FIRST PACTRUST BANCORP INC (Form: 10-Q, Received: 11/13/2012 17:15:29)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-35522

FIRST PACTRUST BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland

(State or other jurisdiction of

incorporation or organization)

04-3639825

(IRS Employer Identification No.)

18500 Von Karman Ave, Suite 1100, Irvine, California

(Address of principal executive offices)

92612

(Zip Code)

(949) 236-5211

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of October 31, 2012 the registrant had outstanding 10,684,185 shares of voting common stock and 1,1 00,754 shares of Class B non-voting common stock.

FIRST PACTRUST BANCORP, INC.

Form 10-Q Quarterly Report

Index



		Page
PART I - Financial Information

Item 1	Financial Statements		4

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		55

Item 3	Quantitative and Qualitative Disclosures About Market Risk		67

Item 4	Controls and Procedures		68

PART II - Other Information

Item 1	Legal Proceedings		69

Item 1A	Risk Factors		69

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		70

Item 3	Defaults Upon Senior Securities		71

Item 4	Mine Safety Disclosures		71

Item 5	Other Information		71

Item 6	Exhibits		72

SIGNATURES			77

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

When used in this report and in public shareholder communications, in other documents of First PacTrust Bancorp, Inc. (the “Company,” “we,” “us” and “our”) filed with or furnished to the Securities and Exchange Commission (the “SEC”), or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “guidance” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements may relate to our future financial performance, strategic plans or objectives, revenue, expense or earnings projections, or other financial items. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (i) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement for the Company’s pending acquisition of the Private Bank of California (“PBOC”); (ii) the outcome of any legal proceedings that may be instituted against the Company or PBOC; (iii) the inability to complete the PBOC transaction due to the failure to satisfy such transaction’s conditions to completion, including the receipt of regulatory approvals and the approval of the merger agreement by PBOC’s shareholders; (iv) risks that the proposed PBOC transaction, or the Company’s recently completed acquisitions of Beach Business Bank and Gateway Bancorp, may disrupt current plans and operations, the potential difficulties in customer and employee retention as a result of the transactions and the amount of the costs, fees, expenses and charges related to the transactions; (v) continuation or worsening of current recessionary conditions, as well as continued turmoil in the financial markets; (vi) the credit risks of lending activities, which may be affected by further deterioration in real estate markets and the financial condition of borrowers, may lead to increased loan and lease delinquencies, losses and nonperforming assets in our loan portfolio, and may result in our allowance for loan and lease losses not being adequate to cover actual losses and require us to materially increase our loan and lease loss reserves; (vii) the quality and composition of our securities portfolio; (viii) changes in general economic conditions, either nationally or in our market areas; (ix) continuation of the historically low short-term interest rate environment, changes in the levels of general interest rates, and the relative differences between short- and long-term interest rates, deposit interest rates, our net interest margin and funding sources; (x) fluctuations in the demand for loans and leases, the number of unsold homes and other properties and fluctuations in commercial and residential real estate values in our market area; (xi) results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan and lease losses, write-down asset values, increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; (xii) legislative or regulatory changes that adversely affect our business, including changes in regulatory capital or other rules; (xiii) our ability to control operating costs and expenses; (xiv) staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges; (xv) errors in our estimates in determining fair value of certain of our assets, which may result in significant declines in valuation; (xvi) the network and computer systems on which we depend could fail or experience a security breach; (xvii) our ability to attract and retain key members of our senior management team; (xviii) costs and effects of litigation, including settlements and judgments; (xix) increased competitive pressures among financial services companies; (xx) changes in consumer spending, borrowing and saving habits; (xxi) adverse changes in the securities markets; (xxii) earthquake, fire or other natural disasters affecting the condition of real estate collateral; (xxiii) the availability of resources to address changes in laws, rules or regulations or to respond to regulatory actions; (xxiv) inability of key third-party providers to perform their obligations to us; (xxv) changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board or their application to our business or final audit adjustments, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; (xxvi) war or terrorist activities; and (xxvii) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in this report and from time to time in other documents that we file with or furnish to the SEC. You should not place undue reliance on forward-looking statements, and we undertake no obligation to update any such statements to reflect circumstances or events that occur after the date on which the forward-looking statement is made.

ITEM 1 – FINANCIAL STATEMENTS

First PacTrust Bancorp, Inc.

Consolidated Statements of Financial Condition

(In thousands of dollars except share and per share data)

(Unaudited)


	September 30, 2012		December 31, 2011
ASSETS
Cash and due from banks	$	8,867	$	6,755
Interest-bearing deposits		104,638		37,720
Federal funds sold		8,555		—

Total cash and cash equivalents		122,060		44,475
Time deposits in financial institutions		5,621		—
Securities available for sale		122,271		101,616
Federal Home Loan Bank and other bank stock, at cost		8,842		6,972
Originated loans and leases receivable, net of allowance of $11,663 at September 30, 2012 and $12,257 at December 31, 2011		798,347		716,377
Purchased loans and leases receivable, net of allowance of $716 at September 30, 2012 and $523 at December 31, 2012		404,648		59,232
Loans held for sale		110,291		—
Servicing rights, net		2,170		—
Accrued interest receivable		5,312		3,569
Other real estate owned (OREO), net		8,704		14,692
Premises and equipment, net		15,492		10,585
Bank owned life insurance investment		18,649		18,451
Prepaid FDIC assessment		1,622		2,405
Deferred income tax		7,441		7,643
Goodwill		7,039		—
Other intangible assets, net		5,841		—
Other assets		25,382		13,024

Total assets	$	1,669,732	$	999,041

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest-bearing demand	$	88,616	$	20,039
Interest-bearing demand		183,516		68,578
Money market accounts		253,557		188,658
Savings accounts		162,979		39,176
Certificates of deposit		639,553		469,883

Total deposits		1,328,221		786,334
Advances from Federal Home Loan Bank		86,000		20,000
Notes payable, net		34,018		—
Reserve for loss reimbursements on sold loans		2,665		—
Accrued expenses and other liabilities		27,089		8,212

Total liabilities		1,477,993		814,546
Commitments and contingent liabilities		—		—


	September 30, 2012			December 31, 2011
SHAREHOLDERS’ EQUITY
Preferred stock, $.01 par value per share, $1,000 per share liquidation preference for a total of $32,000; 50,000,000 shares authorized, 32,000 shares issued and outstanding at September 30, 2012 and December 31, 2011		31,925			31,934
Common stock, $.01 par value per share, 196,863,844 shares authorized; 11,900,952 shares issued and 10,683,327 shares outstanding at September 30, 2012; 11,756,636 shares issued and 10,581,704 shares outstanding at December 31, 2011		119			117
Class B non-voting non-convertible Common stock, $.01 par value per share, 3,136,156 shares authorized; 1,090,061 shares issued and outstanding at September 30, 2012 and 1,054,991 shares issued and outstanding at December 31, 2011		11			11
Additional paid-in capital		153,467			150,786
Retained earnings		31,477			27,623
Treasury stock, at cost (September 30, 2012-1,217,625 shares, December 31, 2011-1,174,932 shares)		(25,638	)		(25,037	)
Accumulated other comprehensive income/(loss), net		378			(939	)

Total shareholders’ equity		191,739			184,495

Total liabilities and shareholders’ equity	$	1,669,732		$	999,041

See accompanying notes to consolidated financial statements.

First PacTrust Bancorp, Inc.

Consolidated Statements of Income and Comprehensive Income/(Loss)

(In thousands of dollars except share and per share data)

(Unaudited)


	Three months ended September 30,					Nine months ended September 30,
	2012			2011		2012			2011
Interest and dividend income
Loans, including fees	$	15,928		$	7,757	$	35,060		$	22,936
Securities		708			1,017		2,139			3,263
Dividends and other interest-earning assets		86			49		226			155
Federal funds sold		—			—		—			—

Total interest and dividend income		16,722			8,823		37,425			26,354
Interest expense
Savings		211			95		233			283
NOW		102			18		162			50
Money market		166			62		557			189
Certificates of deposit		1,099			1,072		3,333			3,225
Federal Home Loan Bank advances		74			92		266			960
Capital leases		2			—		4			—
Notes payable		660			—		1,155			—

Total interest expense		2,314			1,339		5,710			4,707

Net interest income		14,408			7,484		31,715			21,647
Provision for loan and lease losses on originated loans		894			823		1,808			1,274
Provision for loan and lease losses on purchased loans		137			—		193			—

Net interest income after provision for loan and lease losses		13,377			6,661		29,714			20,373
Noninterest income
Customer service fees		543			396		1,282			1,107
Mortgage loan prepayment penalties		46			54		62			80
Loan servicing income		146			—		146			—
Income from bank owned life insurance		69			77		198			221
Net gain/(loss) on sales of securities available for sale		(12	)		1,450		(83	)		2,887
Net gain on sale of loans		59			—		204			—
Net gain on mortgage banking activities		5,546			—		5,546			—
Bargain purchase gain		12,055			—		12,055			—
Other		1,060			35		1,244			119

Total noninterest income		19,512			2,012		20,654			4,414
Noninterest expense
Salaries and employee benefits		13,613			3,251		23,657			9,488
Occupancy and equipment		2,473			730		4,793			1,926
Advertising		395			71		848			182
Professional fees		3,788			667		5,318			1,416
Stationery paper, supplies, and postage		286			105		582			336
Data processing		1,037			356		1,946			972
ATM costs		93			81		277			223
FDIC assessments		291			222		971			997
Provision for loss reimbursements on sold loans		172			—		172			—
Loan servicing and foreclosure expense		83			327		788			783
Operating loss on equity investment		76			79		229			235
OREO valuation allowance		36			1,329		205			1,887
Net (gain)/loss on sales of other real estate owned		42			105		(466	)		924
Amortization of intangible assets		329			—		329			—
Other general and administrative		1,742			338		2,968			1,107

Total noninterest expense		24,456			7,661		42,617			20,476


	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Income before income taxes		8,433			1,012			7,751			4,311
Income tax expense/(benefit)		(1,110	)		368			(1,430	)		1,425

Net income	$	9,543		$	644		$	9,181		$	2,886

Preferred stock dividends	$	328		$	138		$	1,042		$	138

Net income available to common shareholders	$	9,215		$	506		$	8,139		$	2,748
Basic earnings per common share	$	0.79		$	0.04		$	0.70		$	0.27

Diluted earnings per common share	$	0.79		$	0.04		$	0.70		$	0.27

Other comprehensive income/(loss), before tax:
Change in net unrealized gains/(losses) on securities:
Net unrealized holding gains arising during the period		817			(932	)		2,155			(2,408	)
Less: reclassification adjustment for (gains)/losses included in net income		12			(1,450	)		83			(2,887	)

Net unrealized gains/(losses), net of reclassification adjustments		829			(2,382	)		2,238			(5,295	)
Income tax expense/(benefit) related to items of other comprehensive income/(loss)		341			(978	)		921			(2,179	)

Total other comprehensive income/(loss), net of tax		488			(1,404	)		1,317			(3,116	)

Comprehensive income/(loss)	$	10,031		$	(760	)	$	10,498		$	(230	)

See accompanying notes to consolidated financial statements.

First PacTrust Bancorp, Inc.

Consolidated Statements of Shareholder’s Equity

(In thousands of dollars, except share and per share data)

(Unaudited)


	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Unearned ESOP			Accumulated Other Comprehensive Income (Loss), net			Total
Balance at January 1, 2011	$	—	$	109	$	123,170		$	35,773		$	(25,135	)	$	(507	)	$	2,599		$	136,009
Net Loss		—		—		—			(2,728	)		—			—			—			(2,728	)
Other comprehensive (loss), net		—		—		—			—			—			—			(3,538	)		(3,538	)
Forfeiture and retirement of shares and common stock		—		—		13			—			(13	)		—			—			—
Stock option compensation expense		—		—		816			—			—			—			—			816
ESOP forfeitures used to reduce ESOP contribution		—		—		7			—			—			—			—			7
Stock awards earned		—		—		412			—			—			—			—			412
Issuance of stock awards		—		—		(611	)		—			107			—			—			(504	)
Purchase of 5,224 shares of treasury stock		—		—		—			—			(55	)		—			—			(55	)
Employee stock ownership plan shares earned		—		—		98			—			—			507			—			605
Tax benefit/(loss) of restricted share awards vesting		—		—		(4	)		—			—			—			—			(4	)
Dividends declared ($.45 per common share)		—		—		516			(4,888	)		—			—			—			(4,372	)
Repurchase of warrants – TARP		—		—		(1,003	)		—			—			—			—			(1,003	)
Tax effect of ESOP		—		—		256			—			—			—			—			256
Tax effect of options redeemed		—		—		147			—			—			—			—			147
Reissuance of ESOP shares		—		—		(59	)		—			59			—			—			—
Preferred stock dividends		—		—		—			(534	)		—			—			—			(534	)
Issuance of 32,000 shares of preferred stock, net of issuance costs of $66		31,934		—		—			—			—			—			—			31,934
Net proceeds from stock issuance		—		19		27,028			—			—			—			—			27,047


	Preferred Stock			Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Unearned ESOP		Accumulated Other Comprehensive Income (Loss), net			Total
Balance at December 31, 2011		31,934			128		150,786			27,623			(25,037	)		—		(939	)		184,495
Net Income		—			—		—			9,181			—			—		—			9,181
Other comprehensive income, net		—			—		—			—			—			—		1,317			1,317
Forfeiture and retirement of 200 shares and common stock		—			—		3			—			(120	)		—		—			(117	)
Forfeited share option		—			—		(387	)		—			—			—		—			(387	)
Stock option compensation expense		—			—		774			—			—			—		—			774
RRP option compensation expense		—			—		161			—			—			—		—			161
Stock awards earned		—			—		644			—			—			—		—			644
Severance payment		—			—		(129	)		—			—			—		—			(129	)
Issuance of common stock		—			2		(2	)		—			—			—		—			—
Purchase of 42,693 shares of treasury stock		—			—		—			—			(481	)		—		—			(481	)
Dividends declared ($0.36 per common share)		—			—		632			(4,285	)		—			—		—			(3,653	)
Purchase of preferred stock		(9	)		—		—			—			—			—		—			(9	)
Preferred stock dividends		—			—		—			(1,042	)		—			—		—			(1,042	)
Tax benefit/(loss) of RRP shares vesting		—			—		(17	)		—			—			—		—			(17	)
Warrants issued with Beach Business Bank purchase		—			—		1,009			—			—			—		—			1,009
Capital raising expenses		—			—		(7	)		—			—			—		—			(7	)

Balance at September 30, 2012	$	31,925		$	130	$	153,467		$	31,477		$	(25,638	)	$	—	$	378		$	191,739

See accompanying notes to consolidated financial statements.

First PacTrust Bancorp, Inc.

Consolidated Statements of Cash Flows

(In thousands of dollars)

(Unaudited)


	Nine months ended September 30,
	2012			2011
Cash flows from operating activities
Net income	$	9,181		$	2,886
Adjustments to reconcile net income to net cash from operating activities
Bargain purchase gain		(12,055	)		—
Provision for loan and lease losses		2,001			1,274
Amortization of intangible assets		329			—
Provision for loss reimbursements on sold loans		172			—
Net gain on mortgage banking activities		(5,546	)		—
Gain on sale of loans		(204	)		—
Net amortization/(accretion) of securities		861			(364	)
Net amortization of debt		76			—
Depreciation		1,035			451
Employee stock ownership plan compensation expense		—			482
Stock incentive compensation expense		805			744
Fair value adjustments of mortgage servicing rights		(290	)		—
Bank owned life insurance income		(198	)		(221	)
Operating loss on equity investment		229			235
Net (gain)/loss on sales of securities available-for-sale		83			(2,887	)
Net (gain)/loss on sales of other real estate owned		(466	)		924
Deferred income tax (benefit)/expense		1,113			(2,136	)
Decrease in valuation allowances on other real estate owned		(851	)		(1,942	)
Originations of loans held for sale		(166,250	)		—
Proceeds from loans held for sale		128,804			—
Net change in:
Deferred loan costs		377			545
Premiums and discounts on purchased loans		(1,231	)		—
Accrued interest receivable		(3,951	)		311
Other assets		9,630			133
Accrued interest payable and other liabilities		3,979			3,735

Net cash from operating activities		(32,367	)		4,170
Cash flows from investing activities
Proceeds from sales of securities available-for-sale		7,712			50,846
Proceeds from maturities, calls and principal repayments of securities available-for-sale		34,512			19,470
Purchases of securities available-for-sale		(56,088	)		(84,483	)
Net cash acquired through acquisitions		43,670			—
Funding of equity investment		(543	)		—
Loan originations and principal collections, net		(107,421	)		(44,589	)
Purchase of loans		(66,528	)		—
Redemption of Federal Home Loan Bank stock		702			1,013
Proceeds from sales of other real estate owned		11,672			8,281
Proceeds from sale of loans		27,713			—
Additions to premises and equipment		(4,492	)		(3,492	)

Net cash from investing activities		(109,091	)		(52,954	)


	Nine months ended September 30,
	2012			2011
Cash flows from financing activities
Repurchase of warrants, TARP		—			(1,003	)
Net increase in deposits		126,625			65,301
Repayments of Federal Home Loan Bank advances		(30,053	)		(55,000	)
Proceeds from Federal Home Loan Bank advances		96,000			—
Net proceeds from issuance of common stock		—			26,850
Purchase of preferred stock		(7	)		31,940
Net proceeds from issuance of debt		31,680			—
Purchase of stock		(490	)		(4	)
Tax benefit/(loss) from RRP shares vesting		(17	)		(1	)
Tax effect of ESOP		—			148
Tax effect of options redeemed		—			147
Dividends paid on preferred stock		(1,042	)		(138	)
Dividends paid on common stock		(3,653	)		(3,456	)

Net cash from financing activities		219,043			64,784

Net change in cash and cash equivalents		77,585			16,000
Cash and cash equivalents at beginning of period		44,475			59,100

Cash and cash equivalents at end of period	$	122,060		$	75,100

Supplemental cash flow information
Interest paid on deposits and borrowed funds	$	5,636		$	4,745
Income taxes paid		—			950
Supplemental disclosure of noncash activities(1)
Transfer from loans to other real estate owned, net		3,750			20,808
Equipment acquired under capital leases		365			—

(1)	See Note 3 for non-cash transactions included in the merger with Beach Business Bank and acquisition of Gateway Business Bank.

See accompanying notes to consolidated financial statements.

FIRST PACTRUST BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Amounts in thousands of dollars, except share and per share data)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts of First PacTrust Bancorp, Inc. (the Company) and its wholly owned subsidiaries, Pacific Trust Bank and Beach Business Bank (collectively, the Banks, and individually the Bank, as the context may indicate) and PTB Property Holdings, LLC, as of September 30, 2012 and December 31, 2011 and for the three and nine month periods ended September 30, 2012 and September 30, 2011, except that the accounts of Beach Business Bank were not included for amounts prior to July 1, 2012. Significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles (GAAP) are not included herein. These interim statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2011 filed by the Company with the Securities and Exchange Commission. The December 31, 2011 balance sheet presented herein has been derived from the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission, but does not include all of the disclosures required by U.S. generally accepted accounting principles.

Interim financial statements are subject to possible adjustment in connection with the annual audit of the Company’s financial statements for the year ending December 31, 2012. In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial position and consolidated results of operations for the periods presented. Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation.

The results of operations for the three and nine month periods ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, the Banks and PTB Property Holdings, LLC. All significant intercompany transactions and balances are eliminated in consolidation.

Nature of Operations: The principal business of the Company is the ownership of the Banks. Pacific Trust Bank is a federally chartered stock savings bank and Beach Business Bank is a California state chartered commercial bank. The Banks are members of the Federal Home Loan Bank (FHLB) system, and maintain insurance on deposit accounts with the Federal Deposit Insurance Corporation (FDIC).

The Banks are engaged in the business of retail banking, with operations conducted through nineteen banking offices serving San Diego, Los Angeles, Orange and Riverside Counties, California and twenty-three loan production offices in California, Arizona, Oregon and Washington. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is significantly dependent on the real estate market and general economic conditions in the area.

On April 5, 2012, the Company announced that the Office of the Comptroller of the Currency (the OCC) terminated the August 2009 Memorandum of Understanding between the Office of Thrift Supervision (the OTS) which was succeeded as Pacific Trust Bank’s primary regulator effective July 21, 2011 by the Office of the Comptroller of the Currency and Pacific Trust Bank, effective April 4, 2012. The Memorandum of Understanding subjected Pacific Trust Bank to additional oversight by its regulator and placed certain restrictions on its business.

The accounting and reporting polices of the Company are based upon U.S. generally accepted accounting principles and conform to predominant practices within the banking industry. Significant accounting policies followed by the Company are presented below.

Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ. The allowance for loan and lease losses, reserve for loss reimbursements on sold loans, servicing rights, other real estate owned, realization of deferred tax assets, goodwill, other intangible assets, mortgage banking derivatives, fair value estimate of private label residential mortgage-backed securities, and the fair value of financial instruments are particularly subject to change and such change could have a material effect on the consolidated financial statements.

Securities: Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under Statement of Financial Accounting Standards Accounting Standards Codification “ASC” 320, Accounting for Certain Investments in Debt and Equity Securities. However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in ASC 325, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transfer in Securitized Financial Assets.

In determining OTTI under the ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

The second segment of the portfolio uses the OTTI guidance provided by ASC 325 that is specific to purchased beneficial interests that, on the purchase date, were rated below AA. Under the ASC 325 model, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If the Company intends to sell or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income or loss, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Affordable Housing Fund: The Company has two equity investments in affordable housing funds originally totaling $9.2 million for purposes of obtaining tax credits and for Community Reinvestment Act purposes. These investments are accounted for using the equity method of accounting. Under the equity method of accounting, the Company recognizes its ownership share of the profits and losses of the fund. The Company obtains tax credits from these investments which reduce income tax expense for a period of 10 years. These investments are regularly evaluated for impairment by comparing the carrying value to the remaining tax credits expected to be received. For the nine month periods ending September 30, 2012 and 2011, the Company’s share of the funds’ operating losses was $229 thousand and $235 thousand, respectively. The balance of the investments at September 30, 2012 and December 31, 2011 was $6.3 million and $1.6 million, respectively, and is included in other assets.

Concentration of Credit Risk: Most of the Company’s business activity is with customers located within San Diego, Los Angeles, Orange and Riverside Counties, California. Therefore, the Company’s exposure to credit risk is significantly affected by economic conditions in those areas.

Allowance for Loan and Lease Losses: The allowance for loan and lease losses is maintained at a level considered adequate by management to provide for probable incurred credit losses. The allowance is increased by provisions charged against income, while loan and lease losses are charged against the allowance when management deems a loan balance to be uncollectible. Subsequent recoveries, if any, are credited to the allowance. The Company performs an analysis of the adequacy of the allowance on a monthly basis. Management estimates the allowance balance required using past loan and lease loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans and leases, but the entire allowance is available for any loan or lease that, in management’s judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans and leases that are individually classified as impaired. A loan or lease is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan or lease agreement. The Company evaluates all impaired loans and leases individually under the guidance of ASC 310, primarily through the evaluation of collateral values and cash flows. Loans and leases for which the terms have been modified and where the borrower is experiencing financial difficulties are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans and leases that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan or lease and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. If a loan or lease is impaired, a portion of the allowance is allocated so that the loan or lease is reported, net, at the present value of estimated future cash flows using the loan’s or leases’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Troubled debt restructurings are also measured at the present value of estimated future cash flows using the loan’s or lease’s effective rate at inception or at the fair value of collateral if repayment is expected solely from the collateral. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s or lease’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan or lease, the loan or lease is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan and lease losses.

Loans that were acquired during the third quarter of 2012 from Beach Business Bank and Gateway Business Bank that were considered credit impaired were written down at acquisition date in purchase accounting to an amount estimated to be collectible and the related allowance for loan and lease losses was not carried over to the First PacTrust Bancorp, Inc.’s allowance. Any losses on such loans are charged against the nonaccretable difference established in purchase accounting and are not reported as charge-offs until such non-accretable difference is fully utilized. See further discussion below under Purchased Credit Impaired Loans.

The general component of the allowance for loan and lease losses covers loans and leases that are not impaired and is determined by portfolio segment and is based on actual loss history experienced by the Company. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans and leases; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans and leases; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; effects of changes in credit concentrations and other factors. The historical loss analysis is also combined with a comprehensive loan or lease to value analysis to analyze the associated risks in the current loan and lease portfolio. For 2011 and 2012, the Company used a three year loss look back for determining the level of its allowance for loan and lease losses. Prior to this, the Company used a one year look back. This change was made to better reflect the improving state of the loan and lease portfolio as delinquencies have declined and loan and lease losses have leveled. An updated loan or lease to value analysis is obtained from an independent firm semi-annually, most recently in May 2012. Management uses available information to recognize loan and lease losses, however, future loan and lease loss provisions may be necessary based on changes in the above mentioned factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan and lease losses and may require the Bank to recognize additional provisions based on their judgment of information available to them at the time of their examination.

The following portfolio segments have been identified: commercial and industrial, commercial real estate mortgage, multi-family, land, SBA, construction, lease financing residential real estate one-to four- family first mortgage, residential real estate one-to four- family junior lien mortgage, and other revolving credit and installment loans. The Company categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans and leases as to credit risk. This analysis includes all loans and leases delinquent over 60 days and non-homogenous loans and leases such as commercial and commercial real estate loans. Classification of problem one-to-four family-residential loans is performed on a monthly basis while analysis of non-homogenous loans is performed on a quarterly basis.

Loans secured by multi-family and commercial real estate properties generally involve a greater degree of credit risk than one-to four- family residential mortgage loans. Because payments on loans secured by multi-family and commercial real estate properties are often dependent on the successful operation or management of the properties, repayment of these loans may be subject to adverse conditions in the real estate market or the economy. Commercial business loans are also considered to have a greater degree of credit risk than one- to four-family residential mortgage loans due to the fact commercial business loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself (which, in turn, is often dependent in part upon general economic conditions). SBA business loans are similar to commercial business loans, but have additional credit enhancement provided by the governmental agency, U.S. Small Business Administration, for up to 75% of the loan balance. Commercial equipment leases are also similar to commercial business loans in that the leases are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial equipment leases may be substantially dependent on the success of the business itself (which, in turn, is often dependent in part upon general economic conditions). Consumer and other real estate loans may entail greater risk than do one- to four- family residential mortgage loans given that collection of these loans is dependent on the borrower’s continuing financial stability and, thus, are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy. Negatively amortizing and interest only loans are also considered to carry a higher degree of credit risk due to their unique cash flows. Credit risk on this asset class is also managed through the completion of regular re-appraisals of the underlying collateral and monitoring of the borrower’s usage of this account to determine if the borrower is making monthly payments from external sources or “draw downs” on their line. In cases where the property values have declined to levels less than the original loan-to-value, or other levels deemed prudent by the Bank, the Bank may freeze the line and/or require monthly payments or principal reductions to bring the loan in balance.

Classified Assets: Federal regulations provide for the classification of loans, leases, and other assets, such as debt and equity securities considered by the OCC to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. The Bank includes in its classification of “Substandard Assets” loans and leases that are performing under terms of a TDR, but where the borrower has yet to make twelve or more payments under the TDR, and where the loan or lease remains impaired, as well as loans and leases where the borrower is current in his or her payments on the subject classified loan or lease but may be a guarantor on another loan or lease that is classified as a result of weakness in the credit or collateral (“Relationship”). TDR loans and leases that have continued to make payments for twelve months or more, but where the collateral remains impaired, retain a “Substandard” classification. As of September 30, 2012, the Bank had $5.3 million of TDR loans and leases classified as “substandard” with less than twelve months of payment performance and $6.7 million of TDR loans and leases classified as “substandard” with payment performance for more than twelve months. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. When an insured institution classifies problem assets as either substandard or doubtful, it may establish general or specific allowances for loan and lease losses in an amount deemed prudent by management and approved by the Board of Directors. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to charge off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OCC, which may order the establishment of additional general or specific loss allowances.

In connection with the filing of the Bank’s periodic reports with the OCC and in accordance with our classification of assets policy, the Bank regularly reviews the problem assets in its portfolio to determine whether any assets require classification in accordance with applicable regulations.

Purchased Credit-Impaired Loans and Leases: The Company purchases loans and leases with and without evidence of credit quality deterioration since origination. Evidence of credit quality deterioration as of the purchase date may include statistics such as prior loan or lease modification history, updated borrower credit scores and updated loan or lease-to-value (LTV) ratios, some of which are not immediately available as of the purchase date. Purchased loans and leases with evidence of credit quality deterioration where the Company estimates that it will not receive all contractual payments are accounted for as purchased credit impaired loans and leases (PCI loans and leases). The excess of the cash flows expected to be collected on PCI loans and leases, measured as of the acquisition date, over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan or lease using a level yield methodology. The difference between contractually required payments as of the acquisition date and the cash flows expected to be collected is referred to as the nonaccretable difference. PCI loans and leases that have similar risk characteristics, primarily credit risk, collateral type and interest rate risk, are pooled and accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

The Company estimates cash flows expected to be collected over the life of the loan or lease using management’s best estimate of current key assumptions such as default rates, loss severity and payment speeds. If, upon subsequent evaluation, the Company determines it is probable that the present value of the expected cash flows have decreased, the PCI loan or lease is considered further impaired which will result in a charge to the provision for loan and lease losses and a corresponding increase to a valuation allowance included in the allowance for loan and lease losses. If, upon subsequent evaluation, it is probable that there is an increase in the present value of the expected cash flows, the Company will reduce any remaining valuation allowance. If there is no remaining valuation allowance, the Company will recalculate the amount of accretable yield as the excess of the revised expected cash flows over the current carrying value resulting in a reclassification from nonaccretable difference to accretable yield. The present value of the expected cash flows for PCI purchased loan pools is determined using the PCI loans’ effective interest rate, adjusted for changes in the PCI loans’ interest rate indexes. The present value of the expected cash flows for PCI loans and leases acquired through mergers with other banks includes, in addition to the above, an evaluation of the credit worthiness of the borrower. Loan and lease dispositions, which may include sales of loans and leases, receipt of payments in full from the borrower or foreclosure, result in removal of the loan or lease from the PCI loan pool. Write-downs are not recorded on the PCI loan or lease pool until actual losses exceed the remaining nonaccretable difference. To date, no write-downs have been recorded for the PCI loans and leases held by the Company, all of which were purchased by the Company during the nine months ended September 30, 2012.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the fair value as of each balance sheet date, as determined by outstanding commitments from investors or what secondary markets are currently offering for portfolios with similar characteristics. The fair value includes the servicing value of the loans as well as any accrued interest. Mortgage loans held for sale are generally sold with servicing rights released. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

SBA loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to income. Gains or losses realized on the sales of SBA loans are recognized at the time of sale and are determined by the difference between the net sales proceeds and the carrying value of the loans sold, adjusted for any servicing asset or liability. Gains and losses on sales of SBA loans are included in noninterest income.

The Bank has elected to measure its residential mortgage loans held for sale at fair value, with changes in fair value during the period reflected in operations. Origination fees and costs are recognized in earnings at the time of origination for newly originated loans held for sale.

All of the Bank’s mortgage loans held for sale are GSE or Government-eligible at September 30, 2012. These loans have reliable market price information and the fair value of these loans at September 30, 2012 was based on quoted market prices of similar assets and included the value of loan servicing.

In scenarios of market disruptions where the current secondary market prices generally relied on to value, GSE-eligible mortgage loans may not be readily available. In these circumstances, the Company may consider other factors, including: 1) quoted market prices for to-be-announced securities (for agency-eligible loans); 2) recent transaction settlements or traded but unsettled transactions for similar assets; 3) recent third party market transactions for similar assets; and 4) modeled valuations using assumptions the Bank believes would be used by market participants in estimating fair value (assumptions may include prepayment rates, interest rates, volatilities, mortgage spreads and projected loss rates).

Adjustments to reflect unrealized gains and losses resulting from changes in fair value and realized gains and losses upon ultimate sale of the loans are classified as part of net gain on mortgage banking activities included in noninterest income in the accompanying consolidated statements of income and comprehensive income/(loss).

Accounting for Derivative Instruments and Hedging Activities: The Company records its derivative instruments at fair value as either assets or liabilities in the accompanying consolidated statements of financial condition. The change in derivative instruments fair value is recorded in current earnings.

The Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is set prior to funding (interest rate lock commitments, or IRLCs). Interest rate lock commitments on mortgage loans (loan commitments) that are intended to be sold are considered derivatives and are recorded at fair value on the consolidated statements of financial condition with the change in fair value recorded in the consolidated statements of income and comprehensive income/(loss).

The estimated fair value is based on current market prices for similar instruments.

The Bank hedges the risk of the overall change in the fair value of loan commitments to borrowers by selling forward contracts on securities of GSE. Forward contracts on securities are considered derivative instruments. The Bank has not formally designated these derivatives as a qualifying hedge relationship and accordingly, accounts for such forward contracts as freestanding derivatives with changes in fair value recorded to earnings each period.

Servicing Rights – Mortgage (Fair Value Method): A servicing asset or liability is recognized when undertaking an obligation to service a financial asset under a mortgage servicing contract in certain situations, including a transfer of the servicer’s financial assets that meet the requirements for sale accounting. Such servicing asset or liability is initially measured at fair value with the income statement effect recorded in net gain on mortgage banking activities on the consolidated statements of income and comprehensive income/(loss).

Fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.

Under the fair value measurement method, the Company measures servicing rights at fair value at each reporting date and reports changes in fair value of servicing assets in earnings in the period in which the changes occur, and are included with net gain on mortgage banking activities on the consolidated statements of income and comprehensive income/(loss). The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimates and actual prepayment speeds and default rates and losses. Currently the Company does not hedge the income statement effects of changes in fair value of the servicing assets.

Servicing fee income, which is reported on the consolidated statements of income and comprehensive income/(loss) as loan servicing income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as income when earned. Servicing fees totaled $146 thousand for both the three and nine months ended September 30, 2012 and $0 for the same periods in 2011. Late fees and ancillary fees related to loan servicing are not material.

For other servicing assets related to SBA servicing, the Bank records periodic amortization expense and assesses mortgage servicing rights for impairment.

Servicing Rights Related to Small Business Administration Loans: As a general course of business, the Bank originates and sells the guaranteed portion of its SBA loans. To calculate the gain/(loss) on sales of SBA loans, the Bank’s investment in the loan is allocated among the retained portion of the loan, the servicing retained, the interest-only strip and the sold portion of the loan, based on the relative fair market value of each portion. The gain/(loss) on the sold portion of the loan is recognized at the time of sale based on the difference between sale proceeds and the amount of the allocated investment to the sold portion of the loan.

The portion of the servicing fees that represent contractually specified servicing fees (contractual servicing) is reflected as a servicing asset and is amortized over the estimated life of the servicing; in the event future prepayments exceed management’s estimates and future expected cash flows are inadequate to cover the servicing asset, impairment is recognized. The portion of servicing fees in excess of contractual servicing fees are reflected as interest-only (I/O) strips receivable, which is included in other assets on the accompanying consolidated statements of financial condition. The I/O strips receivable are carried at fair value, with unrealized gains and losses recorded in the consolidated statements of income and comprehensive income/(loss). Fair value adjustments were not significant at September 30, 2012.

Mortgage Loan Repurchase Obligations and Reserve for Loss Reimbursements on Sold Loans: In the ordinary course of business, as loans held for sale are sold, the Bank makes standard industry representations and warranties about the loans. The Bank may have to subsequently repurchase certain loans or reimburse certain investor losses due to defects that occurred in the origination of the loans. Such defects include documentation or underwriting errors. In addition, certain investor contracts require the Bank to repurchase loans from previous whole loan sales transactions that experience early payment defaults. If there are no such defects or early payment defaults, the Bank has no commitment to repurchase loans that it has sold. The level of reserve for loss reimbursements on sold loans is an estimate that requires considerable management judgment. The Bank’s reserve is based upon the expected future repurchase trends for loans already sold in whole loan sale transactions and the expected valuation of such loans when repurchased, and include first and second trust deed loans. At the point the loans are repurchased, the associated reserves are transferred to the allowance for loan and lease losses. At the point when loss reimbursements are made directly to the investor, the reserve for loss reimbursements on sold loans is charged for the losses incurred. At September 30, 2012 the reserve for loss reimbursements on sold loans was $2.7 million.

Goodwill and Other Intangible Assets: Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are periodically evaluated for impairment at the reporting unit level. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

In accordance with ASU 2011-08 Intangibles – Goodwill and Other (Topic 350), an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. In other words, before the first step of the existing guidance, the entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that the fair value of goodwill is less than carrying value. The qualitative assessment includes adverse events or circumstances identified that could negatively affect the reporting units’ fair value as well as positive and mitigating events. Such indicators may include, among others: a significant change in legal factors or in the general business climate; significant change in the Company’s stock price and market capitalization; unanticipated competition; and an action or assessment by a regulator. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step process is unnecessary. The entity has the option to bypass the qualitative assessment step for any reporting unit in any period and proceed directly to the first step of the exiting two-step process. The entity can resume performing the qualitative assessment in any subsequent period.

The first step of the goodwill impairment test is performed, when considered necessary, by comparing the reporting unit’s aggregate fair value to its carrying value. Absent other indicators of impairment, if the aggregate fair value exceeds the carrying value, goodwill is not considered impaired and no additional analysis is necessary. If the carrying value of the reporting unit were to exceed the aggregate fair value, a second step would be performed to measure the amount of impairment loss, if any. To measure any impairment loss the implied fair value would be determined in the same manner as if the reporting unit were being acquired in a business combination. If the implied fair value of goodwill is less than the recorded goodwill an impairment charge would be recorded for the difference. No goodwill impairment charges were required for the three or nine months ended September 30, 2012. For the three and nine-months ended September 30, 2012, the Company’s qualitative assessment concluded that a two-step impairment test of goodwill was not necessary. Even though there was no goodwill impairment at September 30, 2012, adverse events may impact the recoverability of goodwill and could result in a future impairment charge which could have a material impact on the Company’s consolidated financial statements. Goodwill is the only intangible asset with an indefinite life on our consolidated statements of financial condition.

Other intangible assets consist of core deposit intangibles and trade name intangibles arising from whole bank and their subsidiaries acquisitions, and are amortized on an accelerated method over thier estimated useful lives of 2-7 years and 1-20 years, respectively.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company had a $7.0 million and $1.3 million valuation allowance for its net deferred tax asset at September 30, 2012 and December 31, 2011, respectively. See further discussion in Note 17, Income Taxes, of the Notes to Consolidated Financial Statements.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company is no longer subject to examination by U.S. Federal taxing authorities for years before 2008 and for all state income taxes before 2007.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company had $0 accrued for interest and penalties at September 30, 2012 and December 31, 2011.

Comprehensive Income/(Loss): Comprehensive income/(loss) consists of net income/(loss) and other comprehensive income or loss. Other comprehensive income or loss includes unrealized gains and losses on securities available for sale, net of tax, which is recognized as a separate component of shareholders’ equity.

Operating Segments: While the chief decision makers monitor the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial services operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications : Some items in the prior period financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior period net income or shareholders’ equity.

Adoption of New Accounting Standards: In June 2011, the Financial Accounting Standards Board (FASB) issued an accounting standards update to increase the prominence of items included in other comprehensive income and facilitate the convergence of U.S. and International accounting principles. The update prohibits continued exclusive presentation of other comprehensive income in the statement of shareholders’ equity. The update requires that all non-owner changes in shareholders’ equity be presented in either a single continuous statement of income and comprehensive income or in two separate but continuous statements. The amendments in the update became effective for interim and annual periods beginning on or after December 15, 2011. The adoption of the amendments changed the presentation of the components of comprehensive income for the Company from being presented as part of the consolidated statements of shareholder’s equity to being included in a single continuous statement with the consolidated statements of income and comprehensive income/(loss).

In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The standard was effective for interim and annual periods beginning after December 15, 2011. The effect of adopting this standard did not have a material effect on the Company’s consolidated operating results or financial condition, but the additional disclosures are included in Note 6.

In September 2011, the FASB issued an accounting standards update to the requirements of the annual testing of goodwill for impairment. The amendments in the update allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of the amendments did not impact the Company’s consolidated financial statements or disclosures.

Effective January 2012, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (ASU 2011-03). ASU 2011-03 is intended to improve financial reporting of repurchase agreements and refocus the assessment of effective control on a transferor’s contractual rights and obligations rather than practical ability to perform those rights and obligations. The guidance in ASU 2011-03 was effective for the first interim or annual period beginning on or after December 15, 2011. The adoption of this update did not have a material impact on the consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11) . The amendments in ASU 2011-11 require the disclosure of information on offsetting and related arrangements for financial and derivative instruments to enable users of its financial statements to understand the effect of those arrangements on its financial position. Amendments under ASU 2011-11 will be applied retrospectively for fiscal years, and interim periods within those years, beginning after January 1, 2013. The Company is evaluating the effect, if any, adoption of ASU 2011-11 will have on its consolidated financial statements.

Newly Issued But Not Yet Effective Accounting Standards: In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). This update increases the disclosure requirements surrounding derivative instruments that are offset within the balance sheet pursuant to the provisions of current GAAP. The objective of the update is to provide greater comparability between issuers reporting under U.S. GAAP versus IFRS and provide users the ability to evaluate the effect of netting arrangements on a company’s financial statements. The provisions of the update are effective for annual and interim periods beginning on or after January 1, 2013 and are not expected to add to the Company’s current level of disclosures.

NOTE 3 – BUSINESS COMBINATIONS

Beach Business Bank Merger

Effective July 1, 2012, the Company merged with Beach Business Bank (Beach) pursuant to the terms of the Agreement and Plan of Merger (the Merger Agreement) dated August 30, 2011, as amended October 31, 2011. At the effective time of the Merger, a newly formed and wholly owned subsidiary of the Company (Merger Sub) merged with and into Beach, with Beach continuing as the surviving entity in the Merger and a wholly owned subsidiary of the Company. Pursuant and subject to the terms of the Merger Agreement, each outstanding share of common stock, no par value, of Beach (other than specified shares owned by the Company, Merger Sub or Beach, and other than in the case of shares in respect of, or underlying, certain Beach options and other equity awards, which will be treated as set forth in the Merger Agreement) was converted into the right to receive $9.21415 in cash and one Warrant. Each Warrant entitles the holder to purchase 0.33 of a share of Company Common Stock at an exercise price of $14.00 per share of Company Common Stock for a period of one year. The aggregate cash consideration paid to Beach shareholders in the Merger was approximately $39.1 million. In addition, Beach shareholders received in aggregate the equivalent of 1,401,959 warrants of the Company’s common stock with an estimated fair value of $1.0 million.

Beach operates branches in Manhattan Beach, Long Beach, and Costa Mesa, California. Beach also has a division named The Doctors Bank ^® , which serves physicians and dentists nationwide. Additionally, Beach provides loans to small businesses based on SBA lending programs. Beach’s consolidated assets and equity (unaudited) as of June 30, 2012 totaled $311.9 million and $33.3 million, respectively, and its consolidated net income (unaudited) totaled $2.0 million for the year ended December 31, 2011 and $0.6 million for the six month period ended June 30, 2012 (unaudited). The acquired assets and liabilities were recorded at fair value at the date of acquisition and were reflected in the September 30, 2012 financial statements as such. The fair value estimates included in these financial statements are based on preliminary valuations. The Company does not expect material variances from these estimates and expects that final valuation estimates will be completed during the fourth quarter of 2012.

In accordance with GAAP guidance for business combinations, the Company has expensed approximately $1.7 million of direct acquisition costs and recorded $7.0 million of goodwill and $4.5 million of other intangible assets. The other intangible assets are primarily related to core deposits and are being amortized on an accelerated basis over 2-7 years. For tax purposes purchase accounting adjustments, including goodwill are all non-taxable and/or non-deductible. The following table summarizes the fair value of the total consideration transferred as a part of the Beach merger as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.


	July 1, 2012
Consideration:
Payment to Beach shareholders	$	39,145
Value of stock warrants paid to Beach shareholders		1,009

Fair Value of Total Consideration Transferred		40,154

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash and due from banks		5,867
Federal funds sold and other short-term investments		55,478


	July 1, 2012
Interest-bearing time deposits in financial institutions		4,674
Securities available for sale		5,661
Loans		229,722
Stock in FHLB and other bank stock, at cost		1,554
Premises and equipment		709
Other real estate owned		114
Core deposit intangibles		4,470
Trade name intangible		25
Accrued interest receivable and other assets		3,719
Deposits		(271,320	)
Other borrowings		(2,315	)
Accrued interest and other liabilities		(5,243	)

Total Identifiable Net Assets		33,115

Goodwill	$	7,039

This acquisition was consistent with the Company’s strategy to build a regional presence in Southern California. The acquisition offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded region.

Loans that were acquired from Beach Business Bank that were considered credit impaired were written down at the acquisition date in purchase accounting to an amount estimated to be collectible. In addition, the allowance for loan losses for all Beach loans was not carried over to First PacTrust Bancorp, Inc.’s allowance for loan and lease losses.

Gateway Bancorp Acquisition

Effective August 18, 2012, the Company acquired Gateway Bancorp, the holding company of Gateway Business Bank (Gateway) pursuant to the terms of the Stock Purchase Agreement (the Purchase Agreement) dated June 3, 2011, as amended on November 28, 2011, February 24, 2012, June 30, 2012, and July 31, 2012. The acquisition was accomplished by the merger of Gateway into PacTrust Bank. Under the terms of the Purchase Agreement, the Company purchased all of the issued and outstanding shares of Gateway Bancorp for $15.5 million in cash.

Gateway operated branches in Lakewood and Laguna Hills, California. As part of the acquisition, Mission Hills Mortgage Bankers (a division of Gateway), including its 22 loan production offices in California, Arizona, Oregon and Washington, became a division of PacTrust Bank. Gateway’s consolidated assets and equity (unaudited) as of August 17, 2012 totaled $175.2 million and $25.8 million, respectively, and its consolidated net loss (unaudited) totaled $8.3 million for the year ended December 31, 2011 and consolidated net income (unaudited) of $4.2 million for the year to date period ended August 17, 2012. The acquired assets and liabilities were recorded at fair value at the date of acquisition and were reflected in the September 30, 2012 financial statements as such. The fair value estimates included in these financial statements are based on preliminary valuations. The Company is aware of a potential receivable from the Internal Revenue Service, but the amount cannot be estimated at this time. With the exception of this item, the Company does not expect material variances from these estimates and expects that final valuation estimates will be completed during the fourth quarter of 2012.

In accordance with GAAP guidance for business combinations, the Company has expensed approximately $1.5 million of direct acquisition costs and recorded $12.1 million of bargain purchase gain and $1.7 million of other intangible assets. The other intangible assets are related to $720 thousand of core deposits, which are being amortized on an accelerated basis over 4—6 years, and $955 thousand of trade name intangible which is being amortized on an accelerated basis over 20 years. For tax purposes the purchase accounting adjustments and bargain purchase gain are non-taxable and/or non-deductible. Due to circumstances that Gateway Bancorp’s subsidiary faced at the time the acquisition was negotiated, which include regulatory orders and operating losses, the terms negotiated included a purchase price that was $5 million lower that the Gateway’s equity book value. The discount was further increased to $6.5 million in exchange for the elimination of any contingent liability to the shareholder of Gateway Bancorp related to mortgage repurchase risk. Due to delays in obtaining regulatory approval, the deal closed 9 months later than originally expected. This passage of time allowed Gateway to eliminate all regulatory orders, return to profitability and improve asset quality, increasing the book value of equity and reducing the expected discount on assets. As a result, the bargain purchase gain at the time of purchase grew to $12.1 million. The following table summarizes the fair value of the total consideration transferred as a part of the Gateway acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.


	August 18, 2012
Consideration:
Cash paid to Gateway shareholders	$	15,500

Fair Value of Total Consideration Transferred		15,500

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash and due from banks		2,070
Federal funds sold and other short-term investments		35,090
Securities available for sale		76
Loans		128,468
Stock in FHLB of Indianapolis and other restricted stock, at cost		1,018
Premises and equipment		741
Trade name intangible		955
Core deposit intangible		720
Mortgage servicing rights		1,636
Derivative asset		2,877
Accrued interest receivable and other assets		3,918
Deposits		(142,964	)
Accrued interest payable and other liabilities		(7,050	)

Total Identifiable Net Assets		27,555

Bargain Purchase Gain	$	(12,055	)

Loans that were acquired from Gateway Business Bank that were considered credit impaired were written down at the acquisition date in purchase accounting to an amount estimated to be collectible and the related allowance for loan losses was not carried over to First PacTrust Bancorp, Inc.’s allowance for loan and lease losses.

Pro Forma Information

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2011 after giving effect to certain adjustments. The unaudited pro forma information for the three and nine months ended September 30, 2012 and 2011, includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.


	Pro Forma Three Months Ended September 30, 2012			Pro Forma Three Months Ended September 30, 2011
SUMMARIZED INCOME STATEMENT DATA:
Net interest income	$	15,302		$	12,245
Provision for loan and lease losses expense		1,091			1,478
Non-interest income		16,305			11,032
Non-interest expense		31,202			20,555

Income (loss) before income taxes		(686	)		1,244
Income tax expense		593			465

Net income (loss)	$	(1,279	)	$	779


	Pro Forma Nine Months Ended September 30, 2012			Pro Forma Nine Months Ended September 30, 2011
SUMMARIZED INCOME STATEMENT DATA:
Net interest income	$	42,515		$	35,879
Provision for loan and lease losses expense		2,911			2,615


	Pro Forma Nine Months Ended September 30, 2012			Pro Forma Nine Months Ended September 30, 2011
Non-interest income		38,532			27,585
Non-interest expense		77,515			58,474

Income before income taxes		621			2,375
Income tax expense		1,109			612

Net income (loss)	$	(488	)	$	1,763

The above unaudited pro forma financial information related to 2011 and 2012 includes acquisition/integration costs. The included acquisition integration costs totaled $0.6 million and $1.1 million for the three and nine months ended September 30, 2011, and $2.1 million and $3.1 million for the three and nine months ended September 30, 2012, respectively, on a pre-tax basis. Excluded from the above pro forma financials for the three and nine months ended September 30, 2012 is a revenue of $12.1 million related to the bargain purchase gain for the Gateway acquisition. The above unaudited pro forma financial information includes the provision for loan and lease losses recognized by Beach and Gateway prior to acquisition of $0.7 million and $1.3 million for the three and nine months ended September 30, 2011 and $0 and $0.9 million for the three and nine months ended September 30, 2012, respectively.

NOTE 4 – EMPLOYEE STOCK COMPENSATION

Stock Appreciation Rights Plan

A Stock Appreciation Rights Plan (“SARs”) provides for the issuance of shares to directors, and officers. Compensation expense is recognized over the vesting period of the rights based on the fair value as calculated using Black Scholes as of September 30, 2012, and adjusted each quarter. The SARs are to be settled in cash. One third of the SARs vested on the grant date and one third will vest on the first and second anniversaries of the grant date such that the SARs will be fully vested on the second anniversary of the grant date. During the three and nine months ended September 30, 2012, 500,000 shares were issued to an executive officer with a base price of $12.12 per share and a term of ten years. The Company did not issue any SARs prior to the third quarter of 2012. The weighted-average grant date fair value was $3.75 per share, or $1.9 million and an adjusted fair value as of September 30, 2012 of $3.67 per share or $1.8 million and was awarded on August 12, 2012. Compensation expense recognized for the SARs was $675.0 thousand for the three and nine months ended September 30, 2012. At September 30, 2012, there was $1.2 million of total unrecognized compensation cost related to the nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2 years. The grant date and September 30, 2012 fair value of the SARs was determined using the following assumptions.


	Grant Date
	August 21, 2012			September 30, 2012
SARs granted		500,000			500,000
Estimated fair value per share of SARs granted	$	3.90		$	3.67
Risk-free interest rate		1.80	%		1.80	%
Expected term		10 years			10 years
Expected stock price volatility		42.71	%		38.30	%
Dividend yield		3.15	%		3.51	%

Separation and Settlement Agreement

The Company entered into a separation and settlement agreement with the Chief Executive Officer in which the Company agreed to severance pay in the amount of $832.0 thousand payable in 24 equal monthly installments of $34.7 thousand commencing on the first business day coincident with or next following the 60 ^th day following the resignation date and on each one-month anniversary of the date of first payment until paid in full. In addition, the Company agreed to pay consideration for the cancellation of all of the Executive’s equity awards for a lump sum cash payment of $503.8 thousand. Under this agreement the Company recognized severance pay compensation expense totaling $1.2 million during the three and nine months ended September 30, 2012, and $129,000 was previously recognized as stock option plan expense.

NOTE 5 – EARNINGS PER COMMON SHARE

Basic earnings per common share were computed by dividing net income available to common shareholders after subtracting preferred stock dividends by the weighted average number of common shares outstanding. Diluted earnings per common share were computed by dividing net income available to common shareholders by the weighted average number of shares outstanding, adjusted for the dilutive effect, if any, of the outstanding stock options, restricted stock awards and warrants to purchase common stock. Computations for basic and diluted earnings per common share are provided below.


	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Basic
Net income	$	9,543	$	644	$	9,181	$	2,886
Less: Dividends and accretion on preferred stock		328		138		1,042		138

Net income available to common shareholders	$	9,215	$	506	$	8,139	$	2,748

Weighted average common shares outstanding		11,702,974		11,542,752		11,677,532		10,326,009

Basic earnings per common share	$	0.79	$	0.04	$	0.70	$	0.27

Diluted
Net income available to common shareholders	$	9,215	$	506	$	8,139	$	2,748

Weighted average common shares outstanding for basic earnings per common share		11,702,974		11,542,752		11,677,532		10,326,009
Add: Dilutive effects of stock options		—		—		—		228
Add: Dilutive effects of stock awards		397		1,390		356		3,034
Add: Dilutive effects of warrants		—		—		—		—

Average shares and dilutive potential common shares		11,703,371		11,544,142		11,677,888		10,329,271

Diluted earnings per common share	$	0.79	$	0.04	$	0.70	$	0.27

Stock options totaling 528,569 shares, 1,635,000 warrants, 152,740 stock awards, and 1,401,959 warrants were not considered in computing diluted earnings per common share for the three and nine months ended September 30, 2012 because they were anti-dilutive. Options totaling 453,569 shares and 11,652 stock awards were not considered in computing diluted earnings per common share for the three and nine months ended September 30, 2011, respectively, because they were anti-dilutive. They were anti-dilutive since the exercise prices were greater than the average market price of the common stock.

NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair Value Hierarchy . ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The topic describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Securities Available for Sale . The fair values of securities available for sale are generally determined by quoted market prices, if available (Level 1), or by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). The fair values of the Company’s Level 3 securities are determined by the Company and an independent third-party provider using a discounted cash flow methodology. The methodology uses discount rates that are based upon observed market yields for similar securities. Prepayment speeds are estimated based upon the prepayment history of each bond and a detailed analysis of the underlying collateral. Gross weighted average coupon, geographic concentrations, loan to value, FICO and seasoning are among the different loan attributes that are factored into our prepayment curve. Default rates and severity are estimated based upon geography of the collateral, delinquency, modifications, loan to value ratios, FICO scores, and past performance.

Impaired Loans and Leases . The fair value of impaired loans and leases with specific allocations of the allowance for loan and lease losses based on collateral values is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. For the three and nine months ended September 30, 2012, the Company charged off $226 thousand and $2.5 million, respectively, which primarily consisted of specific valuation allowance allocations related to changes in reporting requirements for OCC regulated thrifts which no longer permit the use of these specific valuation allowances for collateral dependent loans. For the three and nine months ended September 30, 2011, the Company experienced $439 thousand in specific allowance allocation expense and a specific allowance recovery of $2.0 million for these loans, respectively.

Loans Held for Sale . The fair value of loans held for sale is based on commitments outstanding from investors as well as what secondary markets are currently offering for portfolios with similar characteristics. Therefore, loans held for sale subjected to recurring fair value adjustments are classified as Level 2.

Derivative Assets and Liabilities . The Company’s derivative assets and liabilities are carried at fair value as required by GAAP and are accounted for as freestanding derivatives. The derivative assets are IRLCs with prospective residential mortgage borrowers whereby the interest rate on the loan is determined prior to funding and the borrowers have locked in that interest rate. These commitments are determined to be derivative instruments in accordance with GAAP. The derivative liabilities are hedging instruments (typically TBA securities) used to hedge the risk of fair value changes associated with changes in interest rates relating to its mortgage loan origination operations. The Company hedges the period from the interest rate lock (assuming a fall-out factor) to the date of the loan sale. The estimated fair value is based on current market prices for similar instruments. Given the meaningful level of secondary market activity for derivative contracts, active pricing is available for similar assets and accordingly, the Company classifies its derivative assets and liabilities as Level 2.

Servicing Rights – Other . The fair value of servicing rights related to non mortgage loans serviced for others is determined by an internal model developed by management that calculates the present value of the expected net servicing income from the portfolio. Because of the significance of unobservable inputs, these servicing rights are classified as Level 3.

Servicing Rights – Mortgage . The Bank retains servicing on some of its mortgage loans sold and elected the fair value option for valuation of these mortgage servicing rights. The value is based on a model that calculates the present value of the expected net servicing income from the portfolio. Because of the significance of unobservable inputs, these servicing rights are classified as Level 3.

I/O Strips Receivable . The fair value is determined by discounting future cash flows using discount rates and prepayment assumptions that market participants would use for similar financial instruments. Because of the significance of unobservable inputs, the I/O strips receivable are classified as Level 3.

Other Real Estate Owned Assets . Other real estate owned assets (OREO) are recorded at the fair value less estimated costs to sell at the time of foreclosure. The fair value of other real estate owned assets is generally based on recent real estate appraisals adjusted for estimated selling costs. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Only OREO with a valuation allowance are considered to be carried at fair value. For the three and nine months ended September 30, 2012, the Company experienced $36 thousand and $205 thousand in valuation allowance expense for those assets, respectively. For the three and nine months ended September 30, 2011, the Company experienced $1.3 million and $1.9 million in valuation allowance expense for those assets, respectively.

Assets and Liabilities Measured on a Recurring and Non Recurring Basis

Available for sale securities, loans held for sale, derivative assets and liabilities, servicing rights – other, servicing rights – mortgage, and I/O strips receivable are measured at fair value on a recurring basis, whereas impaired loans and other real estate owned are measured at fair value on a non-recurring basis.


			Fair Value Measurements at September 30, 2012 Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level One)		Significant Other Observable Inputs (Level Two)		Significant Unobservable Inputs (Level Three)
Assets
Available-for-sale securities:
US government-sponsored agency securities (recurring)	$	2,718	$	—	$	2,718	$	—
State and Municipal securities (recurring)		9,954		—		9,954		—
Private label residential mortgage-backed securities (recurring)		50,280		—		—		50,280
Agency residential mortgage-backed securities (recurring)		59,319		—		—		59,319
Loans held for sale (recurring)		110,291		—		110,291		—
Derivative assets (recurring)		3,370		—		3,370		—
Servicing rights – other (recurring)		561		—		—		561
Servicing rights – mortgage (recurring)		1,609		—		—		1,609
I/O strips receivable (recurring)		29		—		—		29
Other real estate owned assets (non recurring)
Real estate 1-4 family first mortgage		345		—		—		345
Multi-family		2,480		—		—		2,480
Land		2,427		—		—		2,427
Liabilities
Derivative liabilities (recurring)		3,051		—		3,051		—

The table below presents a reconciliation of the investment securities available-for-sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine month periods ended September 30, 2012. Servicing rights – other, servicing rights – mortgage, and I/O strips receivable are also measured at fair value on a recurring basis using significant unobservable inputs (Level 3), and are reconciled in Note 11 – Servicing Rights.


	Three months ended September 30, 2012			Nine months ended September 30, 2012
	Private label residential mortgage-backed securities			Private label residential mortgage-backed securities
Balance of recurring Level 3 assets at beginning of period	$	57,318		$	76,203
Total gains or (losses) (realized/unrealized):
Included in earnings—realized		(12	)		(83	)
Included in earnings—unrealized		—			—
Included in other comprehensive income		514			(9	)
Amortization of premium/discount		(33	)		(160	)
Purchases		—			—
Sales, issuances and settlements		(7,507	)		(25,671	)
Net transfers in and/or out of Level 3		—			—

Balance of recurring Level 3 assets at September 30, 2012	$	50,280		$	50,280


	Three months ended September 30, 2012			Nine months ended September 30, 2012
	Agency residential mortgage-backed securities			Agency residential mortgage-backed securities
Balance of recurring Level 3 assets at beginning of period	$	52,824		$	15,659
Total gains or (losses) (realized/unrealized):
Included in earnings—realized		—			—
Included in earnings—unrealized		—			—
Included in other comprehensive income		161			2,057
Amortization of premium/discount		(396	)		(707	)
Purchases		13,832			54,863
Sales, issuances and settlements		(7,102	)		(12,553	)
Net transfers in and/or out of Level 3		—			—

Balance of recurring Level 3 assets at September 30, 2012	$	59,319		$	59,319

There were no significant transfers between Level 1 and Level 2 during the three or nine months ended September 30, 2012.

Other real estate owned which is measured at fair value less costs to sell having a valuation allowance, had a net carrying amount of $5.3 million, which is made up of the outstanding balance of $8.5 million, net of a valuation allowance of $3.2 million at September 30, 2012.


	Carrying Value		Fair Value Measurements at December 31, 2011 Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level One)		Significant Other Observable Inputs (Level Two)		Significant Unobservable Inputs (Level Three)
Assets
Available-for-sale securities:
U.S. government-sponsored entities and agency securities (recurring)	$	4,038	$	—	$	4,038	$	—
Municipal securities (recurring)		5,713		—		5,713		—
Private label residential mortgage-backed securities (recurring)		76,203		—		—		76,203


	Carrying Value		Fair Value Measurements at December 31, 2011 Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level One)		Significant Other Observable Inputs (Level Two)		Significant Unobservable Inputs (Level Three)
Agency residential mortgage-backed securities (recurring)		15,662		—		3		15,659
Impaired loans: (non recurring)
Real estate 1-4 family first mortgage		6,893		—		—		6,893
Multi-family		1,638		—		—		1,638
Land		1,164		—		—		1,164
Other real estate owned assets: (non recurring)
Real estate 1-4 family first mortgage		8,224		—		—		8,224
Multi-family		2,480		—		—		2,480
Land		3,988		—		—		3,988

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine month periods ended September 30, 2011:


	Three months ended September 30, 2011			Nine months ended September 30, 2011
	Investment Securities Available-for-sale			Investment Securities Available-for-sale
Balance of recurring Level 3 assets at beginning of period	$	57,042		$	54,246
Total gains or losses (realized/unrealized):
Included in earnings—realized		1,278			2,699
Included in earnings—unrealized		—			—
Included in other comprehensive income (loss)		(3,081	)		(6,073	)
Purchases		37,830			69,033
Sales, issuances and settlements		(31,471	)		(58,307	)
Net transfers in and/or out of Level 3		—			—

Balance of recurring Level 3 assets at September 30, 2011	$	61,598		$	61,598

There were no significant transfers between Level 1 and Level 2 during the three or nine months ended September 30, 2011.

Impaired loans measured at fair value on a non-recurring basis with specific allowances allocations are measured for impairment using the fair value of the collateral for collateral dependent loans. These loans totaled $12.6 million and had a carrying amount of $9.7 million, net of specific allowance allocations of $2.9 million at December 31, 2011.

Other real estate owned which is measured at fair value less costs to sell having a valuation allowance, had a net carrying amount of $14.7 million, which is made up of the outstanding balance of $18.8 million, net of a valuation allowance of $4.1 million at December 31, 2011.

The following table presents quantitative information about level 3 fair value measurements at September 30, 2012:


	Fair value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Private label residential mortgage backed securities (recurring)	$	50,280	Discounted cash flow	Voluntary prepayment rate Collateral default rate Loss severity at default	0.83 to 22.77 (10.93) 0.03 to 23.57 (5.05) 9.97 to 103.74 (52.14)
Agency residential mortgage based securities (recurring)		59,319	Discounted cash flow	Voluntary prepayment rate	0.0% to 50.16% (21.24%)
Servicing rights-other (recurring)		561	Discounted cash flow	Discount rate Estimated life	7.25 to 15.0% 36 to 72 months
Servicing rights-mortgage (recurring)		1,609	Discounted cash flow	Discount rate Prepayment rate	10.5% 14.8%
Servicing rights-I/O strips receivable (recurring)		29	Discounted cash flow	Discount rate Prepayment rate	10.5% 13.7%
Other real estate owned assets – 1-4 family first mortgage (non-recurring)		345	Sales comparison approach	Adjustment for differences between the comparable sales	0% to 0% (0%)
Other real estate owned assets – Multi-family (non-recurring)		2,480	Sales comparison approach	Adjustment for differences between the comparable sales	51.2% to 50.6% (18.42%)
Other real estate owned assets – Land (non-recurring)		2,427	Sales comparison approach	Adjustment for differences between the comparable sales	-37.7% to -7.50% (18.42%)

The significant unobservable inputs used in the fair value measurement of the Company’s private label and agency residential mortgage backed securities are prepayment rates, collateral default rates, and loss severity in the event of default. Significant increases/(decreases) in any of those inputs in isolation would result in a significantly lower/(higher) fair value measurement. Generally, a change in the assumption used for the collateral default rates is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

The significant unobservable inputs used in the fair value measurement of the Company’s servicing rights include the discount and estimated cash flows. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results.

The carrying amounts and estimated fair values of financial instruments, at September 30, 2012 and December 31, 2011 were as follows:


			Fair Value Measurements at September 30, 2012 Using
	Carrying Value		Level One		Level Two		Level Three		Total
Financial assets
Cash and cash equivalents	$	122,060	$	122,060	$	—	$	—	$	122,060
Time deposits in financial institutions		5,621		5,621		—		—		5,621
Securities available-for-sale		122,271		—		12,672		109,599		122,271
FHLB stock		8,842		N/A		N/A		N/A		N/A
Loans receivable, net, including loans held for sale		1,202,995		—		—		1,214,636		1,214,636
Loans held for sale		110,291		—		110,291		—		110,291
Accrued interest receivable		5,312		11		78		5,223		5,312
Derivative assets		3,370		—		3,370		—		3,370
I/O strips receivable		29		—		—		29		29
Financial liabilities
Deposits		1,328,221		688,668		635,803		—		1,324,471
Advances from FHLB		86,000		—		86,146		—		86,146
Notes payable		34,018		35,923		—		—		35,923
Derivative liabilities		2,767		—		2,767		—		2,767
Accrued interest payable		770		525		245		—		770


			Fair Value Measurements at December 31, 2011 Using
	Carrying Value		Level One		Level Two		Level Three		Total
Financial assets
Cash and cash equivalents	$	44,475	$	44,475	$	—	$	—	$	44,475
Securities available-for-sale		101,616		—		9,754		91,862		101,616
FHLB stock		6,972		N/A		N/A		N/A		N/A
Loans receivable, net		775,609		—		—		777,053		777,053
Accrued interest receivable		3,569		3		8		3,558		3,569
Financial liabilities
Deposits		786,334		316,451		472,509		—		788,960
Advances from FHLB		20,000		—		20,095		—		20,095
Accrued interest payable		217		1		216		—		217

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that re-price frequently and fully. The methods for determining the fair values for securities available for sale, derivative assets and liabilities, and I/O strips were described previously. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of long-term debt is based on current rates for similar financing. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance-sheet items is not considered material (or is based on the current fees or costs that would be charged to enter into or terminate such arrangements) and is not presented.

NOTE 7 – SECURITIES AVAILABLE FOR SALE

The following tables summarize the amortized cost and fair value of the available-for-sale investment securities portfolio at September 30, 2012 and December 31, 2011, respectively, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
2012
Available-for-sale
U.S. government-sponsored entities and agency securities	$	2,712	$	6	$	—		$	2,718
State and Municipal securities		9,660		294		—			9,954
Private label residential mortgage-backed securities		50,296		274		(290	)		50,280
Agency residential mortgage-backed securities		58,960		472		(113	)		59,319

Total securities available for sale	$	121,628	$	1,046	$	(403	)	$	122,271


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
2011
Available-for-sale
U.S. government-sponsored entities and agency securities	$	4,000	$	38	$	—		$	4,038
Municipal securities		5,641		88		(16	)		5,713
Private label residential mortgage-backed securities		78,029		27		(1,853	)		76,203
Agency residential mortgage-backed securities		15,541		121		—			15,662

Total securities available for sale	$	103,211	$	274	$	(1,869	)	$	101,616

The amortized cost and fair value of the available-for-sale securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2012
	Amortized Cost		Fair Value
Maturity
Available-for-sale
Within one year	$	712	$	713
One to five years		4,524		4,577
Five to ten years		887		947
Greater than ten years		6,249		6,435
Private label residential mortgage backed and agency residential mortgage-backed securities		109,256		109,599

Total	$	121,628	$	122,271

At September 30, 2012 and December 31, 2011, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

The following table summarizes the investment securities with unrealized losses at September 30, 2012 by aggregated major security type and length of time in a continuous unrealized loss position:


	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale
Private label residential mortgage-backed securities	$	7,439	$	(40	)	$	18,051	$	(250	)	$	25,490	$	(290	)
Agency residential mortgage-backed securities		15,222		(113	)		—		—			15,222		(113	)

Total available-for-sale	$	22,661	$	(153	)	$	18,051	$	(250	)	$	40,712	$	(403	)

The following table summarizes the investment securities with unrealized losses at December 31, 2011 by aggregated major security type and length of time in a continuous unrealized loss position:


	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale
Municipal securities	$	1,072	$	(16	)	$	—	$	—		$	1,072	$	(16	)
Private label residential mortgage-backed securities		64,911		(1,763	)		8,145		(90	)		73,056		(1,853	)

Total available-for-sale	$	65,983	$	(1,779	)	$	8,145	$	(90	)	$	74,128	$	(1,869	)

As of September 30, 2012, the Company’s securities available for sale portfolio consisted of eighty-one securities, twenty-seven of which were in an unrealized loss position. The unrealized losses are related to the Company’s private label and agency residential mortgage-backed securities as discussed below.

The Company’s private label residential mortgage-backed securities that are in an unrealized loss position had a fair value of $25.5 million with unrealized losses of $290 thousand at September 30, 2012. The Company’s agency residential mortgage-backed securities that are in an unrealized loss position had a fair value of $15.2 million with unrealized losses of $113 thousand at September 30, 2012. The Company’s residential mortgage-backed securities were rated AA or above at purchase and are not within the scope of ASC 325. The Company monitors to insure it has adequate credit support and as of September 30, 2012, the Company believes there is no other than temporary impairment (OTTI) and it does not have the intent to sell these securities and it is not likely that it will be required to sell the securities before their anticipated recovery. Of the Company’s $122.3 million securities portfolio at September 30, 2012, $112.9 million were rated AAA, AA or A, and $6.5 million were rated BBB based on the most recent credit rating as of September 30, 2012. One municipal security totaling $2.9 million was not rated at September 30, 2012. The Company considers the lowest credit rating for identification of OTTI. During the first quarter of 2012, the Company sold one downgraded security for a net loss of $39 thousand and during the second quarter of 2012, the Company sold two downgraded securities for a net loss of $32 thousand. During the third quarter of 2012, the Company sold one downgraded security for a net loss of $12 thousand.

During the three and nine months ended September 30, 2012 and 2011, the Company determined that no securities were other-than-temporarily impaired.

NOTE 8 – LOANS AND LEASES

Loans and leases receivable consist of the following:


	Originated Loans Receivable Outstanding (1)
	September 30, 2012			December 31, 2011
Commercial:
Commercial and industrial	$	17,926		$	9,019
Real estate mortgage		198,932			124,013
Multi-family		23,481			27,596
Land		909			2,375
SBA		3,341			—
Construction		—			—
Lease financing		—			—
Consumer:
Real estate 1-4 family first mortgage		548,650			546,760
Real estate 1-4 family junior lien mortgage		8,250			9,219
Other revolving credit and installment		7,789			8,604

Total		809,278			727,586
Net deferred loan costs		732			1,048
Allowance for loan and lease losses		(11,663	)		(12,257	)

Loans and leases receivable, net	$	798,347		$	716,377


	Purchased Loans and Leases Receivable Outstanding (1)				Purchased Credit-Impaired Loan and Lease Portfolio
	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Commercial:
Commercial and industrial	$	56,521	$	—	$	7,290	$	—
Real estate mortgage		80,613		—		22,829		—
Multi-family		81,876		59,694		852		—
Land		27		—		327		—
SBA		40,573		—		6,817		—
Construction		4,712		—		—		—
Lease financing		5,031		—		—		—
Consumer:
Real estate 1-4 family first mortgage		25,784		—		66,354		—
Real estate 1-4 family junior lien mortgage		5,609		—		59		—
Other revolving credit and installment		90		—		—		—

Total		300,836		59,694		104,528		—


	Purchased Loans and Leases Receivable Outstanding (1)						Purchased Credit-Impaired Loan and Lease Portfolio
	September 30, 2012			December 31, 2011			September 30, 2012		December 31, 2011
Net deferred loan costs		—			61			—		—
Allowance for loan and lease losses		(716	)		(523	)		—		—

Loans and leases receivable, net	$	300,120		$	59,232		$	104,528	$	—

(1)	Does not include purchased credit-impaired loans and leases.

At September 30, 2012, the Company had a total of $376.1 million in interest only mortgage loans and $20.5 million in loans with potential for negative amortization. At December 31, 2011, the Company had a total of $382.0 million in interest only mortgage loans and $23.4 million in loans with potential for negative amortization. These loans pose a potentially higher credit risk because of the lack of principal amortization and potential for negative amortization, however, management believes the risk is mitigated through the Company’s loan terms and underwriting standards, including its policies on loan-to-value ratios.

Activity in the allowance for loan and lease losses is summarized as follows for the three and nine months ended September 30, 2012 and 2011:


	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Balance at beginning of period	$	11,448		$	8,431		$	12,780		$	14,637
Loans charged off		(226	)		(382	)		(2,547	)		(7,117	)
Recoveries of loans previously charged off		126			121			145			199
Provision for loan losses		1,031			823			2,001			1,274

Balance at September 30	$	12,379		$	8,993		$	12,379		$	8,993

The following tables present the activity in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment, and is based on the impairment method for the three and nine months ended September 30, 2012 and 2011. Recorded investment in loans and leases excludes accrued interest receivable of $4.7 million at September 30, 2012, and accrued interest receivable and net deferred loan costs totaled $3.3 million and $1.1 million, respectively at December 31, 2011, as they are not considered to be material.


	Commercial and Industrial		Commercial Real Estate Mortgage		Multi- family			Land			SBA		Construction		Lease Financing		Real Estate 1-4 family first mortgage			Real Estate 1-4 family junior lien mortgage			Other Revolving Credit and Installment			TOTAL
Allowance for loan and lease losses:
Balance as of June 30, 2012	$	128	$	3,302	$	1,292		$	11		$	—	$	—	$	—	$	6,528		$	64		$	123		$	11,448
Charge-offs		—		—		—			—			—		—		—		(226	)		—			—			(226	)
Recoveries		—		—		—			—			—		—		—		126			—			—			126
Provision		185		363		181			97			82		—		67		4			55			(3	)		1,031

Balance as of September 30, 2012	$	313	$	3,665	$	1,473		$	108		$	82	$	—	$	67	$	6,432		$	119		$	120		$	12,379

Balance as of December 31, 2011	$	128	$	1,998	$	1,541		$	236		$	—	$	—	$	—	$	8,635		$	110		$	132		$	12,780
Charge-offs		—		—		—			(236	)		—		—		—		(2,304	)		—			(7	)		(2,547	)
Recoveries		—		—		—			—			—		—		—		143			—			2			145
Provision		185		1,667		(68	)		108			82		—		67		(42	)		9			(7	)		2,001

Balance as of September 30, 2012	$	313	$	3,665	$	1,473		$	108		$	82	$	—	$	67	$	6,432		$	119		$	120		$	12,379

Balance as of June 30, 2011	$	68	$	655	$	692		$	278		$	—	$	—	$	—	$	6,161		$	360		$	217		$	8,431
Charge-offs		—		—		68			(57	)		—		—		—		(275	)		(108	)		(10	)		(382	)
Recoveries		—		—		—			1			—		—		—		116			—			4			121
Provision		—		558		(218	)		(210	)		—		—		—		784			17			(108	)		823

Balance as of September 30, 2011	$	68	$	1,213	$	542		$	12		$	—	$	—	$	—	$	6,786		$	269		$	103		$	8,993

Balance as of December 31, 2010	$	50	$	332	$	2,389		$	1,067		$	—	$	—	$	—	$	10,191		$	258		$	350		$	14,637
Charge-offs		—		—		(2,068	)		(1,900	)		—		—		—		(3,021	)		(108	)		(20	)		(7,117	)
Recoveries		—		—		—			24			—		—		—		165			—			10			199
Provision		18		881		221			821			—		—		—		(549	)		119			(237	)		1,274

Balance as of September 30, 2011	$	68	$	1,213	$	542		$	12		$	—	$	—	$	—	$	6,786		$	269		$	103		$	8,993


	Commercial and Industrial		Commercial Real Estate Mortgage		Multi- family		Land		SBA		Construction		Lease Financing		Real Estate 1-4 family first mortgage		Real Estate 1-4 family junior lien mortgage		Other Revolving Credit and Installment		TOTAL
Balance as of September 30, 2012
Originated individually evaluated for impairment	$	—	$	380	$	613	$	98	$	—	$	—	$	—	$	458	$	—	$	—	$	1,549
Originated collectively evaluated for impairment		313		3,285		211		10		82		—		—		5,974		119		120		10,114
Purchased individually evaluated for impairment		—		—		—		—		—		—		—		—		—		—		—
Purchased collectively evaluated for impairment		—		—		649		—		—		—		67		—		—		—		716
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—		—		—		—

Total ending allowance balance	$	313	$	3,665	$	1,473	$	108	$	82	$	—	$	67	$	6,432	$	119	$	120	$	12,379

Loans:
Originated individually evaluated for impairment	$	—	$	3,038	$	5,455	$	334	$	—	$	—	$	—	$	13,960	$	—	$	3	$	22,790
Originated collectively evaluated for impairment		17,855		195,137		17,971		573		3,343		—		—		536,300		8,255		7,786		787,220
Purchased individually evaluated for impairment		—		—		—		—		—		—		—		—		—		—		—
Purchased collectively evaluated for impairment		56,521		80,613		81,876		27		40,573		4,712		5,031		25,784		5,609		90		300,836
Acquired with deteriorated credit quality		7,290		22,829		852		327		6,817		—		—		66,354		59		—		104,528

Total ending loans balance	$	81,666	$	301,617	$	106,154	$	1,261	$	50,733	$	4,712	$	5,031	$	642,398	$	13,923	$	7,879	$	1,215,374

Balance as of December 31, 2011:
Originated individually evaluated for impairment	$	—	$	—	$	663	$	236	$	—	$	—	$	—	$	2,815	$	—	$	—	$	3,714
Originated collectively evaluated for impairment		128		1,998		355		—		—		—		—		5,820		110		132		8,543


	Commercial and Industrial		Commercial Real Estate Mortgage		Multi- family		Land		SBA		Construction		Lease Financing		Real Estate 1-4 family first mortgage		Real Estate 1-4 family junior lien mortgage		Other Revolving Credit and Installment		TOTAL
Purchased individually evaluated for impairment		—		—		—		—		—		—		—		—		—		—		—
Purchased collectively evaluated for impairment		—		—		523		—		—		—		—		—		—		—		523
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—		—		—		—

Total ending allowance balance	$	128	$	1,998	$	1,541	$	236	$	—	$	—	$	—	$	8,635	$	110	$	132	$	12,780

Loans:
Originated individually evaluated for impairment	$	—	$	—	$	5,001	$	1,887		—		—		—	$	20,650	$	—	$	—	$	27,538
Originated collectively evaluated for impairment		9,019		124,013		22,595		488		—		—		—		526,110		9,219		8,604		700,048
Purchased individually evaluated for impairment		—		—		—		—		—		—		—		—		—		—		—
Purchased collectively evaluated for impairment		—		—		59,694		—		—		—		—		—		—		—		59,694
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—		—		—		—

Total ending loans balance	$	9,019	$	124,013	$	87,290	$	2,375	$	—	$	—	$	—	$	546,760	$	9,219	$	8,604	$	787,280

The following table presents loans and leases individually evaluated for impairment by class of loans and leases as of September 30, 2012. The recorded investment included represents customer balances net of any partial charge-offs recognized on the loans and leases, net of any deferred fees and costs. Recorded investment excludes accrued interest receivable, as it is not considered to be material.

Originated loans:


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment YTD		Interest Income Recognized YTD		Cash Basis Interest Recognized YTD
With no related allowance recorded:
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	—	$	—	$	—
Real estate mortgage		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Land		—		—		—		—		—		—
SBA		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—
Consumer:						—
Real estate 1-4 family first mortgage		5,435		5,068		—		5,167		184		181
Real estate 1-4 family junior lien mortgage		—		—		—		—		—		—
Other revolving credit and installment		3		3		—		4		—		—
With an allowance recorded:
Commercial:
Commercial and industrial		—		—		—		—		—		—
Real estate mortgage		3,040		3,038		380		3,048		84		84
Multi-family		5,456		5,455		613		5,471		240		221
Land		334		334		98		333		14		14
SBA		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—
Consumer:
Real estate 1-4 family first mortgage		8,920		8,892		458		8,892		286		69
Real estate 1-4 family junior lien mortgage		—		—		—		—		—		—
Other revolving credit and installment		—		—		—		—		—		—

Total	$	23,188	$	22,790	$	1,549	$	22,915	$	808	$	569


	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Average of individually impaired loans during the period	$	23,091	$	36,176	$	22,915	$	40,925
Interest income recognized during impairment		265		244		808		662
Cash-basis interest income recognized		192		38		569		250

Purchased credit impaired loans:


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment YTD		Interest Income Recognized YTD		Cash Basis Interest Recognized YTD
With no related allowance recorded:
Commercial:
Commercial and industrial	$	2,268	$	1,909	$	—	$	1,909	$	47	$	—
Real estate mortgage		1,944		1,447		—		1,447		14		—
Multi-family		—		—		—		—		—		—
Land		—		—		—		—		—		—
SBA		1,182		963		—		963		135		135
Construction		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—
Consumer:						—
Real estate 1-4 family first mortgage		—		—		—		—		—		—
Real estate 1-4 family junior lien mortgage		—		—		—		—		—		—
Other revolving credit and installment		—		—		—		—		—		—
With an allowance recorded:
Commercial:
Commercial and industrial		—		—		—		—		—		—
Real estate mortgage		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Land		—		—		—		—		—		—
SBA		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Lease financing
Consumer:
Real estate 1-4 family first mortgage		—		—		—		—		—		—
Real estate 1-4 family junior lien mortgage		—		—		—		—		—		—
Other revolving credit and installment		—		—		—		—		—		—

Total	$	5,394	$	4,319	$	—	$	4,319	$	196	$	135


	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Average of individually impaired loans during the period	$	4,319	$	—	$	4,319	$	—
Interest income recognized during impairment		196		—		196		—
Cash-basis interest income recognized		135		—		135		—

Purchased credit impaired loans evaluated as a pool are not included in the tables above.

The following table presents loans and leases individually evaluated for impairment by class of loans and leases as of December 31, 2011. The recorded investment included represents customer balances net of any partial charge-offs recognized on the loans and leases, net of any deferred fees and costs and accrued interest.


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment YTD		Interest Income Recognized YTD		Cash Basis Interest Recognized YTD
With no related allowance recorded:
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	—	$	—	$	—
Real estate mortgage		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Land		487		488		—		493		28		28
Consumer:
Real estate 1-4 family first mortgage		6,849		6,915		—		6,872		92		39
Real estate 1-4 family junior lien mortgage		—		—		—		—		—		—
Other revolving credit and installment		—		2		—		74		19		—
With an allowance recorded:
Commercial:
Commercial and industrial		—		—		—		—		—		—
Real estate mortgage		—		—		—		—		—		—
Multi-family		5,001		5,013		663		5,030		134		43
Land		1,400		1,686		236		1,608		—		—
Consumer:
Real estate 1-4 family first mortgage		13,801		13,964		2,815		13,831		402		218
Real estate 1-4 family junior lien mortgage		—		—		—		—		—		—
Other revolving credit and installment		—		—		—		—		—		—

Total	$	27,538	$	28,068	$	3,714	$	27,908	$	675	$	328

Nonaccrual loans and leases and loans and leases past due 90 days still on accrual were as follows as of the dates indicated:


	September 30, 2012		December 31, 2011
Loans and leases past due over 90 days still on accrual	$	—	$	—
Nonaccrual loans and leases	$	16,181	$	19,254

Nonaccrual loans and leases consisted of the following as of the dates indicated:


	September 30, 2012		December 31, 2011
Commercial:
Commercial and industrial	$	—	$	—
Real estate mortgage		3,038		—
Multi-family		5,455		3,090
Land		334		1,887
SBA		—		—
Construction		—		—
Lease financing		—		—
Consumer:
Real estate 1-4 family first mortgage		7,316		14,272
Real estate 1-4 family junior lien mortgage		36		—
Other revolving credit and installment		2		5

Total	$	16,181	$	19,254

Nonaccrual loans and leases at September 30, 2012 and December 31, 2011 of $14.7 million and $16.3 million were net of specific allowance allocations of $1.5 million and $2.9 million, respectively. All nonaccrual loans and leases are originated. There are no purchased non-PCI loans or leases on nonaccrual.

The following table presents the aging of the recorded investment in originated past due loans and leases as of September 30, 2012 by class of loans, excluding accrued interest:


	30-59 Days Past Due		60-89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Current		Total Gross Financing Receivables		Considered Current That Have been Modified in Previous Year
September 30, 2012
Commercial:
Commercial and industrial	$	11	$	—	$	—	$	11	$	17,844	$	17,855	$	2,370
Real estate mortgage		—		—		—		—		198,175		198,175		197
Multi-family		—		—		—		—		23,426		23,426		—
Land		—		—		—		—		907		907		—
SBA		—		—		—		—		3,343		3,343		—
Construction		—		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—		—
Consumer:
Real estate 1-4 family first mortgage		10,315		1,117		1,443		12,875		537,385		550,260		—
Real estate 1-4 family junior lien mortgage		—		—		36		36		8,219		8,255		—
Other revolving credit and installment		18		3		—		21		7,768		7,789		—

Total	$	10,344	$	1,120	$	1,479	$	12,943	$	797,067	$	810,010	$	2,567

The following table presents the aging of the recorded investment in purchased past due loans and leases (excluding purchased impaired loans and leases) as of September 30, 2012 by class of loans, excluding accrued interest:


	30-59 Days Past Due		60-89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Current		Total Gross Financing Receivables		Considered Current That Have been Modified in Previous Year
September 30, 2012
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	—	$	56,521	$	56,521	$	—
Real estate mortgage		2,306		—		—		2,306		78,307		80,613		—
Multi-family		270		—		—		270		81,606		81,876		—
Land		—		—		—		—		27		27		—
SBA		1,126		—		—		1,126		39,447		40,573		—
Construction		—		—		—		—		4,712		4,712		—
Lease financing		—		—		—		—		5,031		5,031		—
Consumer:
Real estate 1-4 family first mortgage		—		273		—		273		25,511		25,784		—
Real estate 1-4 family junior lien mortgage		—		—		—		—		5,609		5,609		—
Other revolving credit and installment		—		—		—		—		90		90		—

Total	$	3,702	$	273	$	—	$	3,975	$	296,861	$	300,836	$	—

The following table presents the aging of the principal balances in originated past due loans and leases as of December 31, 2011 by class of loans, excluding accrued interest:


	30-59 Days Past Due		60-89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Current		Total Financing Receivables		Considered Current That Have been Modified in Previous Year
December 31, 2011
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	—	$	9,019	$	9,019	$	—
Real estate mortgage		291		—		—		291		123,722		124,013		—
Multi-family		—		—		—		—		27,596		27,596		—
Land		—		—		1,400		1,400		975		2,375		487
Consumer:
Real estate 1-4 family first mortgage		8,133		2,536		6,385		17,054		529,706		546,760		3,760
Real estate 1-4 family junior lien mortgage		—		—		—		—		9,219		9,219		—
Other revolving credit and installment		4		—		5		9		8,595		8,604		—

Total	$	8,428	$	2,536	$	7,790	$	18,754	$	708,832	$	727,586	$	4,247

The following table presents the aging of the principal balances in purchased past due loans and leases as of December 31, 2011 by class of loans, excluding accrued interest:


	30-59 Days Past Due		60-89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Current		Total Financing Receivables		Considered Current That Have been Modified in Previous Year
December 31, 2011
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate mortgage		—		—		—		—		—		—		—
Multi-family		—		—		—		—		59,694		59,694		—
Land		—		—		—		—		—		—		—
Consumer:										—		—		—
Real estate 1-4 family first mortgage		—		—		—		—		—		—		—
Real estate 1-4 family junior lien mortgage		—		—		—		—		—		—		—
Other revolving credit and installment		—		—		—		—		—		—		—

Total	$	—	$	—	$	—	$	—	$	59,694	$	59,694	$	—

Troubled Debt Restructurings:

The Company has allocated $783 thousand and $2.1 million of specific allowance allocations to customers whose loan or lease terms have been modified in troubled debt restructurings as of September 30, 2012 and December 31, 2011. The Company did not have any commitments to lend to customers with outstanding loans or leases that are classified as troubled debt restructurings as of September 30, 2012 and December 31, 2011.

During the three and nine months ended September 30, 2012, the terms of two loans were modified as troubled debt restructurings. The modification of the terms of such loan included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The Company did not make any loan or lease modifications other than the two troubled debt restructurings discussed above during the three and nine months ended September 30, 2012. There were no such loans or leases with defaults during the three or nine months ended September 30, 2012.

The following table presents loans and leases by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three and nine months ended September 30, 2012:


	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings That Subsequently Defaulted:
Commercial:
Commercial and industrial		—	$	—	$	—		—	$	—	$	—
Real estate mortgage		1		487		487		1		487		487
Multi-family		—		—		—		—		—		—
Land		—		—		—		—		—		—
SBA		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—
Consumer:
Real estate 1-4 family first mortgage		—		—		—		—		—		—
Real estate 1-4 family junior lien mortgage		—		—		—		—		—		—
Other revolving credit and installment		—		—		—		—		—		—

Total		1	$	487	$	487		1	$	487	$	487

A loan or lease is considered to be in payment default once it is 30 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Troubled debt restructured loans and leases consist of the following (in thousands):

Originated loans and leases:


	At September 30, 2012		At December 31, 2011
Commercial:
Commercial and industrial	$	—	$	—
Real estate mortgage		290		—
Multi-family		3,090		3,090
Land		334		487
SBA		—		—
Construction		—		—
Lease financing		—		—


	At September 30, 2012		At December 31, 2011
Consumer:
Real estate 1-4 family first mortgage		12,079		14,613
Real estate 1-4 family junior lien mortgage		—		—
Other revolving credit and installment		2		2

Total	$	15,795	$	18,192

Purchased loans and leases:


	Purchased Loans				Purchased Credit Impaired Loans
	At September 30, 2012		At December 31, 2011		At September 30, 2012		At December 31, 2011
Commercial:
Commercial and industrial	$	—	$	—	$	1,239	$	—
Real estate mortgage		—		—		1,264		—
Multi-family		—		—		—		—
Land		—		—		110		—
SBA		—		—		194		—
Construction		—		—		—		—
Lease financing		—		—		—		—
Consumer:
Real estate 1-4 family first mortgage		—		—		—		—
Real estate 1-4 family junior lien mortgage		—		—		—		—
Other revolving credit and installment		—		—		—		—

Total	$	—	$	—	$	2,807	$	—

Troubled debt restructured loans and leases at September 30, 2012 and December 31, 2011 totaling $17.8 million and $16.1 million were net of specific allowance allocations of $783 thousand and $2.1 million, respectively.

Credit Quality Indicators:

The Company categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company performs an historical loss analysis that is combined with a comprehensive loan or lease to value analysis to analyze the associated risks in the current loan and lease portfolio. The Company analyzes loans and leases individually by classifying the loans and leases as to credit risk. This analysis includes all loans and leases delinquent over 60 days and non-homogenous loans and leases such as commercial and commercial real estate loans. Classification of problem single family residential loans is performed on a monthly basis while analysis of non-homogenous loans and leases is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans and leases classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or of the Company’s credit position at some future date.

Substandard. Loans and leases classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans and leases classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans and leases not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans and leases. Consumer loans are evaluated based on payment history.

The following table displays the Company’s risk categories for originated loans as of September 30, 2012.


	Pass		Special Mention		Substandard		Doubtful		Loss		Not Rated		TOTAL
Commercial:
Commercial and industrial	$	17,844	$	—	$	11	$	—	$	—	$	—	$	17,855
Real estate mortgage		194,237		—		3,938		—		—		—		198,175
Multi-family		17,971		—		5,455		—		—		—		23,426
Land		573		—		334		—		—		—		907
SBA		3,343		—		—		—		—		—		3,343
Construction		—		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—		—
Consumer:
Real estate 1-4 family first mortgage		529,974		8,488		11,798		—		—		—		550,260
Real estate 1-4 family junior lien mortgage		7,878		165		212		—		—		—		8,255
Other revolving credit and installment		7,721		65		3		—		—		—		7,789

Total	$	779,541	$	8,718	$	21,751	$	—	$	—	$	—	$	810,010

The following table displays the Company’s risk categories for purchased loans and leases (excluding purchased impaired loans and leases) as of September 30, 2012.


	Pass		Special Mention		Substandard		Doubtful		Loss		Not Rated		TOTAL
Commercial:
Commercial and industrial	$	56,521	$	—	$	—	$	—	$	—	$	—	$	56,521
Real estate mortgage		80,611		2		—		—		—		—		80,613
Multi-family		81,876		—		—		—		—		—		81,876
Land		27		—		—		—		—		—		27
SBA		40,477		77		19		—		—		—		40,573
Construction		4,712		—		—		—		—		—		4,712
Lease financing		—		—		—		—		—		5,031		5,031
Consumer:
Real estate 1-4 family first mortgage		25,491		293		—		—		—		—		25,784
Real estate 1-4 family junior lien mortgage		5,609		—		—		—		—		—		5,609
Other revolving credit and installment		90		—		—		—		—		—		90

Total	$	295,414	$	372	$	19	$	—	$	—	$	5,031	$	300,836

The loans and leases not rated totaled $5.0 million at September 30, 2012 and represented loans or leases that were purchased during the three months ended September 30, 2012.

The following tables display the Company’s non-performing and performing substandard loan and lease portfolio (using recorded investment).


	Originated Loans September 30, 2012
	# of Loans		Balance
Substandard Loans and Leases:
Non-Performing		5	$	1,524

Performing:
TDR		8		9,185
Rated substandard due to borrower relationship to distressed loans or leases		6		5,691
Rated substandard due to other credit factors		14		5,351

Total Performing:		28	$	20,227

Total Substandard Loans and Leases		33	$	21,751


	Purchased Loans
	September 30, 2012
	# of Loans		Balance
Substandard Loans and Leases:
Non-Performing		—	$	—

Performing:
TDR		—		—
Rated substandard due to borrower relationship to distressed loans or leases		—		—
Rated substandard due to other credit factors		2		19

Total Performing:		2	$	19

Total Substandard Loans and Leases		2	$	19

The following table displays the Company’s risk categories for originated loans and leases as of December 31, 2011.


	Pass		Special Mention		Substandard		Doubtful		Loss		Not Rated		TOTAL
Commercial:
Commercial and industrial	$	9,019	$	—	$	—	$	—	$	—	$	—	$	9,019
Real estate mortgage		108,841		11,463		3,709		—		—		—		124,013
Multi-family		22,098		497		5,001		—		—		—		27,596
Land		488		—		1,887		—		—		—		2,375
Consumer:
Real estate 1-4 family first mortgage		498,794		26,381		21,585		—		—		—		546,760
Real estate 1-4 family junior lien mortgage		8,177		698		344		—		—		—		9,219
Other revolving credit and installment		8,385		215		4		—		—		—		8,604

Total	$	655,802	$	39,254	$	32,530	$	—	$	—	$	—	$	727,586

The following table displays the Company’s risk categories for purchased loans and leases as of December 31, 2011.


	Pass		Special Mention		Substandard		Doubtful		Loss		Not Rated		TOTAL
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate mortgage		—		—		—		—		—		—		—
Multi-family		59,694		—		—		—		—		—		59,694
Land		—		—		—		—		—		—		—
Consumer:
Real estate 1-4 family first mortgage		—		—		—		—		—		—		—
Real estate 1-4 family junior lien mortgage		—		—		—		—		—		—		—
Other revolving credit and installment		—		—		—		—		—		—		—

Total	$	59,694	$	—	$	—	$	—	$	—	$	—	$	59,694

The following table displays the Company’s non-performing and performing substandard loan and lease portfolio (using unpaid principal balance) as of December 31, 2011.


	December 31, 2011
	# of Loans		Balance
Substandard Loans and Leases:
Non-Performing		16	$	7,788

Performing:
TDR		22		13,271
Rated substandard due to borrower relationship to distressed loans or leases		13		7,811
Rated substandard due to other credit factors		7		3,660

Total Performing:		42	$	24,742

Total Substandard Loans and Leases		58	$	32,530

Purchased Credit Impaired Loans and Leases:

During the three and nine months ended September 30, 2012, the Company purchased loans and leases for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans and leases at September 30, 2012 is as follows. There were no such loans or leases in 2011.


	September 30, 2012
Commercial:
Commercial and industrial	$	7,290
Real estate mortgage		22,829
Multi-family		852
Land		327
SBA		6,817
Construction		—
Consumer:
Consumer - Real estate 1-4 family first mortgage		66,354
Consumer - Real estate 1-4 family junior lien mortgage		59
Other revolving credit and installment		—

Outstanding balance	$	104,528


Carrying amount, net of allowance of $0	$	104,528

The loans or leases identified as purchased with credit impairments were approximately $163.4 million as of the acquisition date. A credit discount of approximately $32.7 million was recorded and an additional $31.2 million of yield discount was also recorded. The yield discount is being recognized on a method that approximates a level yield over the expected life of the loan or lease. The Company does not accrete the credit discount into income until such time as the loan or lease is paid off. The only exception would be on a case-by-case basis when a material event that significantly improves the quality of the loans or leases and reduces the risk to the Bank such that management believes it would be prudent to start recognizing some of the credit discount in interest income.

Accretable yield, or income expected to be collected, is as follows:


	Accretable Yield
Balance at June 30, 2012	$	6,608
New loans or leases purchased		28,852
Accretion of income		(318	)
Reclassifications from nonaccretable difference		—
Disposals		—

Balance at September 30, 2012	$	35,142


	Accretable Yield
Balance at January 1, 2012	$	—
New loans or leases purchased		35,892
Accretion of income		(750	)
Reclassifications from nonaccretable difference		—
Disposals		—

Balance at September 30, 2012	$	35,142

Loans and leases purchased during the three and nine months ended September 30, 2012 for which it was probable at acquisition that all contractually required payments would not be collected are as follows:


	Three Months Ended September 30, 2012		Nine Months Ended September 30, 2012
Commercial:
Commercial and industrial	$	4,807	$	4,807
Real estate mortgage		26,007		26,007
Multi-family		1,222		1,222
Land		237		237
SBA		15,767		15,767
Construction		—		—
Consumer:
Consumer - Real estate 1-4 family first mortgage		76,396		115,399
Consumer - Real estate 1-4 family junior lien mortgage		—		—
Other revolving credit and installment		—		—

	$	124,436	$	163,439


Cash flows expected to be collected at acquisition	$	98,131	$	128,030
Fair value of acquired loans at acquisition	$	79,565	$	102,395

For those purchased loans and leases disclosed above, no allowance for loan or lease losses was recorded during the three or nine months ended September 30, 2012. No allowances for loan or lease losses were reversed during the three or nine months ended September 30, 2012.

Loans and leases that were acquired from Beach Business Bank and Gateway Business Bank as part of the mergers that were considered credit impaired were written down at acquisition date in purchase accounting to an amount estimated to be collectible and the related allowance for loan and lease losses was not carried over to First PacTrust Bancorp, Inc.’s allowance.

Income is not recognized on certain purchased loans and leases if the Company cannot reasonably estimate cash flows expected to be collected. The Company held no such loans or leases during the three or nine months ended September 30, 2012.

NOTE 9 – RISK MANAGEMENT AND DERIVATIVE INSTRUMENTS

The Company originates residential real estate mortgage loans and generates revenues from the origination and sale of these loans. Although management closely monitors market conditions, such activities are sensitive to fluctuations in prevailing interest rates and real estate markets. During the last 12 months, approximately 70% of all properties securing loans held for sale are located in California. A change in the underlying economic conditions of the California residential real estate market could have an adverse impact on the Company’s operations.

The Bank uses derivative instruments and other risk management techniques to reduce its exposure to adverse fluctuations in interest rates in accordance with its risk management policy as determined by its Board of Directors. The Bank utilizes forward contracts and investor commitments to economically hedge mortgage banking products and may from time to time use interest rate swaps as hedges against certain liabilities.

In connection with mortgage banking activities, if interest rates increase, the value of the Bank’s loan commitments to borrowers and fixed rate mortgage loans held-for-sale are adversely impacted. The Bank attempts to economically hedge the risk of the overall change in the fair value of loan commitments to borrowers and mortgage loans held for sale by selling forward contracts on securities of GSEs and by entering into IRLCs with investors in loans underwritten according to investor guidelines.

Forward contracts on securities of GSEs and loan commitments to borrowers are non- designated derivative instruments and the gains and losses resulting from these derivative instruments are included in net gain on mortgage banking activities in the accompanying consolidated statements of income and comprehensive income/(loss). At September 30, 2012, the resulting derivative asset of approximately $3.4 million and liability of approximately $3.1 million, are included in other assets and accrued expenses and other liabilities on the accompanying consolidated statements of financial condition related to loan commitments and forward contracts. At September 30, 2012, the Bank had outstanding forward commitments totaling $213.2 million. At September 30 2012, the Bank was committed to fund loans for borrowers of approximately $119.2 million.

The net losses relating to free-standing derivative instruments used for risk management were $1.9 million for the three and nine months ended September 30, 2012. Prior to the third quarter of 2012, the Company held no derivatives.

The following table reflects the amount and market value of mortgage banking derivatives included in the consolidated statements of financial condition as of September 30, 2012:


	Notional Amount		Fair Value
Included in assets:
Loans held for sale	$	105,410	$	4,881
Interest rate lock commitments		111,598		3,322
Mandatory forward commitments		19,617		48

Total included in assets	$	236,625	$	8,251

Included in other liabilities:
Interest rate lock commitments	$	7,616	$	99
Mandatory forward commitments		143,633		2,668
Other liabilities (best efforts commitments)		49,976		284

Total included in other liabilities	$	201,225	$	3,051

NOTE 10 – OTHER REAL ESTATE OWNED

Activity in other real estate owned was as follows for the nine months ended September 30, 2012 and 2011:


	2012			2011
Beginning of period	$	14,692		$	6,562
Additions		3,750			20,808
Sales and net direct write-downs		(10,589	)		(8,760	)
Net change in valuation allowance		851			1,941

Balance at end of period	$	8,704		$	20,551

Activity in the other real estate owned valuation allowance was as follows for the nine months ended September 30, 2012 and 2011:


	2012			2011
Beginning of period	$	4,081		$	3,379
Additions charged to expense		205			1,887
Net direct write-downs or removal upon sale		(1,056	)		(3,828	)

Balance at end of period	$	3,230		$	1,438

Expenses related to foreclosed assets included in loan servicing and foreclosure expenses on the consolidated statements of income and comprehensive income/(loss) were as follows for the nine months ended September 30, 2012 and 2011:


	2012			2011
Net (gain)/loss on sales of other real estate owned	$	(466	)	$	924
Operating expenses, net of rental income		650			783

	$	184		$	1,707

Loans provided for sales of other real estate owned, included in other assets on the consolidated statements of financial condition, and deferred gain on real estate sold on contract, included in accrued expenses and other liabilities on the consolidated statements of financial condition were as follows at September 30, 2012 and December 31, 2011:


	September 30, 2012		December 31, 2011
Loans provided for sales of other real estate owned on contract	$	917	$	1,145

Deferred gain on other real estate owned sold on contract	$	10	$	50

NOTE 11 – SERVICING RIGHTS

The Company retains mortgage servicing rights (MSRs) from certain of its sales of residential mortgage loans. MSRs on residential mortgage loans are reported at fair value. Income earned by the Company on its MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs. Prior to the acquisitions of Gateway and Beach, the Company did not have any MSRs. The Bank retains servicing rights in connection with its SBA loan operations. Income earned from servicing rights for the three and nine months ended September 30, 2012 was $146 thousand. This amount is reported in loan servicing income in the consolidated statements of income and comprehensive income/(loss). At September 30, 2012, servicing rights are comprised of the following:


	September 30, 2012
Mortgage servicing rights	$	1,609
SBA servicing rights		561

	$	2,170

Mortgage loans serviced for others are not reported as assets. These loans are subserviced by a 3 ^rd party. The principal balances of these loans at September 30, 2012 were as follows:


	September 30, 2012
Mortgage loans portfolios serviced for:
FHLMC	$	—
FNMA		202,000
GNMA		—

	$	202,000

Custodial escrow balances maintained in connection with serviced loans were $1.6 million at September 30, 2012.

Mortgage Servicing Rights

Following is a summary of the key characteristics, inputs and economic assumptions used to estimate the fair value of the Company’s MSRs as of September 30, 2012:


	September 30, 2012
Fair value of retained MSRs	$	1,609
Decay (prepayment/default)		18.64	%
Discount rate		10.50	%
Weighted-average life (in years)		14.81


	Three Months Ended September 30, 2012
Mortgage Servicing Rights:
Balance at acquisition on August 18, 2012	$	1,534
Additions		244
Disposals		—
Changes in fair value resulting from valuation inputs or assumptions		(107	)
Other – loans paid off		(62	)

Balance at September 30, 2012	$	1,609

Mortgage Loan Repurchase Obligations

Following is a summary of activity in the reserve for loss reimbursements on sold loans for the three and nine months ended September 30, 2012:


	Three and Nine Months Ended September 30, 2012
Balance at acquisition on August 18, 2012	$	2,493
Provision for loss reimbursements on sold loans		172
Payments made for loss reimbursements on sold loans		—

Balance at September 30, 2012	$	2,665

SBA Servicing Rights

The Company used a discount rate range of 7.25% to 15% to calculate the present value of cash flows and an estimated prepayment speed based on prepayment data available. Discount rates and prepayment speed are reviewed quarterly and adjusted as appropriate.


	Three Months Ended September 30, 2012
SBA Servicing Rights:
Balance at acquisition on July 1, 2012 and August 18, 2012	$	658
Additions		30
Amortization, including prepayments		(127	)

Balance at September 30, 2012	$	561


Interest-Only Strip:
Balance at acquisition on August 18, 2012	$	30
Additions		—
Amortization, including prepayments		(1	)

Balance at September 30, 2012	$	29

There was no valuation allowance as of September 30, 2012 for SBA servicing rights or the I/O strips.

NOTE 12 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Some financial instruments such as loan commitments, credit lines, letters of credit, and overdraft protection are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contact are met, and usually have expiration dates. Commitments may expire without being used. Risk of credit loss exists up to the face amount of these instruments. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off-balance-sheet risk was as follows as of the dates indicated:


	Contract Amount
	September 30, 2012				December 31, 2011
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Financial instruments whose contract amounts represent credit risk
Commitments to extend credit	$	49,061	$	3,114	$	1,000	$	579
Unused lines of credit		10,072		101,320		6,249		36,472
Standby letters of credit		10		1,420		10		10

Commitments to make loans are generally made for periods of 30 days or less.

Financial instruments that potentially subject the Bank to concentrations of credit risk include interest-bearing deposit accounts in other financial institutions, and loans. At September 30, 2012 and December 31, 2011, the Bank had interest-bearing deposit accounts with balances totaling approximately $118.8 million and $37.7 million, respectively, in other financial institutions.

As of September 30, 2012, the Company had total commitments to sell loans of $111.6 million. Total commitments were outstanding for the loans held for sale portfolio and IRLCs were $93.6 million and $17.8 million, respectively. For the loans held for sale commitments, $61.1 million and $32.6 million were mandatory commitments and best efforts commitments, respectively. Generally speaking, best efforts commitments do not have a financial penalty for non-delivery. The IRLCs consisted of $0.4 million of mandatory commitments and $17.4 million of best efforts commitments.

NOTE 13 – PREMISES AND EQUIPMENT

Premises and equipment at September 30, 2012 and December 31, 2011 are summarized as follows:


	September 30, 2012			December 31, 2011
Land and improvements	$	1,638		$	1,638
Buildings		8,392			8,363
Furniture, fixtures, and equipment		8,354			4,753
Leasehold improvements		3,639			1,714
Construction in process		948			618

Total		22,971			17,086
Less accumulated depreciation and amortization		(7,479	)		(6,501	)

Premises and equipment, net	$	15,492		$	10,585

Depreciation expense was $1.0 million and $451 thousand for the nine months ended September 30, 2012 and 2011, respectively.

Operating Leases : The Company leases certain branch properties under operating leases. Total rent expense for the three and nine months ended September 30, 2012 amounted to $980 thousand and $1.9 million, respectively. Total rent expense for the three and nine months ended September 30, 2011 amounted to $135 thousand and $345 thousand, respectively.

Capital Leases : The Company leases certain equipment under capital leases. The lease arrangements require monthly payments through 2017.

The Company has included these leases in capital lease assets as follows:


	September 30, 2012		December 31, 2011
Furniture, fixtures, and equipment	$	365	$	—


	September 30, 2012			December 31, 2011
Less accumulated depreciation and amortization		(24	)		—

Capital lease assets, net	$	341		$	—

Depreciation expense was $13 thousand and $24 thousand for the three and nine months ended September 30, 2012.

NOTE 14 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET

The Company recorded goodwill and intangible assets during the third quarter of 2012 as a result of the Beach merger and Gateway acquisition discussed above in Note 3—Business Combinations. At September 30, 2012, the Company had recorded goodwill of $7.0 million.

Acquired intangible assets were as follows at September 30, 2012:


	Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Trade name	$	980	$	11
Core deposit intangibles		5,190		318

Total	$	6,170	$	329

Aggregate amortization expense was $329 thousand for the three months ended September 30, 2012.

NOTE 15 – FEDERAL HOME LOAN BANK ADVANCES

At September 30, 2012, all of the Company’s advances from the FHLB are fixed and had interest rates ranging from 0.28% to 0.82% with a weighted average rate of 0.42%. At December 31, 2011, all of the Company’s advances from the FHLB are fixed and had interest rates ranging from 1.66% to 1.85% with a weighted average rate of 1.79%. The contractual maturities by year of the Bank’s advances are as follows at September 30, 2012 and December 31, 2011:


	September 30, 2012		December 31, 2011
2012		61,000		20,000
2013		—		—
2014		10,000		—
2015		15,000		—

Total advances	$	86,000	$	20,000

Each advance is payable at its maturity date. Two advances totaling $61 million matured in October 2012. Advances paid early are subject to a prepayment penalty. At September 30, 2012 and December 31, 2011, the Company’s investment of capital stock of the FHLB of San Francisco was $8.4 million and $7.0 million, respectively. Based on this collateral and eligible mortgage loan collateral, the Company was eligible to borrow an additional $176.8 million at September 30 2012. In addition, the Company has an available line of credit totaling $121.8 million with the Federal Reserve Bank at September 30, 2012.

NOTE 16 – LONG TERM DEBT

On April 23, 2012, the Company completed the issuance and sale of $33.0 million aggregate principal amount of its 7.50% Senior Notes due April 15, 2020 (the “Notes”) at a price to the public of $25.00 per Note (the “Notes Offering”). Net proceeds after discounts were approximately $31.7 million. The Notes Offering was completed pursuant to the Prospectus, filed as a part of the Company’s Registration Statement on Form S-3 with the SEC, dated November 23, 2010, as supplemented by a prospectus supplement in preliminary form dated April 10, 2012 and in final form dated April 18, 2012 and two free writing prospectuses dated April 10, 2012 and April 18, 2012. In connection with the Notes Offering, the Company entered into a Purchase Agreement, dated April 18, 2012, with Sandler O’Neill & Partners, L.P., as representative of the several underwriters named therein (the “Purchase Agreement”). The Notes were sold to the underwriters at a price of $24.00 per Note. The Notes were issued under the Senior Debt Securities Indenture, dated as of April 23, 2012 (the “Base Indenture”), as supplemented by the First Supplemental Indenture, dated as of April 23, 2012 (the “Supplemental Indenture,” and together with the Base Indenture, the “Indenture”), between the Company and U.S. Bank National Association, as trustee (the “Trustee”).

The Notes are the Company’s senior unsecured debt obligations and rank equally with all of the Company’s other present and future unsecured unsubordinated obligations. The Notes bear interest at a per-annum rate of 7.50%. The Company will make interest payments on the Notes quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, beginning on July 15, 2012. Interest on the Notes will be computed on the basis of a 360-day year comprised of twelve 30-day months.

The Notes will mature on April 15, 2020. However, the Company may, at the Company’s option, on April 15, 2015, or on any scheduled interest payment date thereafter, redeem the Notes in whole or in part on not less than 30 nor more than 60 days’ prior notice. The Notes will be redeemable at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to the date of redemption.

The Indenture contains several covenants which, among other things, restrict the Company’s ability and the ability of the Company’s subsidiaries to dispose of or incur liens on the voting stock of certain subsidiaries and also contains customary events of default.

NOTE 17 – INCOME TAXES

The Company recorded income tax expense / (benefit) of ($1.1 million) and $368 thousand for the three months ended September 30, 2012 and 2011, respectively and ($1.4 million) and $1.4 million for the nine months ended September 30, 2012 and 2011, respectively. The effective tax rates equaled (13.2%) and 36.4% for the three months ended September 30, 2012 and 2011, respectively and (18.4)% and 33.1% for the nine months ended September 30, 2012 and 2011, respectively.

The components of the net deferred tax asset were as follows:


	September 30, 2012			December 31, 2011
Deferred tax assets:
Allowance for loan losses	$	5,094		$	5,260
Section 475 mark to market adjustment		276			—
Stock option plan		471			364
Deferred California tax		1			1
Investment in partnership		155			135
Depreciation		—			14
AMT and general business credit carry forward		1,397			1,038
OREO write-downs		1,336			1,679
RRP plan		416			56
Stock appreciation rights		278			—
Nonaccrual loans		438			469
Federal net operating loss		1,811			—
California net operating loss		2,209			945
Net unrealized loss on available for sale securities		—			656
Accrued compensation		886			109
Accrued expenses		748			—
Reserve for loss reimbursements on sold loans		1,097			—
Purchase accounting adjustments		785			—
Other		882			203

		18,280			10,929
Deferred tax liabilities:
Deferred loan costs		(696	)		(457	)
FHLB stock dividends		(529	)		(567	)
Net unrealized gain on securities available for sale		(265	)		—
Section 475 mark to market adjustment		—			(683	)
Servicing rights		(603	)		—
Loans held-for-sale		(1,050	)		—
Depreciation		(93	)		—
Other		(565	)		(250	)

		(3,801	)		(1,957	)
Valuation allowance		(7,038	)		(1,329	)


Net deferred tax asset	$	7,441		$	7,643

The activity in the deferred tax asset valuation allowance was as follows:


	Three Months Ended September 30, 2012		Nine Months Ended September 30, 2011
Balance at beginning of period	$	1,329	$	—
Purchase accounting adjustment for Beach and Gateway		4,859		—
Change in valuation allowance		850		—

Balance at end of period	$	7,038	$	—

The Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the financial reporting and tax basis of its assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets when it is more-likely-than-not that a portion or all of the net deferred tax assets will not be realized. Each quarter, the Company reviews its analysis of whether a valuation allowance should be recorded against its net deferred tax assets. Accounting literature states that a deferred tax asset should be reduced by a valuation allowance if, based on the weight of all available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or the entire net deferred tax asset will not be realized. The determination of whether a net deferred tax asset is realizable is based on weighting all available evidence, including both positive and negative evidence. In making such judgments, significant weight is given to evidence that can be objectively verified. Although realization is not assured, the Company believes that the realization of all but approximately 49% of the recognized net deferred tax asset (DTA) at September 30, 2012 is more likely than not based upon available tax planning strategies and our current estimates of expectations as to future taxable income. At September 30, 2012, the Company had a net deferred tax asset of $7.4 million, net of a $7.0 million valuation allowance. At December 31, 2011, the Company had a net deferred tax asset of $7.6 million, net of a $1.3 million valuation allowance.

As a result of net losses incurred year to date in 2012, excluding the $12.1 million nontaxable bargain purchase gain, and in 2011 and 2009, the Company is in a three-year cumulative pretax loss position at September 30, 2012. This three-year cumulative loss position is considered significant negative evidence in assessing the need to establish a valuation allowance for the net DTA. The Company has concluded that there is sufficient positive evidence to overcome a portion of this negative evidence. While significant positive evidence is present, management believes that given the weight of the evidence from the three-year cumulative loss it is appropriate to establish a $7.0 million DTA valuation allowance as of September 30, 2012. The positive evidence includes the fact that the cumulative pre-tax loss was a result of the Company’s discontinued builder lending business. The Company believes that the losses incurred in 2009 and 2011 were primarily due to its construction lending and land loan program which is no longer a part of the Company’s business strategy since 2008. The majority of loan losses during 2007 through 2011 were specifically tied to six construction and land loans. Of these, two are no longer on the books and the other four have been foreclosed on and are actively listed OREO properties. The remaining balance of construction lending and land loans totals approximately $6 million as of September 30, 2012 and none are considered to be nonperforming.

Management believes that these facts provide evidence indicating that further losses from this previous lending program are not likely to approach the historical loss levels; for 2012, with the recent loan growth in 2011, the Company has built its net interest margin to an earnings rate that achieves the 2012 budget, and the Company forecasts sufficient taxable income in the next three years (2013 – 2015) to utilize at least 51% of the net DTA balance as of September 30, 2011. The 2013 to 2015 forecast assumes similar trends in asset quality improvement as experienced by the Company in 2011 and 2012 and by the banking industry at large. The banking industry has seen increased profitability in 2011 and 2012 due to lower provisions for loan losses due to reductions in nonperforming loans. The large amount of excess capital the Company maintains as of September 30, 2012 allows it to take advantage of future loan funding opportunities while many other banks find themselves constrained by asset concentration and regulatory capital limits. The Company expects future earnings to improve significantly when compared to its 2011 and 2012 results. Recent events point to a stabilization and eventual increase in earnings fundamentals, with further enhancement as a result of the Beach and Gateway acquisitions. This includes the launch of the Company’s commercial real estate lending platform as well as the re-launch of the Company’s residential lending platform and the opening of new branches to support deposit growth. As a result, the Company believes that with its strong capital position and the introduction of a new management team, the Company’s core earnings fundamentals have shifted to the positive given the drive for organic growth and management believes the Company will be able to generate sufficient taxable income in 2013-2015 to utilize at least 51% of the net DTA as of September 30, 2012, and as such, the 49% DTA valuation allowance established as of September 30, 2012 is deemed appropriate. In estimating future taxable income, management stress tested the forecasts and discounted the results by 5% for 2013, 10% for 2014, and 15% for 2015. Despite the DTA valuation allowance, the deferred tax assets remain available to offset future taxable income. The DTA valuation allowance may be reversed to income in future years to the extent the related deferred tax assets are realized or the DTA valuation allowance is no longer required.

At September 30, 2012, federal net operating loss carryforwards total $5.3 million and will begin to expire in 2016, if unused. The federal net operating losses were acquired through the stock acquisition of Gateway Bancorp, Inc. on August 18, 2012. Gateway Bancorp, Inc. is considered to have undergone a change in control under IRS Code Section 382. As such, the federal net operating loss carryforwards are subject to an annual Section 382 limitation of $474 thousand. Gateway Bancorp, Inc. had undergone a previous change in control which carries over a Section 382 limitation from pre-2002 tax years in the amount $188 thousand. Federal net operating losses incurred for pre-2012 change in controls are subject to an additional annual limitation amount of $286 thousand. Therefore, the maximum amount of net operating loss carryforwards that may be utilized in any tax year post August 18, 2012 is $474 thousand, which includes $188 thousand of pre-2002 losses and the remaining $286 thousand of pre-2012 losses.

As of September 30, 2012, California net operating loss carryforwards total approximately $31.8 million and will begin to expire in 2017, if unused. California conforms to the federal Code Section 382. The net operating loss carryforwards include losses carried over from the stock acquisition of Gateway Bancorp, Inc. in the amount of $12.1 million; losses carried over from the merger of Beach Business Bank in the amount of $8.0 million; and remaining $11.7 million were created by First PacTrust Bancorp, Inc. prior to the acquisitions. Both acquisitions are considered to have undergone a change in control for California purposes; as such, Beach California net operating losses are subject to an annual limitation of $1.3 million; and Gateway California net operating losses are subject to an annual limitation of $474 thousand. Due to these annual Section 382 limitations, the Company determined, based on current estimates, approximately $2.9 million of Gateway’s California net operating losses will expire prior to utilization. As such, the deferred tax asset associated with the net operating loss benefit was reduced to the maximum amount currently projected to be realizable.

As of September 30, 2012, AMT tax credit carryforwards total $161 thousand and they do not expire. As of September 30, 2012, general business credits carryforwards total $1.2 million and will begin to expire in 2027, if unused.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as, income tax of multiple state jurisdictions. The Company is no longer subject to examination by U.S. federal taxing authorities for tax years before 2009, and by state income taxing authorities for years before 2008.

NOTE 18 – MERGER AGREEMENTS AND OTHER EVENTS

On August 21, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Beach Business Bank, and The Private Bank of California, a California corporation and state-chartered bank (“PBOC”). The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, PBOC will merge with and into Beach (the “Merger”), with Beach continuing as the surviving corporation. Under the terms of the Merger Agreement, each outstanding share of PBOC common stock will be converted into the right to receive (i) a pro rata share of 2,083,333 shares of common stock of the Company (“Company Common Stock”), subject to the payment of cash in lieu of fractional shares, and (ii) a pro rata share of $24,887,513 in cash ((i) and (ii), the “Merger Consideration”). If the value of the Merger Consideration would otherwise exceed an amount equal to 1.30 times PBOC’s tangible common equity (measured pursuant to a balance sheet of PBOC as of the last business day of the calendar month immediately preceding the closing of the Merger (the “Closing”)), after subtracting from tangible common equity certain unaccrued one-time PBOC Merger-related costs and expenses, the cash portion of the Merger Consideration will be adjusted downward until the value of the Merger Consideration is equal to such amount. For the purposes of determining the value of the Merger Consideration for purposes of the foregoing calculation, the value of the Company Common Stock to be issued in the Merger will be deemed to be $12.00 per share. In the Merger, each outstanding share of PBOC preferred stock (the “PBOC Preferred Stock”), which has been issued in connection with U.S. Department of the Treasury’s Small Business Lending Fund program, will be converted into one share of a new series of Company preferred stock, par value $0.01 per share, to be designated Non-Cumulative Perpetual Preferred Stock, Series B, stated liquidation amount $1,000 per share (the “Company Series B Preferred Stock”). The Company Series B Preferred Stock will have rights (including with respect to dividends), preferences, privileges, voting powers, limitations and restrictions that are equivalent to the rights, preferences, privileges, voting powers, limitations and restrictions of the PBOC Preferred Stock. Completion of the Merger is subject to certain customary conditions, including (1) approval of the Merger Agreement by PBOC’s shareholders, (2) receipt of required regulatory approvals, (3) the absence of any law or order prohibiting the consummation of the Merger, (4) approval of the listing on the Nasdaq Global Market of the Company Common Stock to be issued in the Merger and (5) the effectiveness of the registration statement for the Company Common Stock to be issued in the Merger. No assurance can be given as to when or whether these conditions will be met. The Company has incurred $21 thousand of costs related to this merger that would be expensed if the transaction does not close. The acquisition will be accounted for under the acquisition method of accounting and is expected to close in the second quarter of 2013.

On March 5, 2012, the Company moved its corporate headquarters to Irvine, California. The Company also opened new branches in Santa Monica and Tustin, California during March 2012 and a new branch in Newport Beach, California during September 2012.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion compares the consolidated financial condition of First PacTrust Bancorp, Inc. (the Company or Bancorp), at September 30, 2012, to its financial condition at December 31, 2011, and the results of operations for the three and nine months ended September 30, 2012 to the same periods in 2011. This discussion should be read in conjunction with the unaudited interim consolidated financial statements and footnotes included herein.

The Company is a multi-bank holding company of Pacific Trust Bank and Beach Business Bank (collectively, the Banks). The Company derives substantially all of its revenue from the banking services provided by the Banks. As of September 30, 2012, the Banks operate 19 banking offices in San Diego, Riverside, Orange, and Los Angeles Counties, CA and 23 loan production offices in California, Arizona, Oregon and Washington. The Company’s assets consist primarily of loans and investment securities, which are funded by deposits, borrowings and capital. The primary source of revenue is net interest income, the difference between interest income on loans and investments, and interest expense on deposits and borrowed funds. The Company also generates non-interest income by providing fee based banking services and by the origination and sale of conventional conforming and FHV/VA residential mortgage loans to the secondary market. The Company’s basic strategy is to maintain and grow net interest income and non-interest income by the retention of its existing customer base and the expansion of its core businesses and branch offices within its current market and plans to expand its banking offices further into southern California and its loan offices throughout the western United States. The Company’s primary market risk exposure is interest rate risk and credit risk.

Comparison of Financial Condition at September 30, 2012 and December 31, 2011

Assets. The Company’s total assets increased by $670.7 million, or 67.1%, to $1.7 billion at September 30, 2012 from $999.0 million at December 31, 2011 primarily due to the acquisitions of Beach Business Bank, on July 1, 2012, and Gateway Business Bank, on August 18, 2012. Beach and Gateway added a combined total of $442.0 million in assets, net of cash paid in the acquisitions. The balance of the asset growth was largely accounted for by loan originations and purchases which partially accounted for the $427.4 million increase in the balance of the Company’s loans receivables, net of allowance and an increase in the Company’s loans held for sale, which stood at $110.3 million at September 30, 2012. The Company also saw an increase in total cash and cash equivalents of $77.6 million, an increase of $20.7 million in securities available for sale, an increase of $12.9 million in goodwill and other intangible assets from the Beach and Gateway acquisitions, and an increase of $12.4 million in the balance of other assets. These increases in total assets were partially reduced by a $6.0 million decline in balance of OREO.

Cash and cash equivalents. Cash and cash equivalents increased $77.6 million, or 174.4%, to $122.1 million at September 30, 2012 from $44.5 million at December 31, 2011. The acquisitions of Beach Business Bank and Gateway Business Bank added $98.5 million in cash and cash equivalents during the quarter ended September 30, 2012 without considering the $54.6 million of cash paid for the acquisitions. A portion of this cash was used to fund an increase in loans held for sale of $37.5 million.

The Company also acquired from Beach Business Bank time deposits in financial institutions totaling $4.7 million, which grew to $5.6 million at September 30, 2012.

Loans. Originated loans receivable, net of allowance, increased by $82.0 million, or 11.4%, to $798.3 million at September 30, 2012 from $716.4 million at December 31, 2011. The increase was due to loan originations exceeding net loan principal repayments, charge-offs and foreclosures during the nine months ended September 30, 2012. During the nine months ended September 30, 2012, the Company transferred a total of $3.8 million of loans to other real estate owned.

The Company also increased its loan portfolio through purchases. At September 30, 2012, purchased loan receivables totaled $404.6 million, net of allowance, an increase of $345.4 million when compared to the $59.2 million balance at December 31, 2011. The largest component was from the acquisitions of Beach Business Bank and Gateway Business Bank during the quarter ended September 30, 2012, which added $285.4 million of loans receivable balances. The loan balances acquired from Beach and Gateway exclude $72.8 million in loans held for sale, which are discussed below. The Banks also purchased other loans, including the purchase of $66.2 million of credit impaired loans.

Loans held for sale. Through the acquisition of Gateway Business Bank, Pacific Trust Bank acquired $72.8 million in mortgage loans held for sale on August 18, 2012. Since that date, loans held for sale increased by $37.5 million to $110.3 million at September 30, 2012.

Investments. Securities classified as available-for-sale of $122.3 million at September 30, 2012 increased $20.7 million from December 31, 2011. Agency residential mortgage-backed securities and municipal securities totaling $56.1 million were purchased during the nine months ended September 30, 2012. In addition, the Company sold securities for $7.8 million and recognized a net loss on sale of $83 thousand during the nine months ended September 30, 2012.

Acquisition Related Intangible Assets. The acquisitions of Beach Business Bank and Gateway Business Bank resulted in an increase in intangible assets including $7.0 million in goodwill due to the acquisition of Beach Business Bank, $5.8 million in other intangible assets including $5.2 million in core deposit intangibles from the acquisitions of Beach and Gateway and $1.0 million for the Mission Hills Mortgage Bankers trade name acquired from Gateway and the Doctors Bank trade name acquired with the acquisition of Beach Business Bank, and $2.2 million in SBA and mortgage servicing rights from the Beach and Gateway acquisitions.

Premises and Equipment. Premises and equipment, net increased $4.9 million, or 46.4%, to $15.5 million at September 30, 2012 from $10.6 million at December 31, 2011 primarily due to additions to premises and equipment due to the acquisition of Beach Business Bank and Gateway Business Bank, the move to a new corporate headquarters in Irvine, California and the opening of three new branches in Newport Beach, Santa Monica and Tustin, California.

Allowance for Loan and Lease Losses. The Company maintains an allowance for loan and lease losses to absorb probable incurred losses inherent in the loan and lease portfolio at the balance sheet date. The allowance is based on ongoing assessment of the estimated probable losses presently inherent in the loan portfolio. In evaluating the level of the allowance for loan and lease losses, management considers the types of loans and leases and the amount of loans and leases in the portfolio, peer group information, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This methodology takes into account many factors, including the Company’s own historical and peer loss trends, loan and lease-level credit quality ratings, loan and lease specific attributes along with a review of various credit metrics and trends. The process involves subjective as well as complex judgments. The Company uses a three year loss experience of the Company and its peers in analyzing an appropriate reserve factor for all loans. In addition, the Company uses adjustments for numerous factors including those found in the Interagency Guidance on Allowance for Loan and Lease Losses, which include current economic conditions, loan and lease seasoning, underwriting experience, and collateral value changes among others. The Company evaluates all impaired loans and leases individually using guidance from ASC 310 primarily through the evaluation of cash flows or collateral values. During the third quarter 2012, the Company acquired Beach Business Bank and Gateway Business Bank and their loans and leases are treated under ASC 805, accounting for acquisitions. None of the acquired loans and leases are included in the allowances for loan and lease losses at the present time, but might be in the future should there be deterioration in the condition of the loans or leases after the purchase dates of Beach and Gateway. The acquired loans and leases include loans and leases that are accounted for under SOP 03-3, accounting for purchase credit impaired loans and leases. Additionally, during the nine months ended September 30, 2012, the Bank acquired three pools of loans which are SOP 03-3 loans. Those purchased credit impaired loan pools are not included in the allowances for loan and lease losses at the present time, but might be in the future should there be further deterioration in these loans after the purchase date should the impairment exceed the non-accretable yield. Loans and leases that were acquired from Beach Business Bank and Gateway Business Bank as part of the mergers that were considered credit impaired were written down at the acquisition dates in purchase accounting to an amount estimated to be collectible and a discount for accretable yield and the related allowance for loan and lease losses was not carried over to First PacTrust Bancorp, Inc.’s allowance.

The allowance for loan and lease losses on originated loans receivable at September 30, 2012 was $11.7 million, which represented 1.4% of the gross originated loans, as compared to $12.3 million, or 1.7%, of the gross originated loans outstanding at December 31, 2011. Of the $11.7 million allowance, $1.5 million were specific allowance allocations to impaired loans and leases, including loans and leases which are subject to troubled debt restructurings, with $10.1 million serving as a general allocation of allowance for loan and lease losses on originated loans and leases. The reduction in the allowance partially resulted from the Company charging off $2.5 million of previously established specific allowance allocations, primarily as a result of changes in reporting requirements for thrifts regulated by the OCC. Of the $2.5 million total specific allowance allocation charged off during the nine months ended September 30, 2012, $2.3 million related to one-to four-family first mortgage loans and $236 thousand related to land loans. The remaining charges-offs related to other revolving credit and installment loans. The Company’s non-performing loans and leases, including non-performing and restructured loans and leases, also reflected the improved credit quality in the portfolio with a $3.1 million decline in gross non-performing loans and leases from $19.3 million at December 31, 2011 to $16.2 million at September 30, 2012. The Company provided $2.0 million to its provision for loan and lease losses during the nine months ended September 30, 2012 related primarily to new commercial real estate mortgage loan production.

Non-Performing Assets. The following table is a summary of our non-performing assets at September 30, 2012 and December 31, 2011, consisting of non-performing loans and leases and other real estate owned as of such dates. Non-performing loans and leases include all nonaccrual loans and leases that are past due 90 days or more, including troubled debt restructured loans and leases on nonaccrual, and loans and leases past due 90 days and still accruing interest, of which there were none at September 30, 2012 and December 31, 2011. Non-performing loans and leases at September 30, 2012 and December 31, 2011 totaled $14.7 million and $16.3 million net of specific allowance allocations of $1.5 million and $2.9 million, respectively. Other real estate owned at September 30, 2012 and December 31, 2011 totaled $8.7 million and $14.7 million net of valuation allowances of $3.2 million and $4.1 million, respectively.


	At September 30, 2012			At December 31, 2011
Nonperforming loans and leases
Commercial:
Commercial and industrial	$	—		$	—
Real estate mortgage		3,038			—
Multi-family		5,455			3,090
Land		334			1,887
SBA		—			—
Lease financing		—			—
Consumer:
Real estate 1-4 family first mortgage		7,316			14,272
Real estate 1-4 family junior lien mortgage		36			—
Other revolving credit and installment		2			5

Total nonperforming loans and leases		16,181			19,254
Other real estate owned		8,704			14,692

Total nonperforming assets	$	24,885		$	33,946


Ratios
Non-performing loans and leases to total gross loans and leases, excluding loans held for sale		1.33	%		2.45	%
Non-performing assets to total assets		1.49	%		3.40	%

Troubled Debt Restructured Loans (TDRs) . As of September 30, 2012, the Company had 34 loans and leases with an aggregate balance of $18.6 million classified as TDRs compared to loans and leases with an aggregate balance of $18.2 million at December 31, 2011 classified as TDRs. Specific allowance allocations totaling $783 thousand have been established for these loans and leases as of September 30, 2012 compared to $2.1 million at December 31, 2011. The difference in specific allowance allocations was largely due to charge offs during the nine months ended September 30, 2012, and were largely related to changes in reporting requirements for thrifts regulated by the OCC. When a loan or lease becomes a TDR the Company ceases accruing interest, and classifies it as non-accrual until the borrower demonstrates that the loan or lease is again performing.

As of September 30, 2012, of the 34 loans classified as TDRs, all 34 loans totaling $18.6 million are making payments according to their modified terms and are less than 90 days delinquent. Of the performing TDRs at September 30, 2012, $12.1 million are secured by single family residences, $0.4 million are secured by land, $0.2 million are SBA, $3.1 million are secured by multi-family residences, $1.6 million are secured by commercial real estate, $1.2 million are commercial and industrial and the remaining is comprised of an unsecured $2 thousand consumer revolving credit and installment.

Other Real Estate Owned Assets (“OREO”). During the nine months ended September 30, 2012, the Company foreclosed on 10 single family residential properties totaling $3.8 million. Additionally, the Company sold 19 single family residential properties. The Company also recorded a $205 thousand write-down of its OREO properties during the nine months ended September 30, 2012.

All Other Assets. All other assets, including Other Assets increased $15.1 million, or 29.2% to $67.2 million at September 30, 2012 from $52.1 million at December 31, 2011. The increase was primarily the result of, a $4.8 million net increase in an affordable housing fund investment, a $3.4 million increase in derivative assets related to mortgage loans held for sale, a $1.6 million increase in taxes receivable, and various increases from other operational activities.

Deposits. Total deposits increased by $541.9 million, or 68.9%, to $1.3 billion at September 30, 2012 from $786.3 million at December 31, 2011. The Beach and Gateway acquisitions accounted for $414.3 million of this increase. Demand accounts increased $183.5 million, certificates of deposit increased $169.7 million, savings accounts increased $123.8 million, and money market accounts increased $64.9 million. Additional growth was achieved primarily from the opening of three new branches during the period as well as the formation of new customer relationships and the attraction of additional funds from existing customers. Total core deposits (total deposits less CDs) increased by 117.6% to $688.7 million at September 30, 2012, compared to $316.5 million at December 31, 2011. The Bank completed the opening of three new branches in Santa Monica, Tustin and Newport Beach, California during 2012, which the Company anticipates will contribute to future growth. The Bank is actively seeking additional production offices in core Southern California banking markets including Orange County and the Los Angeles area.

Federal Home Loan Bank (“FHLB”) Advances. During the nine months ended September 30, 2012, $30.0 million of FHLB advances matured and $96.0 million of FHLB advances were obtained, resulting in a 330.0% increase to $86.0 million at September 30, 2012, from $20.0 million at December 31, 2011. The $86.0 million of advances have an average current yield of 0.42% and mature between 2012 and 2015.

Notes Payable. During the nine months ended September 30, 2012, the Company completed the issuance and sale of $33 million aggregate principal amount of its 7.50% Senior Notes due April 15, 2020. At September 30, 2012, the balance of the notes payable, net of discount was $31.8 million. Notes payable also includes secured borrowings from Beach Business Bank totaling $2.2 million. These notes are secured by 2 loans on the balance sheet of Beach Business Bank.

Reserve for loss reimbursements on sold loans . The acquisition of Gateway Business Bank included a $2.7 million reserve established to reimburse parties who previously purchased loans from Gateway for losses that may have resulted for which Gateway could be held responsible for. This includes current known cases and an estimate of possible future cases based on historical claims against Gateway. The Company also establishes a reserve on all new loans that are originated conventional conforming and FHA/VA mortgage loans that are for sale to the secondary markets.

Shareholders’ Equity. Shareholders’ equity increased $7.2 million, or 3.9%, to $191.7 million at September 30, 2012 from $184.5 million at December 31, 2011. Shareholders’ equity increased due to a $12.1 million bargain purchase gain from the Gateway Business Bank acquisition which was accounted for as part of current year-to-date net income of $9.2 million. The balance of the change in shareholders’ equity primarily due to a $1.3 million increase in the fair value of securities available-for-sale, a $1.0 million increase to recognize the value of the warrants issued to Beach shareholders as part of the consideration paid to Beach shareholders, and stock awards compensation of $0.9 million among other items, offset partially by the declaration of common stock cash dividends of $3.7 million and preferred stock cash dividends of $1.0 million.

Comparison of Operating Results for the Three Months Ended September 30, 2012 and 2011

General. Net income for the three months ended September 30, 2012 increased $8.9 million, to $9.5 million from $644 thousand in the same period of the prior year, as a result of the factors discussed below.

Interest and Dividend Income. Interest and dividend income increased by $7.9 million, or 89.5%, to $16.7 million for the three months ended September 30, 2012, compared to $8.8 million for the three months ended September 30, 2011 as described below.

Interest income on loans increased $8.2 million, or 105.3%, to $15.9 million for the three months ended September 30, 2012 from $7.8 million for the three months ended September 30, 2011. The primary factor for the increase was a $506.1 million increase in the average balance of loans and leases receivable from $679.2 million for the three months ended September 30, 2011 to $1.2 million for the three months ended September 30, 2012 due to growth in loan originations and loans purchased during the period. The increase in interest income on loans and leases receivable was further increased by an 81 basis point increase in the average yield on loans and leases receivable to 5.38% due primarily to the increase in commercial real estate mortgage loan production yielding higher rates and the higher yield on purchased loans, including loans acquired from Beach Business Bank and Gateway Business Bank.

Interest income on securities decreased $309 thousand to $708 thousand for the three months ended September 30, 2012 from $1.0 million for the three months ended September 30, 2011. Although there was a $45.9 million increase in the average balance of securities to $136.3 million, there was a 242 basis point decline in the average yield on the portfolio from 4.50% for the three months ended September 30, 2011 to 2.08% for the three months ended September 30, 2012. The decline in the average yield on the portfolio was due to the sale of higher yielding securities in the prior year as the Company sought the opportunity to improve the quality of its securities portfolio and to divest several of its private label residential mortgage-backed securities.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant net interest spread for the three months ended September 30, 2012 and September 30, 2011. No tax equivalent adjustments were made. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.


	Three Months Ended September 30, (dollars in thousands)
	2012								2011
	Average Balance			Interest		Annualized Average Yield/ Cost			Average Balance			Interest		Annualized Average Yield/ Cost
INTEREST-EARNING ASSETS
Loans and leases receivable(1)	$	1,185,277		$	15,928		5.38	%	$	679,199		$	7,757		4.57	%
Securities(2)		136,307			708		2.08	%		90,454			1,017		4.50	%
Other interest-earning assets(3)		110,860			86		0.31	%		59,347			49		0.33	%

Total interest-earning assets		1,432,444			16,722		4.68	%		829,000			8,823		4.24	%
Non-interest earning assets(4)		88,293								75,738

Total assets	$	1,520,737							$	904,738

INTEREST-BEARING LIABILITIES
Savings	$	161,512			211		0.52	%	$	134,589			95		0.28	%
NOW		246,156			102		0.17	%		65,582			18		0.11	%
Money market		221,208			166		0.30	%		86,722			62		0.29	%
Certificates of deposit		571,555			1,099		0.77	%		415,887			1,072		1.03	%
FHLB advances		64,978			74		0.46	%		20,326			92		1.81	%
Capital lease		255			2		3.49	%		—			—		—
Long-term debt		34,024			660		7.76	%		—			—		—

Total interest-bearing liabilities		1,299,688			2,314		0.72	%		723,106			1,339		0.76	%

Non-interest-bearing liabilities		28,474								8,137

Total liabilities		1,328,162								731,243
Total shareholders’ equity		192,575								173,495

Total liabilities and shareholders’ equity	$	1,520,737							$	904,738

Net interest income/spread				$	14,408		3.96	%				$	7,484		3.48	%

Net interest margin(5)							4.02	%							3.61	%
Ratio of average interest-earning assets to average interest-bearing liabilities		110.21	%							114.64	%

(1)	Average balances of nonperforming loans are included in the above amounts. Calculated net of deferred fees, premiums/discounts, and loss reserves.

(2)	Calculated based on average amortized cost.

(3)	Includes average FHLB stock at cost and average time deposits with other financial institutions.

(4)	Includes average balance of bank-owned life insurance (BOLI) investments of $18.6 million in 2012 and $18.3 million in 2011.

(5)	Net interest income divided by average interest-earning assets.

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in volume multiplied by the old rate, and (2) changes in rate, which are changes in rate multiplied by the old volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.


	Three Months Ended September 30, 2012 compared to September 30, 2011
	Total Change			Change Due To Volume		Change Due To Rate
	(In thousands)
Income from interest earning assets:
Loans, gross	$	8,171		$	26,439	$	(18,268	)
Securities		(309	)		1,525		(1,834	)
Interest-bearing deposits in other financial institutions		37			160		(123	)

Total interest income from interest earning assets		7,899			28,124		(20,225	)

Expense on interest –bearing liabilities:
Savings		116			88		28
NOW		84			289		(205	)
Money market		104			403		(299	)
Certificates of Deposit		27			1,362		(1,335	)
FHLB Advances		(18	)		358		(376	)
Capital lease		2			2		—
Long-term debt		660			660		—

Total interest expense on interest-bearing liabilities		975			3,162		(2,187	)

Net interest income	$	6,924		$	24,962	$	(18,038	)

Interest Expense. Interest expense increased $1.0 million or 72.8% to $2.3 million for the three months ended September 30, 2012 from $1.3 million for the three months ended September 30, 2011. Interest expense on deposits increased $331 thousand, or 26.5%, to $1.6 million for the three months ended September 30, 2012 from $1.2 million for the three months ended September 30, 2011. The primary factor for the increase was a $497.7 million increase in the average balance of interest-bearing deposits to $1.2 billion for the three months ended September 30, 2012 from $702.8 million for the three months ended September 30, 2011, and an 18 basis point decline in the Company’s overall average cost of interest-bearing deposits to 0.53% for the three months ended September 30, 2012 from 0.71% for the three months ended September 30, 2011, due to lower market interest rates.

Interest expense on FHLB advances decreased $18 thousand, or 19.6%, to $74 thousand for the three months ended September 30, 2012 from $92 thousand for the three months ended September 30, 2011. Although there was a $44.7 million increase in the average balance of FHLB advances to $65.0 million, there was a 135 basis point decline in the average cost on the portfolio from 1.81% for the three months ended September 30, 2011 to 0.46% for the three months ended September 30, 2012.

Interest expense for the three months ended September 30, 2012 also included interest on the Company’s senior notes totaling $660 thousand at a 7.76% average cost for the three months ended September 30, 2012.

Net Interest Income. As a result of the combined effect of the factors mentioned above, net interest income before the provision for loan and lease losses increased $6.9 million, or 92.5%, to $14.4 million for the three months ended September 30, 2012 from $7.5 million for the three months ended September 30, 2011. The Company’s net interest margin increased 41 basis points from 3.61% for the three months ended September 30, 2011 to 4.02% for the three months ended September 30, 2012. Continued improvement in the Bank’s liability mix and average cost of interest-bearing deposits resulted in an 18 basis point decrease in the average cost of interest-bearing deposits from 0.71% for the three months ended September 30, 2011 to 0.53% for the three months ended September 30, 2012. These benefits were enhanced by a 81 basis point increase in the average yield on the Bank’s loan portfolio from 4.57% for the three months ended September 30, 2011 to 5.38% for the three months ended September 30, 2012 primarily due to the change in mix of loans. The Company also experienced declines in the average yield on securities from 4.50% for the three months ended September 30, 2011 to 2.08% for the three months ended September 30, 2012 as the Company diluted the high yields on its core securities portfolio by selling some of the portfolio and investing excess liquidity into shorter term lower yielding securities.

Provision for Loan and Lease Losses. The Company maintains an allowance for loan and lease losses to absorb probable incurred losses presently inherent in the loan and lease portfolio. The allowance is based on ongoing assessments of the estimated probable losses presently inherent in the loan and lease portfolio. In evaluating the level of the allowance for loan and lease losses, management considers the types of loans and leases and the amount of loans and leases in the loan portfolio, peer group information, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. The Company currently takes into account many factors, including the Company’s own historical and peer loss trends, loan and lease-level credit quality ratings, loan and lease specific attributes along with a review of various credit metrics and trends. In addition, the Company uses adjustments for numerous factors including those found in the Interagency Guidance on Allowance for Loan and Lease Losses, which include current economic conditions, loan and lease seasoning, underwriting experience, and collateral value changes among others. The Company evaluates all impaired loans and leases individually, primarily through the evaluation of cash flows or collateral values. Management uses available information to recognize loan and lease losses, however, future loan and lease loss provisions may be necessary based on changes in the above mentioned factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan and lease losses and may require the Bank to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan and lease losses as of September 30, 2012 was maintained at a level that represented management’s best estimate of incurred losses in the loan and lease portfolio to the extent they were both probable and reasonably estimable as of the balance sheet date. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. During the third quarter 2012, the Company acquired Beach Business Bank and Gateway Business Bank and their loans and leases are treated under ASC 805, accounting for acquisitions. None of the impaired loans and leases from these acquisitions are included in the allowance for loan and lease losses at the present time as they are SOP 03-3 loans and leases, but might be in the future should there be further deterioration in those loans and leases after the purchase dates of Beach Business Bank and Gateway Business Bank by the Company. Additionally, during the nine months ended September 30, 2012, the Company acquired three pools of loans which are SOP 03-3 loans. Those purchased credit impaired loan pools are not included in the allowance for loan and lease losses at the present time, but might be in the future should there be further deterioration in these loans after the purchase date should the impairment exceed the non-accretable yield.

Provisions for loan and lease losses are charged to operations at a level required to reflect probable incurred credit losses in the loan and lease portfolio. In this regard, a majority of the Company’s loans and leases are to individuals and businesses in Southern California. During the three months ended September 30, 2012, the Company provided $1.0 million to its provision for loan and lease losses related primarily to increased general reserve allocations on new loan and lease originations compared to providing $823 thousand during the three months ended September 30, 2011.

Non-accrual loans, decreased by $0.7 million and totaled $14.7 million, net of specific loss allocations of $1.5 million as of September 30, 2012, compared to $15.4 million at June 30, 2012, net of specific loss allocations of $1.5 million. Net charge-offs totaled $100 thousand for the third quarter of 2012. These levels compare to $261 thousand in net charge-offs in the prior year’s third quarter.

Noninterest Income. Noninterest income increased $17.5 million for the three months ended September 30, 2012 to $19.5 million compared to $2.0 million for the same period of the prior year primarily due to a $12.1 million bargain purchase gain from the Gateway acquisition and the acquisition of $5.5 million of mortgage banking related income and $146 thousand of loan servicing income when compared to none in the prior year period.

Noninterest Expense. Noninterest expense increased $16.8 million, or 219.2% to $24.5 million for the three months ended September 30, 2012 compared to $7.7 million for the same period of the prior year. This net increase was primarily the result of a $10.4 million increase in salaries and employee benefits, a $3.1 million increase in professional fees, a $324 thousand increase in advertising expense, a $681 thousand increase in data processing expense, a $172 thousand increase in expense for provision for loss reimbursements on sold loans and a $329 thousand increase in expense for amortization of intangible assets, and a $1.7 million increase in occupancy and equipment expense. These increases were partially offset by a $1.3 million decrease in OREO valuation allowance expense, a $63 thousand decrease in the net gain/loss on sales of other real estate owned, and a $244 thousand decrease in loan servicing and foreclosure expense.

Salaries and employee benefits represented 55.7% and 42.4% of total noninterest expense for the three months ended September 30, 2012 and September 30, 2011, respectively. Total salaries and employee benefits increased $10.4 million, or 318.7%, to $13.6 million for the three months ended September 30, 2012 from $3.3 million for the same period in 2011, due to additional compensation expense related to the acquired companies, $0.7 million of expense for stock appreciation rights and $1.2 million compensation expense related to the departure of an executive officer.

The OREO valuation allowance expense decreased $1.3 million or 97.3% to $36 thousand for the three months ended September 30, 2012 compared to $1.3 million for the same period in the prior year.

Total professional fees increased $3.1 million, or 467.9% to $3.8 million for the three months ended September 30, 2012 from $667 thousand for the same period in 2011, due to increased consulting and legal fees primarily related to the two acquisitions.

Net gain/loss on sales of other real estate owned decreased $63 thousand to a net loss of $42 thousand for the three months ended September 30, 2012 compared to a net loss of $105 thousand for the same period of the prior year.

Occupancy and equipment expense increased $1.7 million, or 238.8% to $2.5 million for the three months ended September 30, 2012 from $730 thousand in the same period in 2011 primarily due to increased building and equipment maintenance, primarily related to the relocation of the Company’s headquarters to Irvine and the newly acquired branch locations from the Beach and Gateway acquisitions which occurred during the period.

Income Tax Expense (Benefit). An income tax benefit of $1.1 million was recorded for the three months ended September 30, 2012 compared to income tax expense of $368 thousand for the three months ended September 30, 2011. The effective tax rate for the three month period ending September 30, 2012 of negative 13.2% was in accordance with the guidelines of ASC 740 and compares to an effective tax rate for the three months ended September 30, 2011 of 36.4%. Were it not for the $12.1 million nontaxable bargain purchase gain during the third quarter of 2012, the effective tax rate would have been (30.6%) for the three months ended September 30, 2012.

Comparison of Operating Results for the Nine Months Ended September 30, 2012 and 2011

General. Net income for the nine months ended September 30, 2012 was $9.2 million, reflecting a $6.3 million increase over net income of $2.9 million in the same period of the prior year. The increase was as a result of the factors discussed below.

Interest and Dividend Income. Interest and dividend income increased by $11.1 million, or 42.0% to $37.4 million for the nine months ended September 30, 2012, compared to $26.4 million for the nine months ended September 30, 2011 as described below.

Interest income on loans increased $12.1 million, or 52.9%, to $35.1 million for the nine months ended September 30, 2012 from $22.9 million for the nine months ended September 30, 2011. The primary factor for the increase was a $268 million increase in the average balance of loans and leases receivable from $673.0 million for the nine months ended September 30, 2011 to $941.4 million for the nine months ended September 30, 2012. The increase in interest income on loans receivable was further increased by a 43 basis point increase in the average yield on loans receivable to 4.97% due primarily to the increase in commercial real estate loan production yielding higher rates and the purchased loans and the higher yield on purchased loans, including loans acquired from Beach Business Bank and Gateway Business Bank.

Interest income on securities decreased $1.1 million to $2.1 million for the nine months ended September 30, 2012 from $3.3 million for the nine months ended September 30, 2011. Although there was a $37.7 million increase in the average balance of investments to $116.7 million for the nine months ended September 30, 2012, there was a 307 basis point decline in the average yield on the portfolio from 5.51% for the nine months ended September 30, 2011 to 2.44% for the nine months ended September 30, 2012. The decline in the average yield on the portfolio was due to the sale of higher yielding securities in the prior year as the Company sought the opportunity to improve the quality of its securities portfolio and to divest several of its private label residential mortgage-backed securities.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant net interest spread for the nine months ended September 30, 2012 and September 30, 2011. No tax equivalent adjustments were made. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.


	Nine Months Ended September 30, (dollars in thousands)
	2012								2011
	Average Balance			Interest		Annualized Average Yield/ Cost			Average Balance			Interest		Annualized Average Yield/ Cost
INTEREST-EARNING ASSETS
Loans and leases receivable(1)	$	941,399		$	35,060		4.97	%	$	672,977		$	22,936		4.54	%
Securities(2)		116,680			2,139		2.44	%		78,963			3,263		5.51	%
Other interest-earning assets(3)		88,454			226		0.34	%		51,085			155		0.40	%

Total interest-earning assets		1,146,533			37,425		4.35	%		803,025			26,354		4.37	%
Non-interest earning assets(4)		90,036								67,474

Total assets	$	1,236,569							$	870,499

INTEREST-BEARING LIABILITIES
Savings	$	81,752			233		0.38	%	$	132,682			283		0.28	%
NOW		130,327			162		0.17	%		63,699			50		0.10	%
Money market		217,728			557		0.34	%		88,085			189		0.29	%
Certificates of deposit		527,200			3,333		0.84	%		382,560			3,225		1.12	%
FHLB advances		45,996			266		0.77	%		46,630			960		2.75	%
Capital lease		133			4		4.32	%		—			—		—
Long-term debt		19,405			1,155		7.94	%		—			—		—

Total interest-bearing liabilities		1,022,541			5,710		0.75	%		713,656			4,707		0.88	%

Non-interest-bearing liabilities		16,857								7,483

Total liabilities		1,039,398								721,139
Total shareholders’ equity		197,171								149,360

Total liabilities and shareholders’ equity	$	1,236,569							$	870,499

Net interest income/spread				$	31,715		3.60	%				$	21,647		3.49	%

Net interest margin(5)							3.69	%							3.59	%
Ratio of average interest-earning assets to average interest-bearing liabilities		112.13	%							112.52	%

(1)	Average balances of nonperforming loans are included in the above amounts. Calculated net of deferred fees, premiums/discounts, and loss reserves.

(2)	Calculated based on average amortized cost.

(3)	Includes average FHLB stock at cost and average time deposits with other financial institutions.

(4)	Includes average balance of bank-owned life insurance (BOLI) investments of $18.5 million in 2012 and $18.3 million in 2011.

(5)	Net interest income divided by average interest-earning assets.

Rate/Volume Analysis


	Nine Months Ended September 30, 2012 compared to September 30, 2011
	Total Change			Change Due To Volume			Change Due To Rate
	(In thousands)
Income from interest earning assets:
Loans, gross	$	12,124		$	13,089		$	(965	)
Securities		(1,124	)		1,544			(2,668	)
Interest-bearing deposits in other financial institutions		71			131			(60	)

Total interest income from interest earning assets		11,071			14,764			(3,693	)

Expense on interest –bearing liabilities:
Savings		(50	)		(197	)		147
NOW		112			136			(24	)
Money market		368			922			(554	)
Certificates of Deposit		108			2,229			(2,121	)
FHLB Advances		(694	)		(18	)		(676	)
Capital lease		4			4			—
Long–term debt		1,155			1,155			—

Total interest expense on interest-bearing liabilities		1,003			4,231			(3,228	)

Net interest income	$	10,068		$	10,533		$	(465	)

Interest Expense. Interest expense increased $1.0 million or 21.3% to $5.7 million for the nine months ended September 30, 2012 from $4.7 million for the nine months ended September 30, 2011. Interest expense on deposits increased $538 thousand, or 14.4% to $4.3 million for the nine months ended September 30, 2012 from $3.7 million for the nine months ended September 30, 2011. The primary factor for the increase was a $290.0 million increase in the average balance of interest-bearing deposits to $957.0 million for the nine months ended September 30, 2012 from $667.0 million for the nine months ended September 30, 2011, partially offset by a 15 basis point decrease in the Company’s overall average cost of interest-bearing deposits to 0.60% for the nine months ended September 30, 2012 from 0.75% for the nine months ended September 30, 2011, due to lower market interest rates.

Interest expense on FHLB advances decreased $694 thousand, or 72.3% to $266 thousand for the nine months ended September 30, 2012 from $960 thousand for the nine months ended September 30, 2011. Although there was a $634 thousand decrease in the average balance of FHLB advances from $46.6 million for the nine months ended September 30, 2011 to $46.0 million for the nine months ended September 30, 2012, there was a 198 basis point reduction in the average cost of advances to 0.77% for the nine months ended September 30, 2012 from 2.75% for the nine months ended September 30, 2011.

Net Interest Income. As a result of the combined effect of the factors mentioned above, net interest income before the provision for loan and lease losses increased $10.1 million, or 46.5%, to $31.7 million for the nine months ended September 30, 2012 from $21.6 million for the nine months ended September 30, 2011. The Company’s net interest margin increased 10 basis points from 3.59% for the nine months ended September 30, 2011 to 3.69% for the nine months ended September 30, 2012. Continued improvement in the Bank’s deposit mix and average cost of deposits resulted in a 15 basis point decrease in the average cost of deposits from 0.75% for the nine months ended September 30, 2011 to 0.60% for the nine months ended September 30, 2012. These benefits were enhanced by a 43 basis point increase in the average yield on the Bank’s loan portfolio from 4.54% for the nine months ended September 30, 2011 to 4.97% for the nine months ended September 30, 2012 due to the change in mix of the loan portfolio and reversal of accrued interest on a number of loans delinquent more than 90 days during the prior year period. The Company also experienced declines in the average yield on securities from 5.51% for the nine months ended September 30, 2011 to 2.44% for the nine months ended September 30, 2012 as the Company diluted the high yields on its core securities portfolio by selling some of the portfolio and investing excess liquidity into shorter term lower yielding securities.

Provision for Loan and Lease Losses. Provisions for loan and lease losses are charged to operations at a level required to reflect probable incurred credit losses in the loan and lease portfolio. In this regard, a majority of the Company’s loans and leases are to individuals and businesses in Southern California. During the nine months ended September 30, 2012, the Company provided $2.0 million to its provision for loan and lease losses related primarily to increased general reserves on new loan and lease originations, compared to providing $1.3 million during the nine months ended September 30, 2011. The increase was largely due to the increase in the loan and lease portfolio.

Non-accrual loans, decreased by $1.6 million and totaled $14.7 million, net of specific allocations of $1.5 million as of September 30, 2012, compared to $16.3 million at December 31, 2011, net of specific allocations of $2.9 million. Net charge-offs totaled $2.4 million for the nine months ended September 30, 2012 which primarily resulted from the charge-off of specific allowance allocations for various one-to four- family properties and were largely related to changes in reporting requirements for thrifts regulated by the OCC. These levels compare to $6.9 million in net charge-offs in the same period of the prior year.

Noninterest Income. Noninterest income increased $16.2 million for the nine months ended September 30, 2012 to $20.7 million compared to $4.4 million for the same period of the prior year primarily due to a $12.1 million bargain purchase gain from the Gateway acquisition, and in addition, the Gateway acquisition resulted in of $5.5 million of mortgage banking related income and $146 thousand of loan servicing income when compared to none in the prior year period.

Noninterest Expense. Noninterest expense increased $22.1 million, or 108.1% to $42.6 million for the nine months ended September 30, 2012 compared to $20.5 million for the same period of the prior year. This net increase was primarily the result of a $14.2 million increase in salaries and employee benefits, a $3.9 million increase in professional fees, and a $2.9 million increase in occupancy and equipment expense. These increases were partially offset by a $1.7 million decrease in OREO valuation allowance expense, a $1.4 million decrease in loss on sale of other real estate owned, and a $666 thousand increase in advertising expense, a $974 thousand increase in data processing expense, a $172 thousand increase in expense for provision for loss reimbursements on sold loans and a $329 thousand increase in expense for amortization of other intangible assets.

Salaries and employee benefits represented 55.5% and 46.3% of total noninterest expense for the nine months ended September 30, 2012 and September 30, 2011, respectively. Total salaries and employee benefits increased $14.2 million, or 149.3%, to $23.7 million for the nine months ended September 30, 2012 from $9.5 million for the same period in 2011, due to additional compensation expense related to the acquisitions of Beach and Gateway and the hiring of new officers, production and branch personnel and support staff needed to execute the Company’s growth strategy, $0.7 million of expense for stock appreciation rights granted, and $1.2 million compensation expense related to the departure of an executive officer.

The OREO valuation allowance expense decreased $1.7 million, or 89.1% to $205 thousand for the nine months ended September 30, 2012 compared to $1.9 million for the same period in the prior year. The decline was due to the reduction of OREO properties held.

Total professional fees increased $3.9 million, or 275.6% to $5.3 million for the nine months ended September 30, 2012 from $1.4 million for the same period in 2011, due to increased consulting and legal fees primarily related to growth activities, including the acquisitions of Beach and Gateway.

Net gain/loss on sales of other real estate owned decreased $1.4 million due to a net gain of $466 thousand for the nine months ended September 30, 2012 compared to a net loss of $924 thousand for the same period of the prior year.

Occupancy and equipment expense increased $2.9 million, or 148.9% to $4.8 million for the nine months ended September 30, 2012 from $1.9 million in the same period in 2011 primarily due to increased building and equipment maintenance, primarily related to the newly acquired branch locations from Beach and Gateway and the move of the corporate headquarter to Irvine and the opening of three new branch locations during the period.

Income Tax Expense (Benefit). An income tax benefit of $1.4 million was recorded for the nine months ended September 30, 2012 compared to income tax expense of $1.4 million for the nine months ended September 30, 2011. The effective tax rate for the nine month period ending September 30, 2012 of negative 18.4% was in accordance with the guidelines of ASC 740 and compares to an effective tax rate for the nine months ended September 30, 2011 of 33.1%. Were it not for the $12.1 million nontaxable bargain purchase gain during the third quarter of 2012, the effective tax rate would have been (33.2%) for the nine months ended September 30, 2012.

Liquidity and Commitments

The Banks are required to have enough liquid assets in order to maintain sufficient liquidity to ensure a safe and sound operation. Liquidity may increase or decrease depending upon availability of funds and comparative yields on investments in relation to the return on loans. Historically, the Banks have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to ensure that adequate liquidity is maintained.

The Banks’ liquidity, represented by cash and cash equivalents and securities available for sale, is a product of its operating, investing, and financing activities. The Banks’ primary sources of funds are deposits, payments and maturities of outstanding loans and investment securities; and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. In addition, the Banks invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. The Banks also generate cash through borrowings. The Banks utilize Federal Home Loan Bank advances to leverage its capital base, to provide funds for its lending activities, as a source of liquidity, and to enhance its interest rate risk management. The Banks also have the ability to obtain brokered certificates of deposit, however, historically the Bank has not issued significant amounts.

Liquidity management is both a daily and long-term function of business management. Any excess liquidity would be invested in federal funds or authorized investments such as mortgage-backed or U.S. Agency securities. On a longer-term basis, the Bank maintains a strategy of investing in various lending products. The Banks use their sources of funds primarily to meet their ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, to fund loan commitments, and to maintain its portfolio of mortgage-backed securities and investment securities. At September 30, 2012, there were $52.2 million of approved loan origination commitments. At the same date, unused lines of credit were $111.4 million and outstanding letters of credit totaled $1.4 million. Certificates of deposit scheduled to mature in one year at September 30, 2012, totaled $486.2 million. Based on the competitive rates offered and on historical experience, management believes that a significant portion of maturing deposits will remain with the Bank, although no assurance can be given in this regard. In addition, the Banks have the ability at September 30, 2012 to borrow an additional $176.8 million from the FHLB and $121.8 million from the Federal Reserve Bank to meet commitments and for liquidity purposes. The Banks have FHLB advances of $61.0 million maturing within the next 12 months. The Banks intend to replace these advances with new borrowings from the FHLB, Federal Reserve Bank or deposits, as and to the extent needed and depending on market conditions.

Capital

Consistent with its goals to operate a sound and profitable financial organization, the Banks actively seek to maintain a “well capitalized” institution in accordance with regulatory standards. Pacific Trust Bank’s total equity was $158.4 million at September 30, 2012, or 11.7% of its total assets on that date. As of September 30, 2012, Pacific Trust Bank exceeded all capital requirements of the OCC. Pacific Trust Bank’s regulatory capital ratios at September 30, 2012 were as follows: core capital 11.2%; Tier I risk-based capital, 16.1%; and total risk-based capital 17.4%. The Company’s regulatory capital ratios at September 30, 2012 were as follows: core capital 11.5%; tier I risk-based capital, 14.4%; and total risk-based capital 15.6%.

Beach Business Bank’s total equity was $44.5 million at September 30, 2012 or 14.3% of its total assets on that date. As of September 30, 2012, Beach Business Bank exceeded all capital requirements of the FDIC. Beach Business Bank’s regulatory capital ratios at September 30, 2012 were as follows: core capital 10.8%; Tier I risk-based capital, 14.2%; and total risk-based capital 14.4%.

The regulatory capital requirements for the Banks to be considered well capitalized are 5.0%, 6.0% and 10.0%, respectively.

Impact of Inflation

The unaudited consolidated financial statements presented herein have been prepared in accordance with U. S. generally accepted accounting principles. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

The Company’s primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the Company’s performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturities structures of the Company’s assets and liabilities are critical to the maintenance of acceptable performance levels.

The principal effect of inflation, as distinct from levels of interest rates, on earnings is in the area of noninterest expense. Such expense items as employee compensation, employee benefits, and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that the Company has made. The Company is unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk. In monitoring interest rate risk we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.

In order to manage the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we adopted asset and liability management policies to better align the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities. These policies are implemented by the asset and liability management committee. The asset and liability management committee is chaired by the treasurer and is comprised of members of our senior management. The asset and liability management committee establishes guidelines for and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk and profitability goals. The asset and liability management committee meets periodically to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to our net present value of portfolio equity analysis. At each meeting, the asset and liability management committee recommends appropriate strategy changes based on this review. The treasurer or his designee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the board of directors on a monthly basis.

In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, we have focused our strategies on:

•

originating and purchasing adjustable-rate mortgage loans,

•

originating shorter-term consumer loans,

•

managing our deposits to establish stable deposit relationships,

•

using FHLB advances to align maturities and repricing terms, and

•

attempting to limit the percentage of fixed-rate loans in our portfolio.

At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the asset and liability management committee may determine to increase the Company’s interest rate risk position somewhat in order to maintain its net interest margin.

As part of its procedures, the asset and liability management committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution’s existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity that are authorized by the Board of Directors of the Company.

The following table presents the projected change in Pacific Trust Bank’s net portfolio value at June 30, 2012 that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change. The net portfolio value analysis was unable to produce results for the minus 200 basis point scenario.

Interest Rate Sensitivity of Net Portfolio Value (NPV)


	Net Portfolio Value								NPV as a % of PV of Assets
Change in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change
+ 400 bp	$	145,265	$	(15,545	)		(9.7	)%		13.77	%		(55)bp
+ 300 bp		151,041		(9,769	)		(6.1	)%		14.07	%		(25)bp
+ 200 bp		155,660		(5,150	)		(3.2	)%		14.27	%		(5)bp
+ 100 bp		158,716		(2,094	)		(1.3	)%		14.33	%		1bp
0 bp		160,810		—			—			14.32	%		—
- 100 bp		159,143		(1,667	)		(1.0	)%		14.07	%		(25)bp

The following table presents the pro-forma projected change in the net portfolio value of Pacific Trust Bank combined with Beach Business Bank and Gateway Business Bank at June 30, 2012 that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change.

Interest Rate Sensitivity of Net Portfolio Value (NPV)


	Net Portfolio Value								NPV as a % of PV of Assets
Change in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change
+ 400 bp	$	208,520	$	(8,877	)		(4.1	)%		13.74	%		29bp
+ 300 bp		213,043		(4,354	)		(2.0	)%		13.80	%		35bp
+ 200 bp		216,228		(1,169	)		(0.5	)%		13.78	%		33bp
+ 100 bp		217,757		360			0.2	%		13.66	%		21bp
0 bp		217,397		—			—			13.45	%		—
- 100 bp		216,380		(1,017	)		(0.5	)%		13.25	%		(20)bp

The Bank does not maintain any securities for trading purposes. The Bank does not currently engage in trading activities. The Company does use derivative instruments to hedge its mortgage banking risks. In addition, interest rate risk is the most significant market risk affecting the Bank. Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of the Bank’s business activities and operations.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures: An evaluation of the Company’s disclosure controls and procedures (as defined in Section 13(a)-15(e) of the Securities Exchange Act of 1934 (the “Act”)) as of September 30, 2012 was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2012, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13(a)-15(f) under the Act) that occurred during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all errors and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

From time to time we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. We do not anticipate incurring any material liability as a result of such currently pending litigation.

As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, on December 14, 2011, CMG Financial Services, Inc. (“CMG”) initiated a patent lawsuit against the Bank in the United States District Court for the Central District of California (styled CMG Financial Services, Inc. v. Pacific Trust Bank, F.S.B., et al. , Case No. 2:11-cv-10344-PSG-MRW) (the “Action”) alleging infringement of U.S. Patent No. 7,627,509 (the “509 Patent”) of limited number of financial products previously offered by the Company. The 509 Patent relates to the origination and servicing of loans with characteristics similar to the Bank’s Green Accounts. The Company and its counsel believe the asserted claim is without merit and the resolution of the matter is not expected to have a material impact on the Company’s business, financial condition or results of operations, though no assurance can be given in this regard.

ITEM 1A.

RISK FACTORS

Except as set forth below, there have been no material changes to the risk factors that appeared in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, which completely updated and restated the risk factors that appeared in our Annual Report on Form 10-K for the year ended December 31, 2011, or in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.

We may fail to realize all of the anticipated benefits of our pending acquisition of PBOC.

On August 21, 2012, we entered into a merger agreement to acquire PBOC through the merger of PBOC with and into our wholly owned subsidiary, Beach Business Bank. The closing of the transaction is subject to the satisfaction of certain conditions, including the receipt of all required regulatory approvals and the approval of the transaction by the shareholders of PBOC. No assurance can be given as to when or whether these approvals will be received. The success of our pending acquisition of PBOC will depend on, among other things, our ability to realize anticipated cost savings and to combine the businesses of PBOC and Beach Business Bank in a manner that does not materially disrupt the existing customer relationships of either institution or result in decreased revenues from our respective customers. If we are not able to successfully achieve these objectives, the anticipated benefits of the transaction may not be realized fully or at all or may take longer to realize than expected.

PBOC and Beach Business Bank have operated and, until the completion of the merger of the two institutions, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each institution’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers, depositors and employees or to achieve the anticipated benefits of the acquisition. Integration efforts between the two institutions will also divert management attention and resources. These integration matters could have an adverse effect on us following completion of the transaction.

We may fail to realize all of the anticipated benefits of our recently completed acquisition of Gateway Bancorp.

On August 18, 2012, we completed our acquisition of Gateway Bancorp, the holding company for Gateway Business Bank. Immediately following the completion of the acquisition of Gateway Bancorp, Gateway Business Bank was merged into Pacific Trust Bank. The success of our acquisition of Gateway Bancorp will depend on, among other things, our ability to realize anticipated cost savings and to combine the businesses of the Bank and Gateway Business Bank in a manner that does not materially disrupt the existing customer relationships of either institution or result in decreased revenues from our respective customers. If we are not able to successfully achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected.

Prior to completion of the acquisition, Pacific Trust Bank and Gateway Business Bank operated independently. It is possible that the integration process could result in the loss of key employees, the disruption of each institution’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers, depositors and employees or to achieve the anticipated benefits of the acquisition. Integration efforts will also divert management attention and resources. These integration matters could have an adverse effect on us.

One of the anticipated benefits of the Gateway Bancorp acquisition is the diversification of our revenue stream through non-interest income realized from the mortgage banking operations of Mission Hills Mortgage Bankers, a division of Gateway Business Bank. Most of the revenues generated by Mission Hills come from gains on the sale of single-family mortgage loans pursuant to programs currently offered by Fannie Mae, Freddie Mac and investors other than government sponsored enterprises on a servicing-released basis. These entities account for a substantial portion of the secondary market in residential mortgage loans. Any future changes in these programs, reduction in number of entities to sell to, eligibility to participate in such programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, materially reduce the revenues generated by Mission Hills. Further, in a rising or higher interest rate environment, originations of mortgage loans may decrease, resulting in fewer loans that are available to be sold to investors. This would result in a decrease in mortgage banking revenues and a corresponding decrease in our non-interest income. Our results of operations also will be affected by the amount of non-interest expense associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations.

Our income property loans, consisting of commercial and multi-family real estate loans, involve higher principal amounts than other loans and repayment of these loans may be dependent on factors outside our control or the control of our borrowers.

We originate commercial and multi-family real estate loans for individuals and businesses for various purposes, which are secured by commercial properties. These loans typically involve higher principal amounts than other types of loans, and repayment is dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service, which may be adversely affected by changes in the economy or local market conditions. For example, if the cash flow from the borrower’s project is reduced as a result of leases not being obtained or renewed, the borrower’s ability to repay the loan may be impaired. Commercial and multifamily real estate loans also expose us to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be sold as easily as residential real estate. In addition, many of our commercial and multifamily real estate loans are not fully amortizing and contain large balloon payments upon maturity. Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment.

If we foreclose on a commercial and multi-family real estate loan, our holding period for the collateral typically is longer than for residential mortgage loans because there are fewer potential purchasers of the collateral. Additionally, commercial and multi-family real estate loans generally have relatively large balances to single borrowers or related groups of borrowers. Accordingly, if we make any errors in judgment in the collectability of our commercial and multi-family real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios. As of September 30, 2012, our commercial and multi-family real estate loans totaled $490.3 million, or 40.4% of our total gross loan portfolio, as compared to $220.3 million, or 28.0%, of our total gross loan portfolio as of December 31, 2011.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)	The following table sets forth information for the three months ended September 30, 2012 with respect to the repurchase of outstanding common stock.

ISSUER PURCHASES OF EQUITY SECURITIES


Period	Total # of shares Purchased		Average price paid per share		Total # of shares purchased as part of a publicly announced program		Maximum # of shares that may yet be purchased
07/1/12-07/31/12		—		—		—		1,000,000
08/1/12-08/31/12		12,544	$	12.0597		12,544		987,456
09/1/12-09/30/12		—		—		—		987,456

The Company currently has a stock buyback plan and purchased 12,544 shares in August 2012 at an average price of $12.0597 with a total cost of $151,799.11, including fees. In addition, the Company also purchased shares during the quarter related to tax liability sales for employee stock benefit plans, consistent with past practices.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable

ITEM 5.

OTHER INFORMATION.

None

ITEM 6.

EXHIBITS

Exhibits


Regulation S-K Exhibit Number	Document	Reference to Prior Filing or Exhibit Number Attached Hereto

2.1	Stock Purchase Agreement, dated as of June 3, 2011, by and among First PacTrust Bancorp, Inc. (sometimes referred to below as the “Registrant” or the “Company”), Gateway Bancorp, Inc. (“Gateway”), each of the stockholders of Gateway and the D & E Tarbell Trust, u/d/t dated February 19, 2002 (in its capacity as the Sellers’ Representative)	(a)

2.1A	Amendment No. 1, dated as of November 28, 2011, to Stock Purchase Agreement, dated as of June 3, 2011, by and among First PacTrust Bancorp, Inc., Gateway Bancorp, the Sellers named therein and the D & E Tarbell Trust, u/d/t dated February 19, 2002 (in its capacity as the Sellers’ Representative)	(a)(1)

2.2B	Amendment No. 2, dated as of February 24, 2012, to Stock Purchase Agreement, dated as of June 3, 2011, by and among First PacTrust Bancorp, Inc., Gateway Bancorp, the Sellers named therein and the D & E Tarbell Trust, u/d/t dated February 19, 2002 (in its capacity as the Sellers’ Representative)	(a)(2)

2.2C	Amendment No. 3, dated as of June 30, 2012, to Stock Purchase Agreement, dated as of June 3, 2011, by and among First PacTrust Bancorp, Inc., Gateway Bancorp, the Sellers named therein and the D & E Tarbell Trust, u/d/t dated February 19, 2002 (in its capacity as the Sellers’ Representative)	(a)(3)

2.2D	Amendment No. 4, dated as of July 31, 2012, to Stock Purchase Agreement, dated as of June 3, 2011, by and among First PacTrust Bancorp, Inc., Gateway Bancorp, the Sellers named therein and the D & E Tarbell Trust, u/d/t dated February 19, 2002 (in its capacity as the Sellers’ Representative)	(a)(4)

2.3	Agreement and Plan of Merger, dated as of August 30, 2011, by and between First PacTrust Bancorp, Inc. and Beach Business Bank, as amended by Amendment No. 1 thereto dated as of October 31, 2011	(b)

2.4	Agreement and Plan of Merger, dated as of August 21, 2012, by and among First PacTrust Bancorp, Inc., Beach Business Bank and The Private Bank of California	(c)

3.1	Articles of Incorporation of First PacTrust Bancorp, Inc.	(d)

3.2	Articles of Amendment to the Charter of First PacTrust Bancorp, Inc.	(e)

3.3	Articles supplementary to the Charter of First PacTrust Bancorp, Inc. containing the terms of First PacTrust Bancorp, Inc.’s Senior Non-Cumulative Perpetual Preferred Stock, Series A	(f)

3.4	Articles supplementary to the Charter of First PacTrust Bancorp, Inc. containing the terms of First PacTrust Bancorp, Inc.’s Class B Non-Voting Common Stock	(g)

3.5	Articles of Amendment to Articles Supplementary to the Charter of First PacTrust Bancorp, Inc. containing the terms of First PacTrust Bancorp, Inc.’s Class B Non-Voting Common Stock	(h)

3.6	Bylaws of First PacTrust Bancorp, Inc.	(i)

4.1	Warrant to purchase up to 240,000 shares of First PacTrust Bancorp, Inc. common stock originally issued on November 1, 2010	(g)

4.2	Warrant to purchase up to 1,395,000 shares of First PacTrust Bancorp, Inc. common stock originally issued on November 1, 2010	(g)

4.3	Senior Debt Securities Indenture, dated as of April 23, 2012, between the Registrant and U.S. Bank National Association, as Trustee	(q)

4.4	Supplemental Indenture, dated as of April 23, 2012, between the Registrant and U.S. Bank National Association, as Trustee, relating to the Registrant’s 7.50% Senior Notes due April 15, 2020 and form of 7.50% Senior Notes due April 15, 2020	(q)


Regulation S-K Exhibit Number	Document	Reference to Prior Filing or Exhibit Number Attached Hereto

4.5A	Warrant Agreement, dated as of June 29, 2012 (the “Warrant Agreement”), by and between First PacTrust Bancorp, Inc. and Registrar and Transfer Company, as Warrant Agent	(i)

4.5B	Form of Warrant Certificate (included as Exhibit A to the Warrant Agreement filed as Exhibit 4.5A)	(i)

10.1	Change in Control Severance Agreement, dated as of August 22, 2002, by and between Pacific Trust Bank and Hans R. Ganz	(d)

10.2	Reserved

10.3	Change in Control Severance Agreement, dated as of August 22, 2002, by and between Pacific Trust Bank and James P. Sheehy	(d)

10.4	Change in Control Severance Agreement, dated as of August 22, 2002, by and between Pacific Trust Bank and Regan J. Lauer (substantially identical to form of Change in Control Severance Agreement with James P. Sheehy)	(d)

10.5	Form of Agreement to Modify Severance Benefits by and between Pacific Trust Bank and each of Hans R. Ganz, James P. Sheehy, and Regan Lauer	(j)

10.6	Employment Agreement, dated as of November 1, 2010, between First PacTrust Bancorp, Inc. and Gregory A. Mitchell (including as exhibits thereto the forms of agreements for the restricted stock inducement grant and stock option inducement grant made to Mr. Mitchell pursuant to his Employment Agreement)	(g)

10.6A	Separation and Settlement Agreement, dated as of September 21, 2012, by and between First PacTrust Bancorp, Inc. and Gregory A. Mitchell	(k)

10.7	Employment Agreement, dated as of November 17, 2010, by and among First PacTrust Bancorp, Inc. and Pacific Trust Bank and Richard Herrin (including as exhibits thereto the forms of agreements for the restricted stock inducement grant and stock option inducement grant made to Mr. Herrin pursuant to his Employment Agreement)	(l)

10.7A	Incentive Bonus Award Agreement, dated as of September 21, 2012, supplementing and amending the Employment Agreement with Richard Herrin	10.7A

10.7B	Second Amendment, dated as of September 25, 2012, to Employment Agreement with Richard Herrin	10.7B

10.8	Employment Agreement, dated as of November 23, 2010, by and among First PacTrust Bancorp, Inc. and Pacific Trust Bank and Matthew Bonaccorso (including as exhibits thereto the forms of agreements for the restricted stock inducement grant and stock option inducement grant made to Mr. Bonaccorso pursuant to his Employment Agreement)	(m)

10.8A	Incentive Bonus Award Agreement, dated as of September 21, 2012, supplementing and amending the Employment Agreement with Matthew Bonaccorso	10.8A

10.9	Employment Agreement, dated as of November 23, 2010, by and among First PacTrust Bancorp, Inc. and Pacific Trust Bank and Gaylin Anderson (including as exhibits thereto the forms of agreements for the restricted stock inducement grant and stock option inducement grant made to Mr. Anderson pursuant to his Employment Agreement)	(m)

10.9A	Incentive Bonus Award Agreement, dated as of September 21, 2012, supplementing and amending the Employment Agreement with Gaylin Anderson	10.9A

10.9B	Second Amendment, dated as of September 25, 2012, to Employment Agreement with Gaylin Anderson	10.9B


Regulation S-K Exhibit Number	Document	Reference to Prior Filing or Exhibit Number Attached Hereto

10.10	Employment Agreement, dated as of November 29, 2012, by and among First PacTrust Bancorp, Inc. and Pacific Trust Bank and Chang Liu (including as exhibits thereto the forms of agreements for the restricted stock inducement grant and stock option inducement grant made to Mr. Liu pursuant to his Employment Agreement)	(m)

10.10A	Incentive Bonus Award Agreement, dated as of September 21, 2012, supplementing and amending the Employment Agreement with Chang Liu	10.10A

10.10B	Second Amendment, dated as of September 25, 2012, to Employment Agreement with Chang Liu	10.14B

10.11	Employment Agreement, dated as of May 6, 2011, by and among First PacTrust Bancorp, Inc. and Pacific Trust Bank and Marangal I. Domingo (including as exhibits thereto the forms of agreements for the restricted stock inducement grant and stock option inducement grant made to Mr. Domingo pursuant to his Employment Agreement)	(n)

10.11A	Incentive Bonus Award Agreement, dated as of September 21, 2012, supplementing and amending the Employment Agreement with Marangal I. Domingo	10.11A

10.12	Employment Agreement, dated as of August 21, 2012, by and between First PacTrust Bancorp, Inc. and Steven Sugarman	10.12

10.12A	Stock Appreciation Right Grant to Steven Sugarman dated August 21, 2012	10.12A

10.13	Employment Agreement, dated as of September 25, 2012, by and among First PacTrust Bancorp, Inc., Pacific Trust Bank and Beach Business Bank and Robert M. Franko	10.13A

10.13A	Mutual Termination and Release Letter Agreement, dated September 25, 2012, relating to Executive Employment Agreement, dated June 1, 2003, between Doctors’ Bancorp, predecessor-in-interest to Beach Business Bank, and Robert M. Franko	10.13A

10.14A	Employment Agreement, dated as of August 22, 2012, by and among First PacTrust Bancorp, Inc. and John C. Grosvenor	10.14A

10.14B	Employment Agreement, dated as of November 5, 2012, by and among First PacTrust Bancorp, Inc. and Ron Nicolas	10.14B

10.14C	Employment Agreement, dated as of November 14, 2012, by and among First PacTrust Bancorp, Inc. and Lonny Robinson	10.14C

10.15	Registrant’s 2011 Omnibus Incentive Plan	(o)

10.15A	Form of Incentive Stock Option Agreement under 2011 Omnibus Incentive Plan	(r)

10.15B	Form of Non-Qualified Stock Option Agreement under 2011 Omnibus Incentive Plan	(r)

10.15C	Form of Restricted Stock Agreement Under 2011 Omnibus Incentive Plan	(r)

10.16	Registrant’s 2003 Stock Option and Incentive Plan	(p)

10.17	Registrant’s 2003 Recognition and Retention Plan	(p)

10.18	Small Business Lending Fund-Securities Purchase Agreement, dated August 30, 2011, between First PacTrust Bancorp, Inc. and the Secretary of the United States Treasury	(f)

11.0	Statement regarding computation of per share earnings	None

15.0	Letter re unaudited interim financial information	None

18.0	Letter regarding change in accounting principles	None

19.0	Report furnished to security holders	None

22.0	Published Report regarding matters submitted to vote of security holders	None

24.0	Power of Attorney	None


Regulation S-K Exhibit Number	Document	Reference to Prior Filing or Exhibit Number Attached Hereto

31.1	Rule 13(a)-14(a) Certification (Chief Executive Officer)(Principal Executive Officer)	31.1

31.2	Rule 13(a)-14(a) Certification (President)	31.2

31.3	Rule 13(a)-14(a) Certification (Chief Financial Officer)(Principal Financial Officer)	31.3

31.4	Rule 13(a)-14(a) Certification (Principal Accounting Officer)	31.4

32.0	Rule 13(a)-14(b) and 18 U.S.C. 1350 Certification	32.0

101.0	The following financial statements and footnotes from the Registrant’s Quarterly Report on Form 10Q for the quarter ended September 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Financial Condition; (ii) Consolidated Statements of Income and Comprehensive Income/(Loss); (iii) Consolidated Statements of Shareholder’s Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to Consolidated Financial Statements.	101.0

*	(a) Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on June 9, 2011 and incorporated herein by reference.

(a)(1)

Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on December 1, 2011 and incorporated herein by reference.

(a)(2)

Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on February 28, 2012 and incorporated herein by reference

(a)(3)

Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on July 2, 2012 and incorporated herein by reference.

(a)(4)

Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on August 2, 2012 and incorporated herein by reference.

(b)	Filed as Appendix A to the proxy statement/prospectus included in the Registrant’s Registration Statement on Form S-4 filed on November 1, 2011 and incorporated herein by reference.

(c)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on August 27, 2012 and incorporated herein by reference

(d)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 filed on March 28, 2002 and incorporated herein by reference.

(e)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on March 4, 2011 and incorporated herein by reference.

(f)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on August 30, 2011 and incorporated herein by reference.

(g)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K/A filed on November 16, 2010 and incorporated herein by reference.

(h)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on May 12, 2011 and incorporated herein by reference

(i)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on July 5, 2012 and incorporated herein by reference.

(j)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K/A filed on December 20, 2010 and incorporated herein by reference.

(k)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on September 27, 2012 and incorporated herein by reference.

(l)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on November 19, 2010 and incorporated herein by reference.

(m)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.

(n)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on May 10, 2011 and incorporated herein by reference.

(o)	Filed as an appendix to the Registrant’s definitive proxy statement filed on April 25, 2011 and incorporated herein by reference

(p)	Filed as an appendix to the Registrant’s definitive proxy statement filed on March 21, 2003 and incorporated herein by reference.

(q)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on April 23, 2012 and incorporated herein by reference.

(r)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				FIRST PACTRUST BANCORP, INC.

Date: November 13, 2012				/s/ Steven A. Sugarman
				Steven A. Sugarman
				Chief Executive Officer

Date: November 13, 2012				/s/ Robert M. Franko
				Robert M. Franko
				President

Date: November 13, 2012				/s/ Marangal I. Domingo
				Marangal I. Domingo
				Executive Vice President/ Chief Financial Officer

Exhibit 10.7A

F IRST P AC T RUST B ANCORP , I NC .

18500 V ON K ARMAN A VENUE , S UITE 1100

I RVINE , C ALIFORNIA 92612

September 13, 2012

Richard Herrin

Executive Vice President and Chief Administrative Officer

First PacTrust Bancorp, Inc. and Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

Re: Incentive Bonus Award Agreement

Dear Richard:

This Incentive Bonus Award Agreement (this “ Agreement ”) supplements and amends that certain employment agreement dated as of November 17, 2010 (your “ Employment Agreement ”) between and among you, First PacTrust Bancorp, Inc. (the “ Corporation ”), and Pacific Trust Bank (together with the Corporation, the “ Company ”). Capitalized terms not separately defined herein shall have the meanings ascribed thereto in your Employment Agreement.

As recognition for your valuable services to the Company, upon execution of this Agreement, the Company is prepared to amend your Employment Agreement as follows:

•

Commencing effective as of the pay period beginning August 12, 2012, your annualized base salary during the term of your employment with the Company shall be increased by $20,000 (the “ Bonus Increase ”) from $250,000 to $270,000 per annum; and

•

Notwithstanding the foregoing increase to your base salary described above, you hereby acknowledge and agree that there shall be no corresponding increase as a result and to the extent of the Bonus Increase to any severance benefits stated in your Employment Agreement which are calculated with reference to base salary; provided , however , that the Bonus Increase shall be included for purposes of calculating your severance benefits under the Employment Agreement in the event of a termination of your employment without Cause, or for Good Reason, under Section 10(b) of your Employment Agreement, but only if such termination occurs within twelve months following a change of control of the Corporation. As used herein, the term “change in control” means the occurrence of any of the following three events: (i) a transaction in which any third person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, shall become the beneficial owner of shares of the Corporation with respect to which 25% or more of the total number of votes for the election of the Corporation’s Board of Directors may be cast, (ii) as a result of, or in connection with, any cash tender offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Corporation shall cease to constitute a majority of the Corporation’s Board of Directors, or (iii) the stockholders of the Corporation shall approve an agreement providing either for a transaction in which the Corporation will cease to be an independent publicly owned corporation or for a sale or other disposition of all or substantially all the assets of the Corporation; provided , further , however , that nothing in this Agreement is intended, nor shall it be interpreted to require that future discretionary increases to your annualized base shall be treated in the same fashion as the Bonus Increase under this Agreement.

Further, in addition to the Bonus Increase, effective upon your execution of this Agreement, the Company offers you a one-time recognition bonus in the form of 10,000 shares of restricted stock (“ Equity Award ”), which shares shall be fully vested as of the date of grant and shall be subject to customary terms and conditions applicable to such grants under the First PacTrust Bancorp, Inc. Omnibus Incentive Plan .

You acknowledge and agree that this Agreement shall be incorporated into your Employment Agreement and is made in compliance therewith. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to the principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of the laws of another jurisdiction. This Agreement may be executed in any number of counterparts, any of which may be executed and transmitted by facsimile or electronically as a .pdf file, and each of which shall be deemed an original of this agreement, and all of which, when taken together, shall be deemed to constitute one and the same instrument.

This Agreement supersedes all prior negotiations, discussions and correspondence and together with the Employment Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof. Except as expressly provided in this agreement, all provisions of your Employment Agreement shall remain in full force and effect, and the parties shall continue to have all their rights and remedies under your Employment Agreement; provided , however , that, to the extent you may assert any claim for damages thereunder based upon facts and circumstances existing on or before the date hereof, you hereby agree that any damages that may be alleged to arise in connection with such claim shall be reduced by the amount of the Equity Award.

In the event of any conflict between the provisions of this Agreement and the provisions contained in your Employment Agreement (as in effect immediately prior to the execution hereof), the provisions of this Agreement shall control. If any clause, phrase, term, provision or portion of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of the Agreement and shall not affect the application of any clause, phrase, term, provision or portion hereof to other persons or circumstances. Upon a determination that any clause, phrase, term, provision or portion of this Agreement is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the agreements contemplated hereby be accomplished as originally contemplated to the greatest extent possible.

Page 2 of 3

Please acknowledge your agreement to the terms hereof by signing this agreement as provided below and returning your signed copy to the Company. With those formalities concluded, we want to thank you for your service and contributions to the Company’s success.

F IRST P AC T RUST B ANCORP , I NC .

/s/ Steven Sugarman September 21, 2012

Steven Sugarman, Co-Chief Executive Officer

P ACIFIC T RUST B ANK

/s/ Steven Sugarman September 21, 2012

Steven Sugarman, Director


*Accepted and Agreed:*

Richard Herrin
Richard Herrin, Executive Vice President and Chief Administrative Officer

Date:		September 18, 2012

Page 3 of 3

Exhibit 10.7B

F IRST P AC T RUST B ANCORP , I NC .

18500 V ON K ARMAN A VENUE , S UITE 1100

I RVINE , C ALIFORNIA 92612

September 25, 2012

Richard Herrin

Executive Vice President and Chief Administrative Officer

First PacTrust Bancorp, Inc. and Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

Re: Second Amendment to Employment Agreement

Dear Richard:

This Second Amendment to Employment Agreement (this “ Agreement ”) supplements and amends that certain employment agreement dated as of November 17, 2010 (your “ Employment Agreement ”) between and among you, First PacTrust Bancorp, Inc. (the “ Corporation ”), and Pacific Trust Bank (the “ Bank ” and, together with the Corporation, the “ Company ”). Capitalized terms not separately defined herein shall have the meanings ascribed thereto in your Employment Agreement.

In consideration of the services which you provide to the Corporation in addition to the services which you provide to the Bank, upon execution of this Agreement, the Company is prepared to amend your Employment Agreement as follows:

•

Commencing effective upon October 1, 2012, in addition to your annual base salary for services you perform for the Bank, during the term of your employment with the Company, you will also receive a salary of $50,000 per annum as compensation for the separate services you perform for the Corporation; and

•

In each case where the reference to eighteen (18) months appears in Sections 10(b), 10(c) and 11 of your Employment Agreement, those sections shall be amended to provide instead for “twenty four (24) months’ salary”, “twenty four (24) equal monthly installments”, and “twenty four (24) months following termination”, respectively.

This Agreement supersedes all prior negotiations, discussions and correspondence and together with the Employment Agreement, as previously amended, constitutes the entire agreement among the parties with respect to the subject matter hereof. Except as expressly provided in this agreement, all provisions of your Employment Agreement shall remain in full force and effect, and the parties shall continue to have all their rights and remedies under your Employment Agreement.

[SIGNATURE PAGE FOLLOWS]

Page 2 of 3

Please acknowledge your agreement to the terms hereof by signing this agreement as provided below and returning your signed copy to the Company.


F IRST P AC T RUST B ANCORP , I NC .

/s/ Steven Sugarman
Steven Sugarman, Chief Executive Officer

Date:		September 25, 2012

P ACIFIC T RUST B ANK

/s/ Robert M. Franko
Robert Franko, Chief Executive Officer

Date:		September 25, 2012

Accepted and Agreed:


/s/ Richard Herrin
Richard Herrin, Executive Vice President and Chief Administrative Officer

Date:		September 25, 2012

Page 3 of 3

Exhibit 10.8A

F IRST P AC T RUST B ANCORP , I NC .

18500 V ON K ARMAN A VENUE , S UITE 1100

I RVINE , C ALIFORNIA 92612

September 13, 2012

Matthew Bonaccorso

Executive Vice President and Chief Credit Officer

First PacTrust Bancorp, Inc. and Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

Re: Incentive Bonus Award Agreement

Dear Matt:

This Incentive Bonus Award Agreement (this “ Agreement ”) supplements and amends that certain employment agreement dated as of November 23, 2010 (your “ Employment Agreement ”) between and among you, First PacTrust Bancorp, Inc. (the “ Corporation ”), and Pacific Trust Bank (together with the Corporation, the “ Company ”). Capitalized terms not separately defined herein shall have the meanings ascribed thereto in your Employment Agreement.

As recognition for your valuable services to the Company, upon execution of this Agreement, the Company is prepared to amend your Employment Agreement as follows:

•

This Agreement supersedes all prior negotiations, discussions and correspondence and together with the Employment Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof. Except as expressly provided in this Agreement, all provisions of your Employment Agreement shall remain in full force and effect, and the parties shall continue to have all their rights and remedies under your Employment Agreement; provided , however , that, to the extent you may assert any claim for damages thereunder based upon facts and circumstances existing on or before the date hereof, you hereby agree that any damages that may be alleged to arise in connection with such claim shall be reduced by the amount of the Equity Award.

Page 2 of 3

Please acknowledge your agreement to the terms hereof by signing this Agreement as provided below and returning your signed copy to the Company. With those formalities concluded, we want to thank you for your service and contributions to the Company’s success.


F IRST P AC T RUST B ANCORP , I NC .

/s/ Steven Sugarman September 21, 2012
Steven Sugarman, Chief Executive Officer

P ACIFIC T RUST B ANK

/s/ Steven Sugarman September 21, 2012
Steven Sugarman, Director


*Accepted and Agreed:*

/s/ Matthew Bonaccorso
Matthew Bonaccorso, Executive Vice President and Chief Credit Officer

Date:		September 18, 2012

Page 3 of 3

Exhibit 10.9A

F IRST P AC T RUST B ANCORP , I NC .

18500 V ON K ARMAN A VENUE , S UITE 1100

I RVINE , C ALIFORNIA 92612

September 13, 2012

Gaylin Anderson

Executive Vice President and Chief Retail Banking Officer

First PacTrust Bancorp, Inc. and Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

Re: Incentive Bonus Award Agreement

Dear Gaylin:

As recognition for your valuable services to the Company, upon execution of this Agreement, the Company is prepared to amend your Employment Agreement as follows:

•

Commencing effective as of the pay period beginning August 12, 2012, your annualized base salary during the term of your employment with the Company shall be increased by $55,000 (the “ Bonus Increase ”) from $220,000 to $275,000 per annum; and

•

This Agreement supersedes all prior negotiations, discussions and correspondence and together with the Employment Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof. Except as expressly provided in this Agreement, all provisions of your Employment Agreement shall remain in full force and effect, and the parties shall continue to have all their rights and remedies under your Employment Agreement; provided , however , that, to the extent you may assert any claim for damages thereunder based upon facts and circumstances existing on or before the date hereof, you hereby agree that any damages that may be alleged to arise in connection with such claim shall be reduced by the amount of the Equity Award.

Page 2 of 3


F IRST P AC T RUST B ANCORP , I NC .

/s/ Steven Sugarman September 21, 2012
Steven Sugarman, Chief Executive Officer

P ACIFIC T RUST B ANK

/s/ Steven Sugarman September 21, 2012
Steven Sugarman, Director


*Accepted and Agreed:*

/s/ Gaylin Anderson
Gaylin Anderson, Executive Vice President and Chief Retail Banking Officer

Date:		September 19, 2012

Page 3 of 3

Exhibit 10.9B

F IRST P AC T RUST B ANCORP , I NC .

18500 V ON K ARMAN A VENUE , S UITE 1100

I RVINE , C ALIFORNIA 92612

September 25, 2012

Gaylin Anderson

Executive Vice President and Chief Retail Banking Officer

First PacTrust Bancorp, Inc. and Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

Re: Second Amendment to Employment Agreement

Dear Gaylin:

This Second Amendment to Employment Agreement (this “ Agreement ”) supplements and amends that certain employment agreement dated as of November 23, 2010 (your “ Employment Agreement ”), as previously amended, between and among you, First PacTrust Bancorp, Inc. (the “ Corporation ”), and Pacific Trust Bank (together with the Corporation, the “ Company ”). Capitalized terms not separately defined herein shall have the meanings ascribed thereto in your Employment Agreement.

Upon execution of this Agreement, and notwithstanding provisions in that certain Incentive Bonus Award Agreement letter dated September 13, 2012 which would otherwise limit your severance benefits, the amount of your base salary for purposes of calculating your severance benefits under Section 10(b) of your Employment Agreement shall be your current base salary of $275,000 per annum.

This Agreement supersedes all prior negotiations, discussions and correspondence and together with the Employment Agreement, as previously amended, constitutes the entire agreement among the parties with respect to the subject matter hereof. Except as expressly provided in this Agreement, all provisions of your Employment Agreement shall remain in full force and effect, and the parties shall continue to have all their rights and remedies under your Employment Agreement.

Please acknowledge your agreement to the terms hereof by signing this Agreement as provided below and returning your signed copy to the Company.


F IRST P AC T RUST B ANCORP , I NC .

/s/ Steven Sugarman
Steven Sugarman, Chief Executive Officer

Date:		September 25, 2012

P ACIFIC T RUST B ANK

/s/ Robert M. Franko
Robert Franko, Chief Executive Officer

Date:		September 25, 2012


*Accepted and Agreed:*

/s/ Gaylin Anderson
Gaylin Anderson, Executive Vice President and Chief Retail Banking Officer

Date:		September 25, 2012

Page 2 of 2

Exhibit 10.10A

F IRST P AC T RUST B ANCORP , I NC .

18500 V ON K ARMAN A VENUE , S UITE 1100

I RVINE , C ALIFORNIA 92612

September 13, 2012

Chang Liu

Executive Vice President and Chief Lending Officer

First PacTrust Bancorp, Inc. and Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

Re: Incentive Bonus Award Agreement

Dear Chang:

This Incentive Bonus Award Agreement (this “ Agreement ”) supplements and amends that certain employment agreement dated as of November 29, 2010 (your “ Employment Agreement ”) between and among you, First PacTrust Bancorp, Inc. (the “ Corporation ”), and Pacific Trust Bank (together with the Corporation, the “ Company ”). Capitalized terms not separately defined herein shall have the meanings ascribed thereto in your Employment Agreement.

As recognition for your valuable services to the Company, upon execution of this Agreement, the Company is prepared to amend your Employment Agreement as follows:

•

Commencing effective as of the pay period beginning August 12, 2012, your annualized base salary during the term of your employment with the Company shall be increased by $42,000 (the “ Bonus Increase ”) from $228,000 to $270,000 per annum; and

•

Further, in addition to the Bonus Increase, effective upon your execution of this Agreement, the Company offers you a one-time recognition bonus in the form of 8,000 shares of restricted stock (“ Equity Award ”), which shares shall be fully vested as of the date of grant and shall be subject to customary terms and conditions applicable to such grants under the First PacTrust Bancorp, Inc. Omnibus Incentive Plan .

This Agreement supersedes all prior negotiations, discussions and correspondence and together with the Employment Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof. Except as expressly provided in this Agreement, all provisions of your Employment Agreement shall remain in full force and effect, and the parties shall continue to have all their rights and remedies under your Employment Agreement; provided , however , that, to the extent you may assert any claim for damages thereunder based upon facts and circumstances existing on or before the date hereof, you hereby agree that any damages that may be alleged to arise in connection with such claim shall be reduced by the amount of the Equity Award.

Page 2 of 3


F IRST P AC T RUST B ANCORP , I NC .

/s/ Steven Sugarman September 21, 2012
Steven Sugarman, Chief Executive Officer

P ACIFIC T RUST B ANK

/s/ Steven Sugarman September 21, 2102
Steven Sugarman, Director


*Accepted and Agreed:*

/s/ Chang Liu
Chang Liu, Executive Vice President and Chief Lending Officer

Date:		September 18, 2012

Page 3 of 3

Exhibit 10.10B

F IRST P AC T RUST B ANCORP , I NC .

18500 V ON K ARMAN A VENUE , S UITE 1100

I RVINE , C ALIFORNIA 92612

September 25, 2012

Chang Liu

Executive Vice President and Chief Lending Officer

First PacTrust Bancorp, Inc. and Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

Re: Second Amendment to Employment Agreement

Dear Chang:

This Second Amendment to Employment Agreement (this “ Agreement ”) supplements and amends that certain employment agreement dated as of November 29, 2010 (your “ Employment Agreement ”), as previously amended, between and among you, First PacTrust Bancorp, Inc. (the “ Corporation ”), and Pacific Trust Bank (the “ Bank ” and, together with the Corporation, the “ Company ”). Capitalized terms not separately defined herein shall have the meanings ascribed thereto in your Employment Agreement.

In consideration of the services which you provide to the Company, upon execution of this Agreement, the Company is prepared to amend your Employment Agreement as follows:

•

Please acknowledge your agreement to the terms hereof by signing this agreement as provided below and returning your signed copy to the Company.


F IRST P AC T RUST B ANCORP , I NC .

/s/ Steven Sugarman
Steven Sugarman, Chief Executive Officer

Date:		September 25, 2012

P ACIFIC T RUST B ANK

/s/ Robert Franko
Robert Franko, Chief Executive Officer

Date:		September 25, 2012


*Accepted and Agreed:*

/s/ Chang Liu
Chang Liu, Executive Vice President and Chief Lending Officer

Date:		September 25, 2012

Page 2 of 2

Exhibit 10.11A

F IRST P AC T RUST B ANCORP , I NC .

18500 V ON K ARMAN A VENUE , S UITE 1100

I RVINE , C ALIFORNIA 92612

September 13, 2012

Marangal Domingo

Executive Vice President and Chief Financial Officer

First PacTrust Bancorp, Inc. and Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

Re: Incentive Bonus Award Agreement

Dear Marito:

This Incentive Bonus Award Agreement (this “ Agreement ”) supplements and amends that certain employment agreement dated as of May 6, 2011 (your “ Employment Agreement ”) between and among you, First PacTrust Bancorp, Inc. (the “ Corporation ”), and Pacific Trust Bank (together with the Corporation, the “ Company ”). Capitalized terms not separately defined herein shall have the meanings ascribed thereto in your Employment Agreement.

As recognition for your valuable services to the Company, upon execution of this Agreement, the Company is prepared to amend your Employment Agreement as follows:

•

Commencing effective as of the pay period beginning August 12, 2012, your annualized base salary during the term of your employment with the Company shall be increased by $50,000 (the “ Bonus Increase ”) from $275,000 to $325,000 per annum; and

•

This Agreement supersedes all prior negotiations, discussions and correspondence and together with the Employment Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof. Except as expressly provided in this Agreement, all provisions of your Employment Agreement shall remain in full force and effect, and the parties shall continue to have all their rights and remedies under your Employment Agreement; provided , however , that, to the extent you may assert any claim for damages thereunder based upon facts and circumstances existing on or before the date hereof, you hereby agree that any damages that may be alleged to arise in connection with such claim shall be reduced by the amount of the Equity Award.

Page 2 of 3


F IRST P AC T RUST B ANCORP , I NC .

/s/ Steven Sugarman September 21, 2012
Steven Sugarman, Chief Executive Officer

P ACIFIC T RUST B ANK

/s/ Steven Sugarman September 21, 2012
Steven Sugarman, Director


*Accepted and Agreed:*

/s/ Marangal Domingo
Marangal Domingo, Executive Vice President and Chief Financial Officer

Date:		September 18, 2012

Page 3 of 3

Exhibit 10.12

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT by and between First PacTrust Bancorp, Inc., a Maryland corporation (“the Company”), and Steven Sugarman (the “Executive”) is dated as of the 21 ^st day of August, 2012 (the “Agreement”).

1. Effective Date . The “Effective Date” shall mean the date first set forth above.

2. Employment Period . The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary thereof (the “Employment Period”); provided , however , that, commencing on the date that is two years after the Effective Date, and on each annual anniversary of such date (such date and each annual anniversary thereof, the “Renewal Date”), unless previously terminated, the Employment Period shall automatically be extended so as to terminate two years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Employment Period shall not be so extended.

3. Terms of Employment . (a) Position and Duties . (i) During the Employment Period, the Executive shall serve as Co-Chief Executive Officer of the Company with such duties and responsibilities as are customarily assigned to such position. The Executive shall report directly and exclusively to the Chairman of the Board of Directors of the Company (the “Board”). The Executive shall serve without compensation on the Board during the Employment Period, subject to election by the shareholders of the Company. During the Employment Period, the Executive shall be provided with an office at the corporate headquarters in Irvine, California.

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled under this Agreement, the Executive shall be employed by the Company on a full-time basis and agrees to devote such time as is necessary to discharge the responsibilities assigned to the Executive hereunder and to use the Executive’s reasonable best efforts to perform such responsibilities faithfully and efficiently. During the Employment Period, it shall not be a violation of this Agreement for the Executive to, either for free or for personal compensation, (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, (C) manage personal investments and investment companies, (D) attend to other business matters, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement, and (E) subject to his fiduciary duties as an officer and director of the Company, serve as an officer and/or director, including Chief Executive Officer of, CORAdvisors, COR Securities Holdings Inc., COR Advisors, Legent Securities Holdings and other related companies and similar private equity or portfolio companies.

(b) Compensation (i) Base Salary . During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”) at a rate of not less than $600,000 payable in accordance with the Company’s normal payroll policies. The Executive’s Annual Base Salary shall be reviewed for increase at least annually by the Board pursuant to its

normal performance review policies for senior executives. The Annual Base Salary shall not be reduced after any increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased.

(ii) Annual Bonus . With respect to each fiscal year ending during the Employment Period, the Executive shall receive an annual bonus (“Annual Bonus”) with a target of 50% of the Executive’s Annual Base Salary (the “Target Bonus”), pro-rated for any partial year. In no event shall the Annual Bonus be less than 10% of the EBITDA resulting from the Company’s subsidiaries which are not depository institutions, taken as a whole, for such fiscal year. The actual Annual Bonus, which could be higher or lower than the Target Bonus, shall be based on the attainment of performance objectives to be established by the Board or the Compensation Committee of the Board. The Annual Bonus shall be paid in cash no later than March 15 of the year following the year to which the Annual Bonus relates.

(iii) Other Employee Benefit Plans . During the Employment Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in all benefits under all plans, practices, policies and programs provided by the Company on a basis that is no less favorable than those generally applicable or made available to other senior executives of the Company. The Executive shall be eligible for participation in fringe benefits and perquisite plans, practices, policies and programs (including, without limitation, expense reimbursement plans, practices, policies and programs) on a basis that is no less favorable than those generally applicable or made available to other senior executives of the Company, provided that business travel, meal expenses and business accommodations shall be in the Executive’s reasonable discretion and shall include premium cabin air travel.

4. Termination of Employment . (a) Death or Disability . The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may provide the Executive with written notice in accordance with Section 10(b) of this Agreement of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 90 consecutive, or a total of 180 days in any 12 month period, as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.

(b) Cause . The Company may terminate the Executive’s employment during the Employment Period either with or without Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the Executive is convicted of, or pleads guilty or nolo contendere to a charge of commission of a felony involving moral turpitude or securities or banking laws;

(ii) the Executive has engaged in willful gross neglect or willful gross misconduct in carrying out his duties, which is reasonably expected to result in material economic or material reputational harm to the Company; or

(iii) the Executive is subject to an action taken by a regulatory body or a self-regulatory organization which materially impairs or prevents the Executive from performing his duties with the Company that are required under this Agreement.

(iv) The Executive materially breaches any provision of this Agreement.

For purposes of this Section 4(b), no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Board or the Chairman of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. In order to invoke a termination for Cause on any of the grounds enumerated under Section 4(b)(ii), or (iv), the Company must provide written notice to the Executive of the existence of such grounds within 30 days following the Company’s knowledge of the existence of such grounds, specifying in reasonable detail the grounds constituting Cause, and the Executive shall have 30 days following receipt of such written notice during which he may remedy the ground if such ground is reasonably subject to cure.

(c) Good Reason . The Executive’s employment may be terminated by the Executive with or without Good Reason. For purposes of this Agreement, “Good Reason” shall mean, in the absence of a written consent of the Executive, any of the following:

(i) the assignment to the Executive of any duties materially inconsistent with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities;

(ii) any material breach of any of the provisions of Section 3(b) of this Agreement;

(iii) any requirement by the Company that the Executive’s services be rendered primarily at a location or locations other than Santa Monica, Beverly Hills or Irvine, CA; or

(iv) any failure by the Company to comply with Section 9(c) of this Agreement.

In order to invoke a termination for Good Reason, the Executive shall provide written notice to the Company of the existence of one or more of the conditions described in clauses (i) through (iv) within 90 days following the Executive’s knowledge of the initial existence of such condition or conditions and the Company shall have 30 days following receipt of such written notice (the “Cure Period”) during which it may remedy the condition if such condition is reasonably subject to cure. In the event that the Company fails to remedy the condition

constituting Good Reason during the applicable Cure Period, the Executive’s “separation from service” (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)) must occur, if at all, within 60 days following such Cure Period in order for such termination as a result of such condition to constitute a termination for Good Reason.

(d) Notice of Termination . Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e) Date of Termination . “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive with or without Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.

5. Obligations of the Company upon Termination . (a) Good Reason; Other Than for Cause, Death or Disability . If, during the Employment Period, the Company shall terminate the Executive’s employment other than for Cause, death or Disability or the Executive shall terminate employment for Good Reason:

(i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

A. the sum of (1) the Executive’s accrued Annual Base Salary and any accrued vacation pay through the Date of Termination, (2) the Executive’s business expenses that have not been reimbursed by the Company as of the Date of Termination that were incurred by the Executive prior to the Date of Termination in accordance with the applicable Company policy, and (3) the Executive’s Annual Bonus earned for the fiscal year immediately preceding the fiscal year in which the Date of Termination occurs if such bonus has been determined but not paid as of the Date of Termination (the sum of the amounts described in clauses (1) through (3), shall be hereinafter referred to as the “Accrued Obligations”); and

B. the product of (1) the Target Bonus and (2) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365 (the “Pro Rata Bonus”); and

(ii) the Company shall pay to the Executive an amount equal to the product of (1) either (x) one and one-half or, (y) if a termination of the Executive’s employment described in this Section 5(a) occurs within two years immediately following a Change of Control (as defined on Exhibit A hereto), two and (2) the sum of (x) the Executive’s Annual Base Salary and (y) the Target Bonus; provided, that the applicable amount shall be payable in equal installments over the twenty-four (24) month period immediately following the last day of the Executive’s employment by the Company in accordance with the Company’s normal payroll policies.

(iii) any equity-based awards granted to the Executive shall vest and become free of restrictions immediately, and any stock options or SARs granted to the Executive shall be exercisable for the remainder of their ten year term, without regard to any provisions relating to earlier termination of the stock options or SARs based on termination of employment (the “Equity Benefits”); and

(iv) for either (A) the eighteen-month period following the Date of Termination or, (B) if a termination of the Executive’s employment described in this Section 5(a) occurs within two years immediately following a Change of Control, the two-year period following the Date of Termination, the Company shall continue to provide medical and dental benefits to the Executive and his eligible dependents as if the Executive remained an active employee of the Company, (collectively “Welfare Benefits”); and

(v) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”). As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.

(b) Death . If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for (i) payment of Accrued Obligations, (ii) the timely payment or provision of Other Benefits, (iii) payment of the Pro Rata Bonus, (iv) the Welfare Benefits and (v) the Equity Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination and the Pro Rata Bonus shall be paid to the Executive’s estate or beneficiary, as applicable, on the date specified in Section 5(a)(i). With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall include death benefits for which the Company pays as in effect on the date of the Executive’s death and the continued provision of the Welfare Benefits.

(c) Disability . If the Executive’s employment is terminated by the Company by reason of the Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations, (ii) the timely payment or provision of Other Benefits, (iii) payment of the Pro Rata Bonus, (iv) the Welfare Benefits and (v) the Equity Benefits. Accrued Obligations shall be paid to the Executive or his estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination and the Pro Rata Bonus shall be paid to the Executive or his estate or beneficiary, as applicable, on the date specified in Section 5(a)(i). With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and the continued provision of Welfare Benefits.

(d) Cause; Other than for Good Reason . If the Executive’s employment shall be terminated by the Company for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (i) the Accrued Obligations through the Date of Termination and (ii) Other Benefits, in each case to the extent theretofore unpaid. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

Any amounts payable by the Company to the Executive pursuant to Section 5(a)(ii) shall be subject to and conditioned upon the Executive signing and delivering (and not revoking) to the Company a general release and waiver (in the form attached as Exhibit B ).

6. Full Settlement . The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest by the Company, any of its affiliates or their respective predecessors, successors or assigns, the Executive, his estate, beneficiaries or their respective successors and assigns of the validity or enforceability of, or liability under, any provision of this Agreement (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement); provided , that the Executive prevails on at least one material claim.

7. Section 280G .

(a) Notwithstanding anything in this Agreement to the contrary, in the event that the Accounting Firm shall determine that receipt of all Payments would subject the Executive to tax under Section 4999 of the Code, the Accounting Firm shall determine whether some amount of Agreement Payments meets the definition of “Reduced Amount.” If the Accounting Firm determines that there is a Reduced Amount, then the aggregate Agreement Payments shall be reduced to such Reduced Amount.

(b) If the Accounting Firm determines that the aggregate Agreement Payments should be reduced to the Reduced Amount, the Company or one of its subsidiaries shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof, and the Executive may then elect, in his sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Agreement Payments equals the Reduced Amount); provided , that the Executive shall not be permitted to elect to reduce any Agreement Payment that constitutes “nonqualified deferred compensation” for purposes of Section 409A of the Code, and shall advise the Company in writing of his election within ten days of his receipt of notice. If no such election is made by the Executive within such ten-day period, the Company shall reduce the Agreement Payments in the following order: (1) by reducing benefits payable pursuant to Section 5(a)(i)(B) of the Agreement, then (2) by reducing amounts payable pursuant to Section 5(a)(i)(C) of the Agreement, and then (3) by reducing amounts payable pursuant to Section 5(a)(ii). All determinations made by the Accounting Firm under this Section 7 shall be binding upon the Company and the Executive and shall be made within 60 days of the Executive’s Date of Termination. In connection with making determinations under this Section 7, the Accounting Firm shall take into account the value of any reasonable compensation for services to be rendered by the Executive before or after the Change of Control, including any non-competition provisions that may apply to the Executive and the Company shall cooperate in the valuation of any such services, including any non-competition provisions.

(c) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement which should not have been so paid or distributed (each, an “Overpayment”) or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement could have been so paid or distributed (each, an “Underpayment”), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive which the Accounting Firm believes has a high probability of success determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Executive shall be repaid by the Executive to the Company; provided , however , that no such repayment shall be required if and to the extent such deemed repayment would not either reduce the amount on which the Executive is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

(d) All fees and expenses of the Accounting Firm in implementing the provisions of this Section 7 shall be borne by the Company.

(e) Definitions . The following terms shall have the following meanings for purposes of this Section 7.

(i) “Accounting Firm” shall mean a nationally recognized certified public accounting firm that is mutually agreed to by the Company and the Executive for purposes of making the applicable determinations hereunder, which firm shall not be a firm serving as accountant or auditor for the individual, entity or group effecting the Change of Control;

(ii) “Agreement Payment” shall mean a Payment paid or payable pursuant to this Agreement (disregarding this Section);

(iii) “Net After-Tax Receipt” shall mean the Present Value of a Payment net of all taxes imposed on the Executive with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to the Executive’s taxable income for the immediately preceding taxable year, or such other rate(s) as the Executive shall certify, in the Executive’s sole discretion, as likely to apply to the Executive in the relevant tax year(s);

(iv) “Parachute Value” of a Payment shall mean the present value as of the date of the change of control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a “parachute payment” under Section 280G(b)(2), as determined by the Accounting Firm for purposes of determining whether and to what extent the excise tax under Section 4999 of the Code will apply to such Payment;

(v) A “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise;

(vi) “Present Value” of a Payment shall mean the economic present value of a Payment as of the date of the change of control for purposes of Section 280G of the Code, as determined by the Accounting Firm using the discount rate required by Section 280G(d)(4) of the Code; or

(vii) “Reduced Amount” shall mean the amount of Agreement Payments that (x) has a Present Value that is less than the Present Value of all Agreement Payments and (y) results in aggregate Net After-Tax Receipts for all Payments that are greater than the Net After-Tax Receipts for all Payments that would result if the aggregate Present Value of Agreement Payments were any other amount that is less than the Present Value of all Agreement Payments.

8. Confidential Information; Non-Solicit of Employees; Non-Compete . (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by

it or as may be required by applicable law, court order, a regulatory body or arbitrator or other mediator.

(b) The obligations of the Company to make the severance payments to the Executive under Section 5 of this Agreement shall be conditioned upon and subject to the Executive’s compliance with the terms of this Section 8(b) and the release described in Section 5.

(i) During the two-year period following the Executive’s termination of employment during the Employment Period for any reason (the “Restricted Period”), the Executive will not, directly or indirectly, on behalf of the Executive or any other person, within the Territory, become associated with, whether as a principal, partner, employee, consultant or shareholder (other than as a holder of 10% or less of the outstanding voting shares of any publicly traded company) a Competitor. For purposes of this Section 8(b): (x) a “Competitor” shall mean any company, firm or other entity that is engaged in any of the lines of business conducted by the Company and its subsidiaries as of the Date of Termination other than the Permitted Businesses; (y) “Territory” shall mean the regions of the United States of America where the Company conducts a material portion of its business; and (z) “Permitted Businesses” means those lines of business conducted by the Executive or any of the companies described in Section 3(a)(ii) of this Agreement (the “Sugarman Companies”) as of the date of this Agreement (which shall be set forth on Schedule 8(b)) and any other business that any of the Sugarman Companies engage in during the Employment Period (the “Additional Businesses”); provided, that in entering into or acquiring any Additional Businesses, the Executive has not breached any of his fiduciary duties as an officer or director of the Company. The terms and provisions of this Section 8(b)(i) are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive’s future employment imposed by this Section 8(b)(i) are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 8(b)(i) unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction.

(ii) During the Restricted Period, the Executive shall not, directly or indirectly, solicit or encourage any person to leave his or her employment with the Company or any of its subsidiaries or assist in any way with the hiring of any Company employee (or any employee of any of the Company’s subsidiaries) by any other business.

(c) The Executive acknowledges that the Company would be irreparably injured by a violation of this Section 8 and the Executive or the Company, as applicable, agrees that the Company or the Executive, as applicable, in addition to any other remedies available to it for such breach or threatened breach, shall be entitled, without posting a bond, to a preliminary injunction, temporary restraining order, or other equivalent relief, restraining the Executive or the Company (including its executive officers and directors), as applicable, from any actual or threatened breach of this Section 8.

9. Successors . (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives, heirs or legatees.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

10. Miscellaneous . (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland, without reference to principles of conflict of laws. If, under any such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:


If to the Executive :		At the most recent address
		on file at the Company.

If to the Company :		First PacTrust Bancorp, Inc.
		18500 Von Karman Ave, Suite 1100
		Irvine, California 92612
		ATTN: Chairman of the Board

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) Any provision of this Agreement that by its terms continues after the expiration of the Employment Period or the termination of the Executive’s employment shall survive in accordance with its terms.

(f) If Executive determines, in good faith, that any compensation or benefits provided by this Agreement may result in the application of section 409A of the Code, Executive shall provide written notice thereof (describing in reasonable detail the basis therefor) to the Company, and the Company shall, in consultation with the Executive, modify the Agreement in the least restrictive manner necessary in order to exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A of the Code or in order to comply with the provisions of Section 409A of the Code, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and without any diminution in the value of the payments to the Executive. Any payments that, under the terms of this Agreement, qualify for the “short-term” deferral exception under Treasury Regulations Section 1.409A-1(b)(4), the “separation pay” exception under Treasury Regulations Section 1.409A-1(b)(9)(iii) or any other exception under Section 409A of the Code will be paid under the applicable exceptions to the greatest extent possible. Each payment under this Agreement shall be treated as a separate payment for purposes of Section 409A of the Code. Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s separation from service within the meaning of Section 409A of the Code, the Executive is considered a ‘specified employee’ within the meaning of Section 409A(a)(2)(B)(i) of the Code, and if any payment that the Executive becomes entitled to under this Agreement is considered deferred compensation subject to interest, penalties and additional tax imposed pursuant to Section 409A of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earlier of (i) six months and one day the Executive’s separation from service or (ii) the Executive’s death. In no event shall the date of termination of the Executive’s employment be deemed to occur until the Executive experiences a “separation from service” within the meaning of Section 409A of the Code, and notwithstanding anything contained herein to the contrary, the date on which such separation from service takes place shall be the Date of Termination. All reimbursements provided under this Agreement shall be provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (A) the amount of expenses eligible for reimbursement during one calendar year will not affect the amount of expenses eligible for reimbursement in any other calendar year; (B) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the calendar year in which the expense is incurred; and (C) the right to any reimbursement will not be subject to

liquidation or exchange for another benefit. Notwithstanding the foregoing, the Company makes no representation or covenant to ensure that the payments and benefits under this Agreement are exempt from, or compliant with, Section 409A of the Code.

[ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]

IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.


STEVEN SUGARMAN

/s/ Steven Sugarman

COMPANY

By		/s/ Timothy R. Chrisman
Name:
Title:

SCHEDULE 8(b)

Permitted Businesses

•

Broker dealer

•

Registered investment advisor

•

Hedge funds or other private investment funds

•

Securities clearing

•

Trading technology

•

Cash management

•

Mortgages and real estate

•

Investor relations

•

Capital markets

•

Property management

•

Master limited partnerships

•

Oil and gas

•

Business development companies

EXHIBIT A

DEFINITION OF CHANGE OF CONTROL

For the purposes of this Agreement “Change of Control” means:

(i) Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (a) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided , however , that, for purposes of this Section 1(d), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Company, (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company or (z) any acquisition pursuant to a transaction that complies with clauses (iii)(a), (iii)(b) and (iii)(c) below;

(ii) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided , however , that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(iii) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (a) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, greater than 50% of the then-outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent governing body), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting

from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (c) at least a majority of the members of the board of directors (or, for a non-corporate entity, equivalent governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

A-2

Exhibit B

GENERAL RELEASE

In consideration of the payments and benefits to which Steven Sugarman (the “Executive”) is entitled under the employment agreement entered into by and between the Executive and First PacTrust Bancorp, Inc. (the “Company”), dated as of August 21, 2012 (the “Employment Agreement”), the Executive for himself, his heirs, administrators, representatives, executors, successors and assigns (collectively “Releasors”) does hereby irrevocably and unconditionally release, acquit and forever discharge the Company and its subsidiaries, affiliates and divisions (the “Affiliated Entities”) and their respective predecessors and successors and their respective, current and former, trustees, officers, directors, partners, shareholders, agents, employees, consultants, independent contractors and representatives, including without limitation all persons acting by, through, under or in concert with any of them (collectively, “Releasees”), and each of them from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, remedies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys’ fees and costs) of any nature whatsoever, known or unknown, whether in law or equity and whether arising under federal, state or local law and in particular including any claim for discrimination based upon race, color, ethnicity, sex, age [(including the Age Discrimination in Employment Act of 1967)] ¹ , national origin, religion, disability, or any other unlawful criterion or circumstance, relating to the Executive’s employment or termination thereof, which the Executive and Releasors had, now have, or may have in the future against each or any of the Releasees from the beginning of the world until the date hereof (the “Execution Date”).

[The Executive acknowledges that: (i) this entire General Release is written in a manner calculated to be understood by him; (ii) he has been advised to consult with an attorney before executing this General Release; (iii) he was given a period of [forty-five][twenty-one] days within which to consider this General Release; and (iv) to the extent he executes this General Release before the expiration of the [forty-five][twenty one]-day period, he does so knowingly and voluntarily and only after consulting his attorney. The Executive shall have the right to cancel and revoke this General Release during a period of seven days following the Execution Date, and this General Release shall not become effective, and no money shall be paid hereunder, until the day after the expiration of such seven-day period. The seven-day period of revocation shall commence upon the Execution Date. In order to revoke this General Release, the Executive shall deliver to the Company, prior to the expiration of said seven-day period, a written notice of revocation. Upon such revocation, this General Release shall be null and void and of no further force or effect.] ²

Notwithstanding anything else herein to the contrary, this General Release shall not affect: the obligations of the Company set forth in the Employment Agreement or other obligations that, in each case, by their terms, are to be performed after the date hereof (including, without limitation, obligations to Executive under any stock option, stock award or agreements or obligations under any pension plan or other benefit or deferred compensation plan, all of

¹	Only if ADEA becomes applicable.

²	Only if ADEA becomes applicable.

which shall remain in effect in accordance with their terms); obligations to indemnify the Executive respecting acts or omissions in connection with the Executive’s service as a director, officer or employee of the Affiliated Entities; obligations with respect to insurance coverage under any of the Affiliated Entities’ (or any of their respective successors) directors’ and officers’ liability insurance policies; or any right Executive may have to obtain contribution in the event of the entry of judgment against Executive as a result of any act or failure to act for which both Executive and any of the Affiliated Entities are jointly responsible.

4.	This General Release shall be construed, enforced and interpreted in accordance with and governed by the laws of the State of Maryland, without reference to its principles of conflict of laws.

The Executive represents and warrants that he is not aware of any claim by him other than the claims that are released by this General Release. The Executive further acknowledges that he may hereafter discover claims or facts in addition to or different than those which he now knows or believes to exist with respect to the subject matter of this General Release and which, if known or suspected at the time of entering into this General Release, may have materially affected this General Release and the Executive’s decision to enter into it. Nevertheless, the Executive hereby waives any right, claim or cause of action that might arise as a result of such different or additional claims or facts and the Executive hereby expressly waives any and all rights and benefits confirmed upon him by the provisions of California Civil Code Section 1542, which provides as follows:

6.	“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

7.	Being aware of such provisions of law, the Executive agrees to expressly waive any rights he may have thereunder, as well as under any other statute or common law principles of similar effect in any other jurisdiction determined by a court of competent jurisdiction to apply.

It is the intention of the parties hereto that the provisions of this General Release shall be enforced to the fullest extent permissible under all applicable laws and public policies, but that the unenforceability or the modification to conform with such laws or public policies of any provision hereof shall not render unenforceable or impair the remainder of the General Release. Accordingly, if any provision shall be determined to be invalid or unenforceable either in whole or in part, this General Release shall be deemed amended to delete or modify as necessary the invalid or unenforceable provisions to alter the balance of this General Release in order to render the same valid and enforceable.

9.	This General Release may not be orally canceled, changed, modified or amended, and no cancellation, change, modification or amendment shall be effective or binding, unless in writing and signed by both parties to the General Release.

B-2

10.

In the event of the breach or a threatened breach by the Executive of any of the provisions of this General Release, the Company would suffer irreparable harm, and in addition and supplementary to other rights and remedies existing in its favor, the Company shall be entitled to specific performance and/or injunctive or other equitable relief from a court of competent jurisdiction in order to enforce or prevent any violations of the provisions hereof without posting a bond or other security.

11.	Capitalized terms used but not defined herein shall have the meaning set forth in the Employment Agreement.

B-3

IN WITNESS WHEREOF, the undersigned parties have executed this General Release.


First PacTrust Bancorp, Inc.

By:



[name]
[title]

EXECUTIVE

Voluntarily Agreed to and Accepted this

day of 20

[ ]

B-4

Exhibit 10.12A

STOCK APPRECIATION RIGHT GRANT

This Stock Appreciation Right (“SAR”) is granted on August 21, 2012 (the “Grant Date”), by First PacTrust Bancorp, Inc., a Maryland corporation (the “Company”), to Steven Sugarman (the “Grantee”), in accordance with the following terms and conditions:

1. SAR Grant and Exercise Period . In recognition of prior services provided by the Grantee to the Company, the Company hereby grants to the Grantee a SAR with respect to an aggregate of 500,000 shares (the “SAR Shares”) of the common stock of the Company (“Common Stock”) at a base price equal to $12.12 per share (the “Base Price”), subject to adjustment in accordance with Section 6(b) below. The number of SAR Shares shall be subject to adjustment in accordance with Section 6 below. The SAR shall be settled upon exercise in cash.

This SAR shall be exercisable only during the period (the “Exercise Period”) commencing on (i) the date that is six months and a day following the Grant Date with respect to the first tranche set forth in Section 2 below and (ii) the dates set forth in Section 2 below for the remaining tranches, and ending at 5:00 p.m., Irvine, California time, on the date 10 years after the Grant Date, such later time and date being hereinafter referred to as the “Expiration Date,” subject to earlier vesting and earlier expiration in the event of a Termination of Service, as and to the extent provided in Section 4.

2. Exercise and Settlement of the SAR . The SAR may be exercised during the Exercise Period, with respect to not more than the cumulative number of SAR Shares set forth below, by giving written notice to the Company as hereinafter provided specifying the number of SAR Shares with respect to which the SAR is being exercised.


Cumulative Number of SAR Shares Vested		Date

166,666		Grant Date
166,667		August 21, 2013
166,667		August 21, 2014

The notice of exercise of all or a portion of this SAR shall be in the form prescribed by the Compensation Committee of the Board of Directors of the Company (or such other committee as may be designated by the Board of Directors of the Company) (the “Committee”) and directed to the address set forth in Section 8 below. The date of exercise is the date on which such notice is received by the Company. The SAR represents the right, following exercise, to receive a payment in cash equal to the excess, if any, of the Fair Market Value (as defined in Company’s 2011 Omnibus Plan (the “Plan”)) of one such share of Common Stock on such exercise date over the Base Price, multiplied by the number of SAR Shares with respect to which the SAR is being exercised. The Company will retain from each distribution the amount of cash required to satisfy tax withholding obligations consistent with Article 16 of the Plan and Section 9 of this Agreement.

3. Nontransferability of this SAR . This SAR may not be assigned, encumbered, transferred, pledged or hypothecated except, (i) in the event of the death of the Grantee, by will or the applicable laws of descent and distribution or pursuant to a beneficiary designation as described below, or (ii) pursuant to a “domestic relations order,” as defined in Section 414(p)(1)(B)

of the Internal Revenue Code of 1986, as amended (the “Code”), or (iii) in a gift to any member of the Grantee’s immediate family or to a trust for the benefit of one or more of such immediate family members. During the lifetime of the Grantee, this SAR shall be exercisable only by the Grantee or a person acting with the legal authority of the Grantee unless it has been transferred as permitted hereby, in which case it shall be exercisable only by such transferee. For the purpose of this Section 3, the Grantee’s “immediate family” shall mean the Grantee’s spouse, children and grandchildren.

From time to time, by signing a form furnished to the Company, the Grantee may designate any legal or natural person or persons (who may be designated contingently or successively) to whom to transfer the unexercised portion this SAR if the Grantee were to die prior to the Expiration Date without having exercised such unexercised portion. If the Grantee fails to designate a beneficiary as provided above, or if the designated beneficiary dies before the Grantee or before such unexercised portion is so transferred, such unexercised portion shall be transferred to the Grantee’s estate. For purposes of this SAR, the term “designated beneficiary” means the person or persons designated by Grantee as Grantee’s beneficiary in the last effective beneficiary designation form filed with the Company. The provisions of this SAR shall be binding upon, inure to the benefit of and be enforceable by the parties hereto, the successors and assigns of the Company and any person acting with the legal authority of the Grantee or to whom this SAR is transferred in accordance with this Section 3.

4. Termination of Service of the Grantee .

(a) Upon a termination of the Grantee’s service other than (i) by the Company for Cause (as defined in the Employment Agreement by and between the Company and the Grantee, dated as of August 21, 2012 (the “Employment Agreement”)) or (b) by the Grantee without Good Reason (as defined in the Employment Agreement), the unvested portion of the SAR shall immediately vest in full and, along with the previously vested portion of the SAR, if any, shall remain exercisable for the duration of the term. For the avoidance of doubt, in the event that Grantee’s employment with the Company terminates but the Grantee continues to serve on the Company’s Board of Directors, the Grantee’s employment shall be deemed to have continued for the purposes of the vesting of the unvested portion of the SAR and if the Grantee’s service on the Board of Directors terminates as a result of action by the Company (including by virtue of the Company’s failure to nominate the Grantee for re-election to the Board of Directors), other than a termination for Cause, or a failure of the Company’s shareholders to re-elect the Grantee, each such termination shall be treated as a termination without Cause.

(b) Upon a termination of the Grantee’s employment by the Grantee without Good Reason or a termination of the Grantee’s employment by the Company for Cause, the unvested portion of the SAR shall be forfeited and the vested portion of the SAR shall remain exercisable for the 90-day period immediately following such termination of employment.

5. Change of Control . In the event of a Change of Control (as defined on Exhibit A to this Agreement), the SAR shall become immediately exercisable and, to the extent the SAR is assumed in the applicable transaction, the SAR shall remain exercisable for the duration of the term.

6. Adjustments for Certain Changes in Capitalization of the Company; Dividend Equivalent Rights .

(c) In the event of any increase in the outstanding shares of Common Stock (for the avoidance of doubt, whether voting or nonvoting) after the Grant Date by reason of any issuance of Common Stock not covered by Sections 6(b) (other than those issuances described in the last sentence of this Section 6(a)) (an “Issuance”), the Grantee shall be granted an additional SAR upon consummation of such Issuance with a base price equal to the then-current Fair Market Value of Common Stock (an “Additional SAR”) such that (1) when taking into account such Additional SAR, the percentage of the unexercised (whether vested or unvested) SAR Shares in respect of the initial SAR granted pursuant to this Agreement, such Additional SAR and any other Additional SARs previously granted under this Section 6(a), in each case as of the date of such issuance, relative to the total number of outstanding shares of Common Stock immediately following such Issuance is equal to (2) the percentage of the unexercised (whether vested or unvested) SAR Shares in respect of the initial SAR granted pursuant to this Agreement and any other Additional SARs previously granted under this Section 6(a), in each case as of the date of such issuance, relative to the total number of outstanding shares of Common Stock immediately prior to such Issuance. The Additional SAR granted following an Issuance pursuant to this Section 6(a) shall have the same terms and conditions as the initial SAR granted pursuant to this Agreement, however, the vesting and term shall take into account the Grantee’s service between the Grant Date and the date the Additional SAR is granted. For example, if an Issuance occurs and an Additional SAR is granted 18 months following the Grant Date, two-thirds (2/3) of such Additional SAR shall be vested and exercisable and the Additional SAR shall have 102 months remaining on its term. For the avoidance of doubt, no Additional SARs shall be granted under this Section 6 in the event that there is an increase in the number of outstanding shares of Common Stock solely due to the issuance of Common Stock as or in settlement of equity awards to employees, directors or independent contractors of the Company or its Affiliates for compensatory purposes, including upon the granting of restricted stock, the settlement of restricted stock units or the exercise of stock options.

(d) The Base Price and the number of SAR Shares as to which the SAR may be exercised (for the avoidance of doubt, including with respect to unvested SAR Shares) are subject to adjustment from time to time upon occurrence of the events set forth in this Section 6(b).

(i) If after the Grant Date the number of outstanding shares of Common Stock (for the avoidance of doubt, whether voting or nonvoting) is increased by a stock dividend payable in shares of Common Stock, or by a split-up of shares of Common Stock, or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the SAR Shares as to which the SAR may be exercised shall be increased in proportion to such increase in outstanding shares of Common Stock.

(ii) If after the Grant Date the number of outstanding shares of Common Stock (for the avoidance of doubt, whether voting or nonvoting) is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Common Stock, or other similar event, then, on the effective date of such consolidation, combination, reverse stock split or reclassification of

shares of Common Stock, or other similar event, the SAR Shares as to which the SAR may be exercised shall be decreased in proportion to such increase in outstanding shares of Common Stock.

(iii) If after the Grant Date the Company distributes to holders of its Common Stock any of its assets (other than cash, which is covered by Section 6(c) below) or debt securities or any rights, options or warrants to purchase debt securities, assets or other securities of the Company (other than Common Stock), the Base Price shall be adjusted in accordance with the following formula:


		P’ = P ÷ (M/(M-F))

where:

		P’ = the Base Price immediately following the adjustment to the Base Price pursuant to this Section 6(b)(iii).

		P = the Base Price immediately preceding the adjustment to the Base Price pursuant to this Section 6(b)(iii).

		M = the Last Reported Sales Price (as defined herein) per share of Common Stock on the business day immediately preceding the Announcement Date.

		F = the fair market value (as determined in good faith by the Board of Directors (or the Compensation Committee thereof) and evidenced by resolutions) on the Announcement Date for such distribution of the assets, securities, options, rights or warrants distributable to one share of Common Stock after taking into account, in the case of any rights, options or warrants, the consideration required to be paid upon exercise thereof.

		“Announcement Date” shall mean the day on which a distribution covered by this Section 6(b)(iii) is announced to the general public. “Last Reported Sales Price” of Common Stock on any particular date means: (1) if the Common Stock is listed or admitted for trading on a national securities exchange, the last reported sales price reported on the date in question in the composite transactions for the exchange on which the Common Stock is so listed or admitted; (2) if (1) does not apply and the Common Stock is traded on the OTC Bulletin Board, the last quoted bid price as of the date in question in the over-the-counter market as reported by the OTC Bulletin Board; (3) if (1) and (2) do not apply and the Common Stock is quoted in the over-the-counter market as reported in the “pink sheets”, the last quoted bid price as of the date in question; or (4) if (1), (2) and (3) do not apply and the Last Reported Sales Price cannot be calculated on a particular date on any of the foregoing bases, the Last Reported Sales price shall be determined by the Board of Directors or the Committee and evidenced by resolutions thereof.

The adjustment shall be made successively whenever any such distribution is made and shall become effective immediately prior to the ex-dividend date for such distribution. This subsection (iii) does not apply to any dividends or distributions made in connection with, or as part of any of

the actions contemplated by subsections (i), (ii) or (iv) of this Section 6(b) or Section 6(c) below. If any adjustment is made pursuant to this subsection (iii) as a result of the issuance of rights, options or warrants and at the end of the period during which any such rights, options or warrants are exercisable, not all such rights, options or warrants shall have been exercised, the SAR shall be immediately readjusted as if “F” in the above formula was the fair market value (as determined in good faith by the Board of Directors or the Committee and evidenced by resolutions thereof) on the dividend date for such distribution of the indebtedness or assets actually distributed upon exercise of such rights, options or warrants divided by the number of shares of Common Stock outstanding on the dividend date for such distribution.

(iv) Subject in all cases to Section 5, in the event that the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is any change whatsoever in, or distribution with respect to, the outstanding Common Stock (for the avoidance of doubt, whether voting or nonvoting)), or sell, transfer or otherwise dispose of all or substantially all of its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, (1) shares of common stock of the successor or acquiring corporation or of the Company (if it is the surviving corporation) or (2) any cash, shares of stock or other securities, assets, property or indebtedness of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (“ Other Property ”) are to be received by or distributed to the holders of Common Stock who are holders immediately prior to such transaction, then the Grantee shall have the right thereafter to receive, upon exercise of the SAR the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of notional shares of Common Stock covered by the SAR immediately prior to such event (for the avoidance of doubt, (x) including with respect to SAR Shares that are not yet vested pursuant to the terms hereof, and (y) only taking into account the difference between the Fair Market Value and the Base Price). In the event of receipt of shares of common stock of the successor or acquiring corporation or of the Company and Other Property, the aggregate Base Price otherwise payable for the shares of Common Stock issuable upon exercise of the SAR shall be allocated among the shares of common stock and Other Property receivable as a result of such reorganization, reclassification, merger, consolidation or disposition of assets in proportion to the respective fair market values of such shares of common stock and Other Property as determined in good faith by the Board of Directors or the Committee and evidenced by resolutions thereof. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of the SAR to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be reasonably deemed appropriate (as determined in good faith by the Board of Directors or the Committee and evidenced by resolutions thereof) in order to provide for adjustments of any shares of the common stock of such successor or acquiring corporation to which the SAR then relates, with modifications which shall be as equivalent as practicable to the adjustments provided for in this Section 6. For purposes of this Section 6(b)(iv), “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class that is not preferred as to dividends or assets over any other class of stock of such corporation and that is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities that are convertible into

or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 6(b)(iv) shall similarly apply to successive reorganizations, reclassification, mergers, consolidations or disposition of assets and shall apply to any securities to be received as a result of the foregoing.

(v) Whenever the number of SAR Shares is adjusted, as provided in this Section 6(b), the Base Price shall be adjusted (rounded up to the next whole cent) by multiplying such Base Price immediately prior to such adjustment by a fraction (1) the numerator of which shall be the number of SAR Shares with respect to which the SAR is exercisable upon the exercise of the SAR immediately prior to such adjustment (for the avoidance of doubt, including with respect to SAR Shares that are not yet vested pursuant to the terms hereof), and (ii) the denominator of which shall be the number of SAR Shares with respect to which the SAR is exercisable upon the exercise of the SAR immediately after such adjustment (for the avoidance of doubt, including with respect to SAR Shares that are not yet vested pursuant to the terms hereof).

(e) To the extent that the Company makes any dividend distribution to the holders of its Common Stock: (i) that is payable in cash; (ii) that constitutes a distribution of the retained earnings of the Company (as determined in good faith by the Company’s Board of Directors in accordance with generally accepted accounting principles); and (iii) for which the record date (the “Record Date”) is after the Grant Date and prior to the earlier of (A) the date on which Grantee has exercised all of the SAR Shares granted hereunder, or (B) the date on which the SAR expires hereunder, then: (1) on the date of any such dividend distribution, the Company shall make a cash payment to Grantee, with respect to each SAR Share that has vested on or prior to such Record Date and has not been exercised on or prior to such Record Date, in an amount equal to the product of the amount of the dividend distribution made by the Company with respect to each share of its Common Stock (the “Per Share Dividend Amount”) multiplied by the number of such vested and unexercised SAR Shares; and (2) with respect to any SAR Shares that have not vested as of such Record Date, the Company shall credit to a dividend accrual account an amount (the “Accrued Dividend Amount”) equal to the product of the Per Share Dividend Amount multiplied by the number of such unvested SAR Shares, and the Accrued Dividend Amount with respect to any such unvested SAR Shares will be distributed to Grantee on the date on which the related SAR Shares vest. In the event that any unvested SAR Shares are forfeited in accordance with Section 4 of this Agreement, any unpaid Accrued Dividend Amount would be immediately forfeited.

(f) If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to shareholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment under this Section 6 shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.

(g) Notwithstanding the foregoing provisions of this Section 6, the Board of Directors of the Company or the Committee shall make such equitable and appropriate adjustments to the foregoing provisions of this Section 6 that it shall determine in good faith (and evidenced by resolutions thereof) are necessary to ensure that the adjustments to the SAR made pursuant

to this Section 6 shall be made in such a manner so as to ensure that after such adjustments the SAR continues to be exempt from Section 409A of the Code.

7. Stockholder Rights Not Granted by This SAR . The Grantee is not entitled by virtue hereof to any rights of a stockholder of the Company or to notice of meetings of stockholders or to notice of any other proceedings of the Company.

8. Notices . All notices hereunder to the Company shall be delivered or mailed to it addressed to the Secretary of First PacTrust Bancorp, Inc., 18500 Von Karman Ave, Suite 1100, Irvine, California 92612. Any notices hereunder to the Grantee shall be delivered personally or mailed to the Grantee’s address noted below. Such addresses for the service of notices may be changed at any time provided written notice of the change is furnished in advance to the Company or to the Grantee, as the case may be.

9. Withholding Tax . Where the Grantee or another person is entitled to receive a cash payment pursuant to the exercise of this SAR or an Additional SAR, the Company shall have the right to require the Grantee or such other person to pay to the Company the amount of any taxes which the Company or any of its affiliates is required to withhold with respect to the exercise of such SAR Shares, or in lieu thereof, to retain a sufficient amount of cash to cover the amount required to be withheld.

10. Grantee Service . Nothing in this Agreement shall limit the right of the Company or any of its affiliates to terminate the Grantee’s service as a director, advisory director, or employee, or otherwise impose upon the Company or any of its affiliates any obligation to employ or accept the services of the Grantee.

11. Amendment . The Committee may waive any conditions of or rights of the Company or modify or amend the terms of this Award Agreement; provided, however, that the Committee may not amend, alter, suspend, discontinue or terminate any provision hereof which could reasonably be expected to adversely affect the Grantee without the Grantee’s (or his legal representative’s) written consent.

12. Grantee Acceptance . The Grantee shall signify his acceptance of the terms and conditions of this SAR by signing in the space provided below and returning a signed copy hereof to the Company at the address set forth in Section 8 above.

IN WITNESS WHEREOF, the parties hereto have caused this Award Agreement to be executed as of the date first above written.


FIRST PACTRUST BANCORP, INC.

By:		/s/ Timothy R. Chrisman

ACCEPTED:

/s/ Steven Sugarman
Steven Sugarman

Exhibit A

DEFINITION OF CHANGE OF CONTROL

For the purposes of this Agreement “Change of Control” means:

(iii) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (a) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent governing body), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination

C-1

or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (c) at least a majority of the members of the board of directors (or, for a non-corporate entity, equivalent governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

C-2

Exhibit 10.13

Execution Copy

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is made effective as of September 25, 2012 (the “Effective Date”), by and among First PacTrust Bancorp, Inc., Pacific Trust Bank, FSB, a federally-chartered savings bank, and Beach Business Bank, a California chartered bank (collectively the “Employer”), and Robert M. Franko (the “Employee”).

WITNESSETH:

WHEREAS, Pacific Trust Bank (“PacTrust”) is a wholly-owned subsidiary of First PacTrust Bancorp, Inc., a Maryland corporation (“Bancorp”);

WHEREAS, Employee currently serves as the President of Bancorp;

WHEREAS, Employer is a party to that certain Executive Employment Agreement, dated June 1, 2003 (the “Beach Agreement”), with Beach Business Bank, a California chartered bank and the wholly-owned subsidiary of Bancorp (“Beach”);

WHEREAS, concurrently with, and as a condition of Employer and Employee entering into this Agreement, Employee and Beach are entering into a Mutual Termination Agreement (the “Termination Agreement”) dated as of the date hereof;

WHEREAS, as a result of the Termination Agreement and the effectiveness of this Agreement, all of Employee’s rights and obligations under the Beach Agreement are hereby terminated;

WHEREAS, Employer desires to employ Employee and Employee desires to be employed by Employer upon the terms and subject to the conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereby agree as follows:

1. Employment . Employer hereby agrees to employ Employee to serve as Chief Executive Officer of each of PacTrust and Beach, and Employee hereby accepts employment with Employer upon the terms and conditions herein set forth.

2. Term . The term of employment under this Agreement shall begin on September 25, 2012 (the “Commencement Date”) and shall expire on the date that is three years from the Commencement Date (the “Term End Date”), unless terminated sooner as hereinafter provided or unless extended as provided in the next sentence. Commencing on September 25, 2015, and on each anniversary of such date, the term of this Agreement shall automatically be extended for one additional year unless either party notifies the other party at least ninety (90) days prior to such date or anniversary date that the term of this Agreement will not be extended. Reference herein to the term hereunder shall refer to both the initial term and any extended term hereunder.

3. Duties . Employee will, during the term hereof:

(a)

be employed by Employer on a full-time basis with all such authority, duties and responsibilities as are commensurate with his positions as Chief Executive Officer of each of PacTrust and Beach (the “Bank Subsidiaries”) and as may be consistent with such position, reporting directly to the Boards of Directors of the Bank Subsidiaries and shall perform such other duties and responsibilities on behalf of Bancorp and its affiliates as reasonably may be directed by the Boards of Directors of the Bank Subsidiaries; and

(b)

devote his full business time, energy, and skill to the business of Employer and to the promotion of Employer’s best interests, except for vacations and absences made necessary because of illness, and such professional or industry activities which Employer shall reasonably approve as being in Employer’s interest, including Employee’s service as a member of the Board of Directors of The Independent Bankers Bank.

4. Compensation . During the term of this Agreement, Employer shall pay Employee:

(a)

on the Effective Date, a one-time signing bonus in the form of a grant under the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) of 60,000 shares of restricted voting common stock of Bancorp, which shares shall vest in annual increments of 20% commencing on the Effective Date. The terms of such grant shall be subject to the terms of the final restricted stock agreement evidencing such grant, the form of which shall be attached hereto as Exhibit A (the “Restricted Stock Agreement”). In the event of a conflict between the Restricted Stock Agreement and this Agreement, the terms of the Restricted Stock Agreement shall control.

(b)

a base salary at the rate of $375,000.00 per annum, payable in periodic payments in accordance with Employer’s practices for other executive, managerial, and supervisory employees (but not less frequently than monthly), as such practices may be determined from time to time and subject to customary tax withholdings. The Board of Directors (the “Board”) of Bancorp or the Compensation Committee of the Board of Directors of Bancorp (the “Committee”) will review such base salary at least annually and, in their discretion, may increase such salary.

(c)

additional or special compensation, such as equity awards, incentive pay or bonuses, based upon Employee’s performance, commencing with Employee’s performance in 2012, as the Board or the Committee in their discretion, may from time to time determine. Any amounts payable under this Section 4(c) that constitute “nonqualified deferred compensation” within the meaning of Section 409A (as defined in Section 14(a) of this Agreement) shall be subject to such terms or conditions that satisfy the applicable requirements of Section 409A.

All such payments, and any other compensation provided by Employer to Employee, whether under this Agreement or otherwise, will be subject to such deductions and clawback (recovery) as may be required to be made pursuant to law, government regulation, order, stock exchange listing requirement (or any policy of Employer adopted pursuant to any such law, government regulation, order or stock exchange listing requirement) or by agreement with, or consent of, Employee.

5. Options.

(a)

General . Executive may receive grants of options from Bancorp (the “Grant”) from time to time for his services as an executive at Employer and/or any subsidiary of Employer. Any Grant shall be subject to the terms of a final option agreement evidencing such grant, which shall be attached hereto as Exhibit B (the “Grant Agreement”). In the event of a conflict between the Grant Agreement and this Agreement, the terms of the Grant Agreement shall control.

(b)

Designation of Beneficiary . From time to time, by signing a form furnished to Employer, Employee may designate any legal or natural person or persons (who may be designated contingently or successively) to whom to transfer the Grant if he were to die before he exercised the Grant. If Employee fails to designate a beneficiary as provided above, or if the designated beneficiary dies before Employee or before complete payment, the Grant shall be transferred to the Employee’s estate. For purposes of this Agreement, the term “designated beneficiary” means the person or persons designated by Employee as his beneficiary in the last effective beneficiary designation form filed with Employer, or if Employee has failed to designate a beneficiary, the Employee’s estate.

6. Automobile and Other Expenses . During the term of this Agreement, Employer shall lease and allow Employee use of, one (1) new-condition Chevy Volt automobile (the “Car”). Employee shall be solely responsible for all fuel, maintenance and other similar charges associated with the Employee’s personal non-business use of the Car. Employee shall obtain and constantly maintain in good standing, at Employer’s expense, a comprehensive automobile liability policy in a form reasonably acceptable to Employer (the “Policy”). Employee shall cause the insurance provider of the Policy to list Employer as an additional insured and Employee shall provide Employer with a certificate evidencing the Policy. Any damage or liability caused or associated with Employee’s use of the Car shall be the sole responsibility of Employee. At the conclusion of the term of this Agreement or the expiration of the lease of the Car, whichever occurs first, Employee shall promptly return the Car to Employer in good condition, normal wear and tear excepted. Employee shall be reimbursed for other expenses incurred in connection with Employer’s business in accordance with Employer’s expense reimbursement policy for senior executives.

7. Benefits . Employee shall be entitled to participate in such vacation, life insurance, medical, dental, pension, supplemental disability, retirement plans and other programs as may be approved from time to time by Employer for the benefit of its executive employees.

8. Vacation . Employee shall be entitled to the greater of the accrual of 1.67 days of vacation for each month of service or such other accruals as outlined in Employer’s human resource policies. In the event that the full vacation for any calendar year is not taken by Employee, Employee’s ongoing accrual of vacation will be limited by the maximum level of carryover accrued vacation allowed for in Employer’s then existing policy for the carry forward of accrued vacation.

9. Termination .

(a)

Employee’s employment with Employer shall be terminated (i) by reason of Employee’s death or (ii) by reason of Employee’s becoming permanently disabled for purposes of Employer’s long-term disability program.

(b)

Employer may terminate Employee’s employment hereunder for any reason, with or without Cause, at any time upon notice to Employee.

(c)

Employee may terminate his employment hereunder without Good Reason at any time upon forty-five (45) days’ prior written notice to Employer. In the event of termination of Employee’s employment pursuant to this Section 9(c), Employer may elect to waive the period of notice, or any portion thereof, and, if Employer so elects, Employer will pay Employee his base salary for the period so waived.

(d)

Employee may terminate his employment for Good Reason within ninety (90) days following the occurrence of any condition constituting Good Reason (as defined below), provided that Employee has first provided notice to Employer specifying in reasonable detail the condition giving rise to the Good Reason, Employee has provided Employer with a period of thirty (30) days to remedy the condition (and the notice so specifies), and Employer has failed to remedy the condition within this thirty (30) day period.

(e)

Employer and Employee may also terminate Employee’s employment with Employer by issuing a notice to the other pursuant to Section 2 hereof.

10. Severance Benefits .

(a)

In the event of the termination of Employee’s employment, for any reason, Employee shall be entitled to any Accrued Obligations (as defined herein).

(b)

In the event that Employer terminates Employee’s employment without Cause or Employee resigns with Good Reason, subject to Sections 10(e)-(i) and Section 14, (i) Employee shall be entitled to severance pay equal to One Million Dollars ($1,000,000.00), (ii) the Grant (if Employee has received one), to the extent not theretofore fully vested, shall become fully vested and immediately exercisable in accordance with its terms and (iii) in the event the Employee is not theretofore fully vested in the restricted shares provided under Section 4(a) as a signing bonus, the Employee shall be entitled to be appointed as an advisor of Employer and shall be permitted to continue serving in that capacity until all such restricted shares have vested in full.

(c)

Subject to Section 14, any severance pay to be paid pursuant to Section 10(b) shall be paid in thirty-two (32) equal monthly installments of Thirty-One Thousand Two Hundred Fifty Dollars ($31,250) commencing on the first business day coincident with or next following the sixtieth (60 ^th ) calendar date following Employee’s termination of employment.

(d)

In the event of Employee’s death within 32 months of termination for any reason, all remaining eligible benefits under this section shall be paid to Employee’s designated beneficiary as noted in Section 5(b) of this Agreement.

(e)

Any severance pay to be paid pursuant to Section 10(b) is subject to and conditioned upon Employee signing and delivering (and not revoking) to Employer a general release and waiver (in a form reasonably acceptable to Employer), waiving all claims the Employee may have against Employer, its parents, subsidiaries, successors, assigns, affiliates, and their respective executives, officers and directors relating to Employee’s employment with Employer.

(f)

The payment of the severance pay under Section 10(b) is conditioned upon the Employee’s compliance with the non-solicitation and nondisclosure requirements set forth in Sections 11 and 12 hereof.

(g)

Notwithstanding any other provision of this Agreement to the contrary, if payments under this Agreement, together with any other payments received or to be received by Employee in connection with a “change in control” (for purposes of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)) would cause any amount to be nondeductible for federal income tax purposes pursuant to Section 280G of the Code, then benefits under this Agreement shall be reduced (but not less than zero) to the extent necessary so as to maximize payments to Employee without causing any amount to become nondeductible. Employee shall determine the allocation of such reduction among payments to Employee.

(h)

Notwithstanding any other provision of this Agreement to the contrary, any payments made to Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any regulations promulgated thereunder, including 12 C.F.R. Part 359.

(i)

For purposes of this Agreement:

(A)

“ Accrued Obligations ” means (i) any base salary that Employee has earned but not been paid during or prior to the Employee’s termination of employment, (ii) pay for any vacation time earned but not used through the date of termination, subject to Section 8 of this Agreement, (iii) any business expenses that are reimbursable under Section 6 that were incurred by Employee as of the Employee’s termination of employment but have not been reimbursed on the date of termination, subject to the submission of any required substantiation and documentation, and (iv) any payments or benefits to which Employee or his beneficiary or estate is entitled under the terms of any applicable employee benefit plan.

(B)

Termination for “ Cause ” shall mean termination of the employment of Employee because of Employee’s personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of Bancorp at a meeting or meetings of the Board called and held for such purpose (after reasonable notice to Employee and an opportunity for Employee, together with Employee’s counsel, to be heard before the Board), stating that in the good faith opinion of the Board, Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail. For purposes of this section, the term “incompetence” shall mean inability, as determined by the Board of Directors of Employer in their reasonable judgment, to perform stated duties.

(C)

“ Good Reason ” shall exist if, without Employee’s express written consent, Employer shall:

(1)

assign to Employee duties that are materially inconsistent with that of his position as Chief Executive Officer of the Bank Subsidiaries (including status, offices, title(s) and reporting requirements), or the authority, duties or responsibilities thereof, including professional obligations, or any other action by Employer which results in a material diminution in such position, authority, duties or responsibilities, provided that, Good Reason shall not exist as long as Employee holds the office of President of Bancorp or Chief Executive Officer of either of the Bank Subsidiaries;

(2)

unless required by regulatory authorities, reduce the salary of Employee, or materially reduce the amount of paid vacations to which he is entitled;

(3)

materially breach this Agreement; or

(4)

require Employee to relocate his principal business office outside of the Los Angeles-Orange County metropolitan area or such other area as may be mutually agreeable between Employee and Employer; or assign to Employee duties that would reasonably require such relocation.

11. Nonsolicitation .

(a)

Unless otherwise agreed in writing, during the term of this Agreement, and for a period of thirty-two (32) months following a termination of Employee’s employment with Employer entitling Employee to severance pay under Section 10(b), Employee shall not induce or attempt to induce any individual or entity who was an employee, agent or independent contractor of Employer or any of its affiliates during the period of Employee’s employment hereunder to discontinue providing services to Employer or any of its affiliates.

(b)

Unless otherwise agreed in writing, during the term of this Agreement, and for a period of thirty-two (32) months following a termination of Employee’s employment with Employer entitling Employee to severance pay under Section 10(b), Employee shall not, and will not assist any other person to (a) hire or solicit for hiring any employee of Employer or any of its affiliates or seek to persuade any employee of Employer or any of its affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to Employer or any of its affiliates to terminate or diminish its relationship with them.

12. Nondisclosure of Confidential Information . Employee acknowledges that Employer and its affiliates may disclose confidential information to Employee during the term of this Agreement to enable him to perform his duties hereunder. Employee hereby covenants and agrees that, except as required by law, regulatory directive or judicial order, he will not, without the prior written consent of Employer, during the term of this Agreement or at any time thereafter, disclose or permit to be disclosed to any third party by any method whatsoever any of the confidential information of Employer or any of its affiliates. For purposes of this Agreement, “confidential information” shall include, but not be limited to, any and all records, notes, memoranda, data, ideas, processes, methods, techniques, systems, formulas, patents, models, devices, programs, computer software, writings, research, personnel information, customer information, financial information of Employer or any of its affiliates, plans, or any other information of whatever nature in the possession or control of Employer which has not been published or disclosed to the general public, or which gives to Employer or any of its affiliates an opportunity to obtain an advantage over competitors who do not know of or use it. Employee further agrees that if his employment hereunder is terminated for any reason, he will leave with Employer and will not take originals or copies of any and all records, papers, programs, computer software and documents and all matter of whatever nature containing secret or confidential information of Employer or any of its affiliates.

Employee agrees promptly to reduce to writing and to disclose and assign, and hereby does assign, to Employer, its subsidiaries, successors, assigns and nominees, all inventions, discoveries, improvements, copyrightable material, trademarks, programs, computer software and ideas concerning the same, capable of use in connection with the business of Employer or any of its affiliates, which Employee may make or conceive, either solely or jointly with others, during the period of his employment by Employer, its subsidiaries or successors.

Employee agrees, at Employer’s expense, that upon a request by Employer, to execute, acknowledge and deliver to Employer all such papers, including applications for patents, applications for copyright and trademark registrations, and assignments thereof, as may be necessary, and at all times to assist Employer, its parent, subsidiaries, successors, assigns and nominees in every proper way to patent or register said programs, computer software, ideas, inventions, discoveries, improvements, copyrightable material or trademarks in any and all countries and to vest title thereto in Employer, its parent, subsidiaries, successors, assigns or nominees.

Upon a request by Employer, Employee will promptly report to Employer all discoveries, inventions, or improvements of whatsoever nature conceived or made by him at any time he was employed by Employer, its parent, subsidiaries or successors. All such discoveries, inventions and improvements which are applicable in any way to Employer’s business shall be the sole and exclusive property of Employer.

The covenants set forth in this Section 12 are made by Employee in consideration of the employment, or continuing employment of, and the compensation paid to, Employee during his employment by Employer. The foregoing covenants will not prohibit Employee from disclosing confidential or other information to other employees of Employer or to third parties to the extent that such disclosure is necessary to the performance of his duties under this Agreement.

Any breach of this covenant of nondisclosure will result in the forfeiture by Employee and all other persons acting for or with Employee in any capacity whatsoever of any and all rights to severance pay under Section 10 hereof unpaid at the time of breach and in such event Employer shall have no further obligation to pay any amounts related thereto.

13. Additional Remedies . Employee recognizes that his services hereunder are of a personal, special, unique and extraordinary character and irreparable injury will result to Employer and to its business and properties in the event of any breach by Employee of any of the provisions of Sections 11 and 12 of this Agreement or either of them, and that Employee’s continued employment is predicated on the commitments undertaken by him pursuant to said Sections. In the event of any breach of any of Employee’s commitments pursuant to Sections 11 and 12 or either of them, Employer shall be entitled, in addition to any other remedies and damages available, to injunctive relief to restrain the violation of such commitments by Employee or by any person or persons acting for or with Employee in any capacity whatsoever.

14. Section 409A .

(a)

Notwithstanding anything to the contrary in this Agreement, if at the time of Employee’s termination of employment, Employee is a “specified employee,” as defined below, any and all amounts payable under Section 10 on account of such termination of employment that constitute “nonqualified deferred compensation” under Section 409A of Code and the regulations and guidance of general applicability issued thereunder (“Section 409A”) and would (but for this provision) be payable within six (6) months following the date of termination, shall instead be paid on the next business day following the expiration of such six (6) month period or, if earlier, upon Employee’s death, in each case, with interest from the date on which payment would otherwise have been made, calculated at the applicable federal rate provided under Section 7872(f)(2)(A) of the Code. If Employee receives compensation under Section 10 that can in part be treated as paid under a “separation pay plan” described in Treasury Regulation Section 1.409A-1(b)(9) then, to the extent permitted under Section 409A, the compensation shall be treated as first made from the separation pay plan.

(b)

For purposes of Section 10 of this Agreement, all references to “termination of employment” and correlative phrases shall be construed to require a “separation from service” (as defined in Treasury regulation Section 1.409A-1(h) after giving effect to the presumptions contained therein), and the term “specified employee” means an individual determined by Employer to be a specified employee under Treasury regulation Section 1.409A-1(i) in accordance with the policies of Employer.

(c)

Each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.

(d)

Any amount that Executive is entitled to be reimbursed or to have paid on his behalf under this Agreement that would constitute nonqualified deferred compensation subject to Section 409A shall be subject to the following additional rules: (i) no reimbursement of any such expense shall affect the Executive’s right to reimbursement of any such expense in any other taxable year; (ii) reimbursement of the expense shall be made, if at all, promptly, but not later than the end of the calendar year following the calendar year in which the expense was incurred; and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.

(e)

The parties acknowledge and agree that, to the extent applicable, this Agreement shall be interpreted in accordance with Section 409A and the Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued in the future. The parties shall cooperate in good faith and take all steps reasonably necessary and practicable consistent with the terms of this Agreement to comply with the requirements of Section 409A in order to avoid income inclusion under Section 409A or the imposition of taxes thereunder.

15. Reserved .

16. Adjustments to Comply with Final Interagency Guidance on Sound Incentive Compensation Policies . Notwithstanding anything herein to the contrary, the compensation or benefits provided under this Agreement are subject to modification, as necessary to comply with requirements imposed by Bancorp’s Board of Directors to comply with the “Final Interagency Guidance on Sound Incentive Compensation Policies” issued on an interagency basis by the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision, effective June 25, 2010, or any amendment , modification or supplement thereto, which shall be deemed to include, without limitation, any rules adopted pursuant to Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

17. Provisions Required By Law . Notwithstanding anything herein to the contrary, any provisions that are now or are in the future required by applicable law, rule, regulation or regulatory guidance or policy of general applicability to be included in this Agreement that are not expressly stated herein (including, without limitation, any provisions so required under 12 C.F.R. Section 163.39) shall be deemed to be a part of this Agreement as fully as if such provisions were expressly stated herein.

18. No Duplication of Employer Obligations . With respect to any payments or other compensation to be provided hereunder by Employer, the provision of such payments or other compensation by the Bank shall be deemed to reduce, to the same extent, the obligation of Bancorp to provide such payments or other compensation, and vice versa.

19. Assignment; Benefit . No party shall have the right to assign this Agreement or any rights or obligations hereunder without the consent of each of the other parties; provided, however, that Employer may assign its rights and obligations hereunder (i) to any entity controlled by, under the control of, or under common control with, Employer (as long as such entity is no less capable of fulfilling the obligations of Employer hereunder), or (ii) to any successor to Employer upon any liquidation, dissolution or winding up of Employer, upon any merger or consolidation of Employer or upon any sale of all or substantially all of the assets of Employer (as long as such successor is capable of fulfilling the obligations of Employer hereunder).

20. Waiver . Failure of any party hereto at any time to require performance by any other party of any provision of this Agreement shall in no way affect the rights of such first party to require performance of that provision, and any waiver by any party hereto of any provision of this Agreement shall not be construed as a waiver of any continuing or succeeding breach of such provision, a waiver of the provision itself, or a waiver of any rights under this Agreement.

21. Severability . If any clause, phrase, provision or portion of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Agreement and shall not affect the application of any clause, provision, or portion hereof to other persons or circumstances.

22. Benefits . The provisions of this Agreement shall inure to the benefit of Employer, its successors and assigns, and shall be binding upon Employer and Employee, its and his heirs, personal representatives and successors including without limitation Employee’s estate and the executors, administrators, or trustees of such estate.

23. Relevant Law . To the extent not governed by the Federal laws of the United States of America, this Agreement shall be construed and enforced in accordance with the laws of the State of California. Any dispute between the parties hereto not relating to the enforcement of Section 11 or Section 12 hereof shall be settled by arbitration in California in accordance with the then applicable rules of the American Arbitration Association and judgment upon the award rendered may be entered in any court having jurisdiction thereof.

24. Notices . All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or two of Employer’s business days after mailing at any general or branch United States Post Office, by registered or certified mail postage prepaid, addressed as follows, or to such other address as shall have been designated in writing by the addressee:

If to Employer:

First PacTrust Bancorp, Inc.

18500 Von Karman, Suite 1100

Irvine, California 92612

Attention: Chief Executive Officer

If to Employee:

Robert M. Franko

c/o Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

25. Entire Agreement . This Agreement sets forth the entire understanding of the parties and supersedes all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subject matter hereof, and this Agreement shall not be modified or amended except by written agreement of Employer and Employee.

26. Captions . The headings and captions hereof are for convenience only and shall not affect the construction of this Agreement.

27. Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall constitute but one and the same Agreement, which shall be sufficiently evidenced for all purposes by any one executed counterpart.

28. Construction . Employer and the Employee acknowledge that this Agreement was the result of arms-length negotiations between sophisticated parties each represented by legal counsel. Each and every provision of this Agreement shall be construed as though both parties participated equally in the drafting of same, and any rule of construction that a document shall be construed against the drafting party shall not be applicable to this Agreement.

29. Survival . The obligations contained in this Agreement shall survive the termination of Employee’s employment with Employer or expiration of this Agreement as necessary to carry out the intentions of the parties as described herein.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above.


Employer

First PacTrust Bancorp, Inc.

By:		/s/ Steven Sugarman
		Name:
		Title: Chief Executive Officer

Pacific Trust Bank, FSB

By:		/s/ Steven Sugarman
		Name:
		Title: Director

Beach Business Bank

By:		/s/ Steven Sugarman
		Name:
		Title: Director

Employee

/s/ Robert M. Franko
Robert M. Franko

EXHIBIT A

FORM OF RESTRICTED STOCK AGREEMENT

FIRST PACTRUST BANCORP, INC.

2011 OMNIBUS INCENTIVE PLAN

RESTRICTED STOCK AGREEMENT

RS No.

Shares of Restricted Stock are hereby awarded on September 25, 2012 by First PacTrust Bancorp, Inc., a Maryland corporation (the “Corporation”), to Robert M. Franko (the “Grantee”) in accordance with the following terms and conditions:

1. Share Award . In accordance with Section 4(a) of the Employment Agreement by and among the Corporation, Pacific Trust Bank, Beach Business Bank and the Grantee dated as of the date hereof (the “Employment Agreement”), the Corporation hereby awards to the Grantee 60,000 shares (the “Shares”) of the voting common stock of the Corporation (“Common Stock”) pursuant to the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan, as the same may be amended from time to time (the “Plan”), and upon the terms and conditions and subject to the restrictions in the Plan and as hereinafter set forth. A copy of the Plan, as currently in effect, is incorporated herein by reference and is attached hereto. Capitalized terms used herein which are not defined in this Agreement shall have the meaning ascribed to such terms in the Plan.

2. Restrictions on Transfer and Restricted Period . Except as otherwise provided in Section 3 or Section 8 of this Agreement, during the period (the “Restricted Period”) commencing on the date of this Agreement and terminating on September 25, 2017, Shares with respect to which the Restricted Period has not lapsed may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by the Grantee. Shares with respect to which the Restricted Period has lapsed shall sometimes be referred to herein as “Vested.”

Except as otherwise provided in Section 3 or Section 8 of this Agreement and subject to Section 10(b) of the Employment Agreement, provided that the Grantee is then serving as a Director or an Employee of the Corporation or any Subsidiary, Shares shall become Vested in accordance with the following schedule:


Date of Vesting	Number of Shares Vested

September 25, 2012		12,000
September 25, 2013		12,000
September 25, 2014		12,000
September 25, 2015		12,000
September 25, 2016		12,000

3. Termination of Service . Upon the termination of the Grantee’s service, the Shares shall become forfeited or Vested, as the case may be, as and to the extent provided in Sections 8.9 and 8.10 of the Plan, subject to Section 10(b) of the Employment Agreement, if applicable under the circumstances of the termination of the Grantee’s service.

4. Issuance of the Shares . Promptly after the date of this Agreement, the Corporation shall recognize the Grantee’s ownership of the Shares through (i) a crediting of the Shares to a book entry account maintained by the Corporation (or its transfer agent or other designee) for the benefit of the Grantee, with appropriate electronic notation of the restrictions on transfer provided herein, or another similar method, or (ii) the issuance of a certificate representing the Shares in the name of the Grantee, bearing any legend that the Corporation deems appropriate to reflect the restrictions on transfer provided herein, to be held in custody by the Corporation or its designee for the benefit of the Grantee until the Shares represented thereby become Vested.

The Grantee agrees that simultaneously with the execution of this Agreement, the Grantee shall execute the stock power attached hereto and that the Grantee shall promptly deliver such stock power to the Corporation. The Grantee further agrees to execute and deliver any and all additional stock powers and/or other instruments as the Corporation from time to time requests as it may, in its judgment, deem to be advisable to fulfill the purposes of this Agreement.

5. Grantee’s Rights . Subject to all limitations provided in this Agreement, the Grantee, as owner of the Shares during the Restricted Period, shall have all the rights of a stockholder, including, but not limited to, the right to receive all dividends and other distributions paid on the Shares and the right to vote such Shares. If any such dividends or distributions are paid in shares of Common Stock, such shares of Common Stock shall be subject to the same restrictions then applicable to the Shares with respect to which they were paid.

6. Vesting . Upon Shares becoming Vested, the Corporation shall release such Shares to the Grantee (i) by appropriate transfer to an unrestricted book entry account maintained by the Corporation (or its transfer agent or other designee) for the benefit of the Grantee (or, if the Grantee is deceased, to the Grantee’s legal representative) or by other appropriate electronic notation of the lapse or expiration of the Restricted Period with respect to such Shares, (ii) by delivering to the Grantee (or, if the Grantee is deceased, to the Grantee’s legal representative) a certificate issued in respect of such Shares (without any legend contemplated by Section 4 above), or (iii) by any other means deemed appropriate by the Corporation.

7. Adjustments for Changes in Capitalization of the Corporation . In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split up, share combination or other change in the corporate structure of the Corporation affecting the shares of the Corporation’s Common Stock, such adjustment shall be made in the number and class of shares subject to this Agreement as shall be determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights, provided that the number of shares covered by this Agreement shall always be a whole number.

8. Effect of Change in Control . If a Change in Control shall occur, all previously unvested Shares shall become Vested in full. Notwithstanding the foregoing, no Shares which have previously been forfeited shall thereafter become Vested.

9. Delivery and Registration of Shares of Common Stock . The Corporation’s obligation to deliver the Shares hereunder shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the Grantee or any other person to whom such Shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions of the Securities Act of 1933, as amended (the “Securities Act”), or any other Federal, state or local securities regulation. It may be provided that any representation requirement shall become inoperative upon a registration of such shares or other action eliminating the necessity of such representation under such Securities Act or other securities regulation. The Corporation shall not be required to deliver any shares of Common Stock hereunder prior to (i) the admission of such shares to listing on any stock exchange or automated quotation system on which the shares of Common Stock may then be listed or quoted and (ii) the completion of such registration or other qualification of such shares under any state or Federal law, rule or regulation, as the Committee shall determine to be necessary or advisable.

10. Plan and Plan Interpretations as Controlling . The Shares hereby awarded and the terms and conditions herein set forth are subject in all respects to the terms and conditions of the Plan, which are controlling. All determinations and interpretations made in the discretion of the Committee shall be binding and conclusive upon the Grantee or the Grantee’s legal representatives with regard to any question arising hereunder or under the Plan.

11. Grantee Service . Nothing in this Agreement shall interfere with or limit in any way the right of the Corporation or any Subsidiary to terminate the Grantee’s employment or service at any time, nor confer upon the Grantee any right to continue in the employ or service of the Corporation or any Subsidiary.

12. Withholding Tax . Upon Shares becoming Vested (or at any such earlier time, if any, that an election is made by the Grantee under Section 83(b) of the Code, or any successor provision thereto), the Corporation may withhold from any payment or distribution made hereunder sufficient Shares to cover any applicable withholding and employment taxes, or require the Grantee to remit to the Company an amount sufficient to satisfy such taxes. The Corporation shall have the right to deduct from all dividends paid with respect to Shares the amount of any taxes which the Corporation is required to withhold with respect to such dividend payments, or require the Grantee to remit to the Company an amount sufficient to satisfy such taxes.

13. Grantee Acceptance . The Grantee shall signify the Grantee’s acceptance of the terms and conditions of this Agreement by signing in the space provided below, by signing the attached stock power, and by returning a signed copy hereof and of the attached stock power to the Corporation.

[Signature page follows]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.


		FIRST PACTRUST BANCORP, INC.

By:		/s/ Steven Sugarman

		ACCEPTED:

		/s/ Robert M. Franko
		Robert M. Franko


		(Street Address)


		(City, State & Zip Code)

STOCK POWER

For value received, I hereby sell, assign, and transfer to First PacTrust Bancorp, Inc. (the “Corporation”) all shares of the voting common stock of the Corporation, standing in my name on the books and records of the Corporation (whether in certificated form or book-entry or similar form), that are issued to me pursuant to that certain Restricted Stock Agreement, dated September 25, 2012, to which the Corporation and I are parties (as the same may from time to time be amended, the “Agreement”), and do hereby irrevocably constitute and appoint the Secretary of the Corporation attorney, with full power of substitution, to transfer this stock on the books and records of the aforesaid Corporation. To the extent the restrictions on transfer of any portion of such shares under the Agreement have lapsed or expired, this Stock Power shall cease to be of legal effect with respect to that portion of such shares following their release to me, free of restriction, as provided in the Agreement.

/s/ Robert M. Franko

Robert M. Franko

Dated: September 25, 2012

In the presence of:

EXHIBIT B

FORM OF STOCK OPTION AGREEMENT

FIRST PACTRUST BANCORP, INC.

2011 OMNIBUS INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

NQSO NO.

This Option is granted on [ ] (the “Grant Date”) by First PacTrust Bancorp, Inc., a Maryland corporation (the “Corporation”), to Robert M. Franko (the “Optionee”) in accordance with the following terms and conditions:

1. Option Grant and Exercise Period . In accordance with Section 5(a) of the Employment Agreement by and among the Corporation, Pacific Trust Bank, Beach Business Bank and the Optionee dated as of the date hereof (the “Employment Agreement”), the Corporation hereby grants to the Optionee a Non-Qualified Stock Option (“Option”) to purchase, pursuant to the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan, as the same may be amended from time to time (the “Plan”), and upon the terms and conditions therein and hereinafter set forth, an aggregate of shares (the “Option Shares”) of the voting common stock of the Corporation (“Common Stock”) at the price of $ per share (the “Exercise Price”). A copy of the Plan, as currently in effect, is incorporated herein by reference and is attached to this Agreement. Capitalized terms used herein which are not defined in this Agreement shall have the meanings ascribed to such terms in the Plan.

This Option shall be exercisable only during the period (the “Exercise Period”) commencing on the date(s) set forth in Section 2 below, and ending at 5:00 p.m., Pacific time, on the date 10 years after the Grant Date, such later time and date being hereinafter referred to as the “Expiration Date,” subject to earlier vesting and/or earlier expiration pursuant to Sections 5 and 7 below.

2. Method of Exercise of This Option . This Option may be exercised during the Exercise Period with respect to not more than the cumulative number of Option Shares set forth below on or after the date(s) indicated, by giving written notice to the Corporation as hereinafter provided specifying the number of Option Shares to be purchased.


Cumulative Number of Option Shares Exercisable		Date

The notice of exercise of this Option shall be in the form prescribed by the Committee and directed to the address set forth in Section 10 below. The date of exercise is the date on which such notice is received by the Corporation. Such notice shall be accompanied by payment in full of the aggregate Exercise Price for the Option Shares to be purchased upon such exercise. Payment shall be made (i) in cash or its equivalent, (ii) by tendering previously acquired shares of Common Stock having an aggregate Fair Market Value at the time of exercise equal to the aggregate Exercise Price or (iii) by a combination of (i) and (ii). In addition, the Corporation may establish a cashless exercise program in accordance with applicable laws and regulations. Promptly after such payment, subject to Section 3 below, the Corporation shall issue and deliver to the Optionee or other person exercising this Option a certificate or certificates representing the shares of Common Stock so purchased, registered in the name of the Optionee (or such other person), or, upon request, in the name of the Optionee (or such other person) and in the name of another in such form of joint ownership as requested by the Optionee (or such other person) pursuant to applicable state law. In lieu of issuing a certificate or certificates representing the shares of Common Stock so purchased, the Corporation may cause such shares to be credited to a book entry account maintained by the Corporation (or its transfer agent or other designee) for the benefit of the Optionee or other person exercising this Option, including any joint owner as provided in the immediately preceding sentence.

3. Delivery and Registration of Shares of Common Stock . The Corporation’s obligation to deliver shares of Common Stock hereunder shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the Optionee or any other person to whom such shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions of the Securities Act of 1933, as amended (the “Securities Act”), or any other Federal, state or local securities law or regulation. In requesting any such representation, it may be provided that such representation requirement shall become inoperative upon a registration of such shares or other action eliminating the necessity of such representation under the Securities Act or other securities law or regulation. The Corporation shall not be required to deliver any shares upon exercise of this Option prior to (i) the admission of such shares to listing on any stock exchange or system on which the shares of Common Stock may then be listed and (ii) the completion of such registration or other qualification of such shares under any state or Federal law, rule or regulation, as the Committee shall determine to be necessary or advisable.

4. Nontransferability of This Option . This Option may not be sold, transferred, pledged assigned or otherwise alienated or hypothecated, other than: (i) upon the Optionee’s death, to the person designated as the Optionee’s Beneficiary or, if no Beneficiary has been properly designated by the Optionee, by will or by the laws of descent and distribution, (ii) pursuant to a Qualified Domestic Relations Order or (iii) by gift to any member of the Optionee’s immediate family or to a trust for the benefit of one or more of the Optionee’s immediate family members. During the lifetime of the Optionee, this Option shall be exercisable only by the Optionee or a person acting with the legal authority of the Optionee unless it has been transferred as permitted hereby, in which case it shall be exercisable only by such transferee. For the purpose of this Section 4, an Optionee’s “immediate family” shall mean the Optionee’s spouse, children and grandchildren.

In the event this Option is transferred as permitted by this Section 4, the person to whom this Option has been transferred may exercise this Option to the extent this Option would have been exercisable by the Optionee if the Option were not so transferred. The provisions of this Option shall be binding upon, inure to the benefit of and be enforceable by the parties hereto, the successors and assigns of the Corporation and any person acting with the legal authority of the Optionee or to whom this Option is transferred in accordance with this Section 4.

5. Termination of Service; Expiration . The exercisability of this Option following a termination of the service of the Optionee shall be as and to the extent provided in Sections 6.8 and 6.9 of the Plan, subject to acceleration of vesting under Section 10(b) of the Employment Agreement, if applicable under the circumstances of the termination of the Optionee’s service. In no event shall this Option be exercisable following the Expiration Date.

6. Adjustments for Changes in Capitalization of the Corporation . In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, share combination or other change in the corporate structure of the Corporation affecting the shares of the Corporation’s Common Stock, such adjustment shall be made in the number and class of shares covered by this Option and Exercise Price of this Option as shall be determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights; and provided that the number of shares subject to this Option shall always be a whole number.

7. Effect of Change in Control . If a Change in Control shall occur, this Option shall (to the extent it is not then so exercisable) become exercisable in full and remain so exercisable for the remainder of its term, subject to Sections 6.8 and 6.9 of the Plan. Notwithstanding the foregoing this Option shall not become exercisable to the extent that it has previously been exercised or otherwise terminated.

8. Stockholder Rights Not Granted by This Option . The Optionee is not entitled by virtue hereof to any rights of a stockholder of the Corporation or to notice of meetings of stockholders or to notice of any other proceedings of the Corporation.

9. Withholding Tax . The Corporation shall have the power and the right to deduct or withhold, or require the Optionee to remit to the Corporation, an amount sufficient to satisfy Federal, state and local taxes (including the Optionee’s FICA obligation) required by law to be withheld with respect to this Option.

10. Notices . All notices hereunder to the Corporation shall be delivered or mailed to it addressed to the Secretary of First PacTrust Bancorp, Inc., 18500 Von Karman Avenue, Suite 1100, Irvine, California 92612. Any notices hereunder to the Optionee shall be delivered personally or mailed to the Optionee’s address noted below. Such addresses for the service of notices may be changed at any time provided written notice of the change is furnished in advance to the Corporation or to the Optionee, as the case may be.

11. Plan and Plan Interpretations as Controlling . This Option and the terms and conditions herein set forth are subject in all respects to the terms and conditions of the Plan, which are controlling. All determinations and interpretations made in the discretion of the Committee shall be final and conclusive upon the Optionee or the Optionee’s legal representatives with regard to any question arising hereunder or under the Plan.

12. Optionee Service . Nothing in this Agreement shall interfere with or limit in any way the right of the Corporation or any Subsidiary to terminate the Optionee’s employment or service at any time, nor confer upon the Optionee any right to continue in the employ or service of the Corporation or any Subsidiary.

13. Optionee Acceptance . The Optionee shall signify his acceptance of the terms and conditions of this Option by signing in the space provided below and returning a signed copy hereof to the Corporation at the address set forth in Section 10 above.

[Signature page follows]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.


		FIRST PACTRUST BANCORP, INC.

By:		/s/ Steven Sugarman

		ACCEPTED:

		/s/ Robert M. Franko
		Robert M. Franko


		(Street Address)


		(City, State and Zip Code)

Exhibit 10.13A

Execution Copy

September 25, 2012

Mr. Robert Franko

c/o Beach Business Bank

1230 Rosecrans Avenue, Suite 100

Manhattan Beach, California 90266

RE:

Executive Employment Agreement (the “Employment Agreement”), dated June 1, 2003, between Doctors’ Bancorp, predecessor-in-interest to Beach Business Bank (“Beach Bank”) and Robert M. Franko (“You”).

Dear Robert,

This Mutual Termination and Release Letter Agreement (this “Letter”) confirms that You and Beach Bank agree that, subject to satisfaction of certain agreements as described below (the “Termination Agreements”), the Employment Agreement shall be terminated in its entirety effective as of the date hereof. Execution and delivery of this Letter is a condition precedent to the effectiveness of that certain Employment Agreement, dated effective as of the date hereof, between and among You, First PacTrust Bancorp, Inc., Beach Bank, and Pacific Trust Bank, FSB, a federally-chartered savings bank.

The Termination Agreements consist solely of (i) Beach’s reasonable best efforts to assist you to personally assume the $2,000,000 Key Man Term Life Insurance Policy maintained by Beach, in which Beach is currently the named beneficiary, and (ii) Beach’s agreement to pay You the cash value of accrued but unused vacation days as of the date hereof.

By this Letter, other than the Termination Agreements, each of You and Beach Bank hereby fully and forever releases and discharges the other party, and each of their respective representatives, agents, heirs, executors and assigns, and their current and former officers, directors, managers, employees, shareholders, predecessor companies, successors and assigns (the “Released Parties”), and each of them, separately and collectively, from any claims, duties, obligations, causes of action, losses, agreements, grievances or debts relating to any matters of any kind or nature whatsoever, whether at law or in equity, fixed or contingent, presently known or unknown, suspected or unsuspected, contingent or non-contingent, that You or Beach Bank, as applicable, has ever had, now has, or may have in the future against any of the Released Parties, relating to the Employment Agreement and the employment relationship between You and Beach Bank.

You and Beach Bank hereby expressly waive any and all rights and benefits conferred upon each of them by the provisions of Section 1542 of the California Civil Code with respect to the foregoing released claims, which provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

You and Beach Bank expressly acknowledge the foregoing waiver of the provisions of Section 1542 of the California Civil Code.

If You are in agreement with the terms set forth in this Letter, please acknowledge the same by signing this Letter as provided below and returning your signed copy of this letter agreement to Beach Bank.


Very Truly Yours,

	Beach Business Bank

	By:	/s/ Steven Sugarman
	Name:
	Title:	Director

Agreed and Accepted:

/s/ Robert M. Franko

Robert M. Franko

Exhibit 10.14A

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is made effective as of August 22, 2012 (the “Effective Date”), by and among First PacTrust Bancorp, Inc., a Maryland corporation (“Bancorp” or “Employer”) and John C. Grosvenor (“Employee”).

WITNESSETH:

WHEREAS, Employer desires to employ Employee and Employee desires to be employed by Employer upon the terms and subject to the conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereby agree as follows:

1. Employment . Employer hereby agrees to employ Employee as Executive Vice President and General Counsel, and Employee hereby accepts employment with Employer upon the terms and conditions herein set forth.

2. Term . The term of employment under this Agreement shall begin on August 22, 2012 (the “Commencement Date”) and shall expire on the date that is three years from the Commencement Date (the “Term End Date”), unless terminated sooner as hereinafter provided or unless extended as provided in the next sentence. Commencing on August 22, 2015, and on each anniversary of such date, the term of this Agreement shall automatically be extended for one additional year unless either party notifies the other party at least ninety (90) days prior to such date or anniversary date that the term of this Agreement will not be extended. Reference herein to the term hereunder shall refer to both the initial term and any extended term hereunder.

3. Duties . Employee will, during the term hereof:

(a)

be employed by Employer on a full-time basis with all such authority, duties and responsibilities as are commensurate with his position as Executive Vice President and General Counsel and as may be consistent with such position, reporting directly to the Chief Executive Officer: Corporate Initiatives of Bancorp and shall perform such other duties and responsibilities on behalf of Bancorp and its affiliates as reasonably may be directed by the Chief Executive Officer: Corporate Initiatives of Bancorp; and

(b)

devote his full business time, energy, and skill to the business of Employer and to the promotion of Employer’s best interests, except for vacations and absences made necessary because of illness.

4. Compensation . During the term of this Agreement, Employer shall pay Employee:

(a)

on the Effective Date, a one-time signing bonus in the form of a grant under the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) of 5,000 shares of restricted voting common stock of Bancorp, which shares shall vest in annual increments of 33%, 33% and 34% commencing on the first anniversary of the Effective Date. The terms of such grant shall be subject to the terms of the final restricted stock agreement evidencing such grant, the form of which shall be attached hereto as Exhibit A (the “Restricted Stock Agreement”). In the event of a conflict between the Restricted Stock Agreement and this Agreement, the terms of the Restricted Stock Agreement shall control.

(b)

a base salary at the rate of $265,000 per annum, payable in periodic payments in accordance with Employer’s practices for other executive, managerial, and supervisory employees (but not less frequently than monthly), as such practices may be determined from time to time and subject to customary tax withholdings. The Board of Directors of Bancorp or the Compensation Committee of the Board of Directors of Bancorp (the “Committee”) will review such base salary at least annually and, in their discretion, may increase such salary.

(c)

additional or special compensation, such as equity awards, incentive pay or bonuses, based upon Employee’s performance, commencing with Employee’s performance in 2012, as the Board of Directors of Bancorp or the Committee in their discretion, may from time to time determine. Any amounts payable under this Section 4(c) that constitute “nonqualified deferred compensation” within the meaning of Section 409A (as defined in Section 14(a) of this Agreement) shall be subject to such terms or conditions that satisfy the applicable requirements of Section 409A.

5. Options.

(a)

General . Executive may receive grants of options from Bancorp from time to time for his services as an executive at Employer and/or any subsidiary of Employer. On the Effective Date, Executive shall receive a grant under the Omnibus Incentive Plan of non-qualified stock options from Bancorp for the purchase of 75,000 shares of Bancorp’s voting common stock at an exercise price per share equal to the closing market price per share of Bancorp’s common stock on the Effective Date (the “Initial Grant”) The Initial Grant shall become vested and exercisable in three annual installments of 25,000 shares on each of the first, second and third anniversaries, respectively, of the Effective Date. The terms of the Initial Grant, including the foregoing vesting schedule, shall be subject to the terms of the final option agreement which evidences the Initial Grant, which shall be attached hereto as Exhibit B (the “Initial Grant Agreement”). In the event of a conflict between the Initial Grant Agreement and this Agreement, the terms of the Initial Grant Agreement shall control.

(b)

Designation of Beneficiary . From time to time, by signing a form furnished to Employer, Employee may designate any legal or natural person or persons (who may be designated contingently or successively) to whom to transfer the Initial Grant if he were to die before he exercised the Initial Grant. If Employee fails to designate a beneficiary as provided above, or if the designated beneficiary dies before Employee or before complete payment, the Initial Grant shall be transferred to the Employee’s estate. For purposes of this Agreement, the term “designated beneficiary” means the person or persons designated by Employee as his beneficiary in the last effective beneficiary designation form filed with Employer, or if Employee has failed to designate a beneficiary, the Employee’s estate.

6. Automobile and Other Expenses . During the term of this Agreement, Employer shall provide Employee with an auto allowance of $600 per month, with annual increases in such payment to be determined by the Board of Directors of Bancorp or the Committee to reflect increases in the cost of living or fuel costs and shall reimburse Employee for business related use of his personal automobile in excess of 800 miles per month in accordance with the Employer’s expense reimbursement policy. Employee shall be reimbursed for other expenses incurred in connection with Employer’s business in accordance with Employer’s expense reimbursement policy for senior executives.

8. Vacation . Employee shall be entitled to the greater of the accrual or 1.67 days of vacation for each month of service or such other accruals as outlined in Employer’s human resource policies. In the event that the full vacation for any calendar year is not taken by Employee, Employee’s ongoing accrual of vacation could become limited by the maximum level of carryover accrued vacation allowed for in Employer’s then existing policy for the carry forward of accrued vacation.

9. Termination .

(a)

(b)

Employer may terminate Employee’s employment hereunder for any reason, with or without Cause, at any time upon notice to Employee, but any termination by Employer other than termination for Cause shall not prejudice Employee’s right to compensation or other benefits under this Agreement.

(c)

(d)

(e)

Employer and Employee may also terminate Employee’s employment with Employer by issuing a notice to the other pursuant to Section 2 hereof.

10. Severance Benefits .

(a)

In the event of the termination of Employee’s employment, for any reason, Employee shall be entitled to any Accrued Obligations.

(b)

In the event that Employer terminates Employee’s employment without Cause or Employee resigns with Good Reason, subject to Sections 10(e)-(i) and Section 14, (i) Employee shall be entitled to severance pay equal to twenty-four (24) months’ salary at the rate of salary in effect on the date his employment with Employer terminates, (ii) the Initial Grant, to the extent not theretofore fully vested, shall become fully vested and immediately exercisable in accordance with its terms and (iii) in the event the Employee is not theretofore fully vested in the restricted shares provided under Section 4(a) as a signing bonus, the Employee shall be entitled to be appointed as an advisor of Employer and shall be permitted to continue serving in that capacity until all such restricted shares have vested in full.

(c)

Subject to Section 14, any severance pay to be paid pursuant to Section 10(b) shall be paid in 24 equal monthly installments commencing on the first business day coincident with or next following the sixtieth (60 ^th ) calendar date following Employee’s termination of employment.

(d)

In the event of Employee’s death within 24 months of termination for any reason, all remaining eligible benefits under this section shall be paid to Employee’s designated beneficiary as noted in Section 5(b) of this Agreement.

(e)

(f)

The payment of the severance pay under Section 10(b) is conditioned upon the Employee’s compliance with the non-solicitation and nondisclosure requirements set forth in Sections 11 and 12 hereof.

(g)

(h)

(i)

For purposes of this Agreement:

(A)

(B)

(C)

“ Good Reason ” shall exist if, without Employee’s express written consent, Employer shall:

(1)

assign to Employee duties that are materially inconsistent with that of his position as Executive Vice President and General Counsel of Employer (including status, offices, title(s) and reporting requirements), or the authority, duties or responsibilities thereof, including professional obligations, or any other action by Employer which results in a material diminution in such position, authority, duties or responsibilities;

(2)

unless required by regulatory authorities, reduce the salary of Employee, or materially reduce the amount of paid vacations to which he is entitled;

(3)

materially breach this Agreement; or

(4)

11. Nonsolicitation .

(a)

Unless otherwise agreed in writing, during the term of this Agreement, and for a period of twenty-four (24) months following a termination of Employee’s employment with Employer entitling Employee to severance pay under Section 10(b), Employee shall not induce or attempt to induce any individual or entity who was an employee, agent or independent contractor of Employer or any of its affiliates during the period of Employee’s employment hereunder to discontinue providing services to Employer or any of its affiliates.

(b)

Unless otherwise agreed in writing, during the term of this Agreement, and for a period of twenty-four (24) months following a termination of Employee’s employment with Employer entitling Employee to severance pay under Section 10(b), Employee shall not, and will not assist any other person to (a) hire or solicit for hiring any employee of Employer or any of its affiliates or seek to persuade any employee of Employer or any of its affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to Employer or any of its affiliates to terminate or diminish its relationship with them.

14. Section 409A .

(a)

(b)

(c)

(d)

(e)

15. Professional Resources . In addition to such support and resources as are customarily provided to its other executive officers, Employer shall also provide Employee with such professional support and legal resources as may be reasonably necessary to the performance of Employee’s duties hereunder, including, without limitation, legal research and professional practice resources, and shall reimburse Employee for reasonable professional fees and costs, including bar dues, continuing legal education requirements and industry association memberships, as well as attendance at customary industry events designated for the professional development of in-house counsel. Employee shall be allowed to maintain such other professional relationships, to the extent reasonably acceptable to Employer, that will not interfere with the performance of his duties hereunder.

18. Reserved .

If to Employer:

Chairman of the Board

First PacTrust Bancorp, Inc.

18500 Von Karman, Suite 1100

Irvine, California 92612

If to Employee:

John C. Grosvenor

26. Captions . The headings and captions hereof are for convenience only and shall not affect the construction of this Agreement.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above.


Employee:

/s/ John C. Grosvenor

First PacTrust Bancorp, Inc.

By:

/s/ Steven Sugarman
Its:		Chief Executive Officer

EXHIBIT A

FORM OF RESTRICTED STOCK AGREEMENT

FIRST PACTRUST BANCORP, INC.

2011 OMNIBUS INCENTIVE PLAN

RESTRICTED STOCK AGREEMENT

RS No.

Shares of Restricted Stock are hereby awarded on August 22, 2012 by First PacTrust Bancorp, Inc., a Maryland corporation (the “Corporation”), to John C. Grosvenor (the “Grantee”), in accordance with the following terms and conditions:

1. Share Award . In accordance with Section 4(a) of the Employment Agreement by and among the Corporation, Pacific Trust Bank and the Grantee dated as of the date hereof (the “Employment Agreement”), the Corporation hereby awards to the Grantee 5,000 shares (the “Shares”) of the voting common stock of the Corporation (“Common Stock”) pursuant to the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan, as the same may be amended from time to time (the “Plan”), and upon the terms and conditions and subject to the restrictions in the Plan and as hereinafter set forth. A copy of the Plan, as currently in effect, is incorporated herein by reference and is attached hereto. Capitalized terms used herein which are not defined in this Agreement shall have the meaning ascribed to such terms in the Plan.

2. Restrictions on Transfer and Restricted Period . Except as otherwise provided in Section 3 or Section 8 of this Agreement, during the period (the “Restricted Period”) commencing on the date of this Agreement and terminating on August 22, 2015, Shares with respect to which the Restricted Period has not lapsed may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by the Grantee. Shares with respect to which the Restricted Period has lapsed shall sometimes be referred to herein as “Vested.”


Date of Vesting	Cumulative Number of Shares Vested

August 22, 2013		1,666
August 22, 2014		3,333
August 22, 2015		5,000

[Signature page follows]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.


		FIRST PACTRUST BANCORP, INC.

By:		/s/ Steven Sugarman
		Chief Executive Officer

		ACCEPTED:

		/s/ John C. Grosvenor
		John C. Grosvenor


		(Street Address)


		(City, State & Zip Code)

STOCK POWER

For value received, I hereby sell, assign, and transfer to First PacTrust Bancorp, Inc. (the “Corporation”) all shares of the voting common stock of the Corporation, standing in my name on the books and records of the Corporation (whether in certificated form or book-entry or similar form), that are issued to me pursuant to that certain Restricted Stock Agreement, dated August 22, 2012, to which the Corporation and I are parties (as the same may from time to time be amended, the “Agreement”), and do hereby irrevocably constitute and appoint the Secretary of the Corporation attorney, with full power of substitution, to transfer this stock on the books and records of the aforesaid Corporation. To the extent the restrictions on transfer of any portion of such shares under the Agreement have lapsed or expired, this Stock Power shall cease to be of legal effect with respect to that portion of such shares following their release to me, free of restriction, as provided in the Agreement.

/s/ John C. Grosvenor

John C. Grosvenor

Dated: August 22, 2012

In the presence of:

/s/ Steven Sugarman

EXHIBIT B

FORM OF STOCK OPTION AGREEMENT

FIRST PACTRUST BANCORP, INC.

2011 OMNIBUS INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

NQSO NO.

This Option is granted on August 22, 2012 (the “Grant Date”) by First PacTrust Bancorp, Inc., a Maryland corporation (the “Corporation”), to John C. Grosvenor (the “Optionee”), in accordance with the following terms and conditions:

1. Option Grant and Exercise Period . In accordance with Section 5(a) of the Employment Agreement by and among the Corporation, Pacific Trust Bank and the Optionee dated as of the date hereof (the “Employment Agreement”), the Corporation hereby grants to the Optionee a Non-Qualified Stock Option (“Option”) to purchase, pursuant to the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan, as the same may be amended from time to time (the “Plan”), and upon the terms and conditions therein and hereinafter set forth, an aggregate of shares (the “Option Shares”) of the voting common stock of the Corporation (“Common Stock”) at the price of $ per share (the “Exercise Price”). A copy of the Plan, as currently in effect, is incorporated herein by reference and is attached to this Agreement. Capitalized terms used herein which are not defined in this Agreement shall have the meanings ascribed to such terms in the Plan.


Cumulative Number of Option Shares Exercisable		Date

25,000		August 22, 2013
50,000		August 22, 2014
75,000		August 22, 2015

[Signature page follows]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.


		FIRST PACTRUST BANCORP, INC.

By:		/s/ Steven Sugarman

		ACCEPTED:

		/s/ John C. Grosvenor
		John C. Grosvenor


		(Street Address)


		(City, State and Zip Code)

Exhibit 10.14B

Execution Copy

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is made effective as of November 5, 2012 (the “Effective Date”), by and between First PacTrust Bancorp, Inc. (“Employer” or “Bancorp”), and Ronald J. Nicolas, Jr. (the “Employee”).

WITNESSETH:

WHEREAS, Employer desires to employ Employee and Employee desires to be employed by Employer upon the terms and subject to the conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereby agree as follows:

1. Employment . Employer hereby agrees to employ Employee to serve initially as Executive Vice President: Finance, until such time as his appointment as Chief Financial Officer shall become effective, and Employee hereby accepts employment with Employer upon the terms and conditions herein set forth.

2. Term . The term of employment under this Agreement shall begin on November 5, 2012 (the “Commencement Date”) and shall expire on the date that is three years from the Commencement Date (the “Term End Date”), unless terminated sooner as hereinafter provided or unless extended as provided in the next sentence. Commencing on November 5, 2015, and on each anniversary of such date, the term of this Agreement shall automatically be extended for one additional year unless either party notifies the other party at least ninety (90) days prior to such date or anniversary date that the term of this Agreement will not be extended. Reference herein to the term hereunder shall refer to both the initial term and any extended term hereunder.

3. Duties . Employee will, during the term hereof:

(a)

be employed by Employer on a full-time basis with all such authority, duties and responsibilities as are commensurate with his position initially as Executive Vice President: Finance, until such time as his appointment as Chief Financial Officer shall become effective, and as may be consistent with each such position, reporting directly to the Chief Executive Officer and shall perform such other duties and responsibilities on behalf of Employer and its affiliates as reasonably may be directed by the Board of Directors of Employer; and

(b)

devote his full business time, energy, and skill to the business of Employer and to the promotion of Employer’s best interests, except for vacations and absences made necessary because of illness.

4. Compensation . During the term of this Agreement, Employer shall pay Employee:

(a)

on the Effective Date, a one-time signing bonus in the form of a grant under the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) of 25,000 shares of restricted voting common stock of Bancorp, which shares shall vest in increments of 20% on each the first, second, third, fourth and fifth anniversary dates of the Effective Date. The terms of such grant shall be subject to the terms of the final restricted stock agreement evidencing such grant, the form of which shall be attached hereto as Exhibit A (the “Restricted Stock Agreement”). In the event of a conflict between the Restricted Stock Agreement and this Agreement, the terms of the Restricted Stock Agreement shall control.

(b)

a base salary at the rate of $325,000.00 per annum, payable in periodic payments in accordance with Employer’s practices for other executive, managerial, and supervisory employees (but not less frequently than monthly), as such practices may be determined from time to time and subject to customary tax withholdings. The Board of Directors (the “Board”) of Bancorp or the Compensation Committee of the Board of Directors of Bancorp (the “Committee”) will review such base salary at least annually and, in their discretion, may increase such salary; provided, however , that, unless and solely to the extent the Board or Committee shall specifically provide otherwise, any such increase in salary shall not be considered as included in “base salary” for purposes of calculating Employee’s severance benefits pursuant to Section 10(b) hereof.

(c)

for each calendar year during the term of this Agreement, Employee shall be eligible to receive an annual bonus equal to up to 100% of Employee’s base salary in effect at the beginning of such calendar period, with a target bonus equal to 50% of base salary (the “Target Bonus”), based upon Employee’s performance, as the Board or the Committee, in their sole discretion may determine, in the achievement of annual target performance goals established by the Board or the Committee at or prior to the commencement of such calendar year. In addition to the Target Bonus, Employee may receive additional or special compensation, such as equity awards, incentive pay or bonuses, based upon Employee’s performance, commencing with Employee’s performance in 2012, as the Board or the Committee in their sole discretion, may from time to time determine. Any amounts payable under this Section 4(c) that constitute “nonqualified deferred compensation” within the meaning of Section 409A (as defined in Section 14(a) of this Agreement) shall be subject to such terms or conditions that satisfy the applicable requirements of Section 409A.

5. Options.

(a)

General . Employee may receive grants of options from Bancorp from time to time for his services as an executive at Employer and/or any subsidiary of Employer. On the Effective Date, Employee shall receive a grant under the Omnibus Incentive Plan of non-qualified stock options from Bancorp for the purchase of 75,000 shares of Bancorp’s voting common stock at an exercise price per share equal to the closing market price per share of Bancorp’s common stock on the Effective Date (the “Initial Grant”) The Initial Grant shall become vested and exercisable in five equal annual installments of 15,000 shares on each of the first through the fifth anniversaries, respectively, of the Effective Date. The terms of the Initial Grant, including the foregoing vesting schedule, shall be subject to the terms of the final option agreement which evidences the Initial Grant, which shall be attached hereto as Exhibit B (the “Initial Grant Agreement”). In the event of a conflict between the Initial Grant Agreement and this Agreement, the terms of the Initial Grant Agreement shall control.

(b)

9. Termination .

(a)

(b)

Employer may terminate Employee’s employment hereunder for any reason, with or without Cause, at any time upon notice to Employee.

(c)

Employee may terminate his employment hereunder without Good Reason at any time prior to March 31, 2012 and after March 31, 2012 upon sixty (60) days’ prior written notice to Employer. In the event of termination of Employee’s employment pursuant to this Section 9(c), Employer may elect to waive the period of notice, or any portion thereof, and, if Employer so elects, Employer will pay Employee his base salary for the period so waived.

(d)

(e)

Employer and Employee may also terminate Employee’s employment with Employer by issuing a notice to the other pursuant to Section 2 hereof.

10. Severance Benefits .

(a)

In the event of the termination of Employee’s employment, for any reason, Employee shall be entitled to any Accrued Obligations (as defined herein).

(b)

In the event that Employer terminates Employee’s employment after March 31, 2013 without Cause, or Employee resigns after that date with Good Reason, subject to Sections 10(e)-(i) and Section 14, (i) Employee shall be entitled to severance pay equal to up to twenty-four (24) months’ salary at the rate of salary in effect on the date his employment with Employer terminates, except to the extent of any increases in the amount of base salary at the Effective Date which are excluded from the calculation of severance benefits as provided at Section 4(b) above, provided that the total amount of such severance shall not exceed the amount of base salary multiplied by the months then remaining for the balance of the term then in effect under the Agreement (ii) the Initial Grant, to the extent not theretofore fully vested, shall become fully vested and immediately exercisable in accordance with its terms, provided that the Initial Grant must be exercised on or before the 90 ^th day following the termination of employment and any unexercised portion thereof shall lapse and be forfeited after such date, and (iii) in the event the Employee is not theretofore fully vested in the restricted shares provided under Section 4(a) as a signing bonus, the Employee shall be entitled to be appointed as an advisor of Employer and shall be permitted to continue serving in that capacity until all such restricted shares have vested in full.

(c)

(d)

(e)

(f)

The payment of the severance pay under Section 10(b) is conditioned upon the Employee’s compliance with the non-solicitation and nondisclosure requirements set forth in Sections 11 and 12 hereof.

(g)

(h)

(i)

For purposes of this Agreement:

(A)

(B)

Termination for “ Cause ” shall mean termination of the employment of Employee because of Employee’s personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses) or final cease-and-desist order, willful violation of material Company’s policies and procedures including employee manual or material breach of any provision of this Agreement. Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of Bancorp at a meeting or meetings of the Board called and held for such purpose (after reasonable notice to Employee and an opportunity for Employee, together with Employee’s counsel, to be heard before the Board), stating that in the good faith opinion of the Board, Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail. For purposes of this section, the term “incompetence” shall mean inability, as determined by the Board of Directors of Employer in their reasonable judgment, to perform stated duties.

(C)

“ Good Reason ” shall exist if, without Employee’s express written consent, Employer shall:

(1)

assign to Employee duties that are materially inconsistent with that of a senior member of the finance team of Employer;

(2)

unless required by regulatory authorities, reduce the salary of Employee, or materially reduce the amount of paid vacations to which he is entitled;

(3)

materially breach this Agreement; or

(4)

11. Nonsolicitation .

(a)

Unless otherwise agreed in writing, during the term of this Agreement, and for a period of twenty four (24) months following a termination of Employee’s employment with Employer entitling Employee to severance pay under Section 10(b), Employee shall not induce or attempt to induce any individual or entity who was an employee, agent or independent contractor of Employer or any of its affiliates during the period of Employee’s employment hereunder to discontinue providing services to Employer or any of its affiliates.

(b)

Unless otherwise agreed in writing, during the term of this Agreement, and for a period of twenty four (24) months following a termination of Employee’s employment with Employer entitling Employee to severance pay under Section 10(b), Employee shall not, and will not assist any other person to (a) hire or solicit for hiring any employee of Employer or any of its affiliates or seek to persuade any employee of Employer or any of its affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to Employer or any of its affiliates to terminate or diminish its relationship with them.

14. Section 409A .

(a)

(b)

(c)

(d)

Any amount that Employee is entitled to be reimbursed or to have paid on his behalf under this Agreement that would constitute nonqualified deferred compensation subject to Section 409A shall be subject to the following additional rules: (i) no reimbursement of any such expense shall affect the Employee’s right to reimbursement of any such expense in any other taxable year; (ii) reimbursement of the expense shall be made, if at all, promptly, but not later than the end of the calendar year following the calendar year in which the expense was incurred; and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.

(e)

15. Reserved .

If to Employer:

First PacTrust Bancorp, Inc.

18500 Von Karman, Suite 1100

Irvine, California 92612

Attention: Chief Executive Officer

If to Employee:

Ronald J. Nicolas, Jr.

c/o First PacTrust Bancorp, Inc.

18500 Von Karman, Suite 1100

Irvine, California 92612

26. Captions . The headings and captions hereof are for convenience only and shall not affect the construction of this Agreement.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above.


Employer

FIRST PACTRUST BANCORP, INC.

By:		/s/ Steven Sugarman
		Name:
		Title: Chief Executive Officer

Employee

/s/ Ronald J. Nicolas, Jr.
Ronald J. Nicolas, Jr.

EXHIBIT A

FORM OF RESTRICTED STOCK AGREEMENT

FIRST PACTRUST BANCORP, INC.

2011 OMNIBUS INCENTIVE PLAN

RESTRICTED STOCK AGREEMENT

RS No.

Shares of Restricted Stock are hereby awarded on November 5, 2012 by First PacTrust Bancorp, Inc., a Maryland corporation (the “Corporation”), to Ronald J. Nicolas, Jr. (the “Grantee”) in accordance with the following terms and conditions:

1. Share Award . In accordance with Section 4(a) of the Employment Agreement between and between the Corporation and the Grantee dated as of the date hereof (the “Employment Agreement”), the Corporation hereby awards to the Grantee 25,000 shares (the “Shares”) of the voting common stock of the Corporation (“Common Stock”) pursuant to the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan, as the same may be amended from time to time (the “Plan”), and upon the terms and conditions and subject to the restrictions in the Plan and as hereinafter set forth. A copy of the Plan, as currently in effect, is incorporated herein by reference and is attached hereto. Capitalized terms used herein which are not defined in this Agreement shall have the meaning ascribed to such terms in the Plan.

2. Restrictions on Transfer and Restricted Period . Except as otherwise provided in Section 3 or Section 8 of this Agreement, during the period (the “Restricted Period”) commencing on the date of this Agreement and terminating on November 5, 2015, Shares with respect to which the Restricted Period has not lapsed may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by the Grantee. Shares with respect to which the Restricted Period has lapsed shall sometimes be referred to herein as “Vested.”


Date of Vesting	Cumulative Shares Vested

November 5, 2013		5,000
November 5, 2014		10,000
November 5, 2015		15,000
November 5, 2016		20,000
November 5, 2017		25,000

8. Effect of Change in Control . If a Change in Control shall occur after March 31, 2013, all previously unvested Shares shall become Vested in full. Notwithstanding the foregoing, no Shares which have previously been forfeited shall thereafter become Vested.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.


		FIRST PACTRUST BANCORP, INC.

By:		/s/ Steven Sugarman

		ACCEPTED:

		/s/ Ronald J. Nicolas, Jr.
		Ronald J. Nicolas, Jr.


		(Street Address)


		(City, State & Zip Code)

STOCK POWER

For value received, I hereby sell, assign, and transfer to First PacTrust Bancorp, Inc. (the “Corporation”) all shares of the voting common stock of the Corporation, standing in my name on the books and records of the Corporation (whether in certificated form or book-entry or similar form), that are issued to me pursuant to that certain Restricted Stock Agreement, dated November 5, 2012, to which the Corporation and I are parties (as the same may from time to time be amended, the “Agreement”), and do hereby irrevocably constitute and appoint the Secretary of the Corporation attorney, with full power of substitution, to transfer this stock on the books and records of the aforesaid Corporation. To the extent the restrictions on transfer of any portion of such shares under the Agreement have lapsed or expired, this Stock Power shall cease to be of legal effect with respect to that portion of such shares following their release to me, free of restriction, as provided in the Agreement.

/s/ Ronald J. Nicolas, Jr.

Ronald J. Nicolas, Jr.

Dated:

In the presence of:

EXHIBIT B

FORM OF STOCK OPTION AGREEMENT

FIRST PACTRUST BANCORP, INC.

2011 OMNIBUS INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

NQSO NO.

This Option is granted on November 5, 2012 (the “Grant Date”) by First PacTrust Bancorp, Inc., a Maryland corporation (the “Corporation”), to Ronald J. Nicolas, Jr. (the “Optionee”) in accordance with the following terms and conditions:

1. Option Grant and Exercise Period . In accordance with Section 5(a) of the Employment Agreement by and between the Corporation and the Optionee dated as of the date hereof (the “Employment Agreement”), the Corporation hereby grants to the Optionee a Non-Qualified Stock Option (“Option”) to purchase, pursuant to the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan, as the same may be amended from time to time (the “Plan”), and upon the terms and conditions therein and hereinafter set forth, an aggregate of 75,000 shares (the “Option Shares”) of the voting common stock of the Corporation (“Common Stock”) at the price of $ per share (the “Exercise Price”). A copy of the Plan, as currently in effect, is incorporated herein by reference and is attached to this Agreement. Capitalized terms used herein which are not defined in this Agreement shall have the meanings ascribed to such terms in the Plan.


Cumulative Number of Option Shares Exercisable	Date

15,000		November 5, 2013
30,000		November 5, 2014
45,000		November 5, 2015
60,000		November 5, 2016
75,000		November 5, 2017

7. Effect of Change in Control . If a Change in Control shall occur after March 31, 2013, this Option shall (to the extent it is not then so exercisable) become exercisable in full and remain so exercisable for the remainder of its term, subject to Sections 6.8 and 6.9 of the Plan. Notwithstanding the foregoing this Option shall not become exercisable to the extent that it has previously been exercised or otherwise terminated.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.


		FIRST PACTRUST BANCORP, INC.

By:		/s/ Steven Sugarman

		ACCEPTED:

		/s/ Ronald J. Nicolas, Jr.
		Ronald J. Nicolas, Jr.


		(Street Address)


		(City, State and Zip Code)

Exhibit 10.14C

Execution Version

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is made effective as of November 14, 2012 (the “Effective Date”), between and among Pacific Trust Bank, FSB, a federally-chartered savings bank (the “Employer”), First PacTrust Bancorp, Inc. (“Bancorp”), and Lonny D. Robinson (the “Employee”).

WITNESSETH:

WHEREAS, Employer desires to employ Employee and Employee desires to be employed by Employer upon the terms and subject to the conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereby agree as follows:

1. Employment . Employer hereby agrees to employ Employee to serve as Chief Financial Officer, and Employee hereby accepts employment with Employer upon the terms and conditions herein set forth.

2. Term . The term of employment under this Agreement shall begin on November 14, 2012 (the “Commencement Date”) and shall expire on the date that is three years from the Commencement Date (the “Term End Date”), unless terminated sooner as hereinafter provided or unless extended as provided in the next sentence. Commencing on November 14, 2015, and on each anniversary of such date, the term of this Agreement shall automatically be extended for one additional year unless either party notifies the other party at least ninety (90) days prior to such date or anniversary date that the term of this Agreement will not be extended. Reference herein to the term hereunder shall refer to both the initial term and any extended term hereunder.

3. Duties . Employee will, during the term hereof:

(a)

be employed by Employer on a full-time basis with all such authority, duties and responsibilities as are commensurate with his position as Chief Financial Officer and as may be consistent with such position, reporting directly to the Chief Executive Officer and shall perform such other duties and responsibilities on behalf of Employer and its affiliates as reasonably may be directed by the Board of Directors of Employer; and

(b)

devote his full business time, energy, and skill to the business of Employer and to the promotion of Employer’s best interests, except for vacations and absences made necessary because of illness.

4. Compensation . During the term of this Agreement, Employer shall pay Employee:

(a)

on the Effective Date, a one-time signing bonus in the form of (i) $25,000 and (ii) a grant under the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) of 25,000 shares of restricted voting common stock of Bancorp, which shares shall vest in increments of 20% on each the first, second, third, fourth and fifth anniversary dates of the Effective Date. The terms of such grant shall be subject to the terms of the final restricted stock agreement evidencing such grant, the form of which shall be attached hereto as Exhibit A (the “Restricted Stock Agreement”). In the event of a conflict between the Restricted Stock Agreement and this Agreement, the terms of the Restricted Stock Agreement shall control.

(b)

a base salary at the rate of $275,000.00 per annum, payable in periodic payments in accordance with Employer’s practices for other executive, managerial, and supervisory employees (but not less frequently than monthly), as such practices may be determined from time to time and subject to customary tax withholdings. The Board of Directors (the “Board”) of Bancorp or the Compensation Committee of the Board of Directors of Bancorp (the “Committee”) will review such base salary at least annually and, in their discretion, may increase such salary; provided, however , that, unless and solely to the extent the Board or Committee shall specifically provide otherwise, any such increase in salary shall not be considered as included in “base salary” for purposes of calculating Employee’s severance benefits pursuant to Section 10(b) hereof.

(c)

5. Options.

(a)

General . Employee may receive grants of options from Bancorp (the “Grant”) from time to time for his services as an executive at Employer and/or any subsidiary of Employer. Any Grant shall be subject to the terms of a final option agreement evidencing such grant, which shall be attached hereto as Exhibit B (the “Grant Agreement”). In the event of a conflict between the Grant Agreement and this Agreement, the terms of the Grant Agreement shall control.

(b)

9. Termination .

(a)

(b)

Employer may terminate Employee’s employment hereunder for any reason, with or without Cause, at any time upon notice to Employee.

(c)

Employee may terminate his employment hereunder without Good Reason at any time upon sixty (60) days’ prior written notice to Employer. In the event of termination of Employee’s employment pursuant to this Section 9(c), Employer may elect to waive the period of notice, or any portion thereof, and, if Employer so elects, Employer will pay Employee his base salary for the period so waived.

(d)

(e)

Employer and Employee may also terminate Employee’s employment with Employer by issuing a notice to the other pursuant to Section 2 hereof.

10. Severance Benefits .

(a)

In the event of the termination of Employee’s employment, for any reason, Employee shall be entitled to any Accrued Obligations (as defined herein).

(b)

In the event that Employer terminates Employee’s employment without Cause or Employee resigns with Good Reason, subject to Sections 10(e)-(i) and Section 14, (i) Employee shall be entitled to severance pay equal to twenty-four (24) months’ salary at the rate of salary in effect on the date his employment with Employer terminates, except to the extent of any increases in the amount of base salary at the Effective Date which are excluded from the calculation of severance benefits as provided at Section 4(b) above, (ii) the Initial Grant, to the extent not theretofore fully vested, shall become fully vested and immediately exercisable in accordance with its terms and (iii) in the event the Employee is not theretofore fully vested in the restricted shares provided under Section 4(a) as a signing bonus, the Employee shall be entitled to be appointed as an advisor of Employer and shall be permitted to continue serving in that capacity until all such restricted shares have vested in full.

(c)

(d)

(e)

(f)

The payment of the severance pay under Section 10(b) is conditioned upon the Employee’s compliance with the non-solicitation and nondisclosure requirements set forth in Sections 11 and 12 hereof.

(g)

(h)

(i)

For purposes of this Agreement:

(A)

(B)

Termination for “ Cause ” shall mean termination of the employment of Employee because of Employee’s personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses) or final cease-and-desist order, willful violation of material Company’s policies and procedures including employee manual or material breach of any provision of this Agreement. Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of Bancorp at a meeting or meetings of the Board called and held for such purpose (after reasonable notice to Employee and an opportunity for Employee, together with Employee’s counsel, to be heard before the Board), stating that in the good faith opinion of the Board, Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail. For purposes of this section, the term “incompetence” shall mean inability, as determined by the Board of Directors of Employer in their reasonable judgment, to perform stated duties.

(C)

“ Good Reason ” shall exist if, without Employee’s express written consent, Employer shall:

(1)

assign to Employee duties that are materially inconsistent with that of a senior member of the finance team of Employer;

(2)

unless required by regulatory authorities, reduce the salary of Employee, or materially reduce the amount of paid vacations to which he is entitled;

(3)

materially breach this Agreement; or

(4)

11. Nonsolicitation .

(a)

(b)

Unless otherwise agreed in writing, during the term of this Agreement, and for a period of twenty four (24) months following a termination of Employee’s employment with Employer entitling Employee to severance pay under Section 10(b), Employee shall not, and will not assist any other person to (a) hire or solicit for hiring any employee of Employer or any of its affiliates or seek to persuade any employee of Employer or any of its affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to Employer or any of its affiliates to terminate or diminish its relationship with them.

14. Section 409A .

(a)

(b)

(c)

(d)

(e)

15. Reserved .

If to Employer:

Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

Attention: Chief Executive Officer

If to Employee:

Lonny D. Robinson

c/o Pacific Trust Bank

18500 Von Karman, Suite 1100

Irvine, California 92612

26. Captions . The headings and captions hereof are for convenience only and shall not affect the construction of this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above.


Employer

Pacific Trust Bank, FSB

By:		/s/ Robert Franko
		Name:
		Title:

Employee

/s/ Lonny D. Robinson
Lonny D. Robinson

EXHIBIT A

FORM OF RESTRICTED STOCK AGREEMENT

FIRST PACTRUST BANCORP, INC.

2011 OMNIBUS INCENTIVE PLAN

RESTRICTED STOCK AGREEMENT

RS No.

Shares of Restricted Stock are hereby awarded on November 14, 2012 by First PacTrust Bancorp, Inc., a Maryland corporation (the “Corporation”), to Lonny D. Robinson (the “Grantee”) in accordance with the following terms and conditions:

1. Share Award . In accordance with Section 4(a) of the Employment Agreement between and among the Corporation, Pacific Trust Bank and the Grantee dated as of the date hereof (the “Employment Agreement”), the Corporation hereby awards to the Grantee 25,000 shares (the “Shares”) of the voting common stock of the Corporation (“Common Stock”) pursuant to the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan, as the same may be amended from time to time (the “Plan”), and upon the terms and conditions and subject to the restrictions in the Plan and as hereinafter set forth. A copy of the Plan, as currently in effect, is incorporated herein by reference and is attached hereto. Capitalized terms used herein which are not defined in this Agreement shall have the meaning ascribed to such terms in the Plan.

2. Restrictions on Transfer and Restricted Period . Except as otherwise provided in Section 3 or Section 8 of this Agreement, during the period (the “Restricted Period”) commencing on the date of this Agreement and terminating on November 14, 2017, Shares with respect to which the Restricted Period has not lapsed may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by the Grantee. Shares with respect to which the Restricted Period has lapsed shall sometimes be referred to herein as “Vested.”


Date of Vesting	Cumulative Shares Vested

November 14, 2013		5,000
November 14, 2014		10,000
November 14, 2015		15,000
November 14, 2016		20,000
November 14, 2017		25,000

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.


		FIRST PACTRUST BANCORP, INC.

By:		/s/ Steven Sugarman

		ACCEPTED:

		/s/ Lonny D. Robinson
		Lonny D. Robinson


		(Street Address)


		(City, State & Zip Code)

STOCK POWER

For value received, I hereby sell, assign, and transfer to First PacTrust Bancorp, Inc. (the “Corporation”) all shares of the voting common stock of the Corporation, standing in my name on the books and records of the Corporation (whether in certificated form or book-entry or similar form), that are issued to me pursuant to that certain Restricted Stock Agreement, dated November 14, 2012, to which the Corporation and I are parties (as the same may from time to time be amended, the “Agreement”), and do hereby irrevocably constitute and appoint the Secretary of the Corporation attorney, with full power of substitution, to transfer this stock on the books and records of the aforesaid Corporation. To the extent the restrictions on transfer of any portion of such shares under the Agreement have lapsed or expired, this Stock Power shall cease to be of legal effect with respect to that portion of such shares following their release to me, free of restriction, as provided in the Agreement.

/s/ Lonny D. Robinson

Lonny D. Robinson

Dated:


In the presence of:		/s/ Robert Franko

EXHIBIT B

FORM OF STOCK OPTION AGREEMENT

FIRST PACTRUST BANCORP, INC.

2011 OMNIBUS INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

NQSO NO.

This Option is granted on the “Grant Date”) by First PacTrust Bancorp, Inc., a Maryland corporation (the “Corporation”), to Lonny D. Robinson (the “Optionee”) in accordance with the following terms and conditions:

1. Option Grant and Exercise Period . In accordance with Section 5(a) of the Employment Agreement between and among the Corporation, Pacific Trust Bank and the Optionee dated as of the date hereof (the “Employment Agreement”), the Corporation hereby grants to the Optionee a Non-Qualified Stock Option (“Option”) to purchase, pursuant to the First PacTrust Bancorp, Inc. 2011 Omnibus Incentive Plan, as the same may be amended from time to time (the “Plan”), and upon the terms and conditions therein and hereinafter set forth, an aggregate of shares (the “Option Shares”) of the voting common stock of the Corporation (“Common Stock”) at the price of $ per share (the “Exercise Price”). A copy of the Plan, as currently in effect, is incorporated herein by reference and is attached to this Agreement. Capitalized terms used herein which are not defined in this Agreement shall have the meanings ascribed to such terms in the Plan.


Cumulative Number of Option Shares Exercisable		Date

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.


		FIRST PACTRUST BANCORP, INC.

By:

		ACCEPTED:


		Lonny D. Robinson


		(Street Address)


		(City, State and Zip Code)

Exhibit 31.1

CERTIFICATIONS

I, Steven A. Sugarman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of First PacTrust Bancorp, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of our annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 31.2

CERTIFICATIONS

I, Robert M. Franko, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of First PacTrust Bancorp, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 31.3

CERTIFICATIONS

I, Marangal I. Domingo, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of First PacTrust Bancorp, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 31.4

CERTIFICATIONS

I, Regan J. Lauer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of First PacTrust Bancorp, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 32.0

SECTION 1350 CERTIFICATION

Each of the undersigned hereby certifies in his or her capacity as an officer of First PacTrust Bancorp, Inc. (“the Company”) that this Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2012 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.


Date: November 13, 2012	By:	/ S / S TEVEN A. S UGARMAN
		Steven A. Sugarman
		Chief Executive Officer (Principal Executive Officer)

Date: November 13, 2012	By:	/ S / R OBERT M. F RANKO
		Robert M. Franko
		President

Date: November 13, 2012	By:	/ S / M ARANGAL I. D OMINGO
		Marangal I. Domingo
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: November 13, 2012	By:	/ S / R EGAN J. L AUER
		Regan J. Lauer
		Senior Vice President/Controller (Principal Accounting Officer)