NOTE 10—COMMITMENTS AND CONTINGENCIES

Lending Commitments

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and commitments to purchase equipment being acquired for lease to others. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The following table presents a summary of the financial instruments described above as of the dates indicated:

	March 31, 2014		December 31, 2013

	(In thousands)
Loan commitments to extend credit	$	1,010,073	$	1,001,740
Standby letters of credit		35,125		39,200
Commitments to purchase equipment being acquired for lease to others		17,262		8,475


	$	1,062,460	$	1,049,415

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. Most guarantees expire within one year from the date of issuance. The Company generally requires collateral or other security to support financial instruments with credit risk.

In addition, the Company has investments in low income housing project partnerships, which provide the Company income tax credits, and in a few small business investment companies. The investments call for capital contributions up to an amount specified in the partnership agreements. As of March 31, 2014 and December 31, 2013, the Company had commitments to contribute capital to these entities totaling $16.8 million and $11.0 million, respectively.

Legal Matters

In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon information currently available to us, any resulting liability, in addition to amounts already accrued, taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company's financial statements or operations.

FCAL-Related Litigation

As set forth below, there are a number of litigation matters pending against FCB, the defense of which PacWest has assumed.

Fourteen lawsuits have been filed in the Superior Court of the State of California, County of Los Angeles against FCB, among others, by various former clients of political campaign and non-profit organization treasurer Kinde Durkee. The lawsuits are entitled (i) Wardlaw, et al. v. First California Bank, et al. (Case No. SC 114232), filed September 23, 2011; (ii) Lou Correa for State Senate, Orange County's Youth et al. v. First California Bank, et al. (Case No. BC 479872), filed February 29, 2012; (iii) Committee(s) to Re-elect Lorreta Sanchez, Linda Sanchez, and Susan Davis, et al. v. First California Bank, et al. (Case No. BC 479873), filed February 29, 2012; (iv) Holden for Assembly v. First California Bank, et al. (Case No. BC 489604), filed August 3, 2012; (v) Latino Diabetes Ass'n v. First California Bank, et al. (Case No. BC 489605), filed August 3, 2012; (vi) Jose Solorio Assembly Officeholder Committee, et al. v. First California Bank, et al. (Case No. 492855), filed September 27, 2012; (vii) Foster for Treasurer 2014, et al. v. First California Bank, et al. (Case No. BC 492878), filed September 27, 2012; (viii) Los Angeles County Democratic Central Committee, et al. v. First California Bank, et al. (Case No. BC 492854), filed September 27, 2012; (ix) FCAL v. 68th AD Democratic PAC, et al. (Case No. : BC470812), filed September 23, 2011(the "Interpleader Action"); (x) First California Bank v. Shallman, John, Shallman Communication/John D. Shallman v. FCB (Case No. LC099226), filed December 11, 2012; (xi) National Popular Vote, et al. v. First California Bank, et al. (Case No. BC501213) filed February 19, 2013; (xii) Zine v. First California Bank, et al. (Case No. BC504476), filed April 2, 2013; (xiii) Rothman, Elliott v. FCAL (Case No. BC511180), filed June 5, 2013; and (xiv) Ted Lieu as Treasurer for Ted Lieu for Assembly 2008 v. First California Bank (Case No. BC470182), filed November 18, 2011.

Plaintiffs in each of the cases claim, among other things, that FCB aided and abetted a fraud and unlawful conversion by Ms. Durkee and/or her affiliated company of funds held in accounts at FCB. Based largely on the same alleged conduct, plaintiffs also assert claims for an alleged violation of California Business & Professions Code Section 17200 and for declaratory relief. Plaintiffs seek compensatory and punitive damages, as well as various forms of equitable and declaratory relief.

Each of the cases is pending before the same judge, who is coordinating their progress. FCB has answered each of the complaints, and the parties have engaged in discovery.

On September 23, 2011, FCB filed a Complaint-in-Interpleader in the Superior Court of the State of California, County of Los Angeles (Case No. BC 470182), pursuant to which FCB interpleaded the sum of $2,539,049 as the amounts on deposit in accounts at FCB that were controlled by Ms. Durkee on behalf of the several hundred named defendants (the "Interpleader Action"). FCB seeks an order requiring the defendants to interplead and litigate their respective claims, discharging FCB from liability, and restraining proceedings or actions against FCB by the defendants with respect to those amounts. On December 6, 2011, the Interpleader Action was designated as complex and transferred to the Superior Court's complex litigation division. It has been related to the other pending actions that relate to the conduct of Ms. Durkee.

On June 18, 2012, FCB moved for summary judgment in the Interpleader Action. At hearings held in late 2012 and early 2013, the Superior Court entered summary judgment with respect to a majority of the accounts at issue. Those sums have been paid by the Superior Court to the former accountholders. There still remains a total of $99,884.79 on deposit with the Court in the Interpleader Action.

In September 2013, Ms. Durkee pled guilty to mail fraud resulting in a judgment of $9.7 million being entered against her. The parties participated in a mediation on October 16, 2013, which did not result in settlement of any claims. Thereafter, at a Further Status Conference on December 19, 2013, the Court scheduled a jury trial on August 13, 2014 as to the following cases: Orange County's Youth, Latino Diabetes Association, Jose Solorio Assembly Officeholder Committee, Holden for Assembly, and Committee(s) to Re-elect Lorreta Sanchez, Linda Sanchez, and Susan Davis (the "First 7 Plaintiffs"). July 14, 2014 has been reserved as the hearing date for the Bank's motion for summary judgment on the claims of the First 7 Plaintiffs.

CapitalSource Merger-Related Litigation

Since July 24, 2013, 11 putative stockholder class action lawsuits (the "Merger Litigations") were filed against PacWest and certain other defendants in connection with PacWest entering into the CapitalSource Merger Agreement in which PacWest agreed to acquire CapitalSource. The CapitalSource Merger Agreement was publicly announced on July 22, 2013. Five of the 11 actions were filed in Superior Court of California, Los Angeles County: (1) Engel v. CapitalSource, Inc. et al., Case No. BC516267, filed on July 24, 2013; (2) Miller v. Fremder et al., Case No. BC516590, filed on July 29, 2013; (3) Basu v. CapitalSource, Inc. et al., Case No. BC516775, filed on July 31, 2013; (4) Holliday v. PacWest Bancorp et al., Case No. BC517209, filed on August 5, 2013 and (5) Iron Workers Mid-South Pension Fund v. CapitalSource Inc. et al., Case No. BC517698, filed on August 8, 2013 (collectively, the "California Actions"). The other six actions were filed in the Court of Chancery of the State of Delaware: (1) Fosket v. Byrnes et al., Case No. 8765, filed on August 1, 2013; (2) Bennett v. CapitalSource, Inc. et al., Case No. 8770, filed on August 2, 2013; (3) Chalfant v. CapitalSource et al., Case No. 8777, filed on August 6, 2013; (4) Oliveira v. CapitalSource, Inc. et al., Case No. 8779, filed on August 7, 2013; (5) Desai v. CapitalSource, Inc. et al., Case No. 8804, filed on August 13, 2013; and (6) Fattore v. CapitalSource, Inc. et al., Case No. 8927, filed on September 19, 2013 (collectively, the "Delaware Actions").

On August 15, 2013, the Delaware Actions were consolidated into a single action, captioned In re CapitalSource Inc. Stockholder Litigation, Consol. C.A. No. 8765-CS, and assigned to Chancellor Leo E. Strine. On September 25, 2013, plaintiffs in the Delaware Actions filed a Verified Consolidated Amended Class Action Complaint (the "Delaware Consolidated Complaint"). On September 17, 2013, the California Actions were consolidated into a single action, captioned In re CapitalSource Inc. Shareholder Litigation, Lead Case No. BC516267, and assigned to Judge Elihu M. Berle. On October 2, 2013, plaintiffs in the California Actions filed an Amended Consolidated Complaint (the "California Consolidated Complaint").

The Delaware Consolidated Complaint and the California Consolidated Complaint each allege that the members of the CapitalSource board of directors breached their fiduciary duties to CapitalSource stockholders by approving the proposed merger for inadequate consideration; approving the transaction in order to obtain benefits not equally shared by other CapitalSource stockholders; entering into the merger agreement containing preclusive deal protection devices; and failing to take steps to maximize the value to be paid to the CapitalSource stockholders. The Delaware Consolidated Complaint and the California Consolidated Complaint also each allege claims against CapitalSource and PacWest for aiding and abetting these alleged breaches of fiduciary duties. Plaintiffs in these actions seek, among other things, declaratory and injunctive relief concerning the alleged breaches of fiduciary duties, injunctive relief prohibiting consummation of the merger, rescission, an accounting by defendants, damages and attorneys' fees and costs, and other and further relief. The judge in the Delaware Actions ruled on October 23, 2013, that discovery would proceed in the Delaware Actions and that it would be shared with the plaintiffs in the California Actions and that the California Actions would be stayed while that process takes place. Thereafter, on October 28, 2013, the California Actions' plaintiffs stipulated in the California Actions that they would participate in the discovery process in the Delaware Actions and the administrative stay in the California Actions will remain in place unless and until the Delaware Actions are abandoned.

On December 20, 2013, the parties in the California and Delaware Actions entered into a Memorandum of Understanding (the "MOU") setting forth the terms of an agreement in principle to settle both the California and Delaware Actions, subject to certain conditions and future occurrences. Under the terms of the MOU, the merger closed on April 7, 2014. The parties are finalizing a draft Stipulation of Settlement which, consistent with the terms of the MOU, will resolve both the California and Delaware Actions. The parties plan to submit this Settlement Stipulation to the Delaware Court for review as soon as it is complete, and to seek Court approval shortly thereafter. There is also a further status conference scheduled in the California Action on September 10, 2014. At this stage, it is not possible to predict the outcome of the proceedings or their financial impact on the Company; however, the agreements provide, among other things, for payment of Plaintiffs' attorneys fees by Company and/or its insurers, as a condition precedent to a release and dismissal of the Merger Litigations with prejudice.