##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 000  51044
 
 COMMUNITY BANCORP
 (Exact name of registrant as specified in its charter)
 
 Nevada
    
    01-0668846(State or other jurisdiction of incorporation)
    
    (I.R.S. Employer Identification No.)400 South 4th Street, Suite 215, Las Vegas, NV
    
    89101(Address of principal executive offices)
    
    (Zip Code)
 (702) 878  0700
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Title of Class
    
    Outstanding as of October 31, 2008Common Stock, $0.001 par value
    
    10,249,874 shares




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##### 



COMMUNITY
BANCORP
TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS
    
    
    3ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    18ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    37ITEM 4. CONTROLS AND PROCEDURES
    
    
    38PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    38ITEM 1A. RISK FACTORS
    
    
    38ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    38ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    38ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    38ITEM 5. OTHER INFORMATION
    
    
    38ITEM 6. EXHIBITS
    
    
    38SIGNATURES
    
    
    39CERTIFICATIONSExhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 PageConsolidated Balance Sheets
    
    
    4Consolidated Statements of Operations and Comprehensive Income (Loss)
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7
  3




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##### Table of Contents



COMMUNITY BANCORP AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 September 30,
    
    
    December 31,2008
    
    
    2007(In thousands, except share data)ASSETSCash and due from banks
    
    $
    14,175
    
    
    $
    19,243Interest bearing deposits in other banks
    
    
    739
    
    
    
    141Federal funds sold
    
    
    73,881
    
    
    
    20Cash and cash equivalents
    
    
    88,795
    
    
    
    19,404Interest bearing certificate of deposits at other financial institutions
    
    
    2,000
    
    
    
    Securities available for sale, at fair value
    
    
    60,212
    
    
    
    88,217Securities held to maturity, at amortized cost (fair value of $645 as of September 30, 2008 and $817 as of December 31, 2007)
    
    
    632
    
    
    
    801Required equity investments, at cost
    
    
    9,748
    
    
    
    14,014Loans, net of allowance for loan losses of $34,332 as of September 30, 2008 and $17,098 as of December 31, 2007
    
    
    1,441,518
    
    
    
    1,396,890Premises and equipment, net
    
    
    23,476
    
    
    
    27,535Other real estate owned
    
    
    10,666
    
    
    
    Accrued interest and dividends receivable
    
    
    6,354
    
    
    
    8,046Deferred income taxes, net
    
    
    1,575
    
    
    
    1,503Bank owned life insurance
    
    
    10,816
    
    
    
    10,521Goodwill
    
    
    113,636
    
    
    
    113,636Core deposit intangible, net of accumulated amortization of $3,483 as of September 30, 2008 and $2,478 as of December 31, 2007
    
    
    6,476
    
    
    
    7,481Other assets
    
    
    11,639
    
    
    
    5,473Total assets
    
    $
    1,787,543
    
    
    $
    1,693,521LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDeposits:Non-interest bearing
    
    $
    135,568
    
    
    $
    170,725Interest bearing:Demand
    
    
    659,726
    
    
    
    672,567Savings
    
    
    17,493
    
    
    
    28,465Time, $100,000 or more
    
    
    199,867
    
    
    
    171,664Other time
    
    
    416,187
    
    
    
    187,041Total deposits
    
    
    1,428,841
    
    
    
    1,230,462Borrowings
    
    
    46,849
    
    
    
    146,684Accrued interest payable and other liabilities
    
    
    8,049
    
    
    
    9,090Junior subordinated debt
    
    
    72,166
    
    
    
    72,166Total liabilities
    
    
    1,555,905
    
    
    
    1,458,402Commitments and Contingencies (Note 9)Stockholders equityPreferred stock, par value: $0.001; shares authorized: 20,000,000 at September 30, 2008 and none at December 31,
2007; shares issued: none
    
    
    
    
    
    
    Common stock, par value: $0.001; shares authorized: 50,000,000 at September 30, 2008 and 30,000,000 at December 31,
2007; shares issued: 10,602,990 as of September 30, 2008 (including 139,694 shares of unvested restricted stock) and
10,620,529 as of December 31, 2007 (including 161,137 shares of unvested restricted stock)
    
    
    11
    
    
    
    11Additional paid-in capital
    
    
    170,192
    
    
    
    168,931Retained earnings
    
    
    67,893
    
    
    
    72,797Accumulated other comprehensive income, net of tax
    
    
    226
    
    
    
    64238,322
    
    
    
    241,803Less cost of treasury stock, 350,575 shares as of September 30, 2008 and December 31, 2007
    
    
    (6,684
    )
    
    
    (6,684
    )Total stockholders equity
    
    
    231,638
    
    
    
    235,119Total liabilities and stockholders equity
    
    $
    1,787,543
    
    
    $
    1,693,521
   4




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##### Table of Contents



COMMUNITY BANCORP AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 (Unaudited)
 For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Interest and dividend income:Loans, including fees
    
    $
    23,278
    
    
    $
    31,613
    
    
    $
    77,336
    
    
    $
    90,986Securities and investments
    
    
    888
    
    
    
    1,345
    
    
    
    2,955
    
    
    
    4,229Federal funds sold
    
    
    431
    
    
    
    301
    
    
    
    458
    
    
    
    1,348Total interest and dividend income
    
    
    24,597
    
    
    
    33,259
    
    
    
    80,749
    
    
    
    96,563Interest expense:Deposits
    
    
    9,962
    
    
    
    12,279
    
    
    
    28,720
    
    
    
    34,902Borrowings
    
    
    663
    
    
    
    1,209
    
    
    
    3,063
    
    
    
    3,510Junior subordinated debt
    
    
    1,042
    
    
    
    1,543
    
    
    
    3,230
    
    
    
    4,616Total interest expense
    
    
    11,667
    
    
    
    15,031
    
    
    
    35,013
    
    
    
    43,028Net interest income before provision for loan losses
    
    
    12,930
    
    
    
    18,228
    
    
    
    45,736
    
    
    
    53,535Provision for loan losses
    
    
    8,000
    
    
    
    533
    
    
    
    26,394
    
    
    
    1,501Net interest income after provision for loan losses
    
    
    4,930
    
    
    
    17,695
    
    
    
    19,342
    
    
    
    52,034Non-interest income:Service charges and other income
    
    
    824
    
    
    
    621
    
    
    
    2,225
    
    
    
    1,806Bank owned life insurance
    
    
    97
    
    
    
    111
    
    
    
    295
    
    
    
    340Net swap settlements
    
    
    (108
    )
    
    
    52
    
    
    
    (223
    )
    
    
    144Rental income
    
    
    35
    
    
    
    38
    
    
    
    122
    
    
    
    114Gain on sale of securities
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    4(Loss) gain on sale of property
    
    
    (3
    )
    
    
    
    
    
    
    1,207
    
    
    
    Net gain on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285Total non-interest income
    
    
    845
    
    
    
    822
    
    
    
    3,822
    
    
    
    2,693Non-interest expense:Salaries, wages and employee benefits
    
    
    4,606
    
    
    
    5,337
    
    
    
    15,701
    
    
    
    16,638Occupancy, equipment and depreciation
    
    
    1,351
    
    
    
    1,351
    
    
    
    3,924
    
    
    
    3,774Core deposit intangible amortization
    
    
    335
    
    
    
    335
    
    
    
    1,005
    
    
    
    1,005Data processing
    
    
    295
    
    
    
    246
    
    
    
    828
    
    
    
    829Advertising and public relations
    
    
    387
    
    
    
    651
    
    
    
    1,169
    
    
    
    1,388Professional fees
    
    
    463
    
    
    
    486
    
    
    
    1,669
    
    
    
    1,186Telephone and postage
    
    
    153
    
    
    
    214
    
    
    
    479
    
    
    
    608Stationery and supplies
    
    
    171
    
    
    
    189
    
    
    
    573
    
    
    
    547Directors fees
    
    
    106
    
    
    
    71
    
    
    
    342
    
    
    
    249Insurance
    
    
    469
    
    
    
    170
    
    
    
    1,129
    
    
    
    429Software maintenance
    
    
    175
    
    
    
    106
    
    
    
    494
    
    
    
    327Loan related
    
    
    266
    
    
    
    74
    
    
    
    489
    
    
    
    251Foreclosed assets, net
    
    
    798
    
    
    
    
    
    
    
    952
    
    
    
    Loss on interest rate swaps
    
    
    191
    
    
    
    
    
    
    
    206
    
    
    
    Other operating expenses
    
    
    590
    
    
    
    813
    
    
    
    1,788
    
    
    
    1,893Total non-interest expense
    
    
    10,356
    
    
    
    10,043
    
    
    
    30,748
    
    
    
    29,124(Loss) income before income tax provision
    
    
    (4,581
    )
    
    
    8,474
    
    
    
    (7,584
    )
    
    
    25,603Income tax (benefit) provision
    
    
    (1,621
    )
    
    
    2,943
    
    
    
    (2,680
    )
    
    
    8,980Net (loss) income
    
    
    (2,960
    )
    
    
    5,531
    
    
    
    (4,904
    )
    
    
    16,623Other comprehensive income  unrealized gain on available-for-sale securities, net of income
taxes of $176, $351, $150 and $89, respectively
    
    
    388
    
    
    
    640
    
    
    
    162
    
    
    
    195Comprehensive (loss) income
    
    $
    (2,572
    )
    
    $
    6,171
    
    
    $
    (4,742
    )
    
    $
    16,818(LOSS) EARNINGS PER SHARE:Basic
    
    $
    (0.29
    )
    
    $
    0.53
    
    
    $
    (0.49
    )
    
    $
    1.59Diluted
    
    $
    (0.29
    )
    
    $
    0.53
    
    
    $
    (0.49
    )
    
    $
    1.59
   5




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##### Table of Contents



COMMUNITY BANCORP AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the nine months ended
 (Unaudited)
 September 30,
    
    
    September 30,2008
    
    
    2007(In thousands)Cash flows from operating activities:Net (loss) income
    
    $
    (4,904
    )
    
    $
    16,623Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation of premises and equipment
    
    
    1,432
    
    
    
    1,441Gain on sales of fixed assets
    
    
    (1,207
    )
    
    
    (20
    )Change in fair value of other real estate owned
    
    
    870
    
    
    
    Amortization of core deposit intangible
    
    
    1,005
    
    
    
    1,005Loss on interest rate swaps
    
    
    206
    
    
    
    Income from bank owned life insurance
    
    
    (295
    )
    
    
    (340
    )Gain on sale of loans
    
    
    
    
    
    
    (285
    )Gain on sale of securities
    
    
    (196
    )
    
    
    (4
    )Proceeds from sales of loans held for sale
    
    
    
    
    
    
    3,559Originations of loans held for sale
    
    
    
    
    
    
    (2,458
    )Deferred taxes, net
    
    
    (222
    )
    
    
    1,308Provision for loan losses
    
    
    26,394
    
    
    
    1,501Share-based compensation expense
    
    
    1,292
    
    
    
    740Net amortization (accretion) of investment premium and discount
    
    
    45
    
    
    
    (100
    )Decrease (increase) in accrued interest receivable
    
    
    1,692
    
    
    
    (977
    )(Increase) decrease in other assets
    
    
    (6,166
    )
    
    
    441Decrease in accrued interest payable and other liabilities
    
    
    (1,247
    )
    
    
    (667
    )Income from required equity investments  stock dividends
    
    
    (281
    )
    
    
    (183
    )Net cash provided by operating activities
    
    
    18,418
    
    
    
    21,584Cash flows from investing activities:Net increase in loans
    
    
    (86,885
    )
    
    
    (119,791
    )(Payments) receipts on net swap settlements
    
    
    (223
    )
    
    
    144Proceeds from maturities of and principal paydowns on securities held to maturity
    
    
    169
    
    
    
    444Purchase of securities available for sale
    
    
    (1,152
    )
    
    
    (4,685
    )Proceeds from maturities, calls and principal paydowns of securities available for sale
    
    
    29,590
    
    
    
    18,714Proceeds from sale of securities available for sale
    
    
    30
    
    
    
    3,272Purchase of investments from other financial institutions
    
    
    (2,000
    )
    
    
    Net investment in required equity investments
    
    
    4,547
    
    
    
    (6,948
    )Purchase of premises and equipment
    
    
    (1,187
    )
    
    
    (2,698
    )Proceeds from sale of other real estate owned
    
    
    4,550
    
    
    
    Proceeds from sale of premises and equipment
    
    
    5,021
    
    
    
    20Net cash used in investing activities
    
    
    (47,540
    )
    
    
    (111,528
    )Cash flows from financing activities:Net (decrease) increase in borrowings
    
    
    (96,081
    )
    
    
    23,572Net increase in deposits
    
    
    198,379
    
    
    
    82,627Repayment of long-term debt
    
    
    (3,754
    )
    
    
    Redemption of long-term subordinated debentures
    
    
    
    
    
    
    (15,464
    )Purchase of treasury stock
    
    
    
    
    
    
    (985
    )Excess tax benefit related to exercise of stock options
    
    
    (31
    )
    
    
    51Proceeds from exercise of stock options
    
    
    
    
    
    
    265Net cash provided by financing activities
    
    
    98,513
    
    
    
    90,066Net increase in cash and cash equivalents
    
    
    69,391
    
    
    
    122Cash and cash equivalents, beginning of the year
    
    
    19,404
    
    
    
    46,116Cash and cash equivalents, end of the period
    
    $
    88,795
    
    
    $
    46,238Supplemental disclosure of cash flow information:Interest paid
    
    $
    34,748
    
    
    $
    42,512Income taxes paid
    
    $
    3,003
    
    
    $
    9,904Transfer of loans to other real estate owned
    
    $
    16,086
    
    
    $
    
   6




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##### Table of Contents



COMMUNITY BANCORP AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Nature of Business
      Note 2. Basis of Presentation
    Note 3. Significant Accounting Policies
  Note 4. Recent Accounting Pronouncements
 Fair
Value Measurements
  7




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities-Including an Amendment of FASB Statement No. 115.
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133.
 , Determining the Fair
Value of a Financial Asset When the Market for That Asset is not Active.
 Note 5. Loans
  September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Commercial and industrial
    
    $
    217,379
    
    
    $
    210,614Real estate:Commercial
    
    
    401,597
    
    
    
    370,464Residential
    
    
    42,024
    
    
    
    43,212Construction and land development
    
    
    813,412
    
    
    
    789,185Consumer and other
    
    
    4,755
    
    
    
    5,707Total gross loans
    
    
    1,479,167
    
    
    
    1,419,182Less:Allowance for loan losses
    
    
    34,332
    
    
    
    17,098Net unearned loan fees and discounts
    
    
    3,317
    
    
    
    5,194Total net loans
    
    $
    1,441,518
    
    
    $
    1,396,890
  8




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##### Table of Contents



For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)
    
    
    (In thousands)Balance at beginning of period
    
    $
    28,050
    
    
    $
    15,985
    
    
    $
    17,098
    
    
    $
    14,973Provision for loan losses
    
    
    8,000
    
    
    
    533
    
    
    
    26,394
    
    
    
    1,501Less amounts charged off
    
    
    (1,798
    )
    
    
    (349
    )
    
    
    (9,469
    )
    
    
    (577
    )Recoveries of amounts charged off
    
    
    80
    
    
    
    15
    
    
    
    309
    
    
    
    287Balance at end of period
    
    $
    34,332
    
    
    $
    16,184
    
    
    $
    34,332
    
    
    $
    16,184
    September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Non-accrual loans, not restructured
    
    $
    185,539
    
    
    $
    12,076Accruing loans past due 90 days or more
    
    
    8
    
    
    
    20Restructured loans
    
    
    
    
    
    
    Total non-performing loans
    
    $
    185,547
    
    
    $
    12,096
  September 30, 2008
    
    
    December 31, 2007Non-Accrual
    
    
    
    
    
    
    Percent of
    
    
    Non-Accrual
    
    
    
    
    
    
    Percent ofBalance
    
    
    %
    
    
    Total Loans
    
    
    Balance
    
    
    %
    
    
    Total Loans(In thousands, except percentage data)Commercial and industrial
    
    $
    3,516
    
    
    
    1.9
    %
    
    
    0.24
    %
    
    $
    2,042
    
    
    
    16.9
    %
    
    
    0.15
    %Real Estate:Commercial
    
    
    21,970
    
    
    
    11.8
    %
    
    
    1.48
    %
    
    
    4,291
    
    
    
    35.5
    %
    
    
    0.30
    %Residential
    
    
    290
    
    
    
    0.2
    %
    
    
    0.02
    %
    
    
    
    
    
    
    0.0
    %
    
    
    0.00
    %Construction and land development
    
    
    159,743
    
    
    
    86.1
    %
    
    
    10.80
    %
    
    
    5,738
    
    
    
    47.6
    %
    
    
    0.40
    %Consumer and Other
    
    
    20
    
    
    
    0.0
    %
    
    
    0.00
    %
    
    
    5
    
    
    
    0.0
    %
    
    
    0.00
    %Total Loans
    
    $
    185,539
    
    
    
    100.0
    %
    
    
    12.54
    %
    
    $
    12,076
    
    
    
    100.0
    %
    
    
    0.85
    %
   September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Impaired loans with a valuation allowance
    
    $
    58,962
    
    
    $
    3,097Impaired loans without a valuation allowance
    
    
    136,182
    
    
    
    26,702Total impaired loans
    
    $
    195,144
    
    
    $
    29,799Average balance of impaired loans (1)
    
    $
    106,221
    
    
    $
    15,163Related valuation allowance
    
    $
    18,063
    
    
    $
    1,283Interest income recognized on impaired loans (1)
    
    $
    644
    
    
    $
    1,551Interest income recognized on a cash basis on
impaired loans (1)
    
    $
    318
    
    
    $
    948
 (1)
    
    For the nine months ended September 30, 2008 and twelve months ended December 31, 2007. Note 6. Other Real Estate Owned
   Note 7. Borrowings
    9




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##### Table of Contents



In
September 2007, the Company borrowed $15.5 million and used the
proceeds to redeem junior subordinated debt owed to Community Bancorp
(NV) Statutory Trust I which used the proceeds to redeem its trust
preferred issuances. The borrowing is unsecured, bears interest at the one
month LIBOR plus 1.50% (equal to 3.97% at September 30, 2008), is payable
in the amount of approximately $475,000 monthly with all unpaid interest
and principal due on September 26, 2010 and requires the lender’s
approval prior to issuing dividends to shareholders. The outstanding balance on
the note was $10.5 million and $14.3 million as of September 30,
2008 and December 31, 2007, respectively. At September 30, 2008, the Company was not in compliance with the debt service coverage ratio
requirement of this loan agreement. The Company is currently negotiating a waiver from the lender
of this requirement and is current on all scheduled interest and principal payments. In the event
these negotiations are not successful, the Company has the right and ability to prepay the note
without penalty. Note 8. Junior Subordinated Debt
  Consolidation of Variable Interest
Entities-an interpretation of ARB No. 51
    Note 9. Commitments and Contingencies
 Financial Instruments with Off-Balance Sheet Risk
    10




---



##### Table of Contents



Outstanding commitmentsSeptember 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Commitments to extend credit, including unsecured commitments of approximately $17,284 for 2008 and $28,137
for 2007
    
    $
    282,082
    
    
    $
    430,093Credit card commitments, including unsecured amounts of approximately $848 for 2008 and $818 for 2007
    
    
    848
    
    
    
    818Standby letters of credit, including unsecured commitments of approximately $2,263 for 2008 and $2,485 for 2007
    
    
    3,966
    
    
    
    4,083$
    286,896
    
    
    $
    434,994
  Accounting for
Contingencies
  Financial Instruments with Concentrations of Credit Risk
     11




---



##### Table of Contents



Lease Commitments
     Contingencies
  Note 10. Derivative Financial Instruments
    Note 11. Stockholders Equity
   12




---



##### Table of Contents



Note 12. Earnings (Loss) per Share
   For the Three Months Ended September 30,
    
    
    For the Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except (loss) earnings per share data)
    
    
    (In thousands, except (loss) earnings per share data)Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageNet
    
    
    Number
    
    
    Per Share
    
    
    Net
    
    
    Number
    
    
    Per Share
    
    
    Net
    
    
    Number
    
    
    Per Share
    
    
    Net
    
    
    Number
    
    
    Per Share(Loss)
    
    
    of Shares
    
    
    Amounts
    
    
    Income
    
    
    of Shares
    
    
    Amounts
    
    
    (Loss)
    
    
    of Shares
    
    
    Amounts
    
    
    Income
    
    
    of Shares
    
    
    AmountsBasic EPS
    
    $
    (2,960
    )
    
    
    10,110
    
    
    $
    (0.29
    )
    
    $
    5,531
    
    
    
    10,395
    
    
    $
    0.53
    
    
    $
    (4,904
    )
    
    
    10,109
    
    
    $
    (0.49
    )
    
    $
    16,623
    
    
    
    10,410
    
    
    $
    1.59Effect of dilutive securities:Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    Restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    Diluted EPS
    
    $
    (2,960
    )
    
    
    10,110
    
    
    $
    (0.29
    )
    
    $
    5,531
    
    
    
    10,497
    
    
    $
    0.53
    
    
    $
    (4,904
    )
    
    
    10,109
    
    
    $
    (0.49
    )
    
    $
    16,623
    
    
    
    10,493
    
    
    $
    1.59
  Note 13. Share-Based Compensation
 Stock options
  Restricted stock
  Stock appreciation rights
    13




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##### Table of Contents



Note 14. Segments
  For the three months ended and as of September 30, 2008
    
    
    For the nine months ended and as of September 30, 2008Community
    
    
    Community
    
    
    
    
    
    
    
    
    
    
    Community
    
    
    CommunityBank of
    
    
    Bank of
    
    
    
    
    
    
    
    
    
    
    Bank of
    
    
    Bank ofNevada
    
    
    Arizona
    
    
    Other (3)
    
    
    Total
    
    
    Nevada
    
    
    Arizona
    
    
    Other (3)
    
    
    Total(In thousands)
    
    
    (In thousands)Interest and dividend income
    
    $
    22,797
    
    
    $
    1,783
    
    
    $
    17
    
    
    $
    24,597
    
    
    $
    75,631
    
    
    $
    5,120
    
    
    $
    (2
    )
    
    $
    80,749Interest expense
    
    
    9,704
    
    
    
    829
    
    
    
    1,134
    
    
    
    11,667
    
    
    
    29,483
    
    
    
    1,994
    
    
    
    3,536
    
    
    
    35,013Net interest income before provision for loan
losses
    
    
    13,093
    
    
    
    954
    
    
    
    (1,117
    )
    
    
    12,930
    
    
    
    46,148
    
    
    
    3,126
    
    
    
    (3,538
    )
    
    
    45,736Provision for loan losses
    
    
    7,600
    
    
    
    400
    
    
    
    
    
    
    
    8,000
    
    
    
    24,119
    
    
    
    2,275
    
    
    
    
    
    
    
    26,394Net interest income after provision for loan losses
    
    
    5,493
    
    
    
    554
    
    
    
    (1,117
    )
    
    
    4,930
    
    
    
    22,029
    
    
    
    851
    
    
    
    (3,538
    )
    
    
    19,342Non-interest income
    
    
    797
    
    
    
    48
    
    
    
    
    
    
    
    845
    
    
    
    3,685
    
    
    
    137
    
    
    
    
    
    
    
    3,822Non-interest expenses
    
    
    8,357
    
    
    
    1,202
    
    
    
    797
    
    
    
    10,356
    
    
    
    24,129
    
    
    
    3,742
    
    
    
    2,877
    
    
    
    30,748Segment pretax (loss) income
    
    $
    (2,067
    )
    
    $
    (600
    )
    
    $
    (1,914
    )
    
    $
    (4,581
    )
    
    $
    1,585
    
    
    $
    (2,754
    )
    
    $
    (6,415
    )
    
    $
    (7,584
    )Segment assets (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,639,147
    
    
    $
    144,593
    
    
    $
    3,803
    
    
    $
    1,787,543
 For the three months ended and as of September 30, 2007
    
    
    For the nine months ended and as of September 30, 2007Community
    
    
    Community
    
    
    
    
    
    
    
    
    
    
    Community
    
    
    CommunityBank of
    
    
    Bank of
    
    
    
    
    
    
    
    
    
    
    Bank of
    
    
    Bank ofNevada
    
    
    Arizona
    
    
    Other (3)
    
    
    Total
    
    
    Nevada
    
    
    Arizona
    
    
    Other (3)
    
    
    Total(In thousands)
    
    
    (In thousands)Interest and dividend income
    
    $
    31,590
    
    
    $
    1,613
    
    
    $
    56
    
    
    $
    33,259
    
    
    $
    91,890
    
    
    $
    4,507
    
    
    $
    166
    
    
    $
    96,563Interest expense
    
    
    12,855
    
    
    
    618
    
    
    
    1,558
    
    
    
    15,031
    
    
    
    36,762
    
    
    
    1,635
    
    
    
    4,631
    
    
    
    43,028Net interest income before provision for loan
losses
    
    
    18,735
    
    
    
    995
    
    
    
    (1,502
    )
    
    
    18,228
    
    
    
    55,128
    
    
    
    2,872
    
    
    
    (4,465
    )
    
    
    53,535Provision for loan losses
    
    
    357
    
    
    
    176
    
    
    
    
    
    
    
    533
    
    
    
    1,125
    
    
    
    376
    
    
    
    
    
    
    
    1,501Net interest income after provision for loan losses
    
    
    18,378
    
    
    
    819
    
    
    
    (1,502
    )
    
    
    17,695
    
    
    
    54,003
    
    
    
    2,496
    
    
    
    (4,465
    )
    
    
    52,034Non-interest income
    
    
    770
    
    
    
    52
    
    
    
    
    
    
    
    822
    
    
    
    2,388
    
    
    
    230
    
    
    
    75
    
    
    
    2,693Non-interest expenses
    
    
    8,275
    
    
    
    909
    
    
    
    859
    
    
    
    10,043
    
    
    
    24,762
    
    
    
    2,656
    
    
    
    1,706
    
    
    
    29,124Segment pretax income (loss)
    
    $
    10,873
    
    
    $
    (38
    )
    
    $
    (2,361
    )
    
    $
    8,474
    
    
    $
    31,629
    
    
    $
    70
    
    
    $
    (6,096
    )
    
    $
    25,603Segment assets (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,582,481
    
    
    $
    92,326
    
    
    $
    3,052
    
    
    $
    1,677,859
 (1)
    
    Goodwill included in Community Bank of Nevadas and Community Bank of Arizonas segment
assets amounted to $103.7 million and $9.9 million, respectively.(2)
    
    Goodwill included in Community Bank of Nevadas and Community Bank of Arizonas segment
assets amounted to $105.2 million and $9.9 million, respectively.(3)
    
    Includes intersegment eliminations and reclassifications.  14




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##### Table of Contents



Note 15. Quarterly Data
 For the three months ended
    
    
    For the three months endedSeptember 30,
    
    
    June 30,
    
    
    March 31,
    
    
    September 30,
    
    
    June 30,
    
    
    March 31,2008
    
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2007(In thousands, except per share data)Interest and dividend income
    
    $
    24,597
    
    
    $
    26,197
    
    
    $
    29,955
    
    
    $
    33,259
    
    
    $
    32,416
    
    
    $
    30,888Interest expense
    
    
    11,667
    
    
    
    10,670
    
    
    
    12,676
    
    
    
    15,031
    
    
    
    14,618
    
    
    
    13,379Net interest income before provision for loan
losses
    
    
    12,930
    
    
    
    15,527
    
    
    
    17,279
    
    
    
    18,228
    
    
    
    17,798
    
    
    
    17,509Provision for loan losses
    
    
    8,000
    
    
    
    14,226
    
    
    
    4,168
    
    
    
    533
    
    
    
    486
    
    
    
    482Net interest income after provision for loan losses
    
    
    4,930
    
    
    
    1,301
    
    
    
    13,111
    
    
    
    17,695
    
    
    
    17,312
    
    
    
    17,027Non-interest income
    
    
    845
    
    
    
    821
    
    
    
    2,156
    
    
    
    822
    
    
    
    1,004
    
    
    
    867Non-interest expense
    
    
    10,356
    
    
    
    9,282
    
    
    
    11,110
    
    
    
    10,043
    
    
    
    9,623
    
    
    
    9,458(Loss) income before income tax provision
    
    
    (4,581
    )
    
    
    (7,160
    )
    
    
    4,157
    
    
    
    8,474
    
    
    
    8,693
    
    
    
    8,436Income tax (benefit) provision
    
    
    (1,621
    )
    
    
    (2,524
    )
    
    
    1,465
    
    
    
    2,943
    
    
    
    3,050
    
    
    
    2,987Net (loss) income
    
    $
    (2,960
    )
    
    $
    (4,636
    )
    
    $
    2,692
    
    
    $
    5,531
    
    
    $
    5,643
    
    
    $
    5,449Basic (loss) earnings per share
    
    $
    (0.29
    )
    
    $
    (0.46
    )
    
    $
    0.27
    
    
    $
    0.53
    
    
    $
    0.54
    
    
    $
    0.52Diluted (loss) earnings per share
    
    $
    (0.29
    )
    
    $
    (0.46
    )
    
    $
    0.26
    
    
    $
    0.53
    
    
    $
    0.54
    
    
    $
    0.52
 Note 16. Sale of Property
 Warm Springs
   Jones Property
   Accounting for Sales with Leasebacks, an amendment of SFAS No.
13,
  15




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##### Table of Contents



Note 17. Fair Value Accounting
 Fair Value
Measurements SFAS
No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities-Including an Amendment of FASB Statement No. 115
   
    
    Level 1  Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets;
 
    
    Level 2  Inputs to the valuation methodology include quoted prices for similar assets
and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the
financial instrument; and
 
    
    Level 3  Inputs to the valuation methodology are unobservable and significant to the
fair value measurement.
   Accounting by Creditors for Impairment of a Loan,
   16




---



##### Table of Contents



Fair Value Measurements at Reporting Date Using:Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsDescription
    
    September 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(In thousands)Assets:Securities available
for sale, at fair
value
    
    $
    60,212
    
    
    $
    
    
    
    $
    60,212
    
    
    $
    Total
    
    $
    60,212
    
    
    $
    
    
    
    $
    60,212
    
    
    $
    Liabilities:Interest rate swaps (1)
    
    $
    586
    
    
    $
    
    
    
    $
    586
    
    
    $
    $
    586
    
    
    $
    
    
    
    $
    586
    
    
    $
    
 (1)
    
    Included in accrued interest
payable and other liabilities.   Fair Value Measurements at Reporting Date Using:Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsDescription
    
    September 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(In thousands)Assets:Impaired loans with
specific valuation
allowance under
SFAS No. 114
    
    $
    40,899
    
    
    $
    
    
    
    $
    40,899
    
    
    $
    
  Note 18. Goodwill
 Goodwill and Other Intangible Assets
  17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   EXECUTIVE OVERVIEW
    
    
    The provision for loan losses increased to $8.0 million and $26.4 million for the
three and nine months ended September 30, 2008, respectively, compared to a provision for
loan losses of $533,000 and $1.5 million for the same periods in 2007.
 
    
    Interest and dividend income was adversely affected due to an increase in
non-performing loans for the three and nine months ended September 30, 2008.
 
    
    As a result of the increased provision for loan losses and the adverse effect of the
increase in non-performing loans on interest and dividend income (including the effect of
non-earning assets on interest and dividend income), the Company recognized a loss for
the three and nine months ended September 30, 2008 of $3.0 million, or $0.29 per diluted
share and $4.9 million, or $0.49 per diluted share, respectively, compared to net income
of $5.5 million, or $0.53 per share, and $16.6 million, or $1.59 per diluted share, for
the same periods in 2007.
  
    
    The allowance for loan losses increased to $34.3 million, or 2.32% of total gross
loans, at September 30, 2008, compared to $17.1 million, or 1.20% of total gross loans,
at December 31, 2007.
 
    
    Non-performing loans totaled $185.5 million, or 12.5% of total gross loans, at
September 30, 2008, compared to $12.1 million, or 0.85% of total gross loans, at December
31, 2007.
 
    
    Impaired loans, which include all non-performing loans, increased to $195.1 million at
September 30, 2008, compared to $29.8 million at December 31, 2007.
  18




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##### Table of Contents



SUMMARY CONSOLIDATED FINANCIAL DATA AND OTHER DATA
(Unaudited)
 3rd
    
    
    3rd
    
    
    
    
    
    
    Nine
    
    
    NineQuarter
    
    
    Quarter
    
    
    Percentage
    
    
    Months
    
    
    Months
    
    
    Percentage2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change(In thousands, except share and percentage data)
    
    
    (In thousands, except share and percentage data)SHARE DATAEarnings (loss) per share  basic
    
    $
    (0.29
    )
    
    $
    0.53
    
    
    
    (154.7
    )%
    
    $
    (0.49
    )
    
    $
    1.59
    
    
    
    (130.8
    )%Earnings (loss) per share  diluted
    
    $
    (0.29
    )
    
    $
    0.53
    
    
    
    (154.7
    )%
    
    $
    (0.49
    )
    
    $
    1.59
    
    
    
    (130.8
    )%Book value per share
    
    
    22.59
    
    
    $
    22.37
    
    
    
    1.0
    %
    
    
    22.59
    
    
    $
    22.37
    
    
    
    1.0
    %Shares outstanding at period end
    
    
    10,252,415
    
    
    
    10,540,619
    
    
    
    (2.7
    )%
    
    
    10,252,415
    
    
    
    10,540,619
    
    
    
    (2.7
    )%Weighted average shares outstanding  basic
    
    
    10,110,430
    
    
    
    10,395,240
    
    
    
    (2.7
    )%
    
    
    10,109,358
    
    
    
    10,410,277
    
    
    
    (2.9
    )%Weighted average shares outstanding  diluted (5)
    
    
    10,110,430
    
    
    
    10,497,060
    
    
    
    (3.7
    )%
    
    
    10,109,358
    
    
    
    10,492,685
    
    
    
    (3.7
    )%SELECTED OTHER BALANCE SHEET DATAAverage assets
    
    $
    1,822,461
    
    
    $
    1,663,541
    
    
    
    9.6
    %
    
    $
    1,758,552
    
    
    $
    1,635,260
    
    
    
    7.5
    %Average earning assets
    
    $
    1,651,177
    
    
    $
    1,484,626
    
    
    
    11.2
    %
    
    $
    1,587,091
    
    
    $
    1,454,622
    
    
    
    9.1
    %Average stockholders equity
    
    $
    234,721
    
    
    $
    234,234
    
    
    
    0.2
    %
    
    $
    237,759
    
    
    $
    228,645
    
    
    
    4.0
    %Gross loans
    
    $
    1,479,167
    
    
    $
    1,373,661
    
    
    
    7.7
    %
    
    $
    1,479,167
    
    
    $
    1,373,661
    
    
    
    7.7
    %SELECTED FINANCIAL RATIOSReturn on average assets
    
    
    (0.65
    )%
    
    
    1.32
    %
    
    
    (149.2
    )%
    
    
    (0.37
    )%
    
    
    1.36
    %
    
    
    (127.2
    )%Return on average stockholders equity
    
    
    (5.02
    )%
    
    
    9.37
    %
    
    
    (153.6
    )%
    
    
    (2.76
    )%
    
    
    9.72
    %
    
    
    (128.4
    )%Net interest margin (1)
    
    
    3.14
    %
    
    
    4.90
    %
    
    
    (35.9
    )%
    
    
    3.88
    %
    
    
    4.95
    %
    
    
    (21.6
    )%Efficiency ratio (2)
    
    
    75.18
    %
    
    
    52.72
    %
    
    
    42.6
    %
    
    
    62.04
    %
    
    
    51.80
    %
    
    
    19.8
    %Capital RatiosAverage stockholders equity to average assets
    
    
    12.88
    %
    
    
    14.08
    %
    
    
    (8.5
    )%
    
    
    13.52
    %
    
    
    13.98
    %
    
    
    (3.3
    )%Tier 1 leverage capital ratiosConsolidated Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.65
    %
    
    
    11.89
    %
    
    
    (10.4
    )%Community Bank of Nevada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.60
    %
    
    
    11.74
    %
    
    
    (9.7
    )%Community Bank of Arizona
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.67
    %
    
    
    28.42
    %
    
    
    (41.3
    )%Tier 1 risk-based capital ratiosConsolidated Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.04
    %
    
    
    11.73
    %
    
    
    (5.9
    )%Community Bank of Nevada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.96
    %
    
    
    11.44
    %
    
    
    (4.2
    )%Community Bank of Arizona
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.07
    %
    
    
    34.54
    %
    
    
    (47.7
    )%Total risk-based capital ratiosConsolidated Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.30
    %
    
    
    12.77
    %
    
    
    (3.7
    )%Community Bank of Nevada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.22
    %
    
    
    12.47
    %
    
    
    (2.0
    )%Community Bank of Arizona
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.34
    %
    
    
    35.76
    %
    
    
    (45.9
    )%Asset Quality RatiosNon-performing loans (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    185,547
    
    
    $
    7,714
    
    
    
    2,305.3
    %Non-performing assets (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    196,213
    
    
    $
    7,714
    
    
    
    2,443.6
    %Non-performing loans to total gross loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.54
    %
    
    
    0.56
    %
    
    
    2,139.3
    %Non-performing assets to total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.98
    %
    
    
    0.46
    %
    
    
    2,287.0
    %Past due loans30  59 days
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,030
    
    
    $
    4,599
    
    
    
    (55.9
    )%60  89 days
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    31,009
    
    
    $
    1,057
    
    
    
    2,833.7
    %Allowance for loan losses to total gross loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.32
    %
    
    
    1.18
    %
    
    
    96.6
    %Allowance for loan losses to non-performing loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    %
    
    
    210
    %
    
    
    (91.2
    )%Net charge-offs to average loans (6)
    
    
    0.46
    %
    
    
    0.10
    %
    
    
    360.0
    %
    
    
    0.83
    %
    
    
    0.03
    %
    
    
    2,666.7
    %
 (1)
    
    Net interest margin represents net interest income on a tax equivalent basis as a percentage of average interest-earning assets.(2)
    
    Efficiency ratio represents non-interest expenses, excluding provision for loan losses, as a percentage of the aggregate of net
interest income and non-interest income.(3)
    
    Non-performing loans are defined as loans that are past due 90 days or more plus loans placed in non-accrual status.(4)
    
    Non-performing assets are
defined as assets that are past due 90 days or more plus assets
placed in non-accrual status and
other real estate owned.(5)
    
    Weighted average shares outstanding-diluted were equal to weighted average shares-basic for the three and nine
months ended September 30, 2008, as any common stock equivalents would have been anti-dilutive.(6)
    
    Annualized.  19




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Allowance for loan losses.
 Available-for-sale securities. Accounting for Certain Investments in Debt and Equity Securities SFAS
No. 157, Fair Value Measurements
 Goodwill and other intangibles. Goodwill and Other
Intangible Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
 Share-based compensation. Share-Based
Payment,
 
    
    Expected volatility  based on the historical volatility of similar entities stock
price that have been public for a period of time at least equal to the expected life of
the option.
 
    
    Expected term of the option  based on the simple average of the vesting term and the
original contract term.
 
    
    Risk-free rate  based upon the rate on a zero coupon U.S. Treasury bill, for periods
within the expected term of the option.
 
    
    Dividend yield  the Company currently has a no dividend policy and accordingly, no
dividend yield is utilized.
  20




---



##### Table of Contents



Segment reporting.
 Fair Value Measurements. Fair
Value Measurements The Fair Value Option for Financial Assets and Financial
Liabilities-Including an Amendment of
FASB Statement No. 115
  
    
    Level 1  Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets;
 
    
    Level 2  Inputs to the valuation methodology include quoted prices for similar assets
and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the
financial instrument; and
 
    
    Level 3  Inputs to the valuation methodology are unobservable and significant to the
fair value measurement.
 RESULTS OF OPERATIONS
   21




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##### Table of Contents



Net Interest Income and Net Interest Margin
  Distribution, Rate and Yield Analysis of Net Interest Income
 Three Months Ended September 30,2008
    
    
    2007Interest
    
    
    Annualized
    
    
    
    
    
    
    Interest
    
    
    AnnualizedAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Rate/Yield (7)
    
    
    Balance
    
    
    Expense
    
    
    Rate/Yield (7)(In thousands, except percentage data)Assets:Interest earning assets:Loans (1)(2)
    
    $
    1,491,121
    
    
    $
    23,278
    
    
    
    6.21
    %
    
    $
    1,351,327
    
    
    $
    31,613
    
    
    
    9.28
    %Investment securities (3)(4)
    
    
    73,179
    
    
    
    888
    
    
    
    5.39
    %
    
    
    109,663
    
    
    
    1,345
    
    
    
    5.26
    %Federal funds sold
    
    
    86,877
    
    
    
    431
    
    
    
    1.97
    %
    
    
    23,636
    
    
    
    301
    
    
    
    5.05
    %Total interest earning assets (3)
    
    
    1,651,177
    
    
    
    24,597
    
    
    
    5.95
    %
    
    
    1,484,626
    
    
    
    33,259
    
    
    
    8.92
    %Non-interest earning assets:Cash and due from banks
    
    
    17,331
    
    
    
    
    
    
    
    
    
    
    
    21,421Goodwill and intangibles
    
    
    120,305
    
    
    
    
    
    
    
    
    
    
    
    122,996Other assets
    
    
    33,648
    
    
    
    
    
    
    
    
    
    
    
    34,498Total assets
    
    $
    1,822,461
    
    
    
    
    
    
    
    
    
    
    $
    1,663,541Liabilities and stockholders equity:Interest bearing liabilities:Deposits:Interest bearing demand
    
    $
    73,782
    
    
    
    345
    
    
    
    1.86
    %
    
    $
    73,048
    
    
    
    524
    
    
    
    2.85
    %Money market
    
    
    636,903
    
    
    
    3,868
    
    
    
    2.42
    %
    
    
    505,620
    
    
    
    5,885
    
    
    
    4.62
    %Savings
    
    
    19,993
    
    
    
    70
    
    
    
    1.39
    %
    
    
    35,820
    
    
    
    306
    
    
    
    3.39
    %Time
    
    
    558,644
    
    
    
    5,679
    
    
    
    4.04
    %
    
    
    423,741
    
    
    
    5,564
    
    
    
    5.21
    %Total interest bearing deposits
    
    
    1,289,322
    
    
    
    9,962
    
    
    
    3.07
    %
    
    
    1,038,229
    
    
    
    12,279
    
    
    
    4.69
    %Borrowings
    
    
    60,929
    
    
    
    663
    
    
    
    4.33
    %
    
    
    93,052
    
    
    
    1,209
    
    
    
    5.16
    %Junior subordinated debt
    
    
    72,166
    
    
    
    1,042
    
    
    
    5.74
    %
    
    
    86,790
    
    
    
    1,543
    
    
    
    7.05
    %Total interest bearing liabilities
    
    
    1,422,417
    
    
    
    11,667
    
    
    
    3.26
    %
    
    
    1,218,071
    
    
    
    15,031
    
    
    
    4.90
    %Non-interest bearing liabilities:Demand deposits
    
    
    155,988
    
    
    
    
    
    
    
    
    
    
    
    200,972Other liabilities
    
    
    9,335
    
    
    
    
    
    
    
    
    
    
    
    10,264Total liabilities
    
    
    1,587,740
    
    
    
    
    
    
    
    
    
    
    
    1,429,307Stockholders equity
    
    
    234,721
    
    
    
    
    
    
    
    
    
    
    
    234,234Total liabilities and stockholders equity
    
    $
    1,822,461
    
    
    
    
    
    
    
    
    
    
    $
    1,663,541Net interest income
    
    
    
    
    
    $
    12,930
    
    
    
    
    
    
    
    
    
    
    $
    18,228Net interest spread (3)(5)
    
    
    
    
    
    
    
    
    
    
    2.69
    %
    
    
    
    
    
    
    
    
    
    
    4.02
    %Net interest margin (3)(6)
    
    
    
    
    
    
    
    
    
    
    3.14
    %
    
    
    
    
    
    
    
    
    
    
    4.90
    %
 (1)
    
    Includes average non-accrual loans of $119.0 million and $3.7 million for the three months ended September 30, 2008 and 2007, respectively.(2)
    
    Net loan fees of $1.6 million and $2.2 million are included in the yield computations for the three months ended September 30, 2008 and
2007, respectively.(3)
    
    Yields on securities, total interest-earning assets, net interest spread and net interest margin have been adjusted to a tax-equivalent basis.These adjustments amounted to $103,000 and $109,000 for the three months
ended September 30, 2008 and 2007, respectively.(4)
    
    Includes securities available for sale, securities held to maturity, interest bearing deposits in other banks and required equity investments.(5)
    
    Net interest spread represents the average yield earned on interest earning assets less the average rate paid on interest bearing liabilities.(6)
    
    Net interest margin is computed by dividing net interest income, on a tax equivalent basis, by total average earning-assets.(7)
    
    Yields are computed based on actual number of days during the period.  22




---



##### Table of Contents



Nine Months Ended September 30,2008
    
    
    2007Interest
    
    
    Annualized
    
    
    
    
    
    
    Interest
    
    
    AnnualizedAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Rate/Yield (7)
    
    
    Balance
    
    
    Expense
    
    
    Rate/Yield (7)(In thousands, except percentage data)Assets:Interest earning assets:Loans (1)(2)
    
    $
    1,473,918
    
    
    $
    77,336
    
    
    
    7.01
    %
    
    $
    1,305,660
    
    
    $
    90,986
    
    
    
    9.32
    %Investment securities (3)(4)
    
    
    82,461
    
    
    
    2,955
    
    
    
    5.30
    %
    
    
    114,505
    
    
    
    4,229
    
    
    
    5.32
    %Federal funds sold
    
    
    30,712
    
    
    
    458
    
    
    
    1.99
    %
    
    
    34,457
    
    
    
    1,348
    
    
    
    5.23
    %Total interest earning assets (3)
    
    
    1,587,091
    
    
    
    80,749
    
    
    
    6.82
    %
    
    
    1,454,622
    
    
    
    96,563
    
    
    
    8.91
    %Non-interest earning assets:Cash and due from banks
    
    
    16,711
    
    
    
    
    
    
    
    
    
    
    
    23,227Goodwill and intangibles
    
    
    120,636
    
    
    
    
    
    
    
    
    
    
    
    123,359Other assets
    
    
    34,114
    
    
    
    
    
    
    
    
    
    
    
    34,052Total assets
    
    $
    1,758,552
    
    
    
    
    
    
    
    
    
    
    $
    1,635,260Liabilities and stockholders equity:Interest bearing liabilities:Deposits:Interest bearing demand
    
    $
    73,494
    
    
    
    1,058
    
    
    
    1.92
    %
    
    $
    68,539
    
    
    
    1,389
    
    
    
    2.71
    %Money market
    
    
    634,170
    
    
    
    12,802
    
    
    
    2.70
    %
    
    
    495,324
    
    
    
    17,152
    
    
    
    4.63
    %Savings
    
    
    22,743
    
    
    
    248
    
    
    
    1.46
    %
    
    
    43,752
    
    
    
    954
    
    
    
    2.92
    %Time
    
    
    448,993
    
    
    
    14,612
    
    
    
    4.35
    %
    
    
    413,213
    
    
    
    15,407
    
    
    
    4.99
    %Total interest
bearing deposits
    
    
    1,179,400
    
    
    
    28,720
    
    
    
    3.25
    %
    
    
    1,020,828
    
    
    
    34,902
    
    
    
    4.57
    %Borrowings
    
    
    95,834
    
    
    
    3,063
    
    
    
    4.27
    %
    
    
    91,077
    
    
    
    3,510
    
    
    
    5.15
    %Junior subordinated debt
    
    
    72,166
    
    
    
    3,230
    
    
    
    5.98
    %
    
    
    87,347
    
    
    
    4,616
    
    
    
    7.07
    %Total interest
bearing liabilities
    
    
    1,347,400
    
    
    
    35,013
    
    
    
    3.47
    %
    
    
    1,199,252
    
    
    
    43,028
    
    
    
    4.80
    %Non-interest bearing liabilities:Demand deposits
    
    
    164,103
    
    
    
    
    
    
    
    
    
    
    
    197,086Other liabilities
    
    
    9,290
    
    
    
    
    
    
    
    
    
    
    
    10,277Total liabilities
    
    
    1,520,793
    
    
    
    
    
    
    
    
    
    
    
    1,406,615Stockholders equity
    
    
    237,759
    
    
    
    
    
    
    
    
    
    
    
    228,645Total liabilities
and stockholders
equity
    
    $
    1,758,552
    
    
    
    
    
    
    
    
    
    
    $
    1,635,260Net interest income
    
    
    
    
    
    $
    45,736
    
    
    
    
    
    
    
    
    
    
    $
    53,535Net interest spread (3)(5)
    
    
    
    
    
    
    
    
    
    
    3.35
    %
    
    
    
    
    
    
    
    
    
    
    4.11
    %Net interest margin (3)(6)
    
    
    
    
    
    
    
    
    
    
    3.88
    %
    
    
    
    
    
    
    
    
    
    
    4.95
    %
 (1)
    
    Includes average non-accrual loans of $57.9 million and $2.2 million for the nine months ended September 30, 2008 and 2007, respectively.(2)
    
    Net loan fees of $5.4 million and $5.9 million are included in the yield computations for the nine months ended September 30, 2008 and
2007, respectively.(3)
    
    Yields on securities, total interest-earning assets, net interest spread and net interest margin have been adjusted to a tax-equivalent basis.
These adjustments amounted to $315,000 and $330,000 for the nine
months ended September 30, 2008 and 2007, respectively.(4)
    
    Includes securities available for sale, securities held to maturity, interest bearing deposits in other banks and required equity investments.(5)
    
    Net interest spread represents the average yield earned on interest earning assets less the average rate paid on interest bearing liabilities.(6)
    
    Net interest margin is computed by dividing net interest income, on a tax equivalent basis, by total average earning-assets.(7)
    
    Yields are computed based on actual number of days during the period.  23




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##### Table of Contents



Three months ended September 30, 2008
    
    
    Nine months ended September 30, 2008vs. 2007 increase (decrease) due to change in
    
    
    vs. 2007 increase (decrease) due to change in(In thousands)
    
    
    (In thousands)Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest and dividend income:Loans
    
    $
    3,012
    
    
    $
    (11,347
    )
    
    $
    (8,335
    )
    
    $
    10,732
    
    
    $
    (24,382
    )
    
    $
    (13,650
    )Investments securities
    
    
    (443
    )
    
    
    (14
    )
    
    
    (457
    )
    
    
    (1,151
    )
    
    
    (123
    )
    
    
    (1,274
    )Federal funds sold
    
    
    406
    
    
    
    (276
    )
    
    
    130
    
    
    
    (133
    )
    
    
    (757
    )
    
    
    (890
    )Total interest and dividend income
    
    
    2,975
    
    
    
    (11,637
    )
    
    
    (8,662
    )
    
    
    9,448
    
    
    
    (25,262
    )
    
    
    (15,814
    )Interest expense:Interest bearing demand
    
    
    6
    
    
    
    (185
    )
    
    
    (179
    )
    
    
    95
    
    
    
    (426
    )
    
    
    (331
    )Money market
    
    
    1,272
    
    
    
    (3,289
    )
    
    
    (2,017
    )
    
    
    4,002
    
    
    
    (8,352
    )
    
    
    (4,350
    )Savings
    
    
    (102
    )
    
    
    (134
    )
    
    
    (236
    )
    
    
    (347
    )
    
    
    (359
    )
    
    
    (706
    )Time
    
    
    1,538
    
    
    
    (1,423
    )
    
    
    115
    
    
    
    1,266
    
    
    
    (2,061
    )
    
    
    (795
    )Borrowings
    
    
    (370
    )
    
    
    (176
    )
    
    
    (546
    )
    
    
    178
    
    
    
    (625
    )
    
    
    (447
    )Junior subordinated debt
    
    
    (236
    )
    
    
    (265
    )
    
    
    (501
    )
    
    
    (736
    )
    
    
    (650
    )
    
    
    (1,386
    )Total interest expense
    
    
    2,108
    
    
    
    (5,472
    )
    
    
    (3,364
    )
    
    
    4,458
    
    
    
    (12,473
    )
    
    
    (8,015
    )Net interest income
    
    $
    867
    
    
    $
    (6,165
    )
    
    $
    (5,298
    )
    
    $
    4,990
    
    
    $
    (12,789
    )
    
    $
    (7,799
    )
      24




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##### Table of Contents



Provision for Loan Losses
   Non-Interest Income
  Three months ended
    
    
    
    
    
    
    Nine months endedSeptember 30,
    
    
    
    
    
    
    September 30,2008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseAmount
    
    
    (decrease)
    
    
    Amount
    
    
    (decrease)(In thousands)
    
    
    (In thousands)Service charges and other income
    
    $
    824
    
    
    $
    621
    
    
    $
    203
    
    
    $
    2,225
    
    
    $
    1,806
    
    
    $
    419Income from bank owned life insurance
    
    
    97
    
    
    
    111
    
    
    
    (14
    )
    
    
    295
    
    
    
    340
    
    
    
    (45
    )Net swap settlements
    
    
    (108
    )
    
    
    52
    
    
    
    (160
    )
    
    
    (223
    )
    
    
    144
    
    
    
    (367
    )Rental income
    
    
    35
    
    
    
    38
    
    
    
    (3
    )
    
    
    122
    
    
    
    114
    
    
    
    8Gain on sale of securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    4
    
    
    
    192(Loss) gain on sale of property
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    1,207
    
    
    
    
    
    
    
    1,207Net gain on sales of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    (285
    )Total non-interest income
    
    $
    845
    
    
    $
    822
    
    
    $
    23
    
    
    $
    3,822
    
    
    $
    2,693
    
    
    $
    1,129
    25




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##### Table of Contents



Non-Interest Expense
  Three months ended
    
    
    
    
    
    
    Nine months endedSeptember 30,
    
    
    
    
    
    
    September 30,2008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseAmount
    
    
    (decrease)
    
    
    Amount
    
    
    (decrease)(In thousands)
    
    
    (In thousands)Salaries, wages and employee benefits
    
    $
    4,606
    
    
    $
    5,337
    
    
    $
    (731
    )
    
    $
    15,701
    
    
    $
    16,638
    
    
    $
    (937
    )Occupancy, equipment and depreciation
    
    
    1,351
    
    
    
    1,351
    
    
    
    
    
    
    
    3,924
    
    
    
    3,774
    
    
    
    150Core deposit intangible amortization
    
    
    335
    
    
    
    335
    
    
    
    
    
    
    
    1,005
    
    
    
    1,005
    
    
    
    Data processing
    
    
    295
    
    
    
    246
    
    
    
    49
    
    
    
    828
    
    
    
    829
    
    
    
    (1
    )Advertising and public relations
    
    
    387
    
    
    
    651
    
    
    
    (264
    )
    
    
    1,169
    
    
    
    1,388
    
    
    
    (219
    )Professional fees
    
    
    463
    
    
    
    486
    
    
    
    (23
    )
    
    
    1,669
    
    
    
    1,186
    
    
    
    483Telephone and postage
    
    
    153
    
    
    
    214
    
    
    
    (61
    )
    
    
    479
    
    
    
    608
    
    
    
    (129
    )Stationery and supplies
    
    
    171
    
    
    
    189
    
    
    
    (18
    )
    
    
    573
    
    
    
    547
    
    
    
    26Directors fees
    
    
    106
    
    
    
    71
    
    
    
    35
    
    
    
    342
    
    
    
    249
    
    
    
    93Insurance
    
    
    469
    
    
    
    170
    
    
    
    299
    
    
    
    1,129
    
    
    
    429
    
    
    
    700Software maintenance
    
    
    175
    
    
    
    106
    
    
    
    69
    
    
    
    494
    
    
    
    327
    
    
    
    167Loan related
    
    
    266
    
    
    
    74
    
    
    
    192
    
    
    
    489
    
    
    
    251
    
    
    
    238Foreclosed assets, net
    
    
    798
    
    
    
    
    
    
    
    798
    
    
    
    952
    
    
    
    
    
    
    
    952(Gain) loss on interest rate swaps
    
    
    191
    
    
    
    
    
    
    
    191
    
    
    
    206
    
    
    
    
    
    
    
    206Other operating expenses
    
    
    590
    
    
    
    813
    
    
    
    (223
    )
    
    
    1,788
    
    
    
    1,893
    
    
    
    (105
    )Total non-interest expense
    
    $
    10,356
    
    
    $
    10,043
    
    
    $
    313
    
    
    $
    30,748
    
    
    $
    29,124
    
    
    $
    1,624
        26




---



##### Table of Contents



Income Tax Expense
     27




---



##### Table of Contents



FINANCIAL CONDITION
 Investment Securities
  As of September 30,
    
    
    As of December 31,2008
    
    
    2007Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In thousands)Available for sale:U.S. Government-sponsored
agencies
    
    $
    5,963
    
    
    $
    6,041
    
    
    $
    26,537
    
    
    $
    26,811Municipal bonds
    
    
    19,345
    
    
    
    19,614
    
    
    
    20,750
    
    
    
    20,982SBA loan pools
    
    
    333
    
    
    
    332
    
    
    
    501
    
    
    
    497Mortgage-backed securities
    
    
    34,159
    
    
    
    34,225
    
    
    
    40,300
    
    
    
    39,897Mutual funds
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    30Total available for sale
    
    $
    59,800
    
    
    $
    60,212
    
    
    $
    88,118
    
    
    $
    88,217Held to maturity:Municipal bonds
    
    $
    491
    
    
    $
    503
    
    
    $
    646
    
    
    $
    661SBA loan pools
    
    
    141
    
    
    
    142
    
    
    
    155
    
    
    
    156Total held to maturity
    
    $
    632
    
    
    $
    645
    
    
    $
    801
    
    
    $
    817Total investment securities
    
    $
    60,432
    
    
    $
    60,857
    
    
    $
    88,919
    
    
    $
    89,034
    28




---



##### Table of Contents



Loans
  September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Commercial and industrial
    
    $
    217,379
    
    
    $
    210,614Real estate:Commercial
    
    
    401,597
    
    
    
    370,464Residential
    
    
    42,024
    
    
    
    43,212Construction and land development
    
    
    813,412
    
    
    
    789,185Consumer and other
    
    
    4,755
    
    
    
    5,707Total gross loans
    
    
    1,479,167
    
    
    
    1,419,182Less:Allowance for loan losses
    
    
    34,332
    
    
    
    17,098Net unearned loan fees and discounts
    
    
    3,317
    
    
    
    5,194Total net loans
    
    $
    1,441,518
    
    
    $
    1,396,890
    29




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##### Table of Contents



DETAIL COMPOSITE OF LOAN PORTFOLIO
 Specific
    
    
    Total ImpairedBalance
    
    
    Allowance
    
    
    Total
    
    
    Accruing
    
    
    Non Accrual(In thousands)Real Estate:Total Construction & LandSingle FamilySingle Family Residential
    
    $
    194,411
    
    
    $
    10,723
    
    
    $
    81,341
    
    
    $
    2,970
    
    
    $
    78,371Condominiums
    
    
    16,321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Single Family
    
    
    210,732
    
    
    
    10,723
    
    
    
    81,341
    
    
    
    2,970
    
    
    
    78,371Multifamily
    
    
    45,954
    
    
    
    3,714
    
    
    
    28,698
    
    
    
    
    
    
    
    28,698Retail
    
    
    336,399
    
    
    
    410
    
    
    
    46,038
    
    
    
    1,904
    
    
    
    44,134Industrial
    
    
    91,292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office
    
    
    80,711
    
    
    
    
    
    
    
    8,540
    
    
    
    
    
    
    
    8,540Other
    
    
    48,324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Construction & Land
    
    
    813,412
    
    
    
    14,847
    
    
    
    164,617
    
    
    
    4,874
    
    
    
    159,743CommercialOfficeOwner occupied
    
    
    108,002
    
    
    
    28
    
    
    
    3,518
    
    
    
    144
    
    
    
    3,374Non owner occupied
    
    
    42,042
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Office
    
    
    150,044
    
    
    
    28
    
    
    
    3,518
    
    
    
    144
    
    
    
    3,374Retail
    
    
    126,169
    
    
    
    55
    
    
    
    2,012
    
    
    
    450
    
    
    
    1,562Industrial
    
    
    72,031
    
    
    
    77
    
    
    
    388
    
    
    
    388
    
    
    
    Other
    
    
    53,353
    
    
    
    100
    
    
    
    17,034
    
    
    
    
    
    
    
    17,034Total Commercial
    
    
    401,597
    
    
    
    260
    
    
    
    22,952
    
    
    
    982
    
    
    
    21,970Residential
    
    
    42,024
    
    
    
    199
    
    
    
    429
    
    
    
    139
    
    
    
    290Total Real Estate
    
    
    1,257,033
    
    
    
    15,306
    
    
    
    187,998
    
    
    
    5,995
    
    
    
    182,003Commercial & Industrial
    
    
    217,379
    
    
    
    2,739
    
    
    
    7,126
    
    
    
    3,610
    
    
    
    3,516Consumer
    
    
    4,755
    
    
    
    18
    
    
    
    20
    
    
    
    
    
    
    
    20Total Gross Loans
    
    
    1,479,167
    
    
    $
    18,063
    
    
    $
    195,144
    
    
    $
    9,605
    
    
    $
    185,539Allowance for loan losses
    
    
    34,332
    
    
    
    
    
    
    $
    18,063Deferred Fees, Net
    
    
    3,317Net Loans
    
    $
    1,441,518
  30




---



##### Table of Contents



DETAIL COMPOSITE OF CONSTRUCTION & LAND LOAN PORTFOLIO
 Specific
    
    
    Total ImpairedBalance
    
    
    Allowance
    
    
    Total
    
    
    Accruing
    
    
    Non Accrual(In thousands)Construction & LandConstructionSingle FamilySingle Family Residential
    
    $
    26,374
    
    
    $
    872
    
    
    $
    8,482
    
    
    $
    1,442
    
    
    $
    7,040Condominiums
    
    
    16,321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Single Family
    
    
    42,695
    
    
    
    872
    
    
    
    8,482
    
    
    
    1,442
    
    
    
    7,040Multifamily
    
    
    7,413
    
    
    
    3,264
    
    
    
    7,413
    
    
    
    
    
    
    
    7,413Retail
    
    
    146,702
    
    
    
    410
    
    
    
    14,560
    
    
    
    1,904
    
    
    
    12,656Industrial
    
    
    26,735
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office
    
    
    39,776
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    18,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Construction
    
    
    281,962
    
    
    
    4,546
    
    
    
    30,455
    
    
    
    3,346
    
    
    
    27,109Acquisition & DevelopmentSingle Family
    
    
    73,716
    
    
    
    3,552
    
    
    
    26,161
    
    
    
    
    
    
    
    26,161Multifamily
    
    
    17,535
    
    
    
    450
    
    
    
    17,535
    
    
    
    
    
    
    
    17,535Retail
    
    
    129,621
    
    
    
    
    
    
    
    26,138
    
    
    
    
    
    
    
    26,138Industrial
    
    
    18,027
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office
    
    
    25,373
    
    
    
    
    
    
    
    6,290
    
    
    
    
    
    
    
    6,290Other
    
    
    6,583
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Acquisition & Development
    
    
    270,855
    
    
    
    4,002
    
    
    
    76,124
    
    
    
    
    
    
    
    76,124Developed LandSingle Family
    
    
    30,413
    
    
    
    1,805
    
    
    
    5,029
    
    
    
    
    
    
    
    5,029Multifamily
    
    
    21,006
    
    
    
    
    
    
    
    3,750
    
    
    
    
    
    
    
    3,750Retail
    
    
    36,890
    
    
    
    
    
    
    
    4,040
    
    
    
    
    
    
    
    4,040Industrial
    
    
    833
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office
    
    
    443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    18,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Developed Land
    
    
    108,185
    
    
    
    1,805
    
    
    
    12,819
    
    
    
    
    
    
    
    12,819Raw LandSingle Family
    
    
    63,908
    
    
    
    4,494
    
    
    
    41,669
    
    
    
    1,528
    
    
    
    40,141Retail
    
    
    23,186
    
    
    
    
    
    
    
    1,300
    
    
    
    
    
    
    
    1,300Industrial
    
    
    45,697
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office
    
    
    15,119
    
    
    
    
    
    
    
    2,250
    
    
    
    
    
    
    
    2,250Other
    
    
    4,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Raw Land
    
    
    152,410
    
    
    
    4,494
    
    
    
    45,219
    
    
    
    1,528
    
    
    
    43,691Total Construction & Land
    
    $
    813,412
    
    
    $
    14,847
    
    
    $
    164,617
    
    
    $
    4,874
    
    
    $
    159,743
  31




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##### Table of Contents



Non-performing Assets
  September 30,
    
    
    December 31,
    
    
    September 30,2008
    
    
    2007
    
    
    2007(In thousands)Non-accrual loans, not restructured
    
    $
    185,539
    
    
    $
    12,076
    
    
    $
    7,714Accruing loans past due 90 days or more
    
    
    8
    
    
    
    20
    
    
    
    Restructured loans
    
    
    
    
    
    
    
    
    
    
    Total non-performing loans (NPLs)
    
    
    185,547
    
    
    
    12,096
    
    
    
    7,714OREO
    
    
    10,666
    
    
    
    
    
    
    
    Total non-performing assets (NPAs)
    
    $
    196,213
    
    
    $
    12,096
    
    
    $
    7,714Selected ratiosNPLs to total gross loans
    
    
    12.54
    %
    
    
    0.85
    %
    
    
    0.56
    %NPAs to total gross loans and OREO
    
    
    13.17
    %
    
    
    0.85
    %
    
    
    0.56
    %NPAs to total assets
    
    
    10.98
    %
    
    
    0.71
    %
    
    
    0.46
    %
  September 30, 2008
    
    
    December 31, 2007Non-Accrual
    
    
    
    
    
    
    Percent of
    
    
    Non-Accrual
    
    
    
    
    
    
    Percent ofBalance
    
    
    %
    
    
    Total Loans
    
    
    Balance
    
    
    %
    
    
    Total Loans(In thousands, except percentage data)Commercial and industrial
    
    $
    3,516
    
    
    
    1.9
    %
    
    
    0.24
    %
    
    $
    2,042
    
    
    
    16.9
    %
    
    
    0.15
    %Real Estate:Commercial
    
    
    21,970
    
    
    
    11.8
    %
    
    
    1.48
    %
    
    
    4,291
    
    
    
    35.5
    %
    
    
    0.30
    %Residential
    
    
    290
    
    
    
    0.2
    %
    
    
    0.02
    %
    
    
    
    
    
    
    0.0
    %
    
    
    0.00
    %Construction and land development
    
    
    159,743
    
    
    
    86.1
    %
    
    
    10.80
    %
    
    
    5,738
    
    
    
    47.6
    %
    
    
    0.40
    %Consumer and Other
    
    
    20
    
    
    
    0.0
    %
    
    
    0.00
    %
    
    
    5
    
    
    
    0.0
    %
    
    
    0.00
    %Total Loans
    
    $
    185,539
    
    
    
    100.0
    %
    
    
    12.54
    %
    
    $
    12,076
    
    
    
    100.0
    %
    
    
    0.85
    %
     32




---



##### Table of Contents



Impaired Loans
   September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Impaired loans with a valuation allowance
    
    $
    58,962
    
    
    $
    3,097Impaired loans without a valuation allowance
    
    
    136,182
    
    
    
    26,702Total impaired loans
    
    $
    195,144
    
    
    $
    29,799Average balance of impaired loans (1)
    
    $
    106,221
    
    
    $
    15,163Related valuation allowance
    
    $
    18,063
    
    
    $
    1,283Interest income recognized on impaired loans (1)
    
    $
    644
    
    
    $
    1,551Interest income recognized on a cash basis on impaired loans (1)
    
    $
    318
    
    
    $
    948
 (1)
    
    For the nine months ended September 30, 2008 and twelve months ended December 31, 2007.    33




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##### Table of Contents



Allowance for Loan Losses
  Three Months
    
    
    Nine Months
    
    
    
    
    
    
    Three Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Year Ended
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    December 31,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2007(In thousands)Allowance for Loan Losses:Balance at beginning of period
    
    $
    28,050
    
    
    $
    17,098
    
    
    $
    14,973
    
    
    $
    15,985
    
    
    $
    14,973Charge-offs:Commercial and industrial
    
    
    1,219
    
    
    
    3,056
    
    
    
    1,125
    
    
    
    67
    
    
    
    224Real Estate:Commercial
    
    
    
    
    
    
    229
    
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    528
    
    
    
    1,789
    
    
    
    228
    
    
    
    211
    
    
    
    227Construction and land development
    
    
    17
    
    
    
    4,301
    
    
    
    
    
    
    
    
    
    
    
    Consumer and other
    
    
    34
    
    
    
    94
    
    
    
    199
    
    
    
    71
    
    
    
    126Total charge-offs
    
    
    1,798
    
    
    
    9,469
    
    
    
    1,552
    
    
    
    349
    
    
    
    577RecoveriesCommercial and industrial
    
    
    50
    
    
    
    268
    
    
    
    294
    
    
    
    14
    
    
    
    286Real Estate:Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    3
    
    
    
    3
    
    
    
    26
    
    
    
    
    
    
    
    Construction and land development
    
    
    18
    
    
    
    29
    
    
    
    1
    
    
    
    
    
    
    
    Consumer and other
    
    
    9
    
    
    
    9
    
    
    
    1
    
    
    
    1
    
    
    
    1Total recoveries
    
    
    80
    
    
    
    309
    
    
    
    322
    
    
    
    15
    
    
    
    287Net loans charge-offs (recoveries)
    
    
    1,718
    
    
    
    9,160
    
    
    
    1,230
    
    
    
    334
    
    
    
    290Provision for loan losses
    
    
    8,000
    
    
    
    26,394
    
    
    
    3,355
    
    
    
    533
    
    
    
    1,501Balance at end of period
    
    $
    34,332
    
    
    $
    34,332
    
    
    $
    17,098
    
    
    $
    16,184
    
    
    $
    16,184Total gross loans
    
    $
    1,479,167
    
    
    $
    1,479,167
    
    
    $
    1,419,182
    
    
    $
    1,373,661
    
    
    $
    1,373,661Average gross loans (net of deferred fees)
    
    
    1,491,121
    
    
    
    1,473,918
    
    
    
    1,318,995
    
    
    
    1,351,327
    
    
    
    1,305,660Non-performing loans
    
    
    185,547
    
    
    
    185,547
    
    
    
    12,096
    
    
    
    7,714
    
    
    
    7,714Non-performing assets
    
    
    196,213
    
    
    
    196,213
    
    
    
    12,096
    
    
    
    7,714
    
    
    
    7,714Selected ratios:Net charge-offs (recoveries) to average loans (annualized)
    
    
    0.46
    %
    
    
    0.83
    %
    
    
    0.09
    %
    
    
    0.10
    %
    
    
    0.03
    %Provision for loan losses to average loans (annualized)
    
    
    2.13
    %
    
    
    2.39
    %
    
    
    0.25
    %
    
    
    0.16
    %
    
    
    0.15
    %Allowance for loan losses to total gross loans outstanding at end of period
    
    
    2.32
    %
    
    
    2.32
    %
    
    
    1.20
    %
    
    
    1.18
    %
    
    
    1.18
    %Allowance for loan losses to total non-performing loans
    
    
    19
    %
    
    
    19
    %
    
    
    141
    %
    
    
    210
    %
    
    
    210
    %
  34




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##### Table of Contents




    
    General Allowance for Loan Losses (SFAS No. 5, Accounting for Contingencies)The increase in the general allowance for loan losses (from $15.8 million at December 31,
2007 to $16.3 million at September 30, 2008) is a direct result of the difficult economic
conditions that exist in the Companys primary markets. Managements assessment of these
conditions is reflected in the general allowance. As of September 30, 2008, the general
allowance was 1.27% of non-impaired loans, compared to 1.14% at December 31, 2007.
    
    Specific Allowance for Loan Losses (SFAS No. 114, Accounting by Creditors for the
Impairment of a Loan)The increase in the specific allowance for loan losses (from $1.3 million at December 31,
2007 to $18.1 million at September 30, 2008), is a result of the difficult economic
conditions in the Companys primary markets. The specific allowance for loan losses is
based on a review of all impaired loans. Management has individually reviewed each impaired
loan and its underlying collateral value (less cost to sell). As a result of this analysis,
an $18.1 million specific allowance for loan losses was established, representing
managements assessment of the anticipated losses on these loans in the event of
foreclosure on the underlying collateral and subsequent sale of the property.
  Goodwill
 Goodwill and Other Intangible Assets
 Deposits
    35




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##### Table of Contents



Borrowings and Junior Subordinated Debt
    In
September 2007, the Company borrowed $15.5 million and used the
proceeds to redeem junior subordinated debt owed to Community Bancorp
(NV) Statutory Trust I which used the proceeds to redeem its trust
preferred issuances. The borrowing is unsecured, bears interest at the one
month LIBOR plus 1.50% (equal to 3.97% at September 30, 2008), is payable
in the amount of approximately $475,000 monthly with all unpaid interest
and principal due on September 26, 2010 and requires the lender’s
approval prior to issuing dividends to shareholders. The outstanding balance on
the note was $10.5 million and $14.3 million as of September 30,
2008 and December 31, 2007, respectively. At September 30, 2008, the Company was not in compliance with the debt service coverage ratio
requirement of this loan agreement. The Company is currently negotiating a waiver from the lender
of this requirement and is current on all scheduled interest and principal payments. In the event
these negotiations are not successful, the Company has the right and ability to prepay the note
without penalty.  Consolidation of Variable Interest
Entities-an interpretation of ARB
No. 51,
 REGULATORY MATTERS
  ActualCommunity
    
    
    CommunityMinimum
    
    
    Well
    
    
    Bank of
    
    
    Bank of
    
    
    CommunityRegulatory
    
    
    Capitalized
    
    
    Nevada
    
    
    Arizona
    
    
    BancorpTier 1 leverage capital
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    10.60
    %
    
    
    16.67
    %
    
    
    10.65
    %Tier 1 risk-based capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    10.96
    %
    
    
    18.07
    %
    
    
    11.04
    %Total risk-based capital
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    12.22
    %
    
    
    19.34
    %
    
    
    12.30
    %
  36




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##### Table of Contents



LIQUIDITY MANAGEMENT
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
     37




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Controls and Procedures
  (a)
    
    information required to be disclosed by the Company in
this Quarterly Report on Form 10-Q and the other
reports which the Company files or submits under the
Exchange Act would be accumulated and communicated to
the Companys management, including its Chief
Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding
required disclosure;(b)
    
    information required to be disclosed by the Company in
this Quarterly Report on Form 10-Q and the other
reports which the Company files or submits under the
Exchange Act would be recorded, processed, summarized
and reported within the time periods specified in the
SECs rules and forms; and(c)
    
    the Companys disclosure controls and procedures are effective as of
the end of the period covered by this Quarterly Report on Form 10-Q to
ensure that material information relating to the Company and its
consolidated subsidiary is made known to them, particularly during the
period for which periodic reports, including this Quarterly Report on
Form 10-Q, are being prepared.
 Changes in Internal Control over Financial Reporting
  
 PART
II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Stock Repurchase Program
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 31.1
    
    Rule 13a-14(a) Certification by Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification by Chief Financial Officer32.1
    
    Section 1350 Certifications
  38




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##### Table of Contents



SIGNATURES
  COMMUNITY BANCORPBy:

/s/
Edward M. JamisonEdward M. JamisonPresident and Chief Executive Officer
(Principal Executive Officer)Dated: November
10, 2008 COMMUNITY BANCORPBy:

/s/
Patrick HartmanPatrick HartmanExecutive Vice President and
Chief Financial Officer
(Principal Financial Officer)
(Chief Accounting Officer)Dated: November
10, 2008   39




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##### Table of Contents



EXHIBITS INDEX
 31.1
    
    Rule 13a-14(a) Certification by Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification by Chief Financial Officer32.1
    
    Section 1350 Certifications