Forward-Looking Information

This Quarterly Report on Form 10-Q contains certain forward-looking information about the Company and its subsidiaries, which statements are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, implied or projected by, such forward-looking statements. Risks and uncertainties include, but are not limited to:

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º lower than expected revenues;

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º credit quality deterioration or pronounced and sustained reduction in real estate market values could cause an increase in the allowance for credit losses and a reduction in earnings;

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º increased competitive pressure among depository institutions;

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º the Company's ability to complete future acquisitions and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time-frames or at all;

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º the possibility that personnel changes will not proceed as planned;

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º the cost of additional capital is more than expected;

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º a change in the interest rate environment reduces interest margins;

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º asset/liability repricing risks and liquidity risks;

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º pending legal matters may take longer or cost more to resolve or may be resolved adversely to the Company;

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º general economic conditions, either nationally or in the market areas in which the Company does or anticipates doing business, are less favorable than expected;

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º environmental conditions, including natural disasters, may disrupt our business, impede our operations, negatively impact the values of collateral securing the Company's loans or impair the ability of our borrowers to support their debt obligations;

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º the economic and regulatory effects of the continuing war on terrorism and other events of war, including the conflicts in Iraq, Afghanistan, and neighboring countries;

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º legislative or regulatory requirements or changes adversely affecting the Company's business;

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º changes in the securities markets; and

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º regulatory approvals for any capital activities cannot be obtained on the terms expected or on the anticipated schedule.

If any of these risks or uncertainties materializes, or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by, such forward-looking statements. The Company assumes no obligation to update such forward-looking statements.

Overview

We are a bank holding company registered under the Bank Holding Company Act of 1956, as amended. Our principal business is to serve as the holding company for our subsidiary bank, Pacific Western Bank, which we refer to as Pacific Western or the Bank.

Pacific Western is a full-service community bank offering a broad range of banking products and services including: accepting time and demand deposits; originating loans, including commercial, real estate construction, SBA-guaranteed, consumer, and international loans; and providing other business-oriented products. Our operations are primarily located in Southern California and the Bank focuses on conducting business with small to medium-sized businesses and the owners and employees of those businesses in our marketplace. Through our asset-based lending operation we also operate in Arizona, Northern California, the Pacific Northwest, and Texas. At March 31, 2009, our assets totaled $4.5 billion, of which gross loans totaled $3.9 billion. At this date approximately 21% were commercial loans, 57% were commercial real estate loans, 9% were commercial real estate construction loans, 6% were residential real estate construction loans, 6% were residential real estate loans, and 1% were consumer and other loans. These percentages include some foreign loans, primarily to individuals or entities with business in Mexico, representing 1% of total loans. Our portfolio's value and credit quality is affected in large part by real estate trends in Southern California, which have been negative over the last 18 months.

Pacific Western competes actively for deposits, and emphasizes solicitation of noninterest-bearing deposits. In managing the top line of our business, we focus on loan growth and loan yield, deposit cost, and net interest margin, as net interest income, on a year-to-date basis, accounts for 89% of our net revenues (net interest income plus noninterest income).

Key Performance Indicators

Among other factors, our operating results depend generally on the following:

Net interest income is the excess of interest earned on our interest-earning assets over the interest paid on our interest-bearing liabilities. The decline in market interest rates over the last 18 months and fierce competition for deposits has compressed our net interest margin. Based on our balance sheet structure the yield on our earning assets decreased more rapidly and significantly than the cost of our funding sources during 2008 and into 2009. A sustained low interest rate environment combined with tight marketplace liquidity and low loan growth may further reduce both our net interest income and net interest margin going forward.

Our primary interest-earning asset is loans. Our primary interest-bearing liabilities include deposits, borrowings, and subordinated debentures. We attempt to increase our net interest income by maintaining a high loan-to-deposit ratio and a high level of noninterest-bearing deposits. While our deposit balances will fluctuate depending on deposit holders' perceptions of alternative yields available in the market, we attempt to minimize these variances by attracting a high percentage of noninterest-bearing deposits, which have no expectation of yield. At March 31, 2009, approximately 36% of our total deposits were noninterest-bearing deposits.

The recent disruptions in the financial credit and liquidity markets have resulted in increased competition from financial institutions seeking to maintain liquidity and this has impacted deposit flows and the rates paid on certain deposit accounts. In addition to deposits, we have borrowing capacity under various credit lines which we use for liquidity needs such as funding loan demand, managing deposit flows and interim acquisition financing. This borrowing capacity is relatively flexible and has

become one of the least expensive sources of funds. However, our borrowing lines are considered a secondary source of liquidity as we serve our local markets and customers with our deposit products.

We generally seek new lending opportunities in the $500,000 to $10 million range, try to limit loan maturities for commercial loans to one year, for construction loans up to 18 months, and for commercial real estate loans up to ten years, and to price lending products so as to preserve our interest spread and net interest margin. We sometimes encounter strong competition in pursuing lending opportunities such that potential borrowers obtain loans elsewhere at lower rates than those we offer. We have continued to reduce our exposure to residential construction and foreign loans, including limiting the amount of new loans in these categories. Our ability to make new loans is dependent on economic factors in our market area, borrower qualifications, competition, and liquidity, among other items. We expect loan growth for 2009 to be negatively affected by the current state of the economy in Southern California and the competition among banks for liquidity. Although loans, net of unearned income, declined $63.6 million during the first quarter of 2009, new loans and advances on loan commitments totaled $237 million.

We stress credit quality in originating and monitoring the loans we make and measure our success by the levels of our nonperforming assets, net charge-offs and allowance for credit losses. Our allowance for credit losses is the sum of our allowance for loan losses and our reserve for unfunded loan commitments. Provisions for credit losses are charged to operations as and when needed for both on and off balance sheet credit exposure. Loans which are deemed uncollectible are charged off and deducted from the allowance for loan losses. Recoveries on loans previously charged off are added to the allowance for loan losses. During the three months ended March 31, 2009, we made a provision for credit losses totaling $14.0 million based upon our reserve methodology. We considered, among other factors, the level of net charge-offs, the level and trends of classified, criticized, and nonaccrual loans, usage trends of unfunded loan commitments, general market conditions, and portfolio concentrations.

We continually review our loans to determine whether there has been any deterioration in credit quality stemming from economic conditions or other factors which may affect collectibility of our loans. Changes in economic conditions, such as inflation, unemployment, consumer spending, increases in the general level of interest rates and negative conditions in borrowers' businesses could negatively impact our customers and cause us to adversely classify loans and increase portfolio loss factors. An increase in classified loans generally results in increased provisions for credit losses. Any deterioration in the real estate market may lead to increased provisions for credit losses because of our concentration in real estate loans.

Our operating noninterest expense (noninterest expense excluding goodwill write-offs) includes fixed and controllable overhead, the major components of which are compensation, occupancy, data processing, professional fees and communications expense. We measure success in controlling such costs through monitoring of the efficiency ratio. We calculate the operating efficiency ratio by dividing operating noninterest expense by net revenues (the sum of net interest income plus noninterest

income). Accordingly, a lower percentage reflects lower operating expenses relative to net revenue. The consolidated operating efficiency ratios have been as follows:

                          Quarterly Period        Ratio
                          First quarter of 2009     71.0 %
                          Fourth quarter 2008       59.1 %
                          Third quarter 2008        62.0 %
                          Second quarter 2008       61.1 %
                          First quarter 2008        54.7 %

The increase in the operating efficiency ratio for the first quarter of 2009 compared to the other periods presented is due mostly to a decline in net interest income relative to operating noninterest expense. Certain reporting periods include income or expense items that were significant to specific quarters' results and also influenced the operating efficiency ratio. See also Results of Operations-Earnings Performance for further information on non-GAAP financial measures.

Critical Accounting Policies

The Company's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The Company has identified several policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for credit losses and the carrying values of intangible assets and deferred income tax assets. For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2008.

Results of Operations

Certain discussion in this Form 10-Q of net earnings (loss), earnings (loss) per share, noninterest expense and performance ratios for the first quarter of 2009 when compared to the same quarter of 2008 is based on net operating earnings as shown in the following table and described below. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. These non-GAAP financial measures are presented for supplemental informational purposes only for understanding the Company's operating results and should not be considered a substitute for financial information presented in accordance with GAAP. The non-GAAP financial measures presented by the Company may be different from non-GAAP financial measures used by other companies. The major item in our non-GAAP presentation is the exclusion of the 2008 goodwill write-off and it has been excluded for several reasons:

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º goodwill is eliminated in determining regulatory capital levels and its impairment in no way impacts the Company's regulatory or tangible capital;

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º tangible capital has been regularly measured by investors and analysts and is becoming more important to them and the banking regulators;

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º goodwill is a non-cash expense and in no way impacts the Company's cash flows; and

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º the goodwill write-off occurred in the first half of 2008 with no prior pattern of such write-off activity and further goodwill write-offs are not expected as the asset has been totally eliminated and acquisition activity has been minor.

The following table presents a reconciliation of the non-GAAP financial measurements to the GAAP financial measurements and certain performance ratios.

Non-GAAP Measurements (Unaudited)

                                                                            Quarter Ended
In thousands, except per share data and percentages    March 31, 2009     December 31, 2008     March 31, 2008
Net earnings (loss) as reported                        $         1,445    $            9,621    $      (272,723 )
Goodwill write-off                                                   -                     -            275,000

Net operating earnings                                 $         1,445    $            9,621    $         2,277

GAAP basic shares outstanding                                 30,495.2              27,202.9           27,145.2
Effect of dilutive stock options(a)                                0.5                   0.8                  -

GAAP diluted shares outstanding                               30,495.7              27,203.7           27,145.2

Operating earnings basic shares outstanding                   30,495.2              27,202.9           27,145.2
Effect of dilutive stock options                                   0.5                   0.8                0.9

Operating earnings diluted shares outstanding                 30,495.7              27,203.7           27,146.1

GAAP basic and diluted earnings (loss) per share       $          0.04    $             0.34    $        (10.05 )

Net operating diluted earnings per share               $          0.04    $             0.34    $          0.08

GAAP return on average assets                                     0.13 %                0.85 %           (21.10 )%

Net operating return on average assets                            0.13 %                0.85 %             0.18 %

GAAP return on average equity                                     1.27 %               10.15 %           (96.35 )%

Net operating return on average equity                            1.27 %               10.15 %             0.80 %

Noninterest expense as reported                        $        38,969    $           33,819    $       310,212
Goodwill write-off                                                   -                     -           (275,000 )

Operating noninterest expense                          $        38,969    $           33,819    $        35,212

GAAP efficiency ratio                                             71.0 %                59.1 %            482.2 %

Net operating efficiency ratio                                    71.0 %                59.1 %             54.7 %

First quarter of 2009 compared to fourth quarter of 2008

Net earnings totaled $1.4 million, or $0.04 per diluted share, for the quarter ended March 31, 2009, compared to $9.6 million, or $0.34 per diluted share, for the quarter ended December 31, 2008. The $8.2 million decrease in net earnings between the linked quarters is due mainly to the combination of lower net interest income, higher provision for credit losses, and higher noninterest expense.

First quarter of 2009 compared to the first quarter of 2008

The net loss for the quarter ended March 31, 2008 is due to the goodwill write-off. In response to the volatility in the banking industry and the effect such volatility has had on banking stocks since the beginning of 2008, including PacWest Bancorp's common stock, we wrote-off $275.0 million of goodwill in the first quarter of 2008. We wrote off the remaining balance of our goodwill totaling $486.7 million

in the second quarter of 2008. Such charges had no effect on the Company's or the Bank's cash balances, liquidity or well-capitalized regulatory capital ratios.

Net operating earnings (defined as net loss excluding the goodwill write-off) totaled $1.4 million, or $0.04 per diluted share, for the quarter ended March 31, 2009, compared to $2.3 million, or $0.08 per diluted share, for the quarter ended March 31, 2008. The decrease in net operating earnings for the first quarter of 2009 compared to the same quarter of 2008 is due mainly to the combination of lower net interest income, lower provision for credit losses, and higher operating noninterest expense.

Net Interest Income. Net interest income, which is our principal source of revenue, represents the difference between interest earned on assets and interest paid on liabilities. Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income is affected by changes in both interest rates and the volume of average interest-earning assets and interest-bearing liabilities. The following table presents, for the periods indicated, the distribution of average assets, liabilities and stockholders' equity, as well as interest income and yields earned on average interest-earning assets and interest expense and costs on average interest-bearing liabilities:

                                                                      Quarter Ended
                                 March 31, 2009                     December 31, 2008                    March 31, 2008
                                      Interest    Yields                  Interest    Yields                  Interest    Yields
                          Average      Income/      and       Average      Income/      and       Average      Income/      and
                          Balance      Expense     Rates      Balance      Expense     Rates      Balance      Expense     Rates
                                                                 (Dollars in thousands)
ASSETS
Loans, net of
deferred fees and
costs(1)(2)             $ 3,938,322    $ 61,847      6.37 % $ 3,952,872    $ 66,507      6.69 % $ 4,019,224    $ 75,653      7.57 %
Investment
securities(2)               165,333       1,546      3.79 %     142,494       1,707      4.77 %     143,379       1,701      4.77 %
Federal funds sold              260           -      0.00 %      29,702          75      1.00 %       5,032          40      3.20 %
Other earning assets         92,271          61      0.27 %     104,800         176      0.67 %         324           3      3.72 %

   Total
   interest-earning
   assets                 4,196,186      63,454      6.13 %   4,229,868      68,465      6.44 %   4,167,959      77,397      7.47 %
Noninterest-earning
assets:
Other assets                284,628                             274,687                           1,030,130

   Total assets         $ 4,480,814                         $ 4,504,555                         $ 5,198,089

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest checking       $   349,908    $    454      0.53 % $   338,434    $    629      0.74 % $   369,841    $    931      1.01 %
Money market                841,410       2,611      1.26 %     858,971       3,508      1.62 %   1,089,672       6,968      2.57 %
Savings                     123,005         107      0.35 %     117,278         128      0.43 %     104,905          42      0.16 %
Time certificates of
deposit                     899,666       6,148      2.77 %     899,264       7,151      3.16 %     413,712       3,880      3.77 %

   Total
   interest-bearing
   deposits               2,213,989       9,320      1.71 %   2,213,947      11,416      2.05 %   1,978,130      11,821      2.40 %
Other
interest-bearing
liabilities                 581,583       5,361      3.74 %     666,395       6,324      3.78 %     758,178       7,716      4.09 %

   Total
   interest-bearing
   liabilities            2,795,572      14,681      2.13 %   2,880,342      17,740      2.45 %   2,736,308      19,537      2.87 %
Noninterest-bearing
liabilities:
   Demand deposits        1,163,059                           1,208,085                           1,273,173
   Other liabilities         61,882                              38,919                              50,207

   Total liabilities      4,020,513                           4,127,346                           4,059,688
Stockholders' equity        460,301                             377,209                           1,138,401

Total liabilities and
stockholders' equity    $ 4,480,814                         $ 4,504,555                         $ 5,198,089

Net interest income                    $ 48,773                            $ 50,725                            $ 57,860

Net interest spread                                  4.00 %                              3.99 %                              4.60 %

Net interest margin                                  4.71 %                              4.77 %                              5.58 %

º (2)
º Yields on loans and securities have not been adjusted to a tax-equivalent basis because the impact is not material.

First quarter of 2009 compared to fourth quarter of 2008

Interest income declined $5.0 million due mainly to lower loan and investment yields. On the funding side, interest expense decreased $3.1 million due mainly to lower deposit costs and lower average borrowings.

Our net interest margin for the first quarter of 2009 was 4.71%, a decrease of 6 basis points when compared to the fourth quarter of 2008 net interest margin of 4.77%. The decrease in the net interest margin is due mostly to lower loan and investment yields offset somewhat by lower deposit cost. The yield on average loans was 6.37% for the first quarter of 2009 compared to 6.69% for the fourth quarter of 2008. The lower loan yield is due to a decline in the level of market interest rates and higher nonaccrual loans. The investment securities portfolio yield declined during the first quarter of 2009 to 3.79% due mostly to lower income on FHLB stock. The net interest margin was 4.81% in January, 4.68% in February and 4.64% in March. The loan yield for the month of March was 6.22%. Net reversals of interest income on nonaccrual loans negatively impacted both loan yield and net interest margin for the month of March by 16 basis points.

Deposit cost was lower during the first quarter of 2009 due to rate reductions put into effect and the planned run-off of higher-cost deposits acquired in the Security Pacific Bank deposit acquisition. The cost of interest-bearing deposits declined 34 basis points to 1.71% and our all-in deposit cost declined 21 basis points to 1.12%. Our relatively low cost of deposits is driven by demand deposit balances, which represented 34% of average total deposits during the first quarter of 2009. On a monthly basis, all-in deposit costs were 1.18% in January, 1.13% in February and 1.05% in March. The overall cost of interest-bearing liabilities was 2.13% for the first quarter of 2009, down 32 basis points from the fourth quarter of 2008 due mostly to lower deposit costs. The cost of interest-bearing liabilities decreased to 1.99% in March 2009 from 2.42% in December 2008.

First quarter of 2009 compared to the first quarter of 2008

The $9.1 million decrease in net interest income for the first quarter of 2009 compared to the same quarter of 2008 was mainly a result of lower loan yields. Loan interest income decreased $13.8 million as our average loan yields declined. In response to the market interest rate changes made by the Federal Reserve Bank our base lending rate decreased from 7.25% at the end of December 2007 to 4.00% at the end of October 2008 and it has remained at this level. Interest expense decreased $4.9 million for the first quarter of 2009 compared to the same quarter of 2008 due to lower rates on all interest-bearing liabilities.

Our net interest margin for the first quarter of 2009 declined 87 basis points when compared to the first quarter of 2008. This decrease is due to a combination of lower loan yields, lower average demand deposits and lower overall funding costs. The lower loan yield and cost of funds are due to the decline in market interest rates.

Provision for Credit Losses. The amount of the provision for credit losses in each reporting period is a charge against earnings in that reporting period. The provisions for credit losses are based on our reserve methodology and reflect our judgments about the adequacy of the allowance for loan losses and the reserve for unfunded loan commitments. In determining the amount of the provision for credit losses, we consider certain quantitative and qualitative factors including our historical loan loss experience, the volume and type of lending we conduct, the results of our credit review process, the amounts and trends of classified, criticized and nonperforming assets, regulatory policies, general economic and market conditions, underlying collateral values, . . .