UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
o		TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from

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

For the quarterly period ended September 30, 2009

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

For the transition period from

Commission File Number: 001-33890

1ST PACIFIC BANCORP

State of California	NO. 20-5738252
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

9333 Genesee Ave., #300, San Diego, California	92121
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (858) 875-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller Reporting Company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

On ~~August~~November 1213, 2009, there were 4,980,481 shares of 1st Pacific Bancorp common stock outstanding.

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1st Pacific Bancorp

Quarterly Report on Form 10-Q for the period ended ~~June~~September 30, 2009

INDEX

		Page
Forward-Looking Statements		3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Unaudited Condensed Consolidated Balance Sheets at June 30, 2009 and December 31, 2008		5
Unaudited Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008		5
Unaudited Condensed Consolidated Income Statements for the three months and six months ended June 30, 2009 and 2008		6
Unaudited Condensed Consolidated Income Statements for the three months and nine months ended September 30, 2009 and 2008		6
Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity from December 31, 2007 through June 30, 2009		7
Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity from December 31, 2007 through September 30, 2009		7
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008		8
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008		8
Notes to Unaudited Condensed Consolidated Financial Statements		9
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3 - Quantitative and Qualitative Disclosures About Market Risk		2728
Item 4T - Controls and Procedures		2728
PART II - OTHER INFORMATION
Item 1- Legal Proceedings		2930
Item 1A- Risk Factors		2930
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		2930
Item 3 – Defaults Upon Senior Securities		2930
Item 4 – Submission of Matters to a Vote of Security Holders		2930
Item 5 – Other Information		2930
Item 6 - Exhibits		3031
Signatures		3132

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FORWARD-LOOKING STATEMENTS

1st Pacific Bancorp (“we,” “our,” “us” or the “Company”) may from time to time make written or oral “forward-looking statements,” including statements contained in our filings with the Securities and Exchange Commission (the “SEC”) (including this Quarterly Report on Form 10-Q and the exhibits hereto), in our reports to shareholders and in other communications by us, which are made in good faith by us pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements concerning our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, operations, future results and prospects, including statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “will,” “shall,” “anticipate,” “estimate,” “propose,” “continue,” “predict,” “intend,” “plan” and similar expressions. These forward-looking statements are based upon current expectations and are subject to risk, uncertainties and assumptions, including those described in this quarterly report and the other documents that are incorporated by reference herein. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed.

In connection with the safe harbors created by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors (some of which are beyond our control) which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include, but are not limited to, the following:

· The factors described in Item 1A-Risk Factors of the Company’s Annual Report on Form 10-K for the 2008 fiscal year filed on March 31, 2009 as amended and filed on April 29, 2009.

· ~~Changes~~ Potential ~~and~~losses ~~expenses~~of ~~expected~~businesses toand ~~be incurred~~population in ~~connection with~~ the ~~merger~~County ~~with~~of ~~First~~San ~~Business Bank~~Diego.

· Potential losses of businesses and population in the County of San Diego, and rising housing and insurance costs that may be responsible for such losses.

· The effects of trade, monetary and fiscal policies and laws.

· Stock, bond market and monetary fluctuations.

· Risks of loss of funding of Small Business Administration (“SBA”) loan programs, or changes in those programs.

· Credit risks of commercial, SBA, real estate, consumer and other lending activities, including risks related to changes in the values of real estate and other security for loans.

· Risks associated with concentrations, including commercial real estate loans, in the loan portfolio.

· The questionable availability of take-out financing or problems with sales or lease-up with respect to commercial and residential projects, due to the current economic environment.

· Competitors in our market area of similar size, with similar business plans and/or offering similar services.

· Our ability to develop competitive new products and services and the acceptance of those products and services by targeted customers and, when required, regulators.

· Our ability to securely and effectively implement new technology (including Internet services) for both the delivery of services and internal operations.

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· The willingness of customers to substitute competitors’ products and services for our products and services and vice versa.

· Changes in consumer and business spending and savings habits.

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· Unanticipated regulatory or judicial proceedings.

· The loss of significant customers.

· The risk and cost resulting from the opening of one or more new offices and adding employees.

· Increased regulation of the securities markets, including the securities of 1st Pacific Bancorp, whether pursuant to the Sarbanes-Oxley Act of 2002 or otherwise.

· Changes in critical accounting policies and judgments.

· Other internal and external developments that could materially impact our operational and financial performance.

Investors and other readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s analysis only as of the date of the statement. Actual results may differ materially from what is expected. The Company undertakes no obligation, unless required by law, to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART 1 — FINANCIAL INFORMATION

Item 1 - Financial Statements

1st Pacific Bancorp

Unaudited Condensed Consolidated Balance Sheets

	June 30, 2009			December 31, 2008
	September 30, 2009			December 31, 2008
Cash and Due From Banks	$	86,~~115~~933,~~782~~965		$	6,482,152
Federal Funds Sold	142,~~145~~085,000			18,010,000
TOTAL CASH AND CASH EQUIVALENTS	229,~~260~~018,~~782~~965			24,492,152
Investment Securities Available for Sale	18,~~070~~382,~~615~~853			25,052,874
Construction & Land Development	~~106~~103,~~195~~589,~~867~~242			109,592,264
Real Estate - Comm’l & Residential	~~152~~150,~~372~~787,~~318~~450			147,965,134
SBA 7a & 504	10,~~743~~753,~~401~~429			8,820,177
Commercial & Consumer	9085,~~180~~267,~~718~~514			85,521,204
Allowance for Loan Losses	(56,~~513~~290,~~826~~635		)	(5,058,837		)
NET LOANS	~~353~~344,~~978~~107,~~478~~000			346,839,942
Premises and Equipment	3,~~269~~085,~~391~~219			3,611,224
Federal Reserve, FHLB and Bankers’ Bank Stock, at Cost	4,~~032~~014,~~200~~300			4,611,400
Other Real Estate Owned	32,~~389~~572,~~752~~000			1,390,000
Core Deposit Intangible	1,~~142~~075,~~345~~647			1,312,544
Accrued Interest and Other Assets	1311,~~746~~214,~~067~~908			13,599,879
TOTAL ASSETS	$	~~419~~393,~~889~~470,~~630~~892		$	420,910,015
Noninterest-Bearing Deposits	$	8785,~~493~~844,~~056~~377		$	62,534,488
Interest-Bearing Deposits	~~250~~231,~~780~~947,~~183~~382			271,301,605
TOTAL DEPOSITS	~~338~~317,~~273~~791,~~239~~759			333,836,093
Subordinated Debt and Other Borrowings	5550,155,000			60,155,000
Accrued Interest and Other Liabilities	45,~~753~~045,~~981~~113			4,337,719
TOTAL LIABILITIES	~~398~~372,~~182~~991,~~220~~872			398,328,812
Common Stock	37,232,651			37,232,651
Additional Paid-in Capital	~~695~~753,~~028~~341			555,094
Retained Earnings (Deficit)	(1517,~~494~~356,~~832~~026		)	(14,210,945		)
Accumulated Other Comprehensive Income (Loss), net of tax	(~~725~~150,~~437~~946		)	(995,597		)
TOTAL SHAREHOLDERS’ EQUITY	2120,~~707~~479,~~410~~020			22,581,203
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	~~419~~393,~~889~~470,~~630~~892		$	420,910,015

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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1st Pacific Bancorp

Unaudited Condensed Consolidated Income Statements

	For the Three Months						For the ~~Six~~Nine Months
	Ended June 30,						Ended June 30,
	Ended September 30,						Ended September 30,
	2009			2008			2009			2008
INTEREST INCOME
Interest and Fees on Loans	$	5,~~501~~308,~~235~~678		$	6,~~347~~311,~~085~~978		$	1016,~~981~~289,~~079~~757		$	1319,~~057~~369,~~801~~779
Interest on Investment Securities	~~324~~274,~~879~~591			~~573~~508,~~834~~472			~~673~~947,~~225~~816			~~937~~1,~~003~~445,475
Interest on Federal Funds Sold and Other	1810,~~789~~264			5398,~~614~~834			3747,~~336~~600			~~198~~297,~~715~~549
TOTAL INTEREST INCOME	5,~~844~~593,~~903~~533			6,~~974~~919,~~533~~284			1117,~~691~~285,~~640~~173			1421,~~193~~112,~~519~~803
INTEREST EXPENSE
Interest on NOW, Savings & Money Market Accounts	~~120~~166,~~822~~387			~~626~~555,~~478~~671			~~299~~466,~~964~~352			1,~~347~~902,~~106~~777
Interest on Time Deposits	1,~~491~~176,~~827~~228			1,~~407~~554,~~598~~287			34,~~026~~202,~~757~~985			34,~~193~~747,~~564~~851
Interest on Borrowings	~~407~~381,~~634~~646			~~470~~530,~~595~~601			~~830~~1,~~132~~211,777			~~761~~1,~~110~~291,711
TOTAL INTEREST EXPENSE	21,~~020~~724,~~283~~261			2,~~504~~640,~~671~~559			45,~~156~~881,~~853~~114			57,~~301~~942,~~780~~339
NET INTEREST INCOME	3,~~824~~869,~~620~~272			4,~~469~~278,~~862~~725			711,~~534~~404,~~787~~059			813,~~891~~170,~~739~~464
Provision for Loan Losses	~~120~~1,450,000			3250,~~550,~~000			~~816~~2,266,000			3,~~550~~800,000
NET INTEREST INCOME AFTER
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	2,419,272			4,028,725			9,138,059			9,370,464
PROVISION FOR LOAN LOSSES	3,704,620			919,862			6,718,787			5,341,739
NONINTEREST INCOME
Service Charges, Fees and Other Income	~~217~~173,~~605~~828			~~301~~243,~~858~~326			~~458~~632,~~628~~456			~~533~~721,~~447~~619
Gain on Sale of Investment Securities	—			24,995			228,750			24,995
Gain on Early Prepayment of FHLB Advances	—			151,557			—			151,557
	217,605			326,853			687,378			558,442
Gain on Sales of OREO	28,450			—			28,450			—
Recoveries of Prior Expenses	284,632			—			284,632			—
Gain on Sale of Investment Securities	—			—			228,750			19,198
Broker Loan Fees and Gain on Loan Sales	37,844			36,874			37,844			97,824
	524,754			431,757			1,212,132			990,198
NONINTEREST EXPENSE
Salaries and Employee Benefits	2,~~075~~035,~~814~~040			2,~~443~~187,~~546~~461			46,~~189~~224,~~330~~370			46,~~720~~907,~~202~~663
Occupancy and Equipment Expense	~~746~~723,~~346~~985			~~760~~768,~~530~~051			12,~~507~~231,~~664~~649			12,~~507~~275,~~501~~552
Marketing and Business Promotion	5952,~~076~~254			~~144~~116,~~428~~075			~~107~~159,~~000~~253			~~242~~358,~~737~~812
Data Processing	~~344~~325,~~527~~218			~~286~~299,~~212~~333			~~691~~1,~~982~~017,200			~~598~~897,~~530~~863
Professional Fees	~~329~~239,~~695~~361			~~199~~271,~~696~~582			~~727~~966,~~520~~881			~~336~~608,~~974~~557
Regulatory Fees	14,~~156~~758			1114,~~867~~156			2842,~~156~~914			2337,~~737~~892
FDIC Insurance Assessments	~~508~~258,~~396~~482			6175,~~157~~739			~~660~~918,~~514~~996			~~121~~197,~~999~~738
Office and Administrative Expenses	~~200~~198,~~983~~021			~~224~~223,~~860~~962			~~422~~620,~~391~~411			~~461~~684,~~035~~997
Merger Related Expenses	289,356			—			289,356			—
Loss on Sublease	—			—			165,000			—
Loss on Sale of Foreclosed Real Estate (OREO)	430,000			—			441,753			—
Loss on Foreclosed Real Estate (OREO)	617,752			—			1,059,505			—
Other Miscellaneous Expenses	68,227			8,018			68,441			13,349
Loss on Investment Securities	—			500,000			—			500,000
	4,777,220			4,140,314			9,009,751			8,026,064
Other Miscellaneous Expenses	50,994			9,292			119,437			22,641
INCOME (LOSS) BEFORE TAXES	(854,995		)	(2,893,599		)	(1,603,586		)	(2,125,883		)
	4,805,221			4,465,651			13,814,972			12,491,715
Income Tax Expense (Benefit)	—			(1,187,600		)	(319,700		)	(867,100		)
INCOME (LOSS) BEFORE TAXES	(1,861,195		)	(5,169		)	(3,464,781		)	(2,131,053		)
NET INCOME (LOSS)	$	(854,995	)	$	(1,705,999	)	$	(1,283,886	)	$	(1,258,783	)
Income Tax Expense (Benefit)	—			(14,700		)	(319,700		)	(881,800		)
NET INCOME (LOSS)	$	(1,861,195	)	$	9,531		$	(3,145,081	)	$	(1,249,253	)
Per Share Data:
Net Income (Loss) - Basic	$	(0.1737	)	$	(0.3400	)	$	(0.2663	)	$	(0.25	)
Net Income (Loss) - Diluted	$	(0.1737	)	$	(0.3400	)	$	(0.2663	)	$	(0.25	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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1st Pacific Bancorp

Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity

	Shares	Common Stock		Paid In Capital		Retained Earnings (Deficit)			Comprehensive Income (Loss)			Accum Other Comprehensive Income (Loss)
Balance, December 31, 2007	4,944,443	$	37,028,186	$	350,511	$	7,649,040					$	(53,790	)
Stock-based Compensation				204,583
Exercise of Stock Options, Including Tax Benefits	36,038	204,465
Comprehensive Loss:
Net Loss for the Period						(21,859,985		)	$	(21,859,985	)
Unrecognized Loss in Investment Securities Available for Sale, net									(1,402,480		)	(1,402,480		)
Reclassification of Net Losses included in Net Loss, net									460,673			460,673
Total Comprehensive Loss									$	(22,801,792	)
Balance, December 31, 2008	4,980,481	37,232,651		555,094		(14,210,945		)				(995,597		)
Stock-based Compensation				~~139~~198,~~934~~247
Comprehensive Loss:
Net Loss for the Period						(13,~~283~~145,~~886~~081		)	$	(13,~~283~~145,~~886~~081	)
Unrecognized Gain in Investment Securities Available for Sale, net									~~401~~976,~~761~~252			~~401~~976,~~761~~252
Reclassification of Net Gains included in Net Loss, net									(131,601		)	(131,601		)
Total Comprehensive Loss									$	(12,~~013~~300,~~726~~430	)
Balance, June 30, 2009	4,980,481	$	37,232,651	$	695,028	$	(15,494,832	)				$	(725,437	)
Balance, September 30, 2009	4,980,481	$	37,232,651	$	753,341	$	(17,356,026	)				$	(150,946	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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1st Pacific Bancorp

Unaudited Condensed Consolidated Statements of Cash Flows

	For the Six Months
	For the Nine Months
	Ended June 30,
	Ended September 30,
	2009			2008
OPERATING ACTIVITIES
Net Income (Loss)	$	(13,~~283~~145,~~886~~081	)	$	(1,~~258~~249,~~783~~253	)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Depreciation and Amortization	~~416~~616,~~223~~708			~~413~~615,~~281~~975
Provision for Loan Losses	~~816~~2,266,000			3,~~550~~800,000
Stock-based Compensation Expense	~~139~~198,~~934~~247			~~143~~181,~~800~~100
Decrease (Increase) in Income Tax Receivable	—405,812			(1,~~402~~416,~~100~~800		)
Decrease (Increase) in Accrued Interest Receivable	~~(77~~20,~~511~~599		)	~~129~~265,~~062~~853
Gain on Sale of Investment Securities	(228,750		)	~~(24,995~~—		)
Loss on Foreclosed Real Estate	441,753			—
Net Loss on Other Real Estate Owned	1,031,055			—
Loss on Sale of Fixed Assets	—			5,061
Loss on Sublease	165,000			—
Other Items - Net	787,944			(382,290		)
Impairment Loss on Investment Securities	—			500,000
NET CASH PROVIDED BY OPERATING ACTIVITIES	1,176,707			1,173,036
Other Items - Net	1,126,889			(498,480		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	2,456,479			2,203,456
INVESTING ACTIVITIES
Purchases of Investment Securities	—			(21,537,218		)
Maturities and Sales of Investment Securities	78,~~211~~330,~~009~~383			918,~~452~~385,~~122~~303
Change in Equity Securities	~~579~~597,~~200~~100			(21,~~390~~758,~~450~~650		)
Net Change in Loans	(111,~~004~~393,~~288~~808		)	(2620,~~947~~120,~~359~~323		)
Proceeds from Sale of Other Real Estate Owned	~~608~~836,~~246~~696			—
Purchases of Premises and Equipment	(~~239~~255,~~390~~703		)	(~~197~~279,~~059~~975		)
NET CASH USED BY INVESTING ACTIVITIES	(2,845,223		)	(41,619,964		)
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES	8,114,668			(25,310,863		)
FINANCING ACTIVITIES
Stock Options Exercised	—			26128,~~975~~065
Increase (Decrease) in Borrowings	(510,000,000		)	4020,000,000
Increase (Decrease) in Deposits	4(16,~~437~~044,~~146~~334		)	(112,~~010~~237,~~087~~788		)
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES	(~~562~~26,~~854~~044,334		)	3932,~~016~~365,~~888~~853
DECREASE IN CASH AND CASH EQUIVALENTS	(2,231,370		)	(1,430,040		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(15,473,187		)	9,258,446
Cash and Cash Equivalents at Beginning of Period	24,492,152			17,557,189
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	229,~~260~~018,~~782~~965		$	1626,~~127~~815,~~149~~635
Supplemental disclosure of noncash items:
Transfers of loans to other real estate owned	$	3,049,751		$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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1st Pacific Bancorp

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 — Consolidation and Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of 1st Pacific Bancorp (the “Company”) and the consolidated accounts of its wholly-owned subsidiary, 1st Pacific Bank of California (the “Bank”). All significant intercompany balances and transactions have been eliminated. The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting.

The preparation of these unaudited consolidated financial statements, prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), required management to make estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Operating results for the three month and ~~six~~nine month periods ended ~~June~~September 30, 2009, are not necessarily indicative of the results that may be expected in subsequent quarters or for the full year ending December 31, 2009.

Aside from its ownership of the Bank, the Company is inactive except for interest expense associated with junior subordinated debentures and certain other corporate expenses. The Company formed a Delaware trust affiliate, FPBN Trust I (the “Trust”) for the purpose of issuing trust preferred securities. For financial reporting purposes, the Company accounts for its investment in the Trust using the equity method under which the subsidiary’s net earnings are recognized in the Company’s statement of income, pursuant to an accounting standard which was subsequently codified into Financial Accounting Standards ~~Board~~ ~~Interpretation~~Board ~~No. 46~~ (“~~FIN 46~~FASB”), ~~“Consolidation~~- ofAccounting ~~Variable~~Standards ~~Interest Entities,~~Codification an(the ~~Interpretation~~“Codification” ofor ~~ARB~~“ASC”) Topic No810, “Consolidation. ~~51.~~” Pursuant to ~~FIN~~this accounting 46standard, the Trust is not consolidated into the Company’s financial statements. The Federal Reserve Board has ruled that subordinated notes payable to unconsolidated special purpose entities (“SPE’s”) such as the Trust, net of the bank holding company’s investment in the SPE, qualify as Tier 1 Capital, subject to certain limits. See the “Borrowings” section of Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations below for further details regarding the trust preferred securities.

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments, including normal recurring adjustments and accruals necessary to fairly present the financial position of the Company for the interim period ended ~~June~~September 30, 2009. These financial statements do not include all of the disclosures required by GAAP and have been condensed or omitted pursuant to such SEC rules and regulations and, accordingly, should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. There were no significant changes in accounting principles since the last report.

Certain prior period amounts have been reclassified to conform to the current period’s presentation. In the opinion of management, the unaudited financial information for the three month and ~~six~~nine month periods ended ~~June~~September 30, 2009;, reflect all adjustments, consisting only of normal recurring accruals and provisions, necessary for a fair presentation thereof.

Note 2 — Stock-Based Compensation Plans

During the three month periods ended ~~June~~September 30, 2008 and ~~June~~September 30, 2009, the Company recognized pre-tax stock-based compensation expense of $7537,~~100~~300 and $6758,~~433~~313, respectively, pursuant to ~~SFAS~~an accounting ~~123(R)~~standard which was subsequently codified into ASC Topic 718, “Compensation — Stock Compensation.” For the ~~six~~nine month period ended, ~~June~~September 30, 2008, the Company recognized pre-tax compensation expense of $~~143~~181,~~800~~100 compared to to $~~139~~198,~~934~~247 for the same period of 2009. The stock-based compensation expense is calculated based upon the original grant date fair value as allowed under ~~SFAS~~ASC ~~123(R)~~Topic 718. The valuation variables utilized at the grant dates are discussed in the Company’s Annual Report on Form 10-K for the 2008 fiscal year filed on March 31, 2009 in the respective years of the original grants. There were no grants of performance based options or stock during the first six months of 2009. The following table is a summary of non-performance based stock option activity for the six months ended June 30, 2009:

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	2009 Activity
Non-Performance Based Options	YTD
Outstanding at Beginning of Period	922,148
Granted	15,500
Exercised	—
Forfeited and Expired	(22,000	)
Outstanding at End of Period	915,648

filed on March 31, 2009 in the respective years of the original grants. There were no grants of performance based options or stock during the first nine months of 2009. The following table is a summary of non-performance based stock option activity for the nine months ended September 30, 2009:

As of June 30, 2009, the Company expects to realize approximately $731,826 of unrecognized compensation expense for non-performance based stock options which will be expensed over the remaining vesting period. Non-performance based options generally vest over five years and have a weighted average remaining vesting period of approximately 2.08 years. Unrecognized compensation expense related to performance based options of $196,384 will be recognized only when the performance and vesting criteria are met. The Company has not recognized any pre-tax compensation expense related to performance based options in 2009 because the performance and vesting criteria are not expected to be met.

	For the Nine Months
Non-Performance Based Options	Ended September 30, 2009

Outstanding at Beginning of Period	922,148
Granted	15,500
Exercised	—
Forfeited and Expired	(44,500	)

Outstanding at End of Period	893,148

~~Note~~As 3of —September 30, 2009, the Company ~~Recent~~expects ~~Accounting~~to ~~Changes~~realize approximately $615,141 of unrecognized compensation expense for non-performance based stock options which will be expensed over the remaining vesting period. Non-performance based options generally vest over five years and have a weighted average remaining vesting period of approximately 1.99 years. Unrecognized compensation expense related to performance based options of $196,384 will be recognized only when the performance and vesting criteria are met. The Company has not recognized any pre-tax compensation expense related to performance based options in 2009 because the performance and vesting criteria are not expected to be met.

OnNote ~~April 1,~~3 ~~2009, the~~— ~~Financial~~Recent Accounting ~~Standards Board (“FASB”) issued Staff Position (“FSP”)~~ FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” which is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This FSP amends and clarifies SFAS No. 141(R), “Business Combinations,” and requires, among other things, that an acquirer recognize at fair value, at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. The Company was not part of a business combination during 2008 and, therefore, SFAS 141 (R)-1 will not affect the Company’s consolidated financial position or results of operations as of this filing.Changes

~~FASB~~In ~~Statement No.~~June ~~157~~2009, ~~“Fair~~ ~~Value~~the ~~Measurements,”~~FASB ~~provides~~issued aan ~~framework for measuring fair value and~~accounting ~~expands~~standard ~~disclosures~~which ~~about fair value measurements. This statement~~ established ~~a fair value hierarchy about~~ the ~~assumptions used to measure fair value and~~Accounting ~~clarifies~~Standards ~~assumptions~~Codification ~~about risk and~~ (the ~~effect~~“Codification” ofor a“ASC”) ~~restriction~~which onbecame the ~~sale~~single ~~or use~~source of ~~an asset. The standard was effective for fiscal years beginning after November 15,~~authoritative ~~2007.~~GAAP Inrecognized ~~February 2008,~~by the FASB ~~issued~~to ~~FSP~~be ~~157-2,~~applied ~~Effective~~by ~~Date~~nongovernmental ofentities, ~~FASB Statement~~with ~~No. 157. This FSP delays~~ the exception ~~effective date~~ of ~~FAS~~guidance ~~157~~issued ~~for~~by ~~all nonfinancial~~the ~~assets~~U.S. Securities and ~~nonfinancial~~Exchange ~~liabilities, except those that are~~Commission ~~recognized or disclosed at fair value on a recurring basis~~ (atthe ~~least annually~~“SEC”) to ~~fiscal~~and ~~years~~its ~~beginning~~staff. All ~~after~~guidance ~~November 15,~~contained ~~2008,~~in ~~and~~the ~~interim periods~~Codification ~~within~~carries ~~those~~an ~~fiscal~~equal ~~years.~~level ~~The impact~~ of ~~adoption~~authority. The ~~was~~Codification is not ~~material.~~intended ~~In October 2008,~~to ~~the~~change ~~FASB issued FSP 157-3~~GAAP, ~~“Determining~~but ~~the~~rather ~~Fair Value of a Financial Asset when the Market for That Asset~~ is ~~Not~~expected ~~Active.”~~to ~~This~~simplify ~~FSP~~accounting ~~clarifies~~research ~~the~~by ~~application~~reorganizing ofcurrent ~~FAS~~GAAP ~~No. 157~~into inapproximately a90 ~~market~~accounting ~~that is not active~~topics. The ~~impact of~~ ~~adoption~~Company ~~was~~adopted ~~not~~this ~~material.~~accounting Instandard ~~April 2009,~~in preparing the ~~FASB issued FSP 157-4, “Determining~~Consolidated ~~Fair~~Financial ~~Value~~Statements ~~When the Volume and Level of Activity~~ for the ~~Asset~~period orended ~~Liability Have~~September 30, ~~Significantly Decreased and Identifying Transactions That Are Not Orderly~~2009.” The ~~This~~adoption ~~FSP~~of ~~provides~~this ~~additional~~accounting ~~guidance~~standard, ~~for~~which ~~estimating~~was ~~fair~~subsequently ~~value~~codified ininto ~~accordance~~ASC ~~with~~Topic ~~FASB Statement No. 157~~105, “~~Fair~~Generally ~~Value~~Accepted ~~Measurements~~Accounting Principles,” ~~when~~had ~~the~~no ~~volume and~~impact ~~level~~on ofretained ~~activity~~earnings ~~for~~and ~~the~~will ~~asset or liability~~ have ~~significantly decreased.~~no ~~This~~impact ~~FSP also includes guidance~~ on ~~identifying~~the ~~circumstances~~Company’s ~~that~~statements ~~indicate a transaction is not orderly. This issue is effective for reporting periods ending after June 15, 2009. The impact~~ of ~~the~~income ~~adoption~~and ~~was not material~~condition.

~~Issued~~In ~~in April,~~ June 2009, ~~FSP~~ ~~FAS~~the ~~107-1~~FASB ~~and~~issued ~~APB~~an ~~28-1,~~accounting standard ~~“Interim~~which ~~Disclosures~~amends ~~about~~current ~~Fair~~GAAP ~~Value~~related ofto ~~Financial~~the accounting for transfers and ~~Instruments,”~~servicing ~~requires~~of ~~disclosures~~financial ~~about~~assets ~~fair~~and ~~value~~extinguishments of ~~financial~~liabilities, ~~instruments~~including inthe ~~interim~~removal ~~reporting~~of ~~periods~~the concept of ~~publicly~~a ~~traded~~qualifying ~~companies~~special-purpose ~~that~~entity ~~were~~from ~~previously~~GAAP. ~~only~~This ~~required~~new toaccounting bestandard ~~disclosed~~also inclarifies ~~annual~~that ~~financial~~a ~~statements.~~transferor ~~The~~must ~~Company~~evaluate ~~adopted~~whether ~~the~~it ~~FSPs~~has maintained effective ~~for~~control ~~the~~of ~~period~~a ~~ending~~financial ~~June 30,~~asset ~~2009~~by ~~and adoption~~considering ~~did~~its ~~not~~continuing ~~result~~direct inor aindirect ~~material~~involvement ~~effect~~with on the ~~consolidated~~transferred ~~results~~financial asset. This ofaccounting ~~operations.~~standard is effective for financial asset ~~Additional~~transfers ~~disclosures~~occurring ~~required~~after byDecember 31, ~~the~~2009. The adoption of ~~these~~this accounting ~~standards~~standard ~~are~~will inhave ~~Note 7~~no —impact ~~Fair~~on ~~Value~~the ofCompany’s ~~Financial~~statements ~~Instruments~~of ~~below~~income and condition.

10In May 2009, FASB issued an accounting standard that established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued which was effective for interim or annual periods ending after June 15, 2009. The standard states that public companies are required to assess subsequent events through the date of issuance. The statement also requires disclosure of the date through which an entity has evaluated subsequent events. The financial statements of the entity should reflect the effects of all subsequent events that are considered “recognized.” Recognized subsequent events are those that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. “Nonrecognized” subsequent events, which the entity is not required to recognize in the financial statements, are those that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the

~~Table of Contents~~10

InTable ~~April 2009, the FASB issued Staff Position No. 115-2 and 124-2, “Recognition and Presentation~~ of ~~Other-than-Temporary~~ Impairments” (“FSP FAS 115-2 and 124-2”). FSP FAS 115-2 and 124-2 amends current other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The provisions of FSP FAS 115-2 and 124-2 are effective for the company’s interim period ending on June 30, 2009. Management has determined that FSP FAS 115-2 and FAS 124-2 will not have an effect on the Company’s statements of income and condition. See Note 4 — Investment Securities below for additional disclosure information required by this new accounting standard.Contents

FASB Statement No. 165, “Subsequent Events,” was issued on May 28, 2009 and is effective for interim or annual periods ending after June 15, 2009. FASB Statement No. 165 established general standards of accounting for and disclosure of events that occur after the balance ~~sheet date but before financial statements are issued~~ or are available to be issued. Public companies are required to assess subsequent events through the date of issuance. The statement also requires disclosure of the date through which an entity has evaluated subsequent events. The financial statements of the entity should reflect the effects of all subsequent events that are considered “recognized.” Recognized subsequent events are those that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. “Nonrecognized” subsequent events, which the entity is not required to recognize in the financial statements, are those that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet and before the financial statements are issued (widely distributed to shareholders and other financial statement users for general use) or are available to be issued (when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained). If a nonrecognized subsequent event is of such a nature that, if not disclosed, will cause the financial statements to be misleading, management should disclose the nature of the event and an estimate of is financial effect, or a statement that such an estimate cannot be made. See Note 8 —for ~~Subsequent~~the ~~Events~~disclosures required under ~~below~~this ~~for~~accounting ~~additional~~standard, ~~disclosure~~which ~~information~~was ~~required~~subsequently bycodified ~~this~~into ~~new~~ASC ~~accounting standard~~Topic 855, “Subsequent Events.”

~~Note~~In 4April 2009, —the FASB issued an ~~Investment~~accounting ~~Securities~~standard which is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This standard requires, among other things, that an acquirer recognize at fair value, at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. The adoption of this accounting standard, which was subsequently codified into ASC Topic 805, “Business Combinations,” will not affect the Company’s consolidated financial position or results of operations as of this filing.

AsIn ~~reported in Note 3- Recent Accounting Changes above~~April 2009, the FASB issued ~~FSP FAS 115-2~~an ~~and~~accounting ~~124-2,~~standard ~~“Recognition~~which ~~and~~provided ~~Presentation of Other-than-Temporary~~guidance ~~Impairments”.~~on ~~FSP~~estimating ~~FAS~~fair ~~115-2~~value ~~and~~when ~~124-2~~the ~~requires~~volume ~~companies~~and tolevel ~~record other-than-temporary~~of ~~impairment~~trading ~~charges,~~activity ~~through~~for ~~earnings, if they have the~~an ~~intent~~asset ~~to sell,~~ or ~~will~~liability ~~more~~have ~~likely~~significantly ~~than~~decreased ~~not~~and beguidance ~~required~~on ~~to sell, an impaired~~identifying ~~debt~~transactions ~~security~~that ~~before~~are anot ~~recovery of its amortized cost basis~~orderly. In ~~addition~~such instances, ~~FSP FAS~~the ~~115-2 and 124-2 requires companies to record other-than-temporary~~accounting ~~impairment~~standard ~~charges~~provides ~~through~~that ~~earnings~~management ~~for~~may ~~the~~determine ~~amount~~that offurther ~~credit~~analysis ~~losses, regardless~~ of the transactions ~~intent~~ or ~~requirement~~quoted toprices ~~sell. Credit loss~~ is ~~measured~~required, asand ~~the~~a ~~difference between~~significant ~~the~~adjustment ~~present~~to ~~value of an impaired debt security’s cash flows and its~~the ~~amortized~~transactions ~~cost~~or ~~basis.~~quoted ~~Non-credit~~prices ~~related~~may ~~write-downs to fair value must~~ be ~~recorded~~ asnecessary ~~decreases~~ to ~~accumulated~~estimate ~~other~~fair ~~comprehensive~~value ~~income as long as a~~in ~~company~~accordance ~~has~~with noGAAP. This ~~intent~~issue oris ~~requirement~~effective tofor ~~sell~~reporting ~~an impaired security before a~~periods ~~recovery~~ending ofafter ~~amortized~~June 15, ~~cost basis~~2009. ~~Finally,~~The ~~FSP~~provisions ~~FAS~~in ~~115-2~~this ~~and~~accounting ~~124-2 requires~~standard ~~companies~~were toapplied ~~record~~prospectively ~~all~~and ~~previously~~did ~~recorded~~not ~~non-credit~~result ~~related other-than-temporary~~in ~~impairment~~significant ~~charges~~changes ~~for debt securities as cumulative effect adjustments~~ to ~~retained earnings as of~~ the Company’s ~~beginning~~valuation oftechniques. Furthermore, the ~~period~~adoption of this ~~adoption.~~accounting ~~FSP~~standard, ~~FAS~~which ~~115-2~~was ~~and~~subsequently ~~124-2~~codified isinto ~~effective~~ASC ~~for~~Topic ~~interim~~820, ~~and~~“Fair ~~annual~~Value ~~reporting periods~~Measurements ~~ending~~and ~~after June 15~~Disclosures,” is ~~2009. The~~not ~~Company~~expected ~~adopted~~to ~~the statement~~have ~~for~~a ~~the~~material ~~period~~impact ~~ended~~on ~~June 30, 2009. Since~~ the Company’s ~~did not~~statements ~~have any other-than-temporary impairment as~~ of ~~March 31, 2009, no~~income ~~cumulative~~and ~~effect adjustments were required at adoption~~condition.

~~At June 30,~~In April 2009, ~~certain~~the ~~investment~~FASB ~~securities~~issued ~~included~~an inaccounting ~~available-for-sale~~standard ~~categories~~related to disclosures ~~had~~about athe fair value ~~that~~of ~~was~~financial ~~below~~instruments ~~their~~in ~~amortized~~interim ~~cost.~~reporting ~~The~~periods ~~Company~~of publicly ~~conducts~~traded ~~a regular~~companies ~~assessment~~that ofwere ~~its~~previously ~~investment~~only ~~portfolios~~required to ~~determine~~be ~~whether~~disclosed ~~any~~in ~~securities~~annual ~~are~~financial ~~other-than-temporarily impaired~~statements. The ~~This~~Company ~~assessment~~adopted isthis ~~based~~accounting onstandard in preparing the ~~nature~~ ofConsolidated Financial Statements for the ~~securities~~period ended June 30, 2009. As ~~the~~this ~~financial~~accounting ~~condition~~standard ofamended only the ~~issuer~~disclosure ~~and~~requirements about the ~~extent and~~fair ~~duration~~value of ~~the~~financial ~~loss.~~instruments ~~Also,~~in asinterim ~~required~~periods, bythe ~~FSP~~adoption had ~~FAS~~no ~~115-2~~impact ~~and~~on ~~124-2,~~ the Company’s ~~assesses~~statements ~~whether~~of itincome ~~intends~~and tocondition. See Note ~~sell~~7 afor ~~security~~the ordisclosures ~~whether~~required itunder isthis ~~more~~accounting standard, which was ~~likely~~subsequently ~~than~~codified into ASC Topic 825, “Financial Instruments.”

11In April 2009, the FASB issued an accounting standard which amended other-than-temporary impairment (“OTTI”) guidance in GAAP for debt securities by requiring a write-down when fair value is below amortized cost in circumstances where: (1) an entity has the intent to sell a security; (2) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (3) an entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more likely than not that the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value. If an entity does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings, and an amount related to all other factors, which is recognized in other comprehensive income. This accounting standard does not amend existing recognition and measurement guidance related to OTTI write-downs of equity securities. This accounting standard also extends disclosure requirements related to debt and equity securities to interim reporting periods. The provisions of this standard were effective for the company’s interim period ending on June 30, 2009. The adoption of this accounting standard had no impact on retained earnings and is not expected to have a material impact on the Company’s statements of income and condition. See Note 4 for the disclosures required under this accounting standard, which was subsequently codified into ASC Topic 320, “Investments - Debt and Equity Securities.”

~~Table of Contents~~11

~~not~~Table ~~that the Company will be required to sell a security before recovery~~ of its amortized cost basis less any current period credit losses. As of June 30, 2009, based on the nature of these investments and as the Company does not have the intent to sell the securities that are temporarily impaired and it is more like than not that the Company will not have to sell those securities before recovery of the cost basis, these unrealized losses were not considered other-than-temporary. Also see Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, Investment section below.Contents

~~The tables~~Note ~~below~~4 ~~set~~— ~~forth~~Investment ~~the composition of the Company’s portfolio of available for sale securities for the periods ended June 30, 2009 and December 31, 2008:~~Securities

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value		Total Percent
June 30, 2009
Bank-Qualified Municipals	$	4,882,951	$	—	$	(266,142	)	$	4,616,809	25.55	%
Government-Sponsored Agency - MBS	5,101,552		146,331		(937		)	5,246,946		29.04	%
Collateralized Mortgage Obilgations	8,399,241		—		(1,110,470		)	7,288,771		40.33	%
U.S. Agency MBS	916,425		1,664		—			918,089		5.08	%
	$	19,300,169	$	147,995	$	(1,377,549	)	$	18,070,615	100.00	%

As reported in Note 3, ASC Topic 320, “Investments - Debt and Equity Securities” requires companies to record other-than-temporary impairment charges, through earnings, if they have the intent to sell, or will more likely than not be required to sell, an impaired debt security before a recovery of its amortized cost basis. In addition, this standard requires companies to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis. Non-credit related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as a company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis. Finally, the standard requires companies to record all previously recorded non-credit related other-than-temporary impairment charges for debt securities as cumulative effect adjustments to retained earnings as of the beginning of the period of adoption. This standard was effective and was adopted by the Company for interim and annual reporting periods ending after June 15, 2009. Since the Company did not have any other-than-temporary impairment as of March 31, 2009, no cumulative effect adjustments were required at adoption.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value		Total Percent
December 31, 2008
Corporate Debt Securities	$	5,736,787	$	60,000	$	(218,867	)	$	5,577,920	22.26	%
Bank-Qualified Municipals	4,826,452		5		(465,867		)	4,360,590		17.41	%
Government-Sponsored Agency - MBS	5,729,350		101,902		(15,406		)	5,815,846		23.21	%
Collateralized Mortgage Obilgations	9,451,374		—		(1,102,430		)	8,348,944		33.33	%
U.S. Agency MBS	996,363		—		(46,789		)	949,574		3.79	%
	$	26,740,326	$	161,907	$	(1,849,359	)	$	25,052,874	100.00	%

At September 30, 2009, certain investment securities included in available-for-sale categories had a fair value that was below their amortized cost. The Company conducts a regular assessment of its investment portfolio to determine whether any securities are other-than-temporarily impaired. This assessment is based on the nature of the securities, the financial condition of the issuer and the extent and duration of the loss. Also, as required by ASC Topic 320, the Company assesses whether it intends to sell a security or whether it is more likely than not that the Company will be required to sell a security before recovery of its amortized cost basis less any current period credit losses. As of September 30, 2009, based on the nature of these investments and as the Company does not have the intent to sell the securities that are temporarily impaired and it is more likely than not that the Company will not have to sell those securities before recovery of the cost basis, these unrealized losses were not considered other-than-temporary. Also see Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, Investment section below.

~~Investment Securities~~The intables abelow ~~temporary~~set ~~unrealized~~forth ~~loss~~the ~~position~~composition as of ~~June 30, 2009 and~~ ~~December 31,~~the ~~2008~~Company’s ~~are~~portfolio ~~shown~~of inavailable ~~the~~for ~~following~~sale ~~table,~~securities ~~based~~for on the ~~length~~periods ofended September 30, ~~time~~2009 ~~they~~and ~~have~~December 31, ~~been continuously in an unrealized loss position~~2008:

	Less than 12 months				12 months or Longer					Total
September 30, 2009	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value		Total Percent
	Fair		Unrealized		Fair			Unrealized		Fair		Unrealized
Bank-Qualified Municipals	$	4,911,643	$	198,130	$	(7,226	)	$	5,102,547	27.76	%
	Value		Losses		Value			Losses		Value		Losses
Government-Sponsored Agency - MBS	4,906,336		192,729		0			5,099,065		27.74	%
June 30, 2009
Collateralized Mortgage Obilgations	7,932,151		—		(648,724		)	7,283,427		39.62	%
Bank-Qualified Municipals	$	2,702,055	$	108,742	$	1,914,754		$	157,400	$	4,616,809	$	266,142
U.S. Agency MBS	888,564		9,250		—			897,814		4.88	%
Government-Sponsored Agency - MBS	318,698		937		—			—		318,698		937
	$	18,638,694	$	400,109	$	(655,950	)	$	18,382,853	100.00	%
Collateralized Mortgage Obligations	1,778,137		577,113		5,510,635			533,357		7,288,772		1,110,470
December 31, 2008	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value		Total Percent
	$	4,798,890	$	686,792	$	7,425,389		$	690,757	$	12,224,279	$	1,377,549
Corporate Debt Securities	$	5,736,787	$	60,000	$	(218,867	)	$	5,577,920	22.26	%
December 31, 2008
Bank-Qualified Municipals	4,826,452		5		(465,867		)	4,360,590		17.41	%
Corporate Debt Securities	$	4,317,920	$	218,867	$	—		$	—	$	4,317,920	$	218,867
Government-Sponsored Agency - MBS	5,729,350		101,902		(15,406		)	5,815,846		23.21	%
Bank-Qualified Municipals	3,820,584		465,867							3,820,584		465,867
Collateralized Mortgage Obilgations	9,451,374		—		(1,102,430		)	8,348,944		33.33	%
Government-Sponsored Agency - MBS	1,739,291		15,405		—			—		1,739,291		15,405
U.S. Agency MBS	996,363		—		(46,789		)	949,574		3.79	%
Collateralized Mortgage Obligations	8,348,943		1,102,430							8,348,943		1,102,430
	$	26,740,326	$	161,907	$	(1,849,359	)	$	25,052,874	100.00	%
U.S. Agency - MBS	949,573		46,790		—			—		949,573		46,790
	$	19,176,311	$	1,849,359	$	—		$	—	$	19,176,311	$	1,849,359

Unrealized losses at June 30, 2009, are concentrated in ten municipal securities and four private-label collateralized mortgage obligations all of which were purchased during 2008 and have been affected by the dislocation in the securities market; however each of these bonds continues to be rated investment grade by independent rating agencies.12

12Table of Contents

~~Table~~Investment Securities in a temporary unrealized loss position as of ~~Contents~~September 30, 2009 and December 31, 2008 are shown in the following table, based on the length of time they have been continuously in an unrealized loss position:

The scheduled maturities of securities available for sale at June 30, 2009 are shown below. Actual maturities may differ from contractual maturities because some investment securities may allow the right to call or prepay the obligation with or without call or prepayment penalties.

	Less than 12 months				12 months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

September 30, 2009
Bank-Qualified Municipals	$	—	$	—	$	477,344	$	7,226	$	477,344	$	7,226
Collateralized Mortgage Obligations	2,096,173		197,437		5,187,254		451,287		7,283,427		648,724

	$	2,096,173	$	197,437	$	5,664,598	$	458,513	$	7,760,771	$	655,950

December 31, 2008
Corporate Debt Securities	$	4,317,920	$	218,867	$	—	$	—	$	4,317,920	$	218,867
Bank-Qualified Municipals	3,820,584		465,867						3,820,584		465,867
Government-Sponsored Agency - MBS	1,739,291		15,406		—		—		1,739,291		15,406
Collateralized Mortgage Obligations	8,348,944		1,102,430						8,348,944		1,102,430
U.S. Agency - MBS	949,574		46,789		—		—		949,574		46,789

	$	19,176,313	$	1,849,359	$	—	$	—	$	19,176,313	$	1,849,359

	Amortized		Fair
	Cost		Value
Due within One Year	$	—	$	—
After One Year through Five Years	—		—
After Five Years through Ten Years	—		—
After Ten Years	5,799,376		5,534,898
Mortgaged-Backed Securities	5,101,552		5,246,946
Collateralized Mortgage Obligations	8,399,241		7,288,771
	$	19,300,169	$	18,070,615

Unrealized losses at September 30, 2009, are concentrated in four private-label collateralized mortgage obligations which were purchased during 2008 and have been affected by the dislocation in the securities market. Management monitors these bonds on a monthly basis and evaluates underlying data for indications of any OTTI.

~~Note~~The 5scheduled —maturities ~~Earnings~~of ~~(Loss)~~securities ~~Per~~available ~~Share~~for ~~and~~sale ~~Dividends~~at September 30, 2009 are shown below. Actual maturities may differ from contractual maturities because some investment securities may allow the right to call or prepay the obligation with or without call or prepayment penalties.

The earnings (loss) per common share of the Company is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which share in the Company’s earnings (loss). Common stock equivalents for 2009 and 2008 have been excluded from the calculation of diluted earnings (loss) per share since their effect was anti-dilutive.

	Amortized		Fair
	Cost		Value

Due within One Year	$	—	$	—
After One Year through Five Years	—		—
After Five Years through Ten Years	497,438		501,162
After Ten Years	4,414,205		4,601,385
Mortgaged-Backed Securities	5,794,900		5,996,879
Collateralized Mortgage Obligations	7,932,151		7,283,427

	$	18,638,694	$	18,382,853

ToNote ~~date,~~5 ~~the~~— ~~Company~~Earnings ~~has not~~(Loss) ~~paid any cash dividends. Payment of stock or cash dividends in the future~~Per ~~will~~Share ~~depend upon the Company’s earnings~~ and ~~financial condition and other factors deemed relevant by the Company’s Board of Directors, as well as the Company’s legal ability to pay dividends.~~Dividends

~~Note~~The 6earnings —(loss) per common share of the Company is computed by ~~Fair~~dividing ~~Values~~net ~~Measurement~~income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which share in the Company’s earnings (loss). Common stock equivalents for 2009 and 2008 have been excluded from the calculation of diluted earnings (loss) per share since their effect was anti-dilutive.

~~FASB~~To ~~Statement No. 157~~date, ~~“Fair~~ ~~Value~~the ~~Measurements,”~~Company ~~establishes~~has anot ~~fair~~paid ~~value~~any ~~hierarchy~~cash ~~which~~dividends. ~~requires~~Payment ~~an entity to maximize the use~~ of ~~observable~~stock or ~~inputs~~cash ~~and~~dividends ~~minimize~~in the ~~use~~future ~~of unobservable~~will ~~inputs~~depend ~~when~~upon ~~measuring~~the ~~fair~~Company’s ~~value.~~earnings ~~This~~and financial ~~statement~~condition ~~describes~~and ~~methods~~other ~~used~~factors todeemed ~~appropriately~~relevant ~~measure~~by ~~fair value~~the inCompany’s ~~accordance~~Board ~~with GAAP~~of Directors, ~~expands~~as ~~fair~~well ~~value~~as ~~disclosure~~the ~~requirements~~Company’s ~~and applies~~legal ~~whenever~~ability ~~other~~to ~~accounting~~pay ~~pronouncements require or permit fair value measurements~~dividends.

Financial assets and financial liabilities measured at fair value for SFAS No. 157 are grouped in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value at times other than the purchase or sale of an asset or liability. These tiers include:13

~~· Level 1: Quoted prices in active exchange~~Table ~~markets~~of ~~for identical assets or liabilities.~~Contents

~~· Level~~Note 2:6 ~~Significant~~— ~~other~~Fair ~~observable inputs~~Values other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.Measurement

~~· Level~~As reported in Note 3:, ~~Significant~~ASC ~~unobservable~~Topic ~~inputs that~~820, ~~reflect~~“Fair Value Measurements and Disclosures” establishes a ~~reporting~~fair ~~entity’s~~value ~~own~~hierarchy ~~assumptions~~which requires ~~about~~an entity to maximize the ~~assumptions~~use ~~that~~of observable inputs and minimize the ~~market~~use ~~participants~~of ~~would~~unobservable usinputs when measuring fair value. This statement describes methods used to appropriately measure fair value in ~~pricing~~accordance anwith ~~asset~~GAAP, expands fair value disclosure requirements and applies whenever other accounting pronouncements require or ~~liability~~permit fair value measurements.

13Financial assets and financial liabilities measured at fair value for ASC Topic 820 are grouped in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This standard establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value at times other than the purchase or sale of an asset or liability. These tiers include:

~~Table~~· Level 1: Quoted prices in active exchange markets for ofidentical ~~Contents~~assets or liabilities.

~~The~~· Level ~~valuation~~2: Significant other observable inputs other ~~methodologies~~than ~~used~~Level 1 prices such as quoted prices for similar assets ~~and~~or liabilities; quoted ~~recorded~~prices atin ~~fair~~markets ~~value~~that are not active; or other inputs that are ~~described~~observable ~~below:~~or can be corroborated by observable market data.

~~Securities The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (~~· Level 1)3: orSignificant ~~matrix pricing,~~unobservable ~~which~~inputs isthat reflect a ~~mathematical~~reporting ~~technique~~entity’s ~~used~~own ~~widely~~assumptions inabout the ~~industry~~assumptions tothat ~~value~~market ~~debt~~participants ~~securities~~would ~~without~~use ~~relying~~in ~~exclusively~~pricing onan ~~quoted~~asset ~~prices~~or ~~for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2)~~liability.

~~Other Real Estate Owned~~ The ~~fair~~valuation ~~value of~~methodologies ~~foreclosed~~used ~~real~~for ~~estate~~assets ~~is generally based on estimated market prices from independently prepared appraisals~~ and ~~adjusted~~liabilities ~~for~~recorded ~~current market conditions,~~at ~~as necessary, on a nonrecurring basis. When a current appraised value is not available or management determines the~~ fair value ~~of the collateral is further impaired below the appraised value and there is no observable market price, management assumptions~~ are ~~used~~described ~~to adjust fair value, if necessary (Level 3).~~below:

~~Collateral-Dependent Impaired~~Securities ~~Loans~~ The ~~Bank does not record loans at~~ fair ~~value on a~~ ~~recurring~~values ~~basis.~~of ~~However,~~securities ~~from~~available ~~time~~for tosale ~~time,~~are ~~fair~~determined ~~value~~by ~~adjustments~~obtaining ~~are~~quoted ~~recorded~~prices on ~~these~~nationally ~~loans~~recognized tosecurities ~~reflect~~exchanges (Level 1) ~~partial~~ ~~write-downs, through charge-offs~~ or ~~specific reserve allowances~~matrix pricing, ~~that~~which ~~are~~is ~~based~~a onmathematical ~~the~~technique ~~current appraised~~used orwidely ~~market-quoted~~in ~~value of~~ the ~~underlying~~industry ~~collateral~~to ~~or (2) the~~value ~~full~~debt ~~charge-off~~securities ofwithout ~~the~~relying ~~loan~~exclusively ~~carrying~~on ~~value.~~quoted Inprices ~~some cases, the properties~~ for ~~which~~ ~~market~~specific ~~quotes or appraised values have been obtained are located in areas~~securities ~~where~~but ~~comparable~~rather ~~sales~~by ~~data~~relying ison ~~limited,~~the ~~outdated,~~securities’ orrelationship ~~unavailable.~~to ~~Fair~~other ~~value estimates~~benchmark ~~for collateral-dependent impaired loans are obtained from real estate~~quoted ~~brokers~~securities ~~or other third-party consultants~~ (Level 32).

Other Real Estate Owned The ~~tables~~fair ~~below~~value ~~present~~of foreclosed real estate is generally based on estimated market prices from independently prepared appraisals and adjusted for current market conditions, as necessary, on a nonrecurring basis. When a current appraised value is not available or management determines the ~~balances~~fair value of ~~assets~~the collateral is further impaired below the appraised value and ~~liabilities~~there ~~measured~~is atno observable market price, management assumptions are used to adjust fair value, if necessary (inLevel ~~thousands~~3):.

	June 30, 2009
	Total		Level 1		Level 2		Level 3
Assets measured at fair value on a recurring basis
Securities available for sale	$	18,071	$	—	$	18,071	$	—
	$	18,071	$	—	$	18,071	$	—
Assets measured at fair value on a non-recurring basis
Foreclosed Assets (OREO) (1)	$	3,390	$	—	$	—	$	3,390
Non-Accrual/Impaired Loans (2)	5,995		—		—		5,995
	$	9,385	$	—	$	—	$	9,385

Collateral-Dependent Impaired Loans The Bank does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. Fair value estimates for collateral-dependent impaired loans are obtained from real estate brokers or other third-party consultants (Level 3).

(1)	Represents Other Real Estate Owned net of cost to sell of $378,684 (excludes OREO assets with a fair value greater than cost).
(2)	Represents current loan balance less related charge-offs previously recognized and any specific reserves.

~~Note~~Table ~~7 — Fair Value~~ of ~~Financial Instruments~~Contents

Issued in April, 2009, FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The ~~Company’s~~tables ~~estimated fair value amounts~~ below ~~have~~present ~~been determined by~~ the ~~Bank~~balances ~~using~~of ~~available~~assets ~~market information~~ and ~~appropriate valuation methodologies. However, considerable~~liabilities ~~judgment~~measured isat ~~required to develop the estimates of~~ fair value. ~~Accordingly, the estimates are not necessarily indicative of the amounts the Company could have realized~~ (in ~~a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.~~thousands):

Fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The following methods and assumptions were used by the Company in estimating fair values of financial instruments:

	September 30, 2009
	Total		Level 1		Level 2		Level 3
Assets measured at fair value on a recurring basis
Securities available for sale	$	18,383	$	—	$	18,383	$	—
	$	18,383	$	—	$	18,383	$	—

Assets measured at fair value on a non-recurring basis
Foreclosed Assets (OREO) (1)	$	2,572	$	—	$	—	$	2,572
Non-Accrual/Impaired Loans (2)	16,541		—		—		16,541
	$	19,113	$	—	$	—	$	19,113

14(1) Represents Other Real Estate Owned net of cost to sell of $258,000 (excludes OREO assets with a fair value greater than cost).

~~Table~~(2) Represents current loan balance less related ofcharge-offs ~~Contents~~previously recognized and any specific reserves.

Financial Assets The carrying amounts of cash, short-term investments, and due from customers on acceptances and bank acceptances outstanding are considered to approximate fair value. Short-term investments include federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with banks. The fair values of investment securities, including available for sale, are based on quoted market prices of similar securities, if available, or other model-based valuation techniques, also known as matrix pricing (See Note 67 - — Fair Value ~~Measurement above). The fair value~~ of ~~loans is estimated using a~~Financial ~~combination of techniques, including discounting estimated future cash flows.~~Instruments

~~Financial~~As ~~Liabilities~~reported ~~The~~in Note 3, ASC Topic 825, “Financial ~~carrying~~Instruments” ~~amounts~~requires disclosures about fair value of ~~deposit~~financial instruments ~~liabilities~~in ~~payable~~interim onreporting ~~demand,~~periods ~~commercial~~of ~~paper, and~~publicly ~~other~~traded ~~borrowed~~companies ~~funds~~that ~~are~~were previously ~~considered~~only required to ~~approximate~~be ~~fair~~disclosed ~~value. For~~in ~~fixed~~annual ~~maturity~~financial ~~deposits,~~statements. The Company’s estimated fair value ~~is estimated~~amounts bybelow ~~discounting~~have ~~estimated~~been ~~future~~determined ~~cash~~by ~~flows~~the Bank using available ~~currently~~market ~~offered~~information and appropriate valuation methodologies. However, ~~rates~~considerable ~~for~~judgment ~~deposits~~is ofrequired ~~similar~~to ~~remaining~~develop ~~maturities. The~~the estimates of fair value. Accordingly, ofthe ~~long-term~~estimates ~~debt~~are isnot ~~based~~necessarily ~~on rates~~indicative ~~currently~~of ~~available~~the toamounts the Company ~~for~~could ~~debt~~have ~~with~~realized ~~similar~~in ~~terms~~a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated ~~remaining~~fair ~~maturities~~value amounts.

~~Off-Balance~~Fair ~~Sheet~~value ~~Financial~~estimates ~~Instruments~~are subjective ~~The~~in ~~fair~~nature ~~value~~and involve uncertainties and matters of significant ~~commitments~~judgment toand ~~extend~~therefore ~~credit~~cannot ~~and~~be ~~standby~~determined ~~letters~~with ofprecision. Changes ~~credit~~in isassumptions ~~estimated~~could ~~using~~significantly affect the ~~fees~~estimates. The ~~currently~~following methods ~~charged~~and toassumptions ~~enter~~were ~~into~~used ~~similar~~by ~~agreements. The~~the ~~fair~~Company ~~value~~in ofestimating ~~these~~fair ~~financial~~values ~~instruments~~of isfinancial ~~not material.~~instruments:

	June 30, 2009
	Carrying		Fair
	Value		Value
Financial Assets:
Cash and Due from Banks	$	8,116	$	8,123
Federal Funds Sold	14,145		14,145
Investment Securities	18,071		18,071
Loans	353,978		351,796
Federal Reserve, FHLB and Bankers’ Bank Stock, at Cost	4,032		4,032
Accrued Interest Receivable	1,493		1,493
Financial Liabilities:
Deposits	338,273		339,084
Borrowings and Notes Payable	55,155		55,075
Accrued Interest and Other Liabilities	4,754		4,754

Financial Assets The carrying amounts of cash, short-term investments, and due from customers on acceptances and bank acceptances outstanding are considered to approximate fair value. Short-term investments include federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with banks. The fair values of investment securities, including available for sale, are based on quoted market prices of similar securities, if available, or other model-based valuation techniques, also known as matrix pricing (See Note 6 - Fair Value Measurement above). The fair value of loans is estimated using a combination of techniques, including discounting estimated future cash flows.

~~Note~~Financial Liabilities 8The carrying —amounts of deposit liabilities payable on demand, commercial paper, ~~Subsequent~~and ~~Events~~other borrowed funds are considered to approximate fair value. For fixed maturity deposits, fair value is estimated by discounting estimated future cash flows using currently offered rates for deposits of similar remaining maturities. The fair value of long-term debt is based on rates currently available to the Company for debt with similar terms and remaining maturities.

~~The~~Off-Balance ~~Company~~Sheet ~~has~~Financial ~~evaluated~~Instruments ~~subsequent~~The ~~events~~fair ~~through~~value ~~August 12,~~of ~~2009,~~commitments ~~which~~to extend credit and standby letters of credit is estimated using the ~~date~~fees ~~the~~currently ~~financial~~charged ~~statements~~to ~~were~~enter ~~available~~into tosimilar beagreements. The ~~issued~~fair value of these financial instruments is not material.

On July 16, 2009, the Company and its wholly-owned subsidiary, the Bank, entered into an Agreement and Plan of Merger (the “Agreement”) with FB Bancorp and First Business Bank, National Association (“First Business Bank”), pursuant to which, through a series of mergers, each outstanding share of the Company’s common stock will be converted into the right to receive (i) $1.40 in cash, and (ii) a percentage of the potential recoveries of certain charged-off loans and a lawsuit (which total amount will not exceed $4,000,000), and First Business Bank’s shareholders will become the shareholders of the Company. The Agreement also contemplates the merger of First Business Bank with and into the Bank, with the Bank as the surviving bank. Details regarding the Agreement were included in the Company’s Current Report on Form 8-K which was filed with SEC on July 17, 2009. All of the Company’s required SEC Filings are posted on its web site at www.1stpacbank.com.15

15Table of Contents

Table of Contents

	September 30, 2009
	Carrying		Fair
	Value		Value
Financial Assets:
Cash and Due from Banks	$	6,934	$	6,934
Federal Funds Sold	2,085		2,085
Investment Securities	18,383		18,383
Loans	344,107		344,267
Federal Reserve, FHLB and Bankers’ Bank Stock, at Cost	4,014		4,014
Accrued Interest Receivable	1,395		1,395

Financial Liabilities:
Deposits	$	317,792	$	319,605
Borrowings and Notes Payable	50,155		50,258
Accrued Interest and Other Liabilities	5,045		5,045

AsNote a8 ~~result~~— ofSubsequent the transactions contemplated by the Agreement, the six directors of First Business Bank will become the directors of the new Company and the new Bank, with two members of the Company’s existing Board of Directors expected to join the new Board of Directors, expanding the total number of directors to eight. Consummation of the transactions contemplated by the Agreement is subject to several conditions, including receipt of applicable regulatory approvals and approval by the shareholders of the Company, FB Bancorp and First Business Bank.Events

~~In connection with the Agreement, the~~ The Company ~~and~~has ~~the~~evaluated ~~Bank~~subsequent ~~entered~~events ~~into a~~through ~~Shareholder Agreement dated July~~November 1613, 2009, ~~with Ernest Auerbach, the principal shareholder of First Business Bank and FB Bancorp, pursuant to~~ which, ~~among~~is ~~other things, Mr. Auerbach will vote his shares in favor of~~ the ~~transactions~~ ~~contemplated~~date by the ~~Agreement.~~financial ~~The~~statements ~~Company~~were ~~and~~available the Bank also entered into a Directors Agreement dated July 16, 2009, with each of First Business Bank’s director-shareholders, and First Business Bank entered into a Voting Agreement dated July 16, 2009, with each of the Company’s director-shareholders, pursuant to ~~which,~~be among other things, each such director-shareholder will (i) vote his or her shares in favor of the transactions contemplated by the Agreement, and (ii) recommend that their respective company’s shareholders approve the Agreement and the transactions contemplated therebyissued.

~~Also~~On inOctober 28, ~~connection with the Agreement~~2009, ~~the~~1st ~~Company and the Bank entered~~Pacific ~~into~~Bancorp a(“1st ~~Termination~~Pacific ofBancorp”), ~~Employment~~its ~~Agreement~~wholly-owned ~~dated July 16~~subsidiary, ~~2009,~~1st ~~with~~Pacific ~~each~~Bank of ~~Richard~~California, H.FB ~~Revier~~Bancorp and ~~James~~First H.Business ~~Burgess~~Bank, ~~the~~National ~~Chief~~Association ~~Credit Officer and Chief~~(“First ~~Financial~~Business ~~Officer~~Bank”), ofentered ~~the~~into ~~Company,~~a ~~respectively.~~Termination ~~The~~Agreement (“Termination ~~of Employment~~Agreement”), ~~Agreements~~pursuant ~~will~~to ~~become~~which ~~effective at~~ the ~~effective~~parties ~~time~~terminated of the ~~merger~~Agreement ~~whereby the~~and ~~shareholders~~Plan of FBMerger ~~Bancorp~~dated July 16, ~~become~~2009, ~~the~~between ~~shareholders~~such ofparties (the ~~Company,~~“Merger ~~one~~Agreement”). The ~~of the~~Merger ~~mergers~~Agreement ~~contemplated~~was interminated by the mutual ~~Agreement.~~consent ~~Pursuant~~of to the ~~applicable Termination~~parties ofin ~~Employment~~part ~~Agreement,~~because ~~among~~the ~~other~~current ~~things,~~economic ~~(i) the~~and ~~employment~~regulatory ~~and~~environment ~~employment~~presented ~~agreement~~unanticipated ofcomplications ~~each~~that ~~such~~could ~~employee~~not ~~will~~be overcome ~~terminate,~~given ~~(ii)~~ the ~~employee~~ ~~will~~structure ~~become~~of ~~entitled~~the totransaction. No ~~his~~early ~~“Change~~termination ofpenalties ~~Control~~were ~~Severance Benefits,” as~~incurred ~~defined~~by inany ~~his~~of ~~employment~~the ~~agreement~~parties ~~and subject~~ to ~~certain~~the ~~conditions~~Merger Agreement in ~~his respective~~connection ~~employment~~with ~~agreement~~its termination. Along ~~and~~with ~~Termination~~the termination of ~~Employment~~the Merger Agreement, ~~and~~the ~~(iii)~~ Termination Agreement also provides for the mutual ~~employee~~release ~~will~~of ~~release~~claims ~~all~~by ~~related~~the ~~claims~~parties against ~~the~~each ~~Company~~other ~~and~~arising out of the ~~Bank~~Merger Agreement. Details ~~Mr. Revier’s~~regarding the ~~employment~~Termination ~~agreement~~Agreement iswere included asin ~~Exhibit 10.1 to~~ the Company’s Current Report on Form 8-K which was filed with SEC on ~~December~~October 2829, ~~2007, and incorporated herein by reference~~2009. ~~Mr. Burgess’~~All ~~employment~~of ~~agreement is included as Exhibit 10.1 to~~ the Company’s ~~Current~~required SEC ~~Report~~Filings are posted on ~~Form 8-K~~its ~~filed~~web onsite ~~January 12, 2009~~at www.1stpacbank.com.

16Recently, the Worker, Homeownership and Business Assistance Act of 2009 (H.R. 3548) was signed into law. Among other things, the bill expands the ability of medium and large-sized companies to carryback net operating loss deductions up to five years. Previously, these carryback provisions were limited to two years. The Company is still evaluating the potential impact of this new law on its tax position.

~~Table of Contents~~16

~~ITEM~~Table ~~2 - Management’s Discussion and Analysis~~ of ~~Financial Condition and Results of Operations~~Contents

~~Basis~~ITEM 2 - Management’s Discussion and Analysis of ~~Presentation~~Financial Condition and Results of Operations

~~The~~Basis ~~Company is a California corporation incorporated on August 4, 2006 and is registered with the Board~~ of Governors of the Federal Reserve System as a bank holding company under the Bank Holding Company Act of 1956, as amended. 1st Pacific Bank of California (the “Bank”) is a wholly-owned bank subsidiary of the Company and was incorporated in California on April 17, 2000. The Bank is a California corporation licensed to operate as a commercial bank under the California Banking Law by the California Department of Financial Institutions (the “DFI”). In accordance with the Federal Deposit Insurance Act, the Federal Deposit Insurance Corporation (the “FDIC”) insures the deposits of the Bank. The Bank is a member of the Federal Reserve System.Presentation

The ~~reorganization~~Company ~~to form~~is a ~~holding~~California ~~company~~corporation incorporated ~~was completed~~ on ~~January~~August 164, ~~2007,~~2006 ~~whereby~~and ~~all outstanding~~is ~~shares~~registered with the Board of Governors of the ~~Bank~~Federal ~~were~~Reserve ~~converted~~System ~~into~~as ana ~~equal~~bank ~~number~~holding ofcompany ~~shares~~under of the Bank Holding Company Act of 1956, as amended. ~~Prior~~1st Pacific toBank of California (the ~~reorganization,~~“Bank”) is a wholly-owned bank subsidiary of the Company ~~had~~and was ~~minimal~~incorporated ~~activity~~in California on April 17, ~~which~~ ~~was~~2000. The ~~primarily~~Bank ~~related~~is a California corporation licensed to ~~preparing~~operate ~~for~~as ~~the~~a ~~reorganization.~~commercial ~~The consolidated~~bank ~~financial~~under ~~statements~~the ~~include~~California Banking Law by the California ~~accounts~~Department of Financial Institutions (the ~~Company~~“DFI”). In ~~and~~accordance with the Federal Deposit ~~Bank.~~Insurance ~~All~~Act, ~~significant~~the ~~intercompany~~Federal ~~balances~~Deposit ~~and~~Insurance ~~transactions~~Corporation ~~have~~(the ~~been~~“FDIC”) insures ~~eliminated~~the indeposits ~~consolidation~~of the Bank. The Bank is a member of the Federal Reserve System.

OnThe reorganization to form a holding company ~~July~~was completed on January 16, ~~2009~~2007, ~~1st Pacific~~whereby ~~Bancorp~~all ~~and~~outstanding ~~its~~shares ~~wholly-owned~~of ~~subsidiary,~~the ~~1st Pacific~~ Bank ofwere ~~California,~~converted ~~entered~~ into an ~~Agreement~~equal ~~and~~number ~~Plan~~of shares of ~~Merger (~~the ~~“Agreement”)~~Company. ~~with~~Prior FBto ~~Bancorp~~the reorganization, ~~and~~the ~~First~~Company ~~Business~~had ~~Bank~~minimal activity, ~~National~~which ~~Association~~was primarily related ~~(“First~~to ~~Business~~preparing for the reorganization. The consolidated financial statements include the accounts of the Company and the Bank”). ~~See~~All ~~also~~significant ~~Note~~intercompany balances 8and —transactions ~~Subsequent~~have ~~Events~~been ~~above~~eliminated in consolidation.

The following management’s discussion and analysis should be read in conjunction with our Annual Report for the 2008 fiscal year as filed on Form 10-K and with the unaudited ~~financial~~ financial statements and notes set forth in this report. Our 2008 Annual Report on Form 10-K also includes a discussion of critical accounting policies considered material to this presentation of the Company’s financial statements. At present time, the holding company does not engage in any material business activities other than ownership of the Bank; therefore, financial information is primarily reflective of the Bank.

Certain ~~statements~~ statements contained in this quarterly report on Form 10-Q are forward-looking in nature and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements to be materially different from any future results. For a discussion of some of the factors that might cause such a difference, see the Forward-Looking Statements section above or Item 1A — Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008.

Nature of Operations

The Company is organized as a single operating unit and, through the Bank, operates seven full-service offices in southern California, three in San Diego, one in Oceanside, one in El Cajon, one in Solana Beach and one in La Jolla. A limited service branch office which was opened in downtown San Diego in February 2008 will be consolidated into the Mission Valley branch office shortly after year end.

The Company’s primary source of revenue is dividends from the Bank. The Bank’s primary source of revenue is interest earned on loans it provides to customers. The Bank funds its lending activities primarily through providing deposit products and services to customers, but also through borrowings, including advances from the Federal Home Loan Bank (“FHLB”)~~, correspondent banks and the Federal Reserve Bank of San Francisco (“FRB”)~~. The Bank’s customers are predominately small and medium-sized businesses and professionals in San Diego County.

Financial Overview

For ~~the~~ ~~quarter~~all ~~ended~~banks ~~June 30,~~and ~~2009~~bank holding companies, asset ~~the~~quality ~~Company~~and ~~recorded~~asset growth have a ~~loss~~significant ~~before~~impact ~~taxes~~on overall financial condition and results of ~~$854~~operations. Asset quality is measured in terms of percentage of total loans and total assets,~~995~~ ~~compared~~and tois a ~~loss~~key ~~before~~element ~~taxes~~in estimating future performance. As of $2September 30,~~893~~ 2009,~~599~~ ~~for~~nonperforming ~~the~~loans ~~quarter~~as ~~ended~~a ~~June 30~~percent of total loans was 5.28%, an increase of 179 basis points since December 31, 2008. ~~For~~The Company’s quality of assets has been affected by the ~~six~~difficult economic ~~months~~conditions ~~ended~~in ~~June 30~~California, ~~2009,~~especially weaknesses in the ~~Company~~real estate ~~recorded~~market. aIn ~~loss~~addition, ~~before~~both ~~taxes~~the fiscal and regulatory policies of ~~$1,603,586~~the ~~compared~~federal toand state agovernment ~~loss~~regulatory ~~before~~authorities ~~taxes~~that ofgovern financial institutions and ~~$2,125,883~~market ~~for~~interest ~~the~~rates ~~six~~impact ~~months~~our ~~ended~~financial ~~June 30,~~condition ~~2008~~and results of operations.

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~~After tax,~~The ~~the~~ Company ~~realized~~has ~~net~~implemented ~~losses~~strategies ~~for~~and ~~both~~initiatives ~~the~~to ~~three~~improve ~~month~~its asset quality and ~~six~~operating ~~month periods~~results ~~ended~~and ~~June 30,~~increase ~~2009~~the ~~totaling~~Bank’s ~~$854,995~~capital ~~and~~ratios ~~$1,283,886,~~from ~~respectively,~~“adequately ~~compared~~capitalized” back to ~~net~~the ~~losses~~“well ofcapitalized” $1level. While the Company,~~705,999~~ ~~and~~under $1normal circumstances,~~258,783,~~ inconsiders asset growth important, the ~~same~~current strategy is to reduce the ~~periods~~total assets of ~~2008.~~the NoBank ~~income~~to ~~tax~~improve ~~provision~~capital ~~(benefit)~~ratios. ~~was~~As ~~recognized~~part inof ~~the~~this strategy, ~~quarter~~the ~~ended~~Bank ~~June 30,~~is ~~2009,~~committed asto areducing ~~result~~its concentration of ~~increasing~~commercial ~~the~~real ~~valuation~~estate ~~allowance~~loans and has continued to carefully track nonaccrual and potential problem loans (see the “Loan Quality and Allowance for ~~deferred~~Loan ~~tax~~Losses” ~~assets~~section below).

~~Compared to~~Along with the ~~three~~strategy noted above and ~~six~~in ~~month~~an effort ~~periods~~to ~~ended~~reduce ~~June 2008~~controllable expenses, the Company’s ~~2009 results~~implemented ~~include~~ a ~~substantial~~ reduction in ~~provision for loan losses. The~~ ~~provision~~force ~~for~~of ~~loan~~eleven ~~losses~~employees ~~for~~in ~~the six months ended June~~October ~~30,~~ 2009 ~~was $816,000 compared to $3~~.6 ~~million~~This ~~for~~difficult ~~the~~decision ~~first six months of 2008. Net interest margin~~ was ~~3.67% for the six months ended June 30, 2009, compared~~ ~~with~~made ~~4.45%~~in ~~for~~an ~~the~~effort ~~same~~to ~~period~~reduce ofexpenses ~~the~~so ~~previous~~that ~~year, but is up from 3.54% for~~ the ~~fourth quarter of 2008. The~~ Company ~~has~~would have an ~~asset sensitive balance sheet~~opportunity ~~and~~to ~~continues~~return to bea ~~effected~~profitable byfinancial ~~significant~~condition. ~~rate~~In ~~cuts~~addition, of the ~~Federal~~limited ~~Reserve~~service ~~during~~downtown ~~2008.~~San ~~Net~~Diego ~~interest~~branch ~~income~~office ~~for~~will ~~the~~be ~~six~~consolidated ~~months~~into ~~ended~~the ~~June 30,~~Mission ~~2009~~Valley ~~was~~branch ~~$7.5~~office ~~million~~shortly ~~compared~~after toyear $8end.~~9 million for the same period of the previous year.~~

~~When comparing the operating results for the~~Total ~~six~~assets ~~months~~at ~~ended June~~September 30, 2009, towere ~~those~~$393.5 ofmillion ~~the~~compared ~~same~~to ~~period~~$419.9 million ~~ended~~at June ~~2008~~30, ~~other~~ ~~items~~2009, of$420.9 ~~note~~million ~~include~~at ~~the realization of a $229~~December 31,~~000~~ ~~gain~~2008 ~~upon sale of a~~and ~~Washington Mutual, Inc~~$445.6 ~~corporate~~million ~~bond,~~at ~~the recognition of a $165~~September 30,~~000~~ ~~loss on~~2008. ~~the~~Between ~~sublease~~second ofquarter aand ~~portion of the Solana Beach branch office~~third quarter, ~~costs~~assets ~~related to~~declined ~~other~~by ~~real estate owned (“OREO”) of~~ $~~129,000,~~26.4 amillion ~~loss~~and ondeposits ~~sale~~decreased ofby ~~OREO properties of~~ $~~430~~20.5 million,~~000~~ ~~and~~which ~~nonrecurring~~includes ~~professional~~a ~~fees related to evaluating strategic alternatives of approximately~~ $~~160,000~~19.3 Inmillion ~~addition,~~reduction anin ~~FDIC~~Certificate ~~special assessment~~ of ~~$208,000, along with other FDIC insurance increases totaled~~Deposit ~~approximately~~Account ~~$539,000~~Registry ~~and~~Service ~~had~~(“CDARs”) adeposits. ~~significant~~The ~~effect~~company toalso ~~the~~retired ~~profitability~~FHLB borrowings of ~~the Company~~$5.0 million during the ~~first~~third ~~six months of 2009~~quarter.

Total loans ~~assets~~decreased ~~at June 30, 2009, were~~ $~~419~~1.95 million ~~compared~~ to $~~450~~350.84 million atby ~~March~~September 3130, 2009, compared to $~~420~~351.9 million at December 31, 2008 ~~and $452~~.2 ~~million~~At ~~at June~~December 3031, 2008. ~~Between~~deposits ~~first~~totaled ~~quarter~~approximately ~~and~~$333.8 ~~second~~compared ~~quarter,~~to ~~assets declined by~~ $30317.98 million ~~which~~ ~~is below the level they were~~ at ~~December~~September 3130, ~~2008; deposits~~ ~~decreased by $25.4 million~~2009, ~~including~~a ~~$10.3~~decrease ~~million in Certificate~~ of ~~Deposit Account~~approximately ~~Registry Service (“CDARs”) deposits and the company retired FHLB borrowings of~~ $516.0 million ~~during the second quarter~~.

~~Total loans increased $7.6 million to $359.5~~At ~~million by June~~September 30, 2009, ~~compared~~the toBank’s ~~$351.9~~Total ~~million~~Risk-Based atcapital ~~December 31, 2008.~~ratio ~~Deposits~~was ~~grew~~8.4% ~~during~~ and the ~~first~~Bank ~~six~~is ~~months~~considered of“adequately ~~2009,~~capitalized.” ~~increasing approximately~~Total ~~$4.5~~Risk-Based ~~million~~capital toratio was ~~$338~~8.37% ~~million~~at ~~by June~~December 3031, ~~2009~~2008. ~~compared~~Also ~~to $333.8~~see ~~million~~the at“Capital ~~December 31,~~Resources” ~~2008~~section below.

AtFor ~~June~~the quarter ended September 30, 2009, the ~~Bank’s~~Company ~~Total Risk-Based~~recorded ~~capital~~a ~~ratio~~loss ~~was~~before ~~8.5%~~taxes ~~and~~of ~~the~~$1.9 ~~Bank~~million iscompared ~~considered~~to ~~“adequately~~a ~~capitalized.”~~loss ~~Total~~before ~~Risk-Based~~taxes ~~capital~~of ~~ratio~~$5,169 ~~was~~for 8the quarter ended September 30, 2008.7% atFor the ~~December~~nine months ended September 3130, 2009, the Company recorded a loss ~~2008~~before taxes of $3.5 ~~Also~~million ~~see~~compared to a loss before taxes of $2.1 million for the ~~“Capital~~nine ~~Resources”~~months ~~section~~ended ~~below~~September 30, 2008.

After tax, the Company realized net losses for both the three month and nine month periods ended September 30, 2009 totaling $1.9 million and $3.1 million, respectively, compared to net income of $9,531 and a net loss of $1.2 million, in the same periods of 2008. No income tax provision (benefit) has been recognized since March 2009, as a result of increasing the valuation allowance for deferred tax assets.

Compared to the three month period ended September 2008, the Company’s 2009 results include an increase in provision for loan losses from $250,000 to $1.5 million, respectively. However, the provision for loan losses for the nine months ended September 30, 2009 was $2.3 million compared to $3.8 million for the first nine months of 2008. Net interest margin was 3.74% for the nine months ended September 30, 2009, compared with 4.26% for the same period of the previous year. The Company has an asset sensitive balance sheet and continues to be effected by significant rate cuts of the Federal Reserve during 2008. Net interest income for the nine months ended September 30, 2009 was $11.4 million compared to $13.2 million for the same period of the previous year.

Several items had a significant impact on the operating results for the nine months ended September 2009 compared to those of the same period of the prior year. Increases in income included approximately $229,000 for the realization of a gain upon sale of a Washington Mutual, Inc. corporate bond and $285,000 for recoveries of prior expenses. These income items were offset by several large increases in expenses including approximately $1.1 million for losses on other real estate owned (“OREO”) properties, $721,000 for FDIC special assessments and insurance increases, $301,000 for professional fees related to loan collection and review, $289,000 in merger related costs, $165,000 for recognition of a loss on the sublease of a portion of the Solana Beach branch office and $147,000 in costs related to carrying OREO. Also see the Noninterest Income and Noninterest Expense sections below.

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Liquidity Management and Cash Flows

The Company’s balance sheet liquidity, which is a measure of its ability to meet fluctuations in deposit levels and provide for customers’ credit needs, is managed through various funding strategies that reflect the maturity structures of the sources of funds being gathered and the assets being funded. Liquidity primarily relies on funds from short-term liabilities such as demand deposits, certificates of deposit, and short-term borrowings and is augmented by payments of principal and interest on loans. Access to short-term investments, primarily Federal funds sold, is the primary means for providing immediate liquidity.

To augment immediate balance sheet liquidity, the Company maintains various credit and borrowing facilities. In general, credit and borrowing facilities may be reduced or withdrawn at any time and may include provisions for pledging of collateral. Following is a summary of the total borrowing capacity available under these facilities and amounts outstanding at ~~June~~September 30, 2009:

Source of Borrowing Facility	Capacity		Outstanding at 6/September 30/, 2009
Secured line based on pledged loan collateral at:
Federal Home Loan Bank	$	4945,~~922~~172,~~872~~007	$	4540,000,000
Federal Reserve Bank	$	4335,~~648~~046,~~756~~050	$	0—

18In the second quarter, the Federal Reserve Bank of San Francisco (“FRB”) and FHLB requested physical delivery of loan collateral to secure the Company’s borrowing lines. Additionally, the FRB limited the Company’s borrowing to terms under the Secondary Credit Program. The rate on Secondary Credit is 50 basis points higher and maturities are generally limited to overnight. The Bank has fulfilled and expects to continue to fulfill all collateral requirements of the FRB and FHLB.

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In the second quarter, the FRB and FHLB requested physical delivery of loan collateral to secure the Company’s borrowing lines. Additionally, the FRB limited the Company’s borrowing to terms under the Secondary Credit Program. The rate on Secondary Credit is 50 basis points higher and maturities are generally limited to overnight. The Bank has fulfilled and expects to continue to fulfill all collateral requirements of the FRB and FHLB.

The strategy of the Company’s management regarding its liquidity position is to manage and monitor liquidity proactively to ensure the safety and soundness of the Company’s capital base, while maintaining adequate net interest margins and spreads to provide an appropriate return to shareholders. The Company has procedures in place to manage its liquidity on a daily basis and maintains “contingency” sources of liquidity, whereby a certain level of liquidity sources are reserved to be used for unforeseen contingency purposes.

As a result of ~~June~~the Bank being considered “adequately capitalized,” the Bank is not able to accept, renew or rollover brokered deposits unless and until such time as it receives a waiver from the FDIC. As the brokered deposits mature, the Bank anticipates funding these maturities primarily from loan payoffs as it shrinks its loan portfolio. If the Bank is unable to reduce its loan portfolio to fund maturing brokered deposits, it will need to seek other alternatives, which may be more costly for funding purposes, as these brokered deposits mature. These other sources may include local deposit campaigns or institutional time deposits. As of September 30, 2009, the Bank had total brokered deposits of $8152.90 million, including $~~26.~~7.4 million in CDARs, a program offered to its customers seeking additional deposit insurance. Total brokered deposits at March 31, 2009 were $110.8 million, including $37.0 million in CDARs deposits.

AsIn aorder ~~result~~to ofmanage liquidity, the ~~Bank~~Company’s ~~being~~management ~~considered~~monitors ~~“adequately~~a ~~capitalized,”~~number ~~the~~of ~~Bank~~liquidity isratios, ~~not~~including ~~able~~the tolevel ~~accept,~~of liquid ~~renew~~assets orto ~~rollover~~funding ~~brokered~~sources ~~deposits~~(both ~~unless~~on and ~~until~~off ~~such~~the ~~time~~balance assheet), itthe ~~receives~~level aof ~~waiver~~dependence ~~from~~on non-core funding sources, the ~~FDIC.~~level Asof loans to funding sources, the ~~brokered~~level ~~deposits~~of ~~mature~~short-term investments to total assets, ~~the~~contingent ~~Bank~~sources ~~anticipates~~to ~~funding~~total ~~these~~deposits, ~~maturities~~available ~~primarily~~liquidity ~~from~~to ~~loan~~total ~~payoffs~~funding asand itthe ~~shrinks~~level ~~its~~of ~~loan~~unfunded ~~portfolio~~loan commitments. Because Ifof the Bank’s strategy isto ~~unable~~improve tocapital ~~reduce~~ratios by reducing total assets, the Bank has been managing its ~~loan~~balance ~~portfolio~~sheet toliquidity ~~fund~~very closely and replacing maturing brokered deposits, itonly ~~will~~as ~~need~~needed. toPreferably, ~~seek~~the ~~other~~Bank ~~alternatives,~~will ~~which~~continue ~~may~~to ~~be more~~see ~~costly~~reductions ~~for~~in ~~funding~~loan ~~purposes,~~assets asto ~~these~~offset maturing brokered deposits ~~mature~~. ~~These~~As ~~other~~of September 30, ~~sources~~2009, ~~may~~management ~~include~~of ~~local~~the ~~deposit~~Company ~~campaigns~~considers orits ~~institutional~~liquidity ~~time~~sufficient ~~deposits~~to meet the Company’s liquidity needs.

In order to manage liquidity, the Company’s management monitors a number of liquidity ratios, including the level of liquid assets to funding sources (both on and off the balance sheet), the level of dependence on non-core funding sources, the level of loans to funding sources, the level of short-term investments to total assets, contingent sources to total deposits, available liquidity to total funding and the level of unfunded loan commitments. As of June 30, 2009, management of the Company considers its liquidity sufficient to meet the Company’s liquidity needs.

Despite recording a net loss for the six months ended June 30, 2009, the Company had positive cash flow from operating activities because the net loss generally resulted from non cash charges, including provision for loan losses, loss on sublease, depreciation and other non-cash expenses. The Company’s net cash used by investing activities of $2.8 million consisted mainly of an increase of $11.0 million in loans offset by maturities and sales of investment securities totaling $7.2 million and a $579,000 change in equity securities. Net cash used by financing activities of $563,000 was due to a $5.0 million decrease in FHLB borrowings offset by an increase in deposits of $4.5 million.

Borrowings

The Company’s total amount of FHLB borrowings decreased $5.0 million to $45.0 million during the second quarter of 2009 compared to $50.0 million at both March 31, 2009 and December 31, 2008. A holding of subordinated debt of $10.2 million has not changed since December 31, 2007. FHLB borrowings were $45.0 million at June 30, 2009, compared to $50.0 million at June 30, 2008. The following is a schedule of FHLB advances at June 30, 2009, in order of final maturity date:

Date of Advance	Final Maturity Date	Rate		Principal Balance
September 13, 2007	September 14, 2009	4.500	%	$	5,000,000
December 17, 2008	December 17, 2009	1.060	%	5,000,000
May 12, 2008	May 12, 2010	2.965	%	10,000,000
July 8, 2008	July 8, 2010	3.360	%	10,000,000
December 17, 2008	December 17, 2010	1.760	%	5,000,000
December 17, 2008	December 17, 2011	2.006	%	5,000,000
September 13, 2007	September 13, 2012	4.310	%	5,000,000
		Total		$	45,000,000

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~~The~~Despite recording a net loss for the nine months ended September 30, 2009, the Company ~~maintains~~had positive cash flow from ~~$5.0~~operating ~~million~~activities inbecause ~~Floating~~the ~~Rate~~net ~~Junior~~loss ~~Subordinated~~generally ~~Debentures~~resulted ~~issued~~from innon ~~March,~~cash ~~2005~~charges, ~~with~~including aprovision ~~final~~for ~~maturity~~loan ~~of June 15~~losses, ~~2020~~loss on sublease, adepreciation and ~~right~~other onnon-cash ~~behalf~~expenses. ofThe ~~the Bank~~Company’s ~~for~~net ~~early~~cash ~~redemptions~~provided ~~beginning~~by ininvesting activities ~~March,~~of ~~2010,~~$8.1 ~~and~~million consisted mainly of an ~~interest~~increase ~~rate~~of ~~which~~approximately ~~floats~~$1.4 ~~quarterly~~million ~~based~~in onloans 3offset ~~Month~~by ~~LIBOR~~maturities ~~plus~~and asales ~~spread~~ of ~~178~~investment ~~basis~~securities totaling ~~points~~$8.3 ~~The coupon~~million, ~~interest~~a ~~rate~~$597,000 onchange ~~the~~in ~~subordinated~~equity ~~debt~~securities asand $837,000 in proceeds from sale of ~~June 30,~~OREO. ~~2009~~Net ~~was~~cash used by financing activities of $26.0 2million was due to a $10.~~41%~~0 (3million ~~month~~decrease ~~LIBOR~~in ~~plus~~FHLB 1borrowings and a decrease in deposits of $16.~~78%)~~0 million.

In June 2007, the Company issued $5.0 million in floating rate preferred securities (the “Trust Preferred Securities”) through a Delaware trust affiliate, FPBN Trust I (the “Trust”). The Trust used the proceeds from the sale of the Trust Preferred Securities together with the proceeds from the sale of common securities to purchase $5,155,000 in aggregate principal amount of the Company’s unsecured floating rate junior subordinated debt securities due September 1, 2037 issued by the Company (the “Junior Subordinated Debt Securities”). As of June 30, 2009, the coupon interest rate was 2.07% (3 month LIBOR plus 1.40%) and floats quarterly.Borrowings

The Company’s total amount of FHLB borrowings decreased $5.0 million to $40.0 million during the third quarter of 2009 compared to $45.0 million at June 30, 2009 and $50.0 million at December 31, 2008. A holding of subordinated debt of $10.2 million has not changed since December 31, 2007. The following is a schedule of FHLB advances at September 30, 2009, in order of final maturity date:

Date of Advance	Final Maturity Date	Rate		Principal Balance
December 17, 2008	December 17, 2009	1.060	%	$	5,000,000
May 12, 2008	May 12, 2010	2.965	%	10,000,000
July 8, 2008	July 8, 2010	3.360	%	10,000,000
December 17, 2008	December 17, 2010	1.760	%	5,000,000
December 17, 2008	December 17, 2011	2.006	%	5,000,000
September 13, 2007	September 13, 2012	4.310	%	5,000,000

		Total		$	40,000,000

The Company maintains $5.0 million in Floating Rate Junior Subordinated Debentures issued in March, 2005, with a final maturity of June 15, 2020, a right on behalf of the Bank for early redemptions beginning in March, 2010, and an interest rate which floats quarterly based on 3 Month LIBOR plus a spread of 178 basis points. The coupon interest rate on the subordinated debt as of September 30, 2009 was 2.08% (3 month LIBOR plus 1.78%).

In June 2007, the Company issued $5.0 million in floating rate preferred securities (the “Trust Preferred Securities”) through a Delaware trust affiliate, FPBN Trust I (the “Trust”). The Trust used the proceeds from the sale of the Trust Preferred Securities together with the proceeds from the sale of common securities to purchase $5,155,000 in aggregate principal amount of the Company’s unsecured floating rate junior subordinated debt securities due September 1, 2037 issued by the Company (the “Junior Subordinated Debt Securities”). As of September 30, 2009, the coupon interest rate was 1.76% (3 month LIBOR plus 1.40%) and floats quarterly.

Due to the current financial condition of the Bank, the Federal Reserve Bank of San Francisco has requested certain limits on our paying of dividends, making payments on trust preferred securities or any other capital distributions. In this regard, the Company has resolved not to declare or pay any dividends without prior approval of the FRB and the Bank has agreed not to declare or pay any dividends without prior approval of the FRB and the DFI. The Company has deferred payment on the trust preferred securities in accordance with and allowable under the indenture agreement and does not anticipate resuming those payments in the near term. The Company’s inability to receive dividends from the Bank could adversely affect our business, financial condition and results of operations. See also the Liquidity Management, Interest Rate Risk, Financing and Capital Resources section of the Company’s on Form 10-K for the year ended December 31, 2008.

Capital Resources

Shareholders’ equity at ~~June~~September 30, 2009, totaled $2120.75 million compared to $22.6 million at December 31, 2008. Tangible book value per share totaled $43.1289 at ~~June~~September 30, 2009, compared to $4.26 as of December 31, 2008 and $6.4438 at ~~June~~September 30, 2008.

Regulatory capital adequacy requirements, ~~based~~state ~~on risk-adjusted assets, require~~ that the Bank must maintain minimum ratios to be categorized as “well capitalized” or “adequately capitalized.” The Company is not subject to similar regulatory capital requirements because its consolidated assets do not exceed $500 million, the minimum asset size criteria for bank holding companies subject to those requirements. The Bank’s actual consolidated capital ratios and the required ratios for a “well capitalized” and “adequately capitalized” bank are as follows:

	Required Ratios				Actual Ratios
	Well		Adequately
	Capitalized		Capitalized		June 30, 2009		December 31, 2008
Tier 1 Leverage Capital (to Average Assets)	5.00	%	4.00	%	5.25	%	5.39	%
Tier 1 Capital (to Risk Weighted Assets)	6.00	%	4.00	%	5.93	%	6.17	%
Total Capital (to Risk Weighted Assets)	10.00	%	8.00	%	8.49	%	8.73	%

The Bank has implemented a number of initiatives to improve its operating results and increase its capital ratios from “adequately capitalized” back to the “well capitalized” level. These initiatives include strategies to reduce the total assets of the Bank. Furthermore, as previously noted, the Bank entered an Agreement with FB Bancorp and First Business Bank which is intended to improve capital levels for the combined entity, see Note 8 — Subsequent Events above.

The primary source of our funds from which the Company services its debt and pays its obligations and dividends is through the receipt of dividends from the Bank. Based on the financial condition of the Bank, various statutes and regulations have limited the availability of dividends to the Company from the Bank. In this regard, the Bank has agreed with the DFI and the FRB to seek their approval before paying dividends to the Company. As a result, if the Bank continues to be unable to pay dividends to the Company, the Company may not be able to service its debt, pay its obligations or pay dividends on its outstanding equity securities. The Bank’s continued inability to pay dividends to the Company has and will continue to adversely affect business operations, financial condition, results of operations and prospects.

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holding companies subject to those requirements. The Bank’s actual consolidated capital ratios and the required ratios for a “well capitalized” and “adequately capitalized” bank are as follows:

	Required Ratios				Actual Ratios
	Well		Adequately
	Capitalized		Capitalized		September 30, 2009		December 31, 2008

Tier 1 Leverage Capital (to Average Assets)	5.00	%	4.00	%	5.07	%	5.39	%
Tier 1 Capital (to Risk Weighted Assets)	6.00	%	4.00	%	5.74	%	6.17	%
Total Capital (to Risk Weighted Assets)	10.00	%	8.00	%	8.37	%	8.73	%

Investments

The main objective of the Company’s investment portfolio is to provide secondary ~~adequate~~ liquidity sources to meet fluctuations in loan demand and deposit structure. The investment portfolio is also used to meet pledging requirements of public or other depositors, minimize tax liability, accomplish strategic goals and assist various local public entities with their financing needs. The Company actively manages its investment portfolio and coordinates borrowings with the goal of achieving a positive, stable net interest spread.

The Company’s investment portfolio consisted of $18.14 million in available for sale securities as of ~~June~~September 30, 2009, a decrease of $~~17.~~8 .0 million since ~~June~~September 30, 2008 and a decrease of $76.07 million since December 31, 2008. During the first ~~quarter~~nine months of 2009, $1.2.7 million of the Company’s corporate bonds were sold ~~and~~ ~~$2.0 million matured. An additional $1.5 million in corporate bonds were sold~~ and $13.0 million matured ~~during the second quarter of 2009~~. See also Note 4 — Investment Securities above.

Loan Portfolio

Total loans ~~increased~~ decreased by $71.65 million from $351.9 million at December 31, 2008 to $~~359~~350.54 million at ~~June~~September 30, 2009. Residential and commercial real estate ~~loans,~~ ~~commercial~~ loans, consumer loans and SBA loans increased by approximately $~~4.4 million, $~~2.7 8 million, $21.0 million and $1.9 million, respectively. Construction and land loans ~~decreased~~and ~~$3.4~~commercial ~~million. Total~~ loans decreased ~~4.5%~~by ~~when compared to~~ $~~376~~6.50 million ~~at the end of the same quarter of 2008. At June 30, 2009 the portfolio consisted of approximately: 42% residential~~ and ~~commercial real estate, 30% construction and land, 20% commercial loans, 5% consumer loans and 3% SBA type loans~~$1.2 ~~The Bank does not engage in traditional long-term mortgage lending~~million, ~~and consequently, has no~~ ~~sub-prime mortgages in its loan portfolio~~respectively.

Total loans decreased 4.0% when compared to $365.7 million at the end of the same quarter of 2008. At September 30, 2009 the portfolio consisted of approximately: 43% residential and commercial real estate, 30% construction and land, 19% commercial loans, 5% consumer loans and 3% SBA type loans. The Bank does not engage in traditional long-term mortgage lending, and consequently, has no sub-prime mortgages in its loan portfolio.

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Loan Quality and the Allowance for Loan Losses

Trends in Certain Loan Quality Categories

The following information is provided to show relevant trends related to various components of our loan portfolio since December 31, 2008.

Nonperforming Loans — Nonperforming loans decreased from $12.3 million at December 31, 2008, to $49.54 million at ~~March~~June 3130, 2009 and then increased to $918.45 million at ~~June~~September 30, 2009. The year to date net ~~decrease~~increase of $26.92 million is primarily the result of the following:

· During the first quarter, three loans were paid off, including two construction loans and one land loan, totaling approximately $4.6 million.

· During the first quarter, we foreclosed on four properties reducing nonaccrual loans by approximately $3.4 million. These properties included three land loans and one commercial real estate loan.

· During the second quarter, a total of $738,400 in reductions in nonaccrual loans occurred including a $314,000 land loan payoff, a $350,000 construction loan pay down and two commercial loan charge offs totaling $74,400.

· During the second quarter, a total of $3.8 million in increases in nonaccrual loans occurred. Five loans were added to nonaccrual status including two land loans totaling $3.4 million, two commercial loans totaling $193,300 and one commercial real estate term loan for $210,000.

· ~~Between March 31,~~During ~~2009~~the ~~and~~third ~~June 30~~quarter, ~~2009 loans 90 days past due but still accruing, which are considered nonperforming loans, increased~~ $1.93 million. ~~At March 31,~~in ~~2009~~reductions ~~there~~in ~~were~~nonaccrual ~~two~~ loans; aoccurred ~~commercial~~including ~~loan for~~ $49555,000 ~~which~~in ~~has~~payoffs ~~paid~~for ~~current~~one inreal ~~June~~ estate loan and atwo commercial ~~line~~loans, ofa ~~credit for~~ $~~750~~257,000 ~~which~~commercial ~~received~~loan ~~a pay~~was ~~down~~charged ofoff ~~$350,000 in May~~ and ~~the~~there ~~remaining~~were $~~400~~463,000 isin ~~performing~~partial ascharge ~~of June 30, 2009~~offs. ~~At June 30, 2009, there are two commercial loans greater than 90 days past due but still accruing for the same borrower totaling $2.7 million.~~

21· During the third quarter, $11.6 million in increases in nonaccrual loans occurred. Six loans were added to nonaccrual status including a construction loan for $7.7 million, two land loans for $1.9 million, one real estate loan for $1.7 million and two commercial loans for $283,000.

~~Table~~· Between June 30, 2009 and September 30, 2009 loans 90 days past due but still accruing, which are considered nonperforming loans, decreased $961,000. At June 30, 2009, there were two commercial loans greater than 90 days past due but still accruing for the same borrower totaling $2.7 million. Both of ~~Contents~~these loans were subsequently paid current. As of September 30, 2009, one land loan totaling $1.8 million was 90 days past due but still accruing.

Special Mention Loans - Loans internally graded and categorized as special mention increased from $32.9 million at December 31, 2008, to $4839.~~9 million~~0 at ~~March~~June 3130, 2009 and then decreased to $3924.03 atmillion ~~June~~as of September 30, 2009. The year to date net ~~increase~~decrease of $68.16 million is primarily the result of ~~the~~ the following:

· During the first quarter, one construction loan totaling $5.2 million was upgraded from substandard due to resolution of lien issues and virtual completion of the project.

· During the first quarter, six special mention loans totaling $10.6 million were downgraded to substandard, including three land and construction loans, one real estate secured term loans and two commercial loans — one guaranteed by the SBA.

· During February and March, nine additional loans totaling $20.5 million were internally downgraded to special mention. These loans included five construction loans and four commercial loans — one guaranteed by the SBA.

· During the second quarter, a total of $15.0 million in reductions of special mention loans occurred including $3.7 million in payoffs or pay downs (three commercial loans and one construction loans), $9.3 million in downgrades to substandard (two construction loans and one commercial loan) and $2.0 million in internal upgrades for one commercial loan and one construction loan.

· During the second quarter, $4.4 million in increases to special mention loans occurred from internal upgrades for four commercial loans and two construction loans.

~~Substandard~~· During ~~Loans~~the -third ~~Total loans~~quarter, ina ~~this~~total ~~category~~of ~~decreased from~~ $2232.7 5 million atin ~~the~~reductions ~~end~~ of ~~the~~special ~~fourth quarter~~mention ofloans ~~2008~~occurred toincluding $1917.35 million in atdowngrades ~~March 31,~~to ~~2009~~substandard ~~and~~(two ~~then~~construction ~~increased~~loans, ~~to $25.5~~two ~~million~~land ~~at June 30~~loans, ~~2009. The~~one ~~year~~commercial toloan ~~date~~and ~~net~~one ~~increase~~real ofestate loan), $214.7 million in ~~this~~internal ~~category~~upgrades (two ~~was~~construction ~~concentrated~~loans, astwo real estate loans and one commercial loan) and ~~follows:~~$275,000 in payoffs (one real estate loan).

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· During the third quarter, $18.0 million in increases to special mention loans occurred including $16.8 million in internal downgrades (two real estate loans and two construction loans), $1.2 million in internal upgrades (one commercial loan).

Substandard Loans - Total loans in this category increased from $22.7 million at the end of the fourth quarter of 2008 to $25.5 million at June 30, 2009 and then to $36.0 million at September 30, 2009. The year to date net increase of $13.3 million in this category was concentrated as follows:

· Approximately $7.8 million and $457,400 of the payoffs, charge offs and foreclosures in nonperforming loans outlined above reduced substandard loans for the first and second quarters, respectively.

· During the first quarter, one construction loan totaling $5.2 million was upgraded to special mention due to resolution of lien issues and virtual completion of the project.

· During the first quarter, six special mention loans totaling $10.6 million were downgraded to substandard, including three land and construction loans, one real estate secured term loan and two commercial loans — one guaranteed by the SBA.

· During the second quarter, a total of $3.5 million in reductions of substandard loans occurred, including $412,000 for three commercial loans that were charged off, $2.7 million in loans upgraded (two commercial and one real estate) and $315,000 for a land loan pay off.

· During the second quarter, a total of $9.7 million in increases in substandard loans occurred including $9.3 million for loans that were downgraded from special mention status (two construction loans and one commercial loan) and $434,000 for four commercial loans that were downgraded.

· During the third quarter, a total of $6.5 million in reductions of substandard loans occurred, including $5.2 million in internal upgrades (one construction loan and one commercial loan), $555,000 in payoffs (two commercial and one real estate loan), $463,000 in partial charge offs and $270,000 in charge offs (two commercial loans).

· During the third quarter, a total of $17.5 million in increases to the substandard loan category occurred, including $17.4 million in internal downgrades (two construction loans, two land loans, one commercial loan and one real estate loan).

Nonperforming assets

The Company’s nonperforming assets consist of loans which have (i) been placed on nonaccrual status, (ii) been subject to troubled debt restructurings, or (iii) become contractually past due 90 days or more with respect to principal or interest and have not been restructured or otherwise placed on nonaccrual status. Generally, loans are placed in nonaccrual status when they are past due 90 days or more and management has determined that they may not be fully collectible as to principal and interest. Nonperforming loans may be internally graded and categorized as either special mention or substandard.

Nonperforming assets were $1221.71 million, or 35.0335% of total assets, at ~~June~~September 30, 2009, compared with $14.9 million, or 3.54% of total assets, at December 31, 2008 and $1113.68 million, or 23.5710% of total assets at ~~June~~September 30, 2008. ~~The~~ The Company’s nonperforming assets as of ~~June~~September 30, 2009 consisted of $918.4 5 million in nonperforming loans and $32.46 million in other real estate owned. Nonaccrual loans, as well as other potential problem loans, are subject to continuing management attention and are considered in the determination of the allowance for loan losses.

22Nonperforming assets at the end of September 2009 include loan balances of approximately $612,246 with an SBA guaranty amount of $459,184. Other nonperforming loans at the end of September 2009 included six construction and land loans, two real estate loans and two single family residence loans totaling approximately $12.7 million, $2.4 million and $988,000, respectively. The Company also had one land loan totaling $1.8 million that was considered nonperforming because it was past due more than 90 days at September 30, 2009. All nonperforming loans are independently evaluated in connection with assessing the adequacy of the allowance for loan losses. Below is a summary of nonperforming assets at September 30, 2009 and December 31, 2008.

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Nonperforming assets at the end of June 2009 include loan balances of approximately $628,332 with an SBA guaranty amount of $483,125. Other nonperforming loans at the end of June 2009 included three construction loans, two land loans and two single family residence loans totaling approximately $2.4 million, $3.3 million and $287,000, respectively. The Company also had two commercial loans totaling $2.7 million that were considered nonperforming because they were past due more than 90 days at June 30, 2009. Subsequent to June 30, 2009, these two past due loans were paid current and renewed. All nonperforming loans are independently evaluated in connection with assessing the adequacy of the allowance for loan losses. Below is a summary of nonperforming assets at June 30, 2009 and December 31, 2008.

	September 30, 2009			December 31, 2008
	(in thousands)
Loans 90 Days Past Due and Still Accruing	$	1,761		$	—
Loans on Nonaccrual	16,724			12,264
Total Nonperforming Loans	18,485			12,264
Non-Accrual Debt Securities	—			1,260
Other Real Estate Owned	2,572			1,390
Total Nonperforming Assets	$	21,057		$	14,914

Loans 90 Days Past Due as a Percentage of Total Loans	0.50		%	0.00		%
Nonaccrual Loans as Percentage of Total Loans	4.77		%	3.49		%
Nonperforming Loans as a Percent of Total Loans	5.28		%	3.49		%

Allowance for Loan Losses as a Percent of Nonperforming Loans	34.03		%	33.92		%
Nonperforming Assets as a Percent of Total Assets	5.35		%	3.54		%

	June 30, 2009			December 31, 2008
	(in thousands)
Loans 90 Days Past Due and Still Accruing	$	2,722		$	—
Loans on Nonaccrual	6,630			12,264
Total Nonperforming Loans	9,352			12,264
Non-Accrual Debt Securities	—			1,260
Other Real Estate Owned	3,390			1,390
Total Nonperforming Assets	$	12,742		$	14,914
Loans 90 Days Past Due as a Percentage of Total Loans	0.76		%	0.00		%
Nonaccrual Loans as Percentage of Total Loans	1.84		%	3.49		%
Nonperforming Loans as a Percent of Total Loans	2.60		%	3.49		%
Allowance for Loan Losses as a Percent of Nonperforming Loans	58.96		%	33.92		%
Nonperforming Assets as a Percent of Total Assets	3.03		%	3.54		%

Other Potential Problem Loans

At ~~June~~September 30, 2009, in in addition to loans disclosed above as nonperforming, management identified ~~two~~ two potential problem loans totaling approximately $18.94 million., ~~Estimated~~which are currently being evaluated for collateral values and operating cash flows. Estimated potential problem loans as of ~~March~~June 3130, 2009 and December 31, ~~2008~~ 2008 totaled approximately $31.69 million and $1.0 million, respectively. Loans ~~are~~ are considered potential problem loans when the borrower’s ability to comply ~~with~~ with the present loan payment terms in the future is questionable. The inability of of the borrower to comply with repayment terms was not sufficiently probable to place these loans on nonaccrual status at ~~June~~September 30, 2009. Although ~~these~~ these loans are currently continuing to accrue interest, no assurance can be ~~given~~ given that they will continue to do so. Estimated possible losses from these potential problem loans have been provided for in determining the allowance for loan losses at ~~June~~September 30, 2009. See additional loan portfolio information in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Allowance for Loan Losses

The Company maintains an allowance for loan losses that is increased by a provision for loan losses charged against operating results. The provision for loan losses is determined by management as the amount to be added to the allowance for probable loan losses after net charge-offs have been deducted to bring the allowance to an adequate level to absorb probable loan losses within the existing portfolio.

A provision for loan losses of $~~120,000~~1.5 million was made in the ~~second quarter~~third quarter of 2009 compared to $~~3.6~~250,000 ~~million~~ in provision for the same period of the ~~prior~~ prior year. Net loan charge-offs were $~~161~~872,~~734~~ 468 during the ~~second~~third quarter of 2009 compared with net charge-offs of $~~199~~161,~~278~~734 ~~and $11.1 million~~ for the ~~first~~previous quarter ~~of 2009 and the fourth quarter of 2008, respectively~~. The total allowance for loan losses was $56.5 3 million, or 1.5380% of total loans, at ~~June~~September 30, 2009, compared to $5.1 million, or 1.44% of total loans at December 31, 2008, and $74.81 million, or 21.0811% of total loans at ~~June~~September 30, 2008.

No assurance can be given that economic conditions, which could adversely affect the Company’s service areas or other circumstances, will not be reflected in increased provisions for loan losses in the future. Management believes that the allowance at ~~June~~September 30, 2009, is adequate to cover potential future losses. AHowever, ~~relatively~~because ~~small~~future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that a substantial increase will not be necessary should the quality of any loans in the portfolio deteriorate. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition and results of operations. The table below summarizes the changes in allowance for loan losses for the periods presented:

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growth in loans, small amount of net charge-offs and minimal changes in classified loans during the first six months of 2009 has allowed less provision expense than required in previous quarters. However, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that a substantial increase will not be necessary should the quality of any loans in the portfolio deteriorate. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition and results of operations. The table below summarizes the changes in allowance for loan losses for the periods presented:

	Three Months						For the Nine Months
	Ended						Ended
	Ended September 30,						Ended September 30,
	2009			2008			2009			2008

Allowance, Beginning of Period	$	5,513,826		$	7,818,471		$	5,058,837		$	4,516,625
Provision for Loan Losses	1,450,000			250,000			2,266,000			3,800,000
Recoveries on Loans Charged Off	155,670			—			675,747			—
Loans Charged Off	(828,861		)	(3,995,842		)	(1,709,949		)	(4,243,996		)
Allowance, End of Period	$	6,290,635		$	4,072,629		$	6,290,635		$	4,072,629

	Three Months						Six Months
	Ended						Ended
	Ended June 30,						Ended June 30,
	2009			2008			2009			2008
Allowance, Beginning of Period	$	5,593,104		$	4,491,626		$	5,058,837		$	4,516,626
Provision for Loan Losses	120,000			3,550,000			816,000			3,550,000
Recoveries on Loans Charged Off	270,076			—			520,076			—
Loans Charged Off	(469,354		)	(223,155		)	(881,088		)	(248,155		)
Allowance, End of Period	$	5,513,826		$	7,818,471		$	5,513,826		$	7,818,471

Deposits

As of ~~June~~September 30, 2009, total deposits have ~~increased~~ decreased approximately $416.50 million to $~~338~~317.3 8 million from $333.8 million at December 31, 2008. This net ~~increase~~decrease in deposits is mostly attributable to a $2528.08 million decrease ~~increase~~ in ~~noninterest-bearing~~ ~~demand~~CDARs deposits and a $312.01 million ~~increase~~decrease in ~~time~~money market deposits offset by ~~decreases~~increases in ~~money~~demand ~~market~~deposit ~~deposits~~accounts and ~~interest bearing~~ NOW accounts of $2023.13 million and ~~$3.3~~approximately ~~million~~$778,500, respectively. The decrease in money market deposits includes a $6.0 million brokered account that was closed when the Bank became adequately capitalized.

Total time deposits include funds that are considered brokered deposits, which totaled $8152.95 million at ~~June~~September 30, 2009 and included approximately $~~26.~~7.4 million in funds associated with customers using the CDARs reciprocal program. See also the Liquidity Management and Cash Flows section above for additional information regarding the Company’s CDARs restrictions. Brokered deposits totaled $84.9 million at December 31, 2008.

Income Statement Review

Net Interest Income/Net Interest Margin

The principal component of the Company’s revenues is net interest income. Net interest income is the difference between the interest earned on loans and investments and the interest paid on deposits and other interest-bearing liabilities. The following table sets forth the components of net interest income, average earning assets and net interest margin:

	Three Months						~~Six~~Nine Months
	Ended June 30,						Ended June 30,
	Ended September 30,						Ended September 30,
	2009			2008			2009			2008
Interest Income	$	5,~~844~~593,~~903~~533		$	6,~~974~~919,~~533~~284		$	1117,~~691~~285,~~640~~173		$	1421,~~193~~112,~~519~~803
Interest Expense	21,~~020~~724,~~283~~261			2,~~504~~640,~~671~~559			45,~~156~~881,~~853~~114			57,~~301~~942,~~780~~339
Net Interest Income	$	3,~~824~~869,~~620~~272		$	4,~~469~~278,~~862~~725		$	711,~~534~~404,~~787~~059		$	813,~~891~~170,~~739~~464
Average Earning Assets	$	~~419~~394,~~479~~831,~~855~~995		$	~~415~~435,~~197~~326,~~030~~915		$	~~413~~407,~~951~~508,~~749~~462		$	~~400~~412,~~333~~083,~~555~~151
Net Interest Margin (1)	3.6689		%	43.3290		%	3.6774		%	4.4526		%

(1) Interim periods are presented on an annualized basis.

The Company experienced decreases in net interest income of approximately 1410% and 1513%, respectively, for the three month and ~~six~~nine month periods ended ~~June~~September 30, 2009, compared to the same periods of the previous year. Average earning assets ~~increased~~ decreased approximately 19% and 31% between the three and ~~six~~nine month periods ended ~~June~~ September 30, 2009, respectively, compared to the same periods of 2008.

24The net interest margin was 3.90% for third quarter of 2008, compared to 3.89% for the third quarter of 2009. For the nine month periods ended September 30, 2008 and September 30, 2009, net interest margin was 4.26% and 3.74%, respectively. The decline in net interest margin for the nine month periods is due to the cost of interest-bearing liabilities falling slower than the decrease in yields on earning assets. Between these two nine

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~~The net interest margin was 4.32% for second quarter of 2008, compared to 3.66% for the second quarter of 2009. Similarly, the net interest margin for the six~~ month ~~period ended June 30~~periods, ~~2009 was 3.67% compared to 4.45% for~~ the ~~same period of the prior year. The~~ cost of interest-bearing deposits decreased 9288 basis points to 2.5139% compared to 3.4327% in 2008. However, yield on loans declined more rapidly, decreasing ~~122~~105 basis points to 6.2010% for the ~~six~~nine months of 2009, compared to 7.4215% for the same period of 2008. The quarterly net interest margin shows improvement primarily as a result of the Bank’s continued ability to reduce its liability costs.

The ~~decline~~Company’s in net interest margin ~~from~~tends ~~the~~to ~~same~~expand ~~periods~~in ofa ~~the~~rising ~~prior~~interest rate ~~year~~environment ~~can~~and bedecline ~~attributed~~in a falling interest rate environment. The majority of earning assets are tied to market rates, such as the prime rate, ~~many~~and ~~factors~~therefore ~~including~~rates aon ~~decrease~~our earning assets generally reprice along with a movement in ~~loan~~market ~~yields~~rates while interest bearing liabilities, mainly deposits, typically reprice more slowly and ~~the~~usually ~~cumulative~~incorporate ~~effects~~only a portion of the ~~changes~~movement in ~~monetary~~market ~~policy~~rates. ~~Since~~This ~~the~~asset ~~Bank~~sensitivity iscauses ~~asset~~the ~~sensitive,~~Bank’s ~~its~~ yields on assets to reprice faster than its cost of funds which causes improvements in ~~the~~ the net interest margin to materialize more slowly. The decline in net interest margin from the same periods of the prior year can be attributed to many factors including a decrease in loan yields and the cumulative effects of changes in monetary policy. As of ~~June~~September 30, 2009, the target Federal Funds rate was 0.25% compared to 2.00% at ~~June~~September 30, 2008. This 175 basis point drop during a one year period continues to put pressure on the Company’s net interest margin.

On a sequential quarter basis, net interest margin ~~decreased~~increased ~~slightly~~ from 3.6866% at ~~March~~June 3130, 2009 to 3.6689% at ~~June~~September 30, 2009. Between the two periods, the Company’s yield on loans decreased from 6.2713% to 65.1391%, or 14 22 basis points,. ~~and~~Due to a runoff in higher cost deposits, the cost of interest bearing deposits decreased from 2.5745% to 2.4515%, or 1230 basis points, between the second and third quarter of 2009, partially explaining the ~~slight~~increase ~~margin~~in ~~decrease~~net interest margin.

Interest rate sensitivity is closely monitored and managed; however, management anticipates continued volatility in the Company’s net interest margin due to changes in earning asset mix, the level of non-earning assets, including nonaccrual loans and OREO, changes in cost of funds, and changes in the level of interest rates, the direction of interest rates as determined by rate policies of the Federal Reserve Board and the possibility of losing the ability to participate in the CDARs program due to the Company’s current designation as an adequately capitalized institution.

Noninterest Income

Noninterest income represents deposit account service charges, fees from the sale or brokering of loans, gains on sales of securities and other types of fee income.

For the quarter ended ~~June~~September 30, 2009, the Company realized $~~217~~524,~~605~~ 754 in noninterest income compared to $~~326~~431,~~853~~757 for the quarter ended ~~June~~September 30, 2008, aan ~~decrease~~increase of $~~109~~92,~~248~~997. ~~This~~The ~~decrease~~income ~~can~~for ~~mostly~~these betwo ~~attributed~~periods toincludes ~~a gain~~two onextraordinary ~~sale~~items; of1) ~~securities~~the third quarter of 2008 includes $24152,~~995,~~000 related to a non-recurring gain on ~~sale~~early ofprepayment ~~loans~~ of $4720.0 million in FHLB advances,~~987~~ and ~~brokered~~ ~~fee~~2) ~~income~~the third quarter of 2009 includes $12284,~~963~~632 ~~all~~in ofrecoveries ~~which~~on prior ~~were~~expenses. ~~realized~~If ~~during~~these ~~the~~two ~~second~~non-recurring items are deducted from total ~~quarter~~noninterest ofincome ~~2008.~~for Inthese ~~addition~~two periods, ~~service~~the ~~and~~difference ~~transaction~~is ~~charges~~a ondecrease ~~deposits~~of ~~decreased~~$39,635. ~~between~~This ~~these~~decrease can ~~same~~partially ~~periods~~be ~~due~~attributed to ~~the~~a significant reduction in total deposits between the two periods curtailing the analysis and NSF fees by $51,427 offset by a gain on sale of OREO of approximately $28,450.

For the ~~six~~nine months ended ~~June~~September 30, 2009, the Company realized $~~687~~1,~~378~~212,132 in noninterest income compared to $~~558~~990,~~442~~198 for the ~~six~~nine months ended ~~June~~ September 30, 2008, an increase of $~~128~~221,~~936~~934. ~~The~~However, ~~Company~~the ~~realized~~variance ~~an increase in gain on sale~~between ofthese ~~securities~~two ofperiods ~~$203,755~~includes ~~partially~~non-recurring ~~due~~items toincluding a gain on the sale of a debt obligation in Washington Mutual, Inc. for $228,750 ~~realized~~ during the first quarter of 2009 and $284,632 in recoveries on prior expenses during the third quarter of 2009. ~~This~~These ~~increase~~non-recurring increases in noninterest income ~~was~~were offset by ~~decreases~~ an increase of $152,000 in ~~gain~~the onthird ~~sale~~quarter of ~~loans~~2008 for a gain on early prepayment of $~~47,987,~~20.0 ~~brokered~~million ~~fee~~in FHLB advances. If these items are deducted from total noninterest income offor ~~$12~~the two periods,~~963~~ the difference ~~and~~between ~~decreases~~these intwo ~~service~~nine ~~and~~periods ~~transaction~~is ~~charges~~a decrease of $16139,~~676~~448 aswhich ~~the~~can ~~Bank’s~~partially be attributed to a $82,007 decrease in analysis fees due to a significant reduction in total deposits ~~declined~~and a $47,017 decrease in gains on sale of loans.

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Noninterest Expense

Noninterest expense represents salaries and benefits costs, occupancy and equipment expenses, professional expenses, outside services and other miscellaneous expenses necessary to conduct business.

Three month analysis

Total noninterest expenses were $4,~~777~~805,~~220~~221 for the ~~second~~third quarter of 2009, an increase of $~~636~~339,~~906~~570, or 158%, compared to the ~~second~~third quarter of the prior year. Below is a summary of significant operating expense variances between these two periods.

Increases in other operating expenses:

· $~~447~~617,~~240~~ 752 in ~~FDIC~~losses ~~insurance~~on ~~assessment~~valuation ~~charges related to a general increase in the level~~ of ~~FDIC assessments and includes a $208,000 special assessment~~OREO;

· $~~430~~289,~~000~~ 356 in ~~loss~~acquisition onrelated ~~sale of two OREO properties~~expenses;

· $~~129~~182,~~999~~ 346 in ~~professional~~FDIC ~~fees~~insurance ~~associated~~assessment ~~with~~charges related ~~loan~~to ~~collection~~a ~~and~~general ~~OREO~~increase ~~carrying~~in ~~costs~~the level of FDIC insurance;

· $5863,~~316~~ 387 in ~~data~~professional ~~processing~~fees ~~expenses~~associated ~~primarily~~with loan ~~related~~collection toand anOREO ~~increase~~costs ~~in activity based processing charges~~incurred;

· $3746,~~585~~ 144 in provision for unused commitments;

· $3525,~~748~~ 886 in ~~amortization~~data ~~expense~~processing ~~for~~expenses ~~core~~primarily related ~~deposit~~to ~~intangible~~an increase in activity based processing charges;

· $2317,~~632~~ 346 in ~~net~~amortization ~~losses~~expense onfor ~~sale~~core deposit ~~of loans, securities and fixed assets~~intangible.

Decreases in certain other operating expense due to concerted efforts to reduce controllable costs:

· $~~367~~500,~~731 for~~000 ~~salary~~decrease ~~and~~for ~~benefits~~an OTTI ~~expenses~~charge ~~including~~recorded ~~$279,000~~ in ~~severance related charges in June~~September 2008 ~~and also reduced full-time equivalent employees (“FTEs”) and reductions in commissions and incentives~~;

· $85152,~~352~~422 for salary and benefits expenses mainly due to a reductions in ~~marketing~~full-time ~~expenses~~equivalent employees (“FTEs”), commissions and incentives;

· $23111,~~010~~607 in professional fees including reductions in ~~training~~legal expenses and ~~human~~operations ~~resources~~and ~~related~~compliance review costs;

· $1863,~~778~~ 822 in ~~board~~marketing ~~fees and~~ expenses;

· $1641,~~256 for~~857 ~~stationery~~in premises, occupancy and ~~supplies~~equipment expenses;

· $1531,~~208~~ 965 in ~~premises~~training and ~~occupancy~~human ~~costs~~resources related.

~~Six~~Nine month analysis

Total noninterest expenses were $913,~~009~~814,~~751~~972 for the first ~~six~~nine months of 2009, an increase of $~~983~~1,~~687~~323,257, or 1211%, compared to the first ~~six~~nine months of the prior year. Below is a summary of significant operating expense variances between these two periods.

Increases in other operating expenses:

· $~~538~~721,~~514~~ 258 in FDIC insurance assessment charges related to a general increase in the level of FDIC ~~assessments~~insurance ~~and~~costs ~~includes~~plus ~~a $208,000~~ special ~~assessment~~ assessments;

· $~~441~~447,~~753~~ 837 in ~~loss~~professional onfees ~~sale~~associated ofwith loan ~~four~~collection and OREO ~~properties~~carrying costs;

· $~~390~~1,~~545~~ 059,505 in ~~professional~~losses ~~fees~~on ~~associated~~valuation ~~with~~of ~~loan collection and~~ OREO ~~carrying costs~~;

· $289,356 in acquisition related expenses;

· $165,000 for a one-time sublease loss;

· $93119,~~452~~ 338 in data processing expenses primarily related to CDARs account opening charges and an increase in activity based processing charges;

· $7188,~~498~~ 844 in amortization expense for core deposit intangible;

· $3783,~~585~~ 729 in provision for unused commitments;

· $23,~~632~~ 413 in net losses on sale of loans, securities and fixed assets.

Decreases in certain other operating expense due to concerted efforts to reduce controllable costs:

· $~~530~~683,~~871~~ 294 for salary and benefits expenses including $279,000 in severance related charges in June 2008 and also reduced FTEs and reductions in commissions and incentives;

· $~~135~~500,~~737 in~~000 ~~marketing~~decrease ~~expenses~~for an OTTI charge recorded in September 2008;

· $47199,~~859 for~~559 ~~stationery~~in ~~and~~marketing ~~supplies~~expenses;

· $3994,~~866~~ 060 in ~~board~~legal ~~fees~~ and ~~expenses~~other professional fees;

~~· $22,417 in training and human resources related.~~27

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· $54,382 in training and human resources related;

· $44,636 in premises, occupancy and equipment expenses;

· $44,634 in board fees and expenses;

· $32,152 for postage, stationery and supplies.

Income Taxes

For the three months ended ~~June~~September 30, 2009, the Company recorded no income tax benefit or expense compared to the income tax benefit of $114,~~187,600~~700 for the same period of the prior year. For the ~~six~~nine months ended ~~June~~September 30, 2009, the Company’s income tax benefit was $319,700 compared to income tax benefit of $~~867~~881,~~100~~800 for the same period of the prior year. As a result of the quarterly pre-tax ~~loss~~losses in the second and third quarter of 2009, the Company increased the deferred tax asset valuation allowance by the amount of the deferred tax benefit that accrued; the Company decided not to increase its net deferred tax asset further while it was recognizing pre-tax losses.

Contractual Obligations

Our significant contractual obligations and significant commitments at December 31, ~~2008~~ 2008 are included in our Annual Report on Form 10-K for the year ended December 31, 2008. Management believes that the Company’s present facilities are in good physical condition and are adequately covered by insurance. Certain of the leases contain options to extend the term of the lease. The Company is confident that, if necessary, it would be able to secure suitable alternative space on similar terms without having a substantial effect on operations. The Company secured a tenant for sublease at its Solana Beach branch office for $4,500 per month. The sublease began May 1, 2009 and will end August 31, 2011. A portion of the La Jolla branch office is also being evaluated for sublease.

The Company secured a tenant for sublease at its Solana Beach branch office for $4,500 per month. The sublease began May 1, 2009 and will end August 31, 2011. A portion of the La Jolla branch office is also being evaluated for sublease.

Off Balance Sheet Arrangements

The Company, in its ordinary course of business, has commitments to disburse loan proceeds both under revolving and non-revolving arrangements. As of ~~June~~September 30, 2009, the total of these commitments approximated $8070.0 2 million compared to $112.1 million as of December 31, 2008 and $~~119~~118.8 6 million as of ~~June~~September 30, 2008. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. For discussion about the Company’s borrowing facilities see Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity ~~Management~~ Management and Cash Flows section above.

ITEM 3 — Quantitative and Qualitative Disclosures about Market Risk

Market risk at the Company is primarily derived from the exposure to interest rate risk. Other types of market risk, such as foreign currency exchange risk, commodity price risk and equity price risk, are not significant in the normal course of the Company’s operations.

Additional information regarding the Company’s market risk may be found in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no material changes in the Company’s market risk exposure during the first ~~six~~nine months of 2009.

ITEM 4T - Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer, the Company has evaluated the effectiveness of its disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act for the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s principal executive officer and principal financial officer have concluded that these controls and procedures are effective in all material respects, including those to ensure that information required to be disclosed in reports filed or submitted under the ~~Exchange~~ Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

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Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Exchange Act, as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company,

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1 — Legal Proceedings

The Company is not a party to any material, pending legal proceedings, other than ordinary, routine litigation incidental to its business. However, the Company has been informed by the DFI that the DFI may issue the Bank an order under California Financial Code Section 1913. The Bank will have the option of either consenting to the issuance of the order or the DFI may commence a proceeding under California Financial Code Section 1912 to impose the order on the Bank. If issued, the violation of any provision of the order would be deemed to be the conducting of business by the Bank in an unsafe manner, and would subject the Bank to further regulatory enforcement action. Also, the FRB has requested that the Company enter into an agreement with the FRB to address the capital needs of the Company as well as other risk management and operational matters. The agreement with the FRB, if entered into, would be enforceable under Section 8 of the Federal Deposit Insurance Act, as amended.

Item 1A — Risk Factors

In addition to the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2008, filed on March 31, 2009, as amended and filed on April 29, 2009, the Company has the following additional risk factors.

WeThere ~~may~~are ~~be unable~~potential torisks ~~consummate~~associated ~~our~~with the termination of the proposed merger agreement with First Business Bank and FB Bancorp.

Our proposed merger with First Business Bank and FB Bancorp, ~~described~~was terminated inon ~~more detail above~~October 28, is ~~anticipated to close in the fourth quarter of~~ 2009 ~~but must be approved by both our and their shareholders before it can be finalized~~. ~~Consummation~~Since ~~of this~~the merger iswill ~~also~~not ~~subject~~be ~~to the receipt of required regulatory approvals and~~consummated, ~~the~~there ~~satisfaction of other customary closing conditions. If the merger~~ is ~~not completed~~a ~~for~~risk ~~any~~that ~~reason,~~ our stock price may decline because certain costs ~~related~~ related to the proposed merger, such as legal, accounting and a portion of financial advisory fees, must be paid even ifthough the merger iswill not be completed. In addition, if now that the merger ishas ~~not~~been ~~completed~~terminated, our stock price may decline to the extent that the current market price reflects the assumption by investors that the merger will be completed.

~~Uncertainty~~Since the merger has been terminated, there may be uncertainty regarding the ~~merger~~Company’s viability which may result in the loss of the employees and customers ~~prior to the completion of the merger~~.

Our employees may experience uncertainty about ~~their~~the future viability of the Company, and their role ~~with~~going ~~the~~forward, ~~combined~~since ~~bank~~the ~~after~~termination of the ~~proposed~~ merger agreement. This may adversely affect our ability to retain and attract ~~key~~ key management and other personnel. Similarly, uncertainty ~~regarding the merger~~ may cause our customers to withdraw their business ~~prior to the completion of the merger~~. Any loss of customers could have a material adverse affect on our ~~business,~~ ~~regardless of whether or not the merger is ultimately completed. There can be no assurance that our customers will continue their~~ business ~~without regard to the proposed merger~~.

Recent changes in our senior management may cause uncertainty in, or be disruptive to, our business.

We have recently experienced changes in our senior management and our board of directors. On October 14, 2009, Mr. Richard H. Revier, our Executive Vice President and Chief Credit Officer, informed us of his resignation. On October 24, 2009, James G. Knight, MD, resigned from our board of directors. These changes in our senior management may be disruptive to our business, and, during the transition period, there may be uncertainty among investors, vendors, employees and others concerning our future direction and performance.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

There are no matters reportable under this item.

Item 3 — Defaults Upon Senior Securities

There are no matters reportable under this item.

Item 4 — Submission of Matters to a Vote of Security Holders

There are no matters reportable under this item.

Item 5 — Other Information

(a) There are no matters reportable under this item.

(b) There are no matters reportable under this item.

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Item 6 — Exhibits

Those exhibits marked with a (*) refer to exhibits filed herewith. The other exhibits are incorporated herein by reference, as indicated in the following list.

Exhibit No.		Description	Page
2.1		Agreement and Plan of Reorganization and Merger by and between 1st Pacific Bancorp, PBC Merger Company and 1st Pacific Bank of California dated as of November 7, 2006, incorporated by reference to Exhibit 2 to 1st Pacific Bancorp’s Registration Statement on Form S-4EF filed on November 9, 2006.
2.2		Agreement and Plan of Merger with FB Bancorp and First Business Bank National Association dated July 16, 2009, incorporated by reference to Exhibit 10.1 to 1st Pacific Bancorp’s ~~report~~Current Report on Form 8-K filed July 17, 2009.
2.3		Termination Agreement, dated October 28, 2009, pursuant to which the parties terminated the Agreement and Plan of Merger dated July 16, 2009, by and among FB Bancorp, First Business Bank, 1st Pacific Bancorp and 1st Pacific Bank of California, incorporated by reference to 1st Pacific Bancorp’s Current Report on Form 8-K filed October 29, 2009.
3.1		Articles of Incorporation of 1st Pacific Bancorp incorporated by reference to Exhibit 3.1 to 1st Pacific Bancorp’s Registration Statement on Form S-4EF filed on November 9, 2006.
3.2		Bylaws of 1st Pacific Bancorp incorporated by reference to Exhibit 3.2 to 1st Pacific Bancorp’s Registration Statement on Form S-4EF filed on November 9, 2006.
4.1		Specimen form of Certificate for 1st Pacific Bancorp Common Stock incorporated by reference to Exhibit 4 to 1st Pacific Bancorp’s Registration Statement on Form S-4EF filed on November 9, 2006.
10.1		Form of Shareholder Agreement dated July 16, 2009, by and between 1st Pacific Bancorp and 1st Pacific Bank of California, on the one hand, and Ernest Auerbach, incorporated by reference to Exhibit 10.2 to 1st Pacific Bancorp’s report on Form 8-K filed July 17, 2009.
4.2		Second Amended and Restated 2000 Stock Option Plan of 1st Pacific Bank of California, as amended by Amendment No. 1, incorporated by reference to Exhibit 4.1 to 1st Pacific Bancorp’s Registration Statement on Form S-8 filed February 21, 2007.
10.2		First Amendment to Shareholder Agreement, dated as of July 16, 2009, by and between 1st Pacific Bancorp and 1st Pacific Bank of California, on the one hand, and Ernest Auerbach, an individual, and Lisa D. Auerbach, an individual, on the other hand incorporated by reference to Exhibit 10.3 to 1st Pacific Bancorp’s Quarterly Report on Form 10-Q filed August 12, 2009.
4.3		1st Pacific Bancorp 2007 Omnibus Stock and Incentive Plan, incorporated by reference to Exhibit 4.3 to 1st Pacific Bancorp’s report on Form 8-K filed April 10, 2007.
10.3		Form of Directors Agreement, each dated July 16, 2009, by and between 1st Pacific Bancorp and 1st Pacific Bank of California on the one hand, and each of the following individuals: (a) Thomas H. Blair, Jr., (b) William V. Ehlen, (c) John Farkash, (d) Lester Machado, (e) John F. McGrath, (f) Nathan L. Rogge, incorporated by reference to Exhibit 10.3 to 1st Pacific Bancorp’s report on Form 8-K filed July 17, 2009.
10.1		Separation and Consulting Agreement and General Release of Claims dated July 3, 2008, between 1st Pacific Bancorp, 1st Pacific Bank of California and A. Vincent Siciliano, incorporated by reference to 1st Pacific Bancorp’s report on Form 8-K filed July 7, 2008.
10.4		Form of Voting Agreement, each dated July 16, 2009, by and between First Business Bank, National Association and each of the following individuals: (a) Ronald J. Carlson, (b) Christopher S. McKellar, (c) James G. Knight, M.D., (d) Susan Lew, (e) Albert Colucci, (f) Albert Logan, (g) Robert Cange, incorporated by reference to Exhibit 10.4 to 1st Pacific Bancorp’s report on Form 8-K filed July 17, 2009.
10.2		Form of Shareholder Agreement dated July 16, 2009, by and between 1st Pacific Bancorp and 1st Pacific Bank of California, on the one hand, and Ernest Auerbach, incorporated by reference to Exhibit 10.2 to 1st Pacific Bancorp’s report on Form 8-K filed July 17, 2009.
10.5		Form of Termination of Employment Agreement dated July 16, 2009, by and between 1st Pacific Bancorp and 1st Pacific Bank of California on the one hand, and each of the following individuals: (a) Richard H. Revier, (b) James H. Burgess, incorporated by reference to Exhibit 10.5 to 1st Pacific Bancorp’s report on Form 8-K filed July 17, 2009.
10.3	*	First Amendment to Shareholder Agreement, dated as of July 16, 2009, by and between 1st Pacific Bancorp and 1st Pacific Bank of California, on the one hand, and Ernest Auerbach, an individual, and Lisa D. Auerbach, an individual, on the other hand.
10.6		Form of Termination of Employment Agreement dated August 31, 2009, by and between 1st Pacific Bancorp and 1st Pacific Bank of California on the one hand, and Larry Prosi, incorporated by reference to Exhibit 10.1 to 1st Pacific Bancorp’s report on Form 8-K filed September 2, 2009.
10.4		Form of Directors Agreement, each dated July 16, 2009, by and between 1st Pacific Bancorp and 1st Pacific Bank of California on the one hand, and each of the following individuals: (a) Thomas H. Blair, Jr., (b) William V. Ehlen, (c) John Farkash, (d) Lester Machado, (e) John F. McGrath, (f) Nathan L. Rogge, incorporated by reference to Exhibit 10.3 to 1st Pacific Bancorp’s report on Form 8-K filed July 17, 2009.
31.1*		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)	33
10.5		Form of Voting Agreement, each dated July 16, 2009, by and between First Business Bank, National Association and each of the following individuals: (a) Ronald J. Carlson, (b) Christopher S. McKellar, (c) James G. Knight, M.D., (d) Susan Lew, (e) Albert Colucci, (f) Albert Logan, (g) Robert Cange, incorporated by reference to Exhibit 10.4 to 1st Pacific Bancorp’s report on Form 8-K filed July 17, 2009.
31.2*		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)	34
10.6		Form of Termination of Employment Agreement dated July 16, 2009, by and between 1st Pacific Bancorp and 1st Pacific Bank of California on the one hand, and each of the following individuals: (a) Richard H. Revier, (b) James H. Burgess, incorporated by reference to Exhibit 10.5 to 1st Pacific Bancorp’s report on Form 8-K filed July 17, 2009.
32.1*		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	35
31.1	*	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
31.2	*	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
32.1	*	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		1st Pacific Bancorp
Date:	~~August~~November 1213, 2009	/s/ Ronald J. Carlson
		Ronald J. Carlson
		President and Chief Executive Officer
Date:	~~August~~November 1213, 2009	/s/ James H. Burgess
		James H. Burgess
		Executive Vice President and
		Chief Financial Officer

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