PacWest Bancorp Announces Results for the First Quarter of 2015

Highlights

• Net Earnings of $73.1 Million, or $0.71 Per Diluted Share; Adjusted Net Earnings of $62.9 Million, or $0.61 Per Diluted Share
• Core Net Interest Margin at 5.38%
• $389.7 Million, or 13.1% Annualized, Loan and Lease Growth Driven by $1.0 Billion of Production
• Demand Deposits Increased $98.1 Million in the Quarter and are 26% of Total Deposits
• Core Deposits Increased $61.8 Million in the Quarter and are 52% of Total Deposits

LOS ANGELES, April 16, 2015 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the first quarter of 2015 of $73.1 million, or $0.71 per diluted share, compared to net earnings for the fourth quarter of 2014 of $71.0 million, or $0.69 per diluted share. When certain income and expense items described below are excluded, adjusted net earnings are $62.9 million, or $0.61 per diluted share, for the first quarter of 2015 and $68.0 million, or $0.66 per diluted share, for the fourth quarter of 2014. The decline in adjusted earnings is largely the result of the first quarter provision for credit losses.

Matt Wagner, President and CEO, commented, "Reported net earnings remained strong this quarter at $73.1 million. Loan and lease originations of $1.0 billion reached a new high since the CapitalSource merger, resulting in an annualized growth rate for the quarter of 13.1%. The combination of loan and lease growth with some deterioration in a few energy-related credits resulted in a credit loss provision of $16.4 million. When the credit loss provision is excluded, however, our adjusted net earnings increased $3.6 million quarter-over-quarter to $72.8 million."

Mr. Wagner continued, "In addition to focusing on loan growth and credit, our teams concentrated on deposit growth. Core deposits were up $61.8 million in the quarter, and deposits from CapitalSource Division borrowers grew $25.1 million, reaching $303.1 million at the end of March. Although we continue to make progress in achieving our goal of remixing our deposit base, the anticipated merger with Square 1 is expected to accelerate that process. We are on track to close the Square 1 merger in the fourth quarter. Regulatory applications have been filed, SEC filings are in process and integration planning is underway. We look forward to closing the merger and expanding our business with Square 1's loan and deposit products."

Vic Santoro, Executive Vice President and CFO, stated, "Our reported and core NIMs of 5.89% and 5.38% remain very strong. The $1.0 billion in new loans and leases went on the books this quarter at a yield of 5.76%, nine basis points better than last quarter's 5.67%. Our all-in deposit cost of 0.36% compares very favorably to our $10-$50 billion peer banks whose NIMs are substantially lower than ours. And our adjusted efficiency ratio of 40.4% reflects lower expenses. The Company's earning power, along with its solid tangible capital at 12.01%, positions us well for continued profitable growth."

FINANCIAL HIGHLIGHTS

ADJUSTED NET EARNINGS

In evaluating its earnings, the Company removes certain items to arrive at adjusted net earnings and adjusted diluted earnings per share, as detailed below:

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased $4.1 million to $199.1 million for the first quarter of 2015 compared to $195.0 million for the fourth quarter of 2014 due to higher average loan and lease balances and higher accelerated discount accretion resulting from early payoffs of acquired loans offset by two less days in the quarter. Net interest margin ("NIM") for the first quarter of 2015 was 5.89% compared to 5.86% for the fourth quarter of 2014, and loan yield was 6.80% compared to 6.76% for the fourth quarter of 2014. The increase in the NIM and loan yield are both due to higher accelerated discount accretion from early payoffs of acquired loans. Accelerated accretion resulting from early payoffs of acquired loans was $17.4 million in the first quarter of 2015 (58 basis points on the loan and lease yield) compared to $11.4 million in the fourth quarter (39 basis points on the loan and lease yield), an increase of $6.0 million.

The total cost of deposits increased to 0.36% from 0.34% in the prior quarter due primarily to a $1.2 million decrease in the amount of premium accretion on the time deposits acquired in the CapitalSource merger. The repricing of maturing time deposits at current rates and new time deposit production resulted in the decline in the weighted average contractual interest rate on time deposits to 0.72% at March 31, 2015 from 0.75% at December 31, 2014.

Net interest margin information is presented in the following table for the periods indicated:

The NIM and loan and lease yield are impacted by volatility in accelerated accretion of acquisition discounts from early payoffs of acquired loans. The effects of this item are shown in the following table for the periods indicated:

The impact on the NIM from all purchase accounting items is detailed in the table below for the periods indicated:

Noninterest Income

Noninterest income increased by $8.2 million to $20.9 million for the first quarter of 2015 compared to $12.7 million for the fourth quarter of 2014 due mostly to higher commissions and fees, gain on securities, higher dividends and gains on equity investments, and higher foreign currency translation net gains. The increase in commissions and fees is largely the result of a servicing asset write-off made in the fourth quarter of 2014. The gain on sale of securities was $3.3 million for the first quarter of 2015; there were no securities sold in the prior quarter. Dividends and gains on equity investments increased $1.6 million and foreign currency translation net gains increased $1.7 million from the prior quarter. These items tend to fluctuate from period to period based upon dividends received, sales of equity investments and the movement of the U.S. Dollar against various foreign currencies, especially the Euro.

The following table presents details of noninterest income for the periods indicated:

The following table presents the details of FDIC loss sharing expense for the periods indicated:

Noninterest Expense

Noninterest expense decreased by $6.9 million to $84.4 million for the first quarter of 2015 compared to $91.3 million for the fourth quarter of 2014. The decrease was due mostly to lower acquisition, integration and reorganization expense of $5.4 million, lower foreclosed assets expense of $1.6 million and lower loan-related expense of $2.0 million, offset by higher compensation expense of $1.8 million. The decrease in foreclosed assets expense was mostly due to lower write-downs on existing properties. Loan-related expense decreased due to lower expenses related to origination and work-out activities and a $1.7 million recovery of legal costs. The increase in compensation expense was from higher payroll taxes due to the tax cycle.

The following table presents details of noninterest expense for the periods indicated:

Income Taxes

Our overall effective income tax rate was 38.7% for the first quarter of 2015 and 37.9% for the fourth quarter of 2014.

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases increased $389.7 million in the first quarter to $12.3 billion at March 31, 2015. The loan and lease growth in the first quarter represents an annualized growth rate of 13.1%.

The following table presents a roll forward of the loan and lease portfolio for the periods indicated:

The following table presents a roll forward of the loan and lease portfolio by business segment for the period indicated:

The following table presents the composition of our loan and lease portfolio as of the dates indicated:

Energy-Related Credit Exposure

The continued low price of oil further weakened the exploration business during the first quarter. Ultimately, those involved in exploration cut back on their business with support service providers. Since almost all of our energy-related credits are in support services, several of our outstanding credits weakened during the quarter. Updated cash flow analyses and appraisals resulted in a $6.5 million credit loss provision on several energy-related credits.

At March 31, 2015, we had 45 outstanding loan and lease relationships totaling $264.4 million to borrowers broadly involved in the energy industry. The obligors under these loans and leases either conduct mining, oil and gas extraction or provide industrial support services to such types of businesses. The collateral for these loans and leases primarily includes equipment, such as drilling and mining equipment and transportation vehicles, used directly and indirectly in these activities. At March 31, 2015, six relationships totaling $69.3 million were on nonaccrual status and were classified.

Deposits

The following table presents the composition of our deposit portfolio as of the dates indicated:

At March 31, 2015, core deposits totaled $6.2 billion, or 52% of total deposits, including $3.0 billion of noninterest-bearing demand deposits, or 26% of total deposits. Deposits obtained from CapitalSource Division borrowers totaled $303.1 million at March 31, 2015, of which $289.9 million were core deposits.

The following table summarizes the maturities of our time deposits as of the date indicated:

The remaining purchase accounting premium on acquired CapitalSource time deposits was $2.4 million at March 31, 2015, of which $1.6 million will be recognized as a reduction of interest expense in the remainder of 2015.

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

We made a provision for credit losses of $16.4 million in the first quarter of 2015 and $2.1 million in the fourth quarter of 2014 in accordance with our loan methodology, which takes into consideration new loan and lease fundings, commitments to make loans and leases, and underlying credit quality trends. The first quarter provision is comprised of a $17.1 million provision for Non-PCI loans and leases and a negative provision of $0.7 million for PCI loans. The $17.1 million provision related to Non-PCI loans and leases included $8.8 million for specific reserves and $8.3 million for the combination of portfolio growth, payoffs, and risk rating changes. Of the $8.8 million of net provision for specific reserves, $6.5 million related to newly impaired energy-related leases. The negative provision for PCI loans results from increases in expected cash flows on such loans, which have a net carrying value of $254.3 million at March 31, 2015.

The following tables show roll forwards of the allowance for credit losses for the first quarter of 2015 and fourth quarter of 2014:

Non-PCI loans and leases include $5.9 billion of originated loans and leases that were not obtained through acquisitions. The allowance related to these loans and leases totals $70.7 million, or 1.20% of the outstanding balance.

All acquired loans are recorded initially at their estimated fair value with such initial fair value including an estimate of credit losses. Two additional credit coverage ratios shown in the table below are presented to give an indication of overall credit risk coverage:

The decrease in coverage ratios results from the combination of newly originated loans being provided for at a rate lower than the current coverage ratio and normal and accelerated accretion of unamortized discount.

CREDIT QUALITY

The following table presents our Non-PCI loan and lease credit quality metrics as of the dates indicated:

Energy-related loans and leases classified and placed on nonaccrual during the quarter totaled $69.9 million. First quarter net charge-offs of $7.4 million include $5.0 million on energy-related credits.

The following table presents our Non-PCI nonaccrual loans and leases and accruing loans and leases past due between 30 and 89 days by portfolio segment and class as of the dates indicated:

The following table presents our nonperforming assets as of the dates indicated:

SQUARE 1 FINANCIAL, INC. MERGER ANNOUNCEMENT

On March 2, 2015, PacWest announced the signing of a definitive agreement and plan of merger (the "Agreement") whereby PacWest and Square 1 Financial, Inc. ("Square 1") will merge in a transaction valued at approximately $849 million. The combined company will be called PacWest Bancorp and the combined subsidiary bank will be called Pacific Western Bank. The Square 1 lending operations will continue to do business under the name Square 1 as a division of Pacific Western Bank.

Under the terms of the Agreement, Square 1 stockholders will receive 0.5997 shares of PacWest common stock for each share of Square 1 common stock and holders of stock options, restricted stock units, and warrants will receive cash based on the approximate value of the merger consideration. The total value of the per share merger consideration was $27.49, based on the closing price of PacWest common stock on February 27, 2015, the last trading day before the transaction was announced, of $45.84.

As of December 31, 2014, on a pro forma consolidated basis, the combined company would have had approximately $19.8 billion in assets with 80 branches throughout California and one in North Carolina. The combined institution would be the 6^th largest publicly-owned bank headquartered in California.

The transaction, currently expected to close in the fourth quarter of 2015, is subject to customary conditions, including the approval of bank regulatory authorities and the Square 1 stockholders.

ABOUT PACWEST BANCORP

PacWest Bancorp is a bank holding company with over $16 billion in assets with one wholly-owned banking subsidiary, Pacific Western Bank ("Pacific Western"). Through 80 full-service branches located throughout the state of California, Pacific Western provides commercial banking services, including real estate, construction, and commercial loans, to small and medium-sized businesses. Pacific Western and its CapitalSource Division deliver the full spectrum of financing solutions nationwide across numerous industries and property types. For more information about PacWest Bancorp, visit www.pacwestbancorp.com, or to learn more about Pacific Western Bank, visit www.pacificwesternbank.com.

FORWARD LOOKING STATEMENTS

This release contains certain "forward-looking statements" about the Company and its subsidiaries within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, strategies, goals, and projections and including statements about our expectations regarding our pending merger between the Company and Square 1, profitability, deposit growth, and effective tax rates. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words "anticipate," "assume," "intend," "believe," "forecast," "expect," "estimate," "plan," "continue," "will," "should," "look forward" and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such forward-looking statements for a variety of factors, including without limitation:

• the Company's ability to complete future acquisitions, including the Square 1 merger, and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;
• the Company's ability to obtain regulatory approvals and meet other closing conditions to the Square 1 merger on the expected terms and schedule;
• delay in closing the Square 1 merger;
• business disruption following the proposed Square 1 merger;
• changes in the Company's stock price before completion of the Square 1 merger, including as a result of the financial performance of the Company or Square 1 prior to closing;
• the reaction to the Square 1 merger of the companies' customers, employees and counterparties;
• changes in economic or competitive market conditions could negatively impact investment or lending opportunities or product pricing and services;
• deteriorations in credit and other markets;
• higher than anticipated loan and lease losses;
• sustained reduction in real estate markets could negatively impact the value of our collateral and our borrowers' ability to repay loans;
• a change in the interest rate environment reduces interest margins;
• lower than expected revenues;
• asset/liability repricing risks and liquidity risks reduces interest margins and the value of investments;
• increased costs to manage and sell foreclosed assets;
• legislative or regulatory requirements or changes adversely affected the Company's business, including an increase to capital requirements;
• regulatory approvals for any capital activities cannot be obtained on the terms expected or on the anticipated schedule;
• changes in tax laws or regulations affecting our business;
• our inability to generate sufficient earnings;
• tax planning or disallowance of tax benefits by tax authorities;
• changes in tax filing jurisdictions or entity classifications; and
• other risk factors described in documents filed by PacWest with the U.S. Securities and Exchange Commission ("SEC").

All forward-looking statements included in this release are based on information available at the time of the release. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise except as required by law.

ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION AND WHERE TO FIND IT

Investors and security holders are urged to carefully review and consider each of PacWest Bancorp's and Square 1's public filings with the SEC, including but not limited to their Annual Reports on Form 10-K, their proxy statements, their Current Reports on Form 8-K and their Quarterly Reports on Form 10-Q. The documents filed by PacWest with the SEC may be obtained free of charge at PacWest's website at www.pacwestbancorp.com or at the SEC's website at www.sec.gov. These documents may also be obtained free of charge from PacWest by requesting them in writing to PacWest Bancorp, c/o Pacific Western Bank, 130 S. State College Blvd., Brea, CA 92821, Attention: Investor Relations, telephone (714) 671-6800, or via e-mail to investor-relations@pacwestbancorp.com.

The documents filed by Square 1 with the SEC may be obtained free of charge at Square 1's website at www.square1bank.com or at the SEC's website at www.sec.gov. These documents may also be obtained free of charge from Square 1 by requesting them in writing to Square 1 Financial, c/o Square 1 Bank, 406 Blackwell Street, Suite 240, Durham, NC 27701; Attention: Investor Relations, or by telephone at Phone: (866) 355-0468.

PacWest intends to file a registration statement with the SEC which will include a proxy statement of Square 1 and a prospectus of PacWest, and each party will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decision, investors and security holders of Square 1 are urged to carefully read the entire registration statement and proxy statement/prospectus, when they become available, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. A definitive proxy statement/prospectus will be sent to the stockholders of Square 1 seeking any required stockholder approvals. Investors and security holders will be able to obtain the registration statement and the proxy statement/prospectus free of charge from the SEC's website or from PacWest or Square 1 by writing to the addresses provided for each company set forth in the paragraphs above.

PacWest, Square 1, their directors, executive officers and certain other persons may be deemed to be participants in the solicitation of proxies from Square 1 stockholders in favor of the approval of the transaction. Information about the directors and executive officers of PacWest and their ownership of PacWest common stock is set forth in the proxy statement for PacWest's 2015 annual meeting of stockholders, as previously filed with the SEC. Information about the directors and executive officers of Square 1 and their ownership of Square 1 common stock is set forth in the proxy statement for Square 1's 2014 annual meeting of stockholders, as previously filed with the SEC. Stockholders may obtain additional information regarding the interests of such participants by reading the registration statement and the proxy statement/prospectus when they become available.

GAAP TO NON-GAAP RECONCILIATION

This press release contains certain non-GAAP financial disclosures for adjusted net earnings, adjusted return on average assets, adjusted return on average equity, return on average tangible equity, adjusted return on average tangible equity, tangible common equity amounts and ratios, tangible book value per share, adjusted efficiency ratio, core net interest margin, and operating expense as a percentage of average assets. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance:

• Adjusted net earnings: To calculate adjusted net earnings, we exclude from net earnings primarily income statement items for which the related assets or liabilities have been completely resolved and are no longer on the balance sheet. As analysts and investors view this measure as an indicator of the Company's ability to generate recurring earnings, we disclose this amount in addition to net earnings.
   
• Adjusted return on average assets, adjusted return on average equity, return on average tangible equity, adjusted return on average tangible equity, tangible common equity amounts and ratios, and tangible book value per share: Given that the use of these measures is prevalent among banking regulators, investors and analysts, we disclose them in addition to return on average assets, return on average equity, equity-to-assets ratio, and book value per share, respectively.
   
• Adjusted efficiency ratio: We disclose this measure in addition to efficiency ratio as it shows the trend in recurring overhead-related noninterest expense relative to recurring net revenues.

Please refer to the tables on the following pages for a presentation of performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measures to the GAAP financial measures.