UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2005

OR

For the transition period from __________ to ____________

COMMISSION FILE No.: 000-50545

SOUTHWEST COMMUNITY BANCORP

Incorporated Under the Laws of the State of California

I.R.S. EMPLOYER IDENTIFICATION NO.: 30-0136231

5810 EL CAMINO REAL
CARLSBAD, CALIFORNIA 92008
TELEPHONE: (760) 918-2616

     Indicate by checkmark 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

     Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o          No x

     Number of shares of Common Stock outstanding as of April 30, 2005: 3,570,716

INDEX

PART I — Financial Information

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PART I — Financial Information

SOUTHWEST COMMUNITY BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands)

The accompanying notes are an integral part of these financial statements

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SOUTHWEST COMMUNITY BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(dollars in thousands, except per share data)

The accompanying notes are an integral part of these financial statements

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SOUTHWEST COMMUNITY BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity and Comprehensive Income
(dollars in thousands)

The accompanying notes are an integral part of these financial statements

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SOUTHWEST COMMUNITY BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(dollars in thousands)

The accompanying notes are an integral part of these financial statements

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SOUTHWEST COMMUNITY BANCORP
Notes to Consolidated Financial Statements (Unaudited)

Note 1 — Summary of Significant Accounting Policies

     The accounting and reporting policies of Southwest Community Bancorp and subsidiaries conform to accounting principles generally accepted in the United States of America and to general practices followed by the banking industry. In the opinion of management, the unaudited consolidated financial statements contain all (consisting of only normal recurring adjustments) adjustments necessary to present fairly the Company’s consolidated financial position at March 31, 2005 and results of operations and changes in cash flows for the three month periods ended March 31, 2005 and 2004.

     Certain information and footnote disclosures normally presented in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2004 included in the Company’s Annual Report on Form 10-K.

Nature of Operations

     Southwest Community Bancorp (“Southwest Community” or “holding company” on a parent -only basis and the “Company,” “we” or “our” on a consolidated basis) is a bank holding company that was incorporated on December 4, 2002, under the laws of the State of California for the purpose of becoming the holding company for Southwest Community Bank (the “Bank”) and the Bank’s majority-owned subsidiary, Financial Data Solutions, Inc. (“FDSI”). The holding company reorganization was consummated on April 1, 2003.

     The Bank began operations on December 1, 1997, as a state-chartered bank and currently operates eight branch offices within San Diego, Orange, Riverside and San Bernardino Counties and a loan production office in Los Angeles County. The Bank’s primary source of revenue is from providing loans to customers who are predominately small and middle-market businesses. In November 1998, the Bank began a subsidiary operation, FDSI, which provides item processing services to the financial services industry. In May 2003, the Bank transferred its 51% equity interest in FDSI to the holding company. In February 2004, the holding company acquired the 49% minority interest.

Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of the Company, the Bank and FDSI. All material intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements do not include the accounts of Southwest Community Statutory Trust I (the “Trust”), a business trust formed to issue trust preferred securities. Business trusts formed by bank holding companies to issue trust preferred securities and lend the proceeds to the parent holding company have been determined to not meet the definition of a variable interest entity and therefore may not be consolidated for financial reporting purposes.

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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Material estimates that are subject to change include the carrying value of financial instruments such as investment securities, loans, deposits, borrowings and commitments to extend credit. Material estimates that are subject to change also include the allowance for loan losses and the valuation of loan collateral and any foreclosed assets.

     If the values of financial instruments carried as assets become impaired due to the fair value declining below the recorded value, we may be required to provide an allowance for loss or write off the instrument by an expense charge in our income statement. Also, if our obligations to third parties increased above our recorded liabilities, we

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may have to increase the carrying value of those liabilities by an expense charge in our income statement.

Allowance for Loan Losses

     The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The allowance is based on management’s continuing review and evaluation of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. While management uses available information to provide for an allowance for loan losses, additional provisions to the allowance may be necessary based on future changes in the factors used to evaluate the loan portfolio.

Note 2 — Earnings Per Share

     The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute net income per share for the periods presented:

Shares and per share calculations have been adjusted for the 5% stock dividend payable on May 18, 2005.

Note 3 — Stock-Based Compensation

     Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock.

     Had compensation cost for the Company’s stock option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the net income and earnings per share would have been reduced to the pro forma amounts indicated in the following table:

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     See Note 4 — Recent Account Pronouncements below related to the revision of SFAS No. 123 which will require the Company to record share based compensation cost at fair value for periods beginning after December 15, 2005.

Note 4 — Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (Revised 2004), “Share-Based Payment.” SFAS No. 123R is a revision of SFAS No. 123 and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and is effective for the first interim or annual period beginning after December 15, 2005. Adoption of SFAS No. 123R will result in the share-based compensation that was previously reported as pro forma information in the footnotes, to be included in the Consolidated Statements of Income.

Note 5 — Stock Dividend

     On March 23, 2005, the Board of Directors declared a five percent stock dividend on the Company’s common shares to shareholders of record as of April 25, 2005 and payable on May 18, 2005. Per share earnings calculations in this report have been retroactively adjusted for the stock dividend.

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

     Management’s discussion and analysis of financial condition and results of operations is intended to provide a better understanding of the significant changes in trends relating to our financial condition, results of operations, liquidity and interest rate sensitivity. The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto, included elsewhere herein, and with our Annual Report on Form 10-K.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes “forward-looking statements,” as that term is used in the securities laws. All statements regarding our expected financial position, business and strategies are forward-looking statements. In addition, throughout this Quarterly Report the words “anticipates,” “believes,” “estimates,” “seeks,” “expects,” “plans,” “intends” and similar expressions, as they relate to us, Southwest Community Bancorp, Southwest Community Bank, Financial Data Solutions, Inc., or our management, are intended to identify forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, and we have based these expectations on our beliefs as well as the assumptions we have made, those expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from our expectations include, without limitation, failure of a significant number of borrowers to repay their loans, failure of our community banking strategy, changes in general economic conditions or the economic conditions in Southern California, the monetary policies of the Federal Reserve, changes in interest rates, and restrictions imposed on us by regulations or the banking industry regulators.

     For information about factors that could cause our actual results to differ from our expectations, you should carefully read “ITEM 1 — DESCRIPTION OF BUSINESS — Material Risks Affecting the Company and our Common Stock” included in our Annual Report on Form 10-K. We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report. All future written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We have no intention, and do not assume any obligation, to update these forward-looking statements .

FINANCIAL SUMMARY

     The primary source of the Company’s earnings comes from banking services provided by the Bank and to a lesser extent from item processing services provided by FDSI.

     Since the opening of the Bank in 1997, we have experienced continued growth in assets and earnings. We have pursued and continue to pursue a growth strategy which depends primarily on generating an increasing level of loans and deposits at acceptable risk levels. We have also pursued growth through new branches and by expanding real estate and small business lending. We believe that our continued growth results from the level of services we provide, as well as favorable pricing for our banking products and services and the overall growth in the local economy in which we operate. We cannot assure you of our success in implementing our growth strategy without corresponding increases in our non-interest expenses.

     The Bank derives its income primarily from interest received on loans and investment securities and from fees received from providing deposit services. The Bank’s expenses are the interest it pays on deposits and borrowings, salaries and benefits for employees, occupancy costs for its banking offices and general operating expenses. FDSI derives its income primarily from fees for item processing services. The expenses of FDSI are salaries and benefits for employees, occupancy and equipment costs for its processing facilities and general operating expenses. The assets of the Company are primarily those of the Bank.

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     The growth in Company assets and earnings and the contribution to earnings from our business segments for the three months ended March 31, 2004 and 2003 is summarized below and discussed in more detail in the following sections:

Results of Operations for the Three Months Ended March 31, 2005 Compared to 2004

     The 39% increase in net income for the three months ended March 31, 2005 as compared to the same period in 2004 was a result of several factors. Net interest income increased by $2,056,000, or 55%, due primarily to a 72% increase in average interest-earning assets. Noninterest income increased by $114,000, or 4%. Partially offsetting the increases in revenues, noninterest expense increased by $1,464,000, or 34%, and the provision for loan losses increased $15,000, or 5%. The increase in noninterest expenses was primarily due to increases in salaries and employee benefits and occupancy and equipment related to the overall growth of the Bank, including adding two additional banking offices. The loss at FDSI in 2005 as compared to the earnings in 2004 was primarily the result of increased payroll and operating expenses incurred in expanding the northern California office to accommodate a large new account and increased marketing expenses.

Balance Sheet as of March 31, 2005 compared to December 31, 2004

     As of March 31, 2005 consolidated total assets increased $72,274,000, or 14%, to $605,148,000 as compared to $532,874,000 at December 31, 2004. The increase in assets was primarily in cash and due to banks, which increased $46,689,000, or 46% to $147,851,000 and in investment securities, which increased $20,986,000, or 34%, to $83,058,000. The increase in assets was funded primarily by the $69,470,000, or 14%, increase in total deposits to $552,232,000 as of March 31, 2005 as compared to $482,762,000 at December 31, 2004. Shareholders’ equity increased, primarily due to net income for the period and the exercise of stock options, to $41,104,000 at March 31, 2005 from $38,888,000 as of December 31, 2004.

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Critical Accounting Policies That May Affect Our Reported Income

     Our consolidated financial statements and the notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and other factors and circumstances. We believe that our estimates are reasonable; however, actual results may differ significantly from these estimates and assumptions which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and on our results of operations for the reporting periods.

     Our significant accounting policies and practices are described in Note 1 to our Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operation that are included our Annual Report on Form 10-K for the year ended December 31, 2004. The accounting policies that involve our significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, are considered critical accounting policies. We have identified our policies for allowance for loan losses and fair value of financial instruments as critical accounting policies.

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RESULTS OF OPERATIONS

Net Interest Income

     Our earnings depend largely upon the difference between the income we receive from interest-earning assets and the interest paid on our interest-bearing liabilities. This difference is net interest income. Net interest margin is net interest income expressed as a percentage of average total interest-earning assets. Net interest spread is the difference between the rate earned on average total interest earning assets and the rate paid on average total interest-bearing liabilities.

     The following tables provide information, for the periods indicated, on the average amounts outstanding for the major categories of interest-earning assets and interest-bearing liabilities, the amount of interest earned or paid, the annualized rates earned or paid, net interest income, net interest margin and net interest spread:

Analysis of Average Rates and Balances and Changes in Net Interest Income

(1)		Loans, net of unearned income, include non-accrual loans, but do not reflect average allowances for loan losses. Interest income from loans includes loan fees of $490,000 in 2005 and $431,000 in 2004.
(2)		The rates have been annualized. No assurance can be given regarding the actual results for the year ending December 31, 2005.

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     Net interest income is affected by changes in the level and the mix of interest-earning assets and interest-bearing liabilities. The changes between periods in these assets and liabilities are referred to as volume changes. The impact on net interest income of changes in average volume is measured by multiplying the change in volume between the current period and the prior period by the prior period rate.

     Net interest income is also affected by changes in the rates earned on assets and rates paid on liabilities. These are referred to as rate changes and impact on net interest income of these changes is measured by multiplying the change in rate between the current and prior period by the average volume of the prior period. Changes in rate-volume between periods, which is measured by the change in rate multiplied by the change in volume, are allocated on a pro rata bsis between the volume and the rate changes in the table that follows:

Analysis of Volume and Interest Rates

Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004

     For the three months ended March 31, 2005, net interest income was $5,816,000, an increase of $2,056,000, or 55%, as compared to $3,760,000 for the three months ended March 31, 2004. The increase in net interest income was primarily due to the increase in average loans, our highest yielding interest-earning assets. The increase in net interest income can also be attributed to the differential in the amount of growth in our interest-earning assets versus our interest-bearing liabilities. Average interest-earning assets increased $175,068,000, versus an increase in average interest-bearing liabilities of $52,208,000. Most of the earning asset growth was supported by the $121,368,000, or 56%, growth in average noninterest-bearing demand deposits. The decrease in the borrowing component of interest-bearing liabilities was due to repayment of Federal Home Loan Bank borrowing that was outstanding in the first quarter of 2004. The increased volume of our interest-earning assets contributed $2,244,000 towards the increase in net interest income. The $82,522,000, or 41%, increase in average loans contributed $1,545,000 to the increase in interest income. The increase in interest income from the increased volume of interest-earning assets was partially offset by the $139,000 increase in interest expense due to the increased volume of interest-bearing liabilities.

     Increased interest rates had an overall negative impact of only $49,000 on net interest income. The average prime rate during the first quarter of 2005 was 5.44% as compared to 4.00% during the first quarter of 2004. An increase of $146,000 from increased rates paid on interest-earning assets was offset by a $195,000 increase in interest expense due to higher rates on interest-bearing liabilities. The average rates paid on loans did not increase to the extent of the increase in the prime rate as a significant amount of the loans had floor provisions and had been earning at the floor levels. Future increases in interest rates are expected to increase the rate earned on loans as the loans come off the floor levels. The floor provisions had tempered the impact of declining rates in prior periods.

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     The net interest margin for the three months ended March 31, 2005 was 5.59%, a decrease of 64 basis points from 6.23% for the same period in 2004. The decrease in net interest margin was due to a decrease in the rates earned on interest-earning assets and an increase in the rates paid on interest-bearing liabilities.

     The rate earned on average total interest-earning assets was 6.18% for the first quarter of 2005, a decrease of 51 basis points as compared to 6.69% for the first quarter of 2004. The decrease in the rate earned on earning assets was primarily due to the change in asset mix. The average balances of the higher yielding loans decreased as a proportion of average total interest-earning assets from 84% in the first quarter of 2004 to 69% in the 2005 quarter.

     The average rate paid on average total interest-bearing liabilities was 1.82% in the first quarter of 2005, an increase of 46 basis points from 1.36% for the same period in 2004. The overall increase in the average rate paid was due to higher rates paid on interest-bearing deposit accounts and the increased rate paid on borrowings.

Noninterest Income

     For the three months ended March 31, 2005, noninterest income was $2,744,000, an increase of $114,000, or 4%, from $2,630,000 for the three months ended March 31, 2004. The major items contributing to the increase were item processing income and gains on sale of SBA loans. These increases were partially offset by lower fees and service charges. Item processing income from FDSI, our item processing subsidiary, increased $248,000, or 20% to $1,490,000 for the three months ended March 31, 2005 due to increased processing volumes. Increased loan origination activity resulted in gains on sales of SBA loans of $338,000 during the first quarter of 2005, an increase of $82,000, or 32% as compared to the first quarter of 2004. The decrease in fees and service charges were due to lower deposit service charges and lower loan referral fees. Deposit service charge income generally decreases during periods of increasing interest rates due to higher earnings credits earned on business demand deposits.

Noninterest Expense

     The major expense categories are for employees’ salaries and benefits and for occupancy and equipment expense in our facilities. Together, these expenses constitute approximately 75% of total noninterest expense. Growth in these expenses during the periods presented is consistent with our growth in earning assets and revenues.

     Noninterest expense for the three months ended March 31, 2005, was $5,730,000, an increase of $1,464,000, or 34%, from $4,266,000 for the first quarter of 2004. The major items contributing to the increase were salaries and benefits increasing $784,000, or 33%, and occupancy expense and equipment expense increasing $150,000, or 16%. The increases in all expense classifications are attributable to growth of the Bank as well as the growth of FDSI, including increases in the number of employees and in the number of offices. The 2005 quarter includes expenses for additional branch offices in San Bernardino and Carlsbad that opened after the first quarter of 2004 as well as additional staff added to FDSI’s northern California processing center to accommodate a large new account.

FINANCIAL POSITION

     Our total assets increased $72,274,000, or 14%, to $605,148,000 at March 31, 2005 from $532,874,000 at December 31, 2004. The increase in assets is primarily due to a $46,689,000 increase in cash and due from banks and a $20,986,000 increase in investment securities. The increase in cash and due from banks at March 31, 2005, as compared to December 31, 2004, is primarily due to timing in the collection process of checks deposited by our customers. The increase in assets was funded primarily by a $69,470,000 increase in deposits, including $51,235,000 in noninterest-bearing demand deposits. We emphasize seeking demand deposits from business customers in our market area. The $2,216,000 million increase in shareholders’ equity was from our earnings for the first quarter of 2005 and the exercise of stock options, partially offset by the decrease in other comprehensive income caused by decreases in the market values on investment securities as interest rates increased.

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Loans

     The following table sets forth the components of net loans outstanding in each category at the dates indicated:

     The $3,712,000, or 1%, growth in loans during the quarter was less than in prior periods as the increases in construction and commercial loans was offset by pay-offs in residential and commercial real estate loans.

Capital Resources and Regulatory Requirements

     Under regulatory capital adequacy guidelines, capital adequacy is measured as a percentage of risk-adjusted assets in which risk percentages are applied to assets on the balance sheet as well as off-balance sheet, such as unused loan commitments and standby letters of credit. The guidelines require that a portion of total capital be core, or Tier 1, capital consisting of common shareholders’ equity and perpetual preferred stock, less goodwill and certain other deductions. Tier 2 capital consists of other elements, primarily non-perpetual preferred stock, subordinated debt and mandatory convertible debt, plus the allowance for loan losses, subject to certain limitations. The guidelines also evaluate the leverage ratio, which is Tier I capital divided by average assets.

     At March 31, 2005, our capital exceeded the minimum regulatory requirements and we were considered to be “well capitalized,” as defined in the regulations issued by our regulatory agencies. Our capital ratios, shown below for both the Company and SWCB, have been computed in accordance with regulatory accounting guidelines.

     During the three months ended March 31, 2005 shareholders’ equity increased $2,216,000 to $41,104,000. The increase included net income of $1,525,000, $1,292,000 from the exercise of stock options (including an income tax benefit of $928,000) and warrants, partially offset by a $603,000 increase in the net unrealized loss on available-for-sale securities.

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Liquidity and Liability Management

     Liquidity management for banks requires that funds always be available to pay anticipated deposit withdrawals and maturing financial obligations in accordance with their terms and to meet customer requests for loans.

     The acquisition of deposits has been our primary source of funds used to invest in earning assets. Other sources of funds have been the cash provided from operations, the proceeds of common stock sales and from borrowings. We expect that deposits will continue to be the primary source of funds in future periods. We emphasize seeking demand deposits from business customers in our market area.

     To meet liquidity needs, we maintain a portion of our funds in cash deposits in other banks, Federal Funds sold, and investment securities. These funds are invested in financial instruments over various maturities to insure that funds are readily available to fund loans or meet deposit withdrawals. As of March 31, 2005, liquid assets (cash, Federal funds sold, interest bearing deposits in other financial institutions and investment securities available-for-sale) as a percentage of deposits were 54% as compared to 48% at December 31, 2004. The relatively high proportion of demand deposits in SWCB, versus total deposits, requires that we maintain higher levels of liquidity than might be required by other financial institutions.

     Short term management of liquidity requires managing the daily fluctuations in deposits along with the net change in loans. To manage these fluctuations we invest in short term investments such as Federal funds and maintain borrowing facilities that we can access on a daily basis.

     The Bank maintains lines of credit of $8,000,000 with correspondent banks for the purchase of overnight Federal funds. The lines are subject to availability of funds and have restrictions as to the number of days used during a month. The Bank also has a credit line with the Federal Home Loan Bank of San Francisco which would allow the Bank to borrow up to 20% of its assets ($151,000,000 as of March 31, 2005) on a collateralized basis. As of March 31, 2005, loans and securities pledged as collateral for this facility would have allowed SWCB to borrow up to approximately $35,000,000. These facilities have been used infrequently.

     The primary sources of liquidity for the Company, on a stand alone basis, include the receipt of dividends from the subsidiaries and our ability to raise capital. The ability of the Company to obtain funds for the payment of dividends is dependent upon the subsidiaries’ earnings. The availability of dividends from the subsidiaries is also limited by various state and federal statutes and regulations.

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

     Our market risk arises primarily from credit risk and interest rate risk inherent in our lending and deposit taking activities. Risk management is an important part of our operations and a key element of our overall financial results.

Credit Risk

     Credit risk generally arises as a result of our lending activities and may be present with our investment activities. To manage the credit risk inherent in our lending activities, we rely on adherence to underwriting standards and loan policies as well as our allowance for loan losses. We employ frequent monitoring procedures and take prompt corrective action when necessary. Additionally, our loans are examined regularly by our regulatory agencies.

Interest Rate Risk

     Interest rate risk is the exposure of a bank’s financial condition, both earnings and the market value of assets and liabilities, to adverse movements in interest rates. The potential impact of interest rate risk is significant because of the liquidity and capital adequacy consequences that reduced earnings or losses could imply. We recognize and accept that interest rate risks are a routine part of bank operations and will from time to time impact our profits and capital position. The objective of interest rate risk management is to control exposure of net interest income to risks associated with interest rate movements in the market, to achieve consistent growth in net interest income and to profit from favorable market opportunities.

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     Changes in interest rates can affect the value of assets, liabilities and equity in a variety of ways. Assets and liabilities with longer repricing characteristics may increase or decrease in economic value as interest rates change. Assets with fixed interest rates and longer repricing terms generally increase in value as interest rates decline and decrease in value as interest rates increase. Conversely, liabilities with fixed interest rates and longer repricing terms generally increase in value as interest rates increase and decline in value as interest rates decrease.

     Changes in interest rates may also affect customer behavior, such as by increasing or decreasing loan prepayments, which can affect the economic value of a loan or investment security. Because our earning assets have relatively short repricing terms and most of our liabilities are non rate sensitive or have very short repricing terms, we do not expect significant changes in the economic value of our assets, liabilities or net equity from changing interest rates.

     Since interest rate changes do not affect all categories of assets and liabilities equally or simultaneously, we perform simulation modeling to estimate the potential effects of changing interest rates. The process allows us to explore the complex relationships within the gap over time and various interest rate environments. The following table summarizes the sensitivity of net interest income to change over a one year period under alternative scenarios. Our policy is to manage the interest rate risk exposure to less than a 15% decline in net interest income assuming a 200 basis point change in rates over a one year time period. At current interest rate levels, we do not believe the down 300 basis point simulation to be a realistic scenario.

Sensitivity of Net Interest Income

Item 4 — Controls and Procedures

     For the period covered by this report, management, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the quarter ended March 31, 2005, these disclosure controls and procedures were effective.

     There has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our most recent fiscal quarter ending March 31, 2005 that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — Other Information

Item 1 — Legal Proceedings

     To the best of our knowledge, there are no pending legal proceedings to which Southwest Community, the Bank or FDSI are a party and which may have a materially adverse effect upon Southwest Community, the Bank or FDSI’s property, business or results of operations.

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

     None

Item 3 — Defaults Upon Senior Securities

     Not applicable.

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

     Not applicable.

Item 5 — Other Information

     Not applicable

Item 6 — Exhibits

     The following exhibits are furnished with this report:

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SIGNATURES

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

	SOUTHWEST COMMUNITY BANCORP
Date: May 12, 2005	By:	/s/ Frank J. Mercardante
		Frank J. Mercardante
		Chief Executive Officer
Date: May 12, 2005	By:	/s/ James L. Lemery
		James L. Lemery
		Executive Vice President & Chief Financial Officer

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