10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2006

OR

oTRANSITION 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	(I.R.S. Employer Identification Number)
of incorporation or organization)
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 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “Accelerated Filer and Large Accelerated Filer” in Rule 12b-2 of the Exchange Act. (check one): Large Accelerated Filer x Accelerated Filer o Non-accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

As of August 3, 2006 there were 24,231,873 shares of the registrant’s common stock outstanding, excluding 702,319 shares of unvested restricted stock.

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION		3
ITEM 1.	Unaudited Condensed 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
	Unaudited Condensed Consolidated Statement of Shareholders’ Equity	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	45
ITEM 4.	Controls and Procedures	45
PART II—OTHER INFORMATION		46
ITEM 1.	Legal Proceedings	46
ITEM 1A.	Risk Factors	46
ITEM 2.	Unregistered Sale of Equity Securities and Use of Proceeds	51
ITEM 4.	Submission of Matters to a Vote of Security Holders	51
ITEM 6.	Exhibits	53
SIGNATURES		54

2

PART I—FINANCIAL INFORMATION

ITEM 1. Unaudited Condensed Consolidated Financial Statements

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,         2006				December 31, 2005
	(Dollars in thousands, except per share data)
Assets:
Cash and due from banks		$	138,396			$	100,662
Federal funds sold		14,000				4,600
Total cash and cash equivalents		152,396				105,262
Interest-bearing deposits in financial institutions		287				90
Investments:
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		41,692				26,753
Securities available-for-sale (amortized cost of $233,025 at June 30, 2006 and $216,765 at December 31, 2005)		228,221				212,601
Total investments		269,913				239,354
Loans, net of unearned income		3,435,026				2,467,828
Less: allowance for loan losses		(43,448		)		(27,303		)
Net loans		3,391,578				2,440,525
Premises and equipment, net		28,902				19,063
Accrued interest receivable		16,797				12,006
Goodwill		546,635				295,890
Core deposit and customer relationship intangibles		44,874				27,298
Cash surrender value of life insurance		68,916				56,207
Other assets		37,336				30,716
Total assets		$	4,557,634			$	3,226,411
Liabilities and Shareholders’ Equity:
Deposits:
Noninterest-bearing		$	1,493,865			$	1,179,808
Interest-bearing		1,685,639				1,225,553
Total deposits		3,179,504				2,405,361
Accrued interest payable and other liabilities		48,798				38,318
Borrowings		324,100				160,300
Subordinated debentures		129,902				121,654
Total liabilities		3,682,304				2,725,633
Shareholders’ equity:
Preferred stock, no par value; Authorized 5,000,000 shares; none issued and outstanding		—				—
Common stock, no par value; Authorized 50,000,000 shares; issued and outstanding 24,890,915 and 18,346,566 at June 30, 2006 and December 31, 2005 (includes 654,707 and 405,831 shares of unvested restricted stock, respectively)		756,637				400,868
Retained earnings		121,479				102,325
Accumulated other comprehensive loss—unrealized losses on securities available-for-sale, net		(2,786		)		(2,415		)
Total shareholders’ equity		875,330				500,778
Total liabilities and shareholders’ equity		$	4,557,634			$	3,226,411

See “Notes to Unaudited Condensed Consolidated Financial Statements.”

3

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

	Quarter Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
	(Dollars in thousands, except per share data)
Interest income:
Interest and fees on loans	$	68,330	$	40,611	$	128,279	$	78,549
Interest on federal funds sold	66		51		130		302
Interest on deposits in financial institutions	5		1		20		3
Interest on investment securities	2,588		1,982		4,754		4,045
Total interest income	70,989		42,645		133,183		82,899
Interest expense:
Deposits	7,136		2,420		12,765		4,406
Borrowings	3,118		964		5,281		1,761
Subordinated debentures	2,697		2,049		5,147		3,935
Total interest expense	12,951		5,433		23,193		10,102
Net interest income	58,038		37,212		109,990		72,797
Provision for credit losses	9,500		620		9,600		1,420
Net interest income after provision for credit losses	48,538		36,592		100,390		71,377
Noninterest income:
Service charges and fees on deposit accounts	1,986		1,558		3,545		3,262
Other commissions and fees	1,641		1,076		3,195		2,073
Gain on sale of loans, net	—		144		—		259
Increase in cash surrender value of life insurance	531		412		952		829
Other income	178		141		349		410
Total noninterest income	4,336		3,331		8,041		6,833
Noninterest expense:
Compensation	14,865		11,436		30,095		23,289
Occupancy	3,905		2,485		7,050		5,048
Furniture and equipment	981		645		1,742		1,311
Data processing	1,719		1,221		3,054		2,341
Other professional services	1,016		631		2,136		1,822
Business development	353		260		700		519
Communications	749		474		1,375		929
Insurance and assessments	492		433		964		878
Intangible asset amortization	1,577		813		2,726		1,626
Other	2,832		1,494		4,890		3,080
Total noninterest expense	28,489		19,892		54,732		40,843
Earnings before income taxes and cumulative effect of accounting change	24,385		20,031		53,699		37,367
Income taxes	9,934		8,213		21,987		15,287
Net earnings before cumulative effect of accounting change	$	14,451	$	11,818	$	31,712	$	22,080
Cumulative effect on prior years (to December 31, 2005) of changing the method of accounting for stock-based compensation forfeitures	—		—		142		—
Net earnings	$	14,451	$	11,818	$	31,854	$	22,080
Per share information
Number of shares (weighted average):
Basic	22,509.2		15,972.8		20,952.2		15,915.5
Diluted	22,736.9		16,326.8		21,208.5		16,293.0
Basic earnings per share:
Net earnings before accounting change	$	0.64	$	0.74	$	1.51	$	1.39
Accounting change	—		—		0.01		—
Basic earnings per share	$	0.64	$	0.74	$	1.52	$	1.39
Diluted earnings per share:
Net earnings before accounting change	$	0.64	$	0.72	$	1.50	$	1.36
Accounting change(1)	—		—		—		—
Diluted earnings per share	$	0.64	$	0.72	$	1.50	$	1.36
Dividends declared per share	$	0.32	$	0.25	$	0.57	$	0.47

(1)Less than $0.01 per diluted share for the six months ended June 30, 2006.

See “Notes to Unaudited Condensed Consolidated Financial Statements.”

4

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Quarter Ended June 30,					Six Months Ended June 30,
	2006			2005		2006			2005
	(Dollars in thousands)
Net earnings	$	14,451		$	11,818	$	31,854		$	22,080
Other comprehensive income, net of related income taxes:
Unrealized holding losses on securities arising during the period	(106		)	985		(371		)	141
Comprehensive income	$	14,345		$	12,803	$	31,483		$	22,221

See “Notes to Unaudited Condensed Consolidated Financial Statements.”

5

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	2006			2005
	(Dollars in thousands)
Cash flows from operating activities:
Net earnings	$	31,854		$	22,080
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	5,185			4,158
Provision for credit losses	9,600			1,420
Gain on sale of loans	—			(259		)
Gain on sale of premises and equipment	(6		)	(2		)
Restricted stock amortization	3,236			1,644
Increase (decrease) in accrued and deferred income taxes, net	3,396			(2,161		)
Decrease (increase) in other assets	2,767			(380		)
(Decrease) increase in accrued interest payable and other liabilities	(17,423		)	2,089
Dividends on FHLB stock	(323		)	(213		)
Net cash provided by operating activities	38,286			28,376
Cash flows from investing activities:
Net cash and cash equivalents paid in acquisitions	(24,710		)	—
Net increase in net loans	(73,506		)	(47,389		)
Proceeds from sale of loans	4,859			4,289
Net decrease in deposits in financial institutions	1,698			608
Collections on sales of acquired securities	32,050			—
Maturities and repayments of investment securities	31,892			32,742
Purchases of investment securities	(1,851		)	(2,511		)
Net purchases of FRB and FHLB stock	(7,533		)	(2,534		)
Purchases of premises and equipment, net	(3,683		)	(1,612		)
Proceeds from sale of other real estate owned	37			—
Proceeds from sale of premises and equipment	6			64
Net cash (used in) provided by investing activities	(40,741		)	(16,343		)
Cash flows from financing activities:
Net (decrease) increase in noninterest-bearing deposits	(43,528		)	99,651
Net decrease in interest-bearing deposits	(178,319		)	(345,582		)
Proceeds from issuance of common stock	109,456			—
Net proceeds from exercise of stock options and vesting of restricted stock	6,302			1,876
Tax benefit of stock option exercises and restricted and performance stock vesting	4,578			1,076
Net increase in borrowings	163,800			22,100
Cash dividends paid	(12,700		)	(7,457		)
Net cash provided by (used in) financing activities	49,589			(228,336		)
Net increase (decrease) in cash and cash equivalents	47,134			(216,303		)
Cash and cash equivalents at beginning of period	105,262			319,281
Cash and cash equivalents at end of period	$	152,396		$	102,978
Supplemental disclosure of cash flow information:
Cash paid during period for interest	$	21,707		$	9,799
Cash paid during period for income taxes	14,061			13,074
Transfer from loans to loans held-for-sale	4,888			4,055

See “Notes to Unaudited Condensed Consolidated Financial Statements.”

6

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

	Common Stock					Retained			Accumulated Other Comprehensive
	Shares		Amount			Earnings			Income (Loss)				Total
	(Dollars in thousands, except per share data)
Balance at December 31, 2005		18,346,566	$	400,868		$	102,325			$	(2,415	)	$	500,778
Net earnings		—	—			31,854				—			31,854
Exercise of stock options		332,886	7,584			—				—			7,584
Tax benefits from exercise of options and vesting of restricted stock		—	4,578			—				—			4,578
Sale of common stock		1,891,086	109,456			—				—			109,456
Issuance of common stock		3,946,912	232,197			—				—			232,197
Restricted stock awarded, net of shares surrendered and forfeited		323,465	(1,282		)	—				—			(1,282		)
Earned stock award compensation, net		—	3,236			—				—			3,236
Cash dividends paid ($0.57 per share)		—	—			(12,700		)		—			(12,700		)
Other comprehensive income—net unrealized loss on securities available-for-sale, net of tax effect of $269 thousand		—	—			—				(371		)	(371		)
Balance at June 30, 2006		24,840,915	$	756,637		$	121,479			$	(2,786	)	$	875,330

See “Notes to Unaudited Condensed Consolidated Financial Statements.”

7

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006

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, 2006, 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 have completed 17 acquisitions from May 2000 through June 30, 2006. These include 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.

On May 16, 2005, we filed a registration statement with the SEC regarding the sale of up to 3,400,000 shares of our common stock, no par value per share, which we may offer and sell, from time to time, in amounts, at prices and on terms that we will determine at the time of any particular offering. To date, we have issued 2,935,766 shares of common stock under this registration statement for net proceeds of $158.5 million, including the sale of 1,891,086 shares of our common stock for $109.5 million in January 2006. We used these proceeds to augment our capital in support of our acquisitions. We expect to use the net proceeds from any additional sales of our securities to fund future acquisitions of banks and other financial institutions, as well as for general corporate purposes.

At our annual shareholders meeting held on April 19, 2006, our shareholders approved an amendment to our articles of incorporation which increased the maximum amount of authorized shares of common stock from 30,000,000 to 50,000,000.

On May 3, 2006, our Board of Directors authorized the repurchase of up to one million shares of the Company’s common stock over the next twelve months, subject to market conditions and corporate and regulatory requirements. As of June 30, 2006 no shares have been repurchased. The stock repurchase program may be limited or terminated at any time without prior notice.

(a) Basis of Presentation

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

Our financial statements reflect all adjustments that 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 U.S. generally accepted accounting principles 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.

8

NOTE 1—BASIS OF PRESENTATION(Continued)

(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 U.S. generally accepted accounting principles. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for credit 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

From January 1, 2005, through June 30, 2006, we completed the following four acquisitions 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:

	First American Bank			Pacific Liberty Bank			Cedars Bank			Foothill Independent Bank
	August 2005			October 2005			January 2006			May 2006
	(Dollars in thousands)
Assets Acquired:
Cash and cash equivalents	$	121,229		$	30,765		$	34,474			$	60,844
Interest-bearing deposits in other banks	—			—			1,796				99
Investment securities	1,607			990			3,355				50,406
Loans	106,244			119,245			354,632				535,251
Premises and equipment	4,458			32			1,234				7,012
Goodwill	37,715			24,335			76,042				174,745
Core deposit intangible assets	6,529			1,781			2,992				17,310
Other assets	8,111			6,137			14,332				50,643
	285,893			183,285			488,857				896,310
Liabilities Assumed:
Noninterest-bearing deposits	(89,664		)	(45,894		)	(92,216		)		(265,369		)
Interest bearing deposits	(127,772		)	(96,285		)	(269,189		)		(369,216		)
Accrued interest payable and other liabilities	(8,771		)	(4,479		)	(7,452		)		(29,498		)
Total liabilities assumed	(226,207		)	(146,658		)	(368,857		)		(664,083		)
Total consideration paid by First Community	$	59,686		$	36,627		$	120,000			$	232,227
Deal value:
Cash paid for common stock and stock options by First Community	$	59,686		$	—		$	120,000			$	30
Fair value of common stock issued	—			36,627			—				232,197
Total consideration paid by First Community	$	59,686		$	36,627		$	120,000			$	232,227
Cash paid for stock options by acquiree	2,623			4,999			—				10,232
Total deal value	$	62,309		$	41,626		$	120,000			$	242,459

9

NOTE 2—ACQUISITIONS(Continued)

First American Bank

On August 12, 2005, we acquired First American Bank, or First American, based in Rosemead, California. We paid $59.7 million in cash to First American shareholders, and caused First American to pay $2.6 million in cash for all outstanding options to purchase First American common stock. The aggregate deal value was approximately $62.3 million. We made this acquisition to expand our presence in Los Angeles County, California. At the time of the merger, First American was merged into Pacific Western. In August and September 2005, we issued 1,044,680 shares of common stock for net proceeds of $49.0 million. We used these proceeds to augment our regulatory capital in support of the First American acquisition.

Pacific Liberty

On October 7, 2005, we acquired Pacific Liberty Bank, or Pacific Liberty, based in Huntington Beach, California. We issued approximately 784,000 shares of our common stock to the Pacific Liberty shareholders and caused Pacific Liberty to pay $5.0 million in cash for all outstanding options to purchase Pacific Liberty common stock. The aggregate deal value was approximately $41.6 million. At the time of the acquisition, Pacific Liberty was merged into Pacific Western. We made this acquisition to expand our presence in Orange County, California.

Cedars Bank

On January 4, 2006, we acquired Cedars Bank, or Cedars, based in Los Angeles, California. We paid $120.0 million in cash for all of the outstanding shares of common stock and options of Cedars. At the time of the acquisition, Cedars was merged into Pacific Western. We made this acquisition to expand our presence in Los Angeles, California. On January 31, 2006, we issued 1,891,086 shares of common stock for net proceeds of $109.5 million. We used these proceeds to augment our regulatory capital in support of the Cedars acquisition.

Foothill Independent Bancorp

On May 9, 2006, we acquired Foothill Independent Bancorp, or Foothill, based in Glendora, California. We issued approximately 3,947,000 shares of our common stock to the Foothill shareholders and caused Foothill to pay $10.2 million in cash for all outstanding options to purchase Foothill common stock. The aggregate deal value was approximately $242.5 million. At the time of the acquisition, Foothill was merged into Pacific Western. We made this acquisition to expand our presence in Los Angeles, Riverside and San Bernardino Counties of California.

Community Bancorp, Inc.

On May 16, 2006 we announced the signing of a definitive agreement and plan of merger to acquire Community Bancorp Inc., or Community Bancorp, for consideration consisting of First Community Bancorp common stock for the outstanding common stock of Community Bancorp and cash for the Community Bancorp stock options. Using our stock price as of May 15, 2006, and the exchange ratio of 0.735, the transaction value is approximately $266.7 million. Community Bancorp, which is headquartered in Escondido, California, is the parent of Community National Bank and had $896.8 million in assets and twelve branches across San Diego and Riverside Counties at June 30, 2006.

10

NOTE 2—ACQUISITIONS (Continued)

Preliminary purchase price allocations for the Community Bancorp acquisition

An unaudited summary of First Community’s preliminary purchase price allocations for the announced Community Bancorp acquisition follows. As this acquisition is expected  to close in the fourth quarter of 2006, the aggregate purchase price, closing balance sheet, and the fair values of both the tangible and intangible assets to be acquired and liabilities to be assumed have not been determined.  Accordingly, these purchase price allocations are based on estimates and are subject to change. The final fair value amounts may be materially different from those presented in this report.

	Community Bancorp
	(Unaudited)
	(Dollars in thousands)
Assets acquired or to be acquired:
Cash and investments	$	68,838
Loans, net	725,076
Intangible assets	223,297
Other assets	32,682
Total assets acquired	1,049,893
Liabilities assumed or to be assumed:
Deposits	717,738
Other liabilities	81,101
Total liabilities assumed	798,839
Total consideration paid net of cash paid for options	$	251,054

Merger Related Liabilities

All of the acquisitions consummated after December 31, 2000 were completed using the purchase method of accounting. Accordingly, we recorded the estimated merger-related charges associated with each acquisition as a liability at closing when allocating the related purchase price.

For each acquisition, we developed an integration plan for the consolidated Company that addressed, among other things, requirements for staffing, systems platforms, branch locations and other facilities. The established plans are evaluated regularly during the integration process and modified as required. Merger and integration expenses are summarized in the following primary categories: (i) severance and employee-related charges; (ii) system conversion and integration costs, including contract termination charges; (iii) asset write-downs, lease termination costs for abandoned space and other facilities-related costs; and (iv) other charges. Other charges include, but are not limited to, investment banking fees, legal fees, other professional fees relating to due diligence activities and shareholder expenses associated with preparation of securities filings, as appropriate, and tax consequences for surrendering certain acquired bank owned life insurance policies. These costs were included in the allocation of the purchase price at the acquisition date based on our formal integration plans.

11

NOTE 2—ACQUISITIONS(Continued)

The following table presents the activity in the merger-related liability account for the six months ended June 30, 2006:

	Severance and Employee- related				System Conversion and Integration				Facilities-related				Other			Total
	(Dollars in thousands)
Balance at December 31, 2005		$	—			$	80			$	1,732		$	690		$	2,502
Additions		5,438				2,159				940			5,642			14,179
Non-cash write-downs and other		—				(2		)		—			—			(2		)
Cash outlays		(5,051		)		(1,483		)		(275		)	(3,416		)	(10,225		)
Balance at June 30, 2006		$	387			$	754			$	2,397		$	2,916		$	6,454

Unaudited Pro Forma Information for Purchase Acquisitions

The following table presents our unaudited pro forma results of operations for the quarters and six months ended June 30, 2006 and 2005 as if the First American, Pacific Liberty, Cedars, Foothill and Community Bancorp acquisitions described above had been completed at the beginning of 2005. The unaudited pro forma results of operations include: (1) the historical accounts of the Company, First American, Pacific Liberty, Cedars, Foothill and Community Bancorp, and (2) pro forma adjustments, as may be required, including the amortization of intangibles with definite lives and the amortization or accretion of any premiums or discounts arising from fair value adjustments for assets acquired and liabilities assumed. The unaudited pro forma information is intended for informational purposes only and is not necessarily indicative of our future operating results or operating results that would have occurred had these acquisitions been completed at the beginning of 2005. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions other than sales of investment securities.

	Quarter Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
	(Dollar in thousands, except per share data)
Revenues (net interest income plus noninterest income)	$	80,029	$	70,159	$	161,037	$	136,513
Net earnings	$	17,791	$	19,077	$	40,500	$	36,295
Net income per share:
Basic	$	0.62	$	0.67	$	1.42	$	1.27
Diluted	$	0.61	$	0.66	$	1.40	$	1.25

NOTE 3—GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and intangible assets arise from purchase business combinations. Goodwill and other intangible assets deemed to have indefinite lives generated from purchase business combinations are not subject to amortization and are instead tested for impairment no less than annually. Our annual impairment tests of goodwill have resulted in no impact on our results of operations and financial condition.

Intangible assets with definite lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment annually. The amortization expense represents the estimated decline in the value of the underlying deposits or loan customers acquired. The estimated aggregate amortization expense related to the intangible assets is expected to range from $5.2 million to

12

NOTE 3—GOODWILL AND OTHER INTANGIBLE ASSETS(Continued)

$6.8 million for each of the next five years and is expected to total $29.9 million over this time horizon; these amounts exclude any amortization related to the upcoming Community Bancorp acquisition. We recorded $20.3 million of core deposit intangible assets related to the Cedars and Foothill acquisitions during the first six months of 2006.

The goodwill recorded has been assigned to our one reporting segment, banking, and none of the goodwill is deductible for income tax purposes. The carrying amount of goodwill was $546.6 million at June 30, 2006 and $295.9 million at December 31, 2005. The increase relates to the Cedars and Foothill acquisitions.

The following table presents the changes in goodwill for the six months ended June 30, 2006:

	Six Months Ended
	June 30, 2006
	(Dollars in thousands)
Balance as of January 1, 2006		$	295,890
Acquisitions		250,787
Miscellaneous reductions		(42		)
Balance as of June 30, 2006		$	546,635

The following table presents the changes in the gross amounts of core deposit and customer relationship intangibles and the related accumulated amortization for the six months ended June 30, 2006 and 2005:

	Six Months Ended June 30,
	2006			2005
	(Dollars in thousands)
Gross amount:
Balance as of January 1,	$	37,956		$	29,646
Additions	20,302			—
Balance as of June 30,	58,258			29,646
Accumulated amortization:
Balance as of January 1,	(10,658		)	(7,051		)
Amortization	(2,726		)	(1,626		)
Balance as of June 30,	(13,384		)	(8,677		)
Net balance as of June 30,	$	44,874		$	20,969

NOTE 4—INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale as of June 30, 2006 are as follows:

	June 30, 2006
	Amortized cost		Gross unrealized gains			Gross unrealized losses			Fair value
	(Dollars in thousands)
U.S. Treasury securities	$	1,976		$	—		$	10	$	1,966
U.S. government agency securities	79,129			1			564		78,566
Municipal securities	10,068			29			106		9,991
Mortgage-backed and other securities	141,852			41			4,195		137,698
Total	$	233,025		$	71		$	4,875	$	228,221

13

NOTE 4—INVESTMENT SECURITIES(Continued)

The contractual maturity distribution based on amortized cost and fair value as of June 30, 2006, 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, 2006
	Amortized cost			Fair value
	(Dollars in thousands)
Due in one year or less		$	55,394	$	55,057
Due after one year through five years		46,244		45,386
Due after five years through ten years		16,640		16,117
Due after ten years		114,747		111,661
Total		$	233,025	$	228,221

The following table presents the fair value and unrealized losses on securities that were temporarily impaired as of June 30, 2006:

	Impairment Period
	Less than 12 months						12 months or longer					Total
Descriptions of securities	Fair Value			Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Treasury securities		$	973		$	10	$	—		$	—	$	973		$	10
U.S. government agency securities		61,245			414		7,346			150		68,591			564
Municipal securities		6,084			69		1,562			38		7,646			107
Mortgage-backed and other securities		14,353			297		102,061			3,897		116,414			4,194
Total temporarily impaired securities		$	82,655		$	790	$	110,969		$	4,085	$	193,624		$	4,875

All individual securities that have been in a continuous unrealized loss position for 12 months or longer at June 30, 2006 were securities that have been issued by the U.S. government or U.S. agencies and have a AAA credit rating as determined by various rating agencies. These securities have fluctuated in value since their purchase dates because of changes in market interest rates. We concluded that the continuous unrealized loss position for the past 12 months on our securities is a result of the level of market interest rates and not a result of the underlying issuers’ ability to repay and are, therefore, temporarily impaired. In addition, we have the ability to hold these securities until their fair value recovers to their cost. Accordingly, we have not recognized the temporary impairment in our consolidated statement of earnings.

14

NOTE 5—NET EARNINGS PER SHARE

The following is a summary of the calculation of basic and diluted net earnings per share for the quarters ended June 30, 2006 and 2005:

	Quarter Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
	(Dollars in thousands, except per share data)
Net earnings before cumulative effect of accounting change	$	14,451	$	11,818	$	31,712	$	22,080
Accounting change	—		—		142		—
Net earnings	$	14,451	$	11,818	$	31,854	$	22,080
Weighted average shares outstanding used for basic net earnings per share	22,509.2		15,972.8		20,952.2		15,915.5
Effect of restricted stock and dilutive stock options	227.7		354.0		256.3		377.5
Diluted weighted average shares outstanding	22,736.9		16,326.8		21,208.5		16,293.0
Basic earnings per share:
Net earnings before accounting change	$	0.64	$	0.74	$	1.51	$	1.39
Accounting change	—		—		0.01		—
Basic earnings per share	$	0.64	$	0.74	$	1.52	$	1.39
Diluted earnings per share:
Net earnings before accounting change	$	0.64	$	0.72	$	1.50	$	1.36
Accounting change(1)	—		—		—		—
Diluted earnings per share	$	0.64	$	0.72	$	1.50	$	1.36

(1)Less than $0.01 per diluted share for the six months ended June 30, 2006.

In calculating the common stock equivalents for purposes of diluted earnings per share, we selected the alternative transition method provided by FASB Staff Position FAS123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. Diluted earnings per share does not include all potentially dilutive shares that may result from outstanding stock options and restricted and performance stock awards that may eventually vest. The number of common shares underlying 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 637,900 and 686,730 for the quarters ended June 30, 2006 and 2005 and 609,313 and 663,243 for the six months ended June 30, 2006 and 2005.

NOTE 6—STOCK COMPENSATION

Accounting Change

We adopted SFAS No. 123 (revised 2004), Share Based Payment (“SFAS 123R”) on January 1, 2006. SFAS 123R applies to all stock-based compensation transactions in which an entity acquires employee or director services by either issuing stock or other equity instruments, such as stock options, restricted and performance stock, and/or stock appreciation rights, or incurring liabilities that are based on an entity’s stock price, and requires entities that engage in these transactions to recognize compensation expense based on the fair value of the stock or other equity instrument either issued, modified, or settled. We adopted SFAS 123R using the modified prospective approach. Under this approach, compensation expense is recognized for (1) new share-based payment awards (e.g., stock options, restricted stock, and performance stock), (2) awards that are modified, repurchased, or cancelled after December 31, 2005, and (3) the remaining portion of the requisite service under previously granted unvested stock awards as of December 31, 2005. The Company has been recognizing compensation expense related to stock options

15

NOTE 6—STOCK COMPENSATION(Continued)

awarded after January 1, 2003. As of March 31, 2006, there is no further effect on our financial statements for our outstanding stock options as all stock options had vested as of this date. We have recognized compensation expense for all restricted and performance stock awards since the dates on which they were awarded.

As permitted under formerly effective accounting rules, we did not consider estimated forfeitures of stock awards during the amortization period and recognized the effect of forfeitures as they occurred. As required by SFAS 123R we recognized the cumulative effect of estimated forfeitures for unvested restricted stock awards as of December 31, 2005, by increasing our first quarter 2006 earnings by $242,000. The after tax effect of this adjustment was to increase net earnings by $142,000, or less than $0.01 per diluted share on a year-to-date basis. SFAS 123R also requires us to use estimated forfeitures in recognizing stock compensation expense beginning January 1, 2006, and to true-up such expense when forfeitures occur. Amortization expense for all restricted and performance stock awards is estimated to be $7.4 million for 2006 and includes an estimate for forfeitures. As of June 30, 2006, unrecognized stock-based compensation expense was $25.1 million. When we made restricted and performance stock awards prior to January 1, 2006, we established an unearned equity compensation contra account within our shareholders’ equity equal to the market value of our common stock underlying the award on the award date. SFAS 123R required us to eliminate the unearned equity compensation account on January 1, 2006, by reclassifying it to common stock. Such reclassification had no effect on the amount of the Company’s shareholders’ equity.

Restricted and Performance Stock.

At June 30, 2006, there were outstanding 312,207 shares of unvested restricted common stock, 57,500 shares of unvested performance common stock awarded in 2003, and 285,000 shares of unvested performance common stock awarded in 2006. The awarded shares of restricted common stock vest over a service period of three to four years from date of the grant. The awarded shares of performance common stock vest in full or in part on the date the Compensation, Nominating and Governance (“CNG”) Committee of the Board of Directors, as Administrator of the Company’s 2003 Stock Incentive Plan, as amended and restated (the 2003 “Plan”), determines that the Company achieved certain financial goals established by the CNG Committee as set forth in the grant documents. During the first quarter of 2006, the CNG Committee determined that certain financial goals were met and vested 57,500 shares of the performance common stock awarded in 2003. We expect the remaining shares of unvested performance stock awarded in 2003 to vest in March 2007. The unvested performance stock awarded in 2006 expires in 7 years and is currently expected to vest in March 2013. Both restricted common stock and performance common stock vest immediately upon a change in control of the Company as defined in the 2003 Plan.

A summary of the status of our restricted and performance stock outstanding and the change during the year is presented in the table below:

	Shares		Weighted average fair value on award date
Outstanding at December 31, 2005	405,831			$	36.27
Awarded	350,000			55.17
Vested	(96,225	)		33.56
Forfeited	(4,899	)		34.30
Outstanding at June 30, 2006	654,707			$	46.78

16

NOTE 6—STOCK COMPENSATION(Continued)

The following table summarizes information about outstanding restricted and performance stock awards at June 30, 2006:

	At award date		Vesting		Forfeited		Outstanding at June 30, 2006
	Number of shares awarded	Weighted average fair value	Number of shares vested	Weighted average fair value on award date	Number of shares	Weighted average fair value on award date	Number of shares	Weighted average fair value on award date	Weighted average fair value at 6/30/06(1)	Weighted average remaining contractual life
									(Dollars in thousands)
Restricted stock awarded in:

2003	205,000	$	32.41	72,348	$	32.75	38,665	$	32.12	93,987	$	32.29	$	5,553	0.5
2004	155,980	$	36.82	62,455	$	36.53	10,905	$	36.29	82,620	$	37.10	4,881		1.1
2005	77,500	$	47.48	1,000	$	42.95	5,900	$	43.96	70,600	$	47.83	4,171		2.0
2006	65,000	$	59.43	—	$	—	—	$	—	65,000	$	59.43	3,840		3.1
Total restricted stock awards	503,480			135,803			55,470			312,207			18,445		1.6
Performance stock awarded in:
2003	255,000	$	32.05	185,000	$	32.05	12,500	$	31.90	57,500	$	32.06	3,397		0.7
2006	285,000	$	54.21	—	$	—	—	$	—	285,000	$	54.21	16,838		6.7
Total performance stock awards	540,000			185,000			12,500			342,500			20,235		5.7
Total awards	1,043,480			320,803			67,970			654,707			$	38,680	3.7

(1)Determined using the $59.08 closing price of First Community common stock on June 30, 2006.

Compensation expense related to awards of restricted and performance stock is based on the fair value of the underlying stock on the award date and is recognized over the vesting period using the straight-line method. The vesting of performance stock awards and recognition of related compensation expense may occur over a shorter vesting period if financial performance targets are achieved earlier than anticipated. Restricted and performance stock amortization totaled $1.9 million and $646,000 for the quarter ended June 30, 2006 and 2005, and $3.2 million and $1.6 million for the six months ended June 30, 2006 and 2005 and is included in compensation expense in the accompanying consolidated statements of earnings.

Stock Options.

We adopted the fair value method of accounting for stock options effective January 1, 2003, using the prospective method of transition specified in 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 compensation expense over the vesting period for such options. For stock options granted prior to January 1, 2003, the Company applied the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation cost was recognized for fixed stock option awards granted prior to January 1, 2003, with an exercise price equal to or greater than the fair market value of the underlying stock on the date of grant. The Company has not granted stock options since the first quarter of 2003.

17

NOTE 6—STOCK COMPENSATION(Continued)

Had we determined compensation expense for our stock-based compensation plan consistent with SFAS No. 123, Accounting for Stock-Based Compensation, our net earnings and earnings per share for the quarter and six months ended June 30, 2005 would have been reduced to the pro forma amounts indicated in the table below:

	Quarter Ended				Six Months Ended
	June 30, 2005
	(Dollars in thousands, except per share data
Reported net earnings		$	11,818			$	22,080
Add: Stock based compensation expense included in net earnings, net of tax		375				954
Deduct: All stock based compensation expense, net of tax		(443		)		(1,089		)
Pro forma net earnings		$	11,750			$	21,945
Basic net earnings per share as reported		$	0.74			$	1.39
Pro forma basic net earnings per share		$	0.74			$	1.38
Diluted net earnings per share as reported		$	0.72			$	1.36
Pro forma diluted net earnings per share		$	0.72			$	1.35

A summary of the status of our stock options outstanding and the changes during the six months ended June 30, 2006 is presented in the table below:

	Shares		Weighted-Average Exercise Price			Aggregate Intrinsic Value(1)
						(Dollars in thousands)
Outstanding at December 31, 2005	543,793			$	21.05
Exercised	(332,886	)		22.78
Outstanding and exercisable at June 30, 2006	210,907			$	18.31		$	8,599

(1)Calculated as the difference between the $59.08 closing price of First Community common stock on June 30, 2006 and the weighted average exercise price.

Both restricted and performance stock and stock options are awarded to officers, directors, key employees and consultants under the terms described in the 2003 Plan. The 2003 Plan authorizes grants of stock-based compensation instruments to purchase or issue up to 3,500,000 shares of authorized but unissued Company common stock, subject to adjustments provided by the 2003 Plan. As of August 1, 2006, there were 985,558 shares available for grant under the 2003 Plan.

NOTE 7—BORROWINGS AND SUBORDINATED DEBENTURES

Borrowings.

At June 30, 2006, we had $324.1 million of borrowings outstanding. Borrowings included $239.1 million of overnight advances and $85.0 million of term advances from the Federal Home Loan Bank of San Francisco (the “FHLB”). The weighted average cost of these borrowings was 5.17% at June 30, 2006. The term advances begin to mature in December 2006. Our aggregate remaining secured borrowing capacity from the FHLB was $563.0 million as of June 30, 2006.

The Company renewed its revolving credit line with U.S. Bank for $70 million. The revolving credit line matures on August 2, 2007 and is secured by a pledge of all of the outstanding capital stock of Pacific

18

NOTE 7—BORROWINGS AND SUBORDINATED DEBENTURES (Continued)

Western. The credit agreement requires the Company to maintain certain financial and capital ratios, among other covenants and conditions. This revolving credit line replaces the previous revolving credit line arrangements with U.S. Bank for $50 million and The Northern Trust Company for $20 million which matured on August 3, 2006.

Subordinated Debentures.

The Company had an aggregate of $129.9 million of subordinated debentures outstanding with a weighted average cost of 8.86% at June 30, 2006. The subordinated debentures were issued in eight 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 and Foothill, which in turn issued trust preferred securities. 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 upon the occurrence of any 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		Earliest Call Date By Company Without Penalty(1)	Fixed or Variable Rate	Rate Adjuster	Current Rate(2)		Next Reset Date
	(Dollars in thousands)
Trust I		9/7/2000	$	8,248	9/7/2020	Fixed	N/A	10.60	%		N/A
Trust II		12/18/2001	10,310		12/18/2006	Variable	3-month LIBOR +3.60%	9.00	%		9/15/2006
Trust III		11/28/2001	10,310		12/8/2006	Variable	6-month LIBOR +3.75%	9.17	%		12/13/2006
Trust IV		6/26/2002	10,310		6/26/2007	Variable	3-month LIBOR +3.55%	9.01	%		9/22/2006
Trust F(3)		12/19/2002	8,248		12/19/2007	Variable	3-month LIBOR +3.25%	8.71	%		9/22/2006
Trust V		8/15/2003	10,310		9/17/2008	Variable	3-month LIBOR +3.10%	8.50	%		9/15/2006
Trust VI		9/3/2003	10,310		9/15/2008	Variable	3-month LIBOR +3.05%	8.38	%		9/13/2006
Trust VII		2/4/2004	61,856		4/23/2009	Variable	3-month LIBOR +2.75%	8.24	%		10/27/2006
Total			$	129,902

(1)As described above, certain issuances may be called earlier without penalty upon the occurrence of certain events.

(2)As of July 27, 2006.

(3)Acquired in the Foothill merger.

As previously mentioned, the subordinated debentures were issued to trusts established by us and Foothill, which in turn issued $126 million of trust preferred securities. These securities are currently included in our Tier I capital for purposes of determining the Company’s Tier I and total risk-based capital ratios. The Board of Governors of the Federal Reserve System, which is the holding company’s banking regulator, has promulgated a modification of the capital regulations affecting trust preferred securities. Under this modification, beginning March 31, 2009, the Company will be required to use a more restrictive formula to determine the amount of trust preferred securities that can be included in regulatory Tier I capital. At that time, the Company will be allowed to include in Tier I capital an amount of trust preferred

19

NOTE 7—BORROWINGS AND SUBORDINATED DEBENTURES (Continued)

securities equal to no more than 25% of the sum of all core capital elements, which is generally defined as shareholders’ equity less certain intangibles, including goodwill, core deposit intangibles and customer relationship intangibles, net of any related deferred income tax liability. The regulations currently in effect through December 31, 2008, limit the amount of trust preferred securities that can be included in Tier I capital to 25% of the sum of core capital elements without a deduction for permitted intangibles. We have

determined that our Tier I capital ratios would remain above the well-capitalized level had the modification of the capital regulations been in effect at June 30, 2006. We expect that our Tier I capital ratios will be at or above the existing well-capitalized levels on March 31, 2009, the first date on which the modified capital regulations must be applied.

NOTE 8—COMMITMENTS AND CONTINGENCES

Lending Commitments.

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 $1.2 billion and $1.0 billion were outstanding as of June 30, 2006 and December 31, 2005. 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 $75.7 million and $62.1 million were outstanding as of June 30, 2006 and December 31, 2005. 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 expire within one year from the date of issuance. 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.

Legal Matters.

On June 8, 2004, the Company was served with an amended complaint naming First Community and Pacific Western as defendants in a class action lawsuit filed in Los Angeles Superior Court pending as Gilbert et. al v. Cohn et al, Case No. BC310846 (the “Gilbert Litigation”). A former officer of First Charter Bank, N.A. (“First Charter”), which the Company acquired in October 2001, was also named as a defendant. That former officer left First Charter in May of 1997 and later became a principal of Four Star Financial Services, LLC (“Four Star”), an affiliate of 900 Capital Services, Inc. (“900 Capital”).

On April 18, 2005, the plaintiffs filed the second amended class action complaint. The second amended complaint alleged that the former officer of First Charter 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

20

NOTE 8—COMMITMENTS AND CONTINGENCES (Continued)

accounts at First Charter, First Community and Pacific Western with those banks’ purported knowing participation in and/or willful ignorance of the scheme. The key allegations in the second amended complaint dated back to the mid-1990s and the second amended complaint alleged several counts for relief including aiding and abetting, conspiracy, 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 fraudulent scheme and sale of securities issued by 900 Capital and Four Star. In disclosures provided to the parties, plaintiffs have asserted that the named plaintiffs have suffered losses well in excess of $3.85 million, and plaintiffs have asserted that “losses to the class total many tens of millions of dollars.” While we understand that the plaintiffs intend to seek to certify a class for purposes of pursuing a class action, a class has not yet been certified and no motion for class certification has been filed. On June 15, 2005, we filed a demurrer to the second amended complaint, and on August 22, 2005, the Court sustained our demurrer as to each of the counts therein, granting plaintiffs leave to amend on four of the six counts, and dismissing the other counts outright.

On August 12, 2005, the Company was notified by Progressive Casualty Insurance Company (“Progressive”), its primary insurance carrier with respect to the Gilbert Litigation, that Progressive had determined that, based upon the allegations in the second amended complaint filed in the Gilbert Litigation, there is no coverage with respect to the Gilbert Litigation under the Company’s insurance policy with Progressive. Progressive also notified the Company that it was withdrawing its agreement to fund defense costs for the Gilbert Litigation and reserving its right to seek reimbursement from the Company for any defense costs advanced pursuant to the insurance policy. Through December 31, 2005, Progressive had advanced to the Company approximately $690,000 of defense costs with respect to the Gilbert Litigation.

On August 12, 2005, Progressive filed an action in federal district court for declaratory relief, currently pending as Progressive Casualty Insurance Company, etc., v. First Community Bancorp, etc., et al., Case No. 05-5900 SVW (MAWx) (the “Progressive Litigation”), seeking a declaratory judgment with respect to the parties’ rights and obligations under Progressive’s policy with the Company. On October 11, 2005, the Company filed in federal court a motion to dismiss or stay the Progressive Litigation.

In November 2005, along with certain other defendants, we reached an agreement in principle with respect to the Gilbert Litigation. The proposed settlement, toward which First Community would contribute $775,000, is subject to the final settlement terms and documentation being agreed upon by First Community, the plaintiffs and other parties who are also contributing to this settlement. Additionally, the settlement is subject to approval by the Los Angeles Superior Court. The proposed contribution by First Community of $775,000 was accrued in 2005.

The parties to the proposed settlement are still engaged in the process of finalizing their agreement regarding the terms and conditions of the settlement. In the course of this process, the law firm representing the plaintiffs sought court approval to withdraw as counsel for one of the named plaintiffs, which approval was granted.

While we believe that this settlement, if finalized, will end our exposure to the underlying claims by participating class members, we cannot be certain that a final settlement will be reached or that we will not be subject to further claims by parties related to the same claims who did not participate in the settlement. In connection with the Gilbert Litigation settlement, we also reached a settlement in principle with Progressive Casualty Insurance Co. in the Progressive Litigation. The settlement with Progressive, which includes an additional contribution by Progressive under First Community’s policy toward the settlement of the Gilbert Litigation and a dismissal by Progressive of any claims against First Community for reimbursement, is contingent upon the consummation of the Gilbert Litigation settlement.

21

NOTE 8—COMMITMENTS AND CONTINGENCES (Continued)

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 other 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.

NOTE 9—DIVIDEND APPROVAL

On July 26, 2006, our Board of Directors declared a quarterly cash dividend of $0.32 per common share payable on August 30, 2006 to shareholders of record at the close of business on August 16, 2006.

NOTE 10—IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

During July 2006, the Financial Accounting Standards Board adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 was issued to clarify the requirements of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, relating to the recognition of income tax benefits. FIN 48 addresses recognizing and measuring tax benefits when the benefits’ realization is uncertain. The cumulative effect of applying the provision of FIN 48 upon adoption will be reported as an adjustment to beginning retained earnings. FIN 48 is effective for public companies with fiscal years beginning after December 15, 2006. We do not expect there to be any material effect on either our results of operations or financial condition when we adopt FIN 48.

NOTE 11—SUBSEQUENT EVENTS

On August 8, 2006, we announced that we are implementing a plan of consolidation and conversion to merge our two wholly-owned banking subsidiaries, Pacific Western National Bank and First National Bank, into a single entity to be named Pacific Western Bank.  As part of the plan of consolidation, Pacific Western National Bank filed an application with the California Department of Financial Institutions, or DFI, on August 7, 2006 to convert from a national banking charter to a state-chartered bank under the name of Pacific Western Bank.  Pacific Western also filed a notice with the Federal Reserve Bank of San Francisco to withdraw from membership in the Federal Reserve System and become a “nonmember” bank at the time of its conversion.

Under the plan of consolidation and conversion, it is anticipated that immediately following the completion of our previously announced acquisition of Community Bancorp and the merger of Community National Bank with and into First National Bank, First National Bank will merge with and into Pacific Western Bank.  In connection therewith, Pacific Western and First National filed an application with the Federal Deposit Insurance Corporation and the DFI to approve the merger of First National Bank into Pacific Western Bank, following Pacific Western’s conversion to a state-chartered bank and the completion of Community National Bank’s merger with First National Bank.

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

Forward-Looking Information

This Quarterly Report on Form 10-Q 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. We caution 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 credit losses;

·competitive pressure among depository institutions increases significantly;

·the Company’s ability to complete planned acquisitions, 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 or our subsidiary banks 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;

·  regulatory changes resulting from the consolidation and conversion of our subsidiary banks into a single state-chartered bank;

·changes in the securities markets; and

·regulatory approvals for announced or future acquisitions 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.

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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 creates operating efficiencies for the Banks by consolidating core administrative, operational and financial functions that serve both of the Banks. The Banks reimburse the holding company for the services performed on their behalf, pursuant to an expense allocation agreement.

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 and international loans for trade finance; providing tax free real estate exchange accommodation services; and providing other business-oriented products. At June 30, 2006, our gross loans totaled $3.5 billion of which 24% consisted of commercial loans, 74% consisted of commercial real estate loans, including construction loans, and 2% consisted of consumer and other loans. These percentages also include some foreign loans, primarily to individuals or entities with business in Mexico, representing approximately 3% of total loans. Our portfolio’s value and credit quality is affected in large part by real estate trends in Southern California.

The Banks compete actively for deposits, and we tend to solicit noninterest-bearing deposits. In managing the top line of our business, we focus on loan growth and loan yield, deposit cost, and net interest margin, as net interest income, on a year-to-date basis, accounts for 93% of our net revenues (net interest income plus noninterest income).

Plan of Consolidation and Conversion

On August 8, 2006, we announced that we are implementing a plan of consolidation and conversion to merge our two wholly-owned banking subsidiaries, Pacific Western National Bank and First National Bank, into a single entity to be named Pacific Western Bank. As part of the plan of consolidation, Pacific Western National Bank filed an application with the California Department of Financial Institutions, or DFI, on August 7, 2006 to convert from a national banking charter to a state-chartered bank under the name of Pacific Western Bank. Pacific Western also filed a notice with the Federal Reserve Bank of San Francisco to withdraw from membership in the Federal Reserve System and become a “nonmember” bank at the time of its conversion.

Under the plan of consolidation and conversion, it is anticipated that immediately following the completion of our previously announced acquisition of Community Bancorp and the merger of Community National Bank with and into First National Bank, First National Bank will merge with and into Pacific Western Bank. In connection therewith, Pacific Western and First National filed an application with the Federal Deposit Insurance Corporation and the DFI to approve the merger of First National Bank into Pacific Western Bank, following Pacific Western’s conversion to a state-chartered bank and the completion of Community National Bank’s merger into First National.

We also announced that following completion of the conversion of Pacific Western Bank and the merger of First National into Pacific Western Bank, Michael J. Perdue, President and CEO of Community Bancorp will become President of First Community Bancorp. Matt Wagner, President and CEO of First Community will remain chief executive. Additionally, Mr. Wagner will be named Chairman and CEO of Pacific Western Bank and Mr. Perdue will become President of Pacific Western and join its board of directors. Robert M. Borgman, President and CEO of First National Bank, will also join the board of Pacific Western Bank after the merger with First National is completed.

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As part of the plan of consolidation and conversion, both First Community and Pacific Western Bank will move their headquarters to 401 West “A” Street in San Diego, California, and Mike Perdue, as President of Pacific Western, will be headquartered in San Diego.

The application for the conversion of Pacific Western to a state-chartered nonmember bank is subject to state and federal regulatory approval. We currently expect to receive approval for Pacific Western to convert to a state-chartered nonmember bank, and complete the conversion of Pacific Western into a state-chartered nonmember bank, in the fourth quarter of 2006. The merger of First National Bank into state-chartered Pacific Western Bank is scheduled to occur immediately following the completion of First Community’s acquisition of Community Bancorp, which is currently scheduled to be completed in the fourth quarter of 2006. Under First Community’s plan of consolidation and conversion, the consummation of the Community Bancorp acquisition would follow the receipt of regulatory approval and expiration of any waiting periods for the merger of First National Bank into Pacific Western Bank. Immediately following the merger of Community National Bank into First National Bank, First National would then merge into Pacific Western. As a result, Community National Bank customers would only need to undergo a single bank conversion and would become Pacific Western Bank customers upon completion of the conversion. In July 2006, First Community received the approval of the Office of the Comptroller of the Currency to merge Community National Bank into First National Bank.

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, 2006, approximately 47% of our deposits were noninterest-bearing. Although we have borrowing capacity under various credit lines, we have traditionally borrowed funds only for short term liquidity needs such as funding loan demand in excess of deposit growth, managing deposit flows and interim acquisition financing. Some of our long-term borrowings are matched to the asset-based loan portfolio operated by First Community Financial, a wholly owned subsidiary of First National Bank. Net proceeds from our other long-term borrowings, consisting of subordinated debentures, were used to fund certain of our acquisitions. Our general policy is to price our deposits in the bottom half or third-quartile of our competitive peer group, resulting in deposit products that bear somewhat lower interest rates. 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 generally have no expectation of yield.

Loan Growth

We generally seek new lending opportunities in the $500,000 to $10 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 to price lending products so as to preserve our interest spread and net interest margin. We sometimes encounter strong competition in pursuing lending opportunities such that potential borrowers obtain loans elsewhere at lower rates than those we offer.

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The Magnitude of Credit Losses

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 for credit losses. Our allowance for credit losses is the sum of our allowance for loan losses and our reserve for unfunded loan commitments. Provisions for credit losses are charged to operations as and when needed for both on and off balance sheet credit exposure. Loans which are deemed uncollectible are charged off and deducted from the allowance for loan losses. Recoveries on loans previously charged off are added to the allowance for loan losses. During the second quarter of 2006, we made a provision for credit losses of $9.5 million in response to an increase in nonaccrual loans, the credit quality of an acquired portfolio, our analysis of current market conditions related to real estate loans, and organic loan growth.

We review our loans periodically to determine whether there has been any deterioration in credit quality stemming from economic conditions or other factors which may affect collectibility of our loans. Changes in economic conditions, such as increases in the general level of interest rates and negative conditions in borrowers’ businesses, could negatively impact our customers and cause us to adversely classify loans and increase portfolio loss factors. Because we have a concentration in real estate loans, any deterioration in the real estate markets may negatively impact our borrowers and could lead to increased provisions for credit losses. Approximately 75% of our gross loans are real estate related, with construction loans and real estate mortgage loans representing 22% and 53%, respectively, of gross loans. Further, we subject acquired loans to periodic review under our standards once the acquisitions are completed. Such reviews could result in downgrades to adversely classified status. Because adversely classified loans require an allowance for credit losses, increases in classified loans generally result in increased provisions for credit 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, professional fees 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. Accordingly, a lower percentage reflects lower expenses relative to income. The consolidated efficiency ratios have been as follows:

Quarterly Period	Ratio
Second quarter 2006		45.7	%
First quarter 2006		47.2	%
Fourth quarter 2005		48.3	%
Third quarter 2005		50.1	%
Second quarter 2005		49.1	%

Additionally, our operating results have been influenced significantly by acquisitions; the four acquisitions we completed since June 30, 2005 which added approximately $1.9 billion in assets. Our assets at June 30, 2006, total approximately $4.6 billion. While the quarterly noninterest expense amounts have generally increased from the second quarter of 2005, the quarterly efficiency ratio has generally decreased over the same time period, from a combination of increased revenue and improvement in operating efficiencies.

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

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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 credit losses 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, 2005.

Results of Operations

Earnings Performance

We analyze our performance based on net earnings determined in accordance with U.S. generally accepted accounting principles. 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:

	Quarter Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
	(Dollars in thousands, except per share data)
Net interest income	$	58,038		$	37,212		$	109,990		$	72,797
Noninterest income	4,336			3,331			8,041			6,833
Net revenues	62,374			40,543			118,031			79,630
Provision for credit losses	9,500			620			9,600			1,420
Noninterest expense	28,489			19,892			54,732			40,843
Income taxes	9,934			8,213			21,987			15,287
Net earnings before accounting change	14,451			$	11,818		31,712			$	22,080
Accounting change	—			—			142			—
Net earnings(1)	$	14,451		$	11,818		$	31,854		$	22,080
Average interest-earning assets	$	3,430,264		$	2,412,154		$	3,261,186		$	2,415,557
Profitability measures:
Basic earnings per share:
Net earnings before accounting change	$	0.64		$	0.74		$	1.51		$	1.39
Accounting change	—			—			0.01			—
Basic earnings per share	$	0.64		$	0.74		$	1.52		$	1.39
Diluted earnings per share:
Net earnings before accounting change	$	0.64		$	0.72		$	1.50		$	1.36
Accounting change(2)	—			—			—			—
Diluted earnings per share	$	0.64		$	0.72		$	1.50		$	1.36
Net interest margin	6.79		%	6.19		%	6.80		%	6.08		%
Return on average assets	1.39		%	1.66		%	1.63		%	1.56		%
Return on average equity	7.5		%	12.3		%	9.5		%	11.7		%
Efficiency ratio	45.7		%	49.1		%	46.4		%	51.3		%

(1)Our quarterly results include First American subsequent to August 12, 2005, Pacific Liberty subsequent to October 7, 2005, Cedars subsequent to January 4, 2006, and Foothill subsequent to May 9, 2006.

(2)Less than $0.01 per diluted share for the six months ended June 30, 2006.

The improvement in net earnings in the second quarter of 2006 compared to the same period of 2005 resulted from increased net interest margin and average loan growth. The increase in average loans was due to both organic loan growth and loans added to the portfolio from our acquisitions. The provision for

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credit losses in the second quarter of 2006 was made in consideration of increased nonaccrual loans, the credit quality of an acquired portfolio, our analysis of current market conditions related to real estate loans, and organic loan growth. Our net interest margin increased 60 basis points to 6.79% for the second quarter of 2006 compared to the same period in 2005. This increase was due to the positive impact the increases in market interest rates have had on our asset-sensitive balance sheet. The increase in noninterest income for the second quarter of 2006 compared to the same period in 2005 is attributed to increased commissions and fees for both loans and deposit related services as loan and deposit balances have increased. The increase in noninterest expense for the second quarter of 2006 over the same period of 2005 is largely the result of higher compensation and occupancy expense, which is the result of additional staff and branch location added through acquisitions.

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Net Interest Income.Net interest income, which is our principal source 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 table presents, 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:

	Quarter Ended June 30,
	2006								2005
			Interest			Average					Interest			Average
	Average		Income or			Yield or			Average		Income or			Yield or
	Balance		Expense			Cost			Balance		Expense			Cost
	(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned income(1)(2)	$	3,163,362		$	68,330		8.66	%	$	2,154,171		$	40,611		7.56	%
Investment securities(2)	260,536			2,588			3.98	%	250,676			1,982			3.17	%
Federal funds sold	5,898			66			4.49	%	7,194			51			2.84	%
Other earning assets	468			5			4.29	%	113			1			3.55	%
Total interest-earning assets	3,430,264			70,989			8.30	%	2,412,154			42,645			7.09	%
Noninterest-earning assets:
Other assets	738,114								437,401
Total assets	$	4,168,378							$	2,849,555
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Deposits:
Interest checking	$	251,208		107			0.17	%	$	190,282		30			0.06	%
Money market	820,823			3,654			1.79	%	671,222			1,537			0.92	%
Savings	132,483			67			0.20	%	88,132			39			0.18	%
Time certificates of deposit	409,367			3,308			3.24	%	200,671			814			1.63	%
Total interest-bearing deposits	1,613,881			7,136			1.77	%	1,150,307			2,420			0.84	%
Other interest-bearing liabilities	383,804			5,815			6.08	%	248,597			3,013			4.86	%
Total interest-bearing liabilities	1,997,685			12,951			2.60	%	1,398,904			5,433			1.56	%
Noninterest-bearing liabilities:
Demand deposits	1,342,328								1,030,239
Other liabilities	53,990								34,038
Total liabilities	3,394,003								2,463,181
Shareholders’ equity	774,375								386,374
Total liabilities and shareholders’ equity	$	4,168,378							$	2,849,555
Net interest income				$	58,038							$	37,212
Net interest spread							5.70	%							5.53	%
Net interest margin							6.79	%							6.19	%

(1)Includes nonaccrual loans and unearned income.

(2)Yields on loans and securities have not been adjusted to a tax equivalent basis because the impact is not material.

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Our net interest margin for the second quarter of 2006 was 6.79%, a decrease of 3 basis points when compared to the first quarter of 2006. This decrease is due mainly to a combination of the impact of the mix and rate structure of the Foothill deposits acquired mid-quarter, increased borrowings to fund loans and the increase in loan yield. The cost of deposits increased 14 basis points while loan yields increased 11 basis points for the second quarter of 2006 compared to the prior quarter.

Second Quarter Analysis.   The increase in net interest income and our net interest margin for the second quarter of 2006 compared to the same period in 2005 is largely the result of increased average loan balances and loan yield offset by the increase in our total funding sources and the cost of such funds. The significant amount of noninterest-bearing demand deposits we maintain also helps to increase net interest income and expand our net interest margin; we averaged $1.3 billion of noninterest-bearing deposits during the second quarter of 2006, or 45% of average total deposits, compared to $1.0 billion, or 47% of average total deposits, for the same period of 2005. Our overall cost of deposits, which includes demand deposits, was 0.97% for the second quarter of 2006, compared to 0.45% in the second quarter of 2005.

Average loans increased $1.0 billion to $3.2 billion for the second quarter of 2006 compared to the same period of 2005. The increase was due to both organic loan growth and loans acquired in the four acquisitions that we completed since June 30, 2005. The 110 basis point increase in average loan yield to 8.66% for the second quarter of 2006 compared to 7.56% for the same period of 2005 was due mainly to the increase in our prime lending rate in response to the gradual rise in market interest rates. If market interest rates were to increase further from their levels at June 30, 2006, and we were to increase our base lending rate, approximately 53% of our June 30, 2006 loan portfolio, or $1.8 billion, would be eligible to reprice upward. At June 30, 2006, our base lending rate was 8.25%, a 200 basis point increase over our rate at June 30, 2005.

The $7.5 million increase in interest expense for the second quarter of 2006 when compared to the same period of 2005 is due to an increase in interest-bearing deposits and FHLB advances and the cost of all funding sources. Average interest-bearing deposits increased $463.6 million to $1.6 billion for the second quarter of 2006 when compared to the same period of 2005 and is attributed mostly to the deposits acquired in our 2005 and 2006 acquisitions; this increased interest expense $1.7 million. We continue to increase rates on money market and selected time deposit account categories in response to competition. This increase in rates paid for deposits represented $3.0 million of the increase in interest expense. Further, the cost of deposits is impacted by the mix and rate structure of the deposits acquired in the Cedars and Foothill acquisitions. The average balance of other interest-bearing liabilities, which includes subordinated debentures and both overnight and term borrowings from the FHLB, increased $135.2 million to $383.8 million for the second quarter of 2006 when compared to the same period of 2005 and is attributable to increased borrowing from the FHLB. We use FHLB borrowings to fund loan demand and to manage liquidity in light of deposit flows. In addition, other interest-bearing liabilities have continued to reprice in the higher interest rate environment increasing interest expense $1.4 million for the second quarter of 2006 when compared to the same period of 2005.

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	Six Months Ended June 30,
	2006							2005
			Interest		Average					Interest			Average
	Average		Income or		Yield or			Average		Income or			Yield or
	Balance		Expense		Cost			Balance		Expense			Cost
	(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned income(1)(2)	$	3,003,629	$	128,279		8.61	%	$	2,131,386		$	78,549		7.43	%
Investment securities(2)	249,730		4,754			3.84	%	257,389			4,045			3.17	%
Federal funds sold	6,654		130			3.94	%	26,526			302			2.30	%
Other earning assets	1,173		20			3.44	%	256			3			2.36	%
Total interest-earning assets	3,261,186		133,183			8.24	%	2,415,557			82,899			6.92	%
Noninterest-earning assets:
Other assets	671,063							440,287
Total assets	$	3,932,249						$	2,855,844
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Deposits:
Interest checking	$	225,169	143			0.13	%	$	189,286		58			0.06	%
Money market	802,090		6,261			1.57	%	708,155			2,738			0.78	%
Savings	120,136		115			0.19	%	84,907			64			0.15	%
Time certificates of deposit	410,746		6,246			3.07	%	208,163			1,546			1.50	%
Total interest-bearing deposits	1,558,141		12,765			1.65	%	1,190,511			4,406			0.75	%
Other interest-bearing liabilities	352,743		10,428			5.96	%	239,326			5,696			4.80	%
Total interest-bearing liabilities	1,910,884		23,193			2.45	%	1,429,837			10,102			1.42	%
Noninterest-bearing liabilities:
Demand deposits	1,290,829							1,006,353
Other liabilities	52,450							37,664
Total liabilities	3,254,163							2,473,854
Shareholders’ equity	678,086							381,990
Total liabilities and shareholders’ equity	$	3,932,249						$	2,855,844
Net interest income			$	109,990							$	72,797
Net interest spread						5.79	%							5.50	%
Net interest margin						6.80	%							6.08	%

(1)Includes nonaccrual loans and unearned income.

(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 and the 72 basis point increase in our net interest margin for the six months ended June 30, 2006, compared to the same period of 2005 was largely a result of higher average loan balances and increased loan yields, offset by higher funding costs.

Net interest income increased $37.2 million mostly as a result of the $872.2 million increase in average loans for the first six months of 2006, when compared to the same period of 2005. The increase in average loans is due to organic loan growth coupled with the impact of completing four bank acquisitions since June 30, 2005. In addition, our loan yield increased 118 basis points for the six months ended June 30, 2006, when compared to the same period of 2005 as we increased our prime lending rate in response to the increase in market rates.

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Interest expense increased $13.1 million year-over-year due to both an increase in the cost and volume of our funding sources. The cost of our interest-bearing liabilities increased 103 basis points for the six months ended June 30, 2006, when compared to the same period of 2005; this increased interest expense $8.1 million. The cost of our interest-bearing deposits increased 90 basis points for the six months ended June 30, 2006, when compared to the same period for 2005 as we continue to increase selected deposit rates in response to competition. The cost of all of our deposits, including demand deposits, was 0.90% for the year-to-date 2006 period compared to 0.40% for the same period of 2005. The significant amount of noninterest-bearing deposits as a percentage of total average deposits, which was 46% for both the first half of 2006 and the first half of 2005, helps control our overall deposit costs. Similar to the quarter analysis, the cost of deposits for the first half of 2006 is affected by the mix and rate structure of the Cedars and Foothill deposits. Average other interest bearing liabilities, which include FHLB advances and subordinated debt, increased $113.4 million; this increased interest expense $2.3 million. The cost of our FHLB advances and subordinated debt increased 116 basis points to 5.96% as these borrowings continue to reprice in the higher interest rate environment; this increased interest expense $2.4 million.

Provision for Credit Losses.   The provision for credit losses reflects our judgments about the adequacy of the allowance for loan losses and the reserve for unfunded loan commitments. In determining the amount of the provision, we consider certain quantitative and qualitative factors including our historical loan loss experience, the volume and type of lending we conduct, the results of our credit review process, the amounts of classified and nonperforming assets, regulatory policies, general economic conditions, underlying collateral values, off-balance sheet exposures, and other factors regarding collectibility and impairment. To the extent we experience, for example, increased levels of documentation deficiencies, adverse changes in collateral values, or negative changes in economic and business conditions which adversely affect our borrowers, our classified loans may increase.  Increases in our classified loans generally result in provisions for credit losses.

During the second quarter of 2006, we made a provision for credit losses of $9.5 million in response to an increase in nonaccrual loans, the credit quality of an acquired portfolio, our analysis of current market conditions related to real estate loans, and organic loan growth.

Our nonaccrual loans increased from $11.5 million at March 31, 2006, to $15.6 million at June 30, 2006. The increase is largely the result of $3.0 million of Cedars-acquired loans and one foreign loan for $3.0 million that were placed on nonaccrual at June 30, 2006, offset by reductions. We charged off $898,000 related to the foreign loan and will submit a claim to our insurer for the $3.0 million balance. Until such time as the insurance proceeds are received, this foreign loan will remain on nonaccrual.

Our integration procedures and internal credit review have indicated that the underlying credit quality of certain of the Cedars-acquired loans was deficient compared to our standards. As a result, we adversely classified certain Cedars-acquired loans in accordance with our criteria. Plans have been put in place to remove these assets from classified status by either strengthening underlying documentation, obtaining additional collateral and/or payments from borrowers, or possibly selling selected loans.

Recent reports on California real estate indicate that housing activity has peaked and has since shown signs of slowing, and that real estate and construction employment has slowed significantly since the beginning of 2006. As a result of this and the other factors cited above, and notwithstanding the strict underwriting standards we believe we have applied to loans we have originated, we increased our allowance for credit losses to recognize the additional credit risks that such factors and market trends have brought to light.

At June 30, 2006, the ratio of our allowance for credit losses to loans, net of unearned income, was 1.51% compared to 1.34% at March 31, 2006. The allowance for total credit losses totaled $51.9 million at June 30, 2006, and was comprised of the allowance for loan losses of $43.4 million and the reserve for unfunded loan commitments of $8.5 million. Although we expect that the actions we are taking to reduce the Company’s nonaccrual and classified loans will be successful, no assurance can be given that we will ultimately be successful and that additional losses will not be recognized.

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

	Quarter Ended(1)
	June 30, 2006			March 31, 2006			December 31, 2005			September 30, 2005			June 30,  2005
	(Dollars in thousands)
Service charges and fees on deposit accounts		$	1,986		$	1,559		$	1,511		$	1,594		$	1,558
Other commissions and fees		1,641			1,554			1,164			1,055			1,076
Gain on sale of loans, net		—			—			129			208			144
Increase in cash surrender value of life insurance		531			421			407			392			412
Other income		178			171			332			265			141
Total noninterest income		$	4,336		$	3,705		$	3,543		$	3,514		$	3,331

(1)Our quarterly results include First American subsequent to August 12, 2005, Pacific Liberty subsequent to October 7, 2005, Cedars subsequent to January 4, 2006 and Foothill subsequent to May 9, 2006.

Noninterest income increased for the quarter ended June 30, 2006, compared to each of the other quarterly periods presented due largely to increased commissions and fees for both loan and deposit related services. This increase is due primarily to the increase in the number of loan and deposit accounts and such balances. This category also includes $123,000 of merchant discount fees for the second quarter of 2006 related mostly to the merchant card portfolio acquired in the Cedars and Foothill acquisitions. On May 1, 2006 we sold the merchant card portfolio acquired through the Cedars transaction and we expect to sell the remaining merchant card portfolio during the third quarter. As a result, merchant discount fee income is expected to decline in future periods. Gain on sale of loans was zero for the six months ended June 30, 2006 as we have discontinued selling loans for the foreseeable future.

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

	Quarter Ended(1)
	June 30, 2006			March 31, 2006				December 31, 2005				September 30, 2005				June 30,  2005
	(Dollars in thousands)
Compensation	$	14,865			$	15,230			$	13,227			$	12,107		$	11,436
Occupancy	3,905				3,145				2,866				2,819			2,485
Furniture and equipment	981				761				740				679			645
Data processing	1,719				1,335				1,305				1,223			1,221
Other professional services	1,016				1,120				985				1,741			631
Business development	353				347				335				334			260
Communications	749				626				548				516			474
Insurance and assessments	492				472				426				411			433
Intangible asset amortization	1,577				1,149				1,066				915			813
Other	2,832				2,058				2,860				1,468			1,494
Total noninterest expense	$	28,489			$	26,243			$	24,358			$	22,213		$	19,892
Efficiency ratio	45.7		%		47.2		%		48.3		%		50.1		%	49.1		%

(1)Our quarterly results include First American subsequent to August 12, 2005, Pacific Liberty subsequent to October 7, 2005, Cedars subsequent to January 4, 2006 and Foothill subsequent to May 9, 2006.

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Noninterest expense for the second quarter of 2006 totaled $28.5 million compared to $19.9 million and $26.2 million for the second quarter of 2005 and the first quarter of 2006. The increase compared to the second quarter of 2005 relates mostly to increased compensation expense resulting from additional staff added through our acquisitions, pay rate increases and increased employee benefit costs. Occupancy costs increased due to additional office locations added by acquisitions, and most other general operating expenses increased due to the four acquisitions completed since July 2005. The second quarter of 2006 also includes approximately $930,000 of merger-related and consolidation costs comprised of (a) compensation, including retention bonuses, for employees assisting in the Foothill conversion, and (b) accruals, primarily facilities related, from consolidating five locations into other branches.

The increase compared to the first quarter of 2006 is due mainly to an increase in most expense categories due to the Foothill acquisition. However, compensation costs and professional fees decreased. Compensation includes a $1.7 million reduction to discretionary incentive compensation accruals which are tied to the Company’s profitability. These accruals may be restored in future quarters depending on the level of the Company’s reported net earnings. Professional fees decreased due to lower legal fees.

Noninterest expense includes amortization of restricted and performance stock, which is included in compensation, and intangible asset amortization. Restricted and performance stock amortization totaled $1.9 million for the second quarter of 2006 compared to $646,000 million for the second quarter of 2005 and $1.6 million for the first quarter of 2006. The increase compared to the prior quarters resulted largely from additional awards made during the first quarter of 2006. Amortization expense for all restricted and performance stock awards is estimated to be $7.0 million for 2006. Intangible asset amortization increased $428,000 for the second quarter of 2006 compared to the first quarter of 2006 due to additional amortization resulting from the Foothill acquisition. We recorded a core deposit intangible of $17.3 million related to the Foothill transaction. Intangible asset amortization is estimated to be $6.3 million for 2006, excluding any effect from the announced Community Bancorp acquisition. The 2006 estimates of both restricted and performance stock award expense and intangible asset amortization are subject to change.

Income Taxes.   Our statutory 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 40.7% to 41.0% for the quarters ended June 30, 2006 and 2005.

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Balance Sheet Analysis

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

	At June 30, 2006						At December 31, 2005
	Amount			% of total			Amount			% of total
	(Dollars in thousands)
Loan Category:
Domestic:
Commercial	$	716,418			21	%	$	639,393			26	%
Real estate, construction	763,861				21		570,080				23
Real estate, mortgage	1,812,484				53		1,117,030				45
Consumer	54,455				2		47,221				2
Foreign:
Commercial	95,692				3		94,930				4
Other, including real estate	7,182				*		8,320				*
Gross loans	3,450,092				100	%	2,476,974				100	%
Less: unearned income	(15,066		)				(9,146		)
Less: allowance for loan losses	(43,448		)				(27,303		)
Total net loans	$	3,391,578					$	2,440,525

*Amount is less than 1%.

Allowance for Credit Losses.   The allowance for credit losses is the combination of the allowance for loan losses and the reserve for unfunded loan commitments. The allowance for loan losses is reported as a reduction of outstanding loan balances and the reserve for unfunded loan commitments is included within other liabilities.

An allowance for loan losses is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan portfolio and other extensions of credit at the balance sheet date. The allowance is based upon a continuing review of the portfolio, past loan loss experience, current economic conditions which may affect the borrowers’ ability to pay, and the underlying collateral value of the loans. Loans which are deemed to be uncollectible are charged off and deducted from the allowance. The provision for loan losses and recoveries on loans previously charged off are added to the allowance.

The Company’s determination of the allowance for loan losses is sensitive to the assigned credit risk ratings and inherent loss rates at any given point in time. Therefore, we present sensitivity information to provide insight regarding the impact adverse changes in risk ratings may have on our allowance for loan losses. The sensitivity information does not imply any expectation of future deterioration in our loans’ risk ratings and it does not necessarily reflect the nature and extent of future changes in the allowance for loan losses due to the numerous quantitative and qualitative factors considered in determining our allowance for loan losses. At June 30, 2006, in the event that 1 percent of our loans were downgraded from the pass to substandard category within our current allowance methodology, the allowance for loan losses would increase by approximately $7.4 million. Given current processes employed by the Company, management believes the risk ratings and inherent loss rates currently assigned are appropriate. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions that could be significant to the Company’s financial statements.

At June 30, 2006, the allowance for credit losses totaled $51.9 million and was comprised of the allowance for loan losses of $43.4 million and the reserve for unfunded loan commitments of $8.5 million.

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The following table presents the changes in our allowance for loan losses for the periods indicated:

	As of or for the
	Quarter Ended June 30, 2006				Year Ended 12/31/05				Quarter Ended June 30, 2005
	(Dollars in thousands)
Balance at beginning of period		$	31,501			$	24,083			$	25,103
Loans charged off:
Commercial		(333		)		(1,646		)		(195		)
Real estate—construction		(29		)		—				—
Real estate—mortgage		—				(100		)		(11		)
Consumer		(39		)		(180		)		(40		)
Foreign		(898		)		(1,592		)		—
Total loans charged off		(1,299		)		(3,518		)		(246		)
Recoveries on loans charged off:
Commercial		508				2,106				440
Real estate—mortgage		—				11				7
Consumer		20				241				79
Foreign		—				2				—
Total recoveries on loans charged off		528				2,360				526
Net (charge-offs) recoveries		(771		)		(1,158		)		280
Provision for loan losses		7,620				1,345				2,759
Additions due to acquisitions		5,098				3,033				—
Balance at end of period		$	43,448			$	27,303			$	28,142
Ratios:
Allowance for loan losses to loans, net of unearned income		1.26		%		1.11		%		1.30		%
Allowance for loan losses to nonaccrual loans		278.3		%		324.2		%		140.8		%
Annualized net recoveries (charge-offs) to average loans		(0.10		)%		(0.05		)%		0.05		%

The allowance for loan losses increased by $16.1 million since December 31, 2005 due to the provision made in the second quarter of 2006 and the allowances acquired in the Cedars and Foothill acquisitions. Management believes the allowance for loan losses is adequate. In making its evaluation, management considers certain quantitative and qualitative factors including the Company’s historical loss experience, the volume and type of lending conducted by the Company, the amounts of classified and nonperforming assets, regulatory policies, general economic conditions, underlying collateral values, and other factors regarding the collectibility of loans in the Company’s portfolio.

In addition to the allowance of credit losses, we have a nonaccretable discount, representing the excess of the unpaid balances over the estimated fair values of certain loans acquired in the Cedars acquisition. Such amount totals $3.3 million at June 30, 2006, and is offset against the individual loan balances. At June 30, 2006, the gross amount of these loans is $14.7 million and their carrying amount is $11.4 million.

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The following table presents the changes in our reserve for unfunded loan commitments for the periods indicated:

	As of or for the
	Quarter Ended June 30, 2006			Year Ended 12/31/05			Quarter Ended June 30, 2005
	(Dollars in thousands)
Balance at beginning of period		$	6,436		$	5,424		$	5,446
Provision		1,880			75			(2,139		)
Additions due to acquisitions		159			169			—
Balance at end of period		$	8,475		$	5,668		$	3,307

The increase in the reserve for unfunded loan commitments during the second quarter of 2006 results from changing commitment levels and the additions from the Cedars and Foothill acquisitions. Management also believes that the reserve for unfunded loan commitments is adequate. In making this determination, we use the same methodology for the reserve for unfunded loan commitments as we do for the allowance for loan losses and consider the same qualitative factors, as well as an estimate of the probability of drawdown of the commitments correlated to their credit risk rating.

The following table presents the changes in our allowance for credit losses:

	As of or for the
	Quarter Ended June 30, 2006				Year Ended 12/31/05				Quarter Ended June 30, 2005
	(Dollars in thousands)
Balance at beginning of period		$	37,937			$	29,507			$	30,549
Provision for credit losses		9,500				1,420				620
Net (charge-offs) recoveries		(771		)		(1,158		)		280
Additions due to acquisitions		5,257				3,202				—
Balance at end of period		$	51,923			$	32,971			$	31,449
Allowance for credit losses to loans, net of unearned income		1.51		%		1.34		%		1.45		%
Allowance for credit losses to nonaccrual loans		332.6		%		391.5		%		157.4		%
Allowance for credit losses to nonperforming assets		332.6		%		391.5		%		157.4		%

Credit Quality.   We define nonperforming assets as: (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.

Nonaccrual loans increased to $15.6 million, or 0.45% of loans, net of unearned income, at June 30, 2006, from $8.4 million, or 0.34% of loans net of unearned income, at December 31, 2005. The majority of this increase is represented by four collateralized credits which we believe are adequately secured and have appropriate reserves.

As of June 30, 2006, we had no loans past due 90 days and still accruing interest. Management is not aware of any additional significant loss potential that has not already been considered in the estimation of the allowance for credit losses. We believe reserves are adequate on our nonperforming loans to cover the loss exposure as measured by our methodology.

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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
	Quarter Ended June 30, 2006				Year Ended 12/31/05			Quarter Ended June 30, 2005
	(Dollars in thousands)
Loans, net of unearned income		$	3,435,026		$	2,467,828			$	2,162,222
Allowance for loan losses		43,448			27,303				28,142
Average loans, net of unearned income		3,163,362			2,231,975				2,154,171
Nonperforming assets:
Nonaccrual loans		$	15,613		$	8,422			$	19,984
Other real estate owned		—			—				—
Nonperforming assets		$	15,613		$	8,422			$	19,984
Charged-off loans		$	(1,299	)	$	(3,518	)		$	(246	)
Recoveries		528			2,360				526
Net (charge-offs) recoveries		$	(771	)	$	(1,158	)		$	280
Allowance for loan losses to loans, net of unearned income		1.26		%	1.11		%		1.30		%
Allowance for loan losses to nonaccrual loans and leases		278.3			324.2				140.8
Allowance for loan losses to nonperforming assets		278.3			324.2				140.8
Nonperforming assets to loans, net of unearned income and OREO		0.45			0.34				0.92
Annualized net (charge offs) recoveries to average loans, net of unearned income		(0.10		)	(0.05		)		0.05
Nonaccrual loans to loans, net of unearned income		0.45			0.34				0.92

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

	At June 30, 2006					At December 31, 2005
	Amount		% of deposits			Amount		% of deposits
	(Dollars in thousands)
Noninterest-bearing	$	1,493,865		47	%	$	1,179,808		49	%
Interest-bearing:
Interest checking	252,105			8		184,293			8
Money market accounts	885,413			28		666,383			28
Savings	146,758			5		104,559			4
Time deposits under $100,000	135,606			4		107,655			4
Time deposits over $100,000	265,757			8		162,663			7
Total interest-bearing	1,685,639			53		1,225,553			51
Total deposits	$	3,179,504		100	%	$	2,405,361		100	%

Deposits increased $774.1 million to $3.2 billion at June 30, 2006, from year end 2005. During the first six months of 2006, we acquired $996.0 million in deposits through the Cedars and Foothill acquisitions. After excluding acquired deposits, total deposits declined $221.9 million. Such decline largely represents run-off of higher cost deposits acquired in mergers.

At June 30, 2006, deposits of foreign customers, primarily located in Mexico and Canada, totaled $140.2 million or 4% of total deposits.

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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, 2006, are as follows:

	Minimum Regulatory Requirements			Actual
	Well Capitalized			Pacific Western			First National			Company Consolidated
Tier 1 leverage capital ratio		5.00	%		11.20	%		13.67	%		12.00	%
Tier 1 risk-based capital ratio		6.00	%		9.93	%		13.40	%		10.87	%
Total risk-based capital		10.00	%		11.17	%		14.65	%		12.12	%

We have issued and outstanding $129.9 million of subordinated debentures to trusts established by us and Foothill, which in turn issued $126.0 million of trust preferred securities. These securities are 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 promulgated a modification of the capital regulations affecting trust preferred securities. Under this modification, beginning March 31, 2009, the Company will be required to use a more restrictive formula to determine the amount of trust preferred securities that can be included in regulatory Tier I capital. At that time, the Company will be allowed to include in Tier I capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which is generally defined as shareholders’ equity less certain intangibles, including goodwill, core deposit intangibles and customer relationship intangibles, net of any related deferred income tax liability. The regulations currently in effect through December 31, 2008, limit the amount of trust preferred securities that can be included in Tier I capital to 25% of the sum of core capital elements without a deduction for permitted intangibles. We have determined that our Tier I capital ratios would remain above the well-capitalized level had the modification of the capital regulations been in effect at June 30, 2006. We expect that our Tier I capital ratios will be at or above the existing well-capitalized levels on March 31, 2009, the first date on which the modified capital regulations must be applied.

Liquidity Management

Liquidity.   The goals of our liquidity management are to ensure the ability of the Company to meet its 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 Executive Asset/Liability Management Committee, or Executive ALM Committee, which is comprised of members of senior management and responsible for managing balance sheet and off-balance sheet commitments to meet the needs of customers while achieving our financial objectives. Our Executive ALM Committee meets regularly to review funding capacities, current and forecasted loan demand, and investment opportunities.

Historically, the overall liquidity source of the Banks’ is their core deposit bases. The Banks have not relied on large denomination time deposits. To meet short-term liquidity needs, the Banks maintain balances in Federal funds sold, interest-bearing deposits in other financial institutions and investment securities having maturities of five years or less as well as secured lines of credit. On a consolidated basis, liquid assets (cash, Federal funds sold, interest-bearing deposits in financial institutions and investment securities available-for-sale) as a percentage of total deposits were 12% as of June 30, 2006.

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As an additional source of liquidity, the Banks maintain unsecured lines of credit of $120.0 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 FHLB, which allow the Banks to borrow approximately $563.0 million in the aggregate. The Banks use the secured borrowing facility at the FHLB to fund loan demand in the absence of deposits and to manage liquidity for deposit flows. A portion of the FHLB borrowings are term advances and have been matched against the asset-based lending portfolio acquired in the FC Financial acquisition.

The primary sources of liquidity for the Company, on a stand-alone basis, include the dividends from the Banks and our ability to raise capital, issue subordinated debt and secure outside borrowings. On May 16, 2005, we filed a registration statement with the SEC regarding the sale of up to 3,400,000 shares of our common stock, no par value per share, which we may offer and sell, from time to time, in amounts, at prices and on terms that we will determine at the time of any particular offering. To date, we have issued 2,935,766 shares of common stock under this registration statement for net proceeds of $158.5 million including the 1,891,086 shares of common stock issued during the first quarter of 2006 for net proceeds of $109.5 million. We used these proceeds to augment our capital in support of our acquisitions. We expect to use the net proceeds from any additional sales of our securities to fund future acquisitions of banks and other financial institutions, as well as for general corporate purposes. The Company renewed its revolving credit line with U.S. Bank for $70 million. The revolving credit line matures on August 2, 2007 and is secured by a pledge of all of the outstanding capital stock of Pacific Western. The credit agreement requires the Company to maintain certain financial and capital ratios, among other covenants and conditions. This revolving credit line replaces the previous revolving credit line arrangements with U.S. Bank for $50 million and The Northern Trust Company for $20 million which matured on August 3, 2006.

The holding company’s primary source of income is the receipt of dividends from the Banks. The availability of dividends from the Banks is subject to limitations imposed by applicable federal laws and regulations. Dividends paid by national banks such as First National and Pacific Western are regulated by the OCC under its general supervisory authority as it relates to a bank’s capital requirements. A national bank may declare a dividend without the approval of the OCC as long as the total dividends declared in a calendar year do not exceed the total of net profits for that year combined with the retained profits for the preceding two years. The Banks did not pay First Community any dividends during the quarter ended June 30, 2006. The amount of dividends available for payment by the Banks to the holding company at June 30, 2006, was $88.5 million.

Contractual Obligations.   The known contractual obligations of the Company at June 30, 2006, are as follows:

	At June 30, 2006 and Due
	Within One Year		One to Three Years			Three to Five Years			After Five Years		Total
	(Dollars in thousands)
Short-term debt obligations	$	279,100		$	—		$	—	$	—	$	279,100
Long-term debt obligations	—			45,000			—		129,902		174,902
Operating lease obligations	10,258			27,876			25,220		9,099		72,453
Other contractual obligations	4,178			—			—		—		4,178
Total	$	293,536		$	72,876		$	25,220	$	139,001	$	530,633

Debt obligations are discussed in Note 7 of Notes to Unaudited Condensed Consolidated Financial Statements contained in “Item 1. Unaudited Consolidated Financial Statements.” 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, 2005. The other contractual obligations relate to the minimum liability associated with our data and item processing contract with a third-party provider.

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The contractual obligations table above does not include our merger-related liability, which was $6.5 million at June 30, 2006. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements contained in “Item 1. Unaudited Consolidated Financial Statements.”

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.

Off-Balance Sheet Arrangements

Our obligations also include off-balance sheet arrangements consisting of loan-related commitments, of which only a portion are expected to be funded. At June 30, 2006, our loan-related commitments, including standby letters of credit and financial guarantees, totaled $1.2 billion. The commitments which result in a funded loan increase our profitability through net interest income. Therefore, during the year, we manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources have been and are expected to be sufficient to meet the cash requirements of our lending activities.

Asset/Liability Management and Interest Rate Sensitivity

Interest Rate Risk.   Our market risk arises primarily from 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 credit 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 Executive ALM Committee and approved by our Board of Directors’ Asset/Liability Management Committee (“Board ALCO”). Our Executive ALM Committee and Board ALCO monitor 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, 2006, we had not used any derivatives to alter our interest rate risk profile or for any other reason. However, both the repricing characteristics of our fixed rate loans and floating rate loans, 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.

We measure our interest rate risk position on a monthly 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 Executive ALM Committee monthly and the Board ALCO quarterly. If hypothetical changes to interest rates cause changes to our simulated net present 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 models prepared as of June 30, 2006. These simulation models demonstrate 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.

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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, 2006. 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.

This analysis calculates the difference between net interest income forecasted using both 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, 2006 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing as of June 30, 2006. Based on such repricings, we calculated an 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 may 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 deposit products reprice at our discretion and are assumed to reprice more slowly, usually repricing less than the change in market rates.

The simulation analysis does not account for all factors that 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 cause changes in actual loan prepayment rates which will differ from the market estimates we used in this analysis. In addition, the simulation analysis does not make any assumptions regarding loan fee income, which is a component of our net interest income and tends to increase our net interest margin. Management reviews the model assumptions for reasonableness on a quarterly basis.

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The following table presents as of June 30, 2006, forecasted net interest income and net interest margin for the next 12 months using a base market interest 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		$	278,645		13.3	%		7.28	%		0.84	%
Up 200 basis points		$	266,945		8.5	%		6.98	%		0.54	%
Up 100 basis points		$	257,104		4.5	%		6.73	%		0.29	%
BASE CASE		$	246,032		—			6.45	%		—
Down 100 basis points		$	234,221		(4.8	)%		6.14	%		(0.30	)%
Down 200 basis points		$	222,330		(9.6	)%		5.83	%		(0.61	)%
Down 300 basis points		$	216,356		(12.1	)%		5.68	%		(0.77	)%

Our simulation results indicate our interest rate risk position was asset sensitive as the simulated impact of an immediate upward movement in interest rates would result 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.

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. 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. 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, 2006. The following table shows the projected change in the market value of equity for the set of rate shocks presented as of June 30, 2006:

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		$	1,176,405		4.6	%		25.8	%		134.2	%
Up 200 basis points		$	1,161,578		3.3	%		25.5	%		132.5	%
Up 100 basis points		$	1,144,831		1.8	%		25.1	%		130.6	%
BASE CASE		$	1,124,313		—			24.7	%		128.2	%
Down 100 basis points		$	1,100,954		(2.1	)%		24.1	%		125.5	%
Down 200 basis points		$	1,073,952		(4.5	)%		23.6	%		122.5	%
Down 300 basis points		$	1,015,857		(9.6	)%		22.3	%		115.8	%

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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 following table illustrates the volume and repricing characteristics of our balance sheet at June 30, 2006 over the indicated time intervals:

	At June 30, 2006
	Amounts Maturing or Repricing In
	3 Months Or Less			Over 3 Months to 12 Months				Over 1 Year to 5 Years				Over 5 Years			Non- sensitive(1)				Total
	(Dollars in thousands)
ASSETS
Cash and deposits in financial institutions	$	287			$	—			$	—		$	—			$	138,396		$	138,683
Federal funds sold	14,000				—				—			—				—			14,000
Investment securities	68,176				65,846				106,912			28,979				—			269,913
Loans, net of unearned income	1,906,694				140,132				939,531			448,669							3,435,026
Other assets	—				—				—			—				700,012			700,012
Total assets	$	1,989,157			$	205,978			$	1,046,443		$	477,648			$	838,408		$	4,557,634
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing demand deposits	$	—			$	—			$	—		$	—			$	1,493,865		$	1,493,865
Interest-bearing demand, money market and savings	1,284,276				—				—			—				—			1,284,276
Time deposits	200,634				177,597				23,132			—				—			401,363
Borrowings	239,100				40,000				45,000			—				—			324,100
Subordinated debentures	111,344				10,310				—			8,248				—			129,902
Other liabilities	—				—				—			—				48,798			48,798
Shareholders’ equity	—				—				—			—				875,330			875,330
Total liabilities and shareholders’ equity	$	1,835,354			$	227,907			$	68,132		$	8,248			$	2,417,993		$	4,557,634
Period gap	$	153,803			$	(21,929	)		$	978,311		$	469,400			$	(1,579,585	)
Cumulative interest-earning assets	$	1,989,157			$	2,195,135			$	3,241,578		$	3,719,226
Cumulative interest-bearing liabilities	$	1,835,354			$	2,063,261			$	2,131,393		$	2,139,641
Cumulative gap	$	153,803			$	131,874			$	1,110,185		$	1,579,585
Cumulative interest-earning assets to cumulative interest-bearing liabilities	108.4		%		106.4		%		152.1		%	173.8		%
Cumulative gap as a percent of:
Total assets	3.4		%		2.9		%		24.4		%	34.7		%
Interest-earning assets	4.1		%		3.5		%		29.9		%	42.5		%

(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 interest-bearing checking 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.

In using this interest rate risk management tool, we focus on the gap sensitivity identified as the cumulative one year gap. The preceding table indicates that we had a positive one year cumulative gap of $131.9 million, or 2.9% of total assets, at June 30, 2006. This gap position suggests that we are

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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 cumulative interest-earning assets to cumulative interest-bearing liabilities maturing or repricing within one year at June 30, 2006 is 106.4%. 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, 2006.

The gap table has inherent limitations and actual results may vary significantly from the results suggested by the gap table. The gap table assumes a static balance sheet, as does 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 may actually 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 despite a change in market interest rates 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, 2005, 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.

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PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

There have been no material developments in our legal proceedings previously reported in Item 3 to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and Current Report on Form 10-Q for the quarter ended March 31, 2006, except as set forth below. 

See also Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I of this report for additional discussion of legal proceedings, which information is incorporated herein by reference.

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 other 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.

Gilbert Litigation

As previously disclosed, in November 2005, along with certain other defendants, we reached an agreement in principle with respect to the class action lawsuit filed in Los Angeles Superior Court pending as Gilbert et. al v. Cohn et al, Case No. BC310846 (the “Gilbert Litigation”). The proposed settlement is subject to the final settlement terms and documentation being agreed upon by First Community, the plaintiffs and other parties who are also contributing to this settlement. Additionally, the settlement is subject to approval by the Los Angeles Superior Court.

The parties to the proposed settlement are still engaged in the process of finalizing their agreement regarding the terms and conditions of the settlement.  In the course of this process, the law firm representing the plaintiffs sought court approval to withdraw as counsel for one of the named plaintiffs, which approval was granted.

While we believe that this settlement, if finalized, will end our exposure to the underlying claims by participating class members, we cannot be certain that a final settlement will be reached or that we will not be subject to further claims by parties related to the same claims who did not participate in the settlement.

ITEM 1A. RISK FACTORS.

The following disclosure updates our disclosure set forth in “Section 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2005.

Ownership of our common stock involves risk. You should carefully consider, in addition to the other information set forth herein, the following risk factors.

Our business is subject to interest rate risk and variations in interest rates may negatively affect our financial performance.

Changes in the interest rate environment may reduce our profits. It is expected that we will continue to realize income from the differential or “spread” between the interest earned on loans, securities and other interest earning assets, and interest paid on deposits, borrowings and other interest bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest earning assets and interest bearing liabilities. In addition, loan volume and yields are affected by market interest rates on loans, and rising interest rates generally are associated with a lower volume of loan originations. We cannot assure you that we can minimize our interest rate risk. In addition,

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while an increase in the general level of interest rates may increase our net interest margins and loan yield, it may adversely affect the ability of certain borrowers with variable rate loans to pay the interest on and principal of their obligations. Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality, loan origination volume and overall profitability.

We face strong competition from financial services companies and other companies that offer banking services which could negatively affect our business.

We conduct our banking operations primarily in Southern California. Increased competition in our market may result in reduced loans and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the same banking services that we offer in our service area. These competitors include national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including without limitation, savings and loan institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include several major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and ATMs and conduct extensive promotional and advertising campaigns.

Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger customers. Areas of competition include interest rates for loans and deposits, efforts to obtain deposits, and range and quality of products and services provided, including new technology driven products and services. Technological innovation continues to contribute to greater competition in domestic and international financial services markets as technological advances enable more companies to provide financial services. We also face competition from out-of-state financial intermediaries that have opened low-end production offices or that solicit deposits in our market areas. If we are unable to attract and retain banking customers, we may be unable to continue our loan growth and level of deposits and our results of operations and financial condition may otherwise be adversely affected.

Changes in economic conditions, in particular an economic slowdown in Southern California, could materially and negatively affect our business.

Our business is directly impacted by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond our control. A deterioration in economic conditions, whether caused by national or local concerns, in particular an economic slowdown in Southern California, could result in the following consequences, any of which could hurt our business materially: loan delinquencies may increase; problem assets and foreclosures may increase; demand for our products and services may decrease; low cost or noninterest bearing deposits may decrease; and collateral for loans made by us, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with our existing loans. These circumstances may lead to an increase in nonaccrual and classified loans, which generally results in a provision for credit losses and in turn reduces the Company’s net earnings. The State of California continues to face fiscal challenges upon which the long term impact on the State’s economy cannot be predicted.

A downturn in the real estate market could negatively affect our business.

A downturn in the real estate market could negatively affect our business because a significant portion (approximately 75% as of June 30, 2006) of our loans is secured by real estate. Our ability to recover on defaulted loans by selling the real estate collateral would then be diminished and we would be more likely to suffer losses on defaulted loans. Substantially all of our real property collateral is located in Southern

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California. If there is a significant decline in real estate values, especially in Southern California, the collateral for our loans would provide less security. Real estate values could be affected by, among other things, an economic slowdown, an increase in interest rates, earthquakes and other natural disasters particular to California.

We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.

We currently depend heavily on the services of our chairman, John Eggemeyer, our chief executive officer, Matthew Wagner, and a number of other key management personnel. The loss of Mr. Eggemeyer’s or Mr. Wagner’s services or that of other key personnel could materially and adversely affect our results of operations and financial condition. Our success also depends, in part, on our ability to attract and retain additional qualified management personnel. Competition for such personnel is strong in the banking industry and we may not be successful in attracting or retaining the personnel we require.

We are subject to extensive regulation which could adversely affect our business.

Our operations are subject to extensive regulation by federal governmental authorities, and to a lesser extent state and local authorities, and we are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. We have also applied to federal and state regulators to consolidate our subsidiary banks into a single state-charted bank. Because our business is highly regulated, the laws, rules and regulations applicable to us are subject to regular modification and change. There are currently proposed laws, rules and regulations that, if adopted, would impact our operations. There can be no assurance that these proposed laws, rules and regulations, or any other laws, rules or regulations, will not be adopted in the future, which could (i) make compliance much more difficult or expensive, (ii) restrict our ability to originate, broker or sell loans or accept certain deposits, (iii) further limit or restrict the amount of commissions, interest or other charges earned on loans originated or sold by us, or (iv) otherwise adversely affect our business or prospects for business. Additionally, in order to conduct certain activities, including acquisitions, we are required to obtain regulatory approval.  There can be no assurance that any required approvals can be obtained, or obtained without conditions or on a timeframe acceptable to us. For more information, please see the section entitled See “Item 1. Business—Supervision and Regulation” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2005.

We are exposed to transactional, currency and legal risk related to our foreign loans that is in addition to risks we face on loans to U.S. based borrowers.

A portion of our loan portfolio is represented by credit we extend and loans we make to businesses located outside the United States, predominantly in Mexico. These loans, which include commercial loans, real estate loans and credit extensions for the financing of international trade, are subject to risks in addition to risks we face with our loans to businesses located in the United States including, but not limited to, currency risk, transaction risk, country risk and legal risk. While these loans are denominated in U.S. dollars, the ability of the borrower to repay may be affected by fluctuations in the borrower’s home country currency relative to the U.S. dollar. Additionally, while most of our foreign loans are insured by U.S. based institutions, guaranteed by a U.S. based entity, or collateralized with U.S. based assets or real property, our ability to collect in the event of default is subject to a number of conditions and we may not be successful in obtaining partial or full repayment. Furthermore, foreign laws may restrict our ability to foreclose on, take a security interest in, or seize collateral located in the foreign country.

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We are exposed to risk of environmental liabilities with respect to properties to which we take title.

In the course of our business, we may own or foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected.

Our ability to pay dividends is restricted by law and contractual arrangements and depends on capital distributions from the Banks which are subject to regulatory limits.

Our ability to pay dividends to our shareholders is subject to the restrictions set forth in California law. In addition, our ability to pay dividends to our shareholders is restricted in specified circumstances under indentures governing the trust preferred securities we have issued and under the revolving credit agreements to which we are a party. See “Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters—Dividends” in Part II of our Annual Report on Form 10-K for the year ended December 31, 2005 for more information on these restrictions. We cannot assure you that we will meet the criteria specified under California law or under these agreements in the future, in which case we may reduce or stop paying dividends on our common stock.

The primary source of our income from which we pay dividends is the receipt of dividends from our Banks.

The availability of dividends from the Banks is limited by various statutes and regulations. It is possible, depending upon the financial condition of the bank in question and other factors, that the Board of Governors of the Federal Reserve System, and/or the Office of the Comptroller of the Currency could assert that payment of dividends or other payments is an unsafe or unsound practice. In the event our subsidiaries were unable to pay dividends to us, we in turn would likely have to reduce or stop paying dividends on our common stock. Our failure to pay dividends on our common stock could have a material adverse effect on the market price of our common stock. See “Item 1. Business—Supervision and Regulation” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2005 for additional information on the regulatory restrictions to which we and our Banks are subject.

Only a limited trading market exists for our common stock which could lead to price volatility.

Our common stock was designated for quotation on the Nasdaq National Market in June 2000 and trading volumes since that time have been modest. The limited trading market for our common stock may cause fluctuations in the market value of our common stock to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading market of our common stock. In addition, even if a more active market in our common stock develops, we cannot assure you that such a market will continue or that shareholders will be able to sell their shares.

Our allowance for credit losses may not be adequate to cover actual losses.

In accordance with accounting principles generally accepted in the United States, we maintain an allowance for loan losses to provide for loan defaults and non-performance and a reserve for unfunded loan commitments, which when combined, we refer to as the allowance for credit losses. Our allowance for credit losses may not be adequate to cover actual credit losses, and future provisions for credit losses could

49

materially and adversely affect our operating results. Our allowance for credit losses is based on prior experience, as well as an evaluation of the risks in the current portfolio. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for credit losses. While we believe that our allowance for credit losses is adequate to cover current losses, we cannot assure you that we will not further increase the allowance for credit losses or that regulators will not require us to increase this allowance. Either of these occurrences could materially and negatively affect our earnings. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II to our Annual Report on Form 10-K for the year ended December 31, 2005 for more information.

Our acquisitions may subject us to unknown risks.

We have acquired 17 financial institutions since our formation in 2000, including the two subsidiaries around which the Company was formed. Additionally, we have announced the acquisition of Community Bancorp, currently scheduled to close in the fourth quarter of 2006. Certain events may arise after the date of an acquisition, or we may learn of certain facts, events or circumstances after the closing of an acquisition, that may affect our financial condition or performance or subject us to risk of loss. These events include, but are not limited to: litigation resulting from circumstances occurring at the acquired entity prior to the date of acquisition; loan downgrades and credit loss provisions resulting from underwriting of certain acquired loans determined not to meet our credit standards; personnel changes that cause instability within a department; delays in implementing new policies or procedures, or the failure to apply new policies or procedures; and, other events relating to the performance of our business. Acquisitions involve inherent uncertainty and we cannot determine all potential events, facts and circumstances that could result in loss, or give assurances that our investigation or mitigation efforts will be sufficient to protect against any such loss.

Concentrated ownership of our common stock creates a risk of sudden changes in our share price.

As of July 31, 2006, directors and members of our executive management team owned or controlled approximately 11.3% of our common stock, excluding shares that may be issued to executive officers upon payment of restricted and performance stock awards and exercise of stock options. Investors who purchase our common stock may be subject to certain risks due to the concentrated ownership of our common stock. The sale by any of our large shareholders of a significant portion of that shareholder’s holdings could have a material adverse effect on the market price of our common stock. In addition, the registration of any significant amount of additional shares of our common stock will have the immediate effect of increasing the public float of our common stock and any such increase may cause the market price of our common stock to decline or fluctuate significantly.

Our largest shareholder is a registered bank holding company and the activities and regulation of such shareholder may affect the permissible activities of the Company.

Castle Creek Capital, LLC, which we refer to as Castle Creek, is controlled by our chairman, John M. Eggemeyer, and beneficially owned approximately 7.1% of the Company as of July 31, 2006. Castle Creek is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and is regulated by the Board of Governors of the Federal Reserve System, or FRB. Under FRB guidelines, holding companies must be a “source of strength” for their subsidiaries. See “Item 1. Business—Supervision and Regulation—Bank Holding Company Regulation” in Part I to our Annual Report on Form 10-K for the year ended December 31, 2005 for more information. Regulation of Castle Creek by the FRB may adversely affect the activities and strategic plans of the Company should the FRB determine that Castle Creek or any other company in which Castle Creek has invested has engaged in any unsafe or

50

unsound banking practices or activities. While we have no reason to believe that the FRB is proposing to take any action with respect to Castle Creek that would adversely affect the Company, we remain subject to such risk.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Repurchases of Common Stock

Through the Company’s Directors Deferred Compensation Plan, or the DDCP, participants in the DDCP 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 actual 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) 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, 2006.

	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, 2006		—		—			N/A		N/A
May 1 – May 31, 2006		—		—			N/A		N/A
June 1 – June 30, 2006		2,934		$	60.04		N/A		N/A
Total		2,934		$	60.04		N/A		N/A

On May 3, 2006, our Board of Directors authorized the repurchase of up to one million shares of the Company’s common stock over the next twelve months, subject to market conditions and corporate and regulatory requirements. As of June 30, 2006 no shares have been repurchased. The stock repurchase program may be limited or terminated at any time without prior notice.

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

(a)The Company held its annual meeting of shareholders on April 19, 2006.

(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
Susan E. Lester
Timothy B. Matz
Arnold W. Messer
Daniel B. Platt
Robert A. Stine
Matthew P. Wagner
David S. Williams

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(c)At the annual meeting, shareholders voted on: (1) the Agreement and Plan of Merger by and between First Community Bancorp and Foothill Independent Bancorp pursuant to which Foothill Independent Bancorp will merge with and into First Community Bancorp with First Community Bancorp being the surviving corporation and shares of First Community common stock would be issued to Foothill stockholders in exchange for their shares of Foothill Independent Bancorp; (2) the election of the Company’s directors; (3) an amendment to First Community’s articles of incorporation to increase the shares authorized for issuance from 30,000,000 to 50,000,000; and (4) an amendment and restatement of the Company’s 2003 Stock Incentive Plan to increase the aggregate number of shares available for issuance under the plan from 2,500,000 to 3,500,000. All nominees for director were elected and the other measures were approved. The results of the voting were as follows:

Matter	Votes For	Votes Against		Withheld	Abstentions		Broker Non-votes
Approval of the principal terms of the Agreement and Plan of Merger by and between First Community Bancorp and Foothill Independent Bancorp, dated as of December 14, 2005, and the issuance of shares of First Community common stock to be issued in connection with the merger to Foothill stockholders	14,909,253		70,449	—		18,960	2,812,266
Election of Directors:
Stephen M. Dunn	17,403,781		—	407,147		—	—
John M. Eggemeyer	15,467,445		—	2,343,483		—	—
Barry C. Fitzpatrick	16,875,086		—	935,842		—	—
Susan E. Lester	17,176,178		—	634,750		—	—
Timothy B. Matz	16,516,263		—	1,924,665		—	—
Arnold W. Messer	16,875,379		—	935,549		—	—
Daniel B. Platt	17,244,572		—	566,356		—	—
Robert A. Stine	17,245,422		—	565,506		—	—
Matthew P. Wagner	17,403,281		—	407,647		—	—
David S. Williams	16,716,077		—	1,094,851		—	—
Amendment to First Community’s articles of incorporation to increase the maximum amount of authorized shares of common stock from 30,000,000 to 50,0000	17,584,044		206,450	—		20,434	—
To approve an increase in the authorized number of shares available for issuance under First Community’s 2003 Stock Incentive Plan from 2,500,000 to 3,500,000	11,230,022		3,739,271	—		29,369	2,812,266

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ITEM 6. Exhibits

Exhibit Number	Description
3.1	Restated Articles of Incorporation of First Community Bancorp, dated April 26, 2006 (Exhibit 3.1 to Form 10-Q filed on May 5, 2006 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	Amended and Restated Revolving Credit Agreement, dated as of August 3, 2006, by and between U.S. Bank, N.A., and First Community Bancorp.
10.2	Pledge Agreement, dated as of August 3, 2006, by and between U.S. Bank, N.A. and First Community Bancorp.
10.22*	Change in Control Severance Agreement, dated July 25, 2006, applicable to the executive officers of First Community Bancorp and certain senior officers of First Community Bancorp and its subsidiaries.
31.1	Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1	Section 1350 Certification of Chief Executive Officer.
32.2	Section 1350 Certification of Chief Financial Officer.

* Management contract or compensatory plan or arrangement.

We have not included as exhibits certain instruments with respect to our long-term debt, the amount of debt authorized under each of which does not exceed 10% of our total assets, and we agree to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.

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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 9, 2006
	/s/ VICTOR R. SANTORO
	Victor R. Santoro
	Executive Vice President and Chief Financial Officer

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT

Dated as of August 3, 2006

This Amended and Restated Revolving Credit Agreement (this “Agreement”) is by and between FIRST COMMUNITY BANCORP, a corporation formed under the laws of the State of California (“Borrower”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association (“Lender”), with a banking office at 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.

As used in this Agreement, capitalized terms not otherwise defined herein shall have the meaning assigned to such term as set forth in Section 8.

SECTION 1. LOANS

SECTION 1.1.      REVOLVING CREDIT LOANS. Subject to the terms and conditions of this Agreement, Lender agrees to make loans to Borrower, from time to time from the date of this Agreement through August 2, 2007 (the “Maturity Date”), at such times and in such amounts, not to exceed SEVENTY MILLION AND NO/100 UNITED STATES DOLLARS ($70,000,000.00) (the “Commitment”) at any one time outstanding, as Borrower may request (the “Loan(s)”). During such period Borrower may borrow, repay and reborrow hereunder. Each borrowing shall be in the amount of at least $100,000 or the remaining unused amount of the Commitment.

SECTION 1.2.      REVOLVING CREDIT NOTE. The Loans shall be evidenced by a promissory note (the “Note”), substantially in the form of Exhibit A, with appropriate insertions, dated the date hereof, payable to the order of Lender and in the original principal amount of the Commitment. Lender may at any time and from time to time at Lender’s sole option attach a schedule (grid) to the Note and endorse thereon notations with respect to each Loan specifying the date and principal amount thereof, the Interest Period (if applicable), the applicable interest rate and rate option, and the date and amount of each payment of principal and interest made by Borrower with respect to each such Loan. Lender’s endorsements as well as its records relating to the Loans shall be rebuttably presumptive evidence of the outstanding principal and interest on the Loans, and, in the event of inconsistency, shall prevail over any records of Borrower and any written confirmations of the Loans given by Borrower. The principal of the Note shall be payable on or before the Maturity Date.

SECTION 1.3.      EXTENSION OF MATURITY DATE. Borrower may request an extension of the Maturity Date by submitting a request for an extension to Lender (an “Extension Request”) no more than sixty (60) days prior to the current Maturity Date. The Extension Request must specify the new Maturity Date requested by Borrower and the date (which must be at least thirty (30) days after the Extension Request is delivered to Lender) as of which Lender must respond to the Extension Request (the “Extension Date”). The new Maturity Date shall be

no more than 364 days after the Maturity Date in effect at the time the Extension Request is received, including such Maturity Date as one of the days in the calculation of the days elapsed. If Lender fails to respond to an Extension Request by the Extension Date, Lender shall be deemed to have denied the Extension Request. If Lender, in its sole discretion, decides to approve the Extension Request, Lender shall deliver its written consent to Borrower of such extension no later than the Extension Date (provided it shall not be liable to Borrower or any other Person for its failure to do so).

SECTION 2. INTEREST AND FEES

SECTION 2.1.      INTEREST RATE. Borrower agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding hereunder at the following rates per year:

(a)           Before maturity of any Loan, whether by acceleration or otherwise, at the option of Borrower, subject to the terms hereof at a rate equal to:

(i)            The “Prime-Based Rate,” which shall mean the Prime Rate minus seventy-five hundredths of one percent (-0.75%) per annum;

(ii)           “LIBOR,” which shall mean the sum of (A) that fixed rate of interest per year for deposits with Interest Periods of 1, 3 or 6 months (which Interest Period Borrower shall select subject to the terms stated herein) in United States Dollars offered to Lender in or through the London interbank market at or about 10:00 A.M., London time, two days (during which banks are generally open in both Chicago and London) before the rate is to take effect in an amount corresponding to the amount of the requested Loan or portion thereof and for the London deposit Interest Period requested, divided by one minus any applicable reserve requirement (expressed as a decimal) on Eurodollar deposits of the same amount and Interest Period as determined by Lender in its sole discretion, plus (B) one and one-half percent (+1.50%) per annum; or

(iii)          “Federal Funds Rate,” which shall mean the sum of (A) the weighted average of the rates on overnight Federal funds transactions, with members of the Federal Reserve System only, arranged by Federal funds brokers, plus (B) one and one-half percent (+1.50%) per annum. The Federal Funds Rate shall be determined by Lender on the basis of reports by Federal funds brokers to, and published daily by, the Federal Reserve Bank of New York in the Composite Closing Quotations for U.S. Government Securities. If such publication is unavailable or the Federal Funds Rate is not set forth therein, the Federal Funds Rate shall be determined on the basis of any other source reasonably selected by Lender. The Federal Funds Rate applicable each day shall be the Federal Funds Rate reported as applicable to Federal funds transactions on that date. In the case of Saturday, Sunday or a legal holiday, the Federal Funds Rate shall be the rate applicable to Federal funds transactions on the immediately preceding day for which the Federal Funds Rate is reported.

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(b)           After the maturity of any Loan, whether by acceleration or otherwise, such Loan shall bear interest until paid at a rate equal to two percent (2%) in addition to the rate in effect immediately prior to maturity (but not less than the Prime-Based Rate in effect at maturity).

SECTION 2.2.      RATE SELECTION. Borrower shall select and change its selection of the interest rate as among LIBOR, the Federal Funds Rate and the Prime-Based Rate, as applicable, to apply to at least $100,000 and in integral multiples of $100,000 thereafter of any Loan or portion thereof, subject to the requirements herein stated:

(a)           At the time any Loan is made;

(b)           At the expiration of a particular LIBOR Interest Period selected for the outstanding principal balance of any Loan or portion of any Loan currently bearing interest at LIBOR; and

(c)           At any time for the outstanding principal balance of any Loan or portion thereof currently bearing interest at the Prime-Based Rate or the Federal Funds Rate.

SECTION 2.3.      RATE CHANGES AND NOTIFICATIONS.

(a)           LIBOR. If Borrower wishes to borrow funds at LIBOR or Borrower wishes to change the rate of interest on any Loan or portion thereof, within the limits described above, from any other rate to LIBOR, it shall, at or before 12:00 noon, Chicago time, not less than two Banking Days of Lender prior to the Banking Day of Lender on which such rate is to take effect, give Lender written notice thereof, which shall be irrevocable. Such notice shall specify the Loan or portion thereof to which LIBOR is to apply, and, in addition, the desired LIBOR Interest Period of 1, 3 or 6 months. Notwithstanding that any LIBOR Interest Period selected by Borrower may extend beyond the Maturity Date, Borrower acknowledges and agrees that all amounts owing by Borrower to Lender under this Agreement in respect of principal, accrued interest, fees and expenses, including any amounts under section 2.5(c), shall be due and payable on the Maturity Date.

(b)           Federal Funds Rate or Prime-Based Rate. If Borrower wishes to borrow funds at the Federal Funds Rate or the Prime-Based Rate or to change the rate of interest on any Loan or any portion thereof, to such rate, it shall, at or before l2:00 noon, Chicago time, on the date such borrowing or change is to take effect, which shall be a Banking Day of Lender, give Lender written notice thereof, which shall be irrevocable. Such notice shall specify the advance and the desired interest rate option.

(c)           Failure to Notify. If Borrower does not notify Lender at the expiration of a selected Interest Period with respect to any principal outstanding at LIBOR, then in the absence of such notice Borrower shall be deemed to have elected to have such principal accrue interest after the respective LIBOR Interest Period at the Federal Funds Rate. If Borrower does not notify Lender as to its selection of the interest rate option with respect to any new Loan, then in the absence of such notice Borrower shall be deemed to have elected to have such initial advance accrue interest at the Federal Funds Rate.

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SECTION 2.4.      INTEREST PAYMENT DATES. Accrued interest shall be paid in respect of each portion of principal to which the Federal Funds Rate or Prime-Based Rate applies on the last day of each month in each year, beginning with the first of such dates to occur after the date of the first Loan or portion thereof, at maturity, and upon payment in full, and to each portion of principal to which any other interest rate option applies, the end of each respective Interest Period, every three months, at maturity, and upon payment in full, whichever is earlier or more frequent. After maturity, interest shall be payable upon demand.

SECTION 2.5.      ADDITIONAL PROVISIONS WITH RESPECT TO FEDERAL FUNDS RATE AND LIBOR LOANS.

The selection by Borrower of the Federal Funds Rate or LIBOR and the maintenance of the Loans or portions thereof at such rate shall be subject to the following additional terms and conditions:

(a)           Availability of Deposits at a Determinable Rate. If, after Borrower has elected to borrow or maintain any Loan or portion thereof at the Federal Funds Rate or LIBOR, Lender notifies Borrower that:

(i)            United States dollar deposits in the amount and for the maturity requested are not available to Lender (in the case of LIBOR, in the London interbank market); or

(ii)           Reasonable means do not exist for Lender to determine the Federal Funds Rate or LIBOR for the amount and maturity requested; all as determined by Lender in its sole discretion, then the principal subject to the Federal Funds Rate or LIBOR shall accrue or shall continue to accrue interest at the Prime-Based Rate.

(b)           Prohibition of Making, Maintaining, or Repayment of Principal at the Federal Funds Rate or LIBOR. If any treaty, statute, regulation, interpretation thereof, or any directive, guideline, or otherwise by a central bank or fiscal authority (whether or not having the force of law) shall either prohibit or extend the time at which any principal subject to the Federal Funds Rate or LIBOR may be purchased, maintained, or repaid, then on and as of the date the prohibition becomes effective, the principal subject to that prohibition shall continue at the Prime-Based Rate.

(c)           Payments of Principal and Interest to be Inclusive of Any Taxes or Costs. All payments of principal and interest shall include any taxes and costs incurred by Lender resulting from having principal outstanding hereunder at the Federal Funds Rate or LIBOR. Without limiting the generality of the preceding obligation, illustrations of such taxes and costs are:

(i)            Taxes (or the withholding of amounts for taxes) of any nature whatsoever including income, excise, and interest equalization taxes (other than income taxes imposed by the United States or any state or locality thereof on the income of Lender), as well as all levies, imposts, duties, or fees whether now in existence or

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resulting from a change in, or promulgation of, any treaty, statute, regulation, interpretation thereof, or any directive, guideline, or otherwise, by a central bank or fiscal authority (whether or not having the force of law) or a change in the basis of, or time of payment of, such taxes and other amounts resulting therefrom;

(ii)           Any reserve or special deposit requirements against assets or liabilities of, or deposits with or for the account of, Lender with respect to principal outstanding at LIBOR including those imposed under Regulation D of the Federal Reserve Board or resulting from a change in, or the promulgation of, such requirements by treaty, statute, regulation, interpretation thereof, or any directive, guideline, or otherwise by a central bank or fiscal authority (whether or not having the force of law);

(iii)          Any other costs resulting from compliance with treaties, statutes, regulations, interpretations, or any directives or guidelines, or otherwise by a central bank or fiscal authority (whether or not having the force of law), including capital adequacy regulations;

(iv)          Any loss (including loss of anticipated profits) or expense incurred by reason of the liquidation or re-employment of deposits acquired by Lender:

(A)          To make Loans or a portion thereof or maintain principal outstanding at the LIBOR or the Federal Funds Rate;

(B)           As the result of a voluntary prepayment at a date other than the Interim Maturity Date selected for principal outstanding at LIBOR;

(C)           As the result of a mandatory repayment at a date other than that Interim Maturity Date selected for principal outstanding at LIBOR as the result of the occurrence of an Event of Default (as defined in Section 7.1) and the acceleration of any portion of the indebtedness hereunder; or

(D)          As the result of a prohibition on making, maintaining, or repaying principal outstanding at the Federal Funds Rate or LIBOR.

If Lender incurs any such taxes or costs, Borrower, upon demand in writing specifying such taxes and costs, shall promptly pay them; save for manifest error Lender’s specification shall be presumptively deemed correct.

SECTION 2.6.      BASIS OF COMPUTATION. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days, including the date a Loan is made and excluding the date a Loan or any portion thereof is paid or prepaid.

SECTION 2.7.      COMMITMENT FEE, REDUCTION OF COMMITMENT. Borrower agrees to pay Lender a commitment fee (the “Commitment Fee”) in arrears of twenty-five hundredths of one percent (0.25%) per year on the average daily unused amount of the Commitment. The Commitment Fee shall commence to accrue on the date of this Agreement

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and shall be paid on the last day of each calendar quarter in each year, beginning with the first of such dates to occur after the date of this Agreement, at maturity and upon payment in full. At any time or from time to time, upon at least ten days’ prior written notice, which shall be irrevocable, Borrower may reduce the Commitment in the amount of at least $100,000 or in full; provided that Borrower may not reduce the Commitment below an amount equal to the aggregate outstanding principal amount of all Loans. Upon any such reduction of any part of the unused Commitment, any accrued and unpaid Commitment Fee on the part reduced shall be paid in full as of the date of such reduction.

SECTION 3. PAYMENTS AND PREPAYMENTS

SECTION 3.1.      PREPAYMENTS. Borrower may prepay without penalty or premium any principal bearing interest at the Prime-Based Rate or the Federal Funds Rate. If Borrower prepays any principal bearing interest at LIBOR in whole or in part on a date other than the Interim Maturity Date, or if the maturity of any such LIBOR principal is accelerated, then, to the fullest extent permitted by law Borrower shall also pay Lender for all losses and expenses incurred by reason of the liquidation or re-employment of deposits acquired by Lender to make the Loan or maintain principal outstanding at LIBOR. Upon Lender’s demand in writing specifying such losses and expenses, Borrower shall promptly pay them; Lender’s specification shall be deemed correct in the absence of manifest error. All Loans or portions thereof made at LIBOR shall be conclusively deemed to have been funded by or on behalf of Lender (in the London interbank market) by the purchase of deposits corresponding in amount and maturity to the amount and Interest Periods selected (or deemed to have been selected) by Borrower under this Agreement. Any partial repayment or prepayment shall be in an amount equal to the lesser of $500,000 and the outstanding principle balance of the Loans.

SECTION 3.2.      FUNDS. All payments of principal, interest and the Commitment Fee shall be made in immediately available funds to Lender at its banking office indicated above or as otherwise directed by Lender.

SECTION 4. REPRESENTATIONS AND WARRANTIES

To induce Lender to make each of the Loans, Borrower represents and warrants to Lender that:

SECTION 4.1.      ORGANIZATION. Borrower is existing and in good standing as a duly qualified and organized bank holding company. Borrower and each Subsidiary is existing and in good standing under the laws of their jurisdiction of formation, and are duly qualified, in good standing and authorized to do business in each jurisdiction where failure to do so might have a material adverse impact on the consolidated assets, condition or prospects of Borrower. Borrower and each Subsidiary have the power and authority to own their properties and to carry on their businesses as now being conducted.

SECTION 4.2.      AUTHORIZATION; NO CONFLICT. The execution, delivery and performance of this Agreement, the Pledge Agreement (as defined in Section 5.11), the Note and all related documents and instruments:  (a) are within Borrower’s powers; (b) have been authorized by all necessary corporate action; (c) have received any and all necessary

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governmental approvals; and (d) do not and will not contravene or conflict with any provision of law or charter or by-laws of Borrower or any agreement affecting Borrower or its property. This Agreement, the Pledge Agreement and the Note when executed and delivered will be, legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms.

SECTION 4.3.      FINANCIAL STATEMENTS. Borrower has supplied to Lender copies of its audited consolidated financial statements as of and for the twelve month period ended December 31, 2005. Such statements have been furnished to Lender, have been prepared in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding fiscal year, except as disclosed in such statements, and fairly present the financial condition of Borrower and its Subsidiaries as of such dates and the results of their operations for the respective periods then ended. Since the date of those financial statements, no material, adverse change in the business, condition, properties, assets, operations, or prospects of Borrower or its Subsidiaries has occurred except as disclosed on Schedule 4.3. There is no known contingent liability of Borrower or any Subsidiary which is known to be in an amount that is more than $1,000,000 (excluding loan commitments, letters of credit, and other contingent liabilities incurred in the ordinary course of the banking business) in excess of insurance for which the insurer has confirmed coverage in writing which is not reflected in such financial statements or disclosed on Schedule 4.3.

SECTION 4.4.      TAXES. Borrower and each Subsidiary have filed or caused to be filed all federal, state and local tax returns which, to the knowledge of Borrower or such Subsidiary, are required to be filed, and have paid or have caused to be paid all taxes as shown on such returns or on any assessment received by them, to the extent that such taxes have become due (except for current taxes not delinquent and taxes being contested in good faith and by appropriate proceedings for which adequate reserves have been provided on the books of Borrower or the appropriate Subsidiary, and as to which no foreclosure, sale or similar proceedings have been commenced).

SECTION 4.5.      LIENS. None of the assets of Borrower or any Subsidiary are subject to any mortgage, pledge, title retention lien, or other lien, encumbrance or security interest except:  (a) for current taxes not delinquent or taxes being contested in good faith and by appropriate proceedings; (b) for liens arising in the ordinary course of business for sums not due or sums being contested in good faith and by appropriate proceedings, but not involving any deposits or loan or portion thereof or borrowed money or the deferred purchase price of property or services; (c) to the extent specifically shown in the financial statements referred to in Section 4.3; and (d)  liens and security interests securing deposits of public funds, repurchase agreements, Federal funds purchased, trust assets, advances from a Federal Home Loan Bank, discount window borrowings from a Federal Reserve Bank and other similar liens granted in the ordinary course of the banking business.

SECTION 4.6.      ADVERSE CONTRACTS. Neither Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction, nor is it subject to any judgment, decree or order of any court or governmental body, which may have a material and adverse effect on the business, assets, liabilities, financial condition, operations or business prospects of Borrower and its Subsidiaries taken as a whole or on the

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ability of Borrower to perform its obligations under this Agreement, the Pledge Agreement and the Note. Neither Borrower nor any Subsidiary has, nor with reasonable diligence should have had, knowledge of or notice that it is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any such agreement, instrument, restriction, judgment, decree or order.

SECTION 4.7.      REGULATION U. Borrower is not engaged principally in, nor is one of Borrower’s important activities, the business of extending credit for the purpose of purchasing or carrying “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereinafter in effect.

SECTION 4.8.      LITIGATION AND CONTINGENT LIABILITIES. No litigation (including derivative actions), arbitration proceedings or governmental proceedings are pending or, to Borrower’s knowledge, threatened against Borrower which would (singly or in the aggregate), if adversely determined, have a material and adverse effect on the consolidated assets, financial condition, continued operations or business of Borrower and its Subsidiaries, except as and if set forth (including estimates of the dollar amounts involved) in Schedule 4.8.

SECTION 4.9.      FDIC INSURANCE. The deposits of each Subsidiary Bank of Borrower are insured by the FDIC and no act has occurred which would adversely affect the status of such Subsidiary Bank as an FDIC insured bank.

SECTION 4.10.   INVESTIGATIONS. Neither Borrower nor any Subsidiary Bank is under investigation by, or is operating under the restrictions imposed by or agreed to in connection with, any regulatory authority, other than routine examinations by regulatory authorities having jurisdiction over Borrower or such Subsidiary Bank.

SECTION 4.11.   SUBSIDIARIES. Attached hereto as Schedule 4.11 is a correct and complete list of all Subsidiaries of Borrower.

SECTION 4.12.   BANK HOLDING COMPANY. Borrower has complied in all material respects with all federal, state and local laws pertaining to bank holding companies, including without limitation the Bank Holding Company Act of 1956, as amended, and to the best of its knowledge there are no conditions to its engaging in the business of being a registered bank holding company.

SECTION 4.13.   ERISA.

(a)           Borrower and the ERISA Affiliates and the plan administrator of each Plan (other than a Multiemployer Plan) have fulfilled in all material respects their respective obligations under ERISA and the Code with respect to such Plan and such Plan is currently in substantial compliance with the applicable provisions of ERISA and the Code.

(b)           With respect to each Plan, there has been no (i) “reportable event” within the meaning of Section 4043 of ERISA and the regulations thereunder which is not subject to the provision for waiver of the 30-day notice requirement to the PBGC; (ii) failure by Borrower or any ERISA Affiliate to timely make or properly accrue any contribution

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which is due to any Plan; (iii) action under Section 4041(c) of ERISA to terminate any Pension Plan; (iv) action under Section 4041(b) of ERISA to terminate any Pension Plan which could require Borrower to incur a liability or obligations to make a material contribution to such Pension Plan; (v) withdrawal from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan that could subject the Borrower to material liability pursuant to Section 4063 or 4064 of ERISA; (vi) institution by PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan (other than a Multiemployer Plan); (vii) the imposition on Borrower or any ERISA Affiliate of liability pursuant to Sections 4062(e), 4069 or 4212 of ERISA; (viii) complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) by Borrower or any ERISA Affiliate from any Pension Plan which is a Multiemployer Plan that is in reorganization or insolvency pursuant to Sections 4241 or 4245 of ERISA, or that has terminated under Sections 4041A or 4042 of ERISA; (ix) prohibited transaction described in Section 406 of ERISA or 4975 of the Code which could subject Borrower to the imposition of any material fines, penalties, taxes or related charges imposed by either Section 4975 of the Code or Section 502(i) of ERISA; (x) material pending claim (other than routine claims for benefits) against any Plan (other than a Multiemployer Plan) which could reasonably be expected to result in material liability; (xi) receipt from the Internal Revenue Service of notice of the failure of any Plan (other than a Multiemployer Plan) to qualify under Section 401(a) of the Code, or the failure of any trust forming part of any Plan (other than a Multiemployer Plan) to fail to qualify for exemption from taxation under Section 501(a) of the Code, if applicable; or (xii) imposition of a lien pursuant to Section 401(a)(29) or 412(n) of the Code or Section 302(f) of ERISA.

SECTION 4.14.   ENVIRONMENTAL LAWS.

(a)           Borrower and each of its Subsidiaries have obtained all permits, licenses and other authorizations which are required to be obtained by Borrower or such Subsidiaries, as the case may be, under all Environmental Laws and are in compliance in all material respects with any applicable Environmental Laws.

(b)           Borrower has not received any notice, demand, request for information, citation, summons, order or complaint, no penalty has been assessed and no investigation or review is pending or, to Borrower’s knowledge, threatened by any governmental agency or other Person, in each case, with respect to any alleged or suspected failure by Borrower or any of its Subsidiaries to comply in any material respect with any Environmental Laws.

(c)           There are no material liens arising under or pursuant to any Environmental Laws on any of the property owned or, to Borrower’s knowledge, leased by Borrower or any of its Subsidiaries.

(d)           There are no conditions existing currently or, to Borrower’s knowledge, likely to exist during the term of this Agreement which would subject Borrower or any of its Subsidiaries or any of their owned property or, to Borrower’s knowledge, any of their

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leased property, to any material lien, damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or which require or are reasonably likely to require cleanup, removal, remedial action or other responses pursuant to Environmental Laws by Borrower and its Subsidiaries.

SECTION 4.15.   PLEDGED SHARES. The Pledged Shares (as defined in Section 5.11) constitute 100% of the issued and outstanding capital stock of Pacific Western National Bank, have been duly authorized and validly issued and are fully paid and non-assessable. Borrower owns the Pledged Shares free and clear of all other interests, liens or encumbrances of any nature whatsoever, other than liens in favor of Lender.

SECTION 5. COVENANTS

Until all obligations of Borrower hereunder, under the Pledge Agreement, the Note and all other related documents and instruments are paid and fulfilled in full, Borrower agrees that it shall, and shall cause each Subsidiary to, comply with the following covenants, unless Lender consents otherwise in writing:

SECTION 5.1.      EXISTENCE, MERGERS, ETC. Borrower and each Subsidiary shall preserve and maintain their respective corporate, partnership or joint venture (as applicable) existence, rights, franchises, licenses and privileges, and will not liquidate, dissolve, or merge, or consolidate with or into any other entity, or sell, lease, transfer or otherwise dispose of all or a substantial part of their assets other than in the ordinary course of business as now conducted, except that:

(a)           Any Subsidiary may merge or consolidate with or into Borrower or any one or more wholly-owned Subsidiaries;

(b)           Any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to Borrower or one or more wholly-owned Subsidiaries;

(c)           Any Insignificant Subsidiary may (i) merge or consolidate with any other Person, (ii) sell, lease, transfer or otherwise dispose of its assets to another Person or (iii) liquidate or dissolve (“Insignificant Subsidiary” means a Subsidiary with (1) net income that is less than 2.5% of the consolidated net income of Borrower and its Subsidiaries for the most recent fiscal quarter ended for which a consolidated income statement of Borrower is available and (2) tangible assets that are less than 2.5% of consolidated tangible assets of Borrower and its Subsidiaries as of the end of the most recent fiscal quarter ended for which a consolidated balance sheet of Borrower is available); and

(d)           Any Subsidiary may merge or consolidate with any other Person provided that (i) the surviving entity is a Subsidiary of Borrower (ii) before and after giving effect to such merger or consolidation, no Event of Default or Unmatured Event of Default exists or is continuing, (iii) following such merger or consolidation, Borrower shall continue to own the same or greater percentage of the stock or other ownership interests of such Subsidiary as it owned immediately prior to such merger or consolidation, (iv) after

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giving effect to such merger or consolidation, Borrower is in pro forma compliance with Section 5.4 of this Agreement and (v) if any Subsidiary who is a party to such merger or consolidation is a Subsidiary whose shares of capital stock constitute Pledged Shares under the Pledge Agreement, then after giving effect to such merger or consolidation, Lender shall continue to have a perfected first priority security interest in such Pledged Shares subject only to any liens permitted in Section 5.5(b) hereof; provided, however, this clause (d) shall not apply to any Insignificant Subsidiary.

Borrower and each Subsidiary shall take all steps to become and remain duly qualified, in good standing and authorized to do business in each jurisdiction where failure to do so might have a material adverse impact on the consolidated assets, condition or prospects of Borrower.

SECTION 5.2.      REPORTS, CERTIFICATES AND OTHER INFORMATION. Borrower shall furnish (or cause to be furnished) to Lender:

(a)           Interim Reports. Within forty-five (45) days after the end of each quarter of each fiscal year of Borrower, a copy of an unaudited financial statement of Borrower and its Subsidiaries prepared on a consolidated basis consistent with the consolidated financial statements of Borrower and its Subsidiaries referred to in Section 4.3 above and prepared in accordance with generally accepted accounting principles, signed by an authorized officer of Borrower and consisting of at least:  (i) a balance sheet as at the close of such quarter; and (ii) a statement of earnings and source and application of funds for such quarter and for the period from the beginning of such fiscal year to the close of such quarter.

(b)           Annual Report. Within ninety (90) days after the end of each fiscal year of Borrower, a copy of an annual report of Borrower and its Subsidiaries prepared on a consolidated basis and in conformity with generally accepted accounting principles applied on a basis consistent with the consolidated financial statements of Borrower and its Subsidiaries referred to in Section 4.3 above, duly certified by independent certified public accountants of recognized standing and accompanied by an opinion without qualification. Such independent certified public accountants shall be selected by the Audit Committee of the Board of Directors of Borrower (which Audit Committee members shall consist solely of independent members of Borrower’s Board of Directors) using their good faith business judgment.

(c)           Certificates. Contemporaneously with the furnishing of a copy of each annual report and of each quarterly statement provided for in this Section, a certificate dated the date of such annual report or such quarterly statement and signed by either the President, the Chief Financial Officer or the Treasurer of Borrower, to the effect that no Event of Default or Unmatured Event of Default has occurred and is continuing, or, if there is any such event, describing it and the steps, if any, being taken to cure it, and containing (except in the case of the certificate dated the date of the annual report) a computation of, and showing compliance with, any financial ratio or restriction contained in this Agreement.

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(d)           Reports to SEC. Notification of each filing and report made by Borrower or any Subsidiary with or to any securities exchange or the Securities and Exchange Commission which are made publicly available. Such notification shall be forwarded electronically to Lender via e-mail at such addresses as Lender shall provide to Borrower and shall indicate where copies of such filings and reports can be obtained electronically (for avoidance of doubt, Borrower will notify Lender of any such filings and reports if electronic means of notification is inoperable). If copies of such documents are not available electronically, notification of the filing of such documents shall still be made, and Borrower shall provide a paper copy of such documents to Lender promptly upon Lender’s request.

(e)           Notice of Default, Litigation and ERISA Matters. Immediately upon learning of the occurrence of any of the following, written notice describing the same and the steps being taken by Borrower or any Subsidiary affected in respect thereof:  (i) the occurrence of an Event of Default or an Unmatured Event of Default; (ii) the institution of, or any adverse determination in, any litigation, arbitration or governmental proceeding which is material to Borrower and its Subsidiaries on a consolidated basis; (iii) the occurrence of any event referred to in Section 4.13(b); or (iv) the issuance of any cease and desist order, memorandum of understanding, cancellation of insurance, or proposed disciplinary action from the FDIC or other regulatory entity.

(f)            Other Information. From time to time such other information, financial or otherwise, concerning Borrower or any Subsidiary as Lender may reasonably request.

SECTION 5.3.      INSPECTION. At Borrower’s expense if an Event of Default or Unmatured Event of Default has occurred or is continuing, Borrower and each Subsidiary shall permit Lender and its agents at any time during normal business hours, and upon at least one business day’s prior notice, to inspect their properties and to inspect and make copies of their books and records. If no Event of Default or Unmatured Event of Default shall have occurred and be continuing, Lender may conduct such inspections at any time during normal business hours and upon reasonable notice to Borrower, and such inspection and copies shall be at Lender’s expense.

SECTION 5.4.      FINANCIAL REQUIREMENTS.

(a)           Leverage Ratio. Borrower and each Subsidiary Bank shall maintain at all times a ratio of Tier 1 Capital to average quarterly assets less all non-qualified intangible assets of at least five percent (5%), all calculated on a consolidated basis.

(b)           Tier 1 Capital Ratio. Borrower and each Subsidiary Bank shall maintain at all times a ratio of Tier 1 Capital to risk-weighted assets of not less than six percent (6%), all calculated on a consolidated basis.

(c)           Risk-Based Capital Ratio. Borrower and each Subsidiary Bank shall maintain at all times a ratio of Total Capital to risk-weighted assets of not less than ten percent (10%), all calculated on a consolidated basis.

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(d)           Nonperforming Assets. All assets of all Subsidiary Banks and other Subsidiaries classified as “non-performing” (which shall include all loans in non-accrual status, more than ninety (90) days past due in principal or interest, restructured or renegotiated, or listed as “other restructured” or “other real estate owned”) on the FDIC or other regulatory agency call report shall not exceed at any time three percent (3.0%) of the total loans of Borrower and its Subsidiaries on a consolidated basis.

(e)           Loan Loss Reserves Ratio. Each Subsidiary Bank shall maintain at all times on a consolidated basis a ratio of (a) the sum of (i) loan loss reserves plus (ii) reserves for unfunded commitments to (b) non-performing loans of not less than one hundred percent (100%).

(f)            Minimum Tier 1 Capital. Borrower shall maintain a consolidated minimum Tier 1 Capital equal to at least $125,000,000 at all times.

(g)           Total Debt to Tier 1 Capital. Borrower’s total indebtedness for borrowed money (specifically excluding the indebtedness for borrowed money of Borrower’s Subsidiaries) shall not at any time exceed thirty-five percent (35%) of its Tier 1 Capital.

(h)           Return on Average Assets. Borrower’s consolidated net income shall be at least eighty-five hundredths of one percent (0.85%) of its average assets, calculated on an annualized basis as at the last day of each fiscal quarter of Borrower; provided, however, that for purposes of determining return on average assets, customary and reasonable, non-recurring expenses and charges incurred by Borrower in connection with a permitted acquisition under Sections 5.1 and 5.6 hereof shall be excluded.

SECTION 5.5.      INDEBTEDNESS, LIENS AND TAXES. Borrower and each Subsidiary shall:

(a)           Indebtedness. Not incur, permit to remain outstanding, assume or in any way become committed for indebtedness in respect of borrowed money (specifically including but not limited to indebtedness in respect of money borrowed from financial institutions, but excluding deposits), except:  (i) indebtedness incurred by Borrower under this Agreement, and further indebtedness of Borrower to Lender or to any other Person; provided that, the aggregate amount of such indebtedness permitted pursuant to this clause (i) shall not exceed at any time the lesser of $70,000,000 and an amount which would cause Borrower to breach its Total Debt to Tier 1 Capital financial covenant in Section 5.4(g); and provided further, such indebtedness shall be unsecured except as permitted under Section 5.5(b); (ii) in addition to the indebtedness permitted under the foregoing clause (i), in the case of Borrower, Trust Indebtedness and Trust Guarantees, and in the case of any Trust Issue, Trust Preferred Securities; and (iii) indebtedness incurred by the Subsidiary Banks in their normal course of business with the Federal Home Loan Bank, any Federal Reserve Bank or for Federal Funds with correspondent banks for liquidity management.

(b)           Liens. Not create, suffer or permit to exist any lien or encumbrance of any kind or nature upon any of their assets now or hereafter owned or acquired (specifically

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including but not limited to the capital stock of any of the Subsidiary Banks), or acquire or agree to acquire any property or assets of any character under any conditional sale agreement or other title retention agreement, but this Section shall not be deemed to apply to:  (i) liens existing on the date of this Agreement and disclosed on Schedule 5.5(b); (ii) liens of landlords, contractors, laborers or suppliers, tax liens, or liens securing performance or appeal bonds, or other similar liens or charges arising out of Borrower’s business, provided that tax liens are removed before related taxes become delinquent and other liens are promptly removed, in either case unless contested in good faith and by appropriate proceedings, and as to which adequate reserves shall have been established and no foreclosure, sale or similar proceedings have commenced; (iii) liens in favor of Lender; (iv) liens on the assets of any Subsidiary Bank arising in the ordinary course of the banking business of such Subsidiary Bank; and (v) liens contemplated by Section 4.5.

(c)           Taxes. Pay and discharge all taxes, assessments and governmental charges or levies imposed upon them, upon their income or profits or upon any properties belonging to them, prior to the date on which penalties attach thereto, and all lawful claims for labor, materials and supplies when due, except that no such tax, assessment, charge, levy or claim need be paid which is being contested in good faith by appropriate proceedings as to which adequate reserves shall have been established, and no foreclosure, sale or similar proceedings have commenced.

(d)           Guaranties. Not assume, guarantee, endorse or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or loan any funds, assets, goods or services, or otherwise) with respect to the obligation of any other Person, except:  (i) by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business, issuance of letters of credit or similar instruments or documents in the ordinary course of business; (ii) in the case of Borrower, Trust Guarantees; and (iii) guarantees by Borrower of any of its Subsidiary’s obligations, provided the liability to Borrower on account of such guarantees shall not in the aggregate exceed $10,000,000 at anytime outstanding.

SECTION 5.6.      INVESTMENTS AND LOANS. Neither Borrower nor any Subsidiary shall make any loan, advance, extension of credit or capital contribution to, or purchase or otherwise acquire for consideration, evidences of indebtedness, capital stock or other securities of any Person, except that Borrower and any Subsidiary may:

(a)           purchase or otherwise acquire and own short-term money market items;

(b)           invest, by way of purchase of securities or capital contributions, in the Subsidiary Banks or any other bank or banks, and upon Borrower’s purchase or other acquisition of twenty-five percent (25%) or more of the stock of any bank, such bank shall thereupon become a “Subsidiary Bank” for all purposes under this Agreement;

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(c)           invest, by way of loan, advance, extension of credit (whether in the form of lease, conditional sales agreement, or otherwise), purchase of securities, capital contributions, or otherwise, in Subsidiaries other than banks or Subsidiary Banks;

(d)           invest, by way of purchase of securities or capital contributions, in other Persons so long as before and after giving effect thereto no Event of Default or Unmatured Event of Default shall have occurred and be continuing and the investment is in compliance with Regulation Y of the Federal Reserve Board; and

(e)           in the case of any Trust Issuer, purchase any Trust Indebtedness and, in the case of Borrower, purchase any common securities of any Trust Issuer and issue any Trust Guarantees.

Nothing in this Section 5.6 shall prohibit a Subsidiary Bank from making investments, loans, advances, or other extensions of credit in the ordinary course of the banking business upon such terms as may at the time be customary in the banking business.

SECTION 5.7.      OWNERSHIP OF SUBSIDIARIES. Borrower shall not, and shall not permit any Subsidiary to, (i) purchase or redeem, or obligate itself to purchase or redeem, any shares of Borrower’s capital stock, of any class, issued and outstanding from time to time, or any partnership, joint venture or other equity interest in Borrower or any Subsidiary; or (ii) declare or pay any dividend (other than dividends payable in its own common stock or to Borrower) or make any other distribution in respect of such shares or interest other than to Borrower, in each case if an Unmatured Event of Default or an Event of Default shall have occurred and be continuing, or would result therefrom. Except as provided in Section 5.1, Borrower shall continue to own, directly or indirectly, the same (or greater) percentage of the stock and partnership, joint venture, or other equity interest in each Subsidiary that it held on the date of this Agreement, and no Subsidiary shall issue any additional stock or partnership, joint venture or other equity interests, options or warrants in respect thereof, or securities convertible into such securities or interests, other than to Borrower.

SECTION 5.8.      MAINTENANCE OF PROPERTIES. Borrower and each Subsidiary shall maintain, or cause to be maintained, in good repair, working order and condition, all their properties (whether owned or held under lease), and from time to time make or cause to be made all needed and appropriate repairs, renewals, replacements, additions, and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times (for avoidance of doubt, this Section 5.8 does not limit or restrict Borrower or any Subsidiary from opening, closing or moving any of their branch offices or other office properties).

SECTION 5.9.      INSURANCE. Borrower and each Subsidiary shall maintain insurance in responsible companies in such amounts and against such risks as is required by law and such other insurance, in such amount and against such hazards and liabilities, as is customarily maintained by bank holding companies and banks similarly situated. Each Subsidiary Bank shall have deposits insured by the FDIC.

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SECTION 5.10.   USE OF PROCEEDS.

(a)           General. The proceeds of the Loans shall be used for general corporate purposes. Neither Borrower nor any Subsidiary shall use or permit any proceeds of the Loans to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of “purchasing or carrying any margin stock” within the meaning of Regulations U or X of the Board of Governors of the Federal Reserve System, as amended from time to time. If requested by Lender, Borrower and each Subsidiary will furnish to Lender a statement in conformity with the requirements of Federal Reserve Form U-1. No part of the proceeds of the Loans will be used for any purpose which violates or is inconsistent with the provisions of Regulation U or X of the Board of Governors.

(b)           Tender Offers and Going Private. Neither Borrower nor any Subsidiary shall use (or permit to be used) any proceeds of the Loans to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended, or any regulations or rulings thereunder.

SECTION 5.11.   COLLATERAL. Borrower and Lender hereby agree that the Loans and all other obligations owing from time to time from Borrower to Lender under this Agreement and the Note shall be secured pursuant to that certain Pledge Agreement, dated as of the date hereof, executed by Borrower in favor of Lender (as amended, restated, modified or supplemented from time to time, the “Pledge Agreement”), pursuant to which Borrower has pledged to Lender all of the issued and outstanding shares of capital stock owned by Borrower of Pacific Western National Bank (herein collectively referred to as the “Pledged Shares”).

SECTION 5.12.   COMPLIANCE WITH LAW. Borrower and each Subsidiary shall comply with all applicable laws and regulations (whether federal, state or local and whether statutory, administrative, judicial or otherwise) and with every lawful governmental order or similar actions (whether administrative or judicial), specifically including but not limited to all requirements of the Bank Holding Company Act of 1956, as amended, and with the regulations of the Board of Governors of the Federal Reserve System relating to bank holding companies.

SECTION 6. CONDITIONS OF LENDING

SECTION 6.1.      DOCUMENTATION; NO DEFAULT. The obligation of Lender to make any Loan is subject to the following conditions precedent:

(a)           Initial Documentation. Lender shall have received all of the following concurrently with the execution and delivery hereof, each duly executed and dated the date hereof or other date satisfactory to Lender, in form and substance satisfactory to Lender and its counsel, at the expense of Borrower, and in such number of signed counterparts as Lender may request (except for the Note, of which only the original shall be signed):

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(i)            Note. The Note duly executed.

(ii)           Pledge Agreement. The Pledge Agreement duly executed, together with the original certificates evidencing the Pledged Shares and stock powers, duly executed in blank.

(iii)          Loan Participation Certificate and Agreement. A Loan Participation Certificate and Agreement dated the date hereof, duly executed by Lender and The Northern Trust Company, substantially in the form of Exhibit B.

(iv)          Resolution; Certificate of Incumbency. A copy of a resolution of the Board of Directors of Borrower authorizing the execution, delivery and performance of this Agreement, the Note, the Pledge Agreement and other documents provided for in this Agreement, certified by the secretary or assistant secretary of Borrower, together with a certificate of such officer of Borrower, certifying the names of the officer(s) of Borrower authorized to sign this Agreement, the Pledge Agreement, the Note and any other documents provided for in this Agreement, together with a sample of the true signature of each such Person (Lender may conclusively rely on such certificate until formally advised by a like certificate of any changes therein).

(v)           Governing Documents. A copy of the articles of incorporation and by-laws of Borrower, certified by the secretary or assistant secretary of Borrower.

(vi)          Certificate of No Default. A certificate signed by an appropriate officer of Borrower to the effect that: (A) no Event of Default or Unmatured Event of Default has occurred and is continuing or will result from the making of the first Loan; and (B) the representations and warranties of Borrower contained herein are true and correct as at the date of the first Loan as though made on that date.

(vii)         Opinion of Counsel to Borrower. An opinion of counsel to Borrower substantially in the form of Exhibit C attached hereto.

(viii)        Good Standing Certificate. A good standing certificate from Borrower’s Federal Reserve Bank and from the Secretary of State of California.

(ix)           Payoff Letter; UCC-3 Termination Statement. Satisfactory pay-off letters for all indebtedness, obligations and liabilities of Borrower to The Northern Trust Company, confirming that all liens and security interests in favor of The Northern Trust Company upon any of the property of Borrower will be terminated on the date hereof, together with any UCC-3 Termination Statements necessary to evidence the release of such liens and security interests.

(x)            Termination of the Intercreditor Agreement. An agreement terminating the Intercreditor and Collateral Agency Agreement dated as of August 15, 2003 entered into between Lender and The Northern Trust Company.

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(xi)           Miscellaneous. Such other documents and certificates as Lender may reasonably request.

(b)           Representations and Warranties True. At the date of each Loan, Borrower’s representations and warranties set forth herein shall be true and correct as of such date as though made on such date.

(c)           No Default. At the time of each Loan, and immediately after giving effect to such Loan, no Event of Default or Unmatured Event of Default shall have occurred and be continuing at the time of such Loan, or would result from the making of such Loan.

SECTION 6.2.      AUTOMATIC UPDATE OF REPRESENTATIONS AND WARRANTIES AND NO-DEFAULT CERTIFICATE; CERTIFICATE AT LENDER’S OPTION. The request by Borrower for any Loan shall be deemed a representation and warranty by Borrower that the statements in subsections (b) and (c) of Section 6.l are true and correct on and as at the date of each succeeding Loan, as the case may be. Upon receipt of each Loan request Lender in its sole discretion shall have the right to request that Borrower provide to Lender, prior to Lender’s funding of the Loan, a certificate executed by Borrower’s President, Treasurer, or Chief Financial Officer to such effect.

SECTION 7. DEFAULT

SECTION 7.1.      EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an “Event of Default”:

(a)           failure to pay, when and as due, any principal, interest or other amounts payable hereunder or under the Note; provided that, in the case of interest only, such failure shall continue for three (3) days after its due date;

(b)           any default, event of default, or similar event shall occur or continue under any other instrument, document, note or agreement delivered to Lender in connection with this Agreement, including without limitation, the Pledge Agreement, and any applicable cure period provided therein shall have expired; or any such instrument, document, note or agreement shall not be, or shall cease to be, enforceable in accordance with its terms;

(c)           there shall occur any default or event of default, or any event or condition that might become such with notice or the passage of time or both, or any similar event, or any event that requires the prepayment of borrowed money or the acceleration of the maturity thereof, under the terms of any evidence of indebtedness or other agreement issued or assumed or entered into by Borrower or any Subsidiary for obligations in an aggregate amount in excess of Two Million and No/100 United States Dollars ($2,000,000.00), or under the terms of any indenture, agreement, or instrument under which any such evidence of indebtedness or other agreement is issued, assumed, secured, or guaranteed, and such event shall continue beyond any applicable period of grace provided therein;

(d)           any representation, warranty, schedule, certificate, financial statement, report, notice, or other writing furnished by or on behalf of Borrower or any Subsidiary to

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Lender is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified;

(e)           Any guaranty of or pledge of collateral security for the Loans shall be repudiated or become unenforceable or incapable of performance or Borrower shall fail to pledge and deliver to Lender any share certificate of Pacific Western National Bank as provided in Section 3(c) of the Pledge Agreement;

(f)            Borrower or any Subsidiary shall fail to comply with Sections 5.l, 5.2(e) and (f), 5.4, 5.5, 5.6, 5.7 and 5.11 hereof; or fail to comply with or perform any agreement or covenant of Borrower or any Subsidiary contained herein, which failure does not otherwise constitute an Event of Default, and such failure shall continue unremedied for thirty (30) days after notice thereof to Borrower by Lender;

(g)           an event or condition specified in Section 4.13(b) shall occur or exist and if as a result of such event or condition, together with all other such events or conditions if any, Borrower or any ERISA Affiliate shall incur, or, in the reasonable opinion of Lender, shall be reasonably likely to incur, a liability to a Plan, a Multiemployer Plan or the PBGC (or any combination of the foregoing) which is, in the reasonable determination of Lender, materially adverse to the consolidated assets, financial condition business or operations taken as a whole of Borrower and its Subsidiaries;

(h)           any Person, or two or more Persons acting in concert, shall acquire beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 50% or more of the outstanding shares of voting stock of Borrower;

(i)            any proceeding (judicial or administrative) shall be commenced against Borrower or any Subsidiary, or with respect to any assets of Borrower or any Subsidiary which could reasonably be expected to have a material and adverse effect on the consolidated assets, financial condition, business or operations of Borrower and its Subsidiaries and which is not dismissed within thirty (30) days after it is commenced against Borrower or any Subsidiary; or final judgment(s) and/or settlement(s) in an aggregate amount that is more than FIVE MILLION UNITED STATES DOLLARS ($5,000,000) in excess of insurance for which the insurer has confirmed coverage in writing, a copy of which writing has been furnished to Lender, shall be entered or agreed to in any suit or action commenced against Borrower or any Subsidiary, and which are not satisfied within thirty (30) days after they have been entered or agreed to in any suit or action commenced against Borrower or any Subsidiary;

(j)            Borrower shall grant or any Person shall obtain a security interest in any collateral for the Loans; Borrower or any other Person shall perfect (or attempt to perfect) such a security interest; a court shall determine that Lender does not have a first priority security interest in any of the collateral for the Loans enforceable in accordance with the terms of the related documents; or any notice of a federal tax lien against Borrower shall be filed with any public recorder and is not satisfied within thirty (30) days from the time of such filing, unless Borrower is contesting the validity thereof in good faith by appropriate

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proceedings and has set aside on its books adequate reserves with respect thereto in accordance with generally accepted accounting principles;

(k)           There shall be any material loss or depreciation in the value of any collateral for the Loans for any reason, or, unless expressly permitted by the related documents, all or any part of any collateral for the Loans or any direct, indirect, legal, equitable or beneficial interest therein is assigned, transferred or sold without Lender’s prior written consent;

(l)            any Federal Reserve Bank, the FDIC or other regulatory entity shall issue or agree to enter into any formal enforcement action with or against Borrower or any Subsidiary (including, but not limited to, a formal written agreement, cease and desist order, suspension, removal or prohibition order or capital directive, but excluding a civil money penalty), or any Federal Reserve Bank, the FDIC or other regulatory entity shall issue or enter into any informal enforcement action with or against Borrower or any Subsidiary (including, but not limited to, a commitment letter, memorandum of understanding or any similar action) or assess a civil money penalty, which in each case is materially adverse to the consolidated assets, financial condition, business or operations of Borrower or any Subsidiary;

(m)          Borrower or any Subsidiary (other than an Insignificant Subsidiary) shall fail to comply with Section 5.1 hereof or shall suspend the transaction of all or a substantial portion of its usual business or Borrower or any Subsidiary (other than an Insignificant Subsidiary) shall take any corporation action to approve or authorize to approve any action or omission that would result in any of the foregoing;

(n)           any bankruptcy, insolvency, reorganization, arrangement, readjustment or similar proceeding, domestic or foreign, is instituted by or against Borrower or any Subsidiary, and in the case of an involuntary bankruptcy proceeding, such proceeding is not dismissed within sixty (60) days (it is acknowledged and agreed that Lender has no obligation to make Loans during such cure period); or Borrower or any Subsidiary shall take any steps toward, or to authorize, such a proceeding; or

(o)           Borrower or any Subsidiary shall become insolvent, generally shall fail or be unable to pay its debts as they mature, shall admit in writing its inability to pay its debts as they mature, shall make a general assignment for the benefit of its creditors or shall enter into any composition or similar agreement.

SECTION 7.2.      DEFAULT REMEDIES.

(a)           Upon the occurrence and during the continuance of any Event of Default specified in Section 7.l(a)-(m), Lender at its option may declare the Note (principal, interest and other amounts) and any other amounts owed to Lender, including without limitation any accrued but unpaid Commitment Fee, immediately due and payable without notice or demand of any kind. Upon the occurrence of any Event of Default specified in Section 7.l(n)-(o), the Note (principal, interest and other amounts) and any other amounts owed to Lender, including without limitation any accrued but unpaid Commitment Fee,

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shall be immediately and automatically due and payable without action of any kind on the part of Lender. Upon the occurrence and during the continuance of any Event of Default, any obligation of Lender to make any Loan shall immediately and automatically terminate without action of any kind on the part of Lender, and Lender may exercise any rights and remedies under this Agreement, the Pledge Agreement, the Note, any related document or instrument, and at law or in equity.

(b)           Lender may, by written notice to Borrower, at any time and from time to time, waive any Event of Default or Unmatured Event of Default, which shall be for such period and subject to such conditions as shall be specified in any such notice. In the case of any such waiver, Lender and Borrower shall be restored to their former position and rights hereunder, and any Event of Default or Unmatured Event of Default so waived shall be deemed to be cured and not continuing; but no such waiver shall extend to or impair any subsequent or other Event of Default or Unmatured Event of Default. No failure to exercise, and no delay in exercising, on the part of Lender of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies of Lender herein provided are cumulative and not exclusive of any rights or remedies provided by law.

SECTION 8. DEFINITIONS

SECTION 8.1.      GENERAL. As used herein:

(a)           The term “Banking Day” means a day on which Lender is open at its main office for the purpose of conducting a commercial banking business and is not authorized to close.

(b)           The term “Code” shall mean the Internal Revenue Code of 1986, as amended form time to time.

(c)           The term “Environmental Laws” shall mean all federal, state and local laws, including statutes, regulations, ordinances, codes, rules and other governmental restrictions and requirements, relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or hazardous substances or the treatment, processing, storage, disposal, release, transport or other handling thereof, including, but not limited to, the federal Solid Waste Disposal Act, the federal Clean Air Act, the federal Clean Water Act, the federal Resource Conservation and Recovery Act, the federal Hazardous Materials Transportation Act, the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the federal Toxic Substances Control Act, regulations of the Nuclear Regulatory Agency, and regulations of any state department of natural resources or state environmental protection agency, in each case as now or at any time hereafter in effect.

(d)           The term “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

(e)           The term “ERISA Affiliate” shall mean any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of

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Section 414(b) of the Code) as Borrower or is under common control (within the meaning of Section 414(c) of the Code) with Borrower.

(f)            The term “FDIC” means the Federal Deposit Insurance Corporation and any successor thereof.

(g)           The term “Interest Period” means, with regard to LIBOR Loans, the amount of days from the date an interest rate is to be in effect to the date such interest period matures according to its terms.

(h)           The term “Interim Maturity Date” means the last day of any Interest Period.

(i)            The term “Multiemployer Plan” shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by Borrower or any ERISA Affiliate as a “contributing sponsor” (within the meaning of Section 4001(a)(13) of ERISA).

(j)            The term “PBGC” shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

(k)           The term “Pension Plan” shall mean any Plan which is a “defined benefit plan” within the meaning of Section 3(35) of ERISA.

(l)            The term “Person” shall mean any individual, corporation, company, limited liability company, voluntary association, partnership, trust, estate, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof).

(m)          The term “Plan” shall mean any plan, program or arrangement covering current or former employees of Borrower or any of its ERISA Affiliates which constitutes an “employee benefit plan” within the meaning of Section 3(3) of ERISA.

(n)           The term “Prime Rate” means that rate of interest announced from time to time by Lender called its prime rate, which rate may not at any time be the lowest rate charged by Lender. Changes in the rate of interest on the Loans resulting from a change in the Prime Rate shall take effect on the date set forth in each announcement of a change in the Prime Rate.

(o)           The term “Subsidiary” means any corporation, partnership, joint venture, trust, or other legal entity of which Borrower owns directly or indirectly twenty-five percent (25%) or more of the outstanding voting stock or interest, or of which Borrower has effective control, by contract or otherwise. The term Subsidiary includes each Subsidiary Bank unless stated otherwise explicitly.

(p)           The term “Subsidiary Bank” means each Subsidiary which is a bank.

(q)           The term “Tier 1 Capital” means the same as that determined under the capital formula currently used by the Federal Reserve Board.

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(r)            The term “Total Capital” means the same as that determined under the capital formula currently used by the Federal Reserve Board.

(s)           The term “Trust Guarantee” means any guarantee of Borrower of the Trust Preferred Securities, which guarantee is subordinate and junior in right of payment to the prior payment of the obligations of Borrower hereunder and under the Note on terms satisfactory to Lender.

(t)            The term “Trust Indebtedness” means indebtedness of Borrower payable to the Trust Issuer or its transferees (a) which is due not earlier than the date thirty (30) years after its issuance, (b) which may not be redeemed earlier than five (5) years after issuance and (c) the payment of which is subordinate and junior in right of payment to the prior payment of the obligations of Borrower hereunder and under the Note on terms satisfactory to Lender.

(u)           The term “Trust Issuer” means a wholly-owned Subsidiary of Borrower which qualifies as a Delaware or Connecticut statutory business trust.

(v)           The term “Trust Preferred Securities” means preferred securities issued by the Trust Issuer (a) which are subject to mandatory redemption not earlier than the date thirty (30) years after issuance and (b) which may not be optionally redeemed earlier than five (5) years after issuance.

(w)          The term “Unmatured Event of Default” means an event or condition which would become an Event of Default with notice or the passage of time or both.

Except as and unless otherwise specifically provided herein, all accounting terms shall have the meanings given to them by generally accepted accounting principles and shall be applied and all reports required by this Agreement shall be prepared, in a manner consistent with the financial statements referred to in Section 4.3 above.

SECTION 8.2.      APPLICABILITY OF SUBSIDIARY REFERENCES. Terms hereof pertaining to any Subsidiary shall apply only during such times as Borrower has any Subsidiary.

SECTION 9. NO INTEREST OVER LEGAL RATE.

Borrower does not intend or expect to pay, nor does Lender intend or expect to charge, accept or collect any interest which, when added to any fee or other charge upon the principal which may legally be treated as interest, shall be in excess of the highest lawful rate. If acceleration, prepayment or any other charges upon the principal or any portion thereof, or any other circumstance, result in the computation or earning of interest in excess of the highest lawful rate, then any and all such excess is hereby waived and shall be applied against the remaining principal balance. Without limiting the generality of the foregoing, and notwithstanding anything to the contrary contained herein or otherwise, no deposit of funds shall be required in connection herewith which will, when deducted from the principal amount outstanding hereunder, cause the rate of interest hereunder to exceed the highest lawful rate.

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SECTION 10. PAYMENTS, ETC.

All payments hereunder shall be made in immediately available funds, and shall be applied first to accrued interest and then to principal; however, if an Event of Default occurs, Lender may, in its sole discretion, and in such order as it may choose, apply any payment to interest, principal and/or lawful charges and expenses then accrued. Borrower shall receive immediate credit on payments received during Lender’s normal banking hours if made in cash, immediately available funds, or by debit to available balances in an account at Lender; otherwise payments shall be credited after clearance through normal banking channels. Borrower authorizes Lender to charge any account of Borrower maintained with Lender for any amounts of principal, interest, taxes, duties, or other charges or amounts due or payable hereunder, with the amount of such payment subject to availability of collected balances in Lender’s discretion; unless Borrower instructs otherwise, all Loans shall be made in immediately available funds and shall be credited to an account(s) of Borrower with Lender. All payments shall be made without deduction for or on account of any present or future taxes, duties or other charges levied or imposed on this Agreement, the Pledge Agreement, the Note, the Loans or the proceeds, Lender or Borrower by any government or political subdivision thereof. Borrower shall upon request of Lender pay all such taxes, duties or other charges in addition to principal and interest, including without limitation all documentary stamp and intangible taxes, but excluding income taxes based solely on Lender’s income.

SECTION 11. SETOFF.

At any time after an Event of Default of Unmatured Event of Default shall have occurred and be continuing, and upon notice to Borrower, any account, deposit or other indebtedness owing by Lender to Borrower, and any securities or other property of Borrower delivered to or left in the possession of Lender or its nominee or bailee, may be set off against and applied in payment of any obligation hereunder, whether due or not. The setoff provision in this Section 11 shall not be applicable to any accounts (and deposits or property therein) maintained at Lender in the name of Borrower or any of its Subsidiaries for which Borrower or such Subsidiaries have established and maintained in trust for the benefit of any third party (not including, however, any affiliate of Borrower or any such Subsidiary). Borrower shall be obligated to notify Lender promptly upon the receipt of any such notice of setoff, and provide supporting documentation, in form and substance reasonably satisfactory to Lender, to establish, in the reasonable opinion of Lender, that any account subject to such setoff is in fact held by Borrower or any of its Subsidiaries, as the case may be, in trust for the benefit of any third party (not including, however, any affiliate or Borrower or any such Subsidiary). If Borrower fails to comply with the foregoing sentence, Lender may assume that its setoff of any account or other property is valid and permissible.

SECTION 12. NOTICES

All notices, requests and demands to or upon the respective parties hereto shall be made, if to Lender, to its office indicated above (Attention:  Jon B. Beggs, Vice President), and if to Borrower, to its address set forth below, or to such other address as may be hereafter designated in writing by the respective parties hereto or, as to Borrower, may appear in Lender’s records. Notices sent by facsimile transmission shall be deemed to have been given upon electronic

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confirmation; notices sent by mail shall be deemed to have been given three (3) business days after the date when sent by registered or certified mail, postage prepaid; notices sent by personal delivery or by a nationally recognized overnight delivery service (e.g., Federal Express) shall be deemed to have been given when received.

SECTION 13. MISCELLANEOUS.

This Agreement and any document or instrument executed in connection herewith shall be governed by and construed in accordance with the internal law of the State of New York. This Agreement may only be amended, supplemented or modified at any time by written instrument duly executed by Lender and Borrower. Unless the context requires otherwise, wherever used herein the singular shall include the plural and vice versa, and the use of one gender shall also denote the other. Captions herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof; references herein to Sections or provisions without reference to the document in which they are contained are references to this Agreement. This Agreement shall bind Borrower, its successors and assigns, and shall inure to the benefit of Lender, its successors and assigns, except that Borrower may not transfer or assign any of its rights or interest hereunder without the prior written consent of Lender. Borrower agrees to pay upon demand all expenses (including without limitation reasonable attorneys’ fees, legal costs and expenses, whether in or out of court, in original or appellate proceedings or in bankruptcy) incurred or paid by Lender or any holder of the Note in connection with (a) the negotiation, preparation, execution and delivery of this Agreement, the Note, the Pledge Agreement and the other documents to be delivered hereunder, (b) any amendment, modification or waiver of any of the terms of this Agreement, the Pledge Agreement or the Note, (c) any Event of Default or Unmatured Event of Default and any enforcement or collection proceedings resulting therefrom, and (d) any transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement, the Pledge Agreement, the Note or any other document referred to herein; provided, that, Borrower shall not be obligated to pay Lender for Lender’s attorneys’ fees and expenses for the matters described in the foregoing clause (a) which exceed $7,500. Except as otherwise specifically provided herein, Borrower expressly and irrevocably waives presentment, protest, demand and notice of any kind in connection herewith.

SECTION 14. ARBITRATION AND WAIVER OF JURY TRIAL

(a)           This Section concerns the resolution of any controversies or claims between Lender and Borrower, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to:  (i) this Agreement (including any renewals, extensions or modifications); or (ii) any document executed in connection with this Agreement (collectively, a “Claim”).

(b)           At the request of Lender or Borrower, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”). The Act will apply even though this Agreement provides that it is governed by the law of a specified state.

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(c)           Arbitration proceedings will be determined in accordance with the Act, the applicable rules and procedures for the arbitration of disputes of JAMS or any successor thereof (“JAMS”), and the terms of this Section. In the event of any inconsistency, the terms of this Section shall control.

(d)           The arbitration shall be administered by JAMS and conducted, unless otherwise required by law, in the State of California. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of Lender or Borrower, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within thirty (30) days of the demand for arbitration and close within thirty (30) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced.

(e)           The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. For purposes of the application of the statute of limitations, the service on JAMS under applicable JAMS rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s). The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this Agreement.

(f)            This Section does not limit the right of Lender or Borrower to:  (i) exercise self-help remedies, such as, but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as, but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g)           The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(h)           By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this Agreement to arbitrate, to the extent any claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This provision is a material inducement for the parties entering into this Agreement.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

FIRST COMMUNITY BANCORP
By:	/s/ Lynn M. Hopkins
	Lynn M. Hopkins, Executive Vice President
Address for notices:
120 Wilshire Blvd.
Santa Monica, California 90401
Attention:			Vic Santoro
U.S. BANK NATIONAL ASSOCIATION
By:		/s/ Jon B. Beggs
		Jon B. Beggs, Vice President

Signature Page to Amended and Restated Revolving Credit Agreement

EXHIBIT A

REVOLVING CREDIT NOTE

$70,000,000.00	Milwaukee, Wisconsin
	August 3, 2006

FOR VALUE RECEIVED, on or before the Maturity Date, FIRST COMMUNITY BANCORP, a corporation formed under the laws of the State of California (“Borrower”), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION, a national banking association (hereafter, together with any subsequent holder hereof, called “Lender”), at its banking office at 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or at such other place as Lender may direct, the aggregate unpaid principal balance of each advance (a “Loan” and collectively the “Loans”) made by Lender to Borrower hereunder. The total principal amount of Loans outstanding at any one time hereunder shall not exceed SEVENTY MILLION AND 00/100 UNITED STATES DOLLARS ($70,000,000.00).

Lender is hereby authorized by Borrower at any time and from time to time at Lender’s sole option to attach a schedule (grid) to this Note and to endorse thereon notations with respect to each Loan specifying the date and principal amount thereof, and the date and amount of each payment of principal and interest made by Borrower with respect to each such Loan. Lender’s endorsements as well as its records relating to Loans shall be rebuttably presumptive evidence of the outstanding principal and interest on the Loans, and, in the event of inconsistency, shall prevail over any records of Borrower and any written confirmations of Loans given by Borrower.

Borrower agrees to pay interest on the unpaid principal amount from time to time outstanding hereunder on the dates and at the rate or rates as set forth in the Revolving Credit Agreement (as hereinafter defined).

Payments of both principal and interest are to be made in immediately available funds in lawful money of the United States of America.

This Note evidences indebtedness incurred under that certain Amended and Restated Revolving Credit Agreement dated as of the date hereof executed by and between Borrower and Lender (and, if amended, restated or replaced, all amendments, restatements and replacements thereto or therefor, if any) (the “Revolving Credit Agreement;” capitalized terms not otherwise defined herein have the same meaning herein as in the Revolving Credit Agreement). Reference is hereby made to the Revolving Credit Agreement for a statement of its terms and provisions, including without limitation those under which this Note may be paid prior to its due date or have its due date accelerated. This Note replaces that certain Revolving Credit Note dated August 4, 2005, in the stated principal amount of $50,000,000, from Borrower to Lender, and Borrower acknowledges and agrees that the indebtedness evidenced thereby has not been extinguished and that no novation has occurred.

Borrower agrees to pay upon demand all expenses (including without limitation attorneys’ fees, legal costs and expenses, in each case whether in or out of court, in original or appellate proceedings or in bankruptcy) incurred or paid by Lender or any holder hereof in connection with the enforcement or preservation of its rights hereunder or under any document or instrument executed in connection herewith. Borrower expressly and irrevocably waives presentment, protest, demand and notice of any kind in connection herewith.

This Note is secured by the property described in the Pledge Agreement (as such term is defined in the Revolving Credit Agreement), to which reference is made for a description of the collateral provided thereby and the rights of Lender and Borrower in respect of such collateral.

This Note and any document or instrument executed in connection herewith shall be governed by and construed in accordance with the internal law of the State of New York. Unless the context requires otherwise, wherever used herein the singular shall include the plural and vice versa, and the use of one gender shall also denote the other. Captions herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof; references herein to Sections or provisions without reference to the document in which they are contained are references to this Note. This Note shall bind Borrower, its successors and assigns, and shall inure to the benefit of Lender, its successors and assigns, except that Borrower may not transfer or assign any of its rights or interest hereunder without the prior written consent of Lender.

FIRST COMMUNITY BANCORP
BY
	Name:
	Title:

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EX-10.2

Exhibit 10.2

PLEDGE AGREEMENT

PLEDGE AGREEMENT (this “Agreement”) dated as of August 3, 2006 between FIRST COMMUNITY BANCORP (the “Pledgor”) and U.S. BANK NATIONAL ASSOCIATION (the “Pledgee”), for the benefit of the Pledgee.

WHEREAS, the Pledgor and Pledgee are concurrently herewith entering into an Amended and Restated Revolving Credit Agreement dated as of even date herewith (as amended, restated, modified or supplemented from time to time, the “Credit Agreement”), pursuant to which the Pledgee, subject to the terms and conditions contained herein, will make a revolving credit facility in the amount of $70,000,000 available to the Pledgor.

WHEREAS, the Pledgee requires, as a condition to making such revolving credit facility available to the Pledgor, that the Pledgor grant to Pledgee, a security interest in the Collateral and undertake the obligations set forth in this Agreement.

NOW, THEREFORE, in consideration of the promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.             Definitions.  Terms used herein (including the Recitals) and not defined herein that are defined in the Uniform Commercial Code in effect from time to time in the State of New York have such defined meanings herein (with terms used in Article 9 controlling over terms used in another Article of the Uniform Commercial Code), unless the context otherwise indicates or requires, and the following terms shall have the following meanings:

“Collateral” shall mean the Pledged Shares, the Stock Rights, and the proceeds of each.

“Credit Documents” shall mean, collectively, the Credit Agreement and Note (as defined in the Credit Agreement), each as amended, restated, replaced or extended from time to time.

“Default” shall mean any “Event of Default” as defined in the Credit Agreement.

“Liabilities” shall mean all of the duties, liabilities and obligations of the Pledgor under the Credit Documents and this Agreement.

“Pledged Shares” shall mean 100% of the issued and outstanding shares of capital stock of Pacific Western National Bank held by the Pledgor or otherwise held from time to time by Pledgor.

“Stock Rights” shall mean any dividend or other distribution (whether in cash, securities or other property) and any other right or property which the Pledgor shall receive or shall become entitled to receive for any reason whatsoever as a result of its being a holder of the Pledged Shares, or with respect to, in substitution for, or in exchange for, Pledged Shares.

2.             Grant of Security Interest.  To secure the payment and performance of the Liabilities, the Pledgor hereby pledges, hypothecates, assigns, sets over and delivers to the Pledgee, for the benefit of the Pledgee, and grants the Pledgee, for the benefit of the Pledgee a security interest in the Collateral.

3.             Representations, Warranties and Covenants.  The Pledgor represents, warrants and covenants that:

a)             The Pledgor is the lawful owner of the Collateral, free and clear of all claims, security interests, liens, encumbrances and rights of others, other than the security interest hereunder, with full right to deliver, pledge, assign and transfer the Collateral to the Pledgee, for the benefit of the Pledgee, as Collateral hereunder and, until all Liabilities have been fully, finally and irrevocably satisfied and discharged, the Pledgor shall maintain the lien of this Agreement as a first priority lien on the Collateral and shall not sell or otherwise dispose of all or any part of the Collateral (except, prior to the occurrence of a Default, ordinary cash dividends received by the Pledgor) and shall keep all of the Collateral free of any liens, security interests, claims, encumbrances and rights of others except those arising hereunder.

b)            The Pledgor agrees to deliver to the Pledgee from time to time upon request of the Pledgee such stock powers, financing statements and other documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request.

c)             The Pledgor shall deliver to the Pledgee, to be held by the Pledgee for the benefit of the Pledgee, the certificate(s) evidencing any Pledged Shares held or acquired by the Pledgor from time to time, not later than two Banking Days (as defined in the Credit Agreement) following the acquisition thereof by the Pledgor, together with stock powers covering such certificate(s) duly executed in blank by the Pledgor.

d)            The Pledgor agrees to hold in trust for the Pledgee, for the benefit of the Pledgee, upon receipt and immediately thereafter as provided in Section 3(c) pledge and deliver to the Pledgee, to be held by the Pledgee for the benefit of the Pledgee, any stock certificate, instrument or other document evidencing or constituting Collateral (except, prior to the occurrence of a Default, ordinary cash dividends paid with respect to the Pledged Shares).

The Pledgor agrees to pay when due all taxes, assignments and governmental charges and levies upon the Collateral.

4.             Care of Collateral.  The Pledgee shall use reasonable care with respect to the preservation and maintenance of the Collateral; provided that the Pledgee shall not be liable to the Pledgor for any action taken by it in good faith, nor shall the Pledgee be responsible for the consequences of any action or failure to act except to the extent that such action or failure to act is the proximate result of the gross negligence, lack of good faith or willful misconduct of the Pledgee, its agents or employees.

5.             Dividends and Voting.  Prior to the occurrence of a Default, the Pledgor shall be entitled (a) to receive and retain all ordinary cash dividends in respect of the Pledged Shares and (b) to exercise all voting rights in respect of the Pledged Shares.  If any Default occurs and is

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continuing, all cash dividends distributed in respect of the Pledged Shares shall be delivered to the Pledgee and held as Collateral hereunder, for the benefit of the Pledgee and the Secured Parties.

6.             Remedies Upon Default.  In addition to rights granted under other provisions of this Agreement, upon the occurrence of a Default hereunder the Pledgee may from time to time exercise any one or more of the following remedies:

a)             The Pledgee may exercise, as to all or any part of the Collateral, any one or more or all of the rights and remedies granted to a secured party under the Uniform Commercial Code as in effect from time to time in the State of New York or otherwise available at law or in equity, to assure that the Collateral is devoted to the satisfaction of all Liabilities.

b)            The Pledgee may exercise all voting and corporate rights respecting the Collateral, including, without limitation, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Shares and the Stock Rights as if the Pledgee were the absolute owner thereof.

c)             (1)           The Pledgee may sell, assign, contract to sell or otherwise dispose of all or any portion of the Collateral in any commercially reasonable manner, including by private or public sale at such prices and on such terms as the Pledgee deems reasonable under the circumstances, for cash or on credit or for future delivery and without the assumption of any credit risk.  The Pledgee shall give the Pledgor at least fifteen (15) days’ written notice of the time and place of any public sale of the Collateral, or any portion thereof; or of the time after which any private sale or other disposition thereof is to be made, it being expressly acknowledged that said fifteen (15) days’ notice, when given as herein provided, constitutes reasonable notice.  The Pledgee may purchase all or any portion of the Collateral at any sale, and in that event payment of the purchase price may be made by credit against the Liabilities.  Any sale, assignment, contract to sell or other disposition shall be made free of any right or equity of redemption in the Pledgor, which right or equity, if any, is hereby released.  The net proceeds of any disposition of the Collateral by the Pledgee, after deduction of all expenses specified in Section 7, shall be applied toward satisfaction of the Liabilities.

(2)           The Pledgor hereby agrees that in any sale of any of the Collateral hereunder, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable securities or other law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Pledgee be liable nor accountable to the Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction.

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d)            To the extent permitted by applicable law and upon any notice required by law, the Pledgee may (but need not) retain the Collateral on behalf of the Pledgee in full satisfaction of the Liabilities.

e)             Without prior notice to the Pledgor, the Pledgee may transfer all or any part of the Collateral into the name of the Pledgee or its nominee, for the benefit of the Pledgee.  The Pledgee shall give notice to the Pledgor of such transfer after the completion thereof.

f)             The Pledgee may, instead of or concurrently with exercising the power of sale or any other right or remedy herein conferred upon it, while a Default exists, proceed by a suit or suits at law or in equity to foreclose the lien on the Collateral or any portion thereof and sell the same under a judgment or decree of a court or courts of competent jurisdiction.

7.             Certain Expenses.  In connection with any disposition of the Collateral as in Section 6 provided, the Pledgor shall pay and discharge all expenses, if any, of retaking, insuring, holding, preparing for sale, selling and the like, including, without limiting the generality of the foregoing, accounting and other professional fees and expenses and reasonable attorneys’ fees and legal expenses incurred by the Pledgee in connection with the enforcement of any of its rights hereunder.  Any such expenses may be deducted and retained by the Pledgee from the proceeds of any disposition of the Collateral.

8.             Deficiency.  Notwithstanding that the Pledgee may take or refrain from taking any right or remedy hereunder or hold the Collateral and regardless of the value thereof, the Pledgor shall remain liable for the payment in full of the Liabilities.

9.             Indemnity.  The Pledgor hereby agrees to indemnify the Pledgee and each officer, director, employee and agent of the Pledgee (herein individually each called an “Indemnitee” and collectively called the “Indemnitees”) from and against any and all losses, claims, damages, reasonable expenses (including, without limitation, reasonable attorneys’ fees other than document preparation expenses of the Pledgee) and liabilities (all of the foregoing being herein called the “Indemnified Obligations”) incurred by any Indemnitee in connection with the Credit Documents, except for any portion of such losses, claims, damages, expenses or liabilities incurred solely as a result of the gross negligence or willful misconduct of the applicable Indemnitee or for obligations of such Indemnitee to the Pledgor.  If and to the extent that the foregoing indemnity may be unenforceable for any reason, the Pledgor hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Obligations which is permissible under applicable law.  All obligations provided for in this Section shall survive any termination of the Credit Documents.

10.           Pledgee Appointed Attorney-in-Fact.  The Pledgor hereby grants to the Pledgee a power of attorney to execute on the Pledgor’s behalf all assignments, licenses and transfers of the Collateral, and to do all other acts which the Pledgor is obligated to execute or do under any provision of this Agreement or any of the Credit Documents if the Pledgor has not acted within three business days after request by the Pledgee.  This power of attorney is coupled with an interest and is irrevocable.

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11.           Notices.  Any notice hereunder to the Pledgor or the Pledgee shall be in writing and shall be given to such party at its address set forth below its name on the signature page.

12.           Binding Agreement; Assignment.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns, except that the Pledgor shall not assign this Agreement.

13.           Miscellaneous.

a)             No Default shall be waived by the Pledgee except in writing and no waiver by the Pledgee of any Default shall operate as a waiver of any other or of the same Default at a future occasion.  No single or partial exercise of any right, power or privilege hereunder or under applicable law shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

b)            The Section headings used herein are for convenience of reference only and shall not define or limit the provisions of this Agreement.

c)             Any modification or amendment of or waiver of rights under this Agreement shall be binding only if contained in a writing signed by the parties hereto.

d)            This Agreement shall be governed by the internal laws (not the laws of conflict) of the State of New York.

e)             Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

[Signature Page follows]

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                IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

FIRST COMMUNITY BANCORP
By:		/s/ Lynn M. Hopkins
		Lynn M. Hopkins, Executive Vice President
Address:			120 Wilshire Blvd
			Santa Monica, CA 90401
Attention:			President and
			Chief Executive Officer
U.S. BANK NATIONAL ASSOCIATION
By:	/s/ Jon B. Beggs
	Jon B. Beggs, Vice President
Address:			777 East Wisconsin Avenue
			Milwaukee, WI 53202
Attention:			Jon B. Beggs, Vice President

Signature Page to Pledge Agreement

EX-10.22

Exhibit 10.22

FIRST COMMUNITY BANCORP

EXECUTIVE SEVERANCE PAY PLAN

(as amended and restated effective July 26, 2006)

The purpose of the First Community Bancorp Executive Severance Pay Plan, as amended and restated effective July 26, 2006 (the “Plan”) is to secure the continued services of certain senior executives of the Company and to ensure their continued dedication to their duties in the event of any threat or occurrence of a Change in Control (as defined below).

ARTICLE I

DEFINITIONS

1.1Definitions

Whenever used in this Plan, the following capitalized terms shall have the meanings set forth in this Section 1.1, certain other capitalized terms being defined elsewhere in this Plan:

(a)“Board” means the Board of Directors of the Company.

(b)“Change in Control” shall mean the occurrence of any of the following:

(i)Any “Person” or “Group” (as such terms are defined in Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations promulgated thereunder) is or becomes the “Beneficial Owner” (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company, or of any entity resulting from a merger or consolidation involving the Company, representing more than fifty percent (50%) of the combined voting power of the then outstanding securities of the Company or such entity.

(ii)The individuals who, as of the date hereof, are members of the Board (the “Existing Directors”), cease, for any reason, to constitute more than fifty percent (50%) of the number of authorized directors of the Company as determined in the manner prescribed in the Company’s Articles of Incorporation and Bylaws; provided, however, that if the election, or nomination for election, by the Company’s stockholders of any new director was approved by a vote of at least fifty percent (50%) of the Existing Directors, such a new director shall be considered an Existing Director; provided, further, however, that no individual shall

be considered an Existing Director if such individual initially assumed office as a result of either an actual or threatened election contest (“Election Contest”) or other actual or threatened solicitation of proxies by or on behalf of anyone 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 (x) a merger, consolidation or reorganization to which the Company is a party, whether or not the Company is the person surviving or resulting therefrom, or (y) a sale, assignment, lease, conveyance or other disposition of all or substantially all of the assets of the Company, in one transaction or a series of related transactions, to any Person other than the Company, where any such transaction or series of related transactions as is referred to in clause (x) or clause (y) above in this subparagraph (iii) (a ‘Transaction”) does not otherwise result in a “Change in Control” pursuant to subparagraph (i) of this definition of “Change in Control”; provided, however, that no such Transaction shall constitute a “Change in Control” under this subparagraph (iii) if the persons who were the Shareholders of the Company immediately before the consummation of such Transaction are the Beneficial Owners, immediately following the consummation of such Transaction, of fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Person surviving or resulting from any merger, consolidation or reorganization referred to in clause (x) above in this subparagraph (iii) or the Person to whom the assets of the Company are sold, assigned, leased, conveyed or disposed of in any transaction or series of related transactions referred in clause (y) above in this subparagraph (iii).

(c)“Code” means the Internal Revenue Code of 1986, as amended.

(d)“Company” means First Community Bancorp, a California corporation, and any successor or assignee as provided in Article V.

(e)“Compensation” means your highest annual compensation for any calendar year in the three calendar years ending with the calendar year which includes the date of your termination of employment with the Company and its Subsidiaries, with your compensation for any such calendar year in which you do not complete twelve (12) months or service being annualized on the basis of a twelve (12) month year. For purposes of determining your “Compensation”, your annual compensation for any calendar year or portion thereof shall be limited to your base salary, your automobile and other expense allowances (for those Executives who receive a company automobile in lieu of an automobile allowance, they shall be credited with an additional $1000.00 per month in Compensation in lieu of an automobile allowance), and your bonus attributable to such calendar year regardless of when paid (or, if you did not receive a bonus for a calendar year, your target bonus for such year), before reductions for any amounts excludable from your gross income for federal income tax purposes pursuant to Section 125

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or Section 401(k) of the Code or under any nonqualified deferred compensation plan. Notwithstanding anything herein to the contrary, “Compensation” shall not include your income from the grant or vesting of restricted stock, or from the grant, vesting, or exercise of stock options.

(f)“Disability” means a physical or mental infirmity which substantially impairs your ability to perform your material duties for a period of at least one hundred eighty (180) days in any two hundred seventy (270)) day period, and, as a result of such Disability, you have not returned to your full-time regular employment prior to termination.

(g)“Employee Grade” means the grade within the compensation system to which you are assigned by the Company.

(h)“Executive” means a regular full-time salaried employee of the Company or its Subsidiaries in Employee Grades 1, 2, 3, A or B, who does not have an individual agreement with the Company or its Subsidiaries regarding Change in Control severance payments.

(i)“Good Reason” means, without your express written consent, any of the following events, provided that you give the Company or its Subsidiary at least thirty (30) days prior written notice of your termination with the Company or its Subsidiary:

(i)a reduction by the Employer in your annual base salary as in effect immediately before such reduction; or

(ii)(A)  any change in your duties and responsibilities that is inconsistent in any adverse respect with your position(s), duties or responsibilities as in effect immediately before the Change in Control, or an adverse change, after the occurrence of a Change in Control, in your place in the Company’s organization chart or in the seniority of the individual to whom you report; provided, however, that Good Reason shall not be deemed to occur upon a change in duties or responsibilities (other than reporting responsibilities) that is solely and directly a result of the Company no longer being a publicly traded entity and does not involve any other event set forth in this paragraph (i), or (B) a material and adverse change in your titles or offices (including, if applicable, membership on the Board) with the Company as in effect immediately prior to such Change in Control; or

(iii)a material reduction in the your annual target bonus opportunity (if any) (for this purpose, a reduction for any year of over ten percent (10%) of your annual target bonus opportunity (if any) measured by the preceding year shall be considered “material”); or

(iv)the failure of the Company or its Subsidiaries to continue in effect any employee benefit plan, compensation plan, welfare benefit plan or material fringe benefit plan in which you or your dependents are participating immediately

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prior to such Change in Control or the taking of any action by the Company which would adversely affect your or your dependents’ participation in or reduce your or your dependents’ benefits under any such plan, unless you and your dependents are permitted to participate in other plans providing substantially equivalent benefits in the aggregate (at substantially equivalent cost with respect to welfare benefit plans); or

(v)the failure of the Company or its Subsidiaries to (A) provide and credit you with the number of accrued annual leave days to which you are entitled in accordance with the Company’s normal annual leave policy as in effect immediately before the Change in Control or (B) provide you with paid annual leave in accordance with the most favorable annual leave policies of the Company or any of its Subsidiaries as in effect for you immediately prior to such Change in Control; or

(vi)the Employer’s requiring you to be based more than twenty five (25) miles from the location of your place of employment immediately before the Change in Control, except for normal business travel in connection with your duties with the Company or its Subsidiaries; or

(vii)the failure of the Company to obtain the assumption agreement from any successor as contemplated in Article V hereof.

An isolated, insubstantial and inadvertent action taken in good faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by you shall not constitute Good Reason. Your right to terminate employment for Good Reason shall not be affected by incapacities due to mental or physical illness and your continued employment shall not constitute consent to, or a waiver of rights with respect to, any event or condition constituting Good Reason. You must notify the Company of any event constituting Good Reason within ninety (90) days following your knowledge of its existence or such event shall not constitute Good Reason under this Plan.

(k)“Just Cause” means:

(i)the willful and continued failure by you to perform substantially your duties with the Company and its Subsidiaries (other than any such failure resulting from your incapacity due to physical or mental illness or any such failure subsequent to the delivery to you of a notice of the Company’s intent to terminate your employment without Just Cause or subsequent to your delivery to the Company of a notice of your intent to terminate employment for Good Reason), and such willful and continued failure continues after a demand for substantial performance is delivered to you by the Company or its Subsidiaries which specifically identifies the manner in which you have not substantially performed your duties;

(ii)the willful engaging by you in illegal conduct or gross misconduct which is materially and demonstrably injurious to the business or reputation of the Company or its Subsidiaries.

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For purposes of determining whether “Just Cause” exists, no act or failure to act on your part shall be considered “willful” unless done, or omitted to be done, by you in bad faith and without reasonable belief that the action or omission was in, or not opposed to, the best interests of the Company and its Subsidiaries. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, based upon the advice of counsel for the Company or upon the instructions to you by a more senior officer of the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company. Just Cause shall not exist unless and until the Company has delivered to you a copy of a resolution duly adopted by two-thirds (2/3) of the entire Board (excluding you if you are a Board member) at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board an event set forth in clauses (i) or (ii) has occurred and specifying the particulars thereof in detail. The Company must notify you of any event constituting Just Cause within ninety (90) days following the Company’s knowledge of its existence or such event shall not constitute Just Cause under this Plan.

(l)“Multiplier” for each Employee Grade shall be the number set forth opposite such Employee grade below:

Employee Grade	Multiplier
Grade One	3
Grade Two	2
Grade Three	2
Grade A	2
Grade B	1

(m)“Person” shall have the meaning set forth in the definition of “Change in Control”.

(n)“Release” means the Separation and General Release Agreement in the form attached hereto as Exhibit “A”.

(o)“Severance Payment” means the payment of severance compensation as provided in Article III.

(p)“Severance Period” means the number of whole months equal to the product of 12 multiplied by the Multiplier for your Employee Grade, beginning on the date of your termination of employment with the Company and its Subsidiaries.

(q)“Subsidiary” means any corporation or other Person, a majority of the voting power, equity securities or equity interest of which is owned directly or indirectly by the Company.

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ARTICLE II

INDEMNIFICATION AND GROSS-UP FOR EXCISE TAXES

2.1Indemnification and Gross-Up

The Company hereby indemnifies you and holds you harmless from and against any and all liabilities, costs and expenses (including, without limitation, attorney’s fees and costs, interest and penalties) you may incur as a result of the excise tax imposed by Section 4999 of the Code or any similar provision of state or local income tax law (the “Excise Tax”), to the end that you shall be placed in the same after-tax position with respect to the Severance Payment under this Plan and all other payments from the Company to you in the nature of compensation (including without limitation, acceleration of equity awards) as you would have been in if the Excise Tax had never been imposed. In furtherance of such indemnification, the Company shall pay to you a payment (the “Gross-Up Payment”) in an amount such that, after payment by you of all taxes, including income taxes and Excise Tax imposed on the Gross-Up Payment and any interest or penalties (other than interest and penalties imposed by reason of your failure to file timely tax returns or to pay taxes shown due on such returns and any tax liability, including interest and penalties, unrelated to the Excise Tax or the Gross-Up Payment), you shall be placed in the same after-tax position with respect to the Severance Payment under this Plan and all other payments from the Company to you in the nature of compensation (including without limitation, acceleration of equity awards) as you would have been in if the Excise Tax had never been imposed. At such time or times necessary to carry out the purposes of this Article II in view of the withholding requirements of Section 4999 (c) (1) of the Code, the Company shall pay to you one or more Gross-Up Payments for the Severance Payment and any other payments in the nature of compensation (including without limitation, acceleration of equity awards) which the Company determines are “excess parachute payments” under Section 280G(b) (1) of the Code (“Excess Parachute Payments”). If, through a federal, state or local taxing authority (a “Taxing Authority”), or a judgment of any court, you become liable for an amount of Excise Tax not covered by the Gross-Up Payment payable pursuant to the preceding sentence, the Company shall pay you an additional Gross-Up Payment (including income taxes and Excise Tax imposed on such additional Gross-Up Payment and any interest or penalties (other than interest and penalties imposed by reason of your failure to file timely tax returns or to pay taxes shown due on such returns and any tax liability, including interest and penalties, unrelated to the Excise Tax or the additional Gross-Up Payment)) to make you whole for such additional Excise Tax; provided, however, that, pursuant to Section 2.3, the Company shall have the right to require you to protest, contest, or appeal any such determination or judgment. For purposes of this Article II, any amount which the Company is required to withhold under Sections 3402 or 4999 of the Code or under any other provision of law shall be deemed to have been paid for you.

2.2Reporting

The Company shall provide you with a written statement showing the computation of such Gross-Up Payment and the Excess Parachute Payments and Excise Tax to which it relates, and setting forth the determination of the amount of gross

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income you are required to recognize as a result of such payments and your liability for the Excise Tax. All computations and determinations required to be made under this Article II, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such computations and determinations, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and you within fifteen (15) business days of the receipt of notice from the Company or you that there has been a Payment, or such earlier time as is requested by the Company (the “Determination”). For purposes of the Determination, you shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

You shall cause your federal, state and local income tax returns for the period in which you receive such Gross-Up Payment to be prepared and filed in accordance with such statement, and, upon such fling, you shall certify in writing to the Company that such returns have been so prepared and filed. At your request, the Company shall furnish to you, at no cost to you, assistance in preparing your federal, state and local income tax returns for the period in which you receive such Gross-Up Payment in accordance with such statement. Notwithstanding the provisions of Section 2.1, the Company shall not be obligated to indemnify you from and against any tax liability, cost or expenses (including, without limitation, any liability for the Excise Tax or attorney’s fees or costs) to the extent such tax liability, cost or expense is attributable to your failure to comply with the provisions of this Section 2.2.

2.3Controversies

If any controversy arises between you and a Taxing Authority with respect to the treatment on any return of the Gross-Up Amount, or of any payment you receive from the Company as an excess Parachute Payment, or with respect to Excess Parachute Payment, including, without limitation, any audit, protest to an appeals authority of a Taxing Authority or litigation (a “Controversy”), the Company shall have the right to participate with you in the handling of such Controversy. The Company shall have the right, solely with respect to a Controversy, to direct you to protest or contest any proposed adjustment or deficiency, initiate an appeals procedure within any Taxing Authority, commence any judicial proceeding, make any settlement agreement, or file a claim for refund of tax, and you shall not take any of such steps without the prior written approval of the Company, which the Company shall not unreasonably withhold. You shall be represented in any Controversy by attorneys, accountants, and other advisors selected by the Company, and the Company shall pay the fees, costs and expenses of such attorneys, accountants, or advisors, and any tax liability you may incur as a result of such payment. You shall promptly notify the Company of any communication with a Taxing Authority, and you shall promptly furnish to the Company copies of any written correspondence, notices or documents received from a Taxing

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Authority relating to a Controversy. You shall cooperate fully with the Company in the handling of any Controversy; provided, however, that you shall not be obligated to furnish to the Company copies of any portion of your tax returns which do not bear upon, and are not affected by, the Controversy.

2.4Underpayments/Overpayments

As a result of the uncertainty in the application of Section 4999 of the Code at the time of a Determination, it is possible that Gross-Up Payments which should have been made by the Company may not have been made (an “Underpayment”) or Gross-Up Payments are made by the Company which should not have been made (an “Overpayment”), consistent with the calculations required to be made hereunder. In the event that you are thereafter required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by the Company to or for your benefit. You shall pay over to the Company, within ten (10) days after your receipt thereof, any refund of an Overpayment that you receive from any Taxing Authority (together with interest at the rate provided in Section 1274(b)(2) of the Code). For purposes of this Section 2.4, a reduction in your tax liability attributable to the previous payment of the Gross-Up Amount or the Excise Tax shall be deemed to be an Overpayment. If you would have received an Overpayment of all or any portion of the Gross-Up Payment or the Excise Tax, except that a Taxing Authority offset the amount of such Overpayment against other tax liabilities, interest, or penalties, you shall pay the amount of such offset over to the Company (together with interest at the rate provided in Section 1274(b)(2) of the Code) within ten (10) days after receipt of notice from the Taxing Authority of such offset.

ARTICLE III

SEVERANCE PAYMENTS

3.1Right to Severance Payment; Release

Conditioned on the execution and delivery by you (or your beneficiary or personal representative, if applicable) of the Release, you shall be entitled to receive a Severance Payment from the Company in the amount provided in Section 3.2 if (a) you are an Executive, and (b) within twenty four (24) months after the occurrence of a Change of Control, your employment with the Company and its Subsidiaries terminates for any reason other than:

(a)Death,

(b)Disability,

(c)Termination by the Company or its Subsidiaries for Just Cause,

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(d)Retirement in accordance with the normal retirement policy of the Company,

(e)Voluntary termination by you for other than Good Reason, or

(f)The sale by the Company of the Subsidiary which employed you before such sale, if you have been offered employment with the purchaser of such Subsidiary on substantially the same terms and conditions under which such you worked for the Subsidiary before the sale.

If your employment with the Company or its Subsidiaries is terminated before the occurrence of a Change in Control for any reason other than one of those enumerated immediately above, your employment will be deemed to have been terminated by the Company without Just Cause on the day after the occurrence of the Change in Control if (i) within ninety (90) days before a Change in Control actually occurs, your employment is terminated by the Company other than for Just Cause or by you for a reason that would have constituted Good Reason if the Change in Control had already occurred or (ii) you reasonably demonstrate that the Company or its Subsidiaries involuntarily terminated your employment, or gave you Good Reason, at the request of a Person (other than the Company or its Subsidiaries) who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, or otherwise in connection with, or in anticipation of, a Change in Control which actually occurs.

3.2Amount of Severance Payment

If you become entitled to a Severance Payment under this Plan, the amount of your Severance Payment shall equal the product of your Compensation multiplied by the Multiplier for your Employee Grade.

3.3No Mitigation

The Company acknowledges and agrees that you shall be entitled to receive your entire Severance Payment regardless of any income, which you may receive from other sources following your termination on or after the Effective Time.

3.4Payment of Severance Payment

The Severance Payment to which you are entitled shall be paid to you, in one lump sum cash payment, not later than eight (8) calendar days after the execution and delivery by you (or your beneficiary or personal representative, if applicable) of the Release Agreement, but in no event before the date on which such Release becomes effective (including the expiration of any applicable revocation period). If you should die before all amounts payable to you have been paid, such unpaid amounts shall be paid to your beneficiary under this Plan or, if you have not designated such a beneficiary in writing to the Company, to the personal representative(s) of your estate.

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3.5Welfare Benefits

If you are entitled to receive a Severance Payment under Section 3.1, you and your dependents will also be entitled to receive, during your Severance Period, the same level of medical, dental, disability and life insurance benefits upon substantially the same terms and conditions (including employee contributions for such benefits) as existed immediately prior to your termination date or, if more favorable to you, as such benefits and terms and conditions existed immediately prior to the Change in Control; provided, that, if you or dependents cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, your right to medical, dental, disability or life insurance benefits shall be subject to cancellation by the Company if you or your dependents obtain alternative coverage of a similar type during the Severance Period; provided, however, that if any such alternative group health coverage excludes any pre-existing condition that you or your dependents may have when coverage under such group health plan would otherwise begin, coverage under this Section 3.5 shall continue (but not beyond the Severance Period) with respect to such pre-existing condition until such exclusion under such other group health plan lapses or expires. You shall be obligated to notify the Company’s Human Resources Department of any such alternative coverage within thirty (30) days of its first becoming applicable to you or your dependents. In the event you are required to make an election under Sections 601 through 607 of ERISA (commonly known as COBRA) to qualify for continuing health benefits coverage described in this Section 3.5, the obligations of the Company and its Subsidiaries under this Section 3.5 to continue your health benefits coverage shall be conditioned upon your timely making such an election.

3.6Automobile

If you become entitled to receive a Severance Payment under Section 3.1, and you then have the use of an automobile that is provided to you at the expense of the Company or any Subsidiary, you shall have the right, for ninety (90) days following your termination of employment, (a) to continue your use of the automobile on the same basis on which you used it immediately before your termination of employment, or (b) to purchase the automobile from the Company or Subsidiary for its lowest wholesale Kelley Blue Book value from a range determined based on the actual mileage, condition and features of the automobile you use, or, if the Company or Subsidiary has leased the automobile, to assume the lease, or (c) to take the actions described in clause (a) and (b) of this sentence.

3.7Outplacement Services

If you become entitled to Severance Payment under Section 3.1, you will also become entitled to receive outplacement services in accordance with the Company’s usual practice for Executives as in effect immediately prior to the Change in Control or, if more favorable to you, in accordance with the Company’s usual practice for Executives as in effect immediately prior to your termination of employment.

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3.8Withholding of Taxes

The Company may withhold from any amounts payable to you under this Plan all federal, state, city or other taxes required by applicable law to be withheld by the Company.

ARTICLE IV

OTHER RIGHTS AND BENEFITS NOT AFFECTED

4.1Other Benefits

No payment hereunder shall be characterized as deferred compensation. Except as set forth in Section 4.2, neither the provisions of this Plan nor the Severance Payment provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish your rights as an employee, whether existing now or hereafter, under any employee benefit, incentive, retirement, welfare, stock option, stock bonus or stock-based, or stock purchase plan, program, policy or arrangement or any written employment agreement or other plan, program policy or arrangement not related to severance.

4.2Other Severance Plans Superseded

As of the date of adoption of this Plan, the terms and provisions of this Plan will supersede any and all other severance plans maintained by the Company or its Subsidiaries to the extent they apply to Executives (except for any individual severance agreement between you and the Company and its Subsidiaries), and your participation in any other severance plan of the Company and its Subsidiaries will be hereby terminated. To the extent you are a party to an individual severance agreement with the Company or any of its Subsidiaries, you shall be entitled to receive the severance payments and benefits under such agreement, unless you elect to receive the payments and benefits under this Plan.

4.3Employment Status

This Plan does not constitute a contract of employment or impose on you any obligation to remain in the employ of the Company, nor does it impose on the Company or any of its Subsidiaries any obligation to retain you in your present or any other position, nor does it change the status of your employment as an employee at will. Nothing in this Plan shall in any way affect the right of the Company or any of its Subsidiaries in its absolute discretion to change or reduce your compensation at any time, or to change at any time one or more benefit plans, dental plans, health care plans, savings plans, bonus plans, vacation pay plans, disability plans, and the like.

ARTICLE V

SUCCESSOR TO THE COMPANY

The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Company, expressly and unconditionally to assume and agree to

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perform the Company’s obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no succession or assignment had taken place. In such event, the term “Company”, as used in this Plan, shall mean (from and after, but not before, the occurrence of such event) the Company as herein before defined and any successor or assignee to the business or assets which by reason hereof becomes bound by the terms and provisions of this Plan.

ARTICLE VI

CONFIDENTIALITY

6.1Nondisclosure of Confidential Material

In the performance of your duties, you have previously had, and may in the future have, access to confidential records and information, including, but not limited to, development, marketing, purchasing, organizational, strategic, financial, managerial, administrative, manufacturing, production, distribution and sales information, data, specifications and processes presently owned or at any time hereafter developed by the Company or its agents or consultants or used presently or at any time hereafter in the course of its business, that are not otherwise part of the public domain (collectively, the “Confidential Material”). All such Confidential Material is considered secret and has been and/or will be disclosed to you in confidence. By your acceptance of your Severance Payment under this Plan, you shall be deemed to have acknowledged that the Confidential Material constitutes propriety information of the Company which draws independent economic value, actual or potential, from not being generally known to the public or to other persons who could obtain economic value from its disclosure or use, and that the Company has taken efforts reasonable under the circumstances, of which this Section 6.1 is an example, to maintain its secrecy. Except in the performance of your duties to the Company, you shall not, directly or indirectly for any reason whatsoever, disclose or use any such Confidential Material that (i) has been publicly disclosed or was within your possession prior to its being furnished to you by the Company or becomes available to you on a nonconfidential basis from a third party (in any of such cases, not due to a breach by you or your obligations to the Company or by breach of any other person of a confidential, fiduciary or confidential obligation, the breach of which you know or reasonably should know), (ii) is required to be disclosed by you pursuant to applicable law, and you provide notice to the Company of such requirement as promptly as possible, or (iii) was independently acquired or developed by you without violating any of the obligations under this Plan and without relying on Confidential Material of the Company. All records, files, drawings, documents, equipment and other tangible items, wherever located, relating in any way to the Confidential Material or otherwise to the Company’s business, which you have prepared, used or encountered or shall in the future prepare, use or encounter, shall be and remain the Company’s sole and exclusive property and shall be included in the Confidential Material. Upon your termination of employment with the Company, or whenever requested by the Company, you shall promptly deliver to the Company any and all of the Confidential Material and copies thereof, not previously delivered to the Company, that may be, or at any previous time has been, in your possession or under your control.

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6.2Nonsolicitation of Employees

By your acceptance of your Severance Payment under this Plan, you agree that, for a period of two (2) years following your termination of employment with the Company or its Subsidiaries, neither you nor any Person or entity in which you have an interest shall solicit any person who was employed on the date of your termination of employment by the Company or any of its Subsidiaries, to leave the employ of the Company or any of its Subsidiaries. Nothing in this Section 6.2, however, shall prohibit you or any Person or entity in which you have an interest from placing advertisements in periodicals of general circulation soliciting applications for employment, or from employing any person who answers any such advertisement. For purposes of this Section 6.2, you shall not be deemed to have an interest in any corporation whose stock is publicly traded merely because you are the owner of not more than two percent (2%) of the outstanding shares of any class of stock of such corporation, provided you have no active participation in the business of such corporation (other than voting your stock) and you do not provide services to such corporation in any capacity (whether as an employee, an independent contractor or consultant, a board member, or otherwise).

6.3Equitable Relief

By your acceptance of your Severance Payment under this Plan, you shall be deemed to have acknowledged that violation of Sections 6.1 or 6.2 would cause the Company irreparable damage for which the Company can not be reasonably compensated in damages in an action at law, and that therefore in the event of any breach by you of Sections 6.1 or 6.2, the Company shall be entitled to make application to a court of competent jurisdiction for equitable relief by way of injunction or otherwise (without being required to post a bond). This provision shall not, however, be construed as a waiver of any of the rights which the Company may have for damages under this Plan or otherwise, and, except as limited in Article VII, all of the Company’s rights and remedies shall be unrestricted.

ARTICLE VII

ARBITRATION

Subject to the provisions of Section 6.3, any controversy or claim between you and the Company arising out of or relating to or concerning this Plan (including the covenants contained in Section 6) and any dispute regarding your employment or the termination of your employment or any dispute regarding the application, interpretation or validity of this Plan (each, an “Employment Matter”) will be finally settled by arbitration in a location determined by you (which location must be located within the County in which you primarily work) and administered by the American Arbitration Association (the “AAA”) under its Commercial Arbitration Rules then in effect. In the event of any conflict between this Plan and the rules of the American Arbitration Association, the provisions of this Plan shall be determinative. If the parties are unable to agree upon an arbitrator, they shall select a single arbitrator from a list of seven arbitrators designated by the office of the American Arbitrator Association having

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responsibility for the location selected by you, all of whom shall be retired judges who are actively involved in hearing private cases or members of the National Academy of Arbitrators, and who, in either event, are residents of such forum. If the parties are unable to agree upon an arbitrator from such list, they shall each strike names alternatively from the list, with the first to strike being determined by lot. After each party has used three strikes, the remaining name on the list shall be the arbitrator. The AAA’s Commercial Arbitration Rules will be modified in the following ways:  (i) each arbitrator will agree to treat as confidential evidence and other information presented to them, (ii) there will be no authority to award punitive damages, (iii) there will be no authority to amend or modify the terms of the Plan and (iv) a decision must be rendered within ten business days of the parties’ closing statements or submission of post-hearing briefs. To the extent permitted by law, the Company will pay or reimburse any reasonable expenses, including reasonable attorney’s fees, you incur as a result of any Employment Matter. You or the Company may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in Los Angeles County, California or such other jurisdiction as you may determine in your discretion to enforce any arbitration award under Article VII.

ARTICLE VIII

MISCELLANEOUS

8.1Applicable law

TO THE EXTENT NOT PREEMPTED BY THE LAWS OF THE UNITED STATES, THE LAWS OF THE STATE OF CALIFORNIA SHALL BE THE CONTROLLING LAW IN ALL MATTERS RELATING TO THIS PLAN, REGARDLESS OF THE CHOICE-OF-LAW RULES OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION.

8.2Construction

No term or provision of this Plan shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provisions of this Plan and any present or future statute law, ordinance, or regulation, the latter shall prevail, but in such event the affected provision of this Plan shall be curtailed and limited only to the extent necessary to bring such provision with the requirements of the law.

8.3Severability

If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of this Plan and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

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8.4Headings

The Section headings in this Plan are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Plan or of any particular Section.

8.5Assignability

Your rights or interests under this Plan shall not be assignable or transferrable (whether by pledge, grant of a security interest, or otherwise) by you, your beneficiaries or legal representatives, except by will or by the laws of descent and distribution.

8.6Term

This Plan shall continue in full force and effect until its terms and provisions are completely carried out, unless terminated by the Board with at least a majority vote before the commencement of a Change in Control Period (as defined below); provided, however, that no termination of this Plan shall be effective if made while the Company (or any Person acting on the Company’s behalf) (i) is conducting negotiations to effect a Change in Control, (ii) within ninety (90) days before the Company (or any Person acting on its behalf) executes a letter of intent (whether or not binding) or a definitive agreement to effect a Change in Control, or (iii) during the period between execution of a definitive agreement to effect a Change in Control and the consummation of the transactions contemplated thereunder (the first to occur of (i), (ii) or (iii) shall commence a “Change in Control Period”). A Change in Control Period shall expire upon the first to occur of (A) the occurrence of a Change in Control and (B) the first anniversary of the commencement of the Change in Control Period.

8.7Amendment/Termination

This Plan may be amended in any respect by resolution adopted by the Board with at least a majority until the commencement of a Change in Control Period; provided, however, that this Section 8.7 shall not be amended, and no amendment shall be effective if made during a Change in Control Period. After a Change in Control occurs, this Plan shall no longer be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever until the second anniversary of such Change in Control. No agreement or representations written or oral, express or implied, with respect to the subject matter hereof, have been made by the Company which are not expressly set forth in this Plan.

8.8Notices

For purposes of this Plan, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered, telecopied, or sent by certified or overnight mail, return receipt requested, postage prepaid, addressed to the respective addresses, or sent to the respective telecopier numbers, last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board of Directors with a copy to the General Counsel. All notices and communications shall be deemed to have been received on the date of delivery thereof if personally delivered, upon return confirmation

15

if telecopied, on the third business day after the mailing thereof, or on the date after sending by overnight mail, except that notice of change of address shall be effective only upon actual receipt. No objection to the method of delivery may be made if the written notice or other communication is actually received.

8.9Interpretation and Administration

This Plan shall be administered by the Board. The Board may delegate any of its powers under the Plan to a subcommittee of the Board. The Board or a subcommittee thereof shall have the authority (i) to exercise all of the powers granted to it under the Plan, (ii) to construe, interpret and implement the Plan, (iii) to prescribe, amend and rescind rules and regulations relating to the Plan, (iv) to make all determinations necessary or advisable in administration of the Plan and (v) to correct any defect, supply any omission and reconcile any inconsistency in the Plan. Actions of the Board or a subcommittee thereof shall be taken by a majority vote of its members.

Dated: July 26, 2006

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Exhibit A

Separation and General Release Agreement

In connection with the termination of your employment by First Community Bancorp (the “Company”), effective                        , 200    , and in accordance with the terms and conditions of the First Community Bancorp Executive Severance Pay Plan, as amended and restated effective July 26, 2006 (the “Plan”), the Company agrees to provide you, contingent upon your execution of this agreement, with the following severance payment and benefits:

•[Insert description of severance payment and benefits]

In consideration of the payment and benefits set forth above, you agree knowingly and voluntarily as follows:

You knowingly and voluntarily waive and release forever whatever claims you ever had, now have or hereafter may have against the Company and any subsidiary or affiliate of the Company, any of their successors or assigns and any of their present and former employees, directors, officers and agents (collectively referred to as “Releasees”), based upon any matter, occurrence or event existing or occurring prior to the execution of this agreement, including anything relating to your employment with the Company and any of its subsidiaries or affiliates or to the termination of such employment or to your status as a shareholder or creditor of the Company.

This release and waiver includes but is not limited to any rights or claims under United States federal, state or local law and the national or local law of any foreign country (statutory or decisional), for wrongful or abusive discharge, for breach of any contract, for misrepresentation, for breach of any securities laws, or for discrimination based upon race, color, ethnicity, sex, age, national origin, religion, disability, sexual orientation, or any other unlawful criterion or circumstance, including rights or claims under the Age Discrimination in Employment Act of 1967 (“ADEA”)(except that you do not waive ADEA rights or claims that may arise after the date of this agreement).

You agree never to institute any claim, suit or action at law or in equity against any Releasee in any way by reason of any claim you ever had, now have or hereafter may have relating to the matters described in the two preceding paragraphs. You hereby acknowledge that you are familiar with the provisions of California Civil Code Section 1542 and that you expressly waive and relinquish any and all rights or benefits you may have under said Section 1542, to the full extent permitted by law. Said Section 1542 states:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

The payment and benefits described herein shall be in lieu of any and all other amounts to which you might be, are now or may become entitled from the Company, its subsidiaries and affiliates and, without limiting the generality of the foregoing, you hereby

17

expressly waive any right or claim that you may have or assert to payment for salary, bonuses, medical, dental or hospitalization benefits, life insurance benefits or attorneys’ fees; provided, however, that notwithstanding any other provision of this agreement, you do not waive any of your rights and the Company shall comply with its obligations with respect to continuation coverage requirements under Section 4980B of the Internal Revenue Code of 1986, as amended (commonly referred to as “COBRA”).

[Your signature below will also constitute confirmation that (i) you have been given at least twenty-one (21) days within which to consider this release and its consequences, (ii) you have been advised prior to signing this agreement to consult, and have consulted, with an attorney of your choice, and (iii) you have been advised that you may revoke this agreement at any time during the seven (7) day period immediately following the date you signed this letter.][Subject to revision based on circumstances of participant, and in accordance with applicable law]

This agreement shall be governed by the laws of State of California.

Please confirm by returning to                             the enclosed copy of this agreement, signed in the place provided, that you have knowingly and voluntarily decided to accept and agree to the foregoing.

	FIRST COMMUNITY BANCORP
	Name:
	Title:
AGREED AND ACKNOWLEDGED:
Name:
Date:

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EX-31.1

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 six months ended June 30, 2006 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c)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

(d)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 9, 2006	/s/ MATTHEW P. WAGNER
	Matthew P. Wagner
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

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 six months ended June 30, 2006 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c)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

(d)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 9, 2006	/s/ VICTOR R. SANTORO
	Victor R. Santoro
	Executive Vice President and
	Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
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, 2006 (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 9, 2006
	/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.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
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, 2006 (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 9, 2006
	/s/ VICTOR R. SANTORO
	Name:	Victor R. Santoro
	Title:	Chief Financial 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.