<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 00-30747
------------------------
FIRST COMMUNITY BANCORP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 33-0885320
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
6110 EL TORDO
RANCHO SANTA FE, CALIFORNIA 92067
(Address of principal executive offices)
Registrant's telephone number:
(858) 756-3023
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 13, 2000: 3,968,921 shares of common stock, no par
value.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PART I--FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (unaudited).... 3
Unaudited Condensed Consolidated Balance
Sheets.................................................. 3
Unaudited Condensed Consolidated Statements of
Income.................................................. 4
Unaudited Condensed Consolidated Statements of
Comprehensive Income.................................... 5
Unaudited Condensed Consolidated Statements of
Cash Flows.............................................. 6
Notes to Unaudited Condensed Consolidated
Financial Statements.................................... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 10
ITEM 3. Quantitative and Qualitative Disclosure About
Market Risk............................................. 19
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings................................ 20
ITEM 2. Changes in Securities and Use of Proceeds........ 20
ITEM 3. Defaults Upon Senior Securities.................. 20
ITEM 4. Submission of Matters to a Vote of Security
Holders................................................. 20
ITEM 5. Other Information................................ 20
ITEM 6. Exhibits and Reports on Form 8-K................. 20
SIGNATURES.................................................. 21
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS:
Cash and due from banks..................................... $ 28,868 $ 21,148
Federal funds sold.......................................... 27,832 10,889
-------- --------
TOTAL CASH AND CASH EQUIVALENTS........................... 56,700 32,037
Interest-bearing deposits in financial institutions......... 2,364 7,502
Federal Reserve Bank and Federal Home Loan Bank stock, at
cost...................................................... 908 1,235
Securities held to maturity (fair value of $9,159,000 at
September 30, 2000 and $14,775,000 at December 31,
1999)..................................................... 9,162 14,868
Securities available-for-sale (amortized cost of $39,988,000
at September 30, 2000 and $35,435,000 at December 31,
1999)..................................................... 39,298 34,460
-------- --------
TOTAL SECURITIES.......................................... 49,368 50,563
Gross loans................................................. 239,601 206,650
Deferred fees and costs..................................... (586) (548)
-------- --------
Loans, net of deferred fees and costs..................... 239,015 206,102
Allowance for loan losses................................... (3,914) (4,025)
-------- --------
NET LOANS................................................. 235,101 202,077
Premises and equipment...................................... 5,325 5,480
Other real estate owned, net................................ 1,315 1,315
Other assets................................................ 5,918 5,388
-------- --------
TOTAL ASSETS.............................................. $356,091 $304,362
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Noninterest-bearing deposits................................ $107,561 $ 93,763
Interest bearing deposits................................... 208,412 180,469
-------- --------
TOTAL DEPOSITS............................................ 315,973 274,232
Accrued interest payable and other liabilities.............. 4,157 2,618
Short-term borrowings....................................... 1,517 1,657
Trust preferred securities.................................. 8,000 --
-------- --------
TOTAL LIABILITIES......................................... 329,647 278,507
SHAREHOLDERS' EQUITY:
Common stock, no par value; authorized 15,000,000 shares,
issued and outstanding 3,958,416 and 3,878,259 shares as
of September 30, 2000 and December 31, 1999,
respectively.............................................. 20,029 19,394
Retained earnings........................................... 6,815 7,026
Accumulated other comprehensive income (loss):
Unrealized losses on securities available-for-sale, net... (400) (565)
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................ 26,444 25,855
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $356,091 $304,362
======== ========
Shares outstanding.......................................... 3,958.4 3,878.3
Book value per share........................................ $ 6.68 $ 6.67
</TABLE>
See "Notes to Unaudited Condensed Consolidated Financial Statements."
3
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans................................ $6,137 $5,229 $17,690 $14,369
Interest on interest-bearing deposits in financial
institutions............................................ 45 90 212 250
Interest on investment securities......................... 658 711 2,097 1,912
Interest on federal funds sold............................ 553 226 1,229 1,053
------- ------- ------- -------
TOTAL INTEREST INCOME................................... 7,393 6,256 21,228 17,584
INTEREST EXPENSE:
Interest expense on deposits.............................. 2,014 1,395 5,509 4,174
Interest expense on short-term borrowings................. 32 11 85 30
Interest expense on trust preferred securities............ 44 -- 44 --
------- ------- ------- -------
TOTAL INTEREST EXPENSE.................................. 2,090 1,406 5,638 4,204
------- ------- ------- -------
NET INTEREST INCOME:........................................ 5,303 4,850 15,590 13,380
Provision for loan losses............................. 180 173 180 413
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..... 5,123 4,677 15,410 12,967
NONINTEREST INCOME:
Service charges and fees on deposit accounts.............. 303 294 898 877
Merchant discount fees.................................... 24 18 75 65
Gain on sale of loans..................................... 36 86 215 253
Other income.............................................. 182 117 630 478
------- ------- ------- -------
TOTAL NONINTEREST INCOME................................ 545 515 1,818 1,673
NONINTEREST EXPENSE:
Salaries and employee benefits............................ 1,791 1,725 5,120 4,578
Occupancy................................................. 445 416 1,218 1,100
Furniture and equipment................................... 169 159 647 491
Legal expenses............................................ 28 95 187 202
Other professional services............................... 361 333 1,274 1,008
Stationery, supplies and printing......................... 97 53 232 170
FDIC assessment........................................... 10 11 42 33
Cost of other real estate owned........................... 7 22 40 182
Advertising............................................... 114 91 310 287
Insurance................................................. 33 32 96 85
Loss on sale of securities................................ -- -- 11 2
Merger costs.............................................. -- -- 3,561 --
Other..................................................... 596 321 1,547 1,191
------- ------- ------- -------
TOTAL NONINTEREST EXPENSE............................... 3,651 3,258 14,285 9,329
------- ------- ------- -------
Income before income taxes.................................. 2,017 1,934 2,943 5,311
Income taxes................................................ 887 815 2,012 2,254
------- ------- ------- -------
NET INCOME.............................................. $1,130 $1,119 $ 931 $ 3,057
======= ======= ======= =======
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic................................................. 3,902.3 3,866.9 3,888.1 3,860.3
Diluted............................................... 4,102.9 4,073.0 4,076.8 4,064.2
Income per share
Basic................................................. $ 0.29 $ 0.29 $ 0.24 $ 0.79
Diluted............................................... $ 0.28 $ 0.27 $ 0.23 $ 0.75
</TABLE>
See "Notes to Unaudited Condensed Consolidated Financial Statements."
4
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income.................................................. $1,130 $1,119 $ 931 $3,057
Other comprehensive income (loss), net of related income
taxes:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the
period................................................ 196 2 168 (373)
Less reclassifications of realized losses included in
income................................................ -- -- (3) --
------ ------ ------ ------
196 2 165 (373)
------ ------ ------ ------
Comprehensive income........................................ $1,326 $1,121 $1,096 $2,684
====== ====== ====== ======
</TABLE>
See "Notes to Unaudited Condensed Consolidated Financial Statements."
5
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
9 MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 931 $ 3,057
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 691 587
Provision for loan losses............................... 180 413
Real estate valuation adjustment........................ -- 159
Gain on sale of loans................................... (215) (253)
Loss on sale of securities available-for-sale........... 11 2
Increase in other assets................................ (412) (257)
Increase (decrease) in accrued interest payable and
other liabilities..................................... 1,539 (1,270)
-------- --------
Net cash provided by operating activities............. 2,725 2,438
Cash flows from investing activities:
Net increase in loans outstanding......................... (32,989) (28,666)
Net decrease (increase) in interest-bearing deposits in
financial institutions.................................. 5,138 (2,074)
Securities held-to-maturity:
Maturities.............................................. 7,702 5,563
Purchases............................................... (2,000) (13,700)
Securities available-for-sale:
Proceeds from sale...................................... 1,489 1,499
Maturities.............................................. 2,806 12,781
Purchases............................................... (8,826) (16,689)
Net change in FRB and FHLB stock.......................... 327 (136)
Proceeds from sale of other real estate owned............. -- 50
Proceeds from sale of property held for sale.............. -- 1,280
Increase in property held for sale........................ -- (132)
Purchases of premises and equipment....................... (563) (821)
-------- --------
Net cash used in investing activities................. (26,916) (41,045)
Cash flows from financing activities:
Net increase in deposits:
Non-interest bearing.................................... 13,798 8,209
Interest bearing........................................ 27,943 4,994
Net increase (decrease) in short-term borrowings.......... (140) 1,930
Issuance of trust preferred securities.................... 8,000 --
Payment of debt issuance costs............................ (240) --
Proceeds from exercise of stock options................... 294 66
Cash dividends paid....................................... (801) (519)
-------- --------
Net cash provided by financing activities............. 48,854 14,680
-------- --------
Net increase (decrease) in cash and cash equivalents........ 24,663 (23,927)
Cash and cash equivalents at beginning of period............ 32,037 54,966
-------- --------
Cash and cash equivalents at end of period.................. $ 56,700 $ 31,039
======== ========
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest................................................ $ 5,596 $ 4,193
Income taxes............................................ $ 1,455 $ 3,010
Supplemental disclosure of noncash investing and financing
activities:
Transfers from retained earnings to common stock.......... $ 341 $ 394
</TABLE>
See "Notes to Unaudited Condensed Consolidated Financial Statements."
6
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1--BASIS OF PRESENTATION
First Community Bancorp (the "Company") is the holding company for Rancho
Santa Fe National Bank ("Rancho") and First Community Bank of the Desert ("First
Community" and together with Rancho, the "Banks"). The unaudited condensed
consolidated financial statements of the Company included herein reflect all
adjustments, consisting only of normal recurring adjustments, which are, in the
opinion of management, necessary to present a fair statement of the results for
the interim periods indicated. Certain reclassifications have been made to the
unaudited condensed consolidated financial statements for 1999 to conform to the
2000 presentation. Certain information and note disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission"). The
results of operations for the three and nine months ended September 30, 2000 are
not necessarily indicative of the results of operations to be expected for the
remainder of the year.
The preparation of unaudited condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates subject to change include the allowance for loan losses, the
carrying value of other real estate owned and the deferred tax asset.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the restated consolidated financial
statements and notes thereto included in the Company's Form S-4 on November 6,
2000 for the year ended December 31, 1999.
NOTE 2--ACQUISITIONS
FIRST COMMUNITY ACQUISITION
On May 31, 2000, a subsidiary of the Company merged with and into First
Community pursuant to an Agreement and Plan of Merger, dated as of October 22,
1999, as amended (the "Merger Agreement"), by and between the Company, Rancho
and First Community, (the "Merger"). As a result of the Merger, First Community
became a wholly-owned subsidiary of the Company.
Pursuant to the Merger Agreement, each issued and outstanding share of
common stock of First Community ("First Community Common Stock") prior to the
Merger (other than as provided in the Merger Agreement) was converted into the
right to receive 0.3 shares (the "Conversion Number") of common stock of the
Company ("Company Common Stock"). In addition, each option and each warrant to
acquire shares of First Community Common Stock outstanding immediately prior to
the Effective Time (as defined in the Merger Agreement) was converted into an
option and warrant, respectively, to acquire 0.3 shares of Company Common Stock.
Upon consummation of the Merger, the Company issued approximately 1,392,799
shares of Company Common Stock to former holders of First Community Common
Stock, and as a result, the former shareholders of First Community Common Stock
own shares of Company Common Stock representing approximately 35.9% of the
outstanding shares of Company Common Stock.
7
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 2--ACQUISITIONS (CONTINUED)
The financial information as of all dates and for all periods prior to the
First Community Merger presented herein has been restated to present the
consolidated financial condition and results of operations of the Company and
First Community as if the First Community Merger had been in effect as of all
dates and for all periods presented.
PROFESSIONAL BANCORP INC. ACQUISITION
The Company announced on August 7, 2000 that it had signed a definitive
agreement to acquire Professional Bancorp Inc. ("Professional") and its
wholly-owned subsidiary, First Professional Bank ("First Professional"). Under
terms of the agreement, shareholders of Professional will receive either $8.00
in cash or 0.55 shares of Company common stock for each share of Professional
common stock. Professional shareholders will have the option to choose either
cash or stock consideration. In the event that more than 50% of Professional
shareholders choose common stock or cash, the consideration will be prorated to
the Professional shareholders such that half the shares will receive cash and
half will receive Company common stock. For Professional shareholders receiving
stock, 0.55 shares of Company common stock will be received for each share of
Professional common stock (within a range of Company stock prices). The Company
anticipates issuing approximately 559,000 shares of Company common stock in this
transaction.
The acquisition will be accounted for using the purchase method of
accounting and is expected to close early in the first quarter of 2000. Both
companies have completed their due diligence. Completion of the transaction is
conditional upon the receipt of shareholder and regulatory approvals.
NOTE 3--BORROWINGS
The Company has a $5 million revolving line of credit. The common stock of
Rancho Santa Fe National Bank is security for this line of credit. There is no
outstanding balance as of September 30, 2000.
NOTE 4--TRUST PREFERRED SECURITIES
On September 7, 2000 the Company issued $8 million of trust preferred
securities. These securities are considered Tier I capital. The proceeds from
the trust preferred securities will be used for the purchase of Professional.
8
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 5--NET INCOME PER SHARE
The following is a summary of the calculation of basic and diluted net
income per share for the three and nine month periods ended September 30, 2000
and 1999:
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income............................................ $ 1,130 $ 1,119 $ 931 $ 3,057
======== ======== ======== ========
Weighted average shares outstanding................... 3,902.3 3,866.9 3,888.1 3,860.3
======== ======== ======== ========
Basic net income per share............................ $ 0.29 $ 0.29 $ 0.24 $ 0.79
======== ======== ======== ========
Weighted average shares outstanding................... 3,902.3 3,866.9 3,888.1 3,860.3
Effect of dilutive stock options and warrants......... 200.6 206.1 188.7 203.9
-------- -------- -------- --------
Diluted shares outstanding............................ 4,102.9 4,073.0 4,076.8 4,064.2
======== ======== ======== ========
Diluted net income per share.......................... $ 0.28 $ 0.27 $ 0.23 $ 0.75
======== ======== ======== ========
</TABLE>
NOTE 6--NEW ACCOUNTING STANDARDS
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation," an interpretation of
Accounting Principles Board ("APB") Opinion No. 25. FASB Interpretation No. 44
clarifies certain issues related to the application of APB Opinion 25 and is
effective July 1, 2000, with certain conclusions covering specific events that
occurred after either December 15, 1998 or January 12, 2000. FASB Interpretation
No. 44 is not expected to have a material effect on the Company's financial
position or results of operations.
In September 2000 the FASB issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which replaced FASB Statement No. 125 and revises the standards for accounting
for securitizations and other transfers of financial assets. The Statement is
effective for transfers and servicings of financial assets and extinguishments
of liabilities occurring after March 31, 2001. This Statement is to be applied
prospectively with certain exceptions. FASB Statement No. 140 is not expected to
have a material effect on the Company's financial position or results of
operations.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following tables and data set forth certain statistical information
relating to the Company as of September 30, 2000, and for the three and nine
month periods ended September 30, 2000, and September 30, 1999. This discussion
should be read in conjunction with the unaudited condensed consolidated
financial statements and notes thereto as of September 30, 2000, included
herein, and the consolidated financial statements and notes thereto included in
the Company's restated financial statements filed on Form S-4 for the year ended
December 31, 1999.
When the Company uses or incorporates by reference in this Quarterly Report
on Form 10-Q (the "Quarterly Report") the words "anticipate," "estimate,"
"expect," "project," "intend," "commit," "believe" and similar expressions, the
Company intends to identify certain forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions, including those
described in this Quarterly Report. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, expected,
projected, intended, committed or believed.
Since December 31, 1999, the Company's total assets have increased by
approximately $51.7 million, or 17.0%. The major components of this increase in
assets are an increase of approximately $16.9 million in federal funds sold and
an increase of approximately $33.0 million in net loans. The increase in loans
is a result of the overall increase in economic activity in Southern California
and the Company's success in developing new business.
Since December 31, 1999, the Company's total deposits have increased by
approximately $41.7 million including an increase of approximately
$13.8 million in noninterest-bearing deposits and an increase in
interest-bearing deposits of approximately $27.9 million. This increase resulted
primarily from the overall increase in economic activity in Southern California,
the Company's success in obtaining new business and an increase in rates paid on
some deposits.
On September 8, 2000 the Company issued $8 million of trust preferred
securities. These securities are considered Tier I capital.
Consolidated net income for the three months ended September 30, 2000 was
$1,130,000 or $0.28 per diluted share. This compares with consolidated net
income of $1,119,000 or $0.27 per diluted share, for the three months ended
September 30, 1999. Consolidated operating earnings (net income before one-time
after-tax merger costs) for the nine months ended September 30, 2000 were
$3,729,000 or $0.91 per diluted share. This compares with consolidated operating
earnings of $3,057,000 or $0.75 per diluted share, for the nine months ended
September 30, 1999, a growth of approximately 21%. Consolidated net income,
including one-time after-tax merger costs of $2,798,000, for the nine months
ended September 30, 2000 was $931,000 or $0.23 per diluted share. This compares
with net income of $3,057,000 or $0.75 per diluted share, for the nine months
ended September 30, 1999.
On October 26, 2000 the Company's Board of Directors approved a quarterly
dividend of $0.09 per common share which is payable on November 30, 2000 to
shareholders of record on November 15, 2000.
RESULTS OF OPERATIONS
OPERATING INCOME. The Company defines operating income as net income before
after-tax merger costs. The Company's operating return on average assets was
1.28% in the third quarter of 2000 versus 1.51% in the third quarter of 1999.
This decrease was due to a substantial growth in average assets with a moderate
growth in net income between the two periods. The operating efficiency ratio
improved from 62.0% in the first nine months of 1999 to 61.6% in the first nine
months of 2000. However the efficiency ratio increased from 60.7% in the third
quarter of 1999 to 62.4% in the third quarter of 2000. Operating revenues grew
9.0% from the third quarter of 1999 to the third quarter of 2000 while
non-interest expense grew 12.1% during the same period as the Company develops
the infrastructure to smoothly absorb
10
<PAGE>
Professional. The Company is working on various efficiency and revenue
initiatives that are now available as a result of the acquisition of First
Community and the pending acquisition of Professional.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE INFORMATION:
Number of shares (weighted average, in thousands)........... 3,902.3 3,866.9 3,888.1 3,860.3
Diluted shares (weighted average, in thousands)............. 4,102.9 4,073.0 4,076.8 4,064.2
Basic income per share...................................... $ 0.29 $ 0.29 $ 0.24 $ 0.79
Diluted income per share.................................... $ 0.28 $ 0.27 $ 0.23 $ 0.75
PER SHARE INFORMATION BEFORE MERGER COSTS:
Basic income per share...................................... $ 0.29 $ 0.29 $ 0.96 $ 0.79
Diluted income per share.................................... $ 0.28 $ 0.27 $ 0.91 $ 0.75
PROFITABILITY MEASURES BEFORE MERGER COSTS:
Return on average assets.................................... 1.28% 1.51% 1.48% 1.41%
Return on average equity.................................... 14.6% 17.5% 17.3% 16.8%
Efficiency ratio............................................ 62.4% 60.7% 61.6% 62.0%
ADJUSTMENTS TO NET INCOME (IN THOUSANDS):
Net income.................................................. $1,130 $1,119 $ 931 $ 3,057
Merger costs................................................ -- -- 3,561 --
Tax benefits.............................................. -- -- 763 --
------- ------- ------- -------
After tax merger costs...................................... -- -- 2,798 --
------- ------- ------- -------
ADJUSTED NET INCOME....................................... $1,130 $1,119 $ 3,729 $ 3,057
======= ======= ======= =======
OPERATING REVENUES (IN THOUSANDS):
Net interest income......................................... $5,303 $4,850 $15,590 $13,380
Noninterest income.......................................... 545 515 1,818 1,673
------- ------- ------- -------
OPERATING REVENUES........................................ $5,848 $5,365 $17,408 $15,053
======= ======= ======= =======
ADJUSTMENTS TO EXPENSES (IN THOUSANDS):
Noninterest expense......................................... $3,651 $3,258 $14,285 $ 9,329
Merger costs................................................ -- -- (3,561) --
------- ------- ------- -------
OPERATING EXPENSES........................................ $3,651 $3,258 $10,724 $ 9,329
======= ======= ======= =======
</TABLE>
Profits for the Company are dependent on loan growth, controlling costs and
continual efforts to prevent any unexpected loan losses that would require
additions to the allowance for loan losses ("ALL"). The Company believes that
the demand for loans has increased in the Company's primary market areas due to
the growth in the Southern California economy along with the ability of the
Company's customers to participate in that growth. However, the perceived
increase in the demand for loans is tempered by the highly competitive banking
marketplace and the Company's desire to maintain strong credit quality
standards. These factors contributed to the Company's growth in net loans of
approximately 16.3% since December 31, 1999. As a result of the increase in
loans and the approximate 15.2% increase in deposits, the Company's
loan-to-deposit ratio, has increased from 75.4% as of December 31, 1999, to
75.8% as of September 30, 2000.
NET INTEREST INCOME. Net interest income is the difference between interest
earned on assets and interest paid on liabilities. Net interest margin is net
interest income expressed as a percentage of average interest-earning assets.
The following tables provide information concerning average interest-earning
assets and interest-bearing liabilities and yields and rates thereon for the
three and nine months ended September 30, 2000 and September 30, 1999,
respectively. Nonaccrual loans are included in the average earning assets
amounts.
11
<PAGE>
UNAUDITED AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVERAGE ASSETS:
Loans, net of deferred fees and costs............... $229,902 $194,069 $223,253 $183,740
Investment securities............................... 45,313 49,089 47,121 44,597
Federal funds sold.................................. 35,759 18,157 26,968 29,837
Interest-bearing deposits in financial
institutions...................................... 3,299 6,938 5,176 6,165
-------- -------- -------- --------
AVERAGE EARNING ASSETS............................ 314,273 268,253 302,518 264,339
Other assets........................................ 38,139 26,083 33,824 25,971
-------- -------- -------- --------
AVERAGE TOTAL ASSETS............................ $352,412 $294,336 $336,342 $290,310
======== ======== ======== ========
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY:
AVERAGE LIABILITIES:
Noninterest-bearing deposits........................ $106,224 $ 86,966 $102,978 $ 84,721
Time deposits of $100,000 or more................... 32,726 27,564 27,915 23,977
Interest-bearing deposits........................... 174,140 152,093 171,281 154,977
-------- -------- -------- --------
AVERAGE DEPOSITS.................................. 313,090 266,623 302,174 263,675
Other interest-bearing liabilities.................. 3,587 874 2,527 793
Other liabilities................................... 4,865 1,475 2,785 1,511
-------- -------- -------- --------
AVERAGE LIABILITIES............................... 321,542 268,972 307,486 265,979
Average equity...................................... 30,870 25,364 28,856 24,331
-------- -------- -------- --------
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY.... $352,412 $294,336 $336,342 $290,310
======== ======== ======== ========
YIELD ANALYSIS:
(Dollars in thousands)
Average earning assets.............................. $314,273 $268,253 $302,518 $264,339
Yield............................................. 9.36% 9.25% 9.37% 8.89%
Average interest-bearing deposits................... $206,866 $179,657 $199,196 $178,954
Cost.............................................. 3.87% 3.08% 3.69% 3.12%
Average deposits.................................... $313,090 $266,623 $302,174 $263,675
Cost.............................................. 2.56% 2.08% 2.44% 2.12%
Average interest-bearing liabilities................ $210,453 $180,531 $201,723 $179,747
Cost.............................................. 3.95% 3.09% 3.73% 3.13%
Interest spread..................................... 5.41% 6.16% 5.64% 5.76%
Net interest margin................................. 6.71% 7.17% 6.88% 6.77%
</TABLE>
Interest income increased by approximately $1.1 million from $6.3 million
for the third quarter of 1999 to $7.4 million for the same period of 2000. The
increase was due to an increase of approximately $46.0 million in average
earning assets, mostly in loans, and an moderate increase in the yield on
earning assets from 9.25% to 9.36% due mostly to the higher interest rate
environment in the 2000 period versus the 1999 period.
Interest income increased by approximately $3.6 million from $17.6 million
for the first nine months of 1999 to $21.2 million for the same period of 2000.
The increase was due to an increase in the yield on earnings assets from 8.89%
to 9.37% due mostly to the higher interest rate environment in the 2000 period
versus the 1999 period. Average earning assets also increased over the same
period by approximately $38.2 million as a result of the increased level of
economic activity.
12
<PAGE>
Interest expense increased by approximately $684,000 from $1.4 million for
the third quarter of 1999 to $2.1 million for the same period of 2000. This
increase is due both to the increase in average interest-bearing liabilities
from $180.5 million to $210.5 million and the increase in the cost of
interest-bearing liabilities from 3.09% to 3.95% over the same periods of time
as a result of the previously mentioned increase in the general level of
interest rates. The growth in average deposits is a result of the increased
level of interest rates and the ability of the Company to capture new business.
Interest expense increased by approximately $1.4 million from $4.2 million
for the first nine months of 1999 to $5.6 million for the same period of 2000.
This increase is due both to the increase in average interest-bearing
liabilities from $179.7 million to $201.7 million and the increase in the cost
of interest-bearing liabilities from 3.13% to 3.73% over the same periods of
time as a result of the previously mentioned increase in the general level of
interest rates. The growth in average deposits is a result of the increased
level of interest rates and the ability of the Company to capture new business.
NONINTEREST INCOME. The following table sets forth the details of
noninterest income for the three months ended September 30, 2000 and
September 30, 1999:
<TABLE>
<CAPTION>
3 MONTHS ENDED
SEPTEMBER 30,
---------------------- INCREASE
2000 1999 (DECREASE)
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
NONINTEREST INCOME:
Service charges and fees on deposit accounts..... $303 $294 $ 9
Merchant discount fees........................... 24 18 6
Gain on sale of loans............................ 36 86 (50)
Other income..................................... 182 117 65
---- ---- ----
TOTAL NONINTEREST INCOME....................... $545 $515 $ 30
==== ==== ====
</TABLE>
Total noninterest income increased by approximately $30,000 from $515,000 to
$545,000, or approximately 5.8%, from the three months ended September 30, 1999
to the three months ended September 30, 2000. There was a change in the mix of
noninterest income. Other income includes SBA servicing fees, ATM fees, debit
card fees and several other miscellaneous categories. Other income increased by
approximately $65,000 due to increases in many of these areas as a result of the
general increase in economic activity previously discussed. Gain on sale of SBA
loans decreased by approximately $50,000 due to slower activity in the 2000
period versus the 1999 period. In addition the funding and sale of SBA loans
does not occur smoothly over the year.
The following table sets forth the details of noninterest income for the
nine months ended September 30, 2000 and September 30, 1999:
<TABLE>
<CAPTION>
9 MONTHS ENDED
SEPTEMBER 30,
------------------- INCREASE
2000 1999 (DECREASE)
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
NONINTEREST INCOME:
Service charges and fees on deposit accounts.... $ 898 $ 877 $ 21
Merchant discount fees.......................... 75 65 10
Gain on sale of loans........................... 215 253 (38)
Other income.................................... 630 478 152
------ ------ ----
TOTAL NONINTEREST INCOME...................... $1,818 $1,673 $145
====== ====== ====
</TABLE>
Total noninterest income increased by approximately $145,000 from $1,673,000
to $1,818,000, or approximately 8.7%, from the nine months ended September 30,
1999 to the nine months ended
13
<PAGE>
September 30, 2000. There was a change in the mix of noninterest income. Other
income includes SBA servicing fees, ATM fees, debit card fees and several other
miscellaneous categories. Other income increased by approximately $152,000 due
to increases in many of these areas as a result of the general increase in
economic activity previously discussed. Gain on sale of SBA loans decreased by
approximately $38,000 due to slower activity in the 2000 period versus the 1999
period. In addition the funding and sale of SBA loans does not occur smoothly
over the year.
NONINTEREST EXPENSE. The following table sets forth the details of
noninterest expense for the three months ended September 30, 2000 and
September 30, 1999:
<TABLE>
<CAPTION>
3 MONTHS ENDED
SEPTEMBER 30,
------------------- INCREASE
2000 1999 (DECREASE)
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
NONINTEREST EXPENSE:
Salaries and employee benefits.................. $1,791 $1,725 $ 66
Occupancy....................................... 445 416 29
Furniture and equipment......................... 169 159 10
Legal expenses.................................. 28 95 (67)
Other professional services..................... 361 333 28
Stationery, supplies and printing............... 97 53 44
FDIC assessment................................. 10 11 (1)
Cost of other real estate owned................. 7 22 (15)
Advertising..................................... 114 91 23
Insurance....................................... 33 32 1
Other........................................... 596 321 275
------ ------ ----
OPERATING EXPENSE................................. 3,651 3,258 393
------ ------ ----
TOTAL NONINTEREST EXPENSE......................... $3,651 $3,258 $393
====== ====== ====
</TABLE>
Total operating expense increased approximately $393,000 from $3,258,000 to
$3,651,000, or 12.1%, from the three months ended September 30, 1999 to the
three months ended September 30, 2000. The increase in operating expenses in
almost all categories is primarily a result of the increased level of economic
activity in the Company's markets and the Company's response to this increased
level of customers and customer activity. Average gross loans grew by
approximately 18.5% during the same period and average noninterest-bearing
deposits grew by approximately 22.1% between the two periods. The growth in
these activities bears directly on the variable costs of the Company. The
Company is also making various technology investments and upgrades and
investments in the infrastructure necessary to absorb Professional. These
activities also impact various expense categories. The decline in legal expenses
is a result of less activity related to working out loans. The substantial
increase in other expense is due mainly to write-offs of fixed assets related to
the technology investments made by the Company, the outsourcing of the courier
department at one of the Banks, increased activity in communications expenses
and various other activities.
The efficiency ratio (operating expense divided by net interest income plus
noninterest income) is a measure of how effective the Company is at using its
expense dollars. A lower or declining ratio indicates improving efficiency. The
increase in the efficiency ratio from 60.7% in the third quarter of 1999 to
62.4% in the third quarter of 2000 is mostly a result of building the
infrastructure to absorb Professional.
14
<PAGE>
The following table sets forth the details of noninterest expense for the
nine months ended September 30, 2000 and September 30, 1999:
<TABLE>
<CAPTION>
9 MONTHS ENDED
SEPTEMBER 30,
------------------- INCREASE
2000 1999 (DECREASE)
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
NONINTEREST EXPENSE:
Salaries and employee benefits................. $ 5,120 $4,578 $ 542
Occupancy...................................... 1,218 1,100 118
Furniture and equipment........................ 647 491 156
Legal expenses................................. 187 202 (15)
Other professional services.................... 1,274 1,008 266
Stationery, supplies and printing.............. 232 170 62
FDIC assessment................................ 42 33 9
Cost of other real estate owned................ 40 182 (142)
Advertising.................................... 310 287 23
Insurance...................................... 96 85 11
Loss on sale of securities..................... 11 2 9
Other.......................................... 1,547 1,191 356
------- ------ ------
OPERATING EXPENSE................................ 10,724 9,329 1,395
Merger costs................................... 3,561 -- 3,561
------- ------ ------
TOTAL NONINTEREST EXPENSE........................ $14,285 $9,329 $4,956
======= ====== ======
</TABLE>
Total operating expense increased approximately $1,395,000 from $9,329,000
to $10,724,000, or 15.0%, from the nine months ended September 30, 1999 to the
nine months ended September 30, 2000. The increase in operating expenses in
almost all categories is primarily a result of the increased level of economic
activity in the Company's markets and the Company's response to this increased
level of customers and customer activity. Average gross loans grew by
approximately 21.5% during the same period and average noninterest-bearing
deposits grew by approximately 21.5% between the two periods. The Company is
also making various technology investments and upgrades and investments in the
infrastructure necessary to absorb Professional. These activities also impact
various expense categories. The increase in other professional services is due
to outsourcing of more activities and increased data processing costs due to
increase in transaction activity. The decline in cost of other real estate owned
is a result of a write down in the 1999 period which did not reoccur in 2000.
The substantial increase in other expense is due mainly to write-offs of fixed
assets related to the technology investments made by the Company, the
outsourcing of the courier department at one of the Banks, increased activity in
communications expenses and various other activities. Merger costs of $3,561,000
are one-time costs relating to the acquisition of First Community. The Company
has estimated approximately $4.1 million of one-time merger costs related to the
Professional acquisition.
The efficiency ratio (operating expense divided by net interest income plus
noninterest income) is a measure of how effective the Company is at using its
expense dollars. A lower or declining ratio indicates improving efficiency. The
Company's efficiency ratio improved from 62.0% in the first nine months of 1999
to 61.6% in the first nine months of 2000.
INCOME TAXES. The Company's normal effective income tax rate is
approximately 42.0%, representing a blend of the statutory Federal income tax
rate of 35.0% and the California income tax rate of 10.84%. The Company's actual
effective income tax rates were 44.0% and 42.1% for the three months ended
September 30, 2000 and 1999, respectively. The Company's actual effective income
tax rates were 68.4% and 42.4% for the nine months ended September 30, 2000 and
1999, respectively. The actual effective tax rate varies from the normal
effective tax rate in the nine month period ended September 30, 2000 largely as
a
15
<PAGE>
result of nondeductible merger costs. Adjusting for the nondeductible merger
costs, the effective tax rates in the nine month periods of 2000 and 1999 were
42.7% and 42.4%.
BALANCE SHEET ANALYSIS
CREDIT QUALITY. The Company defines nonperforming assets to include
(i) loans past due 90 days or more and still accruing; (ii) loans on which it
has ceased to accrue interest ("Nonaccrual Loans") and (iii) assets acquired
through foreclosure including other real estate owned. "Impaired loans" are
commercial, commercial real estate, and individually significant mortgage and
consumer loans for which it is probable that the Company will not be able to
collect all amounts due according to the original contractual terms of the loan
agreement. The category of "impaired loans" is not coextensive with the category
of "nonaccrual loans," although the two categories overlap. "Nonaccrual loans"
include impaired loans and are those on which the accrual of interest is
discontinued when collectibility of principal or interest is uncertain or
payments of principal or interest have become contractually past due 90 days.
The Company may choose to place a loan on nonaccrual status due to payment
delinquency or uncertain collectibility, while not classifying the loan
impaired, if (i) it is probable that the Company will collect all amounts due in
accordance with the original contractual terms of the loan or (ii) the loan is
not a commercial, commercial real estate or an individually significant mortgage
or consumer loan.
Planned workout arrangements are currently in place or in negotiation for
all nonperforming assets. Management is not aware of any additional significant
loss potential that has not already been included in the estimation of the
allowance for loan losses ("ALL").
16
<PAGE>
The following table shows the historical trends in nonperforming assets and
key credit quality statistics for the Company:
CREDIT QUALITY MEASURES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AND FOR THE PERIODS ENDING
--------------------------------------------------------------------------
3 MONTHS 6 MONTHS 9 MONTHS YEAR 3 MONTHS 6 MONTHS 9 MONTHS
3/31/99 6/30/99 9/30/99 12/31/99 3/31/00 6/30/00 9/30/00
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans past due 90 days or more and
still accruing..................... $1,441 $ 139 $ 209 $ 75 $ -- $ 218 $ 3
Nonaccrual loans and leases.......... 1,608 858 821 1,845 442 2,268 2,650
Other real estate owned.............. 1,392 1,466 1,315 1,315 1,315 1,315 1,315
------ ------ ------ ------ ------ ------ ------
Nonperforming assets............... $4,441 $2,463 $2,345 $3,235 $1,757 $3,801 $3,968
====== ====== ====== ====== ====== ====== ======
Impaired loans, gross................ $1,489 $ 802 $2,136 $1,833 $ 434 $2,268 $2,650
Allocated allowance for loan
losses............................. (64) (47) (277) (159) (201) (574) (456)
------ ------ ------ ------ ------ ------ ------
Net investment in impaired loans... $1,425 $ 755 $1,859 $1,674 $ 233 $1,694 $2,194
====== ====== ====== ====== ====== ====== ======
Charged off loans year-to-date....... $ 46 $ 452 $ 540 $ 592 $ 15 $ 92 $ 363
Recoveries year-to-date.............. (52) (85) (110) (314) (42) (54) (72)
------ ------ ------ ------ ------ ------ ------
Net charge-offs (recoveries)....... $ (6) $ 367 $ 430 $ 278 $ (27) $ 38 $ 291
====== ====== ====== ====== ====== ====== ======
Allowance for loan losses to loans,
net of deferred fees and costs..... 2.15% 1.95% 1.89% 1.95% 1.82% 1.78% 1.64%
Allowance for loan losses to
nonaccrual loans and leases........ 244.2% 426.3% 459.0% 218.2% 916.7% 175.8% 147.7%
Nonperforming assets to loans and
OREO............................... 2.41% 1.30% 1.17% 1.56% 0.79% 1.69% 1.65%
Annualized net charge offs to average
loans.............................. (0.01)% 0.41% 0.31% 0.15% (0.05)% 0.03% 0.17%
Nonaccrual loans to loans, net of
deferred fees and costs............ 0.88% 0.46% 0.41% 0.90% 0.20% 1.01% 1.11%
Allowance for loan losses to
nonperforming assets............... 88.4% 148.5% 160.7% 124.4% 230.6% 104.9% 98.6%
</TABLE>
Loans past due 90 days and still accruing represent loans which are past due
90 days or more as to interest or principal, but not included in the nonaccrual
or restructured categories. All loans in this category are well-secured and in
the process of collection or renewal.
On September 30, 2000, the Company had approximately $2,650,000 of loans
which were considered impaired, all of which were on nonaccrual status, compared
to $2,268,000 at June 30, 2000 and $1,833,000 of impaired loans at December 31,
1999. The ALL at September 30, 2000, includes allocated allowances of
approximately $456,000 established for certain impaired loans. Nonperforming
assets increased approximately $733,000 from $3,235,000 at December 31, 1999, to
$3,968,000 at September 30, 2000. This increase is a result of nonaccrual loans
increasing $805,000 to $2,650,000 as a result of improvements in most nonaccrual
loans in the period and one large loan being put on nonaccrual in the second
quarter of 2000.
ALLOWANCE FOR LOAN LOSSES. The Company has established a monitoring system
for its loans in order to identify impaired loans and potential problem loans
and to permit periodic evaluation of impairment and the adequacy of the ALL in a
timely manner. The monitoring system and ALL methodology have evolved over a
period of years, and loan classifications have been incorporated into the
determination of the ALL.
17
<PAGE>
This monitoring system and allowance methodology include a loan-by-loan analysis
for all classified loans as well as loss factors for the balance of the
portfolio that are based on migration analysis relative to the Company's
unclassified portfolio. This analysis includes such factors as historical loss
experience, current portfolio delinquency and trends, and other inherent risk
factors such as economic conditions, concentrations in the portfolio risk levels
of particular loan categories, internal loan review and management oversight.
The percentage of ALL to gross loans, net of deferred fees and costs, was
1.64% at September 30, 2000, a decrease from 1.95% at December 31, 1999. This
decrease in the percentage is almost entirely a result of the growth in loans
and not due to a decrease in the allowance for loan losses. Nonaccrual loans
increased by $382,000 during the quarter ended September 30, 2000, from 1.01% to
1.11% of loans, net of deferred fees and costs. Net OREO remained flat at
$1,315,000 during the quarter. Total nonperforming assets increased by $167,000
during the third quarter of 2000, decreasing from 1.69% to 1.65% of total loans
and OREO at June 30, 2000 and September 30, 2000, respectively. The Company had
net charge-offs of $291,000 in the nine months ended September 30, 2000
represented by net charge-offs of $38,000 during the first six months of 2000
and net charge-offs of $253,000 during the third quarter. The allowance for loan
losses declined slightly by $111,000 from $4,025,000 at December 31, 1999 to
$3,914,000 at September 30, 2000. The allowance as a percentage of nonperforming
assets decreased from 124.4% at December 31, 1999 to 98.6% at September 30, 2000
due to the increase in nonperforming assets. Management believes that the
allowance for loan losses at September 30, 2000 is adequate based on the
Company's quarterly migration analysis of loan losses, improved economic
conditions and continued adherence to established credit policies.
REGULATORY MATTERS. The regulatory capital guidelines as well as the actual
regulatory capital ratios for Rancho, First Community and the Company on a
consolidated basis as of September 30, 2000, are as follows:
<TABLE>
<CAPTION>
REGULATORY
REQUIREMENTS ACTUAL
------------------------- -----------------------------------
ADEQUATELY WELL FIRST
CAPITALIZED CAPITALIZED RANCHO COMMUNITY CONSOLIDATED
----------- ----------- -------- --------- ------------
(GREATER THAN OR EQUAL
TO STATED PERCENTAGE)
<S> <C> <C> <C> <C> <C>
Detailed computations of
Tier 1 leverage capital ratio................ 4.00% 5.00% 8.66% 7.28% 9.89%
Tier 1 risk-based capital ratio.............. 4.00% 6.00% 10.26% 9.05% 12.15%
Total risk-based capital....................... 8.00% 10.00% 11.51% 10.31% 13.40%
</TABLE>
On September 7, 2000 the Company issued $8 million of trust preferred
securities. These securities are considered Tier I capital. The proceeds from
the trust preferred securities will be used for the purchase of Professional.
LIQUIDITY, INTEREST RATE SENSITIVITY AND MARKET RISK. On a stand-alone
basis, the Company's sources of liquidity include dividends from the Banks and
outside borrowings. The amount of dividends that the Banks can pay to the
Company is restricted by regulatory guidelines.
The primary function of asset/liability management is to ensure adequate
liquidity and maintain an appropriate balance between interest-sensitive earning
assets and interest-bearing liabilities at the Banks. Liquidity management
involves the ability to meet the cash flow requirements of customers who may be
either depositors wanting to withdraw funds or borrowers who may need assurance
that sufficient funds will be available to meet their credit needs. Interest
rate sensitivity management seeks to avoid fluctuating interest margins and to
enhance consistent growth of net interest income through periods of changing
interest rates.
18
<PAGE>
Historically, the overall liquidity of the Banks is based on the core
deposit base of the Banks. The Banks have not relied on large denomination time
deposits. To meet short-term liquidity needs, the Company has maintained at the
Banks what it believes are adequate balances in federal funds sold,
interest-bearing deposits in financial institutions and investment securities
having maturities of five years or less. On a consolidated basis, liquid assets
(cash, federal funds sold and investment securities available-for-sale) as a
percent of total deposits were 30.4% and 24.2% as of September 30, 2000 and
December 31, 1999, respectively.
Market risk sensitive instruments are generally defined as on and off
balance sheet derivatives and other financial instruments. At December 31, 1999
and September 30, 2000, the Company had no material on or off balance sheet
derivatives. The Company's financial instruments include interest sensitive
loans receivable, federal funds sold, interest-bearing deposits in financial
institutions, FRB and FHLB stock, investment securities, deposits, short-term
borrowings and trust preferred securities. At December 31, 1999, the Company had
approximately $275 million in interest sensitive assets and approximately
$276 million in interest sensitive liabilities. At September 30, 2000, the
Company's interest sensitive assets and interest sensitive liabilities totaled
approximately $319 million and $325 million, respectively.
The yield on interest sensitive assets and the cost of interest sensitive
liabilities for the third quarter of 2000 was 9.36% and 2.63%, respectively,
compared to 8.42% and 2.10%, respectively, at December 31, 1999. The increase in
the yield on interest sensitive assets is primarily a result of the percentage
of average loans to average interest sensitive assets increasing from
approximately 70.7% at December 31, 1999 to 73.2% for the quarter ended
September 30, 2000 and the general increase in the level of interest rates. The
increase in the cost of interest sensitive liabilities is primarily a result of
the increase in the level of interest rates over the same period of time.
The Company's interest sensitive assets and interest sensitive liabilities
were reported to have estimated fair values of $271 million and $274 million,
respectively, at December 31, 1999. Because of the floating and short-term
nature of its interest sensitive assets and liabilities, management believes
that there has been no material change in the difference between the book value
of the interest sensitive assets and liabilities and their estimated fair
values.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See the section titled "Liquidity, Interest Rate Sensitivity and Market
Risk" in the Management's Discussion and Analysis of Financial Condition and
Results of Operations.
19
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of August 7, 2000 by
and between First Community Bancorp and Professional
Bancorp, Inc. (Annex A of a Form S-4 filed on October 3,
2000 and incorporated herein by this reference).
3.1 Articles of Incorporation of First Community Bancorp
(Exhibit 3.1 of a Registration Statement filed on June 2,
2000 on Form 8-A and incorporated herein by this reference).
3.2 Bylaws of First Community Bancorp (Exhibit 3.2 of a
Registration Statement filed on June 2, 2000 on Form 8-A and
incorporated herein by this reference).
10.1 First Community Bancorp 2000 Stock Incentive Plan; Form of
Incentive Stock Option Agreement, Form of Nonstatutory Stock
Option Agreement for directors and Form of Nonstatutory
Stock Option agreement for consultants (Exhibit 10.1 of a
Form 10Q filed on August 10, 2000 and incorporated herein by
this reference).
10.2 Revolving Credit Agreement and Pledge Agreement and Waiver,
dated June 26, 2000 (Exhibit 10.2 of a Form 10Q filed on
August 10, 2000 and incorporated herein by this reference).
10.3 Directors' Deferred Compensation Plan (Exhibit 10.3 of a
Form 10Q filed on August 10, 2000 and incorporated herein by
this reference).
10.4 Guarantee Agreement By and Between First Community Bancorp
and State Street Bank and Trust Company, National
Association Dated as of September 7, 2000.
10.5 Amended and Restated Declaration of Trust By and Among State
Street Bank and Trust Company, National Association as
Institutional Trustee, First Community Bancorp, as Sponsor,
Mark Christian and Arnold C. Hahn, as Administrators Dated
September 7, 2000.
10.6 Indenture Dated as of September 7, 2000.
11.0 Computation of Earnings Per Common Share (See Note 5 of the
Notes to Unaudited Consolidated Financial Statements
contained in "Item 1. Consolidated Financial Statements
(unaudited)" of this Quarterly Report on Form 10-Q.)
27.1 Financial Data Schedule for nine months ended September 30,
2000.
</TABLE>
B. REPORTS ON FORM 8-K
None
20
<PAGE>
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.
<TABLE>
<S> <C> <C>
FIRST COMMUNITY BANCORP
/s/ MATHEW P. WAGNER
----------------------------------------
Mathew P. Wagner
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: November 13, 2000 /s/ ARNOLD C. HAHN
----------------------------------------
Arnold C. Hahn
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND
ASSISTANT SECRETARY
</TABLE>
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of August 7, 2000 by
and between First Community Bancorp and Professional
Bancorp, Inc. (Annex A of a Form S-4 filed on October 3,
2000 and incorporated herein by this reference).
3.1 Articles of Incorporation of First Community Bancorp
(Exhibit 3.1 of a Registration Statement filed on June 2,
2000 on Form 8-A and incorporated herein by this reference).
3.2 Bylaws of First Community Bancorp (Exhibit 3.2 of a
Registration Statement filed on June 2, 2000 on Form 8-A
and incorporated herein by this reference).
10.1 First Community Bancorp 2000 Stock Incentive Plan; Form of
Incentive Stock Option Agreement, Form of Nonstatutory Stock
Option Agreement for directors and Form of Nonstatutory
Stock Option agreement for consultants (Exhibit 10.1 of a
Form 10Q filed on August 10, 2000 and incorporated herein by
this reference).
10.2 Revolving Credit Agreement and Pledge Agreement and Waiver,
dated June 26, 2000 (Exhibit 10.2 of a Form 10Q filed on
August 10, 2000 and incorporated herein by this reference).
10.3 Directors' Deferred Compensation Plan (Exhibit 10.3 of a
Form 10Q filed on August 10, 2000 and incorporated herein by
this reference).
10.4 Guarantee Agreement By and Between First Community Bancorp
and State Street Bank and Trust Company, National
Association Dated as of September 7, 2000.
10.5 Amended and Restated Declaration of Trust By and Among State
Street Bank and Trust Company, National Association as
Institutional Trustee, First Community Bancorp, as Sponsor,
Mark Christian and Arnold C. Hahn, as Administrators Dated
September 7, 2000.
10.6 Indenture Dated as of September 7, 2000.
11.0 Computation of Earnings Per Common Share (See Note 5 of the
Notes to Unaudited Consolidated Financial Statements
contained in "Item 1. Consolidated Financial Statements
(unaudited)" of this Quarterly Report on Form 10-Q.)
27.1 Financial Data Schedule for nine months ended September 30,
2000.
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