##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2005
 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 No.: 000-50545
 SOUTHWEST COMMUNITY BANCORP
 Incorporated Under the Laws of the State of California
 I.R.S. EMPLOYER IDENTIFICATION NO.: 30-0136231
 5810 EL CAMINO REAL
CARLSBAD, CALIFORNIA 92008
TELEPHONE: (760) 918-2616
 Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
 Yes þ No o
 Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the Exchange Act).
 Yes o No þ
 Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
 Yes o No þ
 Number of shares of Common Stock outstanding as of October 31, 2005: 3,796,732




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##### Table of Contents



INDEX
 PART I  Financial InformationItem 1 Financial Statements
    
    
    3Consolidated Balance Sheets as of September 30, 2005 (Unaudited) and December 31, 2004
    
    
    3Consolidated Statements of Income for the Three Months Ended September 30, 2005 and 2004 and the Nine Months Ended September 30, 2005 and 2004 (Unaudited)
    
    
    4Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income for the Nine Months Ended September 30, 2005 and 2004 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4 Controls and Procedures
    
    
    21PART II  Other InformationItem 1 Legal Proceedings
    
    
    22Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3 Defaults upon Senior Securities
    
    
    22Item 4 Submission of Matters to a Vote of Security Holders
    
    
    22Item 5 Other Information
    
    
    22Item 6 Exhibits
    
    
    22SIGNATURES
    
    
    23Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
 2




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##### Table of Contents



PART I  Financial Information
 
 Item 1  Financial Statements
 SOUTHWEST COMMUNITY BANCORP AND SUBSIDIARIES
 
 Consolidated Balance Sheets
(dollars in thousands)
 September 30,
    
    
    December 31,2005
    
    
    2004UnauditedAssetsCash and due from banks
    
    $
    138,401
    
    
    $
    101,162Federal funds sold
    
    
    64,970
    
    
    
    69,190Cash and cash equivalents
    
    
    203,371
    
    
    
    170,352Interest-bearing deposits in financial institutions
    
    
    167
    
    
    
    167Investment securities available-for-sale
    
    
    92,524
    
    
    
    61,489Investment securities held-to-maturity
    
    
    215
    
    
    
    316Loans, net of unearned income
    
    
    294,743
    
    
    
    283,600Less allowance for loan losses
    
    
    4,501
    
    
    
    3,744Net loans
    
    
    290,242
    
    
    
    279,856Premises and equipment
    
    
    1,972
    
    
    
    2,240Federal Home Loan Bank stock at cost
    
    
    1,435
    
    
    
    1,301Cash surrender value of life insurance
    
    
    8,956
    
    
    
    6,306Assets related to discontinued operations
    
    
    
    
    
    
    4,556Other assets
    
    
    7,176
    
    
    
    6,291Total Assets
    
    $
    606,058
    
    
    $
    532,874Liabilities and Shareholders EquityNoninterest-bearing demand
    
    $
    413,651
    
    
    $
    362,617Money market and NOW
    
    
    110,303
    
    
    
    101,875Savings
    
    
    8,112
    
    
    
    7,831Time deposits under $100,000
    
    
    3,584
    
    
    
    3,827Time deposits $100,000 and over
    
    
    9,817
    
    
    
    6,612Total Deposits
    
    
    545,467
    
    
    
    482,762Accrued interest and other liabilities
    
    
    4,457
    
    
    
    2,722Junior subordinated debt
    
    
    8,248
    
    
    
    8,248Liabilities related to discontinued operations
    
    
    
    
    
    
    254Total Liabilities
    
    
    558,172
    
    
    
    493,986Shareholders EquityCommon stock, no par value, 28,125,000 shares authorized,
3,796,417 and 3,484,266 shares issued and
outstanding in 2005 and 2004, respectively
    
    
    37,135
    
    
    
    29,901Retained earnings
    
    
    11,247
    
    
    
    9,107Accumulated other comprehensive income (loss)
    
    
    (496
    )
    
    
    (120
    )Total Shareholders Equity
    
    
    47,886
    
    
    
    38,888Total Liabilities and Shareholders Equity
    
    $
    606,058
    
    
    $
    532,874
  3




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##### Table of Contents



SOUTHWEST COMMUNITY BANCORP AND SUBSIDIARIES
 
 Consolidated Statements of Income
(dollars in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Unaudited)Interest IncomeInterest and fees on loans
    
    $
    6,255
    
    
    $
    3,984
    
    
    $
    17,469
    
    
    $
    11,746Investment securities
    
    
    901
    
    
    
    479
    
    
    
    2,512
    
    
    
    966Federal funds sold and other
    
    
    731
    
    
    
    302
    
    
    
    1,720
    
    
    
    519Total interest income
    
    
    7,887
    
    
    
    4,765
    
    
    
    21,701
    
    
    
    13,231Interest ExpenseDeposits
    
    
    663
    
    
    
    308
    
    
    
    1,780
    
    
    
    699Borrowings
    
    
    140
    
    
    
    132
    
    
    
    389
    
    
    
    363Total interest expense
    
    
    803
    
    
    
    440
    
    
    
    2,169
    
    
    
    1,062Net interest income
    
    
    7,084
    
    
    
    4,325
    
    
    
    19,532
    
    
    
    12,169Provision for loan losses
    
    
    125
    
    
    
    200
    
    
    
    895
    
    
    
    725Net interest income after provision for loan losses
    
    
    6,959
    
    
    
    4,125
    
    
    
    18,637
    
    
    
    11,444Noninterest IncomeFees and service charges
    
    
    554
    
    
    
    412
    
    
    
    1,757
    
    
    
    1,863Loan referral fees
    
    
    239
    
    
    
    355
    
    
    
    433
    
    
    
    922Gain on sale of SBA loans
    
    
    829
    
    
    
    580
    
    
    
    1,896
    
    
    
    1,265Gain (loss) on sale of securities
    
    
    (51
    )
    
    
    
    
    
    
    (69
    )
    
    
    Other income
    
    
    120
    
    
    
    388
    
    
    
    514
    
    
    
    600Total noninterest income
    
    
    1,691
    
    
    
    1,735
    
    
    
    4,531
    
    
    
    4,650Noninterest ExpenseSalaries and employee benefits
    
    
    2,743
    
    
    
    1,979
    
    
    
    7,148
    
    
    
    5,553Occupancy & Equipment
    
    
    795
    
    
    
    714
    
    
    
    2,336
    
    
    
    1,974Other
    
    
    1,267
    
    
    
    1,033
    
    
    
    3,780
    
    
    
    2,807Total noninterest expense
    
    
    4,805
    
    
    
    3,726
    
    
    
    13,264
    
    
    
    10,334Income from continuing operations before income taxes
    
    
    3,845
    
    
    
    2,134
    
    
    
    9,904
    
    
    
    5,760Income taxes
    
    
    1,496
    
    
    
    862
    
    
    
    3,873
    
    
    
    2,374Income from continuing operations
    
    
    2,349
    
    
    
    1,272
    
    
    
    6,031
    
    
    
    3,386Income from discontinued operations, net of tax
    
    
    155
    
    
    
    (93
    )
    
    
    1,647
    
    
    
    175Net income
    
    $
    2,504
    
    
    $
    1,179
    
    
    $
    7,678
    
    
    $
    3,561Earnings per common share:Income from continuing operations  Basic
    
    $
    0.62
    
    
    $
    0.40
    
    
    $
    1.61
    
    
    $
    1.08Income from continuing operations  Diluted
    
    $
    0.53
    
    
    $
    0.32
    
    
    $
    1.37
    
    
    $
    0.88Income from discontinued operations  Basic
    
    $
    0.04
    
    
    $
    (0.03
    )
    
    $
    0.44
    
    
    $
    0.06Income from discontinued operations  Diluted
    
    $
    0.03
    
    
    $
    (0.02
    )
    
    $
    0.37
    
    
    $
    0.05Net Income  Basic
    
    $
    0.66
    
    
    $
    0.37
    
    
    $
    2.05
    
    
    $
    1.14Net Income  Diluted
    
    $
    0.56
    
    
    $
    0.30
    
    
    $
    1.74
    
    
    $
    0.93
  4




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SOUTHWEST COMMUNITY BANCORP AND SUBSIDIARIES
 
 Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income
(dollars in thousands)
 AccumulatedOtherCommon Stock
    
    
    Comprehensive
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Income
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance, December 31, 2003
    
    
    2,902,462
    
    
    $
    14,676
    
    
    
    
    
    
    $
    4,362
    
    
    $
    (76
    )
    
    $
    18,962Stock issued
    
    
    483,800
    
    
    
    14,370
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,370Options exercised
    
    
    72,175
    
    
    
    336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336Warrants exercised
    
    
    4,200
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    $
    3,561
    
    
    
    3,561
    
    
    
    
    
    
    
    3,561Net unrealized loss on securities
net of tax benefit of $180
    
    
    
    
    
    
    
    
    
    
    257
    
    
    
    
    
    
    
    257
    
    
    
    257Total comprehensive income
    
    
    
    
    
    
    
    
    
    $
    3,818Balance, September 30, 2004
    
    
    3,462,637
    
    
    $
    29,422
    
    
    
    
    
    
    $
    7,923
    
    
    $
    181
    
    
    $
    37,526Balance, December 31, 2004
    
    
    3,484,266
    
    
    $
    29,901
    
    
    
    
    
    
    $
    9,107
    
    
    $
    (120
    )
    
    $
    38,888Options exercised, including tax
benefit of $1,064
    
    
    121,380
    
    
    
    1,590
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,590Warrants exercised
    
    
    11,974
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1105% Stock dividend
    
    
    178,797
    
    
    
    5,534
    
    
    
    
    
    
    
    (5,538
    )
    
    
    
    
    
    
    (4
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    $
    7,678
    
    
    
    7,678
    
    
    
    
    
    
    
    7,678Net unrealized loss on securities
net of tax benefit of $263
    
    
    
    
    
    
    
    
    
    
    (416
    )
    
    
    
    
    
    
    (416
    )
    
    
    (416
    )Reclassification adjustment for
realized losses net of tax
benefit of $29
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    40
    
    
    
    40Total comprehensive income
    
    
    
    
    
    
    
    
    
    $
    7,302Balance, September 30, 2005
    
    
    3,796,417
    
    
    $
    37,135
    
    
    
    
    
    
    $
    11,247
    
    
    $
    (496
    )
    
    $
    47,886
  5




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SOUTHWEST COMMUNITY BANCORP AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
(dollars in thousands)
 Nine Months Ended September 302005
    
    
    2004(Unaudited)Operating ActivitiesNet income from continuing operations
    
    $
    6,031
    
    
    $
    3,386Depreciation and amortization
    
    
    671
    
    
    
    604Amortization/accretion of premiums/discounts  net
    
    
    709
    
    
    
    209Provision for loan losses
    
    
    895
    
    
    
    725Loss on sale of investment securities
    
    
    69
    
    
    
    Deferred income tax expense (benefit)
    
    
    295
    
    
    
    (568
    )Increase in cash value of life insurance
    
    
    (250
    )
    
    
    (122
    )Net change in other assets and liabilities
    
    
    1,881
    
    
    
    251Net Cash Provided by Operating Activities
    
    
    10,301
    
    
    
    4,485Investing ActivitiesChange in deposits in other financial institutions, net
    
    
    
    
    
    
    1Purchase/redemption of FHLB stock, net
    
    
    (134
    )
    
    
    (333
    )Purchase of investment securities available-for-sale
    
    
    (59,920
    )
    
    
    (33,575
    )Proceeds from sales of investment securities available-for-sale
    
    
    7,963
    
    
    
    Proceeds from maturities of investment securities available-for-sale
    
    
    19,509
    
    
    
    4,231Proceeds from maturities of investment securities held-to-maturity
    
    
    98
    
    
    
    272Purchases of premises and equipment
    
    
    (403
    )
    
    
    (490
    )Net increase in loans
    
    
    (11,281
    )
    
    
    (40,928
    )Purchase of life insurance
    
    
    (2,400
    )
    
    
    (1,500
    )Purchase of minority interest in FDSI
    
    
    
    
    
    
    (3,350
    )Net Cash Used in Investing Activities
    
    
    (46,568
    )
    
    
    (75,672
    )Financing ActivitiesNet increase in deposits
    
    
    62,705
    
    
    
    120,006Net proceeds from issuance of common stock
    
    
    
    
    
    
    14,370Proceeds from exercise of stock options
    
    
    526
    
    
    
    336Proceeds from exercise of stock warrants
    
    
    110
    
    
    
    40Cash in lieu dividends paid
    
    
    (4
    )
    
    
    Net Cash Provided by Financing Activities
    
    
    63,337
    
    
    
    134,752Net Cash Provided by Discontinued operations
    
    
    5,949
    
    
    
    122Net Increase in Cash and Cash Equivalents
    
    
    33,019
    
    
    
    63,687Cash and Cash Equivalents at Beginning of Period
    
    
    170,352
    
    
    
    114,547Cash and Cash Equivalents at End of Period
    
    $
    203,371
    
    
    $
    178,234Supplemental Disclosures of Cash Flow InformationCash Paid for Interest
    
    $
    2,173
    
    
    $
    1,063Cash Paid for Taxes
    
    $
    2,650
    
    
    $
    2,850Non-Cash Investing ActivitiesNet Change in Accumulated Other Comprehensive Income
    
    $
    (376
    )
    
    $
    257
  6




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SOUTHWEST COMMUNITY BANCORP
 
 Notes to Consolidated Financial Statements (Unaudited)
 Note 1  Summary of Significant Accounting Policies
   Nature of Operations
   Principles of Consolidation
  Use of Estimates in the Preparation of Financial Statements
   7




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Allowance for Loan Losses
  Note 2  Earnings Per Share
  Three Months EndedSeptember 30, 2005
    
    
    September 30, 2004Income
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(dollars in thousands, except per share)Net income as reported
    
    $
    2,504
    
    
    
    
    
    
    
    
    
    
    $
    1,179Shares outstanding at period end
    
    
    
    
    
    
    3,796,417
    
    
    
    
    
    
    
    
    
    
    
    3,634,929Impact of weighting shares
issued during the period
    
    
    
    
    
    
    (3,705
    )
    
    
    
    
    
    
    
    
    
    
    (387,612
    )Basic net income per share
    
    
    2,504
    
    
    
    3,792,712
    
    
    $
    0.66
    
    
    
    1,179
    
    
    
    3,247,317
    
    
    $
    0.37Dilutive Effect of Outstanding:Stock Options
    
    
    
    
    
    
    570,678
    
    
    
    
    
    
    
    
    
    
    
    673,960Warrants
    
    
    
    
    
    
    88,776
    
    
    
    
    
    
    
    
    
    
    
    88,044Diluted net income per share
    
    $
    2,504
    
    
    
    4,452,166
    
    
    $
    0.56
    
    
    $
    1,179
    
    
    
    4,009,321
    
    
    $
    0.30
 Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2004Income
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(dollars in thousands, except per share)Net income as reported
    
    $
    7,678
    
    
    
    
    
    
    
    
    
    
    $
    3,561Shares outstanding at period end
    
    
    
    
    
    
    3,796,417
    
    
    
    
    
    
    
    
    
    
    
    3,634,929Impact of weighting shares
issued during the period
    
    
    
    
    
    
    (52,493
    )
    
    
    
    
    
    
    
    
    
    
    (502,663
    )Basic net income per share
    
    
    7,678
    
    
    
    3,743,924
    
    
    $
    2.05
    
    
    
    3,561
    
    
    
    3,132,266
    
    
    $
    1.14Dilutive Effect of Outstanding:Stock Options
    
    
    
    
    
    
    568,934
    
    
    
    
    
    
    
    
    
    
    
    626,490Warrants
    
    
    
    
    
    
    88,604
    
    
    
    
    
    
    
    
    
    
    
    81,174Diluted net income per share
    
    $
    7,678
    
    
    
    4,401,462
    
    
    $
    1.74
    
    
    $
    3,561
    
    
    
    3,839,930
    
    
    $
    0.93
 Note 3  Stock-Based Compensation
  8




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands, except per share)Net income as reported
    
    $
    2,504
    
    
    $
    1,179
    
    
    $
    7,678
    
    
    $
    3,561Stock-based compensation using
the intrinsic value method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation that
would have been reported using
the fair value method of SFAS 123
    
    
    (1,171
    )
    
    
    (73
    )
    
    
    (1,464
    )
    
    
    (242
    )Pro forma net income
    
    $
    1,333
    
    
    $
    1,106
    
    
    $
    6,214
    
    
    $
    3,319Basic earnings per share:As reported
    
    $
    0.66
    
    
    $
    0.37
    
    
    $
    2.05
    
    
    $
    1.14Pro forma
    
    
    0.35
    
    
    
    0.34
    
    
    
    1.66
    
    
    
    1.06Diluted earnings per share:As reported
    
    $
    0.56
    
    
    $
    0.30
    
    
    $
    1.74
    
    
    $
    0.93Pro forma
    
    
    0.30
    
    
    
    0.28
    
    
    
    1.41
    
    
    
    0.86
   Note 4  Recent Accounting Pronouncements
  9




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Note 5  Stock Dividend
  Note 6  Discontinued Operations
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands)Item processing income
    
    $
    
    
    
    $
    1,113
    
    
    $
    2,731
    
    
    $
    3,879Income (loss) from operations before taxes
    
    
    
    
    
    
    (158
    )
    
    
    (96
    )
    
    
    208Income taxes
    
    
    
    
    
    
    (65
    )
    
    
    (38
    )
    
    
    33Income (loss) from operations
    
    
    
    
    
    
    (93
    )
    
    
    (58
    )
    
    
    175Gain on sale of assets before taxes
    
    
    258
    
    
    
    
    
    
    
    2,835
    
    
    
    Income taxes
    
    
    103
    
    
    
    
    
    
    
    1,130
    
    
    
    Gain on sale of assets
    
    
    155
    
    
    
    
    
    
    
    1,705
    
    
    
    Income from discontinued operations
    
    $
    155
    
    
    $
    (93
    )
    
    $
    1,647
    
    
    $
    175
 10




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   FINANCIAL SUMMARY
    11




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands, except per share data)Continuing Operations:Income from continuing operations
    
    $
    2,349
    
    
    $
    1,272
    
    
    $
    6,031
    
    
    $
    3,386Discontinued Operations:Gain on sale of assets
    
    
    155
    
    
    
    
    
    
    
    1,705
    
    
    
    Income (loss) from operations
    
    
    
    
    
    
    (93
    )
    
    
    (58
    )
    
    
    175Income from discontinued operations
    
    
    155
    
    
    
    (93
    )
    
    
    1,647
    
    
    
    175Net Income
    
    $
    2,504
    
    
    $
    1,179
    
    
    $
    7,678
    
    
    $
    3,561Diluted earnings per shareContinuing operations
    
    $
    0.53
    
    
    $
    0.32
    
    
    $
    1.37
    
    
    $
    0.88Net income
    
    $
    0.56
    
    
    $
    0.30
    
    
    $
    1.74
    
    
    $
    0.93Consolidated assets
    
    $
    606,058
    
    
    $
    476,542
    
    
    $
    606,058
    
    
    $
    476,542Average earning assets
    
    $
    466,667
    
    
    $
    344,982
    
    
    $
    451,537
    
    
    $
    298,914Return on average equity (a)
    
    
    20.1
    %
    
    
    19.4
    %
    
    
    18.7
    %
    
    
    20.3
    %Return on average assets (a)
    
    
    1.6
    %
    
    
    1.2
    %
    
    
    1.4
    %
    
    
    1.2
    %Net interest margin  tax equivalent basis
    
    
    6.14
    %
    
    
    5.02
    %
    
    
    5.82
    %
    
    
    5.43
    %Efficiency ratio
    
    
    54.8
    %
    
    
    61.5
    %
    
    
    55.1
    %
    
    
    61.4
    %
 
 (a)
    
    Based on continuing operations, annualized. Results of Continuing Operations for the Three Months Ended September 30, 2005 Compared to 2004
  Results of Continuing Operations for the Nine Months Ended September 30, 2005 Compared to 2004
  12




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##### Table of Contents



Balance Sheet as of September 30, 2005 compared to December 31, 2004
  Critical Accounting Policies That May Affect Our Reported Income
   13




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##### Table of Contents



RESULTS OF OPERATIONS
 Net Interest Income
   Analysis of Average Rates and Balances and Changes in Net Interest Income  Tax Equivalent Basis
 Three Months Ended September 30,2005
    
    
    2004Interest
    
    
    Rates
    
    
    
    
    
    
    Interest
    
    
    RatesAverage
    
    
    Income/
    
    
    Earned/
    
    
    Average
    
    
    Income/
    
    
    Earned/Balance
    
    
    Expense
    
    
    Paid (3)
    
    
    Balance
    
    
    Expense
    
    
    Paid (3)(dollars in thousands)AssetsInvestment securities  taxable
    
    $
    76,206
    
    
    $
    745
    
    
    
    3.91
    %
    
    $
    47,726
    
    
    $
    474
    
    
    
    3.97
    %Investment securities  tax-exempt (1)
    
    
    17,145
    
    
    
    236
    
    
    
    5.51
    %
    
    
    563
    
    
    
    8
    
    
    
    5.68
    %Federal funds sold & other
    
    
    82,353
    
    
    
    731
    
    
    
    3.55
    %
    
    
    83,078
    
    
    
    302
    
    
    
    1.45
    %Loans (2)
    
    
    290,963
    
    
    
    6,255
    
    
    
    8.60
    %
    
    
    213,615
    
    
    
    3,984
    
    
    
    7.46
    %Total interest-earning assets
    
    
    466,667
    
    
    
    7,967
    
    
    
    6.83
    %
    
    
    344,982
    
    
    
    4,768
    
    
    
    5.53
    %Noninterest-earning assets
    
    
    120,352
    
    
    
    
    
    
    
    
    
    
    
    87,447Total Assets
    
    $
    587,019
    
    
    
    
    
    
    
    
    
    
    $
    432,429LiabilitiesInterest-bearing demand
    
    $
    8,520
    
    
    
    5
    
    
    
    0.23
    %
    
    $
    6,671
    
    
    
    3
    
    
    
    0.18
    %Savings & money market
    
    
    119,585
    
    
    
    601
    
    
    
    2.01
    %
    
    
    85,719
    
    
    
    269
    
    
    
    1.26
    %Time deposits
    
    
    8,696
    
    
    
    57
    
    
    
    2.62
    %
    
    
    11,764
    
    
    
    34
    
    
    
    1.16
    %Borrowings
    
    
    8,248
    
    
    
    140
    
    
    
    6.79
    %
    
    
    9,690
    
    
    
    134
    
    
    
    5.53
    %Total interest-bearing liabilities
    
    
    145,049
    
    
    
    803
    
    
    
    2.21
    %
    
    
    113,844
    
    
    
    440
    
    
    
    1.55
    %Demand deposits
    
    
    393,258
    
    
    
    
    
    
    
    
    
    
    
    289,201Other liabilities
    
    
    1,971
    
    
    
    
    
    
    
    
    
    
    
    3,138Total Liabilities
    
    
    540,278
    
    
    
    
    
    
    
    
    
    
    
    406,183Shareholders Equity
    
    
    46,741
    
    
    
    
    
    
    
    
    
    
    
    26,246Total Liabilities and
Shareholders Equity
    
    $
    587,019
    
    
    
    
    
    
    
    
    
    
    $
    432,429Net interest income/margin  tax equivalent
basis
    
    
    
    
    
    
    7,164
    
    
    
    6.14
    %
    
    
    
    
    
    
    4,328
    
    
    
    5.02
    %Less tax equivalent adjustment to interest
income (1)
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    3Net Interest Income
    
    
    
    
    
    $
    7,084
    
    
    
    6.07
    %
    
    
    
    
    
    $
    4,325
    
    
    
    5.01
    %Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.61
    %
    
    
    
    
    
    
    
    
    
    
    3.98
    %
 
 (1)
    
    The interest income and the yields on tax-exempt investment
securities are
presented on a tax-equivalent basis using the statutory federal income tax
rate of 34%.(2)
    
    Loans, net of unearned income, include non-accrual loans, but do not
reflect average allowances for loan losses. Interest income from loans
includes loan fees of $625,000 in 2005 and $448,000 in 2004.(3)
    
    The rates have been annualized. No assurances can be given regarding the
actual results that might be expected for the year ending December 31,
2005. 14




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##### Table of Contents



Analysis of Average Rates and Balances and Changes in Net Interest Income  Tax Equivalent Basis
 Nine Months Ended September 30,2005
    
    
    2004Interest
    
    
    Rates
    
    
    
    
    
    
    Interest
    
    
    RatesAverage
    
    
    Income/
    
    
    Earned/
    
    
    Average
    
    
    Income/
    
    
    Earned/Balance
    
    
    Expense
    
    
    Paid (3)
    
    
    Balance
    
    
    Expense
    
    
    Paid (3)(dollars in thousands)AssetsInvestment securities  taxable
    
    $
    75,246
    
    
    $
    2,198
    
    
    
    3.89
    %
    
    $
    33,793
    
    
    $
    959
    
    
    
    3.78
    %Investment securities  tax-exempt (1)
    
    
    11,492
    
    
    
    476
    
    
    
    5.52
    %
    
    
    189
    
    
    
    8
    
    
    
    5.64
    %Federal funds sold & other
    
    
    74,548
    
    
    
    1,720
    
    
    
    3.08
    %
    
    
    54,820
    
    
    
    519
    
    
    
    1.26
    %Loans (2)
    
    
    290,251
    
    
    
    17,469
    
    
    
    8.02
    %
    
    
    210,112
    
    
    
    11,746
    
    
    
    7.45
    %Total interest-earning assets
    
    
    451,537
    
    
    
    21,863
    
    
    
    6.46
    %
    
    
    298,914
    
    
    
    13,232
    
    
    
    5.90
    %Noninterest-earning assets
    
    
    110,773
    
    
    
    
    
    
    
    
    
    
    
    79,741Total Assets
    
    $
    562,310
    
    
    
    
    
    
    
    
    
    
    $
    378,655LiabilitiesInterest-bearing demand
    
    $
    9,173
    
    
    
    14
    
    
    
    0.20
    %
    
    $
    5,750
    
    
    
    10
    
    
    
    0.23
    %Savings & money market
    
    
    112,138
    
    
    
    1,637
    
    
    
    1.95
    %
    
    
    70,366
    
    
    
    587
    
    
    
    1.11
    %Time deposits
    
    
    9,565
    
    
    
    129
    
    
    
    1.80
    %
    
    
    11,925
    
    
    
    102
    
    
    
    1.14
    %Borrowings
    
    
    8,248
    
    
    
    389
    
    
    
    6.29
    %
    
    
    10,806
    
    
    
    363
    
    
    
    4.48
    %Total interest-bearing liabilities
    
    
    139,124
    
    
    
    2,169
    
    
    
    2.08
    %
    
    
    98,847
    
    
    
    1,062
    
    
    
    1.43
    %Demand deposits
    
    
    373,949
    
    
    
    
    
    
    
    
    
    
    
    255,109Other liabilities
    
    
    5,865
    
    
    
    
    
    
    
    
    
    
    
    2,465Total Liabilities
    
    
    518,938
    
    
    
    
    
    
    
    
    
    
    
    356,421Shareholders Equity
    
    
    43,372
    
    
    
    
    
    
    
    
    
    
    
    22,234Total Liabilities and
Shareholders Equity
    
    $
    562,310
    
    
    
    
    
    
    
    
    
    
    $
    378,655Net interest income/margin  tax equivalent
basis
    
    
    
    
    
    
    19,694
    
    
    
    5.82
    %
    
    
    
    
    
    
    12,170
    
    
    
    5.43
    %Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.38
    %
    
    
    
    
    
    
    
    
    
    
    4.47
    %Less tax equivalent adjustment to interest income
(1)
    
    
    
    
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    3Net Interest Income
    
    
    
    
    
    $
    19,532
    
    
    
    
    
    
    
    
    
    
    $
    12,167
 
 (1)
    
    The interest income and the yields on tax-exempt investment securities are
presented on a tax-equivalent basis using the statutory federal income tax
rate of 34%.(2)
    
    Loans, net of unearned income, include non-accrual loans, but do not
reflect average allowances for loan losses. Interest income from loans
includes loan fees of $1,646,000 in 2005 and $1,392,000 in 2004.(3)
    
    The rates have been annualized. No assurances can be given regarding the
actual results that might be expected for the year ending December 31,
2005.   15




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##### Table of Contents



Analysis of Changes in Volume and Interest Rates
 Three Months Ended September 30
    
    
    Nine Months Ended September 30,2005 from 2004
    
    
    2005 from 2004Change due to
    
    
    Total
    
    
    Change due to
    
    
    TotalVolume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    Rate
    
    
    Change(dollars in thousands)Investment securities  taxable
    
    $
    279
    
    
    $
    (8
    )
    
    $
    271
    
    
    $
    1,210
    
    
    $
    29
    
    
    $
    1,239Investment securities  tax-exempt
    
    
    228
    
    
    
    
    
    
    
    228
    
    
    
    468
    
    
    
    
    
    
    
    468Federal funds sold & other
    
    
    (3
    )
    
    
    432
    
    
    
    429
    
    
    
    241
    
    
    
    960
    
    
    
    1,201Loans
    
    
    1,598
    
    
    
    673
    
    
    
    2,271
    
    
    
    4,766
    
    
    
    957
    
    
    
    5,723Total interest income
    
    
    2,102
    
    
    
    1,097
    
    
    
    3,199
    
    
    
    6,685
    
    
    
    1,946
    
    
    
    8,631Interest-bearing demand
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    7
    
    
    
    (3
    )
    
    
    4Savings & money market
    
    
    132
    
    
    
    200
    
    
    
    332
    
    
    
    464
    
    
    
    586
    
    
    
    1,050Time deposits
    
    
    (11
    )
    
    
    34
    
    
    
    23
    
    
    
    (23
    )
    
    
    50
    
    
    
    27Borrowings
    
    
    (22
    )
    
    
    28
    
    
    
    6
    
    
    
    (99
    )
    
    
    125
    
    
    
    26Total interest expense
    
    
    100
    
    
    
    263
    
    
    
    363
    
    
    
    349
    
    
    
    758
    
    
    
    1,107Net Interest Income -
tax equivalent basis
    
    $
    2,002
    
    
    $
    834
    
    
    $
    2,836
    
    
    $
    6,336
    
    
    $
    1,188
    
    
    $
    7,524
 Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004
     16




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##### Table of Contents



Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004
      Provision for Loan Losses
  17




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##### Table of Contents



Noninterest Income
   Noninterest Expense
    FINANCIAL POSITION
  18




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##### Table of Contents



Loans
  September 30, 2005
    
    
    December 31, 2004Percent
    
    
    
    
    
    
    PercentLoan Category
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of Total(dollars in thousands)Real estate loans:Construction
    
    $
    108,980
    
    
    
    37
    %
    
    $
    99,478
    
    
    
    35
    %Residential
    
    
    13,205
    
    
    
    4
    %
    
    
    22,014
    
    
    
    9
    %Commercial
    
    
    90,450
    
    
    
    30
    %
    
    
    85,205
    
    
    
    30
    %Total real estate
    
    
    212,635
    
    
    
    71
    %
    
    
    206,697
    
    
    
    72
    %Commercial
    
    
    83,567
    
    
    
    28
    %
    
    
    77,855
    
    
    
    27
    %Consumer & Other
    
    
    1,390
    
    
    
    1
    %
    
    
    1,642
    
    
    
    1
    %Total Loans
    
    
    297,592
    
    
    
    100
    %
    
    
    286,194
    
    
    
    100
    %Less deferred loan income
    
    
    (2,849
    )
    
    
    
    
    
    
    (2,594
    )Net Loans
    
    $
    294,743
    
    
    
    
    
    
    $
    283,600
 Capital Resources and Regulatory Requirements
   Well
    
    Southwest
    
    SouthwestCapitalized
    
    Community
    
    CommunityRequirement
    
    Bancorp
    
    BankAs of September 30, 2005:Tier 1 leverage capital ratio
    
    
    5.0
    %
    
    
    9.6
    %
    
    
    8.9
    %Tier 1 risk-based capital ratio
    
    
    6.0
    %
    
    
    14.2
    %
    
    
    13.1
    %Total risk-based capital ratio
    
    
    10.0
    %
    
    
    15.4
    %
    
    
    14.2
    %As of December 31, 2004:Tier 1 leverage capital ratio
    
    
    5.0
    %
    
    
    9.5
    %
    
    
    8.1
    %Tier 1 risk-based capital ratio
    
    
    6.0
    %
    
    
    12.8
    %
    
    
    10.9
    %Total risk-based capital ratio
    
    
    10.0
    %
    
    
    13.8
    %
    
    
    12.0
    %
  19




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##### Table of Contents



Liquidity and Liability Management
       
 Item 3 Quantitative and Qualitative Disclosures about Market Risk
  Credit Risk
  Interest Rate Risk
  20




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##### Table of Contents



Sensitivity of Net Interest Income
 Adjusted Net
    
    
    ChangeInterest Rate Scenario
    
    Interest Income
    
    
    From Base(dollars in thousands)Up 300 basis points
    
    $
    29,700
    
    
    
    6.8
    %Up 200 basis points
    
    
    29,100
    
    
    
    4.7
    %Up 100 basis points
    
    
    28,500
    
    
    
    2.5
    %Base
    
    
    27,800
    
    
    
    0.0
    %Down 100 basis points
    
    
    27,100
    
    
    
    (2.5
    %)Down 200 basis points
    
    
    26,500
    
    
    
    (4.7
    %)Down 300 basis points
    
    
    25,800
    
    
    
    (7.2
    %)
 
 Item 4  Controls and Procedures
  21




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##### Table of Contents



PART II  Other Information
 
 Item 1  Legal Proceedings
  
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3  Defaults upon Senior Securities
  
 Item 4  Submission of Matters to a Vote of Security Holders
  
 Item 5  Other Information
  
 Item 6  Exhibits
  Reg. S-KItem 601Exhibit No.
    
    Description10.1
    
    Employment agreement dated November 7, 2005 with Frank J. Mercardante31.1
    
    Certification Pursuant to Section 302 by Chief Executive Officer31.2
    
    Certification Pursuant to Section 302 by Chief Financial Officer32.1
    
    Certification of Chief Executive Officer Pursuant to Section 90632.2
    
    Certification of Chief Financial Officer Pursuant to Section 906
 22




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##### Table of Contents



SIGNATURES
  SOUTHWEST COMMUNITY BANCORPDate: November 10, 2005
    
    By:
    
    /s/ Frank J. MercardanteFrank J. MercardanteChief Executive OfficerDate: November 10, 2005
    
    By:
    
    /s/ James L. LemeryJames L. LemeryExecutive Vice President &Chief Financial Officer
 23