-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KAfh34FMWEtVIUXMk2Y/jStwdRcjkQMKtUyQO/zS2Y34m6QYXAPcVW94bZX6nicE frF0QoXYeRTIR3CcbcIK3w== 0001047469-04-025623.txt : 20040806 0001047469-04-025623.hdr.sgml : 20040806 20040806145758 ACCESSION NUMBER: 0001047469-04-025623 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COMMUNITY BANCORP /CA/ CENTRAL INDEX KEY: 0001102112 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 330885320 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30747 FILM NUMBER: 04957666 BUSINESS ADDRESS: STREET 1: 6110 EL TORDO CITY: RANCHO SANTA FE STATE: CA ZIP: 92067 BUSINESS PHONE: 8587563023 10-Q 1 a2141087z10-q.htm FORM 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 June 30, 2004

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

(858) 756-3023
(Registrant's telephone number, including area code)

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o

As of August 2, 2004 there were 15,527,110 shares of the registrant's common stock outstanding, excluding 581,980 shares of unvested restricted stock.

TABLE OF CONTENTS

			Page
PART I—FINANCIAL INFORMATION
	ITEM 1.	Unaudited Consolidated Financial Statements	3
		Unaudited Condensed Consolidated Balance Sheets	3
		Unaudited Condensed Consolidated Statements of Earnings	4
		Unaudited Condensed Consolidated Statements of Comprehensive Income	5
		Unaudited Condensed Consolidated Statements of Cash Flows	6
		Notes to Unaudited Condensed Consolidated Financial Statements	7
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	34
	ITEM 4.	Controls and Procedures	34
PART II—OTHER INFORMATION			35
	ITEM 1.	Legal Proceedings	35
	ITEM 2.	Changes in Securities	35
	ITEM 3.	Defaults Upon Senior Securities	36
	ITEM 4.	Submission of Matters to a Vote of Security Holders	36
	ITEM 5.	Other Information	37
	ITEM 6.	Exhibits and Reports on Form 8-K	37
SIGNATURES			38

PART I—FINANCIAL INFORMATION

ITEM 1. Unaudited Consolidated Financial Statements

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

		June 30, 2004			December 31, 2003
		(Dollars in thousands, except share data)
Assets:
Cash and due from banks		$	115,809		$	101,968
Federal funds sold			7,500			2,600

	Total cash and cash equivalents		123,309			104,568
Interest-bearing deposits in financial institutions			2,295			311
Investments:
	Federal Reserve Bank and Federal Home Loan Bank stock, at cost		19,842			14,662
	Securities available-for-sale (amortized cost of $287,611 at June 30, 2004 and $420,531 at December 31, 2003)		281,244			417,656

	Total investments		301,086			432,318
Loans, net of fees			1,950,101			1,595,837
Less: allowance for loan losses			(30,349	)		(25,752	)

	Net loans		1,919,752			1,570,085
Premises and equipment, net			15,028			14,004
Deferred income taxes			18,607			15,577
Accrued interest receivable			8,088			7,432
Goodwill			245,822			199,919
Core deposit and customer relationship intangible assets			24,331			22,037
Cash surrender value of life insurance			51,411			50,287
Other assets			12,081			5,789

	Total Assets	$	2,721,810		$	2,422,327

Liabilities and Shareholders' Equity:
Liabilities:
Noninterest-bearing deposits		$	952,903		$	814,365
Interest-bearing deposits			1,198,403			1,135,304

	Total deposits		2,151,306			1,949,669
Accrued interest payable and other liabilities			30,050			21,597
Short-term borrowings			69,600			53,700
Subordinated debentures			121,654			59,798

	Total Liabilities		2,372,610			2,084,764
Shareholders' Equity:
Preferred stock; authorized 5,000,000 shares; no shares issued and outstanding			—			—
Common stock, no par value; authorized 30,000,000 shares; issued and outstanding 16,087,643 and 15,893,141 at June 30, 2004 and December 31, 2003 (includes 575,080 and 460,000 shares of unvested restricted stock, respectively)			314,162			308,336
Retained earnings			54,733			44,706
Unearned equity compensation			(16,003	)		(13,811	)
Accumulated other comprehensive income:
	Unrealized gains (losses) on securities available-for-sale, net		(3,692	)		(1,668	)

	Total Shareholders' Equity		349,200			337,563

	Total Liabilities and Shareholders' Equity	$	2,721,810		$	2,422,327

Book value per share		$	21.71		$	21.24

See "Notes to Unaudited Condensed Consolidated Financial Statements."

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

		Three Months Ended June 30,				Six Months Ended June 30,
		2004		2003		2004		2003
		(Dollars in thousands, except per share data)
Interest income:
	Interest and fees on loans	$	32,356	$	25,356	$	58,581	$	50,967
	Interest on interest-bearing deposits in financial institutions		15		6		17		9
	Interest on investment securities		2,363		2,046		5,484		4,363
	Interest on federal funds sold		67		211		141		278

	Total interest income		34,801		27,619		64,223		55,617

Interest expense:
	Interest expense on deposits		1,812		2,519		3,583		5,400
	Interest expense on short-term borrowings		145		11		213		33
	Interest expense on subordinated debentures		1,503		652		2,752		1,306

	Total interest expense		3,460		3,182		6,548		6,739

Net interest income			31,341		24,437		57,675		48,878
Provision for loan losses			200		180		200		300

	Net interest income after provision for loan losses		31,141		24,257		57,475		48,578

Noninterest income:
	Service charges and fees on deposit accounts		2,126		2,279		4,425		4,413
	Other commissions and fees		981		884		1,840		1,948
	Gain on sale of loans		135		448		306		586
	Gain on sale of securities		—		1,756		30		1,756
	Gain on sale of other real estate owned		—		22		—		340
	Increase in cash surrender value of life insurance		489		510		996		822
	Other income		348		205		559		315

	Total noninterest income		4,079		6,104		8,156		10,180

Noninterest expense:
	Salaries and employee benefits		11,016		8,050		20,741		16,059
	Occupancy		2,851		2,093		5,165		4,437
	Furniture and equipment		748		815		1,487		1,587
	Data processing		1,146		1,204		2,171		2,497
	Other professional services		792		554		1,464		1,099
	Business development		301		221		566		421
	Communications		528		519		1,025		1,059
	Insurance and assessments		414		400		793		727
	Cost of real estate owned		—		11		—		168
	Intangible asset amortization		826		587		1,517		1,175
	Other		1,720		1,415		3,278		2,840

	Total noninterest expense		20,342		15,869		38,207		32,069

Earnings before income taxes			14,878		14,492		27,424		26,689
Income taxes			6,040		5,849		11,086		10,813

	Net earnings	$	8,838	$	8,643	$	16,338	$	15,876

Per share information:
Number of shares (weighted average)
	Basic		15,489.7		15,370.1		15,470.7		15,350.2
	Diluted		15,955.4		15,785.1		15,956.7		15,778.4
Net earnings per share
	Basic	$	0.57	$	0.56	$	1.06	$	1.03
	Diluted	$	0.55	$	0.55	$	1.02	$	1.01
Dividends declared per share		$	0.22	$	0.15	$	0.4075	$	0.30

See "Notes to Unaudited Condensed Consolidated Financial Statements."

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In thousands)
Net earnings		$	8,838		$	8,643		$	16,338		$	15,876
Other comprehensive income, net of related income taxes:
	Unrealized gains on securities:
	Unrealized holding (losses) gains arising during the period		(4,037	)		251			(2,166	)		231
	Reclassifications of realized losses included in income		—			730			142			639

Other comprehensive income			(4,037	)		(479	)		(2,024	)		(408	)

Comprehensive income		$	4,801		$	8,164		$	14,314		$	15,468

See "Notes to Unaudited Condensed Consolidated Financial Statements."

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

			Six Months Ended June 30,
			2004			2003
			(In thousands)
Cash flows from operating activities:
	Net earnings		$	16,338		$	15,876
		Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
		Depreciation and amortization		4,519			4,404
		Provision for loan losses		200			300
		Gain on sale of OREO		—			(340	)
		Gain on sale of loans		(306	)		(586	)
		Gain on sale of securities		(30	)		(1,756	)
		Real estate valuation adjustments		—			153
		Loss (gain) on sale of premises and equipment		4			(7	)
		Amortization of unearned compensation related to restricted stock		1,915			—
		Tax benefit of stock option exercises		545			—
		Accrued and deferred income taxes, net		5,763			5,544
		Increase in other assets		(1,998	)		(19,895	)
		Decrease in accrued interest payable and other liabilities		(10,502	)		(11,481	)
		Dividends on FHLB stock		(131	)		(38	)

	Net cash provided by (used in) operating activities			16,317			(7,826	)

Cash flows from investing activities:
	Net cash and cash equivalents acquired (paid) in acquisition of:
		Bank of Coronado		—			372
		First Community Financial Corporation		(36,035	)		—
		Harbor National Bank		(1,312	)		—
	Net (increase) decrease in loans, net			(149,104	)		51,783
	Proceeds from sale of loans			4,523			3,954
	Net decrease (increase) in interest-bearing deposits in financial institutions			1,484			(543	)
	Proceeds from sale of securities held-to-maturity			—			3,452
	Maturities of securities held-to-maturity			—			3,360
	Maturities of investment securities available-for-sale			69,532			93,831
	Proceeds from sale of securities available-for-sale			64,662			179,916
	Purchases of securities available-for-sale			(2,603	)		(243,365	)
	Net purchases of FRB and FHLB stock			(4,056	)		(3,554	)
	Proceeds from sale of OREO			—			3,168
	Purchases of premises and equipment, net			(1,452	)		(1,988	)
	Proceeds from sale of premises and equipment			12			7

	Net cash (used in) provided by investing activities			(54,349	)		90,393

Cash flows from financing activities:
	Net increase in noninterest-bearing deposits			77,786			21,031
	Net decrease in interest-bearing deposits			(32,932	)		(49,854	)
	Proceeds from issuance of subordinated debentures			61,856			—
	Proceeds from exercise of stock options			1,174			881
	Repayment of acquired debt			(60,700	)		—
	Net increase (decrease) in short-term borrowings			15,900			(1,223	)
	Cash dividends paid			(6,311	)		(4,607	)

	Net cash provided by (used in) financing activities			56,773			(33,772	)

	Net increase in cash and cash equivalents			18,741			48,795
	Cash and cash equivalents at beginning of period			104,568			124,366

	Cash and cash equivalents at end of period		$	123,309		$	173,161

Supplemental disclosure of cash flow information:
	Cash paid during period for interest		$	6,266		$	6,804
	Cash paid during period for income taxes			6,678			5,361
	Transfer from loans to loans held-for-sale			4,217			3,638

See "Notes to Unaudited Condensed Consolidated Financial Statements."

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

NOTE 1—BASIS OF PRESENTATION

We are a bank holding company registered under the Bank Holding Company Act of 1956, as amended. Our principal business is to serve as a holding company for our banking subsidiaries. As of June 30, 2004, those subsidiaries were First National Bank, which we refer to as First National, and Pacific Western National Bank, or Pacific Western. We refer to Pacific Western and First National herein as the "Banks" and when we say "we", "our" or the "Company", we mean the Company on a consolidated basis with the Banks. When we refer to "First Community" or to the holding company, we are referring to the parent company on a stand-alone basis.

We completed thirteen acquisitions from May 2000 through June 30, 2004. This includes the merger whereby the former Rancho Santa Fe National Bank and First Community Bank of the Desert became wholly-owned subsidiaries of the Company in a pooling-of-interests transaction. The other acquisitions have been accounted for using the purchase method of accounting and, accordingly, their operating results have been included in the consolidated financial statements from their respective dates of acquisition.

(a) Basis of Presentation

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America. All significant intercompany balances and transactions have been eliminated.

Our financial statements reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. 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 interim operating results are not necessarily indicative of operating results for the full year.

Prior to December 31, 2003, the Company issued $58 million of trust preferred securities. Pursuant to FASB Interpretation No. 46R ("FIN 46R"), Consolidation of Variable Interest Entities, we deconsolidated our trust preferred entities at December 31, 2003. The overall effect of the deconsolidation on our financial position and operating results was not material.

(b) Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for loan losses, the carrying values of intangible assets and the realization of deferred tax assets.

(c) Reclassifications

Certain prior period amounts have been reclassified to conform to the current year's presentation.

NOTE 2—ACQUISITIONS

We completed the following acquisitions during the time period of January 1, 2003 to June 30, 2004, using the purchase method of accounting, and accordingly, the operating results of the acquired entities have been included in the consolidated financial statements from their respective dates of acquisition:

Acquisition		Bank of Coronado			Verdugo Banking Company			FC Financial			Harbor National
Date Acquired		January 2003			August 2003			March 2004			April 2004
		(In thousands)
Assets Acquired:
	Cash and cash equivalents	$	11,974		$	33,075		$	3,965		$	34,338
	Interest-bearing deposits in financial institutions		100			—			—			3,468
	Investment securities		2,699			—			—			993
	Loans, net		63,891			147,471			72,708			132,272
	Premises and equipment		261			82			106			1,123
	Goodwill		7,250			22,080			23,038			22,865
	Core deposit and customer relationship intangible assets		714			4,376			2,518			1,293
	Other assets		1,601			4,467			2,251			1,998

Total assets acquired			88,490			211,551			104,586			198,350

Liabilities Assumed:
	Noninterest-bearing deposits		(17,079	)		(48,642	)		—			(60,752	)
	Interest-bearing deposits		(56,007	)		(119,111	)		—			(96,031	)
	Short-term borrowings		—			—			(60,700	)
	Accrued interest payable and other liabilities		(3,802	)		(9,545	)		(3,886	)		(5,917	)

Total liabilities assumed			(76,888	)		(177,298	)		(64,586	)		(162,700	)

Total cash consideration paid		$	11,602		$	34,253		$	40,000		$	35,650

Bank of Coronado Acquisition.

On January 9, 2003, we acquired Bank of Coronado. We paid $11.6 million in cash in exchange for all of the outstanding shares of common stock and options of Bank of Coronado. At the time of the merger, Bank of Coronado was merged into First National.

Verdugo Banking Company Acquisition.

On August 22, 2003, we acquired Verdugo Banking Company. We paid $34.3 million in cash for all of the outstanding shares of common stock and options of Verdugo Banking Company. At the time of the merger, Verdugo Banking Company was merged into Pacific Western.

First Community Financial Corporation.

On March 1, 2004, we acquired First Community Financial Corporation, or FC Financial, a privately-held commercial finance company based in Phoenix, Arizona. We paid $40.0 million in cash for all of the outstanding shares of common stock and options of FC Financial. At the time of the acquisition FC Financial became a wholly-owned subsidiary of First National.

Harbor National Bank.

On April 16, 2004, we acquired Harbor National Bank, or Harbor National, based in Newport Beach, California. We paid $35.7 million in cash for all the outstanding shares of common stock and options of Harbor National. At the time of the merger, Harbor National was merged into Pacific Western.

Merger Related Liabilities.

The activity in our merger-related liability for the six months ended June 30, 2004, is as follows:

	Severance and Employee- related			System Conversion and Integration			Asset Write- downs, Lease Terminations and Other Facilities-related			Other(1)			Total
	(In thousands)
Balance at December 31, 2003	$	1,178		$	431		$	3,712		$	616		$	5,937
Additions related to 2004 acquisitions		975			600			320			3,757			5,652
Non-cash write-downs and other		(1	)		7			(45	)		(15	)		(54	)
Cash outlays		(1,225	)		(423	)		(995	)		(2,982	)		(5,625	)

Balance at June 30, 2004	$	927		$	615		$	2,992		$	1,376		$	5,910

(1): Included in other are investment banking and professional fees.

NOTE 3—GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and intangible assets arise from purchase business combinations. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, or SFAS No. 142, requires all business combinations to be accounted for under the purchase method of accounting. SFAS 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 SFAS No. 142, goodwill and other intangible assets deemed to have indefinite lives are no longer amortized, but instead are tested for impairment annually, or more frequently, whenever certain events occur. We performed our annual test for impairment as of June 30, 2004, and concluded that there was no impairment in our goodwill at that time.

SFAS No. 142 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 SFAS No. 144, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. We recorded the aggregate values of the core deposit and customer relationship intangibles separate from goodwill and are amortizing them over their estimated useful lives of 10 years and 55 months, respectively.

The changes in the carrying amounts of goodwill and other intangible assets for the six months ended June 30, 2004 are as follows:

	Goodwill		Core Deposit and Customer Relationship Intangible
	(In thousands)
Balance as of December 31, 2003	$	199,919	$	22,037
FC Financial acquisition		23,038		2,518
Harbor National acquisition		22,865		1,293
Amortization		—		(1,517	)

Balance as of June 30, 2004	$	245,822	$	24,331

NOTE 4—INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale as of June 30, 2004 are as follows:

	June 30, 2004
	Amortized cost		Gross unrealized Gains		Gross unrealized losses		Fair value
	(In thousands)
U.S. Treasury and government agency securities	$	13,608	$	13	$	224	$	13,397
Municipal securities		11,616		199		33		11,782
Mortgage-backed and other securities		262,387		271		6,593		256,065

Total	$	287,611	$	483	$	6,850	$	281,244

The maturity distribution based on amortized cost and fair value as of June 30, 2004, by contractual maturity, is shown below. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Maturity distribution as of June 30, 2004
	Amortized cost		Fair value
	(In thousands)
Due in one year or less	$	4,553	$	4,579
Due after one year through five years		39,472		38,980
Due after five years through ten years		25,667		25,754
Due after ten years		217,919		211,931

Total	$	287,611	$	281,244

The following table presents the fair value and the unrealized loss on securities that were temporarily impaired as of June 30, 2004.

	Less than 12 months					12 months or longer					Total
Descriptions of securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
U.S. Treasury and government agency securities	$	9,755	$	(224	)	$	—	$	—		$	9,755	$	(224	)
Municipal securities		1,451		(29	)		625		(5	)		2,076		(34	)
Mortgage-backed securities		242,953		(6,449	)		5,984		(143	)		248,937		(6,592	)

Total temporarily impaired securities	$	254,159	$	(6,702	)	$	6,609	$	(148	)	$	260,768	$	(6,850	)

The temporary impairment is a result of the level of market interest rates and is not a result of the underlying issuers' ability to repay. Accordingly, we have not recognized the temporary impairment in our consolidated results of operations.

NOTE 5—NET EARNINGS PER SHARE

The following is a summary of the calculation of basic and diluted net earnings per share for the three and six months ended June 30, 2004 and 2003.

		Three Months Ended June 30,				Six Months Ended June 30,
		2004		2003		2004		2003
		(In thousands, except per share data)
Net earnings		$	8,838	$	8,643	$	16,338	$	15,876
Weighted average shares outstanding used for basic net earnings per share			15,489.7		15,370.1		15,470.7		15,350.2
Effect of dilutive stock options and restricted stock			465.7		415.0		486.0		428.2

Diluted weighted average shares outstanding			15,955.4		15,785.1		15,956.7		15,778.4

Net earnings per share:
	Basic	$	0.57	$	0.56	$	1.06	$	1.03
	Diluted	$	0.55	$	0.55	$	1.02	$	1.01

Diluted earnings per share does not include all potentially dilutive shares that may result from outstanding stock options and restricted and performance stock awards which may eventually vest. As of June 30, 2004 and 2003, the number of stock options and shares of restricted and performance stock which were outstanding but not included in the calculation of diluted net earnings per share were 1,076,958 and 699,953 for the three months ended June 30, 2004 and 2003, and 1,056,592 and 686,778 for the six month periods ended June 30, 2004 and 2003.

NOTE 6—STOCK COMPENSATION

Stock Options.

The Company adopted the fair value method of accounting for stock options effective January 1, 2003, using the prospective method of transition specified in Statement of Financial Accounting Standard ("SFAS") No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an

amendment of FASB Statement No. 123. The cost of all stock options granted on or after January 1, 2003, is based on their fair value and is included as a component of salaries and employee benefits expense over the vesting period for such options. The effect of adoption had no material effect on either the Company's financial condition or results of operations. For stock options granted prior to January 1, 2003, the Company continues to apply the intrinsic value-based method of accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, under which compensation cost is recognized only when the option exercise price is less than the fair market value of the underlying stock on the date of grant.

Had we determined compensation expense based on the fair value method at the grant date for all of our stock options granted, our net earnings and related earnings per share would have been reduced to the pro forma amounts indicated in the table below.

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In thousands, except per share data)
Reported net earnings	$	8,838		$	8,643		$	16,338		$	15,876
Add: Stock based compensation expense included in net earnings, net of tax		731			—			1,111			—
Deduct: All stock based compensation expense, net of tax		(869	)		(174	)		(1,386	)		(347	)

Pro forma net earnings	$	8,700		$	8,469		$	16,063		$	15,529

Basic net earnings per share as reported	$	0.57		$	0.56		$	1.06		$	1.03
Pro forma basic net earnings per share	$	0.56		$	0.55		$	1.04		$	1.01
Diluted net earnings per share as reported	$	0.55		$	0.55		$	1.02		$	1.01
Pro forma diluted net earnings per share	$	0.55		$	0.54		$	1.01		$	0.98

Restricted Stock.

At June 30, 2004, there were outstanding 320,080 shares of unvested restricted common stock and 255,000 shares of unvested restricted performance common stock. The granted shares of restricted common stock will vest over a service period of three to four years. The granted shares of performance common stock will vest in full or in part on the date the Compensation, Nominating and Governance ("CNG") Committee, as Administrator of the Company's 2003 Stock Incentive Plan (the "Plan"), determines that the Company achieved certain financial goals established by the CNG Committee and set forth in the grant documents. The granted shares of performance common stock expire seven years from the date of grant. Prior to vesting of the restricted common stock or performance common stock, each grant recipient is entitled to dividend rights with respect to the shares of granted stock, subject to termination of such rights under the terms of the Plan. Only vested shares of restricted common stock or performance stock may be voted by the grant recipient. Both restricted common stock and performance common stock vest immediately upon a change in control of the Company.

At the time the shares of restricted and performance common stock were granted, the fair market value of the common stock for the net outstanding shares was approximately $18.9 million. Such amount was recorded within shareholders' equity by increasing common stock and recording unearned equity compensation. The unearned equity compensation is being amortized to compensation expense over the vesting periods by use of the straight-line method. Performance stock vesting could be over a shorter period if related financial targets are met earlier than anticipated. Compensation expense related to the restricted and performance stock awards approximated $1.3 million and $1.9 million

during the three and six months ended June 30, 2004, and is included in salaries and employee benefits expense in the accompanying consolidated statements of earnings.

NOTE 7—BORROWINGS AND SUBORDINATED DEBENTURES

Borrowings.

At June 30, 2004, we had $69.6 million of borrowings outstanding. Borrowings included advances from the Federal Home Loan Bank of San Francisco of $5.6 million in overnight money and $55.0 million of fixed rate advances at 1.59% which mature on December 3, 2004. Additionally, we had an aggregate of $9.0 million outstanding on our lines of credit which carry an adjustable rate based on the lenders' respective Federal Funds rates plus 150 basis points.

Subordinated Debentures.

In December 2003, the FASB modified and reissued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46R). The original Interpretation 46 issued in January 2003 was adopted by us in the first quarter of 2003 and had no effect on our financial position or operating results. FIN 46R requires the deconsolidation of trust preferred entities, and we adopted this pronouncement on December 31, 2003. As a result of adoption, we deconsolidated our trust preferred entities at December 31, 2003. Based on our current operations and structure, FIN 46R is not expected to have any further effect on our financial position and operating results.

The Company had an aggregate of $121.7 million of subordinated debentures outstanding at June 30, 2004. The subordinated debentures were issued in seven separate series. Each issuance has a maturity of thirty years from its date of issue. The subordinated debentures were issued to trusts established by us, which in turn issued trust preferred securities. Within limitations, these securities are presently considered Tier 1 capital for regulatory purposes and the proceeds from the issuance of the securities were used primarily to fund several of our acquisitions. Generally and with certain limitations, we are permitted to call the debentures in the first five years if the prepayment election relates to one of the following three events: (i) a change in the tax treatment of the debentures stemming from a change in the IRS laws; (ii) a change in the regulatory treatment of the underlying trust preferred securities as Tier 1 capital; and (iii) a requirement to register the underlying trust as a registered investment company. Under certain of our series of issuances, redemption in the first five years may be subject to a prepayment penalty. Trust I may not be called for 10 years from the date of issuance unless one of the three events described above has occurred and then a prepayment penalty applies. In addition, there is a prepayment penalty if the Trust I debentures are called 10 to 20 years from the date of its issuance, although they may be called at par after 20 years.

The following table summarizes the terms of each issuance.

Series	Date issued	Amount		Maturity Date	Earliest Call Date By Company Without Penalty*	Fixed or Variable Rate	Rate Adjuster		Current Rate	Next Reset Date
	(Dollars in thousands)
Trust I	9/7/2000	$	8,248	9/7/2030	9/7/2020	Fixed	N/A		10.60%	N/A
Trust II	12/18/2001		10,310	12/18/2031	12/18/2006	Variable	3-month LIBOR +3.60	%	5.13%	9/17/04
Trust III	11/28/2001		10,310	12/8/2031	12/8/2006	Variable	6-month LIBOR +3.75	%	5.61%	12/7/2004
Trust IV	6/26/2002		10,310	6/26/2032	6/26/2007	Variable	3-month LIBOR +3.55	%	5.14%	9/25/2004
Trust V	8/15/2003		10,310	9/17/2033	9/17/2008	Variable	3-month LIBOR +3.10	%	4.66%	9/16/2004
Trust VI	9/3/2003		10,310	9/15/2033	9/15/2008	Variable	3-month LIBOR +3.05	%	4.57%	9/15/2004
Trust VII	2/4/2004		61,856	4/23/2034	4/23/2009	Variable	3-month LIBOR +2.75	%	4.43%	10/27/2004

*: As described above, certain issuances may be called earlier without penalty upon the occurrence of certain events.

As mentioned above, a limited amount of trust preferred securities are considered Tier 1 capital for regulatory purposes. The Board of Governors of the Federal Reserve System, which is the Company's banking regulator, has proposed to modify its rule on the amount of trust preferred securities that may be included in regulatory capital. As the final ruling has not been issued, it is not possible to estimate the effect, if any, such final rule would have on the Company's Tier I regulatory capital.

NOTE 8—COMMITMENTS AND CONTINGENCES

The Banks are party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers. Such financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of such instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

Commitments to extend credit amounting to $750.6 million and $570.0 million were outstanding as of June 30, 2004 and December 31, 2003. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit and financial guarantees amounting to $36.0 million and $31.4 million were outstanding as of June 30, 2004 and December 31, 2003. Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. Most guarantees will expire within one year. The Company generally requires collateral or other security to support financial instruments with credit risk. Management does not anticipate that any material loss will result from the outstanding commitments to extend credit, standby letters of credit or financial guarantees.

Western Division (Gilbert et al. v. Cohn et al., Case No. CV-04-4989 WMB (AJWx)). The plaintiffs have attempted to remand the action to the Los Angeles Superior Court. We are named as defendants in our capacity as alleged successors to First Charter Bank, N.A., which the Company acquired in October 2001.

The lawsuit alleges that a former officer of First Charter Bank and later principal of Four Star Financial Services, LLC ("Four Star"), an affiliate of 900 Capital Services, Inc. ("900 Capital"), improperly induced several First Charter customers to invest in 900 Capital or affiliates of 900 Capital, and further alleges that Four Star, 900 Capital and some of their affiliated entities perpetuated their fraud upon investors through various First Charter accounts with First Charter's purported participation in and/or willful ignorance of the scheme. The actions alleged in the complaint date back to the mid-1990s, and the complaint alleges several counts for relief including fraud, breach of fiduciary duty, relief pursuant to the California Business and Professions Code, negligence and relief under the California Securities Act stemming from an alleged ponzi scheme and sale of securities issued by Four Star. The investment losses to the individually named plaintiffs are specified in the amended complaint to be approximately $5 million. The plaintiffs seek an unspecified level of compensatory and punitive damages on behalf of the individual plaintiffs. While the plaintiffs intend to establish a class for purposes of pursuing a class action, a class has not yet been certified. On July 26, 2004, we filed proofs of claim in the federal bankruptcy proceedings of Four Star and 900 Capital for contribution and indemnity. We believe the allegations set forth in the complaint are factually and legally inaccurate and wholly without merit. We intend to vigorously defend the lawsuit.

In the ordinary course of our business, we are party to various other legal actions, which we believe are incidental to the operation of our business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions to which we are currently a party cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, any resulting liability is not likely to have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. This statement represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from management's opinion based on a variety of factors, including the uncertainties involved in the proof of legal and factual matters in legal proceedings.

NOTE 9—REGULATORY MATTERS

On April 8, 2004, First National Bank entered into a memorandum of understanding, an informal administrative action, with the Office of the Comptroller of the Currency, which we refer to as the OCC, with respect to First National's compliance with Bank Secrecy Act/Anti-Money Laundering ("BSA/AML") regulations. The memorandum requires us to evaluate and strengthen our BSA/AML program and processes. The memorandum is limited in scope to BSA/AML issues and management believes that it will have no material impact on our operating results or financial condition and that, unless we fail to adequately address the concerns of the OCC, the memorandum will not constrain our business. Management believes it has addressed all the matters contained in the memorandum and submitted written responses to the OCC. The OCC has acknowledged receipt of our submissions and indicated that they will be reviewed in the normal course. We are committed to resolving the issues addressed in the memorandum as promptly as possible and believe we have adequately satisfied all aspects of the memorandum to date.

NOTE 10—DIVIDEND APPROVAL

On July 22, 2004, our Board of Directors declared a quarterly cash dividend of $0.22 per common share payable on August 31, 2004 to shareholders of record at the close of business on August 16, 2004.

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") contains certain forward-looking information about the Company and its subsidiaries, which statements are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. The Company cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, implied or projected by, such forward-looking statements. Risks and uncertainties include, but are not limited to:

•: planned acquisitions and related cost savings cannot be realized or realized within the expected time frame;
•: revenues are lower than expected;
•: credit quality deterioration which could cause an increase in the provision for loan losses;
•: competitive pressure among depository institutions increases significantly;
•: the Company's ability to successfully integrate acquired entities, or to achieve expected synergies and operating efficiencies within expected time-frames or at all;
•: the integration of acquired businesses costs more, takes longer or is less successful than expected;
•: the possibility that personnel changes will not proceed as planned;
•: the cost of additional capital is more than expected;
•: a change in the interest rate environment reduces interest margins;
•: asset/liability repricing risks and liquidity risks;
•: pending legal matters may take longer or cost more to resolve or may be resolved adversely to the Company;
•: general economic conditions, either nationally or in the market areas in which the Company does or anticipates doing business, are less favorable than expected;
•: the economic and regulatory effects of the continuing war on terrorism and other events of war, including the war in Iraq;
•: legislative or regulatory requirements or changes adversely affecting the Company's business;
•: changes in the securities markets; and
•: regulatory approvals cannot be obtained on the terms expected or on the anticipated schedule.

If any of these risks or uncertainties materializes, or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by, such forward-looking statements. The Company assumes no obligation to update such forward-looking statements.

Overview

We are a bank holding company registered under the Bank Holding Company Act of 1956, as amended. Our principal business is to serve as the holding company for our subsidiary banks, First National Bank and Pacific Western National Bank, which we refer to as the Banks. Through the

holding company structure, First Community attempts to create operating efficiencies for the Banks by consolidating core administrative, operational and financial functions that serve both of the Banks. The Banks are allocated expenses by the holding company for the services performed on their behalf, pursuant to an expense allocation agreement, which the Company believes are lower than the Banks would incur absent the holding company structure.

The Banks are full-service community banks offering a broad range of banking products and services including: accepting time and demand deposits, originating commercial loans, including asset-based lending and factoring, real estate and construction loans, Small Business Administration guaranteed loans, or SBA loans, consumer loans, mortgage loans, international loans for trade finance and other business-oriented products. At June 30, 2004, our gross loans totaled $1,956.8 million and consisted of commercial loans (32%), commercial real estate loans (65%), including construction loans, and consumer and other loans (3%). The portfolio's value and credit quality is affected in large part by real estate trends in Southern California. These percentages also include some foreign loans, primarily to individuals or entities with business in Mexico, representing 5% of total loans. Special services and requests beyond the lending limits of the Banks can be arranged through correspondent banks.

The Banks compete actively for deposits, and we tend to solicit noninterest-bearing deposits. In managing our business, we focus on loan growth and loan yield, deposit cost, and net interest margin, as net interest income accounts for 88% of our net revenues (net interest income plus noninterest income).

On March 1, 2004, we acquired FC Financial and established it as a wholly-owned operating subsidiary of First National. On April 16, 2004, we acquired Harbor National and merged it into Pacific Western.

Key Performance Indicators

Among other factors, our operating results depend generally on the following:

The Level of Our Net Interest Income

Net interest income is the excess of interest earned on our interest-earning assets over the interest paid on our interest-bearing liabilities. Our primary interest-earning assets are loans and investment securities. Our primary interest-bearing liabilities are deposits, borrowings, and subordinated debentures. We attempt to increase our net interest income by maintaining a high level of noninterest-bearing deposits. At June 30, 2004, approximately 44% of our deposits were noninterest-bearing deposits. We further reduce interest expense by limiting our borrowings, and funding our loans through deposits. Although we have borrowing capacity under various credit lines, we have traditionally borrowed funds only for short term liquidity needs such as meeting loan demand, managing deposit flows, and interim acquisition financing. Our general policy is to price our interest-bearing deposits in the bottom half or third-quartile of our competitive peer group, resulting in deposit products that bear interest rates at somewhat lower yields. While our deposit balances will fluctuate depending on deposit holders' perceptions of alternative yields available in the market, we attempt to minimize these variances by attracting a high percentage of noninterest-bearing deposits, which have no expectation of yield.

Loan Growth

We generally seek new lending opportunities in the $500,000 to $5 million range, try to limit loan maturities for commercial loans to one year, for construction loans up to 18 months, and for commercial real estate loans up to ten years, and price lending products so as to preserve our interest spread and net interest margin. We may often encounter strong competition in pursuing lending opportunities such that potential borrowers obtain loans elsewhere at lower rates than those we offer.

Excluding acquired loan portfolios, our organic loan growth was $100.7 million for the three months ended June 30, 2004, and $145.7 million for the six months ended June 30, 2004.

The Magnitude of Credit Losses

We maintain an allowance for loan losses. Loss provisions are charged to operations as and when needed, actual loan losses are charged to the allowance, and recoveries on loans previously charged off are credited to the allowance. We stress credit quality in originating and monitoring the loans we make and measure our success by the level of our nonperforming assets and the corresponding level of our allowance. Through focusing on credit quality, the loan portfolio of the Company is generally better than the quality of the loan portfolios we have acquired. Following acquisitions, we generally work to remove problem loans from the portfolio or allow lower credit quality loans to mature, and seek to replace such loans with obligations from borrowers with higher quality credit. Changes in economic conditions, however, such as increases in the general level of interest rates, could negatively impact our customers and lead to increased provisions for loan losses.

The Level of Our Noninterest Expense

Our noninterest expense includes fixed and controllable overhead, the major components of which are compensation, occupancy, data processing and communications. We measure success in controlling such costs through monitoring of the efficiency ratio. We calculate the efficiency ratio by dividing noninterest expense by the sum of net interest income and noninterest income. A lower ratio reflects a lower percentage of expenses relative to income generated. The consolidated efficiency ratios have been as follows:

Quarterly Period	Ratio
Second quarter 2004	57.4	%
First quarter 2004	58.8	%
Fourth quarter 2003	53.9	%
Third quarter 2003	56.8	%
Second quarter 2003	52.0	%
First quarter 2003	56.8	%

The efficiency ratios reflected above are affected by securities gains recognized in the first quarter of 2004 and the second quarter of 2003. Additionally, our operating results have been influenced significantly by acquisitions; the eleven acquisitions we completed from January 1, 2001 through June 30, 2004, added approximately $2.5 billion in assets. Our assets at June 30, 2004, total approximately $2.7 billion. Our noninterest expenses have increased for all periods presented in part because of our acquisitions.

Critical Accounting Policies

The Company's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The Company has identified several policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for loan losses, the fair value of financial instruments, and the carrying values of goodwill, other intangible assets and deferred income tax assets. For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2003.

Results of Operations

Earnings Performance

We analyze our performance based on net earnings determined in accordance with accounting principles generally accepted in the United States. The comparability of financial information is affected by our acquisitions. Operating results include the operations of acquired entities from the dates of acquisition. The following table presents net earnings and summarizes per share data and key financial ratios.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2004			2003			2004			2003
	(In thousands, except per share data)
Net interest income	$	31,341		$	24,437		$	57,675		$	48,878
Noninterest income		4,079			6,104			8,156			10,180

Net revenues		35,420			30,541			65,831			59,058
Provision for loan losses		200			180			200			300
Noninterest expense		20,342			15,869			38,207			32,069
Income taxes		6,040			5,849			11,086			10,813

Net earnings(1)	$	8,838		$	8,643		$	16,338		$	15,876

Average interest-earning assets	$	2,248,565		$	1,812,166		$	2,148,533		$	1,822,796

Profitability measures:
Basic net earnings per share	$	0.57		$	0.56		$	1.06		$	1.03
Diluted net earnings per share	$	0.55		$	0.55		$	1.02		$	1.01
Return on average assets		1.32	%		1.60	%		1.28	%		1.47	%
Return on average equity		10.3	%		10.7	%		9.6	%		10.0	%
Efficiency ratio		57.4	%		52.0	%		58.0	%		54.3	%

(1): Our quarterly results include Bank of Coronado subsequent to January 9, 2003; Verdugo Banking Company subsequent to August 22, 2003; FC Financial subsequent to March 1, 2004 and Harbor National subsequent to April 16, 2004.

The improvement in net earnings resulted from increased interest-earning assets and, accordingly, net interest income. The increase in interest-earning assets is due to the assets acquired in acquisitions and organic loan growth. Second quarter 2004 earnings growth was fueled by organic loan growth of $100.7 million, as compared to $45.0 million and $50.0 million of organic loan growth experienced in the first quarter of 2004 and the fourth quarter of 2003. The increase in the efficiency ratio reflects both organic growth and acquisitions. For further information on our acquisitions, see Note 2 of Notes to Unauditied Condensed Consolidated Financial Statements included elsewhere herein.

Net Interest Income. Net interest income, which is one of our principal sources of revenue, represents 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. Net interest income is affected by changes in both interest rates and the volume of average interest-earning assets and interest-bearing liabilities. The following tables present, for the periods indicated, the distribution

of average assets, liabilities and shareholders' equity, as well as interest income and yields earned on average interest-earning assets and interest expense and costs on average interest-bearing liabilities.

		For the Three Months Ended June 30,
		2004						2003
		Average Balance		Interest Income or Expense		Average Yield or Cost		Average Balance		Interest Income or Expense		Average Yield or Cost
		(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of deferred fees and costs(1)(2)		$	1,896,606	$	32,356	6.86	%	$	1,453,974	$	25,356	6.99	%
Investment securities(2)			320,074		2,363	2.97	%		286,088		2,046	2.87	%
Federal funds sold			29,189		67	0.92	%		70,441		211	1.20	%
Other earning assets			2,696		15	2.24	%		1,663		6	1.45	%

	Total interest-earning assets		2,248,565		34,801	6.22	%		1,812,166		27,619	6.11	%
Noninterest-earning assets:
Other assets			450,661						360,292

	Total assets	$	2,699,226					$	2,172,458

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
	Interest checking	$	188,261		28	0.06	%	$	164,567		66	0.16	%
	Money market		680,842		930	0.55	%		549,587		945	0.69	%
	Savings		83,060		26	0.13	%		78,553		124	0.63	%
	Time certificates of deposit		271,007		828	1.23	%		295,997		1,385	1.88	%

	Total interest-bearing deposits		1,223,170		1,812	0.60	%		1,088,704		2,519	0.93	%
Other interest-bearing liabilities			154,925		1,648	4.28	%		40,126		663	6.63	%

	Total interest-bearing liabilities		1,378,095		3,460	1.01	%		1,128,830		3,182	1.12	%

Noninterest-bearing liabilities:
	Demand deposits		938,913						691,906
	Other liabilities		36,507						27,825

	Total liabilities		2,353,515						1,848,561
Shareholders' equity			345,711						323,897

Total liabilities and shareholders' equity		$	2,699,226					$	2,172,458

Net interest income				$	31,341					$	24,437

Net interest spread						5.21	%					4.99	%

Net interest margin						5.61	%					5.42	%

(1): Includes nonaccrual loans and loan fees.
(2): Yields on loans and securities have not been adjusted to a tax-equivalent basis because the impact is not material.

Second quarter analysis. The year-over-year increase in interest income was due primarily to the Company adding interest-earning assets from organic loan growth and the Verdugo, FC Financial and Harbor National acquisitions. The decline in interest expense on deposits was largely the result of the declining interest rate environment during that twelve-month period. The increase in interest expense on other interest-bearing liabilities was due to the subordinated debentures issued in the first quarter.

We continued our efforts to reduce the cost of our deposits by pricing down interest-bearing products and by targeting growth of the demand deposit base. The average cost of deposits was 0.34% for the second quarter of 2004 compared to 0.57% and 0.36% for the second quarter of 2003 and the first quarter of 2004. The overall cost of interest-bearing liabilities decreased to 1.01% for the second

quarter of 2004 compared to 1.12% for the same period of 2003 and increased from 0.99% for the first quarter of 2004. The slight increase from the first quarter of 2004 is the result of a full quarter's impact of the subordinated debentures issued during the first quarter of 2004. As market rates are expected to increase, there is no assurance that we can reduce further the cost of deposits.

Our net interest margin for the second quarter of 2004 was 5.61%, an increase of 19 basis points when compared to the same period of 2003 and an increase of 44 basis points when compared to the first quarter of 2004 net interest margin of 5.17%. Yields on average earning assets were 6.22% and 6.11% for the second quarter of 2004 and 2003, respectively, and 5.78% for the first quarter of 2004.

		For the Six Months Ended June 30,
		2004						2003
		Average Balance		Interest Income or Expense		Average Yield or Cost		Average Balance		Interest Income or Expense		Average Yield or Cost
		(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of deferred fees and costs(1)(2)		$	1,755,080	$	58,581	6.71	%	$	1,468,145	$	50,967	7.00	%
Investment securities(2)			362,241		5,484	3.04	%		305,332		4,363	2.88	%
Federal funds sold			29,617		141	0.96	%		47,472		278	1.18	%
Other earning assets			1,595		17	2.14	%		1,847		9	0.98	%

	Total interest-earning assets		2,148,533		64,223	6.01	%		1,822,796		55,617	6.15	%
Noninterest-earning assets:
Other assets			426,602						353,944

	Total assets	$	2,575,135					$	2,176,740

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
	Interest checking	$	184,777		56	0.06	%	$	163,710		153	0.19	%
	Money market		641,623		1,740	0.55	%		551,841		1,928	0.70	%
	Savings		78,687		49	0.13	%		78,363		254	0.65	%
	Time certificates of deposit		275,750		1,738	1.27	%		309,663		3,065	2.00	%

	Total interest-bearing deposits		1,180,837		3,583	0.61	%		1,103,577		5,400	0.99	%
Other interest-bearing liabilities			132,828		2,965	4.49	%		41,864		1,339	6.45	%

	Total interest-bearing liabilities		1,313,665		6,548	1.00	%		1,145,441		6,739	1.18	%

Noninterest-bearing liabilities:
	Demand deposits		882,407						681,495
	Other liabilities		36,246						28,801

	Total liabilities		2,232,318						1,855,737
Shareholders' equity			342,817						321,003

Total liabilities and shareholders' equity		$	2,575,135					$	2,176,740

Net interest income				$	57,675					$	48,878

Net interest spread						5.01	%					4.97	%

Net interest margin						5.40	%					5.41	%

(1): Includes nonaccrual loans and loan fees.
(2): Yields on loans and securities have not been adjusted to a tax-equivalent basis because the impact is not material.

Six Month Analysis. The growth in net interest income was the result of the increase in average interest- earning assets from both organic loan growth and the Verdugo, FC Financial and Harbor National acquisitions. Notwithstanding the overall increase in average interest-bearing liabilities, interest

expense on both deposits and total interest-bearing liabilities declined for the six months ended June 30, 2004, when compared to the same period of 2003, largely as a result of the declining interest rate environment. As a percentage of total deposits, the average balance of noninterest-bearing demand deposits increased to 43% of total average deposits for the six month period ended June 30, 2004, from 38% for the same period of 2003. The effect of the lower yields earned on interest-earning assets was almost completely offset by the lower costs paid on interest-bearing liabilities, and resulted in the net interest margin of 5.40% for the six months ended June 30, 2004, being relatively unchanged when compared to the net interest margin of 5.41% for the same period of 2003.

Provision for Loan Losses. During the second quarter of 2004, we recorded a $200,000 provision for loan losses, compared to $180,000 in the same period of 2003. The provision is based on the credit quality indicators we monitor and our allowance for loan losses methodology. The allowance for loan losses was $30.3 million at June 30, 2004, and represented 1.56% of loans, net of deferred fees. This ratio was 1.61% at December 31, 2003, and 1.67% at June 30, 2003. During the quarter ended June 30, 2004, the allowance increased by $2.3 million, of which $1.6 million was due to the Harbor National acquisition.

Noninterest Income. The following table summarizes noninterest income by category for the periods indicated.

		Three Months Ended(1)
		June 30, 2004		March 31, 2004		December 31, 2003		September 30, 2003		June 30, 2003
		(In thousands)
Service charges and fees on deposit accounts		$	2,126	$	2,299	$	2,362	$	2,219	$	2,279
Other commissions and fees			981		859		939		1,104		884
Gain on sale of loans			135		171		192		135		448
Gain on sale of securities			—		30		—		—		1,756
Gain on sale of other real estate owned			—		—		—		—		22
Increase in cash surrender value of life insurance			489		507		518		523		510
Other income			348		211		368		916		205

	Total noninterest income	$	4,079	$	4,077	$	4,379	$	4,897	$	6,104

(1): Our quarterly results include Verdugo Banking Company subsequent to August 22, 2003; FC Financial subsequent to March 1, 2004; and Harbor National subsequent to April 16, 2004.

The decrease in noninterest income for the second quarter of 2004 from the same period of 2003 is largely the result of no securities gains in the second quarter of 2004 compared to $1.8 million in the same period of 2003. During the second quarter of 2003, we restructured the securities portfolios of acquired banks through sales that resulted in the gains. Total noninterest income remained unchanged from the first quarter of 2004. The decline in service charges and fees on deposit accounts for the second quarter of 2004 when compared to all of the quarters presented is due mainly to moving certain qualified customers to a more favorable pricing schedule. The decrease in noninterest income for the six months ended June 30, 2004, from the same period of 2003, is due to the securities gains mentioned above.

Noninterest Expense. The following table summarizes noninterest expense by category for the periods indicated.

		Three Months Ended(1)
		June 30, 2004			March 31, 2004			December 31, 2003			September 30, 2003			June 30, 2003
		(Dollars in thousands)
Salaries and employee benefits		$	11,016		$	9,725		$	8,266		$	8,082		$	8,050
Occupancy			2,851			2,314			2,407			2,567			2,093
Furniture and equipment			748			739			853			817			815
Data processing			1,146			1,025			1,199			1,168			1,204
Other professional services			792			672			388			723			554
Business development			301			265			273			316			221
Communications			528			497			524			613			519
Insurance and assessments			414			379			370			410			400
Cost of other real estate owned			—			—			—			—			11
Intangible asset amortization			826			691			722			632			587
Other			1,720			1,558			1,548			1,692			1,415

	Total noninterest expense	$	20,342		$	17,865		$	16,550		$	17,020		$	15,869

Efficiency ratio			57.4	%		58.8	%		53.9	%		56.8	%		52.0	%

(1): Our quarterly results include Verdugo Banking Company subsequent to August 22, 2003; FC Financial subsequent to March 1, 2004; and Harbor National subsequent to April 16, 2004.

The increase in noninterest expense for the second quarter of 2004 compared to the second quarter of 2003 and the first quarter of 2004 was primarily due to increases in staff and premises expenses associated with the three acquisitions consummated since June 30, 2003. The increase in salaries and employee benefits expense, or compensation, for the first six months of 2004 compared to the same period in 2003 is largely the result of an increased number of employees due to acquisitions and expanded business activity, in addition to the amortization of restricted and performance stock awarded after June 30, 2003.

Compensation increased by $1.3 million to $11.0 million for the second quarter of 2004 from $9.7 million for the first quarter of 2004. Approximately $700,000 of this increase resulted from increased headcount. The remaining $600,000 of the increase resulted from deferred and incentive compensation accruals. In June 2004, we awarded 56,080 shares of restricted stock to senior employees who elected to receive restricted stock vesting over 3 years in lieu of cash bonuses to be earned in 2004. We review the adequacy of our deferred and incentive compensation accruals periodically and make adjustments as appropriate.

The second quarter of 2004 includes stock compensation of $1.3 million related to 575,080 shares of our common stock underlying restricted stock and performance stock awards made to employees subsequent to June 30, 2003. Stock compensation expense related to these awards is expected to be $2.0 million per quarter for the rest of 2004; however, this amount may be affected by future grants or forfeitures. There was no stock compensation expense during the first six months of 2003. Stock compensation expense for the first six months of 2004 was $1.9 million.

The occupancy expense increase in the second quarter of 2004 was due to the banking and lending offices acquired and to leasehold improvements write-offs totaling $295,000 related to the relocation of a branch office. Intangible asset amortization increased during all periods because of the core deposit and customer relationship intangibles added by the Verdugo, FC Financial, and Harbor National acquisitions.

Other noninterest expense includes, among other items, customer related expenses, stationary and supplies, miscellaneous staffing costs, fees paid to correspondent banks, shareholder expenses, director fees and operational losses. In the second quarter of 2004, we recognized $158,000 of due diligence costs related to terminated acquisition discussions.

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 exclusion from taxable income of income on certain investments, our actual effective income tax rates ranged from 40.4% to 40.6% for the three and six month periods ended June 30, 2004 and 2003.

Balance Sheet Analysis

Loans. The following table presents the balance of each major category of loans at the dates indicated.

		At June 30, 2004					At December 31, 2003
		Amount			% of total		Amount			% of total
		(Dollars in thousands)
Loan Category:
Domestic:
	Commercial	$	542,052		28	%	$	426,796		26	%
	Real estate, construction		429,652		22	%		347,321		22	%
	Real estate, mortgage		855,447		43	%		712,390		45	%
	Consumer		41,087		2	%		31,383		2	%
Foreign:
	Commercial		74,191		4	%		67,821		4	%
	Other		14,355		1	%		14,895		1	%

Gross loans			1,956,784		100	%		1,600,606		100	%
Less: deferred fees and costs			(6,683	)				(4,769	)
Less: allowance for loan losses			(30,349	)				(25,752	)

Total net loans		$	1,919,752				$	1,570,085

The increase in loans since year-end is attributable to both the $205.0 million of net loans acquired in the FC Financial and Harbor National acquisitions along with net organic loan growth of $145.7 million.

Allowance for Loan Losses. The following table presents the changes in our allowance for loan losses for the periods indicated.

		As of or for the Periods Ended
		6 Months 6/30/04			3 Months 3/31/04			Year 12/31/03			6 Months 6/30/03			3 Months 3/31/03
		(Dollars in thousands)
Balance at beginning of period		$	25,752		$	25,752		$	24,294		$	24,294		$	24,294
Loans charged off:
	Commercial		(1,218	)		(1,013	)		(3,331	)		(2,484	)		(1,131	)
	Real estate—construction		—			—			—			—			—
	Real estate—mortgage		(30	)		—			—			—			—
	Consumer		(202	)		(171	)		(1,145	)		(708	)		(538	)
	Foreign		(344	)		(341	)		—			—			—

	Total loans charged off		(1,794	)		(1,525	)		(4,476	)		(3,192	)		(1,669	)

Recoveries on loans charged off:
	Commercial		1,149			461			2,453			1,455			1,199
	Real estate—construction		—			—			—			—			—
	Real estate—mortgage		45			5			84			65			—
	Consumer		163			92			468			326			161
	Foreign		15			15			—			—			—

Total recoveries on loans charged off			1,372			573			3,005			1,846			1,360

Net loans charged off			(422	)		(952	)		(1,471	)		(1,346	)		(309	)
Provision for loan losses			200			—			300			300			120
Additions due to acquisitions			4,819			3,258			2,629			633			633

Balance at end of period		$	30,349		$	28,058		$	25,752		$	23,881		$	24,738

Ratios:
Allowance for loan losses to loans, net			1.56	%		1.64	%		1.61	%		1.67	%		1.68	%
Allowance for loan losses to nonaccrual loans			354.6	%		365.4	%		347.5	%		245.6	%		179.9	%
Annualized net charge offs to average loans			0.05	%		0.24	%		0.10	%		0.18	%		0.08	%

The allowance for loan losses increased by $4.6 million at June 30, 2004 compared to the balance at December 31, 2003. The increase in the allowance is primarily due to $4.8 million of allowance acquired in the FC Financial and Harbor National acquisitions, offset by the small amount of net charge offs during the year. Management utilizes information currently available to evaluate the allowance for loan losses. However, the allowance for loan losses is subjective in nature and may be adjusted in the future depending on changes in economic conditions or other factors. 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.

Credit Quality. We define nonperforming assets to include (i) loans past due 90 days or more and still accruing; (ii) loans which have ceased accruing interest, which we refer to as "nonaccrual loans"; and (iii) assets acquired through foreclosure, including other real estate owned. "Impaired loans" are 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. Nonaccrual loans may 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.

Management is not aware of any additional significant loss potential that has not already been considered in the estimation of the allowance for loan losses. As of June 30, 2004, we had no loans past due 90 days and still accruing interest.

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
		6 Months 6/30/04			3 Months 3/31/04			12 Months 12/31/03			9 Months 9/30/03			6 Months 6/30/03
		(Dollars in thousands)
Loans, net of deferred fees and costs		$	1,950,101		$	1,715,605		$	1,595,837		$	1,546,664		$	1,432,423
Allowance for loan losses			30,349			28,058			25,752			25,768			23,881
Average loans, net of deferred fees and costs			1,755,080			1,613,554			1,493,211			1,469,124			1,468,145
Nonaccrual loans			8,559			7,678			7,411			9,509			9,725
Other real estate owned			—			—			—			—			136

	Nonperforming assets	$	8,559		$	7,678		$	7,411		$	9,509		$	9,861

Impaired loans, gross		$	8,559		$	7,678		$	7,411		$	9,509		$	9,725
Allocated allowance for loan losses			(1,772	)		(1,668	)		(2,267	)		(2,358	)		(1,791	)

	Net investment in impaired loans	$	6,787		$	6,010		$	5,144		$	7,151		$	7,934

Charged-off loans year-to-date		$	1,794		$	1,525		$	4,476		$	4,142		$	3,192
Recoveries year-to-date			(1,372	)		(573	)		(3,005	)		(2,687	)		(1,846	)

	Net charge-offs	$	422		$	952		$	1,471		$	1,455		$	1,346

Allowance for loan losses to loans, net of deferred fees and costs			1.56	%		1.64	%		1.61	%		1.67	%		1.67	%
Allowance for loan losses to nonaccrual loans and leases			354.6	%		365.4	%		347.5	%		271.0	%		245.6	%
Allowance for loan losses to nonperforming assets			354.6	%		365.4	%		347.5	%		271.0	%		242.2	%
Nonperforming assets to loans and OREO			0.44	%		0.45	%		0.46	%		0.61	%		0.69	%
Annualized net charge offs to average loans, net of deferred fees and costs			0.05	%		0.24	%		0.10	%		0.13	%		0.18	%
Nonaccrual loans to loans, net of deferred fees and costs			0.44	%		0.45	%		0.46	%		0.61	%		0.68	%

Nonaccrual loans as a percentage of net loans was 0.44% at June 30, 2004 and has remained relatively unchanged since December 31, 2003. The decline from a year ago levels and the continued low ratio is attributable to our loan monitoring process, as well as the impact the low interest rate environment has on the ability of borrowers to repay loans.

We experienced recoveries of $799,000 for the second quarter of 2004, of which $405,000 related to one credit. The high level of recoveries experienced during the second quarter may not reoccur. Nonaccrual loans increased over the first quarter mainly due to a loan for $1.3 million being added to nonaccrual offset by repayments on other nonaccrual loans.

Deposits. The following table presents the balance of each major category of deposits at the dates indicated.

		At June 30, 2004				At December 31, 2003
		Amount		% of deposits		Amount		% of deposits
		(Dollars in thousands)
Noninterest-bearing		$	952,903	44	%	$	814,365	42	%
Interest-bearing:
	Interest checking		188,170	9			181,223	9
	Money market accounts		662,324	31			585,628	30
	Savings		86,902	4			72,876	4
	Time deposits under $100,000		90,954	4			110,720	6
	Time deposits over $100,000		170,053	8			184,857	9

Total interest-bearing			1,198,403	56			1,135,304	58

Total deposits		$	2,151,306	100	%	$	1,949,669	100	%

Deposit balances increased by $201.6 million at June 30, 2004 when compared to the December 31, 2003 balances. The growth in deposits is attributable to both organic growth and deposits acquired in the Harbor National acquisition. Deposits acquired in the Harbor National acquisition totaled $156.8 million.

Regulatory Matters

The regulatory capital guidelines as well as the actual capital ratios for First National, Pacific Western, and the Company as of June 30, 2004, are as follows:

	Minimum Regulatory Requirements				Actual
	Well Capitalized		First National		Pacific Western		Company Consolidated
Tier 1 leverage capital ratio	5.00	%	9.68	%	8.20	%	8.63	%
Tier 1 risk-based capital ratio	6.00	%	10.22	%	8.98	%	9.26	%
Total risk-based capital	10.00	%	11.48	%	10.09	%	10.53	%

We have issued and outstanding trust preferred securities totaling $118.0 million, the majority of which is treated as regulatory capital, for purposes of determining the Company's capital ratios. The Board of Governors of the Federal Reserve System, which is the holding Company's banking regulator, has proposed to modify its rule on the amount of trust preferred securities that may be included in regulatory capital. As the final ruling has not been issued, it is not possible to estimate the effect, if any, on the Company's regulatory capital as a result of any future action taken by the Board of Governors of the Federal Reserve System.

indicated that they will be reviewed in the normal course. We are committed to resolving the issues addressed in the memorandum as promptly as possible and believe we have adequately satisfied all aspects of the memorandum to date.

Liquidity Management

Liquidity. The goals of our liquidity management are to ensure the ability of the Company and our Banks to meet their financial commitments when contractually due and to respond to other demands for funds such as 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. We have an Asset/Liability Management Committee, or ALM Committee, responsible for managing balance sheet and off-balance sheet commitments to meet the needs of customers while achieving our financial objectives. Our ALM Committee meets regularly to review funding capabilities, current and forecasted loan demand and investment opportunities. The Company's off-balance sheet commitments relate primarily, but not exclusively, to unfunded loan commitments and letters of credit, which collectively totaled $786.6 million as of June 30, 2004.

Historically, the Banks' overall liquidity sources are their core deposit bases. The Banks have not relied on large denomination time deposits. To meet short-term liquidity needs, the Banks maintain what we believe 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, interest-bearing deposits in other financial institutions and investment securities available-for-sale) as a percent of total deposits were 18.9% and 26.8% as of June 30, 2004 and December 31, 2003.

As an additional source of liquidity, the Banks maintain aggregate lines of credit of $110.0 million with correspondent banks for the purchase of overnight funds. These lines are subject to availability of funds. The Banks have also established secured borrowing relationships with the Federal Home Loan Bank of San Francisco, which we refer to as the FHLB, which would allow the Banks to borrow up to approximately $210 million in the aggregate. As of June 30, 2004, First National had borrowed $60.6 million from the FHLB, which was comprised of $5.6 million of overnight borrowings and $55.0 million due on December 3, 2004. Additionally, to meet liquidity needs, the Banks are permitted to, and frequently may, loan to and borrow from each other in accordance with federal regulations.

On a stand-alone basis, the Company's sources of liquidity include dividends from the Banks and our ability to raise capital, issue subordinated debt and secure outside borrowings. The ability of the Company to obtain funds for the payment of dividends to our shareholders and for other cash requirements is largely dependent upon the Banks' earnings. The amount of dividends that the Banks may pay to the Company is restricted by regulatory guidelines. The Company has issued $121.7 million in subordinated debt including $61.9 million issued in the first quarter of 2004 to help finance the FC Financial and Harbor National acquisitions. The Company has established two revolving lines of credit totaling $30.0 million with substantially the same borrowing terms. The Company is able to borrow at a rate equal to the lending banks' federal funds rate plus 1.50%, and as of June 30, 2004, the Company had $9.0 million outstanding under these revolving lines of credit. These credit lines mature in August 2004, and we expect that they will be renewed.

Contractual Obligations. The known contractual obligations of the Company at June 30, 2004 are as follows:

		At June 30, 2004
		Within One Year		One to Three Years		Three to Five Years		After Five Years		Total
		(In thousands)
Short-term debt obligations		$	69,600	$	—	$	—	$	—	$	69,600
Long-term debt obligations			—		—		—		121,654		121,654
Operating lease obligations			6,904		12,312		9,590		21,495		50,301
Other contractual obligations			3,052		6,105		1,529		—		10,683

	Total	$	79,556	$	18,417	$	11,116	$	143,149	$	252,238

Debt obligations and operating lease obligations are discussed in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2003. The other contractual obligations relate to our minimum liability associated with our data and item processing contract with a third-party provider.

The contractual obligations table above does not include our merger-related liability which was $5.9 million at June 30, 2004. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements contained in "Item 1. Consolidated Financial Statements (Unaudited)."

We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity, and continued deposit gathering activities. We believe we have in place sufficient borrowing mechanisms for short-term liquidity needs.

Asset/Liability Management and Interest Rate Sensitivity

Interest Rate Risk. We are exposed to credit risk and interest rate risk inherent in our lending and deposit gathering activities. To manage our credit risk, we rely on adherence to our underwriting standards and loan policies as well as our allowance for loan losses methodology. To manage our exposure to changes in interest rates, we perform asset and liability management activities which are governed by guidelines pre-established by our ALM Committee and approved by our Board of Directors. Our ALM Committee monitors our compliance with our asset/liability policies. These policies focus on providing sufficient levels of net interest income while considering acceptable levels of interest rate exposure as well as liquidity and capital constraints.

Market risk-sensitive instruments are generally defined as derivatives and other financial instruments, which include investment securities, loans, deposits and borrowings. At June 30, 2004, we had not used any derivatives to alter our interest rate risk profile. However, both the repricing characteristics of our fixed rate loans and floating rate loans which have reached their floors, as well as our significant percentage of noninterest-bearing deposits compared to interest-earning assets, may influence our interest rate risk profile. Our financial instruments include loans receivable, Federal funds sold, interest-bearing deposits in financial institutions, Federal Reserve Bank and Federal Home Loan Bank stock, investment securities, deposits, borrowings and subordinated debentures. At June 30, 2004, we had interest-sensitive assets of $2,261.0 million while interest-sensitive liabilities totaled $1,389.7 million.

We measure our interest rate risk position on a quarterly basis using three methods: (i) net interest income simulation analysis; (ii) market value of equity modeling; and (iii) traditional gap analysis. The results of these analyses are reviewed by the ALM Committee quarterly. If hypothetical changes to interest rates cause changes to our simulated market value of equity and/or net interest income outside our pre-established limits, we may adjust our asset and liability mix in an effort to bring

our interest rate risk exposure within our established limits. We evaluated the results of our net interest income simulation and market value of equity model prepared as of June 30, 2004. The results of these analyses indicate that our interest rate sensitivity is within limits set by our Board of Directors and that our balance sheet is asset-sensitive. An asset-sensitive balance sheet suggests that in a rising interest rate environment, our net interest margin would increase and during a falling or sustained low interest rate environment, our net interest margin would decrease. The models assume, however, a static balance sheet, i.e., no change in the mix or size of the loan, investment and deposit portfolios.

Net interest income simulation. We used a simulation model to measure the estimated changes in net interest income that would result over the next 12 months from immediate and sustained changes in interest rates as of June 30, 2004. This model is an interest rate risk management tool and the results are not necessarily an indication of our future net interest income. This model has inherent limitations and these results are based on a given set of rate changes and assumptions at one point in time. We have assumed no growth in either our interest-sensitive assets or liabilities over the next 12 months; therefore, the results reflect an interest rate shock to a static balance sheet.

The simulation estimates changes in net interest income by calculating the difference between net interest income forecasted using increasing and declining interest rate scenarios and net interest income forecasted using a base market interest rate derived from the current treasury yield curve. In order to arrive at the base case, we extend our balance sheet at June 30, 2004 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products' pricing methodology in effect as of June 30, 2004. Based on such repricings, we calculated estimated net interest income and net interest margin. The effects of certain balance sheet attributes, such as fixed-rate loans, floating rate loans that have reached their floors and the volume of noninterest-bearing deposits as a percentage of earning assets, impact our assumptions and consequently the results of our interest rate risk management model. Changes that vary significantly from our assumptions include loan and deposit growth or contraction, changes in the mix of our earning assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on our net interest income.

The net interest income simulation model includes various assumptions regarding the repricing relationship for each of our assets and liabilities. Many of our assets are floating rate loans, which are assumed to reprice immediately and to the same extent as the change in market rates according to their contracted index. Some loans and investment vehicles include the opportunity of prepayment (imbedded options) and the simulation model uses national indexes to estimate these prepayments and reinvest the proceeds therefrom at current simulated yields. Our non-term deposit products reprice at our discretion and are assumed to reprice more slowly, usually changing less than the change in market rates.

Further, because the simulation analysis assumes no growth in the balance sheet and that its structure will remain similar to the structure at June 30, 2004, it does not account for all factors that may impact this analysis, including changes by management to mitigate the impact of interest rate changes or the impact a change in interest rates may have on our credit risk profile, loan prepayment estimates and spread relationships which can change regularly. Interest rate changes create changes in actual loan prepayment rates which will differ from the market estimates we used in this analysis. Management reviews the model assumptions for reasonableness on a quarterly basis. The following table presents as of June 30, 2004, forecasted net interest income and net interest margin for the next

12 months using a base market rate and the estimated change to the base scenario given immediate and sustained upward and downward movements in interest rates of 100, 200 and 300 basis points.

Interest rate scenario	Estimated Net Interest Income		Percentage Change From Base		Estimated Net Interest Margin		Estimated Net Interest Margin Change From Base
	(Dollars in thousands)
Up 300 basis points	$	143,339	13.7	%	6.16	%	0.73	%
Up 200 basis points	$	136,205	8.0	%	5.86	%	0.43	%
Up 100 basis points	$	129,180	2.5	%	5.56	%	0.13	%
BASE CASE	$	126,074	—		5.43	%	—
Down 100 basis points	$	123,439	(2.1	)%	5.32	%	(0.11	)%
Down 200 basis points	$	116,182	(7.8	)%	5.01	%	(0.42	)%
Down 300 basis points	$	108,185	(14.2	)%	4.67	%	(0.76	)%

Our simulation results, which take into account the 0.25% increase in the Federal Reserve Bank federal funds rate that took effect June 30, 2004, and the 0.25% increase in the Banks' prime lending rates that took effect on July 1, 2004, indicate our interest rate risk position was asset sensitive as the simulated impact of an immediate upward movement in interest rates results in increases in net interest income over the subsequent 12 month period while an immediate downward movement in interest rates would result in a decrease in net interest income over the next 12 months. We tend to discount the simulated results of a downward movement in interest rates as not realistic given current market interest rate levels. However, our net interest margin may compress in future periods if our financial instruments continue to reprice downward in this sustained low interest rate environment.

Market value of equity. We measure the impact of market interest rate changes on the net present value of estimated cash flows from our assets, liabilities and off-balance sheet items, defined as the market value of equity, using a simulation model. This simulation model assesses the changes in the market value of our interest-sensitive financial instruments that would occur in response to an instantaneous and sustained increase or decrease in market interest rates of 100, 200 and 300 basis points. This analysis assigns significant value to our noninterest-bearing deposit balances which may not necessarily be realized in a bargained sale. The projections are by their nature forward-looking and therefore inherently uncertain, and include various assumptions regarding cash flows and interest rates. This model is an interest rate risk management tool and the results are not necessarily an indication of our actual future results. Actual results may vary significantly from the results suggested by the market value of equity table. Actual loan prepayments and deposit attrition, changes in the mix of our earning assets or funding sources, and future asset/liability management decisions, among others, may vary significantly from our assumptions.

The base case is determined by applying various current market discount rates to the estimated cash flows from the different types of assets, liabilities and off-balance sheet items existing at June 30,

2004. The following table shows the projected change in the market value of equity for the set of rate shocks presented as of June 30, 2004.

Interest rate scenario	Estimated Market Value		Percentage change From Base		Percentage of total assets		Ratio of Estimated Market Value to Book Value
	(Dollars in thousands)
Up 300 basis points	$	618,846	9.9	%	22.7	%	177.2	%
Up 200 basis points	$	606,455	7.7	%	22.3	%	173.7	%
Up 100 basis points	$	591,301	5.0	%	21.7	%	169.3	%
BASE CASE	$	563,002	—		20.7	%	161.2	%
Down 100 basis points	$	528,737	(6.1	)%	19.4	%	151.4	%
Down 200 basis points	$	490,163	(12.9	)%	18.0	%	140.4	%
Down 300 basis points	$	448,147	(20.4	)%	16.5	%	128.3	%

The results of our market value of equity model indicate that an immediate and sustained increase in interest rates would increase the market value of equity from the base case while a decrease in interest rates would decrease the market value of equity.

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. The following table

illustrates the volume and repricing characteristics of our balance sheet at June 30, 2004 over the indicated time intervals.

			At June 30, 2004
			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 deposits in other financial institutions		$	1,107		$	1,188		$	—		$	—		$	115,809		$	118,104
	Federal funds sold			7,500			—			—			—			—			7,500
	Investment securities			20,343			36,513			209,950			34,280			—			301,086
	Loans, net of deferred fees and costs			1,317,035			94,001			477,933			61,132			—			1,950,101
	Other assets			—			—			—			—			345,019			345,019

	Total assets		$	1,345,985		$	131,702		$	687,883		$	95,412		$	460,828		$	2,721,810

LIABILITIES AND SHAREHOLDERS' EQUITY
	Noninterest-bearing demand deposits		$	—		$	—		$	—		$	—		$	952,903		$	952,903
	Interest-bearing demand, money market and savings			937,396			—			—			—			—			937,396
	Time certificates of deposit			150,092			96,544			14,073			298			—			261,007
	Short term borrowings			14,600			55,000												69,600
	Subordinated debentures			103,096			10,310			—			8,248			—			121,654
	Other liabilities			—			—			—			—			30,050			30,050
	Shareholders' equity			—			—			—			—			349,200			349,200

	Total liabilities and shareholders' equity		$	1,205,184		$	161,854		$	14,073		$	8,546		$	1,332,153		$	2,721,810

	Period Gap		$	140,801		$	(30,152	)	$	673,810		$	86,866		$	(871,325	)
	Cumulative interest rate-sensitive assets		$	1,345,985		$	1,477,687		$	2,165,570		$	2,260,982
	Cumulative interest rate-sensitive liabilities		$	1,205,184		$	1,367,038		$	1,381,111		$	1,389,657
	Cumulative Gap		$	140,801		$	110,649		$	784,459		$	871,325
	Cumulative interest-earning assets to cumulative Interest-bearing liabilities			111.7	%		108.1	%		156.8	%		162.7	%
	Cumulative gap as a percent of:
		Total assets		5.2	%		4.1	%		28.8	%		32.0	%
		Interest-earning assets		6.2	%		4.9	%		34.7	%		38.6	%

(1): Assets or liabilities which do not have a stated interest rate.

All amounts are reported at their contractual maturity or repricing periods. This analysis makes certain assumptions as to interest rate sensitivity of savings and NOW accounts which have no stated maturity and have had very little price fluctuation in the recent past. Money market accounts are repriced at management's discretion and generally are more rate sensitive.

The preceding table indicates that we had a positive one year cumulative gap of $110.6 million, or 4.1% total assets, at June 30, 2004. This gap position suggests that we are asset-sensitive and if rates were to increase, our net interest margin would most likely increase. Conversely, if rates were to fall during this period, interest income would decline by a greater amount than interest expense and net income would decrease. The ratio of interest-earning assets to interest-bearing liabilities maturing or repricing within one year at June 30, 2004 is 108.1%. This one year gap position indicates that interest income is likely to be affected to a greater extent than interest expense for any changes in interest rates within one year from June 30, 2004.

The gap table has inherent limitations and actual results may vary significantly from the results suggested by the gap table. The gap table is unable to incorporate certain balance sheet characteristics or factors. The gap table assumes a static balance sheet, like the net interest income simulation, and, accordingly, looks at the repricing of existing assets and liabilities without consideration of new loans and deposits that reflect a more current interest rate environment. Unlike the net interest income

simulation, however, the interest rate risk profile of certain deposit products and floating rate loans that have reached their floors cannot be captured effectively in a gap table. Although the table shows the amount of certain assets and liabilities scheduled to reprice in a given time frame, it does not reflect when or to what extent such repricings actually may occur. For example, interest-bearing demand, money market and savings deposits are shown to reprice in the first three months, but we may choose to reprice these deposits more slowly and incorporate only a portion of the movement in market rates based on market conditions at that time. Alternatively, a loan which has reached its floor may not reprice even though market rates change causing such loan to act like a fixed rate loan regardless of its scheduled repricing date. For example, a loan already at its floor would not reprice if the adjusted rate was less than its floor. The gap table as presented is not able to factor in the flexibility we believe we have in repricing either deposits or the floors on our loans.

We believe the estimated effect of a change in interest rates is better reflected in our net interest income and market value of equity simulations which incorporate many of the factors mentioned.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

Please see the section above titled "Asset/Liability Management and Interest Rate Sensitivity" in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" which provides an update to our quantitative and qualitative disclosure about market risk. This analysis should be read in conjunction with text under the caption "Quantitative and Qualitative Disclosure About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2003, which text is incorporated herein by reference. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Item 2 regarding such forward-looking information.

ITEM 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out by the Company's management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective.

There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

On June 8, 2004, we were served with an amended complaint naming the Company and Pacific Western as defendants in a purported class action lawsuit filed in Los Angeles Superior Court. On July 7, 2004, we removed the action to U.S. District Court for the Central Division of California, Western Division (Gilbert et al. v. Cohn et al., Case No. CV-04-4989 WMB (AJWx)). The plaintiffs have attempted to remand the action to the Los Angeles Superior Court. We are named as defendants in our capacity as alleged successors to First Charter Bank, N.A., which the Company acquired in October 2001.

ITEM 2. Changes in Securities

Repurchases of Common Stock

Through the Company's Directors Deferred Compensation Plan, or the DDCP, participants in the plan may invest deferred amounts in the Company's common stock. The Company has the discretion whether to track purchases of common stock as if made, or to fully fund the DDCP via purchases of common stock with deferred amounts. Purchases of Company common stock by the rabbi trust of the DDCP are considered repurchases of common stock by the Company since the rabbi trust is an asset of the Company. Actual purchases of Company common stock via the DDCP are made through open market purchases pursuant to the terms of the DDCP, which since the amendment of the DDCP in August 2003 includes a predetermined formula and schedule for the purchase of such stock in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. Pursuant to the terms of the DDCP, generally, purchases are actually made or deemed to be made in the open market on the 15th of the month (or the next trading day), beginning March 15th, following the day on which deferred

amounts are contributed to the DDCP. The table below summarizes the purchases actually made by the DDCP during the quarter ended June 30, 2004.

	Total Shares Purchased	Average Price Per Share		Shares Purchased As Part of a Publicly- Announced Program	Maximum Shares Still Available for Repurchase
April 1 – April 30, 2004	—		—	N/A	N/A
May 1 – May 31, 2004	—		—	N/A	N/A
June 1 – June 30, 2004	2,697	$	36.08	N/A	N/A

Total	2,697	$	36.08	N/A	N/A

ITEM 3. Defaults Upon Senior Securities

None.

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

(a): The Company held its annual meeting of shareholders on May 26, 2004.
(b): The following directors were elected at the annual meeting to serve until the next annual meeting of shareholders and thereafter until their successors are duly elected and qualified:

Stephen M. Dunn
John M. Eggemeyer
Barry C. Fitzpatrick
Charles H. Green
Susan E. Lester
Timothy B. Matz
Arnold W. Messer
Daniel B. Platt
Robert A. Stine
Matthew P. Wagner
David S. Williams

(c): At the annual meeting, shareholders voted on (1) the election of the Company's directors; and (2) an amendment and restatement of the Company's 2003 Stock Incentive Plan. All nominees for director were elected and the amendment and restatement of the 2003 Stock Incentive Plan was approved. The results of the voting were as follows:

Matter	Votes For	Votes Against	Withheld	Abstentions	Broker Non- votes
Election of Directors:
Stephen M. Dunn	12,503,294	—	16,436	—	—
John M. Eggemeyer	12,283,138	—	236,592	—	—
Barry C. Fitzpatrick	12,507,134	—	12,596	—	—
Charles H. Green	12,503,825	—	15,905	—	—
Susan E. Lester	12,349,120	—	170,610	—	—
Timothy B. Matz	12,349,120	—	170,610	—	—
Arnold W. Messer	12,507,434	—	12,296	—	—
Daniel B. Platt	12,339,756	—	179,974	—	—
Robert A. Stine	12,349,316	—	170,414	—	—
Matthew P. Wagner	12,507,134	—	12,596	—	—
David S. Williams	12,507,430	—	12,300	—	—
Amendment and Restatement of the Company's 2003 Stock Incentive Plan	5,919,874	4,019,602	—	170,698	2,409,556

ITEM 5. Other Information

None.

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

Exhibit Number		Description
3.1		Articles of Incorporation of First Community Bancorp, as amended to date (Exhibit 3.1 to Form 10-Q filed on November 14, 2002 and incorporated herein by this reference).
3.2		Bylaws of First Community Bancorp, as amended to date (Exhibit 4.2 to Form S-3 filed on June 11, 2002 and incorporated herein by this reference).
10.1*		First Community Bancorp 2003 Stock Incentive Plan, as amended and restated, dated April 21, 2004.
31.1		Section 302 Certifications.
32.1		Section 906 Certifications.

*: Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K.

On May 20, 2004, the Company filed a Current Report on Form 8-K announcing that it had implemented a blackout period for trading in Company common stock by its directors and executive officers, pursuant to Securities and Exchange Commission Regulation BTR, as a result of a restriction on trading by participants in the Company's 401(k) plans due to the conversion and consolidation of the Company's multiple 401(k) plans into a single, new 401(k) plan.

On April 22, 2004, the Company filed a Current Report on Form 8-K including a press release announcing earnings and results of operations for the quarter ended March 31, 2004, and announcing the declaration and increase of the dividend per share of Company common stock.

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
Date: August 6, 2004		/s/ VICTOR R. SANTORO Victor R. Santoro Executive Vice President and Chief Financial Officer

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TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION

ITEM 1. Unaudited Consolidated Financial Statements

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004

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

ITEM 5. Other Information

ITEM 6. Exhibits and Reports on Form 8-K

SIGNATURES
EX-10.1 2 a2141087zex-10_1.htm EXHIBIT 10.1
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Exhibit 10.1

FIRST COMMUNITY BANCORP 2003 STOCK INCENTIVE PLAN
(as amended and restated April 21, 2004)

1. Purpose of the Plan. The purpose of this First Community Bancorp 2003 Stock Incentive Plan is to offer certain Employees, Non-Employee Directors, and Consultants the opportunity to acquire a proprietary interest in the Company. Through the Plan, the Company and its subsidiaries seek to attract, motivate, and retain highly competent persons. The success of the Company and its affiliates are dependent upon the efforts of these persons. The Plan provides for the grant of options, restricted stock awards, performance stock awards, and stock appreciation rights. An option granted under the Plan may be a Non-Statutory Stock Option or an Incentive Stock Option, as determined by the Administrator. This Plan amends and restates the 2003 Plan.

2. Definitions. As used herein, the following definitions shall apply.

"2003 Plan" shall mean the First Community Bancorp 2003 Stock Incentive Plan, originally adopted as of April 18, 2003, and as amended and restated hereby.

"Act" shall mean the Securities Act of 1933, as amended.

"Administrator" shall mean the Board or any one of the Committees.

"Affiliate" shall mean any parent or subsidiary (as defined in Sections 424(e) and (f) of the Code) of the Company.

"APB 25" shall mean Opinion 25 of the Accounting Principles Board, as amended, and any successor thereof.

"Award" shall mean an Option, Stock Award, or a SAR.

"Board" shall mean the Board of Directors of the Company.

"Cause" shall have the meaning given to it under the Participant's employment agreement with the Company or Affiliate, or a policy of the Company or an Affiliate. If the Participant does not have an employment agreement or the employment agreement does not define this term, or the Company or an Affiliate does not have a policy that defines this term, then Cause shall include malfeasance or gross misfeasance in the performance of duties or conviction of illegal activity in connection therewith or any conduct detrimental to the interests of the Company or an Affiliate which results in termination of the Participant's service with the Company or an Affiliate, as determined by the Administrator.

"Change in Control" shall mean:

(i) the consummation of a plan of dissolution or liquidation of the Company;

(ii) the individuals who, as of the effective date hereof, are members of the Board ("Incumbent Board"), cease for any reason to constitute at least two-thirds of the members of the Board; provided, however, that if the election, or nomination for election by the Company's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "election contest" or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, entity or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act)(a "Person") other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any election contest or Proxy Contest;

(iii) the consummation of a plan of reorganization, merger or consolidation involving the Company, except for a reorganization, merger or consolidation where (A) the shareholders of the Company immediately prior to such reorganization, merger or consolidation own directly or indirectly at least 70% of the combined voting power of the outstanding voting securities of the

company resulting from such reorganization, merger or consolidation (the "Surviving Company") in substantially the same proportion as their ownership of voting securities of the Company immediately prior to such reorganization, merger or consolidation, and (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such reorganization, merger or consolidation constitute at least two-thirds of the members of the board of directors of the Surviving Company, or of a company beneficially owning, directly or indirectly, a majority of the voting securities of the Surviving Company;

(iv) the sale of all or substantially all the assets of the Company to another person; or

(v) the acquisition by another Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of stock representing more than fifty percent (50%) of the voting power of the Company then outstanding by another Person.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

"Committee" shall mean a committee appointed by the Board in accordance with Section 3 below.

"Common Stock" shall mean the common stock of the Company, no par value.

"Company" shall mean First Community Bancorp, a California corporation.

"Consultant" shall mean any natural person who performs bona fide services for the Company or an Affiliate as a consultant or advisor, excluding Employees and Non-Employee Directors.

"Date of Grant" shall mean the effective date as of which the Administrator grants an Option to an Optionee, a Stock Award to a Grantee, or a SAR to an Optionee.

"Disability" shall mean total and permanent disability as defined in Section 22(e)(3) of the Code.

"Employee" shall mean any individual who is a common-law employee of the Company or an Affiliate.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

"Exercise Price," in the case of an Option, shall mean the exercise price of a share of Optioned Stock. "Exercise Price," in the case of a SAR, shall be determined by the Administrator but shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant of such SAR.

"Fair Market Value" shall mean, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation, the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock quoted by such recognized securities dealer on the last market trading day prior to the day of determination; or

(iii) In the absence of an established market for the Common Stock, its Fair Market Value shall be determined, in good faith, by the Administrator.

"FASB" shall mean the Financial Accounting Standards Board.

"Granted Stock" shall mean the shares of Common Stock that were granted pursuant to a Stock Award.

"Grantee" shall mean any person who is granted a Stock Award.

"Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

"Mature Shares" shall mean Shares that had been held by the Participant for a meaningful period of time such as six months or such other period of time that is consistent with FASB's interpretation of APB 25.

"Non-Employee Director" shall mean a non-employee member of the Board.

"Non-Statutory Stock Option" shall mean an Option not intended to qualify as an Incentive Stock Option.

"Notice of Stock Appreciation Rights Grant" shall mean the notice delivered by the Company to the Optionee evidencing the grant of an SAR.

"Notice of Stock Option Grant" shall mean the notice delivered by the Company to the Optionee evidencing the grant of an Option.

"Option" shall mean a stock option granted pursuant to the Plan.

"Option Agreement" shall mean a written agreement that evidences an Option in such form as the Administrator shall approve from time to time.

"Optioned Stock" shall mean the Common Stock subject to an Option.

"Optionee" shall mean any person who receives an Option or a SAR.

"Participant" shall mean an Optionee or a Grantee.

"Performance Stock Award" shall mean an Award granted pursuant to Section 9 of the Plan.

"Plan" shall mean this First Community Bancorp 2003 Stock Incentive Plan, as amended and restated to date.

"Qualified Note" shall mean a recourse note, with a market rate of interest, that may, at the discretion of the Administrator, be secured by the Optioned Stock or otherwise.

"Restricted Stock Award" shall mean an Award granted pursuant to Section 8 of the Plan.

"Risk of Forfeiture" shall mean the Grantee's risk that the Granted Stock may be forfeited and returned to the Company in accordance with Section 8 or 9 of the Plan.

"Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3.

"SAR" or "Stock Appreciation Right" shall mean a stock appreciation right granted pursuant to the Plan.

"SAR Agreement" shall mean a written agreement that evidences a SAR in such form as the Administrator shall approve from time to time.

"Service" shall mean the performance of services for the Company (or any Affiliate) by an Employee, Non-Employee Director, or Consultant, as determined by the Administrator in its sole discretion. Service shall not be considered interrupted in the case of: (i) a change of status (i.e.,from Employee to Consultant, Non-Employee Director to Consultant, or any other combination); (ii) transfers between locations of the Company or between the Company and any Affiliate; or (iii) a

leave of absence approved by the Company or an Affiliate. A leave of absence approved by the Company or an Affiliate shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company or an Affiliate.

"Service Provider" shall mean an Employee, Non-Employee Director, or Consultant.

"Share" shall mean a share of Common Stock.

"Stock Award" shall mean a Restricted Stock Award or a Performance Stock Award.

"Stock Award Agreement" shall mean a written agreement that evidences a Restricted Stock Award or Performance Stock Award in such form as the Administrator shall approve from time to time.

"Tax" or "Taxes" shall mean the federal, state, and local income, employment and excise tax liabilities incurred by the Participant in connection with his/her Awards.

"10% Shareholder" shall mean the owner of stock (as determined under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company (or any Affiliate).

"Termination Date" shall mean the date on which a Participant's Service terminates, as determined by the Administrator in its sole discretion.

"Vesting Event" shall mean the earlier of: (i) the occurrence of a Change in Control; or (ii) the termination of a Participant's Service (other than for Cause) following the approval by the shareholders of the Company of any matter, plan or transaction which would constitute a Change in Control.

3. Administration of the Plan.

(a) Except as otherwise provided for below, the Plan shall be administered by (i) the Board or (ii) a Committee, which Committee shall be constituted to satisfy applicable laws.

(i) Section 162(m). To the extent that the Administrator determines that it is desirable to qualify Awards as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee comprised solely of two or more "outside directors" within the meaning of Section 162(m) of the Code.

(ii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

(b) Powers of the Administrator. Subject to the provisions of the Plan and in the case of specific duties delegated by the Administrator, and subject to the approval of relevant authorities, including the approval, if required, of any stock exchange or national market system upon which the Common Stock is then listed, the Administrator shall have the authority, in its sole discretion:

(i) to determine the Fair Market Value of the Common Stock;

(ii) to select the Service Providers to whom Awards may, from time to time, be granted under the Plan;

(iii) to determine whether and to what extent Awards are granted under the Plan;

(iv) to determine the number of Shares that pertain to each Award;

(v) to approve the terms of the Option Agreements, Stock Award Agreements, and SAR Agreements;

(vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award. Such terms and conditions may include, but are not limited to, the Exercise Price,

the status of an Option (Non-Statutory Stock Option or Incentive Stock Option), the time or times when Awards may be exercised, any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vii) to determine the method of payment of the Exercise Price;

(viii) to reduce the Exercise Price of any Option to the then current Fair Market Value if the Fair Market Value of the Optioned Stock has declined since the Date of Grant of such Option;

(ix) to delegate to others responsibilities to assist in administering the Plan;

(x) to construe and interpret the terms of the Plan, Option Agreements, Stock Award Agreements, SAR Agreements and any other documents related to the Awards;

(xi) to interpret and administer the terms of the Plan to comply with all Tax rules and regulations; and

(xii) to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall from time to time deem advisable.

(c) Effect of Administrator's Decision. All decisions, determinations, and interpretations of the Administrator shall be final and binding on all Participants and any other holders of any Awards. The Administrator's decisions and determinations under the Plan need not be uniform and may be made selectively among Participants whether or not such Participants are similarly situated.

(d) Liability. No member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on his/her behalf in his/her capacity as a member of the Committee for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power the Company may have to indemnify them or hold them harmless.

4. Stock Subject To The Plan.

(a) Basic Limitation. The total number of Options, Stock Awards, and SARs that may be awarded under the Plan may not exceed 2,500,000, subject to the adjustments provided for in Section 11 of the Plan.

(b) Additional Shares. In the event that any outstanding Award expires or is canceled or otherwise terminated, the Shares that pertain to the unexercised Award shall again be available for the purposes of the Plan. In the event that Shares issued under the Plan are reacquired by the Company at their original purchase price, such Shares shall again be available for the purposes of the Plan, except that the aggregate number of Shares which may be issued upon the exercise of Incentive Stock Options shall in no event exceed 2,500,000 Shares, subject to the adjustments provided for in Section 11 of the Plan.

5. Eligibility. The persons eligible to participate in the Plan shall be limited to Employees, Non-Employee Directors, and Consultants who have the potential to impact the long-term success of

the Company and/or its Affiliates and who have been selected by the Administrator to participate in the Plan.

6. Option Terms. Each Option shall be evidenced by an Option Agreement, in the form approved by the Administrator and may contain such provisions as the Administrator deems appropriate; provided, however, that each Option Agreement shall comply with the terms specified below. No person may be granted (in any calendar year) Options to purchase more than 250,000 Shares, subject to the adjustments provided for in Section 11 of the Plan. Each Option Agreement evidencing an Incentive Stock Option shall, in addition, be subject to Section 7 below.

(a) Exercise Price.

(i) The Exercise Price of an Option shall be determined by the Administrator but shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant of such Option.

(ii) Notwithstanding the foregoing, where the outstanding shares of stock of another corporation are changed into or exchanged for shares of Common Stock without monetary consideration to that other corporation, then, subject to the approval of the Board, Options may be granted in exchange for unexercised, unexpired stock options of the other corporation and the exercise price of the Optioned Shares subject to each Option so granted may be fixed at a price less than 100% of the Fair Market Value of the Common Stock at the time such Option is granted if said exercise price has been computed to be not less than the exercise price set forth in the stock option of the other corporation, with appropriate adjustment to reflect the exchange ratio of the shares of stock of the other corporation into the shares of Common Stock of the Company.

(iii) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator and may consist entirely of (A) cash, (B) check, (C) Mature Shares, (D) Qualified Note, or (e) any combination of the foregoing methods of payment. The Administrator may also permit Optionees, either on a selective or aggregate basis, to simultaneously exercise Options and sell the shares of Common Stock thereby acquired, pursuant to a brokerage or similar arrangement, approved in advance by the Administrator, and use the proceeds from such sale as payment of part or all of the exercise price of such shares. Notwithstanding the foregoing, a method of payment may not be used if it causes the Company to: (i) recognize compensation expense for financial reporting purposes; (ii) violate Section 402 of the Sarbanes-Oxley Act of 2002 or any regulations adopted pursuant thereto; or (iii) violate Regulation O, promulgated by the Board of Governors of the Federal Reserve System, as determined by the Administrator in its sole discretion.

(b) Vesting. Any Option granted hereunder shall be exercisable and shall vest at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement, but in the case of an Optionee who is not an officer of the Company, a Non-Employee Director, or a Consultant, an Option or Shares purchased thereunder shall vest at a rate of at least 20% per year. An Option may not be exercised for a fraction of a Share. Notwithstanding anything herein to the contrary, upon the occurrence of a Vesting Event, all Options that are outstanding on the date of the Vesting Event shall become exercisable on such date (whether or not previously vested).

(d) Procedure for Exercise. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Administrator in accordance with the terms of the Option

Agreement by the person entitled to exercise the Option and full payment of the applicable Exercise Price for the Share being exercised has been received by the Administrator. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Subsection (a)(iii) above. In the event of a cashless exercise, the broker shall not be deemed to be an agent of the Administrator.

(e) Effect of Termination of Service.

(i) Termination of Service. Upon termination of an Optionee's Service, other than due to death, Disability, or Cause, the Optionee may exercise his/her Option, but only on or prior to the date that is three months following the Optionee's Termination Date, and only to the extent that the Optionee was entitled to exercise such Option on the Termination Date (but in no event later than the expiration of the term of such Option, as set forth in the Notice of Stock Option Grant to the Option Agreement). If, on the Termination Date, the Optionee is not entitled to exercise the Optionee's entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination of Service, the Optionee does not exercise his/her Option within the time specified herein, the Option shall terminate, and the Optioned Stock shall revert to the Plan.

(ii) Disability of Optionee. In the event of termination of an Optionee's Service due to his/her Disability, the Optionee may exercise his/her Option, but only on or prior to the date that is twelve months following the Termination Date, and only to the extent that the Optionee was entitled to exercise such Option on the Termination Date (but in no event later than the expiration date of the term of his/her Option, as set forth in the Notice of Stock Option Grant to the Option Agreement). To the extent the Optionee is not entitled to exercise the Option on the Termination Date, or if the Optionee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Optioned Stock shall revert to the Plan.

(iii) Death of Optionee. In the event that an Optionee should die while in Service, the Optionee's Option may be exercised by the Optionee's estate or by a person who has acquired the right to exercise the Option by bequest or inheritance, but only on or prior to the date that is twelve months following the date of death, and only to the extent that the Optionee was entitled to exercise the Option at the date of death (but in no event later than the expiration date of the term of his/her Option, as set forth in the Notice of Stock Option Grant to the Option Agreement). If, at the time of death, the Optionee was not entitled to exercise his/her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If after death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Optioned Stock shall revert to the Plan.

(iv) Cause. In the event of termination of an Optionee's Service due to Cause, the Optionee's Options shall terminate on the Termination Date.

(v) To the extent that the Company does not violate Section 402 of the Sarbanes-Oxley Act of 2002 or any regulations adopted pursuant thereto or Regulation O, promulgated by the Board of Governors of the Federal Reserve System (as determined by the Administrator in its sole discretion), the Administrator shall have complete discretion, exercisable either at the time an Option or SAR is granted or at any time while the Option or SAR remains outstanding, to:

(A) extend the period of time for which the Option or SAR is to remain exercisable following the Optionee's cessation of Service from the limited exercise period otherwise

in effect for that Option or SAR to such greater period of time as the Administrator shall deem appropriate, but in no event beyond the expiration of the Option or SAR term; and/or

(B) permit the Option or SAR to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested Shares for which such Option or SAR is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service.

(f) Shareholder Rights. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 below.

(g) Non-transferability of Options. Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. Notwithstanding the immediately preceding sentence, the Administrator may permit an Optionee to transfer any Award which is not an Incentive Stock Option to one or more of the Optionee's immediate family members or to trusts established in whole or in part for the benefit of the Optionee and/or one or more of such immediate family members. For purposes of the Plan, (i) the term "immediate family" shall mean the Optionee's spouse and issue (including adopted and step children) and (ii) the phrase "immediate family members or to trusts established in whole or in part for the benefit of the Optionee and/or one or more of such immediate family members" shall be further limited, if necessary, so that neither the transfer of an Award other than an Incentive Stock Option to such immediate family member or trust, nor the ability of a Optionee to make such a transfer shall have adverse consequences to the Company or the Optionee by reason of Section 162(m) of the Code.

7. Incentive Stock Options. The terms specified below shall be applicable to all Incentive Stock Options, and these terms shall, as to such Incentive Stock Options, supercede any conflicting terms in Section 6 above. Options which are specifically designated as Non-Statutory Stock Options when issued under the Plan shall not be subject to the terms of this Section.

(a) Eligibility. Incentive Stock Options may only be granted to Employees.

(b) Exercise Price. The Exercise Price of an Incentive Stock Option shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant of such Option, except as otherwise provided for in Subsection (d) below.

(c) Dollar Limitation. In the case of an Incentive Stock Option, the aggregate Fair Market Value of the Optioned Stock (determined as of the Date of Grant of each Option) with respect to Options granted to any Employee under the Plan (or any other option plan of the Company or any Affiliate) that may for the first time become exercisable as Incentive Stock Options during any one calendar year shall not exceed the sum of $100,000. To the extent the Employee holds two or more such Options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such Options as Incentive Stock Options shall be applied on the basis of the order in which such Options are granted. Any Options in excess of such limitation shall automatically be treated as Non-Statutory Stock Options.

(d) 10% Shareholder. If any Employee to whom an Incentive Stock Option is granted is a 10% Shareholder, then the Exercise Price shall not be less than 110% of the Fair Market Value of a Share on the Date of Grant of such Option, and the Option term shall not exceed five years measured from the Date of Grant of such Option.

(e) Change in Status. In the event of an Optionee's change of status from Employee to Consultant or to Non-Employee Director, an Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Statutory Stock Option three months and one day following such change of status.

(f) Approved Leave of Absence. If an Optionee is on an approved leave of absence, and the Optionee's reemployment upon expiration of such leave is not guaranteed by statute or contract, including Company policies, then on the 91st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Statutory Stock Option.

8. Restricted Stock Award. Each Restricted Stock Award shall be evidenced by a Stock Award Agreement, in the form approved by the Administrator and may contain such provisions as the Administrator deems appropriate; provided, however, such Stock Award Agreement shall comply with the terms specified below.

(a) Risk of Forfeiture.

(i) General Rule. Shares issued pursuant to a Restricted Stock Award shall initially be subject to a Risk of Forfeiture. The Risk of Forfeiture shall be set forth in the Stock Award Agreement, and shall comply with the terms specified below.

(ii) Lapse of Risk of Forfeiture. The Risk of Forfeiture shall lapse as the Grantee vests in the Granted Stock. The Grantee shall vest in the Granted Stock at such times and under such conditions as determined by the Administrator and set forth in the Stock Award Agreement. Notwithstanding the foregoing, upon the occurrence of a Vesting Event, the Grantee shall become 100% vested in those shares of Granted Stock that are outstanding on the date of the Vesting Event.

(iii) Forfeiture of Granted Stock. Except as otherwise determined by the Administrator in its discretion, the Granted Stock that is subject to a Risk of Forfeiture shall automatically be forfeited and immediately returned to the Company on the Grantee's Termination Date or the date on which the Administrator determines that any other conditions to the vesting of the Restricted Stock were not satisfied during the designated period of time.

(b) Rights as a Stockholder. Upon exercise of a Restricted Stock Award, the Grantee shall have the rights of a stockholder with respect to the voting of the Granted Stock, subject to the conditions contained in the Stock Award Agreement.

(c) Dividends. The Stock Award Agreement may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Granted Stock.

(d) Non-transferability of Restricted Stock Award. Except as otherwise provided for in Section 12 of the Plan, Restricted Stock Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee. Notwithstanding the immediately preceding sentence, the Administrator may permit a Grantee to transfer any Award which is not an Incentive Stock Option to one or more of the Grantee's immediate family members or to trusts established in whole or in part for the benefit of the Grantee and/or one or more of such immediate family members. For purposes of the Plan, (i) the term "immediate family" shall mean the Grantee's spouse and issue (including adopted and step

children) and (ii) the phrase "immediate family members or to trusts established in whole or in part for the benefit of the Grantee and/or one or more of such immediate family members" shall be further limited, if necessary, so that neither the transfer of an Award other than an Incentive Stock Option to such immediate family member or trust, nor the ability of a Grantee to make such a transfer shall have adverse consequences to the Company or the Grantee by reason of Section 162(m) of the Code.

9. Performance Stock Award. Each Performance Stock Award shall be evidenced by a Stock Award Agreement, in the form approved by the Administrator, and may contain such provisions as the Administrator deems appropriate; provided, however, such Stock Award Agreement shall comply with the terms specified below.

(a) Risk of Forfeiture.

(i) General Rule. Shares issued pursuant to a Performance Stock Award shall initially be subject to a Risk of Forfeiture. The Risk of Forfeiture shall be set forth in the Stock Award Agreement, and shall comply with the terms specified below.

(ii) Lapse of Risk of Forfeiture. The Risk of Forfeiture shall lapse as the Grantee vests in the Granted Stock. The Grantee shall vest in or accelerate vesting in the Granted Stock, in whole or in part, if certain goals established by the Administrator are achieved over a designated period of time, but not in any event more than 10 years. At the discretion of the Administrator, the goals may be based upon the attainment of one or more of the following business criteria (determined either in absolute terms or relative to the performance of one or more similarly situated companies or a published index covering the performance of a number of companies): net income; return on average assets ("ROA"); cash ROA; cash ROA; return on average equity ("ROE"); cash ROE; earnings per share ("EPS"); cash EPS; stock price; and efficiency ratio. Performance goals may be established on a Company-wide basis or with respect to one or more business units or divisions. When establishing performance goals, the Administrator may exclude any or all "extraordinary items" as determined under U.S. generally accepted accounting principles including, without limitation, the charges or costs associated with restructurings of the Company, discontinued operations, other unusual or non-recurring items, and the cumulative effects of accounting changes. The Administrator may also adjust the performance goals for any performance cycle as it deems equitable in recognition of unusual or non-recurring events affecting the Company, changes in applicable tax laws or accounting principles, or such other factors as the Administrator deems appropriate. Notwithstanding the foregoing, upon the occurrence of a Vesting Event, the Grantee shall become 100% vested in those shares of Granted Stock that are outstanding on the date of the Vesting Event.

(iii) Forfeiture of Granted Stock. The Granted Stock that is subject to a Risk of Forfeiture shall automatically be forfeited and immediately returned to the Company on the Grantee's Termination Date or the date on which the Administrator determines that any other conditions to the vesting of the Performance Stock Award, including performance goals, were not satisfied during the designated period of time.

(b) Rights as a Stockholder. Upon exercise of a Performance Stock Award, the Grantee shall have the rights of a stockholder with respect to the voting of the Granted Stock, subject to the conditions contained in the Stock Award Agreement.

(c) Dividends. The Stock Award Agreement may require or permit the immediate payment, waiver, deferral or investment of dividends paid on Granted Stock.

(d) Non-transferability of Performance Stock Award. Except as otherwise provided for in Section 12 of the Plan, Performance Stock Awards may not be sold, pledged, assigned,

hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee. Notwithstanding the immediately preceding sentence, the Administrator may permit a Grantee to transfer any Award which is not an Incentive Stock Option to one or more of the Grantee's immediate family members or to trusts established in whole or in part for the benefit of the Grantee and/or one or more of such immediate family members. For purposes of the Plan, (i) the term "immediate family" shall mean the Grantee's spouse and issue (including adopted and step children) and (ii) the phrase "immediate family members or to trusts established in whole or in part for the benefit of the Grantee and/or one or more of such immediate family members" shall be further limited, if necessary, so that neither the transfer of an Award other than an Incentive Stock Option to such immediate family member or trust, nor the ability of a Grantee to make such a transfer shall have adverse consequences to the Company or the Grantee by reason of Section 162(m) of the Code.

10. Stock Appreciation Rights. Each SAR shall be evidenced by a SAR Agreement, in the form approved by the Administrator and may contain such provisions as the Administrator deems appropriate; provided, however, that each SAR Agreement shall comply with the terms specified below. No person may be granted (in any calendar year) SARs that pertain to more than 250,000 Shares, subject to the adjustments provided for in Section 11 of the Plan.

(a) Exercise Price. The Exercise Price of a SAR shall be determined by the Administrator but shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant of such SAR.

(b) Vesting. Any SAR granted hereunder shall be exercisable and shall vest at such times and under such conditions as determined by the Administrator and set forth in the SAR Agreement. Notwithstanding anything herein to the contrary, upon the occurrence of a Vesting Event, all SARs that are outstanding on the date of the Vesting Event shall become exercisable on such date (whether or not previously vested).

(d) Non-transferability of SARs. SARs may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. Notwithstanding the immediately preceding sentence, the Administrator may permit an Optionee to transfer any Award which is not an Incentive Stock Option to one or more of the Optionee's immediate family members or to trusts established in whole or in part for the benefit of the Optionee and/or one or more of such immediate family members. For purposes of the Plan, (i) the term "immediate family" shall mean the Optionee's spouse and issue (including adopted and step children) and (ii) the phrase "immediate family members or to trusts established in whole or in part for the benefit of the Optionee and/or one or more of such immediate family members" shall be further limited, if necessary, so that neither the transfer of an Award other than an Incentive Stock Option to such immediate family member or trust, nor the ability of a Optionee to make such a transfer shall have adverse consequences to the Company or the Optionee by reason of Section 162(m) of the Code.

(e) Procedure for Exercise. A SAR shall be deemed to be exercised when written notice of such exercise has been given to the Administrator in accordance with the terms of the SAR Agreement by the person entitled to exercise the SAR. Upon exercise of a SAR, the Optionee (or any person having the right to exercise the SAR after his or her death) shall receive an amount equal to the amount by which the Fair Market Value (on the date of surrender) of a Share exceeds the Exercise Price of such SAR. The Company shall pay this amount in the form of: (i) Common

Stock; (ii) cash; or (iii) a combination of Common Stock and cash, as determined by the Administrator.

(f) Effect of Termination of Service.

(i) Termination of Service. Upon termination of an Optionee's Service, other than due to death, Disability, or Cause, the Optionee may exercise his/her SARs, but only on or prior to the date that is three months following the Optionee's Termination Date, and only to the extent that the Optionee was entitled to exercise such SARs on the Termination Date (but in no event later than the expiration of the term of such SAR, as set forth in the Notice of Stock Appreciation Rights Grant to the SAR Agreement). If, on the Termination Date, the Optionee is not entitled to exercise all of the Optionee's SARs, then the Shares that pertain to the unexercisable SARs shall revert to the Plan. If, after termination of Service, the Optionee does not exercise his/her SARs within the time specified herein, the SARs shall terminate, and the Shares that pertain to the SARs shall revert to the Plan.

(ii) Disability of Optionee. In the event of termination of an Optionee's Service due to his/her Disability, the Optionee may exercise his/her SARs, but only on or prior to the date that is twelve months following the Termination Date, and only to the extent that the Optionee was entitled to exercise such SARs on the Termination Date (but in no event later than the expiration date of the term of his/her SAR, as set forth in the Notice of Stock Appreciation Rights Grant to the SAR Agreement). To the extent the Optionee is not entitled to exercise the SARs on the Termination Date, or if the Optionee does not exercise the SARs to the extent so entitled within the time specified herein, the SARs shall terminate, and the Shares that pertain to the SARs shall revert to the Plan.

(iii) Death of Optionee. In the event that an Optionee should die while in Service, the Optionee's SARs may be exercised by the Optionee's estate or by a person who has acquired the right to exercise the SARs by bequest or inheritance, but only on or prior to the date that is twelve months following the date of death, and only to the extent that the Optionee was entitled to exercise the SARs at the date of death (but in no event later than the expiration date of the term of his/her SAR, as set forth in the Notice of Stock Appreciation Rights Grant to the SAR Agreement). If, at the time of death, the Optionee was not entitled to exercise all of his/her SARs, the Shares that pertain to the unexercisable SARs shall immediately revert to the Plan. If after death, the Optionee's estate or a person who acquires the right to exercise the SARs by bequest or inheritance does not exercise the SARs to the extent so entitled within the time specified herein, the SARs shall terminate, and the Shares that pertain to the SARs shall revert to the Plan.

(iv) Cause. In the event of termination of an Optionee's Service due to Cause, the Optionee's SARs shall terminate on the Termination Date.

11. Adjustments Upon Changes in Capitalization.

(a) Changes in Capitalization. The limitations set forth in Sections 4, 6, and 10 of the Plan, the number of Shares that pertain to each outstanding Award, and the Exercise Price of each Option and SAR shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding Shares resulting from a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued and outstanding Shares, effected without the receipt of consideration by the Company. Such adjustment shall be made by the Administrator, to the extent possible, so that the adjustment shall not result in an accounting consequence under APB 25 and FASB Interpretation No. 44, as amended, and so that the adjustment shall not result in any taxes

to the Company or the Participant. The Administrator's determination with respect to the adjustment shall be final, binding, and conclusive.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Participant as soon as practicable prior to the effective date of such proposed transaction. In such event, the Administrator, in its discretion, may provide for a Participant to fully vest in his/her Option and SAR, and the Right of Forfeiture to lapse on his/her Granted Stock. To the extent it has not been previously exercised, an Award will terminate upon termination or liquidation of the Company.

12. Deferral of Stock Awards and SARs. The Administrator, in its sole discretion, may permit a Grantee to defer his/her Stock Awards, and an Optionee to defer his/her SARs pursuant to the terms and conditions provided for in the First Community Bancorp Directors Deferred Compensation Plan.

13. Cancellation and Regrant of Awards. The Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected Optionee, the cancellation of any or all outstanding Options or SARs and to grant in substitution new Options or SARs covering the same or a different number of Shares but with an Exercise Price per Share based on the Fair Market Value per Share on the new Date of Grant of the Option or SAR. The Administrator shall also have the authority to effect, at any time and from time to time, with the consent of the affected Grantee, the cancellation of any or all outstanding Stock Awards and to grant in substitution new Stock Awards covering the same or a different number of Shares. The Administrator may also, in its sole discretion and at any time, take any action, including any action that may be considered a "repricing" under any applicable accounting, stock exchange or other rule or regulation, to effect an offer to exchange outstanding Awards for cash or any other type of Award permitted hereunder. For purposes of Section 4 hereof, Shares underlying any Award cancelled by the Company in such exchange shall be available for issuance under the Plan; furthermore, except with respect to a Participant subject to Section 162(m) of the Code, a grant of any Award to a Participant pursuant to such exchange shall be disregarded for purposes of determining whether such Participant has exceeded any limitations hereunder limiting the amount of any type of Award or aggregate amount of Awards that may be granted to a Participant (except to the extent the number of Shares underlying such Awards exceeds the number of Shares underlying the Participant's cancelled Awards).

14. Share Escrow/Legends. Unvested Shares issued under the Plan may, in the Administrator's discretion, be held in escrow by the Company until the Participant's interest in such Shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested Shares.

15. Tax Withholding.

(a) For corporate purposes, the Company's obligation to deliver Shares upon the exercise of Options, deliver Shares or cash upon the exercise of SARs, or deliver Shares or remove any restrictive legends upon vesting of such Shares under the Plan shall be subject to the satisfaction of all applicable federal, state and local income and employment tax withholding requirements.

(b) To the extent permitted under Section 402 of the Sarbanes-Oxley Act of 2002 and the regulations adopted pursuant thereto, the Administrator may, in its discretion, provide any or all holders of Non-Statutory Stock Options or SARS, or unvested Shares under the Plan with the right to use previously vested Shares in satisfaction of all or part of the Taxes incurred by such holders in connection with the exercise of their Non-Statutory Stock Options or SARs, or the vesting of their Shares; provided, however, that this form of payment shall be limited to the withholding

amount calculated using the minimum statutory rates. Such right may be provided to any such holder in either or both of the following formats:

(i) Stock Withholding: The election to have the Company withhold, from the Shares otherwise issuable upon the exercise of such Non-Statutory Stock Option or SAR, or the vesting of such Shares, a portion of those Shares with an aggregate Fair Market Value equal to the Taxes calculated using the minimum statutory withholding rates interpreted in accordance with APB 25 and FASB Interpretation No. 44.

(ii) Stock Delivery: The election to deliver to the Company, at the time the Non-Statutory Stock Option or SAR is exercised or the Shares vest, one or more Shares previously acquired by such holder (other than in connection with the Option or SAR exercise, or Share vesting triggering the Taxes) with an aggregate Fair Market Value equal to the Taxes calculated using the minimum statutory rates interpreted in accordance with APB 25 and FASB Interpretation No. 44.

16. Effective Date and Term of the Plan. The Plan, as an amendment and restatement of the 2003 Plan, was adopted by the Board on April 21, 2004, and shall become effective on the date of its approval by the Company's shareholders. Unless sooner terminated by the Administrator, the Plan shall continue until April 17, 2010. When the Plan terminates, no Awards shall be granted under the Plan thereafter. The termination of the Plan shall not affect any Shares previously issued or any Award previously granted under the Plan.

17. Time of Granting Awards. The Date of Grant of an Award shall, for all purposes, be the date on which the Administrator makes the determination to grant such Award, or such other date as determined by the Administrator; provided, however, that any Award granted prior to the date on which the Plan is approved by the Company's shareholders shall be subject to the shareholder's approval of the Plan. Notice of the determination shall be given to each Service Provider to whom an Award is so granted within a reasonable period of time after the date of such grant.

18. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Participant under any grant theretofore made without his/her consent. In addition, to the extent necessary and desirable to comply with Section 422 of the Code (or any other applicable law or regulation, including the requirements of any stock exchange or national market system upon which the Common Stock is then listed), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required.

(b) Effect of Amendment and Termination. Any such amendment or termination of the Plan shall not affect Awards already granted, and such Awards shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Participant and the Board, which agreement must be in writing and signed by the Participant and the Company.

19. Regulatory Approvals.

(a) The implementation of the Plan, the granting of any Awards and the issuance of any Shares upon the exercise of any granted Awards shall be subject to the Company's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the Awards granted under it, and the Shares issued pursuant to it.

(b) No Shares or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement (if required) for

the Shares issuable under the Plan, and all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock is then listed for trading (if any).

20. No Employment/Service Rights. Nothing in the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Affiliate employing or retaining such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause.

21. Governing Law. This Plan shall be governed by California law, applied without regard to conflict of laws principles.

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Exhibit 10.1

FIRST COMMUNITY BANCORP 2003 STOCK INCENTIVE PLAN (as amended and restated April 21, 2004)
EX-31.1 3 a2141087zex-31_1.htm EXHIBIT 31.1
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Exhibit 31.1

Certification
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Matthew P. Wagner, certify that:

1.

I have reviewed this report on Form 10-Q for the quarter ended June 30, 2004, of First Community Bancorp;

2.

Based on my knowledge, this 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

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

(a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b): Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 6, 2004

/s/ MATTHEW P. WAGNER

Matthew P. Wagner
President and Chief Executive Officer

Certification
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Victor R. Santoro, certify that:

1.

I have reviewed this report on Form 10-Q for the quarter ended June 30, 2004, of First Community Bancorp;

2.

3.

4.

(a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b): Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

(a): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 6, 2004

/s/ VICTOR R. SANTORO

Victor R. Santoro
Executive Vice President and Chief Financial Officer

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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-32.1 4 a2141087zex-32_1.htm EXHIBIT 32.1
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Exhibit 32.1

Certification of Chief Executive Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned officer of First Community Bancorp (the "Company") hereby certifies that the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 6, 2004

/s/ MATTHEW P. WAGNER

Name: Matthew P. Wagner
Title: Chief Executive Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) and is not being filed as part of the Report or as a separate disclosure document.

Certification of Chief Financial Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

Dated: August 6, 2004

/s/ VICTOR R. SANTORO

Name: Victor R. Santoro
Title: Chief Financial Officer

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Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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