##### 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 June 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
 Number of shares of Common Stock outstanding as of July 31, 2005: 3,788,227




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##### Table of Contents



INDEX
 PART I  Financial InformationItem 1 Financial Statements
    
    
    3Consolidated Balance Sheets as of June 30, 2005 (Unaudited) and December 31, 2004
    
    
    3Consolidated Statements of Income for the Three Months Ended June 30, 2005 and 2004 and the Six Months Ended June 30, 2005 and 2004 (Unaudited)
    
    
    4Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income for the Six Months Ended June 30, 2005 and 2004 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows for the Six Months Ended June 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 10.33Exhibit 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)
 June 30,
    
    December 31,2005
    
    2004UnauditedAssetsCash and due from banks
    
    $
    129,825
    
    
    $
    101,162Federal funds sold
    
    
    68,015
    
    
    
    69,190Cash and cash equivalents
    
    
    197,840
    
    
    
    170,352Interest-bearing deposits in financial institutions
    
    
    167
    
    
    
    167Investment securities available-for-sale
    
    
    94,650
    
    
    
    61,489Investment securities held-to-maturity
    
    
    243
    
    
    
    316Loans, net of unearned income
    
    
    300,850
    
    
    
    283,600Less allowance for loan losses
    
    
    4,374
    
    
    
    3,744Net loans
    
    
    296,476
    
    
    
    279,856Premises and equipment
    
    
    1,980
    
    
    
    2,240Federal Home Loan Bank stock at cost
    
    
    1,421
    
    
    
    1,301Cash surrender value of life insurance
    
    
    8,871
    
    
    
    6,306Assets related to discontinued operations
    
    
    
    
    
    
    4,556Other assets
    
    
    6,732
    
    
    
    6,291Total Assets
    
    $
    608,380
    
    
    $
    532,874Liabilities and Shareholders EquityNoninterest-bearing demand
    
    $
    423,850
    
    
    $
    362,617Money market and NOW
    
    
    110,581
    
    
    
    101,875Savings
    
    
    8,178
    
    
    
    7,831Time deposits under $100,000
    
    
    3,727
    
    
    
    3,827Time deposits $100,000 and over
    
    
    4,689
    
    
    
    6,612Total Deposits
    
    
    551,025
    
    
    
    482,762Accrued interest and other liabilities
    
    
    3,708
    
    
    
    2,722Junior subordinated debt
    
    
    8,248
    
    
    
    8,248Liabilities related to discontinued operations
    
    
    
    
    
    
    254Total Liabilities
    
    
    562,981
    
    
    
    493,986Shareholders EquityCommon stock, no par value, 28,125,000 shares authorized,
3,788,227 and 3,484,266 shares issued and
outstanding in 2005 and 2004, respectively
    
    
    37,055
    
    
    
    29,901Retained earnings
    
    
    8,744
    
    
    
    9,107Accumulated other comprehensive income (loss)
    
    
    (400
    )
    
    
    (120
    )Total Shareholders Equity
    
    
    45,399
    
    
    
    38,888Total Liabilities and Shareholders Equity
    
    $
    608,380
    
    
    $
    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
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(Unaudited)Interest IncomeInterest and fees on loans
    
    $
    5,861
    
    
    $
    3,982
    
    
    $
    11,214
    
    
    $
    7,762Investment securities
    
    
    874
    
    
    
    270
    
    
    
    1,611
    
    
    
    487Federal funds sold and other
    
    
    650
    
    
    
    175
    
    
    
    989
    
    
    
    217Total interest income
    
    
    7,385
    
    
    
    4,427
    
    
    
    13,814
    
    
    
    8,466Interest ExpenseDeposits
    
    
    621
    
    
    
    227
    
    
    
    1,117
    
    
    
    391Borrowings
    
    
    131
    
    
    
    119
    
    
    
    249
    
    
    
    231Total interest expense
    
    
    752
    
    
    
    346
    
    
    
    1,366
    
    
    
    622Net interest income
    
    
    6,633
    
    
    
    4,081
    
    
    
    12,448
    
    
    
    7,844Provision for loan losses
    
    
    455
    
    
    
    225
    
    
    
    770
    
    
    
    525Net interest income after provision for loan losses
    
    
    6,178
    
    
    
    3,856
    
    
    
    11,678
    
    
    
    7,319Noninterest IncomeFees and service charges
    
    
    601
    
    
    
    716
    
    
    
    1,203
    
    
    
    1,451Loan referral fees
    
    
    83
    
    
    
    294
    
    
    
    194
    
    
    
    567Gain on sale of SBA loans
    
    
    729
    
    
    
    429
    
    
    
    1,067
    
    
    
    685Gain on sale of securities
    
    
    (18
    )
    
    
    
    
    
    
    (18
    )
    
    
    Other income
    
    
    190
    
    
    
    88
    
    
    
    394
    
    
    
    212Total noninterest income
    
    
    1,585
    
    
    
    1,527
    
    
    
    2,840
    
    
    
    2,915Noninterest ExpenseSalaries and employee benefits
    
    
    2,253
    
    
    
    1,900
    
    
    
    4,405
    
    
    
    3,574Occupancy & Equipment
    
    
    783
    
    
    
    654
    
    
    
    1,541
    
    
    
    1,260Other
    
    
    1,216
    
    
    
    991
    
    
    
    2,513
    
    
    
    1,774Total noninterest expense
    
    
    4,252
    
    
    
    3,545
    
    
    
    8,459
    
    
    
    6,608Income from continuing operations before income taxes
    
    
    3,511
    
    
    
    1,838
    
    
    
    6,059
    
    
    
    3,626Income taxes
    
    
    1,374
    
    
    
    789
    
    
    
    2,377
    
    
    
    1,512Income from continuing operations
    
    
    2,137
    
    
    
    1,049
    
    
    
    3,682
    
    
    
    2,114Income from discontinued operations, net of tax
    
    
    1,512
    
    
    
    236
    
    
    
    1,492
    
    
    
    268Net income
    
    $
    3,649
    
    
    $
    1,285
    
    
    $
    5,174
    
    
    $
    2,382Earnings per common share:Income from continuing operations  Basic
    
    $
    0.56
    
    
    $
    0.33
    
    
    $
    0.98
    
    
    $
    0.68Income from continuing operations  Diluted
    
    $
    0.49
    
    
    $
    0.27
    
    
    $
    0.84
    
    
    $
    0.56Income from discontinued operations  Basic
    
    $
    0.41
    
    
    $
    0.08
    
    
    $
    0.41
    
    
    $
    0.09Income from discontinued operations  Diluted
    
    $
    0.34
    
    
    $
    0.06
    
    
    $
    0.34
    
    
    $
    0.07Net Income  Basic
    
    $
    0.97
    
    
    $
    0.41
    
    
    $
    1.39
    
    
    $
    0.77Net Income  Diluted
    
    $
    0.83
    
    
    $
    0.33
    
    
    $
    1.18
    
    
    $
    0.63
  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
    )
    
    $
    18,962Options exercised
    
    
    44,625
    
    
    
    192
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192Warrants exercised
    
    
    1,800
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    $
    2,382
    
    
    
    2,382
    
    
    
    
    
    
    
    2,382Net unrealized loss on securities
net of tax benefit of $150
    
    
    
    
    
    
    
    
    
    
    (214
    )
    
    
    
    
    
    
    (214
    )
    
    
    (214
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    $
    2,168Balance, June 30, 2004 (Unaudited)
    
    
    2,948,887
    
    
    $
    14,885
    
    
    
    
    
    
    $
    6,744
    
    
    $
    (290
    )
    
    $
    21,339Balance, December 31, 2004
    
    
    3,484,266
    
    
    $
    29,901
    
    
    
    
    
    
    $
    9,107
    
    
    $
    (120
    )
    
    $
    38,888Options exercised, including tax
benefit of $1,064
    
    
    120,750
    
    
    
    1,579
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,579Warrants exercised
    
    
    4,414
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    415% Stock dividend
    
    
    178,797
    
    
    
    5,534
    
    
    
    
    
    
    
    (5,537
    )
    
    
    
    
    
    
    (3
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    $
    5,174
    
    
    
    5,174
    
    
    
    
    
    
    
    5,174Net unrealized loss on securities
net of tax benefit of $202
    
    
    
    
    
    
    
    
    
    
    (290
    )
    
    
    
    
    
    
    (290
    )
    
    
    (290
    )Reclassification adjustment for
realized losses net of tax
benefit of $8
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10
    
    
    
    10Total comprehensive income
    
    
    
    
    
    
    
    
    
    $
    4,894Balance, June 30, 2005 (Unaudited)
    
    
    3,788,227
    
    
    $
    37,055

    
    
    
    
    
    
    $
    8,744
    
    
    $
    (400
    )
    
    $
    45,399
  5




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##### Table of Contents



SOUTHWEST COMMUNITY BANCORP AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (dollars in thousands)
 Six Months Ended June 30,2005
    
    2004(Unaudited)Operating ActivitiesNet income from continuing operations
    
    $
    3,682
    
    
    $
    2,114Depreciation and amortization
    
    
    447
    
    
    
    391Amortization/accretion of premiums/discounts  net
    
    
    471
    
    
    
    146Provision for loan losses
    
    
    770
    
    
    
    525Loss on sale of investment securities
    
    
    18
    
    
    
    Deferred income tax expense (benefit)
    
    
    385
    
    
    
    (381
    )Increase in cash value of life insurance
    
    
    (165
    )
    
    
    (86
    )Net change in other assets and liabilities
    
    
    1,419
    
    
    
    (984
    )Net Cash Provided by Operating Activities
    
    
    7,027
    
    
    
    1,725Investing ActivitiesChange in deposits in other financial institutions, net
    
    
    
    
    
    
    (99
    )Purchase/redemption of FHLB stock, net
    
    
    (120
    )
    
    
    (322
    )Purchase of investment securities available-for-sale
    
    
    (51,574
    )
    
    
    (24,922
    )Proceeds from sales of investment securities available-for-sale
    
    
    13,059
    
    
    
    Proceeds from maturities of investment securities available-for-sale
    
    
    4,392
    
    
    
    3,087Proceeds from maturities of investment securities held-to-maturity
    
    
    71
    
    
    
    205Purchases of premises and equipment
    
    
    (187
    )
    
    
    (339
    )Net increase in loans
    
    
    (17,390
    )
    
    
    (22,686
    )Purchase of life insurance
    
    
    (2,400
    )
    
    
    Purchase of minority interest in FDSI
    
    
    
    
    
    
    (3,350
    )Net Cash Used in Investing Activities
    
    
    (54,149
    )
    
    
    (48,426
    )Financing ActivitiesNet increase in deposits
    
    
    68,263
    
    
    
    75,097Net proceeds from borrowing
    
    
    
    
    
    
    2,000Proceeds from exercise of stock options
    
    
    515
    
    
    
    192Proceeds from exercise of stock warrants
    
    
    41
    
    
    
    17Cash in lieu dividends paid
    
    
    (3
    )
    
    
    Net Cash Provided by Financing Activities
    
    
    68,816
    
    
    
    77,306Net Cash Provided by Discontinued operations
    
    
    5,794
    
    
    
    1,021Net Increase in Cash and Cash Equivalents
    
    
    27,488
    
    
    
    31,626Cash and Cash Equivalents at Beginning of Period
    
    
    170,352
    
    
    
    114,547Cash and Cash Equivalents at End of Period
    
    $
    197,840
    
    
    $
    146,173Supplemental Disclosures of Cash Flow InformationCash Paid for Interest
    
    $
    1,364
    
    
    $
    622Cash Paid for Taxes
    
    $
    850
    
    
    $
    1,930Non-Cash Investing ActivitiesNet Change in Accumulated Other Comprehensive Income
    
    $
    (280
    )
    
    $
    (214
    )
  6




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##### Table of Contents



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 Ended June 30, 2005
    
    Three Months Ended June 30, 2004Income
    
    Shares
    
    Per Share
    
    Income
    
    Shares
    
    Per Share(dollars in thousands, except per share)Net income as reported
    
    $
    3,649
    
    
    
    
    
    
    
    
    
    
    $
    1,285Shares outstanding at period end
    
    
    
    
    
    
    3,788,227
    
    
    
    
    
    
    
    
    
    
    
    3,096,331Impact of weighting shares
issued during the period
    
    
    
    
    
    
    (26,903
    )
    
    
    
    
    
    
    
    
    
    
    (8,555
    )Basic net income per share
    
    
    3,649
    
    
    
    3,761,324
    
    
    $
    0.97
    
    
    
    1,285
    
    
    
    3,087,776
    
    
    $
    0.41Dilutive Effect of Outstanding:Stock Options
    
    
    
    
    
    
    555,949
    
    
    
    
    
    
    
    
    
    
    
    656,065Warrants
    
    
    
    
    
    
    87,944
    
    
    
    
    
    
    
    
    
    
    
    82,177Diluted net income per share
    
    $
    3,649
    
    
    
    4,405,217
    
    
    $
    0.83
    
    
    $
    1,285
    
    
    
    3,826,018
    
    
    $
    0.33
 Six Months Ended June 30, 2005
    
    Six Months Ended June 30, 2004Income
    
    Shares
    
    Per Share
    
    Income
    
    Shares
    
    Per Share(dollars in thousands, except per share)Net income as reported
    
    $
    5,174
    
    
    
    
    
    
    
    
    
    
    $
    2,382Shares outstanding at period end
    
    
    
    
    
    
    3,788,227
    
    
    
    
    
    
    
    
    
    
    
    3,096,331Impact of weighting shares
issued during the period
    
    
    
    
    
    
    (69,101
    )
    
    
    
    
    
    
    
    
    
    
    (22,223
    )Basic net income per share
    
    
    5,174
    
    
    
    3,719,126
    
    
    $
    1.39
    
    
    
    2,382
    
    
    
    3,074,108
    
    
    $
    0.77Dilutive Effect of Outstanding:Stock Options
    
    
    
    
    
    
    574,161
    
    
    
    
    
    
    
    
    
    
    
    615,899Warrants
    
    
    
    
    
    
    90,191
    
    
    
    
    
    
    
    
    
    
    
    77,311Diluted net income per share
    
    $
    5,174
    
    
    
    4,383,478
    
    
    $
    1.18
    
    
    $
    2,382
    
    
    
    3,767,318
    
    
    $
    0.63
 Note 3  Stock-Based Compensation
  8




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##### Table of Contents



Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004(dollars in thousands, except per share)Net income as reported
    
    $
    3,649
    
    
    $
    1,285
    
    
    $
    5,174
    
    
    $
    2,382Stock-based compensation using
the intrinsic value method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation that
would have been reported using
the fair value method of SFAS 123
    
    
    (147
    )
    
    
    (104
    )
    
    
    (293
    )
    
    
    (169
    )Pro forma net income
    
    $
    3,502
    
    
    $
    1,181
    
    
    $
    4,881
    
    
    $
    2,213Basic earnings per share:As reported
    
    $
    0.97
    
    
    $
    0.41
    
    
    $
    1.39
    
    
    $
    0.77Pro forma
    
    
    0.93
    
    
    
    0.38
    
    
    
    1.31
    
    
    
    0.60Diluted earnings per share:As reported
    
    $
    0.83
    
    
    $
    0.33
    
    
    $
    1.18
    
    
    $
    0.63Pro forma
    
    
    0.79
    
    
    
    0.31
    
    
    
    1.11
    
    
    
    0.59
  Note 4  Recent Accounting Pronouncements
  Note 5  Stock Dividend
  Note 6  Discontinued Operations
  9




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##### Table of Contents



Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004(dollars in thousands)Item processing income
    
    $
    1,241
    
    
    $
    1,524
    
    
    $
    2,731
    
    
    $
    2,766Income (loss) from operations before taxes
    
    
    (63
    )
    
    
    330
    
    
    
    (96
    )
    
    
    366Income taxes
    
    
    (25
    )
    
    
    94
    
    
    
    (38
    )
    
    
    98Income (loss) from operations
    
    
    (38
    )
    
    
    236
    
    
    
    (58
    )
    
    
    268Gain on sale of assets before taxes
    
    
    2,577
    
    
    
    
    
    
    
    2,577
    
    
    
    Income taxes
    
    
    1,027
    
    
    
    
    
    
    
    1,027
    
    
    
    Gain on sale of assets
    
    
    1,550
    
    
    
    
    
    
    
    1,550
    
    
    
    Income from discontinued operations
    
    $
    1,512
    
    
    $
    236
    
    
    $
    1,492
    
    
    $
    268
 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 June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004(dollars in thousands, except per share data)Continuing Operations:Income from continuing operations
    
    $
    2,137
    
    
    $
    1,049
    
    
    $
    3,682
    
    
    $
    2,114Discontinued Operations:Gain on sale of assets
    
    
    1,550
    
    
    
    
    
    
    
    1,550
    
    
    
    Income (loss) from operations
    
    
    (38
    )
    
    
    236
    
    
    
    (58
    )
    
    
    268Income from discontinued operations
    
    
    1,512
    
    
    
    236
    
    
    
    1,492
    
    
    
    268Net Income
    
    $
    3,649
    
    
    $
    1,285
    
    
    $
    5,174
    
    
    $
    2,382Diluted earnings per shareContinuing operations
    
    $
    0.49
    
    
    $
    0.27
    
    
    $
    0.84
    
    
    $
    0.56Net income
    
    $
    0.83
    
    
    $
    0.33
    
    
    $
    1.18
    
    
    $
    0.63Consolidated assets
    
    $
    608,380
    
    
    $
    417,153
    
    
    $
    608,380
    
    
    $
    417,153Average earning assets
    
    $
    471,125
    
    
    $
    307,764
    
    
    $
    443,846
    
    
    $
    276,531Return on average equity (a)
    
    
    20.1
    %
    
    
    20.2
    %
    
    
    17.9
    %
    
    
    20.9
    %Return on average assets (a)
    
    
    1.5
    %
    
    
    1.1
    %
    
    
    1.3
    %
    
    
    1.2
    %Net interest margin
    
    
    5.68
    %
    
    
    5.30
    %
    
    
    5.65
    %
    
    
    5.67
    %Efficiency ratio
    
    
    51.7
    %
    
    
    63.2
    %
    
    
    55.3
    %
    
    
    61.4
    %
 
 (a)
    
    Based on continuing operations, annualized. Results of Continuing Operations for the Three Months Ended June 30, 2005 Compared to 2004
  Results of Continuing Operations for the Six Months Ended June 30, 2005 Compared to 2004
  12




---



##### Table of Contents



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




---



##### Table of Contents



RESULTS OF OPERATIONS
 Net Interest Income
   Analysis of Average Rates and Balances and Changes in Net Interest Income
 Three Months Ended June 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
    
    $
    78,070
    
    
    $
    761
    
    
    
    3.90
    %
    
    $
    30,313
    
    
    $
    270
    
    
    
    3.56
    %Investment securities  tax-exempt (1)
    
    
    12,242
    
    
    
    171
    
    
    
    5.59
    %
    
    
    
    
    
    
    Federal funds sold & other
    
    
    86,821
    
    
    
    650
    
    
    
    2.99
    %
    
    
    67,078
    
    
    
    175
    
    
    
    1.04
    %Loans (2)
    
    
    293,992
    
    
    
    5,861
    
    
    
    7.97
    %
    
    
    210,373
    
    
    
    3,982
    
    
    
    7.57
    %Total interest-earning assets
    
    
    471,125
    
    
    
    7,443
    
    
    
    6.32
    %
    
    
    307,764
    
    
    
    4,427
    
    
    
    5.75
    %Noninterest-earning assets
    
    
    112,944
    
    
    
    
    
    
    
    
    
    
    
    75,215Total Assets
    
    $
    584,069
    
    
    
    
    
    
    
    
    
    
    $
    382,979LiabilitiesInterest-bearing demand
    
    $
    8,520
    
    
    
    4
    
    
    
    0.19
    %
    
    $
    4,447
    
    
    
    3
    
    
    
    0.27
    %Savings & money market
    
    
    119,585
    
    
    
    580
    
    
    
    1.94
    %
    
    
    74,312
    
    
    
    191
    
    
    
    1.03
    %Time deposits
    
    
    8,696
    
    
    
    37
    
    
    
    1.70
    %
    
    
    11,696
    
    
    
    33
    
    
    
    1.13
    %Borrowings
    
    
    8,248
    
    
    
    131
    
    
    
    6.35
    %
    
    
    10,394
    
    
    
    119
    
    
    
    4.58
    %Total interest-bearing liabilities
    
    
    145,049
    
    
    
    752
    
    
    
    2.07
    %
    
    
    100,849
    
    
    
    346
    
    
    
    1.37
    %Demand deposits
    
    
    393,258
    
    
    
    
    
    
    
    
    
    
    
    259,334Other liabilities
    
    
    3,142
    
    
    
    
    
    
    
    
    
    
    
    1,982Total Liabilities
    
    
    541,449
    
    
    
    
    
    
    
    
    
    
    
    362,165Shareholders Equity
    
    
    42,620
    
    
    
    
    
    
    
    
    
    
    
    20,814Total Liabilities and
Shareholders Equity
    
    $
    584,069
    
    
    
    
    
    
    
    
    
    
    $
    382,979Net interest income/margin  tax equivalent basis
    
    
    
    
    
    
    6,691
    
    
    
    5.68
    %
    
    
    
    
    
    
    4,081
    
    
    
    5.30
    %Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.25
    %
    
    
    
    
    
    
    
    
    
    
    4.38
    %Less tax equivalent adjustment to interest income (1)
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    Net Interest Income
    
    
    
    
    
    $
    6,633
    
    
    
    
    
    
    
    
    
    
    $
    4,081
 
 (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 $531,000 in
2005 and $513,000 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
 Six Months Ended June 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
    
    $
    74,757
    
    
    $
    1,453
    
    
    
    3.89
    %
    
    $
    26,750
    
    
    $
    487
    
    
    
    3.64
    %Investment securities  tax-exempt (1)
    
    
    8,619
    
    
    
    239
    
    
    
    5.55
    %
    
    
    
    
    
    
    Federal funds sold & other
    
    
    70,581
    
    
    
    989
    
    
    
    2.80
    %
    
    
    41,464
    
    
    
    217
    
    
    
    1.05
    %Loans (2)
    
    
    289,889
    
    
    
    11,214
    
    
    
    7.74
    %
    
    
    208,317
    
    
    
    7,762
    
    
    
    7.45
    %Total interest-earning assets
    
    
    443,846
    
    
    
    13,895
    
    
    
    6.26
    %
    
    
    276,531
    
    
    
    8,466
    
    
    
    6.12
    %Noninterest-earning assets
    
    
    106,109
    
    
    
    
    
    
    
    
    
    
    
    75,041Total Assets
    
    $
    549,955
    
    
    
    
    
    
    
    
    
    
    $
    351,572LiabilitiesInterest-bearing demand
    
    $
    8,513
    
    
    
    9
    
    
    
    0.21
    %
    
    $
    5,285
    
    
    
    7
    
    
    
    0.26
    %Savings & money market
    
    
    113,898
    
    
    
    1,036
    
    
    
    1.82
    %
    
    
    63,083
    
    
    
    314
    
    
    
    1.00
    %Time deposits
    
    
    9,386
    
    
    
    72
    
    
    
    1.53
    %
    
    
    12,006
    
    
    
    68
    
    
    
    1.13
    %Borrowings
    
    
    8,248
    
    
    
    249
    
    
    
    6.04
    %
    
    
    11,093
    
    
    
    233
    
    
    
    4.20
    %Total interest-bearing liabilities
    
    
    140,045
    
    
    
    1,366
    
    
    
    1.95
    %
    
    
    91,467
    
    
    
    622
    
    
    
    1.36
    %Demand deposits
    
    
    367,418
    
    
    
    
    
    
    
    
    
    
    
    238,116Other liabilities
    
    
    1,304
    
    
    
    
    
    
    
    
    
    
    
    1,770Total Liabilities
    
    
    508,767
    
    
    
    
    
    
    
    
    
    
    
    331,353Shareholders Equity
    
    
    41,188
    
    
    
    
    
    
    
    
    
    
    
    20,219Total Liabilities and
Shareholders Equity
    
    $
    549,955
    
    
    
    
    
    
    
    
    
    
    $
    351,572Net interest income/margin  tax equivalent basis
    
    
    
    
    
    
    12,529
    
    
    
    5.65
    %
    
    
    
    
    
    
    7,844
    
    
    
    5.67
    %Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.31
    %
    
    
    
    
    
    
    
    
    
    
    4.76
    %Less tax equivalent adjustment to interest income (1)
    
    
    
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    Net Interest Income
    
    
    
    
    
    $
    12,448
    
    
    
    
    
    
    
    
    
    
    $
    7,844
 
 (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 $1,021,000 in
2005 and $944,000 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 June 30,
    
    Six Months Ended June 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
    
    $
    463
    
    
    $
    28
    
    
    $
    491
    
    
    $
    931
    
    
    $
    35
    
    
    $
    966Investment securities  tax-exempt
    
    
    171
    
    
    
    
    
    
    
    171
    
    
    
    239
    
    
    
    
    
    
    
    239Federal funds sold & other
    
    
    65
    
    
    
    410
    
    
    
    475
    
    
    
    228
    
    
    
    544
    
    
    
    772Loans
    
    
    1,657
    
    
    
    222
    
    
    
    1,879
    
    
    
    3,145
    
    
    
    307
    
    
    
    3,452Total interest income
    
    
    2,356
    
    
    
    660
    
    
    
    3,016
    
    
    
    4,543
    
    
    
    886
    
    
    
    5,429Interest-bearing demand
    
    
    2
    
    
    
    (1
    )
    
    
    1
    
    
    
    4
    
    
    
    (2
    )
    
    
    2Savings & money market
    
    
    158
    
    
    
    231
    
    
    
    389
    
    
    
    357
    
    
    
    365
    
    
    
    722Time deposits
    
    
    (10
    )
    
    
    14
    
    
    
    4
    
    
    
    (17
    )
    
    
    21
    
    
    
    4Borrowings
    
    
    (28
    )
    
    
    40
    
    
    
    12
    
    
    
    (69
    )
    
    
    85
    
    
    
    16Total interest expense
    
    
    122
    
    
    
    284
    
    
    
    406
    
    
    
    275
    
    
    
    469
    
    
    
    744Net Interest Income  tax equivalent basis
    
    $
    2,234
    
    
    $
    376
    
    
    $
    2,610
    
    
    $
    4,268
    
    
    $
    417
    
    
    $
    4,685
 Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
     16




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##### Table of Contents



Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
      Provision for Loan Losses
  17




---



##### Table of Contents



Noninterest Income
   Noninterest Expense
    FINANCIAL POSITION
  18




---



##### Table of Contents



Loans
  June 30, 2005
    
    December 31, 2004Percent
    
    
    
    
    
    PercentLoan Category
    
    Amount
    
    of Total
    
    Amount
    
    of Total(dollars in thousands)Real estate loans:Construction
    
    $
    115,830
    
    
    
    38
    %
    
    $
    99,478
    
    
    
    35
    %Residential
    
    
    11,544
    
    
    
    4
    %
    
    
    22,014
    
    
    
    9
    %Commercial
    
    
    91,503
    
    
    
    30
    %
    
    
    85,205
    
    
    
    30
    %Total real estate
    
    
    218,877
    
    
    
    72
    %
    
    
    206,697
    
    
    
    72
    %Commercial
    
    
    83,229
    
    
    
    27
    %
    
    
    77,855
    
    
    
    27
    %Consumer & Other
    
    
    1,494
    
    
    
    1
    %
    
    

    1,642
    
    
    
    1
    %Total Loans
    
    
    303,600
    
    
    
    100
    %
    
    
    286,194
    
    
    
    100
    %Less deferred loan income
    
    
    (2,750
    )
    
    
    
    
    
    
    (2,594
    )Net Loans
    
    $
    300,850
    
    
    
    
    
    
    $
    283,600
 Capital Resources and Regulatory Requirements
   Well
    
    Southwest
    
    SouthwestCapitalized
    
    Community
    
    CommunityRequirement
    
    Bancorp
    
    BankAs of June 30, 2005:Tier 1 leverage capital ratio
    
    
    5.0
    %
    
    
    9.2
    %
    
    
    8.5
    %Tier 1 risk-based capital ratio
    
    
    6.0
    %
    
    
    13.6
    %
    
    
    12.5
    %Total risk-based capital ratio
    
    
    10.0
    %
    
    
    14.7
    %
    
    
    13.6
    %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




---



##### Table of Contents



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




---



##### Table of Contents



Sensitivity of Net Interest Income
 Adjusted Net
    
    ChangeInterest Rate Scenario
    
    Interest Income
    
    From Base(dollars in thousands)Up 300 basis points
    
    $
    29,600
    
    
    
    8.4
    %Up 200 basis points
    
    
    28,900
    
    
    
    5.9
    %Up 100 basis points
    
    
    28,100
    
    
    
    2.9
    %Base
    
    
    27,300
    
    
    
    0.0
    %Down 100 basis points
    
    
    26,600
    
    
    
    (2.6
    %)Down 200 basis points
    
    
    25,800
    
    
    
    (5.5
    %)Down 300 basis points
    
    
    24,900
    
    
    
    (8.8
    %)
 
 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
   Name
    
    Votes For
    
    Votes WithheldAllan W. Arendsee
    
    
    3,098,770
    
    
    
    3,200Carol M. Beres
    
    
    3,098,970
    
    
    
    3,000Richard T. L. Chan
    
    
    3,098,970
    
    
    
    3,000Karen J. Estes
    
    
    3,098,970
    
    
    
    3,000Philip H. Holtkamp
    
    
    3,098,970
    
    
    
    3,000Alan J. Lane
    
    
    3,098,970
    
    
    
    3,000Howard B. Levenson
    
    
    3,097,470
    
    
    
    4,500Stuart F. McFarland
    
    
    3,098,970
    
    
    
    3,000J. Mercardante
    
    
    3,095,970
    
    
    
    6,000Paul M. Weil
    
    
    3,090,720
    
    
    
    11,250
  
 Item 5  Other Information
  
 Item 6  Exhibits
  22




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##### Table of Contents



Reg. S-KItem 601Exhibit No.
    
    Description10.33
    
    Lease Agreement (8250 White Oak Avenue, Rancho Cucamonga)31.1
    
    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
 
 SIGNATURES
  SOUTHWEST COMMUNITY BANCORPDate: August 12, 2005
    
    By:
    
    /s/ Frank J. MercardanteFrank J. MercardanteChief Executive OfficerDate: August 12, 2005
    
    By:
    
    /s/ James L. LemeryJames L. LemeryExecutive Vice President &Chief Financial Officer
 23