FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Quarterly Report Under Section 13 or 15(d)

of the Securities Exchange Act of 1934

Quarter Ended June 30, 2002

Commission File Number 0-10232

FIRST REGIONAL BANCORP

(Exact name of registrant as specified in its charter)

California		95-3582843
State or other jurisdiction of incorporation or organization		IRS Employer Identification Number

1801 Century Park East, Los Angeles, California		90067
Address of principal executive offices		Zip Code

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

Not applicable
Former name, former address, and former fiscal year, if changed since last report

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

APPLICABLE ONLY TO CORPORATE ISSUERS

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

Class		Outstanding on August 6,2002
Common Stock, No Par Value		2,725,020

FIRST REGIONAL BANCORP

INDEX

Part I - Financial Information

	Item 1.	Financial Statements

		Consolidated Statements of Financial Condition (unaudited)

		Consolidated Statements of Income (unaudited)

		Consolidated Statements of Cash Flows (unaudited)

		Notes to Consolidated Financial Statements (unaudited)

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

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Part II - Other Information

	Item 1.	Legal Proceedings

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

	Item 6.	Exhibits and Reports on Form 8-K

Certification and Signatures

PART I - - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST REGIONAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands)

(unaudited)

	June 30,			December 31,
	2002			2001
ASSETS
Cash and due from banks	$	79,802		$	25,975
Federal funds sold	0			25,640

Cash and cash equivalents	79,802			51,615

Investment securities, available for sale, at fair value	2,741			2,739

Loans, net of allowance for losses of $5,200 in 2002 and $5,000 in 2001	339,005			280,383

Premises and equipment, net of accumulated depreciation	1,572			1,527

Accrued interest receivable and other assets	11,681			10,788

Total Assets	$	434,801		$	347,052

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Deposits:
Noninterest bearing	$	128,981		$	116,112
Interest Bearing:
Savings deposits	44,647			16,477
Money market deposits	157,504			132,096
Time deposits	67,064			47,895

Total deposits	398,196			312,580

Note payable	937			1,013
Accrued interest payable and other liabilities	4,669			3,504
Trust Securities	5,000			5,000

Total Liabilities	408,802			322,097

Shareholders’ Equity:

Common Stock, no par value, 50,000,000 shares authorized; 2,730,000 and 2,750,000 shares issued in 2002 and 2001, respectively	13,750			13,850
Less: Unearned ESOP shares; 99,000 and 107,000 outstanding in 2002 and 2001, respectively	(888		)	(958		)
Total common stock, no par value; Outstanding 2,631,000 (2002) and 2,643,000 (2001) shares	12,862			12,892

Retained earnings	13,136			12,068
Accumulated other comprehensive income,
Net of tax	1			(5		)

Total Shareholders’ Equity	25,999			24,955

Total Liabilities and Shareholders’ Equity	$	434,801		$	347,052

The accompanying notes are an integral part of these statements.

FIRST REGIONAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands Except Per Share Amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2002		2001		2002		2001
INTEREST INCOME:

Interest and fees on loans	$	5,279	$	5,382	$	10,025	$	11,140
Interest on investment securities	14		25		32		71
Interest on federal funds sold	61		459		154		735

Total interest income	5,354		5,866		10,211		11,946

INTEREST EXPENSE:

Interest on deposits	622		1,587		1,213		3,145
Interest on trust securities	72		0		142		0
Interest on other borrowings	2		2		4		5

Total interest expense	696		1,589		1,359		3,150

Net interest income	4,658		4,277		8,852		8,796

PROVISION FOR LOAN LOSSES	150		300		200		800


Net interest income after provision for loan losses	4,508		3,977		8,652		7,996


OTHER OPERATING INCOME:
Customer service fees	672		514		1,389		992
Other, net	142		123		268		254
Total other operating income	814		637		1,657		1,246


OPERATING EXPENSES:
Salaries and related benefits	2,625		2,174		5,053		4,341
Occupancy expense	325		289		655		559
Equipment expense	150		133		290		277
Promotion expense	62		106		109		141
Professional service expense	324		322		675		647
Customer service expense	81		119		170		251
Supply/communication expense	186		166		327		312
Other expenses	463		360		973		727
Total operating expenses	4,216		3,669		8,252		7,255


Income before provision for income taxes	1,106		945		2,057		1,987

PROVISION FOR INCOME TAXES	457		390		849		820

NET INCOME	$	649	$	555	$	1,208	$	1,167

EARNINGS PER SHARE (Note 2)
Basic	$	0.25	$	0.21	$	0.46	$	0.44
Diluted	$	0.24	$	0.21	$	0.45	$	0.44

The accompanying notes are an integral part of these statements.

FIRST REGIONAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2002			2001
OPERATING ACTIVITIES

Net Income	$	1,208		$	1,167

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses	200			800
Depreciation and amortization	162			146
Amortization of investment security and guaranteed loan premiums	0			405
Accretion of investment security discounts	(2		)	(28		)
(Increase) decrease in accrued interest receivable	(29		)	696
Decrease in accrued interest payable	(14		)	(39		)
Increase in taxes payable	619			279
Net increase in other liabilities	1,011			839
Net increase in other assets	(864		)	(1,277		)
Net cash provided by operating activities	2,291			2,988


INVESTING ACTIVITIES

Decrease in investments in time deposits with other financial institutions	$	0		$	99
Decrease in investment securities	5			1024
Decrease in guaranteed loans	4,475			6,020
Net increase in other loans	(63,297		)	(26,539		)
Increase in premises and equipment	(207		)	(292		)
Net cash used in investing activities	(59,024		)	(19,688		)

FINANCING ACTIVITIES

Net increase in noninterest bearing deposits, money market deposits, and other deposits	66,447			19,444
Net increase (decrease) in time deposits	19,169			(405		)
Decrease in note payable	(76		)	(76		)
Decrease in securities sold under agreement to repurchase	(451		)	(1,258		)
Common stock repurchased and retired	(169		)	(258		)
Net cash provided by financing activities	84,920			17,447

Increase in cash and cash equivalents	28,187			747

Cash and cash equivalents, beginning of period	51,615			59,559

Cash and cash equivalents, end of period	$	79,802		$	60,306

Supplemental Disclosures of Cash Flow Information:
Interest paid	$	1,378		$	3,184
Income taxes paid	$	686		$	949

The accompanying notes are an integral part of these statements.

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2002

(Unaudited)

NOTE 1	-	First Regional Bancorp, a bank holding company (the Company), and one of its wholly-owned subsidiaries, First Regional 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. First Regional Bancorp has another subsidiary, First Regional Statutory Trust I, that exists for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in junior subordinated deferrable debentures issued by the Company and engaging in certain other limited activities. Certain amounts in the 2001 financial statements have been reclassified to be comparable with the classifications used in the 2002 financial statements.

		In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2002 and December 31, 2001 and the results of operations for the three and six month periods ended June 30, 2002 and 2001. Interim results may not be indicative of annual operations.

		While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Company’s 2001 annual report on Form 10K.

		In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Accounting for Goodwill and Other Intangible Assets,” effective starting with fiscal years beginning after December 31, 2001. The adoption of this statement did not have a material effect on the Company’s financial statements as the Company has no recorded goodwill and the intangible asset continues to be amortizable. For the six months ended June 2002, amortization expense for intangible assets is $64,000 and is estimated to be approximately $128,000 each year for the next four years. These amortization amounts are consistent with 2001.

		SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” replaces SFAS No. 121. SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. It also expands the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The adoption of this

		statement on January 1, 2002 did not have a material impact on the Corporation’s financial position, results of operations or cash flows.

NOTE 2	-	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 diluted earnings per share also considers the number 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 share is:

	Three Months Ended June 30, 2002
	Income (Numerator)		Weighted Average Shares (Denominator)	Per Share Amount
Basic EPS

Income available to common shareholders	$	649,000	2,629,102	$	0.25

Effect of Dilutive
Securities
Incremental shares from assumed exercise of outstanding options			45,748	(0.01		)


Diluted EPS

Income available to common shareholders	$	649,000	2,674,850	$	0.24

	Three Months Ended June 30, 2001
	Income (Numerator)		Weighted Average Shares (Denominator)	Per Share Amount
Basic EPS
Income available to common shareholders	$	555,000	2,638,176	$	0.21

Effect of Dilutive Securities
Incremental shares from assumed exercise of outstanding options			36,781	(0.00		)

Diluted EPS
Income available to common shareholders	$	555,000	2,674,957	$	0.21

	Six Months Ended June 30, 2002
	Income (Numerator)		Weighted Average Shares (Denominator)	Per Share Amount

Basic EPS
Income available to common shareholders	$	1,208,000	2,629,981	$	0.46

Effect of Dilutive Securities
Incremental shares from assumed exercise of outstanding options			44,237	(0.01		)

Diluted EPS
Income available to common shareholders	$	1,208,000	2,674,218	$	0.45

	Six Months Ended June 30, 2001
	Income (Numerator)		Weighted Average Shares (Denominator)	Per Share Amount

Basic EPS
Income available to common shareholders	$	1,167,000	2,644,822	$	0.44

Effect of Dilutive Securities
Incremental shares from assumed exercise of outstanding options			33,112	(0.00		)

Diluted EPS
Income available to common shareholders	$	1,167,000	2,677,934	$	0.44

NOTE 3	-	As of June 30, 2002 the Bank had a total of $3,233,000 in standby letters of credit outstanding. No losses are anticipated as a result of these transactions.

NOTE 4	-	The Company’s comprehensive income includes all items which comprise net income plus the unrealized holding gains on available-for-sale securities. For the three and six month periods ended June 30, 2002 and 2001, the Company’s comprehensive income was as follows:

	Three Months Ended
	June 30, 2002		June 30, 2001
	(in thousands)

Net Income	$	649	$	555
Other comprehensive income	1		2

Total comprehensive income	$	650	$	557

	Six Months Ended
	June 30, 2002		June 30, 2001
	(in thousands)

Net Income	$	1,208	$	1,167
Other comprehensive income	1		3

Total comprehensive income	$	1,209	$	1,170

NOTE 5	-	In 2001 the Company established First Regional Statutory Trust I (the “Trust”), a statutory business trust and wholly owned subsidiary of the Company. The Trust was 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.

		On December 18, 2001, the Trust issued $5,000,000 of Cumulative Preferred Capital Securities (the “Trust Securities”) in a private placement transaction, which represent undivided preferred beneficial interests in the assets of the Trust. Simultaneously, the Trust purchased $5,000,000 of Junior Subordinated Deferrable Debentures (the “Debentures”) from the Company. The Company then invested the net proceeds of the sale of the Debentures in First Regional Bank as additional paid-in capital to support the Bank’s future growth. The structure of this transaction enabled the Company to obtain additional Tier I capital for regulatory reporting purposes while permitting the Company to deduct the payment of future interest distributions for tax purposes. The Trust Securities, which are not registered with the Securities Exchange Commission, must be redeemed in 2031. Because of this required redemption, the Trust Securities are recorded in the liability section of the consolidated balance sheet in accordance with accounting principles generally accepted in the United States of America even though they are treated as capital for regulatory purposes.

NOTE 6	-	Management has evaluated the Company’s overall operation and determined that its business consists of three reportable business segments as of June 30, 2002 and 2001: core banking operations, the administrative services in relation to TASC, 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 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 TASC at June 30, 2002 and December 31, 2001 were $814,000 and $864,000, respectively, and total assets of Trust Services at June 30, 2002 and December 31, 2001 were $85,000 and $92,000, respectively. The remaining assets reflected on the balance sheets of the Company are associated with the core banking operations.

The following table shows the net income (loss) (in thousands) for the core banking operations, the administration and custodial services, and the trust services for the six month periods ended June 30, 2002 and 2001.

	Core Banking Operations		Administrative Services			Trust Services			Six Month Period Ended June 30, 2002

Net interest income	$	8,852							$	8,852
Provision for Loan Losses	200								200
Other operating income	1,075		$	365		$	217		1,657
Other operating expenses	7,344		554			354			8,252
Provision for income taxes	849								849

Net income	$	1,534	$	(189	)	$	(137	)	$	1,208

	Core Banking Operations		Administrative Services			Six Month Period Ended June 30, 2001

Net interest income	$	8,796				$	8,796
Provision for Loan Losses	800					800
Other operating income	953		$	293		1,246
Other operating expenses	6,744		511			7,255
Provision for income taxes	820					820

Net income	$	1,385	$	(218	)	$	1,167

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

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

SUMMARY

First Regional Bancorp did not conduct any significant business activities independent of First Regional Bank. The following discussion and analysis relates primarily to the Bank.

For a more complete understanding of the Company and its operations reference should be made to the financial statements included in this report and in the Company’s 2001 Annual Report on Form 10-K. Certain statements in this report on Form 10-Q constitute “forward looking statements” under the Private Securities Litigation Reform Act of 1995 which involve risks and uncertainties. The Company’s actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, economic conditions, competition in the geographic and business areas in which the Company conducts operations, fluctuations in interest rates, credit quality, and government regulations. For additional information concerning these factors, see “Item 1. Business — Factors That May Affect Results” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

As of June 30, 2002 total assets were $434,801,000 compared to $347,052,000 at December 31, 2001, an increase of $87,749,000 or 25.3%. Moreover, the June 30, 2002 asset level represents a $109,026,000 (33.7%) increase over the $325,775,000 that existed on the same date in 2001. The 2002 asset growth reflects a corresponding increase in total deposits of $85,616,000 or 27.4%, from $312,580,000 at the end of 2001 to $398,196,000 at June 30, 2002. While overall deposits increased, the deposit growth was centered primarily in savings and money market deposits while time deposits and noninterest bearing deposits also experienced an increase. There were several changes in the composition of the Bank’s assets during the first six months of 2002. The Bank’s core loan portfolio grew significantly by $58,622,000 during the six month period, bringing the Bank’s total loans to $339,005,000 at June 30, 2002 from the December 31, 2001 total of $280,383,000. The combined effect of the increase in loans and the growth in deposits was an increase in the level of total liquid assets. Investment securities remained relatively constant, cash and cash equivalents, including cash and due from banks and federal funds sold, increased significantly by $28.2 million in order to accommodate the changes that took place in the rest of the balance sheet.

The Company earned a profit of $649,000 in the three months ended June 30, 2002, compared to earnings of $555,000 in the second quarter of 2001. The results for the six months ended June 30, 2002 were profits of $1,208,000 compared to a profit of $1,167,000 for the corresponding period of 2001, an increase of 3.5%.

NET INTEREST INCOME

Total interest income decreased by $512,000 (9%) for the second quarter of 2002 compared to the same period in 2001, and decreased by $1,735,000 (14%) for the six month period ended June 30, 2002 compared to

the prior year although total earning assets were substantially higher (18.5%) in 2002 than in 2001. The majority of the decrease in interest income arises from a substantial decrease of $1,115,000 (10%) in interest on loans from $11,140,000 for the six months ended June 30, 2001 compared to $10,025,000 for the same period in 2002. Although there was an increase in the loan portfolio of $88,134,000 (35%) from June 30, 2001 to June 30, 2002, this decrease in interest income on loans relates to the Federal Reserve’s unprecedented series of interest rate reductions throughout 2001. For the three months ended June 30, 2002 interest expense decreased by $893,000 (56%) to $696,000 from the 2001 level of $1,589,000 and for the six months ended June 30, 2002 interest expense decreased by $1,791,000 (57%) to $1,359,000 from the 2001 level of $3,150,000 due to a series of interest rate reductions although total deposits increased $101,094,000 (34%) from June 30, 2001 to June 30, 2002. The increases were primarily in noninterest bearing demand deposit accounts, savings and money market deposits. The net result was an increase in net interest income of $381,000 (9%), from $4,277,000 in the second quarter of 2001 to $4,658,000 for the second quarter of 2002 and an increase in net interest income of $56,000 (1%), from $8,796,000 for the six months ended June 30, 2001 to $8,852,000 for the first six months of 2002.

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 the Six Month Period Ended June 30,
	2002						2001
	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)	$	311,914	$	10,025	6.4	%	$	243,908	$	11,140	9.1	%

Investment Securities	2,751		32		2.3	%	2,497		69		5.5	%

Federal Funds Sold	18,336		154		1.7	%	31,606		735		4.7	%

Time Deposits With Other Financial Institutions	0		0		0.0	%	44		2		9.1	%

Total Interest Earning Assets	$	333,001	$	10,211	6.1	%	$	278,055	$	11,946	8.6	%

	For the Six Month Period Ended June 30,
	2002						2001
	Average Balance		Interest Income(2)/ Expense		Average Yield/ Rate %		Average Balance		Interest Income(2)/ Expense		Average Yield/ Rate %
	(Dollars in Thousands)
Interest Bearing Liabilities:

Savings deposits	$	4,241	$	19	0.9	%	$	1,770	$	21	2.4	%

Money Market Accounts	153,484		679		0.9	%	115,636		1,501		2.6	%

Time deposits	56,072		515		1.8	%	63,817		1,623		5.1	%

Trust Securities	5,000		142		5.7	%	0		0		0.0	%

Securities sold under agreements to repurchase	$	455	$	4	1.8	%	$	190	$	5	5.3	%

Total interest bearing liabilities	$	214,252	$	1,359	1.2	%	$	181,413	$	3,150	3.5	%

(1) This figure reflects total loans, including non–accrual loans, and is not net of the allowance for possible losses, which had an average balance in the first six months of $5,052,000 in 2002 and $4,795,000 in 2001.

(2) Includes loan fees in the first six months of $854,000 in 2002 and $719,000 in 2001.

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

	For the Six Month Period Ended June 30,
	2002			2001
	(Dollars in Thousands)

Total interest income(1)	$	10,211		$	11,946

Total interest expense	1,359			3,150

Net interest earnings	$	8,852		$	8,796

Average interest earning assets	$	333,001		$	278,055

Average interest bearing liabilities	$	219,252		$	181,413

Net yield on average interest earning assets	5.3		%	6.3		%

(1) Includes loan fees in the first six months of $854,000 in 2002 and $719,000 in 2001.

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)
	For the Six Month Periods
	June 30,
	2002 over 2001
	Volume			Rate			Net
	(Dollars in Thousands)
Interest Income(1)

Loans(2)	$	17,788		$	(18,903	)	$	(1,115	)

Funds sold	(230		)	(351		)	(581		)

Investment securities	6			(45		)	(39		)

Total Interest Earning Assets	$	17,564		$	(19,299	)	$	(1,735	)

Interest Expense(1)

Savings	$	(4	)	$	2		$	(2	)

Money market	811			(1,633		)	(822		)

Trust Securities	142			0			142

Time	(177		)	(931		)	(1,108		)

Securities sold under agreements to repurchase	(2		)	1			(1		)

Total interest bearing liabilities	$	770		$	(2,561	)	$	(1,791	)

(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 in the first six months of $854,000 in 2002 and $719,000 in 2001.

OTHER OPERATING INCOME

Other operating income increased to $814,000 in the second quarter of 2002 from $637,000 in the three months ended June 30, 2001. For the first half of 2002 other operating income also increased to $1,657,000 for the six months ended June 30, 2002 from $1,246,000 for the first six months of 2001. 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 $215,000 for the second quarter of 2002 and $487,000 for the six months ended June 30, 2002 in contrast with $226,000 for the second quarter of 2001 and $434,000 for the six months ended June 30, 2001. The Bank’s Trust Administration Services Corp. (TASC), a wholly owned subsidiary that provides administrative and custodial services to self-directed retirement plans, also had an increase in revenue to $365,000 for the six months ended June 30, 2002 in contrast with $293,000 in the first six months of 2001. The Bank’ Trust Department that provides trust services for living trusts, investment agency accounts, IRA rollovers, and all forms of court-related matters had revenue of $222,000 in the first six months of 2002 and no revenue during the first six months of 2001. No gains or losses on securities sales or sales of premises and equipment were realized in the first six months of 2002 or 2001.

LOAN PORTFOLIO AND PROVISION FOR LOAN LOSSES

The loan portfolio consisted of the following at June 30, 2002 and December 31, 2001:

	June 30,		December 31,
	2002		2001
	(Dollars in Thousands)

Commercial loans	$	75,312	$	72,173
Real estate construction loans	57,877		46,748
Real estate loans	193,466		143,762
Government guaranteed loans	18,524		22,999
Other loans	898		1,125

Total loans	346,077		286,807

Less - Allowances for loan losses	5,200		5,000
- Deferred loan fees	1,872		1,424

Net loans	$	339,005	$	280,383

The allowance for possible 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 provisions for loan losses, and is decreased by net charge-offs. Management believes the allowance for loan losses 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 insure 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. 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 relevant factors. The relationship of the two major elements of the allowance to the total allowance may fluctuate from period to period.

When considered necessary by management, the Bank also establishes special reserves to reflect unusual conditions that could impact the repayment performance of the Bank's borrowers. In 2001, for example, the bank established special reserves relating to California's energy crisis and the economic recession. In 2002, Management concluded that these factors would no longer influence borrower performance, and the associated reserves were discontinued.

Reflecting the Company’s ongoing analysis of the risks presented by its loan portfolio, the allowance for losses was $5,200,000 and $5,000,000 (or 1.51% and 1.75% of gross outstanding loans) at June 30, 2002 and December 31, 2001 respectively. Provisions for loan losses were $150,000 and $200,000 for the three and six month period ended June 30, 2002, compared to $300,000 and $800,000 for the same periods of 2001. For the three and six months ended June 30, 2002, the Company generated no net loan charge-offs; by comparison, in the first half of 2001 the Company experienced net loan chargeoffs of $301,000 and $559,000.

For the quarter ended June 30, 2002 the Company identified loans having an aggregate average balance of $109,000 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 loss reserve for each of the loans which at June 30, 2002 totaled $22,000 for the loans as a group.

OTHER OPERATING EXPENSES

Other operating expenses increased in the first six months of 2002 compared to the same period of 2001, although some categories of expense actually decreased from the levels of previous periods. Other operating expenses rose to a total of $4,216,000 for the second quarter of 2002 from $3,669,000 for the three months ended June 30, 2001. For the six months ended June 30, 2002 other operating expenses totaled $8,252,000, an increase from $7,255,000 for the corresponding period in 2001.

Salary and related benefits increased by $451,000, rising from a total of $2,174,000 for the second quarter of 2001 to $2,625,000 for the same period in 2002, and also rose for the six months ended June 30, to $5,053,000 from $4,341,000 in 2001. The increase principally reflects increases in staffing which took place during 2001 due to staffing in the new trust department and also reflects employee salary adjustments. Occupancy expense rose to $325,000 for the three months ended June 30, 2002 from $289,000 in the second quarter of 2001, the increase reflects the rent paid on the various facilities which house the Bank’s regional offices. Total other operating expenses rose in 2002 compared to the prior year, increasing from $1,206,000 for the second quarter of 2001 to $1,266,000 for the second quarter of 2002 and a corresponding increase from $2,355,000 for the first six months of 2001 to $2,544,000 for the same period of 2002.

The combined effects of the above-described factors resulted in income before taxes of $1,106,000 for the three months ended June 30, 2002 compared to $945,000 for the second quarter of 2001. For the six months ended June 30, 2002 income before taxes is $2,057,000 compared to $1,987,000 for the first six months of the prior year. In the second quarter, the Company’s provision for taxes increased from $390,000 in 2001 to $457,000 in 2002. For the six months ended June 30, 2002 the provisions were $849,000 compared to $820,000 in 2001. This brought net income for the second quarter of 2002 to $649,000 compared to $555,000 for the same period in 2001. For the six months ended June 30, net income in 2002 was $1,208,000, while 2001 net income through June 30 was $1,167,000.

LIQUIDITY, SOURCES OF FUNDS, AND CAPITAL RESOURCES

The Company’s financial position remains liquid. Total liquid assets (cash and due from banks, investment securities available for sale, and federal funds sold) stood at 20.7% of total deposits at June 30, 2002. This level represents an increase from the 17.4% liquidity level which existed on December 31, 2001. In addition, at June 30, 2002 some $18.5 million of the Bank’s total loans consisted of government guaranteed loans, which represent a significant source of liquidity due to the active secondary markets which exist for these assets. The ratio of net loans (including government guaranteed loans) to deposits was 85.1% and 89.7% as of June 30, 2002 and December 31, 2001, respectively.

Total shareholders equity was $25,999,000 and $24,955,000 as of June 30, 2002 and December 31, 2001, respectively. The Bank’s capital ratios for those dates in comparison with regulatory capital requirements were as follows (the Company’s ratios are substantially the same):

	6-30-02		12-31-01

Leverage Ratio (Tier I Capital to Assets):
Regulatory requirement	4.00	%	4.00	%
First Regional Bank	8.36	%	8.90	%

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

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

	6-30-02		12-31-01

Tier I Capital to Assets:
Regulatory requirement	4.00	%	4.00	%
First Regional Bank	9.13	%	10.00	%

	6-30-02		12-31-01

Tier I + Tier II Capital to Assets:
Regulatory requirement	8.00	%	8.00	%
First Regional Bank	10.38	%	11.30	%

At June 30, 2002, the Company exceeded the minimum risk-based capital ratio and leverage ratio required to be considered “well capitalized”. The Company believes that it will continue to meet all applicable capital standards.

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 rent expenses, but the rate of inflation in general and its impact on these expenses in particular has remained moderate in recent years.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Because customer deposits are the Company’s principal funding source outside of its capital, management has attempted to match rates and maturities 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 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 June 30, 2002, 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
Fed funds sold	0	0		0		0		0	0	0		0
Time deposits with other banks	0	0		0		0		0	0	0		0
Investment securities	0	0		2,741		0		0	0	0		2,741
Subtotal	0	0		2,741		0		0	0	0		2,741

Loans	335,480	0		3,311		56		158	0	0		339,005
Total earning assets	335,480	0		6,052		56		158	0	0		341,746

Cash and due from banks	0	0		0		0		0	0	79,802		79,802
Premises and equipment	0	0		0		0		0	0	1,572		1,572
Other real estate owned	0	0		0		0		0	0	0		0
Other assets	0	0		0		0		0	0	11,681		11,681
Total non-earning assets	0	0		0		0		0	0	93,055		93,055

Total assets	335,480	0		6,052		56		158	0	93,055		434,801

Funds purchased	186	0		0		0		0	0	0		186
Repurchase agreements	0	0		0		0		0	0	0		0
Subtotal	186	0		0		0		0	0	0		186

Savings deposits	44,647	0		0		0		0	0	0		44,647
Trust Securities	0	5,000		0		0		0	0	0		5,000
Money market deposits	157,504	0		0		0		0	0	0		157,504
Time deposits	0	37,262		28,809		875		118	0	0		67,064
Total bearing liabilities	202,337	42,262		28,809		875		118	0	0		274,401

Demand deposits	0	0		0		0		0	0	128,981		128,981
Other liabilities	937	0		0		0		0	0	4,483		5,420
Equity capital	0	0		0		0		0	0	25,999		25,999
Total non-bearing liabilities	937	0		0		0		0	0	159,463		160,400

Total liabilities	203,274	42,262		28,809		875		118	0	159,463		434,801

GAP	132,206	(42,262	)	(22,757	)	(819	)	40	0	(66,408	)	0

Cumulative GAP	132,206	89,944		67,187		66,368		66,408	66,408	0		0

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 be composed of high quality, low risk securities, primarily U.S. Treasury or Agency securities. As mentioned above, no gains or losses were recorded on securities sales in the first half of 2002. As of June 30, 2002 the Company’s investment portfolio contained gross unrealized gains of $1,000 and no unrealized losses. By comparison, at June 30, 2001 the Company’s investment portfolio contained gross unrealized gains of $3,000 and no unrealized losses. 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.”

PART II - OTHER INFORMATION

ITEM 1. 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 effect on the Company’s financial position or results of operations.

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

The company held its annual meeting of shareholders on May 16, 2002. The Bylaws were amended providing for the establishment of a classified Board of Directors and the elimination of cumulative voting.

The Board of Directors was elected as follows (Class 1 serve until 2003 and Class 2 serve until 2004):

Class 1		Class 2
Gary M. Horgan		Fred M. Edwards
Thomas E. McCullough		H. Anthony Gartshore
Marilyn Sweeney		Lawrence J. Sherman
		Jack A. Sweeney

The Company’s 1999 Stock Option Plan covering 600,000 shares of the Company’s Common Stock was ratified.

No other matters were submitted for shareholder vote.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

There are no exhibits to this report.

Reports on Form 8-K

No reports on Form 8-K were filed during the second quarter of 2002.

CERTIFICATION AND 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.

Each of the undersigned hereby certifies in his capacity as an officer of First Regional Bancorp (the “Company”) that the Quarterly Report of the Company on Form 10Q for the period ended June 30, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such periods and the results of operations of the Company for such periods.

			FIRST REGIONAL BANCORP


Date: August 8, 2002			/s/ Jack A. Sweeney
			Jack A. Sweeney, Chairman of the Board and Chief Executive Officer


Date: August 8, 2002			/s/ Thomas McCullough
			Thomas McCullough, Chief Financial Officer