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 September 30, 2009, our assets totaled $5.5 billion, of which gross non-covered and covered loans totaled $4.5 billion. At this date approximately 18% were commercial loans, 56% were commercial real estate loans, 7% were commercial real estate construction loans, 6% were residential real estate construction loans, 12% 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 non-covered 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 65% of our net revenues (net interest income plus noninterest income). Excluding the gain from the Affinity transaction, net interest income, on a year-to-date basis, accounts for 90% of our net revenues.

Affinity Acquisition

On August 28, 2009, Pacific Western Bank acquired certain assets and liabilities of Affinity Bank from the Federal Deposit Insurance Corporation ("FDIC") in an FDIC-assisted transaction. We entered into a loss sharing agreement with the FDIC, whereby the FDIC will cover a substantial portion of any future losses on loans, other real estate owned and certain investment securities. We refer to the acquired assets subject to the loss sharing agreement collectively as "covered assets." Under the terms of such loss sharing agreement, the FDIC will absorb 80% of losses and share in 80% of loss recoveries on the first $234 million of losses on the covered assets and absorb 95% of losses on covered assets exceeding $234 million. The loss sharing arrangement for non-residential and residential loans is in effect for 5 years and 10 years from the August 28, 2009 acquisition date and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition date.

The acquisition has been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the August 28, 2009 acquisition date. Such fair values are preliminary estimates and are subject to adjustment for up to one-year after the acquisition date. The application of the acquisition method of accounting resulted in a gain of $67.0 million, or $38.9 million after tax. Such gain represents the excess of the estimated fair value of the assets acquired over the estimated fair value of the liabilities assumed. See Note 2 of the Notes to unaudited Consolidated Financial Statements for additional information regarding the acquisition.

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. 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 September 30, 2009, approximately 31% 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 non-covered loans, net of unearned income, declined $165.2 million during the first nine months of 2009, new loans and advances on loan commitments totaled $382.4 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 September 30, 2009, we made a provision for credit losses totaling $75.0 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. Increases in the level of nonaccrual and 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 noninterest expense 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 efficiency ratio by dividing 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
                          Third quarter of 2009     37.1 %
                          Second quarter 2009       85.5 %
                          First quarter 2009        71.0 %
                          Fourth quarter 2008       59.1 %
                          Third quarter 2008        62.0 %

The decrease in the efficiency ratio for the linked quarters of 2009 was due mostly to the gain from the Affinity acquisition which reduced the third quarter efficiency ratio by 4,840 basis points from 85.5% to 37.1%. The general increase in efficiency ratios over the last several quarters excluding the third quarter of 2009 is caused mostly by lower interest income. Interest income levels have been negatively affected by slow loan growth and low market interest rates.

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 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. 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)

                                                        Quarter Ended
                                        September 30,     June 30,      September 30,
  Dollars in thousands                      2009            2009            2008
  End of period assets                  $    5,479,598   $ 4,476,236    $    4,363,217
  Intangibles                                   35,651        35,417            36,497

  End of period tangible assets         $    5,443,947   $ 4,440,819    $    4,326,720

  End of period stockholders' equity    $      517,549   $   464,097    $      376,287
  Intangibles                                   35,651        35,417            36,497

  End of period tangible equity         $      481,898   $   428,680    $      339,790

  Equity-to-assets ratio                          9.45 %       10.37 %            8.62 %

  Tangible common equity ratio                    8.85 %        9.65 %            7.85 %

  Pacific Western Bank
  End of period assets                  $    5,469,398   $ 4,468,870    $    4,352,569
  Intangibles                                   35,651        35,417            36,497

  End of period tangible assets         $    5,433,747   $ 4,433,453    $    4,316,072

  End of period equity                  $      593,199   $   510,086    $      481,541
  Intangibles                                   35,651        35,417            36,497

  End of period tangible equity         $      557,548   $   474,669    $      445,044

  Equity-to-assets                               10.85 %       11.41 %           11.06 %

  Tangible common equity ratio                   10.26 %       10.71 %           10.31 %

Third quarter of 2009 compared to second quarter of 2009

Net earnings totaled $2.7 million, or $0.08 per diluted share, for the quarter ended September 30, 2009, compared to a net loss of $5.7 million, or $0.18 per diluted share, for the quarter ended June 30, 2009. The increase in net earnings of $8.5 million between the third and second quarters of 2009 is due mainly to the combination of higher net interest income, a higher provision for credit losses, the gain from the Affinity acquisition and lower noninterest expenses.

Third quarter of 2009 compared to the third quarter of 2008

Net earnings totaled $2.7 million, or $0.08 per diluted share for the quarter ended September 30, 2009 compared to $9.6 million, or $0.35 per diluted share for the quarter ended September 30, 2008. The decrease in net earnings for the third quarter of 2009 compared to the same quarter of 2008 is due mainly to the combination of higher provision for credit losses, higher non-covered OREO costs, higher compensation cost and higher FDIC insurance assessments partially offset by the gain from the Affinity acquisition.

Net loss totaled $1.6 million, or $0.06 per diluted share, for the nine months ended September 30, 2009 compared to a net loss of $737.7 million, or $27.17 per diluted share, for the nine months ended September 30, 2008. The lower net loss for the nine months ended September 30, 2009 compared to

the same period in 2008 was due mostly to the $761.7 million goodwill write-off recorded in 2008. When compared to 2008, the 2009 period shows lower net interest income, higher provision for credit losses, higher non-covered OREO costs and higher FDIC insurance assessments partially offset by the gain from the Affinity acquisition.

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
                               September 30, 2009                     June 30, 2009                    September 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)             $ 4,140,220    $ 64,658      6.20 % $ 3,921,561    $ 61,663      6.31 % $ 3,893,836    $ 68,712      7.02 %
Investment
securities(b)               262,816       2,741      4.14 %     179,976       1,641      3.66 %     136,383       1,808      5.27 %
Federal funds sold                4           -      0.00 %           -           -         -         4,837          23      1.89 %
Other earning assets        150,358         111      0.29 %      33,835          37      0.44 %         235           1      1.69 %

   Total
   interest-earning
   assets                 4,553,398      67,510      5.88 %   4,135,372      63,341      6.14 %   4,035,291      70,544      6.95 %
Noninterest-earning
assets:
Other assets                304,817                             279,331                             267,643

   Total assets         $ 4,858,215                         $ 4,414,703                         $ 4,302,934

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest checking       $   402,503    $    420      0.41 % $   370,664    $    393      0.43 % $   351,863    $    666      0.75 %
Money market              1,001,609       3,024      1.20 %     891,610       2,712      1.22 %     995,617       4,384      1.75 %
Savings                     111,184          53      0.19 %     114,339          43      0.15 %     100,720          41      0.16 %
Time certificates of
deposit                     841,001       4,257      2.01 %     692,439       4,219      2.44 %     502,456       3,910      3.10 %

   Total
   interest-bearing
   deposits               2,356,297       7,754      1.31 %   2,069,052       7,367      1.43 %   1,950,656       9,001      1.84 %
Other
interest-bearing
liabilities                 697,196       5,519      3.14 %     605,558       5,265      3.49 %     696,131       6,568      3.75 %

   Total
   interest-bearing
   liabilities            3,053,493      13,273      1.72 %   2,674,610      12,632      1.89 %   2,646,787      15,569      2.34 %
Noninterest-bearing
liabilities:
   Demand deposits        1,274,968                           1,223,169                           1,232,660
   Other liabilities         44,117                              45,458                              47,233

   Total liabilities      4,372,578                           3,943,237                           3,926,680
Stockholders' equity        485,637                             471,466                             376,254

Total liabilities and
stockholders' equity    $ 4,858,215                         $ 4,414,703                         $ 4,302,934

Net interest income                    $ 54,237                            $ 50,709                            $ 54,975

Net interest spread                                  4.16 %                              4.25 %                              4.61 %

Net interest margin                                  4.73 %                              4.92 %                              5.42 %

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

Third quarter of 2009 compared to second quarter of 2009

Net interest income totaled $54.2 million for the third quarter of 2009 compared to $50.7 million for the second quarter of 2009. The $3.5 million increase is largely composed of higher loan and investment interest income of $3.0 million and $1.1 million, respectively, offset by higher deposit and borrowing costs of $641,000. Loan and investment interest income increased due mostly to higher average balances. The increase in interest expense on deposits is due to higher average balances partially offset by lower offering rates on existing accounts. The increase in interest expense on borrowings is due to higher average balances.

Our net interest margin for the third quarter of 2009 was 4.73%, a decrease of 19 basis points when compared to the second quarter of 2009 net interest margin of 4.92%. The net interest margin was 4.80% in July, 4.57% in August and 4.79% in September. The yield on average loans was 6.20% for the third quarter of 2009 compared to 6.31% for the second quarter and the loan yield for the month of September was 6.45%. Net reversals of interest income on nonaccrual loans lowered the third quarter's and September's net interest margin and loan yield by 12 basis points.

To counter the decrease in loan yield, we have managed down our deposit costs, increased our noninterest-bearing demand deposits and replaced higher-cost acquired deposits with less expensive FHLB advances. Deposit pricing and improved deposit mix led to a 12 basis point decrease in the cost of interest-bearing deposits to 1.31% for the third quarter and a 5 basis point decrease in our all-in deposit cost to 0.85%. On a monthly basis, all-in deposit cost was 0.83% in July, 0.82% in August and 0.89% in September. Our relatively low cost of deposits is driven by demand deposit balances, which averaged 35% of average total deposits during the third quarter of 2009. Average core deposits increased $190.5 million quarter-over-quarter with Affinity contributing $100.0 million. The overall cost of interest-bearing liabilities was 1.72% for the third quarter of 2009, down 17 basis points from the second quarter due mostly to lower time deposit costs. The cost of interest-bearing liabilities decreased to 1.61% in September 2009 from 1.85% in June 2009.

Third quarter of 2009 compared to the third quarter of 2008

The $738,000 decrease in net interest income for the third quarter of 2009 compared to the same quarter of 2008 was mainly a result of lower loan yields. Loan interest income decreased $4.1 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 has remained at this level. Interest expense decreased $2.3 million for the third quarter of 2009 compared to the same quarter of 2008 due to lower rates on all interest-bearing liabilities except for savings deposits which increased 3 basis points.

. . .