UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2006

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

For the transition period from to

Commission File No.: 333-126401

FCB BANCORP

(Exact Name of Registrant as Specified in its Charter)


California		20-3074387
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

1100 Paseo Camarillo Camarillo, California		93010
(Address of principal executive offices)		(Zip Code)

(805) 484-0534

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

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

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer þ

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

Common Stock — As of August 8, 2006 there were 3,277,807 shares of the issuer’s common stock outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets at June 30, 2006 and December 31, 2005		3

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005		4

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2006 and 2005		5

Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2006 and 2005		5

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005		6

Notes to Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3. Quantitative and Qualitative Disclosures about Market Risk		33

Item 4. Controls and Procedures		34

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		34

Item 1A. Risk Factors		34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34

Item 3. Defaults Upon Senior Securities		34

Item 4. Submission of Matters to a Vote of Security Holders		34

Item 5. Other Information		34

Item 6. Exhibits		34

SIGNATURES		35

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL INFORMATION

FCB BANCORP and subsidiaries

Consolidated balance sheets


*(in thousands, except share data)*	June 30, 2006			December 31, 2005
Cash and due from banks	$	15,312		$	14,435
Federal funds sold		8,900			306
Securities available-for-sale		65,786			73,419
Loans, net		359,578			338,778
Loans held for sale		11,553			—
Premises and equipment, net		10,332			10,315
Goodwill and other intangibles		16,835			16,951
Federal Home Loan Bank stock		2,542			2,395
Cash surrender value of life insurance		10,321			5,171
Accrued interest receivable and other assets		4,633			5,341

Total assets	$	505,792		$	467,111

Checking	$	114,793		$	112,596
Interest checking		18,316			23,691
Regular savings		19,490			22,129
Money market savings		64,713			57,144
Certificates of deposit, under $100,000		81,030			82,770
Certificates of deposit, $100,000 and over		96,993			74,018

Total deposits		395,335			372,348
Federal Home Loan Bank advances		51,300			36,319
Junior subordinated debentures		10,310			10,310
Accrued interest payable and other liabilities		1,401			2,355

Total liabilities		458,346			421,332

Common stock, no par value, 10,000,000 authorized; shares issued and outstanding: 3,277,807 at June 30, 2006 and December 31, 2005		32,707			32,666
Retained earnings		16,146			14,063
Accumulated other comprehensive loss		(1,407	)		(950	)

Total shareholders’ equity		47,446			45,779

Total liabilities and shareholders’ equity	$	505,792		$	467,111

See accompanying notes.

FCB BANCORP and subsidiaries

Consolidated statements of operations


*(in thousands, except per share data)*	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006			2005
Interest and fees on loans	$	7,282	$	3,323	$	14,151		$	6,325
Taxable interest on securities		572		573		1,171			1,168
Nontaxable interest on securities		103		77		190			148
Interest on federal funds sold		74		40		162			68

Total interest income		8,031		4,013		15,674			7,709

Interest on deposits		2,297		458		4,273			857
Interest on borrowings		486		196		915			391

Total interest expense		2,783		654		5,188			1,248

Net interest income		5,248		3,359		10,487			6,461
Provision for loan losses		—		122		153			244

Net interest income after provision for loan losses		5,248		3,237		10,334			6,217

Service charges on deposit accounts		257		256		510			549
Earnings on cash surrender value of life insurance		112		56		207			111
Commissions on brokered loans		28		—		47			55
Net gain on sales of loans		—		31		33			78
Net servicing fees		13		11		25			21
Net gain (loss) on sales of securities		—		2		(20	)		2
Other income		140		71		252			127

Total noninterest income		550		427		1,054			943

Salaries and employee benefits		2,296		1,490		4,558			3,019
Premises and equipment		616		389		1,259			775
Data processing		210		138		370			273
Legal, audit, and other professional services		247		153		400			261
Printing, stationary, and supplies		82		48		144			94
Telephone		70		36		140			72
Directors’ fees		33		33		66			66
Advertising and marketing		203		123		333			210
Postage		23		11		49			29
Other expenses		344		229		728			416

Total noninterest expense		4,124		2,650		8,047			5,215

Income before provision for income taxes		1,674		1,014		3,341			1,945
Provision for income taxes		601		385		1,257			739

Net income	$	1,073	$	629	$	2,083		$	1,206

Earnings per share
Basic	$	0.33	$	0.29	$	0.64		$	0.56
Diluted	$	0.33	$	0.29	$	0.63		$	0.55

See accompanying notes.

FCB BANCORP and subsidiaries

Consolidated statements of comprehensive income


*(in thousands)*	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Unrealized holding gains (losses) on securities available-for-sale arising during the period	$	(585	)	$	762		$	(795	)	$	(145	)
Reclassification adjustments for (gains) losses included in net income		—			(2	)		20			(2	)

Other comprehensive income (loss), before taxes		(585	)		760			(775	)		(147	)
Income tax (expense) benefit related to items of other comprehensive income		240			(312	)		318			60

Other comprehensive income (loss), net of tax		(345	)		448			(457	)		(87	)
Net income		1,073			629			2,083			1,206

Comprehensive income	$	728		$	1,077		$	1,626		$	1,119

FCB BANCORP and subsidiaries

Consolidated statements of changes in shareholders’ equity


*(in thousands)*	Six Months Ended June 30,
	2006			2005
Common stock
Common stock, beginning of period	$	32,666		$	11,965
Share-based compensation		41			—

Common stock, end of period	$	32,707		$	11,965

Retained earnings
Net income	$	2,083		$	1,206
Retained earnings, beginning of period		14,063			10,839

Retained earnings, end of period	$	16,146		$	12,045

Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss)	$	(457	)	$	(87	)
Accumulated other comprehensive income (loss), beginning of period		(950	)		(259	)

Accumulated other comprehensive income (loss), end of period	$	(1,407	)	$	(346	)

See accompanying notes.

FCB BANCORP and subsidiaries

Consolidated statements of cash flows


*(in thousands)*	Six Months Ended June 30,
	2006			2005
Net income	$	2,083		$	1,206
Adjustments to reconcile net income to net cash from operating activities:
Realized gains on sale of securities and loans		(13	)		(80	)
Net amortization of premiums and discounts on securities available-for-sale		22			201
Federal Home Loan Bank stock dividends		(58	)		(21	)
Provision for loan losses		153			244
Share-based compensation		41			—
Production of loans held for sale		(11,553	)		—
Deferred income taxes		939			(4	)
Depreciation and amortization		384			240
Net appreciation in cash surrender value of life insurance		(207	)		(111	)
Change in accrued interest receivable and other assets		204			508
Change in accrued interest payable and other liabilities		(954	)		81

Net cash (used for) from operating activities		(8,959	)		2,264

Net change in federal funds sold		(8,594	)		340
Proceeds from maturities, calls, and paydowns of securities available-for-sale		7,571			7,786
Proceeds from sales of securities available-for-sale		2,998			(776	)
Purchases of securities available-for-sale		(3,754	)		(3,947	)
Proceeds from sale of Federal Home Loan Bank stock		—			127
Purchases of Federal Home Loan Bank stock		(89	)		—
Net increase in loans		(20,920	)		(16,676	)
Purchases of premises and equipment		(401	)		(525	)
Purchases of life insurance		(4,943	)		—

Net cash used for investing activities		(28,132	)		(13,671	)

Net increase in deposits		22,987			11,278
Net change in FHLB overnight advances		14,981			—
Proceeds from FHLB term advances		10,000			2,090
Payments on FHLB term advances		(10,000	)		—
Share-based compensation		(41	)		—

Net cash from financing activities		37,968			13,368

Change in cash and due from banks	$	877		$	1,961
Cash and due from banks, beginning of period		14,435			7,194

Cash and due from banks, end of period	$	15,312		$	9,155

Supplemental cash flow information:
Cash paid for interest	$	1,960		$	1,028
Cash paid for income taxes	$	1,157		$	708
Supplemental disclosure of noncash investing activities
Change in fair value of securities available-for-sale, net of taxes	$	(457	)	$	(87	)

See accompanying notes.

NOTE 1 – BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION

Organization and nature of operations - FCB Bancorp is a bank holding company arising from a transaction in which the shareholders of First California Bank exchanged their common stock for that of FCB Bancorp on a share-for-share basis on September 30, 2005. As a result of that transaction First California Bank became a wholly-owned subsidiary of FCB Bancorp. FCB Bancorp and First California Bank are related entities; accordingly, the consolidated financial position and results of operations as of and for the year ended December 31, 2005 and all other prior periods have been restated to reflect the combined entities.

The accompanying unaudited consolidated financial statements for FCB Bancorp and subsidiaries include the parent company, FCB Bancorp (“FCB”), and its wholly-owned subsidiaries, First California Bank (“the Bank”), and SC Financial (all collectively referred to as the “Company”). SC Financial is an inactive subsidiary and FCB Statutory Trust I an unconsolidated wholly-owned subsidiary, is special purpose entity formed to issue trust preferred securities and related junior subordinated debentures. First California Bank is a commercial bank doing business primarily in Ventura, Orange and Los Angeles Counties, California.

Consolidation – The consolidated financial statements include, in conformity with generally accepted accounting principles, the accounts of FCB and the Bank and exclude the accounts of FCB Statutory Trust I. All material intercompany transactions and balances of FCB and the Bank have been eliminated.

Basis of presentation – These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 2005. A summary of our significant accounting policies is included in the notes that accompany the audited consolidated financial statements. These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a basis consistent with the accounting policies reflected in the audited consolidated financial statements for the year ended December 31, 2005. They do not, however, include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year as a whole.

Management’s estimates and assumptions – The preparation of the consolidated financial statements, in conformity with generally accepted accounting principles, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets, and revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. Significant estimations made by us primarily involve the calculation of the allowance for loan losses, the carrying amount of goodwill and deferred tax assets or liabilities.

NOTE 2 — STOCK-BASED COMPENSATION

Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004) Share-Based Payments addresses the accounting for transactions in which an entity exchanges its equity instruments for goods and services. We adopted this new standard on January 1, 2006.

SFAS No. 123R eliminated the ability to account for grants under our stock option plans using the intrinsic value-based method. The intrinsic value-based method recognized compensation cost as the difference between the exercise price of each option and the market price of our stock at the date of each grant. The exercise price of each of our stock options was equal to the market price of our stock at each date of grant. Before 2006, no compensation cost was recognized.

On January 1, 2006, using the modified-prospective method in adoption, we began determining compensation costs using the fair-value method as provided for under SFAS No. 123R. The modified-prospective method of adoption requires the recognition of compensation cost using the fair-value method for all new grants after 2005 or for any grants modified, repurchased or cancelled after 2005. For grants prior to 2006, the modified-prospective method of adoption requires the recognition of compensation cost for the portion of grants not yet vested based on the fair-value of the grant as was disclosed in our prior year consolidated financial statements.

We use the Black-Scholes-Merton formula to determine the fair value of our stock options using the following estimates and assumptions. The fair value of the option at the grant date also follows.


	2003 Grant			2004 Grant			2005 Grant			2006 Grant
Expected option term		6.0 years			6.0 years			6.0 years			5.2 years
Expected volatility		Nil			Nil			Nil			5.71	%
Expected dividend yield		0	%		0	%		0	%		0	%
Risk-free interest rate		2.87	%		3.95	%		4.50	%		4.59	%
Stock option fair value	$	1.77		$	4.24		$	4.92		$	4.49

Our only stock option plan began in 2003 and we consider our options to be “plain vanilla”. None of our options have vested. We used the “simplified” method to determine the expected term of the 2006 stock option grant which is the average of the sum of the contractual period and the average vesting period. We looked to our 5-year historical volatility for our expected volatility because we believe that our historical period reflects our business strategy of de novo branch expansion and acquisition and we do not anticipate at this time that our strategy or business model will differ in the future. We used the “minimum value method” for options granted before 2006. We have not paid dividends for the past several years and our business strategy does not anticipate that we will do so in the future. The risk-free rate for the contractual term of the options was based on the prevailing U.S. treasury strip rate in effect at the date of grant.

Our shareholder approved stock option plan permits the grant of up to 200,000 shares of common stock to directors, officers and key employers of FCB or the Bank. Option awards are granted with an exercise price equal to the market price of our stock at the grant date. Option awards vest based on 3 to 5 years of continuous service and have contractual terms from 6 to 8 years.

A summary of our option activity, of which have vested for the six months ended June 30, 2006, follows:


Options	Shares		Weighted average exercise price
Balance, beginning of year	119,500		$	17.64
Issued	40,600		$	21.00
Exercised	—			—
Cancelled, forfeited, expired	(3,400	)	$	20.81

Balance, end of period	156,700		$	18.51

The weighted average grant date fair value of options outstanding was $3.70 at the beginning of the 2006 year and $3.90 at June 30, 2006. Compensation cost for the three and six months ended June 30, 2006 was $22,000 and $41,000, respectively. Unrecognized compensation cost at June 30, 2006 was $314,000 and the weighted average period of unamortized cost recognition was 3.40 years.

The stock-based compensation expense determined under the fair value-based method for the three and six months ended June 30, 2005, disclosed but not recognized, was $3,000 and $7,000, respectively, net of related tax effects. Earnings per share for the three and six months ended June 30, 2005 would not have changed had we recognized compensation expense under the fair value-based method.

NOTE 3 – SECURITIES

The amortized cost and estimated fair values of securities available-for-sale are summarized as follows:


	June 30, 2006
*(in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value

U.S. Treasury notes	$	3,001	$	—	$	(62	)	$	2,939
U.S. agency notes		8,548		—		(149	)		8,399
U.S. agency mortgage-backed securities		40,715		1		(1,793	)		38,923
Collateralized mortgage obligations		4,160		—		(134	)		4,026
Municipal securities		11,753		14		(268	)		11,499

Securities available-for-sale	$	68,177	$	15	$	(2,406	)	$	65,786


	December 31, 2005
*(in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value

U.S. Treasury notes	$	6,976	$	—	$	(33	)	$	6,943
U.S. agency notes		10,376		—		(156	)		10,220
U.S. agency mortgage-backed securities		45,089		1		(1,274	)		43,816
Collateralized mortgage obligations		3,414		1		(89	)		3,326
Municipal securities		9,179		36		(101	)		9,114

Securities available-for-sale	$	75,034	$	38	$	(1,653	)	$	73,419

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans consist of the following:


*(in thousands)*	At June 30, 2006			At December 31, 2005

Commercial mortgage	$	187,773		$	192,263
Multifamily mortgage		29,999			31,708
Construction		33,212			28,157
Commercial loans and lines		58,092			64,271
Home equity loans and lines		9,265			8,689
Home mortgage		43,441			13,443
Installment & credit card		2,005			4,352

Total loans		363,787			342,883
Allowance for loan losses		(4,209	)		(4,105	)

Loans, net	$	359,578		$	338,778

Loans held for sale	$	11,553		$	—

At June 30, 2006, loans held for sale were $11.6 million and consist of commercial and multifamily mortgages originated for sale into the secondary market. Loans held for sale are carried at the lower of aggregate cost or market value. Loan sale gains or losses are recorded in noninterest income based on the difference between loan sale proceeds and carrying value.

As of June 30, 2006, loans with a carrying value of $324.7 million were included as blanket pledges of security for FHLB advances. Most of the Company’s lending activity is with customers located in Ventura, Orange and Los Angeles Counties. The Company has no significant exposure to any individual customer; however, the economic condition in Southern California could adversely affect customers. A significant portion of our loans are collateralized by real estate; changes in the economic condition in Southern California could adversely affect the value of real estate.

Changes in the allowance for loan losses were as follows:


*(dollars in thousands)*	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Beginning balance	$	4,287		$	2,537		$	4,105		$	2,346
Provision for loan losses		—			122			153			244
Loans charged-off		(12	)		(74	)		(12	)		(74	)
Transfer to undisbursed commitment		(75	)		—			(75	)		—
Recoveries on loans charged-off		9			8			38			77

Ending balance	$	4,209		$	2,593		$	4,209		$	2,593

Allowance to total loans								1.16	%		1.30	%
Accruing loans past due 90 days or more							$	25		$	116
Nonaccrual loans							$	—		$	2,158
Nonaccrual loans to total loans								—			1.08	%

There were no nonaccrual loans at June 30, 2006 or December 31, 2005.

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill relates to the acquisition of South Coast Bancorp on September 30, 2005. At June 30, 2006 and December 31, 2005, goodwill was $16.8 million and $16.3 million, respectively. The change in goodwill represents the finalization of estimated tax effects. No impairment loss was recognized for the periods ended June 30, 2006 and December 31, 2005.

Core deposit intangible, net of accumulated amortization, was $575,000 at June 30, 2006 and $610,000 at December 31, 2005. Amortization expense for the three and six months ended June 30, 2006 were $18,000 and $35,000, respectively.

NOTE 6 – EARNINGS PER SHARE

Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of common stock options under the stock option plan. The following table illustrates the computations of basic and diluted earnings per share for the periods indicated:


*(in thousands, except per share)*	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Net income	$	1,073	$	629	$	2,083	$	1,206
Basic earnings per share	$	0.33	$	0.29	$	0.64	$	0.56
Diluted earnings per share	$	0.33	$	0.29	$	0.63	$	0.55
Basic weighted average shares		3,278		2,163		3,278		2,163
Diluted weighted average shares		3,298		2,178		3,296		2,184

NOTE 7 – RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring in fiscal years beginning after September 15, 2006. Earlier adoption is permitted, provided the Company has not yet issued financial statements, including for interim periods, for that fiscal year. Management does not expect the adoption of SFAS 155 to have a material impact on the consolidated financial statements.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” which amends SFAS No. 140. SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective for fiscal years beginning after September 15, 2006. Management does not expect the adoption of SFAS 155 to have a material impact on the consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting and disclosure for uncertainty in income in a company’s financial statements. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. FIN 48 is effective for fiscal years beginning after December 15, 2006. Management does not expect the adoption of FIN 48 to have a material impact on the consolidated financial statements.

NOTE 8 – AGREEMENT AND PLAN OF MERGER

On June 15, 2006, we entered into an Agreement and Plan of Merger with National Mercantile Bancorp, the parent company of Mercantile National Bank, and First California Financial Group, or FCFG. National Mercantile will merge into FCFG, its newly formed Delaware subsidiary, followed immediately by a merger of equals whereby we will merge with FCFG. FCFG will be the surviving entity. Pursuant to the mergers, FCB Bancorp shareholders will receive 1.7904 shares of First California common stock for each of their shares of FCB Bancorp common stock. The merger, expected to close in the fourth quarter of 2006, is subject to customary closing conditions, regulatory approvals and approval by the shareholders of both companies.

On a pro forma basis, giving effect to the merger, at June 30, 2006, the combined company would have consolidated assets of approximately $1 billion, with twelve full service offices and four loan production offices in Los Angeles, Orange and Ventura counties. The leadership team for the new combined company, to be called First California Financial Group, Inc. will be as follows:


President and Chief Executive Officer	»	C. G. Kum, FCB Bancorp’s Chief Executive Officer
Chief Financial Officer	»	Romolo Santarosa, FCB Bancorp’s Chief Financial Officer
Chief Credit Officer	»	Robert Bartlett, National Mercantile’s Chief Operating Officer
Chief Strategy Officer	»	David Brown, National Mercantile’s Chief Financial Officer
Head of Commercial Banking	»	Thomas Anthony, FCB Bancorp’s Chief Credit Officer

Scott Montgomery, National Mercantile’s President and Chief Executive Officer will retire after assisting in the transition. The merger, expected to close in the fourth quarter of 2006, is subject to customary regulatory approvals and approval by the shareholders of both companies.

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is designed to provide a better understanding of significant trends related to the consolidated results of operations and financial condition of FCB Bancorp and its wholly-owned subsidiaries. This discussion and information is derived from our unaudited consolidated financial statements and related notes for the three and six months ended June 30, 2006 and 2005 and our audited consolidated financial statements and related notes for the three years ended December 31, 2005. You should read this discussion in conjunction with those consolidated financial statements.

This discussion contains certain forward-looking information about us, which statements are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, implied or projected by, such forward-looking statements. Risks and uncertainties include, but are not limited to:

•

revenues are lower than expected;

•

credit quality deterioration which could cause an increase in the provision for credit losses;

•

competitive pressure among depository institutions increases significantly;

•

our ability to complete planned acquisitions, to successfully integrate acquired entities, or to achieve expected synergies and operating efficiencies within expected time-frames or at all;

•

the integration of acquired businesses costs more, takes longer or is less successful than expected;

•

the cost of additional capital is more than expected;

•

a change in the interest rate environment reduces interest margins;

•

asset/liability repricing risks and liquidity risks;

•

general economic conditions, either nationally or in the market areas in which we do or anticipate doing business, are less favorable than expected;

•

the economic and regulatory effects of the continuing war on terrorism and other events of war, including the war in Iraq;

•

legislative or regulatory requirements or changes adversely affecting our business;

•

changes in the securities markets; and

•

regulatory approvals for announced or future acquisitions cannot be obtained on the terms expected or on the anticipated schedule.

If any of these risks or uncertainties materializes, or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by, such forward-looking statements. We assume no obligation to update such forward-looking statements.

Recent Development

On June 15, 2006, we entered into an Agreement and Plan of Merger with National Mercantile Bancorp, the parent company of Mercantile National Bank and South Bay Bank, and First California Financial Group, or FCFG. National Mercantile will merge into FCFG, its newly formed Delaware subsidiary, followed immediately by a merger of equals whereby we will merge with FCFG. FCFG will be the surviving entity. Pursuant to the mergers, FCB Bancorp shareholders will receive 1.7904 shares of First California common stock for each of their shares of FCB Bancorp common stock. The merger, expected to close in the fourth quarter of 2006, is subject to customary closing conditions, regulatory approvals and approval by the shareholders of both companies.


President and Chief Executive Officer	»	C. G. Kum, FCB Bancorp’s Chief Executive Officer

Chief Financial Officer	»	Romolo Santarosa, FCB Bancorp’s Chief Financial Officer

Chief Credit Officer	»	Robert Bartlett, National Mercantile’s Chief Operating Officer

Chief Strategy Officer	»	David Brown, National Mercantile’s Chief Financial Officer

Head of Commercial Banking	»	Thomas Anthony, FCB Bancorp’s Chief Credit Officer

New Accounting Standard Adopted during the First Quarter of 2006

SFAS No. 123R eliminated the ability to account for grants under our stock option plan using the intrinsic value-based method. The intrinsic value-based method recognized compensation cost as the difference between the exercise price of each option and the market price of our stock at the date of each grant. The exercise price of each of our stock options was equal to the market price of our stock at each date of grant. Before 2006, no compensation cost was recognized.

On January 1, 2006, using the modified-prospective method of adoption, we began determining compensation costs using the fair-value method as provided for under SFAS No. 123R. The modified-prospective method of adoption requires the recognition of compensation cost using the fair-value method for all new grants after 2005 or for any grants modified, repurchased or cancelled after 2005. For grants prior to 2006, the modified-prospective method requires the recognition of compensation cost for the portion of grants not yet vested based on the fair-value of the grant as was disclosed in our prior year consolidated financial statements.

We used the Black-Scholes-Merton formula to determine the fair value of our stock options using the following estimates and assumptions. The fair value of the option at the grant date also follows.


	2003 Grant			2004 Grant			2005 Grant			2006 Grant
Expected option term		6.0 years			6.0 years			6.0 years			5.2 years
Expected volatility		Nil			Nil			Nil			5.71	%
Expected dividend yield		0	%		0	%		0	%		0	%
Risk-free interest rate		2.87	%		3.95	%		4.50	%		4.59	%
Stock option fair value	$	1.77		$	4.24		$	4.92		$	4.49

A summary of our option activity, none of which have vested for the six months ended June 30, 2006 follows.


Options	Shares		Weighted average exercise price
Balance, beginning of year	119,500		$	17.64
Issued	40,600		$	21.00
Exercised	—			—
Cancelled, forfeited, expired	(3,400	)	$	20.81

Balance, end of period	156,700		$	18.51

The weighted average remaining contractual term of options was 5.81 years at June 30, 2006. The weighted average exercise price of options outstanding was $18.51 at June 30, 2006 and $17.64 at December 31, 2005. The weighted average fair value of options outstanding was $3.89 and $3.70 respectively at June 30, 2006 and December 31, 2005, respectively. There were 156,700 options outstanding at June 30, 2006 and they had an intrinsic value, based on a closing market price of $22.40 on June 30, 2006, of approximately $610,000.

Critical Accounting Policies

The discussion and analysis of our consolidated results of operations and financial condition are based upon our unaudited and our audited consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, income and expense, and the related disclosures of contingent assets and liabilities at the date of these consolidated financial statements. We believe these estimates and assumptions to be reasonably accurate; however, actual results may differ from these estimates under different assumptions or circumstances. The following are our critical accounting policies.

Allowance for loan losses

An estimate of probable losses incurred in the loan portfolio is necessary in determining the amount of the allowance for loan losses which is presented as a reduction of our loan balances. The provision for loan losses, charged to operations, is the amount that is necessary to establish the allowance. The information used by us to make this estimate is described later in this section and in the notes to the audited consolidated financial statements. The allowance for loan losses was $4,209,000 at June 30, 2006 and was $4,105,000 at December 31, 2005.

Income taxes

An estimate of probable income tax benefits that will not be realized in future years is required in determining the necessity for a valuation allowance for deferred tax assets. The information used by us to make this estimate is described later in this section and in the notes to the audited consolidated financial statements. Net deferred tax assets were $258,000 at June 30, 2006 and were $730,000 at December 31, 2005; there was no valuation allowance at either period end.

Goodwill

An estimate of probable impairment loss is required in determining the carrying value of goodwill. An impairment loss is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The information used by us to make this estimate is described later in this section and in the notes to the audited consolidated financial statements. Goodwill was $16,835,000 at June 30, 2006 and $16,341,000 December 31, 2005; there was no impairment loss at either period end.

Overview

FCB Bancorp is a bank holding company arising from a transaction in which the shareholders of First California Bank exchanged their common shares for that of FCB Bancorp on a share-for-share basis on September 30, 2005. As a result of that transaction, First California Bank became a wholly-owned subsidiary of FCB Bancorp. FCB Bancorp and First California Bank are related entities; accordingly, the consolidated financial position and results of operations for the year ended December 31, 2005 reflect the combined entities. Prior periods have been restated to reflect financial position and results of operation as if the entities had been previously consolidated.

Also, on September 30, 2005, FCB Bancorp completed its acquisition of South Coast Bancorp, Inc. and its wholly-owned subsidiaries, South Coast Commercial Bank and SC Financial. SC Financial is an inactive subsidiary. Shareholders of South Coast Bancorp, Inc. received cash of $36.0 million in exchange for their common shares; South Coast Bancorp, Inc. was then merged with and into FCB Bancorp.

In connection with this acquisition, FCB Bancorp issued 1,115,000 shares of common stock to accredited investors at $19.75 per share on September 30, 2005. Net proceeds from this offering were $20.7 million. In addition, FCB Bancorp issued $10.3 million of junior subordinated debentures (commonly referred to as trust preferred securities) on September 30, 2005. Substantially all the proceeds from these offerings were used to fund the acquisition.

The acquisition was accounted for using the purchase method of accounting; accordingly, the December 31, 2005 consolidated financial position of the Company includes the fair value of the assets acquired and the liabilities assumed of South Coast Bancorp, Inc. The consolidated results of operations, however, reflects only the consolidated activities after the merger was consummated on September 30, 2005.

On December 5, 2005, FCB Bancorp sold South Coast Commercial Bank to Woori America Bank pursuant to a merger transaction for a premium of $1.0 million before taxes and expenses (the “Woori Merger”). The net premium reduced previously recognized goodwill that arose from our purchase of South Coast Commercial Bank on September 30, 2005. Also on December 5, 2005, in a separate but related transaction, our subsidiary, First California Bank, acquired essentially all of the assets and liabilities of South Coast Commercial Bank, including substantially all current loan and deposit accounts. The purchase and assumption transaction closed immediately prior to the Woori Merger.

Results of Operations — for the three and six months ended June 30, 2006 and 2005

Net income for the second quarter of 2006 increased 71 percent to $1.1 million , or $0.33 per diluted share, compared with $0.6 million, or $0.29 per diluted share, for the same quarter last year. The increase in diluted earnings per share was 14 percent. The change in interim results is due primarily to the acquisition completed at the end of the third quarter of 2005. The earnings per share data for 2006 reflect the increase in outstanding weighted average shares that resulted from the issuance of 1,115,000 new shares at the end of the third quarter of 2005.

The following table presents a summary of net income.


(in thousands, except per share)	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Net income	$	1,073	$	629	$	2,083	$	1,206
Basic earnings per share	$	0.33	$	0.29	$	0.64	$	0.56
Diluted earnings per share	$	0.33	$	0.29	$	0.63	$	0.55
Basic weighted average shares		3,278		2,163		3,278		2,163
Diluted weighted average shares		3,298		2,178		3,296		2,184

Net income for the first six months of 2006 was $2.1 million, a 73 percent increase from the same period a year ago. Diluted earnings per share increased 15 percent to $0.63 from $0.55 from the same period last year.

Net interest income

Net interest income for the second quarter of 2006 was $5.2 million, up 56 percent from $3.4 million for the same quarter a year ago. Net interest income for the first six months of 2006 was $10.5 million up 62 percent from the year ago period. The increase in net interest income reflects the increase in earning assets stemming from both an increase in our business lending and our recent acquisition. Average earning assets increased 58 percent to $429.8 million for the second quarter of 2006 from $271.7 million for the second quarter of 2005. For the first half of the year, average earning assets increased to $424.0 million from $266.9 million.

The net interest margin (on a tax equivalent basis) for the second quarter of 2006 was 4.95% compared with 5.02% for the same period last year. For the first six months of 2006 the net interest margin was 5.03% compared with 4.93% for the year ago period.

Average loans were $354.4 million for the second quarter of 2006 and represented 82 percent of average earning assets, compared with $190.1 million and 70 percent for the same quarter a year ago. Average loans for the first half of 2006 were $346.9 million and represented 82 percent of average earning assets, compared with $185.3 million and 69 percent for the year ago period. The increase in average loans reflects the 2005 acquisition, the expansion of our branch network and the success of our business strategy.

Average securities were $69.0 million for the second quarter of 2006 and represented 16 percent of average earning assets, compared with $76.3 million and 28 percent for the same period a year ago. For the first six months of 2006, average securities were $70.0 million, or 17 percent of average earning assets, compared with $76.7 million, or 29 percent of average earning assets for the same period a year ago.

Average deposits for the second quarter of 2006 were $385.9 million and represented 90 percent of average earning assets, compared with $236.2 million and 87 percent of average earning assets for the same quarter last year. Average deposits for the first half of 2006 were $381.5 million and represented 90 percent of average earning assets, compared with $231.1 million and 87 percent for the year ago period. The increase in deposits reflects the 2005 acquisition, the expansion of our branch network and the success of our business strategy. We do not accept broker certificates of deposits.

Average borrowed funds for the second quarter of 2006 were $44.1 million compared with $31.5 million for the same period last year. For the first six months of 2006, average borrowed funds were $42.6 million, compared with $32.1 million for the same period a year ago. The increase in borrowings reflects the issuance of $10.3 million of junior subordinated debentures at the end of the 2005 third quarter.

The following table presents average balances and interest income or interest expense, with resulting average yield or rates on a tax equivalent basis, by earning asset or interest bearing liability category.


	Three months ended June 30,
	2006						2005
(in thousands)	Average Balance		Income/ Expense		Average Rate		Average Balance		Income/ Expense		Average Rate

Assets
Loans:
Construction & Land	$	27,419	$	744	10.89	%	$	14,930	$	357	9.59	%
Commercial Real Estate		221,654		4,453	8.06	%		93,206		1,557	6.70	%
Commercial Loans		79,382		1,678	8.48	%		67,963		1,211	7.15	%
Home Mortgage		18,706		257	5.51	%		6,849		85	4.96	%
Home Equity		5,663		113	8.06	%		2,980		48	6.52	%
Consumer		1,534		37	9.66	%		4,131		66	6.37	%

Total loans		354,358		7,282	8.24	%		190,059		3,323	7.01	%

Securities:
Taxable		58,429		572	3.92	%		68,481		573	3.35	%
Nontaxable		10,608		102	5.86	%		7,813		78	6.04	%

Total securities		69,037		674	4.22	%		76,294		651	3.63	%

Federal funds sold		6,356		75	4.69	%		5,291		39	3.01	%
Deposits with banks		51		—	2.08	%		58		—	1.28	%

Total earning assets		429,802		8,031	7.54	%		271,703		4,013	5.98	%

Non-earning assets		50,261						21,114

Total assets	$	480,063					$	292,817

Liabilities and shareholder’s equity
Interest bearing deposits:
Interest bearing demand deposits	$	22,050	$	27	0.49	%	$	20,438	$	5	0.10	%
Savings		78,066		381	1.96	%		63,477		116	0.73	%
Certificates of deposit		182,823		1,889	4.14	%		55,649		337	2.43	%

Total interest bearing deposits		282,939		2,297	3.26	%		139,564		458	1.32	%

Borrowed funds:
Federal funds purchased		36		1	6.07	%		21		—	0.00	%
FHLB advances		33,737		331	3.95	%		31,438		196	2.51	%
Junior subordinated debentures		10,310		154	6.15	%		—		—

Total borrowed funds		44,083		486	4.42	%		31,459		196	2.50	%

Total interest bearing funds		327,022		2,783	3.41	%		171,023		654	1.53	%

Noninterest bearing demand deposits		102,976						96,662
Other liabilities		2,721						1,341
Shareholders’ equity		47,344						23,791

Total liabilities and shareholder’s equity	$	480,063					$	292,817

Net interest income			$	5,248					$	3,359
Net interest margin
(tax equivalent)					4.95	%					5.02	%


	Six months ended June 30,
	2006						2005
(in thousands)	Average Balance		Income/ Expense		Average Rate		Average Balance		Income/ Expense		Average Rate

Assets
Loans:
Construction & Land	$	27,459	$	1,496	10.99	%	$	13,131	$	611	9.39	%
Commercial Real Estate		219,914		8,747	8.02	%		91,691		3,009	6.62	%
Commercial Loans		78,282		3,227	8.31	%		67,274		2,321	6.96	%
Home Mortgage		13,477		375	5.60	%		6,414		163	5.11	%
Home Equity		5,475		210	8.02	%		2,753		89	6.50	%
Consumer		2,332		96	8.42	%		3,991		131	6.64	%

Total loans		346,939		14,151	8.23	%		185,255		6,325	6.88	%

Securities:
Taxable		60,141		1,171	3.89	%		69,148		1,168	3.38	%
Nontaxable		9,881		190	5.87	%		7,572		148	5.97	%

Total securities		70,022		1,361	4.20	%		76,720		1,317	3.63	%

Federal funds sold		6,962		161	4.68	%		4,839		68	2.82	%
Deposits with banks		52		1	2.94	%		104		0	0.79	%

Total earning assets		423,975		15,674	7.50	%		266,918		7,710	5.88	%

Non-earning assets		39,420						20,960

Total assets	$	473,706					$	287,878

Liabilities and shareholder’s equity
Interest bearing deposits:
Interest bearing demand deposits	$	22,958	$	54	0.47	%	$	20,563	$	11	0.10	%
Savings		78,167		680	1.76	%		63,273		230	0.73	%
Certificates of deposit		178,786		3,539	3.99	%		55,033		616	2.26	%

Total interest bearing deposits		279,911		4,273	3.08	%		138,868		857	1.24	%

Borrowed funds:
Federal funds purchased		28		1	5.83	%		11		0	3.82	%
FHLB advances		32,277		607	3.80	%		32,080		391	2.46	%
Junior subordinated debentures		10,310		308	6.15	%		—		—

Total borrowed funds		42,615		916	4.33	%		32,091		391	2.46	%

Total interest bearing funds		322,526		5,189	3.24	%		170,959		1,248	1.47	%

Noninterest bearing demand deposits		101,543						92,242
Other liabilities		2,293						1,185
Shareholders’ equity		47,344						23,492

Total liabilities and shareholder’s equity	$	473,706					$	287,878

Net interest income			$	10,486					$	6,461
Net interest margin
(tax equivalent)					5.03	%					4.94	%

Net interest income is affected by changes in the level and mix of average earning assets and average interest-bearing funds. The changes between periods in these balances are referred to as balance changes. The effect on net interest income from changes in average balances is measured by multiplying the change in the average balance between the current period and the prior period by the prior period average rate. Net interest income is also affected by changes in the average rate earned or paid on earning assets and interest-bearing funds and these are referred to as rate changes. The effect on net interest income from changes in average rates is measured by multiplying the change in the average rate between the current period and the prior period by the prior period average

balance. Changes attributable to both rate and volume are allocated on a pro rata basis to the change in average volume and the change in average rate.

The following tables present changes in interest income and expense.


*(in thousands)*	Three months ended June 30, 2006 to 2005 due to:
	*Rate*		*Volume*			*Total*
Interest income
Interest on loans	$	1,281	$	2,679		$	3,960
Interest on securities		85		(62	)		23
Interest on Federal funds sold		27		8			35
Interest on deposits with banks		—		—			—

Total interest income		1,393		2,625			4,018

Interest expense
Interest bearing demand deposits		22		—			22
Savings		236		27			263
Certificates of deposit		783		770			1,553

Total interest on deposits		1,041		797			1,838

Interest on borrowings		212		79			291

Total interest expense		1,253		876			2,129

Net interest income	$	140	$	1,749		$	1,889


*(in thousands)*	Six months ended June 30, 2006 to 2005 due to:
	*Rate*		*Volume*			*Total*
Interest income
Interest on loans	$	2,477	$	5,349		$	7,826
Interest on securities		160		(115	)		45
Interest on Federal funds sold		64		30			94
Interest on deposits with banks		1		1			2

Total interest income		2,702		5,265			7,967

Interest expense
Interest bearing demand deposits		42		1			43
Savings		397		54			451
Certificates of deposit		1,536		1,387			2,923

Total interest on deposits		1,975		1,442			3,417

Interest on borrowings		397		128			525

Total interest expense		2,372		1,570			3,942

Net interest income	$	330	$	3,695		$	4,025

Provision for loan losses

There was no provision for loan losses for the second quarter of 2006 in light of our evaluation of the collectibility of loans and our prior loan loss experience, among other relevant consideration. The provision for loan losses for the second quarter of 2005 was $122,000. For the first half of 2006, the provision for loan losses was $153,000 compared with $244,000 for the same period last year.

Noninterest income

Noninterest income for the second quarter of 2006 was $550,000 compared with $427,000 for the same period last year.

Service charges, fees and other income for the second quarter of 2006 increased 21 percent to $410,000 from $338,000 for the same quarter of 2005. The increase in service charge, fees and other income reflects higher activity levels in our checking and savings accounts from the prior quarter.

Earnings on cash surrender value of life insurance were $112,000 for the second quarter of 2006 compared with $56,000 for the second quarter of 2005. The increase in earnings reflects the purchase of $4.9 million of life insurance policies in the first quarter of 2006 to support life insurance benefits for several key employees and salary continuation benefits for certain executives.

Gains on loan sales and commissions on brokered loans totaled $28,000 for the second quarter of 2006 compared with $31,000 for the same period a year ago. We originate SBA 7(a) loans and sell the guaranteed portion of the loan into the secondary market for a gain. We also arrange SBA 504 and other loans for customers that are ultimately funded by others and receive commissions for our services. The change in income reflects the change in the number and amount of loans sold or brokered in each period.

The following table presents a summary of noninterest income.


*(in thousands)*	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006			2005
Service charges on deposit accounts	$	257	$	256	$	510		$	549
Net servicing fees		13		11		25			21
Other income		140		71		252			127
Earnings on cash value of life insurance		112		56		207			111

Service charges, fees and other		522		394		994			808
Loan commissions and sales		28		31		80			133
Gain (loss) on sales of securities		—		2		(20	)		2

Total noninterest income	$	550	$	427	$	1,054		$	943

Noninterest income for the first half of 2006 was $1.1 million compared with $0.9 million for the same period last year.

Service charges, fees and other income for the first six months of 2006 increased 13 percent to $787,000 from $697,000 for the same period of 2005. The increase in service charge, fees and other income reflects higher activity levels in an checking and savings accounts from the prior year.

Earnings on cash surrender value of life insurance were $207,000 for the first half of 2006 compared with $111,000 for the first half of 2005. The increase in earnings reflects the purchase of the life insurance policies in the first quarter of 2006.

Gains on loan sales and commissions on brokered loans totaled $80,000 for the first six months of 2006 compared with $133,000 for the same period a year ago. The change in income reflects the change in the number and amount of loans sold or brokered in each period.

Noninterest expense

Noninterest expense for the second quarter of 2006 was $4.1 million up 56 percent from $2.7 million for the second quarter of 2005. The efficiency ratio was 70.82 percent for the 2006 quarter compared with 70.03 percent for the same period in 2005.

Noninterest expense for the first half of 2006 was $8.0 million compared with $5.2 million for the same period last year. The efficiency ratio for the first six months of 2006 was 69.30 percent compared with 70.46 percent a year ago.

The increase in operating expenses from the year ago periods reflects the growth in our business and the acquisition completed on September 30, 2005. We have pursued a growth strategy through de novo branching. This requires us to recruit and hire personnel and lease or build facilities to operate and house the new branch. These expenses are incurred prior to the opening of the branch and generally are in excess of the income from the branch when it commences operations. The increase in salaries and benefits expense and premises and equipment expense reflects this growth strategy. Our Simi Valley branch opened December 2004 in a temporary location and relocated in November 2005 to our newly built branch office on the site of the new Simi Valley Towne Center. In addition, we opened in the first quarter of 2006 a new loan production office in Sherman Oaks and have added lending and credit administration personnel. Notwithstanding the increase in operating expenses, the efficiency ratio for the first half of 2006 improved over the efficiency ratio for the same period a year ago.

The following table presents a summary of noninterest expense.


*(in thousands)*	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Salaries and benefits	$	2,296		$	1,490		$	4,558		$	3,019
Premises and equipment		616			389			1,259			775
Data processing		210			138			370			273
Legal, audit and other professional		247			153			400			261
Printing, stationary and supplies		82			48			144			94
Telephone		70			36			140			72
Directors’ fees		33			33			66			66
Advertising and marketing		203			123			333			210
Postage		23			11			49			29
Other expense		344			229			728			416

Total noninterest expenses	$	4,124		$	2,650		$	8,047		$	5,215

Efficiency ratio		70.82	%		70.03	%		69.30	%		70.46	%

The efficiency ratio is computed by dividing noninterest expense less amortization by net interest income and noninterest income less realized gains and losses on sale of securities. The ratio is a measurement of the amount of revenue that is utilized to meet overhead expenses.

Income taxes

The provision for income taxes was $1.3 million for the first six months of 2006 compared with $0.7 million for the same period of 2005. The effective tax rate for 2006 was 37.6 percent compared with 38.0 percent for the same period a year ago. The effective tax rate was less than the combined statutory tax rate as a result of excluding from taxable income interest on municipal securities and the earnings on the cash surrender value of life insurance.

Financial Position — June 30, 2006 compared with December 31, 2005

Lending and credit risk

We provide a variety of loan and credit-related products and services to meet the needs of borrowers primarily located in the California counties of Ventura, Orange and Los Angeles. Business loans, represented by commercial real estate loans, commercial loans and construction loans comprise the largest portion of the loan portfolio. Consumer, or personal loans, represented by home mortgage, home equity and installment loans comprise a smaller portion of the loan portfolio.

Credit risk is the risk to earnings or capital arising from an obligor’s failure to meet the terms of any contract with us or otherwise to perform as agreed. Credit risk is found in all activities in which success depends on counterparty, issuer, or borrower performance. Credit risk is present any time funds are extended, committed, invested, or otherwise exposed through actual or implied contractual agreements, whether reflected on or off the balance sheet.

All categories of loans present credit risk. Major risk factors applicable to all loan categories include changes in international, national and local economic conditions such as interest rates, inflation, unemployment levels, consumer and business confidence and the supply and demand for goods and services.

Commercial real estate loans rely upon the cash flow originating from the underlying real property. Commercial real estate is a cyclical industry that is affected not only by general economic conditions but also by local supply and demand. In the office sector, the demand for office space is highly dependent on employment levels. In the retail sector, the demand for retail space and the levels of retail rents are affected by consumer spending and confidence. The industrial sector has exposure to the level of exports, defense spending and inventory levels. Vacancy rates, location, and other factors affect the amount rental income for commercial property. Tenants may relocate, fail to honor their lease or go out of business. In the multifamily residential sector the demand for apartments is heavily influenced by the affordability of ownership housing, employment conditions and the vacancy of existing inventory. Population growth or decline and changing demographics, such as increases in the level of immigrants or retirees, are also factors influencing the multifamily residential sector.

Construction loans provide developers or owners with funds to build or improve properties that will ultimately be sold or leased. Construction loans are generally considered to involve a higher degree of risk than other loan categories because they rely upon the developer’s or owner’s ability to complete the project within specified cost and time limits. Cost overruns can cause the project cost to exceed the project sales price or exceed the amount of the committed permanent funding. Construction projects also can be delayed for a number of reasons such as poor weather, material or labor shortages, labor difficulties, or substandard work that must be redone to pass inspection.

Commercial loans rely upon the cash flow originating from the underlying business activity of the enterprise. The manufacture, distribution or sale of goods or sale of services are not only affected by general economic conditions but also by the ability of the enterprise’s management to adjust to local supply and demand conditions, maintain good labor, vendor and customer relationships, as well as market, price and sell their goods or services for a profit. Customer demand for goods and services of the enterprise may change because of competition or obsolescence.

Home mortgages and home equity loans and lines of credit are secured by first or second trust deeds on a borrower’s real estate property, typically their principal residence. These loans are dependant on a person’s ability to regularly pay the principal and interest due on the loan and, secondarily, on the value of real estate property that serves as collateral for the loan. Home mortgages are generally considered to involve a lower degree of risk than other loan categories because of the relationship of the loan amount to the value of the residential real estate and a person’s reluctance to forego their principal place of residence. Home real estate values however are not only affected by general economic conditions but also on local supply and demand. Installment loans and credit card lines are also dependant on a person’s ability to regularly pay principal and interest on a loan; however, these loans generally are not secured by collateral or, if they are secured, the collateral value can rapidly decline as is the case for automobiles. A person’s ability to service debt is highly dependant upon their continued employment or financial stability. Job loss, divorce, illness, bankruptcy are just a few of the risks that may affect a person’s ability to service their debt.

Since the risks in each category of loan changes based on a number of factors, it is not possible to state whether a particular type of lending carries with it a greater or lesser degree of risk at any specific time in the economic cycle. In a stabilized economic environment it is generally considered that home mortgage loans have the least risk, followed by home equity loans, multifamily property loans, commercial property loans, commercial loans and lines and finally construction loans. However, this ordering may vary from time to time and the degree of risk from the credits with the least risk to those with the highest risk profile may expand or contract with the general economy.

We manage credit risk through Board approved policies and procedures. These policies are reviewed and approved at least annually by the Directors. Lending policies provide us with a framework for consistent loan underwriting and a basis for sound credit decisions. Lending policies specify, among other things, the parameters for the type or purpose of the loan, the required debt service coverage and the required collateral requirements. Credit limits are also established and certain loans require approval by the Directors’ Loan Committee. The Directors’ Audit Committee also engages a third party to perform a credit review of the loan portfolio to ensure compliance with policies and assist in the evaluation of the credit risk inherent in the loan portfolio.

Loans

Total loans, excluding loans held for sale increased 6 percent, or $20.9 million, to $363.8 million at June 30, 2006 from $342.9 million at December 31, 2005. Purchases of adjustable rate home mortgage loans account for most of the increase.

The following table presents the portfolio of loans.


*(in thousands)*	At June 30, 2006			At December 31, 2005

Commercial mortgage	$	187,773		$	192,263
Multifamily mortgage		29,999			31,708
Construction		33,212			28,157
Commercial loans and lines		58,092			64,271
Home equity loans and lines		9,265			8,689
Home mortgage		43,441			13,443
Installment & credit card		2,005			4,352

Total loans		363,787			342,883
Allowance for loan losses		(4,209	)		(4,105	)

Loans, net	$	359,578		$	338,778

Loans held for sale	$	11,553		$	—

The loan categories above are derived from bank regulatory reporting standards for loans secured by real estate; however, a portion of the mortgage loans above are loans that we consider to be a commercial loan for which we have taken real estate collateral as additional support or from an abundance of caution. In these instances we are not looking to the real property as its primary source of repayment, but rather as a secondary or tertiary source of repayment.

Commercial mortgage loans, the largest segment of our portfolio, were 52 percent of total loans at June 30, 2006, down from 56 percent at December 31, 2005. Commercial mortgage loans are collateralized by many different commercial property types. Our top three categories have been office, industrial, and retail, representing approximately 80 percent of commercial mortgage loans. In addition, most of our commercial property lending is in Ventura, Orange and Los Angeles Counties.

Commercial mortgage loans are underwritten with a maximum loan-to-value of 70 percent and a minimum debt service coverage ratio of 1.25. These criteria may become more stringent depending on the type of property. We focus on cash flow; consequently, regardless of the value of the collateral, the commercial real estate project must provide sufficient cash flow, or alternatively the principals must supplement the project with other cash flow, to service the debt. We generally require the principals to guarantee the loan. We also “stress-test” commercial mortgage loans to determine the potential affect changes in interest rates, vacancy rates, and lease or rent rates would have on the cash flow of the project. Additionally, at least on an annual basis, we require updates on the cash flow of the project and, where practicable, we visit the properties.

Multifamily residential mortgage loans were 8 percent of total loans at June 30, 2006 compared with 9 percent at December 31, 2005. Multifamily mortgage loans are collateralized by apartments mostly located in our tri-county market area. Multifamily mortgage loans are underwritten in a fashion similar to commercial mortgage loans described above.

Commercial loans represent the next largest category of loans and were 16 percent of total loans at June 30, 2006 compared with 19 percent at December 31, 2005. Commercial loans are made for the purpose of providing working capital, equipment purchases and business expansion. Commercial loans may be unsecured or secured by assets such as equipment, inventory, accounts receivables, and

real property. Personal guarantees of the business owner may also be present. Additionally, these loans may also have partial guarantees from the U.S. Small Business Administration (“SBA”) or other federal or state agencies. The commercial loan portfolio is made up of broadly diversified business sectors with the largest sectors in real estate/construction, finance and insurance, healthcare, manufacturing and professional services.

Commercial loans are underwritten with maturities not to exceed seven years and we generally require the loan to be fully amortized within the term of the loan. Traditional working capital lines are underwritten for a 12 month period and have a 30-day out-of-debt requirement. Accounts receivable and inventory financing revolving lines of credit have an annual maturity date, a maximum advance rate, and an annual field audit for lines of $200,000 or more. Field audits are performed by third-party vendors. The maximum advance rate for accounts receivable is 75 percent and the maximum advance rate for eligible inventory is 25 percent.

We also have a portfolio of higher-yielding, asset-based loans that involves us purchasing customer invoices on a recourse basis. This product is called “Cash Flow Maximizer” (“CFM”). Using software, technical and marketing support provided by a third-party vendor, we are able to purchase customer invoices, with full recourse, at a discount and pay the customer 98.5 to 95.0 percent of the face value of the invoice. The amount is repaid, generally in 30 to 45 days, by the merchant remitting payment of the invoice directly to us. The discount is recognized in income at the time of purchase. We further reduce the purchase amount to the customer by an average of 10 percent of the face value of the invoice; setting aside this reserve amount in a restricted interest-bearing savings account held by us to cover any losses on any purchase. Additionally, as part of our normal analysis of the adequacy of our allowance for loan losses, we allocate approximately one percent to outstanding CFM balances. As of June 30, 2006 , there were 20 active accounts with outstanding balances of $8.2 million. At December 31, 2005, there were also 20 active accounts with outstanding balances of $8.7 million. CFM is included in the commercial loan category in the loan distribution table.

Construction loans represent 9 percent of total loans at June 30, 2006 compared with 8 percent at December 31, 2005. Construction loans represent single-family and commercial building projects and are approximately evenly divided between the two types. Construction loans are typically short term, with maturities ranging from 12 to 18 months. For commercial projects, we have a maximum loan-to-value requirement of 70 percent of the FIRREA conforming appraised value. For residential projects, the maximum loan-to-value ranges from 80 percent on loans under $500,000 to 70 percent on loans of $1,000,000 or more. We require the borrower to provide in cash at least 20 percent of the cost of the project. At the borrower’s expense, we use a third party vendor for funds control, lien releases and inspections. In addition, we regularly monitor the marketplace and the economy for evidence of deterioration in real estate values.

The following table presents the scheduled maturities of fixed and adjustable rate loans.


	June 30, 2006
*(in thousands)*	One year or less		After one year to five years		After five years		*Total*

Fixed rate loan
Commercial mortgage	$	72	$	4,638	$	88	$	4,798
Multifamily mortgage		—		—		6,682		6,682
Commercial loans and lines		8,505		2,818		—		11,323
Construction		1,974		—		—		1,974
Home equity loans		—		—		—		—
Home mortgage		—		—		3,621		3,621
Installment & credit card		68		275		—		343

Total fixed rate loan maturities		10,619		7,731		10,391		28,741

Adjustable rate loan
Commercial mortgage		9,787		24,463		149,708		183,958
Multifamily mortgage		1,016		1,895		18,927		21,838
Commercial loans and lines		31,365		10,804		4,950		47,119
Construction		30,984		243		—		31,227
Home equity loans		1,997		1,060		6,203		9,260
Home mortgage		1,442		3,660		34,882		39,984
Installment & credit card		922		57		681		1,660

Total adjustable rate loan maturities		77,513		42,182		215,351		335,046

Total maturities	$	88,132	$	49,913	$	225,742	$	363,787


	December 31, 2005
(in thousands)	One year or less		After one year to five years		After five years		*Total*

Fixed rate loan
Commercial real estate	$	3,574	$	9,039	$	9,311	$	21,924
Commercial loans and lines		620		2,340		508		3,468
Construction		—		—		—		—
Consumer		184		345		—		529
Other		—		—		3,882		3,882

Total fixed rate loan maturities		4,378		11,724		13,701		29,803

Adjustable rate loan
Commercial real estate		166,701		30,575		1,300		198,576
Commercial loans and lines		69,777		5,202		—		74,979
Construction		26,859		—		—		26,859
Consumer		3,514		426		—		3,940
Other		5,582		3,143		—		8,725

Total adjustable rate loan maturities		272,434		39,346		1,300		313,079

Total maturities	$	276,812	$	51,070	$	15,001	$	342,883

Allowance for Loan Losses

We maintain an allowance for loan losses to provide for inherent losses in the loan portfolio. Additions to the allowance are established through a provision charged to expense. All loans which are judged to be uncollectible are charged against the allowance while any recoveries are credited to the allowance. It is our policy to charge off any known losses at the time of determination. Any unsecured loan more than 90 days delinquent in payment of principal or interest and not in the process of collection is charged off in total. Secured loans are evaluated on a case by case basis to determine the ultimate loss potential to us subsequent to the liquidation of collateral. In those cases where we are inadequately protected, a charge off will be made to reduce the loan balance to a level equal to the liquidation value of the collateral.

Our loan policy provides procedures designed to evaluate and assess the risk factors associated with our loan portfolio, to enable us to assess such risk factors prior to granting new loans and to evaluate the sufficiency of the allowance for loan losses. We conduct an assessment of the allowance on a monthly basis and undertake a more critical evaluation quarterly. At the time of the monthly review, the Board of Directors will examine and formally approve the adequacy of the allowance. The quarterly evaluation includes an assessment of the following factors: any external loan review and any regulatory examination, estimated potential loss exposure on each pool of loans, concentrations of credit, value of collateral, the level of delinquency and non-accruals, trends in the portfolio volume, effects of any changes in the lending policies and procedures, changes in lending personnel, present economic conditions at the local, state and national level, the amount of undisbursed off-balance sheet commitments, and a migration analysis of historical losses and recoveries for the prior eight quarters.

The following table presents the allowance for loan losses.


*(in thousands)*	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Beginning balance	$	4,287		$	2,537		$	4,105		$	2,346
Provision for loan losses		—			122			153			244
Loans charged-off		(12	)		(74	)		(12	)		(74	)
Transfer to undisbursed commitment		(75	)		—			(75	)		—
Recoveries on loans charged-off		9			8			38			77

Ending balance	$	4,209		$	2,593		$	4,209		$	2,593

Allowance to loans								1.16	%		1.30	%
Accruing loans past due 90 days or more							$	25		$	116
Nonaccrual loans							$	—		$	2,158
Nonaccrual loans to loans								—			1.08	%

The allowance for losses on undisbursed commitments was $275,000 at June 30, 2006 compared with $200,000 at December 31, 2005. There have been no charges to the allowance since its inception. The allowance for losses on undisbursed commitments is included as an other liability category on the balance sheet.

The following table presents the allocation of the allowance to each loan category and the percentage relationship of loans in each category to total loans.


	*June 30, 2006*				*December 31, 2005*
*(in thousands)*	*Amount*		Percent of Loans in Category to Total Loans		*Amount*		Percent of Loans in Category to Total loans

Commercial mortgage	$	1,184	51	%	$	1,273	39	%
Mulitfamily mortgage		150	8	%		159	5	%
Commercial loans		1,013	9	%		1,062	32	%
Construction loans		762	16	%		620	19	%
Home equity loans		46	3	%		43	1	%
Home mortgage		217	12	%		67	2	%
Installment and credit card		47	1	%		60	2	%

Subtotal	$	3,419			$	3,284
Unallocated		790				821

Total	$	4,209	100	%	$	4,105	100	%

The allocation presented above should not be interpreted as an indication that charges to the allowance will be incurred in these amounts or proportions. The amounts attributed to each loan category are based on the analysis described above.

Investing, funding and liquidity risk

Liquidity risk is the risk to earnings or capital arising from the inability to meet obligations when they come due without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources as well as the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

We manage liquidity risk through Board approved policies and procedures. These policies are reviewed and approved at least annually by the Directors. Liquidity risk policies provide us with a framework for consistent evaluation of risk and establish risk tolerance parameters. Management’s Asset and Liability Committee meets regularly to evaluate liquidity risk, review and establish deposit interest rates, review loan and deposit in-flows and out-flows and reports quarterly to the Directors’ Funds Management Committee on compliance with policies. The Directors’ Audit Committee also engages a third party to perform a review of management’s asset and liability practices to ensure compliance with policies.

We enjoy a large base of core deposits (representing checking, savings and small balance certificates of deposit). At June 30, 2006 core deposits totaled $298.3 million, the same as at December 31, 2005. Core deposits represent a significant low-cost source of funds that support our lending activities and represent a key part of our funding strategy. We seek and stress the importance of both loan and deposit relationships with customers in our business plans.

Alternative funding sources include large balance certificates of deposits, federal funds purchased from other institutions, and borrowings.

Large balance certificates of deposits are not central to our funding strategy; however, we have participated in the State of California time deposit program, which began in 1977, for several years. The time deposit program is one element of a pooled investment account managed by the State Treasurer for the benefit of the State of California and all participating local agencies. The pooled investment account had approximately $60 billion in investments of which approximately $7 billion represented time deposits placed at various financial institutions. At June 30, 2006, State of California time deposits placed with us, with original maturities of three and six months, were $30.0 million compared with $18.0 million at December 31, 2005. The increase in these deposits was used to off-set the anticipated non-renewal of certificates of deposits acquired in the business combination. We believe that the State Treasurer will continue this program; we also believe that we have the ability to establish large balance certificates of deposit rates that will enable us to attract, replace, or retain those deposits accepted in our local market area if it becomes necessary under a modified funding strategy.

We, as a member of the FHLB, have access to borrowing arrangements with a maximum available borrowing of approximately $166.1 million. Borrowings under these arrangements are collateralized with our FHLB stock as well as with our loans and securities. As of June 30, 2006, we had borrowings outstanding with the FHLB of $51.3 million compared with $36.3 million as of December 31, 2005. The increase in borrowings was used to support loan growth.

In addition, we have lines of credit with three other financial institutions providing for federal funds facilities up to a maximum of $14.0 million. The lines of credit support short-term liquidity needs and cannot be used for more than 15 consecutive days. These lines are unsecured, have no formal maturity date and can be revoked at any time by the granting institutions. There were no borrowings under these lines of credit at June 30, 2006.

We also maintain a secured borrowing facility of $800,000 with the Federal Reserve Bank of San Francisco. There were no borrowings under this facility at June 30, 2006.

Federal funds sold to other institutions provide an immediate source of liquidity. The securities portfolio also provides a source of liquidity through the periodic remittance of interest and principal. Federal funds sold were $8.9 million at June 30, 2006 compared with $0.3 million at December 31, 2005.

Securities

We purchase securities to generate interest income and to assist in the management of liquidity risk. Securities are classified as ‘available-for-sale’ for accounting purposes and, as such, are recorded at their fair or market values in the balance sheet. Fair values are based on quoted market prices. Changes in the fair value of securities (that is, unrealized holding gains or losses) are reported as ‘other comprehensive income,’ net of tax and carried as accumulated comprehensive income or loss within shareholders’ equity until realized. Securities were $65.8 million at June 30, 2006 compared with $73.4 million at December 31, 2005.

The following table presents securities, at amortized cost, by maturity distribution and weighted average yield.


	At June 30, 2006
*(in thousands)*	One year or less			After one year to five years			After five years to ten years			Over ten years			Total

Maturity distribution
U.S. Treasury notes	$	1,499		$	1,502		$	—		$	—		$	3,001
U.S. agency notes		5,498			3,049			—			—			8,547
U.S. agency mortgage-backed securities		—			35,997			3,602			1,117			40,716
Collateralized mortgage obligations		—			987			3,173			—			4,160
Municipal securities		100			674			4,662			6,317			11,753

Total	$	7,097		$	42,209		$	11,437		$	7,434		$	68,177

Weighted average yield
U.S. Treasury notes		2.59	%		3.10	%		—			—			2.85	%
U.S. agency notes		3.36	%		3.29	%		—			—			3.34	%
U.S. agency mortgage-backed securities		—			3.87	%		4.77	%		5.89	%		4.00	%
Collateralized mortgage obligations		—			4.93	%		4.81	%		—			4.84	%
Municipal securities		8.03	%		5.74	%		5.35	%		6.05	%		5.77	%

Total		3.26	%		3.99	%		5.02	%		6.02	%		4.23	%


	At December 31, 2005
(in thousands)	One year or less			After one year to five years			After five years to ten years			Over ten years			Total

Maturity distribution
U.S. Treasury notes	$	4,524		$	2,452		$	—		$	—		$	6,976
U.S. agency notes		5,779			4,597			—			—			10,376
U.S. agency mortgage-backed securities		—			41,053			2,810			1,226			45,089
Collateralized mortgage obligations		—			—			3,414			—			3,414
State and municipal securities		100			679			3,525			4,875			9,179

Total	$	10,403		$	48,781		$	9,749		$	6,101		$	75,034

Weighted average yield
U.S. Treasury notes		3.11	%		4.19	%		—			—			3.50	%
U.S. agency notes		3.25	%		3.50	%		—			—			3.36	%
U.S. agency mortgage-backed securities		—			3.74	%		4.64	%		5.41	%		3.84	%
Collateralized mortgage obligations		—			—			4.79	%		—			4.79	%
State and municipal securities		8.03	%		5.69	%		5.45	%		6.00	%		5.79	%

Total		3.24	%		3.77	%		4.99	%		5.88	%		4.03	%

Securities, at amortized cost, declined to $68.2 million, or 9 percent, at June 30, 2006 from $75.0 million at December 31, 2005. The change in securities reflects the principal pay-downs on mortgage-backed securities and the sale of a U. S. Treasury securities.

Net unrealized holding losses at June 30, 2006 and December 31, 2005 were $2.4 million and $1.6 million, respectively. As a percentage of securities, at amortized cost, unrealized holding losses were 3.51 percent and 2.20 percent at the end of each respective period. Securities are comprised largely of U.S. government agency obligations, mortgage-backed securities and California municipal general obligation bonds. We have evaluated the unrealized losses of these securities and determined, as of June 30, 2006, that they were temporary and were related to the fluctuation in market interest rates since purchase.

Deposits

We primarily accept deposits of small businesses located principally in Ventura, Orange and Los Angeles Counties. Core deposits (representing checking, savings and small balance certificates of deposit (balances under $100,000)) totaled $298.3 million at June 30, 2006, the same as at December 31, 2005. Core deposits represent a significant low-cost source of funds that support our lending activities.

The following tables present the average balance and the average rate paid on each deposit category for the periods indicated.


	For the six months ended June 30,
	2006				2005
*(dollars in thousands)*	Average Balance		Rate		Average Balance		Rate

Core deposits
Noninterest bearing demand deposits	$	101,543			$	92,242
Interest checking		22,958	0.47	%		20,563	0.10	%
Savings accounts		78,168	1.76	%		63,273	0.73	%
Time deposits less than $100,000		100,559	3.45	%		30,023	2.17	%

Total core deposits		303,228	2.45	%		206,101	1.00	%

Noncore deposits
Time deposits of $100,000 or more		78,227	4.78	%		25,010	2.36	%

Total core and noncore deposits	$	381,455	2.26	%	$	231,111	1.24	%

Large balance certificates of deposits (balances of $100,000 or more) totaled $97.0 million at June 30, 2006, up from $74.0 million at December 31, 2005. A portion of these large balance time deposits represent deposits placed by the State of California with the Bank. The remainder represent time deposits accepted from customers in our market area. State of California time deposits represent $12.0 million of the increase since year end; time deposits from customers in our market area represent the remaining increase of $11.0 million. There were no broker deposits during or as of any period presented.

The following table presents the maturity of large balance certificates of deposits for the periods indicated.


*(in thousands)*	June 30, 2006				December 31, 2005
	Amount		Percentage		Amount		Percentage
Three months or less	$	54,425	56	%	$	28,960	39	%
Over three months through six months		9,470	10	%		19,947	27	%
Over six months through one year		23,725	24	%		9,358	13	%
Over one year		9,374	10	%		15,753	21	%

Total	$	96,993	100	%	$	74,018	100	%

Borrowings

First California Bank is a member of the FHLB. Membership allows us to borrow, approximately $166.1 million at June 30, 2006, to meet funding needs and otherwise assist in the management of liquidity risk. Borrowings with the FHLB are collateralized with our investment in FHLB stock as well as with loans or securities from time to time. At June 30, 2006, our investment in FHLB stock totaled $2.5 million compared with $2.4 million at December 31, 2005. The change in the amount of FHLB coincides with the change in the amount of borrowings.

The following table presents the amounts and weighted average interest rate of FHLB advances.


	Six Months Ended June 30, 2006				Year Ended December 31, 2005
*(in thousands)*	Federal Home Loan Bank Advances		Weighted average interest rate		Federal Home Loan Bank Advances		Weighted average interest rate

Amount outstanding at end of period	$	51,300	4.38	%	$	36,319	3.70	%
Maximum amount outstanding at any month-end during the period	$	51,300	4.38	%	$	47,566	3.39	%
Average amount outstanding during the period	$	32,276	4.81	%	$	35,202	3.71	%

The following table presents the maturities for FHLB advances at June 30, 2006.


*(in thousands)*	Amount		Maturity Year	Weighted Average Interest Rate

Overnight advances	$	25,000	2006	5.41	%
Term advances		8,050	2006	3.70	%
Term advances		10,750	2007	4.16	%
Term advances		6,000	2008	4.87	%
Term advances		1,500	2009	5.16	%

	$	51,300

Capital resources

The Board of Directors recognizes that a strong capital position is vital to growth, continued profitability, and depositor and investor confidence. The policy of the Board of Directors is to maintain sufficient capital at not less than the well-capitalized thresholds established by banking regulators. We have not paid cash or stock dividends since 2001.

The following tables present the capital amounts and ratios of FCB Bancorp with a comparison to the minimum ratios for the periods indicated.


*(in thousands)*	Actual			For Capital Adequacy Purposes
	Amount	Ratio		Amount	Ratio
June 30, 2006
Total capital (to risk weighted assets)	46,389	11.66	%	31,827	³	8.00	%
Tier I capital (to risk weighted assets)	41,905	10.53	%	15,918	³	4.00	%
Tier I capital (to average assets)	41,905	8.56	%	14,686	³	3.00	%

	Actual			For Capital Adequacy Purposes
	Amount	Ratio		Amount	Ratio
December 31, 2005
Total capital (to risk weighted assets)	44,545	11.74	%	30,352	³	8.00	%
Tier I capital (to risk weighted assets)	40,239	10.60	%	15,181	³	4.00	%
Tier I capital (to average assets)	40,239	8.69	%	13,889	³	3.00	%

The following tables present the capital amounts and ratios of First California Bank with a comparison to the minimum ratios for the periods indicated.


*(in thousands)*	Actual			For Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Provision
	Amount	Ratio		Amount	Ratio			Amount	Ratio
June 30, 2006
Total capital (to risk weighted assets)	45,799	11.51	%	31,832	³	8.00	%	39,791	³	10.00	%
Tier I capital (to risk weighted assets)	41,315	10.38	%	15,921	³	4.00	%	23,882	³	6.00	%
Tier I capital (to average assets)	41,315	8.92	%	18,527	³	4.00	%	23,159	³	5.00	%

	Actual			For Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Provision
	Amount	Ratio		Amount	Ratio			Amount	Ratio
December 31, 2005
Total capital (to risk weighted assets)	43,900	11.62	%	30,224	³	8.00	%	37,780	³	10.00	%
Tier I capital (to risk weighted assets)	39,595	10.48	%	15,113	³	4.00	%	22,669	³	6.00	%
Tier I capital (to average assets)	39,595	8.88	%	17,836	³	4.00	%	22,294	³	5.00	%

Dividends declared by the Bank to FCB in any calendar year may not, without the approval of state banking regulators, exceed the lesser of the Bank’s retained earnings or the sum of net income for the three previous years less dividend paid. At June 30, 2006, the Bank had approximately $2.7 million available for dividends under these restrictions.

Commitments, Contingent Liabilities, Contractual Obligations and Off-Balance Sheet Arrangements

In the normal course of business, we make commitments to extend credit or issues letters of credit to customers. These commitments generally are not recognized in the balance sheet. These commitments do involve, to varying degrees, elements of credit

risk; however, we use the same credit policies and procedures as we do for on-balance sheet credit facilities. Commitments to extend credit totaled $72.5 million at June 30, 2006, compared with $79.1 million at December 31, 2005. Commercial and standby letters of credit were $471,000 and $427,000 at June 30, 2006 and December 31, 2005, respectively.

The following is a schedule of our current contractual obligations by maturity and/or payment due date.


	June 30, 2006
*(in thousands)*	Less Than One Year		One to Three Years		Three to Five Years		Greater Than Five Years		Total

FHLB overnight advances	$	25,000	$	—	$	—	$	—	$	25,000
FHLB term advances		14,100		12,200		—		—		26,300
Salary continuation benefits		—		—		—		361		361
Director post-service award		—		92		—		—		92
Junior subordinated debentures		—		—		—		10,310		10,310
Operating lease obligations		740		1,456		1,152		3,022		6,370

Total	$	39,840	$	13,748	$	1,152	$	13,693	$	68,433

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk

Interest rate risk is the risk to earnings or capital arising from movements in interest rates. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (re-pricing risk), from changing the rate relationships among different yield curves affecting bank activities (basis risk), from changing rate relationships across the spectrum of maturities (yield curve risk), and from interest-related options embedded in loans and products (options risk).

We manage interest risk through Board approved policies and procedures. These policies are reviewed and approved at least annually by the Directors. Interest rate risk policies provide management with a framework for consistent evaluation of risk (a modified-gap analysis, an earnings-at-risk analysis and an economic value of equity analysis) and establish risk tolerance parameters. Management’s Asset and Liability Committee meets regularly to evaluate interest rate risk, engages a third party to assist in the measurement and evaluation of risk and reports quarterly to the Directors’ Funds Management Committee on compliance with policies. The Directors’ Audit Committee also engages a third party to perform a review of management’s asset and liability practices to ensure compliance with policies.

Our funding sources are dominated by checking and savings accounts, which either have no interest rate or are re-priced infrequently. Our loan portfolio is dominated by loans that use the Wall Street Journal prime rate as an index. Our securities portfolio is comprised chiefly of U.S. Agency mortgage-backed securities that are either fixed rate, adjustable or a hybrid. This composition produces a balance sheet that is generally asset-sensitive, that is as the general level of interest rates rise, net interest income generally increases and as the general level of interest rates fall, net interest income generally decreases.

We focus on the net re-pricing imbalances in the cumulative 1 year gap and the Board has established a policy of plus or minus 15 percent. The Board also has established a policy of plus or minus 30 percent for the cumulative 5 year gap. No policies have been established for the cumulative 3 month gap or the gap beyond 5 years. The 1 year gap ratio and the 5 year gap ratio are within policy at June 30, 2006.

The following table presents earning assets and interest bearing funds by re-pricing intervals:


	June 30, 2006 By repricing interval
*(in thousands)*	0-3 Months			4 - 12 Months			1-5 Years			> 5 Years			Total
Loans	$	197,919		$	42,956		$	123,937		$	10,528		$	375,340
Securities		6,154			11,630			27,988			20,014			65,786
Federal funds sold		8,900			—									8,900

Total earning assets		212,973			54,586			151,925			30,542			450,026

Deposits		119,571			122,193			38,777			—			280,542
Junior subordinated debentures								—			10,310			10,310
Borrowings		30,300			8,800			12,200			—			51,300

Total deposits and borrowings		149,871			130,993			50,977			10,310			342,152

Interest rate sensitivity gap	$	63,102		$	(76,407	)	$	100,947		$	20,232		$	107,874

Cumulative gap	$	63,102		$	(13,306	)	$	87,642		$	107,874

Cumulative gap as a percentage of earning assets		14.02	%		-2.96	%		19.47	%		23.97	%

Item 4. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures: An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management as of the end of the period covered by this report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b)

Changes in Internal Controls: There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

None

Item 1A.

Risk factors

There have been no material changes to FCB Bancorp’s risk factors previously disclosed under the caption “Risk Factors” on page 16 of FCB Bancorp’s Form 10-K filed with the SEC on March 30, 2006, covering the fiscal year ended December 31, 2005.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Submission of Matters to a Vote of Security Holders:

None

Item 5.

Other information

None

Item 6.

Exhibits

Exhibit Index:


2.1		Agreement and Plan of Merger, dated as of June 15, 2006, among National Mercantile Bancorp, FCB Bancorp and First California Financial Group, Inc. (Incorporated by reference to the Current Report on Form 8-K filed by FCB Bancorp on June 21, 2006)

10.1		Salary Continuation Agreement, dated May 11, 2006, with Romolo Santarosa (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 filed by FCB Bancorp)

10.2		Split Dollar Agreement, dated May 11, 2006, with Romolo Santarosa (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 filed by FCB Bancorp)

10.3		409A Amendment to the First California Bank Salary Continuation Agreement for Chong Guk Kim (Incorporated by reference to the Current Report on Form 8-K filed by FCB Bancorp on June 7, 2006)

10.4		409A Amendment to the First California Bank Salary Continuation Agreement for Thomas E. Anthony (Incorporated by reference to the Current Report on Form 8-K filed by FCB Bancorp on June 7, 2006)

10.5		Form of Voting Agreement, dated as of June 15, 2006, between FCB Bancorp and certain shareholders of National Mercantile Bancorp (Incorporated by reference to the Current Report on Form 8-K filed by FCB Bancorp on June 21, 2006)

10.6		Employment Agreement, dated as of June 15, 2006, between C. G. Kum and First California Financial Group, Inc. (Incorporated by reference to the Current Report on Form 8-K filed by FCB Bancorp on June 21, 2006)

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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


FCB BANCORP

/s/ C. G. Kum				August 14, 2006
C. G. Kum
President and Chief Executive Officer

/s/ Romolo Santarosa				August 14, 2006
Romolo Santarosa
Executive Vice President and Chief Financial Officer

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FCB Bancorp 10-Q