ACQUISITIONS

12 Months Ended

Dec. 31, 2011

ACQUISITIONS

ACQUISITIONS

NOTE 3—ACQUISITIONS

        We completed the following acquisitions during the time period of January 1, 2009 to December 31, 2011, using the acquisition method of accounting, and, accordingly, the operating results of the acquired entities have been included in our consolidated financial statements from their respective dates of acquisition.

	Acquisition and Date Acquired
	Los Padres Bank			Affinity Bank
	August 2010			August 2009
	(In thousands)
Assets Acquired:
Cash and cash equivalents	$	26,615		$	1,471
Interest-earning deposits in other banks		751			163,047
Cash received from the FDIC		144,000			87,161
Investments:
Covered by loss-sharing		—			55,271
Not covered by loss-sharing		44,251			120,130
Loans:
Covered by loss-sharing		436,291			675,616
Not covered by loss-sharing		828			—
Other real estate owned covered by loss-sharing		33,913			22,897
Goodwill		47,301			—
Core deposit intangible assets		2,189			2,812
FDIC loss sharing asset		71,204			107,718
Other assets		16,740			9,282
Total assets acquired	$	824,083		$	1,245,405
Liabilities Assumed:
Noninterest-bearing deposits	$	(33,722	)	$	(6,244	)
Interest-bearing deposits		(718,463	)		(861,932	)
Borrowings		(70,013	)		(289,492	)
Securities sold under repurchase agreements		—			(16,310	)
Accrued interest payable and other liabilities		(1,885	)		(32,573	)
Total liabilities assumed	$	(824,083	)	$	(1,206,551	)
Net assets acquired	$	—		$	38,854
Deposit premium paid	$	3,393		$	—

• Federally Assisted Acquisition of Los Padres Bank

        On August 20, 2010, Pacific Western acquired certain assets of Los Padres Bank, including all loans, and assumed substantially all of its liabilities, including all deposits, from the Federal Deposit Insurance Corporation ("FDIC") in an FDIC-assisted acquisition, which we refer to as the Los Padres acquisition. We entered into a loss sharing agreement with the FDIC, whereby the FDIC agreed to cover a substantial portion of any future losses on acquired OREO and acquired loans, with the exception of acquired consumer loans. 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 is obligated to reimburse the Bank for 80% of losses with respect to the covered assets. The Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the Bank 80% reimbursement under the loss sharing agreement. The loss sharing provisions for single family covered assets and commercial (non-single family) covered assets are in effect for 10 years and 5 years, respectively, from the August 20, 2010 acquisition date, and the loss recovery provisions are in effect for 10 years and 8 years, respectively, from the acquisition date. Through December 31, 2011, gross losses for Los Padres covered assets totaled $47.1 million.

        Los Padres was a federally chartered savings bank headquartered in Solvang, California that operated 14 branches, including 11 branches in California (three in Ventura County, four in Santa Barbara County, and four in San Luis Obispo County) and three branches in Arizona (Maricopa County). After office consolidations during 2011, we are operating eight of the former Los Padres branch offices, all of which are located in California. We made this acquisition to expand our presence in the Central Coast of California.

        The assets acquired and liabilities assumed have 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 20, 2010 acquisition date. The application of the acquisition method of accounting resulted in goodwill of $47.3 million. Such goodwill included $9.5 million related to the FDIC's settlement accounting for a wholly-owned subsidiary of Los Padres. We disagreed with the FDIC's accounting for this item. During 2011, we resolved this matter with the FDIC for a cash payment of $7.6 million; goodwill was reduced by the same amount.

• Federally Assisted Acquisition of Affinity Bank

        On August 28, 2009, Pacific Western acquired certain assets and assumed certain liabilities of Affinity Bank from the FDIC in an FDIC-assisted acquisition. We entered into a loss sharing agreement with the FDIC, whereby the FDIC agreed to cover a substantial portion of any future losses on acquired 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 receive 80% of loss recoveries on the first $234 million of losses on covered assets and absorb 95% of losses and receive 95% of loss recoveries on covered assets exceeding $234 million. The loss sharing provisions are in effect for 5 years for commercial assets (non-residential loans, OREO and certain securities) and 10 years for residential loans from the August 28, 2009 acquisition date. The loss recovery provisions are in effect for 8 years for commercial assets and 10 years for residential loans from the acquisition date. Affinity was a full service commercial bank headquartered in Ventura, California that operated 10 branch locations in California. We made this acquisition to expand our presence in California. Through December 31, 2011, gross losses for Affinity covered assets totaled $144.6 million.

        The assets acquired and liabilities assumed have 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. The application of the acquisition method of accounting resulted in a net after-tax gain of $38.9 million ($67.0 million before tax).

• Acquisition-related charges

        All of the acquisitions consummated after December 31, 2000 were completed using the acquisition method of accounting. For those acquisitions completed prior to January 1, 2009, we recorded the estimated merger-related charges associated with each acquisition as a liability at closing when the related purchase price was allocated. For each acquisition, we developed an integration plan for the Company that addressed, among other things, requirements for staffing, systems platforms, branch locations and other facilities. The remaining merger-related liability totaled $922,000 at December 31, 2011 and represented the estimated lease payments, net of estimated sublease income, for the remaining life of leases for abandoned space. For acquisitions completed after January 1, 2009, acquisition-related costs, such as legal, accounting, valuation and other professional fees, necessary to effect a business combination, are charged to earnings in the periods in which the costs are incurred. We incurred and charged to expense approximately $600,000, $732,000 and $600,000 of such costs in 2011, 2010 and 2009, respectively.

• Unaudited Pro Forma Results of Operations

        The following table presents our unaudited pro forma results of operations for the periods presented as if the Los Padres acquisition had been completed on January 1, 2009 and the Affinity acquisition had been completed on January 1, 2008. The unaudited pro forma results of operations include the historical accounts of the Company and Affinity and pro forma adjustments as may be required, including the amortization of intangibles with definite lives and the amortization or accretion of any premiums or discounts arising from fair value adjustments for assets acquired and liabilities assumed. The unaudited pro forma information is intended for informational purposes only and is not necessarily indicative of our future operating results or operating results that would have occurred had the Los Padres acquisition been completed at the beginning of 2009 and the Affinity acquisition completed at the beginning of 2008. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions.

	Year Ended December 31,
	2010			2009
	(In thousands, except per share data)
Pro forma revenues (net interest income plus noninterest income)	$	312,477		$	336,341
Pro forma net loss	$	(64,000	)	$	(78,390	)
Pro forma net loss per share:
Basic	$	(1.82	)	$	(2.47	)
Diluted	$	(1.82	)	$	(2.47	)