10-Q

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

FORM 10-Q

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

For the quarterly period ended September 30, 2002

OR

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

For the transition period from                              to                             

Commission File Number: 00-30747

FIRST COMMUNITY BANCORP
(Exact name of registrant as specified in its charter)

CALIFORNIA (State or other jurisdiction of incorporation or organization)	33-0885320 (I.R.S. Employer Identification Number)
6110 El Tordo P.O. Box 2388 Rancho Santa Fe, California 92067 (Address of principal executive offices)

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

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

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of November 12, 2002: 15,244,507 shares of common stock, no par value.

TABLE OF CONTENTS

			Page
PART I — FINANCIAL INFORMATION
	ITEM 1.	Consolidated Financial Statements (unaudited)	2
		Unaudited Condensed Consolidated Balance Sheets	2
		Unaudited Condensed Consolidated Statements of Income	3
		Unaudited Condensed Consolidated Statements of Comprehensive Income	4
		Unaudited Condensed Consolidated Statements of Cash Flows	5
		Notes to Unaudited Condensed Consolidated Financial Statements	7
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
	ITEM 3.	Quantitative and Qualitative Disclosure About Market Risk	28
	ITEM 4.	Controls and Procedures	28
PART II — OTHER INFORMATION			30
	ITEM 1.	Legal Proceedings	30
	ITEM 2.	Changes in Securities	30
	ITEM 3.	Defaults Upon Senior Securities	30
	ITEM 4.	Submission of Matters to a Vote of Security Holders	30
	ITEM 5.	Other Information	31
	ITEM 6.	Exhibits and Reports on Form 8-K	31
SIGNATURES			32

PART I—FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements (unaudited)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

			September 30, 2002			December 31, 2001
			(In thousands, except share data)
Assets:
Cash and due from banks			$	109,756		$	68,513
Federal funds sold				8,510			36,190
		Total cash and cash equivalents		118,266			104,703
Interest-bearing deposits in financial institutions				757			190
Federal Reserve Bank and Federal Home Loan Bank stock, at cost				7,865			2,137
Securities held to maturity (fair value of $7,552 at 9/30/02 and $9,982 at 12/31/01)				7,263			9,681
Securities available-for-sale (amortized cost of $278,255 at 9/30/02 and $116,246 at 12/31/01)				282,193			116,775
		Total securities		297,321			128,593
Gross loans				1,510,365			502,090
Deferred fees and costs				(5,316	)		(350	)
		Loans, net of deferred fees and costs		1,505,049			501,740
Allowance for loan losses				(24,024	)		(11,209	)
		Net loans		1,481,025			490,531
Premises and equipment				13,820			5,914
Other real estate owned, net				4,751			3,075
Goodwill				174,611			9,793
Core deposit intangible				8,245			—
Other assets				62,292			27,418
		Total Assets	$	2,161,088		$	770,217
Liabilities and Shareholders' Equity:
Liabilities:
Noninterest-bearing deposits			$	624,264		$	275,616
Interest-bearing deposits				1,145,727			401,551
		Total deposits		1,769,991			677,167
Accrued interest payable and other liabilities				29,336			8,651
Short-term borrowings				11,402			431
Convertible debt				—			671
Trust preferred securities				38,000			28,000
		Total Liabilities		1,848,729			714,920
Shareholders' Equity:
Preferred stock; authorized 5,000,000 shares, no shares issued and outstanding				—			—
Common stock, no par value; authorized 30,000,000 shares and 15,000,000 shares; issued and outstanding 15,225,756 and 5,277,360 at September 30, 2002 and December 31, 2001, respectively				291,153			43,137
Retained earnings				18,923			11,852
Accumulated other comprehensive income:
	Unrealized gains on securities available-for-sale, net			2,283			308
		Total Shareholders' Equity		312,359			55,297
		Total Liabilities and Shareholders' Equity	$	2,161,088		$	770,217
Book value per share			$	20.52		$	10.48

See "Notes to Unaudited Condensed Consolidated Financial Statements."

2

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

				Three Months Ended September 30,				Nine Months Ended September 30,
				2002		2001		2002		2001
				(In thousands, except per share data)
Interest income:
	Interest and fees on loans			$	19,801	$	8,057	$	47,118	$	24,705
	Interest on interest-bearing deposits in financial institutions				3		1		9		7
	Interest on investment securities				2,291		1,511		6,091		4,496
	Interest on federal funds sold				230		862		674		3,255
		Total interest income			22,325		10,431		53,892		32,463
Interest expense:
	Interest expense on deposits				2,848		2,308		7,827		7,520
	Interest expense on short-term borrowings				87		101		125		302
	Interest expense on convertible debt				9		11		23		35
	Interest expense on trust preferred securities				678		219		1,778		652
		Total interest expense			3,622		2,639		9,753		8,509
Net interest income					18,703		7,792		44,139		23,954
		Provision for loan losses			—		—		—		639
		Net interest income after provision for loan losses			18,703		7,792		44,139		23,315
Noninterest income:
	Service charges and fees on deposit accounts				1,546		567		3,890		1,685
	Merchant discount fees				72		86		302		249
	Other commissions and fees				474		280		1,226		903
	Gain on sale of loans				54		130		263		299
	Other income				429		135		1,967		280
		Total noninterest income			2,575		1,198		7,648		3,416
Noninterest expense:
	Salaries and employee benefits				6,906		2,985		16,965		9,404
	Occupancy				1,694		796		3,999		2,245
	Furniture and equipment				836		318		2,218		991
	Data processing				841		396		2,321		1,230
	Other professional services				668		325		1,948		1,121
	Business development				275		158		762		504
	Communications				509		212		1,235		626
	Stationary and supplies				237		60		557		167
	Insurance and assessments				280		146		789		669
	Cost of real estate owned				8		20		79		52
	Goodwill amortization				—		73		—		207
	Core deposit intangible amortization				238		—		577		—
	Other				1,270		545		2,794		1,341
		Total noninterest expense			13,762		6,034		34,244		18,557
Income before income taxes					7,516		2,956		17,543		8,174
Income taxes					3,034		1,304		7,039		3,458
		Net income		$	4,482	$	1,652	$	10,504	$	4,716
Per share information:
		Number of shares (weighted average)
			Basic		11,792.4		4,604.0		8,628.0		4,517.9
			Diluted		12,234.8		4,874.2		8,983.1		4,780.6
		Income per share
			Basic	$	0.38	$	0.36	$	1.22	$	1.04
			Diluted	$	0.37	$	0.34	$	1.17	$	0.99

See "Notes to Unaudited Condensed Consolidated Financial Statements."

3

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

			Three Months Ended September 30,				Nine Months Ended September 30,
			2002		2001		2002		2001
			(In thousands)
Net income			$	4,482	$	1,652	$	10,504	$	4,716
Other comprehensive income, net of related income taxes:
	Unrealized gains on securities:
		Unrealized holding gains arising during the period		731		848		1,975		1,269
Comprehensive income			$	5,213	$	2,500	$	12,479	$	5,985

See "Notes to Unaudited Condensed Consolidated Financial Statements."

4

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

				Nine Months Ended September 30,
				2002			2001
				(In thousands)
Cash flows from operating activities:
	Net income			$	10,504		$	4,716
	Adjustments to reconcile net income to net cash (used in) operating activities:
		Depreciation and amortization			3,116			1,401
		(Gain) loss on sale of OREO			(148	)		12
		Gain on sale of loans			(263	)		(299	)
		Proceeds from loans held for sale			2,736			1,500
		(Gain) loss on sale of premises and equipment			(1	)		46
		Loss on sale or calls of securities available-for-sale			—			(17	)
		Increase (decrease) in other assets			5,012			(7,218	)
		Decrease in accrued interest payable and other liabilities			(28,454	)		(1,813	)
		Dividend on FHLB stock			(27	)		(9	)
			Net cash (used in) operating activities		(7,525	)		(1,681	)
Cash flows from investing activities:
	Net cash and cash equivalents acquired in acquisition of:
		Professional Bancorp			—			84,017
		Pacific Western Bank			1,401			—
		WHEC			24,853			—
		Upland Bank			(2,970	)		—
		Marathon Bancorp			11,351			—
		First National Bank			48,900			—
	Net increase in loans outstanding				(159,571	)		(35,016	)
	Net decrease in interest-bearing deposits in financial institutions				813			535
	Maturities of securities held-to-maturity				2,348			7,239
	Securities available-for-sale:
		Maturities			144,307			38,515
		Purchases			(89,845	)		(46,477	)
	Net sales (purchases) in FRB and FHLB stock				621			(150	)
	Proceeds from sale of OREO				1,911			864
	Purchases of premises and equipment, net				(1,990	)		(867	)
	Proceeds from sale of premises and equipment				893			147
			Net cash (used in) provided by investing activities		(16,978	)		48,807
Cash flows from financing activities:
	Net increase (decrease) in deposits:
		Non-interest bearing			36,979			(20,334	)
		Interest bearing			(61,379	)		67,081
	Proceeds from trust preferred securities				10,000			—
	Proceeds from sale of common stock				112,348			—
	Proceeds from exercise of stock options				694			962
	Net (decrease) increase in short-term borrowings				(57,029	)		6,027
	Convertible debt payment				(114	)		—
	Cash dividends paid				(3,433	)		(1,228	)
			Net cash provided by financing activities		38,066			52,508
			Net increase in cash and cash equivalents		13,563			99,634
Cash and cash equivalents at beginning of period					104,703			52,655
Cash and cash equivalents at end of period				$	118,266		$	152,289
Supplemental disclosure of cash flow information:
		Cash paid during period for interest			10,666			6,798
		Cash paid during period for income taxes			2,235			—
		Transfer from loans to other real estate owned			1,443			154
		Conversion of convertible debt			557			17

See "Notes to Unaudited Condensed Consolidated Financial Statements."

5

Supplemental Disclosure of Acquisitions:

		2002															2001
		Pacific Western National Bank			WHEC			Upland Bank			Marathon Bancorp			First National Bank			Professional Bancorp
		(In thousands)
Assets Acquired:
	Cash and cash equivalent	$	38,026		$	24,853		$	3,812		$	18,056		$	123,409		$	92,447
	Interest-bearing deposits in financial institutions		—			450			594			—			336			325
	Investment securities		20,644			24,393			1,750			25,721			151,015			61,447
	Loans		194,119			92,526			101,956			61,611			384,627			98,713
	Premises and equipment		3,042			1,185			229			176			3,918			673
	Goodwill		18,089			13,627			9,968			12,400			110,586			4,358
	Core deposit intangible		3,646			4,182			994			—			—			—
	Other assets		3,922			4,320			4,006			6,589			24,476			7,753
			281,488			165,536			123,309			124,553			798,367			265,716
Liabilities Assumed:
	Noninterest-bearing deposits		(42,662	)		(47,030	)		(28,377	)		(36,312	)		(157,288	)		(134,792	)
	Interest-bearing deposits		(196,204	)		(87,768	)		(65,598	)		(60,941	)		(395,044	)		(109,691	)
	Accrued interest payable and other liabilities		(5,997	)		(6,215	)		(9,829	)		(4,532	)		(90,418	)		(4,224	)
	Convertible debt		—			—			—			—			—			(679	)
			(244,863	)		(141,013	)		(103,804	)		(101,785	)		(642,750	)		(249,386	)
Cash paid for common stock			36,625			—			6,782			6,705			74,509			8,430
Fair value of common stock issued for common stock			—			24,523			12,723			16,063			81,108			7,900
Total consideration paid		$	36,625		$	24,523		$	19,505		$	22,768		$	155,617		$	16,330

See "Notes to Unaudited Condensed Consolidated Financial Statements."

6

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002

NOTE 1—BASIS OF PRESENTATION

Organization and Nature of Operations.

        First Community Bancorp ("First Community" on a parent-only basis and the "Company", "we" or "our" on a consolidated basis) is the holding company for First National Bank ("First National"), formerly Rancho Santa Fe National Bank, and Pacific Western National Bank ("Pacific Western" and together with First National, the "Banks"). The Banks are full-service community banks offering a broad range of banking products and services including: originating commercial loans, real estate and construction loans, Small Business Administration ("SBA") loans, and consumer loans, along with accepting demand and time deposits and providing foreign exchange services. We extend credit to customers located primarily in the counties we serve; through certain programs, we also extend credit to businesses located in Mexico. We focus on providing commercial banking services to small and medium-size businesses through 33 full-service community banking offices located in Imperial, Los Angeles, Orange, Riverside, San Bernadino and San Diego counties. The Company, through the Banks, derives its income primarily from the interest received on the various loan products, interest on investment securities and to a lesser extent fees from providing deposit services and extending credit.

        We have completed six acquisitions since September 30, 2001. All the acquisitions were accounted for using the purchase accounting method and accordingly the results of operations for each acquisition have been included in the consolidated financial statements since the dates of the respective acquisitions.

Consolidation and Basis of Presentation.

        The consolidated financial statements include the accounts of First Community and its subsidiaries. The unaudited condensed consolidated financial statements of the Company included herein reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods indicated. Certain reclassifications have been made to the unaudited condensed consolidated financial statements for 2001 to conform to the 2002 presentation. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

        The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report filed on Form 10-K on March 29, 2002 for the year ended December 31, 2001.

Use of Estimates.

        The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates subject to change include, among other items, the allowance for loan losses, the carrying value of other real estate owned and the deferred tax asset.

7

NOTE 2—ACQUISITIONS

        The Company was formed in May 2000 via the merger of each of First Community Bank of the Desert and Rancho Santa Fe National Bank with the Company. Prior to October 2001, First Community had three subsidiaries: Rancho Santa Fe National Bank, First Community Bank of the Desert and First Professional Bank, N.A. ("First Professional"), which was acquired on January 15, 2001.

First Charter Acquisition.

        On October 8, 2001, we acquired First Charter Bank, N.A. ("First Charter"). Shareholders of First Charter received 0.008635 of a share of Company common stock for each share of First Charter common stock. Approximately 661,609 shares were issued in this acquisition, resulting in a total purchase price of approximately $14.2 million. First Charter was merged into First Professional with First Professional as the surviving entity.

Pacific Western National Bank Acquisition.

        On January 31, 2002, we acquired Pacific Western National Bank. References to Pacific Western National Bank refer to the bank acquired on January 31, 2002. The shareholders and option holders of Pacific Western National Bank were paid approximately $36.6 million in cash. Upon completion of the acquisition, Pacific Western National Bank and First Community Bank of the Desert were merged with First Professional. The resulting bank operates as Pacific Western and is headquartered in Santa Monica, California. When we refer to Pacific Western, we are referring to the surviving bank formed through the merger of Pacific Western National Bank, First Community Bank of the Desert and First Professional.

W.H.E.C., Inc. Acquisition.

        On March 7, 2002, we acquired W.H.E.C., Inc. ("WHEC"), the holding company of Capital Bank of North County ("Capital Bank"). The Company issued 1.1 million shares of its common stock in exchange for all of the outstanding common shares and options of WHEC. At the time of the merger, Capital Bank was merged into Rancho Santa Fe National Bank.

Upland Bank Acquisition.

        On August 22, 2002, we acquired Upland Bank. We issued 419,059 shares of our common stock and $6.8 million in cash in exchange for all of the outstanding shares and options of Upland Bank. The aggregate purchase price of Upland Bank amounted to $19.5 million. At the time of the merger, Upland Bank was merged into Pacific Western.

Marathon Bancorp Acquisition.

        On August 23, 2002, we acquired Marathon Bancorp, the holding company of Marathon Bank. We issued 537,770 shares of our common stock and $6.7 million in cash in exchange for all of the outstanding shares and options of Marathon Bancorp. The aggregate purchase price of Marathon Bancorp amounted to $22.8 million. At the time of the merger, Marathon Bank was merged into Pacific Western.

First National Bank Acquisition.

        On September 10, 2002, we acquired First National Bank. We issued 2,762,540 shares of our common stock, representing approximately 18% of the then outstanding shares of First Community common stock, and $74.5 million in cash in exchange for all of the outstanding preferred shares, common shares, warrants and options of First National Bank. The aggregate purchase price of First National Bank amounted to approximately $155.6 million based on the closing price of First Community's stock on September 10, 2002 of $29.36. At the time of the merger, First National Bank

8

was merged into Rancho Santa Fe National Bank and renamed First National Bank. In connection with the acquisition of First National Bank, we sold the data processing subsidiary of First National Bank, Infoserv, to CDSNet, Inc. and contracted with them to provide data processing services to us for a period of time. References to First National Bank refer to the bank acquired on September 10, 2002. When we refer to First National, we are referring to the surviving bank formed through the merger of First National Bank and Rancho Santa Fe National Bank.

Bank of Coronado.

        The Company has a pending merger based upon an agreement (the "Bank of Coronado Agreement") to acquire all of the outstanding stock of Bank of Coronado, a $77.2 million-asset bank located in Coronado, California.

        The Bank of Coronado Agreement provides that the shareholders of the outstanding common shares and options to purchase common shares of Bank of Coronado will be paid $14.15 per share in cash. Based upon the shares and options outstanding, the total purchase price will be approximately $11.7 million. The pending merger is subject to customary conditions, including the approval of the shareholders of Bank of Coronado and bank regulatory agencies. Upon receipt of the approvals and satisfaction or waiver of other conditions, the transaction is expected to close early in the first quarter of 2003. Simultaneously with the completion of this acquisition, Bank of Coronado will be merged with and into First National.

NOTE 3—NET INCOME PER SHARE

        The following is a summary of the calculation of basic and diluted net income per share for the three and nine month periods ended September 30, 2002 and 2001:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2002		2001		2002		2001
	(In thousands, except per share data)
Net income used for basic net income per share	$	4,482	$	1,652	$	10,504	$	4,716
Convertible debt interest expense, net of taxes		5		6		13		20
Adjusted net income used for diluted net income per share	$	4,487	$	1,658	$	10,517	$	4,736
Weighted average shares outstanding used for basic net income per share		11,792.4		4,604.0		8,628.0		4,517.9
Effect of dilutive stock options and warrants		442.4		241.1		355.1		233.6
Effect of convertible debt		—		29.1		—		29.1
Diluted weighted average shares outstanding		12,234.8		4,874.2		8,983.1		4,780.6
Basic net income per share	$	0.38	$	0.36	$	1.22	$	1.04
Diluted net income per share	$	0.37	$	0.34	$	1.17	$	0.99

NOTE 4—LONG-TERM DEBT

Trust Preferred Securities

        The Company had $38.0 million in trust preferred securities outstanding at September 30, 2002. Each of the trust preferred securities has a maturity of thirty years from its date of issue. These securities are considered Tier 1 capital for regulatory purposes.

9

        In September 2000, we issued $8.0 million of trust preferred securities bearing a fixed interest rate of 10.60%. This instrument was issued to fund part of the Professional acquisition. In November 2001, we issued $10.0 million of trust preferred securities bearing a variable interest rate, which is reset semi-annually, at the 6-Month LIBOR plus 3.75%, provided the rate will not exceed 11.00% through December 2006. The current rate is 5.78% and the next interest rate reset date is December 8, 2002. In December 2001, we issued another $10.0 million of trust preferred securities bearing a variable interest rate, which is reset quarterly, at the 3-Month LIBOR plus 3.60%, provided the rate will not exceed 12.50% through December 2006. The current interest rate is 5.42% and the next interest rate reset date is December 18, 2002. These instruments were issued to fund part of the Pacific Western National Bank acquisition. In June 2002, we issued $10.0 million of trust preferred securities bearing a variable interest rate, which is reset quarterly, at the 3-Month LIBOR plus 3.55%, provided the rate will not exceed 11.95% through June 2007. The current rate is 5.34% and the next interest rate reset date is December 26, 2002. These proceeds were used to help fund the acquisitions completed during the third quarter of 2002.

Convertible Debt

        In January 2001, we acquired $679,000 of convertible debt in the Professional acquisition. As of June 30, 2002, $654,000 of this convertible debt was outstanding. We exercised our right to redeem this convertible debt effective September 1, 2002. Each holder of the convertible debt had the option to elect to receive, upon redemption, (i) one share of Company common stock for each $23.088 of principal outstanding held by such holder or (ii) an amount in cash equal to such holder's redemption amount. Based on the election of each convertible debt holder, we issued 23,374 shares of common stock and paid approximately $114,000 to redeem this convertible debt.

NOTE 5—PRO FORMA INFORMATION FOR PURCHASE ACQUISITIONS

        The Company has made the following acquisitions since the end of the third quarter of 2001:

Acquisition	Date acquired	Assets acquired
First Charter Bank, N.A.	October 8, 2001	$127 million
Pacific Western National Bank	January 31, 2002	$281 million
W.H.E.C., Inc.	March 7, 2002	$166 million
Upland Bank	August 22, 2002	$123 million
Marathon Bancorp	August 23, 2002	$125 million
First National Bank	September 10, 2002	$798 million

        The following table presents our unaudited pro forma results of operations for the three and nine months ended September 30, 2002 and 2001 as if the acquisitions of First Charter, Pacific Western National Bank, WHEC, Upland Bank, Marathon Bancorp and First National Bank had been effective on January 1, 2001. The unaudited pro forma combined summary of operations is intended for informational purposes only and is not necessarily indicative of our future operating results or

10

operating results that would have occurred had these acquisitions been in effect for all the periods presented.

		Three Months Ended September 30,				Nine Months Ended September 30,
		Pro Forma 2002		Pro Forma 2001		Pro Forma 2002		Pro Forma 2001
		(In thousands, except per share information)
Interest income		$	31,897	$	34,730	$	92,159	$	109,983
Interest expense			6,287		12,291		20,716		40,588
	Net interest income		25,610		22,439		71,443		69,395
Provision for loan losses			5,065		2,295		7,610		10,854
	Net interest income after provision for loan losses		20,545		20,144		63,833		58,541
Noninterest income			4,561		5,904		16,734		15,258
Noninterest expense			20,369		22,735		61,121		65,736
	Income before income taxes		4,737		3,313		19,446		8,063
Income taxes			1,488		1,479		7,044		3,502
	Net income from continuing operations	$	3,249	$	1,834	$	12,402	$	4,561
Net income per share from continuing operations:
	Basic	$	0.21	$	0.12	$	0.82	$	0.30
	Diluted	$	0.21	$	0.12	$	0.80	$	0.30
Weighted average shares outstanding:
Basic			15,189.8		15,133.6		15,171.6		15,047.5
Diluted			15,632.2		15,403.8		15,526.7		15,310.2

NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS

        All business combinations initiated or completed after June 30, 2001 are required to be accounted for under the purchase accounting method. Goodwill and intangible assets arise from purchase business combinations. Goodwill generated from purchase business combinations consummated prior to the adoption of Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets was amortized straight-line over a life not to exceed 20 years. Statement No. 142 addresses the initial recognition and measurement of goodwill and other intangible assets acquired as a result of a business combination and the recognition and measurement of those assets subsequent to acquisition. Under Statement No.142, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized, but will be tested for impairment no less than annually. Statement No. 142 requires goodwill to be tested for impairment annually or more frequently whenever certain events occur. The new accounting standard also requires intangible assets with definite lives to be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with Statement No. 144, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

        We determined the value of a core deposit intangible related to the acquisitions of Pacific Western National Bank, WHEC and Upland Bank. We recorded the value of the core deposit intangible separate from goodwill and we are amortizing it over its estimated useful life of 10 years. The amortization expense represents the estimated decline in the value of the underlying deposits acquired. We are currently calculating the core deposit intangible related to the Marathon Bancorp and First National Bank acquisitions and will reclassify these core deposit intangibles and related deferred tax liabilities from goodwill, which will reduce the balance of goodwill. We estimate the core deposit amortization expense for 2002 to range between $1.5 million and $2.0 million and to range between

11

$2.5 million and $3.5 million per year for the next four years. We are also in the process of evaluating the impact of the adoption of the remaining provisions of Statement 142 on our results of operations and financial position as well as performing the initial impairment tests of goodwill, which is required during 2002, and is not expected to be material.

        The following is a reconciliation of net income to net income, excluding goodwill amortization, as well as a reconciliation of basic and diluted per share information on the same basis for the three and nine months ended September 30, 2002 and 2001.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2002		2001		2002		2001
	(In thousands, except per share information)
Net income	$	4,482	$	1,652	$	10,504	$	4,716
Add back: Goodwill amortization		—		73		—		207
Net income, excluding goodwill amortization	$	4,482	$	1,725	$	10,504	$	4,923
Basic earnings per share:
Net income	$	0.38	$	0.36	$	1.22	$	1.04
Goodwill amortization		—		0.01		—		0.05
Net income, excluding goodwill amortization	$	0.38	$	0.37	$	1.22	$	1.09
Diluted earnings per share:
Net income	$	0.37	$	0.34	$	1.17	$	0.99
Goodwill amortization		—		0.01		—		0.04
Net income, excluding goodwill amortization	$	0.37	$	0.35	$	1.17	$	1.03

        The changes in the carrying amount of goodwill and core deposit intangible for the nine months ended September 30, 2002 are as follows:

	Goodwill		Core Deposit Intangible
	(In thousands)
Balance as of December 31, 2001	$	9,793	$	—
Acquired during 2002		164,670		8,822
Core deposit intangible amortization		—		(577	)
Adjustment to goodwill acquired in 2001		148		—
Balance as of September 30, 2002	$	174,611	$	8,245

NOTE 7—IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

        In July of 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Statement No. 146 requires the Company to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Statement No. 146 replaces Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The provisions of Statement 146 are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Management has not yet determined the impact, if any, of adoption of this statement.

        Statement No. 147, Acquisitions of Certain Financial Institutions, an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9 (Statement No. 147), addresses the financial accounting

12

and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. Statement No. 147 ceases the amortization of any unidentified intangible assets arising from the fair value of liabilities assumed being in excess of the fair value of tangible and identifiable intangible assets acquired in the acquisition of all or part of a financial institution. Instead, the excess of the cost over the fair value of assets acquired will be required to be evaluated annually for impairment. Statement No. 147 also provides guidance on the accounting for the impairment or disposal of acquired long-term customer relationship intangible assets of financial institutions, such as a core deposit intangible. Such intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provision that Statement No. 144 requires for other long-lived assets that are held and used. Statement No. 147 is effective October 1, 2002 and should be applied retroactively to January 1, 2002. The adoption of this statement did not have a material impact on the Company's financial condition or results of operations.

NOTE 8—DIVIDEND APPROVAL

        On October 30, 2002 our Board of Directors approved a quarterly dividend of $0.15 per common share which is payable on November 29, 2002 to shareholders of record on November 15, 2002.

13

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

Forward Looking Information

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

•

Expected cost savings or revenue enhancements from the completed or pending acquisitions may not be fully realized or realized within the expected time frame.

•

Successful completion and integration of acquisitions.

•

Competitive pressure in the banking industry and changes in the regulatory environment.

•

Changes in the interest rate environment and volatility of rate sensitive loans and deposits.

•

A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of our loans.

•

Credit quality deterioration, which could cause an increase in the provision for loan losses.

•

Dividend restrictions.

•

Regulatory discretion.

•

Changes in the securities markets.

•

Asset/liability repricing risks and liquidity risks.

•

Continuing effects on the economy from the terrorist attacks in the United States on September 11, 2001 and the ongoing war on terrorism.

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

Overview

        First Community Bancorp (the "Company," "we" or "our") is the holding company for two wholly-owned banking subsidiaries, First National, formerly Rancho Santa Fe National Bank, and Pacific Western. The Banks are full-service community banks offering a broad range of banking products and services including: originating commercial loans, real estate and construction loans, Small Business Administration ("SBA") loans, and consumer loans, along with accepting demand and time deposits and providing foreign exchange services. We extend credit to customers located primarily in the counties we serve; through certain programs, we also extend credit to businesses located in Mexico. We focus on providing commercial banking services to small and medium-size businesses through 33 full-service community banking offices located in Imperial, Los Angeles, Orange, Riverside, San Bernadino and San Diego counties. The Company, through the Banks, derives its income primarily

14

from the interest received on the various loan products, interest on investment securities and to a lesser extent fees from providing deposit services and extending credit.

        At September 30, 2002 we had total assets of $2.2 billion, total loans, net of $1.5 billion, deposits of $1.8 billion and equity of $312.4 million. We have completed six acquisitions since September 30, 2001. All acquisitions were accounted for using the purchase accounting method and accordingly the results of operations from each acquisition have been included in the consolidated financial statements since the date of the respective acquisition. We raised $89.3 million of capital in July 2002 via an offering of our common stock and the proceeds were primarily used to fund the acquisitions of Upland Bank, Marathon Bancorp and First National Bank.

        Since December 31, 2001, our total assets have increased by approximately $1.4 billion, or over 180%, which relates mostly to the increase in assets due to the five acquisitions completed during 2002. Loans, net of deferred fees and costs, increased $1.0 billion since year-end including $153.8 million of organic growth. Our total deposits increased by approximately $1.1 billion since year-end which represents the amount of deposits purchased in the 2002 acquisitions. Our loan-to-deposit ratio at September 30, 2002 was 85.0% compared to 74.1% as of December 31, 2001.

        The following sections contain tables and data setting forth certain statistical information relating to the Company as of September 30, 2002, and for the three and nine months ended September 30, 2002 and September 30, 2001. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto as of September 30, 2002 included herein, and the consolidated financial statements and notes thereto included in our consolidated financial statements filed on Form 10-K for the year ended December 31, 2001.

15

Results of Operations

        The following table summarizes our key performance indicators for the three and nine months ended September 30, 2002 and 2001 and the basis for calculating these indicators:

		Three Months Ended September 30,						Nine Months Ended September 30,
		2002			2001			2002			2001
		(In thousands, except percentages and per share information)
Per share information and profitability measures based on net income:
Basic income per share		$	0.38		$	0.36		$	1.22		$	1.04
Diluted income per share		$	0.37		$	0.34		$	1.17		$	0.99
Return on average assets			1.16	%		1.02	%		1.12	%		1.00	%
Return on average equity			8.5	%		16.3	%		10.9	%		16.7	%
Efficiency ratio			64.7	%		67.1	%		66.1	%		67.8	%
Per share information and profitability measures based on operating income:
Basic income per share		$	0.39		$	0.37		$	1.26		$	1.09
Diluted income per share		$	0.38		$	0.35	(a)	$	1.21		$	1.03	(a)
Return on average tangible assets			1.19	%		1.07	%		1.16	%		1.05	%
Return on average tangible equity			8.7	%		17.0	%		11.3	%		17.5	%
Efficiency ratio			63.6	%		66.3	%		65.0	%		67.0	%
Share information:
Weighted average basic number of shares			11,792.4			4,604.0			8,628.0			4,517.9
Weighted average diluted number of shares			12,234.8			4,874.2			8,983.1			4,780.6
Adjustments to net income:
Net income		$	4,482		$	1,652		$	10,504		$	4,716
Goodwill amortization			—			73			—			207
Core deposit intangible amortization, net of tax			138			—			335			—
	Operating income	$	4,620		$	1,725		$	10,839		$	4,923
Operating revenues:
Net interest income		$	18,703		$	7,792		$	44,139		$	23,954
Noninterest income			2,575			1,198			7,648			3,416
	Operating revenues	$	21,278		$	8,990		$	51,787		$	27,370
Adjustments to expenses:
Noninterest expense		$	13,762		$	6,034		$	34,244		$	18,557
Goodwill amortization			—			(73	)		—			(207	)
Core deposit intangible amortization			(238	)		—			(577	)		—
	Operating expenses	$	13,524		$	5,961		$	33,667		$	18,350

(a)

The Company previously reported consolidated operating income of $0.36 per diluted share and $1.04 per diluted share for the three months and nine months ended September 30, 2001 respectively, which did not reflect the dilutive effect of shares of common stock deemed outstanding upon conversion of the Company's convertible debt.

        Third quarter analysis.    Consolidated operating income (net income before intangible amortization expense, net of applicable taxes) for the three months ended September 30, 2002 was $4.6 million or $0.38 per diluted share. This compares with consolidated operating income of $1.7 million or $0.35 per

16

diluted share for the three months ended September 30, 2001, an increase of approximately 8.6%. Our return on average tangible assets based on operating income for the third quarter of 2002 was 1.19% compared to 1.07% for the same period in 2001. The increase in diluted operating income per share and return on average tangible assets for the third quarter of 2002 compared to the same quarter of 2001 relates primarily to the accretive nature of our acquisition activity which includes: (i) an increase in our net interest margin despite a lower interest rate environment in 2002; (ii) the absence of an allowance for loan loss provision in the current period based on credit quality indicators in our loan portfolio; and (iii) cost consolidation as acquired banks are converted to our operating platform and other operating efficiencies are accomplished.

        The efficiency ratio (operating expense divided by net interest income plus noninterest income) is a measure of how effective we are at using our expense dollars. A lower or declining ratio indicates improving efficiency. The operating efficiency ratio improved to 63.6% during the third quarter of 2002 compared to 66.3% for the same period in 2001. The improvement results from operating revenues increasing 137% while operating expense grew only 127% for the third quarter of 2002 when compared to the third quarter of 2001.

        Consolidated net income for the three months ended September 30, 2002 was $4.5 million or $0.37 per diluted share. This compares with net income of $1.7 million or $0.34 per diluted share for the three months ended September 30, 2001. Our return on average assets was 1.16% for the third quarter of 2002 versus 1.02% for the third quarter of 2001. The outstanding number of shares increased during July by 3.9 million shares which were issued in a follow-on public offering that raised $89.3 million. The majority of the proceeds were used in late August and September to purchase Upland Bank, Marathon Bancorp, and First National Bank. The effect of the timing difference between raising the funds and investing the capital had a dilutive impact on both earnings per share and our net interest margin.

        Nine month analysis.    Consolidated operating income for the nine months ended September 30, 2002 was $10.8 million or $1.21 per diluted share. This compares with consolidated operating income of $4.9 million, or $1.03 per diluted share, for the nine months ended September 30, 2001, an increase of approximately 17.5%. The increase for the nine month period is due primarily to the accretion achieved from the six bank acquisitions completed since the end of the third quarter of 2001, as operating income improved 120% while diluted shares increased by just 87.9%. Our return on average tangible assets based on operating income for the first three quarters of 2002 was 1.16% compared to 1.05% for the same period in 2001.

        Our operating efficiency ratio for the first three quarters of 2002 was 65.0% compared to 67.0% for the same period in 2001. The decrease in the operating efficiency ratio is due primarily to revenues growing 89.2% while operating expense grew 83.5% despite current year revenues being adversely affected by a compression of our net interest margin when compared to 2001 due to the general decline in market interest rates. In addition, we completed system conversions during the second and third quarters to: (i) reflect the combination of Capital Bank with the former Rancho Santa Fe National Bank; (ii) reflect the combination of each of First Professional and First Community Bank of the Desert with Pacific Western National Bank; and (iii) reflect the Upland Bank merger. The efficiencies achieved during 2002 are offset in part by the overall increase in costs from the recently completed acquisitions.

        Consolidated net income for the nine months ended September 30, 2002 was $10.5 million, or $1.17 per diluted share. This compares with net income of $4.7 million, or $0.99 per diluted share for the nine months ended September 30, 2001. Our return on average assets was 1.12% for the nine months ended September 30, 2002 versus 1.00% for the same period in 2001. The increase in the return on average assets was primarily influenced by a one-time gain on sale of its merchant card portfolio of $542,000, net of tax, during the second quarter of 2002.

17

        Net Interest Income.    Net interest income is the difference between interest earned on assets and interest paid on liabilities. Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Our balance sheet is asset sensitive and as such, a falling interest rate environment places downward pressure on our net interest margin while our net interest margin tends to expand in a rising interest rate environment. The majority of our earning assets are tied to market rates, such as the prime rate, and therefore rates on our earning assets generally reprice along with a movement in market rates while interest-bearing liabilities, mainly deposits, tend to reprice more slowly and usually incorporate only a portion of the movement in market rates. However, despite the decline in market interest rates during 2001, we were able to effectively manage our net interest margin through the third quarter of 2002. Our net interest margin for the third quarter of 2002 increased 15 basis points to 5.46% as compared to the third quarter of 2001 and the second quarter of 2002.

        The following tables provide information concerning average interest-earning assets and interest-bearing liabilities and yields and rates thereon for the three and nine months ended September 30, 2002 and September 30, 2001. Nonaccrual loans are included in the average earning assets amounts.

			Three Months Ended September 30, 2002						Three Months Ended September 30, 2001
			Average Balance		Interest Income or Expense		Average Yield or Cost		Average Balance		Interest Income or Expense		Average Yield or Cost
			(Dollars in thousands)						(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of deferred fees and costs			$	1,058,296	$	19,801	7.42	%	$	381,531	$	8,057	8.38	%
Investment securities (1)				247,089		2,291	3.68	%		101,732		1,511	5.89	%
Federal funds sold				54,145		230	1.69	%		98,595		862	3.47	%
Other earning assets				506		3	2.35	%		284		1	1.40	%
	Total interest-earning assets			1,360,036		22,325	6.51	%		582,142		10,431	7.11	%
Noninterest-earning assets:
Other assets				179,259						60,025
	Total assets		$	1,539,295					$	642,167
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
	Interest-bearing demand		$	105,907		54	0.20	%	$	54,903		122	0.88	%
	Money market			397,233		1,297	1.30	%		161,535		1,014	2.49	%
	Savings			45,867		79	0.69	%		29,739		118	1.57	%
	Time			230,871		1,418	2.44	%		95.599		1,054	4.37	%
		Total interest-bearing deposits		779,878		2,848	1.45	%		341,776		2,308	2.68	%
Other interest-bearing liabilities				43,278		774	7.10	%		15,983		331	8.22	%
		Total interest-bearing liabilities		823,156		3,622	1.75	%		357,759		2,639	2.93	%
Noninterest-bearing liabilities:
	Demand deposits			482,896						240,721
	Other liabilities			23,185						3,378
		Total liabilities		1,329,237						601,858
Shareholders' equity				210,058						40,309
Total liabilities and shareholders' equity			$	1,539,295					$	642,167
Net interest income					$	18,703					$	7,792
Net interest spread							4.76	%					4.18	%
Net interest margin							5.46	%					5.31	%

(1)

Includes tax-exempt securities.

18

        Third quarter analysis.    Net interest income increased 140%, or $10.9 million, to $18.7 million for the third quarter of 2002 from $7.8 million for the third quarter of 2001 due largely to a 133%, or $798.5 million, increase in average earning assets resulting from our acquisition activity.

        Interest income increased 114.0%, or $11.9 million, to $22.3 million for the third quarter 2002 compared to $10.4 million for the third quarter of 2001. In addition to the increase in interest-earning assets during 2002, we have successfully shifted earning assets from investments and Federal funds sold to loans, which typically yield a higher return, and replaced higher cost deposits with low cost deposits. Average loans as a percentage of average earning assets increased to 77.8% for the third quarter of 2002 as compared 65.5% for the same quarter of 2001. Further, we increased our average loan to deposit ratio to 83.8% for the third quarter of 2002 as compared to 65.5% for the third quarter of 2001. Despite the shift in the composition of earning assets, the yield on interest-earning assets decreased 60 basis points as loan yields declined to 7.42% in the third quarter of 2002 from 8.38% for the third quarter of 2001 due primarily to the decline in the interest rate environment.

        Interest expense increased 37.2%, or $982,000, to $3.6 million for the third quarter of 2002 from $2.6 million for the same period of 2001 while our interest-bearing liabilities increased 130.1%, or $465.4 million, offset by a 118 basis point drop in the cost of these funds. A large percentage of our funding sources are demand deposits, 38.2% of average total deposits for the third quarter of 2002, which in a declining interest rate environment tends to compress our net interest margin as we do not have the ability to reprice these deposits downward. We were able to effectively reprice interest-bearing deposits to mitigate away some of the effect of the decline in rates as the average cost of interest-bearing deposits declined to 1.45% for the third quarter of 2002 as compared to 2.68% for the same quarter in 2001. Our overall cost of average deposits declined to 0.90% for the third quarter of 2002 as compared to 1.57% for the same period of 2001. The cost of interest-bearing liabilities decreased to 1.75% from 2.93% over the same period as a result of deposits generally repricing in the lower interest rate environment and our ability to maintain a high percentage of noninterest-bearing deposits, offset partially by the addition of higher cost interest-bearing liabilities such as the trust preferred securities and the revolving line of credit.

19

			Nine Months Ended September 30, 2002						Nine Months Ended September 30, 2001
			Average Balance		Interest Income or Expense		Average Yield or Cost		Average Balance		Interest Income or Expense		Average Yield or Cost
			(Dollars in thousands)						(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of deferred fees and costs			$	857,211	$	47,118	7.35	%	$	369,192	$	24,705	8.95	%
Investment securities (1)				177,546		6,091	4.59	%		98,265		4,496	6.12	%
Federal funds sold				54,357		674	1.66	%		98,774		3,255	4.41	%
Other earning assets				404		9	2.98	%		300		7	3.12	%
		Total interest-earning assets		1,089,518		53,892	6.61	%		566,531		32,463	7.66	%
Noninterest-earning assets:
Other assets				160,588						63,002
		Total assets	$	1,250,106					$	629,533
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
	Interest-bearing demand		$	97,837		211	0.29	%	$	54,896		428	1.04	%
	Money market			321,372		3,141	1.31	%		161,390		3,465	2.87	%
	Savings			44,116		187	0.57	%		29,015		362	1.67	%
	Time			197,095		4,288	2.91	%		90,455		3,265	4.83	%
		Total interest-bearing deposits		660,420		7,827	1.58	%		335,756		7,520	2.99	%
Other interest-bearing liabilities				36,036		1,926	7.15	%		14,913		989	8.87	%
		Total interest-bearing liabilities		696,456		9,753	1.87	%		350,669		8,509	3.24	%
Noninterest-bearing liabilities:
		Demand deposits		405,607						231,787
		Other liabilities		19,693						9,382
		Total liabilities		1,121,756						591,838
Shareholders' equity				128,350						37,695
Total liabilities and shareholders' equity			$	1,250,106					$	629,533
Net interest income					$	44,139					$	23,954
Net interest spread							4.74	%					4.42	%
Net interest margin							5.42	%					5.65	%

(1)

Includes tax-exempt securities.

        Nine month analysis.    Net interest income increased by $20.2 million, or 87.8%, to $44.1 million for the nine months ended September 30, 2002 from $24.0 million for the same period of 2001. Interest income increased 66.0%, to $53.9 million for the nine months ended September 30, 2002 compared to the same period in 2001. This is due largely to the increase in average earning assets of $529.9 million, or 92.3%, relating to the acquisitions completed since the end of the third quarter of 2001.

        The net interest margin decreased to 5.42% for the nine months ended September 30, 2002 from 5.65% for the same period in 2001. The 23 basis point decline in the net interest margin is attributed mainly to the overall decline in the interest rate environment. Market rates fell 300 basis points during the first nine months of 2001 and then another 175 basis points in the fourth quarter of 2001. The decline in our net interest margin was mitigated by the improvement in our average loan to deposit ratio for the nine months ended September 30, 2002 of 80.4% as compared to 65.1% for the same period in 2001. The proportion of average loans to total interest-earning assets increased to 79% for

20

the 2002 period compared to 65% for the same period of 2001 however, average loan yields declined 60 basis points to 7.35%. Although we benefit from a low cost deposit base due to our high percentage of noninterest-bearing deposits, (37% of total average deposits in 2002 compared to 40% of total average deposits in 2001), in a declining interest rate environment, it reduces our flexibility to manage our net interest margin. We aggressively lowered our cost of funds as general market interest rates fell in order to manage our net interest margin, however we are not able to reduce the rate paid on our deposits at the same pace or by the same amount as the falling market rates. In early November 2002, the Federal Reserve lowered interest rates 50 basis points which requires us to continue to manage our net interest margin as we have described.

Noninterest Income.

        The following table summarizes noninterest income by category for the periods indicated:

		At and for the three months ended (1)
		September 30, 2002		June 30, 2002		March 31, 2002		September 30, 2001
Service charges and fees on deposit accounts		$	1,546	$	1,229	$	1,115	$	567
Merchant discount fees			72		146		84		86
Other commissions and fees			474		349		403		280
Gain on sale of loans			54		145		64		130
BOLI income			188		183		132		116
Other income			125		78		211		19
Total recurring noninterest income			2,459		2,130		2,009		1,198
Gain on sale of merchant card processing			—		934		—		—
Data processing services fees			116		—		—		—
	Total noninterest income	$	2,575	$	3,064	$	2,009	$	1,198

(1)

Our quarterly results include First Charter subsequent to October 8, 2001; Pacific Western National Bank subsequent to January 31, 2002; Capital Bank subsequent to March 7, 2002; Upland Bank subsequent to August 22, 2002; Marathon Bank subsequent to August 23, 2002; and First National Bank subsequent to September 10, 2002.

        Third quarter analysis.    Total recurring noninterest income increased to $2.5 million in the third quarter of 2002, compared to $2.1 million for the second quarter of 2002 and $1.2 million for the third quarter of 2001. The increase in recurring noninterest income is due primarily to the increase in service charges and fees on deposit accounts as we increased our deposit base through several acquisitions completed since the end of the third quarter in 2001. In addition, other commissions and fees increased $125,000 for the third quarter of 2002 over the second quarter of 2002, which includes $50,000 of foreign exchange fee income generated subsequent to the First National Bank acquisition. Data processing services fee income is related to third party data and item processing services provided by InfoServ, the in-house data processing division of First National Bank. InfoServ was sold September 30, 2002.

        Nine month analysis.    For the nine months ended September 30, 2002, recurring noninterest income increased to $7.6 million as compared to $3.4 million for the same period in 2001. Of the $4.2 million increase year over year, $2.2 million is due to the rise in service charges and fees on deposit accounts and $387,000 was attributed to an increase in the appreciation of the cash surrender value of life insurance policies. We recognized a one-time gain on the sale of the Banks' merchant card processing in the second quarter of 2002. The Banks continue to recognize income and expense related to this activity until the purchaser of the merchant card processing has converted all the Banks'

21

customers onto their system. Because of the sale, it is anticipated that merchant discount fee income in future periods will decrease from current levels.

Noninterest Expense.

        The following table summarizes noninterest expense by category for the periods indicated:

	At and for the three months ended (1)
	September 30, 2002			June 30, 2002			March 31, 2002			September 30, 2001
Salaries and employee benefits	$	6,906		$	5,362		$	4,697		$	2,985
Occupancy		1,694			1,225			1,080			796
Furniture and equipment		836			742			640			318
Data processing		841			736			744			396
Other professional services		668			726			554			325
Business development		275			270			217			158
Communications		509			387			339			212
Stationary and supplies		237			199			121			60
Insurance and assessments		280			309			200			146
Cost of OREO		8			8			63			20
Other		1,270			888			636			545
Total operating expenses		13,524			10,852			9,291			5,961
Goodwill amortization		—			—			—			73
Core deposit intangible amortization		238			339			—			—
Total noninterest expense	$	13,762		$	11,191		$	9,291		$	6,034
Efficiency ratio		64.7	%		67.2	%		72.0	%		67.8	%
Efficiency ratio before amortization of intangibles		63.6	%		65.2	%		72.0	%		67.0	%
Operating expenses as a percentage of average assets		3.55	%		3.58	%		3.81	%		3.68	%

(1)

Our quarterly results include First Charter subsequent to October 8, 2001; Pacific Western National Bank subsequent to January 31, 2002; Capital Bank subsequent to March 7, 2002; Upland Bank subsequent to August 22, 2002; Marathon Bank subsequent to August 23, 2002; and First National Bank subsequent to September 10, 2002.

        Third quarter analysis.    Operating expenses totaled $13.5 million for the quarter ended September 30, 2002, compared to $10.9 million for the second quarter of 2002 and $6.0 million for the third quarter of 2001. Operating costs increased $2.7 million in the third quarter of 2002 as compared to the second quarter of 2002 due primarily to the completion of three acquisitions during the third quarter with the majority of the increase attributed to a $1.5 million increase in salary and employee benefit costs. The ratio of operating expenses to average assets was 3.55% in the third quarter of 2002, 3.58% in the second quarter of 2002 and 3.68% in the third quarter of 2001. The declining trend is due to cost efficiencies achieved through expense consolidation, especially after converting an acquired institution to our same operating platform. We converted Upland Bank to the same operating platform during the third quarter of 2002 and Marathon Bank was completed on November 12, 2002.

        Noninterest expense totaled $13.8 million for the third quarter of 2002. This amount includes core deposit intangible amortization expense of $238,000, which relates to the underlying assets from the acquisitions of Pacific Western National Bank, WHEC and Upland Bank. We are calculating the core deposit intangible related to the Marathon Bancorp and First National Bank acquisitions and the quarterly core deposit intangible amortization charge will increase accordingly. We estimate the amortization expense for 2002 will range between $1.5 million and $2.0 million. The second quarter of

22

2002 core deposit intangible amortization charge represents a cumulative adjustment as there was no amortization recorded in the first quarter of 2002 while we calculated the underlying assets from the Pacific Western National Bank and WHEC acquisitions.

        Nine month analysis.    Total operating expenses for the nine months ended September 30, 2002, amounted to $33.7 million compared to $18.4 million for the same period in 2001. The increase is due to our acquisition activity. We have completed four system conversions during the year to reflect our current structure with two banking subsidiaries. These conversions create operating efficiencies which minimize the increase in data processing costs but require the use of additional resources to support our operations of new acquisitions before conversion.

        Income Taxes.    Our normal effective income tax rate is approximately 42.0%, representing a blend of the statutory Federal income tax rate of 35.0% and the California income tax rate of 10.84%. Due to the deductibility of income on certain investment vehicles and the nondeductibility of goodwill amortization, our actual effective income tax rates were 40.4% and 44.1% for the three months ended September 30, 2002 and 2001, respectively, and 40.1% and 42.3% for the nine months ended September 30, 2002 and 2001, respectively.

Balance Sheet Analysis

        Loans.    Our income is dependent on several factors including loan growth and our continual efforts to prevent any unexpected loan losses that would require additions to the allowance for loan losses. The Company believes that the demand for loans has increased in our primary market areas due to the growth in the Southern California economy along with the ability of our customers to participate in that growth. However, the perceived increase in the demand for loans is tempered by the highly competitive banking marketplace and our desire to maintain strong credit quality standards. In addition to the $1.0 billion in loans acquired during 2002, our business development efforts generated $153.8 million in additional loans.

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

        Planned workout arrangements are currently in place or in negotiation for all nonperforming assets. Management is not aware of any additional significant loss potential that has not already been included in the estimation of the allowance for loan losses. Loans past due 90 days and still accruing represent loans which are past due 90 days or more as to interest or principal, but not included in the nonaccrual or restructured categories. As of September 30, 2002, we had no loans past due 90 days and still accruing.

23

        Credit Quality.    The following table shows the historical trends in our loans, allowance for loan losses, nonperforming assets and key credit quality statistics as of and for the periods indicated:

		As of or for the Periods Ended
		9 Months 9/30/02			6 Months 6/30/02			3 Months 3/31/02			Year 12/31/01			9 Months 9/30/01			6 Months 6/30/01
		(Dollars in thousands)
Loans, net of deferred fees and costs		$	1,505,049		$	881,766		$	798,714		$	501,740		$	389,244		$	376,502
Allowance for loan losses			24,024			13,136			13,563			11,209			10,248			10,424
Average loans			857,211			755,002			655,196			395,337			369,192			362,920
Nonaccrual loans and leases		$	10,254		$	6,237		$	6,205		$	4,672		$	6,103		$	11,225
Other real estate owned			4,751			2,797			2,747			3,075			309			654
	Nonperforming assets	$	15,005		$	9,034		$	8,952		$	7,747		$	6,412		$	11,879
Loans past due 90 days or more and still accruing		$	—		$	—		$	112		$	—		$	—		$	—
Impaired loans, gross		$	10,254		$	6,237		$	6,205		$	4,672		$	6,103		$	11,225
Allocated allowance for loan losses			(2,250	)		(910	)		(783	)		(1,256	)		(1,861	)		(3,026	)
	Net investment in impaired loans	$	8,004		$	5,327		$	5,422		$	3,416		$	4,242		$	8,199
Charged-off loans year-to-date		$	3,478		$	2,220		$	1,039		$	2,666		$	2,065		$	1,798
Recoveries year-to-date			(1,616	)		(1,181	)		(429	)		(1,203	)		(710	)		(618	)
	Net charge-offs (recoveries) (normalized) *	$	1,862		$	1,039		$	610		$	1,463		$	1,355		$	1,180
Allowance for loan losses to loans, net of deferred fees and costs			1.59	%		1.49	%		1.70	%		2.23	%		2.63	%		2.77	%
Allowance for loan losses to nonaccrual loans and leases			234.3	%		210.1	%		218.6	%		239.9	%		167.9	%		92.9	%
Allowance for loan losses to nonperforming assets			160.1	%		145.4	%		149.6	%		144.7	%		159.8	%		87.8	%
Nonperforming assets to loans and OREO			0.99	%		1.02	%		1.12	%		1.53	%		1.65	%		3.15	%
Annualized net charge offs to average loans			0.29	%		0.28	%		0.38	%		0.37	%		0.49	%		0.65	%
Nonaccrual loans to loans, net of deferred fees and costs			0.68	%		0.71	%		0.78	%		0.93	%		1.57	%		2.98	%

*

Normalized net charge-offs (recoveries) excludes $4,905 of First Professional loans charged-off in a one-time charge associated with the First Professional acquisition in the first quarter of 2001.

        Nonaccrual loans totaled $10.3 million at September 30, 2002, an increase from $6.2 million at June 30, 2002. The increase during the third quarter is mostly a result of loans that were classified as nonaccrual by Upland Bank, Marathon Bancorp and First National Bank at the time of their acquisition which totaled $3.1 million. However, the percentage of nonaccrual loans to loans, net of deferred fees and costs, declined to 0.68% at September 30, 2002 from 0.71% at June 30, 2002. As of September 30, 2002, we had approximately $10.3 million of loans, which were considered impaired, all of which were on nonaccrual status, compared to $4.7 million at December 31, 2001. The allowance for loan losses at September 30, 2002 includes allocated allowances of approximately $2.3 million established for certain impaired loans.

        Nonperforming assets increased to $15.0 million at September 30, 2002 from $9.0 million at June 30, 2002. The third quarter increase is mostly a result of the $4.0 million increase in nonaccrual

24

loans. OREO increased $2.0 million which was the amount acquired through the Upland Bank and First National Bank acquisitions. Nonperforming assets have increased $7.3 million since December 31, 2001 which included a $1.7 million increase in OREO. During the year we foreclosed or acquired through the business combinations $3.4 million of other real estate and sold $1.8 million of other real estate. The ratio of nonperforming assets to gross loans and OREO decreased to 0.99% as of September 30, 2002 from 1.53% at December 31, 2001.

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

        The percentage of allowance for loan losses to loans, net of deferred fees and costs, was 1.59% at September 30, 2002, down from 2.23% at December 31, 2001. The decrease in the percentage during 2002 is due mostly to loans and allowance for loan losses acquired in the 2002 acquisitions.

        We had net charge offs of $1.9 million during the nine months ended September 30, 2002 represented by charge offs of $3.5 million and recoveries of $1.6 million during the period. The allowance for loan losses increased by $12.8 million to $24.0 million at September 30, 2002 and from $11.2 million at December 31, 2001. The amount of allowance acquired through acquisition in 2002 totaled $14.7 million. The ratio of the allowance for loan losses to nonperforming assets stood at 160.1% as of September 30, 2002 compared to 144.7% as of December 31, 2001. Further, the allowance for loan losses as a percentage of nonaccrual loans was 234.3% at September 30, 2002 compared to 239.9% at December 31, 2001. Management believes that the allowance for loan losses at September 30, 2002 is adequate to cover any shortfall that may occur upon disposition of the collateral along with the remaining nonaccrual loans based on our quarterly migration analysis of loan losses, continued adherence to established credit policies and other key credit quality indicators.

        We maintain an allowance for loan losses at an amount which we believe is sufficient to provide adequate protection against losses in the portfolio. Management's periodic evaluation of the adequacy of the allowance is based on such factors as the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that have occurred but are not yet known that may affect the borrower's ability to repay, the estimated value of underlying collateral, and economic conditions. As management utilizes information currently available to evaluate the allowance for loan losses, the allowance for loan losses is subjective and may be adjusted in the future depending on changes in economic conditions or other factors.

        During the time the Company holds collateral, it is subject to credit risks, including risks of borrower defaults, bankruptcies and special hazard losses that are not covered by standard hazard insurance (such as those occurring from earthquakes or floods). Although management has established an allowance for loan losses that it considers adequate, there can be no assurance that the established allowance for loan losses will be sufficient to offset losses on loans in the future.

25

        Regulatory Matters.    The regulatory capital guidelines as well as the actual regulatory capital ratios for First National, Pacific Western, and the Company as of September 30, 2002, are as follows:

	Regulatory Requirements (Greater than or equal to stated percentage)				Actual
	Adequately Capitalized		Well Capitalized		First National		Pacific Western		Company Consolidated
Detailed computations of Tier 1 leverage capital ratio	4.00	%	5.00	%	12.55	%	9.49	%	12.40	%
Tier 1 risk-based capital ratio	4.00	%	6.00	%	8.79	%	9.85	%	10.10	%
Total risk-based capital	8.00	%	10.00	%	10.05	%	11.10	%	11.35	%

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

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

        Historically, the overall liquidity of the Banks is based on the core deposit base of the Banks. The Banks have not relied on large denomination time deposits. To meet short-term liquidity needs, the Company has maintained at the Banks what it believes are adequate balances in Federal funds sold, interest-bearing deposits in financial institutions and investment securities having maturities of five years or less. On a consolidated basis, liquid assets (cash, federal funds sold and investment securities available-for-sale) as a percent of total deposits were 22.6% and 32.7% as of September 30, 2002 and December 31, 2001, respectively.

        Market risk sensitive instruments are generally defined as derivatives and other financial instruments. At December 31, 2001 and September 30, 2002, we had no material derivatives. The Company's financial instruments include loans receivable, Federal funds sold, interest-bearing deposits in financial institutions, FRB and FHLB stock, investment securities, deposits, short-term borrowings, and trust preferred securities. At December 31, 2001, we had approximately $667 million in interest sensitive assets and approximately $706 million in interest sensitive liabilities. At September 30, 2002, our interest sensitive assets totaled approximately $1.8 billion while interest sensitive liabilities totaled approximately $1.5 billion. The increase in interest sensitive assets and interest sensitive liabilities was mostly a result of assets and liabilities acquired during the 2002 merger activity.

        The yield on interest sensitive assets and the cost of interest sensitive liabilities for the three month period ended September 30, 2002 was 6.51% and 1.10%, respectively, compared to 5.93% and 1.50%, respectively, for the three month period ended December 31, 2001. The increase in the yield on interest sensitive assets is primarily a result of a shift in the earning asset mix towards higher yielding loans and out of lower yielding Federal funds sold. The decrease in the cost of interest sensitive liabilities during 2002 is primarily a result of a shift in the composition of interest-bearing deposits from higher costing certificates of deposit to lower costing products, such as money market accounts, in addition to certificate of deposits continuing to mature and reprice in the current lower interest rate environment.

26

        Our interest sensitive assets and interest sensitive liabilities were reported to have estimated fair values of $660.1 million and $708.3 million, respectively, at December 31, 2001. Because of the floating and short-term nature of our interest sensitive assets and liabilities and the use of purchase accounting for the acquisitions completed in 2002, management believes that there has been no material change in the difference between the book value of the interest sensitive assets and liabilities and their estimated fair values.

        Gap analysis.    As part of the interest rate management process we use a gap analysis. A gap analysis provides information about the volume and repricing characteristics and relationship between the amounts of interest sensitive assets and interest bearing liabilities at a particular point in time. An effective interest rate strategy attempts to match the volume of interest sensitive assets and interest bearing liabilities repricing over different time intervals. The main focus of this interest rate management tool is the gap sensitivity identified as the cumulative one year gap.

			September 30, 2002 Amounts Maturing or Repricing In
			3 Months Or Less			Over 3 Months to 12 Months			Over 1 Year to 5 Years			Over 5 Years			Nonrate- Bearing(1)			Total
			(Dollars in thousands)
ASSETS
	Cash and due from banks		$	1,089		$	—		$	—		$	—		$	109,424		$	110,513
	Federal funds sold			8,510			—			—			—			—			8,510
	Investment securities			78,011			25,597			99,018			94,695			—			297,321
	Loans, net of deferred fees and costs			753,824			229,303			362,606			159,316			—			1,505,049
	Other assets			—			—			—			—			239,695			239,695
		Total assets		841,434			254,900			461,624			254,011			349,119			2,161,088
LIABILITIES AND SHAREHOLDERS' EQUITY
	Noninterest-bearing demand deposits			—			—			—			—			624,264			624,264
	Interest-bearing demand, money market and savings			813,663			—			—			—			—			813,663
	Time certificates of deposit			146,056			154,257			31,751			—			—			332,064
	Short term debt			11,402			—			—			—			—			11,402
	Long term debt			30,000			—			—			8,000			—			38,000
	Other liabilities			—			—			—			—			29,336			29,336
	Shareholders' equity			—			—			—			—			312,359			312,359
		Total liabilities and shareholders' equity	$	1,001,121		$	154,257		$	31,751		$	8,000		$	965,959		$	2,161,088
	Period Gap		$	(159,687	)	$	100,643		$	429,873		$	246,011		$	(616,840	)
	Cumulative interest rate-sensitive assets		$	841,434		$	1,096,334		$	1,557,958		$	1,811,969
	Cumulative interest rate-sensitive liabilities		$	1,001,121		$	1,155,378		$	1,187,129		$	1,195,129
	Cumulative Gap		$	(159,687	)	$	(59,044	)	$	370,829		$	616,840
	Cumulative gap as a percent of:
		Total assets		(7.4	)%		(2.7	)%		17.2	%		28.5	%
		Interest earning assets		(8.8	)%		(3.3	)%		20.5	%		34.0	%

(1)

Assets or liabilities which do not have a stated interest rate.

        The foregoing table indicates that we had a negative one year cumulative gap of $59.0 million, or 2.7% of total assets, at September 30, 2002. This indicates that at September 30, 2002, we had $59.0 million more in liabilities that would reprice if there was a change in interest rates over the next year than assets that would reprice. This gap position also suggests that if interest rates were to

27

decrease, our net interest margin would increase. However, in contrast to the gap analysis results, our year-to-date net interest margin has declined while market rates have declined as previously discussed.

        Changes in the mix of earning assets or funding liabilities can either increase or decrease the net interest margin without affecting interest sensitivity. In addition, the interest rate spread between an asset and its funding source can vary significantly while the timing of repricing both the assets and liabilities can remain the same, thus impacting net interest income. In other words, the relationship between product rate repricing and market rate changes is not the same for all products and this characteristic is referred to as basis risk. The majority of our earning assets tend to reprice immediately and to the full extent of the move in market rates, while our deposits tend to reprice more slowly and typically do not absorb the full effect of a market rate movement. Products categorized as non-rate sensitive, such as our significant demand deposit base, act like long term fixed rate funding sources and consequently are not able to move up or down as market interest rates move. Gap analysis does not account for dynamic changes such as increasing prepayment speeds as rates decrease, basis risk, the benefit of non-rate funding sources, interest rate floors on loan products or the behavior of customers in response to changes in interest rates. All of these factors tend to make our actual interest rate risk be more asset sensitive than is indicated by the gap analysis.

        Critical Accounting Policies.    The discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable in the circumstances; however, actual results may differ significantly from these estimates and assumptions which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.

        Our significant accounting policies and practices are described in Note 1 to our consolidated financial statements filed on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference. The accounting policies that involve significant estimates and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities, are considered critical accounting policies. We have identified our policy for allowance for loans losses as a critical accounting policy. Please see the section above entitled "—Allowance for Loan Losses" for a discussion of this policy and of the estimates and assumptions associated with determining such an allowance.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

        Information concerning our exposure to market risk, which we believe has remained relatively unchanged from December 31, 2001, is incorporated by reference from the text under the caption "Qualitative and Quantitative Disclosure About Market Risk" in our report on Form 10-K for the year ended December 31, 2001. In addition, see the section above titled "Liquidity, Interest Rate Sensitivity and Market Risk" in Management's Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 4. Controls and Procedures.

        Within 90 days prior to the filing of this report, under the supervision and with the participation of the Company's management, including Matthew P. Wagner, the Company's Chief Executive Officer (CEO) and Lynn M. Hopkins, the Company's Chief Financial Officer (CFO), an evaluation of the effectiveness of our disclosure controls and procedures was performed. Based on this evaluation, the

28

CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that material information relating to the Company and its consolidated subsidiaries is identified, evaluated and reported on a timely basis in order to comply with our disclosure obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder.

        There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

29

PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

        From time to time, the Company and the Banks are party to claims and legal proceedings arising in the ordinary course of business. Management of the Company evaluates the Company's and/or the Banks' exposure to the cases individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is determinable and the loss is probable.

        Management of the Company and of the Banks believes that there are no material litigation matters at the current time. However, litigation is inherently uncertain and no assurance can be given that any current or future litigation will not result in any loss which might be material to the Company and/or the Banks.

ITEM 2. Changes in Securities

(a)

At a special meeting of shareholders of the Company held on September 6, 2002, the shareholders approved an increase in the authorized number of shares of common stock from 15,000,000 to 30,000,000. First Community's articles of incorporation were amended to provide for this increase in the authorized number of shares.

ITEM 3. Defaults Upon Senior Securities

        None

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

(a)

On September 6, 2002, the Company held a special meeting of shareholders.



(b)

At the special meeting, shareholders voted on (1) the acquisition of First National Bank by the Company by means of a merger of First National Bank with and into Rancho Santa Fe National Bank, a wholly-owned subsidiary of the Company; (2) an amendment the Company's articles of incorporation to increase the number of shares of the Company's common stock authorized for issuance from 15,000,000 to 30,000,000; and (3) an amendment to the Company's Stock Incentive Plan to increase the number of shares subject to the Plan from 1,600,000 to 2,000,000.

        The results of the voting were as follows:

Matter	Votes For	Votes Against	Withheld	Abstentions	Broker Non-Votes
Approval of acquisition of First National Bank	7,737,650	70,411	0	2,715	1,932,544
Amendment to the Company's Articles of Incorporation	9,589,871	152,064	0	1,385	0
Amendment to the Company's 2000 Stock Incentive Stock Plan	9,021,629	714,573	0	7,118	0

30

ITEM 5. Other Information

        On October 14, 2002, Jared M. Wolff joined the Company as Executive Vice President, General Counsel and Secretary. Mr. Wolff is also a director, as well as Executive Vice President, General Counsel and Secretary, of each of the Company's subsidiary banks, First National Bank and Pacific Western National Bank.

ITEM 6. Exhibits and Reports on Form 8-K

A. Exhibits

Exhibit Number	Description
2.1	Agreement and Plan of Merger, dated as of September 19, 2002, by and between First Community Bancorp and Bank of Coronado.
3.1	Articles of Incorporation of First Community Bancorp, as amended on September 6, 2002.
3.2	Bylaws of First Community Bancorp (Exhibit 4.2 to a Form S-3 filed on June 11, 2002 and incorporated herein by this reference).

B. Reports on Form 8-K

        On September 17, 2002, the Company filed a current report on Form 8-K relating to the completion of its acquisition of First National Bank.

31

SIGNATURES

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

	FIRST COMMUNITY BANCORP
	/s/  LYNN M. HOPKINS
	Lynn M. Hopkins Executive Vice President and Chief Financial Officer
Date: November 14, 2002

32

Certifications

        I, Matthew P. Wagner, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of First Community Bancorp;



2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a.

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b.

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and



c.

Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;




5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):



a.

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and




6.

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

By: /s/  MATTHEW P. WAGNER Matthew P. Wagner
President and Chief Executive Officer

33

        I, Lynn M. Hopkins, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of First Community Bancorp;



2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a.

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b.

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and



c.

Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;




5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):



a.

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and




6.

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

By: /s/  LYNN M. HOPKINS Lynn M. Hopkins
Executive Vice President and Chief Financial Officer

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QuickLinks

FORM 10-Q
PART I—FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (unaudited)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
ITEM 4. Controls and Procedures.
PART II—OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders

EX-2.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

dated as of September 19, 2002

by and between

FIRST COMMUNITY BANCORP

and

BANK OF CORONADO

TABLE OF CONTENTS

RECITALS

ARTICLE I

CERTAIN DEFINITIONS

1.01.	Certain Definitions	1
ARTICLE II THE MERGER
2.01.	The Merger	6
2.02.	Effective Date and Effective Time	6
ARTICLE III CONSIDERATION; EXCHANGE PROCEDURES
3.01.	Effect on Capital Stock	7
3.02.	Rights as Shareholders; Stock Transfers	7
3.03.	Exchange Procedures	7
3.04.	Company Stock Options	8
3.05.	Anti-Dilution Provisions	8
3.06.	Dissenters' Rights	9
ARTICLE IV ACTIONS PENDING ACQUISITION
4.01.	Forbearances of the Company	9
4.02.	Forbearances of Parent	11
ARTICLE V REPRESENTATIONS AND WARRANTIES
5.01.	Disclosure Schedules	12
5.02.	Standard	12
5.03.	Representations and Warranties of the Company	12
5.04.	Representations and Warranties of Parent	20
ARTICLE VI COVENANTS
6.01.	Reasonable Best Efforts	23
6.02.	Shareholder Approval	23
6.03.	Proxy Statement	23
6.04.	Press Releases	23
6.05.	Access; Information	23
6.06.	Acquisition Proposals	24
6.07.	Certain Policies	25
6.08.	Regulatory Applications	25
6.09.	Indemnification	26
6.10.	Benefit Plans	27
6.11.	Non-Competition Agreements; Non-Solicitation Agreements	27
6.12.	Notification of Certain Matters	27
6.13.	Covenant Relating to the Tax Status of the Agreement	27
6.14.	Human Resources Issues	27

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6.15.	Assistance with Third-Party Agreements	28
6.16.	Shareholder Agreements	28
6.17.	Additional Agreements	28
6.18.	Pre-Closing Adjustments
6.19.	Company Stock Options	29
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER
7.01.	Conditions to Each Party's Obligation to Effect the Merger	29
7.02.	Conditions to Obligation of the Company	30
7.03.	Conditions to Obligation of Parent and Merger Subsidiary	30
ARTICLE VIII TERMINATION
8.01.	Termination	32
8.02.	Effect of Termination and Abandonment	33
ARTICLE IX MISCELLANEOUS
9.01.	Survival	35
9.02.	Waiver; Amendment	35
9.03.	Counterparts	35
9.04.	Governing Law, Jurisdiction and Venue	35
9.05.	Expenses	35
9.06.	Notices	35
9.07.	Entire Understanding; No Third Party Beneficiaries	36
9.08.	Effect	36
9.09.	Severability	36
9.10.	Enforcement of the Agreement	37
9.11.	Interpretation	37

EXHIBIT A	Form of Shareholder Agreement
EXHIBIT B	Form of Non-Competition Agreement
EXHIBIT C	Form of Non-Solicitation Agreement

Disclosure Schedules

ii

AGREEMENT AND PLAN OF MERGER, dated as of September 19, 2002 (this "Agreement"), by and between Bank of Coronado, a California state-chartered bank (the "Company") and First Community Bancorp, a California corporation ("Parent").

RECITALS

        A.    The Company.    The Company is a California state-chartered bank having its principal place of business in Coronado, California.

        B.    Parent.    Parent is a California corporation, having its principal place of business in Rancho Santa Fe, California.

        C.    Merger Subsidiary.    Upon execution of this Agreement, Parent shall form, or shall cause one of its wholly owned subsidiaries to form, a merger subsidiary ("Merger Subsidiary"), all of the outstanding capital stock of which shall be owned by Parent or Parent's wholly owned subsidiary, as the case may be.

        D.    Intentions of the Parties.    It is the intention of the parties to this Agreement that the business combination contemplated hereby be treated as a purchase of all of the stock of the Company by Parent for U.S. federal income tax purposes and that for such purposes the transitory existence of Merger Subsidiary be ignored.

        E.    Board Action.    The respective Boards of Directors of Parent and the Company have determined that it is in the best interests of their respective companies and their shareholders to consummate the strategic business combination transaction provided for herein.

        F.    Shareholder Agreements.    As a condition to, and simultaneously with, the execution of this Agreement, each Shareholder (as defined herein) is entering into an agreement, in the form of Exhibit A hereto (collectively, the "Shareholder Agreements"), pursuant to which each Shareholder has agreed, among other things, to vote its shares in favor of the principal terms of the Merger.

        G.    Non-Competition Agreements.    As a condition to, and simultaneously with, the execution of this Agreement, each director of the Company other than William McLaurin is entering into a non-competition agreement with Parent, in the form of Exhibit B hereto (collectively, the "Non-Competition Agreements").

        H.    Non-Solicitation Agreements.    As a condition to, and simultaneously with, the execution of this Agreement, each of William McLaurin and Mary Hays is entering into a non-solicitation agreement with Parent, in the form of Exhibit C hereto (collectively, the "Non-Solicitation Agreements").

NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations, warranties and agreements contained herein the parties agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

        1.01.    Certain Definitions.    The following terms are used in this Agreement with the meanings set forth below:

        "Acquisition Proposal" has the meaning set forth in Section 6.06.

        "Adjusted Shareholders' Equity" has the meaning set forth in Section 7.03(e).

        "Advisors" has the meaning set forth in Section 7.03(k).

        "Agreement" means this Agreement, as amended or modified from time to time in accordance with Section 9.02.

1

        "Agreement of Merger" has the meaning set forth in Section 2.01(b).

        "ALL" has the meaning set forth in Section 5.03(t).

        "Bank Insurance Fund" means the Bank Insurance Fund maintained by the FDIC.

        "Bank Secrecy Act" means the Currency and Foreign Transaction Reporting Act (31 U.S.C. Section 5311 et seq.), as amended.

        "Benefit Plans" has the meaning set forth in Section 5.03(m).

        "Business Day" means Monday through Friday of each week, except a legal holiday recognized as such by the U.S. Government or any day on which banking institutions in the State of California are authorized or obligated to close.

        "California Secretary" means the California Secretary of State.

        "Certificate" has the meaning set forth in Section 3.01(a).

        "CGCL" means the California General Corporation Law.

        "Closing" has the meaning set forth in Section 6.18.

        "Closing Financial Statements" has the meaning set forth in Section 7.03(h).

        "Code" means the Internal Revenue Code of 1986, as amended.

        "Commissioner" means the California Commissioner of Financial Institutions.

        "Community Reinvestment Act" means the Community Reinvestment Act of 1977, as amended.

        "Company" has the meaning set forth in the preamble to this Agreement.

        "Company Articles" means the Articles of Incorporation of the Company, as amended.

        "Company Board" means the Board of Directors of the Company.

        "Company Bylaws" means the Bylaws of the Company.

        "Company Common Stock" means the common stock, no par value per share, of the Company.

        "Company Loan Property" has the meaning set forth in Section 5.03(o).

        "Company Meeting" has the meaning set forth in Section 6.02.

        "Company Stock Option Plans" means Bank of Coronado 1996 Nonqualified Stock Option Plan (Directors) and Bank of Coronado 1996 Incentive Stock Option and Nonqualified Stock Option Plan (Employees).

        "Company Stock Options" means the options to acquire Company Common Stock issued under the Company's Stock Option Plans.

        "Costs" has the meaning set forth in Section 6.09(a).

        "Department of Financial Institutions" means the California Department of Financial Institutions.

        "Derivatives Contract" has the meaning set forth in Section 5.03(q).

        "Disclosure Schedule" has the meaning set forth in Section 5.01.

        "Dissenters' Shares" has the meaning set forth in Section 3.01(d).

        "Dissenting Shareholder" means any holder of Dissenters' Shares.

        "Effective Date" has the meaning set forth in Section 2.02.

2

        "Effective Time" has the meaning set forth in Section 2.02.

        "Employees" has the meaning set forth in Section 5.03(m).

        "Environmental Laws" has the meaning set forth in Section 5.03(o).

        "Equal Credit Opportunity Act" means the Equal Credit Opportunity Act (15 U.S.C. Section 1691 et seq.), as amended.

        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

        "ERISA Affiliate" has the meaning set forth in Section 5.03(m).

        "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

        "Exchange Fund" has the meaning set forth in Section 3.03(a).

        "Fair Housing Act" means the Fair Housing Act (420 U.S.C. Section 3601 et seq.), as amended.

        "FDIC" means the Federal Deposit Insurance Corporation.

        "Federal Reserve Act" means the Federal Reserve Act, as amended.

        "Federal Reserve Board" means the Board of Governors of the Federal Reserve System.

        "GAAP" means generally accepted accounting principles.

        "Governmental Authority" means any court, administrative agency or commission or other federal, state or local governmental authority or instrumentality.

        "Hazardous Substance" has the meaning set forth in Section 5.03(o).

        "Home Mortgage Disclosure Act" means the Home Mortgage Disclosure Act (12 U.S.C. Section 2801 et seq.), as amended.

        "Indemnified Party" has the meaning set forth in Section 6.09(a).

        "Insurance Amount" has the meaning set forth in Section 6.09(b).

        "Insurance Policies" has the meaning set forth in Section 5.03(s).

        "Knowledge" of the Company or Parent, as the case may be, means to the actual knowledge after reasonable investigation of any director or any officer with the title of Vice President or above of the Company or Parent, as the case may be, or of any employee of Company or Parent, as the case may be, with primary responsibility for the subject matter as to which Knowledge is at issue.

        "Lien" means any charge, mortgage, pledge, security interest, restriction, claim, lien or encumbrance or any other encumbrance or exception to title of any kind.

        "Material Adverse Effect" means, with respect to Parent or the Company, any effect, circumstance, occurrence or change that (i) is material and adverse to the financial position, results of operations, business or prospects of Parent and its Subsidiaries taken as a whole or the Company, as the case may be, or (ii) would materially impair the ability of either Parent or the Company to perform its obligations under this Agreement or otherwise materially threaten or materially impede the consummation of the Merger and the other transactions contemplated by this Agreement; provided, however, that a Material Adverse Effect shall not be deemed to include the impact of (a) changes in banking and similar laws of general applicability or interpretations thereof by Governmental Authorities, (b) changes in GAAP or regulatory accounting requirements applicable to banks and their holding companies generally, (c) changes in general economic conditions affecting banks and their holding companies generally and (d) changes agreed to in writing by Parent and the Company.

3

        "Merger" has the meaning set forth in Section 2.01(a).

        "Merger Consideration" has the meaning set forth in Section 2.01(a).

        "Merger Subsidiary" has the meaning set forth in the recitals to this Agreement.

        "Merger Subsidiary Common Stock" means the common stock, par value per share to be determined, of Merger Subsidiary.

        "Nasdaq" means The Nasdaq Stock Market, Inc.'s National Market System.

        "National Bank Act" means the National Bank Act, as amended.

        "National Labor Relations Act" means the National Labor Relations Act, as amended.

        "Non-Competition Agreements" has the meaning set forth in the recitals to this Agreement.

        "Non-Solicitation Agreements" has the meaning set forth in the recitals to this Agreement.

        "OCC" means the Office of the Comptroller of the Currency.

        "Offer Price" has the meaning set forth in Section 3.01(a).

        "Parent" has the meaning set forth in the preamble to this Agreement.

        "Parent Board" means the Board of Directors of Parent.

        "Parent Common Stock" means the common stock, no par value per share, of Parent.

        "Parent Preferred Stock" means the preferred stock, no par value per share, of Parent.

        "Parent Stock" means, collectively, Parent Common Stock and Parent Preferred Stock.

        "Parent Subsidiaries" means First National Bank and Pacific Western National Bank.

        "Paying Agent" has the meaning set forth in Section 3.03(a).

        "Pension Plan" has the meaning set forth in Section 5.03(m).

        "Person" means any individual, bank, corporation, partnership, association, joint-stock company, business trust, limited liability company or unincorporated organization.

        "Proxy Statement" has the meaning set forth in Section 6.03(a).

        "Regulatory Authorities" has the meaning set forth in Section 5.03(i).

"Regulatory Filings" has the meaning set forth in Section 5.03(g).

        "Rights" means, with respect to any Person, the stock options, stock appreciation rights, warrants and any other securities or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, or any options, calls or commitments relating to, or other instrument the value of which is determined in whole or in part by reference to the market price or value of, the capital stock of such Person.

        "SEC" means the United States Securities and Exchange Commission.

        "SEC Documents" has the meaning set forth in Section 5.04(g).

        "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

        "Shareholder" means each of Philip R. Akre, Ronald L. Beaubien, Mary Kay Forsyth, John R. Lewis, William R. McLaurin and Lester B. Snyder.

        "Shareholder Agreements" has the meaning set forth in the recitals to this Agreement.

4

        "Shareholders' Equity Measuring Date" has the meaning set forth in Section 7.03(e).

        "Subsidiary" and "Significant Subsidiary" have the meanings ascribed to those terms in Rule 1-02 of Regulation S-X of the SEC.

        "Superior Proposal" has the meaning set forth in Section 6.06.

        "Surviving Bank" has the meaning set forth in Section 2.01(a).

        "Tax" and "Taxes" mean all federal, state, local or foreign taxes, charges, fees, levies or other assessments, however denominated, including, without limitation, all net income, gross income, gains, gross receipts, sales, use, ad valorem, goods and services, capital, production, transfer, franchise, windfall profits, license, withholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property, environmental, unemployment or other taxes, custom duties, fees, assessments, levies or charges of any kind whatsoever, together with any interest, additions or penalties thereto and any interest in respect of such interest and penalties.

        "Tax Returns" means any return, amended return or other report (including elections, declarations, forms, disclosures, schedules, estimates and information returns) required to be filed with any taxing authority having jurisdiction over the Company on or before the Effective Date with respect to any Taxes including, without limitation, any documentation required to be filed with any taxing authority or to be retained by the Company in respect of information reporting requirements imposed by the Code or any similar foreign, state or local law.

        "Termination Fee" has the meaning set forth in Section 8.02(b).

        "Treasury Shares" has the meaning set forth in Section 3.01(e).

        "USA Patriot Act" means the USA Patriot Act (Pub. L. No. 107-56).

5

ARTICLE II

THE MERGER

        2.01.    The Merger.    (a)    The Combination.    At the Effective Time, Merger Subsidiary shall merge with and into the Company (the "Merger"), the separate corporate existence of Merger Subsidiary shall cease and the Company shall survive and continue to exist as a California state-chartered bank (the Company, as the surviving entity in the Merger, sometimes being referred to herein as the "Surviving Bank"). Immediately after the Merger, the Surviving Bank will be combined with and into one of the Parent Subsidiaries. Parent may, at any time prior to the Effective Time (including, to the extent permitted by applicable law, after the Company's shareholders have approved this Agreement), change the method of effecting the combination of Merger Subsidiary with the Company (including, without limitation, the provisions of this Article II and including, without limitation, by electing not to merge Merger Subsidiary with and into the Company, but rather merge any of the Parent Subsidiaries with and into the Company if and to the extent it deems such change to be necessary, appropriate or desirable); provided, however, that no such change shall (i) alter or change the amount or kind of consideration to be issued to holders of Company Common Stock as provided for in this Agreement (the "Merger Consideration"),(ii) adversely affect the tax treatment of the Company's shareholders as a result of receiving the Merger Consideration, (iii) impede or delay consummation of the transactions contemplated by this Agreement or (iv) otherwise be materially prejudicial to the interests of the shareholders of the Company.

        (b)    Filings.    Subject to the satisfaction or waiver of the conditions set forth in Article VII, the Merger shall become effective upon the Effective Date (as defined below). An agreement of merger (the "Agreement of Merger"), in a form acceptable to the Commissioner and the California Secretary, shall be filed with the Commissioner. After the Commissioner's approval of the agreement and the endorsement of such approval thereon, the Agreement of Merger shall be filed with the California Secretary, and certified by the California Secretary, and as certified, filed with the Commissioner pending the occurrence of the Effective Date.

        (c)    Articles of Incorporation and Bylaws.    The articles of incorporation and Bylaws of the Surviving Bank immediately after the Effective Time shall be those of the Company as in effect immediately prior to the Effective Time.

        (d)    Directors and Officers of the Surviving Bank.    The directors and officers of the Surviving Bank immediately after the Effective Time shall be the directors and officers of Merger Subsidiary immediately prior to the Effective Time, until such time as their successors shall be duly elected and qualified.

        (e)    Effect of the Merger.    At the Effective Time, the effect of the Merger shall be as provided in § 1107 of the CGCL, including any regulations or rules promulgated thereunder. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Merger Subsidiary shall vest in the Surviving Bank, and all debts, liabilities, obligations, restrictions, disabilities and duties of the Merger Subsidiary shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Bank.

        2.02.    Effective Date and Effective Time.    Subject to the satisfaction or waiver of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the consummation of the Merger, but subject to the fulfillment or waiver of those conditions), the parties shall cause the filings contemplated by Section 2.01 to be made (i) no later than the third Business Day after such satisfaction or waiver or (ii) on such other date to which the parties may agree in writing. The Merger provided for herein shall become effective upon such filing or filings or on such date as may be specified therein in accordance with California Department of Financial Institution regulations.

6

The date of such filing or such later effective date of such filing is herein called the "Effective Date". The "Effective Time" of the Merger shall be the time of such filing or as set forth in such filing if other than the time of filing.

ARTICLE III

CONSIDERATION; EXCHANGE PROCEDURES

        3.01.    Effect on Capital Stock.    Subject to the provisions of this Article III, at the Effective Time of the Merger, as a result of the Merger and without any action on the part of the holders of shares of Company Common Stock:

        (a)    Outstanding Company Common Stock.    Each share of Company Common Stock, excluding Treasury Shares and Dissenters' Shares, as defined below, issued and outstanding immediately prior to the Effective Time, shall become and be converted into the right to receive from the Surviving Bank $14.15 in cash, without interest (the "Offer Price"). At the Effective Time all such shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented any such shares (a "Certificate") shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration.

        (b)    Outstanding Merger Subsidiary Stock.    Each share of Merger Subsidiary Stock issued and outstanding immediately prior to the Effective Time shall become and be converted into one duly and validly issued, fully paid and nonassessable share of the Surviving Bank.

        (c)    Outstanding Parent Stock.    Each share of Parent Stock issued and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of Parent Stock and shall not be affected by the Merger.

        (d)    Dissenter's Shares.    All shares of Company Common Stock that are "dissenting shares" within the meaning of Chapter 13 of the CGCL ("Dissenters' Shares") shall not be converted into or represent a right to receive cash hereunder unless and until such shares have lost their status as dissenting shares under Chapter 13 of the CGCL, at which time such shares shall be converted into cash.

        (e)    Cancellation of Certain Shares.    Any shares of Company Common Stock held directly or indirectly by Parent (or any of its Subsidiaries) or by the Company, other than those held in a fiduciary capacity or as a result of debts previously contracted ("Treasury Shares"), shall be cancelled and retired at the Effective Time of the Merger and no consideration shall be issued in exchange therefor.

        3.02.    Rights as Shareholders; Stock Transfers.    At the Effective Time, holders of Company Common Stock shall cease to be, and shall have no rights as, shareholders of the Company other than to receive the consideration provided under this Article III. After the Effective Time, there shall be no transfers on the stock transfer books of the Company or the Surviving Bank of the shares of Company Common Stock that were outstanding immediately prior to the Effective Time.

        3.03.    Exchange Procedures.    (a)    Paying Agent.    At or prior to the Effective Time, Parent shall deposit, or shall cause to be deposited, with Computershare Investor Services (the "Paying Agent"), for the benefit of the holders of Certificates, for exchange in accordance with this Article III, funds in amounts (the "Exchange Fund") for the payment of the Merger Consideration pursuant to Section 3.01(a) upon surrender of Certificates, it being understood that any and all interest or income earned on funds made available to the Paying Agent pursuant to this Agreement shall be turned over to Parent.

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        (b)    Exchange of Certificates for Cash.    fm]After the Effective Date, Parent shall send or cause to be sent, as promptly as practicable and in no event later than five Business Days after the Effective Date, to each former holder of record of shares of Company Common Stock immediately prior to the Effective Time transmittal materials for use in exchanging such shareholder's Certificates for the consideration set forth in this Article III. Upon delivery to the Paying Agent of Certificates representing such shares of Company Common Stock (or indemnity reasonably satisfactory to Parent and the Paying Agent, if any of such certificates are lost, stolen or destroyed) owned by such shareholder, Parent shall cause the amount of cash into which the shares formerly represented by such Certificates shall have been converted pursuant to this Article III, which such Person shall be entitled to receive, to be delivered to such shareholder and the Certificates so delivered shall forthwith be cancelled. The Paying Agent shall process materials received and issue the Merger Consideration within three Business Days of the receipt of such materials. In the event of a transfer of ownership of Company Common Stock that is not registered in the stock transfer books of the Company, the proper amount of cash may be paid in exchange therefor to a Person other than the Person in whose name the Certificate so delivered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such tax has been paid or is not applicable. No interest will be paid on any such cash which any such Person shall be entitled to receive pursuant to this Article III upon such delivery.

        (c)    No Liability.    fm]Notwithstanding the foregoing, neither the Paying Agent nor any party hereto shall be liable to any former holder of Company Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

        (d)    Unclaimed Funds.    fm]Any portion of the Exchange Fund that remains unclaimed by the shareholders of the Company for six months after the Effective Time shall be paid to Parent. Any shareholders of the Company who have not theretofore complied with this Article III shall thereafter look only to Parent for payment of the cash deliverable in respect of each share of Company Common Stock such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon.

        (e)    Withholding Rights.    fm]Parent or the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as Parent or the Paying Agent is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Parent or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Parent or the Paying Agent.

        3.04.    Company Stock Options.    Each Company Stock Option, whether vested or unvested immediately prior to the Effective Time, shall be cancelled at the Effective Time and only entitle the holder thereof, as soon as reasonably practicable but in no event later than fifteen Business Days after the Effective Time, to receive cash in an amount, without interest, equal to (i)(a) the number of shares of Company Common Stock subject to the Company Stock Option multiplied by (b) the Offer Price less (ii) the aggregate exercise price of all shares subject to the option and (iii) less any applicable taxes withheld.

        3.05.    Anti-Dilution Provisions.    In the event the Company changes (or establishes a record date for changing) the number of shares of Company Common Stock issued and outstanding prior to the Effective Date as a result of a stock split, stock dividend, recapitalization or similar transaction with

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respect to the outstanding Company Common Stock and the record date therefor shall be prior to the Effective Date, the Offer Price shall be proportionately adjusted.

        3.06.    Dissenters' Rights.    Any Dissenting Shareholder who shall be entitled to be paid the value of such shareholder's shares of Company Common Stock as provided in § 1300 of the CGCL shall not be entitled to Merger Consideration in respect thereof provided for under Section 3.01 unless and until such Dissenting Shareholder shall have failed to perfect or shall have effectively withdrawn or lost such Dissenting Shareholder's right to dissent from the Merger under the CGCL, and shall be entitled to receive only the payment provided for by § 1300 of the CGCL with respect to such Dissenters' Shares. If any Dissenting Shareholder shall fail to perfect or shall have effectively withdrawn or lost such right to dissent, each share of Company Common Stock held by such Dissenting Shareholder shall be converted into the right to receive the Merger Consideration.

ARTICLE IV

ACTIONS PENDING ACQUISITION

        4.01.    Forbearances of the Company. From the date hereof until the Effective Time, except as expressly contemplated by this Agreement, without the prior written consent of Parent, the Company will not:

        (a)    Ordinary Course.    Conduct the business of the Company other than in the ordinary and usual course or fail to use its reasonable best efforts to preserve intact its business organizations and assets and maintain its rights, franchises and existing goodwill and relations with customers, suppliers, employees and business associates, take any action that would adversely affect or delay the ability of the Company, Parent, Merger Subsidiary or any Subsidiaries of Parent to perform any of their obligations on a timely basis under this Agreement, or take any action that would be reasonably likely to have a Material Adverse Effect on the Company.

        (b)    Capital Stock.    Other than pursuant to the Rights set forth in Schedule 4.01(b) of the Disclosure Schedule and outstanding on the date hereof, (i) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional shares of stock or any Rights, (ii) enter into any agreement with respect to (i) above or (iii) permit any additional shares of stock to become subject to grants of employee or director stock options, other Rights or similar stock-based employee rights.

        (c)    Dividends; Etc.    (i) Make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on any shares of stock or (ii) directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock.

        (d)    Compensation; Employment Agreements; Etc.    Enter into, renew, make any new grants of awards under or amend or otherwise modify any employment, consulting, severance or similar agreements or arrangements with any director, officer or employee of the Company or grant any salary or wage increase or increase any employee benefit (including incentive or bonus payments), except (i) for normal individual increases in compensation to employees in the ordinary course of business consistent with past practice, provided that no such increase shall result in an annual adjustment of more than 5%, (ii) for other changes that are required by applicable law, (iii) to satisfy contractual obligations existing as of the date hereof and set forth in Schedule 4.01(d) of the Disclosure Schedule, (iv) for grants of awards to newly hired employees consistent with past practice or (v) actions required under the terms of this Agreement.

        (e)    Hiring.    Hire any person as an employee of the Company or promote any employee, except (i) to satisfy contractual obligations existing as of the date hereof and set forth in Schedule 4.01(e) of the Disclosure Schedule and (ii) persons hired to fill any vacancies arising

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after the date hereof and whose employment is terminable at the will of the Company, other than any person to be hired who would have a base salary, including any guaranteed bonus or any similar bonus, considered on an annual basis of more than $50,000.

        (f)    Benefit Plans.    Enter into, establish, adopt or amend (except (i) as may be required by applicable law or (ii) to satisfy contractual obligations existing as of the date hereof and set forth in Schedule 4.01(f) of the Disclosure Schedule) any pension, retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement (or similar arrangement) related thereto, in respect of any current or former director, officer or employee of the Company or take any action to accelerate the vesting or exercisability of stock options, restricted stock or other compensation or benefits payable thereunder.

        (g)    Dispositions.    Sell, transfer, mortgage, pledge, encumber or otherwise dispose of or discontinue any of its assets, deposits, business or properties except in the ordinary course of business and in a transaction that, together with all other such transactions, is not material to the Company.

        (h)    Acquisitions.    Acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary and usual course of business consistent with past practice) all or any portion of the assets, business, deposits or properties of any other entity except in the ordinary course of business consistent with past practice and in a transaction that, together with all other such transactions, is not material to the Company.

        (i)    Capital Expenditures.    Make any capital expenditures other than capital expenditures in the ordinary course of business consistent with past practice in amounts not exceeding $10,000 individually or $50,000 in the aggregate.

        (j)    Governing Documents.    Amend the Company Articles or Company Bylaws.

        (k)    Accounting Methods.    Implement or adopt any change in the Company's accounting principles, practices or methods, other than as may be required by GAAP or this Agreement.

        (l)    Contracts.    Enter into, renew or terminate, or make any payment not then required under, any contract or agreement that calls for aggregate annual payments of $25,000 or more and which is not terminable at will or with 60 days or less notice without payment of a premium or penalty, other than loans and other transactions made in the ordinary course of the banking business.

        (m)    Claims.    Enter into any settlement or similar agreement with respect to, or take any other significant action with respect to the conduct of, any action, suit, proceeding, order or investigation to which the Company is or becomes a party after the date of this Agreement, which settlement, agreement or action involves payment by the Company of an amount, individually or for all such settlements, that exceeds $50,000 and/or would impose any material restriction on the business of Company or the Surviving Bank or create precedent for claims that are reasonably likely to be material to the Company.

        (n)    Adverse Actions.    Knowingly take any action that is intended or is reasonably likely to result in (i) any of the Company's representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (ii) any of the conditions to the Merger set forth in Article VII not being satisfied or (iii) a material violation of any provision of this Agreement, except as may be required by applicable law or regulation.

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        (o)    Risk Management.    Except as required by applicable law or regulation or the Federal Reserve Board, the OCC, the FDIC or the Department of Financial Institutions, (i) implement or adopt any material change in its interest rate and other risk management policies, procedures or practices, (ii) fail to follow the Company's existing policies or practices with respect to managing its exposure to interest rate and other risk or (iii) fail to use commercially reasonable means to avoid any material increase in the Company's aggregate exposure to interest rate risk.

        (p)    Indebtedness.    Incur any indebtedness for borrowed money (other than deposits, Federal Funds borrowings and borrowings from the Federal Home Loan Bank of San Francisco) or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person.

        (q)    Loans.    Make any loan, loan commitment or renewal or extension thereof to any Person which would, when aggregated with all outstanding loans, commitments for loans or renewals or extensions thereof made to such Person and any affiliate or immediate family member of such Person, exceed $200,000 without submitting complete loan package information to the chief credit officer of Parent for review with a right of comment at least two full Business Days prior to taking such action.

        (r)    Investments.    (i) Other than in the ordinary course of business consistent with past practice in individual amounts not to exceed $100,000 or in securities transactions as provided in (ii) below, make any investment either by contributions to capital, property transfers or purchase of any property or assets of any Person or (ii) other than purchases of direct obligations of the United States of America or obligations of U.S. government agencies which are entitled to the full faith and credit of the United States of America, in any case with a remaining maturity at the time of purchase of five years or less, purchase or acquire securities of any type; provided, however, that in the case of investment securities, the Company may purchase investment securities if, within five Business Days after the Company requests in writing (which request shall describe in detail the investment securities to be purchased and the price thereof) that Parent consent to making of any such purchase, Parent has approved such request in writing or has not responded in writing to such request.

        (s)    Taxes.    Settle any material audit, make or change any material tax election, file any amended Tax Return, take any action which would have a Material Adverse Effect on the tax position of the Company or its successor after the Merger or take any other action with respect to Taxes that is outside the ordinary course of business or inconsistent with past practice.

        (t)    Commitments.    Agree or commit to do any of the foregoing.

        4.02.    Forbearances of Parent.    From the date hereof until the Effective Time, except as expressly contemplated by this Agreement, without the prior written consent of the Company, Parent will not, and will cause Merger Subsidiary and each of Parent's Subsidiaries not to:

        (a)    Ordinary Course.    Take any action reasonably likely to have an adverse effect on Parent's ability to perform any of its material obligations under this Agreement.

        (b)    Adverse Actions.    Knowingly take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (ii) any of the conditions to the Merger set forth in Article VII not being satisfied or (iii) a material violation of any provision of this Agreement, except as may be required by applicable law or regulation.

        (c)    Commitments.    Agree or commit to do any of the foregoing.

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ARTICLE V

REPRESENTATIONS AND WARRANTIES

        5.01.    Disclosure Schedules.    At least three Business Days prior to the date hereof, the Company shall have delivered to Parent a schedule (the "Disclosure Schedule") setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in Section 5.03 or to one or more of its covenants contained in Article IV.

        5.02.    Standard.    No representation or warranty of the Company or Parent contained in Sections 5.03 or 5.04, respectively, shall be deemed untrue or incorrect, and no party hereto shall be deemed to have breached a representation or warranty, as a consequence of the existence of any fact, event or circumstance unless (a) such fact, circumstance or event, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty contained in Section 5.03 or 5.04(a) through (h), has had or is reasonably likely to have a Material Adverse Effect on the party making such representation or warranty or (b) such fact, circumstance or event, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty contained in Section 5.04(i) and (j), has had or is reasonably likely to have a Material Adverse Effect on Parent only with respect to clause (ii) of the definition of "Material Adverse Effect".

        5.03.    Representations and Warranties of the Company.    Subject to Sections 5.01 and 5.02 and except as set forth in the corresponding sections or subsections of the Disclosure Schedule, the Company hereby represents and warrants to Parent and to Merger Subsidiary:

        (a)    Organization, Standing and Authority.    The Company is a California state-chartered bank and is duly licensed by the Commissioner as a commercial bank, is a member of the Federal Reserve System and its deposits are insured by the FDIC through the Bank Insurance Fund in the manner and to the fullest extent provided by law. The Company is duly qualified to do business and is in good standing in the State of California. The Company is not required to be qualified in any other jurisdictions.

        (b)    Company Capital Stock.    As of the date hereof, the authorized capital stock of the Company consists solely of 20,000,000 shares of Company Common Stock, of which 806,255 shares are issued and outstanding. No more than 61,000 shares of Company Common Stock are issuable upon the exercise of Company Stock Options or other Rights. As of the date hereof, no shares of the Company Common Stock are held in treasury by the Company or otherwise owned directly or indirectly by the Company. The outstanding shares of Company Common Stock have been duly authorized and are validly issued and outstanding, and are not subject to preemptive rights (and were not issued in violation of any preemptive rights). Section 5.03(b) of the Disclosure Schedule sets forth for each Company Stock Option and each other Right, as applicable, the name of the grantee or holder, the date of the grant, the expiration date of such Right, the type of grant, the status of the option grant as qualified or non-qualified under Section 422 of the Code if such Right is a Company Stock Option, the number of shares of Company Common Stock subject to such Right, the number and type of shares subject to such Rights that are currently exercisable and the exercise price per share. Except as set forth in the preceding sentence, as of the date hereof, there are no shares of Company Common Stock authorized and reserved for issuance, the Company does not have any other Rights issued or outstanding with respect to Company Common Stock, and the Company does not have any commitment to authorize, issue or sell any Company Common Stock or Rights, except pursuant to this Agreement.

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        (c)    Subsidiaries.    (i) The Company has no subsidiaries.

        (ii)  The Company does not own beneficially, directly or indirectly, any equity securities or similar interests of any Person or any interests of any Person or any interest in a partnership or joint venture of any kind.

        (d)    Corporate Power.    The Company has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets; and the Company has the corporate power and authority and has taken all corporate action necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.

        (e)    Corporate Authority.    As of the date hereof, with respect to each of clauses (i), (ii) and (iii) below, the Company's Board, by resolutions duly adopted by unanimous vote at a meeting duly called and held, has duly (i) determined that this Agreement and the Merger are advisable and fair to and in the best interests of the Company and its shareholders, (ii) approved this Agreement and the Merger and (iii) resolved that such matter be submitted for consideration by its shareholders at a meeting of such shareholders and that such matter be recommended for approval at such meeting. The Company has duly executed and delivered this Agreement, and this Agreement is a valid and legally binding obligation of the Company, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors' rights or by general equity principles). The Company Board has received the written opinion of Hoefer & Arnett to the effect that as of the date hereof the Offer Price is fair to the holders of Company Common Stock from a financial point of view.

        (f)    Regulatory Approvals; No Violations.    (i) No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by the Company in connection with the execution, delivery or performance by the Company of this Agreement or to consummate the Merger except for (A) filings of applications or notices with, and approvals or waivers by, the Federal Reserve Board, the FDIC, the OCC, the California Secretary, the Commissioner and any other Regulatory Authority, as may be required, (B) filings with the SEC and state securities authorities, if any, (C) the approval of the principal terms of the Merger contemplated by this Agreement by the holders of a majority of the outstanding shares of the Company Common Stock, (D) the filing of the Agreement of Merger with the California Secretary pursuant to the CGCL and (E) the consents set forth in Schedule 5.03(k) of the Disclosure Schedule. As of the date hereof, the Company is not aware of any reason why the approvals set forth in this Section 5.03(f) and in Section 7.01(b) will not be received without the imposition of a condition, restriction or requirement of the type described in Section 7.01(b).

        (ii)  Subject to receipt of the approvals referred to in the preceding paragraph, and the expiration of related waiting periods, and required filings under federal and state securities laws, the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby and thereby do not and will not (A) constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of the Company or to which the Company or any of its respective properties is subject or bound, (B) constitute a breach or violation of, or a default under, the Company Articles or Bylaws (or similar governing documents) of the Company or (C) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license, agreement, indenture or instrument.

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        (g)    Financial Reports; Undisclosed Liabilities.    (i) The balance sheet of the Company as of December 31, 2001 and December 31, 2000, and the related statements of income, cash flow and changes in financial position of the Company for the three years then ended, audited by Vavrinek, Trine, Day & Co., LLP, fairly present the financial position of the Company as of such dates and the results of the operations of the Company for the periods then ended, in accordance with GAAP consistently applied. The call report of the Company as of December 31, 2001 and for the twelve months then ended, fairly present, subject to recurring year-end audit adjustments normal in nature and amount, the financial position of the Company as of such date and the results of the operations of the Company for the period then ended in accordance with GAAP consistently applied. The books and records of the Company have been, and are being, maintained in accordance with GAAP, or to the extent inconsistent with GAAP, the laws, rules and regulations of the applicable Regulatory Agency which compel the maintenance of such books and records, and any other applicable legal and accounting requirements.

        (ii)  The Company has timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 2000 with (A) the FDIC and the Commissioner and (B) any other Regulatory Authority (collectively, the "Regulatory Filings"), and all other material report and statements required to be filed by it since December 31, 2000, including, without limitation, any report or statement required to be filed pursuant to the laws of the United States or the State of California and the rules and regulations of the FDIC, the Commissioner, or any other Regulatory Authority, and has paid all fees and assessments due and payable in connection therewith. As of their respective dates, such reports, registrations and statements complied in all material respects with all the laws, rules and regulations of the applicable Regulatory Agency with which they were filed.

        (iii)  Since December 31, 2001, the Company has not incurred any liability other than in the ordinary course of business consistent with past practice (excluding the incurrence of expenses related to negotiations with potential acquiring parties and expenses related to this Agreement and the transactions contemplated hereby).

        (iv)  Since December 31, 2001, except as set forth in Schedule 4.01(a) to the Disclosure Schedule, (A) the Company has conducted its business in the ordinary and usual course consistent with past practice (excluding the incurrence of expenses related to this Agreement and the transactions contemplated hereby) and (B) no event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances and events (described in any paragraph of this Section 5.03 or otherwise), has had or could be reasonably likely to have a Material Adverse Effect with respect to the Company.

        (v)  The Company has no securities that are registered under the Securities Exchange Act of 1934.

        (h)    Litigation.    Except as set forth on Section 5.03(h) of the Disclosure Schedule, no litigation, claim, action, suit, hearing, investigation or other proceeding before any Governmental Authority is pending against the Company and, to the Company's Knowledge, no such litigation, claim, action, suit, hearing, investigation or other proceeding has been threatened and there are no facts which could reasonably give rise to such litigation, claim or other proceeding.

        (i)    Regulatory Matters.    (i) Neither the Company nor any of its properties is, directly or indirectly, a party to or subject to any order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter from, any federal or state Governmental Authority charged with the supervision or regulation of financial institutions or issuers of securities or engaged in the insurance of deposits (including, without limitation, the Commissioner, the OCC, the Federal Reserve Board

14

and the FDIC) or the supervision or regulation of it (collectively, the "Regulatory Authorities"). The Company has paid all assessments made or imposed by any Regulatory Authority.

        (ii)  The Company has not been advised by, and does not have any Knowledge of facts which could give rise to an advisory notice by, any Regulatory Authority that such Regulatory Authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum of understanding, commitment letter, supervisory letter or similar submission.

        (j)    Compliance With Laws.    The Company:

        (i)    is in compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including, without limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act, Title III of the USA Patriot Act and all other applicable bank secrecy laws, fair lending laws and other laws relating to discriminatory business practices;

        (ii)  has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit it to own or lease its properties and to conduct its businesses as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the Company's Knowledge, no suspension or cancellation of any of them is threatened; and

        (iii)  has received, since December 31, 2000, no notification or communication from any Governmental Authority (A) asserting that the Company is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces or (B) threatening to revoke any license, franchise, permit or governmental authorization (nor, to the Company's Knowledge, do any grounds for any of the foregoing exist).

        (k)    Material Contracts; Defaults.    Except as set forth in Schedule 5.03(k) of the Disclosure Schedule, the Company is not a party to, bound by or subject to any agreement, contract, arrangement, commitment or understanding (whether written or oral) (i) that is a "material contract" within the meaning of Item 601(b)(10) of the SEC's Regulation S-K or (ii) that materially restricts the conduct of business by the Company. The Company is not in default under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its assets, business, or operations may be bound or affected, or under which it or its assets, business, or operations receives benefits, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default. No power of attorney or similar authorization given directly or indirectly by the Company is currently outstanding. Schedule 5.03(k) of the Disclosure Schedule sets forth a true and complete list of all third party consents or waivers required to be obtained so as not to be in default under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which the Company is a party as a result of the transaction contemplated hereby.

        (l)    No Brokers.    No action has been taken by the Company that would give rise to any valid claim against any party hereto for a brokerage commission, finder's fee or other like payment with respect to the transactions contemplated by this Agreement, except as set forth in Schedule 5.03(l) to the Disclosure Schedule.

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        (m)    Employee Benefit Plans.

        (i)    All benefit and compensation plans, contracts, policies or arrangements covering current or former employees of the Company (the "Employees") and current or former directors of the Company including, but not limited to, "employee benefit plans" within the meaning of Section 3(3) of ERISA, and deferred compensation, stock option, stock purchase, stock appreciation rights and stock based, incentive and bonus plans (the "Benefit Plans"), are set forth in Schedule 5.03(m) of the Disclosure Schedule. True and complete copies of all Benefit Plans including, but not limited to, any trust instruments and insurance contracts forming a part of any Benefit Plans and all amendments thereto have been provided or made available to Parent.

        (ii)  All Benefit Plans, to the extent subject to ERISA, are in substantial compliance with ERISA. Each Benefit Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified under Section 401(a) of the Code, has received a favorable determination letter from the Internal Revenue Service, and the Company is not aware of any circumstances likely to result in revocation of any such favorable determination letter or the loss of the qualification of such Pension Plan under Section 401(a) of the Code. There is no material pending or threatened litigation relating to the Benefit Plans. The Company has not engaged in a transaction with respect to any Benefit Plan or Pension Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject the Company to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which would be material.

        (iii)  No liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by the Company with respect to any ongoing, frozen or terminated "single-employer plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by the Company, or single-employer plan of any entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate"). The Company has not incurred, and does not expect to incur, any withdrawal liability with respect to a multiemployer plan under Subtitle E of Title IV of ERISA (regardless of whether based on contributions of an ERISA Affiliate). Neither the Company nor any ERISA Affiliate maintains or contributes to or has within the past six years maintained or contributed to a Pension Plan that is subject to Subtitles C or D of Title IV of ERISA.

        (iv)  All contributions required to be made under the terms of any Benefit Plan have been timely made. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has an "accumulated funding deficiency" (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an outstanding funding waiver. The Company has not provided, nor is it required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.

        (v)  Under each Pension Plan which is a single-employer plan, as of the last day of the most recent plan year ended prior to the date hereof, the actuarially determined present value of all "benefit liabilities," within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions contained in the Pension Plan's most recent actuarial valuation), did not exceed the then current value of the assets of such Pension Plan, and there has been no material change in the financial condition of such Plan since the last day of the most recent plan year.

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        (vi)  The Company does not have any obligations for retiree health and life benefits under any Benefit Plan. The Company may amend or terminate any such Benefit Plan at any time without incurring any liability thereunder.

        (vii) Except as set forth in Schedule 5.03(m) to the Disclosure Schedule, none of the execution of this Agreement, shareholder approval of this Agreement or consummation of the transactions contemplated by this Agreement will (A) entitle any employees of the Company to severance pay or any increase in severance pay upon any termination of employment after the date hereof, (B) accelerate the time of payment or vesting or trigger any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any of the Benefit Plans, (C) result in any breach or violation of, or a default under, any of the Benefit Plans or (D) result in any payment that would be a "parachute payment" to a "disqualified individual" as those terms are defined in Section 280G of the Code, without regard to whether such payment is reasonable compensation for personal services performed or to be performed in the future. Notwithstanding anything set forth in Schedule 5.03(m) of the Disclosure Schedule, no payment made hereunder by the Company or agreed to be made by Parent on behalf of the Company or pursuant to this transaction shall constitute a "parachute payment" as described in Section 280G of the Code.

        (n)    Labor Matters.    The Company is not a party to and is not bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is the Company the subject of a proceeding asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel the Company to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other labor dispute involving it pending or, to the Company's knowledge, threatened, nor is the Company aware of any activity involving its employees seeking to certify a collective bargaining unit or engaging in other organizational activity.

        (o)    Environmental Matters.    (i) The Company has complied at all times with applicable Environmental Laws; (ii) except as set forth in Section 5.03(o)(ii) of the Disclosure Schedule, no real property (including buildings or other structures) currently or formerly owned or operated by the Company, or any property in which the Company has held a security interest, Lien or a fiduciary or management role ("Company Loan Property"), has been contaminated with, or has had any release of, any Hazardous Substance; (iii) the Company could not be deemed the owner or operator of any Company Loan Property under any Environmental Law which such Company Loan Property has been contaminated with, or has had any release of, any Hazardous Substance; (iv) the Company is not subject to liability for any Hazardous Substance disposal or contamination on any third party property; (v) the Company has not received any notice, demand letter, claim or request for information alleging any violation of, or liability under, any Environmental Law; (vi) the Company is not subject to any order, decree, injunction or other agreement with any Governmental Authority or any third party relating to any Environmental Law; (vii) there are no circumstances or conditions (including the presence of asbestos, underground storage tanks, lead products, polychlorinated biphenyls, prior manufacturing operations, dry-cleaning, or automotive services) involving the Company, any currently or formerly owned or operated property, or any Company Loan Property, that could reasonably be expected to result in any claims, liability or investigations against the Company, result in any restrictions on the ownership, use, or transfer of any property pursuant to any Environmental Law, or adversely affect the value of any Company Loan Property and (viii) the Company has delivered to Parent copies of all environmental reports, studies, sampling data, correspondence, filings and other environmental information in its

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possession or reasonably available to it relating to the Company, and any currently or formerly owned or operated property or any Company Loan Property.

        As used herein, the term "Environmental Laws" means any federal, state or local law, regulation, order, decree, permit, authorization, opinion, common law or agency requirement relating to: (A) the protection or restoration of the environment, health, safety, or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance or (C) noise, odor, wetlands, indoor air, pollution, contamination or any injury or threat of injury to persons or property in connection with any Hazardous Substance and the term "Hazardous Substance" means any substance in any concentration that is: (A) listed, classified or regulated pursuant to any Environmental Law, (B) any petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon or (C) any other substance which is or has in the past been the subject of regulatory action by any Governmental Authority in connection with any Environmental Law.

        (p)    Tax Matters.    (i) (A) The Company (I) has prepared in good faith and duly and timely filed (taking into account any extension of time within which to file) all Tax Returns required to have been filed by it and all such filed Tax Returns are true, complete and accurate; (II) has paid in full or accrued all Taxes that are required to have been paid or accrued and has withheld from amounts owing to any employee, creditor or third party all amounts that the Company is obligated to have withheld; (III) in the case of any Tax Return required to be retained by the Company prior to the Effective Date in respect of any information reporting or other tax requirements, has retained properly completed Tax Returns in the Company's files; and (IV) has complied with all information reporting (and related withholding) requirements related to payments to, and transaction completed for, customers, (B) except as set forth in Schedule 5.03(p) to the Disclosure Schedule, the Tax Returns referred to in clause (i)(A) have been examined by the Internal Revenue Service or the appropriate taxing authority or the period for assessment of the Taxes in respect of which such Tax Returns were required to be filed has expired, (C) except as set forth in Schedule 5.03(p) to the Disclosure Schedule, all deficiencies asserted or assessments made as a result of such examinations have been paid in full or otherwise finally resolved, (D) except as set forth in Schedule 5.03(p) of the Disclosure Schedule, no issues that have been raised by the relevant taxing authority in connection with the examination of any of the Tax Returns referred to in clause (i)(A) are currently pending, (E) except as set forth in Schedule 5.03(p) of the Disclosure Schedule, the Company has not waived any statute of limitations with respect to Taxes that has continuing effect or agreed to any extension of time with respect to a Tax assessment or deficiency that has continuing effect, (F) except as set forth in Schedule 5.03(p) of the Disclosure Schedule, to the Company's Knowledge and as of the date hereof, there are not pending or threatened in writing, any audits, examinations, investigations or other proceedings in respect of Taxes or tax matters, and (G) as of the date hereof, the Company has made available to Parent true and correct copies of all material income, franchise, capital and similar Tax Returns filed by the Company for all taxable years or periods for which the relevant statute of limitations has not expired.

        (ii)  There are no Liens on any of the Company's assets that arose in connection with any failure (or alleged failure) to pay any Tax.

        (iii)  Except as set forth in Schedule 5.03(p) of the Disclosure Schedule, the Company will not be required, as a result of (A) a change in accounting method for a Tax period beginning on or before the Effective Time to include any adjustment under Section 481(c) of the Code (or any similar provision of state, local or foreign law) in taxable income for any Tax period beginning on or after the Effective Time, or (B) any "closing agreement" as described in Section 7121 of the Code (or any similar provision of state, local or foreign Tax law), to

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include any item of income in or exclude any item of deduction from any Tax period beginning on or after the Effective Time.

        (iv)  The Company or any predecessor to the Company has not made with respect to the Company or any predecessor of the Company any consent under Section 341 of the Code.

        (v)  The Company does not have any liability with respect to income, franchise or similar Taxes that accrued on or before the end of the most recent period covered by the Regulatory Filings filed prior to the date hereof in excess of the amounts accrued with respect thereto that are reflected in the financial statements included in the Regulatory Filings filed on or prior to the date hereof.

        (vi)  Except as set forth in Schedule 5.03(p) to the Disclosure Schedule, the Company is not a party to any Tax allocation or sharing agreement, is not and has never been a member of an affiliated consolidated, unitary or combined Tax group filing consolidated or combined Tax Returns or otherwise has any liability for the Taxes of any Person (other than the Company). The Company does not have any liability for Taxes as a result of being a member of a consolidated group with its former holding company, Crown Bancorp, for the 1983 through 1993 tax years.

        (vii) No closing agreements, private letter rulings, technical advice memoranda or similar agreement or rulings have been entered into or issued by any taxing authority with respect to the Company.

        (viii)(A) No Tax is required to be withheld pursuant to Section 1445 of the Code as a result of the transaction contemplated by this Agreement, and (B) all Taxes that the Company is or was required by law to withhold or collect have been duly withheld or collected and, to the extent required by applicable law, have been paid to the proper Governmental Authority or other Person.

        (q)    Risk Management Instruments.    The Company is not a party nor has it agreed to enter into an exchange traded or over-the-counter equity, interest rate, foreign exchange or other swap, forward, future, option, cap, floor or collar or any other contract that is a derivatives contract (including various combinations thereof) (each, a "Derivatives Contract") and does not own any securities that (i) are referred to generically as "structured notes," "high risk mortgage derivatives," "capped floating rate notes" or "capped floating rate mortgage derivatives" or (ii) could have changes in value as a result of interest or exchange rate changes that significantly exceed normal changes in value attributable to interest or exchange rate changes.

        (r)    Books and Records.    The books and records of the Company have been fully, properly and accurately maintained in all material respects, there are no material inaccuracies or discrepancies of any kind contained or reflected therein, and they fairly present the financial position of the Company.

        (s)    Insurance.    Schedule 5.03(s) to the Disclosure Schedule sets forth a true and complete list of all of the insurance policies, binders, or bonds maintained by the Company ("Insurance Policies"). The Company is insured with reputable insurers against such risks and in such amounts as the management of the Company reasonably has determined to be prudent in accordance with industry practices. All the Insurance Policies are in full force and effect; the Company is not in material default thereunder; and all claims thereunder have been filed in due and timely fashion.

        (t)    Allowance For Loan Losses.    The Company's allowance for loan losses ("ALL") is, and shall be as of the Effective Date, in compliance with the Company's existing methodology for determining the adequacy of its ALL as well as the standards established by applicable

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Governmental Authorities and the Financial Accounting Standards Board and is and shall be adequate under all such standards.

        (u)    Transactions With Affiliates.    The Company has no transactions with Affiliates within the meaning of Sections 23A and 23B of the Federal Reserve Act.

        (v)    Real Property.

        (i)    The Company does not own any real property or premises on the date hereof in whole or in part. Schedule 5.03(v) to the Disclosure Schedule contains a complete and correct list of all real property or premises leased or subleased in whole or in part by the Company and together with a list of all applicable leases or subleases and the name of the lessor or sublessor. None of such premises or properties have been condemned or otherwise taken by any public authority and no condemnation or taking is threatened or contemplated and none thereof is subject to any claim, contract or law which might affect its use or value for the purposes now made of it. None of the premises or properties of the Company is subject to any current or potential interests of third parties or other restrictions or limitations that would impair or be inconsistent in any material respect with the current use of such property by the Company.

        (ii)  Each of the leases referred to in the Disclosure Schedule is valid and existing and in full force and effect, and no party thereto is in default and no notice of a claim of default by any party has been delivered to the Company or is now pending, and there does not exist any event that with notice or the passing of time, or both, would constitute a default or excuse performance by any party thereto, provided that with respect to matters relating to any party other than the Company the foregoing representation is based on the Knowledge of the Company.

        (w)    Title.    The Company has good title to its properties and assets (other than (i) property as to which it is lessee and (ii) real estate owned as a result of foreclosure, transfer in lieu of foreclosure or other transfer in satisfaction of a debtor's obligation previously contracted) except (1) statutory liens not yet delinquent which are being contested in good faith by appropriate proceedings, and liens for taxes not yet due, (2) pledges of assets in the ordinary course of business to secure public deposits, (3) for those assets and properties disposed of for fair value in the ordinary course of business since the date of the Company's call report dated as of and for the year ended December 31, 2001 and (4) defects and irregularities of title and encumbrances that do not materially impair the use thereof for the purposes for which they are held.

        5.04.    Representations and Warranties of Parent.    Subject to Section 5.02, Parent hereby represents and warrants to the Company as follows:

        (a)    Organization, Standing and Authority.    Parent is duly organized, validly existing and in good standing under the laws of the State of California. Parent is duly qualified to do business and is in good standing in the states of the United States and foreign jurisdictions where its ownership or leasing of property or assets or the conduct of its business requires it to be so qualified. Parent has in effect all federal, state, local, and foreign governmental authorizations necessary for it to own or lease its properties and assets and to carry on its business as it is now conducted.

        (b)    Parent Stock.    As of the date hereof, the authorized capital stock of Parent consists solely of 30,000,000 shares of Parent Common Stock, of which no more than 15,213,008 shares are outstanding as of the date hereof, and 5,000,000 shares of Parent Preferred Stock, of which no shares are outstanding as of the date hereof.

        (c)    Subsidiaries.    Each of the Parent Subsidiaries has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization, and is duly qualified

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to do business and in good standing in the jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and it owns, directly or indirectly, all the issued and outstanding equity securities of each of the Parent Subsidiaries. Each of the Parent Subsidiaries is duly licensed by the OCC, and each of their deposits are insured by the Bank Insurance Fund in the manner and to the fullest extent provided by law.

        (d)    Corporate Power.    Parent and each of the Parent Subsidiaries has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets; Parent has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby; and Parent has the corporate power and authority to execute, deliver and perform its obligations to consummate the transactions contemplated thereby.

        (e)    Corporate Authority.    This Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of Parent and the Parent Board. This Agreement has been duly executed and delivered by Parent and this Agreement is a valid and legally binding agreement of Parent enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors' rights or by general equity principles).

        (f)    Regulatory Approvals; No Violations.

        (i)    No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by Parent or any of its Subsidiaries in connection with the execution, delivery or performance by Parent of this Agreement or to consummate the Merger except for (A) filings of applications or notices with and approvals or waivers by the Federal Reserve Board, the FDIC, the OCC, the California Secretary and the Commissioner, as may be required, (B) filings with the SEC and state securities authorities, if any, and (C) the filing of the Agreement of Merger with the California Secretary pursuant to the CGCL. As of the date hereof, Parent is not aware of any reason why the approvals set forth in Section 7.01(b) will not be received in a timely manner and without the imposition of a condition, restriction or requirement of the type described in Section 7.01(b).

        (ii)  Subject to receipt, or the making, of the consents, approvals and filings referred to in the preceding paragraph and expiration of the related waiting periods, the execution, delivery and performance of this Agreement by Parent and the consummation of the transactions contemplated hereby do not and will not (A) constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or Agreement, indenture or instrument of Parent or of any of its Subsidiaries or to which Parent or any of its Subsidiaries or properties is subject or bound, (B) constitute a breach or violation of, or a default under, the articles of incorporation or bylaws (or similar governing documents) of Parent or any of its Subsidiaries or (C) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license, agreement, indenture or instrument.

        (g)    Financial Reports and SEC Documents; Material Adverse Effect.

        (i)    Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and all other reports, registration statements, definitive proxy statements or information statements filed or to be filed by it subsequent to December 31, 2001 under the Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act in the form filed or to be

21

filed (collectively, Parent's "SEC Documents") with the SEC, as of the date filed or to be filed, (A) complied or will comply in all material respects as to form with the applicable requirements under the Securities Act or the Exchange Act, as the case may be, and (B) did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each of the balance sheets contained in or incorporated by reference into any such SEC Document (including the related notes and schedules thereto) fairly presents, or will fairly present, the financial position of Parent and its Subsidiaries as of its date, and each of the statements of income and changes in shareholders' equity and cash flows or equivalent statements in such SEC Documents (including any related notes and schedules thereto) fairly presents, or will fairly present, the results of operations, changes in shareholders' equity and changes in cash flows, as the case may be, of Parent and its Subsidiaries for the periods to which they relate, in each case in accordance with GAAP consistently applied during the periods involved, except in each case as may be noted therein.

        (ii)  Since December 31, 2001, Parent and the Parent Subsidiaries have conducted their respective businesses in the ordinary and usual course consistent with past practice (excluding the incurrence of expenses related to this Agreement and the transactions contemplated hereby) and no event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances and events (described in any paragraph of this Section 5.04 or otherwise), is reasonably likely to have a Material Adverse Effect with respect to Parent or its Subsidiaries.

        (h)    No Brokers.    Except for a fee paid to Castle Creek Capital LLC, no action has been taken by Parent or its Subsidiaries that would give rise to any valid claim against any party hereto for a brokerage commission, finder's fee or other like payment with respect to the transactions contemplated by this Agreement.

        (i)    Litigation.    No litigation, claim or other proceeding before any court or Governmental Authority is pending against Parent or any of its Parent Subsidiaries and, to Parent's Knowledge, no such litigation, claim or other proceeding has been threatened and there are no facts which could reasonably give rise to such litigation, claim or other proceeding.

        (j)    Regulatory Matters.

        (i)    Neither Parent nor any of Parent's property is, directly or indirectly, party to or is subject to any order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter from, any Regulatory Authority. Parent has paid all assessments made or imposed by any Regulatory Authority.

        (ii)  Parent has not been advised by, and does not have any Knowledge of facts which could give rise to an advisory notice by, any Regulatory Authority that such Regulatory Authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum of understanding, commitment letter, supervisory letter or similar submission.

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ARTICLE VI

COVENANTS

        6.01.    Reasonable Best Efforts.    Subject to the terms and conditions of this Agreement, each of the Company and Parent agrees to use its reasonable best efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable laws, so as to permit consummation of the Merger as promptly as practicable and otherwise to enable consummation of the transactions contemplated hereby, including the satisfaction of the conditions set forth in Article VII hereof, and shall cooperate fully with the other party hereto to that end.

        6.02.    Shareholder Approval.    The Company agrees to take, in accordance with applicable law and the Company Articles and Company Bylaws, all action necessary to convene as soon as practicable a meeting of its shareholders to consider and vote upon the approval of this Agreement and the Merger and any other matters required to be approved by the Company's shareholders for consummation of the Merger (including any adjournment or postponement, the "Company Meeting"), within 45 calendar days after delivery of the Proxy Statement as defined in Section 6.03. Except with the prior approval of Parent, no other matters shall be submitted for the approval of the Company shareholders. The Company Board shall at all times prior to and during such meeting recommend such approval and shall take all reasonable lawful action to solicit such approval by its shareholders; provided that nothing in this Agreement shall prevent the Company Board from withholding, withdrawing, amending or modifying its recommendation if the Company Board determines, after consultation with its outside counsel, that such action is legally required in order for the directors to comply with their fiduciary duties to the Company shareholders under applicable law; provided, further, that Section 6.06 shall govern the withholding, withdrawing, amending or modifying of such recommendation in the circumstances described therein.

        6.03.    Proxy Statement.    (a) After the Merger Agreement is executed, the Company shall as soon as practicable mail at its expense a proxy statement (the "Proxy Statement") to its shareholders.

        (b)  The Company agrees that the Proxy Statement and any amendment or supplement thereto shall, at the date of mailing to shareholders and at the time of the Company Meeting not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Each of the Company and Parent agrees that if such party shall become aware prior to the Effective Date of any information furnished by such party that would cause any of the statements in the Proxy Statement to be false or misleading with respect to any material fact, or to omit to state any material fact necessary to make the statements therein not false or misleading, to promptly inform the other parties thereof and to take the necessary steps to correct the Proxy Statement.

        6.04.    Press Releases.    The Company and Parent shall consult with each other before issuing any press release with respect to the Merger or this Agreement and shall not issue any such press release or make any such public statements without the prior consent of the other party, which consent shall not be unreasonably withheld; provided, however, that a party may, without the prior consent of the other party (but after such consultation, to the extent practicable in the circumstances), issue such press release or make such public statements as may upon the advice of outside counsel be required by law or the rules or regulations of Nasdaq. The Company and Parent shall cooperate to develop all public announcement materials and make appropriate management available at presentations related to the transactions contemplated by this Agreement as reasonably requested by the other party.

        6.05.    Access; Information.    (a) The Company agrees that upon reasonable notice and subject to applicable laws relating to the exchange of information, it shall afford Parent and Parent's officers, employees, counsel, accountants and other authorized representatives such access during normal

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business hours throughout the period prior to the Effective Time to the books, records (including, without limitation, Tax Returns and work papers of independent auditors), properties and personnel and to such other information as Parent may reasonably request and, during such period, it shall furnish promptly to Parent all information concerning its business, properties and personnel as Parent may reasonably request.

        (b)  Without limiting the generality of Section 6.05(a), prior to the Effective Time, Parent and Parent's representatives shall have the right to conduct a review to determine (i) that the assets, books, records and operations of the Company are in satisfactory condition and will not in a material way adversely impact Parent after consummation of the transactions contemplated hereby and (ii) the accuracy of the representations and warranties and the satisfaction of the conditions to closing as provided hereunder.

        (c)  The Company agrees that, subject to applicable laws, it shall cooperate in good faith with Parent on mutually agreed operating issues which the parties agree have priority.

        (d)  Parent agrees that, upon reasonable notice and subject to applicable laws relating to the exchange of information, it shall afford the Company and its authorized representatives such access to Parent's personnel as the Company may reasonably request.

        (e)  Each party agrees that it will not, and will cause its representatives not to, use any information obtained pursuant to this Section 6.05 (as well as any other information obtained prior to the date hereof in connection with the entering into of this Agreement) for any purpose unrelated to the consummation of the transactions contemplated by this Agreement. Subject to the requirements of law, each party shall keep confidential, and shall cause its representatives to keep confidential, all information and documents obtained pursuant to this Section 6.05 (as well as any other information obtained prior to the date hereof in connection with the entering into of this Agreement) unless such information (i) was already known to such party, (ii) becomes available to such party from other sources not known by such party to be bound by a confidentiality obligation, (iii) is disclosed with the prior written approval of the party to which such information pertains or (iv) is or becomes readily ascertainable from publicly available sources. In the event that this Agreement is terminated or the transactions contemplated by this Agreement shall otherwise fail to be consummated (i) each party shall promptly cause all copies of documents or extracts thereof containing information and data as to another party hereto to be returned to the party which furnished the same and (ii) for one year after such termination, neither the Company on the one hand, nor Parent or Merger Subsidiary on the other, shall solicit the services of any employee of such other party for purposes of engaging them as an employee, agent, consultant or independent contractor of such soliciting party, provided, however, that no party will be barred from retaining the services, in any capacity, of any current employee of the other party in the event such employee approaches such party with the intent of securing employment with such party. Notwithstanding the foregoing, nothing herein shall prevent the parties hereto from any general advertising or recruitment activities not directed specifically at the employees of the other party hereto. No investigation by any party of the business and affairs of any other party shall affect or be deemed to modify or waive any representation, warranty, covenant or agreement in this Agreement, or the conditions to any party's obligation to consummate the transactions contemplated by this Agreement.

        6.06.    Acquisition Proposals.    The Company agrees that its officers or directors shall not, and that it shall direct and use its best efforts to cause its employees, agents and representatives not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries or the making of any proposal or offer with respect to a merger, reorganization, share exchange, consolidation or similar transaction involving, or any purchase of all or substantially all of the assets of the Company or more than 10% of the outstanding equity securities, of the Company (any such proposal or offer being

24

hereinafter referred to as an "Acquisition Proposal"). The Company further agrees that neither the Company nor any of its officers and directors shall, and that it shall direct and use its reasonable best efforts to cause its employees, agents and representatives not to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any Person relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; provided, however, that nothing contained in this Agreement shall prevent the Company or the Company Board from (A) complying with its disclosure obligations under federal or state law; (B) discussing the transactions contemplated by this Agreement; (C) providing information in response to a request therefor by a Person who has made an unsolicited bona fide written Acquisition Proposal if the Company Board receives from the Person so requesting such information an executed confidentiality agreement; (D) engaging in any negotiations or discussions with any Person who has made an unsolicited bona fide written Acquisition Proposal; or (E) recommending such an Acquisition Proposal to the shareholders of the Company, if and only to the extent that, (i) in each such case referred to in clause (C), (D) or (E) above, the Company Board determines in good faith (after consultation with outside legal counsel) that such action is, in the absence of the foregoing proscriptions, legally required in order for its directors to comply with their respective fiduciary duties under applicable law and (ii) in the case referred to in clause (D) above, the Company Board determines in good faith (after consultation with its financial advisor) that such Acquisition Proposal, if accepted, is reasonably likely to be consummated, taking into account all legal, financial and regulatory aspects of the proposal and the Person making the proposal and would, if consummated, result in a transaction more favorable to the Company's shareholders from a financial point of view than the Merger (any such more favorable Acquisition Proposal being referred to in this Agreement as a "Superior Proposal"). The Company agrees that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Acquisition Proposals. The Company agrees that it will notify Parent immediately if any such inquiries, proposals or offers are received by, any such information is requested from, or any such discussions or negotiations are sought to be initiated or continued with, any of its representatives.

        6.07.    Certain Policies.    Prior to the Effective Date, the Company shall, consistent with GAAP, the rules and regulations of the OCC and applicable banking laws and regulations (which shall govern in the event of any inconsistency with the rules and regulations of the OCC), modify or change its loan, OREO, accrual, reserve, tax, litigation and real estate valuation policies and practices (including loan classifications and levels of reserves) so as to be applied on a basis that is consistent with that of Parent; provided, however, that unless the modification or changes would otherwise be necessary to be consistent with applicable law, rule or regulation or with regulatory accounting principles and GAAP, no such modification or change shall constitute or be deemed to be a breach, violation of or failure to satisfy any representation, warranty, covenant, agreement, condition or other provision of this Agreement or otherwise be considered in determining whether any such breach, violation or failure to satisfy shall have occurred. The recording of any such adjustments shall not by itself be deemed to imply any misstatement of previously furnished financial statements or information.

        6.08.    Regulatory Applications.    (a) Each of Parent, its Subsidiaries and the Company shall cooperate and use their respective reasonable best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations of all third parties and Governmental Authorities necessary to consummate the transactions contemplated by this Agreement (including the consolidation of any Company branches with Merger Subsidiary branches or branches of any other Subsidiary of Parent or the closure of any Company branches, in each case as Parent in its sole discretion shall deem necessary); and any initial filings with Governmental Authorities shall be made by Parent as soon as reasonably practicable after the execution hereof but, provided that the Company has cooperated as described above, in no event later than 60 days after the date hereof. Each of Parent and the Company shall have the right to review in advance, and to the extent practicable each shall consult with the other, in each case subject to applicable laws relating to the exchange of

25

information, with respect to all material written information submitted to any third party or any Governmental Authority in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of such parties agrees to act reasonably and as promptly as practicable. Each party hereto agrees that it shall consult with the other parties hereto with respect to the obtaining of all material permits, consents, approvals and authorizations of all third parties and Governmental Authorities necessary or advisable to consummate the transactions contemplated by this Agreement and each party shall keep the other parties apprised of the status of material matters relating to completion of the transactions contemplated hereby.

        (b)  Each party agrees, upon request, to furnish the other parties with all information concerning itself, its Subsidiaries (in the case of Parent), directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with any filing, notice or application made by or on behalf of such other parties to any third party or Governmental Authority.

        6.09.    Indemnification.    (a) Following the Effective Time, Parent shall indemnify, defend and hold harmless each present and former director and officer of the Company (each, an "Indemnified Party") against all costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement or any related agreement, but excluding any Costs arising out of any violation or alleged violation of the Exchange Act or the rules and regulations thereunder with respect to insider trading) to the fullest extent that the Company is permitted to indemnify (and advance expenses to) its directors or officers under the CGCL, the Company Articles and the Company Bylaws as in effect on the date hereof; provided that any determination required to be made with respect to whether an officer's or director's conduct complies with the standards set forth under the CGCL, the Company Articles and the Company Bylaws shall be made by independent counsel selected by Parent and reasonably acceptable to the Indemnified Party.

        (b)  For a period of three years from the Effective Time, Parent shall use its commercially reasonable efforts to provide that portion of director's and officer's liability insurance that serves to reimburse the present and former officers and directors (determined as of the Effective Time) of the Company (as opposed to the portion that serves to reimburse the Company) with respect to claims against such directors and officers arising from facts or events which occurred before the Effective Time, which insurance shall contain at least the same coverage and amounts, and contain terms and conditions no less advantageous, as that coverage currently provided by the Company; provided, however, that in no event shall Parent be required to expend on an annual basis more than $72,000 (the "Insurance Amount") to maintain or procure such directors and officers insurance coverage; provided, further, that if Parent is unable to maintain or obtain the insurance called for by this Section 6.09(b), Parent shall use its commercially reasonable efforts to obtain as much comparable insurance as is available for the Insurance Amount; provided, further, that officers and directors of the Company may be required to make application and provide customary representations and warranties to Parent's insurance carrier for the purpose of obtaining such insurance.

        (c)  Any Indemnified Party wishing to claim indemnification under Section 6.09(a), upon learning of any claim, action, suit, proceeding or investigation described above, shall promptly notify Parent thereof; provided that the failure so to notify shall not affect the obligations of Parent under Section 6.09(a) unless and to the extent that Parent is actually prejudiced as a result of such failure.

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        (d)  If Parent or any of its successors or assigns shall consolidate with or merge into any other entity and shall not be the continuing or surviving entity of such consolidation or merger or shall transfer all or substantially all of its assets to any other entity, then and in each case, proper provision shall be made so that the successors and assigns of Parent shall assume the obligations set forth in this Section 6.09.

        6.10.    Benefit Plans.    (a) From and after the Effective Time, Parent shall provide former employees of the Company who remain as employees of Parent or any of its Subsidiaries with employee benefit plans, including severance policies, no less favorable in the aggregate than those provided to similarly situated employees of Parent or its Subsidiaries, as the case may be. Parent shall cause each employee benefit plan, program, policy or arrangement of Parent in which employees of the Company are eligible to participate to take into account for purposes of eligibility and vesting thereunder the service of such employees with the Company to the same extent as such service was credited for such purpose by the Company. Nothing herein shall limit the ability of Parent to amend or terminate any of the Benefit Plans in accordance with their terms at any time.

        (b)  If employees of the Company become eligible to participate in a medical, dental or health plan of Parent, Parent shall cause, to the extent practicable, each such plan to (i) waive any preexisting condition limitations to the extent such conditions were covered under the applicable medical, health or dental plans of the Company, (ii) honor under such plans any deductible, co-payment and out-of-pocket expenses incurred by the employees and their beneficiaries during the portion of the calendar year prior to such participation and (iii) waive any waiting period limitation or evidence of insurability requirement which would otherwise be applicable to such employee on or after the Effective Time to the extent such employee had satisfied any similar limitation or requirement under an analogous plan prior to the Effective Time.

        6.11.    Non-Competition Agreements; Non-Solicitation Agreements.    Each director of the Company other than William McLaurin shall, simultaneously with the execution and delivery hereof, execute and deliver to Parent a non-competition agreement substantially in the form of Exhibit B hereto. Each of William McLaurin and Mary Hays shall, simultaneously with the execution and delivery hereof, execute and deliver to Parent a non-solicitation agreement substantially in the form of Exhibit C hereto.

        6.12.    Notification of Certain Matters.    Each of the Company and Parent shall give prompt notice to the other of any fact, event or circumstance known to it that (i) is reasonably likely, individually or taken together with all other facts, events and circumstances known to it, to result in any Material Adverse Effect with respect to it or (ii) would cause or constitute a material breach of any of its representations, warranties, covenants or agreements contained herein.

        6.13.    Covenant Relating to the Tax Status of the Agreement.    Parent and the Company intend the Agreement to qualify as a stock purchase for all U.S. federal income tax purposes. Each party will (and Parent will cause each of its Subsidiaries to) both before and after the Effective Time (i) use reasonable efforts to cause the Agreement to so qualify; (ii) refrain from taking any action (including making any election under Section 338 of the Code) that would reasonably be expected to cause the Agreement to fail to so qualify; and (iii) take the position for all purposes that the Agreement so qualifies.

        6.14.    Human Resources Issues.    The Company will consult in good faith with Parent regarding the nature and content of any formal presentation of the transactions contemplated by this Agreement to employees of the Company and will include a Parent representative in any such presentation or any formal meeting at which the transaction is explained or discussed, under an arrangement that is mutually satisfactory to the parties. The Company agrees to work in good faith with Parent to facilitate the timely and accurate dissemination of information to employees regarding matters related to the transactions contemplated by this Agreement in such a manner as to cause minimal disruption of the

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business of the Company and its relationships with its employees and to facilitate the transition of such relationships to Parent or its Subsidiaries, as the case may be.

        6.15.    Assistance with Third-Party Agreements.    (a) The Company shall cooperate with and use all commercially reasonable efforts to assist Parent in (i) gaining access to and obtaining any required consents from all of its third-party vendors, landlords of all of the Company's leased properties and other parties to material agreements, promptly after the date of this Agreement, and (ii) obtaining the cooperation of such third parties in a smooth transition in accordance with Parent's timetable at or after the Effective Time of the Merger. The Company shall cooperate with Parent in minimizing the extent to which any contracts will continue in effect following the Effective Time of the Merger, in addition to complying with the prohibition of Section 4.01(l) hereof.

        (b)  Without limiting Section 6.15(a), the Company shall use all reasonable efforts to provide data processing and other processing support or outside contractors to assist Parent in performing all tasks reasonably required to result in a successful conversion of their data and other files and records to Parent's production environment, when requested by Parent and sufficient to ensure that a successful conversion can occur at such time as Parent requests on or after the Effective Time of the Merger. Among other things, the Company shall:

        (i)    cooperate with Parent to establish a mutually agreeable project plan to effectuate the conversion;

        (ii)  use their commercially reasonable efforts to have the Company's outside contractors continue to support both the conversion effort and its needs until the conversion can be established;

        (iii)  provide, or use its commercially reasonable efforts to obtain from any outside contractors, all data or other files and layouts requested by Parent for use in planning the conversion, as soon as reasonably practicable;

        (iv)  provide reasonable access to personnel at corporate headquarters, data and other processing centers, all branches and, with the consent of outside contractors, at outside contractors, to enable the conversion effort to be completed on schedule; and

        (v)  to the extent reasonably practicable, give notice of termination, conditioned upon the completion of the transactions contemplated hereby, of the contracts of outside data and other processing contractors or other third-party vendors when directed to do so by Parent.

        (vi)  Parent agrees that all actions taken pursuant to this Section 6.15 shall be taken in a manner intended to minimize disruption to the customary business activities of the Company,

        6.16.    Shareholder Agreements.    Each Shareholder, as a shareholder of Company Common Stock, shall execute and deliver to Parent simultaneously with the execution of this Agreement a shareholder agreement (each, a "Shareholder Agreement") substantially in the form of Exhibit A hereto, committing each such person, among other things, to vote his or her shares of Company Common Stock in favor of the principal terms of the Merger at the Company Meeting and to certain representations and covenants.

        6.17.    Additional Agreements.    In case at any time after the Effective Time of the Merger any further action is necessary or desirable to carry out the purposes of this Agreement or to vest Parent with full title to all properties, assets, rights, approvals, immunities and franchises of the Company, the proper officers and directors of each party to this Agreement shall take all necessary or appropriate action.

        6.18.    Pre-Closing Adjustments.    At or before the Effective Time of the Merger, the Company shall make such accounting entries or adjustments, including additions to its ALL and charge-offs of

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loans, as Parent shall direct as a result of its on-going review of the Company (including its review of the information provided to it pursuant to Sections 6.05 and 6.12) or in order to implement its plans following the closing of the transactions contemplated by this Agreement (the "Closing") or to reflect expenses and costs related to the Merger; provided, however, that unless the adjustment would otherwise be required by applicable law, rule or regulation, or by regulatory accounting principles and GAAP applied on a basis consistent with the financial statements of the Company, (a) the Company shall not be required to take such actions more than one day prior to the Effective Time of the Merger or prior to the time Parent agrees in writing that all of the conditions to its obligation to close as set forth in Section 7.02 have been satisfied or waived and each of the approvals in Section 7.01(b) have been received, and (b) no such adjustment shall (i) require any filing with any Governmental Authority, (ii) violate any law, rule or regulation applicable to Parent, (iii) otherwise materially disadvantage the Company if the Merger was not consummated or (iv) constitute or be deemed to be a breach, violation of or failure to satisfy any representation, warranty, covenant, condition or other provision of this Agreement or otherwise be considered in determining whether any such breach, violation or failure to satisfy shall have occurred.

        6.19.    Company Stock Options.    The Company shall take such actions as may be necessary such that immediately prior to the Effective Time, each Company Stock Option that is exercisable immediately prior to the Effective Time, shall be cancelled and only entitle the holder thereof, as soon as reasonably practicable after surrender thereof, to receive the consideration set forth in Section 3.04. At the Effective Time, each option to purchase a share of Company Common Stock whether or not vested shall terminate and be of no further effect and any rights thereunder to purchase shares of Company Common Stock shall also terminate and be of no further force or effect.

ARTICLE VII

CONDITIONS TO CONSUMMATION OF THE MERGER

        7.01.    Conditions to Each Party's Obligation to Effect the Merger.    The respective obligation of each of the parties hereto to consummate the Merger is subject to the fulfillment or written waiver by the parties hereto prior to the Effective Time of each of the following conditions:

        (a)    Shareholder Approvals.    The principal terms of the Merger shall have been duly approved by the affirmative vote of a majority of the outstanding shares of Company Common Stock entitled to vote.

        (b)    Regulatory Approvals.    All regulatory approvals required to consummate the transactions contemplated hereby shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired and no such approvals shall contain any conditions, restrictions or requirements which the Parent Board reasonably determines in good faith would (i) following the Effective Time, have a Material Adverse Effect on Parent and its Subsidiaries taken as a whole or (ii) reduce the benefits of the transactions contemplated hereby to such a degree that Parent would not have entered into this Agreement had such conditions, restrictions or requirements been known at the date hereof.

        (c)    No Injunction.    No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits consummation of the transactions contemplated by this Agreement.

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        7.02.    Conditions to Obligation of the Company.    The obligation of the Company to consummate the Merger is also subject to the fulfillment or written waiver prior to the Effective Time of each of the following additional conditions:

        (a)    Representations and Warranties.    The representations and warranties of Parent set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Effective Date as though made on and as of the Effective Date (except that representations and warranties that by their terms speak as of the date of this Agreement or some other date shall be true and correct as of such date). For purposes of this paragraph, such representations and warranties shall be deemed to be true and correct in all material respects unless the failure or failures of such representations and warranties to be true and correct in all material respects, either individually or in the aggregate, and without giving effect to any materiality, material adverse effect or similar qualifications set forth in such representations and warranties, will have or would reasonably be expected to have a Material Adverse Effect on Parent. Parent shall have performed, in all material respects, each of its covenants and agreements contained in this Agreement. The Company shall have received a certificate, dated the Effective Date, signed on behalf of Parent by the Chief Executive Officer and the Chief Financial Officer of Parent to the foregoing effect.

        (b)    Performance of Obligations of Parent.    Parent and Merger Subsidiary shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Effective Time, and the Company shall have received a certificate, dated the Effective Date, signed on behalf of Parent by the Chief Executive Officer and the Chief Financial Officer of Parent to such effect.

        (c)    Fairness Opinion.    The Company shall have received the written opinion of Hoefer & Arnett to the effect that, as of the date of the mailing of the Proxy Statement to the shareholders of the Company in connection with the Company Meeting, the Offer Price is fair to the holders of Company Common Stock from a financial point of view.

        7.03.    Conditions to Obligation of Parent and Merger Subsidiary.    The obligation of Parent and Merger Subsidiary to consummate the Merger is also subject to the fulfillment or written waiver by Parent and Merger Subsidiary prior to the Effective Time of each of the following conditions:

        (a)    Representations and Warranties.    The representations and warranties of the Company set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Effective Date as though made on and as of the Effective Date (except that representations and warranties that by their terms speak as of the date of this Agreement or some other date shall be true and correct as of such date). For purposes of this paragraph, such representations and warranties shall be deemed to be true and correct in all material respects unless the failure or failures of such representations and warranties to be true and correct in all material respects, either individually or in the aggregate, and without giving effect to any materiality, material adverse effect or similar qualifications set forth in such representations and warranties, will have or would reasonably be expected to have a Material Adverse Effect on the Company. The Company shall have performed, in all material respects, each of its covenants and agreements contained in this Agreement and Parent shall have received a certificate, dated the Effective Date, signed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company to the foregoing effect.

        (b)    Updated Disclosure Schedule.    The Disclosure Schedule shall be updated and made current as of the day prior to the Effective Time of the Merger and a draft of the updated Disclosure Schedule shall have been delivered to Parent no later than 72 hours prior to the Effective Time of the Merger; such update of the Disclosure Schedule shall not in any way affect the representations and warranties set forth in Section 5.03.

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        (c)    Performance of Obligations of Company.    The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Effective Time, and Parent and Merger Subsidiary shall have received a certificate, dated the Effective Date, signed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company to such effect.

        (d)    Performance of Obligations of the Shareholders.    Parent shall have received Shareholder's Agreements executed and delivered by each Shareholder of the Company as contemplated by Section 6.16, each of which shall remain in full force and effect. The Shareholders shall have performed in all material respects all obligations required to be performed by them under the Shareholder Agreements.

        (e)    Shareholders' Equity and Reserves.    As of the last business day of the month immediately preceding the Effective Time (the "Shareholders' Equity Measuring Date"), (i) the Adjusted Shareholders' Equity of the Company shall not be less than $6,100,000 and (ii) the Company's ALL shall not be less than $590,000, in each case as determined in accordance with GAAP. For purposes of this Section 7.03(e), "Adjusted Shareholders' Equity" means the equity of the Company as set forth on the Closing Financial Statements (as defined in Section 7.03(g) below), excluding any gains or losses on or changes in fair market value of securities of the Company from such calculation, and adding the sum of (w) all amounts paid or accrued in connection with any actions taken pursuant to Sections 6.07 and 6.18 to the extent that such actions were not necessary to bring the Company into conformity with GAAP or any applicable rule or regulation of any Regulatory Authority, (x) all fees, expenses of all attorneys, accountants, investment bankers and other advisors and agents for the Company for services rendered solely in connection with the transaction contemplated by this Agreement and paid or accrued by the Company and (y) the aggregate amount paid by the Company, if any, in order to satisfy its obligation to take all action as may be necessary to cancel the Company Stock Options pursuant to Section 6.19.

        (f)    Opinion of Parent's Counsel.    Parent shall have received the opinion of Sullivan & Cromwell or other reasonably acceptable tax counsel, as counsel to Parent, dated the Effective Time, in form and substance reasonably satisfactory to Parent, to the effect that, on the basis of facts, representations and assumptions set forth in such opinion, which are consistent with the state of facts existing at the Effective Time of the Merger, the Merger will be treated for federal income tax purposes as a qualified stock purchase. In rendering its opinion, Sullivan & Cromwell may require and rely upon representations contained in letters from the Company, Parent, Merger Subsidiary and/or their officers or principal shareholders as are customary for such opinions. It is expressly acknowledged by the Company that this opinion is only addressed to, and solely for the benefit of, Parent.

        (g)    No Litigation.    No litigation or proceeding shall be pending against the Company brought by any Governmental Authority seeking to prevent consummation of the transactions contemplated hereby.

        (h)    Closing Financial Statements.    At least four Business Days prior to the Effective Time of the Merger, the Company shall provide Parent with the Company's financial statements presenting the financial condition of the Company as of the close of business on the last day of the last month ended prior to the Effective Time of the Merger and the Company's results of operations for the period January 1, 2002 through the close of business on the last day of the last month ended prior to the Effective Time of the Merger (the "Closing Financial Statements"); provided, however, that if the Effective Time of the Merger occurs on or before the fifth Business Day of the month, the Company shall have provided consolidated financial statements as of and through the second month preceding the Effective Time of the Merger. Such financial statements shall have been prepared in all material respects in accordance with GAAP and regulatory accounting

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principles and other applicable legal and accounting requirements, and reflect all period-end accruals and other adjustments. Such financial statements shall be accompanied by a certificate of the Company's Chief Financial Officer, dated as of a date no earlier than two Business Days prior to the Effective Time of the Merger, to the effect that such financial statements continue to reflect accurately, as of the date of the certificate, the financial condition of Parent in all material respects.

        (i)    Non-Competition Agreements; Non-Solicitation Agreements.    Parent shall have received a Non-Competition Agreement executed and delivered by each director of the Company, other than William McLaurin, and a Non-Solicitation Agreement executed and delivered by each of William McLaurin and Mary Hays, as contemplated by Section 6.11, each of which shall remain in full force and effect.

        (j)    Consents.    The Company shall have obtained each of the consents listed in Schedule 5.03(k) of the Disclosure Schedule and any consents of the type required to be identified in Schedule 5.03(k) of the Disclosure Schedule but were not so identified as of the date of this Agreement. A copy of each such consent shall have been delivered to Parent.

        (k)    Transaction Expenses.    The Company shall exercise its commercially reasonable efforts to ensure that at least two Business Days prior to the Effective Time of the Merger, all attorneys, accountants, investment bankers and other advisors and agents (collectively, "Advisors") for the Company shall have submitted to the Company estimates of their fees and expenses for all services rendered or to be rendered in any respect in connection with the transactions contemplated hereby to the extent not already paid, and based on such estimates, the Company shall have prepared and submitted to Parent a summary of such fees and expenses for the transaction. At or prior to the Effective Time of the Merger, the Company shall use its best efforts to (i) cause such Advisors to have submitted their final bills for all material fees and expenses to the Company for services rendered, a copy of which the Company shall have caused to be delivered to Parent, and based on such summary, the Company shall have prepared and submitted to Parent a final calculation of such fees and expenses; and (ii) accrue and pay the amount of such fees and expenses as calculated above, after Parent has been given an opportunity to review all such bills and calculation of such fees and expenses; and (iii) the amount of such fees and expenses, shall be reasonable and shall in no event exceed $250,000 in the aggregate (exclusive of the reasonable out-of-pocket expenses of such Advisors). Parent shall not be liable for any such fees and expenses.

        (l)    Directors' Resignations.    Parent shall have received the written resignation of each director of the Company (in such director's capacity as a director of the Company), effective as of the Effective Time.

ARTICLE VIII

TERMINATION

        8.01.    Termination.    This Agreement may be terminated, and the Merger may be abandoned:

        (a)    Mutual Consent.    At any time prior to the Effective Time, by the mutual consent of Parent and the Company if the Board of Directors of each so determines by vote of a majority of the members of its entire Board.

        (b)    Breach.    At any time prior to the Effective Time, by Parent or the Company if the respective Board of Directors so determines by vote of a majority of the members of its entire Board, in the event of: (i) a breach by Parent or Merger Subsidiary or by the Company, as the case may be, of any representation or warranty contained herein (subject to the standard set forth in Section 5.02), which breach cannot be or has not been cured within 30 days after the giving of written notice to the breaching party or parties of such breach; (ii) a breach by Parent or Merger

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Subsidiary or by the Company, as the case may be, of any of the covenants or agreements contained herein, which breach cannot be or has not been cured within 30 days after the giving of written notice to the breaching party or parties of such breach or (iii) in the case of a termination by Parent, a breach by a Shareholder or Shareholders of any of the covenants or agreements contained in the Shareholder Agreements, which breach cannot be or has not been cured within 30 days after the giving of written notice to the breaching party or parties of such breach, provided that such breach (whether under (i), (ii) or (iii)) would be reasonably likely, individually or in the aggregate with other breaches, to result in a Material Adverse Effect with respect to Parent or the Company, as the case may be.

        (c)    Delay.    At any time prior to the Effective Time, by Parent or the Company if the respective Board of Directors so determines by vote of a majority of the members of its entire Board, in the event that the Merger is not consummated by March 31, 2003, except to the extent that the failure of the Merger then to be consummated arises out of or results from the knowing action or inaction of (i) the party seeking to terminate pursuant to this Section 8.01(c), (ii) Merger Subsidiary (if Parent is the party seeking to terminate) or (iii) any of the Shareholders (if the Company is the party seeking to terminate), which action or inaction is in violation of its obligations under this Agreement or, in the case of the Shareholders, his, her or its obligations under the relevant Shareholder Agreement.

        (d)    No Approval.    By the Company or Parent, if the respective Board of Directors so determines by a vote of a majority of the members of its entire Board, in the event (i) the approval of any Governmental Authority required for consummation of the Merger and the other transactions contemplated by this Agreement shall have been denied by final nonappealable action of such Governmental Authority or an application therefor shall have been permanently withdrawn at the invitation, request or suggestion of a Governmental Authority or (ii) the shareholder approval referred to in Section 7.01(a) herein is not obtained at the Company Meeting.

        (e)    Acquisition Proposal.    By Parent, if (i) the Company shall have exercised a right specified in the provision set forth in Section 6.06 with respect to any Acquisition Proposal and shall, directly or through agents or representatives, continue discussion with any third party concerning such Acquisition Proposal for more than 15 Business Days after the date of receipt of such Acquisition Proposal; or (ii) an Acquisition Proposal that is publicly disclosed shall have been commenced, publicly proposed or communicated to the Company which contains a proposal as to price (without regard to the specificity of such price proposal) and the Company shall not have rejected such proposal within 15 Business Days of (x) its receipt or (y) the date its existence first becomes publicly disclosed, if earlier.

        (f)    Superior Proposal.    By the Company, if it has received a Superior Proposal as defined in Section 6.06 and the Company Board has determined to recommend such Superior Proposal to the shareholders of the Company.

        (g)    Failure to Recommend.    At any time prior to the Company Meeting, by Parent if the Company shall have breached Section 6.06 or the Company Board shall have failed to make its recommendation referred to in Section 6.02, withdrawn such recommendation or modified or changed such recommendation in a manner adverse in any respect to the interests of Parent.

        8.02.    Effect of Termination and Abandonment.    (a) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article VIII, no party to this Agreement shall have any liability or further obligation to any other party hereunder except (i) as set forth in subsections (b) and (c) below and Section 9.01, (ii) that termination will not relieve a breaching party from liability for any material breach of any covenant, agreement, representation or warranty of this Agreement, except as provided in subsections (b) and (c) below and (iii) any other provision of this Agreement which expressly survives the termination of this Agreement.

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        (b)  If this Agreement is terminated by Parent pursuant to Section 8.01(e) or (g), or by the Company pursuant to Section 8.01(f), upon such termination the Company shall pay to Parent a termination fee, representing liquidated damages, of $480,000 (the "Termination Fee"). Such Termination Fee shall be the sole remedy available to Parent with respect to the breach of any covenant or agreement giving rise to such payment.

        (c)  If this Agreement is terminated by Company pursuant to Section 8.01(c) where Parent would not be entitled to terminate under subdivisions (i) or (ii) of that subsection, or by Parent pursuant to Section 8.01(c) where Company would not be entitled to terminate under subdivisions (i) or (iii) of that subsection, the non-terminating party shall pay to the terminating party the Termination Fee. Such Termination Fee shall be the sole remedy available to the party entitled to be paid the Termination Fee with respect to the breach of any covenant or agreement giving rise to such payment.

        (d)  Any Termination Fee that becomes payable to Parent or Company pursuant to this Section 8.02 shall be paid by wire transfer of immediately available funds to an account designated by Parent or Company, as the case may be, either if this Agreement is terminated by Parent or the Company and the termination meets the conditions set forth in Section 8.02 at or prior to such termination by Parent or the Company.

        (e)  The Company and Parent agree that the agreements contained in paragraphs (b) and (c) above are an integral part of the transactions contemplated by this Agreement, that without such agreements the Company and Parent would not have entered into this Agreement, and that such amounts do not constitute a penalty. If the party owing the Termination Fee fails to pay the other party the amounts due under paragraph (b) above within the time periods specified in paragraph (c) above, the party owing the Termination Fee shall pay all costs and expenses incurred by the other party in connection with any action, including the filing of any lawsuit, taken to collect payment of such amounts, together with interest on the amount of any such unpaid amounts at the publicly announced prime rate of Bank of America, N.A. from the date such amounts were required to be paid.

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ARTICLE IX

MISCELLANEOUS

        9.01.    Survival.    No representations, warranties, agreements and covenants contained in this Agreement shall survive the Effective Time (other than Sections 6.09, 6.10 and 6.15 and this Article IX, which shall survive the Effective Time) or the termination of this Agreement if this Agreement is terminated prior to the Effective Time (other than Sections 6.05(e), 8.02 and this Article IX which shall survive any such termination).

        9.02.    Waiver; Amendment.    Prior to the Effective Time, any provision of this Agreement may be (i) waived in whole or in part by the party benefited by the provision or by both parties or (ii) amended or modified at any time, by an agreement in writing between the parties hereto executed in the same manner as this Agreement, except that after the Company Meeting, this Agreement may not be amended if it would reduce the aggregate value of the consideration to be received by the Company shareholders in the Merger without any subsequent approval by such shareholders or be in violation of applicable law.

        9.03.    Counterparts.    This Agreement may be executed in one or more counterparts, each of which shall be deemed to constitute an original but all of which together shall constitute one and the same instrument.

        9.04.    Governing Law, Jurisdiction and Venue.    This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of California (however, not to the exclusion of any applicable Federal law), without regard to California statutes or judicial decisions regarding choice of law questions. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of California and the federal courts of the United States of America located in the Southern District of the State of California solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the transactions contemplated herein and therein, and hereby waive, and agree to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such documents, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such California state or federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 9.06 or in such other manner as may be permitted by law, shall be valid and sufficient service thereof.

        9.05.    Expenses.    Each party hereto will bear all expenses incurred by it in connection with this Agreement and the transactions contemplated hereby.

        9.06.    Notices.    All notices, requests and other communications hereunder to a party shall be in writing and shall be deemed given if personally delivered, telecopied (with confirmation) or mailed by

35

registered or certified mail (return receipt requested) to such party at its address set forth below or such other address as such party may specify by notice to the parties hereto.

If to the Company to:
	Bank of Coronado 1190 Orange Avenue Coronado, California 92118 Attention: William McLaurin Telephone: (619) 437-4293 Facsimile: (619) 437-8476
With a copy to:
	Luce, Forward, Hamilton & Scripps, LLP 600 West Broadway, Suite 2600 San Diego, California 92101 Attention: Kurt L. Kicklighter Telephone: (619) 699-2526 Facsimile: (619) 645-5339
If to Parent or Merger Subsidiary to:
	First Community Bancorp c/o Pacific Western National Bank 120 Wilshire Boulevard Santa Monica, California 90401 Attention: Matthew P. Wagner Telephone: (310) 458-1521 Facsimile: (310) 451-4555
With a copy to:
	Sullivan & Cromwell 1888 Century Park East, Suite 2100 Los Angeles, California 90067-1725 Attention: Stanley F. Farrar Telephone: (310) 712-6600 Facsimile: (310) 712-8800

        9.07.    Entire Understanding; No Third Party Beneficiaries.    This Agreement (including the Disclosure Schedule attached hereto and incorporated herein), the Shareholder Agreements and the Non-Competition Agreements represent the entire understanding of the parties hereto and thereto with reference to the transactions contemplated hereby and thereby and this Agreement, the Shareholder Agreements and the Non-Competition Agreements supersede any and all other oral or written agreements heretofore made. Except for Section 6.09, nothing in this Agreement, expressed or implied, is intended to confer upon any Person, other than the parties hereto or their respective successors, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

        9.08.    Effect.    No provision of this Agreement shall be construed to require the Company, Parent, Merger Subsidiary or any Subsidiaries, affiliates or directors of any of them to take any action or omit to take any action which action or omission would violate applicable law (whether statutory or common law), rule or regulation.

        9.09.    Severability.    Except to the extent that application of this Section 9.09 would have a Material Adverse Effect on the Company, Parent or Merger Subsidiary, any term or provision of this

36

Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

        9.10.    Enforcement of the Agreement.    The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.

        9.11.    Interpretation.    When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of, or Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and are not part of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation".

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        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in counterparts by their duly authorized officers, all as of the day and year first above written.

Dated as of September 19, 2002

FIRST COMMUNITY BANCORP
By:	/s/  MATTHEW P. WAGNER
	Name:	Matthew P. Wagner
	Title:	President and Chief Executive Officer
BANK OF CORONADO
By:	/s/  WILLIAM MCLAURIN
	Name:	William McLaurin
	Title:	President and Chief Executive Officer

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TABLE OF CONTENTS
RECITALS
ARTICLE I CERTAIN DEFINITIONS
ARTICLE II THE MERGER
ARTICLE III CONSIDERATION; EXCHANGE PROCEDURES
ARTICLE IV ACTIONS PENDING ACQUISITION
ARTICLE V REPRESENTATIONS AND WARRANTIES
ARTICLE VI COVENANTS
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER
ARTICLE VIII TERMINATION
ARTICLE IX MISCELLANEOUS

EX-3.1

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Exhibit 3.1

CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION

        Matthew P. Wagner and Lynn M. Hopkins hereby certify that:

        1.    They are the duly elected President and Chief Executive Officer and Chief Financial Officer of First Community Bancorp, a California corporation.

        2.    The first paragraph of Article FOURTH of the Articles of Incorporation of this corporation is amended to read as follows:

        "(a) The corporation is authorized to issue two classes of shares: Common and Preferred. The number of shares of Common Stock authorized to be issued is 30,000,000 and the number of shares of Preferred Stock authorized to be issued is 5,000,000."

        3.    The foregoing amendment of the Articles of Incorporation has been duly approved by the board of directors.

        4.    The foregoing amendment of the Articles of Incorporation has been duly approved by the holder of all of the outstanding shares entitled to vote thereon in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of each class entitled to vote with respect to the foregoing is 11,456,831. The number of shares voting in favor of the amendment exceeded the vote required, which required vote was more than 50%.

        The undersigned declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.

Date: September 6, 2002

/s/  MATTHEW P. WAGNER Name: Matthew P. Wagner
Title: President and Chief Executive Officer

/s/  LYNN M. HOPKINS Name: Lynn M. Hopkins
Title: Chief Financial Officer

ARTICLES of INCORPORATION

of

First Community Bancorp

        FIRST. The name of the corporation is First Community Bancorp.

        SECOND. The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.

        THIRD. The name of the corporation's initial agent for service of process in the State of California is CT Corporation System.

        FOURTH. (a) The corporation is authorized to issue two classes of shares: Common and Preferred. The number of shares of Common Stock authorized to be issued is 15,000,000 and the number of shares of Preferred Stock authorized to be issued is 5,000,000.

        (b)  The Preferred Stock may be divided into such number of series as the board of directors may determine. The board of directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock.

        FIFTH. (a) The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.

        (b)  The corporation is authorized to indemnify its agents to the fullest extent permissible under California law. For purposes of this provision, the term "agent" has the meaning set forth from time to time in Section 317 of the California Corporations Code.

        (c)  Any amendment, repeal or modification of any provision of this Article Fifth shall not adversely affect any right of protection of an agent of this corporation existing at the time of such amendment, repeal or modification.

        IN WITNESS WHEREOF, I have executed these Articles of Incorporation this 22nd day of October, 1999.

/s/  ONDRAUS JENKINS Ondraus Jenkins
Incorporator

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CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
ARTICLES of INCORPORATION of First Community Bancorp