Back to GetFilings.com

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

FORM 10-Q

For the quarterly period ended June 30, 2002

OR

For the transition period from                              to                             

Commission File Number: 00-30747

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

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

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

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 12, 2002: 11,462,165 shares of common stock, no par value.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements (unaudited)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

See "Notes to Unaudited Condensed Consolidated Financial Statements."

2

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

See "Notes to Unaudited Condensed Consolidated Financial Statements."

3

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See "Notes to Unaudited Condensed Consolidated Financial Statements."

4

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

5

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—CONTINUED
(In Thousands)

Supplemental Disclosure of Acquisitions:

See "Notes to Unaudited Condensed Consolidated Financial Statements."

6

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2002

NOTE 1—BASIS OF PRESENTATION

        First Community Bancorp (the "Company") is the holding company for Rancho Santa Fe National Bank ("Rancho") and Pacific Western National Bank ("Pacific Western" 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 2001 to conform to the 2002 presentation. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). The results of operations for the three and six months ended June 30, 2002 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 consolidated financial statements and notes thereto included in the Company's Annual Report filed on Form 10-K on March 29, 2002 for the year ended December 31, 2001.

NOTE 2—ACQUISITIONS

First Community Bank of the Desert Acquisition

        On May 31, 2000, the Company completed its formation whereby Rancho and First Community Bank of the Desert became its wholly-owned subsidiaries. Shareholders for both banks approved the transaction at their respective shareholder meetings held on May 31, 2000. Under the terms of the merger agreement, each shareholder of First Community Bank of the Desert received 0.30 shares of Company common stock for each share of First Community Bank of the Desert common stock. Each Rancho share was exchanged for one share of Company common stock. At the same time as completion of the merger, the Company's common stock was listed on NASDAQ under the symbol FCBP. The Company accounted for the merger as a "pooling-of-interests."

Professional Bancorp Acquisition

        On January 16, 2001, the Company acquired Professional Bancorp, Inc. ("Professional") and its wholly-owned subsidiary, First Professional Bank, N.A. ("First Professional"). Shareholders of Professional received either $8.00 in cash or 0.55 shares of Company common stock for each share of Professional common stock. Professional shareholders had the option to choose either cash or stock consideration. The purchase price received by shareholders of Professional totaled approximately 504,747 shares of Company common stock and approximately $8.4 million in cash, resulting in a total purchase price of approximately $16.3 million. This acquisition was accounted for using the purchase method of accounting.

7

First Charter Acquisition

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

Pacific Western Acquisition

        On January 31, 2002, the Company acquired Pacific Western National Bank. The shareholders and option holders of Pacific Western National Bank were paid approximately $30.0 million in cash. Upon completion of the acquisition, Pacific Western National Bank and First Community Bank of the Desert were merged with First Professional Bank, N.A. The resulting bank operates as Pacific Western and is headquartered in Santa Monica, California. References to Pacific Western National Bank refer to the bank acquired on January 31, 2002. When we refer to Pacific Western, we are referring to the surviving bank formed through the merger of Pacific Western National Bank, First Community Bank of the Desert and First Professional Bank, N.A.

W.H.E.C., Inc. Acquisition

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

Upland Bank Acquisition

        The Company has a pending merger based upon an agreement (the "Upland Bank Agreement") to acquire all of the outstanding common stock of Upland Bank ("Upland").

        The Upland Bank Agreement provides that the shareholders of the outstanding common shares and options of Upland will have the right to elect to receive for each share either $11.73 in cash or 0.5034 of a share of Company common stock. The pending merger is subject to standard conditions, including the approval of the shareholders of Upland and bank regulatory agencies. The pending merger received regulatory approval on June 25, 2002 and the Upland shareholder meeting will be held on August 19, 2002. Upon receipt of the approvals and satisfaction or waiver of other conditions, the transaction is expected to close in the latter half of August 2002, at which time Upland will be merged into Pacific Western, with Pacific Western remaining as the surviving bank.

Marathon Bancorp Acquisition

        The Company has a pending merger based upon an agreement (the "Marathon Agreement") to acquire all of the outstanding common stock of Marathon Bancorp, the holding company of Marathon Bank ("Marathon").

        The Marathon Agreement provides that each Marathon Bancorp shareholder shall have the right to elect to receive for each share of Marathon common stock either cash or common stock of the Company with a value that depends on the average price of the Company's common stock over a fifteen-day averaging period ending on the third business day prior to the Marathon shareholders' meeting. If the price of the Company's common stock is greater than or equal to $19.50 and less than or equal to $23.30 over the fifteen-day averaging period, Marathon shareholders will have the right to elect to receive, for each share of Marathon common stock, either cash or Company common stock with a value of $4.80. If the price of the Company's common stock over the fifteen-day averaging period is greater that $23.30 or less that $19.50, Marathon shareholders will have the right to elect to

8

receive an amount in cash or Company common stock that will be greater than or less than $4.80 per share, respectively.

        The Marathon Agreement provides that at least 50% of the consideration shall be in the form of Company common stock. The pending merger is subject to standard conditions, including the approval of the shareholders of Marathon and bank regulatory agencies. The pending merger received regulatory approval of the Office of the Comptroller of the Currency (the "OCC") on July 3, 2002 and the Marathon shareholder meeting will be held on August 19, 2002. Upon receipt of the approvals and satisfaction or waiver of other conditions, including non-objection of the Board of Governors of the Federal Reserve System, the transaction is expected to close in the latter half of August 2002, at which time Marathon will be merged into Pacific Western, with Pacific Western remaining as the surviving bank.

First National Bank Acquisition

        The Company has a pending merger based upon an agreement (the "First National Agreement") to acquire all of the outstanding common and preferred stock of First National Bank ("First National").

        The First National Agreement provides that each First National shareholder will have the right to elect to receive for each share of First National common stock or First National preferred stock either $10.00 in cash or 0.5008 of a share of Company common stock. The First National Agreement provides that 2,762,662 shares of Company common stock are to be issued to First National shareholders. In the event that the closing price of the Company's common stock is less that $19.97 per share as of the closing date of the merger, the First National Agreement contains provisions that require the Company to issue stock to ensure that the value of the consideration First National shareholders receive is at least equal to the consideration they would have received had the closing price of the Company's stock on the closing date of the merger been $19.97 per share and to ensure that at least 45% of the total consideration shall be in the form of the Company's common stock. The pending merger is subject to standard conditions, including the approval of the shareholders of First National, the shareholders of the Company and the OCC. The First National shareholder meeting is scheduled for September 5, 2002 and the Company's shareholder meeting is scheduled of September 6, 2002. Upon receipt of the approvals and satisfaction or waiver of other conditions, the transaction is expected to close in the third quarter of 2002, at which time First National will merge into Rancho. The surviving bank will operate under the name First National Bank.

Pro Forma Information for Purchase Acquisitions

        The following table presents unaudited pro forma results of operations of the Company for the three and six months ended June 30, 2002 and 2001 as if the acquisitions of First Charter Bank, Pacific Western National Bank and WHEC had been effective on January 1, 2001. The impact of the Professional acquisition is not included in the pro formas as it is immaterial. The unaudited pro forma combined summary of operations is intended for informational purposes only and is not necessarily

9

indicative of the future operating results of the Company or operating results that would have occurred had these acquisitions been in effect for all the periods presented.

NOTE 3—NET INCOME PER SHARE

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

10

NOTE 4—LONG-TERM DEBT

Trust Preferred Securities

        The Company had $38.0 million in trust preferred securities outstanding at June 30, 2002. The majority of these securities are considered Tier 1 capital for regulatory purposes as of June 30, 2002. In September 2000, the Company issued $8.0 million of trust preferred securities bearing a fixed interest rate of 10.60% and maturing in thirty years. This instrument was issued to fund part of the Professional acquisition.

        In November 2001, the Company issued $10.0 million of trust preferred securities bearing a variable interest rate, which is reset semi-annually, at the 6-Month LIBOR plus 3.75%, provided the rate will not exceed 11.00% through December 2006, and maturing in thirty years. The current rate is 5.78% and the next interest rate reset date is December 8, 2002. In December 2001, the Company issued another $10.0 million of trust preferred securities bearing a variable interest rate, which is reset quarterly, at the 3-Month LIBOR plus 3.60%, provided the rate will not exceed 12.50% through December 2006, and maturing in thirty years. The current interest rate is 5.48% and the next interest rate reset date is September 18, 2002. These instruments were issued to fund part of the Pacific Western National Bank acquisition.

        In June 2002, the Company issued $10.0 million of trust preferred securities bearing a variable interest rate, which is reset quarterly, at the 3-Month LIBOR plus 3.55%, provided the rate will not exceed 11.95% through June 2007, and maturing in thirty years. The interest rate was initially set at 5.44% and the next interest rate reset date is September 26, 2002.

Convertible Debt

        The Company acquired $679,000 of convertible debt in the Professional acquisition. Approximately $8,000 was converted during the year ended December 31, 2001 and another $17,000 during the first half of 2002. The interest rate on this debt is 6.26%. Each $23.088 of principal is convertible into one share of Company common stock. The Company has elected to redeem this convertible debt on September 1, 2002 for either cash or stock at the stated conversion rate based on the election by each bondholder.

11

NOTE 5—IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets, which supersedes APB Opinion 17, Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet in order to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. As permitted by Statement 142, the Company adopted the new standard in the first quarter of the fiscal year 2002. The Company is required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments and/or impairment adjustments. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle. Beginning on January 1, 2002, amortization of goodwill and intangibles with indefinite lives ceased.

        We determined the value of a core deposit intangible related to the Pacific Western National Bank acquisition and the WHEC acquisition. We recorded the value of the core deposit intangible separate from goodwill and we are amortizing it over its estimated useful life of 10 years. The amortization expense for any period is based upon and is the higher of either (1) an estimated decline in the value of the underlying deposits acquired or (2) application of a straight-line method, and is approximately $766,000 on an annual basis. We are currently evaluating the impact that adopting the remaining provisions of Statement 142 will have on our results of operations and financial position.

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

NOTE 6—STATEMENT 142 TRANSITIONAL DISCLOSURE

        The following is a reconciliation of reported net income and basic and diluted earnings per share to adjusted net income and per share amounts for the three and six months ended June 30, 2002 and

12

2001, in accordance with Statement 142. The three months ended June 30, 2002 adjusted net income includes a cumulative core deposit intangible amortization adjustment:

        The changes in the carrying amount of goodwill and other intangibles for the six months ended June 30, 2002 are as follows:

NOTE 7—SUBSEQUENT EVENTS

        In July 2002, the Company, through a public offering, received net proceeds, before expenses and after payment of underwriting discounts and commissions, of $89.9 million through the issuance of 3.91 million shares of Company stock. The shares were issued primarily to fund the proposed acquisitions of Upland, Marathon and First National which are expected to close in the third quarter of 2002.

13

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

Forward Looking Statement

        This Quarterly Report on Form 10-Q includes forward-looking information, which is subject to the "safe harbor" created by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. Such risks and uncertainties include, but are not limited to, the following factors:

•

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



•

Successful completion and then integration of the proposed acquisitions of First National, Upland and Marathon.



•

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



•

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



•

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



•

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



•

Dividend restrictions.



•

Regulatory discretion.



•

Changes in the securities markets.



•

Asset/liability repricing risks and liquidity risks.

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

Overview

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

        Since December 31, 2001, the Company's total assets have increased by approximately $441.3 million, or 57.3%, which relates mostly to the increase in assets due to the acquisitions of Pacific Western National Bank and WHEC. Loans, net of deferred fees and costs, increased $380.0 million since year end with $289.6 million acquired from Pacific Western National Bank and WHEC and $90.4 million representing organic growth. The Company shifted earning assets to loans from cash and cash equivalents, which decreased $75.5 million, and securities, which decreased $13.3 million.

        Since December 31, 2001, the Company's total deposits increased by approximately $373.1 million, and the Company acquired approximately $373.7 million in deposits through the Pacific Western

14

National Bank and WHEC acquisitions. Since December 31, 2001 the Company increased noninterest bearing deposits by $55.2 million while interest bearing deposits decreased by approximately the same amount. The Company's loan-to-deposit ratio at June 30, 2002 was 84.0% compared to 74.1% as of December 31, 2001.

        The Company issued $10.0 million of trust preferred securities in June 2002 in addition to the $20.0 million the Company issued in the fourth quarter of 2001.

        On July 24, 2002 the Company's Board of Directors approved a quarterly dividend of $0.15 per common share which is payable on August 30, 2002 to shareholders of record on August 15, 2002.

Results of Operations

        The following table summarizes key performance indicators for the Company for the three and six months ended June 30, 2002 and 2001 and the basis for calculating these indicators: