costs, primarily comprised of anticipated cash charges, include the following:

Employee costs (severance and retention costs)	$	981,000
Conversion costs		400,000
Other costs		170,000

Deductible merger costs		1,551,000
Tax benefits		651,000

Deductible merger costs, net of tax benefits		900,000
Investment banking and other professional fees		1,406,000

Total merger costs, net of tax benefits	$	2,306,000

NOTE 10: KEY TO PRO FORMA ADJUSTMENTS OF WHEC ACQUISITION

Summarized below are the pro forma adjustments necessary to reflect the acquisition of WHEC based on the purchase method of accounting:

k): Reflect goodwill resulting from the purchase method of accounting. See Note 8.
l): Reflect the deferred tax asset related to the deductible merger costs. See Note 9.
m): Adjust liabilities for accrued merger costs. See Note 9.
n): Reflect issuance of common stock to WHEC shareholders less the elimination of WHEC common stock.
o): Eliminate WHEC retained earnings.
p): Eliminate WHEC unrealized gains on securities available for sale.

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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
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