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 June 30, 2009, our assets totaled $4.5 billion, of which gross loans totaled $3.9 billion. At this date approximately 21% were commercial loans, 58% were commercial real estate loans, 8% 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 several quarters.

Pacific Western competes actively for deposits, and emphasizes solicitation of noninterest-bearing deposits. In managing the top line of our business, we focus on quality loan growth and loan yield, deposit cost, and net interest margin, as net interest income, on a year-to-date basis, accounts for 90% 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 and fierce competition for deposits has reduced our net interest margin from its historical highs. 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. Although both net interest income and the net interest margin improved in the second quarter of 2009 when compared to the prior quarter, the sustained low interest rate environment combined with tight marketplace liquidity, slow loan growth and the level of nonaccrual loans 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 are deposits, borrowings, and subordinated debentures. 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 June 30, 2009, approximately 38% 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 $83.5 million during the first half of 2009, new loans and advances on loan commitments totaled $367 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 June 30, 2009, we made a provision for credit losses totaling $18.0 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. Further 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 (a non-GAAP measurement defined as noninterest expense excluding goodwill write-offs) includes fixed and controllable overhead, the major components of which are compensation, occupancy, insurance and assessments, OREO expenses, 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
                         Second quarter of 2009     85.5 %
                         First quarter 2009         71.0 %
                         Fourth quarter 2008        59.1 %
                         Third quarter 2008         62.0 %
                         Second quarter 2008        61.1 %

The increase in the efficiency ratio for the linked quarters of 2009 was due mostly to the higher OREO costs and the special FDIC insurance assessment which together added 1,830 basis points to the second quarter efficiency ratio. Certain reporting periods include income or expense items that were significant to specific quarters' results and also influenced the operating efficiency ratio. The general

increase in efficiency ratios over the last several quarters is caused mostly by lower interest income. Interest income levels have been negatively affected by slow loan growth and low market interest rates. 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 contains non-GAAP financial disclosures for operating earnings, operating noninterest expense, and tangible capital. 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. Operating earnings and operating noninterest expense are determined by eliminating the goodwill write-off. Because (a) goodwill is eliminated in determining regulatory capital levels and its impairment in no way impacts the Company's regulatory capital, (b) the goodwill write-off occurred in the first half of 2008 with no prior pattern of such write-offs, and (c) further goodwill write-offs are not expected as the asset has been totally eliminated and acquisition activity has been minor, we believe its exclusion from operating results allows investors to assess operating results on a normalized basis. Tangible common equity is a non-GAAP financial measure used by investors, analysts, and bank regulatory agencies. Tangible common equity includes total equity, less any preferred equity, goodwill and intangible assets. The methodology of determining tangible common equity may differ among companies. Management reviews tangible common equity along with other measures of capital adequacy on a regular basis and has included this non-GAAP financial information, and the corresponding reconciliation to total equity, because of current interest in such information on the part of market participants.

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 United States generally accepted accounting principles (GAAP). The following table presents performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measurements to the GAAP financial measurements.

Non GAAP Measurements (Unaudited)

                                                                                                                     Six Months Ended
                                                                          Quarter Ended                                  June 30,
In thousands, except per share data and percentages    June 30, 2009       March 31, 2009     June 30, 2008         2009           2008
Net earnings (loss) as reported                        $       (5,740 )    $         1,445    $     (474,514 )   $   (4,295 )   $ (747,237 )
Goodwill write-off                                                  -                    -           486,701              -        761,701

Net operating earnings                                 $       (5,740 )    $         1,445    $       12,187     $   (4,295 )   $   14,464

GAAP basic shares outstanding                                31,067.6             30,495.2          27,166.8       30,783.0       27,156.0
Restricted stock and dilutive stock options                         - (a)              0.5                 - (a)          - (a)          - (a)

GAAP diluted shares outstanding                              31,067.6             30,495.7          27,166.8       30,783.0       27,156.0

Operating earnings basic shares outstanding                  31,067.6             30,495.2          27,166.8       30,783.0       27,156.0
Restricted stock and dilutive stock options                         - (a)              0.5               0.7              - (a)        0.8

Operating earnings diluted shares outstanding                31,067.6             30,495.7          27,167.5       30,783.0       27,156.8

GAAP basic and diluted earnings (loss) per share       $        (0.18 )    $          0.04    $       (17.47 )   $    (0.15 )   $   (27.53 )

Net operating diluted earnings per share               $        (0.18 )    $          0.04    $         0.44     $    (0.15 )   $     0.52

GAAP return on average assets                                   (0.52 )%              0.13 %          (39.18 )%       (0.19 )%      (29.85 )%

Net operating return on average assets                          (0.52 )%              0.13 %            1.01 %        (0.19 )%        0.58 %

GAAP return on average equity                                   (4.88 )%              1.27 %         (223.19 )%       (1.86 )%     (150.76 )%

Net operating return on average equity                          (4.88 )%              1.27 %            5.73 %        (1.86 )%        2.92 %

Noninterest expense as reported                        $       47,931      $        38,969    $      524,047     $   86,900     $  834,259
Goodwill write-off                                                  -                    -          (486,701 )            -       (761,701 )

Operating noninterest expense                          $       47,931      $        38,969    $       37,346     $   86,900     $   72,558

GAAP efficiency ratio                                            85.5 %               71.0 %           857.2 %         78.3 %        664.9 %

Net operating efficiency ratio                                   85.5 %               71.0 %            61.1 %         78.3 %         57.8 %

End of period assets                                   $    4,476,236      $     4,496,070    $    4,343,324
Intangibles                                                    35,417               37,675            38,771

End of period tangible assets                          $    4,440,819      $     4,458,395    $    4,304,553

End of period equity                                   $      464,097      $       469,006    $      374,744
Intangibles                                                    35,417               37,675            38,771

End of period tangible equity                          $      428,680      $       431,331    $      335,973

Equity-to-assets ratio                                          10.37 %              10.43 %            8.63 %

Tangible common equity (TCE) ratio                               9.65 %               9.67 %            7.81 %

Pacific Western Bank
End of period assets                                   $    4,468,870      $     4,486,793    $    4,332,562
Intangibles                                                    35,417               37,675            38,771

End of period tangible assets                          $    4,433,453      $     4,449,118    $    4,293,791

End of period equity                                   $      510,086      $       506,694    $      467,921
Intangibles                                                    35,417               37,675            38,771

End of period tangible equity                          $      474,669      $       469,019    $      429,150

Equity-to-assets                                                11.41 %              11.29 %           10.80 %

TCE ratio                                                       10.71 %              10.54 %            9.99 %

Second quarter of 2009 compared to first quarter of 2009

Net loss totaled $5.7 million, or $0.18 per diluted share, for the quarter ended June 30, 2009, compared to net earnings of $1.4 million, or $0.04 per diluted share, for the quarter ended March 31,

2009. The decrease in net earnings of $7.2 million between the second and first quarters of 2009 is due mainly to the combination of a higher provision for credit losses, higher OREO costs and the special FDIC deposit insurance assessment.

Second quarter of 2009 compared to the second quarter of 2008

The net loss for the quarter ended June 30, 2008 is due to the goodwill write-off. In response to the volatility in the banking industry and the effect such volatility had on banking stocks during 2008, including PacWest Bancorp's common stock, we wrote-off $275.0 million of goodwill in the first quarter of 2008 and 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) was a net loss of $5.7 million, or $0.18 per diluted share, for the quarter ended June 30, 2009, compared to net operating earnings of $12.2 million, or $0.44 per diluted share, for the quarter ended June 30, 2008. The decrease in net operating earnings for the second quarter of 2009 compared to the same quarter of 2008 is due mainly to the combination of lower net interest income, higher provision for credit losses, higher OREO costs and higher FDIC insurance assessments.

Net operating earnings was a loss of $4.3 million, or $0.15 per diluted share, for the six months ended June 30, 2009 compared to net operating earnings of $14.5 million, or $0.52 per diluted share, for the six months ended June 30, 2008. The decrease in net operating earnings for the year-to-date period is attributed to lower net interest income, a higher provision for credit losses and higher noninterest expense. The decrease in net interest income relates mostly to the decline in market interest rates and lower loan balances. The increase in noninterest expense is due mostly to higher OREO costs and FDIC insurance assessments.

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
                                  June 30, 2009                      March 31, 2009                       June 30, 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(a)(b)             $ 3,921,561    $ 61,663      6.31 % $ 3,938,322    $ 61,847      6.37 % $ 3,970,704    $ 69,536      7.04 %
Investment
securities(b)               183,386       1,641      3.59 %     165,333       1,546      3.79 %     146,840       1,861      5.10 %
Federal funds sold                -           -         -           260           -         -         4,549          23      2.03 %
Other earning assets         30,425          37      0.49 %      92,271          61      0.27 %         326           2      2.47 %

   Total
   interest-earning
   assets                 4,135,372      63,341      6.14 %   4,196,186      63,454      6.13 %   4,122,419      71,422      6.97 %
Noninterest-earning
assets:
Other assets                279,331                             284,628                             748,146

   Total assets         $ 4,414,703                         $ 4,480,814                         $ 4,870,565

LIABILITIES AND
   STOCKHOLDERS'
   EQUITY
Interest checking       $   370,664    $    393      0.43 % $   349,908    $    454      0.53 % $   373,382    $    690      0.74 %
Money market                891,610       2,712      1.22 %     841,410       2,611      1.26 %   1,085,945       4,875      1.81 %
Savings                     114,339          43      0.15 %     123,005         107      0.35 %     100,779          41      0.16 %
Time certificates of
deposit                     692,439       4,219      2.44 %     899,666       6,148      2.77 %     426,654       3,313      3.12 %

   Total
   interest-bearing
   deposits               2,069,052       7,367      1.43 %   2,213,989       9,320      1.71 %   1,986,760       8,919      1.81 %
Other
interest-bearing
liabilities                 605,558       5,265      3.49 %     581,583       5,361      3.74 %     723,115       6,731      3.74 %

   Total
   interest-bearing
   liabilities            2,674,610      12,632      1.89 %   2,795,572      14,681      2.13 %   2,709,875      15,650      2.32 %
Noninterest-bearing
liabilities:
   Demand deposits        1,223,169                           1,163,059                           1,256,794
   Other liabilities         45,458                              61,882                              48,801

   Total liabilities      3,943,237                           4,020,513                           4,015,470
Stockholders' equity        471,466                             460,301                             855,095

Total liabilities and
stockholders' equity    $ 4,414,703                         $ 4,480,814                         $ 4,870,565

Net interest income                    $ 50,709                            $ 48,773                            $ 55,772

Net interest spread                                  4.25 %                              4.00 %                              4.65 %

Net interest margin                                  4.92 %                              4.71 %                              5.44 %

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

. . .