- Quarterly Report (10-Q)

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

FORM 10-Q


ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 00-30747

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


DELAWARE (State or other jurisdiction of incorporation or organization)		33-0885320 (I.R.S. Employer Identification Number)
10250 Constellation Blvd., Suite 1640 Los Angeles, California (Address of principal executive offices)		90067 (Zip Code)

(310) 286-1144
(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 ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

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


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

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

As of November 1, 2011, there were 35,495,962 shares of the registrant's common stock outstanding, excluding 1,762,870 shares of unvested restricted stock.

Table of Contents

PACWEST BANCORP AND SUBSIDIARIES

SEPTEMBER 30, 2011 FORM 10-Q

TABLE OF CONTENTS

			Page

PART I—FINANCIAL INFORMATION			3
	ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	3
		Condensed Consolidated Balance Sheets (Unaudited)	3
		Condensed Consolidated Statements of Earnings (Loss) (Unaudited)	4
		Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	5
		Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited)	6
		Condensed Consolidated Statements of Cash Flows (Unaudited)	7
		Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	43
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	80
	ITEM 4.	Controls and Procedures	81
PART II—OTHER INFORMATION			82
	ITEM 1.	Legal Proceedings	82
	ITEM 1A.	Risk Factors	82
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82
	ITEM 6.	Exhibits	83
SIGNATURES			84

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements (Unaudited)

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Par Value Data)

(Unaudited)

			September 30, 2011			December 31, 2010

ASSETS
Cash and due from banks			$	94,112		$	82,170
Interest-earning deposits in financial institutions				73,209			26,382

	Total cash and cash equivalents			167,321			108,552

Securities available-for-sale, at fair value ($47,213 and $50,437 covered by FDIC loss sharing at September 30, 2011 and December 31, 2010, respectively)				1,261,776			874,016
Federal Home Loan Bank stock, at cost				48,342			55,040

	Total investment securities			1,310,118			929,056

Non-covered loans, net of unearned income				2,893,637			3,161,055
Allowance for loan losses				(90,110	)		(98,653	)

	Non-covered loans, net			2,803,527			3,062,402
Covered loans, net				761,059			908,576

	Total loans			3,564,586			3,970,978

Other real estate owned, net ($32,301 and $55,816 covered by FDIC loss sharing at September 30, 2011 and December 31, 2010, respectively)				80,561			81,414
Premises and equipment, net				22,919			22,578
FDIC loss sharing asset				89,197			116,352
Cash surrender value of life insurance				67,004			66,182
Core deposit and customer relationship intangibles, net				19,251			25,843
Goodwill				39,141			47,301
Other assets				133,793			160,765

		Total assets	$	5,493,891		$	5,529,021

LIABILITIES
Noninterest-bearing deposits			$	1,628,253		$	1,465,562
Interest-bearing deposits				2,926,143			3,184,136

	Total deposits			4,554,396			4,649,698
Borrowings				225,000			225,000
Subordinated debentures				129,347			129,572
Accrued interest payable and other liabilities				45,680			45,954

		Total liabilities		4,954,423			5,050,224

Commitments and contingencies (Note 8)
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; authorized 5,000,000 shares; none issued and outstanding				—			—
Common stock, $0.01 par value; authorized 75,000,000 shares; 37,489,011 shares issued at September 30, 2011 and 36,880,225 at December 31, 2010 (includes 1,762,870 and 1,230,582 shares of unvested restricted stock, respectively)				375			369
Additional paid-in capital				1,090,280			1,085,364
Accumulated deficit				(570,221	)		(607,042	)
Treasury stock, at cost—230,179 and 207,796 shares at September 30, 2011 and December 31, 2010, respectively				(4,290	)		(3,863	)
Accumulated other comprehensive income				23,324			3,969

		Total stockholders' equity		539,468			478,797

		Total liabilities and stockholders' equity	$	5,493,891		$	5,529,021

See "Notes to Condensed Consolidated Financial Statements."

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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

			Three Months Ended									Nine Months Ended September 30,

			September 30, 2011			June 30, 2011			September 30, 2010			Nine Months Ended September 30,
			September 30, 2011			June 30, 2011			September 30, 2010			2011			2010
Interest income:
	Loans		$	63,347		$	68,331		$	68,480		$	198,459		$	194,539
	Investment securities			9,077			8,782			6,519			25,678			17,342
	Deposits in financial institutions			94			83			131			234			505

		Total interest income		72,518			77,196			75,130			224,371			212,386

Interest expense:
	Deposits			5,072			5,518			6,375			16,546			20,209
	Borrowings			1,782			1,763			2,129			5,289			7,013
	Subordinated debentures			1,223			1,226			1,459			3,668			4,357

		Total interest expense		8,077			8,507			9,963			25,503			31,579

		Net interest income		64,441			68,689			65,167			198,868			180,807

Provision for credit losses:
	Non-covered loans			—			5,500			17,050			13,300			143,677
	Covered loans			348			5,890			6,500			9,148			34,600

		Total provision for credit losses		348			11,390			23,550			22,448			178,277

		Net interest income after provision for credit losses		64,093			57,299			41,617			176,420			2,530

Noninterest income:
	Service charges on deposit accounts			3,545			3,400			2,861			10,503			8,256
	Other commissions and fees			2,052			1,980			1,760			5,752			5,395
	Other-than-temporary impairment loss on securities			—			—			(874	)		—			(874	)
	Increase in cash surrender value of life insurance			359			368			353			1,106			1,120
	FDIC loss sharing income, net			963			5,316			5,506			5,109			27,257
	Other income			224			176			279			702			632

		Total noninterest income		7,143			11,240			9,885			23,172			41,786

Noninterest expense:
	Compensation			21,557			21,717			23,060			65,203			63,539
	Occupancy			7,423			7,142			6,872			21,548			20,406
	Data processing			2,228			2,129			2,121			6,832			5,982
	Other professional services			2,239			2,505			2,694			7,040			6,734
	Business development			548			595			571			1,712			1,893
	Communications			678			834			811			2,371			2,410
	Insurance and assessments			1,641			1,603			2,431			5,581			7,316
	Non-covered other real estate owned, net			2,293			2,300			2,151			5,296			11,217
	Covered other real estate owned expense (income), net			4,813			1,205			(319	)		3,440			1,761
	Intangible asset amortization			1,977			2,308			2,434			6,592			7,282
	Other expense			3,190			4,200			3,348			10,909			10,977

		Total noninterest expense		48,587			46,538			46,174			136,524			139,517

Earnings (loss) before income taxes				22,649			22,001			5,328			63,068			(95,201	)
Income tax (expense) benefit				(9,345	)		(9,160	)		(1,828	)		(26,247	)		40,873

	Net earnings (loss)		$	13,304		$	12,841		$	3,500		$	36,821		$	(54,328	)

Earnings (loss) per share:
	Basic		$	0.36		$	0.35		$	0.10		$	0.99		$	(1.55	)
	Diluted		$	0.36		$	0.35		$	0.10		$	0.99		$	(1.55	)
Dividends declared per share			$	0.01		$	0.01		$	0.01		$	0.03		$	0.03

See "Notes to Condensed Consolidated Financial Statements."

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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

(Unaudited)

		Three Months Ended						Nine Months Ended September 30,

		September 30, 2011		June 30, 2011		September 30, 2010		Nine Months Ended September 30,
		September 30, 2011		June 30, 2011		September 30, 2010		2011		2010
Net earnings (loss)		$	13,304	$	12,841	$	3,500	$	36,821	$	(54,328	)
Other comprehensive income, net of related income taxes:
	Unrealized holding gains on securities available-for-sale arising during the period		12,886		5,785		2,869		19,355		11,514

Comprehensive income (loss)		$	26,190	$	18,626	$	6,369	$	56,176	$	(42,814	)

See "Notes to Condensed Consolidated Financial Statements."

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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in Thousands, Except Share Data)

(Unaudited)

		Nine Months Ended September 30, 2011

		Common Stock
		Common Stock														Accumulated Other Comprehensive Income
		Shares			Par Value		Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Income		Total
Balance, January 1, 2011			36,672,429		$	369	$	1,085,364		$	(607,042	)	$	(3,863	)	$	3,969	$	478,797
	Net earnings		—			—		—			36,821			—			—		36,821
	Tax effect from vesting of restricted stock		—			—		(497	)		—			—			—		(497	)
	Restricted stock awarded and earned stock compensation, net of shares forfeited		608,786			6		6,502			—			—			—		6,508
	Restricted stock surrendered		(22,383	)		—		—			—			(427	)		—		(427	)
	Cash dividends paid ($0.03 per share)		—			—		(1,089	)		—			—			—		(1,089	)
	Other comprehensive income—increase in net unrealized gain on securities available-for-sale, net of tax effect of $14.0 million		—			—		—			—			—			19,355		19,355

Balance, September 30, 2011			37,258,832		$	375	$	1,090,280		$	(570,221	)	$	(4,290	)	$	23,324	$	539,468

See "Notes to Condensed Consolidated Financial Statements."

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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

					Nine Months Ended September 30,

					2011			2010
Cash flows from operating activities:
	Net earnings (loss)				$	36,821		$	(54,328	)
		Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
			Depreciation and amortization			13,721			4,190
			Provision for credit losses			22,448			178,277
			Gain on sale of other real estate owned			(8,334	)		(4,044	)
			Provision for losses on other real estate owned			15,011			14,777
			Gain on sale of premises and equipment			(23	)		(14	)
			Impairment loss on securities			—			874
			Restricted stock amortization			6,508			6,563
			Tax effect included in stockholders' equity of restricted stock vesting			497			1,427
			Decrease in accrued and deferred income taxes, net			(3,689	)		(41,718	)
			Decrease in FDIC loss sharing asset			27,155			40,470
			Decrease in other assets			15,989			13,579
			Decrease in accrued interest payable and other liabilities			(2,406	)		(8,991	)

				Net cash provided by operating activities		123,698			151,062

Cash flows from investing activities:
		Resolution of goodwill matter with FDIC				7,636			—
		Net cash acquired in Los Padres Bank acquisition				—			171,366
		Net decrease in loans				324,823			26,393
		Proceeds from sale of loans				2,495			204,164
		Securities available-for-sale:
			Proceeds from maturities and paydowns			137,622			135,295
			Purchases			(495,341	)		(448,856	)
		Net redemptions of FHLB stock				6,698			3,744
		Proceeds from sales of other real estate owned				52,823			61,560
		Capitalized costs to complete other real estate owned				—			(638	)
		Purchases of premises and equipment, net				(4,397	)		(2,481	)
		Proceeds from sales of premises and equipment				27			28

			Net cash provided by investing activities			32,386			150,575

Cash flows from financing activities:
		Net increase (decrease) in deposits:
			Noninterest-bearing			162,691			131,166
			Interest-bearing			(257,993	)		(177,006	)
		Net proceeds from issuance of common stock				—			26,587
		Restricted stock surrendered				(427	)		(836	)
		Tax effect included in stockholders' equity of restricted stock vesting				(497	)		(1,427	)
		Net decrease in borrowings				—			(330,000	)
		Cash dividends paid				(1,089	)		(1,084	)

			Net cash used in financing activities			(97,315	)		(352,600	)

Net increase (decrease) in cash and cash equivalents						58,769			(50,963	)
Cash and cash equivalents, beginning of period						108,552			211,048

Cash and cash equivalents, end of period					$	167,321		$	160,085

Supplemental disclosures of cash flow information:
	Cash paid for interest				$	26,273		$	32,163
	Cash paid for income taxes					29,969			810
	Loans transferred to other real estate owned					57,266			45,669

See "Notes to Condensed Consolidated Financial Statements."

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

PacWest Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. Our principal business is to serve as a holding company for our banking subsidiary, Pacific Western Bank, which we refer to as Pacific Western or the Bank. When we say "we", "our" or the "Company", we mean the Company on a consolidated basis with the Bank. When we refer to "PacWest" or to the holding company, we are referring to the parent company on a stand-alone basis.

Pacific Western is a full-service commercial bank offering a broad range of banking products and services including: accepting demand, money market, and time deposits; originating loans, including commercial, real estate construction, SBA-guaranteed and consumer loans; and providing other business-oriented products. Our operations are primarily located in Southern California and extend from California's Central Coast to San Diego County. The Bank focuses on conducting business with small to medium-sized businesses in our marketplace and the owners and employees of those businesses. The majority of our loans are secured by the real estate collateral of such businesses. We also operate three banking offices in the San Francisco Bay area and one office in Arizona, all of which were acquired through FDIC-assisted acquisitions. Our asset-based lending function operates in Arizona, California, Texas, and the Pacific Northwest.

We generate our revenue primarily from interest received on loans and, to a lesser extent, from interest received on investment securities, and fees received in connection with deposit services, extending credit and other services offered, including foreign exchange services. Our major operating expenses are the interest paid by the Bank on deposits and borrowings, compensation and general operating expenses. The Bank relies on a foundation of locally generated and relationship-based deposits. The Bank has a relatively low cost of funds due to a high percentage of noninterest-bearing and low cost deposits.

We completed 22 acquisitions since May 2000.

Basis of Presentation

The accounting and reporting policies of the Company are in accordance with U.S. generally accepted accounting principles, which we may refer to as GAAP. All significant intercompany balances and transactions have been eliminated.

Our financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The interim operating results are not necessarily indicative of operating results for the full year.

Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include,

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 1—BASIS OF PRESENTATION (Continued)

among other items, the allowances for credit losses, the carrying value of other real estate owned, the carrying value of intangible assets, the carrying value of the FDIC loss sharing asset and the realization of deferred tax assets.

In August 2010, Pacific Western acquired assets and assumed liabilities of the former Los Padres Bank ("Los Padres") in an FDIC-assisted transaction, which we refer to as the Los Padres acquisition. The acquired assets and assumed liabilities were measured at their estimated fair values. Management made significant estimates and exercised significant judgment in estimating fair values and accounting for the acquired assets and assumed liabilities in the Los Padres acquisition.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period's presentation format. During the second quarter of 2011, we reclassified recoveries on covered loans such that recoveries now reduce the credit loss provision for covered loans rather than increase FDIC loss sharing income. Such reclassifications had no effect on reported net earnings or losses.

NOTE 2—GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill arises from business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Goodwill and other intangible assets deemed to have indefinite lives generated from purchase business combinations are not subject to amortization and are instead tested for impairment no less than annually. Impairment is determined in accordance with ASC 350, " Intangibles—Goodwill and Other " and is based on the reporting unit. Impairment exists when the carrying value of goodwill exceeds its implied fair value. An impairment loss would be recognized in an amount equal to that excess and would be included in noninterest expense in the consolidated statement of earnings (loss). Our annual impairment test of goodwill resulted in no impact on our results of operations and financial condition.

Goodwill in the amount of $46.8 million was recorded in the Los Padres acquisition. During the second quarter of 2011, we reduced goodwill by $7.6 million as the matter with the FDIC regarding settlement accounting for a wholly-owned subsidiary in the Los Padres acquisition was resolved. A receivable for such amount was included in the FDIC loss sharing asset at June 30, 2011 and the cash was received during the third quarter of 2011.

Our intangible assets with definite lives are core deposit intangibles, or CDI, and customer relationship intangibles, or CRI. These intangible assets are amortized over their useful lives to their estimated residual values and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or loan customers acquired.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 2—GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:

			Three Months Ended									Nine Months Ended September 30,

			September 30, 2011			June 30, 2011			September 30, 2010			Nine Months Ended September 30,
			September 30, 2011			June 30, 2011			September 30, 2010			2011			2010
			(In thousands)
Gross amount of CDI and CRI:
	Balance, beginning of period		$	73,629		$	76,319		$	75,911		$	76,319		$	75,911
	Additions			—			—			2,427			—			—
	Fully amortized portion			(6,529	)		(2,690	)		—			(9,219	)		2,427

		Balance, end of period		67,100			73,629			78,338			67,100			78,338

Accumulated amortization:
	Balance, beginning of period			(52,401	)		(52,783	)		(47,463	)		(50,476	)		(42,615	)
	Amortization			(1,977	)		(2,308	)		(2,434	)		(6,592	)		(7,282	)
	Fully amortized portion			6,529			2,690			—			9,219			—

		Balance, end of period		(47,849	)		(52,401	)		(49,897	)		(47,849	)		(49,897	)

Net CDI and CRI, end of period			$	19,251		$	21,228		$	28,441		$	19,251		$	28,441

The aggregate amortization expense related to the intangible assets is expected to be $8.4 million for 2011. The estimated aggregate amortization expense related to these intangible assets for each of the subsequent four years is $6.1 million for 2012, $4.5 million for 2013, $2.9 million for 2014, and $2.7 million for 2015.

NOTE 3—INVESTMENT SECURITIES

Securities Available-for-Sale

The amortized cost, gross unrealized gains and losses and estimated fair values of securities available-for-sale are presented in the tables below as of the dates indicated. The private label collateralized mortgage obligations were acquired in the FDIC-assisted acquisition of Affinity Bank ("Affinity") in August 2009 and are covered by a FDIC loss sharing agreement. Other securities include

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—INVESTMENT SECURITIES (Continued)

an investment in overnight money market funds at a financial institution. See Note 9, Fair Value Measurements , for information on fair value measurements and methodology.

			September 30, 2011

			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(In thousands)
Residental mortgage-backed securities:
	Government and government-sponsored entity pass through securities		$	984,907	$	33,046	$	(347	)	$	1,017,606
	Government and government-sponsored entity collateralized mortgage obligations			84,783		2,001		(4	)		86,780
	Covered private label collateralized mortgage obligations			42,328		6,687		(1,802	)		47,213
Municipal securities				92,422		1,060		(255	)		93,227
Corporate debt securities				14,813		23		(194	)		14,642
Other securities				2,308		—		—			2,308

		Total securities available-for-sale	$	1,221,561	$	42,817	$	(2,602	)	$	1,261,776

			December 31, 2010

			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(In thousands)
Government-sponsored entity debt securities			$	10,014	$	15	$	—		$	10,029
Residental mortgage-backed securities:
	Government and government-sponsored entity pass through securities			754,149		9,282		(7,366	)		756,065
	Government and government-sponsored entity collateralized mortgage obligations			47,416		565		(352	)		47,629
	Covered private label collateralized mortgage obligations			45,867		6,653		(2,083	)		50,437
Municipal securities				7,437		129		—			7,566
Other securities				2,290		—		—			2,290

		Total securities available-for-sale	$	867,173	$	16,644	$	(9,801	)	$	874,016

Mortgage-backed securities have contractual terms to maturity and require periodic payments to reduce principal. In addition, expected maturities may differ from contractual maturities because obligors and/or issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—INVESTMENT SECURITIES (Continued)

The following table presents the contractual maturity distribution of our available-for-sale securities portfolio based on amortized cost and fair value as of the date indicated:

		September 30, 2011

		Amortized Cost		Estimated Fair Value
		(In thousands)
Due in one year or less		$	2,308	$	2,308
Due after one year through five years			8,790		9,083
Due after five years through ten years			38,956		40,646
Due after ten years			1,171,507		1,209,739

	Total securities available-for-sale	$	1,221,561	$	1,261,776

At September 30, 2011, the estimated fair value of debt securities and residential mortgage-backed debt securities issued by the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") was approximately $1.0 billion. We do not own any equity securities issued by Fannie Mae or Freddie Mac.

As of September 30, 2011, securities available-for-sale with an estimated fair value of $77.2 million were pledged as collateral for borrowings, public deposits and other purposes as required by various statutes and agreements.

The following tables present the estimated fair values and the gross unrealized losses on securities by length of time the securities have been in an unrealized loss position as of the dates indicated:

			September 30, 2011

			Less Than 12 Months					12 months or Longer					Total
			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
			(In thousands)
Residential mortgage-backed securities:
	Government and government-sponsored entity pass through securities		$	72,233	$	(346	)	$	24	$	(1	)	$	72,257	$	(347	)
	Government and government-sponsored entity collateralized mortgage obligations			—		—			1,651		(4	)		1,651		(4	)
	Covered private label collateralized mortgage obligations			5,255		(396	)		4,514		(1,406	)		9,769		(1,802	)
Municipal securities				34,584		(255	)		—		—			34,584		(255	)
Corporate debt securities				10,098		(194	)		—		—			10,098		(194	)

		Total	$	122,170	$	(1,191	)	$	6,189	$	(1,411	)	$	128,359	$	(2,602	)

Table of Contents

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—INVESTMENT SECURITIES (Continued)

We reviewed the securities that were in a continuous loss position less than 12 months and longer than 12 months at September 30, 2011, and concluded that their losses were a result of the level of market interest rates relative to the types of securities and not a result of the underlying issuers' abilities to repay. Accordingly, we determined that the securities were temporarily impaired. Additionally, we have no plans to sell these securities and believe that it is more likely than not we would not be required to sell these securities before recovery of their amortized cost. Therefore, we did not recognize the temporary impairment in the consolidated statements of earnings (loss).

At September 30, 2011, the Company had a $48.3 million investment in Federal Home Loan Bank of San Francisco (FHLB) stock carried at cost. In January 2009, the FHLB announced that it suspended excess FHLB stock redemptions and dividend payments. Since this announcement, the FHLB has declared and paid cash dividends in 2010 and 2011, though at rates less than that paid in the past, and repurchased certain amounts of our excess stock. We evaluated the carrying value of our FHLB stock investment at September 30, 2011 and determined that it was not impaired. Our evaluation considered the long-term nature of the investment, the current financial and liquidity position of the FHLB, the actions being taken by the FHLB to address its regulatory situation, and our intent and ability to hold this investment for a period of time sufficient to recover our recorded investment.

When we refer to non-covered loans we are referring to loans not covered by our FDIC loss sharing agreements.

The following table presents the composition of non-covered loans by portfolio segment as of the dates indicated:

The following tables present a summary of the activity in the allowance for loan losses on non-covered loans by portfolio segment for the periods indicated:

Loan Segment			September 30, 2011			December 31, 2010

			(In thousands)
Real estate mortgage			$	2,031,893		$	2,274,733
Real estate construction				152,411			179,479
Commercial				671,963			663,557
Consumer				20,621			25,058
Foreign				20,932			22,608

	Total gross non-covered loans			2,897,820			3,165,435
Less:
	Unearned income			(4,183	)		(4,380	)
	Allowance for loan losses			(90,110	)		(98,653	)

		Total net non-covered loans	$	2,803,527		$	3,062,402

		Three Months Ended September 30, 2011

		Real Estate Mortgage			Real Estate Construction			Commercial			Consumer			Foreign			Total
		(In thousands)
Allowance for Loan Losses on Non-Covered Loans:
Balance, beginning of period		$	53,540		$	11,185		$	28,259		$	2,910		$	533		$	96,427
	Charge-offs		(4,293	)		—			(2,237	)		(54	)		—			(6,584	)
	Recoveries		225			33			235			74			—			567
	Provision		2,341			(885	)		(925	)		(642	)		(189	)		(300	)

Balance, end of period		$	51,813		$	10,333		$	25,332		$	2,288		$	344		$	90,110

		Nine Months Ended September 30, 2011

		Real Estate Mortgage			Real Estate Construction			Commercial			Consumer			Foreign			Total
		(In thousands)
Allowance for Loan Losses on Non-Covered Loans:
Balance, beginning of period		$	51,657		$	8,766		$	33,229		$	4,652		$	349		$	98,653
	Charge-offs		(9,859	)		(5,838	)		(7,967	)		(1,379	)		—			(25,043	)
	Recoveries		349			1,021			1,160			1,375			45			3,950
	Provision		9,666			6,384			(1,090	)		(2,360	)		(50	)		12,550

Balance, end of period		$	51,813		$	10,333		$	25,332		$	2,288		$	344		$	90,110

The ending balance of the allowance is composed of amounts applicable to loans:
	Individually evaluated for impairment	$	6,399		$	3,363		$	7,035		$	2		$	—		$	16,799

	Collectively evaluated for impairment	$	45,414		$	6,970		$	18,297		$	2,286		$	344		$	73,311

Non-Covered Loan Balances:
Ending balance		$	2,031,893		$	152,411		$	671,963		$	20,621		$	20,932		$	2,897,820

The ending balance of the non-covered loan portfolio is composed of loans:
	Individually evaluated for impairment	$	91,495		$	32,621		$	21,692		$	565		$	—		$	146,373

	Collectively evaluated for impairment	$	1,940,398		$	119,790		$	650,271		$	20,056		$	20,932		$	2,751,447

		Year Ended December 31, 2010

		Real Estate Mortgage			Real Estate Construction			Commercial			Consumer			Foreign			Total
		(In thousands)
Allowance for Loan Losses on Non-Covered Loans:
Balance, January 1, 2010		$	58,241		$	39,934		$	17,710		$	2,021		$	811		$	118,717
	Charge-offs		(117,029	)		(63,590	)		(18,548	)		(3,749	)		(306	)		(203,222	)
	Recoveries		1,222			708			1,652			565			133			4,280
	Provision		109,223			31,714			32,415			5,815			(289	)		178,878

Balance, December 31, 2010		$	51,657		$	8,766		$	33,229		$	4,652		$	349		$	98,653

The ending balance of the allowance is composed of amounts applicable to loans:
	Individually evaluated for impairment	$	3,893		$	1,125		$	8,911		$	1,049		$	—		$	14,978

	Collectively evaluated for impairment	$	47,764		$	7,641		$	24,318		$	3,603		$	349		$	83,675

Non-Covered Loan Balances:
Ending balance		$	2,274,733		$	179,479		$	663,557		$	25,058		$	22,608		$	3,165,435

The ending balance of the non-covered loan portfolio is composed of loans:
	Individually evaluated for impairment	$	94,171		$	47,350		$	39,820		$	1,951		$	163		$	183,455

	Collectively evaluated for impairment	$	2,180,562		$	132,129		$	623,737		$	23,107		$	22,445		$	2,981,980

			September 30, 2011						December 31, 2010

			Nonclassified		Classified		Total		Nonclassified		Classified		Total
			(In thousands)
Real estate mortgage:
	Hospitality		$	124,346	$	21,437	$	145,783	$	137,952	$	18,700	$	156,652
	SBA 504			51,838		7,386		59,224		55,774		13,513		69,287
	Other			1,749,840		77,046		1,826,886		1,956,905		91,889		2,048,794

		Total real estate mortgage		1,926,024		105,869		2,031,893		2,150,631		124,102		2,274,733

Real estate construction:
	Residential			16,908		3,398		20,306		39,644		25,399		65,043
	Commercial			98,819		33,286		132,105		82,291		32,145		114,436

		Total real estate construction		115,727		36,684		152,411		121,935		57,544		179,479

Commercial:
	Collateralized			396,393		17,133		413,526		342,607		15,820		358,427
	Unsecured			65,214		5,967		71,181		119,326		10,417		129,743
	Asset-based			157,270		48		157,318		141,813		1,354		143,167
	SBA 7(a)			18,716		11,222		29,938		29,557		2,663		32,220

		Total commercial		637,593		34,370		671,963		633,303		30,254		663,557

Consumer				19,799		822		20,621		22,949		2,109		25,058
Foreign				20,932		—		20,932		22,608		—		22,608

		Total non-covered loans	$	2,720,075	$	177,745	$	2,897,820	$	2,951,426	$	214,009	$	3,165,435

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			September 30, 2011

			30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total
			(In thousands)
Real estate mortgage:
	Hospitality		$	—	$	—	$	—	$	—	$	145,783	$	145,783
	SBA 504			3,168		896		—		4,064		55,160		59,224
	Other			13,351		1,939		13,652		28,942		1,797,944		1,826,886

		Total real estate mortgage		16,519		2,835		13,652		33,006		1,998,887		2,031,893

Real estate construction:
	Residential			—		—		—		—		20,306		20,306
	Commercial			1,553		—		2,719		4,272		127,833		132,105

		Total real estate construction		1,553		—		2,719		4,272		148,139		152,411

Commercial:
	Collateralized			—		396		2,614		3,010		410,516		413,526
	Unsecured			—		113		2,003		2,116		69,065		71,181
	Asset-based			—		—		—		—		157,318		157,318
	SBA 7(a)			974		591		1,591		3,156		26,782		29,938

		Total commercial		974		1,100		6,208		8,282		663,681		671,963

Consumer				110		19		—		129		20,492		20,621
Foreign				—		—		—		—		20,932		20,932

		Total non-covered loans	$	19,156	$	3,954	$	22,579	$	45,689	$	2,852,131	$	2,897,820

			September 30, 2011						December 31, 2010

			Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
			(In thousands)
Real estate mortgage:
	Hospitality		$	7,336	$	138,447	$	145,783	$	4,151	$	152,501	$	156,652
	SBA 504			2,895		56,329		59,224		9,346		59,941		69,287
	Other			21,693		1,805,193		1,826,886		27,452		2,021,342		2,048,794

		Total real estate mortgage		31,924		1,999,969		2,031,893		40,949		2,233,784		2,274,733

Real estate construction:
	Residential			1,091		19,215		20,306		24,004		41,039		65,043
	Commercial			9,399		122,706		132,105		5,238		109,198		114,436

		Total real estate construction		10,490		141,921		152,411		29,242		150,237		179,479

Commercial:
	Collateralized			4,769		408,757		413,526		6,241		352,186		358,427
	Unsecured			4,887		66,294		71,181		9,104		120,639		129,743
	Asset-based			15		157,303		157,318		15		143,152		143,167
	SBA 7(a)			7,318		22,620		29,938		6,518		25,702		32,220

		Total commercial		16,989		654,974		671,963		21,878		641,679		663,557

Consumer				565		20,056		20,621		1,951		23,107		25,058
Foreign				—		20,932		20,932		163		22,445		22,608

		Total non-covered loans	$	59,968	$	2,837,852	$	2,897,820	$	94,183	$	3,071,252	$	3,165,435

		September 30, 2011						December 31, 2010

Loan Segment		Nonaccrual Loans		Performing Restructured Loans		Total Impaired Loans		Nonaccrual Loans		Performing Restructured Loans		Total Impaired Loans
		(In thousands)
Real estate mortgage		$	31,924	$	59,571	$	91,495	$	40,949	$	53,222	$	94,171
Real estate construction			10,490		22,131		32,621		29,242		18,108		47,350
Commercial			16,989		4,703		21,692		21,878		17,942		39,820
Consumer			565		—		565		1,951		—		1,951
Foreign			—		—		—		163		—		163

	Total	$	59,968	$	86,405	$	146,373	$	94,183	$	89,272	$	183,455

			September 30, 2011						December 31, 2010

			Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
			(In thousands)
With An Allowance Recorded:
Real estate mortgage:
	Hospitality		$	17,634	$	17,891	$	2,893	$	15,081	$	15,138	$	564
	SBA 504			1,159		1,250		195		4,161		6,180		280
	Other			56,238		60,220		3,311		47,188		47,343		3,049
Real estate construction:
	Residential			2,069		2,077		484		8,301		11,956		673
	Other			24,374		26,391		2,879		5,341		5,701		452

		Total real estate		101,474		107,829		9,762		80,072		86,318		5,018

Commercial:
	Collateralized			4,691		4,780		3,068		2,192		2,363		1,174
	Unsecured			4,748		14,708		3,183		9,361		9,445		7,696
	SBA 7(a)			4,543		4,632		784		1,999		2,123		41
Consumer				69		73		2		1,125		1,127		1,049

	Total other			14,051		24,193		7,037		14,677		15,058		9,960

With No Related Allowance Recorded:
Real estate mortgage:
	Hospitality		$	—	$	—	$	—	$	667	$	667	$	—
	SBA 504			2,348		4,007		—		5,185		6,320		—
	Other			14,116		16,819		—		21,889		29,191		—
Real estate construction:
	Residential			1,329		1,329		—		22,676		23,208		—
	Other			4,849		6,157		—		11,032		12,603		—

		Total real estate		22,642		28,312		—		61,449		71,989		—

Commercial:
	Collateralized			2,201		2,416		—		20,519		20,668		—
	Unsecured			591		656		—		224		236		—
	Asset-based			15		15		—		15		15		—
	SBA 7(a)			4,903		6,427		—		5,510		7,239		—
Consumer				496		563		—		826		876		—
Foreign				—		—		—		163		238		—

	Total other			8,206		10,077		—		27,257		29,272		—

Total:
	Real estate mortgage		$	91,495	$	100,187	$	6,399	$	94,171	$	104,839	$	3,893
	Real estate construction			32,621		35,954		3,363		47,350		53,468		1,125
	Commercial			21,692		33,634		7,035		39,820		42,089		8,911
	Consumer			565		636		2		1,951		2,003		1,049
	Foreign			—		—		—		163		238		—

		Total non-covered loans	$	146,373	$	170,411	$	16,799	$	183,455	$	202,637	$	14,978

			Three Months Ended September 30, 2011				Nine Months Ended September 30, 2011

			Weighted Average Recorded Investment ⁽¹⁾		Interest Income Recognized		Weighted Average Recorded Investment ⁽¹⁾		Interest Income Recognized
			(In thousands)
With An Allowance Recorded:
Real estate mortgage:
	Hospitality		$	17,634	$	162	$	17,435	$	528
	SBA 504			1,159		8		820		29
	Other			55,580		584		43,025		2,051
Real estate construction:
	Residential			2,069		17		2,069		55
	Other			20,969		274		16,293		502

		Total real estate		97,411		1,045		79,642		3,165

Commercial:
	Collateralized			4,568		32		3,644		76
	Unsecured			4,748		6		4,739		16
	SBA 7(a)			3,131		60		2,400		116
Consumer				69		—		69		—

	Total other			12,516		98		10,852		208

With No Related Allowance Recorded:
Real estate mortgage:
	Hospitality		$	—	$	—	$	—	$	—
	SBA 504			2,348		—		2,348		—
	Other			13,900		150		10,992		358
Real estate construction:
	Residential			1,329		48		1,329		48
	Other			4,849		114		4,849		163

		Total real estate		22,426		312		19,518		569

Commercial:
	Collateralized			2,198		—		2,133		—
	Unsecured			574		2		548		4
	Asset-based			15		—		15		—
	SBA 7(a)			4,815		15		4,704		25
Consumer				496		—		462		1
Foreign				—		—		—		—

	Total other			8,098		17		7,862		30

Total:
	Real estate mortgage		$	90,621	$	904	$	74,620	$	2,966
	Real estate construction			29,216		453		24,540		768
	Commercial			20,049		115		18,183		237
	Consumer			565		—		531		1
	Foreign			—		—		—		—

		Total non-covered loans	$	140,451	$	1,472	$	117,874	$	3,972

				Three Months Ended September 30, 2011						Nine Months Ended September 30, 2011

				Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
				(Dollars in thousands)
Troubled Debt Restructurings:
	Real estate mortgage:
		Hospitality			3	$	14,967	$	14,967		4	$	17,053	$	17,053
		SBA 504			—		—		—		5		2,619		2,619
		Other			12		34,244		34,053		25		52,765		52,574
	Real estate construction:
		Residential			—		—		—		1		618		618
		Other			1		2,082		2,082		7		18,605		18,605
	Commercial:
		Collateralized			3		1,158		1,158		12		3,161		3,161
		Unsecured			1		450		450		3		726		726
		SBA 7(a)			7		745		745		18		4,292		4,292
	Consumer				—		—		—		2		271		271

			Total		27	$	53,646	$	53,455		77	$	100,110	$	99,919

			Three Months Ended September 30, 2011				Nine Months Ended September 30, 2011

			Number of Loans		Recorded Investment(1)		Number of Loans		Recorded Investment(1)
			(Dollars in thousands)
Troubled Debt Restructurings That Subsequently
	Defaulted(2):
Real estate mortgage:
	Other			4	$	5,566		4	$	5,566
Commercial:
	SBA 7(a)			1		448		1		448

		Total		5	$	6,014		5	$	6,014

Loan Category		September 30, 2011			December 31, 2010

		(In thousands)
Multi-family		$	267,892		$	321,650
Commercial real estate			386,326			444,244
Single family			129,692			157,424
Construction and land			57,601			87,301
Commercial and industrial			22,869			34,828
Home equity lines of credit			6,287			5,916
Consumer			603			1,378

	Total gross covered loans		871,270			1,052,741
Less: discount			(80,920	)		(110,901	)

	Covered loans, net of discount		790,350			941,840
Less: allowance for loan losses			(29,291	)		(33,264	)

	Covered loans, net	$	761,059		$	908,576

		Covered Acquired Impaired Loans

		Carrying Amount			Accretable Yield
		(In thousands)
Balance, January 1, 2011		$	879,486		$	(290,665	)
	Accretion		50,875			50,875
	Payments received		(189,826	)		—
	Increase in expected cash flows, net		—			(37,685	)
	Provision for credit losses		(9,148	)		—

Balance, September 30, 2011		$	731,387		$	(277,475	)

		September 30, 2011						December 31, 2010

Property Type		Non-Covered OREO		Covered OREO		Total OREO		Non-Covered OREO		Covered OREO		Total OREO
		(In thousands)						(In thousands)
Commercial real estate		$	21,431	$	14,151	$	35,582	$	18,205	$	21,658	$	39,863
Construction and land development			26,093		14,676		40,769		4,650		19,205		23,855
Multi-family			—		1,656		1,656		—		10,393		10,393
Single family residence			736		1,818		2,554		2,743		4,560		7,303

	Total OREO, net	$	48,260	$	32,301	$	80,561	$	25,598	$	55,816	$	81,414

		September 30, 2011

Contractual Maturity Date		Amount		Interest Rate			Next Date Callable by FHLB ⁽¹⁾
		(In thousands)
December 11, 2017		$	200,000		3.16	%		December 12, 2011
January 11, 2018			25,000		2.61	%		January 11, 2012

	Total FHLB advances	$	225,000		3.10	%

Series		September 30, 2011 Amount					Fixed or Variable Rate	Rate Index

		(In thousands)
Trust CI	3/23/00	$	10,310	3/8/30	3/8/20		Fixed	N/A	11.00	%	N/A
Trust I	9/7/00		8,248	9/7/30	9/7/20		Fixed	N/A	10.60	%	N/A
Trust V	8/15/03		10,310	9/17/33		⁽¹⁾	Variable	3 month LIBOR + 3.10	3.45	%	12/15/11
Trust VI	9/3/03		10,310	9/15/33		⁽¹⁾	Variable	3 month LIBOR + 3.05	3.40	%	12/13/11
Trust CII	9/17/03		5,155	9/17/33		⁽¹⁾	Variable	3 month LIBOR + 2.95	3.30	%	12/15/11
Trust VII	2/5/04		61,856	4/23/34		⁽¹⁾	Variable	3 month LIBOR + 2.75	3.18	%	1/27/12
Trust CIII	8/15/05		20,619	9/15/35		⁽¹⁾	Variable	3 month LIBOR + 1.69	2.04	%	12/13/11

Gross subordinated debentures			126,808
Unamortized premium ⁽³⁾			2,539

Net subordinated debentures		$	129,347

		Fair Value Measurement as of September 30, 2011

		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(In thousands)
Measured on a Recurring Basis:
Securities available-for-sale:
	Government and government-sponsored entity residential mortgage-backed securities	$	1,104,386	$	—	$	1,104,386	$	—
	Covered private label CMOs		47,213		—		—		47,213
	Municipal securities		93,227		—		93,227		—
	Corporate securities		14,642		—		14,642		—
	Other securities		2,308		—		2,308		—

		$	1,261,776	$	—	$	1,214,563	$	47,213

Measured on a Nonrecurring Basis:
	Non-covered impaired loans	$	112,360	$	—	$	23,597	$	88,763
	Non-covered other real estate owned		40,683		—		13,436		27,247
	Covered other real estate owned		16,449		—		15,037		1,412
	SBA loan servicing asset		1,334		—		—		1,334

		$	170,826	$	—	$	52,070	$	118,756

		Three Months Ended September 30, 2011			Nine Months Ended September 30, 2011

		(In thousands)
Non-covered impaired loans		$	(9,615	)	$	(16,388	)
Non-covered other real estate owned			(1,676	)		(3,549	)
Covered other real estate owned			(7,982	)		(8,561	)
SBA loan servicing asset			72			2

	Total gain (loss) on assets measured on a nonrecurring basis	$	(19,201	)	$	(28,496	)

		Covered Private Label CMOs (Level 3)

		(In thousands)
Beginning as of January 1, 2011		$	50,437
	Total realized in earnings		1,572
	Total unrealized in comprehensive income		315
	Net settlements		(5,111	)

Balance, September 30, 2011		$	47,213

		September 30, 2011				December 31, 2010

		Carrying or Contract Amount		Estimated Fair Value		Carrying or Contract Amount		Estimated Fair Value
		(In thousands)
Financial Assets:
	Cash and due from banks	$	94,112	$	94,112	$	82,170	$	82,170
	Interest-earning deposits in financial institutions		73,209		73,209		26,382		26,382
	Securities available-for-sale		1,261,776		1,261,776		874,016		874,016
	Investment in FHLB stock		48,342		48,342		55,040		55,040
	Loans, net ⁽¹⁾		3,564,586		3,588,445		3,970,978		3,960,244
Financial Liabilities:
	Deposits		4,554,396		4,566,531		4,649,698		4,664,575
	Borrowings		225,000		249,588		225,000		243,273
	Subordinated debentures		129,347		135,972		129,572		135,876

		September 30, 2011

		Number of Shares Outstanding		Unrecognized Compensation Expense		Expiration Year of Award
				(in thousands)
Performance-based restricted stock awarded in:
	2006		275,000	$	14,924		2013
	2007		205,000		11,259		2017
	2008		20,000		453		2013
	2011		350,000		7,161		2016

	Outstanding performance-based restricted stock awards		850,000	$	33,797

Three Months Ended:

September 30, 2011	67.9	%	58.7	%
June 30, 2011	58.2	%	57.7	%
March 31, 2011	58.7	%	60.4	%
December 31, 2010	70.4	%	63.8	%
September 30, 2010	61.5	%	63.8	%

			Three Months Ended

Credit Cost Adjusted Efficiency Ratio			September 30, 2011			June 30, 2011			March 31, 2011			December 31, 2010			September 30, 2010
			(Dollars in thousands)
Noninterest expense			$	48,587		$	46,538		$	41,399		$	49,286		$	46,174
Less: Non-covered OREO expense				2,293			2,300			703			1,093			2,151
	Covered OREO expense			4,813			1,205			(2,578	)		699			(319	)

		Credit adjusted noninterest expense	$	41,481		$	43,033		$	43,274		$	47,494		$	44,342

Net interest income			$	64,441		$	68,689		$	65,738		$	68,520		$	65,167
Noninterest income				7,143			11,240			4,789			1,452			9,885

	Net revenues			71,584			79,929			70,527			69,972			75,052
Less: FDIC loss sharing income (expense), net				963			5,316			(1,170	)		(4,473	)		5,506

		Credit adjusted net revenues	$	70,621		$	74,613		$	71,697		$	74,445		$	69,546

Base efficiency ratio ⁽¹⁾				67.9	%		58.2	%		58.7	%		70.4	%		61.5	%
Credit cost adjusted efficiency ratio ⁽²⁾				58.7	%		57.7	%		60.4	%		63.8	%		63.8	%

Tangible Common Equity		September 30, 2011			June 30, 2011			December 31, 2010

		(Dollars in thousands)
PacWest Bancorp Consolidated:
Stockholders' equity		$	539,468		$	511,964		$	478,797
Less: Intangible assets			58,392			60,369			73,144

	Tangible common equity	$	481,076		$	451,595		$	405,653

Total assets		$	5,493,891		$	5,394,725		$	5,529,021
Less: Intangible assets			58,392			60,369			73,144

	Tangible assets	$	5,435,499		$	5,334,356		$	5,455,877

	Equity to assets ratio		9.82	%		9.49	%		8.66	%
	Tangible common equity ratio ⁽¹⁾		8.85	%		8.47	%		7.44	%
Book value per share		$	14.48		$	13.74		$	13.06
Tangible book value per share		$	12.91		$	12.12		$	11.06
Shares outstanding			37,258,832			37,251,267			36,672,429
Pacific Western Bank:
Stockholders' equity		$	635,026		$	606,084		$	570,118
Less: Intangible assets			58,392			60,369			73,144

	Tangible common equity	$	576,634		$	545,715		$	496,974

Total assets		$	5,479,173		$	5,378,288		$	5,513,601
Less: Intangible assets			58,392			60,369			73,144

	Tangible assets	$	5,420,781		$	5,317,919		$	5,440,457

	Equity to assets ratio		11.59	%		11.27	%		10.34	%
	Tangible common equity ratio ⁽¹⁾		10.64	%		10.26	%		9.13	%

		Three Months Ended

		September 30, 2011							June 30, 2011							September 30, 2010
		Average Balance		Interest Income/ Expense		Yields and Rates			Average Balance		Interest Income/ Expense		Yields and Rates			Average Balance		Interest Income/ Expense		Yields and Rates
		(Dollars in thousands)
ASSETS
Loans, net of unearned income ⁽¹⁾⁽²⁾		$	3,656,184	$	63,347		6.87	%	$	3,815,414	$	68,331		7.18	%	$	4,123,684	$	68,480		6.59	%
Investment securities ⁽²⁾			1,168,822		9,077		3.08	%		1,006,008		8,782		3.50	%		757,945		6,519		3.41	%
Deposits in financial institutions			142,691		94		0.26	%		126,568		83		0.26	%		208,074		131		0.25	%

	Total interest-earning assets		4,967,697	$	72,518		5.79	%		4,947,990	$	77,196		6.26	%		5,089,703	$	75,130		5.86	%

Other assets			486,276							505,632							455,323

	Total assets	$	5,453,973						$	5,453,622						$	5,545,026

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest checking deposits		$	489,988	$	190		0.15	%	$	489,952	$	245		0.20	%	$	466,366	$	262		0.22	%
Money market deposits			1,222,787		1,304		0.42	%		1,217,406		1,529		0.50	%		1,246,585		2,034		0.65	%
Savings deposits			154,922		66		0.17	%		149,553		72		0.19	%		124,132		63		0.20	%
Time deposits			1,049,805		3,512		1.33	%		1,092,614		3,672		1.35	%		1,281,423		4,016		1.24	%

	Total interest-bearing deposits		2,917,502		5,072		0.69	%		2,949,525		5,518		0.75	%		3,118,506		6,375		0.81	%
Borrowings			225,022		1,782		3.14	%		225,044		1,763		3.14	%		276,543		2,129		3.05	%
Subordinated debentures			129,395		1,223		3.75	%		129,469		1,226		3.80	%		129,683		1,459		4.46	%

	Total interest-bearing liabilities		3,271,919	$	8,077		0.98	%		3,304,038	$	8,507		1.03	%		3,524,732	$	9,963		1.12	%

Noninterest-bearing demand deposits			1,616,012							1,608,455							1,472,366
Other liabilities			43,983							41,683							55,450

	Total liabilities		4,931,914							4,954,176							5,052,548
Stockholders' equity			522,059							499,446							492,478

	Total liabilities and stockholders' equity	$	5,453,973						$	5,453,622						$	5,545,026

Net interest income				$	64,441						$	68,689						$	65,167

Net interest rate spread							4.81	%						5.23	%						4.74	%
Net interest margin							5.15	%						5.57	%						5.08	%
Total deposits			4,533,514							4,557,980							4,590,872
All-in deposit cost ⁽³⁾							0.44	%						0.49	%						0.55	%

			September 30, 2011						June 30, 2011						December 31, 2010

Loan Segment			Amount			% of Total			Amount			% of Total			Amount			% of Total
			(Dollars in thousands)
Real estate mortgage			$	2,031,893			70	%	$	2,073,868			71	%	$	2,274,733			72	%
Commercial				671,963			23			640,805			22			663,557			21
Real estate construction				152,411			5			160,254			5			179,479			5
Consumer				20,621			1			22,248			1			25,058			1
Foreign:
	Commercial			19,532			1			18,633			1			21,057			1
	Other, including real estate			1,400			—			1,442			—			1,551			—

		Total gross non-covered loans		2,897,820			100	%		2,917,250			100	%		3,165,435			100	%

Less: unearned income				(4,183	)					(4,114	)					(4,380	)
Less: allowance for loan losses				(90,110	)					(96,427	)					(98,653	)

	Total net non-covered loans		$	2,803,527					$	2,816,709					$	3,062,402

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			September 30, 2011					June 30, 2011					December 31, 2010

Loan Category			Balance		% of Total			Balance		% of Total			Balance		% of Total
			(Dollars in thousands)
Commercial real estate mortgage:
	Industrial/warehouse		$	362,049		17.8	%	$	374,502		18.1	%	$	432,263		19.0	%
	Retail			299,100		14.7	%		310,588		15.0	%		374,027		16.4	%
	Office buildings			314,352		15.5	%		322,972		15.6	%		350,192		15.4	%
	Owner-occupied			250,772		12.3	%		263,686		12.7	%		263,603		11.6	%
	Hotel			145,783		7.2	%		149,043		7.2	%		156,614		6.9	%
	Healthcare			114,277		5.6	%		114,805		5.5	%		102,227		4.5	%
	Mixed use			56,507		2.8	%		56,810		2.7	%		57,230		2.5	%
	Gas station			35,743		1.8	%		35,998		1.7	%		38,502		1.7	%
	Self storage			23,260		1.1	%		26,163		1.3	%		26,432		1.2	%
	Restaurant			23,585		1.2	%		23,410		1.1	%		26,463		1.2	%
	Land acquisition/development			9,514		0.5	%		9,559		0.5	%		9,649		0.4	%
	Unimproved land			1,415		0.1	%		1,449		0.1	%		1,494		0.1	%
	Other			216,206		10.6	%		225,712		10.9	%		250,068		11.0	%

		Total commercial real estate mortgage		1,852,563		91.2	%		1,914,697		92.3	%		2,088,764		91.8	%

Residential real estate mortgage:
	Multi-family			91,588		4.5	%		64,735		3.1	%		81,880		3.6	%
	Single family owner-occupied			31,439		1.5	%		36,369		1.8	%		38,025		1.7	%
	Single family nonowner-occupied			20,059		1.0	%		20,449		1.0	%		26,618		1.2	%
	HELOCs			36,244		1.8	%		37,618		1.8	%		38,823		1.7	%
	Unimproved land			—		0.0	%		—		0.0	%		623		0.0	%

		Total residential real estate mortgage		179,330		8.8	%		159,171		7.7	%		185,969		8.2	%

	Total gross non-covered real estate mortgage loans		$	2,031,893		100.0	%	$	2,073,868		100.0	%	$	2,274,733		100.0	%

		September 30, 2011			June 30, 2011			December 31, 2010			September 30, 2010

		(Dollars in thousands)
Nonaccrual loans ⁽¹⁾		$	59,968		$	65,300		$	94,183		$	105,539
Other real estate owned ⁽¹⁾			48,260			52,194			25,598			24,598

	Total nonperforming assets	$	108,228		$	117,494		$	119,781		$	130,137

Performing restructured loans ⁽¹⁾		$	86,406		$	82,487		$	89,272		$	143,407
Nonperforming assets ratio ⁽¹⁾⁽²⁾			3.68	%		3.96	%		3.76	%		3.89	%
Nonaccrual loans to loans, net of unearned income ⁽¹⁾			2.07	%		2.24	%		2.98	%		3.18	%

			Nonaccrual Loans ⁽¹⁾

			Nonaccrual Loans ⁽¹⁾										Accruing and 30 - 89 Days Past Due ⁽¹⁾
			September 30, 2011					June 30, 2011					Accruing and 30 - 89 Days Past Due ⁽¹⁾
			Balance		% of Loan Category			Balance		% of Loan Category			September 30, 2011 Balance		June 30, 2011 Balance
			(Dollars in thousands)
Real estate mortgage:
	Hospitality		$	7,336		5.0	%	$	7,451		5.0	%	$	—	$	865
	SBA 504			2,895		4.9	%		3,304		5.3	%		3,168		—
	Other commercial			19,378		1.2	%		25,710		1.5	%		14,664		8,197
	Residential			2,315		1.3	%		3,026		1.9	%		400		—

		Total real estate mortgage		31,924		1.6	%		39,491		1.9	%		18,232		9,062

Real estate construction:
	Residential			1,091		5.4	%		1,099		3.3	%		—		—
	Commercial			9,399		7.1	%		5,976		4.7	%		—		2,136

		Total real estate construction		10,490		6.9	%		7,075		4.4	%		—		2,136

Commercial:
	Collateralized			4,769		1.2	%		5,294		1.4	%		396		451
	Unsecured			4,887		6.9	%		6,558		8.0	%		73		158
	Asset-based			15		0.0	%		15		0.0	%		—		—
	SBA 7(a)			7,318		24.4	%		6,122		19.9	%		828		199

		Total commercial		16,989		2.5	%		17,989		2.8	%		1,297		808

Consumer				565		2.7	%		745		3.3	%		53		40

		Total non-covered loans	$	59,968		2.1	%	$	65,300		2.2	%	$	19,582	$	12,046

Nonaccrual Amount		Description

(In thousands)
$	10,360	This loan is secured by three airplane hangar structures and two office buildings in Los Angeles County, California. ⁽¹⁾

$	7,336	Two hotels in San Diego County, California. The borrower is paying as agreed. ⁽¹⁾

$	3,899	Four industrial warehouse loans in Riverside County, California. The borrower is paying as agreed. ⁽¹⁾

$	2,564	Strip retail center in Riverside County, California. The borrower is paying as agreed.

$	2,563	This loan is secured by a medical-related office building in Los Angeles County, California. ⁽¹⁾

$	2,338	This loan is unsecured and has a specific reserve for 50% of the balance. The borrower is paying as agreed. ⁽¹⁾

$	2,091	Land in Riverside County, California. The borrower is paying as agreed.

$	2,000	Unsecured loan that is fully reserved for. ⁽¹⁾

$	1,701	Two unsecured loans that are fully reserved for. ⁽¹⁾

$	1,553	Loan secured by unimproved land in Imperial County, California. ⁽¹⁾

		September 30, 2011		June 30, 2011		December 31, 2010		September 30, 2010

		(In thousands)
Covered nonaccrual loans		$	170,242	$	146,359	$	142,964	$	171,804
Covered OREO			32,301		40,949		55,816		55,244

	Total covered nonperforming assets	$	202,543	$	187,308	$	198,780	$	227,048

Covered performing restructured loans		$	14,074	$	12,404	$	14,255	$	44,614

			September 30, 2011					June 30, 2011					December 31, 2010

Deposit Category			Amount		% of Total			Amount		% of Total			Amount		% of Total
			(Dollars in thousands)
Noninterest-bearing deposits			$	1,628,253		36	%	$	1,599,410		36	%	$	1,465,562		32	%
Interest checking deposits				497,987		11			477,126		11			494,617		11
Money market deposits				1,234,900		27			1,189,999		26			1,321,780		28
Savings deposits				158,921		3			151,957		3			135,876		3

	Total core deposits			3,520,061		77			3,418,492		76			3,417,835		74

Time deposits under $100,000				345,380		8			359,890		8			436,838		9
Time deposits $100,000 and over				688,955		15			708,113		16			795,025		17

	Total time deposits			1,034,335		23			1,068,003		24			1,231,863		26

		Total deposits	$	4,554,396		100	%	$	4,486,495		100	%	$	4,649,698		100	%

	September 30, 2011

	Well Capitalized Requirement			Pacific Western Bank			PacWest Bancorp Consolidated
Tier 1 leverage capital ratio		5.00	%		9.85	%		9.96	%
Tier 1 risk-based capital ratio		6.00	%		14.63	%		14.70	%
Total risk-based capital ratio		10.00	%		15.90	%		15.98	%
Tangible common equity ratio		N/A			10.64	%		8.85	%

		September 30, 2011

		Due Within One Year		Due in One to Three Years		Due in Three to Five Years		Due After Five Years		Total
		(Dollars in thousands)
Time deposits		$	496,615	$	525,088	$	12,632	$	—	$	1,034,335
Long-term debt obligations			—		—		—		354,347		354,347
Operating lease obligations			16,182		27,202		17,901		15,569		76,854
Other contractual obligations			9,315		8,707		3,101		—		21,123

	Total	$	522,112	$	560,997	$	33,634	$	369,916	$	1,486,659

Interest rate scenario	Estimated Net Interest Income

	(Dollars in thousands)
Up 300 basis points	$	241,136	(4.8	)%	4.74	%	(0.24	)%
Up 200 basis points	$	242,089	(4.4	)%	4.76	%	(0.22	)%
Up 100 basis points	$	244,692	(3.4	)%	4.81	%	(0.17	)%
BASE CASE	$	253,281	—		4.98	%	—
Down 100 basis points	$	244,243	(3.6	)%	4.80	%	(0.18	)%
Down 200 basis points	$	241,899	(4.5	)%	4.76	%	(0.22	)%
Down 300 basis points	$	240,940	(4.9	)%	4.74	%	(0.24	)%

Interest rate scenario	Estimated Market Value		Dollar Change From Base

	(Dollars in thousands)
Up 300 basis points	$	688,994	$	26,075		3.9	%	12.5	%	127.7	%
Up 200 basis points	$	715,870	$	52,951		8.0	%	13.0	%	132.7	%
Up 100 basis points	$	710,940	$	48,021		7.2	%	12.9	%	131.8	%
BASE CASE	$	662,919		—		—		12.1	%	122.9	%
Down 100 basis points	$	578,742	$	(84,177	)	(12.7	)%	10.5	%	107.3	%
Down 200 basis points	$	550,506	$	(112,413	)	(17.0	)%	10.0	%	102.0	%
Down 300 basis points	$	526,353	$	(136,566	)	(20.6	)%	9.6	%	97.6	%