UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2003

FIRST PACTRUST BANCORP, INC.
(Exact name of registrant as specified in its charter)

000-49806

(Commission File Number)

Maryland
(State of incorporation)

04-3639825
(IRS Employer Identification No.)

610 Bay Boulevard, Chula Vista, California
(Address of Principal Executive Offices)

91910
(ZIP Code)

(619) 691-1519
(Registrant’s telephone number, including area code)

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   x No   o

Check whether the registrant is an accelerated filer.

YES   x NO   o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of May 15, 2003 the Registrant had 5,290,000 outstanding shares of common stock.

 

FIRST PACTRUST BANCORP, INC.

Form 10-Q Quarterly Report

Index

		Page
PART I - Financial Information
Item 1	Financial Statements	1
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 3	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4	Controls and Procedures	14
PART II - Other Information
Item 1	Legal Proceedings	14
Item 2	Changes in Securities	14
Item 3	Defaults Upon Senior Securities	14
Item 4	Submission of Matters to a Vote of Securities Holders	14
Item 5	Other Information	14
Item 6	Exhibits and Reports on Form 8-K	15
SIGNATURES		16

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This report contains certain forward-looking statements within the meaning of Section 27a of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  First PacTrust Bancorp, Inc. (the Company) and Pacific Trust Bank (the Bank) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, as amended, and are including this statement for purposes of these safe harbor provisions.  Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company and the Bank, are generally identifiable by use of the words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions.  The ability of the Company and the Bank to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors that could have a material adverse effect on the operations and future prospects of the Company, the Bank, and the Bank’s wholly owned subsidiaries include, but are not limited to, changes in:  interest rates; the economic health of the local real estate market; general economic conditions; legislative/regulatory provisions; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of the loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Bank’s market area; and accounting principles, policies, and guidelines.  These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

ITEM 1 – FINANCIAL STATEMENTS

First PacTrust Bancorp, Inc.
Consolidated Statements of Financial Condition
(In thousands of dollars except share data)
(Unaudited)

	March 31, 2003			December 31, 2002
ASSETS
Cash and due from banks	$	6,658		$	7,238
Federal funds sold		1,155			855
Interest-bearing deposits		3,772			3,413
Total cash and cash equivalents		11,585			11,506
Securities available-for-sale		17,194			18,733
Federal Home Loan Bank stock		5,131			4,505
Loans receivable, net of allowance of $2,536 and $1,744		443,945			403,732
Premises and equipment, net		5,093			5,163
Servicing agent receivable		14,253			13,727
Other assets		2,912			2,551
Total assets	$	500,113		$	459,917
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits
Non-interest-bearing	$	7,440		$	6,389
Interest-bearing		302,148			273,325
Total deposits		309,588			279,714
Advances from Federal Home Loan Bank		98,600			90,100
Accrued expenses and other liabilities		2,241			1,222
Total liabilities		410,429			371,036
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $.01 par value per share, 20,000,000 shares authorized; 5,290,000 shares issued and outstanding at March 31, 2003 and December 31, 2002		53			53
Additional paid-in capital		61,875			61,833
Retained earnings		32,016			31,305
Unearned Employee Stock Ownership Plan shares, 370,300 and 380,880 shares at March 31,2003 and December 31, 2002		(4,444	)		(4,571	)
Accumulated other comprehensive income		184			261
Total stockholders’ equity		89,684			88,881
Total liabilities and stockholders’ equity	$	500,113		$	459,917

See accompanying notes to consolidated financial statements.

1

First PacTrust Bancorp, Inc.
Consolidated Statements of Income
(In thousands of dollars except share data)
(Unaudited)

	Three Months Ended March 31,
	2003		2002
Interest and dividend income
Loans, including fees	$	6,108	$	4,664
Securities		154		176
Other interest-earning assets		70		84
Total		6,332		4,924
Interest expense
Deposits		1,441		1,677
Federal Home Loan Bank advances		586		313
Total		2,027		1,990
Net interest income		4,305		2,934
Provision for loan losses		328		165
Net interest income after provision for loan losses		3,977		2,769
Noninterest income
Customer service fees		229		217
Other		9		15
Total noninterest income		238		232
Noninterest expense
Salaries and employee benefits		1,264		941
Occupancy and equipment expense		460		576
Advertising		65		110
Professional fees		58		48
Stationary, supplies and postage		127		104
Data processing		226		241
ATM costs		113		101
Other general and administrative		237		119
Total noninterest expense		2,550		2,240
Income before income taxes		1,665		761
Income tax expense		708		297
Net income	$	957	$	464
Comprehensive income	$	879	$	362
Earnings per share
Basic	$	.19		N/A
Diluted	$	.19		N/A

See accompanying notes to consolidated financial statements.

2

First PacTrust Bancorp, Inc.
Consolidated Statements of Cash Flows
(In thousands of dollars)
(Unaudited)

	Three Months Ended March 31,
	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	957		$	464
Adjustments to reconcile net income to net cash from operating activities
Net premium amortization on securities		75			56
Provision for loan losses		328			165
Depreciation		93			210
FHLB stock dividends		(41	)		(37	)
ESOP compensation expense		169			—
Net change in:
Accrued interest receivable and other assets		(348	)		(33	)
Accrued interest payable and other liabilities		1,019			1,356
Net cash from operating activities		2,252			2,181
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of loans		—			(19,403	)
Net increase in loans		(41,067	)		(12,492	)
Purchase of FHLB stock		(585	)		—
Purchase of securities available-for-sale		—			(5,122	)
Principal repayments on mortgage-backed securities		1,374			2,494
Purchase of premises and equipment		(23	)		(1,383	)
Net cash from investing activities		(40,301	)		(35,906	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		29,874			24,555
Net change in FHLB open line		(4,500	)		—
Repayments of FHLB advances		(20,000	)		(46,000	)
Proceeds from FHLB advances		33,000			59,000
Dividends paid on common stock		(246	)		—
Net cash from financing activities		38,128			37,555
Net change in cash and cash equivalents		79			3,830
Cash and cash equivalents at beginning of period		11,506			18,003
Cash and cash equivalents at end of period	$	11,585		$	21,833

See accompanying notes to consolidated financial statements.

3

First PacTrust Bancorp, Inc.
Consolidated Statements of Equity
(In thousands of dollars)
(Unaudited)

	Common Stock		APIC		Unearned ESOP			Retained Earnings			OCI			Total
Balance at January 1, 2003	$	53		61,833		(4,571	)		31,305			261			88,881
Transfers, net Comprehensive income:
Net income									957						957
Change in unrealized loss on securities available-for-sale												(77	)		(77	)
ESOP shares earned				42		127									169
Dividend payment									(246	)					(246	)
Balance at March 31, 2003		53		61,875		(4,444	)		32,016			184			89,684

See accompanying notes to consolidated financial statements.

4

FIRST PACTRUST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(table amounts in thousands of dollars)

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of First PacTrust Bancorp, Inc. (the Company) as of March 31, 2003 and December 31, 2002 and for the three-month periods ended March 31, 2003 and 2002.  Significant intercompany accounts and transactions have been eliminated in consolidation. 

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q.  Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America are not included herein.  These interim statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission.  The December 31, 2002 balance sheet presented herein has been derived from the audited financial statements included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America.

Interim statements are subject to possible adjustment in connection with the annual audit of the Company for the year ending December 31, 2003.  In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial position and consolidated results of operations for the periods presented.

The results of operations for the three months ended March 31, 2003 and 2002 are not necessarily indicative of the results to be expected for the full year.

Note 2 – Summary of Significant Accounting Policies

Nature of Operations:  The only business of the Company is the ownership of the Bank.  The Bank is a federally chartered stock savings bank and member of the Federal Home Loan Bank (FHLB) system, which maintains insurance on deposit accounts with the Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation.  The Bank is engaged in the business of retail banking, with operations conducted through its main office and seven branches located in the San Diego and Riverside counties.

The accounting and reporting polices of the Company are based upon accounting principles generally accepted in the United States of America and conform to predominant practices within the banking industry.  Significant accounting policies followed by the Company are presented below.

5

Use of Estimates in the Preparation of Financial Statements:  The preparation of 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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.  The collectibility of loans, fair value of financial instruments, and status of contingencies are particularly subject to change.

Servicing Agent Receivable:  The Bank has contracted with a servicing agent to process payments and service a portion of the Bank’s real estate loan portfolio.  The servicing agent remits cash receipts within 15 days of the end of each month for loan payments received.  These cash amounts are reflected as servicing agent receivable on the consolidated statements of financial condition.

Note 3 – Conversion to Stock Form of Ownership

On March 1, 2002, the Board of Directors of Pacific Trust Bank (“the Bank”) adopted a Plan of Conversion to convert from a federally chartered mutual savings bank to a federally chartered stock savings bank with the concurrent formation of a holding company.  The conversion was accomplished through the sale of all of the Bank’s stock to the Company and the sale of the Company’s stock to the public on August 22, 2002.

In connection with the conversion, the Company issued 5,290,000 shares of common stock for gross proceeds of $63.5 million, of which $5.1 million was loaned to the Bank’s employee stock ownership plan to purchase stock in the offering. The net proceeds of the offering totaled $61.7 million.  The aggregate purchase price was determined by an independent appraisal.  The Bank issued all of its outstanding capital stock to the Company in exchange for one-half of the net proceeds of the offering.  The Company accounted for the purchase in a manner similar to a pooling of interests whereby assets and liabilities of the Bank maintain their historical cost basis in the consolidated company.

Note 4 – Employee Stock Ownership Plan

In connection with the conversion, the Bank established an Employee Stock Ownership Plan (“ESOP”) for the benefit of its employees.  The Company issued 423,200 shares of common stock to the ESOP in exchange for a ten-year note in the amount of approximately $5.1 million.  The $5.1 million for the ESOP purchase was borrowed from the Company.

Shares issued to the ESOP are allocated to ESOP participants based on principal repayments made by the ESOP on the loan from the Company.  The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Company’s  contributions to the ESOP and earnings on ESOP assets.  Principal payments are scheduled to occur over a ten-year period.

6

Note 5 – Earnings Per Share

Amounts reported as earnings per common share reflect earnings available to common stockholders for the year divided by the weighted average number of common shares outstanding during the year.  Earnings per share is calculated beginning with August 22, 2002, the date of conversion.  The weighted average shares outstanding for the quarter ended March 31, 2003 are 4,914,030.

Note 6 – Subsequent Events

The Company adopted two stock-based incentive plans during 2003 under the terms of which 529,000 shares of the Company’s common stock were reserved for issuance in the form of stock options and 211,600 shares of restricted stock were reserved for issuance in the form of stock awards. The plans were approved by shareholders at the Company’s annual meeting which was held on April 24, 2003.  The option awards are exercisable in equal installments over a five-year period from the date of grant, and expire ten years from the date of grant.  The restricted stock awards vest over a five-year period.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion compares the financial condition of First PacTrust Bancorp, Inc. (the Company), at March 31, 2003 to its financial condition at December 31, 2002 and the results of operations for the three-month period ended March 31, 2003 to the same period in 2002.  This discussion should be read in conjunction with the interim financial statements and footnotes included herein.

Comparison of Financial Condition at March 31, 2003 and December 31, 2002

          Our total assets increased by $40.2 million, or 9.0%, to $500.1 million at March 31, 2003 from $459.9 million at December 31, 2002.  The increase reflected growth in loans receivable funded by an increase in deposits and additional advances from the Federal Home Loan Bank.  Net loans increased by $40.2 million, or 10.0%, to $443.9 million at March 31, 2003 from $403.7 million at December 31, 2002.  Our increase in loans resulted from increased volume of one- to four- family mortgage loan originations largely due to the continued low interest rate environment.  The Company continues to utilize brokers as a primary source of loan growth.  The servicing agent receivable increased $526,000 due to a higher volume of prepayments during the month of March.  Management has brought all loan servicing in-house during April  2003, which will eliminate the servicing agent receivable in the second quarter.

          Total deposits increased by $29.9 million, or 10.7%, to $309.6 million at March 31, 2003 from $279.7 million at December 31, 2002.  The increase primarily reflected growth in certificates of deposit, savings accounts and NOW accounts.  Certificates of deposit increased $12.9 million, or 9.4%, to $150.1 million and savings accounts increased by $4.3 million.  NOW accounts increased by $11.1 million, or 33.3%.

7

          Federal Home Loan Bank advances increased $8.5 million, or 9.4%, to $98.6 million at March 31, 2003 from $90.1 million at December 31, 2002.  The additional advances were used to support loan growth.

          Equity increased $803,000 to $89.7 million at March 31, 2003 from $88.9 million at December 31, 2002, resulting primarily from $957,000 of net income earned for the quarter ended March 31, 2003.  Total dividends of $246,000 were paid during the first quarter ended March 31, 2003.

Comparison of Operating Results for the Three Months Ended March 31, 2003 and 2002

          General.  Net income for the three months ended March 31, 2003 was $957,000, an increase of $493,000, or 106.3%, from the three months ended March 31, 2002.  The increase in net income resulted the fluctuations as described below.

          Interest income.  Interest income increased by $1.4 million, or 28.6%, to $6.3 million for the three months ended March 31, 2003 from $4.9 million for the three months ended March 31, 2002.  The primary factor for the increase in interest income was the substantial increase in the average loans receivable balance, partially offset by an 88 basis point decrease in the average yield on loans receivable, from 6.56% for the three months ended March 31, 2002 to 5.68% for the same period in 2003 as a result of the refinancing market environment.  The majority of the Bank’s loans have an adjustable rate feature, and this decrease reflects the downward re-pricing of adjustable rate mortgage loans due to a decline in market rates of interest.  The average balance of loans receivable increased $145.8 million, or 51.2%, from $284.5 million for the three months ended March 31, 2002 to $430.3 million for the quarter ended March 31, 2003.  The increase was primarily the result of loan originations exceeding repayments due to strong demand, reflecting generally lower interest rates in 2003.

          Interest income on securities decreased by $22,000, or 12.5%, to $154,000 for the three months ended March 31, 2003.  The average yield on the securities portfolio was 3.6% for the three months ended March 31, 2003 compared to 4.2% for the same period in 2002, due to generally lower levels of market  rates of interest in 2002.

          Interest income from other interest-earning assets decreased $14,000, or 16.7%, to $70,000 for the three months ended March 31, 2003 from $84,000 for the three months ended March 31, 2002.  The decrease resulted from a decrease in the average balance from $9.0 million to $6.4 million, which reflected a decrease in federal funds sold as a result of utilizing the cash on hand to fund loan originations.  

          Interest Expense.  Interest expense increased $36,000, or 1.9%, to $2.0 million for the three months ended March 31, 2003.  The increase in interest expense resulted primarily from an increase in the average balance of deposits from $256.3 million for the three months ended March 31, 2002 to $292.9 million for the same period in 2003, and a $50.9 million increase in the average balance of FHLB advances from $43.0 million to $93.9 million for the same periods.  This was partially offset by a decrease in the average cost of our interest-bearing liabilities to 2.08% from 2.64%, reflecting the decrease in market rates of interest during the period.    Interest expense on deposits decreased $236,000, or 14.1%, to $1.4 million for the three months ended March 31, 2003 from $1.7 million for the same period in 2002.  Interest expense on

8

Federal Home Loan Bank advances increased $273,000, or 87.2%, to $586,000 for the three months ended March 31, 2003 from $313,000 for the three months ended March 31, 2002.

          Net Interest Income.  Net interest income before provision for loan losses increased  $1.4 million, or 46.7%, to $4.3 million for the three months ended March 31, 2003 from $2.9 million for the three months ended March 31, 2002.  The net interest spread decreased 24 basis points to 3.52%, while the net interest margin increased 1 basis point during the period to 3.79%.  The increase in net interest income primarily reflects the factors discussed above.

          Provision for Loan Losses.  Provisions for loan losses were charged to operations at a level required to reflect probable incurred credit losses in the loan portfolio.  In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, peer group information, and prevailing economic conditions.  Large groups of smaller balance homogenous loans, such as residential real estate, small commercial real estate, and home equity and consumer loans, are evaluated in the aggregate using historical loss factors and peer group data adjusted for current economic conditions.  Large balance and/or more complex loans, such as multi-family and commercial real estate loans, and classified loans, are evaluated individually for impairment.

          Provisions of $328,000 and $165,000 were made for the three months ended March 31, 2003 and 2002, respectively.  The provision increased by $163,000 reflecting a $153 million, or 52.1%, increase in gross loans, primarily consisting of residential real estate loans.  This growth continues to be achieved primarily through the use of independent loan originators.  Since the bank did not have a seasoned portfolio in this type of lending and did not have a related loss history to apply to these types of loans, peer group data adjusted for local economic conditions was used to establish our loan loss allowance, resulting in the $328,000 provision. 

          This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change.  We used the same methodology and generally similar assumptions in assessing the allowance for both periods.  The allowance for loan losses as a percentage of loans outstanding increased to .75% at March 31, 2003 from .67% at March 31, 2002.  This increase was primarily the result of a continued growth in the secured 1-4 family portion of the Bank’s loan portfolio combined with current economic conditions.  The level of the allowance is based on estimates and the ultimate losses may vary from the estimates.

          Management assesses the allowance for loan losses quarterly. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions.  In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the bank to recognize additional provisions based on their judgment of information available to them at the time of their examination.  The allowance for loan losses as of March 31, 2003 was maintained at a level that represented management’s best estimate of anticipated losses in the loan portfolio to the extent they were both probable and reasonably estimable.

9

          Noninterest Income.  Noninterest income remained relatively stable at $238,000 and $232,000 for the three months ended March 31, 2003 and 2002, respectively.

          Noninterest Expense.  Noninterest expense increased $310,000, or 13.8%, to $2.6 million for the three months ended March 31, 2003 from $2.2 million for the three months ended March 31, 2002.  This increase was primarily the result of a $323,000 increase in salaries and employee benefits and a $118,000 increase in other administrative expenses, partially offset by a $116,000 decrease in occupancy and equipment expense.

          Salaries and employee benefits represented 50.0% and 42.0% of total noninterest expense for the three months ended March 31, 2003 and March 31, 2002, respectively.  Total salaries and employee benefits increased $323,000, or 34.3%, to $1.3 million for the three months ended March 31, 2003 from $941,000 for the same period in 2002.  The increase was primarily due to $169,000 in ESOP compensation expense related to the establishment of the plan in the third quarter of 2002, combined with increased wage rates, and staffing increases including staffing at the new Balboa branch facility.

          Other administrative expenses increased $118,000 primarily as a result of increases in various miscellaneous accounts related to the continued growth of the bank.

          Occupancy and equipment expense decreased $116,000 due to a decrease in depreciation expense as a result of the write off of computer equipment that occurred during 2002, related to the core system conversion completed in January of 2003.

          Income Tax Expense.  Income tax expense increased to $708,000 for the three months ended March 31, 2003, from $297,000 for the three months ended March 31, 2002.  This increase was primarily a result of an increase in pre-tax income.  The effective tax rate was 41.1% and 42.5% for the three months ended March 31, 2003 and 2002, respectively.

Liquidity and Commitments

          We are required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure a safe and sound operation.  Liquidity may increase or decrease depending upon availability of funds and comparative yields on investments in relation to the return on loans.  Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows.  Cash flow projections are regularly reviewed and updated to ensure that adequate liquidity is maintained.

          The Bank’s liquidity, represented by cash and cash equivalents, is a product of its operating, investing, and financing activities.  The Bank’s primary sources of funds are deposits, amortization, prepayments, and maturities of outstanding loans and mortgage-backed securities; maturities of securities; and other short-term investments and funds provided from operations.  While scheduled payments from the amortization of loans and mortgage-backed securities and maturing securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.  In addition, the

10

Bank invests excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.  The Bank also generates cash through borrowings.  The Bank utilizes Federal Home Loan Bank advances to leverage its capital base and provide funds for its lending activities and to enhance its interest rate risk management.

          Liquidity management is both a daily and long-term function of business management.  Excess liquidity is generally invested in short-term investments such as overnight deposits or U.S. Agency securities.  On a longer-term basis, the Bank maintains a strategy of investing in various lending products.  The Bank uses its sources of funds primarily to meet its ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, to fund loan commitments, and to maintain its portfolio of mortgage-backed securities and investment securities.   At March 31, 2002, the total approved loan origination commitments outstanding amounted to $8.4 million.  At the same date, unused lines of credit were $19.1 million and outstanding letters of credit totaled $10,000.  Securities scheduled to mature in one year or less at March 31, 2003 totaled $922,000.  Certificates of deposit scheduled to mature in one year or less at March 31, 2003, totaled $113.7 million.  Although the average cost of deposits has decreased throughout 2003, management’s policy is to maintain deposit rates at levels that are competitive with other local financial institutions.  Based on the competitive rates and on historical experience, management believes that a significant portion of maturing deposits will remain with the Bank.  In addition, the Bank has the ability at March 31, 2003 to borrow an additional $50.7 million from the Federal Home Loan Bank of San Francisco as a funding source to meet commitments and for liquidity purposes.  The Bank has also entered into a contract for $212,000 for construction on the new branch facility scheduled to open in the second quarter.

Capital

          Consistent with its goals to operate a sound and profitable financial organization, the Bank actively seeks to maintain a “well capitalized” institution in accordance with regulatory standards.  Total equity was $89.7 million at March 31, 2003, or 17.9% of total assets on that date.  As of March 31, 2003, the Bank exceeded all capital requirements of the Office of Thrift Supervision.  The Bank’s regulatory capital ratios at March 31, 2003 were as follows: core capital 11.75%; Tier 1 risk-based capital, 17.67%; and total risk-based capital, 16.76%.  The regulatory capital requirements to be considered well capitalized are 5.0%, 6.0%, and 10.0%, respectively.

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New Accounting Pronouncements

          Effective January 1, 2003, SFAS  143,  “Accounting for Asset Retirement Obligations”,  will  apply. The statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period incurred. Adoption of SFAS 143 is not expected to have a material effect on the financial position and operations of the Company.

Impact of Inflation

          The consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America.  These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

          Our primary assets and liabilities are monetary in nature.  As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation.  Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation.  In a period of rapidly rising interest rates, the liquidity and maturities structures of our assets and liabilities are critical to the maintenance of acceptable performance levels.

          The principal effect of inflation, as distinct from levels of interest rates, on earnings in the area of noninterest expense.  Such expense items as employee compensation, employee benefits, and occupancy and equipment costs may be subject to increases as a result of inflation.  An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made.  We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Bank’s interest rate sensitivity is monitored by management through the use of a model that estimates the change in net portfolio value (NPV) over a range of interest rate scenarios.  NPV is the present value of expected cash flows from assets, liabilities, and off-balance-sheet contracts.  An NPV Ratio, in any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario.  The Sensitivity Measure is the decline in the NPV Ratio, in basis points, caused by a 2% increase or decrease in rates, whichever produces a larger decline.  The higher an institution’s Sensitivity Measure is, the greater its exposure to interest rate risk is considered to be.  The Office of Thrift Supervision (OTS) has incorporated an interest rate risk component into its regulatory capital rule.  Under the rule, an institution whose Sensitivity Measure exceeds 2% would be required to deduct an interest rate risk component in calculating its total capital for purposes of the risk-based capital requirement.  As of December 31, 2002, the latest date for which information is available, the Bank’s Sensitivity Measure, as measured by the OTS, resulting from a 200 basis point increase

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in interest rates was 10% and would result in a $7.4 million decrease in the NPV of the Bank.  Accordingly, increases in interest rates would be expected to have a negative impact on the Bank’s operating results.  The Sensitivity Measure is less than the threshold at which the Bank could be required to hold additional risk-based capital under OTS regulations.

The OTS uses certain assumptions in assessing the interest rate risk of savings associations.  These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis used in the forthcoming table.  For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates.  Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.  Additionally, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset.  Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table.

The following table shows the NPV and projected change in the NPV of the Bank at December 31, 2002, the latest date for which information is available, assuming an instantaneous and sustained change in market rates of interest of 100, 200, and 300 basis points.  On December 31, 2002, the yield on the three-month Treasury bill was 1.20%.  As a result, the net portfolio value analysis was unable to produce results for the minus 200 and minus 300 basis point scenario for the quarter ended December 31, 2002.

Interest Rate Sensitivity of Net Portfolio Value (NPV)

	Net Portfolio Value								NPV as a % of PV of Assets
Change in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change
+ 300 bp	$	61,035		(12,255	)		(17	)%		13.33	%		(202	)bp
+ 200 bp		65,919		(7,370	)		(10	)%		14.17	%		(117	)bp
+ 100 bp		70,126		(3,164	)		(4	)%		14.86	%		(48	)bp
0 bp		73,290		—			—			15.34	%		0	bp
- 100 bp		74,911		1,621			2	%		15.54	%		20	bp

The Bank does not maintain any securities for trading purposes.  The Bank does not currently engage in trading activities or use derivative instruments in a material amount to control interest rate risk.  In addition, interest rate risk is the most significant market risk affecting the Bank.  Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of the Bank’s business activities and operations.

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Item 4.  Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures:  An evaluation of the Company’s disclosure controls and procedures (as defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the “Act”) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the company’s senior management within the 90-day period preceding the filing date of this annual report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b)

Changes in Internal Controls:  In the quarter ended March 31, 2003, the Company did not make any significant changes in, nor take any corrective actions regarding, its internal controls or other factors that could significantly affect these controls.

PART II - - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

                         None

ITEM 2.   CHANGES IN SECURITIES.

                         None

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.

                         None

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.

                         The Annual Meeting of Shareholders for First PacTrust Bancorp, Inc. was held on April 24, 2003 in Bonita, California. At that meeting the shareholders elected the following persons to three-year terms to the Board of Directors: Hans R. Ganz by a vote of 4,930,196 for and 55,695 withheld, and Donald M. Purdy by a vote of 4,929,601 for and 56,290 withheld. Alvin L. Majors, Donald A. Whitacre, Francis P. Burke and Kenneth W. Scholz also continue to serve as directors after the meeting. Also approved was the adoption of the First PacTrust Bancorp, Inc. 2003 Stock Option and Incentive Plan, by a vote of 3,648,447 for, 155,610 against, 5,413 abstained and 1,176,069 broker non-votes, and First PacTrust Bancorp, Inc. 2003 Recognition and Retention Plan, by a vote of 3,591,447 for, 200,162 against, 18,213 abstained and 1,176,069 broker non-votes.

ITEM 5.  OTHER INFORMATION.

                         None

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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)	Exhibits
	99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002 from the Company’s Chief Executive Officer (attached as an exhibit and incorporated herein by reference).
	99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002 from the Company’s Executive Vice President (attached as an exhibit and incorporated herein by reference).
(b)	Reports on Form 8-K.  On February 26, 2003, the Company filed a current report on Form 8-K to announce fourth quarter earnings.

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SIGNATURES

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

	FIRST PACTRUST BANCORP, INC.
Date:  May 15, 2003	/s/ HANS R.  GANZ
	Hans R. Ganz President and Chief Executive Officer
Date:  May 15, 2003	/s/ REGAN GALLAGHER
	Regan Gallagher Vice President/ Controller (Principal Financial and Accounting Officer)

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I, Hans Ganz, certify that:
1)	I have reviewed this quarterly report on Form 10-Q of First PacTrust Bancorp, Inc.;
2)	Based on my knowledge, this quarterly 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 quarterly report;
3)	Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;
4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a)	designed such disclosure controls and procedures 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 quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5)	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6)	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

/s/ HANS GANZ

Hans Ganz
President and Chief Executive Officer

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I, Regan Gallagher, certify that:
1)	I have reviewed this quarterly report on Form 10-Q of First PacTrust Bancorp, Inc.;
2)	Based on my knowledge, this quarterly 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 quarterly report;
3)	Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;
4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
	a)	designed such disclosure controls and procedures 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 quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5)	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6)	The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

/s/ REGAN GALLAGHER

Regan Gallagher
Vice President/ Controller
(Principal Financial and Accounting Officer)

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