10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2008
Commission File No. 0-10232

FIRST REGIONAL BANCORP
(Exact name of registrant as specified in its charter)

California (State or other jurisdiction of incorporation or organization)	95-3582843 (I.R.S. Employer Identification Number)
1801 Century Park East Los Angeles, California (Address of principal executive offices)	90067 (Zip Code)

Registrant's telephone number, including area code: (310) 552-1776

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value
(Title of class) Nasdaq Global Market
Name of each exchange on which registered

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o    No  ý

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o    No  ý

        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  ý    No  o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

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

Large accelerated filer o Accelerated filer o Non-accelerated filer ý
(Do not check if a smaller reporting company) Smaller reporting company o

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

        Aggregate market value of Common Stock held by non-affiliates as of June 30, 2008: $45,231,073

        Number of shares of Common Stock outstanding at March 6, 2009: 11,836,016

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for our 2009 Annual Meeting of Shareholders (to be filed within 120 days of fiscal year end) are incorporated by reference into Part III.

FORM 10-K
TABLE OF CONTENTS AND
CROSS REFERENCE SHEET

			Page in 10-K		Incorporated by Reference to:
PART I
	Item 1.	Business		3
	Item 1A.	Risk Factors		27
	Item 1B.	Unresolved Staff Comments		33
	Item 2.	Properties		33
	Item 3.	Legal Proceedings		35
	Item 4.	Submission of Matters to a Vote of Security Holders		35
PART II
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		36
	Item 6.	Selected Financial Data		39
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		40
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		57
	Item 8.	Financial Statements and Supplementary Data		58
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		58
	Item 9A.	Controls and Procedures		58
	Item 9B.	Other Information		61
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		62	2009 Proxy Statement
	Item 11.	Executive Compensation		62	2009 Proxy Statement
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		62	2009 Proxy Statement
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		62	2009 Proxy Statement
	Item 14.	Principal Accountant Fees and Services		62	2009 Proxy Statement
PART IV
	Item 15.	Exhibits, Financial Statement Schedules		63
SIGNATURES				64
INDEX TO FINANCIAL STATEMENTS				65
INDEX TO EXHIBITS				105

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PART I

Item 1.    Business

Business of First Regional Bancorp

        First Regional Bancorp (the "Company") maintains its principal executive offices at 1801 Century Park East, Los Angeles, California 90067. The Company was incorporated in California as Great American Bancorp on February 18, 1981 for the purpose of becoming a bank holding company and acquiring all of the outstanding common stock of First Regional Bank (the "Bank"), formerly Great American Bank, a state-chartered bank headquartered in Los Angeles (Century City), California. The reorganization of the Bank was accomplished on March 8, 1982, under the terms of a Plan of Reorganization and Merger Agreement dated October 15, 1981, providing for the merger of a Company subsidiary with the Bank, with the Bank being the surviving entity in the merger. As a result of the Bank's reorganization, the Bank's outstanding shares were exchanged on a one-for-one basis for shares of the Company's Common Stock, and the Company became the sole shareholder of the Bank. Prior to acquiring the Bank, the Company did not conduct any ongoing business activities. The Company's principal asset is the stock of the Bank and the Company's primary function is to coordinate the general policies and activities of the Bank, as well as to consider from time to time, other legally available investment opportunities. Both the Company and the Bank changed their names from Great American to First Regional in 1987 as part of an agreement with another financial institution.

        Certain matters discussed in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995 (the "Reform Act") and as such may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company and the Bank operate, projections of future performance, perceived opportunities in the market, and statements regarding the Company's and/or the Bank's mission and vision. The Company's and/or the Bank's actual results, performance, or achievements may differ significantly from the results, performance, or achievements expressed or implied in such forward-looking statements. The following discusses certain factors, which may affect the Company's and/or the Bank's financial results and operations and should be considered in evaluating the Company and/or the Bank.

        The Company does not anticipate that its operations will be materially affected as a result of compliance with Federal, State and local environmental laws and regulations.

Business of First Regional Bank

        The Bank was incorporated under the laws of the State of California on July 10, 1979, and has authorized capital of 5,000,000 shares of no par value Common Stock. The Bank commenced operations as a California-chartered bank on December 31, 1979. The Bank conducts a business-oriented wholesale banking operation, with services tailored to the needs of businesses and professionals in its service area. The Bank's main office is located in the Century City office complex in Los Angeles, California. The Bank also has Regional Offices located in the California cities of Irvine, Glendale, Santa Monica, Torrance, Encino, Hollywood, Downtown Los Angeles, Anaheim, and Westlake Village. The Bank also has a Merchant Services division located in Agoura Hills, California. The Bank has a Trust Administration Services division located in Carlsbad, California that provides administrative services for self-directed retirement plans. The Bank's customers include professionals working in the primary service areas as well as many business accounts located throughout the counties of Los Angeles, Ventura and Orange. In distinction from many other independent banks in California, the Bank's deposit business is generated by a relatively small number of accounts, although most accounts have a very high average balance.

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        The Bank offers a full range of lending services including commercial, real estate, and real estate construction loans. The Bank has developed a substantial portfolio of short and medium-term "mini-perm" first trust deed loans for income properties as well as specializing in construction lending for moderate-size commercial and residential projects. The Bank also offers commercial loans for commercial and industrial borrowers, which includes equipment financing as well as short-term loans. Typically, the Bank's loans are floating rate and have no prepayment penalties. Rising interest rates could lead to increased levels of loan prepayments and competitive pressure on contracted interest rates. The Bank also offers standard banking services for its customers, including telephone transfers, wire transfers, and travelers checks. The Bank accepts all types of demand, savings, and time certificates of deposit. The Bank's Merchant Services division offers credit card deposit and clearing services for retailers and other businesses that accept credit cards. Management has evaluated the Company's overall operation and determined that its business consists of three reportable business segments: (1) core bank operations, (2) the administrative services provided by the Bank's division, Trust Administration Services, and (3) Trust Services. For segment reporting financial information, see Note 19 of the Consolidated Financial Statements. The Bank formed Trust Administration Services during 1999 to provide administrative services for self-directed retirement plans. The Bank commenced offering trust services for living trusts, investment agency accounts, IRA rollovers and all forms of court-related matters in 2001. At March 13, 2009 the Bank had 288 equivalent full-time employees.

Competition

        The banking business in California generally, and in the Los Angeles, Ventura and Orange County areas where the Bank is located, is highly competitive with respect to both loans and deposits and is dominated by a relatively small number of major banks which have many offices operating over wide geographic areas. The Bank competes for deposits and loans principally with these major banks, but also with small independent banks located in its service areas. Among the advantages which the major banks have over the Bank are their ability to finance extensive advertising campaigns and to allocate their investment assets to regions of highest yield and demand. Many of the major commercial banks operating in the Bank's service area offer certain services, which are not offered directly by the Bank and, by virtue of their greater total capitalization, such banks have substantially higher lending limits than the Bank.

        Moreover, banks generally, and the Bank in particular, face increasing competition for loans and deposits from non-bank financial intermediaries such as savings and loan associations, thrift and loan associations, credit unions, mortgage companies, insurance companies, and other lending institutions. Money market funds offer rates competitive with banks, and an increasingly sophisticated financial services industry continually develops new products for consumers that compete with banks for investment dollars. In addition, other entities (both public and private) seeking to raise capital through the issuance and sale of debt or equity securities compete with banks in the acquisition of deposits.

Interstate Competition

        The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), enacted on September 29, 1994, provides that interstate branching and merging of existing banks is permitted beginning June 1, 1997, provided that the banks are at least adequately capitalized and demonstrate good management. The states are also authorized to enact a law to permit interstate banks to branch de novo.

        On August 9, 1989, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") was signed into law. Among other things, FIRREA allows the acquisition of healthy and failed savings associations by bank holding companies, and imposes no interstate barriers on such bank holding company acquisitions. With certain qualifications, FIRREA also allows bank holding companies to merge acquired savings associations into their existing commercial bank subsidiaries; however, for a

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period of five years from the date of enactment, the acquired savings association must continue as a member of, and continue to pay premiums to, the Savings Association Insurance Fund, which was created by FIRREA to replace the Federal Savings and Loan Insurance Corporation deposit insurance fund, which FIRREA abolished.

        Recent legislation and economic developments have favored increased competition between different types of financial institutions for both deposits and loans, resulting in increased cost of funds to banks generally and to the Bank in particular. In order to compete with the other financial institutions in its service area, the Bank relies principally upon personal contacts by its officers, directors, founders, employees and shareholders; local promotional activity including direct mail, advertising in local newspapers and business journals; and specialized services. The Bank's promotional activities emphasize the advantages of dealing with a locally-owned and headquartered institution attuned to the particular needs of the community. In the event that a customer's loan demands exceed the Bank's lending limits, the Bank can arrange for such loans on a participation basis with its correspondent banks. The Bank also assists customers requiring services not offered by the Bank to obtain these services from its correspondent banks.

Supervision and Regulation

Introduction

        Banking is a complex, highly regulated industry. The primary goals of the regulatory scheme are to maintain a safe and sound banking system, protect depositors and the Federal Deposition Insurance Corporation's insurance fund, and facilitate the conduct of sound monetary policy. In furtherance of these goals, Congress and the states have created several largely autonomous regulatory agencies and enacted numerous laws that govern banks, bank holding companies and the financial services industry. Consequently, the growth and earnings performance of the Company and the Bank can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statues, regulations and the policies of various governmental regulatory authorities, including the Board of Governors of the Federal Reserve System, or the FRB, the Federal Deposit Insurance Corporation, or the FDIC, and the California Department of Financial Institutions, or the DFI.

        The system of supervision and regulation applicable to financial services businesses governs most aspects of the business of the Company and the Bank, including: (i) the scope of permissible business; (ii) investments; (iii) reserves that must be maintained against deposits; (iv) capital levels that must be maintained; (v) the nature and amount of collateral that may be taken to secure loans; (vi) the establishment of new branches; (vii) mergers and consolidations with other financial institutions; and (viii) the payment of dividends.

        From time to time laws or regulations are enacted which have the effect of increasing the cost of doing business, limiting or expanding the scope of permissible activities, or changing the competitive balance between banks and other financial and non-financial institutions. Proposals to change the laws and regulations governing the operations of banks and bank holding companies are frequently made in Congress, in the California legislature and by various bank and other regulatory agencies. Future changes in the laws, regulations or polices that impact the Company and the Bank cannot necessarily be predicted, but they may have a material effect on the business and earnings of the Company and the Bank.

The Company

        General.    As a bank holding company, the Company is registered under the Bank Holding Company Act of 1956, as amended, or the BHCA, and is subject to regulation by the FRB. According to FRB policy, the Company is expected to act as a source of financial strength for the Bank, and is

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subject to periodic examination by the FRB. The Company is also required to file periodic reports of its operations and any additional information regarding its activities and those of its subsidiaries, as may be required by the FRB.

        The Company is also a bank holding company within the meaning of Section 3700 of the California Financial Code. Consequently, the Company and the Bank are subject to examination by, and may be required to file reports with, the DFI. Regulations have not yet been proposed or adopted or steps otherwise taken to implement the DFI's powers under this statute.

        Bank Holding Company Liquidity.    The Company is a legal entity, separate and distinct from the Bank. The Company has the ability to raise capital on its own behalf or borrow from external sources. The Company may also obtain additional funds from dividends paid by, and fees charged for services provided to, the Bank. However, regulatory constraints on the Bank may restrict or totally preclude the payment of dividends by the Bank to the Company.

        The Company is entitled to receive dividends, when and as declared by the Bank's Board of Directors. Those dividends may come from funds legally available for those dividends, as specified and limited by the California Financial Code. Under the California Financial Code, funds available for cash dividends by a California-chartered bank are restricted to the lesser of: (i) the bank's retained earnings; or (ii) the bank's net income for its last three fiscal years (less any distributions to shareholders made during such period). With the prior approval of the DFI, cash dividends may also be paid out of the greater of: (a) the bank's retained earnings; (b) net income for the bank's last preceding fiscal year; or (c) net income or the bank's current fiscal year. In addition to these restrictions, the formal regulatory agreement which the Company is currently subject to restricts First Regional Bank from paying cash dividends to the Company without prior regulatory approval. (See "Regulatory Agreement," below).

        If the DFI determines that the shareholders' equity of the bank paying the dividend is not adequate or that the payment of the dividend would be unsafe or unsound for the bank, the DFI may order the bank not to pay the dividend. Since the Bank is an FDIC insured institution, it is also possible, depending upon its financial condition and other factors, that the FDIC could assert that the payment of dividends or other payments might, under some circumstances, constitute an unsafe or unsound practice and thereby prohibit such payments.

        Transactions with Affiliates.    The Company and any subsidiaries it may purchase or organize are deemed to be affiliates of the Bank within the meaning of Sections 23A and 23B of the Federal Reserve Act and the FRB's Regulation W. Under Sections 23A and 23B and Regulation W, loans by the Bank to affiliates, investments by them in affiliates' stock, and taking affiliates' stock as collateral for loans to any borrower is limited to 10% of the Bank's capital, in the case of any one affiliate, and is limited to 20% of the Bank's capital, in the case of all affiliates. In addition, transactions between the Bank and other affiliates must be on terms and conditions that are consistent with safe and sound banking practices; in particular, a bank and its subsidiaries generally may not purchase from an affiliate a low-quality asset, as defined in the Federal Reserve Act. These restrictions also prevent a bank holding company and its other affiliates from borrowing from a banking subsidiary of the bank holding company unless the loans are secured by marketable collateral of designated amounts. The Company and the Bank are also subject to certain restrictions with respect to engaging in the underwriting, public sale and distribution of securities.

        Limitations on Business and Investment Activities.    Under the BHCA, a bank holding company must obtain the FRB's approval before: (i) directly or indirectly acquiring more than 5% ownership or control of any voting shares of another bank or bank holding company; (ii) acquiring all or substantially all of the assets of another bank; (iii) or merging or consolidating with another bank holding company.

        The FRB may allow a bank holding company to acquire banks located in any state of the United States without regard to whether the acquisition is prohibited by the law of the state in which the

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target bank is located. In approving interstate acquisitions, however, the FRB must give effect to applicable state laws limiting the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institutions in the state in which the target bank is located, provided that those limits do not discriminate against out-of-state depository institutions or their holding companies, and state laws which require that the target bank have been in existence for a minimum period of time, not to exceed five years, before being acquired by an out-of-state bank holding company.

        In addition to owning or managing banks, bank holding companies may own subsidiaries engaged in certain businesses that the FRB has determined to be "so closely related to banking as to be a proper incident thereto." The Company, therefore, is permitted to engage in a variety of banking-related businesses. Some of the activities that the FRB has determined, pursuant to its Regulation Y, to be related to banking are: (i) making or acquiring loans or other extensions of credit for its own account or for the account of others; (ii) servicing loans and other extensions of credit; (iii) performing functions or activities that may be performed by a trust company in the manner authorized by federal or state law under certain circumstances; (iv) leasing personal and real property or acting as agent, broker, or adviser in leasing such property in accordance with various restrictions imposed by FRB regulations; (v) acting as investment or financial advisor; (vi) providing management consulting advise under certain circumstances; (vii) providing support services, including courier services and printing and selling MICR-encoded items; (viii) acting as a principal, agent, or broker for insurance under certain circumstances; (ix) making equity and debt investments in corporations or projects designed primarily to promote community welfare or jobs for residents; (x) providing financial, banking, or economic data processing and data transmission services; (xi) owning, controlling, or operating a savings association under certain circumstances; (xii) selling money orders, travelers' checks and U.S. Savings Bonds; (xiii) providing securities brokerage services, related securities credit activities pursuant to Regulation T, and other incidental activities; and (xiv) underwriting and dealing in obligations of the U.S., general obligations of states and their political subdivisions, and other obligations authorized for state member banks under federal law.

        Additionally, qualifying bank holding companies making an appropriate election to the FRB may engage in a full range of financial activities, including insurance, securities and merchant banking. The Company has not elected to qualify for these financial activities.

        Federal law prohibits a bank holding company and any subsidiary banks from engaging in certain tie-in arrangements in connection with the extension of credit. Thus, for example, the Bank may not extend credit, lease or sell property, or furnish any services, or fix or vary the consideration for any of the foregoing on the condition that: (i) the customer must obtain or provide some additional credit, property or services from or to the Bank other than a loan, discount, deposit or trust services; (ii) the customer must obtain or provide some additional credit, property or service from or to the Company or any subsidiaries; or (iii) the customer must not obtain some other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended.

        Capital Adequacy.    Bank holding companies must maintain minimum levels of capital under the FRB's risk-based capital adequacy guidelines. If capital falls below minimum guideline levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses.

        The FRB's risk-based capital adequacy guidelines, discussed in more detail below in the section entitled "SUPERVISION AND REGULATION—First Regional Bank—Regulatory Capital Guidelines," assign various risk percentages to different categories of assets, and capital is measured as a percentage of risk assets. Under the terms of the guidelines, bank holding companies are expected to meet capital adequacy guidelines based both on total risk assets and on total assets, without regard to risk weights.

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        The risk-based guidelines are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual organizations. For example, the FRB's capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Moreover, any banking organization experiencing or anticipating significant growth or expansion into new activities, particularly under the expanded powers under the Gramm-Leach-Bliley Act, would be expected to maintain capital ratios, including tangible capital positions, well above the minimum levels.

        Limitations on Dividend Payments.    California Corporations Code Section 500 allows the Company to pay a dividend to its shareholders only to the extent that the Company has retained earnings and, after the dividend, the Company's (i) assets (exclusive of goodwill and other intangible assets) would be 1.25 times its liabilities (exclusive of deferred taxes, deferred income and other deferred credits); and (ii) current assets would be at least equal to current liabilities.

        Additionally, the FRB's policy regarding dividends provides that a bank holding company should not pay cash dividends exceeding its net income or which can only be funded in ways that weaken the bank holding company's financial health, such as by borrowing. The FRB also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.

        The Sarbanes-Oxley Act of 2002.    The Sarbanes-Oxley Act of 2002, or the SOX, became effective on July 30, 2002, and represents the most far reaching corporate and accounting reform legislation since the enactment of the Securities Act of 1933 and the Exchange Act of 1934. The SOX is intended to provide a permanent framework that improves the quality of independent audits and accounting services, improves the quality of financial reporting, strengthens the independence of accounting firms and increases the responsibility of management for corporate disclosures and financial statements. It is intended that by addressing these weaknesses, public companies will be able to avoid the problems encountered by several infamous companies in 2001-2002.

        The SOX's provisions are significant to all companies that have a class of securities registered under Section 12 of the Exchange Act, or are otherwise reporting to the SEC (or the appropriate federal banking agency) pursuant to Section 15(d) of the Exchange Act, including the Company (collectively, "public companies"). In addition to SEC rulemaking to implement the SOX, The Nasdaq National Market has adopted corporate governance rules intended to allow shareholders to more easily and effectively monitor the performance of companies and directors. The principal provisions of the SOX, many of which have been interpreted through regulations released in 2003, provide for and include, among other things: (i) the creation of an independent accounting oversight board; (ii) auditor independence provisions that restrict non-audit services that accountants may provide to their audit clients; (iii) additional corporate governance and responsibility measures, including the requirement that the chief executive officer and chief financial officer of a public company certify financial statements; (iv) the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement; (v) an increase in the oversight of, and enhancement of certain requirements relating to, audit committees of public companies and how they interact with the Company's independent auditors; (vi) requirements that audit committee members must be independent and are barred from accepting consulting, advisory or other compensatory fees from the issuer; (vii) requirements that companies disclose whether at least one member of the audit committee is a "financial expert' (as such term is defined by the SEC) and if not discussed, why the audit committee does not have a financial expert; (viii) expanded disclosure requirements for corporate insiders, including accelerated reporting of stock transactions by insiders and a prohibition on insider trading during pension blackout periods; (ix) a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions on

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non-preferential terms and in compliance with other bank regulatory requirements; (x) disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code; (xi) a range of enhanced penalties for fraud and other violations; and (xii) expanded disclosure and certification relating to an issuer's disclosure controls and procedures and internal controls over financial reporting.

        As a result of the SOX, and its implementing regulations, the Company has incurred substantial cost to interpret and ensure compliance with the law and its regulations. Future changes in the laws, regulation, or policies that impact the Company cannot necessarily be predicted and may have a material effect on the business and earnings of the Company.

First Regional Bank

        The Bank is extensively regulated under both federal and state law.

        The Bank, as a California state chartered bank which is not a member of the Federal Reserve System, is subject to regulation, supervision, and regular examination by the DFI and the FDIC. The Bank's deposits are insured by the FDIC up to the maximum extent provided by law. The regulations of these agencies govern most aspects of the Bank's business. California law exempts all banks from usury limitations on interest rates.

        Various requirements and restrictions under the laws of the State of California and the United States affect the operations of the Bank. State and federal statutes and regulations relate to many aspects of the Bank's operations, including standards for safety and soundness, reserves against deposits, interest rates payable on deposits and loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, fair lending requirements, Community Reinvestment Act activities and loans to affiliates. Further, the Bank is required to maintain certain levels of capital.

        Regulatory Capital Guidelines.    The federal banking agencies have established minimum capital standards known as risk-based capital guidelines. These guidelines are intended to provide a measure of capital that reflects the degree of risk associated with a bank's operations. The risk-based capital guidelines include both a definition of capital and a framework for calculating the amount of capital that must be maintained against a bank's assets and off-balance sheet items. The amount of capital required to be maintained is based upon the credit risks associated with the various types of a bank's assets and off-balance sheet items. A bank's assets and off-balance sheet items are classified under several risk categories, with each category assigned a particular risk weighting from 0% to 100%. The following table sets forth the regulatory capital guidelines and the actual capitalization levels for the Bank and the Company as of December 31, 2008:

	Adequately Capitalized			Well Capitalized			First Regional Bank			Company (Consolidated)
	(greater than or equal to)
Total risk-based capital		8.00	%		10.00	%		10.34	%		11.28	%
Tier 1 risk-based capital ratio		4.00	%		6.00	%		9.08	%		8.09	%
Tier 1 leverage capital ratio		4.00	%		5.00	%		9.19	%		8.19	%

        As of December 31, 2008 and 2007, the Bank met the regulatory capital ratio requirements to be categorized as "well capitalized" under the regulatory framework for prompt corrective action, which regulatory framework applies to banks but not to bank holding companies. The ratio requirements to be categorized as "well capitalized," are as set forth in the table above. (See below, under "Regulatory Agreement" for additional information regarding the Bank's target capital ratios.)

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        To enhance regulatory capital and to provide liquidity, the Company, through unconsolidated subsidiary grantor trusts, issued $97.5 million (net of common stock) of trust preferred securities. These securities are currently included in our Tier I capital for purposes of determining the Company's Tier I and total risk-based capital ratios. The FRB has promulgated a modification of the capital regulations affecting trust preferred securities. Under this modification, effective March 31, 2009, the Company will be required to use a more restrictive formula to determine the amount of trust preferred securities that can be included in regulatory Tier I capital. At that time, the Company will be allowed to include in Tier I capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which is generally defined as shareholders' equity, less goodwill and any related deferred income tax liability. The regulations currently in effect through December 31, 2008, limit the amount of trust preferred securities that can be included in Tier I capital to 25% of the sum of core capital elements without a deduction for goodwill. Management has determined that the Company's Tier I capital ratios would remain above the "well-capitalized" level had the modification of the capital regulations been in effect at December 31, 2008. Management expects that the Company's Tier I capital ratios will be at or above the existing well capitalized levels on March 31, 2009, the first date on which the modified capital regulations must be applied.

        Prompt Corrective Action.    The federal banking agencies possess broad powers to take prompt corrective action to resolve the problems of insured banks. Each federal banking agency has issued regulations defining five capital categories: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." Under the regulations, a bank shall be deemed to be:

•

"well capitalized" if it has a total risk-based capital ratio of 10.0% or more, has a Tier 1 risk-based capital ratio of 6.0% or more, has a leverage capital ratio of 5.0% or more, and is not subject to specified requirements to meet and maintain a specific capital level for any capital measure;

•

"adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 4.0% or more, and a leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized";

•

"undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less than 4.0%, or a leverage capital ratio that is less than 4.0% (3.0% under certain circumstances);

•

"significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a leverage capital ratio that is less than 3.0%; and

•

"critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.

        Banks are prohibited from paying dividends or management fees to controlling persons or entities if, after making the payment the bank would be "undercapitalized," that is, the bank fails to meet the required minimum level for any relevant capital measure. Asset growth and branching restrictions apply to "undercapitalized" banks. Banks classified as "undercapitalized" are required to submit acceptable capital plans guaranteed by their holding companies, if any. Broad regulatory authority was granted with respect to "significantly undercapitalized" banks, including forced mergers, growth restrictions, ordering new elections for directors, forcing divestiture by their holding companies, if any, requiring management changes, and prohibiting the payment of bonuses to senior management. Even more severe restrictions are applicable to "critically undercapitalized" banks, those with capital at or less than 2%. Restrictions for these banks include the appointment of a receiver or conservator. All of the

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federal banking agencies have promulgated substantially similar regulations to implement this system of prompt corrective action.

        A bank, based upon its capital levels, that is classified as "well capitalized," "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for a hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. At each successive lower capital category, an insured bank is subject to more restrictions. The federal banking agencies, however, may not treat an institution as "critically undercapitalized" unless its capital ratios actually warrant such treatment.

        In addition to measures taken under the prompt corrective action provisions, insured banks may be subject to potential enforcement actions by the federal banking agencies for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, and the issuance of removal and prohibition orders against institution-affiliated parties. The enforcement of such actions through injunctions or restraining orders may be based upon a judicial determination that the agency would be harmed if such equitable relief was not granted.

        The DFI, as the primary regulator for state-chartered banks, also has a broad range of enforcement measures, from cease and desist powers and the imposition of monetary penalties to the ability to take possession of a bank, including causing its liquidation.

Regulatory Agreement

        During February 2009, the Bank signed an order to cease and desist with the Federal Deposit Insurance Corporation (the "FDIC") and the California Department of Financial Institutions (the "DFI") to further strengthen the Bank's operations. The agreement between First Regional Bank and its regulators is expected to help guide the Bank in addressing the impacts of today's challenging economic environment. The agreement formalizes many of the initiatives which the Bank has already adopted, and provides useful milestones for measuring the Bank's progress as it moves forward.

        Under the agreement, First Regional Bank will:

•

Retain qualified management, and continue the active involvement of its board of directors in managing the Bank's activities

•

Increase its capital ratios based on a pre-determined schedule, and develop a comprehensive capital plan to assure compliance with that schedule

•

Eliminate from its books any assets classified loss and a portion of any assets classified doubtful that have not already been charged-off or collected, and develop a comprehensive plan to reduce classified assets based on a pre-determined schedule

•

Create and implement a plan to increase the diversification of the Bank's lending activities

•

Create and implement a comprehensive profit plan to improve the Bank's earnings performance

•

Update or revise the Bank's written policies in the areas of credit administration and liquidity management

        As previously noted, First Regional Bank continues to maintain "well capitalized" ratios, the highest standards established by banking regulators. However, in connection with the Bank's plan to

11

increase its capital ratios, the Bank has agreed to maintain a minimum Tier 1 leverage ratio of 9.5% of the Bank's total assets and to maintain such ratio at 10% as of September 30, 2009. Also as a part of such plan, First Regional Bank and its parent, First Regional Bancorp, have also authorized the contribution by First Regional Bancorp, from its cash reserves, of $12 million into the Bank as additional Bank capital, which contribution was made during February 2009.

        Under the prompt corrective action rules, a capital maintenance requirement prevents the Bank from accepting or renewing brokered deposits without first obtaining a waiver from the FDIC. The Bank has applied to the FDIC for permission to continue to accept certain types of brokered deposits. At December 31, 2008 and 2007, the Bank had brokered deposits of approximately $650 million and $3 million, respectively. (See "Liquidity, Sources of Funds, and Capital Resources" for additional information regarding deposits.)

        In addition to the above restrictions, the agreement also restricts First Regional Bank from paying cash dividends to the Company without prior regulatory approval.

        In the interest of preserving its remaining cash reserves during a challenging period, First Regional Bancorp intends to defer interest payments on its trust preferred securities for a period of one year, or until March 2010. First Regional Bancorp has the right to defer interest payments for up to five years under the indentures governing its various trust preferred securities. Under the indentures governing the Company's trust preferred securities, the Company is prohibited from taking certain actions during the period of interest deferral, such as paying dividends and repurchasing shares of the Company's stock.

        First Regional Bank intends to achieve full compliance with the agreement in a timely manner. As the agreement includes many initiatives previously adopted by the Bank, the implementation of those measures has already begun. Even after the terms of the agreement have been satisfied, First Regional Bank plans to continue its efforts to further enhance the Bank's capital strength, asset quality, and operating performance.

        Federal Deposit Insurance.    The FDIC has implemented a risk-based assessment system in which the deposit insurance premium relates to the probability that the deposit insurance fund will incur a loss. Under the risk-based assessment system adopted by the FDIC, effective January 1, 2007, banks are categorized into one of four categories based upon supervisory and capital evaluations. In practice, the subgroup evaluations will generally be based on an institution's composite CAMELS rating assigned to it by the institution's federal supervisor at the end of its examination. The CAMELS rating system is based upon an evaluation of the five critical elements of an institution's operations: Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to risk. This rating system is designed to take into account and reflect all significant financial and operational factors financial institution examiners assess in their evaluation of an institution's performance. The following table sets forth these four Risk Categories:

	Supervisory Subgroup
Capital Group	A	B	C
1. Well Capitalized	I		III
2. Adequately Capitalized	II
3. Undercapitalized	III		IV

        Within Risk Category I, the assessment system combines supervisory ratings with other risk measures to differentiate risk. For most institutions, the assessment system combines CAMELS component ratings with financial ratios to determine an institution's assessment rate. For large institutions that have long-term debt issuer ratings, the new assessment system differentiates risk by

12

combining CAMELS component ratings with those ratings. For large institutions within Risk Category I, initial assessment rate determinations may be modified within limits upon review of additional relevant information. The new assessment system assess those within Risk Category I that pose the least risk a minimum assessment rate and those that pose the greatest risk a maximum assessment rate that is two basis points higher. An institution that poses an intermediate risk within Risk Category I will be charged a rate between the minimum and maximum that will vary incrementally by institution.

        On February 27, 2009, the FDIC adopted final rules modifying the risk-based assessment system and setting initial base assessment rates beginning April 1, 2009. Under these new rules, risk assessments for small risk category I institutions and large risk category I institutions with no long-term debt rating will include a consideration of such institutions' adjusted brokered deposit ratio. The adjusted brokered deposit ratio affects institutions whose brokered deposits are more than 10 percent of domestic deposits and whose total assets are more than 40 percent greater than they were four years previously. The adjusted brokered deposit ratio excludes certain reciprocal deposits for institutions in Risk Category I. Brokered deposits that consist of balances swept into an insured institution are included in the adjusted brokered deposit ratio for all institutions.

        Further, the new rules revised the method for calculating the assessment rate for a large risk category I institution with a long-term debt issuer rating so that it equally weights the institution's weighted average CAMELS component ratings, its long-term debt issuer ratings and the financial ratios method assessment rate. The final rule updates the uniform amount and the pricing multipliers for the weighted average CAMELS component ratings and financial ratios method. It also increases the maximum possible large bank adjustment from 0.5 basis point to 1.0 basis point.

        These new rules set forth three possible adjustments to an institution's initial base assessment rate: (i) a decrease of up to five basis points for long-term unsecured debt, including senior unsecured debt (other than debt guaranteed under the Temporary Liquidity Guarantee Program) and subordinated debt and, for small institutions, a portion of Tier 1 capital; (ii) an increase not to exceed 50 percent of an institution's assessment rate before the increase for secured liabilities in excess of 25 percent of domestic deposits; and (ii) for non-Risk Category I institutions, an increase not to exceed 10 basis points for brokered deposits in excess of 10 percent of domestic deposits.

        Under these new rules, the FDIC adopted new initial base assessment rates as of April 1, 2009, as follows:

Initial Base Assessment Rates

	Risk Category
	I *
	Minimum		Maximum		II		III		IV
Annual Rates (in basis points)		12		16		22		32		45

*

Initial base rates that were not the minimum or maximum rate will vary between these rates.

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        After applying all possible adjustments, minimum and maximum total base assessment rates for each risk category are as follows:

Total Base Assessment Rates

	Risk Category I		Risk Category II		Risk Category III		Risk Category IV
Initial base assessment rate		12 - 16		22		32		45
Unsecured debt adjustment		-5 - 0		-5 - 0		-5 - 0		-5 - 0
Secured liability adjustment		0 - 8		0 - 11		0 - 16		0 - 22.5
Brokered deposit adjustment				0 - 10		0 - 10		0 - 10
Total base assessment rate		7 - 24.0		17 - 43.0		27 - 58.0		40 - 77.5

*

All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum or maximum rate will vary between these rates.

        In addition, on February 27, 2009, the FDIC adopted an interim rule that imposes a 20 basis point emergency special assessment on all insured depository institutions on June 30, 2009. The special assessment will be collected September 30, 2009, at the same time that the risk-based assessments for the second quarter of 2009 are collected. The interim rule also permits the FDIC to impose an emergency special assessment of up to 10 basis points on all insured depository institutions whenever, after June 30, 2009, the FDIC estimates that the DIF reserve ratio will fall to a level that the FDIC believes would adversely affect public confidence or to a level close to zero or negative at the end of a calendar quarter.

        The FDIC may seek to terminate its insurance of deposits if it finds, and then prevails in proving to an administrative law judge, at an administrative judicial hearing, that the Bank has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

        Effective November 21, 2008 and until December 31, 2009, the FDIC expanded deposit insurance limits for certain accounts under the FDIC's Temporary Liquidity Guarantee Program. Provided an institution has not opted out of the Temporary Liquidity Guarantee Program, the FDIC may (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008 and before June 30, 2009 and, (ii) will provide full FDIC deposit insurance coverage for noninterest bearing transaction deposit accounts, Negotiable Order of Withdrawal ("NOW") accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust Accounts ("IOLTA") accounts held at participating FDIC-insured institutions through December 31, 2009. Coverage under the TLGP was available for the first 30 days without charge. The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial maturity of the debt. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000. First Regional is monitoring the many programs which continue to emerge as part of the Federal government's efforts to stabilize and strengthen the nation's economy. All programs are evaluated based on their applicability to First Regional, and whether they will provide benefit to the Company and its shareholders. The Company's subsidiary, First Regional Bank, is participating in the program to provide full deposit insurance coverage of non-interest bearing deposit transaction accounts under the FDIC's Temporary Liquidity Guarantee Program. As neither the Company nor First Regional Bank anticipate issuing qualifying debt, they will not participate in the debt guarantee portion of the Temporary Liquidity Guarantee.

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        Money Laundering and Currency Controls.    Various federal statutory and regulatory provisions are designed to enhance record-keeping and reporting of currency and foreign transactions. Pursuant to the Bank Secrecy Act, financial institutions must report high levels of currency transactions or face the imposition of civil monetary penalties for reporting violations. The Money Laundering Control Act imposes sanctions, including revocation of federal deposit insurance, for institutions convicted of money laundering.

        The International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 ("IMLAFATA"), a part of the comprehensive anti-terrorism legislation, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, known as the Patriot Act. ("USA Patriot Act"). The IMLAFATA authorizes the Secretary of the Treasury, in consultation with the heads of other government agencies, to adopt special measures applicable to banks and other financial institutions to enhance record-keeping and reporting requirements for certain financial transactions that are of primary money laundering concern. Among its other provisions, IMLAFATA requires each financial institution to: (i) establish an anti-money laundering program; (ii) establish due diligence policies, procedures and controls with respect to its private banking accounts and correspondent banking accounts involving individuals and certain foreign banks; and (iii) avoid establishing, maintaining, administering, or managing correspondent accounts in the Untied States for, or on behalf of, a foreign bank that does not have a physical presence in any country. In addition, IMLAFATA contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities.

        The Treasury Department's regulations implementing IMLAFATA mandate that federally-insured banks and other financial institutions establish customer identification programs designed to verify the identity of persons opening new accounts, maintain the records used for verification, and determine whether the person appears on any list of known or suspected terrorists or terrorist organizations.

        Community Reinvestment Act.    The CRA is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities. The CRA specifically directs the federal bank regulatory agencies, in examining insured depository institutions, to assess their record of helping to meet the credit needs of their entire community, including low-and moderate-income neighborhoods, consistent with safe and sound banking practices. The CRA further requires the agencies to take a financial institution's record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers or acquisitions, or holding company formations.

        The federal banking agencies have adopted regulations which measure a bank's compliance with its CRA obligations on a performance-based evaluation system. This system bases CRA ratings on an institution's actual lending service and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach or complies with other procedural requirements. The ratings range from "outstanding" to a low of "substantial noncompliance."

        The Bank had a CRA rating of "satisfactory" as of its most recent regulatory examination.

15

        Environmental Regulation.    Federal, state and local laws and regulations regarding the discharge of harmful materials into the environment may have an impact on the Bank. Since the Bank is not involved in any business that manufactures, uses or transports chemicals, waste, pollutants or toxins that might have a material adverse effect on the environment, the Bank's primary exposure to environmental laws is through its lending activities and through properties or businesses the Bank may own, lease or acquire. Based on a general survey of the Bank's loan portfolio, conversations with local appraisers and the type of lending currently and historically done by the Bank, management is not aware of any potential liability for hazardous waste contamination that would be reasonably likely to have a material adverse effect on the Company as of December 31, 2008.

        Safeguarding of Customer Information and Privacy.    The FRB and other bank regulatory agencies have adopted guidelines for safeguarding confidential, personal customer information. These guidelines require financial institutions to create, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazard to the security or integrity of such information and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. The Bank has adopted a customer information security program to comply with such requirements.

        Financial institutions are also required to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to non-affiliated third parties. In general, financial institutions must provide explanations to consumers on policies and procedures regarding the disclosure of such nonpublic personal information, and, except as otherwise required by law, prohibits disclosing such information except as provided in the Bank's policies and procedures. The Bank has implemented privacy policies addressing these restrictions which are distributed regularly to all existing and new customers of the Bank.

        USA Patriot Act.    On October 26, 2001, the President signed into law comprehensive anti-terrorism legislation, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, known as the Patriot Act. The Patriot Act was designed to deny terrorists and others the ability to obtain access to the United States financial system, and has significant implications for depository institutions and other businesses involved in the transfer of money. The Patriot Act, as implemented by various federal regulatory agencies, requires financial institutions, including the Bank, to implement new policies and procedures or amend existing policies and procedures with respect to, among other matters, anti-money laundering, compliance, suspicious activity and currency transaction reporting and due diligence on customers. The Patriot Act and its underlying regulations also permit information sharing for counter-terrorist purposes between federal law enforcement agencies and financial institutions, as well as among financial institutions, subject to certain conditions, and require the FRB and other federal banking agencies to evaluate the effectiveness of an applicant in combating money laundering activities when considering applications filed under Section 3 of the BHCA or the Bank Merger Act. The Bank has augmented its systems and procedures to accomplish this. The Bank believes that the ongoing cost of compliance with the Patriot Act is not likely to be material to the Bank.

        Other Aspects of Banking Law.    The Bank is also subject to federal statutory and regulatory provisions covering, among other things, security procedures, insider and affiliated party transactions, management interlocks, electronic funds transfers, funds availability, and truth-in-savings. There are also a variety of federal statutes which regulate acquisitions of control and the formation of bank holding companies.

        Effect of Governmental Monetary Policies.    Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve's monetary policies have had, and are likely to continue to have, an important impact

16

on the operating results of commercial banks through the Federal Reserve's statutory power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The Federal Reserve, through its monetary and fiscal policies, affects the levels of the Bank's loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject. We cannot predict the nature or impact of future changes in monetary and fiscal policies.

        The actions of the FRB in these areas influence the growth of bank loans, investments, and deposits and also affect market interest rates. From January 2001 to June 2003, the FRB decreased interest rates numerous times, reducing the overnight "Federal Funds" rate from 6.50% to 1.00%, the lowest level in four decades. From June 2004 to June 2006, the FRB reversed direction and increased rates 17 times to 5.25%. From September 2007 through December 2008, the FRB reduced rates ten times to their current level of 0.00%. The nature and timing of any future changes in such policies and their impact on us cannot be predicted. However, depending on the degree to which our interest-earning assets and interest-bearing liabilities are rate sensitive, increases in rates would have a temporary effect of increasing our net interest margin, while decreases in interest rates would have the opposite effect. In addition, adverse economic conditions, including a downturn in the local or regional economy and rising energy prices, could make a higher provision for loan losses a prudent course and could cause higher loan charge-offs, thus adversely affecting our net income or other operating costs.

        Recent Regulatory Developments.    In light of current conditions in the global financial markets and the global economy, regulators have increased their focus on the regulation of the financial services industry. Proposals for legislation that could substantially intensify the regulation of the financial services industry are expected to be introduced in the U.S. Congress and in state legislatures. The agencies regulating the financial services industry also frequently adopt changes to their regulations. Substantial regulatory and legislative initiatives, including a comprehensive overhaul of the regulatory system in the U.S., are possible in the months or years ahead. Any such action could have a materially adverse effect on our business, financial condition and results of operations.

        Recent months have seen an unprecedented number of government initiatives designed to respond to the stresses experienced in financial markets.

        In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, the Emergency Economic Stabilization Act of 2008 ("EESA") was signed into law on October 3, 2008. Pursuant to EESA, the U.S. Treasury was given the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. Pursuant to EESA, the U.S. Treasury established the Troubled Asset Relief Program ("TARP") and has since injected capital into many financial institutions under the TARP Capital Purchase Program ("TARP CPP"). The Company thoroughly examined the Capital Purchase Program of the Treasury's Troubled Assets Relief Program (the "TARP Capital Program"), under which the Federal government injects capital into financial institutions through the purchase of preferred stock and warrants. In November 2008, the Board determined not to seek capital under the TARP Capital Program. The Board's decision was made in recognition of the fact that the Company and First Regional Bank already exceeded all financial ratio requirements for "Well Capitalized" status, that an issuance of warrants in connection with TARP would be significantly dilutive to Company shareholders, the costs related to the preferred stock would be high, and other factors.

        On October 3, 2008, the FDIC increased its insurance coverage limits on all deposits from $100,000 to $250,000 per account until December 31, 2009.

17

        On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program ("TLGP"). The TLGP was announced by the FDIC on October 14, 2008, as an initiative to counter the system-wide crisis in the nation's financial sector. Under the TLGP, the FDIC may (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008 and before June 30, 2009 and (ii) provide full FDIC deposit insurance coverage for noninterest bearing transaction deposit accounts, Negotiable Order of Withdrawal ("NOW") accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust Accounts ("IOLTA") accounts held at participating FDIC-insured institutions through December 31, 2009. Coverage under the TLGP was available for the first 30 days without charge. The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial maturity of the debt. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000. First Regional is monitoring the many programs which continue to emerge as part of the Federal government's efforts to stabilize and strengthen the nation's economy. All programs are evaluated based on their applicability to First Regional Bank, and whether they will provide benefit to the Company and its shareholders. The Company's subsidiary, First Regional Bank, is participating in the program to provide full deposit insurance coverage of non-interest bearing deposit transaction accounts under the FDIC's Temporary Liquidity Guarantee Program. As neither the Company nor First Regional Bank anticipate issuing qualifying debt, they will not participate in the debt guarantee portion of the Temporary Liquidity Guarantee Program.

        On February 10, 2009, the U.S. Treasury announced the Financial Stability Plan ("FSP"), which, among other things, proposes to establish a new Capital Assistance Program ("CAP") through which eligible banking institutions will have access to U.S. Treasury capital as a bridge to private capital until market conditions normalize, and extends the TLGP to October 31, 2009. As a complement to CAP, a new Public-Private Investment Fund on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion, was announced to catalyze the removal of legacy assets from the balance sheets of financial institutions. This proposed fund will combine public and private capital with government financing to help free up capital to support new lending. In addition, the existing Term Asset-Backed Securities Lending Facility ("TALF") would be expanded (up to $1 trillion) in order to reduce credit spreads and restart the securitized credit markets that in recent years supported a substantial portion of lending to households, students, small businesses, and others. Furthermore, the FSP proposes a new framework of governance and oversight to help ensure that banks receiving funds are held responsible for appropriate use of those funds through stronger conditions on lending, dividends and executive compensation along with enhanced reporting to the public. As of the date of this report, First Regional had not determined to seek to participate. However, First Regional will continue to monitor emerging government programs to evaluate whether such programs would be applicable to, and beneficial to, First Regional.

        On February 17, 2009, the American Recovery and Reinvestment Act of 2009 ("ARRA") was signed into law. AARA is intended to provide tax breaks for individuals and businesses, direct aid to distressed states and individuals, and infrastructure spending. In addition, ARRA imposes new executive compensation and expenditure limits on all previous and future TARP CPP recipients and expands the class of employees to whom the limits and restrictions apply. ARRA also provides the opportunity for additional repayment flexibility for existing TARP CPP recipients. Among other things, ARRA prohibits the payment of bonuses, other incentive compensation and severance to certain highly paid employees (except in the form of restricted stock subject to specified limitations and conditions), and requires each TARP CPP recipient to comply with certain other executive compensation related requirements. These provisions modify the executive compensation provisions that were included in EESA, and in most instances apply retroactively for so long as any obligation arising from financial assistance provided to the recipient under TARP remains outstanding. To the extent that the executive compensation provisions in ARRA are more restrictive than the restrictions described in the Treasury's

18

executive compensation guidelines already issued under EESA, the new ARRA guidelines appear to supersede those restrictions. However, both ARRA and the existing Treasury guidelines contemplate that the Secretary of the Treasury will adopt standards to provide additional guidance regarding how the executive compensation restrictions under ARRA and EESA will be applied. Because, as of the date of this report, First Regional is not a TARP CPP recipient, such provisions are not currently applicable to First Regional.

        In addition, ARRA directs the Secretary of the Treasury to review previously-paid bonuses, retention awards and other compensation paid to the senior executive officers and certain other highly-compensated employees of each TARP CPP recipient to determine whether any such payments were excessive, inconsistent with the purposes of ARRA or the TARP, or otherwise contrary to the public interest. If the Secretary determines that any such payments have been made by a TARP CPP recipient, the Secretary will seek to negotiate with the TARP CPP recipient and the subject employee for appropriate reimbursements to the U.S. government (not the TARP CPP recipient) with respect to any such compensation or bonuses. ARRA also permits the Secretary, subject to consultation with the appropriate federal banking agency, to allow a TARP CPP recipient to repay any assistance previously provided to such TARP CPP recipient under the TARP, without regard to whether the TARP CPP recipient has replaced such funds from any source, and without regard to any waiting period. Any TARP CPP recipient that repays its TARP assistance pursuant to this provision would no longer be subject to the executive compensation provisions under ARRA. Because, as of the date of this report, First Regional is not a TARP CPP recipient, such provisions are not currently applicable to First Regional.

        On February 18, 2009, the U.S. Treasury announced the Homeowner Affordability and Stability Plan ("HASP"), which proposes to provide refinancing for certain homeowners, to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac, and to establish a Homeowner Stability Initiative to reach at-risk homeowners. Among other things, the Homeowner Stability Initiative would offer monetary incentive to mortgage servicers and mortgage holders for certain modifications of at-risk loans, and would establish an insurance fund designed to reduce foreclosures.

        It is not clear at this time what impact EESA, the CPP, the TLGP, the FSP, AARA, HASP, or other liquidity and funding initiatives will have on the financial markets and the other difficulties described above, including the high levels of volatility and limited credit availability currently being experienced, or on the U.S. banking and financial industries and the broader U.S. and global economies. Failure of these programs to address the issues noted above could have an adverse effect on the Company and its business.

Impact Of Monetary Policies

        Banking is a business that depends on rate differentials. In general, the difference between the interest rate paid by a bank on its deposits and its other borrowings and the interest rate earned on its loans, securities and other interest-earning assets comprises the major source of the Bank's earnings. These rates are highly sensitive to many factors which are beyond the Bank's control and, accordingly, the earnings and growth of the Bank are subject to the influence of economic conditions generally, both domestic and foreign, including inflation, recession, and unemployment; and also to the influence of monetary and fiscal policies of the United States and its agencies, particularly the FRB. The FRB implements national monetary policy, such as seeking to curb inflation and combat recession, by:

•

Open-market dealings in United States government securities;

•

Adjusting the required level of reserves for financial institutions subject to reserve requirements; and

19

•

Adjusting the discount rate applicable to borrowings by banks which are members of the Federal Reserve System.

        The actions of the Federal Reserve Bank in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates. The nature and timing of any future changes in the FRB's policies and their impact on the Company and the Bank cannot be predicted; however, depending on the degree to which our interest-earning assets and interest-bearing liabilities are rate sensitive, increases in rates would have a temporary effect of increasing our net interest margin, while decreases in interest rates would have the opposite effect. In addition, adverse economic conditions could make a higher provision for loan losses a prudent course and could cause higher loan charge-offs, thus adversely affecting our net income or other operating costs.

Product Development Research

        The Company has not engaged in any material research activities relating to the development of new services or the improvement of existing banking services during the last three fiscal years. The officers and employees of the Bank are continually engaged in marketing activities including the evaluation and development of new services, to enable the Bank to retain a competitive position in certain service areas.

Distribution of Assets, Liabilities and Shareholders' Equity

        The following table shows the yearly average balances of the Company's assets, liabilities, and shareholders' equity for each of the past three years:

			For Year Ended December 31,
			2008		2007		2006
			(Dollars in Thousands)
Assets
	Cash and due from banks		$	30,036	$	65,992	$	81,934
	Federal funds sold			19,607		11,772		5,946
	Interest bearing deposits in financial institutions			4,050		6,203		5,397
	Investment Securities			24,596		24,683		11,425
	Net Loans			2,222,893		1,886,332		1,781,140
	Other Assets			85,007		64,921		54,733
		Total Assets	$	2,386,189	$	2,059,903	$	1,940,575
Liabilities & Shareholders' Equity
	Deposits:
	Demand (non-interest bearing)		$	392,012	$	419,981	$	482,601
	Savings and NOW Accounts			64,180		57,487		51,657
	Money Market Accounts			818,615		939,424		813,581
	Time			639,380		234,264		198,626
		Total Deposits		1,914,187		1,651,156		1,546,465
	FHLB Advances			187,053		125,439		163,992
	Fed Funds purchased and other borrowings			1,132		210		34
	Subordinated Debentures			100,517		94,840		85,328
	Other Liabilities			15,371		24,888		18,906
		Total Liabilities		2,218,260		1,896,533		1,814,725
	Shareholders' Equity			167,929		163,370		125,850
		Total Liabilities and Shareholders' Equity	$	2,386,189	$	2,059,903	$	1,940,575

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Interest Rates and Interest Differential

        The following table sets forth the average balances outstanding for major categories of interest earning assets and interest bearing liabilities and the average interest rates earned and paid thereon:

		For Year Ended December 31,
		2008							2007							2006
		Average Balance		Interest Income(2)/ Expense		Average Yield/ Rate%			Average Balance		Interest Income(2)/ Expense		Average Yield/ Rate%			Average Balance		Interest Income(2)/ Expense		Average Yield/ Rate%
		(Dollars in Thousands)
Interest Earning Assets:
	Loans(1)	$	2,270,792	$	147,155		6.5	%	$	1,916,249	$	169,303		8.8	%	$	1,809,377	$	160,678		8.9	%
	Investment Securities		24,596		1,330		5.4	%		24,683		1,289		5.2	%		11,425		545		4.8	%
	Federal Funds Sold		19,607		325		1.7	%		11,772		576		4.9	%		5,946		308		5.2	%
	Interest-bearing Deposits in Financial Institutions		4,050		147		3.6	%		6,203		293		4.7	%		5,397		217		4.0	%
Total Interest Earning Assets		$	2,319,045	$	148,957		6.4	%	$	1,958,907	$	171,461		8.8	%	$	1,832,145	$	161,748		8.8	%
Interest Bearing Liabilities:
	Savings deposits	$	64,180	$	1,024		1.6	%	$	57,487	$	1,331		2.3	%	$	51,657	$	879		1.7	%
	Money Market deposits		818,615		19,464		2.4	%		939,424		36,921		3.9	%		813,581		28,963		3.6	%
	Time deposits		639,380		24,439		3.8	%		234,264		11,873		5.0	%		198,626		8,977		4.5	%
	FHLB Advances		187,053		4,350		2.3	%		125,439		6,414		5.1	%		163,992		8,174		5.0	%
	Federal Funds Purchased and other Borrowings		1,132		33		2.9	%		210		16		7.6	%		62		4		6.5	%
	Subordinated Debentures		100,517		5,253		5.2	%		94,840		7,095		7.5	%		85,328		6,259		7.3	%
Total Interest Bearing Liabilities		$	1,810,877	$	54,563		3.0	%	$	1,451,664	$	63,650		4.4	%	$	1,313,246	$	53,256		4.1	%

(1)

This figure reflects total loans, including non-accrual loans, and is not net of the allowance for losses, which had an average balance of $41,534,000, $21,951,000 and $20,372,000 in 2008, 2007 and 2006 respectively and is not net of deferred loan fees, which had an average balance of $6,365,000, $7,966,000 and $7,865,000 in 2008, 2007 and 2006 respectively.

(2)

Includes loan fees of $8,280,000 in 2008 and $10,838,000 in 2007 and $10,092,000 in 2006.

        The following table shows the net interest earnings and the net yield on average interest earning assets:

	2008			2007			2006
	(Dollars in Thousands)
Total interest income(1)	$	148,957		$	171,461		$	161,748
Total interest expense		54,563			63,650			53,256
Net interest earnings	$	94,394		$	107,811		$	108,492
Average interest earning assets	$	2,319,045		$	1,958,907		$	1,832,145
Net yield on average interest earning assets		4.1	%		5.5	%		5.9	%

(1)

Includes loan fees of $8,280,000 in 2008, $10,838,000 in 2007 and $10,092,000 in 2006.

        The following table sets forth changes in interest income and interest expense. The net change as shown in the column "Net Increase (Decrease)" is segmented into the change attributable to variations

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in volume and the change attributable to variations in interest rates. Non-performing loans are included in average loans.

	Increase (Decrease) 2008 over 2007									Increase (Decrease) 2007 over 2006
	Volume			Rate			Net			Volume			Rate			Net
	(Dollars in Thousands)
Interest Income(1)
Loans(2)	$	50,276		$	(72,424	)	$	(22,148	)	$	9,438		$	(813	)	$	8,625
Investment securities		(5	)		46			41			688			56			744
Federal funds sold		(38,595	)		38,344			(251	)		284			(16	)		268
Interest on interest-bearing deposits in financial institutions		(88	)		(58	)		(146	)		35			41			76
Total Interest Earning Assets	$	11,588		$	(34,092	)	$	(22,504	)	$	10,445		$	(732	)	$	9,713
Interest Expense(1)
Savings and NOW accounts	$	184		$	(491	)	$	(307	)	$	108		$	344		$	452
Money market deposits		(4,287	)		(13,170	)		(17,457	)		4,759			3,199			7,958
Time deposits		14,648			(2,082	)		12,566			1,727			1,169			2,896
FHLB advances		18,773			(20,837	)		(2,064	)		(1,977	)		217			(1,760	)
Federal Funds purchased and other borrowings		20			(3	)		17			11			1			12
Subordinated debentures		456			(2,298	)		(1,842	)		709			127			836
Total Interest Bearing Liabilities	$	29,794		$	(38,881	)	$	(9,087	)	$	5,337		$	5,057		$	10,394

(1)

The change in interest due to both rate and volume has been allocated to the change due to volume and the change due to rate in proportion to the relationship of the absolute dollar amounts of the change in each.

(2)

Includes loan fees of $8,280,000 in 2008, $10,838,000 in 2007 and $10,092,000 in 2006.

Investment Securities

        The following table shows the fair value of the investment securities portfolio at December 31, 2008 and 2007:

		December 31,
		2008		2007
		(Dollars in Thousands)
U.S. Treasury securities		$	250	$	249
U.S. government sponsored enterprise debt securities			24,477		24,865
	Total	$	24,727	$	25,114

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        The maturity schedule and weighted average yields of debt securities at December 31, 2008 is as follows:

		Amount		Average Yield
		(Dollars in Thousands)
U.S. Treasury Securities
One year or less		$	250		1.85	%
Over one year			0		0.00	%
	Category total	$	250		1.85	%
U.S. Government Sponsored Enterprise Debt Securities
One year or less		$	999		2.89	%
One to five years			2,594		5.08	%
Five to ten years			3,279		7.90	%
Ten to fifteen years			3,575		5.85	%
Over fifteen years			14,030		6.04	%
	Category total	$	24,477		6.03	%
Total Investment Portfolio
One year or less		$	1,249		2.68	%
One to five years			2,594		5.08	%
Five to ten years			3,279		7.90	%
Ten to fifteen years			3,575		5.85	%
Over fifteen years			14,030		6.04	%
	Total	$	24,727		5.99	%

Loan Portfolio

        The loan portfolio consisted of the following at December 31:

		2008		2007		2006		2005		2004
		(Dollars in Thousands)
Commercial loans		$	276,885	$	255,077	$	223,571	$	165,224	$	153,480
Real estate construction loans			603,866		591,334		375,175		222,439		129,106
Real estate loans			1,438,758		1,199,070		1,226,870		1,312,944		871,567
Government guaranteed loans			1,337		2,661		4,827		7,369		6,001
Other loans			2,601		2,412		3,096		5,881		2,973
	Total loans		2,323,447		2,050,554		1,833,539		1,713,857		1,163,127
Less—Allowances for loan losses			61,336		22,771		20,624		17,577		11,825
—Deferred loan fees			4,632		7,566		7,614		7,923		7,073
	Net loans	$	2,257,479	$	2,020,217	$	1,805,301	$	1,688,357	$	1,144,229

Loan Maturities and Interest Rates

        The following table shows the amounts of total loans outstanding as of December 31, 2008, which, based on remaining scheduled payments of principal, are due in one year or less, more than one year but less than five years, more than five years but less than ten years, and ten years or more. The amount due for each interval is classified according to whether the interest rate floats in response to changes in interest rates or is fixed.

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        Aggregate maturities of loan balances which are due (in thousands):

In one year or less:
	Interest rates are floating or adjustable		$	1,413,038
	Interest rates are fixed or predetermined			41,571
After one year but within five years:
	Interest rates are floating or adjustable			707,209
	Interest rates are fixed or predetermined			125,202
After five years but within ten years:
	Interest rates are floating or adjustable			33,504
	Interest rates are fixed or predetermined			2,730
After ten years or more:
	Interest rates are floating or adjustable			193
	Interest rates are fixed or predetermined			0
		Total	$	2,323,447

Non-Performing Loans

        The current policy is to cease accruing interest on commercial, real estate and installment loans which are past due as to principal or interest 90 days or more, except that in certain circumstances interest accruals are continued on loans deemed by management to be fully collectible.

        The following table shows the principal amount of non-performing loans:

			December 31,
			2008		2007		2006		2005		2004
			(Dollars in Thousands)
Non-accrual loans
	Commercial		$	7,261	$	2,000	$	0	$	86	$	39
	Real estate loans			85,256		0		0		2,109		0
	Government guaranteed loans			0		0		0		0		0
	Other loans			0		0		0		0		4
		Total	$	92,517	$	2,000	$	0	$	2,195	$	43
Accruing loans past due more than 90 days
	Commercial		$	0	$	12	$	14	$	17	$	0
	Real estate loans			18,540		8,513		0		0		0
	Government guaranteed loans			0		0		0		0		0
	Other loans			0		0		0		0		2
		Total	$	18,540	$	8,525	$	14	$	17	$	2

        Performing assets that are considered impaired due to concerns with the economic climate consist of the following:

Asset Type		Number of Loans		Amount
Apartment loans
	First trust deed		5	$	57,240,000
	Second trust deeds		5		3,643,000
Land development			1		4,831,000
Unsecured			1		24,221,000
Construction			1		14,198,000
	Total performing assets considered impaired			$	104,133,000

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        Except as may have been included in the above tables, at December 31, 2008, there were no loans, the terms of which had been renegotiated to provide a reduction or deferral of interest or principal because of a deterioration of the financial position of the borrower or which would be classified as restructured debt in a troubled loan situation.

Summary of Loan Loss Experience

        The following table provides information concerning changes in the allowance for loan losses and loans charged off and recovered:

			2008			2007			2006			2005			2004
			(Dollars in Thousands)
Amount of loans outstanding at end of period			$	2,323,447		$	2,050,554		$	1,833,539		$	1,713,857		$	1,163,127
Average amount of loans outstanding before allowance for loan losses			$	2,264,427		$	1,908,283		$	1,801,512		$	1,373,715		$	906,784
Balance of allowance for loan losses at beginning of period			$	22,771		$	20,624		$	17,577		$	11,825		$	7,660
Loans charged off:
	Commercial			254			741			173			35			515
	Real estate			54,901			0			855			0			0
	Government guaranteed loans			0			0			0			0			0
	Other			1			0			0			0			0
		Total loans charged off		55,156			741			1,028			35			515
Recoveries of loans previously charged off:
	Commercial			19			4			100			140			113
	Real estate			0			90			0			0			0
	Government guaranteed loans			0			0			0			0			0
	Other			1			0			0			0			0
		Total loan recoveries		20			94			100			140			113
Net loans charged off (recovered)				55,136			647			928			(105	)		402
Allowance for unfunded loan commitments and lines of credit				334			172			(353	)		(48	)		(335	)
Provisions charged to operating expense				93,367			2,622			4,328			5,695			4,902
Balance of allowance for loan losses at end of period			$	61,336		$	22,771		$	20,624		$	17,577		$	11,825
The ratio of net loans charged off (recovered) to average loans outstanding				2.43	%		0.03	%		0.05	%		(0.01	)%		0.04	%
Allowance for loan losses to total gross loans at end of year				2.64	%		1.11	%		1.12	%		1.03	%		1.02	%

        The Bank has historically evaluated the adequacy of its allowance for loan losses on an overall basis rather than by specific categories of loans. In determining the adequacy of the allowance for loan losses, management considers such factors as historical loan loss experience, known problem loans, evaluations made by bank regulatory authorities, assessment of economic conditions and other appropriate data to identify the risks in the loan portfolio.

        For the purposes of this report, the allowance for loan losses has been allocated to the major categories of loans as set forth in the following table. The allocations are estimates based upon

25

historical loss experience and management judgment. The allowance for loan losses should not be interpreted as an indication that charge-offs will occur in these amounts or proportions, or that the allocation indicates future charge-off trends. Furthermore, the portion allocated to each loan category is not the total amount available for future losses that might occur within such categories, since even in this allocation is an unallocated portion, and, as previously stated, the total allowance is applicable to the entire portfolio (dollar amounts in the following table are in thousands).

	2008					2007					2006					2005					2004
	Allowance for loan losses		Ratio of loans to total loans			Allowance for loan losses		Ratio of loans to total loans			Allowance for loan losses		Ratio of loans to total loans			Allowance for loan losses		Ratio of loans to total loans			Allowance for loan losses		Ratio of loans to total loans
Commercial	$	15,121		12	%	$	2,642		13	%	$	2,337		12	%	$	1,902		10	%	$	1,515		13	%
Real estate		46,215		88	%		20,129		87	%		18,287		88	%		15,639		90	%		10,309		86	%
Government Guaranteed		0		0	%		0		0	%		0		0	%		0		0	%		0		1	%
Other		0		0	%		0		0	%		0		0	%		0		0	%		1		0	%
Unallocated		0		0	%		0		0	%		0		0	%		36		0	%		0		0	%
Total	$	61,336		100	%	$	22,771		100	%	$	20,624		100	%	$	17,577		100	%	$	11,825		100	%

Deposits

        The average amounts of deposits for the years indicated are summarized below.

		2008		2007		2006
		(Dollars in Thousands)
Demand deposits		$	392,012	$	419,981	$	482,601
Savings deposits, money market and time certificates of deposit of less than $100,000			1,296,573		1,106,833		962,580
Time certificates of deposit of $100,000 or more			225,602		124,342		101,284
	Total	$	1,914,187	$	1,651,156	$	1,546,465

        The maturity schedule of time certificates of deposit of $100,000 or more at December 31, 2008 is as follows:

		December 31, 2008
		(Dollars in Thousands)
3 months or less		$	202,123
Over 3 through 6 months			104,921
Over 6 through 12 months			79,609
Over 12 months			0
	Total	$	386,653

Selected Financial Ratios

        The following table sets forth the ratios of net income to average total assets and to average shareholders' equity, and average shareholders' equity to average total assets.

	2008			2007			2006
Return on assets		(1.0	)%		1.6	%		2.0	%
Return on equity		(14.1	)%		20.6	%		30.5	%
Dividend payment ratio		0.0	%		0.0	%		0.0	%
Equity to assets ratio		7.0	%		7.9	%		6.5	%

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Available Information

        Our internet site can be found at www.firstregional.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports can be found through our internet site as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Copies of the Company's filings with the SEC may also be obtained directly from the SEC's website at www.sec.gov.

Item 1A.    Risk Factors

        Our financial and operating results, and an investment in First Regional Bancorp common stock, are subject to a number of factors, many of which are outside the Company's control. These factors include the following:

Economic conditions could adversely affect the Company's liquidity.

        The banking industry, including First Regional, has long focused on the importance of liquidity. The current economic environment has had an uneven impact on First Regional's liquidity. On the one hand, demands upon First Regional's liquidity sources have declined in a number of respects. For one, loan demand in general has slowed. For another, First Regional remains highly selective in its loan production, particularly in light of deteriorating conditions in some real estate markets. On the other hand, First Regional has found that loan payoffs have slowed, as a result of declining real estate sales and a tightened credit market for the long-term financing that has historically been accessed by our borrowers to refinance properties. In addition, First Regional has undisbursed commitments for existing loans, which results in ongoing demand for funding even with highly constrained new loan production. In order to effectively manage its liquidity, First Regional has recently increased deposits from previously underutilized sources, such as institutional time deposits. The Company has done this as part of a plan to reduce First Regional's outstanding Federal Home Loan Bank borrowing levels so as to hold this source available as a reserve fund of liquidity.

        As previously noted, First Regional Bank continues to maintain "well capitalized" ratios, the highest standards established by banking regulators. However, in February 2009, First Regional Bank entered into a formal agreement with the FDIC and California Department of Financial Institutions, pursuant to which the Bank has agreed to increase its capital ratios. Under regulatory "prompt corrective action" rules, the existence of a capital component in a formal agreement results in a "well capitalized" institution being treated as "adequately capitalized" for purposes of rules governing brokered deposits. As a result, First Regional must seek and obtain a waiver from the FDIC prior to issuing or renewing any brokered deposits. As a result, First Regional Bank expects that most brokered deposits previously issued will run off as they mature over the next two years. First Regional has, however, applied for a waiver for certain types of deposits deemed "brokered deposits" by regulators.

        First Regional also maintains other supplemental sources of liquidity, including marketable assets, credit lines with correspondent banks, and access to the Federal Reserve's discount window. Nevertheless, there is a risk that if loan repayments continue to slow, and/or First Regional's traditional deposit levels are reduced, the Company may need to utilize these supplemental liquidity sources, which could have an adverse impact on First Regional's financial condition and/or results of operations.

There is a limited and volatile trading market for the Company common stock.

        The Company's common stock is traded on the Nasdaq National Market under the symbol "FRGB." However, there is a limited trading market for the Company's common stock, with an average trading volume of approximately 73,000 shares per trading day.

        In addition, the Company's stock has suffered from a very significant decline over the past two years. While the Company's stock had previously traded at a significant multiple of the Company's

27

book value, the stock currently trades at less than 10% of book value. This may be due to several factors, including the recent concerns about banks and financial institutions generally, the status of the U.S. and world economies, the significant drop in real estate valuations, extreme credit tightening throughout the financial system, as well as the Company's recent financial results, including its loss of approximately $23 million for 2008. The Company does not believe that recent stock prices are meaningfully reflective of the company's underlying value. Accordingly, an investment in First Regional stock is subject to these risks, and there can be no assurance that a holder of the Company's common stock, particularly of large blocks, will have the ability to dispose of such shares in a liquid or stable market or that a more active trading market for the Company's common stock will develop or will be sustained.

        While the Company's book value exceeded $12 per share as of December 31, 2008, the Company's common stock has recently been trading below $1. The Company's common stock is listed on the Nasdaq Global Select Market. One of Nasdaq's continued listing requirements is that a listed company have a minimum bid price of $1. Due to current extraordinary market conditions, in October 2008, Nasdaq suspended the rules requiring a minimum $1 closing bid price, with such rules initially scheduled to be reinstated January 2009. In January 2009, Nasdaq extended its suspension of such rules until April 20, 2009. It is expected that, in light of continued extraordinary market conditions, Nasdaq will continue to be flexible concerning such rules. However, there can be no assurance that Nasdaq will further extend the suspension of such rules, or that the closing bid price of the Company's common stock will rise above $1. Should Nasdaq fail to further extend the suspension of such rule, and the closing bid price of the Company's common stock fails to rise above $1, then Nasdaq could give the Company notice of noncompliance with such rule and require the Company to regain compliance within a timeframe determined by Nasdaq. The Company would then have the opportunity to devise a plan to regain compliance within such timeframe. Should the Company thereafter fail to timely regain compliance with such rule, the Company's common stock would be at risk of being delisted by Nasdaq, after which the stock would trade in over the counter (OTC) markets.

If a significant number of borrowers, guarantors and related parties fail to perform as required by the terms of their loans, we will sustain losses.

        A significant source of risk for us arises from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans and guaranties. While First Regional Bank has historically enjoyed very low levels of nonperforming assets, during 2008, these levels rose in response to declining economic conditions, declining real estate values, tightening credit markets and other factors. First Regional Bank has undertaken to enhance its underwriting and credit monitoring procedures and credit policies, in an effort to better manage and reduce our exposure to such risks. Nevertheless, these policies and procedures may not prevent unexpected losses that could materially and adversely affect our results of operations.

We are highly dependent on real estate and events that negatively impact the real estate market could hurt our business.

        A significant portion of our loan portfolio is dependent on real estate. At December 31, 2008, real estate served as the principal source of collateral with respect to approximately 88% of our loan portfolio. Declines in the value of real estate have adversely affected the quality of certain of First Regional's loans, including collateral value and, in a number of cases, the borrower's financial condition. This has, in turn, required First Regional to make substantial loan loss provisions during 2008, which has resulted in First Regional's loss of approximately $23 million for 2008. Further declines in real estate values will likely further adversely affect the value of the real estate securing both our loans and the real estate we own, and will likely require additional loan loss provisions. Such provisions would likely adversely impact our results of operations.

28

        In addition, acts of nature, including earthquakes, fires, landslides and floods, which may cause uninsured damage and other loss of value to real estate, may also negatively impact our financial condition. This is particularly significant in light of the fact that most of the real estate that makes up the collateral of our real estate secured loans is located in Southern California, where the risk of such acts of nature is relatively high.

Failure to comply with the provisions of First Regional Bank's formal agreement with its regulators could adversely affect the Bank.

        During February 2009, the bank signed an order to cease and desist with the Federal Deposit Insurance Corporation (the "FDIC") and the California Department of Financial Institutions (the "DFI") to further strengthen the Bank's operations. The agreement between First Regional Bank and its regulators is expected to help guide the Bank in addressing the impacts of today's challenging economic environment. The agreement formalizes many of the initiatives which the Bank has already adopted, and provides useful milestones for measuring the Bank's progress as it moves forward.

        Under the agreement, First Regional Bank will:

•

Retain qualified management, and continue the active involvement of its board of directors in managing the Bank's activities

•

Increase its capital ratios based on a pre-determined schedule, and develop a comprehensive capital plan to assure compliance with that schedule

•

Eliminate from its books any assets classified loss and a portion of any assets classified doubtful that have not already been charged-off or collected, and develop a comprehensive plan to reduce classified assets based on a pre-determined schedule

•

Create and implement a plan to increase the diversification of the Bank's lending activities

•

Create and implement a comprehensive profit plan to improve the Bank's earnings performance

•

Update or revise the Bank's written policies in the areas of credit administration and liquidity management

        As previously noted, First Regional Bank continues to maintain "well capitalized" ratios, the highest standards established by banking regulators. However, in connection with the Bank's plan to increase its capital ratios, effective February 23, 2009, the Bank specifically agreed to maintain a minimum Tier 1 leverage ratio of 9.5% of the Bank's total assets and to maintain such ratio at 10% as of September 30, 2009. Also as a part of such plan, First Regional Bank and its parent, First Regional Bancorp, have also authorized the contribution by First Regional Bancorp, from its cash reserves, of $12 million into the Bank as additional Bank capital, which contribution was made during February 2009.

        First Regional intends to achieve full compliance with the agreement in a timely manner. As the agreement includes many initiatives previously adopted by the Bank, the implementation of those measures has already begun. Even after the terms of the agreement have been satisfied, First Regional plans to continue its efforts to further enhance the Bank's capital strength, asset quality, and operating performance. In an effort to enhance its capital ratios, First Regional Bank intends to shrink the size of the Bank by several hundreds of million dollars. However, First Regional Bank has found that the pace of loan payoffs has slowed significantly, as a result of slower sales of completed construction projects and the tightening of credit markets historically accessed by our borrowers to refinance stabilized real estate projects. First Regional also intends to sell certain assets as a part of its effort to shrink the Bank. However, there can be no assurance that such efforts will be successful at prices acceptable to the Bank. Should the Bank fail to comply with the terms of its formal agreement with its regulators,

29

this may result in further enforcement action by the Bank's regulators, which may adversely affect the results or financial condition of the Bank.

The Bank is subject to certain risks associated with borrower and industry concentrations.

        Certain customers of the Bank control various separate legal entities representing, in the aggregate, significant borrowing concentrations; including as much as $126 million, or 56% of the Bank's capital, as of December 31, 2008. While each individual loan is separately and independently underwritten, and while the majority of such loans are secured by commercial real property, these borrowing concentrations nevertheless present certain risks.

        In that regard, bank regulatory agencies have issued a number of public statements about risks related to borrower and industry concentrations, in particular with respect to loans secured by commercial real estate. Regulators have proposed guidance to banks addressing such risks. The costs of implementing and managing such policies, procedures and controls is currently unknown, but could adversely affect our financial and operating results.

        In certain cases, multiple loans across a borrower relationship has become impaired after the controlling principal has suffered an adverse change in such borrower's financial condition. In some of these cases, the Bank has suffered defaults across multiple loans in a borrower concentration. As a part of the Bank's action plan to comply with the terms of the Bank's February 2009 formal agreement with its regulators, the Bank has devised a plan to reduce borrower concentrations over time. In anticipation of this requirement, First Regional Bank's Board adopted a policy to reduce borrower concentrations to no more than 25% of capital by the end of 2009. However, there can be no assurance that the Bank will succeed in reducing all borrower concentrations in accordance with the Bank's action plan by the target dates for such action. Failure to do so could adversely affect the results of operations or financial condition of First Regional Bank.

Economic conditions in the Southern California area could adversely affect our operations.

        Our banking operations are concentrated primarily in Los Angeles, Orange and Ventura Counties. As a result of this geographic concentration, our results of operations depend largely upon economic conditions in these areas. Deterioration in economic conditions in our market area could have a material adverse impact on the quality of our loan portfolio and the demand for our commercial banking products and services, which in turn may have a material adverse effect on our results of operations.

We are dependent on the continued services of key members of management.

        The Company's continued success depends on the retention, recruitment and continued contributions of key members of management. Key member's of the Company's and the Bank's management include H. Anthony Gartshore, our President and Chief Executive Officer, Thomas E. McCullough, our Corporate Secretary and Executive Vice President and Chief Operating Officer of the Bank, and other officers with key positions and/or who have relationships with customers of the Bank. The loss of such key personnel could have an adverse affect on the Company's growth and profitability, and many of these persons would be difficult or impossible to replace. The competition for qualified personnel is intense. The loss of services of members of the Company's key personnel could have a material adverse effect on the Company's business, financial condition and results of operations.

We face strong competition from financial service companies and other companies that offer banking services that could hurt our business.

        The banking business in California, generally, and in the Los Angeles, Orange and Ventura County areas where the Bank's operations are centered, specifically, is highly competitive with respect to both loans and deposits and is dominated by major banks, both domestic and foreign, which have many offices operating over wide geographic areas. The Bank competes for deposits and loans principally

30

with these major banks, but also with small independent banks located in its service areas. Among the advantages which the major banks have over the Bank are their ability to finance extensive advertising campaigns and to allocate their investment assets to regions of highest yield and demand. Many of the major commercial banks operating in the Bank's service area offer certain services that are not offered directly by the Bank and, by virtue of their greater total capitalization, such banks have substantially higher lending limits than the Bank. In addition, the Bank faces direct competition from newly chartered banks, which are formed from time to time in the Bank's service area.

        Moreover, banks generally, and the Bank in particular, face increasing competition for loans and deposits from non-bank financial intermediaries such as savings and loan associations, thrift and loan associations, credit unions, mortgage companies, insurance companies, and other lending institutions. Money market funds offer rates competitive with, or higher than those of, banks, and an increasingly sophisticated financial services industry continually develops new products for businesses and consumers that compete with banks for investment dollars. In addition, other entities (both public and private) seeking to raise capital through the issuance and sale of debt or equity securities compete with banks in the acquisition of deposits.

        Increasing levels of competition in the banking and financial services businesses may reduce our market share or cause the prices we charge for our services to fall. Our results may differ in future periods depending upon the nature or level of competition.

We are subject to government regulation that could limit or restrict our activities, which in turn could adversely impact our operations.

        The financial services industry is regulated extensively. Federal and state regulation is designed primarily to protect consumers and the deposit insurance funds, rather than our shareholders. These regulations can sometimes impose significant limitations on our operations. In addition, these regulations are constantly evolving and may change significantly over time.

        In recent years, banking regulators have indicated that, unless a bank is in full compliance with applicable regulations deemed to be of particular importance, including Bank Secrecy Act ("BSA"), Anti-Money Laundering and the Community Reinvestment Act ("CRA"), requests for approvals for new types of activities, including branching, may be subject to increased scrutiny, temporarily delayed or outright denied.

        At the conclusion of an examination by the FDIC and DFI of the Bank in 2007, the FDIC expressed concern regarding a previously unidentified BSA concern relating to the Bank's program of providing custodial services to individual retirement accounts (IRAs) administered by non-bank third parties. The FDIC requested that the Bank enter into a cease and desist order, principally addressing the Bank's BSA duties in connection with such third party administered retirement accounts. While the Bank questioned the need for such a cease and desist order, the Bank concluded that it was advisable for the Bank to enter into, rather than undertake a formal challenge to, the requested cease and desist order. While the bank believes it fully complied with this Cease and Desist Order, no assurance can be given that the FDIC will not require further action if the Bank fails to comply with the terms of the cease and desist order or otherwise fails to correct the deficiencies identified.

We are subject to certain risks associated with public company regulation.

        New laws and regulations or changes in existing laws and regulations or repeal of existing laws and regulations may adversely impact our business. We have incurred substantial costs to interpret and ensure compliance with applicable laws and regulations, including the Sarbanes-Oxley Act of 2002 and its implementing regulations. The Company cannot be certain of the effect, if any, of the foregoing legislation on the business of the Company. Future changes in the laws, regulations, or policies that impact the Company cannot necessarily be predicted and may have a material effect on the business

31

and earnings of the Company. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects economic conditions for the Company.

Our business is subject to interest rate risk and changes in interest rates may adversely affect our performance and financial condition.

        Our earnings are impacted by changing interest rates, which are unpredictable and beyond our control. Changes in interest rates impact the demand for new loans, the credit profile of our borrowers, the rates received on loans and securities and rates paid on deposits and borrowings. The difference between the rates received on loans and securities and the rates paid on deposits and borrowings is known as interest rate spread. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, we would expect our interest rate spread to increase if interest rates rise and, conversely, to decline if interest rates fall. Recent trends in interest rates may not continue and/or may reverse. Also, competitive pressures on both the pricing of loans and on the cost of deposits can have the effect of compressing our net interest margin, making it difficult for us to sustain or enhance our net income in the future. We believe our current level of interest rate sensitivity is reasonable, particularly in light of currently prevailing historically low interest rates. Nevertheless, significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations.

Risks Related to the Retirement Plan Administration Business

        The Bank's Trust Administration Services Division provides administrative, record-keeping and other services for self-directed retirement plans and accounts for which the Bank serves as sponsor and custodian. Recently, both the banking and securities regulatory authorities have increased their scrutiny of the retirement plan industry. This enhanced scrutiny arises from a number of governmental concerns, including investment scams directed at members of the United States' increasing population of seniors and the potential abuse of retirement accounts to support terrorism financing, money laundering and tax-avoidance schemes.

        While the Bank's involvement in the retirement plan industry is limited to providing custodial and other ministerial services for modest fees, the Bank is sensitive to this enhanced industry-wide scrutiny. For this reason, the Bank is currently strengthening its risk management program for its retirement plan business. As a result of increased risk management and screening procedures, and the corresponding paperwork burden imposed on customers, expenses related to this business will rise and, at the same time, the Bank may lose certain existing or prospective customers. This may, in turn, lead to a decline in the profitability of the Trust Administration Services Division. While the Company does not expect these developments to have a material adverse effect on the Company's financial condition or results of operations, the Bank may be required to take further action if the risk management policies and procedures currently being implemented are later deemed insufficient to address the on-going regulatory concerns.

Our performance is dependent on our maintaining a high quality of service for our customers, and will be impaired by a decline in our quality of service.

        Our continued successful performance is dependent on our maintaining a high quality of service for our customers. As we continue to grow, it may become increasingly difficult to maintain high service quality for our customers. This could cause a decline in our performance and growth with respect to net income, deposits, assets and other benchmarks.

Our internal operations are subject to a number of risks.

        We are subject to certain operations risks, including, but not limited to, data processing system failures and errors, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters. We maintain a system of internal controls to mitigate against such occurrences and

32

maintain insurance coverage for such risks that are insurable, but should such an event occur that is not prevented or detected by our internal controls and uninsured or in excess of applicable insurance limits, it could have a significant adverse impact on our business, financial condition or results of operations.

We are exposed to risk of environmental and other liabilities with respect to properties to which we take title.

        In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental or other liabilities with respect to these properties. We may be held liable to a governmental entity or to third persons for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, in the event we become the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected.

The interests of our controlling shareholders may differ from yours.

        The Company's directors, executive officers and their related interests have voting control or beneficial ownership of approximately 39% of its outstanding shares (including shares issuable to them upon exercise of vested stock options). In particular, Jack A. Sweeney, the Company's Founder and Chairman Emeritus, has voting control or beneficial ownership of approximately 29% of the Company's outstanding common stock (including shares issuable to him upon exercise of vested stock options). The interests of these controlling shareholders may differ from yours. Because of this beneficial ownership and voting power, our controlling shareholders may have the power to substantially control any matter presented to shareholders for a vote, including with respect to the election of directors or other material transactions, such as a future issuance of securities, a potential acquisition of, or take-over proposal made by, another company. As a result, these controlling shareholders may cause the defeat of a proposal you support, or cause the approval of a proposal you oppose.

Provisions in the Company's bylaws may delay or prevent an acquisition of the Company, which could decrease the value of its common stock.

        The Company has in place various types of protections which would make it difficult for a company or investor to buy the Company without the approval of the Company's board of directors. These provisions include the elimination of cumulative voting and the classification of the Board of Directors into two or three classes, depending on the number of directors.

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

        The Bank's head office is located on the ground, second, fourth and eighth floors of an office building located at 1801 Century Park East, Los Angeles, California. The Bank has leased approximately 19,734 square feet of office space under a lease which expires on February 28, 2013. The total monthly rental for the premises is $60,569 subject to annual 3% adjustments and adjustments for increases in property taxes and other operating costs. An equivalent of eight months of rent was abated during various months during 2003 and 2004, the first 2 years of the lease; the Bank is deferring recognition of this amount and is amortizing it evenly over the lease term. The lease was amended in August 2003 to include an additional 5,450 square feet of office space on the ground floor at a monthly

33

rental of $10,425 subject to annual adjustments and adjustments for increases in property taxes and other operating costs. The lease was amended in December 2004 to include an additional 3,820 square feet of office space on the second floor at a monthly rental of $7,067 subject to annual adjustments and adjustments for increases in property taxes and other operating costs. The lease was amended in September 2005 to include an additional 2,597 square feet of office space on the second floor at a monthly rental of $4,960 subject to annual adjustments and adjustments for increases in property taxes and other operating costs. The lease was amended in February 2006 to include an additional 2,453 square feet of office space on the second floor at a monthly rental of $5,691 subject to annual adjustments and adjustments for increases in property taxes and other operating costs. The lease was amended in December 2006 to include an additional 5,409 square feet of office space on the fourth floor at a monthly rental of $16,314 subject to annual adjustments and adjustments for increases in property taxes and other operating costs.

        The Bank's Merchant Services division is located at 28632 Roadside Drive, Suite 155, Agoura Hills, California. The premises consist of approximately 2,799 square feet which are provided under a lease which expires on October 31, 2012. The total monthly rental is $6,744, subject to annual adjustments of 3% and various operating costs.

        The Bank also leases an office to house its Irvine Regional Office located at 19100 Von Karman Avenue, Irvine, California. The premises consists of approximately 4,837 square feet and is provided under a lease which expires April 30, 2011 at a monthly rental of $14,027 subject to annual adjustments plus a proportionate share of the building's operating costs.

        The Bank also leases an office located at 501 Santa Monica Boulevard, Suite 403, Santa Monica, California to house its Santa Monica Regional Office. The premises consisting of approximately 5,635 square feet are provided under a lease which expires July 31, 2012 at a rental of $18,426 per month, subject to annual adjustments and various operating costs.

        The Bank's South Bay Regional Office is located at 990 West 190^th Street, Suite 440, and 970 West 190^th Street, Suite 400, Torrance, California. The premises consist of approximately 12,909 square feet which are provided under a lease which expires on June 30, 2013. The total monthly rental is $26,722, subject to annual adjustments and various operating costs.

        The Bank also leases an office located at 5950 La Place Court, Suite 160, Carlsbad, California to house Trust Administration Services. The premises consisting of approximately 12,722 square feet are provided under a lease, which expires May 31, 2009 at a rental of $23,387 per month, subject to annual adjustments and various operating costs.

        The Bank's Glendale Regional Office is located at 655 North Central Avenue, Suite 1500, Glendale, California. The premises consist of approximately 7,771 square feet which are provided under a lease which expires in December 2012. The total monthly rental is $19,793, subject to annual adjustments and various operating costs.

        The Bank also leases an office located at 16830 Ventura Blvd, Suite 202, Encino, California to house the Encino Regional Office. The premises consisting of approximately 2,980 square feet are provided under a lease, which expires August 31, 2010 at a rental of $7,001 per month, subject to annual adjustments and various operating costs.

        The Bank's Hollywood Regional Office is located at 7083 Hollywood Boulevard, Hollywood, California. The premises consisting of approximately 2,141 square feet are provided under a lease, which expires in November 2009 at a rental of $6,637 per month, subject to annual adjustments and various operating costs.

        The Bank also leases an office located at 2535 Townsgate Road, Suite 300, Westlake Village, California to house the Ventura County Regional Office. The premises consisting of approximately

34

4,061 square feet are provided under a lease which expires August 31, 2013 at a rental of $12,017 per month, subject to annual adjustments and various operating costs.

        The Bank also leases an office located at 515 South Flower Street, Suite 1200, Los Angeles, California to house the downtown Los Angeles Regional Office. The premises consisting of approximately 6,475 square feet are provided under a lease which expires in October 2014 at a rental of $17,010 per month, subject to annual adjustments and various operating costs.

        The Bank also leases an office located at 2400 East Katella, Suite 460, Anaheim, California to house the Orange County Regional Office. The premises consisting of approximately 4,021 square feet are provided under a lease which expires in May 2012 at a rental of $11,861 per month, subject to annual adjustments and various operating costs.

Item 3.    Legal Proceedings

Litigation

        In the normal course of business, the Company and the Bank are involved in litigation. Management does not expect the ultimate outcome of any pending litigation to have a material adverse effect on the Company's financial position or results of operations.

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

        During the fourth quarter of 2008, no matters were submitted to a vote of the Company's shareholders.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Securities Activity

        The common stock of First Regional Bancorp is traded on The Nasdaq Global Market under the trading symbol FRGB. Quotations are carried either daily or weekly by newspapers throughout the nation including The Wall Street Journal and the Los Angeles Times and are carried daily on internet-based financial reports such as www.Bloomberg.com and www.Yahoo.com. As of March 11, 2009, there were approximately 1,500 shareholders of the Company's common stock. The following table summarizes the quotations reported by Nasdaq of First Regional Bancorp's common stock.

	2008				2007
	High		Low		High		Low
1st Quarter	$	20.99	$	13.26	$	34.87	$	28.98
2nd Quarter		18.10		5.57		30.00		24.45
3rd Quarter		7.38		3.30		26.30		19.75
4th Quarter		6.50		3.20		25.42		18.08

Stock Performance Chart

	Period Ending
Index	12/31/03		12/31/04		12/31/05		12/31/06		12/31/07		12/31/08
First Regional Bancorp		100.00		184.30		230.55		349.04		193.41		33.17
NASDAQ Composite		100.00		108.59		110.08		120.56		132.39		78.72
SNL Bank $1B-$5B		100.00		123.42		121.31		140.38		102.26		84.81

        On July 30, 2007, the Company announced that its Board of Directors had approved and adopted a share repurchase program authorizing the Company to repurchase up to 1,000,000 shares, or

36

approximately 8%, of its outstanding common stock through July 30, 2008. The repurchase program authorizes the Company to purchase shares from time to time in the open market, depending on market price and other considerations. The timing of purchases and the prices to be paid are at the discretion of management. All repurchased shares are expected to be retired. The repurchase program is intended to be structured to conform with the safe harbor provisions of Securities and Exchange Commission Rule 10b-18.

        Repurchases of the Company's securities during 2008 and 2007 are as follows:

		Total Number of Shares Purchased		Weighted Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program
July 31, 2007			—		—		—
August 31, 2007			283,103	$	22.26		283,103
September 30, 2007			0	$	0		0
October 31, 2007			8,911	$	21.81		8,911
November 30, 2007			80,472	$	21.45		80,472
December 31, 2007			11,500	$	18.56		11,500
January 31, 2008			115,593	$	17.11		115,593
February 29,2008			0		0		0
March 31, 2008			0		0		0
April 30, 2008			0		0		0
May 31, 2008			0		0		0
June 30, 2008			0		0		0
July 31, 2008			0		0		0
	Total		499,579	$	20.84		499,579

Dividends

        The Company has not paid any cash dividends and it is the Company's Board of Directors' intention that no cash dividends be declared by the Company during this stage of the Company's development. The Board of Directors intends to retain earnings to increase the Company's capital. Cash dividends will be paid only when it is prudent to do so and when the Company's performance justifies such action.

        The Company is a legal entity separate and distinct from its subsidiaries, and has not engaged in any activities other than acting as a holding company. Accordingly, the Company's principal source of funds, including funds available for payment of cash dividends to its shareholders, have and will consist of dividends paid and other funds advanced to the Company by its subsidiaries. As described below, statutory and regulatory requirements impose limitations on the amounts of dividends payable by the Bank to the Company and on extensions of credit by the Bank to the Company.

        Holders of the Company's common stock are entitled to receive dividends as and when declared by the Board of Directors out of funds legally available therefore under the laws of the State of California. Under California law, the Company would be prohibited from paying dividends unless: (1) its retained earnings immediately prior to the dividend payment equals or exceeds the amount of the dividend; or (2) immediately after giving effect to the dividend (i) the sum of the Company's assets would be at least equal to 125% of its liabilities, and (ii) the current assets of the Company would be at least equal to its current liabilities, or, if the average of its earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of its interest expense for the two preceding fiscal years, at least 125% of its current liabilities.

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        Prior to the consummation of the 1982 reorganization of the Bank, the Bank did not pay any cash dividends to its shareholders. It is the Bank's Board of Directors' current intention to retain most of the Bank's earnings to increase its capital, although the Bank may pay cash dividends to the Company as its current sole shareholder subject to regulation and when deemed prudent. The Bank paid dividends to the Company of $10,000,000, $26,000,000 and $0 in 2008, 2007 and 2006, respectively.

Securities Authorized for Issuance Under Equity Compensation Plans

        The following table provides information as of December 31, 2008 regarding equity compensation plans under which equity securities of the Company were authorized for issuance.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in California (a) (c)
Equity Compensation plans approved by security holders		2,213,040	$	6.20		0
Equity Compensation plans not approved by security holders		116,600	$	6.08		83,400
Total		2,329,640	$	6.19		83,400

Restrictions on Transfer of Funds to the Company by the Bank

        The Company is a legal entity separate and distinct from the Bank. It is anticipated that the Company may eventually receive sufficient income to fund its operating expenses through the payment of management fees by its subsidiaries. However, if the Company requires significant amounts of cash, including funds available for the payment of dividends and extraordinary operating expenses, such funds initially will be received as dividends paid by the Bank. Subject to the regulatory restrictions described below, future cash dividends by the Bank to the Company also will depend upon Management's assessment of the Bank's future capital requirements, contractual restrictions and other factors.

        In addition, there are statutory and regulatory limitations on the amount of dividends which may be paid to the Company by the Bank. Under California law, funds available for cash dividend payments by a bank are restricted to the lesser of: (i) retained earnings or (ii) the bank's net income for its last three fiscal years (less any distributions to shareholders made during such period). Cash dividends may also be paid out of net income for a bank's last preceding fiscal year upon the prior approval of the California Commissioner of Financial Institutions, without regard to retained earnings or net income for its last three fiscal years. If the Commissioner of Financial Institutions finds that the shareholders' equity of a bank is not adequate or that the payment of a dividend would be unsafe or unsound for the bank, the Commissioner may order the bank not to pay any dividend to its shareholders.

        Moreover, in a policy statement adopted in November, 1985, the Federal Reserve Board advised banks and bank holding companies that payment of cash dividends in excess of current earnings from operations is inappropriate and may be cause for supervisory action. As a result of this new policy, banks and their holding companies may find it difficult to pay dividends out of retained earnings from historical periods prior to the most recent fiscal year or to take advantage of earnings generated by extraordinary items such as sales of buildings, other large assets, or business segments in order to generate profits to enable payment of future dividends.

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        Under the Financial Institutions Supervisory Act, the FDIC also has authority to prohibit a bank from engaging in business practices which the FDIC considers to be unsafe or unsound. It is possible, depending upon the financial condition of the bank in question and other factors, that the FDIC could assert that the payment of dividends or other payments might under some circumstances be such an unsafe or unsound practice.

        In addition, the Bank is subject to certain restrictions imposed by federal law on any extensions of credit to the Company or other affiliates, investments in stock or other securities thereof, and taking of such securities as collateral for loans. Such restrictions prevent the Company and such other affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts.

Item 6.    Selected Financial Data

        The summary information presented below should be read in conjunction with the Notes to Consolidated Financial Statements, which accompany the Company's financial statements as described below.

        The balances of selected balance sheet components as of December 31 of each of the past five years were as follows:

	2008		2007		2006		2005		2004
	(Dollars in Thousands except per share amounts)
Total assets	$	2,465,141	$	2,174,315	$	2,074,636	$	1,811,715	$	1,306,118
Net loans		2,257,479		2,020,217		1,805,301		1,688,357		1,144,229
Investment securities		24,727		25,114		22,465		4,154		3,434
Federal Funds sold		42,340		0		103,860		0		68,025
Total deposits		2,129,972		1,721,077		1,627,759		1,420,221		1,000,052
Federal Funds purchased		0		20,955		0		0		0
FHLB advances		60,000		135,000		190,000		210,000		176,687
Subordinated debentures		100,517		100,517		92,785		61,857		41,238
Shareholders' equity		150,147		174,619		147,010		106,034		77,446
Common shares outstanding		11,834		11,890		12,200		12,111		11,976
Book value per share outstanding	$	12.69	$	14.69	$	12.05	$	8.76	$	6.47

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        The Company's operating results are summarized as follows for the twelve-month periods ending December 31 of each of the following years:

	2008			2007		2006		2005		2004
	(Dollars in Thousands except for per share)
Interest income	$	148,957		$	171,461	$	161,748	$	106,186	$	55,500
Interest expense		54,563			63,650		53,256		22,739		8,201
Net interest income		94,394			107,811		108,492		83,447		47,299
Provision for loan losses		93,367			2,622		4,328		5,695		4,902
Net interest income after provision for loan losses		1,027			105,189		104,164		77,752		42,397
Other income		12,165			11,421		8,307		6,424		5,289
Other expense		56,227			58,580		46,043		38,056		28,710
Income (loss) before taxes (benefit)		(43,035	)		58,030		66,428		46,120		18,976
Provision for income taxes (benefit)		(19,394	)		24,420		28,092		19,595		7,892
Net income (loss)	$	(23,641	)	$	33,610	$	38,336	$	26,525	$	11,084
Basic earnings per common share outstanding	$	(2.00	)	$	2.77	$	3.15	$	2.20	$	1.10
Diluted earnings per common share outstanding	$	(2.00	)	$	2.59	$	2.95	$	2.06	$	0.95
Cash dividends declared per share	$	0.00		$	0.00	$	0.00	$	0.00	$	0.00

        The number of shares outstanding (net of unearned ESOP shares) was 11,834,000 in 2008, 11,890,000 in 2007, 12,200,000 in 2006, 12,111,000 in 2005 and 11,976,000 in 2004.

        All share and per share information have been retroactively adjusted to reflect the three-for-one stock split approved by the Board of Directors on July 20, 2006. All shareholders of record on July 31, 2006, received two additional shares of common stock for each share held by them at that date. In connection with the stock split, the authorized number of shares was increased from 50 million to 150 million, effective August 21, 2006.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Executive Summary

        First Regional Bancorp's financial results for both the year and the fourth quarter ended December 31, 2008 reflect higher loan loss provisions due to the continuing economic recession, the Company reported operating losses for both the fourth quarter and the full year. Core earnings (before loan loss provisions and taxes) declined from earlier periods but remained substantial.

        The net loss for the quarter ended December 31, 2008 was $11.0 million, equal to 93 cents per diluted share, compared to net income for the fourth quarter of 2007 of $7.9 million, equal to 62 cents per diluted share. For the full year 2008, the Company recorded a net loss of $23.6 million, or $2.00 per diluted share, versus 2007 net income of $33.6 million, equal to $2.59 per diluted share.

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        At December 31, 2008, total assets were $2.465 billion, compared to $2.174 billion one year earlier. Total deposits grew to $2.130 billion from $1.721 billion a year earlier, and net loans rose to $2.257 billion from $2.020 billion at December 31, 2007. The increase in loans was the result of a decline in loan payoffs due to slower sales of completed condominium units and the ongoing funding of previously approved construction loan commitments. At the end of 2008, equity totaled $150.1 million. As First Regional has no "intangible" assets on its books, all of the Company's equity is tangible. First Regional continues to exceed all financial ratio requirements under applicable regulations for "Well Capitalized" status, the highest level established by banking regulators.

        Reflecting the impact of the economic downturn, in the fourth quarter of 2008 First Regional made a $27.4 million provision to its loan loss reserve and charged off a total of $20.9 million in loans. These transactions brought the loan loss reserve to $61.3 million, or 2.64% of gross loans, at December 31, 2008. Nonperforming assets as of the same date totaled $120.7 million, or 5.19% of gross loans plus other real estate owned, compared to $10.5 million at December 31, 2007.

        Clearly, these are challenging times for the nation and for financial institutions, and obviously, our results have been adversely affected by these difficult conditions. The impact of the economic climate on real estate values has been of particular concern. Our 2008 loan loss provisions reflect our ongoing review of our loan portfolio, and our current assessment of collateral values and borrower performance. It should be emphasized that the vast majority of our loan portfolio continues to be well secured and to perform as agreed. Nonetheless, our nonperforming assets increased in the fourth quarter of 2008. First Regional is continuing its long-standing practice of confronting challenges fully, directly, and realistically. We do not hesitate to place loans on non-accrual status (rendering them "nonperforming" by definition) as part of our enhanced collection program. Most of our nonperforming assets are secured by real estate, and thus our risk of loss is mitigated by the value of the underlying collateral even in a declining market. Reflecting the economic environment in which we now operate, we remain highly selective on loan transactions. While we believe we are dealing effectively with our problem loans, the economic future remains unclear, and additional loan loss provisions will be made if warranted based on our ongoing analysis of First Regional's loan portfolio performance and economic conditions in general.

        First Regional's long-standing emphasis on capital strength has enabled us to deal realistically with the economic environment while maintaining "well capitalized" capital ratios, the highest standard established by banking regulators. Moreover, our core earnings (before loan loss provisions and taxes), though reduced, remain substantial despite the decline in operating margins in 2008 due to the Federal Reserve's actions to reduce interest rates in an attempt to stimulate the economy.

        During February 2009, the Bank signed an order to cease and desist with the FDIC and DFI to further strengthen the Bank's operations. The agreement between First Regional Bank and its regulators is expected to help guide the Bank in addressing the impacts of today's challenging economic environment. The agreement formalizes many of the initiatives, which the Bank has already adopted, and provides useful milestones for measuring the Bank's progress as it moves forward.

        As we move forward, we will continue to benefit from our skilled and experienced management and our capable and professional staff. These members of the First Regional team have shown the talent and experience to confront the challenges and to capitalize on the opportunities that will doubtless arise as the economy and the credit markets return to health. We will continue to provide our clients with our unmatched level of service and the efficient, cost-effective operation they have come to expect.

        While we foresee many challenges, we remain confident regarding the future. The current environment continues to require difficult measures, but we are committed to taking those actions as necessary steps in enhancing value over time for First Regional's shareholders.

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Summary

        First Regional Bancorp, a bank holding company (the "Company"), and one of its subsidiaries, First Regional Bank, primarily serve Southern California through their branches. First Regional Bancorp has six other subsidiaries, First Regional Statutory Trust III, First Regional Statutory Trust IV, First Regional Statutory Trust V, First Regional Statutory Trust VI, First Regional Statutory Trust VII and First Regional Statutory Trust VIII, that exist for the sole purpose of issuing Trust Securities and investing the proceeds thereof in junior subordinated deferrable debentures issued by the Company and engaging in certain other limited activities; see Note 7 of the Consolidated Financial Statements. The following discussion and analysis relates primarily to the Bank and its three reportable business segments consisting of core bank operations, the administrative services provided by the Bank's division, Trust Administration Services(TAS), and the Bank's Trust Services Division. For segment reporting financial information see Note 19 of the Consolidated Financial Statements.

Core Bank Operations—The principal business activities of this segment are attracting funds from the general public and originating real estate and commercial loans for small and midsize businesses in Southern California. This segment's primary sources of revenue are interest income from loans and investment securities, and fees earned in connection with loans and deposits. This segment's principal expenses consist of interest paid on deposits, personnel, and other general and administrative expenses. The Bank's Core Bank Operations also include the Bank's Merchant Services Division, which provides credit card and ACH processing for Merchants.

Administrative Services—The principal business activity of this segment is providing administrative services for self-directed retirement plans. The primary source of revenue for this segment is fee income from self-directed accounts. The segment's principal expenses consist of personnel, rent, data processing, and other general and administrative expenses.

Trust Services—The principal business activity of this segment is providing trust services for living trusts, investment agency accounts, IRA rollovers, and all forms of court-related matters. The primary source of revenue for this segment is fee income. The segment's principal expenses consist of personnel, data processing, professional fees, and other general and administrative expenses.

        Average assets in 2008 were $2,386,189,000 compared to $2,059,903,000 in 2007, compared to $1,940,575,000 in 2006. As was the case in 2007 and 2006, the Company's asset growth in 2008 was funded by an increase in deposits. The Company generated a net loss of $23,641,000 in 2008 compared to net income of $33,610,000 in 2007 and net income of $38,336,000 in 2006.

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Distribution of Assets, Liabilities and Shareholders' Equity

        The following table shows the yearly average balances of the Company's assets, liabilities, and shareholders' equity for each of the past three years:

				For Year Ended December 31,
				2008		2007		2006
				(Dollars in Thousands)
Assets
	Cash and due from banks			$	30,036	$	65,992	$	81,934
	Federal funds sold				19,607		11,772		5,946
	Interest bearing deposits in financial institutions				4,050		6,203		5,397
	Investment Securities				24,596		24,683		11,425
	Net Loans				2,222,893		1,886,332		1,781,140
	Other Assets				85,007		64,921		54,733
		Total Assets		$	2,386,189	$	2,059,903	$	1,940,575
Liabilities & Shareholders' Equity
	Deposits:
			Demand (non-interest bearing)	$	392,012	$	419,981	$	482,601
			Savings and NOW Accounts		64,180		57,487		51,657
			Money Market Accounts		818,615		939,424		813,581
			Time		639,380		234,264		198,626
		Total Deposits			1,914,187		1,651,156		1,546,465
	FHLB Advances				187,053		125,439		163,992
	Federal Funds purchased and other borrowings				1,132		210		34
	Subordinated Debentures				100,517		94,840		85,328
	Other Liabilities				15,371		24,888		18,906
		Total Liabilities			2,218,260		1,896,533		1,814,725
	Shareholders' Equity				167,929		163,370		125,850
		Total Liabilities and Shareholders' Equity		$	2,386,189	$	2,059,903	$	1,940,575

Critical Accounting Policies

Allowance For Loan Losses

        Accounting for the allowance for loan losses involves significant judgments and assumptions by management which have a material impact on the carrying value of net loans. Management considers this accounting policy to be a critical accounting policy. The judgments and assumptions used by management are based on historical data and management's view of the current economic environment as described in "Loan Portfolio and Provision for Loan Losses".

        We generally cease to accrue interest on any loan with respect to which the loan's contractual payments are more than 90 days delinquent, as well as loans classified substandard for which interest payment reserves were established from loan funds rather than borrower funds. In addition, interest is not recognized on any loan for which management has determined that collection of our investment in the loan is not reasonably assured. A non-accrual loan may be restored to accrual status when delinquent principal and interest payments are brought current, the loan is paying in accordance with its payment terms and future monthly principal and interest payments are expected to be collected.

        Properties acquired through foreclosure, or deed in lieu of foreclosure, are transferred to the other real estate owned portfolio and carried at the lower of cost or estimated fair value less the estimated

43

costs to sell the property. The fair value of the property is based upon a current appraisal. The difference between the fair value of the real estate collateral and the loan balance at the time of transfer is recorded as a loan charge-off if fair value is lower. Subsequent to foreclosure, management periodically performs valuations and the property is carried at the lower of carrying value or fair value, less costs to sell. The determination of a property's estimated fair value includes revenues projected to be realized from disposal of the property less construction and renovation costs.

Other Real Estate Owned

        Other real estate owned is recognized when a property collateralizing a loan is foreclosed upon or otherwise acquired by the Bank in satisfaction of the loan. Other real estate owned is recorded at the lower of outstanding loan balance or estimated fair value. Reductions in value at the time of foreclosure are charged against the allowance for loan losses. Allowances are recorded to provide for estimated declines in fair value and costs to sell subsequent to the date of acquisition.

Stock Based Compensation

        The Company has two nonqualified employee stock option plans that are more fully described in Note 12 of the notes to the consolidated financial statements. On January 1, 2006, the Company adopted SFAS No. 123R, Share-Based Payment, using the modified prospective method. SFAS No. 123R requires companies to account for stock options using the fair value method, which generally results in compensation expense recognition. Prior to January 1, 2006, the Company accounted for its fixed stock options using the intrinsic-value method, as prescribed in Accounting Principles Board Opinion No. 25. Accordingly, no stock option expense was recorded in periods prior to January 1, 2006. The modified prospective method requires application of the new Statement to new awards and to awards modified, repurchased or cancelled after the required effective date. Accordingly, prior-period amounts have not been restated. Commencing with 2006, stock compensation cost is comprised of costs related to share-based awards granted prior to, but not yet vested as of January 1, 2006, based upon the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, which will be recognized as the requisite services are rendered after January 1, 2006 and costs related to all share-based awards granted subsequent to January 1, 2006 based upon the grant date fair value estimated in accordance with the provisions of SFAS No. 123R.

        Investment Securities

        Investment securities available for sale are reported in the accompanying consolidated balance sheets at fair value, and the net unrealized gain or loss on such securities (unless other-than-temporary) is reported as a separate component of shareholders' equity. The fair values of the investment securities are generally determined by reference to quoted market prices obtained from independent external brokers or independent external pricing service providers who have experience in valuing these securities. In obtaining such valuation information from third parties, the Company has evaluated the methodologies used to develop the resulting fair values.

        Premiums and discounts on debt securities are amortized or accreted as adjustments to interest income using the level-yield method. Realized gains and losses on sales of securities are determined on a specific identification basis and reported in earnings.

        At each reporting date, management assesses whether there are any "other-than-temporary" impairments to investment securities. Such impairment is required to be recognized in current earnings rather than other comprehensive income or loss. In assessing impairment, the severity and duration of the loss and the financial wherewithal of the issuers of the securities is considered, as well as the ability and positive intent of the Company to hold the securities until their fair values recover, which may be maturity.

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Net Interest Income

        Net interest income is the excess of interest income earned on interest-earning assets over interest expense incurred on interest-bearing liabilities. Interest income or expense are determined by the average volume of interest-bearing assets or liabilities, and the average rate of interest earned or paid on those assets or liabilities. As was the case during 2007, in 2008 the Company's continued growth efforts resulted in an increase in interest earning assets, including loans. The Bank's core loan portfolio increased by 12% during 2008. Although net interest income decreased primarily due to the Federal Reserve's series of rate decreases, it was mitigated by an increase in the loan portfolio. The deposit growth was centered in time deposits, while there was a decline in non-interest bearing and money market deposits and a slight decline in savings deposits. Average time deposits increased in 2008 as compared to the prior year. Interest expense for the year 2008 decreased primarily due to a decrease in interest rates during the period.

Interest Rates and Interest Differential

        The following table sets forth the average balances outstanding for major categories of interest earning assets and interest bearing liabilities and the average interest rates earned and paid thereon:

	For Year Ended December 31,
	2008							2007
	Average Balance		Interest Income(2)/ Expense		Average Yield/ Rate%			Average Balance		Interest Income(2)/ Expense		Average Yield/ Rate%
	(Dollars in Thousands)
Interest Earning Assets:
Loans(1)	$	2,270,792	$	147,155		6.5	%	$	1,916,249	$	169,303		8.8	%
Investment securities		24,596		1,330		5.4	%		24,683		1,289		5.2	%
Federal funds sold		19,607		325		1.7	%		11,772		576		4.9	%
Time deposits with other financial institutions		4,050		147		3.6	%		6,203		293		4.7	%
Total Interest Earning Assets	$	2,319,045	$	148,957		6.4	%	$	1,958,907	$	171,461		8.8	%

	For Year Ended December 31,
	2008							2007
	Average Balance		Income(2)/ Expense		Yield/ Rate%			Average Balance		Income(2)/ Expense		Yield/ Rate%
	(Dollars in Thousands)
Interest Bearing Liabilities:
Savings deposits	$	64,180	$	1,024		1.6	%	$	57,487	$	1,331		2.3	%
Money market accounts		818,615		19,464		2.4	%		939,424		36,921		3.9	%
Time deposits		639,380		24,439		3.8	%		234,264		11,873		5.0	%
FHLB advances		187,053		4,350		2.3	%		125,439		6,414		5.1	%
Fed Funds purchased and other borrowings		1,132		33		2.9	%		210		16		7.6	%
Subordinated debentures		100,517		5,253		5.2	%		94,840		7,095		7.5	%
Total Interest Bearing Liabilities	$	1,810,877	$	54,563		3.0	%	$	1,451,664	$	63,650		4.4	%

(1)

This figure reflects total loans, including non-accrual loans, and is not net of the allowance for losses, which had an average balance of $41,534,000 and $21,951,000 in 2008 and 2007, respectively and is not net of deferred loan fees, which had an average balance of $6,365,000 and $7,966,000 in 2008 and 2007, respectively.

(2)

Includes loan fees of $8,280,000 in 2008 and $10,838,000 in 2007.

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        The following table shows the net interest earnings and the net yield on average interest earning assets:

	For Year Ended December 31,
	2008			2007
	(Dollars in Thousands)
Total interest income(1)	$	148,957		$	171,461
Total interest expense		54,563			63,650
Net interest earnings	$	94,394		$	107,811
Average interest earning assets	$	2,319,045		$	1,958,907
Average interest bearing liabilities	$	1,810,877		$	1,451,664
Net yield on average interest earning assets		4.1	%		5.5	%

(1)

Includes loan fees of $8,280,000 in 2008 and $10,838,000 in 2007.

        The following table sets forth changes in interest income and interest expense. The net change as shown in the column "Net Increase (Decrease)" is segmented into the change attributable to variations in volume and the change attributable to variations in interest rates. Non-performing loans are included in average loans.

	Increase (Decrease) December 31, 2008 over 2007
	Volume			Rate			Net
	(Dollars in Thousands)
Interest Income(1)
Loans(2)	$	50,276		$	(72,424	)	$	(22,148	)
Investment securities		(5	)		46			41
Federal Funds sold		(38,595	)		38,344			(251	)
Interest on time deposits with other financial institutions		(88	)		(58	)		(146	)
Total Interest Earning Assets	$	11,588		$	(34,092	)	$	(22,504	)
Interest Expense(1)
Savings deposits	$	184		$	(491	)	$	(307	)
Money market accounts		(4,287	)		(13,170	)		(17,457	)
Time deposits		14,648			(2,082	)		12,566
FHLB advances		18,773			(20,837	)		(2,064	)
Federal Funds purchased and other borrowings		20			(3	)		17
Subordinated debentures		456			(2,298	)		(1,842	)
Total Interest Bearing Liabilities	$	29,794		$	(38,881	)	$	(9,087	)

(1)

The change in interest due to both rate and volume has been allocated to the change due to volume and the change due to rate in proportion to the relationship of the absolute dollar amounts of the change in each.

(2)

Includes loan fees of $8,280,000 in 2008 and $10,838,000 in 2007.

Because customer deposits are the Company's principal funding source outside of its capital, management has attempted to match repricing characteristics of its deposits with its investment and loan portfolios as part of its liquidity and asset and liability management policies. The

46

objective of these policies is to manage the Company's interest rate sensitivity and limit the fluctuations of net interest income resulting from interest rate changes. The table which follows in section 7A indicates the repricing or maturity characteristics of the major categories of the Bank's assets and liabilities as of December 31, 2008, and thus the relative sensitivity of the Bank's net interest income to changes in the overall level of interest rates.

Other Operating Income

        Other operating income increased for 2008 to $12,165,000, versus $11,421,000 in 2007 and $8,307,000 for the year 2006. Trust Administration Services (TAS), the Bank's division that provides administrative services to self-directed retirement plans, had revenue that totaled $2,332,000 during 2008 and $2,464,000 during 2007 and $2,428,000 during 2006. The Bank's merchant services operation, which provides credit card deposit and clearing services to retailers and other credit card accepting businesses, had revenue that totaled $1,568,000 in 2008, $1,103,000 in 2007 and $1,458,000 in 2006. The Bank's trust services department, which provides trust services for living trusts, investment agency accounts, IRA rollovers, and all forms of court-related matters had revenue that totaled $2,219,000 in 2008, $2,084,000 in 2007 and $1,632,000 in 2006. During the first quarter of 2008, the Company realized a gain of $2,758,000 on the redemption of restricted stock in VISA, Inc. During the fourth quarter of 2007, the company realized a gain of $2,455,000 on the redemption of restricted stock in MasterCard International.

Loan Portfolio and Provision for Loan Losses

        The loan portfolio consisted of the following at December 31, 2008 and 2007:

		2008		2007
		(Dollars in Thousands)
Commercial loans		$	276,885	$	255,077
Real estate construction loans			603,866		591,334
Real estate loans			1,438,758		1,199,070
Government guaranteed loans			1,337		2,661
Other loans			2,601		2,412
	Total loans		2,323,447		2,050,554
Less—Allowances for loan losses			61,336		22,771
—Deferred loan fees			4,632		7,566
	Net loans	$	2,257,479	$	2,020,217

        The Bank offers a full range of lending services including commercial, real estate, and real estate construction loans. The Bank has developed a substantial portfolio of short and medium-term "mini-perm" first trust deed loans for income properties as well as specializing in construction lending for moderate-size commercial and residential projects. The Bank also offers commercial loans for commercial and industrial borrowers, which includes equipment financing as well as short-term loans. Typically the Bank's loans are floating rate and have no prepayment penalties.

        Interest-only loans allow interest-only payments for a fixed period of time. The loans generally mature at the end of the interest only period and require a balloon payment. At December 31, 2008 and 2007 we had $1,042,205,000 and $976,808,000 of short and medium-term "mini-perm" first trust deed loans for income properties with interest only payments that have a balloon payment at loan maturity. The Bank does not offer residential mortgage products, negative amortization loans, "option-ARMs", or sub-prime loan products.

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Provision for Loan Losses

        The allowance for loan losses is intended to reflect the known and unknown risks which are inherent in a loan portfolio. The adequacy of the allowance for loan losses is continually evaluated in light of many factors, including loan loss experience and current economic conditions The allowance for loan losses is increased by provision for loan losses, and is decreased by net charge-offs. Management believes the allowance for loan losses as of December 31, 2008 is adequate in relation to both existing and potential risks in the loan portfolio.

        The Bank has historically evaluated the adequacy of its allowance for loan losses on an overall basis rather than by specific categories of loans. In determining the adequacy of the allowance for loan losses, management considers such factors as historical loan loss experience, known problem loans, evaluations made by bank regulatory authorities, assessment of economic conditions and other appropriate data to identify the risks in the loan portfolio.

        The first major element includes a detailed analysis of the loan portfolio in two phases. The first phase is conducted in accordance with SFAS No. 114, "Accounting by Creditors for the Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan—Income Recognition and Disclosures." Individual loans are reviewed to identify loans for impairment. A loan is impaired when principal and interest are deemed uncollectable in accordance with the original contractual terms of the loan. Impairment is measured as either the expected future cash flows discounted at each loan's effective interest rate, the fair value of the loan's collateral if the loan is collateral dependent, or an observable market price of the loan (if one exists). Upon measuring the impairment, the Bank will ensure an appropriate level of allowance is present or established.

        Central to the first phase and the Bank's credit risk management is its loan risk rating system. The originating credit officer assigns borrowers an initial risk rating, which is based primarily on a thorough analysis of each borrower's financial capacity in conjunction with industry and economic trends. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit administration personnel. Credits are monitored by line and credit administration personnel for deterioration in a borrower's financial condition, which would impact the ability of the borrower to perform under the contract. Credits undergo a quarterly loan review and a periodic review by the regulators. Risk ratings are adjusted as necessary.

        Based on the risk rating system specific allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicates the probability that a loss has been incurred. Management performs a detailed analysis of these loans, including, but not limited to, cash flows, appraisals of the collateral, conditions of the marketplace for liquidating the collateral and assessment of the guarantors. Management then determines the inherent loss potential and allocates a portion of the allowance for losses as a specific allowance for each of these credits.

        The second phase is conducted by evaluating or segmenting the remainder of the loan portfolio into groups or pools of loans with similar characteristics in accordance with SFAS No. 5, "Accounting for Contingencies". In this second phase, groups or pools of homogeneous loans are reviewed to determine a portfolio allowance. Additionally groups of non-homogeneous loans, such as construction loans, are also reviewed to determine a portfolio allowance. The risk assessment process in this case emphasizes trends in the different portfolios for delinquency, loss, and other-behavioral characteristics of the subject portfolios.

        The second major element in the Bank's methodology for assessing the appropriateness of the allowance consists of management's considerations of all known relevant internal and external factors that may affect a loan's collectibility. This includes management's estimates of the amounts necessary for concentrations, economic uncertainties, the volatility of the market value of collateral, and other

48

relevant factors. The relationship of the two major elements of the allowance to the total allowance may fluctuate from period to period.

        The allowance for loan losses is increased by provisions which are charged to operating expense and is reduced by loan charge offs. Any subsequent recoveries of charged off loans are added back into the allowance. Based on ongoing analysis of the risks presented by the loan portfolio, in 2008 provisions of $93,367,000 were made to the reserve for loan losses, $55,156,000 in loans were charged off, and $20,000 in loans previously charged off were recovered. In 2007 provisions of $2,622,000 were made to the reserve for loan losses, $741,000 in loans were charged off, and $94,000 in loans previously charged off were recovered. By way of comparison, in 2006 provisions of $4,328,000 were made to the reserve for loan losses, $1,028,000 in loans were charged off, and $100,000 in loans previously charged off were recovered. These transactions brought the balance of the allowance for loan losses at the end of 2008 to $61,336,000 (or 2.7% of total loans), compared to the 2007 balance of $22,771,000 (or 1.1% of total loans), and compared to $20,624,000 (or 1.1% of total loans) at December 31, 2006.

        Loans are determined to be impaired when it is determined probable that the bank will be unable to collect all the contractual interest and principal payments as scheduled in the loan agreement. Impaired loans include both non-performing and performing assets. Per banking industry convention, non-performing assets consist of loans past due 90 or more days and still accruing interest, loans on non-accrual status, and other real estate owned ("OREO"). As of December 31, 2008, the Company had $18,540,000 in loans past due 90 or more days which were still accruing interest and $9,611,000 in other real estate owned. The Company's non-performing assets as of December 31, 2008, which consist of loans on non-accrual status, loans past due 90 days or more and still accruing interest and other real estate owned, were as follows:

Asset Type		Number of Loans		Amount
Loans on non-accrual status:
Land loans			4	$	22,506,000
Construction loans			5		53,717,000
Commercial real estate loans			8		16,357,000
Residential loans			1		7,096,000
Unsecured loans			5		7,261,000
	Gross non-accrual loans				106,936,000
	Less charge-offs				14,420,000
	Net non-accrual loans				92,517,000
Other real estate owned, net:
Land loans			3		2,908,000
Apartment loan			1		3,444,000
Condominium conversion			1		3,259,000
Total other real estate owned, net					9,611,000
90 or more days past due:
Land loans			3		14,200,000
Apartment building			1		4,340,000
Total 90 days or more past due					18,540,000
	Total non-performing assets			$	120,668,000

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        Performing assets that are considered impaired due to concerns with the economic climate consist of the following:

Asset Type		Number of Loans		Amount
Apartment loans
	First trust deed		5	$	57,240,000
	Second trust deeds		5		3,643,000
Land development			1		4,831,000
Unsecured			1		24,221,000
Construction			1		14,198,000
	Total performing assets considered impaired			$	104,133,000

        Thus, at December 31, 2008 the Company has identified non-performing and performing loans totaling $215,190,000 which it concluded were impaired. These loans are principally secured by real estate or other guarantees. The Company's policy is generally to discontinue the accrual of interest income on non-performing impaired loans, and to recognize income on such loans only after the loan principal has been repaid in full. The Company has established a loss reserve for each of the performing and non-performing impaired loans, which at December 31, 2008 totaled $32,264,000 for the loans as a group.

        Other real estate owned includes properties acquired through foreclosure. At December 31, 2008, the Company had five OREO properties acquired during the last six months of the year. In comparison, the Company had no OREO properties at December 31, 2007.

        In 2007, the Company identified loans having an aggregate average balance of $324,000 which it concluded were impaired under SFAS No. 114. In contrast, during 2006, the Company identified loans having an aggregate average balance of $545,000 which it concluded were impaired under SFAS No. 114. The Company's policy is generally to discontinue the accrual of interest income on impaired loans, and to recognize income on such loans only after the loan principal has been repaid in full, and to establish a specific loss reserve for each of the loans which at December 31, 2008 and 2007 totaled $32,264,000 and $20,000, respectively, for the loans as a group.

Operating Expenses

        Total operating expenses decreased to $56,227,000 in 2008 from $58,580,000 in 2007 and $46,043,000 in 2006. Included in other operating expenses during 2008 is a reversal of a litigation accrual of $2,232,000 further described below. While the total expense figures increased after accounting for the reversal, primarily due to increases in overall bank growth, most components continue to be moderated by the effects of an ongoing program of expense control.

        Salaries and related benefits expense decreased in 2008, to $34,002,000 from a 2007 total of $36,373,000 and increased from $30,130,000 in 2006. Occupancy expense rose in 2008, to $3,908,000 from $3,640,000 in 2007 and a 2006 total of $2,797,000; the increases reflect the rent paid on the additional space at the various facilities which house the Bank's headquarters and many of the regional offices. Other expenses decreased slightly in 2008 after rising in both 2007 and 2006. Other expenses totaled $18,317,000 in 2008 compared to $18,567,000 in 2007, which was increased from $13,116,000 in 2006. Other expenses in 2008 include professional services of $2,471,000, a slight decrease from the prior years when professional services were $2,510,000 for 2007 and $2,065,000 in 2006; these expenses primarily relate to audit and accounting fees due to the more extensive regulatory requirements applicable to larger companies. Data processing fees increased in 2008 to $1,774,000 compared to $1,691,000 in 2007 and $1,369,000 in 2006. The FDIC assessment increased to $2,058,000 in 2008, compared to $1,236,000 in 2007 and $177,000 in 2006. Loan valuation and OREO expenses increased

50

to $1,406,000 in 2008 compared to $27,000 in 2007 and $0 in 2006. Equipment expense increased to $1,895,000 during 2008 from $1,665,000 during 2007 and $1,356,000 for 2006. Telephone and postage expense decreased to $828,000 during 2008 from $944,000 during 2007 and $863,000 for 2006. Customer courier service decreased during 2008 to $831,000 compared to $912,000 during 2007 and increased from $768,000 for 2006. The increases in data processing fees and equipment expense relate primarily to the growth of the bank. Directors fees increased due to increased corporate regulations and were $379,000 in 2008, $315,000 in 2007, and $303,000 in 2006. Most of the remaining categories of other expense, generally remained stable (with the exception of the special reserves in 2007 noted below).

        During the fourth quarter of 2007, the Company's subsidiary, First Regional Bank, recorded a charge of $2,232,000 for its share of contingent liabilities relating to settlement of lawsuits by Visa Inc. This charge was reversed in the first quarter of 2008 after the successful completion of the Visa Inc. IPO, where a portion of the proceeds from the IPO funded an escrow account expected to be used for litigation settlement/claims, reducing all other operating expenses.

        During the year ended December 31, 2005, the issuer's subsidiary, First Regional Bank, recorded a charge of $1,033,000 reflected in other expense to add to a special reserve in connection with the termination of certain business operations of the Bank's Merchant Services division. The $1,033,000 reserve represents approximately 65% of an amount, approximately $1.59 million that the Bank had been carrying as a receivable due from an outside service provider which arose in connection with the Bank's former engagement in the business of supplying cash to ATM machines, which activity was terminated in 2004. While the Bank believed that it was entitled to the entire amount due of approximately $1.59 million, the Bank established the reserve due to the uncertain and protracted timing of collection. As of December 31, 2006, all but $555,000 of this receivable had previously been reserved against. During 2007, the Bank entered into a full and final settlement of litigation related to an account receivable arising out of the Bank's Merchant Services Division. The Bank recovered $388,500 from the defendant in full settlement of the matter, which resulted in a charge of approximately $166,500, or $87,000 after tax during 2007.

Taxes

        The combined effects of the activity described above resulted in income (loss) before taxes (benefit) of $(43,035,000) in 2008, a decrease from $58,030,000 in 2007, and a decrease from $66,428,000 in 2006. In 2008, the Company recorded tax benefits of $19,394,000. The Company recorded tax provisions of $24,420,000 and $28,092,000 during 2007 and 2006, respectively. As a result, the Company generated net loss of $23,641,000 in 2008, compared to net income of $33,610,000 in 2007, and versus net income of $38,336,000 in 2006.

Contractual Obligations

        The Company has various financial obligations, including contractual obligations that may require future cash payments. Further discussion of the nature of each obligation is included in Notes 7, 8, 9, 13 and 14 of the Notes to Consolidated Financial Statements.

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        The following table presents, as of December 31, 2008, significant fixed and determinable contractual obligations to third parties by payment date:

	One Year or Less		One to Three Years		Three to Five Years		Over Five Years		Total
	(in thousands)
Deposits without a stated maturity(1)	$	1,028,653	$	0	$	0	$	0	$	1,028,653
Time deposits(2)	$	953,090	$	163,608	$	87	$	0	$	1,116,785
Federal Home Loan Bank advances(3)	$	60,001	$	0	$	0	$	0	$	60,001
Subordinated debentures(4)	$	4,785	$	9,569	$	9,569	$	207,597	$	231,520
Operating leases	$	3,163	$	6,034	$	3,452	$	190	$	12,839

(1)

Excludes interest.

(2)

Includes interest at the weighted average interest rate to be paid over the life of the certificates.

(3)

Includes interest at the weighted average interest rate of the borrowings.

(4)

Includes interest at the weighted average interest rate to be paid over the remaining term of the debt.

Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

        The following table shows the amounts and expected maturities of significant commitments as of December 31, 2008. Further discussion on these commitments is included in Note 8 of the Notes to Consolidated Financial Statements.

	One Year or Less		One to Three Years		Three to Five Years		Over Five Years		Total
	(in thousands)
Commitments to extend credit:
Undisbursed loans	$	413,146		0		0		0	$	413,146
Standby letters of credit	$	15,310		0		0		0	$	15,310

        Commitments to extend credit do not necessarily represent future cash requirements, as these commitments may experience.

Liquidity, Sources of Funds, and Capital Resources

        Liquidity management involves our ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include funding of securities purchases, providing for customers' credit needs and ongoing repayment of borrowings. Our liquidity is actively managed on a daily basis and reviewed periodically by the Asset/Liability Committee and the Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet the needs of the Bank, including adequate cash flow for off-balance sheet instruments.

        Our primary sources of liquidity are derived from financing activities which include the acceptance of customer and brokered deposits, federal funds facilities, advances from the Federal Home Loan Bank of San Francisco, and issuances of long-term debt. These funding sources are augmented by payments of principal and interest on loans, the routine liquidation of securities from the available-for-sale portfolio and securitizations of loans. Primary uses of funds include withdrawal of and interest payments on deposits, originations and purchases of loans, purchases of investment securities, and payment of operating expenses.

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        During the years ended December 31, 2008, 2007, and 2006, we experienced net cash inflows from operating activities of $39.0 million, $40.2 million, and $41.0 million, respectively. Net cash inflows from operating activities reflects the $93.4 million loan loss provision recorded during 2008. Net cash inflows from operating activities during 2007 and 2006 were primarily due to net income earned during the year.

        Net cash outflows from investing activities totaled $335.4 million, $229.6 million, and $153.3 million during 2008, 2007, and 2006, respectively. Net cash outflows from investing activities for 2008, 2007 and 2006 were due primarily to the growth in our loan portfolio. These activities were partially offset by repayments, maturities and net sales proceeds from investment securities.

        We experienced net cash inflows from financing activities of $311.3 million during the year ended December 31, 2008, primarily due to the net increase in deposits. As a result of the turbulence in the banking sector, we experienced a notable growth in deposit products that afford greater deposit insurance coverage to deposit customers during the second half of 2008. As of December 31, 2008, time deposits within the CDARS program increased to $77.6 million, compared to $2.9 million at December 31, 2007. The CDARS program allows customers with deposits in excess of FDIC-insured limits to obtain full coverage on time deposits through a network of banks within the CDARS program. Cash from financing activities were partially offset by net decreases in federal funds purchased and FHLB advances.

        During 2007, a net decrease in deposits, proceeds from federal funds purchased, and proceeds from the issuance of subordinated debentures accounted for net cash inflows from financing activities totaling $122.0 million. These factors were partially offset by purchases of treasury shares related to our Board-approved share repurchase program, and a decrease in Federal Home Loan Bank advances. During 2006, net cash inflows from financing activities amounting to $220.3 million were primarily due to net increases in deposits and proceeds from issuance of subordinated debentures.

        Total liquid assets (cash and due from banks, investment securities, and federal funds sold) totaled $86,259,000 and $71,790,000 (or 4.0% and 4.2% of total deposits) at December 31, 2008 and 2007, respectively. In addition, at December 31, 2008, some $16.3 million of the Bank's total assets consisted of government guaranteed loans which represent a source of liquidity due to the active secondary markets which exist for these assets. The Company did not sell loan participation interests during 2008 and 2007. Participations of loans originated by the Bank represent an additional source of liquidity for the bank. The ratio of net loans (including government guaranteed loans) to deposits was 106.0% and 117.4% at the end of 2008 and 2007, respectively.

        The Bank is a member of the Federal Home Loan Bank of San Francisco (FHLB), which provides an additional source for short and long-term funding. Borrowings from the FHLB were $60,000,000 at the end of 2008 and were secured by loans available as collateral at the FHLB. As of December 31, 2008, the Bank has additional borrowing capacity at the Federal Home Loan Bank of $418,094,000.

        The Bank has available lines of credit totaling $19,000,000 from certain financial institutions.

        The Bank's established TAS, a division that provides administrative services to self-directed retirement plans. Deposits held for TAS clients by the Bank represent approximately 5% and 7% of the Bank's total deposits as of December 31, 2008 and 2007.

        The Company continues to maintain a strong and prudent capital position. Total shareholders' equity was $150,147,000 and $174,619,000 as of December 31, 2008 and 2007, respectively. The

53

Company's capital ratios for those dates in comparison with regulatory capital requirements were as follows:

		December 31,
		2008			2007
Leverage Ratio (Tier I Capital to Average Assets):
	First Regional Bancorp		8.19	%		10.86	%
	First Regional Bank		9.19	%		11.67	%
	Regulatory requirement		4.00	%		4.00	%

        The "regulatory requirement" listed represents the level of capital required for Adequately Capitalized status.

        In addition, bank regulators have risk-adjusted capital guidelines which assign risk weighting to assets and off-balance sheet items and place increased emphasis on common equity. The Company's risk adjusted capital ratios for the dates listed in comparison with the risk adjusted capital requirements were as follows:

		December 31,
		2008			2007
Tier I Capital to Risk-Weighted Assets:
	First Regional Bancorp		8.09	%		9.89	%
	First Regional Bank		9.08	%		10.67	%
	Regulatory requirement		4.00	%		4.00	%
Total Capital to Risk-Weighted Assets:
	First Regional Bancorp		11.28	%		12.56	%
	First Regional Bank		10.34	%		11.67	%
	Regulatory requirement		8.00	%		8.00	%

        The Company meets all applicable capital standards at December 31, 2008 and believes that it will continue to meet all applicable capital standards.

        During 1998, the Company established an Employee Stock Ownership Plan consisting of 450,000 shares of First Regional common stock acquired in market transactions or directly from First Regional Bancorp at an average price of $3.16 per share. This Plan helps build the capital base of First Regional Bank and provides its employees with a powerful incentive to achieve further improvements in First Regional's operating performance.

        During 2008 and 2007, the Company repurchased 115,000 and 384,000 shares of its outstanding common stock at a total cost of $1,977,000 and $8,435,000. During 2006, the Company did not repurchase any shares of its outstanding common stock.

        In 2001, 2002, 2004, 2005, 2006 and 2007 the Company issued $5,000,000, $7,500,000, $27,500,000, $20,000,000, $30,000,000, $5,000,000 and $15,000,000 respectively, in cumulative preferred capital securities through subsidiary organizations that were formed for that purpose. In addition to the issuance of junior subordinated deferrable debentures, the Trusts also issued common stock to the Company which is recorded along with the junior subordinated deferrable debentures. The Company then invested most of the net proceeds of the security sales in the Bank as additional paid-in capital to support the Bank's future growth.

        The Company contributed the majority of the net proceeds of the above described capital transactions to First Regional Bank to support its continued growth. The remaining proceeds were and will be used for general corporate purposes in the effort to continue to promote the future growth of the Company.

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        At December 31, 2008 and 2007, the Bank had brokered deposits of approximately $650 million and $3 million, respectively. The growth in First Regional's time deposits reflects the Company's decision to increase deposits obtained from under-represented sources such as time deposits. Historically, the Company has not competed aggressively for such deposits, since the cost of time deposits is typically higher than the costs of the Company's other funding sources. In the second quarter of 2008, however, the Company made the decision to seek more time deposits in order to reduce the utilization of supplemental funding sources (such as advances from the Federal Home Loan Bank) in order to hold such supplemental sources in reserve to deal with possible future funding needs. The Bank continued this program through January 2009. The increase in time deposit was accomplished by quoting more competitive interest rates than had previously been the Company's practice, and while the cost of the deposits is higher than the supplemental funding sources which they replaced, the rates paid remained at the low end of the market for such deposits. Under the prompt corrective action rules, a capital maintenance requirement prevents the Bank from accepting or renewing brokered deposits without first obtaining a waiver from the FDIC. The Bank has applied to the FDIC for permission to continue to accept certain types of brokered deposits.

Recent Accounting Pronouncements

SFAS No. 157—In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which provides a definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value, and therefore, does not expand the use of fair value in any new circumstance. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an arm's length transaction between market participants in the markets where we conduct business. SFAS 157 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. The level of the reliability of inputs utilized for fair value calculations drives the extent of disclosure requirements of the valuation methodologies used under the standard. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The provisions of SFAS 157 should be applied prospectively, except for certain financial instruments for which the standard should be applied retrospectively. The adoption of this guidance has not had a material impact to the Company's financial condition and results of operations.

SFAS No. 159—In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 would allow the Company a one-time irrevocable election to measure certain financial assets and liabilities on the balance sheet at fair value and report the unrealized gains and losses on the elected items in earnings at each subsequent reporting date. This Statement requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company has elected not to measure any new financial instruments at fair value, as permitted in SFAS No. 159, but to continue recording its financial instruments in accordance with current practice.

SFAS No. 141(R)—In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), which replaces FASB Statement No. 141, Business Combinations. SFAS 141(R) establishes principles and requirements for how an acquiring company (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree, (2) recognizes and measures the goodwill acquired in the business combination

55

or a gain from a bargain purchase, and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for business combinations occurring on or after the beginning of the fiscal year beginning on or after December 15, 2008. SFAS 141(R), effective for the Company on January 1, 2009, applies to all transactions or other events in which the Company obtains control in one or more businesses. Management will assess transactions on a case-by-case basis as they occur.

SFAS No. 160—In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51. This Statement requires that non-controlling or minority interests in subsidiaries be presented in the consolidated statement of financial position within equity, but separate from the parents' equity, and that the amount of the consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Management does not expect this guidance to have a material effect on the Company's financial condition and results of operations.

FAS No. 140-3—In February 2008, the FASB issued FASB Staff Position FAS No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions ("FSP No. 140-3"), which provides a consistent framework for the evaluation of a transfer of a financial asset and subsequent repurchase agreement entered into with the same counterparty. FSP FAS No. 140-3 provides guidelines that must be met in order for an initial transfer and subsequent repurchase agreement to not be considered linked for evaluation. If the transactions do not meet the specified criteria, they are required to be accounted for as one transaction. This FSP is effective for fiscal years beginning after November 15, 2008, and shall be applied prospectively to initial transfers and repurchase financings for which the initial transfer is executed on or after adoption. The Company does not expect this guidance to have a material effect on its financial condition, results of operations, or cash flows.

FSP EITF 03-06-1—In June 2008, the FASB issued FSP EITF 03-06-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-06-1 requires all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends to be considered participating securities and requires entities to apply the two-class method of computing basic and diluted earnings per share. This FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the impact that this FSP will have on the Company's consolidated financial statements.

FSP SFAS 157-3—In October 2008, the FASB issued FSP SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active. FSP SFAS 157 157-3 clarified the application of SFAS 157 in an inactive market. It demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP SFAS 157-3 was effective upon issuance. The adoption of this guidance did not have a material effect on the Company's financial condition, results of operations, or cash flows.

FSP FAS 140-4 and FIN 46(R)-8—In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, "Disclosures by Public Entities (Enterprises) About Transfers of Financial Assets and Interests in Variable Interest Entities". This disclosure-only FSP improves the transparency of transfers of financial assets and an enterprise's involvement with variable interest entities (VIEs), including qualifying special-purpose entities (QSPEs). The disclosures required by this FSP are intended to provide greater transparency to financial statement users about a transferor's continuing involvement with transferred financial assets and an enterprise's involvement with variable interest entities and qualifying SPEs. This FSP shall be effective for the first reporting period ending after December 15, 2008, with earlier application encouraged, and shall be applied for each annual and interim reporting period thereafter. The adoption of this guidance did not have a material impact to the Company's consolidated financial statements.

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Inflation

        The impact of inflation on the Company differs significantly from other industries, since virtually all of its assets and liabilities are monetary. During periods of rising inflation, companies with net monetary assets will always experience a reduction in purchasing power. Inflation continues to have an impact on salary, supply, and occupancy expenses, but the rate of inflation in general and its impact on these expenses in particular has remained moderate in recent years.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

        Since customer deposits are the Company's principal funding source outside of its capital, management has attempted to match rates of its deposits with its investment and loan portfolios as part of its liquidity and asset and liability management policies. The objective of these policies is to manage the Company's interest rate sensitivity and limit the fluctuations of net interest income resulting from interest rate changes. The table which follows indicates the repricing or maturity characteristics of the major categories of the Bank's assets and liabilities as of December 31, 2008, and thus the relative sensitivity of the Bank's net interest income to changes in the overall level of interest rates.

Category			Floating Rate		Less than one month			One month but less than six months			Six months but less than one year			One year but less than five years			Five years or more		Non-interest earning or bearing			Total
			(In Thousands)
Federal funds sold			$	42,340	$	0		$	0		$	0		$	0		$	0	$	0		$	42,340
Interest-bearing deposits in financial institutions				0		0			2,008			0			0			0		0			2,008
Investment securities				0		0			1,249			0			2,594			20,884		0			24,727
	Subtotal			42,340		0			3,257			0			2,594			20,884		0			69,075
Loans, net of allowance for losses				2,087,976		150			2,307			39,114			125,202			2,730		0			2,257,479
	Total earning assets			2,130,316		150			5,564			39,114			127,796			23,614		0			2,326,554
Cash and due from banks				0		0			0			0			0			0		19,192			19,192
Premises and equipment				0		0			0			0			0			0		4,812			4,812
Other real estate owned				0		0			0			0			0			0		9,611			9,611
Deferred income taxes				0		0			0			0			0			0		31,711			31,711
Federal Home Loan Bank stock				6,557		0			0			0			0			0		0			6,557
Other assets				0		0			15,000			0			0			0		51,704			66,704
	Total non-earning assets			6,557		0			15,000			0			0			0		117,030			138,587
	Total assets		$	2,136,873	$	150		$	20,564		$	39,114		$	127,796		$	23,614	$	117,030		$	2,465,141
Federal Home Loan Bank advances			$	0	$	60,000		$	0		$	0		$	0		$	0	$	0		$	60,000
Federal Funds Purchased				0		0			0			0			0			0		0			0
	Subtotal			0		60,000			0			0			0			0		0			60,000
Other deposits				50,011		0			0			0			0			0		0			50,011
Money market deposits				610,125		0			0			0			0			0		0			610,125
Time deposits				0		150,262			419,156			373,354			158,547			0		0			1,101,319
Subordinated debentures				0		0			100,517			0			0			0		0			100,517
	Total interest bearing liabilities			660,136		210,262			519,673			373,354			158,547			0		0			1,921,972
Demand deposits				0		0			0			0			0			0		368,517			368,517
Note payable				0		0			0			0			0			0		0			0
Other liabilities				0		0			0			0			0			0		24,505			24,505
Shareholders' equity				0		0			0			0			0			0		150,147			150,147
	Total non-interest bearing liabilities and shareholders' equity			0		0			0			0			0			0		543,169			543,169
	Total liabilities and shareholders' equity		$	660,136	$	210,262		$	519,673		$	373,354		$	158,547		$	0	$	543,169		$	2,465,141
		GAP	$	1,476,737	$	(210,112	)	$	(499,109	)	$	(334,240	)	$	(30,751	)	$	23,614	$	(426,139	)	$	0
		Cumulative GAP	$	1,476,737	$	1,266,625		$	767,516		$	433,276		$	402,525		$	426,139	$	0		$	0

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        As the table indicates, the vast majority of the Company's assets are either floating rate or, if fixed rate, have short maturities. Since the yields on these assets quickly adjust to reflect changes in the overall level of interest rates, there are no significant unrealized gains or losses with respect to the Company's assets, nor is there much likelihood of large realized or unrealized gains or losses developing in the future.

        The Bank's investment portfolio continues to include high quality, low risk securities, principally U.S. Treasury and Government Sponsored Enterprise debt securities. The balance of the Bank's investment portfolio contains investments that qualify for CRA investment status. A gain of $2,758,000 and no losses were recorded on securities sales during 2008. In comparison, no gains and $29,000 losses were recorded on securities sales during 2007. No gains or losses were recorded on securities for 2006. As of December 31, 2008 the Bank's investment portfolio contained $523,000 in gross unrealized gains and $0 in gross unrealized losses, for a net unrealized gain net of tax benefit of $303,000. As of December 31, 2007, the Bank's investment portfolio contained gross unrealized gains of $290,000 and gross unrealized losses of $32,000, for a net unrealized gain net of tax benefit of $150,000. Because the Company's holdings of securities are intended to serve as a source of liquidity should conditions warrant, the securities have been classified by the Company as "available for sale," and thus unrealized gains and losses have no effect on the Company's income statement.

Item 8.    Financial Statements and Supplementary Data

        See "Item 15. Exhibits, Financial Statement Schedules" below for financial statements filed as part of this report.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        The Company has not had any change in accountants during the two most recent fiscal years or any subsequent interim period. The Company has not had any disagreements with its accountants on accounting and financial disclosure issues.

Item 9A.    Controls and Procedures

Disclosure Controls and Procedures

        As of December 31, 2008, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective as of December 31, 2008.

        Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management's Annual Report on Internal Control over Financial Reporting

        Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable

58

assurance to the Company's management and board of directors regarding the preparation and fair presentation of published financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

        Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, we concluded, as of December 31, 2008, the Company's internal control over financial reporting is effective based on those criteria.

Changes in Internal Control over Financial Reporting

        There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2008 that have materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
First Regional Bank
Century City, California

        We have audited the internal control over financial reporting of First Regional Bancorp and subsidiaries (the "Company") as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established to Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2008 of the Company and our report dated March 16, 2009 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP  

Los Angeles, California
March 16, 2009

60

Item 9B.    Other Information

        Not Applicable

61

PART III

        The information required by this part (Items 10, 11, 12, 13 and 14) will be included in the definitive proxy statement to be filed by the Company within 120 days of fiscal year end pursuant to Section 14 of the Act. Such information is hereby incorporated by reference in accordance with Rule G(3) of the General Instructions to Form 10-K.

62

PART IV

Item 15.    Exhibits, Financial Statement Schedules

        List of Documents filed as a part of this report:

(a)

Financial Statements and Financial Statement Schedules

See Index to Financial Statements which is part of this Form 10-K.

(b)

Exhibits

See Index to Exhibits which is part of this Form 10-K

(Exhibits are listed by numbers corresponding to the Exhibit Table in Item 601 of Regulation S-K)

63

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST REGIONAL BANCORP
Date: March 16, 2009	By:	/s/ H. ANTHONY GARTSHORE H. Anthony Gartshore, President and Chief Executive Officer
Date: March 16, 2009	By:	/s/ THOMAS MCCULLOUGH Thomas McCullough, Corporate Secretary
Date: March 16, 2009	By:	/s/ ELIZABETH THOMPSON Elizabeth Thompson, Chief Financial Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ H. ANTHONY GARTSHORE H. Anthony Gartshore	Director, President and Chief Executive Officer		March 16, 2009
/s/ LAWRENCE J. SHERMAN Lawrence J. Sherman	Director, Vice Chairman of the Board		March 16, 2009
/s/ GARY M. HORGAN Gary M. Horgan	Chairman of the Board, Director		March 16, 2009
/s/ THOMAS MCCULLOUGH Thomas McCullough	Director, Corporate Secretary		March 16, 2009
/s/ FRED M. EDWARDS Fred M. Edwards	Director		March 16, 2009
/s/ RICHARD E. SCHREIBER Richard E. Schreiber	Director		March 16, 2009
/s/ MARILYN J. SWEENEY Marilyn J. Sweeney	Director		March 16, 2009

64

INDEX TO FINANCIAL STATEMENTS

Financial Statements	Page in Form 10-K
First Regional Bancorp and Subsidiaries:
Report of Independent Registered Public Accounting Firm		66
Consolidated Balance Sheets as of December 31, 2008 and 2007		67
Consolidated Statements of Operations for the years ended December 31, 2008, 2007, 2006		68
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2008, 2007, and 2006		69
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007, and 2006		70
Notes to Consolidated Financial Statements		71

        All other financial statement schedules are omitted because they are not applicable, not material or because the information is included in the financial statements or the notes.

65

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
First Regional Bancorp
Century City, California

        We have audited the accompanying consolidated balance sheets of First Regional Bancorp and subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of First Regional Bancorp and subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2009 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California
March 16, 2009

66

FIRST REGIONAL BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2008 AND 2007

(In thousands, except share data)

					2008		2007
ASSETS
CASH AND CASH EQUIVALENTS:
	Cash and due from banks				$	19,192	$	46,676
	Federal funds sold					42,340		0
				Total cash and cash equivalents		61,532		46,676
INTEREST-BEARING DEPOSITS IN FINANCIAL INSTITUTIONS						2,008		7,042
INVESTMENT SECURITIES AVAILABLE FOR SALE—At fair value—amortized cost of $24,204 (2008) and $24,856 (2007)						24,727		25,114
FEDERAL HOME LOAN BANK STOCK—At cost						6,557		8,487
LOANS—Net of allowance for loan losses of $61,336 (2008) and $22,771 (2007)						2,257,479		2,020,217
PREMISES AND EQUIPMENT—Net of depreciation and amortization of $6,265 (2008) and $5,076 (2007)						4,812		5,438
OTHER REAL ESTATE OWNED						9,611		0
ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS						66,704		44,840
DEFERRED INCOME TAXES—Net						31,711		16,501
TOTAL					$	2,465,141	$	2,174,315
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
	Deposits:
		Non-interest-bearing			$	368,517	$	418,220
		Interest-bearing:
			Time deposits			1,101,319		293,196
			Money market deposits			610,125		951,488
			Other			50,011		58,173
				Total deposits		2,129,972		1,721,077
Federal funds purchased						0		20,955
Federal Home Loan Bank advances						60,000		135,000
Note payable						0		113
Accrued interest payable and other liabilities						24,505		22,034
Subordinated debentures						100,517		100,517
				Total liabilities		2,314,994		1,999,696
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)
SHAREHOLDERS' EQUITY:
	Common stock—no par value—authorized, 150,000,000 shares; outstanding, 11,834,000 (2008) and 11,926,000 (2007) shares					45,005		46,096
	Unearned ESOP shares; 0 (2008) and 36,000 (2007)					0		(107	)
				Total common stock—no par value; outstanding, 11,834,000 (2008) and 11,890,000 (2007) shares		45,005		45,989
	Retained earnings					104,839		128,480
	Accumulated other comprehensive income—net of tax					303		150
				Total shareholders' equity		150,147		174,619
TOTAL					$	2,465,141	$	2,174,315

See notes to consolidated financial statements.

67

FIRST REGIONAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006

(In thousands, except per-share data)

			2008			2007		2006
INTEREST INCOME:
	Interest on loans		$	147,155		$	169,303	$	160,678
	Interest on deposits in financial institutions			147			293		217
	Interest on federal funds sold			325			576		308
	Interest on investment securities			1,330			1,289		545
		Total interest income		148,957			171,461		161,748
INTEREST EXPENSE:
	Interest on deposits			44,927			50,125		38,819
	Interest on subordinated debentures			5,253			7,095		6,259
	Interest on other borrowings			4,383			6,430		8,178
		Total interest expense		54,563			63,650		53,256
NET INTEREST INCOME				94,394			107,811		108,492
PROVISION FOR LOAN LOSSES				93,367			2,622		4,328
NET INTEREST INCOME AFTER PROVISION
	FOR LOAN LOSSES			1,027			105,189		104,164
OTHER OPERATING INCOME:
	Customer service fees			7,304			6,722		6,998
	Other—net			4,861			4,699		1,309
		Total other operating income		12,165			11,421		8,307
OTHER OPERATING EXPENSES:
	Salaries and related benefits			34,002			36,373		30,130
	Occupancy expenses			3,908			3,640		2,797
	Other expenses			18,317			18,567		13,116
		Total other operating expenses		56,227			58,580		46,043
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES (BENEFIT)				(43,035	)		58,030		66,428
PROVISION FOR INCOME TAXES (BENEFIT)				(19,394	)		24,420		28,092
NET (LOSS) INCOME			$	(23,641	)	$	33,610	$	38,336
BASIC (LOSS) EARNINGS PER COMMON SHARE			$	(2.00	)	$	2.77	$	3.15
DILUTED (LOSS) EARNINGS PER COMMON SHARE			$	(2.00	)	$	2.59	$	2.95
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
	BASIC			11,818			12,121		12,165
	DILUTED			11,818			12,981		13,008

See notes to consolidated financial statements.

68

FIRST REGIONAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006

(In thousands, except share data)

		Common Stock
											Accumulated Other Comprehensive Income (Loss)
		Shares Outstanding			Amount			Retained Earnings						Comprehensive Income (Loss)			Total Shareholders' Equity
BALANCE—January 1, 2006			12,111,000		$	49,527		$	56,534		$	(27	)				$	106,034
	Earned ESOP shares		48,000			1,445												1,445
	Options exercised—including tax benefit		41,000			618												618
	Net income								38,336					$	38,336			38,336
	Stock compensation costs					576												576
	Other comprehensive income—net change in unrealized gain on securities available for sale—net of tax of $1											1			1			1
	Comprehensive income													$	38,337
BALANCE—December 31, 2006			12,200,000			52,166			94,870			(26	)					147,010
	Earned ESOP shares		47,000			1,192												1,192
	Options exercised—including tax benefit		27,000			473												473
	Stock repurchased		(384,000	)		(8,438	)											(8,438	)
	Net income								33,610					$	33,610			33,610
	Stock compensation costs					596												596
	Other comprehensive income—net change in unrealized gain on securities available for sale—net of tax of $126											176			176			176
	Comprehensive income													$	33,786
BALANCE—December 31, 2007			11,890,000			45,989			128,480			150						174,619
	Earned ESOP shares		36,000			389												389
	Options exercised—including tax benefit		23,000			75												75
	Stock repurchased		(115,000	)		(1,977	)											(1,977	)
	Net (loss)								(23,641	)				$	(23,641	)		(23,641	)
	Stock compensation costs					529												529
	Other comprehensive income—net change in unrealized gain on securities available for sale—net of tax of $112											153			153			153
	Comprehensive loss													$	(23,488	)
BALANCE—December 31, 2008			11,834,000		$	45,005		$	104,839		$	303					$	150,147

See notes to consolidated financial statements.

69

FIRST REGIONAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005

(In thousands)

				2008			2007			2006
OPERATING ACTIVITIES:
	Net (loss) income			$	(23,641	)	$	33,610		$	38,336
	Adjustments to reconcile net (loss) income to net cash provided by operating activities:
		Provision for loan losses			93,367			2,622			4,328
		Depreciation and amortization			1,359			1,148			883
		Amortization of investment securities premiums and discounts—net			50			55			(58	)
		Stock compensation costs			529			596			576
		Federal Home Loan Bank stock dividends			(683	)		(563	)		(595	)
		Realized gain on sale of VISA stock investment			(2,758	)		0			0
		Tax benefit from stock options exercised			(8	)		(263	)		(385	)
		Net (gain) loss on sale/disposal of premises and equipment			17			(77	)		5
		Deferred compensation expense			738			1,448			1,276
		Loss on sale of investment security—available for sale			0			29			0
		Impairment writedown of investment securities—available for sale			162			0			0
		Deferred income tax benefit			(15,321	)		(2,028	)		(3,139	)
	Changes in assets and liabilities:
		Increase in accrued interest receivable and other assets			(16,532	)		(399	)		(2,991	)
		Increase in accrued interest payable and other liabilities			1,741			4,029			2,737
			Net cash provided by operating activities		39,020			40,207			40,973
INVESTING ACTIVITIES:
	Net increase (decrease) in interest-bearing deposits in financial institutions				5,034			(2,022	)		(1,667	)
	Net increase in loans				(340,240	)		(217,538	)		(121,272	)
	Purchases of investment securities—available for sale				(2,472	)		(7,456	)		(20,878	)
	Proceeds from maturities of investment securities—available for sale				5,670			5,050			2,627
	Redemption of Federal Home Loan Bank stock				12,432			5,561			0
	Purchases of Federal Home Loan Bank stock				(9,819	)		(1,100	)		(1,920	)
	Purchases of premises and equipment				(758	)		(2,826	)		(1,145	)
	Purchases of CRA investments included in other assets				(5,333	)		(9,407	)		(9,067	)
	Proceeds from sale of premises and equipment				8			130
			Net cash used in investing activities		(335,478	)		(229,608	)		(153,322	)
FINANCING ACTIVITIES:
	Net increase in time deposits				808,123			59,861			49,843
	Net increase (decrease) in non-interest-bearing deposits and other interest-bearing deposits				(399,228	)		33,457			157,695
	Decrease in Federal Home Loan Bank advances				(75,000	)		(55,000	)		(20,000	)
	(Decrease) increase in Federal funds purchased				(20,955	)		20,955			0
	Net proceeds from issuance of subordinated debt				0			7,732			30,928
	Decrease in note payable				(113	)		(149	)		(150	)
	Stock options exercised				67			210			233
	Common stock issued				389			1,192			1,445
	Tax benefit from stock options exercised				8			263			385
	Common stock repurchased and retired				(1,977	)		(8,438	)		0
			Net cash provided by financing activities		311,314			60,083			220,379
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					14,856			(129,318	)		108,030
CASH AND CASH EQUIVALENTS—Beginning of year					46,676			175,994			67,964
CASH AND CASH EQUIVALENTS—End of year				$	61,532		$	46,676		$	175,994
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION—Cash paid during the year for:
	Interest			$	48,340		$	63,400		$	51,842
	Income taxes			$	13,500		$	26,350		$	31,082
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Other real estate owned acquired through foreclosure			$	9,611		$	0		$	0

See notes to consolidated financial statements.

70

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        First Regional Bancorp, a bank holding company (the "Company"), and one of its subsidiaries, First Regional Bank, a California state-chartered bank (the "Bank"), primarily serve Southern California through their branches. The Company's primary source of revenue is providing loans to customers, which are predominantly small and midsize businesses. The Company has three operating segments as discussed in Note 19. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America ("GAAP") and general practices within the banking industry. The following are descriptions of the more significant of these policies:

Principles of Consolidation—The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and accounts have been eliminated. The Company also has six wholly owned subsidiaries that are statutory business trusts. In accordance with Financial Accounting Standards Board (FASB) Interpretation No. ("FIN") 46R, Consolidation of Variable Interest Entities (revised 2003)—an interpretation of ARB No. 51, these trusts are not consolidated into the accounts of First Regional Bancorp.

Use of Estimates in the Preparation of the Financial Statements—The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, including allowance for loan losses, and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents—Cash and cash equivalents include cash and due from banks and federal funds sold.

Investment Securities—Investment securities available for sale are reported in the accompanying consolidated balance sheets at fair value, and the net unrealized gain or loss on such securities (unless other-than-temporary) is reported as a separate component of shareholders' equity. The fair values of the investment securities are generally determined by reference to quoted market prices obtained from independent external brokers or independent external pricing service providers who have experience in valuing these securities. In obtaining such valuation information from third parties, the Company has evaluated the methodologies used to develop the resulting fair values.

        Premiums and discounts on debt securities are amortized or accreted as adjustments to interest income using the level-yield method. Realized gains and losses on sales of securities are determined on a specific identification basis and reported in earnings.

        At each reporting date, management assesses whether there are any "other-than-temporary" impairments to investment securities. Such impairment is required to be recognized in current earnings rather than other comprehensive income or loss. In assessing impairment, the severity and duration of the loss and the financial wherewithal of the issuers of the securities is considered, as well as the ability and positive intent of the Company to hold the securities until their fair values recover, which may be maturity.

71

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock of Federal Home Loan Bank of San Francisco—As a member of the Federal Home Loan Bank (FHLB) of San Francisco, the Bank is required to own common stock in the FHLB of San Francisco based upon the Bank's outstanding FHLB advances. FHLB stock is carried at cost and may be sold back to the FHLB at its carrying value. Both cash and stock dividends received are reported as other income.

Loans—Loans are carried at face amount less payments collected, deferred fees, and allowances for loan losses. Interest on loans is accrued daily on a simple-interest basis. Loan origination fees and commitment fees, net of related costs, are deferred and recognized over the contractual lives of the loans as a yield adjustment.

Allowance for Loan Losses—The allowance for loan losses is maintained at a level considered adequate by management to provide for probable incurred losses that are inherent in the loan portfolio. The allowance is increased by provisions charged to earnings and reduced by charge-offs, net of recoveries. Management's periodic estimates of the allowance for loan losses are inherently uncertain and depend on the outcome of future events. Such estimates are based on previous loan loss experience; current economic conditions; volume, growth, and composition of the loan portfolio; the value of collateral; and other relevant factors.

        Loans are considered to be impaired when it is not probable that they will be collected in accordance with their original terms. Impaired loans are valued based on the present value of expected cash flows discounted at the loan's effective interest rate or, as an expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of fair value is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses, or alternatively, a specific allocation will be established.

        All loans on non-accrual status are considered to be impaired; however, not all impaired loans are on non-accrual status. Impaired loans on accrual status must be such that the loan underwriting supports the debt service requirements. Factors that contribute to a performing loan being classified as impaired include payment status, collateral value, probability of collecting scheduled payments, delinquent taxes, and debts to other lenders that cannot be serviced out of existing cash flow.

        Non-accrual loans are those for which interest income is no longer recognized. When a loan is placed on non-accrual status, interest accrued but not received is reversed against interest income, and the full amount of all payments received, whether principal or interest, is applied to the principal balance of the loan. Loans are typically placed on non-accrual status when they become past due 90 days as to either principal or interest, or earlier when payment in full of principal or interest is not expected. A non-accrual loan may be restored to an accrual basis when principal and interest payments are current, and full payment of principal and interest is expected.

Credit Risk and Concentrations—Substantially all of the Company's real estate loans are secured by real properties located in California. Declines in the California economy and in real estate values could have a significant effect on the collectibility of the Company's loans and on the level of allowance for loan losses required.

72

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Other Real Estate Owned—Other real estate owned is recognized when a property collateralizing a loan is foreclosed upon or otherwise acquired by the Bank in satisfaction of the loan. Other real estate owned is recorded at the lower of outstanding loan balance or estimated fair value. Reductions in value at the time of foreclosure are charged against the allowance for loan losses. Allowances are recorded to provide for estimated declines in fair value and costs to sell subsequent to the date of acquisition. The Bank had other real estate owned of $9,611,000 and $0 as of December 31, 2008 and 2007, respectively.

Premises and Equipment—Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Amortization is computed using the straight-line method over the estimated useful lives of leasehold improvements or the term of the lease, whichever is shorter. The Company reviews its long-lived assets for impairment annually or when events or circumstances indicate that the carrying amount of these assets may not be recoverable. An asset is considered impaired when the expected undiscounted cash flows over the remaining useful life are less than the net book value. When impairment is indicated for an asset, the amount of impairment loss is the excess of the net book value over its fair value.

Intangible Assets—From time to time, the Company purchases customer relationships. The gross carrying amount of such intangible assets totaled $330,000 at December 31, 2007, and the related accumulated amortization totaled $330,000 at December 31, 2007, respectively. Certain lists are amortizable and the Company amortizes the amounts paid using the straight-line method over the projected useful life of the lists, which is estimated to be four years. The total amortization expense on purchased customer lists was $21,000, and $82,000 during the years ended December 31, 2007, and 2006, respectively. The intangible assets related to the lists were fully amortized at December 31, 2007.

Income Taxes—The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

        The Company records net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

        In June 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. FIN No. 48 provides that a tax benefit from an uncertain tax position may be recognized when it

73

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN No. 48 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN No. 48 on January 1, 2007. As a result of implementation of FIN No. 48, the Company did not recognize an increase in the liability for unrecognized tax benefits as no uncertain tax positions were identified.

Federal Funds Purchased—Federal funds purchased generally mature within one to four days from the transaction date. Federal funds purchased are reflected at the amount of cash received in connection with the transaction. Federal funds purchased at December 31, 2008 and 2007 were $0 and $20,955,000 respectively.

Federal Home Loan Bank Advances—FHLB advances generally mature within 30 days from the transaction date and are reflected at the amount of cash received in connection with the transaction. These advances are secured by loans available as collateral at the FHLB.

Stock Split—All share and per share information in the accompanying consolidated financial statements have been retroactively adjusted to reflect the three-for-one stock split approved by the Board of Directors on July 20, 2006. All shareholders of record on July 31, 2006 received two additional shares of common stock for each share held by them at that date. In connection with the stock split, the authorized number of shares was increased from 50 million to 150 million, effective August 21, 2006.

Earnings per Common Share—Basic earnings per share (EPS) are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during each year. The computation of diluted EPS also considers the dilutive impact of shares issuable upon the assumed exercise of outstanding common stock options. A reconciliation of the numerator and the denominator used in the computation of basic and diluted earnings per common share is included in Note 11.

Administrative and Custodial Services—Trust Administration Services (TAS), a division of the Bank, maintains investments and assets as an administrator for customers. The amount of these investments and assets and the related liability have not been recorded in the accompanying consolidated balance sheets because they are not assets or liabilities of the Bank or the Company, with the exception of any funds held on deposit with the Bank. Administrative and custodial fees are recorded on an accrual basis.

Trust Services—Trust Services, a division of the Bank, is a full service trust department handling living trusts, investment agency accounts, IRA rollovers, and all forms of court-related matters. The amount of investments and assets and related liabilities administered by Trust Services has not been recorded in the accompanying consolidated balance sheets because they are not assets or liabilities of the Bank or the Company. Trust fee income is recorded on an accrual basis.

74

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock Based Compensation—The Company has two nonqualified employee stock option plans that are more fully described in Note 12 of the notes to the consolidated financial statements. On January 1, 2006, the Company adopted SFAS No. 123R, Share-Based Payment, using the modified prospective method. SFAS No. 123R requires companies to account for stock options using the fair value method, which generally results in compensation expense recognition. Prior to January 1, 2006, the Company accounted for its fixed stock options using the intrinsic-value method, as prescribed in Accounting Principles Board Opinion No. 25. Accordingly, no stock option expense was recorded in periods prior to January 1, 2006. The modified prospective method requires application of the new Statement to new awards and to awards modified, repurchased or cancelled after the required effective date. Accordingly, prior-period amounts have not been restated. Commencing with 2006, stock compensation cost is comprised of costs related to share-based awards granted prior to, but not yet vested as of January 1, 2006, based upon the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, which will be recognized as the requisite services are rendered after January 1, 2006 and costs related to all share-based awards granted subsequent to January 1, 2006 based upon the grant date fair value estimated in accordance with the provisions of SFAS No. 123R.

Investment in Affordable Housing Partnerships—The Company owns limited partnership interests in projects of affordable housing for lower income tenants. Investments with a net carrying value of $19,782,000 at December 31, 2008, in which the Company has significant influence or has a limited partnership interest that exceeds 5% are recorded using the equity method of accounting. The remaining investments with a net carrying value of $5,010,000 at December 31, 2008, are being amortized using the level-yield method over the life of the related tax credits. The tax credits are being recognized in the consolidated financial statements to the extent they are utilized on the Company's income tax returns. If the partnerships cease to qualify during the compliance period, the credits may be denied for any period in which the projects are not in compliance and a portion of the credits previously taken may be subject to recapture with interest.

Employee Stock Ownership Plan and Trust—The debt of the Employee Stock Ownership Plan and Trust ("ESOP") is recorded as debt of the Company, and the shares pledged as collateral are reported as unearned ESOP shares in the balance sheets. As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for EPS computations.

Other Operating Income—Other operating income consists primarily of revenues from TAS, the Bank's merchant services operations, Bank's Trust services, bank service charges, CRA investment related activities and dividends from FHLB stock. See Footnote 19 for segment information on TAS and Trust services. During the first quarter of 2008, the Company realized a gain of $2,758,000 on the redemption of restricted stock of Visa Inc. During the fourth quarter of 2007, the Company realized a gain of $2,455,000 on the redemption of restricted stock in MasterCard International.

Recent Accounting Pronouncements—In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which provides a definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value, and therefore,

75

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

does not expand the use of fair value in any new circumstance. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an arm's length transaction between market participants in the markets where we conduct business. SFAS 157 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. The level of the reliability of inputs utilized for fair value calculations drives the extent of disclosure requirements of the valuation methodologies used under the standard. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The provisions of SFAS 157 should be applied prospectively, except for certain financial instruments for which the standard should be applied retrospectively. The adoption of this guidance has not had a material impact to the Company's financial condition and results of operations.

        In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 would allow the Company a one-time irrevocable election to measure certain financial assets and liabilities on the balance sheet at fair value and report the unrealized gains and losses on the elected items in earnings at each subsequent reporting date. This Statement requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company's choice to use fair value on its earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company has elected not to measure any new financial instruments at fair value, as permitted in SFAS 159, but to continue recording its financial instruments in accordance with current practice.

        In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), which replaces FASB Statement 141, Business Combinations. SFAS 141(R) establishes principles and requirements for how an acquiring company (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for business combinations occurring on or after the beginning of the fiscal year beginning on or after December 15, 2008 and applies to all transactions or other events in which the Company obtains control in one or more businesses. Management will assess transactions on a case-by-case basis as they occur.

        In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51(SFAS 160). This Statement requires that non-controlling or minority interests in subsidiaries be presented in the consolidated statement of financial position within equity, but separate from the parents' equity, and that the amount of the consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income. SFAS. 160 is effective for fiscal years beginning on or after December 15, 2008. Management does not expect this guidance to have a material effect on the Company's financial condition and results of operations.

76

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        In February 2008, the FASB issued FASB Staff Position FAS No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions ("FSP No. 140-3"), which provides a consistent framework for the evaluation of a transfer of a financial asset and subsequent repurchase agreement entered into with the same counterparty. FSP FAS No. 140-3 provides guidelines that must be met in order for an initial transfer and subsequent repurchase agreement to not be considered linked for evaluation. If the transactions do not meet the specified criteria, they are required to be accounted for as one transaction. This FSP is effective for fiscal years beginning after November 15, 2008, and shall be applied prospectively to initial transfers and repurchase financings for which the initial transfer is executed on or after adoption. The Company does not expect this guidance to have a material effect on its financial condition, results of operations, or cash flows.

        In June 2008, the FASB issued FSP EITF 03-06-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-06-1 requires all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends to be considered participating securities and requires entities to apply the two-class method of computing basic and diluted earnings per share. This FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the impact that this FSP will have on the Company's consolidated financial statements.

        In October 2008, the FASB issued FSP SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active. FSP SFAS 157 157-3 clarified the application of SFAS 157 in an inactive market. It demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP SFAS 157-3 was effective upon issuance. The adoption of this guidance did not have a material effect on the Company's financial condition, results of operations, or cash flows.

        In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, "Disclosures by Public Entities (Enterprises) About Transfers of Financial Assets and Interests in Variable Interest Entities". This disclosure-only FSP improves the transparency of transfers of financial assets and an enterprise's involvement with variable interest entities (VIEs), including qualifying special-purpose entities (QSPEs). The disclosures required by this FSP are intended to provide greater transparency to financial statement users about a transferor's continuing involvement with transferred financial assets and an enterprise's involvement with variable interest entities and qualifying SPEs. This FSP shall be effective for the first reporting period ending after December 15, 2008, with earlier application encouraged, and shall be applied for each annual and interim reporting period thereafter. The adoption of this guidance did not have a material impact to the Company's consolidated financial statements.

2. FAIR VALUE

        The Company adopted SFAS 157 effective January 1, 2008. SFAS 157 provides a framework for measuring fair value under GAAP. This standard applies to all financial assets and liabilities that are being measured and reported at fair value on a recurring and non-recurring basis. For the Company, this includes the investment securities available-for-sale ("AFS") portfolio and impaired loans.

77

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

2. FAIR VALUE (Continued)

        As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company used various methods including market and income approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The hierarchy ranks the quality and reliability of the information used to determine fair values. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1:	Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2:	Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.
Level 3:	Significant unobservable inputs that reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

        The following is a description of the Company's valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis:

        Investment securities available for sale:     Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, when available, or the prices of other securities with similar characteristics. Level 1 securities include both U.S. Treasury and actively traded U.S. government sponsored enterprise debt securities, and Level 2 securities are comprised of U.S. government sponsored enterprise debt securities accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, and FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The Company recorded $162,000 in other-than-temporary impairment ("OTTI") charges on a U.S. Government sponsored Enterprise debt security during the third quarter of 2008.

        Impaired Loans— In accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15, the Company's impaired loans are generally measured using the fair value of the underlying collateral, which is determined based on the most recent appraisal information received, less costs to sell. Appraised values may be adjusted based on factors such as the Company's historical knowledge and changes in market conditions from the time of valuation. As of December 31, 2008, collateral dependent impaired loans totaled $81,583,000 net of the specific reserves. Collateral dependent impaired loans fall within Level 3 of

78

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

2. FAIR VALUE (Continued)

the fair value hierarchy since they were measured at fair value based on appraisals of the underlying collateral.

        The balances of financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 were as follows (in $1,000s):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Securities available for sale	$	24,727	$	1,249	$	23,478

        The balances of financial assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2008 were as follows (in $1,000s):

	Total		Significant Observable Inputs (Level 3)		Total Gains (Losses)
Impaired loans(1)	$	81,583	$	81,583	$	(39,571	)

(1)

Represents carrying value and related write-downs on collateral dependent loans for which adjustments are based upon the appraised value of the collateral, less costs to sell.

        The following is a summary of changes in fair value of the Company's financial assets that have been classified as Level 3 for the year ended December 31, 2008 (in thousands):

		Impaired Loans
Balance—January 1, 2008		$	0
	Transfers in		117,474
	Transfers out		(14,378	)
	Recognized loss		21,513
Balance—December 31, 2008		$	81,583

        Certain non-financial assets and non-financial liabilities measured at fair value on a non-recurring basis include long-lived assets and foreclosed assets. SFAS 157 is applicable to these fair value measurements beginning January 1, 2009.

Fair Value of Financial Instruments

        The following estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current

79

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

2. FAIR VALUE (Continued)

market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts (in thousands).

				December 31, 2008				December 31, 2007
				Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
	Cash and due from banks			$	19,192	$	19,192	$	46,676	$	46,676
	Federal funds sold				42,340		42,340		0		0
	Interest-bearing deposits in financial institutions				2,008		2,008		7,042		7,042
	Investment securities available for sale				24,727		24,727		25,114		25,114
	Federal Home Loan Bank Stock				6,557		6,557		8,487		8,487
	Loans				2,257,479		2,327,785		2,020,217		2,083,715
	Accrued interest receivable				9,462		9,462		10,732		10,732
Liabilities:
	Deposits:
		Non-interest bearing			368,517		368,517		418,220		418,220
		Interest-bearing:
			Time deposits		1,101,319		1,132,401		293,196		295,941
			Money market and other deposits		660,136		660,136		1,009,661		1,009,661
	Subordinated debentures				100,517		100,805		100,517		101,485
	Federal funds purchased				0		0		20,955		20,955
	Federal Home Loan Bank advances				60,000		60,000		135,000		135,000
	Note payable				0		0		113		113
	Accrued interest payable				8,985		8,985		2,517		2,517

        Fair values of commitments to extend credit and standby letters of credit are immaterial as of December 31, 2008 and 2007.

        The fair values of cash and due from banks, federal funds sold, non-interest- bearing deposits, money market and other deposits, note payable, Federal funds purchased, FHLB advances, accrued interest receivable and payable, generally approximate their book value due to the short maturities.

        The carrying value Federal Home Loan Bank stock approximates fair value, as the stock may be sold back to the Federal Home Loan Bank at carrying value.

        The fair value of investment securities available for sale is based on quoted market prices, dealer quotes, and prices obtained from independent pricing services. The fair value of loans and interest-bearing deposits is estimated based on present values using applicable risk-adjusted spreads to the U.S. Treasury curve to approximate current entry-value interest rates applicable to each category of such financial instruments. In obtaining such valuation from third parties, the Company has reviewed the methodologies used to develop their results.

        No adjustment was made to the entry-value interest rates for changes in credit of performing loans for which there are no known credit concerns. Management segregates loans in appropriate risk

80

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

2. FAIR VALUE (Continued)

categories. Management believes that the risk factor embedded in the entry-value interest rates, along with the general reserves applicable to the performing loan portfolio for which there are no known credit concerns, results in a fair valuation of such loans on an entry-value basis. The recorded book value of $111,057,000 in 2008 and $2,012,000 in 2007 of non-performing loans were included in the fair value amounts because it is not practicable to reasonably assess the credit adjustment that would be applied in the marketplace for such loans.

        The fair value of the junior subordinated deferrable debentures is estimated by discounting the cash flows through maturity based on prevailing market rates at each reporting date.

        The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2008 and 2007. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented herein.

3. INVESTMENT SECURITIES

        The amortized cost and estimated fair values of securities classified as available for sale as of December 31, 2008 and 2007, were as follows (in thousands):

2008	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury securities	$	249	$	1	$	—	$	250
U.S. government sponsored enterprise debt securities		23,955		522		—		24,477
	$	24,204	$	523	$	—	$	24,727

2007	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	249	$	—	$	—		$	249
U.S. government sponsored enterprise debt securities		24,607		290		(32	)		24,865
	$	24,856	$	290	$	(32	)	$	25,114

        At December 31, 2008, no securities have been in a continuous unrealized loss position for greater than 12 months.

81

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

3. INVESTMENT SECURITIES (Continued)

        The following table shows the Company's investment portfolio's gross unrealized losses and related fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, for the year ended December 31, 2007 (in thousands):

	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
As of December 31, 2007
U.S. Government sponsored enterprise debt securities	$	4,901	$	32	$	—	$	—	$	4,901	$	32
Total temporarily impaired securities	$	4,901	$	32	$	—	$	—	$	4,901	$	32

        Debt securities at December 31, 2008, are scheduled to mature as follows (in thousands):

Years Ending December 31	Cost		Fair Value
2009	$	1,241	$	1,249
2013		2,564		2,594
2018		3,228		3,279
2021		3,397		3,575
2029		4,978		5,086
2031		1,890		1,918
2034		4,680		4,741
2036		2,226		2,285
	$	24,204	$	24,727

        Actual maturities of U.S. government sponsored enterprise debt securities can differ from contractual maturities because borrowers have the right to prepay obligations. In addition, such factors as prepayments and interest rates may affect the yields on the carrying values of U.S. government sponsored enterprise debt securities.

        Debt securities carried at $1,241,000 and $1,234,000 were pledged as of December 31, 2008 and 2007, to secure current or future public deposits and for other purposes required or permitted by law.

82

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

4. LOANS

        The loan portfolio at December 31, 2008 and 2007, consisted of the following (in thousands):

	2008			2007
Real estate loans	$	1,438,758		$	1,199,070
Commercial loans		276,885			255,077
Real estate construction loans		603,866			591,334
Government guaranteed loans		1,337			2,661
Other loans		2,601			2,412
		2,323,447			2,050,554
Allowance for loan losses		(61,336	)		(22,771	)
Deferred loan fees—net		(4,632	)		(7,566	)
Loans—net	$	2,257,479		$	2,020,217

        Government guaranteed loans represent loans for which the repayment of principal and interest is guaranteed by the U.S. government. The loans bear contractual interest at various rates tied to national prime lending rates.

        At December 31, 2008 and 2007, loans receivable totaling $925 million and $770 million, respectively, were pledged to secure FHLB advances.

        The Bank's lending is concentrated in real estate and businesses in Southern California. From time to time, this area has experienced adverse economic conditions. Future declines in the local economy or in real estate values may result in increased losses that cannot reasonably be predicted at this date. No industry constitutes a concentration in the Bank's portfolio, except the real estate construction industry.

        The Bank offers a full range of lending services including commercial, real estate, and real estate construction loans. The Bank has developed a substantial portfolio of short- and medium-term "mini-perm" first trust deed loans for income properties as well as specializing in construction lending for moderate-size commercial and residential projects. The Bank also offers commercial loans for commercial and industrial borrowers, which includes equipment financing as well as short-term loans. Typically, the Bank's loans are floating rate and have no prepayment penalties.

        Interest-only loans allow interest-only payments for a fixed period of time. The loans generally mature at the end of the interest-only period and require a balloon payment. At December 31, 2008 and 2007, the Company had $1,042,205,000 and $976,808,000 of short- and medium-term "mini-perm" first trust deed loans for income properties with interest-only payments that have a balloon payment at loan maturity. The Bank does not offer residential mortgage products, negative amortization loans, "option-ARMs", or subprime loan products.

        Certain customers of the Bank control various separate legal entities representing, in the aggregate, significant borrowing concentrations, including as much as $126 million and $152 million, as of December 31, 2008 and 2007, respectively. While each individual loan is separately and independently underwritten, and while the majority of such loans are secured by commercial real property, these borrowing concentrations nevertheless present certain risks.

83

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

4. LOANS (Continued)

        An analysis of the activity in the allowance for loan losses for the years ended December 31, 2008, 2007, and 2006, is as follows (in thousands):

	2008			2007			2006
Balance—beginning of year	$	22,771		$	20,624		$	17,577
Provision for loan losses		93,367			2,622			4,328
Loans charged off		(55,156	)		(741	)		(1,028	)
Less: Allowance for unfunded loan commitments and lines of credit		(334	)		(172	)		353
Recoveries on loans previously charged off		20			94			100
Balance—end of year	$	61,336		$	22,771		$	20,624

        Management believes the allowance for loan losses as of December 31, 2008, is adequate to absorb losses inherent in the loan portfolio. Management's estimates of the allowance are subject to potential adjustment by the Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Institutions upon examination of the Bank by such authorities.

        At December 31, 2008 and 2007, the recorded investment in non-performing and performing impaired loans was $215,190,000 and $2,012,000, with specific reserves of $32,264,000 and $20,000, respectively. All loans for which impairment had been recognized had a related specific reserve at December 31, 2008 and 2007.

        The average recorded investment in impaired loans during 2008, 2007, and 2006 was $100,785,000, $324,000, and $545,000, respectively. No interest income on impaired loans was recognized for cash payments received in 2008, 2007, or 2006. Forgone interest on impaired loans during 2008 was $3,216,000. Forgone interest on impaired loans during 2007 and 2006 is not material to the results of the operations of the Company.

        Non-accrual loans totaled $92,517,000 and $2,000,000 at December 31, 2008 and 2007, respectively. Loans which were past due by 90 days or more but not on non-accrual were $18,540,000 and $8,525,000 at December 31, 2008 and 2007, respectively. There were no restructured loans as of December 31, 2008 and 2007.

        Allowance for unfunded loan commitments and lines of credit is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to these unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. The allowance for unfunded loan commitments and lines of credit is included in other liabilities in the accompanying consolidated balance sheets. Net adjustments to the allowance for unfunded loan commitments and lines of credit are included in the provision for loan losses. At December 31, 2008 and 2007, the allowance for unfunded loan commitments and lines of credits was $370,000 and $704,000, respectively.

84

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

4. LOANS (Continued)

        In the ordinary course of business, the Bank may grant loans to its directors and executive officers. For the years ended December 31, 2008 and 2007, the following is a summary of such loans:

	2008			2007
Balance—beginning of year	$	0		$	—
Loans granted or renewed		930,000			80,000
Repayments		(84,000	)		(80,000	)
Balance—end of year	$	846,000		$	—

5. PREMISES AND EQUIPMENT

        Premises and equipment as of December 31, 2008 and 2007, consisted of the following (in thousands):

	2008			2007
Furniture, fixtures, and equipment	$	7,260		$	6,894
Leasehold improvements		3,817			3,620
		11,077			10,514
Accumulated depreciation and amortization		(6,265	)		(5,076	)
Premises and equipment—net	$	4,812		$	5,438

        Rental expense for premises included in occupancy expenses for 2008, 2007, and 2006 was approximately $3,506,000, $3,311,000, and $2,544,000, respectively. Depreciation expense included in other expenses for 2008, 2007, and 2006 was approximately $1,359,000, $1,148,000, and $883,000, respectively.

        The future minimum rental commitments, primarily representing non-cancelable operating leases for premises, were as follows at December 31, 2008 (in thousands):

Years Ending December 31	Minimum Rental Commitments
2009	$	3,163
2010		2,974
2011		2,890
2012		2,698
2013		754
2014 and thereafter		190
Total	$	12,669

85

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

6. INCOME TAXES

        The provision (benefit) for income taxes for the years ended December 31, 2008 2007, and 2006, consists of the following (in thousands):

		2008			2007			2006
Current provision (benefit):
	Federal	$	(3,629	)	$	19,529		$	23,855
	State		(444	)		6,919			7,376
			(4,073	)		26,448			31,231
Deferred benefit:
	Federal		(10,387	)		(1,422	)		(2,505	)
	State		(4,934	)		(606	)		(634	)
			(15,321	)		(2,028	)		(3,139	)
Total		$	(19,394	)	$	24,420		$	28,092

        Income tax (liabilities) assets at December 31, 2008 and 2007, consisted of the following (in thousands):

		2008		2007
Income taxes currently (payable) receivable:
	Federal	$	12,174	$	(766	)
	State		4,244		104
		$	16,418	$	(662	)

86

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

6. INCOME TAXES (Continued)

        The components of the net deferred income tax assets at December 31, 2008 and 2007, are summarized as follows (in thousands):

			2008			2007
Federal
Deferred tax liabilities:
	Prepaid expenses		$	(456	)	$	(342	)
	State taxes			(3,029	)		(1,302	)
	Depreciation			(159	)		(235	)
	FHLB stock dividend			(115	)		(403	)
	Other			(334	)		(108	)
		Gross liabilities		(4,093	)		(2,390	)
Deferred tax assets:
	Loan and real estate loss allowances			21,597			8,216
	Deferred compensation			2,661			2,524
	State franchise tax			1			2,356
	Intangible assets			104			125
	Accrued expenses			359			405
	Reserve for VISA litigation			0			781
	Non-accrued interest			848			0
	Other			1,581			765
		Gross assets		27,151			15,172
		Net deferred tax assets—federal		23,058			12,782
State
Deferred tax liabilities:
	Prepaid expenses			(141	)		(106	)
	Depreciation			0			(20	)
	FHLB stock dividend			(36	)		(125	)
	Other			(36	)		0
		Gross liabilities		(213	)		(251	)
Deferred tax assets:
	Loan and real estate loss allowances			6,689			2,545
	Deferred compensation			824			782
	Intangible assets			32			39
	Reserve for VISA litigation			0			242
	Non-accrued interest			263			0
	State NOL deduction			564			0
	Other			494			362
		Gross assets		8,866			3,970
		Net deferred tax assets—state		8,653			3,719
Net deferred tax assets			$	31,711		$	16,501

87

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

6. INCOME TAXES (Continued)

        With respect to the net deferred tax assets recognized by the Company, management has concluded that these assets will be realized and that no valuation allowance was necessary.

        The provision for income taxes for the years ended December 31, 2008, 2007, and 2006, varied from the federal statutory tax rate for the following reasons (in thousands):

	2008						2007					2006
	Amount			Rate			Amount		Rate			Amount		Rate
Tax expense (benefit) at statutory rate	$	(15,062	)		(35.0	)%	$	20,311		35.0	%	$	23,280		35.0	%
State franchise taxes—net of federal income tax benefit		(3,496	)		(8.1	)%		4,103		7.1	%		4,674		7.0	%
CRA tax credits		(909	)		(2.1	)%		0		0.0	%		0		0.0	%
Other—net		73			0.1	%		6		0.0	%		138		0.2	%
Total	$	(19,394	)		(45.1	)%	$	24,420		42.1	%	$	28,092		42.2	%

        The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a result of the implementation of FIN No. 48, the Company did not recognize an increase in the liability for unrecognized tax benefits as no material uncertain tax positions were identified. The Company will recognize any interest and penalties related to uncertain tax positions in income tax expense.

        The tax years 2004-2007 remain open to examination by the state and Federal taxing jurisdictions to which the Company's significant operations are subject. As of December 31, 2008, the Company does not believe that there will be a material change in the estimated unrecognized tax benefits within the next twelve months.

88

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

7. SUBORDINATED DEBENTURES

        During 2001, 2002, 2004, 2005, 2006, and 2007, the Company established First Regional Statutory Trusts I through VIII (collectively, the "Trusts"), statutory business trusts and wholly owned subsidiaries of the Company. The Trusts were formed for the sole purpose of issuing securities and investing the proceeds thereof in obligations of the Company and engaging in certain other limited activities.

        The Trusts issued Cumulative Preferred Capital Securities (the "Trust Securities") in private placement transactions, which represent undivided preferred beneficial interests in the assets of the Trusts. Simultaneously, the Trusts purchased Junior Subordinated Deferrable Debentures (the "Debentures") from the Company. The Company then invested the net proceeds of the sale of the Debentures in the Bank as additional paid-in capital. The structure of these transactions enabled the Company to obtain additional Tier 1 capital for regulatory reporting purposes while permitting the Company to deduct the payment of future cash distributions for tax purposes. The Trust Securities, which are not registered with the Securities and Exchange Commission, must be redeemed within 30 years.

        Holders of the Trust Securities are entitled to receive cumulative cash distributions, accumulating from the original date of issuance, and payable quarterly in arrears of each year at a floating interest rate starting at an annual rate, equal to three-month London InterBank Offered Rate, plus an interest factor. The terms of the Debentures are identical to those of the Trust Securities, except that the Company has the right under certain circumstances to defer payments of interest on the Debentures at any time and from time to time for a period not exceeding 20 consecutive quarterly periods with respect to each deferral period, provided that no deferral period may end on a day other than an interest payment date or extend beyond the stated maturity date of the Debentures. If and for so long as interest payments on the Debentures are so deferred, cash distributions on the Trust Securities will also be deferred and the Company will not be permitted, subject to certain exceptions, to declare or pay any cash distributions with respect to the Company's capital stock (which includes common and preferred stock) or to make any payment with respect to debt securities of the Company that rank equal with or junior to the Debentures.

        The Debentures have a scheduled maturity date of 30 years from commencement, at which time the Company is obligated to redeem them. The Debentures are prepayable prior to their maturity date at the option of the Company on or after five years have elapsed, in whole or in part, at a prepayment price equal to the principal of and accrued and unpaid interest on the Debentures. Upon the repayment of the Debentures on the maturity date, or prepayment of some or all of the Debentures prior to that date, the proceeds from such repayment or prepayment shall be applied to redeem some or all of the Trust Securities upon not less than 30 nor more than 60 days notice of a date of redemption. In the interest of preserving its remaining cash reserves during a challenging period, First Regional Bancorp intends to defer interest payments on its trust preferred securities for a period of one year, or until March 2010. First Regional Bancorp has the right to defer interest payments for up to five years under the indentures governing its various trust preferred securities.

        The Indentures for the Trust Securities include provisions that restrict the payment of dividends under certain conditions and changes in ownership of Trusts. The Indentures also include provisions relating to the payment of expenses associated with the issuance of the Trust Securities. In addition to

89

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

7. SUBORDINATED DEBENTURES (Continued)

the issuance of junior subordinated deferrable debentures, the Trusts also issued common stock to the Company which is recorded, along with the junior subordinated debt, on the accompanying consolidated balance sheets in other assets and was $3,017,000 at both December 31, 2008 and 2007. The following table summarizes pertinent information related to the junior subordinated deferrable debentures issued by each Trust (in thousands):

Issuance Trust	Issuance Date	Principal Balance		Rate Type	Initial Rate			Rate at December 31, 2008			Maturity Date
First Regional Statutory Trust I	December 2001	$	5,000	Variable		5.60	%		0.00	%	Paid off December 2006
First Regional Statutory Trust II	September 2002	$	7,500	Variable		5.22	%		0.00	%	Paid off September 2007
First Regional Statutory Trust III	March 2004	$	7,500	Variable		3.90	%		4.66	%	March 2034
First Regional Statutory Trust IV	December 2004	$	20,000	Variable		4.45	%		4.00	%	December 2034
First Regional Statutory Trust V	September 2005	$	20,000	Variable		5.49	%		3.48	%	September 2035
First Regional Statutory Trust VI	March 2006	$	30,000	Variable		6.48	%		3.50	%	September 2036
First Regional Statutory Trust VII	December 2006	$	5,000	Variable		7.20	%		3.85	%	December 2036
First Regional Statutory Trust VIII	September 2007	$	15,000	Variable		8.35	%		5.14	%	September 2037

8. COMMITMENTS AND CONTINGENCIES

        The Company had the following commitments and contingent liabilities as of December 31, 2008:

Undisbursed loans	$	413,146,000
Standby letters of credit	$	15,310,000

        The Bank uses the same standards of credit underwriting in entering into these commitments to extend credit as it does for making loans and, therefore, does not anticipate any losses as a result of these transactions. Also, commitments may expire unused, and consequently, the above amounts do not necessarily represent future cash requirements. The majority of the commitments above carry variable interest rates. While the Company does not anticipate losses as a result of these transactions, commitments to extend credit are included in determining the appropriate level of the allowance for unfunded commitments and credit exposures. As of December 31, 2008 and 2007, the allowance for unfunded commitments and letters of credit amounted to $370,000 and $704,000, respectively. These amounts are included in accrued interest payable and other liabilities in the accompanying balance sheets.

90

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

8. COMMITMENTS AND CONTINGENCIES (Continued)

        The Company sponsors a defined contribution 401(k) plan benefiting substantially all employees. At the discretion of the Board of Directors, the Company matches employee contributions. Currently, the Company provides 100% matching of the first 3% of base compensation and 50% of the next 2% of base compensation that a participant contributes to the plan. Employer contributions are allocated as directed by the participants using the same allocation as the participants' contributions. The Company contributed approximately $606,000, $529,000, and $302,000 for the years ended December 31, 2008, 2007, and 2006, respectively.

        As of December 31, 2008, the Bank had federal funds lines and unused lines of credit with other depository institutions of $19,000,000.

        The Bank processes merchant credit card transactions for a fee. The Bank is subject to off-balance-sheet credit risk in relation to these transactions. To help mitigate this risk, the Bank requires participating merchants to have deposits on hand at the Bank. At December 31, 2008 and 2007, there were $85,216,000 and $101,375,000, respectively, of merchant credit card deposit balances on hand.

        Regulations of the Federal Reserve Board require depository institutions to maintain a portion of their deposits in the form of either cash or deposits with the Federal Reserve Bank that are non-interest bearing and are not available for investment purposes. The average Federal Reserve balances required to be maintained to meet these requirements were approximately $4,850,000 and $5,383,000 at December 31, 2008 and 2007, respectively.

        During the year ended December 31, 2005, the Company recorded a charge of $1,033,000 reflected in other expenses to reserve for a receivable due from an outside service provider to the Bank's Merchant Services division. During 2007, the Bank entered into a full and final settlement of litigation and recovered $388,500 from the defendant in full settlement of the matter, which resulted in a charge of approximately $166,500 during 2007.

        In the normal course of business, the Company and its subsidiaries are involved in litigation. Management does not expect the ultimate outcome of any pending litigation to have a material effect on the Company's consolidated financial position or results of operations.

9. FEDERAL HOME LOAN BANK ADVANCES

        The Bank enters into short-term borrowing agreements with the Federal Home Loan Bank. The Bank had outstanding balances of $60,000,000 and $135,000,000 under these agreements at December 31, 2008 and 2007, respectively, with weighted-average interest rates of 0.25% and 4.20%, respectively. The average outstanding balance of short-term borrowings for 2008, 2007, and 2006 was $187,053,000, $125,439,000, and $163,992,000, respectively. The weighted-average interest rate during the year was 2.33%, 5.11%, and 4.98%, for 2008, 2007, and 2006, respectively. The maximum outstanding at any month-end was $366,000,000 during 2008, $175,000,000 during 2007, and $230,000,000 during 2006. All of the advances outstanding at December 31, 2008 mature in 2009. These advances are secured by loans available as collateral at the FHLB of $924,976,000 and $770,000,000 at December 31, 2008 and 2007, respectively.

91

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

10. REGULATORY CAPITAL

        The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by the regulators that, if undertaken, could have a direct, material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

        Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations), and of Tier I capital to average assets (as defined in the regulations). Management believes, as of December 31, 2008 and 2007, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

        As of December 31, 2008 and 2007, management believes the Bank meets the ratio requirements to be categorized as "well capitalized" under the regulatory framework for prompt corrective action, which regulatory framework applies to banks but not to bank holding companies. At December 31, 2008 and 2007, the Bank had brokered deposits of $650,617,000 and $2,968,000, respectively. To be categorized as "well capitalized," the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below.

92

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

10. REGULATORY CAPITAL (Continued)

        A table showing the minimum capital ratios required for the Company and the Bank and the Company's and the Bank's actual capital ratios and actual capital amounts at December 31, 2008 and 2007, is as follows (in thousands):

			Actual					For Capital Adequacy Purposes					To be well Capitalized Under Prompt Corrective Action Provisions
			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2008:
	Total capital (to risk-weighted assets)
		Company	$	278,578		11.3	%	$	197,573		>8.0	%	$	246,966		>10.0	%
		Bank	$	255,178		10.3	%	$	197,430		8.0	%	$	246,787		10.0	%
	Tier I capital (to risk-weighted assets)
		Company	$	199,775		8.1	%	$	98,776		4.0	%	$	148,164		6.0	%
		Bank	$	223,946		9.1	%	$	98,655		4.0	%	$	147,982		6.0	%
	Tier I capital (to average assets)
		Company	$	199,775		8.2	%	$	97,570		4.0	%	$	121,963		5.0	%
		Bank	$	223,946		9.2	%	$	86,633		4.0	%	$	108,291		5.0	%
As of December 31, 2007:
	Total capital (to risk-weighted assets)
		Company	$	295,432		12.6	%	$	188,173		>8.0	%	$	235,217		>10.0	%
		Bank	$	274,243		11.7	%	$	187,999		8.0	%	$	234,998		10.0	%
	Tier I capital (to risk-weighted assets)
		Company	$	232,609		9.9	%	$	94,078		4.0	%	$	141,118		6.0	%
		Bank	$	250,768		10.7	%	$	94,009		4.0	%	$	141,013		6.0	%
	Tier I capital (to average assets)
		Company	$	232,609		10.9	%	$	85,676		4.0	%	$	107,094		5.0	%
		Bank	$	250,768		11.7	%	$	85,953		4.0	%	$	107,441		5.0	%

        On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the continued inclusion of trust-preferred securities in the Tier I capital of bank holding companies. However, under the final rule, after a five-year transition period, the aggregate amount of trust-preferred securities and certain other capital elements would be limited to 25% of Tier I capital elements, net of goodwill.

        At the conclusion of an examination by the FDIC and DFI of the Bank in 2007, the FDIC expressed concern regarding a previously unidentified BSA concern relating to the Bank's program of providing custodial services to individual retirement accounts (IRAs) administered by non-bank third parties.

        The FDIC requested that the Bank enter into a cease and desist order, principally addressing the Bank's BSA duties in connection with such third party administered retirement accounts. While the Bank has questioned the need for such a cease and desist order, the Bank concluded that it was advisable for the Bank to enter into, rather than undertake a formal challenge to, the requested cease and desist order. While the Bank believes it fully complied with this Cease and Desist Order, no

93

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

10. REGULATORY CAPITAL (Continued)

assurance can be given that the FDIC will not require further action if the Bank fails to comply with the terms of the cease and desist order or otherwise fails to correct the deficiencies identified.

        During February 2009, the Bank signed an order to cease and desist with the Federal Deposit Insurance Corporation (the "FDIC") and the California Department of Financial Institutions (the "DFI") to further strengthen the Bank's operations. The agreement between First Regional Bank and its regulators is expected to help guide the Bank in addressing the impacts of today's challenging economic environment. The agreement formalizes many of the initiatives, which the Bank has already adopted, and provides useful milestones for measuring the Bank's progress as it moves forward. The agreement includes valuable input from the FDIC and DFI in the development of this program, and also reflects our shared goals of achieving a strong and profitable institution.

        Under the agreement, First Regional Bank will:

•

Retain qualified management, and continue the active involvement of its board of directors in managing the Bank's activities

•

Increase its capital ratios based on a pre-determined schedule, and develop a comprehensive capital plan to assure compliance with that schedule

•

Eliminate from its books any assets classified loss and a portion of any assets classified doubtful that have not already been charged-off or collected, and develop a comprehensive plan to reduce classified assets based on a pre-determined schedule

•

Create and implement a plan to increase the diversification of the Bank's lending activities

•

Create and implement a comprehensive profit plan to improve the Bank's earnings performance

•

Update or revise the Bank's written policies in the areas of credit administration and liquidity management

        As previously noted, First Regional Bank continues to maintain "well capitalized" ratios, the highest standards established by banking regulators. However, in connection with the Bank's plan to increase its capital ratios, the Bank will specifically agree to improve its Tier 1 leverage ratio to 9.5% of the Bank's total assets effective February 23, 2009 and to maintain such ratio at 10% as of September 30, 2009. Also as a part of such plan, First Regional Bank and its parent, First Regional Bancorp, have also authorized the contribution by First Regional Bancorp, from its cash reserves, of $12 million into the Bank as additional Bank capital.

        In the interest of preserving its remaining cash reserves during a challenging period, First Regional Bancorp intends to defer interest payments on its trust preferred securities for a period of one year, or until March 2010. First Regional has the right to defer interest payments for up to five years under the indentures governing its various trust preferred securities.

11. EARNINGS (LOSS) PER SHARE RECONCILIATION

        Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during each period. The computation of

94

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

11. EARNINGS (LOSS) PER SHARE RECONCILIATION (Continued)

diluted earnings per share also considers the number of shares issuable upon the assumed exercise of the outstanding common stock options. In accordance with SFAF No. 28, Earnings Per Share, due to the net loss recorded during the year ended December 31, 2008, incremental shares resulting from the assumed conversion, exercise or contingent issuance of securities is not included as their effect on earnings or loss per share would be anti-dilutive. A reconciliation of the numerator and the denominator used in the computation of basic and diluted earnings (loss) per share is:

	Year Ended December 31, 2008
	Income (Numerator)			Weighted- Average Shares (Denominator)		Per-Share Amount
Basic (Loss) Earnings Per Share—loss available to common shareholders	$	(23,641,000	)		11,818,000	$	(2.00	)
Effect of dilutive securities—incremental shares from assumed exercise of outstanding options					0		0.00
Diluted (Loss) Earnings Per Share—loss available to common shareholders	$	(23,641,000	)		11,818,000	$	(2.00	)

	Year Ended December 31, 2007
	Income (Numerator)		Weighted- Average Shares (Denominator)		Per-Share Amount
Basic EPS—income available to common shareholders	$	33,610,000		12,121,000	$	2.77
Effect of dilutive securities—incremental shares from assumed exercise of outstanding options				860,000		(0.18	)
Diluted EPS—income available to common shareholders	$	33,610,000		12,981,000	$	2.59

	Year Ended December 31, 2006
	Income (Numerator)		Weighted- Average Shares (Denominator)		Per-Share Amount
Basic EPS—income available to common shareholders	$	38,336,000		12,165,000	$	3.15
Effect of dilutive securities—incremental shares from assumed exercise of outstanding options				843,000		(0.20	)
Diluted EPS—income available to common shareholders	$	38,336,000		13,008,000	$	2.95

        As discussed above, anti-dilutive shares from stock options are excluded from the computation of loss per share. The anti-dilutive stock options totaled 2,330,000 for the year ended December 31, 2008. There were no anti-dilutive shares from stock options for the years ended December 31, 2007 and 2006.

95

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

12. STOCK COMPENSATION PLAN

        In May 2005, the Company adopted a nonqualified employee stock option plan that expires in 2015 and authorizes the issuance of up to 600,000 (amended to 800,000 in July 2008) shares of its common stock upon the exercise of options granted. The plan is intended to allow the Company the ability to grant stock options to persons who had not previously been awarded option grants commensurate with their positions, primarily persons hired since the exhaustion of options available for grant under the Company's previous stock option plans. The Company's Board of Directors believes that the plan will assist the Company in attracting and retaining high quality officers and staff, and will provide grantees under the plan with added incentive for high levels of performance and to assist in the effort to increase the Company's earnings. During May and July 2005, the Company granted options to buy up to 177,000 shares of the Company's common stock to certain officers of the Company and its subsidiaries. All such granted options will vest over seven years and expire in 2015. During August 2007, the Company granted options to buy up to 45,000 shares of the Company's common stock to certain officers of the Company and its subsidiaries. All such granted options will vest over seven years and expire in 2017. During 2008, the Company granted options to buy up to 506,000 shares of the Company's common stock to certain officers of the Company and its subsidiaries. All such granted options will vest over seven years and expire in 2018.

        In 1999, the Company adopted a nonqualified employee stock option plan that authorizes the issuance of up to 1,800,000 shares of its common stock and expires in 2009.

        Under all plans, options may be granted at a price not less than the fair market value of the stock at the date of grant.

        The Company had options outstanding granted under the plans at December 31, 2008, as follows:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands)							(in thousands)
Outstanding—beginning of year		1,854		$	6.34
Granted		506
Exercised		(23	)
Cancelled		(7	)
Outstanding—end of year		2,330		$	6.19		5.29 years	$	133
Vested or expected to vest at year-end		1,788		$	5.82		5.03 years	$	621
Exercisable at year-end		1,523		$	5.03		3.89 years	$	110

        The total intrinsic value of options exercised during 2008, 2007, and 2006 was $98,000, $627,000, and $918,000, respectively. The total fair value of shares vested during 2008, 2007, and 2006 was $695,000, $847,000, and $847,000, respectively.

        As of December 31, 2008, there was $2,380,000 of total unrecognized compensation cost related to non-vested share-based compensation awards granted under the stock option plans. That cost is

96

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

12. STOCK COMPENSATION PLAN (Continued)

expected to be recognized over a weighted-average period of 2.4 years. The Company received $67,000, $210,000, and $233,000 cash from the exercise of stock options during 2008, 2007, and 2006, respectively.

        For the year ended December 31, 2008, stock based compensation expense reduced income before taxes by $529,000 and reduced net income by $307,000. This additional expense reduced both basic and diluted earnings per share by $0.03 for the year ended December 31, 2008. Cash provided by operating activities decreased by $8,000 and cash provided by financing activities increased by an identical amount for 2008 related to excess tax benefits from stock-based arrangements.

        For the year ended December 31, 2007, stock based compensation expense reduced income before taxes by $596,000 and reduced net income by $345,000. This additional expense reduced both basic and diluted earnings per share by $0.03 for the year ended December 31, 2007. Cash provided by operating activities decreased by $263,000 and cash provided by financing activities increased by an identical amount for 2007 related to excess tax benefits from stock-based arrangements.

        For the year ended December 31, 2006, stock-based compensation expense reduced income before taxes by $576,000 and reduced net income by $334,000. This additional expense reduced both basic and diluted earnings per share by $0.03 for the year ended December 31, 2006. Cash provided by operating activities decreased by $385,000 and cash provided by financing activities increased by an identical amount for 2006 related to excess tax benefits from stock-based compensation.

        The estimated fair value of options granted during August 2007 was $13.32 using the Black-Scholes option-pricing model with the following weighted-average assumptions used: no dividend yield, expected volatility of 35%, risk-free interest rate of 4.8% and expected term of 10 years. The estimated fair value of 45,000 options granted during February 2008 was $8.41 using the Black-Scholes option-pricing model with the following weighted-average assumptions used: no dividend yield, expected volatility of 34%, risk-free interest rate of 3.1%, and expected term of 10 years. The estimated fair value of 336,000 options granted during July 2008 was $2.76 using the Black-Scholes option-pricing model with the following weighted-average assumptions used: no dividend yield, expected volatility of 49%, risk-free interest rate of 4.3%, and expected term of 10 years. The estimated fair value of 75,000 options granted during July 2008 was $3.26 using the Black-Scholes option-pricing model with the following weighted-average assumptions used: no dividend yield, expected volatility of 49%, risk-free interest rate of 4.3% and expected term of 10 years. The estimated fair value of 50,000 options granted during July 2008 was $2.84 using the Black-Scholes option-pricing model with the following weighted-average assumptions used: no dividend yield, expected volatility of 49%, risk-free interest rate of 4.3% and expected term of 10 years.

        The expected term (estimated period of time outstanding) of stock options granted was estimated using the historical exercise behavior of employees. The expected volatility was based upon historical volatility for a period equal to the stock option's expected term. The expected dividend yield is based upon the Company's prevailing dividend rate at the time of the grant. The risk-free rate is based on the U.S. Treasury strips in effect at the time of the grant equal to the stock options' expected term.

97

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

13. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

        During 1998, the Company established an ESOP for eligible employees. Employees of the Bank who have been credited with at least 1,000 hours during a 12-month period and who have attained age 21 are eligible to participate. During 1998, the ESOP borrowed $1,500,000 from an unrelated bank in order to fund the purchase of 450,000 shares of the Company's common stock. This loan matured during 2003 and was extended for an additional five years under the same terms. This loan is scheduled to be repaid monthly on a straight-line basis over five years, with the funds for repayment coming from the Company's contributions to the ESOP. The loan requires annual principal reductions of $150,000. The ESOP shares were pledged as collateral for its debt. The interest rate on this loan is variable, Prime plus 0.5%. The outstanding principal balance of the ESOP loan was repaid during 2008 and was $113,000 at December 31, 2007.

        Shares purchased by the ESOP are held in a trust account for allocation among participants as the loan is repaid. The number of shares allocated each plan year is dependent upon the ratio of that year's total loan payment to the aggregate payments scheduled to occur throughout the term of the loan. The annual allocation of shares is apportioned among participants on the basis of compensation in the year of allocation. Unallocated ESOP shares are excluded from EPS computations. ESOP benefits generally become 100% vested after an employee completes seven years of credited service. Benefits are payable upon death, retirement, or disability. The number of shares of common stock allocated to employee accounts was 36,000 and 47,000 shares for the years ended December 31, 2008 and 2007, respectively.

        Periodic compensation expense associated with the ESOP is recognized based upon both the number of shares allocated pro rata and the periodic fair market value of the common stock. The expense related to the ESOP for the years ended December 31, 2008, 2007, and 2006, was $428,000, $1,241,000, and $1,490,000, respectively.

        At December 31, 2008 and 2007, unearned compensation related to the ESOP approximated $0 and $107,000, respectively, and is shown as a reduction of shareholders' equity in the accompanying consolidated balance sheets.

14. DEPOSITS AND INTEREST EXPENSE

        A summary of interest expense on deposits for the years ended December 31, 2008, 2007, and 2006, is as follows (in thousands):

	2008		2007		2006
Money market savings/NOW account deposits	$	20,424	$	38,047	$	29,565
Time deposits of $100,000 or more		7,660		6,059		4,449
Time deposits under $100,000		16,779		5,814		4,528
Savings deposits		64		205		277
	$	44,927	$	50,125	$	38,819

98

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

14. DEPOSITS AND INTEREST EXPENSE (Continued)

        The maturities of time deposits as of December 31, 2008, are as follows (in thousands):

2009	$	942,814
2010		158,361
2011		64
2012		25
2013		55
	$	1,101,319

        The aggregate amount of time deposits in denominations of $100,000 or more outstanding as of December 31, 2008 and 2007, was approximately $386,653,000 and $163,101,000, respectively. Additionally, the aggregate amount of deposits from bankruptcy-related accounts was approximately $1,668,000 and $1,591,000 as of December 31, 2008 and 2007, respectively.

        The Bank's deposit business is primarily generated by a relatively small number of accounts with large average balances. At December 31, 2008, approximately 2,900 accounts, representing 15% of deposit accounts, accounted for $1,180,848,000 of total deposits.

15. OTHER OPERATING EXPENSES

        Included in other operating expenses for the years ended December 31, 2008, 2007, and 2006, are the following items (in thousands):

	2008			2007		2006
Professional services	$	2,471		$	2,510	$	2,065
FDIC assessment		2,058			1,236		177
Reserve for VISA litigation (reversal)		(2,232	)		2,232		0
Data processing fees		1,774			1,691		1,369
Equipment expense		1,895			1,665		1,356
General insurance		361			324		304
Stationery and supplies		500			500		510
Customer courier service		831			912		768
Telephone and postage		828			944		863
Loan valuation and OREO expense		1,406			27		0
Other		8,425			6,526		5,704
Total	$	18,317		$	18,567	$	13,116

16. ADMINISTRATION OF SELF-DIRECTED RETIREMENT ACCOUNTS AND TRUST SERVICES

        In January 1999, the Bank established TAS that provides administrative services to self-directed retirement plans. As of December 31, 2008, TAS was the administrator of approximately $1,249,043,000 in retirement assets.

99

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

16. ADMINISTRATION OF SELF-DIRECTED RETIREMENT ACCOUNTS AND TRUST SERVICES (Continued)

        Deposits held for TAS clients by the Bank represent approximately 5.1% of the Bank's total deposits as of December 31, 2008. The Bank paid interest of $689,000, $1,127,000, and $872,000 on deposits of TAS clients and received fees of $2,332,000, $2,464,000, and $2,428,000 from TAS clients during 2008, 2007, and 2006, respectively.

        The Bank established and commenced operation of the Trust and Investment Division in 2001. The Division is a full service trust department handling living trusts, investment agency accounts, IRA rollovers, and all forms of court-related matters. As of December 31, 2008, 2007, and 2006, the total assets under administration were $277,769,000, $306,436,000, and $243,215,000, respectively. Revenues were $2,219,000, $2,084,000, and $1,632,000, for 2008, 2007, and 2006, respectively. As of December 31, 2008, no Division assets were held on deposit with the Bank.

17. RELATED-PARTY TRANSACTIONS

        As of December 31, 2008 and 2007, deposits from directors, officers, and their affiliates amounted to $2,482,000 and $2,645,000, respectively.

        During 2000, the Company purchased a split dollar life insurance policy on behalf of one of the Company's executive officers. The policy was fully funded at purchase. The Company and the officer's estate are co-beneficiaries, with each receiving a certain amount upon death of the officer. The insured reimburses the Bank for the cost of this benefit each year. There are no post-retirement benefits associated with this policy.

100

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

18. CONDENSED FINANCIAL INFORMATION REGARDING FIRST REGIONAL BANCORP (In thousands)

BALANCE SHEETS

			December 31
			2008		2007
ASSETS:
	Cash and due from banks		$	18,994	$	17,283
	Investment in common stock of subsidiaries			226,350		252,821
	Other assets			5,506		5,399
Total			$	250,850	$	275,503
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
	Subordinated debt		$	100,517	$	100,517
	Other liabilities			186		367
		Total liabilities		100,703		100,884
SHAREHOLDERS' EQUITY				150,147		174,619
TOTAL			$	250,850	$	275,503

STATEMENTS OF EARNINGS

	2008			2007			2006
Equity in net earnings (loss) of subsidiaries	$	(17,012	)	$	41,381		$	45,360
Interest expense on subordinated debentures		(5,253	)		(7,095	)		(6,259	)
Stock compensation expense		(529	)		(596	)		(576	)
Other expense—net		(847	)		(80	)		(189	)
Net earnings (loss)	$	(23,641	)	$	33,610		$	38,336

101

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

18. CONDENSED FINANCIAL INFORMATION REGARDING FIRST REGIONAL BANCORP (In thousands) (Continued)

STATEMENTS OF CASH FLOWS

				2008			2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net earnings (loss)			$	(23,641	)	$	33,610		$	38,336
	Adjustments to reconcile net earnings to net cash used in operating activities:
		Equity in net earnings of subsidiaries			17,012			(41,381	)		(45,360	)
		Other operating activities—net			(505	)		(832	)		(1,335	)
		Tax benefit from stock options exercised			(8	)		(263	)		(385	)
		Stock compensation costs			529			596			576
			Net cash used in operating activities		(6,613	)		(8,270	)		(8,168	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Dividends received from Bank				10,000			26,000			—
	Investment in Trusts				(163	)		(635	)		(928	)
	Investment in Securities Company				0			(2,000	)		—
	Investment in Bank				0			—			(26,400	)
			Net cash provided by (used in) investing activities		9,837			23,365			(27,328	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Common stock issued				389			1,192			1,445
	Stock options exercised				67			210			233
	Tax benefit from stock options exercised				8			263			385
	Common stock repurchased and retired				(1,977	)		(8,438	)		—
	Increase in subordinated debt				0			7,732			30,928
			Net cash (used in) provided by financing activities		(1,513	)		959			32,991
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					1,711			16,054			(2,505	)
CASH AND CASH EQUIVALENTS—Beginning of year					17,283			1,229			3,734
CASH AND CASH EQUIVALENTS—End of year				$	18,994		$	17,283		$	1,229

19. SEGMENT REPORTING

        Management has evaluated the Company's overall operation and determined that its business consists of certain reportable business segments as of December 31, 2008, 2007, and 2006: core banking operations, the administrative services in relation to TAS, and Trust Services. The following describes these three business segments:

Core Bank Operations—The principal business activities of this segment are attracting funds from the general public and originating commercial and real estate loans for small and midsize businesses in

102

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

19. SEGMENT REPORTING (Continued)

Southern California. This segment's primary sources of revenue are interest income from loans and investment securities and fees earned in connection with loans and deposits. This segment's principal expenses consist of interest paid on deposits, personnel, and other general and administrative expenses.

Administrative Services—The principal business activity of this segment is providing administrative services for self-directed retirement plans. The primary source of revenue for this segment is fee income from self-directed accounts. The segment's principal expenses consist of personnel, rent, data processing, and other general and administrative expenses.

Trust Services—The principal business activity of this segment is providing trust services for living trusts, investment agency accounts, IRA rollovers, and all forms of court-related matters. The primary source of revenue for this segment is fee income. The segment's principal expenses consist of personnel, data processing, professional fees, and other general and administrative expenses.

        Total assets of TAS at December 31, 2008 and 2007, were $951,000 and $1,110,000, respectively, and total assets of Trust Services at December 31, 2008 and 2007, were $72,000 and $96,000, respectively. The remaining assets reflected on the consolidated balance sheets of the Company are associated with the core banking operations.

        A table showing the net income (loss) for the core banking operations, administrative services, and the trust services for the years ended December 31, 2008, 2007, and 2006 is as follows (in thousands):

	Core Banking Operations			Administrative Services			Trust Services		Year Ended December 31, 2008
Net interest income	$	94,394		$	0		$	0	$	94,394
Provision for loan losses		93,367			0			0		93,367
Other operating income		7,614			2,332			2,219		12,165
Other operating expenses		51,832			3,205			1,190		56,227
Provision for income taxes (benefit)		(19,459	)		(367	)		432		(19,394	)
Net (loss) income	$	(23,732	)	$	(506	)	$	597	$	(23,641	)

	Core Banking Operations		Administrative Services			Trust Services		Year Ended December 31, 2007
Net interest income	$	107,811	$	0		$	0	$	107,811
Provision for loan losses		2,622		0			0		2,622
Other operating income		6,873		2,464			2,084		11,421
Other operating expenses		54,524		2,868			1,188		58,580
Provision for income taxes (benefit)		24,214		(170	)		376		24,420
Net income (loss)	$	33,324	$	(234	)	$	520	$	33,610

103

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF DECEMBER 31, 2008 AND 2007, AND FOR EACH OF THE THREE YEARS IN THE

PERIOD ENDED DECEMBER 31, 2008

19. SEGMENT REPORTING (Continued)

	Core Banking Operations		Administrative Services		Trust Services		Year Ended December 31, 2006
Net interest income	$	108,492	$	0	$	0	$	108,492
Provision for loan losses		4,328		0		0		4,328
Other operating income		4,247		2,428		1,632		8,307
Other operating expenses		43,526		1,485		1,032		46,043
Provision for income taxes		27,444		396		252		28,092
Net income	$	37,441	$	547	$	348	$	38,336

        In addition, the operations of the administrative services positively affect the results of core banking operations by providing a low-cost source of deposits.

20. QUARTERLY FINANCIAL DATA (UNAUDITED)

        Summarized quarterly financial data is as follows (in thousands, except per-share amounts):

	Three Months Ended
	March 31		June 30			September 30		December 31
2008
Net interest income	$	26,396	$	24,117		$	23,738	$	20,143
Provision for loan losses		10,790		44,743			10,418		27,416
Net income (loss)		4,735		(18,513	)		1,182		(11,045	)
Basic earnings per common share		0.40		(1.57	)		0.10		(0.93	)
Diluted earnings per common share		0.37		(1.57	)		0.09		(0.93	)
2007
Net interest income	$	26,526	$	26,684		$	27,802	$	26,799
Provision for loan losses		—		300			900		1,422
Net income		8,991		8,644			8,073		7,902
Basic earnings per common share		0.74		0.71			0.67		0.65
Diluted earnings per common share		0.69		0.66			0.62		0.62

******

104

EXHIBIT INDEX

Exhibit Number	Description
3.1	Articles of Incorporation of First Regional Bancorp, as amended, filed as Exhibits 3.1, 3.2, 3.3 and 3.4 to the Quarterly Report on Form 10-Q of First Regional Bancorp filed on August 9, 2006 and incorporated herein by reference
3.2	Amended and Restated Bylaws of First Regional Bancorp, filed as Exhibit 3.5 to the Quarterly Report on Form 10-Q of First Regional Bancorp filed on August 9, 2006 and incorporated herein by reference
4.1	Indenture governing First Regional Bancorp's Floating Rate Junior Subordinated Deferrable Interest Debentures Due December 15, 2037, dated as of September 25, 2007, between First Regional Bancorp, as issuer, and Wilmington Trust Company, as trustee, filed as Exhibit 4.1 to the Current Report on Form 8-K of First Regional Bancorp filed on October 1, 2007 and incorporated herein by reference
4.2	Form of Floating Rate Junior Subordinated Deferrable Interest Debenture Due December 2037 (incorporated by reference to Exhibit A to the indenture included as Exhibit 4.1, above), filed as Exhibit 4.2 to the Current Report on Form 8-K of First Regional Bancorp filed on October 1, 2007 and incorporated herein by reference
4.3	Amended and Restated Declaration of Trust, dated as of September 25, 2007, by and among Wilmington Trust Company, as Delaware trustee and as institutional trustee, First Regional Bancorp, as sponsor, and Jack A. Sweeney, H. Anthony Gartshore and Thomas McCullough, as administrators, filed as Exhibit 4.3 to the Current Report on Form 8-K of First Regional Bancorp filed on October 1, 2007 and incorporated herein by reference
4.4	Indenture governing First Regional Bancorp's Floating Rate Junior Subordinated Deferrable Interest Debentures Due December 15, 2036, dated as of December 14, 2006, between First Regional Bancorp, as issuer, and Wilmington Trust Company, as trustee, filed as Exhibit 4.1 to the Current Report on Form 8-K of First Regional Bancorp filed on February 1, 2007 and incorporated herein by reference
4.5	Form of Floating Rate Junior Subordinated Deferrable Interest Debenture Due December 15, 2036 (incorporated by reference to Exhibit A to the indenture included as Exhibit 4.1 to the Current Report on Form 8-K of First Regional Bancorp filed on February 1, 2007)
4.6	Amended and Restated Declaration of Trust, dated as of December 14, 2006, by and among Wilmington Trust Company, as Delaware trustee and as institutional trustee, First Regional Bancorp, as sponsor, and Jack A. Sweeney, H. Anthony Gartshore and Thomas McCullough, as administrators, filed as Exhibit 4.3 to the Current Report on Form 8-K of First Regional Bancorp filed on February 1, 2007 and incorporated herein by reference
4.7	Indenture governing First Regional Bancorp's Floating Rate Junior Subordinated Deferrable Interest Debentures Due June 15, 2036, dated as of March 30, 2006, between First Regional Bancorp, as issuer, and Wilmington Trust Company, as trustee, filed as Exhibit 4.1 to the Current Report on Form 8-K of First Regional Bancorp filed on April 3, 2006 and incorporated herein by reference
4.8	Form of Floating Rate Junior Subordinated Deferrable Interest Debenture Due June 15, 2036 (incorporated by reference to Exhibit A to the indenture included as Exhibit 4.1 to the Current Report on Form 8-K of First Regional Bancorp filed on April 3, 2006)

105

Exhibit Number	Description
4.9	Amended and Restated Declaration of Trust, dated as of March 30, 2006, by and among Wilmington Trust Company, as Delaware trustee and as institutional trustee, First Regional Bancorp, as sponsor, and Jack A. Sweeney, H. Anthony Gartshore and Thomas McCullough, as administrators, filed as Exhibit 4.3 to the Current Report on Form 8-K of First Regional Bancorp filed on April 3, 2006 and incorporated herein by reference
4.10	Indenture governing First Regional Bancorp's Floating Rate Junior Subordinated Deferrable Interest Debentures Due September 2035, dated as of September 28, 2005, between First Regional Bancorp, as issuer, and Wilmington Trust Company, as trustee, filed as Exhibit 4.1 to the Current Report on Form 8-K of First Regional Bancorp filed on September 29, 2005, and incorporated herein by reference
4.11	Form of Floating Rate Junior Subordinated Deferrable Interest Debenture Due September 2035 (incorporated by reference to Exhibit A to the indenture included as Exhibit 4.1 to the Current Report on Form 8-K of First Regional Bancorp filed on September 29, 2005)
4.12	Amended and Restated Declaration of Trust, dated as of September 28, 2005, by and among Wilmington Trust Company, as Delaware trustee and as institutional trustee, First Regional Bancorp, as sponsor, and Jack A. Sweeney, H. Anthony Gartshore and Thomas McCullough, as administrators, filed as Exhibit 4.3 to the Current Report on Form 8-K of First Regional Bancorp filed on September 29, 2005, and incorporated herein by reference
4.13	Indenture governing First Regional Bancorp's Floating Rate Junior Subordinated Deferrable Interest Debentures Due December 2034, dated as of December 15, 2004, between First Regional Bancorp, as issuer, and Wilmington Trust Company, as trustee, filed as Exhibit 4.1 to the Current Report on Form 8-K of First Regional Bancorp filed on December 17, 2004 and incorporated herein by reference
4.14	Form of Floating Rate Junior Subordinated Deferrable Interest Debenture Due December 2034 (incorporated by reference to Exhibit A to the indenture included as Exhibit 4.1 to the Current Report on Form 8-K of First Regional Bancorp filed on December 17, 2004)
4.15	Amended and Restated Declaration of Trust, dated as of December 15, 2004, by and among Wilmington Trust Company, as Delaware trustee and as institutional trustee, First Regional Bancorp, as sponsor, and Jack A. Sweeney, H. Anthony Gartshore and Thomas McCullough, as administrators, filed as Exhibit 4.3 to the Current Report on Form 8-K of First Regional Bancorp filed on December 17, 2004 and incorporated herein by reference
4.16	Indenture governing First Regional Bancorp's Floating Rate Junior Subordinated Deferrable Interest Debentures Due March 2034, dated as of March 17, 2004, between First Regional Bancorp, as issuer, and U.S. Bank National Association, as debenture trustee, filed as Exhibit 4.2 to the Current Report on Form 8-K of First Regional Bancorp filed on April 1, 2004, and incorporated herein by reference
4.17	Form of Floating Rate Junior Subordinated Deferrable Interest Debenture Due March 2034 (incorporated by reference to Exhibit A to the indenture included as Exhibit 4.2 to the Current Report on Form 8-K of First Regional Bancorp filed on April 1, 2004)
4.18	Amended and Restated Declaration of Trust, dated as of March 17, 2004, by and among U.S. Bank National Association, as institutional trustee, First Regional Bancorp, as sponsor, and Jack A. Sweeney, H. Anthony Gartshore and Thomas McCullough, as administrators, filed as Exhibit 4.6 to the Current Report on Form 8-K of First Regional Bancorp filed on December 17, 2004 and incorporated herein by reference

106

Exhibit Number	Description
10.1	Guarantee Agreement, dated as of September 25, 2007, by and between First Regional Bancorp, as guarantor, and Wilmington Trust Company, as guarantee trustee, filed as Exhibit 10 to the Current Report on Form 8-K of First Regional Bancorp filed on October 1, 2007 and incorporated herein by reference
10.2	Guarantee Agreement, dated as of December 14, 2006, by and between First Regional Bancorp, as guarantor, and Wilmington Trust Company, as guarantee trustee, filed as Exhibit 10 to the Current Report on Form 8-K of First Regional Bancorp filed on February 1, 2007 and incorporated herein by reference
10.3	Guarantee Agreement, dated as of March 30, 2006, by and between First Regional Bancorp, as guarantor, and Wilmington Trust Company, as guarantee trustee, filed as Exhibit 10 to the Current Report on Form 8-K of First Regional Bancorp filed on April 3, 2006 and incorporated herein by reference
10.4	Guarantee Agreement, dated as of September 28, 2005, by and between First Regional Bancorp, as guarantor, and Wilmington Trust Company, as guarantee trustee, filed as Exhibit 10 to the Current Report on Form 8-K of First Regional Bancorp filed on September 29, 2005, and incorporated herein by reference
10.5	Guarantee Agreement, dated as of December 15, 2004, by and between First Regional Bancorp, as guarantor, and Wilmington Trust Company, as guarantee trustee, filed as Exhibit 10 to the Current Report on Form 8-K of First Regional Bancorp filed on December 17, 2004 and incorporated herein by reference
10.6	Guarantee Agreement, dated as of March 17, 2004, by and between First Regional Bancorp, as guarantor, and U.S. Bank National Association, as guarantee trustee, filed as Exhibit 10.1 to the Current Report on Form 8-K of First Regional Bancorp filed on April 1, 2004 and incorporated herein by reference
10.7	First Regional Bancorp 2005 Stock Option Plan, filed as Exhibit 10 to the Current Report on Form 8-K of First Regional Bancorp filed on June 2, 2005, and incorporated herein by reference
10.8	Form of Stock Option Agreement under First Regional Bancorp's 2005 Stock Option Plan filed as Exhibit 10.7 to the Annual Report of First Regional Bancorp filed on March 16, 2006 and incorporated herein by reference
10.9	1999 Stock Option Plan of First Regional Bancorp, included in Proxy Statement on Schedule 14A, as filed with the Securities and Exchange Commission on April 29, 2002, and incorporated herein by reference
10.10	Form of Stock Option Agreement under First Regional Bancorp's 1999 Stock Option Plan, filed as Exhibit 10.6 to the Annual Report on Form 10-K of First Regional Bancorp filed on March 31, 2005, and incorporated by reference
10.11	Amendment to First Regional Bank 1996 Deferred Compensation Plan, filed as Exhibit 10.10 to the Annual Report of First Regional Bancorp filed on March 16, 2006 and incorporated herein by reference
10.12	First Regional Bank 1996 Deferred Compensation Plan, filed as Exhibit 10.7 to the Annual Report on Form 10-K of First Regional Bancorp filed on March 31, 2005, and incorporated by reference

107

Exhibit Number		Description
10.13		Form of Salary Reduction Agreement under First Regional Bank 1996 Deferred Compensation Plan, filed as Exhibit 10.8 to the Annual Report on Form 10-K of First Regional Bancorp filed on March 31, 2005, and incorporated by reference
10.14		First Regional Bancorp/First Regional Bank 1990 Deferred Compensation Plan, filed as Exhibit 10.9 to the Annual Report on Form 10-K of First Regional Bancorp filed on March 31, 2005, and incorporated by reference
10.15		Participation Form under First Regional Bancorp/First Regional Bank 1990 Deferred Compensation Plan, filed as Exhibit 10.10 to the Annual Report on Form 10-K of First Regional Bancorp filed on March 31, 2005, and incorporated by reference
10.16		Form of First Regional Bancorp Indemnity Agreement, filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q of First Regional Bancorp filed on November 9, 2006 and incorporated herein by reference
10.17		Form of First Regional Bank Indemnity Agreement, filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q of First Regional Bancorp filed on November 9, 2006 and incorporated herein by reference
21	*	Subsidiaries of the Registrant
23	*	Consent of Independent Registered Public Accounting Firm
31.1	*	Certification of Annual Report on Form 10-K pursuant to Rule 13a-14(a) by Chief Executive Officer
31.2	*	Certification of Annual Report on Form 10-K pursuant to Rule 13a-14(a) by Corporate Secretary
31.3	*	Certification of Annual Report on Form 10-K pursuant to Rule 13a-14(a) by Chief Financial Officer
32	*	Certification of Annual Report on Form 10-K pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b)

*

Filed herewith

108

EX-21

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Exhibit 21

SUBSIDIARIES

        1.     First Regional Bank, a California corporation (wholly owned by First Regional Bancorp);

        2.     First Regional Statutory Trust III (a statutory trust organized under the laws of the State of Connecticut and wholly owned by First Regional Bancorp);

        3.     First Regional Statutory Trust IV (a statutory trust organized under the laws of the State of Delaware and wholly owned by First Regional Bancorp);

        4.     First Regional Statutory Trust V (a statutory trust organized under the laws of the State of Delaware and wholly owned by First Regional Bancorp);

        5.     First Regional Statutory Trust VI (a statutory trust organized under the laws of the State of Delaware and wholly owned by First Regional Bancorp);

        6.     First Regional Statutory Trust VII (a statutory trust organized under the laws of the State of Delaware and wholly owned by First Regional Bancorp);

        7.     First Regional Statutory Trust VIII (a statutory trust organized under the laws of the State of Delaware and wholly owned by First Regional Bancorp);

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Exhibit 21

SUBSIDIARIES

EX-23

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Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We consent to the incorporation by reference in Registration Statement Nos. 333-114507 and 333-111574 on Form S-3 and Nos. 333-116916 and 333-118881 on Form S-8 of our report relating to the financial statements of First Regional Bancorp dated March 16, 2009 , and our report relating to the effectiveness of First Regional Bancorp's internal control over financial reporting dated March 16, 2009 appearing in the Annual Report on Form 10-K of First Regional Bancorp for the year ended December 31, 2008.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California
March 16, 2009

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Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31.1

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Exhibit 31.1

Certification

        I, H. Anthony Gartshore, certify that:

        1.     I have reviewed this annual report on Form 10-K of First Regional Bancorp;

        2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

        3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

        4.     The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

        a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

        c)     evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        d)    disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

        5.     The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

        a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

        b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 16, 2009 /s/ H. ANTHONY GARTSHORE
H. Anthony Gartshore, President
and Chief Executive Officer

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Exhibit 31.1

Certification

EX-31.2

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Exhibit 31.2

Certification

        I, Thomas McCullough, certify that:

        1.     I have reviewed this annual report on Form 10-K of First Regional Bancorp;

        2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

        3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

        4.     The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

        a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

        c)     evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        d)    disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

        5.     The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

        a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

        b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 16, 2009 /s/ THOMAS MCCULLOUGH
Thomas McCullough, Corporate Secretary

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Exhibit 31.2

Certification

EX-31.3

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Exhibit 31.3

Certification

        I, Elizabeth Thompson, certify that:

        1.     I have reviewed this annual report on Form 10-K of First Regional Bancorp;

        2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

        3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

        4.     The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

        a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

        c)     evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        d)    disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

        5.     The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

        a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

        b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 16, 2009 /s/ ELIZABETH THOMPSON
Elizabeth Thompson, Chief Financial Officer

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Exhibit 31.3

Certification

EX-32

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Exhibit 32

Certification Furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

        In connection with the Annual Report of First Regional Bancorp (the "Company") on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his or her knowledge:

        (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 16, 2009	/s/ H. ANTHONY GARTSHORE H. Anthony Gartshore President and Chief Executive Officer
Date: March 16, 2009	/s/ THOMAS MCCULLOUGH Thomas McCullough Corporate Secretary
Date: March 16, 2009	/s/ ELIZABETH THOMPSON Elizabeth Thompson Chief Financial Officer

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Exhibit 32

Certification Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002