UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

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

For the quarterly period ended June 30, 2006

OR

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

For the transition period from                     to                    

Commission File Number: 00-30747


FIRST COMMUNITY BANCORP

(Exact name of registrant as specified in its charter)

CALIFORNIA

 

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