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As filed with the Securities and Exchange Commission on July 17, 2002

Registration No. 333-91152



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


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

California 6021 33-0885320
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)

6110 El Tordo
Rancho Santa Fe, California 92067
(858) 756-3023
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)


Lynn M. Hopkins
Executive Vice President and Chief Financial Officer
First Community Bancorp
275 North Brea Boulevard
Brea, California 92821
(714) 671-6800
(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies To:

Stanley F. Farrar, Esq.
Sullivan & Cromwell
1888 Century Park East
Los Angeles, California 90067
(310) 712-6600
  Arthur A. Coren, Esq.
Horgan, Rosen, Beckham & Coren, L.L.P.
23975 Park Sorrento, Suite 200
Calabasas, California 91302
(818) 591-2121

        Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement.

        If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE


Title of each class of
securities to be registered
  Amount to be
registered(1)
  Proposed maximum offering
price per share(2)
  Proposed maximum aggregate
offering price(2)
  Amount of
registration fee(3)

Common Stock, no par value   419,118   $8.31   $11,533,575   $1,061.09

(1)
Represents the maximum number of shares of First Community Bancorp common stock that is expected to be issued in connection with the merger described herein, based on the exchange ratio for the merger (0.5034 of a share of First Community common stock for each share of Upland Bank common stock), and the number of shares of Upland Bank common stock (832,575) that are expected to be exchanged for shares of First Community common stock.

(2)
Calculated in accordance with Rule 457(f)(2) under the Securities Act of 1933 (the "Act"), as amended, based on the book value as of the last practicable date prior to the filing of the registration statement, of shares of Upland Bank common stock expected to be cancelled in connection with the merger described herein.

(3)
Previously paid by the registrant.


        The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.




LOGO

Dear Shareholder:

        The Boards of Directors of Upland Bank and First Community Bancorp have unanimously approved an agreement to merge Upland Bank with and into Pacific Western National Bank, a wholly-owned subsidiary of First Community. As a result of the merger, First Community will acquire Upland Bank.

        If we complete the merger, you will have the right to elect to receive, on a share-by-share basis:

        The merger agreement provides that the amount of First Community common stock issued in conjunction with the merger shall equal 419,118 shares, subject to certain exceptions described in "The Merger Agreement—Factors Affecting the Amount of Consideration" on page 67. If Upland Bank shareholders elect to receive, in the aggregate, stock consideration that would result in the issuance of more or less than 419,118 shares of First Community common stock, then your election may be subject to proration. Please see "The Merger—Election and Proration Procedures" beginning on page 46.

        We are sending you this document to ask you to vote on the approval of the merger agreement. This document gives you detailed information about the merger and includes a copy of the merger agreement. You should read it carefully. This document also constitutes the prospectus of First Community for the shares of its common stock to be issued in the merger. Before you make a decision on how to vote for the merger, you should consider the "Risk Factors" beginning on page 8.

        Your Board of Directors has determined that the merger is fair to and in the best interests of Upland Bank and its shareholders, and unanimously recommends that you vote "FOR" approval of the merger agreement. We are enthusiastic about the merger and the strength and capabilities we expect from the combined company. We urge you to join our directors in voting in favor of the merger.

        YOUR VOTE IS VERY IMPORTANT. Regardless of whether you plan to attend the special meeting of Upland Bank shareholders being held to vote on the merger, please take the time to vote. To vote by mail, simply mark the enclosed proxy card, date and sign it, and return it in the enclosed envelope. If you properly return your proxy card without indicating how you want to vote, your proxy will be counted as a vote FOR approval of the merger agreement.

LOGO   LOGO
Leland Scheu
Chairman of the Board
Upland Bank
  Fred O. Scarsella
President and Chief Executive Officer
Upland Bank

        Neither the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve Board, the California Department of Financial Institutions, nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense. The securities offered through this document are not savings accounts, deposits or other obligations of a bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other government agency.

        The date of this proxy statement-prospectus is July 17, 2002, and it is first being mailed to shareholders on or about July 18, 2002.



WHERE TO FIND MORE INFORMATION

        This proxy statement-prospectus incorporates important business and financial information about First Community that is not included or delivered with this document. You can obtain this information upon request, without charge, not including exhibits to documents unless those exhibits are specifically incorporated by reference into this proxy statement-prospectus. Any person can make a request for information orally or in writing.

        First Community files annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and obtain copies of these documents by mail from the public reference room of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. In addition, First Community files reports and other information with the SEC electronically, and the SEC maintains a web site located at http://www.sec.gov containing this information. First Community's common stock is listed on the Nasdaq National Market System under the symbol "FCBP".

        First Community has filed a registration statement on Form S-4 to register with the SEC up to 419,118 shares of its common stock. This document is a part of that registration statement. The SEC allows First Community to incorporate by reference the information First Community files with it, which means that First Community can disclose important information to you by referring you to other documents. The information incorporated by reference is considered to be part of this proxy statement-prospectus, and information that First Community files later with the SEC will automatically update and supersede the information in this document. First Community incorporates by reference the documents listed below and, until the date of the special meeting of Upland Bank shareholders, any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended:

        YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN, DELIVERED WITH OR REFERRED TO IN THIS DOCUMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.

        To obtain additional information about either of us, you may make such a request orally or in writing. Any request for documents should be made by August 13, 2002 to ensure timely delivery.

        Requests for documents relating to First Community should be directed to:

        Requests for documents relating to Upland Bank, including additional copies of this proxy statement–prospectus, should be directed to:


UPLAND BANK
100 North Euclid
Upland, California 91786


NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On August 19, 2002 At 8:00 a.m. Pacific Time
Place: 100 North Euclid, Upland, California


Purposes:

        Only shareholders of Upland Bank as of the close of business on July 12, 2002, which we have set as the record date, may vote at Upland Bank's special meeting of shareholders. Two-thirds of the shares of Upland Bank common stock outstanding on the record date must be voted in favor of the merger agreement in order for the merger to be completed. Therefore, your vote is very important.

        The proposed merger is described in more detail in the accompanying document, which you should read carefully in its entirety before voting. A copy of the merger agreement is attached as Appendix A to that document.

        All Upland Bank shareholders are cordially invited to attend the special meeting. However, we encourage you to vote by proxy so that your shares will be represented and voted at the meeting even if you cannot attend. Of course, this will not prevent you from voting in person at the meeting. Your failure to vote your shares is the same as voting against approval of the merger agreement.

        In connection with the proposed merger, you may exercise dissenters' rights to the extent provided by the California General Corporation Law. For additional details about dissenters' rights, please refer to "Dissenters' Rights" and Appendix C in the accompanying document.

        THE BOARD OF DIRECTORS OF UPLAND BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.

        By Order of the Board of Directors,



Table of Contents

 
  Page
QUESTIONS AND ANSWERS ABOUT THE MERGER   1
SUMMARY   3
RISK FACTORS   8
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS   13
MARKET PRICE AND DIVIDEND INFORMATION   15
SELECTED FINANCIAL INFORMATION OF UPLAND BANK   17
SELECTED QUARTERLY FINANCIAL DATA OF UPLAND BANK   18
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF FIRST COMMUNITY   19
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION   21
SPECIAL MEETING OF SHAREHOLDERS OF UPLAND BANK   40
Record Date   40
Voting   40
Revocation of Proxies   40
Proxy Solicitation   41
Outstanding Voting Securities   41
Other Matters   41
Share Ownership of Upland Bank Management   42
THE MERGER   43
General   43
Background of the Merger   43
Merger Discussions   43
Reasons for the Merger and Recommendation of the Upland Bank Board of Directors   44
Consideration to be Received in the Merger   46
Election and Proration Procedures   46
Opinion of Upland Bank's Financial Advisor   49
Regulatory Approvals Required for the Merger   53
Material Federal Income Tax Considerations of the Merger   54
Accounting Treatment   57
Interests of Certain Persons in the Merger   57
Restrictions on Resales by Affiliates   57
Method of Effecting the Combination   58
Effective Time   58
Treatment of Options   58
Declaration and Payment of Dividends   58
No Fractional Shares   58
THE MERGER AGREEMENT   60
Representations and Warranties   60
Conduct of Business of Upland Bank Pending the Merger   61
Conduct of Business of First Community Pending the Merger   63
Additional Covenants   64
Conditions to Consummation of the Merger   65
Nonsolicitation   67
Factors Affecting the Amount of Consideration   67
Termination of the Merger Agreement   68
Termination Fee   68
Waiver and Amendment of the Merger Agreement   69

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Stock Exchange Listing   69
Expenses   69
Shareholder Agreements   69
Non-Competition Agreements   69
INFORMATION ABOUT FIRST COMMUNITY   70
Company History   70
Business of First Community   71
Limitations on Dividends   72
Employees   72
Concurrent Transactions   72
INFORMATION ABOUT UPLAND BANK   74
General   74
Property and Leases   74
Employees   74
Insurance   74
Equity Compensation Plan Information   75
UPLAND BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   76
General   76
Financial Condition   76
Results of Operations   77
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   91
REGULATION AND SUPERVISION   94
General   94
Dividend Regulation   94
Government Policies   95
USA Patriot Act   95
Federal Deposit Insurance   95
Hazardous Waste Clean-Up   95
DESCRIPTION OF FIRST COMMUNITY CAPITAL STOCK   96
Common Stock   96
Preferred Stock   96
COMPARISON OF SHAREHOLDERS' RIGHTS   97
General   97
Vacancies on the Board   97
Shareholder Nominations and Proposals   97
Amendment of Charter   98
Amendment of Bylaws and Regulations   98
Classified Board of Directors   98
Removal of Directors   98
Cumulative Voting   98
Special Meetings of the Shareholders   98
Shareholder Action Without a Meeting   99
Inspection of Shareholder Lists   99
DISSENTERS' RIGHTS   99
VALIDITY OF COMMON STOCK   101
EXPERTS   101

ii


SHAREHOLDER PROPOSALS   101

Appendix A    Agreement & Plan of Merger

 

A-1
Appendix B    Opinion of Endicott Financial Advisors, L.L.C.   B-1
Appendix C    Chapter 13 of the General Corporation Law of California   C-1

iii



QUESTIONS AND ANSWERS ABOUT THE MERGER

        Q:    What do I need to do now?

        A:    After you have carefully read this proxy statement-prospectus, just indicate on your proxy card how you want your shares to be voted, then sign and mail the proxy card in the enclosed prepaid return envelope marked "Proxy" as soon as possible so that your shares may be represented and voted at the Upland Bank special meeting.

        If you vote in favor of the merger you should also elect the form of consideration you want to receive for your shares of Upland Bank common stock. We have included below information regarding making such an election.

        Q:    Can I change my vote after I have mailed my signed proxy card?

        A:    Yes. There are three ways for you to revoke your proxy and change your vote. First, you may send a written notice to the corporate secretary of Upland Bank stating that you would like to revoke your proxy. Second, you may complete and submit a new proxy card. Third, you may vote in person at the special meeting.

        Q:    What if I don't vote?

        A:    If you fail to respond or if you respond and abstain from voting, it will have the same effect as a vote against the merger. If you respond and do not indicate how you want to vote, your proxy will be counted as a vote in favor of the merger.

        Q:    What shareholder approvals are needed?

        A:    For First Community, no shareholder vote is needed. For Upland Bank, the affirmative vote of the holders of at least a two-thirds of the outstanding shares of Upland Bank common stock is required to approve the merger agreement. As of the record date, The Joseph A. and Doleen Borba Trust, The 1988 Crowell Family Trust, The L. and J. Scheu Living Trust, The Roger M. Jaska and Ana Dee Jaska Trust and Fred O. Scarsella owned approximately 43.5% of the outstanding shares of Upland Bank common stock. These shareholders have agreed to vote these shares in favor of the merger. The affirmative vote of at least two-thirds of the outstanding shares of the capital stock of Pacific Western is also required. All of the outstanding shares of the capital stock of Pacific Western are held by First Community.

        Q:    As a holder of Upland Bank common stock, what will I receive in the merger?

        A:    For each share of Upland Bank common stock you own, you will have the right to elect, on a share-by-share basis, to receive:

        The merger agreement provides that 419,118 shares of First Community common stock shall be issued in the merger, which we refer to as the stock amount, subject to certain exceptions described in "The Merger Agreement—Factors Affecting the Amount of Consideration" on page 67. If Upland Bank shareholders elect to receive, in the aggregate, stock consideration that would otherwise result in the issuance of more or less than the stock amount then your election may be subject to proration as described in "The Merger—Election and Proration Procedures" beginning on page 46.

        Q:    If my broker holds my shares in street name, will my broker vote my shares for me?

        A:    No. Your broker will not be able to vote your shares without instructions from you. If you have instructed a broker to vote your shares, he or she must do so according to your directions.

        Q:    How do I elect the form of payment I prefer?

        A:    We are sending a form of election to you in a separate mailing. If you wish to make an election, you should complete the appropriate form and send it in the envelope provided with the form of election to U.S. Stock Transfer Corporation, which is the exchange agent. For you to make an effective election, your properly executed election form must be received by the exchange agent before the election deadline on August 19, 2002. You must include your Upland Bank stock certificates with your election form. Please read the instructions to the election form for information on completing that form. Those instructions will also inform you of what to do if your stock certificates have been lost, stolen or destroyed.

        Do not send your Upland Bank stock certificates in the envelope provided for


returning your proxy card. The stock certificates should only be forwarded to the exchange agent with the letter of transmittal and election form.

        Copies of this proxy statement-prospectus and the election form will be provided to all persons who become Upland Bank shareholders after the record date and prior to the election deadline in order to permit them to make an election.

        Q:    What happens if I don't make an election for cash or shares?

        A:    If you fail to make an election prior to the election deadline, other than because you are exercising your dissenters' rights, you will be deemed to have elected either cash or First Community common stock. The actual merger consideration that will be paid to you will depend upon how many Upland Bank shareholders request shares of that First Community common stock versus how many request cash. See "The Merger" beginning on page 43.

        Q:    Has Upland Bank retained a financial advisor with respect to this transaction?

        A:    Yes. Upland Bank retained the services of Endicott Financial Advisors, L.L.C. Endicott delivered its opinion to the board of directors of Upland Bank that subject to certain assumptions, limitations and qualifications, the consideration to be provided to Upland Bank shareholders is fair from a financial point of view. Endicott will receive a fee of 1.25% of the value of the merger consideration upon consummation of the merger.

        Q:    What are the tax consequences of the merger to me?

        A:    In general, for United States federal income tax purposes, if you exchange your Upland Bank common stock solely for cash in the merger, you will recognize gain or loss in an amount equal to the difference between the cash received and your adjusted tax basis in your Upland Bank common stock. We expect that if you receive solely First Community common stock in exchange for your shares of Upland Bank common stock, you generally will not recognize any gain or loss for United States federal income tax purposes. However, you will have to recognize income or gain in connection with cash received in lieu of fractional shares of First Community common stock. If you receive a combination of cash and First Community common stock in the merger, you will not recognize loss but will recognize gain, if any, on the shares exchanged to the extent of any cash received. This tax treatment may not apply to all Upland Bank shareholders.

        Each of First Community's and Upland Bank's obligation to complete the merger is conditioned on First Community's receipt of a legal opinion about the federal income tax treatment of the merger. This opinion will not bind the Internal Revenue Service, which could take a different view. To review the tax consequences to Upland Bank shareholders in greater detail, see pages 54 to 57. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE MERGER.

        Q:    What risks should I consider before I vote on the merger?

        A.    You should review "Risk Factors" beginning on page 8.

        Q:    When do you expect to merge?

        A:    We are working to complete the merger in the third quarter of 2002. We must first obtain the necessary regulatory approval and the approval of Upland Bank's shareholders at the special meeting. We cannot assure you as to if and when all the conditions to the merger will be met nor can we predict the exact timing. It is possible we will not complete the merger.

        Q:    Whom should I contact with questions about the merger or to obtain additional copies of this proxy statement-prospectus?

        A:    Please contact Upland Bank's corporate secretary at:

        Also, please refer to "Where to Find More Information" on the inside front cover for additional resources.

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SUMMARY

        This brief summary highlights selected information from this document and does not contain all of the information that is important to you. You should carefully read this entire document and the other documents to which this document refers you. See "Where to Find More Information" on the inside front cover. Each item in this summary contains a page reference directing you to a more complete description of that item. Unless otherwise specified, references to "we", "our" and "us" in this document mean First Community and Upland Bank together.

The Merger (Page 43)

        We propose a merger in which Upland Bank will merge with and into Pacific Western National Bank, a wholly-owned subsidiary of First Community. As a result of the merger, Upland Bank will cease to exist as a separate corporation and you will have the right to become a shareholder of First Community. We expect to complete the merger in the third quarter of 2002. When we complete the merger, for each share of Upland Bank common stock you own, you will have the right to elect to receive, on a share-by-share basis:

        The merger agreement provides that 419,118 shares of First Community common stock, shall be issued in the merger, which we refer to as the stock amount, subject to certain exceptions described in "The Merger Agreement—Factors Affecting the Amount of Consideration" on page 67. If Upland Bank shareholders elect to receive, in the aggregate, stock consideration that would otherwise result in the issuance of more or less than the stock amount, then your election may be subject to proration as described "The Merger—Election and Proration Procedures" beginning on page 46.

        We are sending a form of election to you in a separate mailing. If you wish to make an election, you should complete the appropriate form and send it in the envelope provided with the form of election to U.S. Stock Transfer Corporation, which is the exchange agent. For you to make an effective election, your properly executed election form must be received by the exchange agent before the election deadline on August 19, 2002. You must include your Upland Bank stock certificates with your election form. Please read the instructions to the election form for information on completing that form. Those instructions will also inform you of what to do if your stock certificates have been lost, stolen or destroyed.

        Do not send your Upland Bank stock certificates in the envelope provided for returning your proxy card. The stock certificates should only be forwarded to the exchange agent with the letter of transmittal and election form.

        Copies of this proxy statement-prospectus and the election form will be provided to all persons who become Upland Bank shareholders after the record date and prior to the election deadline in order to permit them to make an election.

The Companies (Page 70)

First Community Bancorp
6110 El Tordo
Rancho Santa Fe, California 92067
(858) 756-3023

        First Community is a California corporation registered under the Bank Holding Company Act of 1956. First Community's principal business is to serve as a holding company for its banking subsidiaries Pacific Western National Bank and Rancho Santa Fe National Bank. First Community was established in October 1998. In May 2000, it became the parent of Rancho Santa Fe National Bank and of First Community Bank of the Desert. In January 2002, First Community completed the consolidation of First Community Bank of the Desert, First Professional Bank and Pacific Western National Bank under the charter of First Professional Bank, which was renamed Pacific Western National Bank upon completion of the consolidation. Rancho Santa Fe National Bank is a federally chartered commercial bank serving the commercial, industrial, professional,

3



real estate and private banking markets of San Diego County. Pacific Western National Bank is also a federally chartered commercial bank, and it serves the commercial, industrial, professional, real estate and private banking markets of Los Angeles, Orange, Riverside and San Bernandino Counties.

        As of March 31, 2002, on an unaudited basis, First Community had total consolidated assets of $1,199.8 million, total consolidated loans, net of deferred fees, of $798.7 million, total consolidated deposits of $1,046.0 million and total consolidated shareholders' equity of $104.3 million. First Community had 327 active full time equivalent employees on March 31, 2002.

Upland Bank
100 North Euclid
Upland, California 91786
(909) 946-2265

        Upland Bank is a California state-chartered banking corporation, and is headquartered in Upland, California. Upland Bank has two branches with one located in Upland, California and the other in Chino, California.

        As of March 31, 2002, on an unaudited basis, Upland Bank had total assets of $109.8 million, total loans, net of deferred fees, of $89.0 million, total deposits of $95.7 million, and total shareholders' equity of $11.5 million. Upland Bank had 42 active full time equivalent employees on March 31, 2002.

Material Federal Income Tax Considerations of the Merger (Page 54)

        In general, for United States federal income tax purposes, if you exchange your Upland Bank common stock solely for cash in the merger, you will recognize gain or loss in an amount equal to the difference between the cash received and your adjusted tax basis in your Upland Bank common stock. We expect that if you receive solely First Community common stock in exchange for your shares of Upland Bank common stock, you generally will not recognize any gain or loss for United States federal income tax purposes. However, you will have to recognize income or gain in connection with cash received in lieu of fractional shares of First Community common stock. If you receive a combination of cash and First Community common stock in the merger, you will not recognize loss but will recognize gain, if any, on the shares exchanged to the extent of any cash received. This tax treatment may not apply to all Upland Bank shareholders.

        Each of First Community's and Upland Bank's obligation to complete the merger is conditioned on First Community's receipt of a legal opinion about the federal income tax treatment of the merger. This opinion will not bind the Internal Revenue Service, which could take a different view. To review the tax consequences to Upland Bank shareholders in greater detail, see pages 54 to 57. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE MERGER.

Concurrent Transactions (Page 72)

        On April 25, 2002, First Community entered into an agreement to acquire First National Bank, a national bank with its principal place of business in San Diego, California. Pursuant to that agreement, First National Bank will merge with and into Rancho Santa Fe National Bank, a wholly-owned subsidiary of First Community.

        On May 13, 2002, First Community entered into an agreement to acquire Marathon Bancorp, a bank holding company with its principal place of business in Los Angeles, California. Pursuant to that agreement, Marathon National Bank, a wholly-owned subsidiary of Marathon Bancorp, will merge with and into Pacific Western National Bank.

        On July 17, 2002, First Community raised $83,300,000, before expenses and underwriting discounts, through the sale of its common stock by means of a registered public offering.

        The transactions mentioned above may impact the ability of First Community to consummate the merger and its ability to successfully integrate Upland Bank with the businesses of First Community. These transactions may also have a dilutive effect on

4



the shares of First Community common stock that you may receive in the merger. For more information see "Risk Factors" beginning on page 8 and "Information About First Community—Concurrent Transactions" beginning on page 72.

First Community Market Price Information (Page 15)

        First Community trades on the Nasdaq National Market System, which we refer to as Nasdaq, under the symbol "FCBP". The historical closing price for First Community's common stock on April 18, 2002, the last trading day before the public announcement of the merger, was $28.25. The historical closing price for First Community's common stock on July 16, 2002, the last practicable trading date before the date of this proxy statement-prospectus, was $27.26.

        Because the number of shares of First Community common stock that you will receive in exchange for each share of Upland Bank common stock in the merger is fixed, if you elect to receive First Community common stock, the value of the shares of First Community common stock you will receive in the merger will fluctuate as the price of First Community common stock changes. First Community cannot assure you that its stock price will continue to trade at or above the prices shown above. You should obtain current stock price quotations for First Community common stock from a newspaper, via the Internet or by calling your broker.

The Special Meeting of Shareholders (Page 40)

        The special meeting of Upland Bank shareholders will be held on August 19, 2002 at 8:00 a.m., local time, at the headquarters of Upland Bank, 100 North Euclid, Upland, California 91786. At the special meeting, you will be asked to approve the merger among First Community, Upland Bank and Pacific Western.

Record Date; Vote Required (Page 40)

        You can vote at the Upland Bank special meeting if you owned Upland Bank common stock at the close of business on July 12, 2002. On that date, there were 1,387,625 shares of common stock of Upland Bank outstanding and entitled to vote. You can cast one vote for each share of common stock of Upland Bank you owned on that date.

        Approval of the merger requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of Upland Bank common stock entitled to vote at the special meeting. Not voting, or failing to instruct your broker how to vote shares held for you in the broker's name, will have the same effect as voting against the merger.

        At close of business on the record date, The Joseph A. and Doleen Borba Trust, The 1988 Crowell Family Trust, The L. and J. Scheu Living Trust, The Roger M. Jaska and Ana Dee Jaska Trust and Fred O. Scarsella beneficially owned approximately 613,212 shares of Upland Bank common stock, allowing them to exercise approximately 43.5% of the voting power of Upland Bank common stock entitled to vote at the Upland Bank special meeting. These shareholders have agreed to vote their shares in favor of the merger agreement, as more fully described in "The Merger Agreement—Shareholder Agreements" starting on page 69. As of the same date, First Community and its subsidiaries did not beneficially own any shares of Upland Bank common stock.

Revocability of Proxies

        You may revoke your proxy at any time before it is exercised by (1) filing with the Corporate Secretary of Upland Bank a written notice of revocation of your proxy; (2) submitting a duly executed proxy bearing a later date; or (3) voting in person at the special meeting.

Opinion of Upland Bank's Financial Advisor (Page 49)

        Among other factors considered in deciding to approve the merger, on April 18, 2002 the Upland Bank board of directors received the written opinion of its financial advisor, Endicott Financial Advisors, L.L.C., that, as of that date and based on and subject to the assumptions, limitations and qualifications set forth in its opinion, the consideration to be provided to the

5



shareholders of Upland Bank was fair to the shareholders of Upland Bank from a financial point of view. The opinion of Endicott, dated as of April 18, 2002, is attached as Appendix B. You should read this opinion completely to understand the assumptions made, matters considered and limitations of the review undertaken by Endicott in providing its opinion. Upon consummation of the merger, Upland Bank will pay a cash fee to Endicott equal to 1.25% of the aggregate consideration paid to Upland Bank shareholders in connection with the merger.

The Upland Bank Board of Directors Recommends that You Vote "For" Approval Of the Merger (Page 44)

        Based on Upland Bank's reasons for the merger described in this document, including the fairness opinion delivered by Endicott, the Upland Bank board of directors believes that the merger is fair to you and in your best interests as a shareholder of Upland Bank and unanimously recommends that you vote "FOR" the proposal to approve the merger agreement.

Conditions to Completion of the Merger (Page 65)

        The completion of the merger depends on a number of conditions being met, including:

        Where the law permits, a party to the merger agreement could elect to waive a condition to its obligation to complete the merger although that condition has not been satisfied. We cannot be certain when (or if) the conditions to the merger will be satisfied or waived or that the merger will be completed.

We May Decide Not to Complete the Merger (Page 68)

        Upland Bank and First Community can agree at any time not to complete the merger, even if you have voted to approve the merger agreement. Also, either of us can decide, without the consent of the other, not to complete the merger in a number of other situations, including:

6


        In addition, Upland Bank may terminate if the stock price of First Community drops below $19.80 per share for the twenty consecutive trading day period ending on the fifth business day prior to the closing of the merger, and such decline is not proportionate to any decline in The Nasdaq Bank Index, and First Community does not adjust the amount of consideration as more fully described in "The Merger Agreement—Factors Affecting the Amount of Consideration" on page 67.

Termination Fee (Page 68)

        Upland Bank will be required to pay a termination fee in the amount of $750,000 if the merger agreement is terminated because Upland Bank exercises its right to entertain a competing takeover proposal and either continues discussions with a third party for more than 15 business days after receiving a competing proposal, or has not rejected a publicly disclosed takeover proposal within 15 business days after the proposal was made.

We May Amend the Terms of the Merger and Waive Some Conditions (Page 69)

        First Community and Upland Bank may jointly amend the terms of the merger agreement, and each of us may waive our right to require the other party to adhere to those terms, to the extent legally permissible. However, after you approve the merger agreement, any subsequent amendment or waiver that reduces or changes the amount or form of the consideration that you will receive as a result of the merger cannot be completed without your prior approval.

Upland Bank Shareholders May Have Appraisal Rights (Page 99)

        Under California law, you may have the right to dissent from the merger and to have the appraised fair market value of your shares of Upland Bank common stock paid to you in cash. You will have the right to seek appraisal of the value of your Upland Bank shares and be paid the appraised value if you (1) do not vote in favor of the merger, (2) make written demand to Upland Bank within 30 days of the mailing notice of approval of the merger, (3) submit your Upland Bank stock certificates to First Community within 30 days after the mailing of the notice of approval of the merger by the outstanding shares, and (4) otherwise comply with the provisions governing dissenters' rights under California law.

        If you dissent from the merger and the conditions outlined above are met, your shares of Upland Bank will not be exchanged for shares of First Community common stock in the merger, and your only right will be to receive the appraised value of your shares in cash based on the fair market value of Upland Bank shares on the day before the first announcement of the merger. You should be aware that submitting a signed proxy card without indicating a vote with respect to the merger will be deemed a vote "FOR" the merger and a waiver of your dissenters' rights. A vote "AGAINST" the merger does not dispense with the other requirements to request an appraisal under California law.

        The appraised value may be less than the consideration you would receive under the terms of the merger agreement.

        For more detailed information about your rights under California law, see "Dissenters' Rights".

In Order to Complete the Merger, We Must First Obtain Federal Regulatory Approval (Page 53)

        In order to complete the merger, First Community and Upland Bank must first obtain the consent of the OCC. The OCC informed First Community on June 25, 2002 that it has approved the merger of Upland Bank with and into Pacific Western.

7



RISK FACTORS

        By voting in favor of the merger, you will be choosing to invest in the combined company's common stock to the extent you receive First Community common stock in exchange for your shares of Upland Bank common stock. An investment in the combined company's common stock contains a high degree of risk. In addition to the other information included in this document, including the matters addressed in "Cautionary Statement Regarding Forward-Looking Statements", you should carefully consider the matters described below in determining whether to approve the merger agreement.

Risks Related to the Merger

The merger consideration that is paid in First Community common stock fluctuates based on the final First Community stock price.

        If you receive First Community common stock in the merger, the exchange ratio is fixed at 0.5034 of a share of First Community common stock for each share of Upland Bank common stock exchanged therefor. The price of First Community common stock may vary from the price of First Community common stock on the date the merger was announced, on the date that this document is mailed to Upland Bank shareholders, and on the date of the special meeting of Upland Bank shareholders. Any change in the price of First Community common stock prior to completion of the merger may affect the value of the merger consideration that you will receive upon completion of the merger. Stock price changes may result from a variety of factors, including completion of the merger, general market and economic conditions, changes in our respective businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond our control. We urge you to obtain current market quotations for First Community common stock.

You may not receive the form of merger consideration that you elect.

        The merger agreement contains provisions that are designed to ensure that, subject to certain exceptions discussed in "The Merger Agreement—Factors Affecting the Amount of Consideration", 419,118 shares of First Community common stock will be issued in conjunction with the merger. If elections are made by Upland Bank shareholders that would result in them receiving more or less First Community common stock than this amount, either those electing to receive cash or those electing to receive First Community common stock will have the consideration of the type they selected reduced by a pro rata amount and will receive a portion of their consideration in the form that they did not elect to receive. Accordingly, there is a risk that you will not receive a portion of the merger consideration in the form that you elect, which could result in, among other things, tax consequences that differ from those that would have resulted had you received the form of consideration you elected. This includes the recognition of taxable gain to the extent cash is received. See "The Merger—Material Federal Income Tax Considerations of the Merger".

If First Community is unable to integrate successfully the operations of Upland Bank and the operations of other banks it has acquired or proposed to acquire, the combined business and earnings may be negatively affected.

        First Community has acquired six banks since its formation, including three banks since September 30, 2001. In addition, it has announced agreements to acquire two banks in addition to Upland Bank, First National Bank and Marathon Bancorp which, if consummated, will nearly double the size of our operations. Successful integration of these banks, each of which previously operated independently, will depend primarily on First Community's ability to consolidate operations, systems and procedures and to eliminate redundancies and costs. First Community cannot assure you that we will be able to integrate our operations without encountering difficulties including, without limitation, the loss of key employees and customers, the disruption of our respective ongoing businesses or

8



possible inconsistencies in standards, controls, procedures and policies. Estimated cost savings and revenue enhancements are projected to come from various areas that management has identified through the due diligence and integration planning process. If First Community has difficulties with any of these integrations, it might not achieve the economic benefits it expects to result from these acquisitions and this would likely hurt its business and earnings. In addition, First Community may experience greater than expected costs or difficulties relating to the integration of these banks, and/or may not realize expected cost savings from these acquisitions within the expected time frames.

The inability to raise cash through a registered offering of First Community common stock may delay consummation of the merger.

        If First Community is unable to raise cash pursuant to a registered offering of its common stock, it will need to secure alternative sources of funding in order to finance the acquisitions of First National Bank, Marathon Bancorp and Upland Bank. The time necessary to secure alternative funding, if it is needed, may delay the consummation of the merger.

Shares eligible for future sale could have a dilutive effect.

        As of July 12, 2002, there are 15,000,000 shares of First Community common stock authorized, of which approximately 7,546,831 shares are outstanding. That figure excludes 3,400,000 shares of First Community common stock issued on July 17, 2002 pursuant to a registered public offering. It is currently contemplated that a maximum of 419,118 additional shares will be issued in the merger to Upland Bank shareholders; however, this amount may be increased by First Community in order to consummate the merger if the average closing price of First Community common stock over the twenty trading day period ending five days prior to the closing of the merger is less than $19.80 or as may be necessary to ensure that 45% of the total value of consideration in the merger is in the form of First Community common stock. See "The Merger Agreement—Factors Affecting the Amount of Consideration".

        Shares of First Community common stock eligible for future sale including those that may be issued in the acquisition of First National Bank and Marathon Bancorp and any offering of First Community common stock for cash could have a dilutive effect on the market for First Community common stock and could adversely affect market prices.

        First Community also plans on filing two additional registration statements with the SEC on Form S-4 in connection with the acquisitions of First National Bank and Marathon Bancorp, respectively. These registration statements will provide for First Community to issue up to 3,399,699 shares of its common stock in connection with those acquisitions. First Community currently intends to complete the issuance of those shares and close those transactions by the end of the third quarter of 2002.

Risks Related to First Community Following Completion of the Merger

        As used in this section "Risk Factors—Risks Related to First Community Following Completion of the Merger", references to "we", "us" and "our" means First Community after acquiring Upland Bank.

We face strong competition from financial service companies and other companies that offer banking services, which could hurt our business.

        After the merger, we will continue to conduct our banking operations exclusively in Southern California. Increased competition in our market may result in reduced loans and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the banking services that we offer in our service area. These competitors include national banks, regional banks and other community banks. We also face competition from many other types of

9



financial institutions, including without limitation, savings and loan institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include several major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns. Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger customers. Areas of competition include interest rates for loans and deposits, efforts to obtain deposits, and range and quality of products and services provided, including new technology-driven products and services. We also face competition from out-of-state financial intermediaries that have opened low-end production offices or that solicit deposits in their respective market areas. If we are unable to attract and retain banking customers, we may be unable to continue our loan growth and level of deposits and our results of operations and financial condition may otherwise be adversely affected.

Changes in economic conditions, in particular an economic slowdown in Southern California, could hurt our business materially.

        Our business is directly affected by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond our control. A deterioration in economic conditions, in particular an economic slowdown in Southern California, could result in the following consequences, any of which could hurt our business materially:


A downturn in the real estate market could hurt our business.

        A downturn in the real estate market could hurt our business because many of our loans are secured by real estate. Our ability to recover on defaulted loans by selling the real estate collateral would then be diminished, and we would be more likely to suffer losses on defaulted loans. As of March 31, 2002, approximately 50% of the book value of First Community's loan portfolio consisted of loans secured by various types of real estate. Substantially all of our real property collateral is located in Southern California. If there is a significant decline in real estate values, especially in Southern California, the collateral for our loans will provide less security. Real estate values could be affected by, among other things, earthquakes and natural disasters particular to California.

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

        Changes in the interest rate environment may reduce profits. It is expected that we will continue to realize income from the differential or "spread" between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. In addition, loan volume and yields are affected by market interest rates on loans, and rising interest rates generally are associated

10



with a lower volume of loan originations. There can be no assurance that our interest rate risk will be minimized or eliminated. In addition, an increase in the general level of interest rates may adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations. Accordingly, changes in levels of market interest rates could materially adversely affect our net interest spread, asset quality, loan origination volume and overall profitability.

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

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

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

        Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of their respective operations. We believe that we are in substantial compliance in all material respects with applicable federal, state and local laws, rules and regulations. Because our business is highly regulated, the laws, rules and regulations applicable to us are subject to regular modification and change. There are currently proposed various laws, rules and regulations that, if adopted, would impact our operations. There can be no assurance that these proposed laws, rules and regulations, or other such laws, rules or regulations, will not be adopted in the future, which could make compliance much more difficult or expensive, restrict our ability to originate, broker or sell loans, further limit or restrict the amount of commissions, interest or other charges earned on loans originated or sold by us or otherwise adversely affect our business or prospects.

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

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

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

        Our ability to pay dividends to our shareholders is subject to the restrictions set forth in California law. In addition, our ability to pay dividends to our shareholders is restricted under specified circumstances under indentures and a revolving credit agreement to which we are a party. We cannot assure you that we will meet the criteria specified under California law or these agreements, in which case we may reduce or stop paying dividends on our common stock. For more information on these

11



restrictions see "Information About First Community—Limitations on Dividends" beginning on page 72.

        The primary source of our income from which we pay dividends is the receipt of dividends from our subsidiary banks. The availability of dividends from the banks is limited by various statutes and regulations. It is possible, depending upon the financial condition of the bank in question, and other factors, that the Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve Board, and/or the Office of the Comptroller of the Currency, which we refer to as the OCC, could assert that payment of dividends or other payments is an unsafe or unsound practice. In the event our subsidiaries were unable to pay dividends to us, we in turn would likely have to reduce or stop paying dividends on our common stock. Our failure to pay dividends on our common stock could have a material adverse effect on the market price of our common stock. See "Regulation and Supervision", beginning on page 94.

Only a limited market exists for First Community common stock which could lead to price volatility and losses for Upland Bank shareholders receiving First Community common stock in the merger.

        Our common stock was designated for quotation on Nasdaq in June 2000 and trading volumes since that time have been modest. We cannot assure you that an active trading market for our common stock will develop. The limited trading market for our common stock may cause fluctuations in the market value of our common stock to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading market of our common stock.

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

        Like all financial institutions, we maintain an allowance for loan losses to provide for loan defaults and non-performance. Our allowance for loan losses may not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely affect our operating results. Our allowance for loan losses is based on prior experience, as well as an evaluation of the risks in the current portfolio. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses. While we believe that our allowance for loan losses is adequate to cover current losses, we cannot assure you that we will not further increase the allowance for loan losses or that regulators will not require us to increase this allowance. Either of these occurrences could materially adversely affect our earnings.

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

        As of March 31, 2002, directors and members of our executive management team beneficially owned or controlled approximately 35% of our common stock. Certain shareholders in First National will also acquire large percentages of our common stock if we consummate the First National acquisition. Investors who purchase our common stock may be subject to certain risks due to the concentrated ownership of our common stock. The sale by any of our large shareholders of a significant portion of that shareholders' holdings could have a material adverse effect on the market price of our common stock. In addition, the registration of shares of our common stock in the First National acquisition will have the immediate effect of increasing the public float of our common stock. Such increase may cause the market price of our common stock to decline or fluctuate significantly.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

        This proxy statement-prospectus contains and incorporates by reference certain forward-looking statements about First Community's financial condition, results of operations and business of each of First Community and the businesses it has agreed to acquire. These statements may include statements regarding projected performance of First Community for the period following the completion of the merger. You can find many of these statements by looking for words such as "believes", "expects", "anticipates", "estimates", "intends", "will", "plans" or similar words or expressions are used in connection with forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. Some of the factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to those identified under "Risk Factors" above as well as the following:

        Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Upland Bank shareholders are cautioned not to place undue reliance on such statements, which speak only as of the date of this proxy statement-prospectus. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. The future results and shareholder values of First Community following completion of the merger may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the ability of First Community or Upland Bank to control or predict. For those statements, First Community and

13



Upland Bank claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

        All subsequent written and oral forward-looking statements attributable to First Community or Upland Bank or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Neither First Community nor Upland Bank undertakes any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date of this proxy statement-prospectus or to reflect the occurrence of unanticipated events.

14




MARKET PRICE AND DIVIDEND INFORMATION

        First Community common stock is listed on Nasdaq, under the symbol "FCBP". The following table presents the closing sales price for First Community common stock on Nasdaq on April 18, 2002, the last trading day prior to the announcement of the signing of the merger agreement, and on July 16, 2002, the last practical trading day for which information was available prior to the date of this document. There is no established trading market for Upland Bank common stock. The table also presents implied equivalent per share value for Upland Bank common stock by multiplying the price per share of First Community common stock on the dates indicated by the exchange ratio of 0.5034.

 
  First Community
Closing
Sales Price

  Upland Bank
Equivalent

Per share price:            
  April 18, 2002   $ 28.25   $ 14.22
  July 16, 2002   $ 27.26   $ 13.72

        You should obtain current market quotations for First Community common stock. The market price of First Community common stock will probably fluctuate between the date of this document and the date on which the merger is completed and after the merger. Because the market price of First Community common stock is subject to fluctuation, the value of the shares of First Community common stock that you may receive in the merger may increase or decrease prior to and after the merger.

        First Community. The following table sets forth, for the calendar quarter indicated, the high and low sales prices per share of First Community common stock as reported on Nasdaq, and the dividends per share of First Community common stock.

Quarter Ended

  High
  Low
  Dividends Declared
2000:                  
First quarter   $ 15.50   $ 13.75   $ 0.09
Second quarter   $ 14.25   $ 13.00   $ 0.09
Third quarter   $ 15.44   $ 13.88   $ 0.09
Fourth quarter   $ 15.13   $ 14.75   $ 0.09

2001:

 

 

 

 

 

 

 

 

 
First quarter   $ 21.00   $ 14.81   $ 0.09
Second quarter   $ 20.63   $ 17.44   $ 0.09
Third quarter   $ 22.95   $ 18.75   $ 0.09
Fourth quarter   $ 21.90   $ 19.25   $ 0.09

2002:

 

 

 

 

 

 

 

 

 
First quarter   $ 26.30   $ 19.25   $ 0.09
Second quarter   $ 29.24   $ 23.21   $ 0.15
Third quarter (through July 16, 2002)   $ 27.75   $ 23.42   $

        The timing and amount of future dividends will depend upon earnings, cash requirements, the financial condition of First Community and its subsidiaries, applicable government regulations and other factors deemed relevant by the First Community board of directors.

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        Upland Bank. There is no established trading market for the stock of Upland Bank. The following table sets forth for the calendar quarter indicated the dividends per share of Upland Bank common stock.

Quarter Ended

  Dividends Declared
2000:      
First quarter   $
Second quarter   $
Third quarter   $
Fourth quarter   $ 0.30

2001:

 

 

 
First quarter   $
Second quarter   $
Third quarter   $
Fourth quarter   $ 0.25

2002:

 

 

 
First quarter   $
Second quarter   $
Third quarter (through July 16, 2002)   $

16



SELECTED FINANCIAL INFORMATION OF UPLAND BANK

        Upland Bank is providing the following information to aid you in your analysis of the financial aspects of the merger. Upland Bank derived the information as of and for the years ended December 31, 1997 through December 31, 2001 from its historical audited financial statements for those fiscal years. Upland Bank derived the financial information for the three months ended March 31, 2001 and March 31, 2002 from its unaudited financial statements that include, in the opinion of management, all normal and recurring adjustments that Upland Bank's management considers necessary for a fair statement of the results. The operating results for the three months ended March 31, 2002 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2002.

 
  At or For the Period Ended March 31,
  At or For the Year Ended December 31,
 
 
  2002
  2001
  2001
  2000
  1999
  1998
  1997
 
STATEMENT OF OPERATIONS SUMMARY:                                      
  Interest income   $ 1,979,755   $ 2,535,325   $ 9,327,367   $ 9,731,051   $ 7,756,153   $ 6,423,133   $ 5,514,200  
  Interest expense     546,776     999,546     3,340,278     3,134,834     2,276,012     1,975,210     1,670,153  
   
 
 
 
 
 
 
 
  Net interest income     1,432,979     1,535,779     5,987,089     6,596,217     5,480,141     4,447,923     3,844,047  
  Provision for possible loan losses         60,000     130,000     460,000     240,000     419,250     121,000  
   
 
 
 
 
 
 
 
  Net interest income after provision for possible loan losses     1,432,979     1,475,779     5,857,089     6,136,217     5,240,141     4,028,673     3,723,047  
  Other income     225,305     169,091     821,436     789,828     751,384     640,528     733,209  
  Other expenses     1,153,923     952,306     4,341,799     3,984,842     3,983,452     3,455,976     3,274,394  
   
 
 
 
 
 
 
 
  Income before provision for income taxes     504,361     692,564     2,336,726     2,941,203     2,008,073     1,213,225     1,181,862  
  Income taxes     204,000     286,500     970,823     1,227,300     579,500     505,000     303,800  
   
 
 
 
 
 
 
 
  Net income   $ 300,361   $ 406,064   $ 1,365,903   $ 1,713,903   $ 1,428,573   $ 708,225   $ 878,062  
   
 
 
 
 
 
 
 
PER SHARE DATA:                                            
  Basic(1)   $ 0.22   $ 0.29   $ 1.02   $ 1.34   $ 1.15   $ 0.59   $ 0.77  
  Diluted   $ 0.21   $ 0.29   $ 1.00   $ 1.27   $ 1.09   $ 0.57   $ 0.73  
  Book value(2)   $ 8.31   $ 7.54   $ 8.10   $ 7.58   $ 6.60   $ 5.47   $ 5.00  
  Cash dividends           $ 0.25   $ 0.30              
  Number of shares outstanding     1,387,625     1,387,625     1,387,625     1,281,763     1,256,763     1,245,939     1,168,439  
STATEMENT OF CONDITION SUMMARY:                                      
  Cash and due from banks   $ 5,476,796   $ 6,667,404   $ 4,253,135   $ 6,007,621   $ 6,468,925   $ 5,090,962   $ 5,189,986  
  Federal funds sold     10,156,000     12,100,000     5,763,000     8,620,000     5,600,000     2,600,000     2,300,000  
  Interest-bearing deposits     693,000     892,000     793,000     892,000     792,000     990,000     891,000  
  Investment securities     1,787,736     2,090,753     1,835,926     1,989,795     1,815,447     1,431,226     1,303,401  
  Loans, net of deferred fees     89,041,463     84,060,854     88,191,888     84,342,307     63,172,051     62,335,580     49,604,054  
  Allowance for loan losses     1,215,436     1,168,209     1,216,439     1,108,208     713,528     512,289     669,497  
  Other real estate owned     174,436     174,436     174,436     849,436     883,484     892,532     1,154,009  
  Total assets     109,835,973     108,227,362     103,680,115     104,747,141     79,398,311     73,723,687     60,785,188  
  Total deposits     95,736,365     95,066,469     89,735,073     92,528,578     69,698,179     66,326,872     54,146,305  
  Total shareholders' equity     11,533,575     10,458,281     11,233,246     9,716,280     8,294,929     6,815,258     5,847,616  
SELECTED RATIOS:                                            
  Return on average assets(3)     1.13 %   1.55 %   1.31 %   1.89 %   1.85 %   1.08 %   1.76 %
  Return on average equity(3)     10.46 %   16.23 %   12.69 %   18.41 %   18.72 %   12.61 %   16.46 %
  Dividend payout ratio     N/A     N/A     25.00 %   23.62 %   NA     NA     NA  
  Total interest expense as a percent of total interest income     27.62 %   39.42 %   35.81 %   32.21 %   29.34 %   30.75 %   30.29 %
  Average net loans as a percent of average deposits     100.02 %   89.17 %   96.57 %   91.41 %   89.97 %   89.62 %   96.18 %
  Total stockholders' equity as a percent of total assets     10.50 %   9.66 %   10.83 %   9.28 %   10.45 %   9.24 %   9.62 %
  Average equity as a percent of average total assets     10.80 %   9.54 %   10.31 %   10.27 %   9.87 %   8.59 %   10.69 %

(1)
This figure represents the net income (loss) divided by the weighted-average number of shares outstanding at the end of the period (exclusive of shares exercisable under Upland Bank's Stock Option Plan).

(2)
This figure represents Upland Bank's total shareholders' equity divided by the number of shares of Upland Bank common stock issued and outstanding at the end of the period indicated (exclusive of shares exercisable under Upland Bank's Stock Option Plan).

(3)
These ratios have been annualized for the periods ended March 31, 2001 and 2002. No assurances can be given that Upland Bank's performance for the remaining nine months of 2002 will reflect this performance for the entire year.

17



SELECTED QUARTERLY FINANCIAL DATA OF UPLAND BANK

        The following table provides selected quarterly financial information of Upland Bank for the periods indicated:

 
  For the Quarters
ended
March 31,

  For the Quarters
ended
June 30,

  For the Quarters
ended September 30,

  For the Quarters
ended
December 31,

 
  2002
  2001
  2000
  2001
  2000
  2001
  2000
  2001
  2000
 
  (Dollars in thousands except for per share data)

Net interest income   $ 1,433   $ 1,536   $ 1,402   $ 1,577   $ 1,645   $ 1,455   $ 1,791   $ 1,420   $ 1,758
Other income     225     169     224     175     237     182     173     24     156
Net income     300     406     359     373     512     313     484     274     359
Basic earnings per share     0.22     0.29     0.28     0.27     0.40     0.24     0.38     0.21     0.28
Diluted earnings per share     0.21     0.29     0.26     0.27     0.38     0.23     0.36     0.20     0.27

        The foregoing selected quarterly data for 2000, 2001 and 2002 is consistent with the quarterly information filed during those years in the Consolidated Report of Condition and Income for Domestic Banks filed with the Federal Deposit Insurance Corporation.

18




SELECTED CONSOLIDATED FINANCIAL INFORMATION OF FIRST COMMUNITY

        First Community is providing the following information to aid you in your analysis of the financial aspects of the merger. First Community derived the information as of and for the years ended December 31, 1997 through December 31, 2001 from its historical audited consolidated financial statements for those fiscal years. First Community derived the financial information for the three months ended March 31, 2001 and March 31, 2002 from its unaudited financial statements derived from First Community's books and records. The audited and unaudited financial information contained herein is the same historical information that First Community has presented in its prior filings with the SEC. The consolidated unaudited pro forma financial data set forth below as of and for the three-month period ended March 31, 2002 and for the year ended December 31, 2001 has been derived from First Community's unaudited pro forma combined condensed financial statements included in this proxy statement-prospectus, beginning on page 21.

        The operating results for the three months ended March 31, 2002 are not necessarily indicative of the operating results that may be expected for the year ended December 31, 2002. First Community expects that it will incur merger and restructuring expenses as a result of the acquisition of Upland Bank, as well as for the proposed acquisitions of First National and Marathon, and the completed acquisitions of Pacific Western and WHEC. First Community and Upland Bank both anticipate that the merger, as well as other acquisitions mentioned above, will provide the combined company with financial benefits that include reduced operating expenses and enhanced opportunities to earn more revenue. The historical information presented below does not reflect these financial expenses or benefits and, accordingly, does not attempt to predict or suggest future results. This information is only a summary, and you should read it in conjunction with First Community's consolidated financial statements and notes thereto contained in First Community's 2001 Annual Report on Form 10-K, which has been incorporated by reference into this document. See "Where to Find More Information" on the inside front cover of this proxy statement-prospectus.

 
  At or for the Three Months Ended
March 31, 2002

  At or for the Year Ended
December 31, 2001

   
   
   
   
 
  At or for the Years Ended December 31,
 
   
  Pro
Forma(2)

  Pro
Forma(3)

   
  Pro
Forma(2)

  Pro
Forma(3)

 
  Actual(1)
  Actual(4)
  2000(5)(6)
  1999(5)
  1998(5)
  1997(5)
 
  (dollars in thousands, except per share data)

Consolidated Statements of Earnings Data:                                                            
  Interest Income   $ 13,901   $ 19,002   $ 29,641   $ 43,114   $ 87,378   $ 141,673   $ 28,831   $ 23,405   $ 20,258   $ 16,707
  Interest expense     2,988     4,338     7,547     11,251     28,897     50,885     7,924     5,688     5,390     4,564
   
 
 
 
 
 
 
 
 
 
  Net interest income     10,913     14,664     22,094     31,863     58,481     90,788     20,907     17,717     14,868     12,143
  Provision for loan losses         115     1,045     639     2,124     12,844     520     518     941     310
   
 
 
 
 
 
 
 
 
 
  Net interest income after provision for loan losses     10,913     14,549     21,049     31,224     56,357     77,944     20,387     17,199     13,927     11,833
  Noninterest income     1,940     2,655     4,790     5,177     10,455     18,459     2,465     2,304     2,692     2,426
  Noninterest expense     9,217     12,502     20,654     25,915     50,913     88,166     18,145     12,073     10,897     9,544
   
 
 
 
 
 
 
 
 
 
  Earnings from continuing operations before income taxes     3,636     4,702     5,185     10,486     15,899     8,237     4,707     7,430     5,722     4,715
  Income taxes     1,474     1,869     1,931     4,376     6,460     2,949     2,803     3,166     2,140     1,878
   
 
 
 
 
 
 
 
 
 
  Net earnings from continuing operations   $ 2,162   $ 2,833   $ 3,254   $ 6,110   $ 9,439   $ 5,288   $ 1,904   $ 4,264   $ 3,582   $ 2,837
   
 
 
 
 
 
 
 
 
 
  Basic earnings from continuing operations per share   $ 0.33   $ 0.36   $ 0.22   $ 1.30   $ 1.20   $ 0.36   $ 0.49   $ 1.10   $ 0.93   $ 0.74
  Diluted earnings from continuing operations per share     0.32   $ 0.34     0.22     1.23     1.16     0.36     0.47     1.05     0.88     0.71
Consolidated Balance Sheets Data:                                                            
  Total cash and cash equivalents   $ 157,595   $ 166,496   $ 256,165   $ 104,703     N/A     N/A   $ 52,655   $ 32,037   $ 54,966   $ 25,728
  Time deposits in financial institutions     390     1,083     1,083     190     N/A     N/A     495     7,502     5,440     4,160
  Total securities     158,445     160,233     329,004     128,593     N/A     N/A     46,313     50,563     38,380     28,136
  Loans, net of deferred fees and costs     798,714     887,755     1,365,149     501,740     N/A     N/A     250,552     206,102     170,980     151,064
  Total assets     1,199,817     1,316,103     2,188,551     770,217     N/A     N/A     358,287     304,362     277,613     214,846
  Total deposits     1,046,032     1,141,768     1,761,730     677,167     N/A     N/A     316,938     274,232     251,421     191,940
  Trust preferred securities     28,000     28,000     38,000     28,000     N/A     N/A     8,000            
  Total shareholders' equity     104,326     114,597     273,314     55,297     N/A     N/A     27,772     25,855     22,833     19,680

19


 
  At or for the Three Months Ended March 31, 2002
  At or the Years Ended December 31,
 
 
  Actual(1)
  Pro Forma(2)
  Pro Forma(3)
  2001(4)
  2000(5)(6)
  1999(5)
  1998(5)
  1997(5)
 
Other Data:                                                  
  Dividends declared per share   $ 0.09     N/A     N/A   $ 0.36   $ 0.36   $ 0.30   $ 0.24      
  Dividends payout ratio     28.1 %   N/A     N/A     29.3 %   76.6 %   28.6 %   27.3 %    
  Book value per share   $ 13.84   $ 14.40   $ 18.64   $ 10.48   $ 6.99   $ 6.67   $ 5.92   $ 5.15  
  Tangible book value per share   $ 7.77   $ 7.65   $ 7.80   $ 8.62   $ 6.99   $ 6.67   $ 5.92   $ 5.15  
  Shareholders' equity to assets at period end     8.70 %   8.71 %   12.49 %   7.18 %   7.75 %   8.49 %   8.22 %   9.16 %
  Return on average assets     0.89     N/A     N/A     0.92     0.56     1.44     1.48     1.45  
  Return on average equity     12.86     N/A     N/A     16.33     7.01     17.46     16.87     15.62  
  Net interest margin     5.24     N/A     N/A     5.33     6.81     6.60     6.79     6.85  
  Non-performing assets to total assets     0.76     N/A     N/A     1.01     0.92     1.06     0.33     0.49  
  Allowance for loan losses to total loans     1.70     1.60     1.92     2.23     1.57     1.95     2.21     2.24  
  Net charge-offs to average loans     0.38     N/A     N/A     1.60     0.27     0.15     0.33     0.09  
  Non-performing loans to total loans     0.79     N/A     N/A     0.93     0.91     0.93     0.47     0.59  
  Allowance for loan losses to non-performing loans     214.7     N/A     N/A     239.9     173.1     209.6     471.9     376.6  

(1)
We acquired Pacific Western on January 31, 2002 in a transaction accounted for as a purchase and we acquired WHEC on March 7, 2002 in a transaction accounted for as a purchase. The consolidated statements of earnings and other data for the three months ended March 31, 2002 include the results of operations of Pacific Western subsequent to January 31, 2002 and of WHEC subsequent to March 7, 2002.

(2)
The pro forma statement of earnings and other data for the three months ended March 31, 2002 reflects the acquisition of Pacific Western and WHEC and the proposed acquisition of Upland Bank as if each of those acquisitions and the proposed acquisition had occurred January 1, 2002 and the pro forma statement of earnings data for the year ended December 31, 2001 reflects the completed and proposed acquisition of Upland as well as the acquisition of First Charter as if each of those acquisitions had occurred on January 1, 2001. The pro forma balance sheet data as of March 31, 2002 reflects the proposed acquisition of Upland Bank as if it had occurred on March 31, 2002. Please see "Unaudited Pro Forma Combined Condensed Consolidated Financial Information" beginning on page 21 for additional information regarding our pro forma data and other matters to which our pro forma data give effect.

(3)
The pro forma statement of earnings and other data for the three months ended March 31, 2002 reflects the acquisitions of Pacific Western and WHEC and the proposed acquisitions of First National, Upland Bank and Marathon Bancorp as if each of those acquisitions or proposed acquisitions had occurred on January 1, 2002, and the pro forma statement of earnings data for the year ended December 31, 2001 reflects the completed and proposed acquisitions, as well as the acquisition of First Charter as if each of those acquisitions had occurred on January 1, 2001. The pro forma balance sheet data as of March 31, 2002 reflects the proposed acquisitions as if they had occurred on March 31, 2002. Please see "Unaudited Pro Forma Combined Condensed Consolidated Financial Information" beginning on page 21 for additional information regarding our pro forma data and other matters to which our pro forma data give effect.

(4)
We acquired First Professional on January 16, 2001 in a transaction accounted for as a purchase and we acquired First Charter on October 8, 2001 in a transaction accounted for as a purchase. The consolidated statements of earnings and other data for the year ended December 31, 2001 include the results of operations of First Professional subsequent to January 16, 2001 and of First Charter subsequent to October 8, 2001.

(5)
We acquired First Community Bank of the Desert and Rancho Santa Fe National Bank on May 31, 2000 in a transaction accounted for on a pooling of interests basis. Accordingly, our historical financial data has been restated for the years ended December 31, 2000, 1999, 1998 and 1997 include the results of both Rancho Santa Fe National Bank and First Community Bank of the Desert.

(6)
The statements of earnings data for the year ended December 31, 2000 include non-recurring merger costs of $3.6 million.

20



UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION

        The following tables present financial data for us after giving effect to the completion of:

The pro forma financial data gives effect to each of the acquisitions under the purchase accounting method in accordance with accounting principles generally accepted in the United States. The unaudited pro forma combined condensed consolidated financial statements combine the historical condensed consolidated financial statements of us, First Charter, Pacific Western, WHEC, Upland Bank, Marathon and First National giving effect to these acquisitions as if they had been effective on March 31, 2002 with respect to the unaudited pro forma combined condensed consolidated balance sheet, and as of the beginning of the periods indicated with respect to the unaudited pro forma combined condensed consolidated statements of operations.

        The information for the year ended December 31, 2001 is derived from:

You should read our unaudited pro forma combined condensed consolidated statement of operations for the year ended December 31, 2001 in conjunction with the historical financial statements described

21



above that have been incorporated by reference into this prospectus. The information as of and for the three months ended March 31, 2002 is derived from:

You should read our unaudited pro forma combined condensed consolidated financial statements as of and for the three months ended March 31, 2002 in conjunction with the historical financial statements described above that have been incorporated by reference into this prospectus.

        We expect to incur reorganization and restructuring expenses as a result of combining First Charter, Pacific Western and WHEC and in connection with the proposed acquisitions. The effect of the estimated merger and reorganization costs expected to be incurred in connection with the completed and proposed acquisitions has been reflected in the unaudited pro forma combined condensed consolidated balance sheet. We also anticipate that the acquisitions will provide the combined company with certain future financial benefits that include reduced operation expenses and opportunities to earn more revenue. However, we do not reflect any of these anticipated cost savings or benefits in the pro forma financial information. Finally, the pro forma financial information does not reflect any divestures of branches or deposits that may be required in connection with the acquisitions. Therefore, the pro forma financial information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not attempt to predict or suggest future results. The pro forma financial information also does not attempt to show how the combined company would actually have performed had the companies been combined throughout the periods presented. We have included in the pro forma financial statements all the adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results of the historical periods.

        Given the information regarding the completed and proposed acquisitions, the actual consolidated financial position and results of operations will differ, perhaps significantly, from the pro forma amounts reflected herein because, among other reasons:

22


UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 2002

 
  First Community
Bancorp

  Pacific Western and WHEC Adjustments
  Upland Bank
  Upland Bank
Adjustments

  First Community Bancorp with Upland Bank Pro Forma
  Marathon
  Marathon
Adjustments

  First National
  First National
Adjustments

  Additional
Adjustments

  First Community
Bancorp
Pro Forma

 
 
  (in thousands, except per share data)

   
   
 
Assets:                                                                    
Cash and due from banks   $ 81,504   $   $ 5,477   $   $ 86,981   $ 7,183   $   $ 31,052   $   $   $ 125,216  
Federal funds sold     76,091         10,156     (6,732 )i   79,515     675     (6,473 )q   22,000     (70,100 )y   73,305   gg   98,922  
Money market mutual funds                                 32,027             32,027  
   
 
 
 
 
 
 
 
 
 
 
 
  Total cash and cash equivalents     157,595         15,633     (6,732 )   166,496     7,858     (6,473 )   85,079     (70,100 )   73,305     256,165  
Interest-bearing deposits in financial institutions     390         693         1,083                         1,083  
Federal Reserve Bank and Federal Home Loan Bank stock, at cost     2,263                 2,263     443         5,446             8,152  
Securities held to maturity     8,930         1,749         10,679     12,554                     23,233  
Securities available-for-sale     147,252         39         147,291     13,788         136,540             297,619  
   
 
 
 
 
 
 
 
 
 
 
 
  Total securities     158,445         1,788         160,233     26,785         141,986             329,004  
Gross loans     800,129         89,976         890,105     70,337         408,796             1,369,238  
Deferred fees and costs     (1,415 )       (935 )       (2,350 )   (140 )       (1,599 )           (4,089 )
   
 
 
 
 
 
 
 
 
 
 
 
  Loans, net of deferred fees and costs     798,714         89,041         887,755     70,197         407,197             1,365,149  
Allowance for loan losses     (13,563 )       (1,215 )         (14,778 )   (1,133 )       (10,239 )           (26,150 )
   
 
 
 
 
 
 
 
 
 
 
 
  Net loans     785,151         87,826         872,977     69,064         396,958             1,338,999  
Property, plant and equipment     10,381         355         10,736     212         5,507             16,455  
Other real estate owned     2,747         174         2,921                         2,921  
Goodwill     45,775     (4,540 )d       6,315   j   47,550         8,812   r       85,538   z       141,900  
Core deposit intangible         7,828   e       2,872   j   10,700         2,852   r       15,749   z       29,301  
Other assets     39,333         3,367     707   k   43,407     5,385     768   s   19,601     3,562   aa       72,723  
   
 
 
 
 
 
 
 
 
 
 
 
  Total Assets   $ 1,199,817   $ 3,288   $ 109,836   $ 3,162   $ 1,316,103   $ 109,304   $ 5,959   $ 649,131   $ 34,749   $ 73,305   $ 2,188,551  
   
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders' Equity:                                                                    
Liabilities:                                                                    
Non-interest bearing deposits   $ 392,052   $   $ 24,863   $   $ 416,915   $ 34,647   $   $ 144,448   $   $   $ 596,010  
Interest bearing deposits     653,980         70,873         724,853     60,361         380,506             1,165,720  
   
 
 
 
 
 
 
 
 
 
 
 
  Total deposits     1,046,032         95,736         1,141,768     95,008         524,954             1,761,730  
Accrued interest payable and other liabilities     17,086     3,288   f   2,566     4,425   l   27,365     864     4,561   t   4,601     18,640   bb       56,031  
Short-term borrowings     3,719                 3,719     1,500         68,000         (14,749 )hh   58,822  
Convertible debt     654                 654                         654  
Trust preferred securities     28,000                 28,000                     10,000   ii   38,000  
   
 
 
 
 
 
 
 
 
 
 
 
  Total liabilities     1,095,491     3,288     98,302     4,425     1,201,506     97,372     4,561     597,555     18,640     (4,397 )   1,915,237  
Shareholders' Equity:                                                                    
Common stock     90,933         5,836     4,435   m   101,204     3,000     10,330   u   9,804     57,881   cc   77,702   jj   259,921  
Preferred Stock                                   1,412     (1,412 )cc        
Additional paid-in-capital                         10,714     (10,714 )v   45,947     (45,947 )dd        
Retained earnings (accumulated deficit)     13,432         5,695     (5,695 )n   13,432     (1,770 )   1,770   v   (5,720 )   5,720   dd       13,432  
Accumulated other comprehensive income (loss):                                                                    
  Net unrealized gains (losses) on securities available-for-sale, net     (39 )       3     (3 )n   (39 )   (12 )   12   v   133     (133 )dd       (39 )
   
 
 
 
 
 
 
 
 
 
 
 
  Total Shareholders' Equity     104,326         11,534     (1,263 )   114,597     11,932     1,398     51,576     16,109     77,702     273,314  
   
 
 
 
 
 
 
 
 
 
 
 
    Total Liabilities and Shareholders' Equity   $ 1,199,817   $ 3,288   $ 109,836   $ 3,162   $ 1,316,103   $ 109,304   $ 5,959   $ 649,131   $ 34,749   $ 73,305   $ 2,188,551  
   
 
 
 
 
 
 
 
 
 
 
 
Shares outstanding     7,539           1,388     419     7,958     3,853     544     11,216     2,763     3,400     14,665  
Book value per share   $ 13.84         $ 8.31         $ 14.40   $ 3.10         $ 4.60               $ 18.64  

23


UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2002

 
  First
Community
Bancorp

  Pacific
Western
(note 2)

  WHEC
(note 4)

  Pacific
Western &
WHEC
Adjustments

  First
Community
Bancorp
with Pacific
Western &
WHEC
Pro Forma

  Upland
Bank

  Upland
Bank
Adjustments

  First
Community
Bancorp
with
Upland
Bank
Pro Forma

  Marathon
  Marathon
Adjustments

  First
National

  First
National
Adjustments

  Additional
Adjustments

  First
Community
Bancorp
Pro Forma

 
  (in thousands, except per share data)

   
Interest income:                                                                                    
  Interest and fees on loans   $ 11,805   $ 1,557   $ 1,171   $   $ 14,533   $ 1,937   $   $ 16,470   $ 1,225   $   $ 7,357   $   $   $ 25,052
  Interest on interest-bearing deposits in other banks     2         2         4     7         11             8             19
  Interest on investment securities     1,855     93     218         2,166     22         2,188     374         1,490             4,052
  Interest on federal funds sold     239     42     38         319     14         333     20         165             518
   
 
 
 
 
 
 
 
 
 
 
 
 
 
    Total interest income     13,901     1,692     1,429         17,022     1,980         19,002     1,619         9,020             29,641
Interest expense:                                                                                    
  Interest expense on deposits     2,449     498     305         3,252     547         3,799     328         1,986             6,113
  Interest expense on short-term borrowings     7                 7             7     1         954             962
  Interest expense on convertible debt     4                 4             4                         4
  Interest expense on trust preferred securities     528                 528             528                     (60 )ee   468
   
 
 
 
 
 
 
 
 
 
 
 
 
 
    Total interest expense     2,988     498     305         3,791     547         4,338     329         2,940         (60 )   7,547
   
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income     10,913     1,194     1,124         13,231     1,433         14,664     1,290         6,080         60     22,094
  Less: provision for loan losses         110     5         115             115     30         900             1,045
   
 
 
 
 
 
 
 
 
 
 
 
 
 
    Net interest income after provision for loan losses     10,913     1,084     1,119         13,116     1,433         14,549     1,260         5,180         60     21,049
Non-interest income:                                                                                    
  Service charges and fees on deposit accounts     1,118     91     200         1,409     161         1,570     132         564             2,266
  Merchant discount fees, net     84     4     19         107     18         125             39             164
  Other commissions and fees     346         77         423             423             639             1,062
  Gain on sale of loans     64         11         75             75     62                     137
  Other income     328     5     83         416     46         462     86         613             1,161
   
 
 
 
 
 
 
 
 
 
 
 
 
 
    Total non-interest income     1,940     100     390         2,430     225         2,655     280         1,855             4,790

24


UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2002 (continued)

 
  First
Community
Bancorp

  Pacific
Western
(note 2)

  WHEC
(note 4)

  Pacific
Western &
WHEC
Adjustments

  First
Community
Bancorp with
Pacific
Western &
WHEC
Pro Forma

  Upland
Bank

  Upland
Bank
Adjustments

  First
Community
Bancorp
with
Upland
Bank
Pro Form

  Marathon
  Marathon
Adjustments

  First
National

  First
National
Adjustments

  Additional
Adjustments

  First
Community
Bancorp
Pro Forma

 
  (in thousands, except per share data)

   
Non-interest expense:                                                                                    
  Salaries and employee benefits     4,714     387     554         5,655     644         6,299     573         3,327             10,199
  Occupancy     1,080     94     155         1,329     72         1,401     142         784             2,327
  Furniture and equipment     640     69     49         758     52         810     26         518             1,354
  Legal expenses     242     13     4         259     33         292     54         133             479
  Other professional services     974     42     76         1,092     118         1,210     114         158             1,482
  Stationery, supplies and printing     403     69     45         517     36         553     13         102             668
  FDIC assessment     67     4     4         75     4         79     4         65             148
  Cost of other real estate owned     65                 65     1         66                         66
  Advertising     157     28     44         229     63         292     6         163             461
  Insurance     79     6     16         101     31         132     29         83             244
  Other     796     91     67         954     100         1,054     135         1,162             2,351
  Intangible amortization                 226   a   226         88   g   314         78   o       483   w       875
   
 
 
 
 
 
 
 
 
 
 
 
 
 
    Total non-interest expense     9,217     803     1,014     226     11,260     1,154     88     12,502     1,096     78     6,495     483         20,654
   
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes     3,636     381     495     (226 )   4,286     504     (88 )   4,702     444     (78 )   540     (483 )   60     5,185
Income taxes (benefit)     1,474     160     163     (95 )c   1,702     204     (37 )h   1,869     45     (33 )p   228     (203 )x   25   ff   1,931
   
 
 
 
 
 
 
 
 
 
 
 
 
 
    Net income (loss) from continuing operations   $ 2,162   $ 221   $ 332   $ (131 ) $ 2,584   $ 300   $ (51 ) $ 2,833   $ 399   $ (45 ) $ 312   $ (280 ) $ 35   $ 3,254
   
 
 
 
 
 
 
 
 
 
 
 
 
 
Per share information:                                                                                    
  Number of shares (weighted average):                                                                                    
    Basic     6,491     921     4,028     2,239     7,524     1,388     419     7,943     3,853     544     9,711     2,763     3,400     14,650
    Diluted     6,774     944     4,532     2,251     7,807     1,423     419     8,226     3,929     544     11,265     2,763     3,400     14,933
  Income from continuing operations per share:                                                                                    
    Basic   $ 0.33   $ 0.24   $ 0.08         $ 0.34   $ 0.22         $ 0.36   $ 0.10         $ 0.03               $ 0.22
    Diluted   $ 0.32   $ 0.23   $ 0.07         $ 0.33   $ 0.21         $ 0.34   $ 0.10         $ 0.03               $ 0.22

25


UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2001

 
  First
Community
Bancorp

  First
Charter
(note 1)

  Pacific
Western

  WHEC
  First
Charter,
Pacific
Western &
WHEC
Adjustments

  First
Community
Bancorp
with First
Charter,
Pacific
Western &
WHEC
Pro Forma

  Upland
Bank

  Upland
Bank
Adjustments

  First Community Bancorp with Upland Bank Pro Forma
  Marathon
  Marathon
Adjustments

  First
National

  First National Adjustments
  Additional
Adjustments

  First
Community
Bancorp Pro
Forma

 
  (in thousands, except per share data)

   
Interest income:                                                                                          
  Interest and fees on loans   $ 33,052   $ 4,384   $ 18,606   $ 7,115   $   $ 63,157   $ 8,748   $   $ 71,905   $ 5,152   $   $ 37,805   $   $   $ 114,862
  Interest on interest-bearing deposits in other banks     14     43         28         85     49         134                         134
  Interest on investment securities     6,335     1,114     552     1,044         9,045     114         9159     1,476         7,943             18,578
  Interest on federal funds sold     3,713     509     819     723         5,764     416         6,180     249         1,670             8,099
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Total interest income     43,114     6,050     19,977     8,910         78,051     9,327         87,378     6,877         47,418             141,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Interest expense on deposits     9,860     2,844     7,606     2,493         22,803     3,340         26,143     2,056         16,073             44,272
  Interest expense on short-term borrowings     383     301     16             700             700     2         4,098             4,800
  Interest expense on convertible debt     46                     46             46                         46
  Interest expense on trust preferred securities     962                 1,046   b   2,008             2,008                     (241 )ee   1,767
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Total interest expense     11,251     3,145     7,622     2,493     1,046     25,557     3,340         28,897     2,058         20,171         (241 )   50,885
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income     31,863     2,905     12,355     6,417     (1,046 )   52,494     5,987         58,481     4,819         27,247         241     90,788
  Less: provision for loan losses     639         1,260     95         1,994     130         2,124     45         10,675             12,844
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Net interest income after provision for loan losses     31,224     2,905     11,095     6,322     (1,046 )   50,500     5,857         56,357     4,774         16,572         241     77,944
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Service charges and fees on deposit accounts     2,560     123     948     955         4,586     674         5,260     386         1,614             7,260
  Merchant discount fees net     327                     327             327             202             529
  Other commissions and fees     1,367         16             1,383             1,383             3,122             4,505
  Gain on sale of loans     444         201     39         684             684             389             1,073
  Other income     479     1,495     191     623         2,788     13         2,801     322         1,969             5,092
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Total non-interest income     5,177     1,618     1,356     1,617         9,768     687         10,455     708         7,296             18,459

26


UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2001 (continued)

 
  First
Community
Bancorp

  First
Charter
(note 1)

  Pacific
Western

  WHEC
  First
Charter,
Pacific
Western &
WHEC
Adjustments

  First
Community
Bancorp
with First
Charter,
Pacific
Western &
WHEC
Pro Forma

  Upland
Bank

  Upland
Bank
Adjustments

  First Community Bancorp with Upland Bank Pro Forma
  Marathon
  Marathon
Adjustments

  First
National

  First National Adjustments
  Additional
Adjustments

  First
Community
Bancorp Pro
Forma

 
  (in thousands, except per share data)

   
Non-interest expense:                                                                                          
  Salaries and employee benefits     13,285     1,474     4,534     3,090         22,383     2,378         24,761     2,228         15,510             42,499
  Occupancy     3,365     476     947     642         5,430     308         5,738     575         3,455             9,768
  Furniture and equipment     1,438     277     889     290         2,894     212         3,106     89         2,177             5,372
  Legal expenses     605     775     266     21         1,667     104         1,771     317         672             2,760
  Other professional services     2,964     471     1,229     481         5,145     413         5,558     381         812             6,751
Stationery, supplies and printing     662     35     501     243         1,441     164         1,605     51         539             2,195
  FDIC assessment     366     14     33     21         434     16         450     14         185             649
  Cost of other real estate owned     47     15                 62     4         66     2                     68
  Advertising     490     3     431     262         1,186     158         1,344     61         849             2,254
  Insurance     288     80     65     78         511     108         619     137         152               908
    Other     2,198     897     662     258         4,015     342         4,357     561         5,165             10,083
Provision for restructuring/branch closures                                                   1,100             1,100
  Intangibles amortization     207         86     2     894   a   1,189         349   g   1,538         308   o       1,913   w       3,759
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Total non-interest expense     25,915     4,517     9,643     5,388     894     46,357     4,207     349     50,913     4,416     308     30,616     1,913         88,166
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes (benefit)     10,486     6     2,808     2,551     (1,940 )   13,911     2,337     (349 )   15,899     1,066     (308 )   (6,748 )   (1,913 )   (241 )   8,237
  Income taxes (benefit)     4,376     1     1,155     919     (815 )c   5,636     971     (147 )h   6,460     19     (129 )p   (2,699 )   (803 )x   (101 )ff   2,949
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net income (loss) from continuing operations   $ 6,110   $ 5   $ 1,653   $ 1,632   $ (1,125 ) $ 8,275   $ 1,366   $ (202 ) $ 9,439   $ 1,047   $ (179 ) $ (4,049 ) $ (1,110 ) $ 140   $ 5,288
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per share information:                                                                                          
  Number of shares (weighted average):                                                                                          
    Basic     4,696     2,290     921     4,028     2,239     7,442     1,340     419     7,861     3,849     544     9,316     2,763     3,400     14,568
    Diluted     4,958     2,290     944     4,532     2,251     7,704     1,362     419     8,123     3,881     544     9,316     2,763     3,400     14,830
Income (loss) from continuing operations per share:                                                                                          
    Basic income per share   $ 1.30   $ 0.00   $ 1.79   $ 0.41         $ 1.11   $ 1.02         $ 1.20   $ 0.27         $ (0.43 )             $ 0.36
    Diluted income per share   $ 1.23   $ 0.00   $ 1.75   $ 0.36         $ 1.07   $ 1.00         $ 1.16   $ 0.27         $ (0.43 )             $ 0.36

27



NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION

NOTE 1: BASIS OF PRESENTATION OF FIRST CHARTER ACQUISITION

        On October 8, 2001, First Community completed the acquisition of First Charter and merged it into its wholly-owned subsidiary, Pacific Western, formerly called First Professional Bank. The First Charter merger was accounted for using purchase accounting. Therefore, First Community's historical results of operations for the three months ended March 31, 2002 include the operations of First Charter, and its historical results of operations for the year ended December 31, 2001 include the operations of First Charter subsequent to October 8, 2001. First Community's historical balance sheet at March 31, 2002 includes the impact of the First Charter acquisition.

        The unaudited pro forma combined condensed consolidated statement of operations for the year ended December 31, 2001 is presented as if the First Charter acquisition occurred at the beginning of this period. The information is not intended to reflect the actual results that would have been achieved had the First Charter acquisition actually occurred on that date.

        Certain historical data of First Charter have been reclassified on a pro forma basis to conform to First Community's classifications.

NOTE 2: BASIS OF PRESENTATION OF PACIFIC WESTERN ACQUISITION

        On January 31, 2002, First Community completed the acquisition of Pacific Western in a transaction accounted for using purchase accounting. Therefore, First Community's historical results of operations for the three months ended March 31, 2002 include the operations of Pacific Western since January 31, 2002 and First Community's historical results of operations for the year ended December 31, 2001 do not include the operations of Pacific Western. First Community's historical balance sheet at March 31, 2002 includes the impact of the Pacific Western acquisition.

        The unaudited pro forma combined condensed consolidated statements of operations for the three months ended March 31, 2002 and for the year ended December 31, 2001 are presented as if the Pacific Western acquisition occurred at the beginning of the respective periods. This information is not intended to reflect the actual results that would have been achieved had the Pacific Western acquisition actually occurred on those dates, and it should be read in conjunction with the historical financial information incorporated by reference in this prospectus.

        Certain historical data of Pacific Western have been reclassified on a pro forma basis to conform to First Community's classifications.

NOTE 3: PURCHASE PRICE AND FUNDING OF PACIFIC WESTERN

        The shareholders and option holders of Pacific Western were paid $36.6 million based on each share of common stock of Pacific Western issued and outstanding immediately prior to the acquisition of Pacific Western being converted into the right to receive $37.15 in cash. The purchase price was financed through a combination of:

28


        As a result of the issuance of the trust preferred securities, interest expense in First Community's unaudited pro forma combined condensed consolidated statement of operations for year ended December 31, 2001 has been increased by $1.0 million representing the interest expense associated with those securities.

NOTE 4: BASIS OF PRESENTATION OF WHEC ACQUISITION

        On March 7, 2002, First Community completed the acquisition of WHEC, the holding company of Capital Bank of North County, in a transaction accounted for using purchase accounting. Therefore, First Community's historical results of operations for the three months ended March 31, 2002 include the operations of WHEC since March 7, 2002 and First Community's historical results of operations for the year ended December 31, 2001 do not include the operations of WHEC. Our historical balance sheet at March 31, 2002 includes the impact of the WHEC acquisition.

        The unaudited pro forma combined condensed consolidated statements of operations for the three months ended March 31, 2002 and for the year ended December 31, 2001 are presented as if the WHEC acquisition occurred at the beginning of the respective periods. This information is not intended to reflect the actual results that would have been achieved had the WHEC acquisition actually occurred on those dates, and it should be read in conjunction with the historical financial information incorporated by reference in this proxy statement–prospectus.

        Certain historical data of WHEC have been reclassified on a pro forma basis to conform to First Community's classifications.

NOTE 5: PURCHASE PRICE AND FUNDING OF WHEC

        In the WHEC acquisition, First Community issued 1,043,799 shares of its common stock for an aggregate purchase price of $24.5 million based on each share of common stock of WHEC issued and outstanding immediately prior to the acquisition of WHEC being converted into 0.2353 of a share of our common stock.

NOTE 6: KEY TO PRO FORMA ADJUSTMENTS OF FIRST CHARTER, PACIFIC WESTERN AND WHEC ACQUISITIONS

        Summarized below are the pro forma adjustments necessary to reflect the acquisition of First Charter, Pacific Western and WHEC based on the purchase method of accounting:

29


NOTE 7: BASIS OF PRESENTATION OF UPLAND BANK ACQUISITION

        On April 18, 2002, First Community announced that we had executed a definitive agreement to acquire all of the outstanding common stock of Upland Bank. It is expected that the Upland Bank acquisition will close in the third quarter of 2002. Therefore, our historical financial statements as of and for the three months ended March 31, 2002 and for the year ended December 31, 2001 do not include the financial position and results of Upland Bank.

        The unaudited pro forma combined condensed consolidated statements of operations for the three months ended March 31, 2002 and for the year ended December 31, 2001 are presented as if the Upland Bank acquisition occurred at the beginning of the respective periods. The unaudited pro forma combined condensed consolidated balance sheet as of March 31, 2002 is presented as if the Upland Bank acquisition occurred as of that date. This information is not intended to reflect the actual results that would have been achieved had the Upland Bank acquisition actually occurred on those dates.

        Certain historical data of Upland Bank have been reclassified on a pro forma basis to conform to First Community's classifications.

NOTE 8: PURCHASE PRICE AND FUNDING OF UPLAND BANK

        Pursuant to the Upland Bank merger agreement, shareholders of Upland will have the right to elect to receive for each share of Upland Bank common stock either $11.73 in cash or 0.5034 of a share of First Community's common stock. The merger agreement provides that 419,118 shares of First Community common stock are to be issued to Upland Bank shareholders. If the price of First Community's common stock at the closing of the merger is $23.30 or more, at least 60% of the total consideration will be in the form of First Community's common stock and the remainder will be in cash. In the event the average closing price of First Community's common stock is less than $19.80 as measured over the twenty day trading period ending as of the fifth business day prior to the effective date of the merger and such decline is not proportionate to the decline in the Nasdaq Bank Index, if any, over the same period, the merger agreement contains provisions that allow First Community to issue stock and/or cash at its option to ensure that the value of the consideration Upland Bank shareholders receive is at least equal to the value of the consideration they would have received had the closing price of First Community's common stock on the effective date been $19.80 per share, and to ensure that at least 45% of the total consideration shall be in the form of First Community common stock.

        Based on an estimated share price of $24.50 for our common stock, determined pursuant to the Upland Bank merger agreement, and 60% of the Upland shareholders electing to receive stock consideration, the estimated total consideration to be paid in connection with the Upland acquisition is $17.0 million and is calculated as follows:

 
  Purchase Price
(in thousands)

Stock consideration   $ 10,271
Cash consideration     6,732
   

Total estimated purchase price

 

$

17,003
   

30


        The cash portion of the purchase price is expected to be financed through a combination of the proceeds resulting from the sale of common stock by First Community, the proceeds from the issuance of additional trust preferred securities (see note 22) and dividends from our banks.

NOTE 9: ALLOCATION OF PURCHASE PRICE OF UPLAND BANK

        The purchase price of Upland has been allocated as follows (in thousands):

Cash and cash equivalents   $ 15,633  
Interest bearing deposits in financial institutions     693  
Securities     1,788  
Net loans     87,826  
Premises and equipment     355  
Other assets     4,248  
Goodwill     6,315  
Core deposit intangible     2,872  
Deposits     (95,736 )
Other liabilities     (6,991 )
   
 

Total purchase price

 

$

17,003

 
   
 

        In allocating the purchase price, the following adjustments were made to Upland Bank's historical amounts:

        All of the other asset and liability categories are either variable rate or short-term in nature and fair market value adjustments were considered to be immaterial to the financial presentation.

        The purchase price adjustments are subject to further refinement, including the determination of a core deposit intangible and its life for amortization purposes. For pro forma presentation purposes only, First Community has included an estimated core deposit intangible calculated as three percent of deposits. In accordance with Statement of Financial Accounting Standards No 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets," goodwill and intangible assets with indefinite lives are not amortized for acquisitions initiated after June 30, 2001; therefore, no goodwill amortization is presented in the pro forma financial statements. However, the core deposit intangible will be amortized over its estimated useful life and recorded as a charge to operations.

NOTE 10: MERGER COSTS OF UPLAND BANK

        The table below reflects First Community's current estimate, for purposes of pro forma presentation, of the aggregate estimated merger costs of $3.2 million ($2.5 million net of taxes, computed using a combined federal and state tax rate of 42%) expected to be incurred in connection with the Upland Bank acquisition. While a portion of these costs may be required to be recognized

31



over time, the current estimate of these costs has been recorded in the pro forma combined costs, primarily comprised of anticipated cash charges, include the following (in thousands):

Employee costs (severance and retention costs)   $ 1,013
Conversion costs     400
Other costs     270
   
Deductible merger costs     1,683
Tax benefits     707
   

Deductible merger costs, net of tax benefits

 

 

976
Investment banking and other professional fees     1,536
   

Total merger costs, net of tax benefits

 

$

2,512
   

        First Community's cost estimates are forward-looking. While the costs represent our current estimate of merger costs associated with the acquisition that will be incurred, the ultimate level and timing of recognition of these costs will be based on the final integration in connection with consummation of the Upland Bank acquisition. Readers are cautioned that the completion of this integration and other actions that may be taken in connection with the Upland Bank acquisition will impact these estimates. The type and amount of actual costs incurred could vary materially from these estimates if future developments differ from the underlying assumptions used by management in determining the current estimate of these costs. For additional factors that may cause actual results to differ, please see "Cautionary Statement Regarding Forward-Looking Statements" beginning on page 13.

NOTE 11: KEY TO PRO FORMA ADJUSTMENTS OF UPLAND BANK ACQUISITION

        Summarized below are the pro forma adjustments necessary to reflect the acquisition of Upland Bank based on the purchase method of accounting:

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NOTE 12: BASIS OF PRESENTATION OF MARATHON ACQUISITION

        On May 14, 2002, First Community announced that we had executed a definitive agreement to acquire all of the outstanding common stock of Marathon. It is expected that the Marathon acquisition will close in the third quarter of 2002. Therefore, First Community's historical financial statements as of and for the three months ended March 31, 2002 and for the year ended December 31, 2001 do not include the financial position and results of Marathon.

        The unaudited pro forma combined condensed consolidated statements of operations for the three months ended March 31, 2002 and for the year ended December 31, 2001 are presented as if the Marathon acquisition occurred at the beginning of the respective periods. The unaudited pro forma combined condensed consolidated balance sheet as of March 31, 2002 is presented as if the Marathon acquisition occurred as of that date. This information is not intended to reflect the actual results that would have been achieved had the Marathon acquisition actually occurred on those dates.

        Certain historical data of Marathon have been reclassified on a pro forma basis to conform to our classifications.

NOTE 13: PURCHASE PRICE AND FUNDING OF MARATHON

        Pursuant to the Marathon merger agreement, each Marathon shareholder will have the right to elect to receive for each share of Marathon common stock issued and outstanding immediately prior to the merger either cash or First Community common stock with a value that depends on the average per share price of First Community common stock over a 15-day averaging period ending on the third business day prior to the Marathon shareholders' meeting, known as the average price. The value is determined as follows:

        Based on a share price of $24.50 for First Community common stock, the estimated total consideration to be paid in connection with the Marathon acquisition is $19.8 million, 67% of which will be in the form of First Community common stock and the remainder in the form of cash, and is calculated as follows:

 
  Purchase Price
(in thousands)

Stock consideration   $ 13,330
Cash consideration     6,473
   
Total estimated purchase price   $ 19,803
   

33


        If the average price is less than $19.50, the definitive agreement contains provisions that allow First Community to ensure that at least 50% of the total consideration shall be in the form of First Community common stock.

        The cash portion of the purchase price is expected to be financed through a combination of the proceeds resulting from the proceeds of the sale of common stock by First Community, the proceeds from the issuance of additional trust preferred securities (see note 22) and dividends from First Community's banks.

NOTE 14: ALLOCATION OF PURCHASE PRICE OF MARATHON

        The purchase price of Marathon has been allocated as follows (in thousands):

Cash and cash equivalents   $ 7,858  
Securities     26,785  
Net loans     69,064  
Premises and equipment     212  
Other assets     6,153  
Goodwill     8,812  
Core deposit intangible     2,852  
Deposits     (95,008 )
Other liabilities     (6,925 )
   
 

Total purchase price

 

$

19,803

 
   
 

        In allocating the purchase price, the following adjustments were made to Marathon's historical amounts:

        All of the other asset and liability categories are either variable rate or short-term in nature and fair market value adjustments were considered to be immaterial to the financial presentation.

        The purchase price adjustments are subject to further refinement, including the determination of a core deposit intangible and its life for amortization purposes. For pro forma presentation purposes only, First Community has included an estimated core deposit intangible calculated as three percent of deposits. In accordance with Statement of Financial Accounting Standards No 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets," goodwill and intangible assets with indefinite lives are not amortized for acquisitions initiated after June 30, 2001; therefore, no goodwill amortization is presented in the pro forma financial statements. However, the core deposit intangible will be amortized over its estimated useful life and recorded as a charge to operations.

NOTE 15: MERGER COSTS OF MARATHON

        The table below reflects First Community's current estimate, for purposes of pro forma presentation, of the aggregate estimated merger costs of $3.4 million ($2.6 million net of taxes, computed using the combined federal and state tax rate of 42%) expected to be incurred in connection with the acquisition. While a portion of these costs may be required to be recognized over time, the

34



current estimate of these costs has been recorded in the pro forma combined costs, primarily comprised of anticipated cash charges, include the following (in thousands):

Employee costs (severance and retention costs)   $ 1,158
Conversion costs     400
Other costs     270
   
Deductible merger costs     1,828
Tax benefits     768
   
Deductible merger costs, net of tax benefits     1,060
Investment banking and other professional fees     1,535
   
Total merger costs, net of tax benefits   $ 2,595
   

        First Community's cost estimates are forward-looking. While the costs represent our current estimate of merger costs associated with the acquisition that will be incurred, the ultimate level and timing of recognition of these costs will be based on the final integration in connection with consummation of the acquisition. Readers are cautioned that the completion of this integration and other actions that may be taken in connection with the Marathon acquisition will impact these estimates. The type and amount of actual costs incurred could vary materially from these estimates if future developments differ from the underlying assumptions used by management in determining the current estimate of these costs. For additional factors that may cause actual results to differ, please see "Cautionary Statement Regarding Forward-Looking Statements" beginning on page 13.

NOTE 16: KEY TO PRO FORMA ADJUSTMENTS OF MARATHON ACQUISITION

        Summarized below are the pro forma adjustments necessary to reflect the acquisition of Marathon based on the purchase method of accounting:

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NOTE 17: BASIS OF PRESENTATION OF FIRST NATIONAL ACQUISITION

        On April 29, 2002, First Community announced that it had entered into an agreement to acquire all of the outstanding capital stock of First National. It is expected that the First National acquisition will close in the third quarter of 2002. Therefore, First Community's historical financial statements as of and for the three months ended March 31, 2002 and for the year ended December 31, 2001 do not include the financial position and results of First National.

        The unaudited pro forma combined condensed consolidated statements of operations for the three months ended March 31, 2002 and for the year ended December 31, 2001 are presented as if the First National acquisition occurred at the beginning of the respective periods. The unaudited pro forma combined condensed consolidated balance sheet as of March 31, 2002 is presented as if the First National acquisition occurred as of that date. This information is not intended to reflect the actual results that would have been achieved had the First National acquisition actually occurred on those dates, and it should be read in conjunction with the historical financial information incorporated by reference in this proxy statement-prospectus.

        Certain historical data of First National have been reclassified on a pro forma basis to conform to First Community classifications.

NOTE 18: PURCHASE PRICE AND FUNDING OF FIRST NATIONAL

        Pursuant to the First National merger agreement, 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 First Community common stock. The definitive agreement provides that 2,762,662 shares of First Community common stock are to be issued to First National shareholders. In the event that the closing price of First Community common stock is less than $19.97 per share as of the closing date of the merger, the merger agreement contains provisions that require First Community 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 our common stock on the closing date of the merger had been $19.97 per share, and to ensure that at least 45% of the total consideration shall be in the form of First Community common stock.

        Based on a share price of $24.50 for First Community common stock, determined pursuant to the First National merger agreement, and 45% of the First National shareholders electing to receive stock consideration, the estimated total consideration to be paid in connection with the First National acquisition is $137.8 million and is calculated as follows:

 
  Purchase Price
(in thousands)

Stock consideration   $ 67,685
Cash consideration     70,100
   
Total estimated purchase price   $ 137,785
   

        The cash portion of the purchase price is expected to be financed through a combination of the proceeds resulting from this offering, the proceeds from the issuance of additional trust preferred securities in June 2002 (see note 22) and dividends from our banks.

36



NOTE 19: ALLOCATION OF PURCHASE PRICE OF FIRST NATIONAL

        The purchase price of First National has been allocated as follows (in thousands):

Cash and cash equivalents   $ 85,079  
Securities     141,986  
Net loans     396,958  
Premises and equipment     5,507  
Other assets     23,163  
Goodwill     85,538  
Core deposit intangible     15,749  
Deposits     (524,954 )
Other liabilities     (23,241 )
Borrowings     (68,000 )
   
 
Total purchase price   $ 137,785  
   
 

        In allocating the purchase price, the following adjustments were made to First National's historical amounts:

        All of the other asset and liability categories are either variable rate or short-term in nature and fair market value adjustments were considered to be immaterial to the financial presentation.

        The purchase price adjustments are subject to further refinement, including the determination of a core deposit intangible and its life for amortization purposes. For pro forma presentation purposes only, First Community has included an estimated core deposit intangible calculated as three percent of deposits. In accordance with Statement of Financial Accounting Standards No 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets," goodwill and intangible assets with indefinite lives are not amortized for acquisitions initiated after June 30, 2001; therefore, no goodwill amortization is presented in the pro forma financial statements. However, the core deposit intangible will be amortized over its estimated useful life and recorded as a charge to operations.

NOTE 20: MERGER COSTS OF FIRST NATIONAL

        The table below reflects our current estimate, for purposes of pro forma presentation, of the aggregate estimated merger costs of $12.0 million ($8.5 million net of taxes, computed using a combined federal and state tax rate of 42%) expected to be incurred in connection with the acquisition. While a portion of these costs may be required to be recognized over time, the current estimate of

37



these costs has been recorded in the pro forma combined costs, primarily comprised of anticipated cash charges, include the following (in thousands):

Employee costs (severance and retention costs)   $ 3,170
Conversion costs     4,370
Other costs, including branch closure     940
   

Deductible merger costs

 

 

8,480
Tax benefits     3,562
   

Deductible merger costs, net of tax benefits

 

 

4,918
Investment banking and other professional fees     3,545
   

Total merger costs, net of tax benefits

 

$

8,463
   

        First Community's cost estimates are forward-looking. While the costs represent our current estimate of merger costs associated with the merger that will be incurred, the ultimate level and timing of recognition of such costs will be based on the final integration in connection with consummation of the First National acquisition. Readers are cautioned that the completion of this integration and other actions that may be taken in connection with the First National acquisition will impact these estimates. The type and amount of actual costs incurred could vary materially from these estimates if future developments differ from the underlying assumptions used by management in determining the current estimate of these costs. For additional factors that may cause actual results to differ, please see "Cautionary Statement Regarding Forward-Looking Statements" on page 13.

38



NOTE 21: KEY TO PRO FORMA ADJUSTMENTS OF FIRST NATIONAL ACQUISITION

        Summarized below are the pro forma adjustments necessary to reflect the acquisition of First National based on the purchase method of accounting:

NOTE 22: KEY TO ADDITIONAL ADJUSTMENTS

        

39



SPECIAL MEETING OF SHAREHOLDERS OF UPLAND BANK

        This proxy statement-prospectus constitutes the proxy statement of Upland Bank, for use at the special meeting of Upland Bank's shareholders to be held on August 19, 2002, at 8:00 a.m. at the main office of Upland Bank located at 100 North Euclid, Upland, California 91786, and any adjournments thereof.

        At the special meeting, the shareholders of Upland Bank will consider and vote upon a proposal to approve the Agreement and Plan of Merger dated April 18, 2002 under the terms of which Upland Bank would merge with and into Pacific Western National Bank, a wholly-owned subsidiary of First Community Bancorp.

        Pursuant to the merger agreement, Upland Bank, a California state-chartered bank, will be merged with and into Pacific Western National Bank, a national banking association organized under the laws of the United States, and all of the outstanding shares of Upland Bank common stock shall be automatically cancelled in a transaction we refer to as the merger.

        Upon consummation of the merger, Upland Bank will cease to exist and First Community and Pacific Western, respectively, will continue as the surviving entities. All information contained in this proxy statement-prospectus with respect to Upland Bank has been supplied by Upland Bank. All information contained in this proxy statement-prospectus with respect to First Community has been supplied by its management or authorized representatives of First Community without independent verification.

        This proxy statement-prospectus is first being mailed to shareholders of Upland Bank on or about July 18, 2002.

        The close of business on July 12, 2002 was the record date for determining Upland Bank shareholders entitled to receive notice of and to vote at the special meeting.

        On the record date, there were 1,387,625 shares of Upland Bank common stock outstanding held by 261 holders of record. Each holder of Upland Bank common stock is entitled to one vote for each share of Upland Bank common stock in that holder's name on Upland Bank's books as of the record date on any matter submitted to the vote of the Upland Bank shareholders at the special meeting. The approval of the merger agreement will require the affirmative vote, in person or by proxy, of two-thirds of the outstanding shares of Upland Bank common stock.

        Shares of Upland Bank common stock that are not represented in person or by proxy at the special meeting shall not be counted in determining whether a quorum is present and shall not be deemed present at the special meeting. Proxies submitted by any shareholder that are unmarked as to any matter shall be voted according to the recommendation of the board of directors of Upland Bank. A vote of abstention as to any proposal as to which abstention is permitted, by any shareholder, will be counted as a vote against the proposal.

        Any proxy in the form enclosed for Upland Bank shareholders which is properly completed and returned in time for voting with a choice specified thereon will be voted in accordance with such specification.

        Upland Bank shareholders may revoke a proxy at any time by (i) sending written notice of revocation to the Secretary of Upland Bank prior to the special meeting; (ii) executing and delivering a

40



proxy for the special meeting bearing a later date; or (iii) attending the special meeting and voting in person.

        PROXIES WHICH DO NOT PROVIDE THE PROXYHOLDERS WITH DIRECTION IN VOTING ON THE MERGER WILL BE VOTED IN FAVOR OF THE MERGER, AND UPLAND BANK SHAREHOLDERS WHO HAVE PROVIDED SUCH PROXIES WILL NOT BE ELIGIBLE TO ASSERT THEIR DISSENTERS' RIGHTS.

        The accompanying proxy is being solicited by the board of directors of Upland Bank. Upland Bank will bear the entire cost of solicitation of proxies from holders of Upland Bank shares. In addition to the solicitation of proxies by mail, certain officers, directors and employees of Upland Bank, without extra remuneration, may also solicit proxies in person, by telephone, telegram or otherwise. Upland Bank will pay printing, postage and mailing costs for preparation and mailing of this proxy statement-prospectus. All other costs, including legal and accounting fees, shall be borne by the party incurring such costs.

        Upland Bank has only one class of voting securities outstanding, identified as Upland Bank common stock. Shareholders of record entitled to notice of and to vote at the special meeting have been determined as of the record date, and, as of such date, 1,387,625 shares of Upland Bank common stock were outstanding, all of which are entitled to vote at the special meeting.

        Upland Bank does not presently intend to bring any matters other than those described in this document before its special meeting. Further, Upland Bank has no knowledge of any other matters that may be introduced by other persons. If any other matters do properly come before its special meeting or any adjournment or postponement of its special meeting, the persons named in the enclosed proxy forms of Upland Bank will vote the proxies in keeping with their judgment on such matters.

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        The following table sets forth certain information regarding the beneficial ownership of Upland Bank common stock, as of July 12, 2002, by: (i) each Upland Bank director; (ii) all Upland Bank directors and executive officers as a group; and (iii) each 5% shareholder of Upland Bank.

Director Name

  Common Stock
Beneficially Owned

  Percentage
of Class(1)

 
Joseph A. Borba
Chairman "Emeritus" of the Board of Directors
  249,273   17.7 %
Harry C. Crowell   68,225   4.8 %
Anthony Finazzo   65,000   4.6 %
Robert Franks   17,000 (2) 1.2 %
Roger M. Jaska
Vice Chairman of the Board of Directors
  86,488   6.1 %
John L. McCallum
Secretary
  47,100   3.3 %
Joyce A. Welsh
Senior Vice President and Chief Financial Officer
  24,290 (2) 1.7 %
Fred O. Scarcella
President and Chief Executive Office
  36,288 (2) 2.6 %
Leland C. Scheu
Chairman of the Board of Directors
  172,938   12.3 %
All directors (name entities that hold the stock) and executive officers as a Group (9 in Number)   766,602   54.4 %

(1)
Percentages are calculated on the basis of the number of shares of Upland Bank common stock actually outstanding on July 12, 2002, plus the number of shares that the person or entity has the right to acquire beneficial ownership of within 60 days after July 12, 2002.

(2)
Includes 7,000 shares of common stock issuable upon exercise of options that are exercisable within 60 days of July 12, 2002.

        As of the record date, The Joseph A. and Doleen Borba Trust, The 1988 Crowell Family Trust, The L. and J. Scheu Living Trust, The Roger M. Jaska and Ana Dee Jaska Trust and Fred O. Scarsella beneficially owned approximately 43.5% of the outstanding shares of Upland Bank common stock. They have agreed to vote these shares in favor of the merger. As of the same date, First Community and its subsidiaries did not beneficially own any shares of Upland Bank common stock.

42




THE MERGER

        The following summary of the material terms and provisions of the merger agreement is qualified in its entirety by reference to the merger agreement by and among First Community, Pacific Western and Upland Bank which is dated as of April 18, 2002. The merger agreement is attached as Appendix A to this proxy statement-prospectus.

        The boards of directors of Upland Bank, First Community and Pacific Western have unanimously approved the merger agreement providing for the merger of Upland Bank into Pacific Western. Pacific Western will be the surviving bank in the merger. Upon completion of the merger, the separate corporate existence of Upland Bank will end. We expect to complete the merger in the third quarter of 2002. The directors and officers of Pacific Western immediately prior to the merger will be the directors and officers of Pacific Western after the merger until they resign or their respective successors are duly elected and qualified.

        In light of the competitive environment in which smaller banks operate, the board of directors of Upland Bank over the past several years had considered various strategies for maximizing shareholder value, including transforming Upland Bank into a larger bank through internal growth and/or acquisitions thereby increasing the value of the Upland Bank franchise. Upland Bank's ongoing strategic business plan had been to continue its marketing efforts to increase its assets, return on equity and return on assets. The board concluded that Upland Bank's continued growth, operating efficiencies and profitability offered the surest paths to ensuring that at some point Upland Bank common stock would become more valuable and more liquid.

        From September 1999 to April 2002, Upland Bank held discussions with a number of financial institutions to consider a merger or an acquisition. None of these discussions led to a proposal that, in the opinion of Upland Bank's board, offered the potential to maximize shareholder value. At the same time the Upland Bank board recognized that Upland Bank's increasing concentration in real estate lending had to be reduced which, in turn, would have a negative effect on Upland Bank's earnings.

        As a result of contacts initiated by Endicott Financial Advisors, L.L.C., which we refer to as Endicott, in December of 2001, Upland Bank and First Community engaged in initial discussions regarding their organizations and management philosophies and a potential merger.

        The substance of the initial discussions and further negotiations with First Community representatives was reported by Endicott and by Horgan, Rosen, Beckham & Coren, L.L.P., which we refer to as HRBC, and management to individual members of the board during the weeks following. There were several telephone conferences between Upland Bank and First Community and a due diligence evaluation was commenced.

        On February 21, 2002, Endicott was retained by Upland Bank to provide valuation and transaction services and consider strategic options with the goal of maximizing shareholder value regarding the potential merger transaction with First Community.

        On February 22, 2002, First Community presented Upland Bank with a non-binding indication of its interest in merging with Upland Bank. At a March 20, 2002 meeting of the Upland Bank board of directors, Endicott reviewed an analysis of the valuation of Upland Bank and a detailed analysis of the merger proposal received from First Community. The Upland Bank board, in consultation with Endicott, analyzed many facets of the operations of First Community including its franchise, limited

43



operational history, pro forma results combining the operations of Upland Bank, recent trading activity of its stock, transactions announced and/or completed, and the potential value of First Community's common stock after the completion of the merger with Upland Bank. Endicott reviewed with the board the potential financial and strategic benefits of the transaction and the financial valuation analyses. Endicott presented detailed analyses of the financial terms and conditions, including valuation comparisons with recent transactions of a similar nature. The Upland Bank board concluded that the potential value of the stock component, coupled with the shareholder cash/stock election feature of the proposal, created additional value for Upland Bank shareholders. At this meeting the board determined that, due to new competitors entering the industry, financial reform legislation, increasing technology requirements, Upland Bank's reliance on construction lending and the potential for increased regulatory scrutiny of Upland Bank's construction lending activities and other factors, remaining independent was no longer the best option for maximizing shareholder value for Upland Bank.

        The Upland Bank board of directors resolved to pursue a merger transaction with First Community and authorized and instructed Endicott to schedule a formal due diligence investigation of Upland Bank by First Community and to work with legal counsel to negotiate the terms and conditions of a definitive agreement. Various draft agreements were negotiated with First Community and its counsel, the details of which were discussed at great length at various meetings of Upland Bank management, Endicott, HRBC, and the Upland Bank board of directors held between March 20, 2002 and April 18, 2002. During this time period, First Community conducted its due diligence review of Upland Bank and formalized its offer of either, at the election of each shareholder, on a share by share basis, $11.73 per share in cash, or 0.5034 of a share of First Community common stock per share of Upland Bank common stock. For a more complete discussion of the consideration to be received by Upland Bank shareholders, see "The Merger—Consideration to be Received in the Merger".

        On April 3, 2002, and again on April 18, 2002, the board of directors of Upland Bank met to review in greater detail the proposal of First Community to acquire all of the issued and outstanding shares of Upland Bank for the merger consideration. HRBC assisted the board of directors with a thorough analysis of the terms and conditions of the proposed definitive agreement and the legal implications of the transaction. At the meeting on April 18, 2002, the Upland Bank board of directors unanimously approved the merger agreement following a presentation by Endicott of its oral opinion that the merger is fair to Upland Bank's shareholders from a financial point of view.

        After consultation with Endicott, the board has unanimously concluded that the terms of the merger are fair to, and in the best interests of, Upland Bank's shareholders and unanimously recommends that Upland Bank's shareholders approve the Merger. In reaching this decision, the board of directors considered a number of factors, to which relative weights were not assigned, including the following:

44


45


        The description of the information and factors considered by the board of directors of Upland Bank above is not meant to be exhaustive but is believed to include all material factors considered by the board of directors of Upland Bank. The board of directors did not quantify or attach any particular weight to the various factors that it considered in reaching its determination that the merger agreement is advisable, and in the best interest of, the shareholders of Upland Bank. Rather, the board made its determination based on the total mix of information available to it, and the judgments of individual directors may have been influenced to a greater or lesser degree by different factors.

        For each share of Upland Bank common stock you own, you will have the right to elect, on a share-by-share basis, to receive:

        The amount of First Community common stock issued in conjunction with this merger is expected to be equal to 419,118 shares of First Community common stock, which we refer to as the stock amount. Under certain circumstances, First Community may issue additional shares of its common stock and/or cash. See "The Merger Agreement—Factors Affecting Amount of Consideration" on page 67. If Upland Bank shareholders elect to receive, in the aggregate, stock consideration that would otherwise result in the issuance of more or less than the stock amount then your election may be subject to proration as described below in "Election and Proration Procedures".

        Making the Election. First Community has selected U.S. Stock Transfer Corporation, which is the current transfer agent for First Community, to serve as the exchange agent for purposes of effecting the election, allocation, and proration procedures. An election form is being sent to you contemporaneously in a separate mailing. If you do not exercise dissenters' rights, you must use the election form to make the election to receive stock, cash, or a combination of stock and cash with respect to your shares of Upland Bank common stock. Shares of Upland Bank common stock will be undesignated shares if you either:

        The deadline for you to submit your election forms to the exchange agent is August 19, 2002.

        All elections will be required to be made on an election form. To make an effective election with respect to shares of Upland Bank common stock, you must deliver the following items to the exchange agent prior to the election deadline:

46


        You may change your election by submitting to the exchange agent a properly completed and signed revised letter of transmittal and election form and all required additional documents. To be effective, however, the exchange agent must receive these revised documents prior to the election deadline. If some but not all of the revised documents are received by the election deadline, the shares will be considered undesignated shares.

        You may revoke your prior valid election by written notice received by the exchange agent prior to the election deadline. You may also revoke a prior valid election by submitting a written withdrawal of your share certificates or of the notice of guaranteed delivery of your share certificates previously deposited with the exchange agent. Again, this written withdrawal must be received by the exchange agent before August 19, 2002, which is the election deadline.

        Do not return your certificates representing shares of Upland Bank common stock with the enclosed proxy. The stock certificates should only be forwarded to the exchange agent with the letter of transmittal and election form.

        If you have a preference as to the form of consideration to be received for your shares of Upland Bank common stock, you should make an election. Shares as to which an election is made will be given priority in allocating the merger consideration over shares to which an election is not received. None of First Community, the board of directors of First Community, Upland Bank, or the board of directors of Upland Bank makes any recommendation as to whether you should elect to receive cash, stock, or a combination of stock and cash. You must make your own decision with respect to that election.

        Following the completion of the merger and upon surrender of all of the certificates representing shares of Upland Bank common stock registered in your name, or a satisfactory indemnity if any of such certificates are lost, stolen or destroyed, together with a properly completed letter of transmittal, U.S. Stock Transfer Corporation will mail to you the cash and/or First Community common stock to which you are entitled, less the amount of any required withholding taxes. You will not receive interest on any cash.

        Declaration of dividends by First Community after the completion of the merger will include dividends on all First Community common stock issued in the merger, but no dividend or other distribution payable to the holders of record of First Community common stock at or as of any time after the completion of the merger will be paid to holders of Upland Bank common stock who receive First Community common stock in the merger until they physically surrender all certificates as described above. After the completion of the merger, the stock transfer books of Upland Bank will close and there will be no transfers on the transfer books of Upland Bank.

        Allocation and Proration Procedures. The merger agreement requires that First Community, subject to certain exceptions discussed in "The Merger Agreement—Factors Affecting the Amount of Consideration" on page 67, shall issue shares of its common stock equal to the stock amount. Therefore, it is possible that you will not receive the exact form of merger consideration you elected to receive.

47


        The following are three examples of the proration of the merger consideration received by an Upland Bank shareholder who owns 100 shares of Upland Bank common stock and makes an election

48



to have 50 shares converted into cash and 50 shares converted into First Community common stock. The examples assume that:


Example 1:   The number of stock elections would result in the issuance of First Community common stock equal to 419,118 shares, which is equal to the stock amount.

Example 2:

 

The number of stock elections would result in the issuance of 698,505 shares of First Community common stock, an amount that is more than the stock amount.

Example 3:

 

The number of stock elections would result in the issuance of 209,559 shares of First Community common stock, an amount that is less than the stock amount.
 
  Example 1
  Example 2
  Example 3
Stock Proration Factor     N/A     0.60     N/A

Cash Proration Factor

 

 

N/A

 

 

N/A

 

 

0.43

Number of Shares of Upland Bank common stock converted into First Community common stock

 

 

50

 

 

30

 

 

71.45

Number of shares of First Community common stock received

 

 

25

 

 

15

 

 

35

Fractional shares for which cash will be paid

 

 

0.17

 

 

0.10

 

 

0.96

Number of shares of Upland Bank common stock converted into cash

 

 

50

 

 

70

 

 

28.55

Amount of cash received on cash election (including cash for fractional shares)

 

$

590.46

 

$

823.43

 

$

357.26

        The terms of the merger, including the merger consideration, were determined by arms-length negotiation between Upland Bank and First Community. The board of directors of Upland Bank retained Endicott to review the terms of merger as to the fairness of the merger consideration to Upland Bank's shareholders. Endicott delivered to the board of Upland Bank its written opinion, dated as of April 18, 2002, to the effect that, as of that date and based upon and subject to the various considerations described therein, the merger consideration of $11.73 in cash, or 0.5034 of a share of First Community common stock, subject to adjustment in situations described in "The Merger Agreement—Factors Affecting the Amount of Consideration" on page 67. As set forth in its opinion, Endicott assumed and relied upon, without independent verification, the accuracy and completeness of the information reviewed by it for the purposes of its opinion. Endicott did not make or obtain an independent evaluation or appraisal of the assets or liabilities of Upland Bank.

        At the March 20, 2002, meeting of Upland Bank's board of directors, at which the board of directors reviewed and considered the terms of the merger, Endicott made a presentation discussing the factors that it considered in evaluating the proposed terms of the transaction and delivered its oral opinion that the merger consideration was fair to holders of common stock from a financial point of view. The presentation included a discussion of the basis for, and the methodologies used by Endicott to reach its oral opinion. Endicott subsequently delivered to Upland Bank's board of directors its written opinion, dated as of April 18, 2002, confirming its oral opinion.

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        The full text of Endicott's opinion, which sets forth the assumptions made, procedures followed and matters considered in, and the limitations on, the review undertaken in connection with its opinion, is attached as Appendix B and is incorporated in this document by reference. The summary of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. The opinion was provided for the information and assistance of Upland Bank's board in connection with its consideration of the transaction contemplated by the merger agreement and the opinion does not constitute a recommendation as to how holders of Upland Bank's common stock should vote with respect to the merger.

        In connection with its opinion, Endicott reviewed, among other things, the following:

        Endicott also held discussions with members of senior management of Upland Bank regarding the rationale for the merger and the past and current business operations, financial condition and future prospects of Upland Bank. In preparing the opinion, Endicott performed a variety of financial and comparative analyses and made assumptions in conjunction with Upland Bank with respect to assets, financial conditions and other matters, many of which are beyond the control of Upland Bank. The estimates of value arrived at by Endicott based on such analyses and the valuation results determined from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, and are inherently subject to substantial uncertainty.

        The projections furnished to Endicott and used by it in certain of its analyses were prepared by First Community's and Upland Bank's senior management teams. Neither First Community nor Upland Bank publicly disclose internal management projections of the type provided to Endicott in connection with its review of the merger. As a result, such projections were not prepared with a view towards public disclosure. The projections were based on numerous variables and assumptions which are inherently uncertain, including factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in the projections.

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        The following paragraphs summarize the most significant quantitative and qualitative analyses performed by Endicott in arriving at its opinion and reviewed by Upland Bank's board of directors.

        Endicott projected Upland Bank's earnings for 2002 and 2003, based on management's forecasts and the company's historical performance. Using these projections and market data, Endicott calculated the value of Upland Bank shares over the next two years. This analysis assumed Upland Bank was not acquired but remained independent for two years.

        Endicott predicted moderate growth in Upland Bank's balance sheet, with assets increasing from $103 million in 2001 to $114 million in 2003; and loans increasing from $87 million in 2001 to $88 million in 2003. Endicott projected liabilities increasing from $91 million in 2001 to $100 million in 2003 and deposits increasing from $67 million in 2001 to $74 million in 2003. To predict 2003 earnings, Endicott applied a net interest spread of 4.67%, resulting in a net interest margin of 5.55%. Non-interest income and expenses were projected at 0.64% and 3.85%, respectively. Based on this conservative scenario, Endicott calculated 2003 earnings of $0.82 per share.

        Based on these assumptions, Endicott determined the theoretical value of a share of Upland Bank common stock at the end of the three year period by applying terminal multiples (ranging from 10x to 20x earnings and 100% to 200% of tangible book value) and discount rates (ranging from 10% to 17%) that Endicott viewed as appropriate for a company with Upland Bank's particular risk characteristics. Based on price-to-earnings multiples Endicott derived a range of Net Present Value, which we refer to as NPV, between $5.88 and $13.47 per share. At the median peer range of trading multiples between 12.00x to 13.00x earnings and a range of discount rates of 11%-15%, viewed as appropriate for a company with Upland Bank's operating history and limited stock trading activity, Endicott calculated a NPV range per share of $7.33-$8.58. At the range of merger and acquisition multiples of approximately 15.00x-17.00x earnings calculated by Endicott and a range of discount rates of 11%-15%, Endicott calculated a NPV range per share of $9.17-$11.22. Based on price-to-tangible book value multiples Endicott derived a range of NPV between $6.96 and $15.95 per share. At the median peer range of trading multiples between 130%-150% and a range of discount rates of 11%-15%, viewed as appropriate for a company with Upland Bank's operating history and limited stock trading activity, Endicott calculated a NPV range per share of $9.41-$11.73. At the range of merger and acquisition multiples of approximately 170%-180% of tangible book value and a range of discount rates of 11%-15%, Endicott calculated a NPV range per share of $12.30-$14.08.

        Endicott performed pro forma merger analyses that combined Upland Bank and First Community's balance sheets based on earnings forecasts through closing provided by the management of Upland Bank. Endicott noted that First Community will maintain Pacific Western as "well capitalized" under regulatory guidelines after giving effect to the merger. Assumptions and analyses of the accounting treatment, acquisition adjustments, operating efficiencies and other adjustments were made to arrive at a pro forma analysis to determine the effect of the transaction on First Community. Endicott noted that based on the merger consideration for each share of Upland Bank common stock, the merger will be accretive to First Community's earnings per share during the first full year of combined pro forma operations.

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        Endicott analyzed publicly available information to compare selected financial and market information for three groups of peer companies that Endicott selected and deemed to be relevant for this purpose. The three peer groups were:

        The financial information Endicott analyzed included book value, tangible book value, earnings, asset quality ratios, loan loss reserve levels, profitability and capital adequacy for Upland Bank and the median value for each of the peer groups for each year since 1996 and the quarter ended December 31, 2001. Endicott calculated median stock market valuation multiples for Upland Bank and each of the groups using price-to-earnings, price-to-book value and price-to-tangible book value. It should be noted that Upland Bank's loan growth for the year ended December 31, 2001 was slower than the median for the groups. Also, Upland Bank's tangible equity-to-tangible assets and loans-to-deposits ratios exceeded the groups' medians for the quarter ended December 31, 2001. The results of this analysis are summarized in the following table:

 
  Upland Bank
  Group 1
  Group 2
  Group 3
 
Price-to-2001 Earnings   NA   13.07 x 12.51 x 14.54 x
Price-to-Book Value   NA   1.39 x 1.42 x 1.21 x
Price-to-Tangible Book Value   NA   1.40 x 1.44 x 1.21 x
Tangible Equity-to-Tangible Assets   11.12 % 8.06 % 8.28 % 9.54 %
Loans-to-Total Deposits   98.77 % 73.49 % 73.49 % 77.00 %
NPA's to Total Assets   0.19 % 0.09 % 0.18 % 0.20 %
Annual Loan Growth   4.89 % 15.35 % 15.35 % 24.38 %
Efficiency Ratio   59.62 % 71.49 % 70.79 % 72.00 %
Return on Average Equity   9.72 % 11.22 % 11.29 % 7.45 %

        Endicott reviewed merger and acquisition transactions announced since January 1, 1990 involving publicly traded commercial banks and thrifts each as acquirees. Among those reviewed were four groups of commercial bank transactions that occurred in 2001 and 2002:

        For each of the transactions in the four groups, Endicott calculated, among other things, the multiples of the transaction value to book value, tangible book value and last twelve months net income. Endicott also calculated the core deposit premium (defined as the transaction value minus

52



tangible book value divided by core deposits, excluding certificates of deposit with balances equal to or greater than $100,000). Endicott's computations yielded the following multiples:

Commercial Bank Groups

  Number of
Transactions

  Price-to
Book Value

  Tangible
Book Value

  Earnings
  Core Deposit Premium
 
1   6   1.41 x 1.42 x 15.16 x .078 x
2   7   1.42 x 1.45 x 15.21 x .084 x
3   54   1.80 x 1.80 x 18.90 x .092 x
4   140   1.93 x 2.01 x 18.26 x .012 x

        Endicott then applied these ranges of multiples derived from these analyses to comparable data for Upland Bank, and calculated the following range of imputed values per share:

Commercial Bank Groups

  Price-to-Book Value
  Tangible Book Value
  Earnings
  Core Dep. Premium
1   $ 11.62   $ 11.71   $ 10.48   $ 12.31
2   $ 11.67   $ 11.94   $ 10.52   $ 12.61
3   $ 14.83   $ 14.83   $ 13.08   $ 13.01
4   $ 15.92   $ 16.52   $ 12.63   $ 14.55

        No company or transaction, however, used in this analysis is identical to Upland Bank, First Community or the merger. Accordingly, an analysis of the foregoing is not mathematically precise; rather it involves complex considerations and judgments concerning differences in the financial and operating characteristics of the companies and other factors that affect the public trading values of the companies or company to which they are being compared.

        Endicott has served as financial advisor to Upland Bank since February 21, 2002, pursuant to the terms of the retainer agreement between the parties. As required by the terms of the retainer agreement, Upland Bank paid Endicott a fee of $50,000 for rendering the fairness opinion that will be credited against the transaction fee. In addition, and pursuant to the terms of the retainer agreement, Upland Bank will pay Endicott a transaction fee representing 1.25% of the merger consideration which is equal to approximately $224,198 based upon First Community's closing price of $27.26 per share on July 16, 2002 payable upon the consummation of the merger.

        Upland Bank has also agreed to reimburse Endicott for its reasonable out-of-pocket expenses in connection with its engagement and to indemnify Endicott and its affiliates and their respective partners, directors, officers, employees, agents and controlling persons against certain expenses and liabilities, including liabilities under securities laws. In addition, during the year 2002, Upland Bank has paid Endicott retainer fees totaling $10,000 for advisory services that will be credited against the transaction fee.

        FOR THE REASONS SET FORTH ABOVE, THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AS FAIR TO AND IN THE BEST INTERESTS OF UPLAND BANK AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT UPLAND BANK'S SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.

        The closing of the merger is conditioned upon the receipt of all approvals of regulatory authorities required for the merger without the imposition of any conditions or requirements that would materially and adversely impact the economic or business benefits to First Community of the merger. Under the terms of the merger agreement, First Community and Upland Bank have agreed to use their reasonable best efforts to obtain all necessary actions or non-actions, extensions, waivers, consents and approvals from any governmental authority necessary, proper or advisable to consummate the merger.

53


        In order to complete the merger, we needed to obtain the approval of the Office of the Comptroller of the Currency, or OCC. The OCC granted its approval on June 25, 2002.

        In the opinion of Sullivan & Cromwell, the following are the material United States federal income tax considerations of the merger generally applicable to Upland Bank shareholders. This opinion and the following discussion are based on and subject to the Internal Revenue Code of 1986, as amended, which we refer to as the Code, the regulations promulgated under the Code, existing interpretations and court decisions, all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of the discussion. This discussion does not address all aspects of United States federal income taxation that may be important to you in light of your particular circumstances or if you are subject to special rules, such as rules relating to:

        This discussion assumes you hold your shares of Upland Bank common stock as capital assets within the meaning of Section 1221 of the Code.

        It is intended that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. First Community's and Upland Bank's obligations to complete the merger are conditioned on, among other things, First Community's receipt of an opinion from Sullivan & Cromwell, dated the effective date, to the effect that, on the basis of the facts, representations and assumptions set forth in the opinion, the merger constitutes a reorganization under Section 368(a) of the Code. The opinion of counsel will be based on the then-existing law, will assume the absence of changes in existing facts, will rely on customary assumptions and may rely on representations contained in certificates executed by officers of First Community, Pacific Western and Upland Bank. The opinion neither binds the Internal Revenue Service nor precludes the IRS from adopting a contrary position, and it is possible that the IRS may successfully assert a contrary position in litigation or other proceedings. Neither First Community nor Upland Bank intends to obtain a ruling from the IRS with respect to the tax consequences of the merger.

        In the opinion of Sullivan & Cromwell, assuming that the merger is consummated in accordance with the terms of the merger agreement and as described in this proxy statement-prospectus and that the assumptions and representations described in the proceeding paragraph are true and complete as of the effective date, the merger will be treated as a "reorganization" within the meaning of Section 368(a) of the Code. The following discussion assumes that the merger will be treated accordingly.

        Upland Bank Shareholders Who Receive Only First Community Common Stock. If you are a holder of Upland Bank common stock, except as discussed below with respect to cash received in lieu of fractional shares, you will not recognize gain or loss for United States federal income tax purposes if

54



you exchange your Upland Bank common stock solely for First Community common stock pursuant to the merger.

        Upland Bank Shareholders Who Receive Both First Community Common Stock and Cash. If you are a holder of Upland Bank common stock and you received both First Community common stock and cash (other than cash received in lieu of fractional shares) in exchange for your Upland Bank common stock, you will recognize any gain, but not loss, in an amount equal to the lesser of:

Any gain will be treated as capital gain unless the receipt of the cash has the effect of the distribution of a dividend for U.S. federal income tax purposes, in which case the gain will be treated as ordinary dividend income to the extent of your ratable share of Upland Bank's accumulated earnings and profits. Any capital gain will be long-term capital gain if, as of the date of the exchange, your holding period in your Upland Bank common stock is greater than one year. The following is a brief discussion of the tax treatment briefly described above; however, you should consult your own tax advisor about the possibility that all or a portion of any cash received in exchange for Upland Bank common stock will be treated as a dividend.

        The stock redemption provisions of Section 302 of the Code apply in determining whether cash received by you in exchange for your Upland Bank common stock has the effect of a distribution of a dividend under Section 356(a)(2) of the Code, known as the Hypothetical Redemption Analysis. Under the Hypothetical Redemption Analysis, you will be treated as if the portion of Upland Bank common stock that you exchange for cash in the merger will instead be exchanged for First Community common stock, which we call the Hypothetical Shares, followed immediately by a redemption of the Hypothetical Shares by First Community for cash. Under the principles of Section 302 of the Code, you will recognize capital gain rather than dividend income with respect to the cash received if the hypothetical redemption is "not essentially equivalent to a dividend" or is "substantially disproportionate" with respect to you. In applying the principles of Section 302, the constructive ownership rules of Section 318 of the Code will apply in comparing your ownership interest in First Community both immediately after the merger (but before the hypothetical redemption) and after the hypothetical redemption.

        If you are a holder of Upland Bank common stock, whether the hypothetical redemption by First Community of the Hypothetical Shares for cash is "not essentially equivalent to a dividend" will depend on your particular circumstances. However, the hypothetical redemption must, in any event, result in a "meaningful reduction" in your percentage ownership of First Community common stock. In determining whether the hypothetical redemption by First Community results in a meaningful reduction in your percentage ownership of First Community common stock, and, therefore, does not have the effect of a distribution of a dividend, you should compare your interest in First Community (including interests owned actually, hypothetically and constructively) immediately after the merger (but before the hypothetical redemption) to your interest after the hypothetical redemption. The IRS has indicated, in Revenue Ruling 76-385, that a shareholder in a publicly-held corporation whose relative stock interest in the corporation is minimal and who exercises no "control" over corporate affairs is generally treated as having had a meaningful reduction in his or her stock after a redemption transaction if his or her percentage stock ownership in the corporation has been reduced to any extent, taking into account the shareholder's actual and constructive ownership before and after the hypothetical redemption.

55



        If you are a holder of Upland Bank common stock, the hypothetical redemption transaction would be "substantially disproportionate," and, therefore, would not have the effect of a distribution of a dividend, if you own less than 50% of the voting power of the outstanding First Community common stock if the percentage of First Community common stock actually and constructively owned by you immediately after the hypothetical redemption is less than 80% of the percentage of First Community common stock actually, hypothetically and constructively owned by you immediately before the hypothetical redemption.

        Upland Bank Shareholders Who Receive Only Cash. If you are a holder of Upland Bank common stock who exchanges all of your shares of common stock for cash or who exercises appraisal rights in connection with the merger, you will generally recognize capital gain to the extent the amount of cash received in the merger exceeds your tax basis in the Upland Bank common stock, or loss to the extent your tax basis in Upland Bank common stock exceeds the amount of cash received in the exchange. Any capital gain or loss will be long-term capital gain or loss if you have held your shares of Upland Bank common stock for more than one year at the time the merger is completed. Long-term capital gain of a non-corporate U.S. shareholder is generally subject to a maximum rate of 20%.

        Tax Basis And Holding Period. The aggregate tax basis of the First Community common stock you receive as a result of the merger will be the same as your aggregate tax basis in the Upland Bank common stock you surrender in exchange for the First Community common stock, decreased by the amount of cash received in the merger and increased by the amount of gain recognized in the merger. The holding period of the First Community common stock you receive as a result of the exchange will include the holding period of the Upland Bank common stock you exchange in the merger.

        Cash Received in Lieu of Fractional Shares. If you receive cash in the merger instead of a fractional share interest in First Community common stock, you will be treated as having received the cash in redemption of the fractional share interest. Assuming that, immediately after the merger, you hold a minimal interest in First Community, you exercise no control over First Community and, as a result of the deemed redemption and after giving effect to certain constructive ownership rules, you experience an actual reduction in your interest in First Community, you will recognize capital gain or loss on the deemed redemption in an amount equal to the difference between the amount of cash received and your adjusted tax basis allocable to such fractional share. Otherwise, the cash payment may be taxable to you as a dividend. Any capital gain or loss will be long-term capital gain or loss if you have held your shares of Upland Bank common stock for more than one year at the time the merger is completed. Long-term capital gain of a non-corporate U.S. shareholder is generally subject to a maximum rate of 20%.

        Backup Withholding and Information Reporting. If you receive cash in exchange for surrendering your shares of Upland Bank common stock, you may be subject to information reporting and backup withholding at a rate of 30% if you are a non-corporate United States person and you (i) fail to provide an accurate taxpayer identification number; (ii) are notified by the United States Internal Revenue Service that you have failed to report all interest or dividends required to be shown on your federal income tax returns; or (iii) in certain circumstances, fail to comply with applicable certification requirements.

The foregoing discussion is not intended to be a complete analysis or description of all potential United States federal income tax consequences of the merger. In addition, the discussion does not address tax consequences which may vary with, or are contingent on, your individual circumstances. Moreover, the discussion does not address any non-income tax or any foreign, state or local tax consequences of the merger. Accordingly, you are strongly urged to consult with your tax advisor to determine the particular United States federal, state, local or foreign income or other tax consequences to you of the merger.

56



        The merger will be accounted for as a purchase for financial accounting purposes in accordance with accounting principles generally accepted in the United States. For purposes of preparing First Community's consolidated financial statements, First Community will establish a new accounting basis for Upland Bank's assets and liabilities based upon their fair values, the merger consideration and the costs of the merger. Any excess of cost over the fair value of the net assets of Upland Bank will be recorded as goodwill and other intangible assets. A final determination of the intangible asset values and required purchase accounting adjustments, including the allocation of the purchase price to the assets acquired and liabilities assumed based on their respective fair values, has not yet been made. First Community will determine the fair value of Upland Bank's assets and liabilities and will make appropriate purchase accounting adjustments, including adjustments to the amortization period of the intangible assets, upon completion of that determination.

        In considering the recommendation of the Upland Bank board of directors, you should be aware that certain members of Upland Bank management have certain interests in the transactions contemplated by the merger agreement that are in addition to the interests of shareholders generally and that may create potential conflicts of interest. The Upland Bank board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the contemplated transactions.

        Ownership of Upland Bank Common Stock. As of the record date, which is July 12, 2002, as a group, Upland Bank's executive officers and directors beneficially owned approximately 613,212 shares, or approximately 43.5% of Upland Bank common stock outstanding. As of the record date, none of the directors or executive officers of First Community owned any shares of Upland Bank common stock.

        Indemnification; Directors and Officers Insurance. Following the effective time of the merger, First Community is obligated to indemnify present and former directors and officers of Upland Bank in connection with any claim arising out of actions or omissions occurring at or prior to the effective time to the fullest extent that Upland Bank is permitted to indemnify its directors and officers. In addition, First Community is obligated for three years from the effective time, to provide the portion of directors and officers liability insurance that serves to reimburse the present and former directors and officers of Upland Bank on terms and conditions comparable to those provided by Upland Bank; provided, however, that First Community is not required to spend on an annual basis more than 125% of the current amount spent by Upland Bank to procure such insurance coverage.

        Severance Benefits. The employment agreements between Upland Bank and each of Fred Scarsella, Joyce Welsh, Robert Franks and David Clary entitle them to receive, in the aggregate, approximately $950,000 upon the closing of the merger.

        Employee Benefits. First Community has agreed to provide those employees of Upland Bank who continue as employees of First Community or any of its subsidiaries, with employee benefit plans no less favorable in the aggregate than those provided to similarly situated employees of First Community and its subsidiaries.

        The shares of First Community common stock to be issued to Upland Bank shareholders in the merger will be registered under the Securities Act of 1933, as amended. These shares may be traded freely and without restriction by those shareholders not deemed to be "affiliates" of Upland Bank. An affiliate of a corporation, as defined by the Securities Act, is a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, that corporation and generally may include Upland Bank directors, executive officers and major

57


shareholders. Any subsequent transfer by an affiliate of Upland Bank must be one permitted by the resale provisions of Rule 145 promulgated under the Securities Act or as otherwise permitted under the Securities Act.

        First Community may at any time change the method of effecting the combination of Upland Bank and Pacific Western. However, no change may (1) alter or change the amount or kind of consideration to be issued to holders of the capital stock of Upland Bank as provided for in the merger agreement, (2) adversely affect the tax treatment of Upland Bank shareholders as a result of receiving the merger consideration, (3) materially impede or delay completion of the transactions contemplated by the merger agreement, or (4) otherwise be materially prejudicial to the interests of Upland Bank shareholders.

        The effective time of the merger will be the time and date when the merger becomes effective, as set forth in the agreement of merger that will be filed with the OCC on the closing date of the merger. The closing date will occur on a date to be specified by First Community and Upland Bank. Subject to applicable law, this date will be no later than the third business day after the satisfaction or waiver of the latest to occur of the conditions precedent to the merger set forth in the merger agreement, unless extended by mutual agreement of the parties. We anticipate that the merger will be completed in the third quarter of 2002. However, completion of the merger could be delayed if there is a delay in obtaining the required regulatory approvals or in satisfying other conditions to the merger. See "Regulatory Approvals Required for the Merger" and "The Merger Agreement—Conditions to Consummation of the Merger".

        Each Upland Bank stock option that is exercisable immediately prior to the Effective Time will be cancelled and entitle the option holder to cash in an amount equal to the product of the total number of shares of Upland Bank common stock to which the holder has options multiplied by the excess of $11.73 over the aggregate exercise price of such holder's options and less any applicable withholding taxes. At the effective time, each Upland Bank stock option whether or not vested will terminate and be of no further effect.

        Holders of Upland Bank common stock will accrue but will not be paid dividends or other distributions declared after the effective time with respect to First Community common stock into which their shares have been converted until they surrender their Upland Bank stock certificates for exchange after the effective time. Upon surrender of those certificates after the effective time, the combined company will pay any unpaid dividends or other distributions, without interest. After the effective time, there will be no transfers on the stock transfer books of Upland Bank of shares of Upland Bank common stock issued and outstanding immediately prior to the effective time. If certificates representing shares of Upland Bank common stock are presented for transfer after the effective time, they will be cancelled and exchanged for certificates representing the applicable number of shares of First Community common stock.

        No fractional shares of First Community common stock will be issued to any shareholder of Upland Bank upon completion of the merger. For each fractional share that would otherwise be issued, First Community will pay cash in an amount equal to the fraction of a share of First Community

58


common stock to which the holder would otherwise be entitled to receive multiplied by the closing price of First Community common stock on Nasdaq as reported on the Nasdaq Composite Transactions reporting system at the effective time. No interest will be paid or accrue on cash payable to holders of those certificates in lieu of fractional shares.

        None of First Community, Upland Bank, the exchange agent or any other person will be liable to any former shareholder of Upland Bank for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws.

        If a certificate for Upland Bank stock has been lost, stolen or destroyed, the exchange agent will issue the consideration properly payable under the merger agreement upon the making of an affidavit by the person claiming that loss, theft or destruction and the posting of a bond in an amount reasonably necessary as indemnity against any claim that may be made against First Community with respect to that lost certificate.

        For a description of First Community common stock and a description of the differences between the rights of the holders of Upland Bank common stock, on the one hand, and the holders of First Community common stock, on the other hand, see "Description of First Community Capital Stock" beginning on page 96 and "Comparison of Shareholders' Rights" beginning on page 97.

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THE MERGER AGREEMENT

        The merger agreement contains substantially similar representations and warranties of First Community and Upland Bank as to, among other things:

        In addition, the merger agreement contains further representations and warranties of Upland Bank as to, among other things:

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        Prior to the effective time of the merger, except as expressly contemplated by the merger agreement, each of First Community and Upland Bank has agreed to:

        Furthermore, prior to the effective time, except as expressly contemplated by the merger agreement, Upland Bank has agreed that, without the consent of First Community, it will not, among other things:

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62


        Prior to the effective time, except as expressly contemplated by the merger agreement, First Community has agreed that, without the consent of Upland Bank, it and its subsidiaries will not:

63


        Upland Bank and First Community have agreed to:

        Upland Bank has further agreed to:

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        First Community has further agreed to:

        Each party's obligation to effect the merger is subject to the satisfaction or waiver, where permissible, of the following conditions:

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        First Community's obligation to effect the merger is subject to satisfaction, or waiver, of the following additional conditions:

        We cannot assure you if, or when, we will obtain the required regulatory approvals necessary to consummate the merger, or whether all of the other conditions precedent to the merger will be satisfied or waived by the party permitted to do so. If the merger is not completed on or before

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October 31, 2002, either First Community or Upland Bank may terminate the merger agreement, unless the failure to effect the merger by that date is due to the failure of the party seeking to terminate the merger agreement to perform or observe covenants and agreements of that party set forth in the merger agreement.

        Under the terms of the merger agreement, Upland Bank has agreed not to solicit, initiate or encourage any takeover proposals or other forms of business combination with a third party. In addition, Upland Bank has agreed not to negotiate, furnish information or otherwise cooperate in any way in connection with any competing takeover proposals by third parties, unless:

        In the event that the per share price of First Community's common stock, as measured over the twenty consecutive trading day period ending on the fifth business day prior to the consummation of the merger, drops below $19.80, and such decline is not proportionate with the decline, if any, in the Nasdaq Bank Index (symbol: IXBK) measured over the same period, then Upland Bank may terminate the merger agreement unless First Community elects to issue shares of its common stock and/or cash in an amount sufficient to ensure that the amount of consideration an Upland Bank shareholder receives is at least equal to the amount of consideration such shareholder would have received had First Community's per share stock price been $19.80 at the effective time of the merger.

        First Community may also reallocate cash and shares of its common stock in good faith and/or issue additional shares of its common stock, to the extent necessary to ensure that 45% of the consideration in the merger is in the form of First Community common stock.

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        The parties may terminate the merger agreement and abandon the merger at any time prior to the effective time, whether before or after approval by the shareholders of Upland Bank:

        The merger agreement requires Upland Bank to pay a termination fee of up to $750,000 to First Community if the merger agreement is terminated under the following circumstances:

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        Waiver. At any time prior to the closing of the merger, First Community and Upland Bank, by action taken or authorized by their respective boards of directors, may, if legally allowed:

        However, after any approval of the transactions contemplated by the merger agreement by the shareholders of Upland Bank, there may not be, without further approval of those shareholders, any extension or waiver of the merger agreement or any portion of the merger agreement which reduces the amount or changes the form of the consideration to be delivered to the Upland Bank shareholders under the merger agreement, other than as contemplated by the merger agreement.

        Any agreement by a party to any extension or waiver must be set forth in a written instrument signed on behalf of such party and shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

        Amendment. Subject to compliance with applicable law and the ability of the parties to change the structure of effecting the merger, First Community and Upland Bank may amend the merger agreement by action taken or authorized by their respective boards of directors at any time before or after approval of the merger agreement by Upland Bank shareholders. However, after any approval of the merger agreement by Upland Bank shareholders, there may not be, without further approval of those shareholders, any amendment of the merger agreement that changes the amount or the form of the consideration to be delivered to the Upland Bank shareholders, other than as contemplated by the merger agreement.

        First Community has agreed to cause the shares of First Community common stock to be issued in the merger to be approved for listing on Nasdaq.

        The merger agreement provides that each of First Community and Upland Bank will pay its own costs and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement.

        The Joseph A. and Doleen Borba Trust, The 1988 Crowell Family Trust, the L. and J. Scheu Living Trust, the Roger M. Jaska and Ana Dee Jaska Trust and Fred O. Scarsella, in their capacities as shareholders of Upland Bank, have separately entered into shareholder agreements with First Community in which they have agreed to vote all shares of Upland Bank common stock that they owned as of the date of their respective agreements and that they subsequently acquire in favor of the merger agreement and the transactions contemplated therein. As of the record date, these shareholders owned, in the aggregate, 613,212 shares of the common stock of Upland Bank, allowing them to exercise approximately 43.5% of the voting power of Upland Bank common stock.

        Simultaneously with the execution of the merger agreement, all of the directors of Upland Bank entered into non-competition agreements with First Community. The agreements provide that for a period of two years from the effective date of the merger, none of the directors of Upland Bank will engage, have ownership interest or participate in the financing, operation, management or control of any entity engaged in commercial banking, except that they may own bonds, preferred stock or up to 5% of the outstanding common stock, if publicly traded, of any such entity and may conduct business with any such entity. This restriction extends to the geographic area in Los Angeles and Riverside Counties. In addition, for a period of two years from the effective date of the merger the directors of Upland Bank shall not solicit the business of existing customers or the services of existing employees of Upland Bank, First Community, or Pacific Western for a purpose related to commercial banking.

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INFORMATION ABOUT FIRST COMMUNITY

        Each of First Community's banks, Rancho Santa Fe National Bank and Pacific Western National Bank, were independent banks prior to First Community's acquisition of those entities in 2000. In mid-1994, First Community's principal shareholder, Castle Creek Financial LLC, was engaged by Rancho Santa Fe National Bank, a four-branch bank with assets, as of the end of that year, of approximately $92.3 million, to develop a new strategic plan for the bank. In late 1994, Castle Creek also began advising First Community Bank of the Desert, a California state-chartered bank that operated through five branches located in the area surrounding Palm Springs, generally referred to as the Coachella Valley. First Community Bank of the Desert has since been merged with and into Pacific Western.

        In mid-1999, the management of each of Rancho Santa Fe National Bank and First Community Bank of the Desert, together with Castle Creek, determined that a merger of the two banks could create the foundation for a premier community bank. In October 1999, Rancho Santa Fe National Bank announced that it and First Community Bank of the Desert would combine through the creation of First Community Bancorp as a multi-bank holding company that would subsequently own and operate the two banks as separate subsidiaries. When this transaction closed on June 1, 2000, First Community Bancorp became a $325 million-asset multi-bank holding company with branches in San Diego County and the Coachella Valley.

        In 2000, First Community began trading on Nasdaq under the ticker "FCBP". Shortly thereafter, on August 7, 2000, First Community announced the acquisition of Professional Bancorp, a troubled bank holding company whose sole subsidiary, First Professional Bank, operated in West Los Angeles and targeted borrowers in the health care services sector. The First Professional acquisition extended First Community's reach into Los Angeles and added $230 million in low-cost deposits to First Community's balance sheet. On May 22, 2001, First Community announced the acquisition of First Charter Bank, which was headquartered in Beverly Hills. First Charter serviced the banking needs of small- and medium-sized businesses and the real estate industry out of two branches on the west side of Los Angeles. On August 22, 2001, First Community announced the acquisition of Pacific Western, a bank with four branches in Los Angeles and one branch in Orange County. Pacific Western focused on servicing the banking needs of small- and medium-sized businesses and the real estate industry. On November 13, First Community announced the acquisition of WHEC, the bank holding company for Capital Bank of North County, a bank with three branches in Carlsbad and one branch each in Encinitas and Vista. On January 31, 2002, First Community completed the acquisition of Pacific Western, and just five weeks later, on March 7, 2002, the acquisition of WHEC. Each bank that First Community has acquired since First Community's formation has been merged with Pacific Western, other than Capital Bank which was merged with Rancho Santa Fe National Bank. In January 2002, First Community completed the consolidation of First Professional Bank, First Community Bank of the Desert and Pacific Western National Bank under the charter of First Professional Bank, which was renamed Pacific Western National Bank upon completion of the consolidation.

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        The following table sets forth for each acquisition the date acquired, and the number of branches, assets and deposits acquired.

Institution Acquired

  Date
  Branches
Acquired

  Assets
Acquired

  Deposits
Acquired

W.H.E.C., Inc   March 2002   5   $ 147 million   $ 135 million
Pacific Western National Bank   January 2002   5   $ 260 million   $ 239 million
First Charter Bank, N.A.   October 2001   2   $ 127 million   $ 111 million
Professional Bancorp, Inc.   January 2001   5   $ 263 million   $ 244 million
First Community Bank of the Desert   May 2000   6   $ 140 million   $ 126 million
Rancho Santa Fe National Bank   May 2000   4   $ 200 million   $ 179 million

        Through its banks, First Community provides banking and other financial services throughout Southern California to small- and medium-sized businesses and the owners and employees of those businesses. The banks offer a broad range of banking products and services, including many types of business, personal savings and checking accounts and other consumer banking services. The banks originate several types of loans, including secured and unsecured commercial and consumer loans, commercial and residential real estate mortgage loans, SBA loans and construction loans. The banks' loans are primarily short-term and adjustable rate. Special services or requests beyond the lending limits of the banks can be arranged through correspondent banks. The banks have a network of ATMs and offer access to ATM networks through other major banks. The banks issue MasterCard and Visa credit and debit cards through a correspondent bank and are also merchant depositories for cardholder drafts under Visa and MasterCard. The banks can provide investment and international banking services through correspondent banks.

        Through its banks, First Community concentrates its lending activities in two principal areas, real estate loans and commercial loans. Real estate loans are comprised of construction loans, miniperm loans collateralized by first or junior deeds of trust on specific properties and equity lines of credit. The banks' real estate portfolios are subject to certain risks, including a possible downturn in the Southern California economy, similar to the one which occurred during the early 1990s, interest rate increases, reduction in real estate values in Southern California and continued increase in competitive pricing and loan structure. The banks strive to reduce the exposure to such risks by reviewing each loan request and renewal individually, using a dual signature approval system whereby both the marketing and credit administration departments must approve each request individually and strict adherence to written loan policies, including, among other factors, minimum collateral requirements and maximum loan-to-value ratio requirements. Each loan request is reviewed on the basis of the bank's ability to recover both principal and interest in view of the inherent risks.

        Commercial loans are made to finance operations, to provide working capital or for specific purposes, such as to finance the purchase of assets, equipment or inventory. Since a borrower's cash flow from operations is generally the primary source of repayment, our policies provide specific guidelines regarding required debt coverage and other important financial ratios. Commercial loans include lines of credit and commercial term loans. The banks' portfolios of commercial loans are subject to certain risks, including a possible downturn in the Southern California economy, interest rate increases and the deterioration of a company's financial capabilities. The banks strive to reduce the exposure to such risks through a dual signature approval system and strict adherence to written loan policies. In addition, loans based on short-term asset values are monitored on a monthly or quarterly basis. In general, the banks receive and review financial statements of borrowing customers on an ongoing basis during the term of the relationship and respond to any deterioration noted.

        In addition, First Community's banks provide consumer loans including personal loans, auto loans, boat loans, home improvement loans, equipment loans, revolving lines of credit and other loans

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typically made by banks to individual borrowers. The banks' consumer loan portfolio is subject to certain risks, including amount of credit offered to consumers in the market, interest rates increases and consumer bankruptcy laws which allow consumers to discharge certain debts. The banks strive to reduce the exposure to such risks through the direct approval of all consumer loans by using a dual signature system of approval and strict adherence to written credit policies.

        First Community's ability to pay dividends is limited by federal law, state law and contractual provisions. California law provides that, in the event that sufficient retained earnings are not available for the proposed distribution, a corporation may nevertheless make a distribution to its shareholders if it meets two conditions:

        It is also possible, depending upon the financial condition of the bank in question and other factors that the Federal Reserve Board and/or the OCC could assert that payment of dividends or other payments is an unsafe or unsound practice.

        In addition, First Community's ability to pay dividends is limited by a Revolving Credit Agreement, dated as of June 26, 2000, between First Community and the Northern Trust Company, which provides that First Community may not declare or pay any dividend, other than dividends payable in First Community's common stock or in the ordinary course of business exceeding 50% of net income per fiscal quarter of First Community before intangible amortization and any restructuring charges incurred in connection with any merger, consolidation or other restructuring contemplated by transactions similar to a merger. Also, First Community would be prohibited from paying dividends on its common stock by the indentures, dated as of September 7, 2000, between First Community and the State Street Bank and Trust Company, December 18, 2001 between First Community and the State Street Bank and Trust Company, and November 28, 2001, between First Community and the Wilmington Trust Company, in the event that First Community defaults on certain obligations or defers interest payments under the indentures.

        As of March 31, 2002, First Community on a consolidated basis had a total of 327 full time equivalent employees, with 53 full time equivalent employees at Rancho Santa Fe National Bank, 232 full time equivalent employees at Pacific Western, and 42 full time equivalent employees at the holding company level.

        On April 25, 2002, First Community signed a definitive Agreement and Plan of Merger providing for the acquisition of First National Bank, a national banking association with seven branches in Southern California. At March 31, 2002, First National Bank had assets of $649.1 million and total deposits of $525.0 million. Pursuant to that merger agreement, First National Bank will merge into Rancho Santa Fe National Bank. At the closing of the merger, Rancho Santa Fe National Bank's name will be changed to First National Bank. The First National Bank acquisition is subject to customary conditions to consummation, including prior approval by the OCC.

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        On May 13, 2002, First Community signed a definitive Agreement and Plan of Merger providing for the acquisition of Marathon Bancorp, a California corporation. Pursuant to that merger agreement, Marathon Bancorp, a wholly-owned subsidiary of Marathon Bancorp, will merge with and into Pacific Western. At March 31, 2002, Marathon Bancorp had total assets of $109.3 million and total deposits of $95.0 million. The Marathon Bancorp acquisition is also subject to customary conditions to consummation, including prior approval by the OCC and by Marathon shareholders and is expected to close in the third quarter of 2002.

        First Community expects to register up to 3.3 million shares of its common stock for sale to the shareholders of First National and Marathon in connection with those transactions.

        On July 16, 2002, First Community raised $83,300,000, before expenses and underwriting discounts, through the sale of its common stock by means of a registered public offering.

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INFORMATION ABOUT UPLAND BANK

        Upland Bank commenced operations as a national banking association on March 12, 1984. Effective January 1, 1989, Upland Bank converted to a California state-chartered bank. Upland Bank's deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, up to the maximum limits permitted by law. Upland Bank's main office is located at 100 North Euclid Avenue, in the City of Upland. Upland Bank also has one branch office located in Chino, California.

        Upland Bank's customer base consists primarily of small-to medium-sized businesses, professionals, local area residents and affluent individuals in Upland Bank's market area which encompasses the cities of Upland, Chino, Rancho Cucamonga, Ontario, Corona, Fontana and surrounding areas.

        Upland Bank offers a full range of commercial banking services, including the making of various types of consumer loans, construction loans, and loans guaranteed, in part, by the Small Business Administration. A significant portion of Upland Bank's lending business is concentrated in real estate construction lending. As of March 31, 2002, based on unaudited financial information, 40.18% of Upland Bank's loan portfolio was in construction loans. Upland Bank also accepts checking, savings and time deposits; IRA, NOW, and money market deposit accounts; and direct deposits of Social Security and other government payments. Additionally, Upland Bank offers safe deposit boxes, night depositories, bank-by-mail, drive-up, walk-up and ATM services, and note and collection services. Upland Bank sells travelers' checks, cashiers' checks, and money orders.

        The main office of Upland Bank consists of 8,482 square feet in a two-story building. The lease commenced on or about February 17, 1986, and was renewed for an additional five year period on February 16, 2001. The lease is a triple net lease requiring Upland to pay a base monthly rental of $10,992 in 2002, plus the costs of all utilities, insurance premiums and real estate taxes. The lease will expire on February 16, 2006.

        Upland Bank also leases approximately 3,565 square feet of space in a building located at 12475 Central Avenue, which space serves as its Chino Branch Office. The initial term of the lease commenced October 7, 1985 and was extended by Upland Bank until October 6, 2005. The monthly rental currently is $5,351. Upland Bank paid $64,211 on account of this lease in 2001. Joseph A. Borba and his wife Doleen Borba own a one-half interest in the premises. Mr. Borba serves on the board of directors of Upland Bank.

        The premises are deemed to be adequate for Upland Bank's present and anticipated levels of business.

        At March 31, 2002, Upland Bank employed 39 persons on a full-time basis, 6 persons on a part-time basis and 2 temporary employees. Upland Bank's employees are not represented by any union or other collective bargaining agent and Upland Bank believes its employee relations are satisfactory.

        Upland Bank maintains insurance at levels deemed adequate by its management to protect the bank from certain property damage such as fire and automobile liability, and against the risk of employee dishonesty, embezzlement or theft, and to protect the bank in the event it is obligated to indemnify a director or office. Under Upland Bank's bylaws and agreements with certain current and

74


former directors, Upland Bank's officers and directors are entitled to indemnification by Upland Bank for their costs of defense and any judgments rendered against them under certain statutorily defined circumstances. However, because of certain exclusions in the insurance policy and policy coverage deductibles and limitations, Upland Bank may be exposed to liability for such indemnification payments which, if made, would negatively impact Upland Bank's earnings and financial condition.

Equity Compensation Plan Information

        The following table sets forth certain information regarding compensation plans, including individual compensation arrangement, under which the common stock of Upland Bank is authorized for issuance to employees, directors, consultants, advisors, vendors, customers, suppliers or lenders of Upland Bank as of December 31, 2001.

Plan Category

  Number of shares of Upland Bank common stock to be issued upon exercise of outstanding options, warrants and rights
  Weighted average exercise price of outstanding options
  Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders   35,000   $ 5.64   194,250
Total   35,000   $ 5.64   194,250

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UPLAND BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion is designed to provide a better understanding of significant trends related to Upland Bank's financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. It is derived from Upland Bank's unaudited financial statements and notes thereto for the three months ended March 31, 2002 and 2001, and the audited financial statements as of and for the years ended December 31, 2001 and 2000 and notes thereto, which are not included in this proxy statement–prospectus as well as other financial information appearing in this proxy statement-prospectus.

        Upland Bank's actual results of operations could materially differ from those suggested by the forward-looking statements contained in this proxy statement-prospectus depending upon changes to things such as:

        Therefore, the information set forth in this discussion should be carefully considered when evaluating the business prospects of Upland Bank and how you should vote.

        Total assets increased $6,155,858 to $109,835,973 at March 31, 2002 from $103,680,115 at December 31, 2001. Federal funds sold increased 76.2% to $10,156,000 at March 31, 2002 from $5,763,000 at December 31, 2001. Loans, net of unearned income, marginally increased 0.96% to $89,041,463 at March 31, 2002 from $88,191,888 at December 31, 2001. The increase in total assets was primarily the result of a $6,001,292 increase in deposits to $95,736,365 at March 31, 2002 from $89,735,073 at December 31, 2001. This deposit increase resulted from marketing of certificates of deposit to fund anticipated loan growth for the second quarter of 2002.

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        Total assets marginally decreased 1.03% during 2001 from $104,747,141 at December 31, 2000 to $103,680,115 at December 31, 2001. The decrease in total assets was primarily caused by a 3.02% decrease in deposits, to a total of $89,735,073 at December 31, 2001 from $92,528,578 at the end of 2000. The deposit decrease was concentrated in other time deposits. These time deposits were originated when prevailing market interest rates were higher than those prevailing at December 31, 2001. These time deposits were allowed to mature prior to December 31, 2001, and were replaced during the first quarter of 2002 at lower prevailing market rates. Federal funds sold decreased from $8,620,000 from December 31, 2000 to $5,763,000 at December 31, 2001. Loans, net of unearned income, increased 4.56% to $88,191,888 at December 31, 2001 from $84,342,307 at the end of 2000. Cash and cash equivalents funded this increase as opposed to relying on deposit growth.

        Average interest-earning assets increased to $97,653,048 during the three months ended March 31, 2002 from $96,827,465 during the same period in 2001. The average yield on these assets decreased to 8.11% from 10.47%. Average interest-bearing liabilities, consisting solely of interest-bearing deposits, decreased to $67,717,517 during the three months ended March 31,2002 from $71,900,943 during the same period in 2001. The average rate paid on these deposits decreased to 3.23% for the three months ended March 31, 2002 from 5.56% for the same period in 2001. The declines in the yield on interest earning assets and the rates paid on interest-bearing liabilities were the result of overall declines in market interest rates that were the result of the Federal Reserve Board's open market operations during 2001. Average noninterest-bearing demand deposit accounts, consisting primarily of business checking accounts, increased 16.1% for the three months ended March 31, 2002 to $24,546,532 from $21,141,262 for same period in 2001.

        Average interest-earning assets increased to $96,475,910 during the year ended December 31, 2001 from $83,434,712 during 2000, and the average yield decreased to 9.67% from 11.66%. Average interest-bearing liabilities increased to $68,819,496 during 2001 from $59,793,875 in 2000, and the average rate paid on these deposits decreased to 4.85% in 2001 from 5.24% in 2000. Average noninterest-bearing demand deposits increased 10.31% to $22,505,319 during 2001 from $20,401,607 during 2000. The increase in average interest-earning assets were primarily the result of advances on loan commitments. The yield on these loans decreased due to the declining interest rate environment in 2001. The increase in average interest earning assets was primarily funded by growth in deposits.

        Shareholders' equity was $11,533,575 at March 31, 2002, compared to $11,223,246 at December 31, 2001, $10,458,281 at March 31, 2001 and $9,716,280 at December 31, 2000. These increases resulted from net income, as well as $336,249 in additional capital from the exercise of stock options. This offset the $346,906 in cash dividends paid in 2001.

        Upland Bank earned $300,361 for the three months ended March 31, 2002 compared to $406,064 earned for the three months ended March 31, 2001. Diluted earnings per share were $0.21 for the three months ended March 31, 2002 compared to $0.29 per share for the three months ended March 31, 2001. Decreases in interest rates resulting from the monetary policies of the Federal Reserve Board coupled with the bank's positive interest rate sensitivity gap, account for a significant portion of the decrease in net income. The prime rate, the reference rate to which a majority of Upland Bank's loans are tied, decreased by 475 basis points from 9.50% to 4.75% since January of 2001.

        Upland Bank earned $1,365,903 for the year ended December 31, 2001 compared to net income of $1,713,903 for the year ended December 31, 2000. Diluted earnings per share were $1.00 for 2001 compared to $1.27 per share in the year ended December 31, 2000. As previously discussed, interest rates were the primary reason for the decrease in earnings.

        Net interest Income. The primary component of Upland Bank's operating income is net interest income, which is the difference between interest and fees earned on loans and investments, and the

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interest paid on deposits and borrowed funds. Net interest income, when expressed as a percentage of total average interest-earning assets, is referred to as the net interest margin. Net interest spread is the difference between the average yield on interest-earning assets and the rate paid on interest-bearing liabilities. Upland Bank's net interest income is affected by the change in the amount and mix of interest-earning assets and interest bearing liabilities. It is also affected by changes in yields earned on assets and rates paid on deposits and other borrowed funds.

        Distribution of Average Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential. The following table sets forth Upland Bank's average assets, liabilities and shareholders' equity; interest income earned and interest expense paid; and the average yields earned or rates paid for the three months ended March 31, 2002 and 2001. The average balances reflect daily averages, except nonaccrual loans, which were computed using quarterly averages.

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  For the Three Months Ended March 31,
 
  2002
  2001
 
  Average
Balance

  Average
Yield or
Rate Paid

  Interest
Earned
or Paid

  Average
Balance

  Average
Yield or
Rate Paid

  Interest
Earned
or Paid

Interest-Earning Assets:                                
Interest-earning deposits   $ 748,556   3.74%   $ 6,992   $ 892,000     6.72%   $ 14,988
Investment securities     1,822,439   4.90%     22,334     1,974,561     6.95%     34,320
Federal funds sold     3,810,756   1.45%     13,812     11,725,355     5.42%     158,949
Loans(1)(2)     91,271,297   8.49%     1,936,617     82,235,549   11.32%     2,327,068
   
     
 
     
  Total interest-earning assets     97,653,048   8.11%     1,979,755     96,827,465   10.47%     2,535,325
Noninterest-earning assets     9,899,321               9,237,679          
Allowance for loan losses     (1,216,259 )             (1,133,097 )        
   
           
         
Total assets   $ 106,336,110             $ 104,932,047          
   
           
         

Interest-Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Deposits:                                
Money Market and NOW accounts   $ 20,268,519   2.00%   $ 101,388   $ 16,327,515     3.74%   $ 152,794
Savings accounts     3,121,905   0.75%     5,881     3,568,430     1.95%     17,361
Time deposit under $100,000     27,650,710   3.88%     267,921     32,311,582     6.39%     516,128
Time deposits over $100,000     16,676,383   4.12%     171,586     19,693,416     6.36%     313,263
   
           
     
Total interest-bearing liabilities     67,717,517   3.23%     546,776     71,900,943     5.56%     999,546
Noninterest-bearing deposits     24,546,532               21,141,262          
Other liabilities     2,583,968               1,879,837          
   
           
         
  Total liabilities     94,848,147               94,922,042          
Shareholders' equity     11,488,093               10,010,005          
   
           
         
    Total liabilities and shareholders' equity   $ 106,336,110             $ 104,932,047          
   
           
         
Net interest income             $ 1,432,979             $ 1,535,779
             
           

Net interest spread

 

 

 

 

4.88%

 

 

 

 

 

 

 

  4.91%

 

 

 
         
             
     

Net interest margin

 

 

 

 

5.87%

 

 

 

 

 

 

 

  6.34%

 

 

 
         
             
     

(1)
Loan interest income includes loan fees of $441,401 in 2002 and $333,663 in 2001.

(2)
Average loans are net of unearned income.

79


        Net interest income for the three months ended March 31, 2002 was $1,432,979, which decreased $102,800, or 6.69%, over the same period in the prior year. Upland Bank's net interest margin decreased 47 basis points to 5.87% for the three months ended March 31, 2002, compared to 6.34% for the same period in 2001. The decrease in net interest income and net interest margin were the result of an overall lower interest rate environment for the three months ended March 31, 2002, coupled with a more stable rate environment compared to the same period in 2001. An additional factor which contributed to Upland Bank's decrease in net interest income for the period ended March 31, 2002 was the reduction in real estate construction loans as a percent of total loans during the period, which was accomplished in order to comply with the board of directors' commitment to reduce the bank's real estate construction loan concentration. Should Upland Bank remain on a stand-alone basis, it is likely that the continued reduction in real estate construction loans as a percent of total loans will have a detrimental impact on Upland Bank's future earnings. Due to the stability in interest rates, Upland Bank's net interest spread declined marginally by three basis points for the comparative three month periods.

        The following table sets forth average assets, liabilities and shareholders' equity; interest income earned and interest expense paid; and the average yields earned or rates paid for the years ended December 31, 2001 and 2000. The average balances reflect daily averages, except nonaccrual loans, which were computed using quarterly averages.

80


 
  For the Years Ended December 31,
 
  2001
  2000
 
  Average
Balance

  Average
Yield or
Rate Paid

  Interest
Earned/Paid

  Average
Balance

  Average
Yield or
Rate Paid

  Interest
Earned/Paid

Interest-Earning Assets:                                
  Interest-earning deposits   $ 833,685   5.92 % $ 49,423   $ 857,833   6.53 % $ 56,036
Investment securities     1,887,042   6.03 %   113,806     1,477,488   7.78 %   114,905
Federal funds sold     10,495,908   3.97 %   416,163     5,694,082   6.11 %   347,739
Loans(1) (2)     83,259,275   10.51 %   8,747,975     75,405,309   12.22 %   9,212,371
   
     
 
     
Total interest-earning assets     96,475,910   9.67 %   9,327,367     83,434,712   11.66 %   9,731,051
Noninterest-earning assets     9,090,977               8,047,034          
Allowance for loan losses     (1,195,238 )             (824,748 )        
   
           
         
Total assets   $ 104,371,649             $ 90,656,998          
   
           
         

Interest-Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Deposits:                                
Money market and NOW accounts   $ 18,053,206   3.28 % $ 592,818   $ 15,760,983   3.79 % $ 598,069
Savings accounts     3,347,315   1.66 %   55,443     3,815,439   1.98 %   75,514
Time deposits under $100,000     29,208,095   5.60 %   1,636,411     25,987,835   6.18 %   1,605,686
Time deposits over $100,000     18,210,880   5.80 %   1,055,606     14,229,618   6.01 %   855,565
   
     
 
     
Total interest-bearing liabilities     68,819,496   4.85 %   3,340,278     59,793,875   5.24 %   3,134,834
Noninterest-bearing deposits     22,505,319               20,401,607          
Other liabilities     2,284,093               2,150,248          
   
           
         
Total liabilities     93,608,908               82,345,730          
Shareholders' equity     10,762,741               9,311,268          
   
           
         
  Total liabilities and shareholders' equity   $ 104,371,649             $ 90,656,998          
   
           
         
Net interest income             $ 5,987,089             $ 6,596,217
             
           
Net interest spread         4.82 %             6.42 %    
         
             
     

Net interest margin

 

 

 

 

6.21

%

 

 

 

 

 

 

7.91

%

 

 
         
             
     

(1)
Loan interest income includes loan fees of $1,525,269 in 2001 and $1,269,064 in 2000.

(2)
Average loans are net of unearned income.

        Net interest income for the year ended December 31, 2001 was $5,987,089, which decreased $609,128, or 9.23% from 2000. The bank's net interest margin declined 170 basis points to 6.21% for the year ended December 31, 2001, compared to 7.91% for the year ended December 31, 2000. This decrease in the bank's net interest margin was due to steady declines in interest rates during 2001, coupled with a lag in the timing of the downward repricing of interest-bearing liabilities, principally time deposits. These liabilities generally do not reprice as quickly as variable rate loans and federal funds sold.

81



        Analysis of Changes in Net Interest Income. The following table sets forth an analysis of the changes in interest income and interest expense due to changes in rate and volume. Changes due to both volume and rate changes have been allocated to volume.

 
  For the Year Ended
December 31, 2001 Compared
to the Year Ended December 31,
2000

  For the Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
  For the Three Months Ended March 31, 2002 Compared to the
the Three Months Ended March 31, 2001

 
 
  Increase (Decrease)
Due to Change in:

  Increase (Decrease)
Due to Change in:

  Increase (Decrease)
Due to Change in:

 
 
  Volume
  Rate
  Net
Change

  Volume
  Rate
  Net
Change

  Volume
  Rate
  Net
Change

 
 
  (Dollars in Thousands)

 
Interest-Earning Assets:                                                        
Interest earning deposits   $ (1,543 ) $ (5,070 ) $ (6,613 ) $ (5,010 ) $ 10,742   $ 5,732   $ (2,126 ) $ (5,870 ) $ (7,996 )
Investment securities     27,900     (28,999 )   (1,099 )   (1,932 )   33,529     31,597     (2,483 )   (9,503 )   (11,986 )
Federal funds sold     220,606     (152,182 )   68,424     (48,594 )   79,923     31,329     (69,597 )   (75,540 )   (145,137 )
Loans     902,226     (1,366,622 )   (464,396 )   1,643,139     263,103     1,906,242     1,346,592     (1,737,043 )   (390,451 )
   
 
 
 
 
 
 
 
 
 
  Total interest-earning assets   $ 1,141,189   $ (1,552,873 ) $ (403,684 ) $ 1,587,603   $ 387,297   $ 1,974,900   $ 1,272,386   $ (1,827,956 ) $ (555,570 )
   
 
 
 
 
 
 
 
 
 

Interest-Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Money market and NOW accounts   $ 80,900   $ (86,151 ) $ (5,251 ) $ 64,532   $ 67,337   $ 131,869   $ 179,434   $ (230,840 ) $ (51,406 )
Savings accounts     (8,616 )   (11,455 )   (20,071 )   7,299     (1,014 )   6,285     (1,947 )   (9,533 )   (11,480 )
Time deposits under $100,000     188,382     (157,657 )   30,725     209,082     215,844     424,926     (66,592 )   (181,615 )   (248,207 )
Time deposits over $100,000     231,755     (31,714 )   200,041     206,868     88,876     295.744     (42,864 )   (98.813 )   (141,677 )
   
 
 
 
 
 
 
 
 
 
Total interest expense:   $ 492,421   $ (286,977 ) $ 205,444   $ 487,781   $ 371,043   $ 858,824   $ 68,031   $ (520,801 ) $ (452,770 )
   
 
 
 
 
 
 
 
 
 
  Increase/(decrease) in net interest income:   $ 656,768   $ (1,265,896 ) $ (609,128 ) $ 1,099,822   $ 16,254   $ 1,116,076   $ 1,204,355   $ (1,307,155 ) $ (102,800 )
   
 
 
 
 
 
 
 
 
 

        Investment Portfolio. Upland Bank classifies its investment portfolio as held-to-maturity or available-for-sale. Upland Bank intends to hold all securities classified as held-to-maturity until their scheduled maturities, and management believes that it has the ability to do so. Securities classified as available-for-sale may be sold in response to changes in interest rates, manage fluctuations in deposit levels, fund loan demand or manage Upland Bank's interest rate risk.

        The following tables summarize the amounts and the distributions of Upland Bank's investment securities as of the dates indicated.

 
  Securities Available-for-Sale
December 31,

  Securities Held-to-Maturity
December 31,

 
  2001
  2000
  2001
  2000
 
  Book
Value

  Market
Value

  Book
Value

  Market
Value

  Book
Value

  Market
Value

  Book
Value

  Market
Value

U.S. Treasury securities   $   $   $   $   $   $   $ 150,136   $ 148,845

Obligations of U.S. Government agencies

 

 

76,571

 

 

81,716

 

 

841,546

 

 

845,043

 

 

1,754,210

 

 

1,775,155

 

 

995,805

 

 

1,008,750
   
 
 
 
 
 
 
 
  Total investment securities   $ 76,571   $ 81,716   $ 841,546   $ 845,043   $ 1,754,210   $ 1,775,155   $ 1,145,941   $ 1,157,595
   
 
 
 
 
 
 
 

82


        Maturity of and Yield on Investment Securities. The following table summarizes Upland Bank's investment securities (stated at cost, adjusted for amortization of premiums and accretion of discounts) and their weighted average yield (calculated on a 360 day basis) at March 31, 2002.

 
  March 31, 2002
 
 
  Principal
Amount

  Book
Value

  Weighted
Average
Yield

 
 
  (Dollars in thousands)

 
Obligations of U.S. Government agencies due:                  
Within one year   $ 750   $ 755   6.03 %
After one but within five     1,000     997   3.75  
After five but within ten     33     34   7.70  
After ten years     2     2   9.10  
   
 
     
Total Investment Securities   $ 1,785   $ 1,788   4.81 %
   
 
     

        Loan Portfolio. Upland Bank provides a variety of credit products to meet the needs of borrowers in its service area. Upland Bank offers both secured and unsecured loans for working capital, equipment acquisition, expansion, purchase or improvement of real property, as well as seasonal loans and lines of credit. Upland Bank maintains a large portfolio of interim construction loans. Other real estate loans primarily consist of commercial loans secured by real estate collateral and "mini-perm" real estate financing. Commercial loans are made available to business, professional and agricultural customers. Consumer loans are offered for a variety of personal, family household needs, including automobiles, home equity loans and unsecured revolving lines of credit.

        Upland Bank maintains a large portfolio of real estate construction loans, consisting of single-family homes and commercial construction loans. At March 31, 2002 and December 31, 2001 real estate construction loans comprised approximately 40.18% and 45.70%, respectively, of the loan portfolio.

        The composition of the loan portfolio as of the dates indicated is summarized in the table below.

 
   
  December 31,
 
  March 31,
2002

 
  2001
  2000
Commercial   $ 15,475,639   $ 15,837,256   $ 14,449,992
Real estate construction     35,772,952     40,300,792     49,087,739
Real estate—other real estate secured     35,753,472     30,201,114     18,895,782
Consumer     2,039,400     1,852,726     1,908,794
   
 
 
Total Loans   $ 89,041,463   $ 88,191,888   $ 84,342,307
   
 
 

        Maturities and Sensitivities of Loans To changes in Interest Rates. The following table sets forth the amount of loans outstanding at December 31, 2001, which have the ability to be repriced or are due in less than one year, within one to five years, or in more than five years. In addition, the table shows the distribution of Upland Bank's loan portfolio as to loans with fixed rates and variable rates of interest.

83



 
  Less Than
One Year

  Over One
Year But
Less Than
Five Years

  Over Five
Years

  Total
 
Commercial   $ 14,554,355   $ 792,332   $ 562,295   $ 15,908,982  
Real Estate construction     41,212,699     3,375,441         41,212,699  
Real estate other     18,489,302     1,753,916     8,466,465     30,331,208  
All other loans     82,241     1,753,916     16,569     1,852,726  
   
 
 
 
 
  Total gross loans   $ 74,338,597   $ 5,921,689   $ 9,045,329   $ 89,305,615  
   
 
 
 
 
Deferred loan fees                       (1,113,727 )
                     
 
  Total loans                     $ 88,191,888  
                     
 
Loans with fixed interest rates   $ 1,953,376   $ 5,921,689   $ 9,045,329   $ 16,920,394  
Loans with variable interest rates     72,385,221             72,385,221  

 

 

 

 

 

 

 

 

 

 

 

 

 

 
   
 
 
 
 
  Total gross loans   $ 74,339,597   $ 5,921,689   $ 9,045,329   $ 89,305,615  
   
 
 
 
 
Deferred loan fees                       (1,113,727 )
                     
 
  Total loans                     $ 88,191,888  
                     
 

        Loan Concentrations. Ultimately, credit quality may be influenced by underlying trends in economic and business cycles. Upland Bank's business is concentrated in the communities surrounding Upland Bank's offices. Upland Bank has significant extensions of credit and commitments to extend credit which are secured by real estate. At March 31, 2002 and December 31, 2001, Upland Bank had outstanding real estate secured and real estate construction loans amounting to $71,526,424 and $70,501,906, respectively. These concentrations represented 80.33% and 79.94% of the loan portfolio at March 31, 2002 and December 31, 2001, respectively.

        Construction loans amounted to $35,772,952 and $40,300,792 at March 31, 2002 and December 31, 2001, respectively, and accounted for 40.18% and 45.70% of the loan portfolio, respectively, at those dates. Approximately 75% of the bank's construction loans are for single-family dwellings, consisting of conventional homes, townhouses and condominiums, and 25% of the loans are for commercial buildings with national tenants. Approximately 45% of single-family homes that the bank finances are pre-sold before the loan funds are disbursed.

        Upland Bank's board of directors has committed to reduce its concentration in real estate construction loans as a percentage of total loans outstanding. While Upland Bank is working to replace the real estate construction loans with other types of loans, its ability to generate replacement loans has not kept up with its reduction in real estate construction lending. This has had, and if Upland Bank remains on a stand-alone basis, is likely to have, a negative impact on Upland Bank's earnings.

        Adverse economic conditions, a decline in real estate values, or a significant increase in interest rates could negatively affect the construction loan business and require an increase in the provision for loan losses, which in turn, could adversely affect Upland Bank's future prospects, results of operations, and profitability.

        Nonperforming Assets. Loans are generally placed on non-accrual status when principal or interest payments are past due 90 days or more. Certain loans are placed on nonaccrual earlier if there is a reasonable doubt as to the collectibility of principal and interest. Loans which are in the process of renewal in the normal course of business or are well secured and in the process of collection continue to accrue interest if management considers the risk of loss to be minimal.

84



        The following table provides information regarding Upland Bank's nonperforming assets at the dates indicated.

 
  At
March 31,

  At
December 31,

 
 
  2002
  2001
  2000
 
Nonaccrual loans   $   $   $ 2,655,000  
Loans 90 day or more past due and accruing     131,000     1,028,000     299,000  
&n