PacWest Bancorp Announces Results for the Fourth Quarter and Full Year 2015

Fourth Quarter 2015 Highlights

• Square 1 Acquisition Closed October 6, 2015
• Net Earnings of $71.8 Million, or $0.60 Per Diluted Share; Adjusted Net Earnings of $83.9 Million, or $0.70 Per Diluted Share
• New Loan and Lease Production of $1.4 Billion for the Quarter
• Core Deposits Increased $3.8 Billion for the Quarter and Represented 67% of Total Deposits
• Core Tax Equivalent Net Interest Margin of 5.10%

Full Year 2015 Highlights

• Net Earnings of $299.6 Million, or $2.79 Per Diluted Share; Adjusted Net Earnings of $287.4 Million, or $2.68 Per Diluted Share
• New Loan and Lease Production of $4.2 Billion for the Year; Organic Growth Rate of 9%
• Core Deposits Increased $4.4 Billion for the Year, Including $3.8 Billion From the Square 1 Acquisition
• Core Tax Equivalent Net Interest Margin of 5.25%
  
  

LOS ANGELES, Jan. 21, 2016 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the fourth quarter of 2015 of $71.8 million, or $0.60 per diluted share, compared to net earnings for the third quarter of 2015 of $69.6 million, or $0.68 per diluted share.  Net earnings for the full year 2015 were $299.6 million, or $2.79 per diluted share, compared to net earnings of $168.9 million for the full year 2014, or $1.92 per diluted share.  The increase in annual net earnings was due mostly to including the operations of CapitalSource for all of 2015 compared to including its operations in 2014 only from the April 7, 2014 merger date.

When certain income and expense items described below are excluded, adjusted net earnings were $83.9 million, or $0.70 per diluted share, for the fourth quarter of 2015 compared to $65.1 million, or $0.63 per diluted share, for the third quarter of 2015.  Adjusted net earnings were $287.4 million, or $2.68 per diluted share, for the full year 2015 compared to $219.7 million, or $2.49 per diluted share, for the full year 2014.

Matt Wagner, President and CEO, commented, “Our strong fourth quarter results capped a year of profitable growth and continued solid operating performance.  Our full year 2015 diluted EPS increased 45%, driving our return on assets of 1.70% and return on tangible equity of 15.76%. These exceptional operating results allowed us to distribute more than $215 million of cash dividends to our stockholders in 2015.”

Mr. Wagner continued, “Our entry into the venture capital banking space as a result of the Square 1 acquisition combined with the recent expansion of new commercial construction and multi-family  lending groups will help to diversify our loan and lease portfolio along product and geographical lines and contribute toward our targeted upper single-digit portfolio growth. With our strong capital levels and overall sound asset quality metrics we are well positioned for continued success. Our achievements were recently recognized in Forbes magazine’s 2016 List of America’s Best Banks where PacWest was named the second best performing of the 100 largest publicly-traded U.S. banks.”

Patrick Rusnak, Executive Vice President and CFO stated, “Our fourth quarter tax equivalent net interest margin on a core basis of 5.10% reflects proactive steps taken during the third and fourth quarters in connection with the Square 1 acquisition.  These actions included a further reduction in time deposits and a restructuring of the acquired investment securities portfolio.  Further, Square 1’s core deposits substantially improved our core deposit base driving core deposits as a percentage of total deposits up to 67%, nearly a 20% increase.  Our total organic loan and lease portfolio growth for 2015, which excludes merger related and bulk acquisitions, totaled over $800 million, or 7%, driven by growth in cash flow, asset-based and construction lending.”

Mr. Rusnak continued, “Our total oil and gas related credit exposure at year end was $137 million, or less than one percent of total loans and leases, reflecting a reduction of 10% from principal payments received during the fourth quarter. The reserves related to this credit exposure total approximately 8%. We continue to control operating expenses as shown by our efficiency ratio, which declined to 39.3% in the fourth quarter. We are excited about our prospects for 2016 and believe our talented teams will continue to deliver strong results.”

FINANCIAL HIGHLIGHTS

	At or For the Three Months Ended												At or For the Year Ended
	December 31,				September 30,								December 31,
		2015				2015			Change					2015				2014			Change
	(Dollars in thousands, except per share data)
Financial Highlights (1):
Net Earnings	$	71,841			$	69,616			$	2,225			$	299,619			$	168,905			$	130,714
Diluted Earnings Per Share	$	0.60			$	0.68			$	(0.08	)		$	2.79			$	1.92			$	0.87
Return on Average Assets		1.37	%			1.65	%			(0.28	)			1.70	%			1.27	%			0.43
Return on Average
Tangible Equity (2)		13.14	%			15.09	%			(1.95	)			15.76	%			11.88	%			3.88
Adjusted Net Earnings (2)	$	83,927			$	65,063			$	18,864			$	287,422			$	219,701			$	67,721
Adjusted Diluted Earnings
Per Share (2)	$	0.70			$	0.63			$	0.07			$	2.68			$	2.49			$	0.19
Adjusted Return on Average
Assets (2)		1.60	%			1.55	%			0.05				1.64	%			1.65	%			(0.01	)
Adjusted Return on Average
Tangible Equity (2)		15.35	%			14.10	%			1.25				15.12	%			15.46	%			(0.34	)
Net Interest Margin
(tax equivalent)		5.22	%			5.46	%			(0.24	)			5.60	%			6.01	%			(0.41	)
Core Net Interest Margin
(tax equivalent) (2)		5.10	%			5.19	%			(0.09	)			5.25	%			5.66	%			(0.41	)
Efficiency Ratio		39.3	%			39.6	%			(0.3	)			38.5	%			41.6	%			(3.1	)
Total Assets	$	21,288,490			$	16,814,105			$	4,474,385			$	21,288,490			$	16,234,605			$	5,053,885
Loans and Leases, Net of
Deferred Fees	$	14,478,254			$	12,452,205			$	2,026,049			$	14,478,254			$	11,882,432			$	2,595,822
Total Deposits	$	15,666,182			$	12,115,763			$	3,550,419			$	15,666,182			$	11,755,128			$	3,911,054
Noninterest-Bearing Deposits
as Percentage of Total
Deposits		39	%			29	%			10				39	%			25	%			14
Core Deposits as Percentage
of Total Deposits		67	%			56	%			11				67	%			52	%			15
Tangible Common Equity
Ratio (2)		11.38	%			12.21	%			(0.83	)			11.38	%			12.20	%			(0.82	)
Tangible Book Value Per
Share (2)	$	17.86			$	17.86			$	-			$	17.86			$	17.17			$	0.69
________________________
(1) The operations of Square 1 Financial, Inc. are included from its October 6, 2015, acquisition date.
(2) Non-GAAP measure.

ADJUSTED NET EARNINGS

In evaluating our earnings, certain items are excluded to arrive at adjusted net earnings and adjusted diluted earnings per share, as detailed below:

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
			2015				2015				2014				2015				2014
		(Dollars in thousands)
Net earnings		$	71,841			$	69,616			$	70,999			$	299,619			$	168,905
Less:	Tax benefit on discontinued operations		-				-				(47	)			-				(1,114	)
Add:	Tax expense on continuing operations		49,380				39,777				43,261				180,517				117,005
Pre-tax earnings			121,221				109,393				114,213				480,136				284,796
Add:	Acquisition, integration, and
	reorganization costs		17,600				747				7,381				21,247				101,016
Less:	FDIC loss sharing expense, net		(4,291	)			(4,449	)			(4,360	)			(18,246	)			(31,730	)
	Gain on sale of loans and leases		183				27				7				373				601
	Gain on securities		-				655				-				3,744				4,841
	Covered OREO income (expense), net		2,920				(20	)			(176	)			2,931				1,172
	Gain on sale of owned office building		-				-				-				-				1,570
Adjusted pre-tax earnings before accelerated
discount accretion			140,009				113,927				126,123				512,581				409,358
Less:	Accelerated discount accretion from
	early payoffs of acquired loans		5,511				9,659				11,421				51,969				38,867
Adjusted pre-tax earnings			134,498				104,268				114,702				460,612				370,491
	Tax expense (1)		(50,571	)			(39,205	)			(46,684	)			(173,190	)			(150,790	)
Adjusted net earnings		$	83,927			$	65,063			$	68,018			$	287,422			$	219,701
Adjusted diluted earnings per share		$	0.70			$	0.63			$	0.66			$	2.68			$	2.49
Adjusted return on average assets			1.60	%			1.55	%			1.70	%			1.64	%			1.65	%
___________________________________
(1) Full-year actual effective tax rates of 37.6% used for 2015 periods and 40.7% used for 2014 periods.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased by $36.7 million to $229.2 million for the fourth quarter of 2015 compared to $192.5 million for the third quarter of 2015 due to higher average investment and loan balances offset by lower discount accretion on acquired loans.  The loan and lease yield for the fourth quarter of 2015 was 6.21% compared to 6.34% for the third quarter of 2015.  The decrease in the loan and lease yield was due to lower discount accretion on acquired loans and the yield on new originations being lower than the current portfolio yield. Total discount accretion on acquired loans was $16.1 million in the fourth quarter of 2015 (46 basis points on the loan and lease yield) compared to $17.1 million in the third quarter of 2015 (57 basis points on the loan and lease yield). The decrease in discount accretion was due primarily to lower accelerated accretion from early payoffs.

The tax equivalent net interest margin (“NIM”) for the fourth quarter of 2015 was 5.22% compared to 5.46% for the third quarter of 2015. The decrease in the NIM was due to lower discount accretion on acquired loans and a higher percentage of average lower-yielding assets in the mix. Discount accretion on acquired loans contributed 36 basis points to the NIM in the fourth quarter of 2015 and 48 basis points in the third quarter of 2015.    

The cost of total deposits decreased to 0.24% in the fourth quarter from 0.33% in the third quarter due to the increased balance of noninterest-bearing deposits and a lower level of higher-cost time deposits.

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

	Three Months Ended
	December 31,				September 30,
		2015				2015
	(Dollars in thousands)
Average Assets:
Loans and leases	$	14,031,102			$	12,112,881
Investment securities		3,492,124				1,806,628
Deposits in financial institutions		254,308				278,973
Interest-earning assets		17,777,534				14,198,482
Other assets		3,047,714				2,491,695
Total assets	$	20,825,248			$	16,690,177
Average Liabilities and Stockholders' Equity:
Interest-bearing deposits	$	9,633,393			$	8,993,681
Borrowings		206,236				70,171
Subordinated debentures		435,293				434,420
Interest-bearing liabilities		10,274,922				9,498,272
Noninterest-bearing demand deposits		6,043,900				3,486,780
Other liabilities		160,264				132,360
Total liabilities		16,479,086				13,117,412
Stockholders' equity		4,346,162				3,572,765
Liabilities and stockholders' equity	$	20,825,248			$	16,690,177
Time deposits	$	4,439,940			$	5,042,768
Total deposits	$	15,677,293			$	12,480,461
Funding sources	$	16,318,822			$	12,985,052
Yields on Average Assets:
Loans and leases		6.21	%			6.34	%
Investment securities (1)		3.23	%			3.67	%
Interest-earning assets (1)		5.54	%			5.88	%
Costs of Average Liabilities:
Total deposits		0.24	%			0.33	%
Time deposits		0.63	%			0.66	%
Interest-bearing deposits		0.39	%			0.46	%
Borrowings		0.31	%			0.41	%
Subordinated debentures		4.33	%			4.27	%
Interest-bearing liabilities		0.55	%			0.63	%
Funding sources		0.35	%			0.46	%
Net interest rate spread (1)		4.99	%			5.25	%
Net interest margin (1)		5.22	%			5.46	%
(1) Tax equivalent

The tax equivalent NIM and loan and lease yield are impacted by volatility in accelerated accretion of acquisition discounts due to the prepayment of acquired loans and leases. The effects of this item are shown in the following table for the periods indicated:

		Three Months Ended							Three Months Ended
		December 31, 2015							September 30, 2015
					Loan and							Loan and
		NIM			Lease Yield				NIM			Lease Yield
Reported			5.22	%		6.21	%			5.46	%		6.34	%
Less:	Accelerated accretion of acquisition discounts
	from early payoffs of acquired loans		(0.12	)%		(0.16	)%			(0.27	)%		(0.32	)%
Core			5.10	%		6.05	%			5.19	%		6.02	%

The impact on the tax equivalent net interest income and NIM from all purchase accounting items is set forth in the table below for the periods indicated:

		Three Months Ended							Three Months Ended
		December 31, 2015							September 30, 2015
					Impact on							Impact on
		Amount			NIM				Amount			NIM
		(Dollars in thousands)
Net interest income/NIM		$	233,959			5.22	%		$	195,274			5.46	%
Less:	Accelerated accretion of acquisition discounts
	from early payoffs of acquired loans		(5,511	)		(0.12	)%			(9,659	)		(0.27	)%
	Remaining accretion of Non-PCI loan
	acquisition discounts		(10,553	)		(0.24	)%			(7,485	)		(0.21	)%
	Total accretion of loan acquisition discounts		(16,064	)		(0.36	)%			(17,144	)		(0.48	)%
	Amortization of TruPS discount		1,397			0.03	%			1,399			0.04	%
	Accretion of time deposits premium		(384	)		(0.01	)%			(576	)		(0.02	)%
			(15,051	)		(0.34	)%			(16,321	)		(0.46	)%
Net interest income/NIM - excluding purchase
accounting		$	218,908			4.88	%		$	178,953			5.00	%

Noninterest Income

Noninterest income increased by $12.3 million to $28.1 million for the fourth quarter of 2015 compared to $15.8 million for the third quarter of 2015 due mostly to higher other commissions and fees of $6.3 million, higher leased equipment income of $2.3 million, higher other income of $2.7 million and higher service charges on deposit accounts of $1.3 million. The increase in other commissions and fees was comprised of $3.3 million from loan prepayment fees, $1.7 million from foreign exchange fees and $0.7 million from credit card fee income. The last two items are new revenue streams acquired in the Square 1 acquisition. Leased equipment income increased due to higher average balances and other income increased due to gains from early lease terminations, dividends received on other investments, a miscellaneous recovery and warrant gains. We acquired a portfolio of equity warrants in the Square 1 acquisition, and we continue to receive warrants in connection with extending loan commitments to certain of our customers. Warrants potentially provide gains in the case of a future customer liquidity event. The increase in deposit service charges was due to the acquired Square 1 deposits. 

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

	Three Months Ended
	December 31,				September 30,				Increase
Noninterest Income		2015				2015			(Decrease)
	(In thousands)
Service charges on deposit accounts	$	3,901			$	2,601			$	1,300
Other commissions and fees		12,691				6,376				6,315
Leased equipment income		7,791				5,475				2,316
Gain on sale of loans and leases		183				27				156
Gain on securities		-				655				(655	)
FDIC loss sharing expense, net		(4,291	)			(4,449	)			158
Other income:
Dividends and realized gains on equity investments		4,886				4,357				529
Foreign currency translation net losses		(661	)			(373	)			(288	)
Income recognized on early repayment of leases		802				12				790
Other		2,756				1,077				1,679
Total noninterest income	$	28,058			$	15,758			$	12,300

Noninterest Expense

Noninterest expense increased by $32.1 million to $122.3 million for the fourth quarter of 2015 compared to $90.1 million for the third quarter of 2015.  The increase was due mostly to higher acquisition, integration and reorganization costs of $16.9 million related to the Square 1 acquisition and integration. All operating expense categories were higher quarter over quarter due mostly to the Square 1 acquisition. Foreclosed assets expense is lower by $7.7 million due to gains of $3.0 million on foreclosed asset sales in the fourth quarter, while the third quarter included a write-down of $4.6 million on an existing foreclosed property.

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

	Three Months Ended
	December 31,				September 30,				Increase
Noninterest Expense		2015				2015			(Decrease)
	(In thousands)
Compensation	$	58,992			$	48,152			$	10,840
Occupancy		12,194				10,762				1,432
Data processing		5,585				4,322				1,263
Other professional services		3,811				3,396				415
Insurance and assessments		5,450				3,805				1,645
Intangible asset amortization		4,910				1,497				3,413
Leased equipment depreciation		4,235				3,162				1,073
Foreclosed assets (income) expense, net		(3,185	)			4,521				(7,706	)
Acquisition, integration and reorganization costs		17,600				747				16,853
Other expense:
Loan expense		2,745				1,494				1,251
Other		9,927				8,281				1,646
Total noninterest expense	$	122,264			$	90,139			$	32,125

Income Taxes

Our overall effective income tax rate was 40.7% for the fourth quarter of 2015 and 36.4% for the third quarter of 2015.  The effective tax rate for the full year 2015 was 37.6%. 

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases increased $2.0 billion in the fourth quarter to $14.5 billion at December 31, 2015.   The net increase was driven by the acquisition of Square 1 loans of $1.6 billion and fourth quarter originations and purchases of $1.4 billion, offset partially by principal repayments of $910.4 million.   For the year ended December 31, 2015, total loans and leases increased $2.6 billion, or approximately 22%. Fourth quarter new production included $96 million of purchased multi-family loans and the third quarter included $132 million of purchased multi-family and student loans.

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

	Three Months Ended								Year Ended
	December 31,				September 30,				December 31,
Loan and Lease Roll Forward (1)		2015				2015				2015
	(In thousands)
Beginning balance	$	12,452,205			$	12,034,189			$	11,882,432
New production		1,403,611				1,070,986				4,171,172
Existing loans and leases:
Principal repayments, net (2)		(910,445	)			(630,292	)			(3,067,733	)
Loan and lease sales		(19,610	)			(6,864	)			(30,095	)
Transfers to foreclosed assets		-				(10,383	)			(13,471	)
Charge-offs		(1,227	)			(5,431	)			(17,771	)
Loans acquired through Square 1 acquisition		1,553,720				-				1,553,720
Ending balance	$	14,478,254			$	12,452,205			$	14,478,254
Weighted average yields on new production		5.29	%			5.16	%			5.47	%
___________________________________
(1) Includes direct financing leases but excludes equipment leased to others under operating leases.
(2) Includes principal repayments on existing loans, changes in revolving lines of credit (repayments and draws), loan participation sales and other changes within the loan portfolio.

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

	December 31,				September 30,				December 31,
Loan and Lease Portfolio		2015				2015				2014
	(In thousands)
Real estate mortgage:
Commercial	$	4,642,088			$	4,512,489			$	4,583,350
Residential		1,211,209				1,177,302				1,010,022
Total real estate mortgage		5,853,297				5,689,791				5,593,372
Real estate construction and land:
Commercial		349,436				229,904				220,927
Residential		184,382				145,262				96,749
Total real estate construction and land		533,818				375,166				317,676
Total real estate loans		6,387,115				6,064,957				5,911,048
Commercial:
Cash flow		3,073,965				2,980,650				2,665,654
Asset-based		2,547,665				2,381,706				2,234,474
Equipment finance		890,349				894,777				969,489
Venture capital		1,458,013				-				-
Total commercial		7,969,992				6,257,133				5,869,617
Consumer		121,147				130,115				101,767
Total loans and leases, net of deferred fees	$	14,478,254			$	12,452,205			$	11,882,432
Total unfunded loan commitments	$	3,580,655			$	2,022,046			$	1,921,067

Production from our recently expanded construction lending team is ramping up resulting in the growth in construction loans in the fourth quarter from the combination of new loans originated and disbursements on previously booked loans. Venture capital loans and unfunded loan commitments showed large increases in the fourth quarter due to the acquired balances from Square 1.

Credit Exposure Affected by Low Oil Prices

At December 31, 2015, PacWest had 24 outstanding loan and lease relationships totaling $137.3 million to borrowers involved in the oil and gas services industry, down from $152.3 million at September 30, 2015.  The collateral for these loans and leases primarily includes equipment, such as drilling equipment and transportation vehicles.  At December 31, 2015, three relationships totaling $47.1 million were on nonaccrual status and were classified, down from $47.9 million at September 30, 2015.   The largest of these relationships had an aggregate outstanding balance of $40.1 million at December 31, 2015.  These nonaccrual loans had specific valuation allowances of $6.3 million at December 31, 2015 reflecting a $4.9 million increase during the fourth quarter of 2015. The total reserves related to our oil and gas services industry exposure was approximately 8% at year end.

Deposits and Client Investment Funds

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

	December 31,				September 30,				December 31,
Deposit Category		2015				2015				2014
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	6,171,455			$	3,508,682			$	2,931,352
Interest checking deposits		874,349				693,632				732,196
Money market deposits		2,782,974				1,860,983				1,709,068
Savings deposits		742,795				751,955				762,961
Total core deposits		10,571,573				6,815,252				6,135,577
Brokered non-maturity deposits		942,253				713,215				120,613
Total non-maturity deposits		11,513,826				7,528,467				6,256,190
Time deposits under $100,000		1,656,227				1,951,938				2,467,338
Time deposits of $100,000 and over		2,496,129				2,635,358				3,031,600
Total time deposits		4,152,356				4,587,296				5,498,938
Total deposits	$	15,666,182			$	12,115,763			$	11,755,128
Noninterest-bearing demand deposits as percentage of total deposits		39	%			29	%			25	%
Core deposits as percentage of total deposits		67	%			56	%			52	%

At December 31, 2015, core deposits totaled $10.6 billion, or 67% of total deposits, including $6.2 billion of noninterest-bearing demand deposits, or 39% of total deposits.  Core deposits obtained in the Square 1 acquisition totaled $3.8 billion.

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

	December 31, 2015
	Time Deposits					Time Deposits					Total						Estimated
	Under						$	100,000			Time			Contractual			Effective
Time Deposit Maturities		$	100,000			or More					Deposits			Rate			Rate
	(Dollars in thousands)
Due in three months or less	$		589,234			$		784,141			$	1,373,375			0.60	%		0.58	%
Due in over three months through six months			453,763					821,581				1,275,344			0.73	%		0.72	%
Due in over six months through twelve months			500,658					763,141				1,263,799			0.64	%		0.62	%
Due in over 12 months through 24 months			82,459					100,050				182,509			0.63	%		0.51	%
Due in over 24 months			30,113					27,216				57,329			1.03	%		0.84	%
Total	$		1,656,227			$		2,496,129			$	4,152,356			0.66	%		0.64	%
At September 30, 2015	$		1,951,938			$		2,635,358			$	4,587,296			0.67	%		0.65	%

In addition to deposit products, we also offer alternative non-depository cash investment options for select clients, including investments managed by Square 1 Asset Management, Inc. (“S1AM”) our registered investment advisor subsidiary, and third-party sweep products.  Total client investment funds at December 31, 2015 were $2.0 billion, of which $1.6 billion was managed by S1AM.   In conjunction with the integration of Square 1 Bank, approximately $300 million of assets managed by S1AM were transferred into on-balance sheet deposit products during the fourth quarter of 2015.   

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

A provision for credit losses of $13.8 million was recorded in the fourth quarter of 2015 compared to $8.7 million in the third quarter of 2015. The fourth quarter provision was comprised of a $15.1 million provision for Non-PCI loans and leases and a negative provision of $1.3 million for PCI loans. The allowance for Non-PCI credit losses to Non-PCI loans and leases coverage ratio increased to 0.85% at December 31, 2015 from 0.82% at September 30, 2015.  The increase in the reserve for unfunded commitments was due to higher levels of expected unfunded commitments utilization and a higher level of unfunded commitments, excluding any gained in the Square 1 acquisition.  The negative provision for PCI loans resulted from increases in actual and expected cash flows, mostly due to payoffs.

The following tables show roll forwards of the allowance for credit losses for the periods indicated:

	Three Months Ended December 31, 2015
	Non-PCI
Allowance for Credit	Loans and				Unfunded				Total				PCI
Losses Rollforward	Leases				Commitments				Non-PCI				Loans				Total
	(In thousands)
Beginning balance	$	92,316			$	8,374			$	100,690			$	10,955			$	111,645
Fair value of acquired reserve for unfunded commitments		-				4,746				4,746				-				4,746
Charge-offs		(1,153	)			-				(1,153	)			(74	)			(1,227	)
Recoveries		2,871				-				2,871				38				2,909
Net recoveries		1,718				-				1,718				(36	)			1,682
Provision (negative provision)		11,500				3,614				15,114				(1,342	)			13,772
Ending balance	$	105,534			$	16,734			$	122,268			$	9,577			$	131,845
	Three Months Ended September 30, 2015
Allowance for Credit	Non-PCI
Losses Rollforward	Loans and				Unfunded				Total				PCI
	Leases				Commitments				Non-PCI				Loans				Total
	(In thousands)
Beginning balance	$	85,047			$	7,874			$	92,921			$	14,328			$	107,249
Charge-offs		(4,312	)			-				(4,312	)			(1,119	)			(5,431	)
Recoveries		1,081				-				1,081				-				1,081
Net (charge-offs) recoveries		(3,231	)			-				(3,231	)			(1,119	)			(4,350	)
Provision (negative provision)		10,500				500				11,000				(2,254	)			8,746
Ending balance	$	92,316			$	8,374			$	100,690			$	10,955			$	111,645

All acquired loans are recorded initially at their estimated fair value including an estimate of credit losses. The table below presents two alternative views of credit risk coverage ratios for Non-PCI loans reflecting adjustments for acquired loans and associated purchase accounting discounts:

	December 31, 2015										September 30, 2015
	Non-PCI										Non-PCI
	Loans and			Allowance/			Coverage				Loans and			Allowance/			Coverage
Credit Risk Coverage Ratios	Leases			Discount			Ratio				Leases			Discount			Ratio
	(Dollars in thousands)
Ending balance	$	14,339,070		$	122,268			0.85	%		$	12,300,057		$	100,690			0.82	%
Acquired loans		(6,030,921	)		(19,127	)	(1	)				(5,180,808	)		(12,173	)	(1	)
Adjusted balance	$	8,308,149		$	103,141			1.24	%		$	7,119,249		$	88,517			1.24	%
Ending balance	$	14,339,070		$	122,268			0.85	%		$	12,300,057		$	100,690			0.82	%
Unamortized net discount		92,192			92,192		(2	)				88,690			88,690		(2	)
Adjusted balance	$	14,431,262		$	214,460			1.49	%		$	12,388,747		$	189,380			1.53	%
___________________________
(1) Allowance attributed to $6.0 billion and $5.2 billion of acquired Non-PCI loans at December 31, 2015 and September 30, 2015, based on the allowance calculation that includes an amount for credit deterioration on acquired loans and leases since their acquisition dates.
(2) Unamortized net discount relates to $6.0 billion and $5.2 billion of acquired Non-PCI loans at December 31, 2015 and September 30, 2015, and is assigned specifically to those loans only.  Such discount represents the acquisition date fair value adjustment based on market, liquidity, interest rate risk and credit risk and is being accreted to interest income over the remaining life of the respective loans using the interest method.  Use of the interest method results in steadily declining amounts being taken into income in each reporting period.  The remaining discount of $92.2 million at December 31, 2015, is expected to be substantially accreted to income by the end of 2018.

Non-PCI loans and leases at December 31, 2015 included $8.3 billion of originated loans and leases that were not obtained through acquisitions. The related allowance for loan and lease losses totaled $90.5 million, or 1.09% of the outstanding balance.

CREDIT QUALITY

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

	December 31,				September 30,
Non-PCI Credit Quality Metrics		2015				2015
	(Dollars in thousands)
Allowance for credit losses	$	122,268			$	100,690
Nonaccrual loans and leases (1)		129,019				107,190
Classified loans and leases		391,754				328,038
Performing restructured loans		40,182				39,956
Net charge-offs (recoveries) (for the quarter)		(1,718	)			3,231
Provision for credit losses (for the quarter)		15,114				11,000
Allowance for credit losses to loans and leases		0.85	%			0.82	%
Allowance for credit losses to nonaccrual loans and leases (1)		94.8	%			93.9	%
Nonaccrual loans and leases to loans and leases		0.90	%			0.87	%
Nonperforming assets to loans and leases and foreclosed assets		1.06	%			1.14	%
Classified loans and leases to loans and leases		2.73	%			2.67	%
_________________________________________
(1) The December 31, 2015 and September 30, 2015 amounts include $85.2 million and $54.9 million of acquired loans and leases with no allowance due to the effects of fair value accounting.

The following table presents 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:

	Nonaccrual Loans and Leases														Accruing and
	December 31, 2015							September 30, 2015							30-89 Days Past Due
				% of							% of				December 31,				September 30,
				Loan							Loan					2015				2015
	Amount			Category				Amount			Category				Amount				Amount
	(Dollars in thousands)
Real estate mortgage:
Commercial	$	52,363			1.2	%		$	25,899			0.6	%		$	1,498			$	1,191
Residential		4,914			0.4	%			5,922			0.5	%			3,174				1,911
Total real estate mortgage		57,277			1.0	%			31,821			0.6	%			4,672				3,102
Real estate construction and land:
Commercial		-			-				-			-				-				-
Residential		372			0.2	%			374			0.3	%			-				-
Total real estate construction and land		372			0.1	%			374			0.1	%			-				-
Commercial:
Cash flow		15,800			0.5	%			15,602			0.5	%			1,118				11
Asset-based		2,505			0.1	%			2,861			0.1	%			1				82
Equipment finance (1)		51,410			5.8	%			53,153			5.9	%			360				-
Venture capital		124			-				-			-				250				-
Total commercial		69,839			0.9	%			71,616			1.1	%			1,729				93
Consumer		1,531			1.3	%			3,379			2.6	%			628				88
Total Non-PCI loans and leases	$	129,019			0.9	%		$	107,190			0.9	%		$	7,029			$	3,283
_________________________
(1) Includes nonaccrual leases and loans to companies involved in the oil and gas industries of $47.1 million and $47.9 million at December 31, 2015 and September 30, 2015, respectively.

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

	December 31,				September 30,
Nonperforming Assets		2015				2015
	(Dollars in thousands)
Nonaccrual Non-PCI loans and leases	$	129,019			$	107,190
Nonaccrual PCI Loans (1)		4,596				4,823
Total nonaccrual loans and leases		133,615				112,013
Non-PCI accruing loan contractually past due 90 days or more		700				-
Foreclosed assets, net		22,120				33,216
Total nonperforming assets	$	156,435			$	145,229
Nonaccrual loans and leases to loans and leases		0.92	%			0.90	%
Nonperforming assets to loans and leases and foreclosed assets		1.08	%			1.16	%
_________________________________________
(1) Represents legacy CapitalSource borrowing relationships placed on nonaccrual status as of the acquisition date.

SQUARE 1 FINANCIAL, INC. ACQUISITION

On October 6, 2015, the acquisition of Square 1 Financial, Inc. (“Square 1”) was consummated in a transaction valued at approximately $815 million.  PacWest Bancorp is the surviving company and Pacific Western Bank is the surviving subsidiary bank, with the banking operations of Square 1 conducted under the trade name of Square 1 Bank, a division of Pacific Western Bank.

Under the terms of the merger agreement, Square 1 stockholders received 0.5997 shares of PacWest common stock for each share of Square 1 common stock and holders of stock options and restricted stock units received cash consideration as described in the merger agreement. The total value of the per share merger consideration was $26.37, based on the closing price of PacWest common stock of $43.97 on October 6, 2015.

The following table shows the various purchase accounting adjustments at the acquisition date by category along with accretion/amortization periods: 

		Purchase
		Accounting				Estimated Accretion/
Description		Adjustment				Amortization Method
		(In thousands)
		Debit (Credit)
Loan portfolio discount		$	(37,892	)		30 months using a level yield method
Reserve for unfunded commitments		$	(4,746	)		30 months based on commitment activity
Core deposit intangible		$	42,300			84 months using an accelerated method
Customer relationship intangible		$	3,126			84 months using an accelerated method
Other intangible assets with definite lives		$	1,500			Straight line over 18 months
Other intangible assets with indefinite lives		$	2,100			Not amortized

ABOUT PACWEST BANCORP

PacWest Bancorp (“PacWest”) is a bank holding company with over $21 billion in assets with one wholly-owned banking subsidiary, Pacific Western Bank (“Pacific Western”). The Bank has 80 full-service branches located throughout the state of California and one branch in Durham, North Carolina. Pacific Western provides commercial banking services, including real estate, construction, and commercial loans, and comprehensive deposit and treasury management services to small and medium-sized businesses.  Pacific Western offers additional products and services under the brands of its business groups, CapitalSource and Square 1 Bank. CapitalSource provides cash flow, asset-based, equipment and real estate loans and treasury management services to established middle market businesses on a national basis.  Square 1 Bank offers a comprehensive suite of financial services focused on entrepreneurial businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. 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 acquisition of Square 1, intentions to expand Pacific Western’s lending business, credit loss exposure, profitability, and loan and lease portfolio growth. 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:

• changes in economic or competitive market conditions could negatively impact investment or lending opportunities or product pricing and services;
• credit quality deterioration or pronounced and sustained reduction in market values or other economic factors which adversely affect our borrowers’ ability to repay loans and leases;
• higher than anticipated delinquencies, charge-offs, and loan losses;
• compression of spreads on newly originated loans and leases; 
• the impact of asset/liability repricing risk and liquidity risk on net interest margin and the value of investments;
• higher than anticipated increases in operating expenses;
• increased costs to manage and sell foreclosed assets;
• reduced demand for our services due to strategic or regulatory reasons;
• our inability to grow deposits or access wholesale funding sources;
• legislative or regulatory requirements or changes could negatively impact our business including an increase to capital requirements;
• loan repayments higher than expected;
• our ability to complete future acquisitions and to successfully integrate such acquired entities, including Square 1, or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;
• business disruption following the Square 1 acquisition;
• changes in our stock price;
• the reaction to the Square 1 acquisition of the Company’s customers, employees and counterparties;
• inability to attract qualified professionals;
• the success and timing of other business strategies; 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.

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
	December 31,				September 30,				December 31,
		2015				2015				2014
	(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks	$	161,020			$	154,652			$	164,757
Interest-earning deposits in financial institutions		235,466				81,642				148,469
Total cash and cash equivalents		396,486				236,294				313,226
Securities available-for-sale, at estimated fair value		3,559,437				1,809,364				1,567,177
Federal Home Loan Bank stock, at cost		19,710				17,250				40,609
Total investment securities		3,579,147				1,826,614				1,607,786
Non-PCI loans and leases		14,339,070				12,300,057				11,613,832
PCI loans		189,095				193,340				290,852
Total gross loans and leases		14,528,165				12,493,397				11,904,684
Deferred fees and costs		(49,911	)			(41,192	)			(22,252	)
Total loans and leases, net of deferred fees		14,478,254				12,452,205				11,882,432
Allowance for loan and lease losses		(115,111	)			(103,271	)			(84,455	)
Total loans and leases, net		14,363,143				12,348,934				11,797,977
Equipment leased to others under operating leases		197,452				161,508				122,506
Premises and equipment, net		39,197				36,475				36,551
Foreclosed assets, net		22,120				33,216				43,721
Deferred tax asset, net		126,389				169,760				284,411
Goodwill		2,176,291				1,728,380				1,720,479
Core deposit and customer relationship intangibles, net		53,220				12,704				17,204
Other assets		335,045				260,220				290,744
Total assets	$	21,288,490			$	16,814,105			$	16,234,605
LIABILITIES:
Noninterest-bearing deposits	$	6,171,455			$	3,508,682			$	2,931,352
Interest-bearing deposits		9,494,727				8,607,081				8,823,776
Total deposits		15,666,182				12,115,763				11,755,128
Borrowings		621,914				552,497				383,402
Subordinated debentures		436,000				435,417				433,583
Accrued interest payable and other liabilities		166,703				128,724				156,262
Total liabilities		16,890,799				13,232,401				12,728,375
STOCKHOLDERS' EQUITY (1)		4,397,691				3,581,704				3,506,230
Total liabilities and stockholders’ equity	$	21,288,490			$	16,814,105			$	16,234,605
(1) Includes net unrealized gain on securities available-for-sale, net	$	27,828			$	24,459			$	26,380
Book value per share	$	36.22			$	34.76			$	34.03
Tangible book value per share	$	17.86			$	17.86			$	17.17
Shares outstanding (includes unvested restricted shares of 1,211,951 at December 31, 2015, 988,825 at September 30, 2015, and 1,108,505 at December 31, 2014)		121,413,727				103,053,694				103,022,017

 

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
	Three Months Ended												Year Ended
	December 31,				September 30,				December 31,				December 31,
		2015				2015				2014				2015				2014
	(Dollars in thousands, except per share data)
Interest income:
Loans and leases	$	219,677			$	193,539			$	197,472			$	819,094			$	657,097
Investment securities		23,648				13,955				12,205				64,368				47,345
Deposits in financial institutions		172				178				19				476				333
Total interest income		243,497				207,672				209,696				883,938				704,775
Interest expense:
Deposits		9,391				10,400				9,972				41,503				27,332
Borrowings		159				72				144				554				496
Subordinated debentures		4,748				4,680				4,597				18,535				14,570
Total interest expense		14,298				15,152				14,713				60,592				42,398
Net interest income		229,199				192,520				194,983				823,346				662,377
Provision for credit losses		13,772				8,746				2,063				45,481				11,499
Net interest income after provision for credit losses		215,427				183,774				192,920				777,865				650,878
Noninterest income:
Service charges on deposit accounts		3,901				2,601				2,787				11,688				11,233
Other commissions and fees		12,691				6,376				4,556				31,586				18,602
Leased equipment income		7,791				5,475				5,382				24,023				16,669
Gain on sale of loans and leases		183				27				7				373				601
Gain on securities		-				655				-				3,744				4,841
FDIC loss sharing expense, net		(4,291	)			(4,449	)			(4,360	)			(18,246	)			(31,730	)
Other income		7,783				5,073				4,331				31,142				21,971
Total noninterest income		28,058				15,758				12,703				84,310				42,187
Noninterest expense:
Compensation		58,992				48,152				45,930				203,914				165,499
Occupancy		12,194				10,762				10,745				44,144				40,606
Data processing		5,585				4,322				4,050				18,617				14,618
Other professional services		3,811				3,396				3,181				13,760				11,234
Insurance and assessments		5,450				3,805				3,115				16,996				10,907
Intangible asset amortization		4,910				1,497				1,619				9,410				6,268
Leased equipment depreciation		4,235				3,162				3,103				13,603				9,159
Foreclosed assets (income) expense, net		(3,185	)			4,521				1,938				(668	)			5,401
Acquisition, integration and reorganization costs		17,600				747				7,381				21,247				101,016
Other expense		12,672				9,775				10,243				41,016				40,884
Total noninterest expense		122,264				90,139				91,305				382,039				405,592
Earnings from continuing operations before taxes		121,221				109,393				114,318				480,136				287,473
Income tax expense		(49,380	)			(39,777	)			(43,261	)			(180,517	)			(117,005	)
Net earnings from continuing operations		71,841				69,616				71,057				299,619				170,468
Loss from discontinued operations before taxes		-				-				(105	)			-				(2,677	)
Income tax benefit		-				-				47				-				1,114
Net loss from discontinued operations		-				-				(58	)			-				(1,563	)
Net earnings	$	71,841			$	69,616			$	70,999			$	299,619			$	168,905
Basic and diluted earnings per share:
Net earnings from continuing operations	$	0.60			$	0.68			$	0.69			$	2.79			$	1.94
Net earnings	$	0.60			$	0.68			$	0.69			$	2.79			$	1.92

 

PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
	Three Months Ended
	December 31, 2015										September 30, 2015										December 31, 2014
				Interest			Average							Interest			Average							Interest			Average
	Average			Income/			Yield/				Average			Income/			Yield/				Average			Income/			Yield/
	Balance			Expense			Cost				Balance			Expense			Cost				Balance			Expense			Cost
	(Dollars in thousands)
Assets:
PCI loans	$	169,772		$	6,345			14.83	%		$	193,094		$	7,505			15.42	%		$	311,061		$	11,247			14.34	%
Non-PCI loans and leases		13,861,330			213,332			6.11	%			11,919,787			186,034			6.19	%			11,275,512			186,225			6.55	%
Total loans and leases		14,031,102			219,677			6.21	%			12,112,881			193,539			6.34	%			11,586,573			197,472			6.76	%
Investment securities (1)		3,492,124			28,408			3.23	%			1,806,628			16,709			3.67	%			1,591,839			13,840			3.45	%
Deposits in financial institutions		254,308			172			0.27	%			278,973			178			0.25	%			26,971			19			0.28	%
Total interest-earning assets		17,777,534			248,257			5.54	%			14,198,482			210,426			5.88	%			13,205,383			211,331			6.35	%
Other assets		3,047,714										2,491,695										2,687,378
Total assets	$	20,825,248									$	16,690,177									$	15,892,761
Liabilities and Stockholders' Equity:
Interest checking	$	889,035			345			0.15	%		$	787,271			300			0.15	%		$	702,498			194			0.11	%
Money market		3,557,364			1,543			0.17	%			2,417,280			1,218			0.20	%			1,788,341			932			0.21	%
Savings		747,054			445			0.24	%			746,362			449			0.24	%			761,073			572			0.30	%
Time		4,439,940			7,058			0.63	%			5,042,768			8,433			0.66	%			5,427,687			8,274			0.60	%
Total interest-bearing deposits		9,633,393			9,391			0.39	%			8,993,681			10,400			0.46	%			8,679,599			9,972			0.46	%
Borrowings		206,236			159			0.31	%			70,171			72			0.41	%			214,053			144			0.27	%
Subordinated debentures		435,293			4,748			4.33	%			434,420			4,680			4.27	%			433,859			4,597			4.20	%
Total interest-bearing liabilities		10,274,922			14,298			0.55	%			9,498,272			15,152			0.63	%			9,327,511			14,713			0.63	%
Noninterest-bearing demand deposits		6,043,900										3,486,780										2,900,388
Other liabilities		160,264										132,360										164,571
Total liabilities		16,479,086										13,117,412										12,392,470
Stockholders' equity		4,346,162										3,572,765										3,500,291
Total liabilities and stockholders' equity	$	20,825,248									$	16,690,177									$	15,892,761
Net interest income (2)				$	233,959									$	195,274									$	196,618
Net interest spread (2)								4.99	%									5.25	%									5.72	%
Net interest margin (2)								5.22	%									5.46	%									5.91	%
Total deposits (3)	$	15,677,293		$	9,391			0.24	%		$	12,480,461		$	10,400			0.33	%		$	11,579,987		$	9,972			0.34	%
Funding sources (4)	$	16,318,822		$	14,298			0.35	%		$	12,985,052		$	15,152			0.46	%		$	12,227,899		$	14,713			0.48	%
___________________
(1) Includes tax equivalent adjustments of $4.8 million, $2.8 million, and $1.6 million for the three months ended December 31, 2015, September 30, 2015, and December 31, 2014 related to tax exempt income on municipal securities.  The federal statutory tax rate utilized was 35% for the periods.
(2) Tax equivalent.
(3) Total deposits is the sum of interest-bearing deposits and noninterest-bearing demand deposits.  The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(4) Funding sources is the sum of interest-bearing liabilities and noninterest-bearing demand deposits. The cost of funding sources is calculated as annualized total interest expense divided by average funding sources.

 

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER BALANCE SHEET
	December 31,				September 30,				June 30,				March 31,				December 31,
		2015				2015				2015				2015				2014
	(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks	$	161,020			$	154,652			$	207,598			$	140,873			$	164,757
Interest-earning deposits in financial institutions		235,466				81,642				433,033				250,981				148,469
Total cash and cash equivalents		396,486				236,294				640,631				391,854				313,226
Securities available-for-sale		3,559,437				1,809,364				1,698,158				1,595,409				1,567,177
Federal Home Loan Bank stock, at cost		19,710				17,250				17,250				28,905				40,609
Total investment securities		3,579,147				1,826,614				1,715,408				1,624,314				1,607,786
Non-PCI loans and leases		14,339,070				12,300,057				11,846,314				12,047,946				11,613,832
PCI loans		189,095				193,340				222,691				254,346				290,852
Total gross loans and leases		14,528,165				12,493,397				12,069,005				12,302,292				11,904,684
Deferred fees and costs		(49,911	)			(41,192	)			(34,816	)			(30,126	)			(22,252	)
Total loans and leases, net of deferred fees		14,478,254				12,452,205				12,034,189				12,272,166				11,882,432
Allowance for loan and lease losses		(115,111	)			(103,271	)			(99,375	)			(92,378	)			(84,455	)
Total loans and leases, net		14,363,143				12,348,934				11,934,814				12,179,788				11,797,977
Equipment leased to others under operating leases		197,452				161,508				117,182				119,959				122,506
Premises and equipment, net		39,197				36,475				35,984				36,022				36,551
Foreclosed assets, net		22,120				33,216				31,668				35,940				43,721
Deferred tax asset, net		126,389				169,760				211,556				236,065				284,411
Goodwill		2,176,291				1,728,380				1,728,380				1,728,380				1,720,479
Core deposit and customer relationship intangibles, net		53,220				12,704				14,201				15,703				17,204
Other assets		335,045				260,220				267,196				275,915				290,744
Total assets	$	21,288,490			$	16,814,105			$	16,697,020			$	16,643,940			$	16,234,605
LIABILITIES:
Noninterest-bearing deposits	$	6,171,455			$	3,508,682			$	3,396,688			$	3,029,463			$	2,931,352
Interest-bearing deposits		9,494,727				8,607,081				9,185,128				8,904,712				8,823,776
Total deposits		15,666,182				12,115,763				12,581,816				11,934,175				11,755,128
Borrowings		621,914				552,497				2,751				618,156				383,402
Subordinated debentures		436,000				435,417				433,944				431,448				433,583
Accrued interest payable and other liabilities		166,703				128,724				127,019				126,800				156,262
Total liabilities		16,890,799				13,232,401				13,145,530				13,110,579				12,728,375
STOCKHOLDERS' EQUITY (1)		4,397,691				3,581,704				3,551,490				3,533,361				3,506,230
Total liabilities and stockholders’ equity	$	21,288,490			$	16,814,105			$	16,697,020			$	16,643,940			$	16,234,605
(1) Includes net unrealized gain on securities available-for-sale, net	$	27,828			$	24,459			$	16,255			$	28,744			$	26,380
Book value per share	$	36.22			$	34.76			$	34.46			$	34.29			$	34.03
Tangible book value per share	$	17.86			$	17.86			$	17.55			$	17.36			$	17.17
Shares outstanding (includes unvested restricted shares)		121,413,727				103,053,694				103,051,989				103,044,257				103,022,017

 

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS
	Three Months Ended
	December 31,				September 30,				June 30,				March 31,				December 31,
		2015				2015				2015				2015				2014
	(Dollars in thousands, except per share data)
Interest income:
Loans and leases	$	219,677			$	193,539			$	203,781			$	202,097			$	197,472
Investment securities		23,648				13,955				14,570				12,195				12,205
Deposits in financial institutions		172				178				104				22				19
Total interest income		243,497				207,672				218,455				214,314				209,696
Interest expense:
Deposits		9,391				10,400				11,233				10,479				9,972
Borrowings		159				72				88				235				144
Subordinated debentures		4,748				4,680				4,582				4,525				4,597
Total interest expense		14,298				15,152				15,903				15,239				14,713
Net interest income		229,199				192,520				202,552				199,075				194,983
Provision for credit losses		13,772				8,746				6,529				16,434				2,063
Net interest income after provision for credit losses		215,427				183,774				196,023				182,641				192,920
Noninterest income:
Service charges on deposit accounts		3,901				2,601				2,612				2,574				2,787
Other commissions and fees		12,691				6,376				7,123				5,396				4,556
Leased equipment income		7,791				5,475				5,375				5,382				5,382
Gain on sale of loans and leases		183				27				163				-				7
Gain (loss) on securities		-				655				(186	)			3,275				-
FDIC loss sharing expense, net		(4,291	)			(4,449	)			(5,107	)			(4,399	)			(4,360	)
Other income		7,783				5,073				9,643				8,643				4,331
Total noninterest income		28,058				15,758				19,623				20,871				12,703
Noninterest expense:
Compensation		58,992				48,152				49,033				47,737				45,930
Occupancy		12,194				10,762				10,588				10,600				10,745
Data processing		5,585				4,322				4,402				4,308				4,050
Other professional services		3,811				3,396				3,332				3,221				3,181
Insurance and assessments		5,450				3,805				4,716				3,025				3,115
Intangible asset amortization		4,910				1,497				1,502				1,501				1,619
Leased equipment depreciation		4,235				3,162				3,103				3,103				3,103
Foreclosed assets (income) expense, net		(3,185	)			4,521				(2,340	)			336				1,938
Acquisition, integration and reorganization costs		17,600				747				900				2,000				7,381
Other expense		12,672				9,775				10,040				8,529				10,243
Total noninterest expense		122,264				90,139				85,276				84,360				91,305
Earnings from continuing operations before taxes		121,221				109,393				130,370				119,152				114,318
Income tax expense		(49,380	)			(39,777	)			(45,287	)			(46,073	)			(43,261	)
Net earnings from continuing operations		71,841				69,616				85,083				73,079				71,057
Loss from discontinued operations before taxes		-				-				-				-				(105	)
Income tax benefit		-				-				-				-				47
Net loss from discontinued operations		-				-				-				-				(58	)
Net earnings	$	71,841			$	69,616			$	85,083			$	73,079			$	70,999
Basic and diluted earnings per share:
Net earnings from continuing operations	$	0.60			$	0.68			$	0.83			$	0.71			$	0.69
Net earnings	$	0.60			$	0.68			$	0.83			$	0.71			$	0.69

 

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER SELECTED FINANCIAL DATA
	At or For the Three Months Ended
	December 31,				September 30,				June 30,				March 31,				December 31,
		2015				2015				2015				2015				2014
	(Dollars in thousands)
Performance Ratios - GAAP:
Return on average assets (1)		1.37	%			1.65	%			2.07	%			1.82	%			1.77	%
Return on average equity (1)		6.56	%			7.73	%			9.62	%			8.39	%			8.05	%
Yield on average loans and leases		6.21	%			6.34	%			6.75	%			6.80	%			6.76	%
Yield on average interest-earning assets (2)		5.54	%			5.88	%			6.35	%			6.40	%			6.35	%
Cost of average total deposits		0.24	%			0.33	%			0.37	%			0.36	%			0.34	%
Cost of average time deposits		0.63	%			0.66	%			0.68	%			0.65	%			0.60	%
Cost of average interest-bearing liabilities		0.55	%			0.63	%			0.66	%			0.64	%			0.63	%
Cost of average funding sources		0.35	%			0.46	%			0.50	%			0.49	%			0.48	%
Net interest rate spread (2)		4.99	%			5.25	%			5.69	%			5.76	%			5.72	%
Net interest margin (2)		5.22	%			5.46	%			5.89	%			5.95	%			5.91	%
Noninterest expense as a percentage of average assets (1)		2.33	%			2.14	%			2.08	%			2.10	%			2.28	%
Efficiency ratio		39.3	%			39.6	%			38.0	%			36.9	%			38.4	%
Performance Ratios - Non-GAAP:
Adjusted return on average assets (1)		1.60	%			1.55	%			1.78	%			1.63	%			1.70	%
Adjusted return on average equity (1)		7.66	%			7.22	%			8.25	%			7.51	%			7.71	%
Return on average tangible equity (1)		13.14	%			15.09	%			18.90	%			16.50	%			16.00	%
Adjusted return on average tangible equity (1)		15.35	%			14.10	%			16.21	%			14.78	%			15.33	%
Core net interest margin (2)		5.10	%			5.19	%			5.33	%			5.44	%			5.57	%
Average Balances:
Loans and leases	$	14,031,102			$	12,112,881			$	12,108,016			$	12,055,682			$	11,586,573
Interest-earning assets		17,777,534				14,198,482				13,942,289				13,701,865				13,205,383
Total assets		20,825,248				16,690,177				16,463,311				16,296,640				15,892,761
Noninterest-bearing deposits		6,043,900				3,486,780				3,157,129				2,949,719				2,900,388
Interest-bearing deposits		9,633,393				8,993,681				9,107,937				8,801,306				8,679,599
Total deposits		15,677,293				12,480,461				12,265,066				11,751,025				11,579,987
Borrowings and subordinated debentures		641,529				504,591				513,820				856,664				647,912
Interest-bearing liabilities		10,274,922				9,498,272				9,621,757				9,657,970				9,327,511
Funding sources		16,318,822				12,985,052				12,778,886				12,607,689				12,227,899
Stockholders' equity		4,346,162				3,572,765				3,548,748				3,533,343				3,500,291
(1) Annualized.
(2) Tax equivalent.

 

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER SELECTED FINANCIAL DATA
	At or For the Three Months Ended
	December 31,				September 30,				June 30,				March 31,				December 31,
		2015				2015				2015				2015				2014
	(Dollars in thousands)
Non-PCI Credit Quality:
Allowance for credit losses to loans and leases		0.85	%			0.82	%			0.78	%			0.72	%			0.66	%
Allowance for credit losses to nonaccrual loans and leases		95	%			94	%			71	%			62	%			92	%
Nonaccrual loans and leases to loans and leases		0.90	%			0.87	%			1.11	%			1.16	%			0.72	%
Nonperforming assets to loans and leases and foreclosed assets		1.06	%			1.14	%			1.37	%			1.45	%			1.09	%
Nonperforming assets to total assets		0.71	%			0.84	%			0.98	%			1.05	%			0.78	%
Trailing twelve month net charge-offs to average loans and leases		0.06	%			0.04	%			0.06	%			0.07	%			0.02	%
PacWest Bancorp Consolidated Capital:
Tier 1 leverage ratio (1)		11.67	%			12.04	%			11.96	%			11.74	%			12.34	%
Common equity tier 1 capital ratio (1)		12.56	%			12.74	%			12.87	%			12.27	%			N/A
Tier 1 capital ratio (1)		12.58	%			12.74	%			12.87	%			12.27	%			13.16	%
Total capital ratio (1)		15.60	%			16.32	%			16.53	%			15.80	%			16.07	%
Tangible common equity ratio (non-GAAP measure)		11.38	%			12.21	%			12.10	%			12.01	%			12.20	%
Risk-weighted assets (1)	$	17,198,540			$	14,038,839			$	13,569,369			$	13,776,106			$	13,096,354
Pacific Western Bank Capital:
Tier 1 leverage ratio (1)		11.40	%			11.56	%			11.65	%			11.53	%			11.70	%
Common equity tier 1 capital ratio (1)		12.03	%			12.25	%			12.55	%			12.07	%			N/A
Tier 1 capital ratio (1)		12.03	%			12.25	%			12.55	%			12.07	%			12.46	%
Total capital ratio (1)		12.78	%			13.05	%			13.35	%			12.80	%			13.16	%
Tangible common equity ratio (non-GAAP measure)		10.80	%			11.53	%			11.46	%			11.32	%			11.51	%
___________________________
(1) Capital information for December 31, 2015 is preliminary.

 

PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS PER SHARE CALCULATIONS
	Three Months Ended												Year Ended
	December 31,				September 30,				December 31,				December 31,
		2015				2015				2014				2015				2014
	(Dollars in thousands, except per share data)
Basic Earnings Per Share:
Net earnings from continuing operations	$	71,841			$	69,616			$	71,057			$	299,619			$	170,468
Less: earnings allocated to unvested restricted stock (1)		(690	)			(649	)			(810	)			(2,892	)			(1,959	)
Net earnings from continuing operations allocated to common shares		71,151				68,967				70,247				296,727				168,509
Net earnings from discontinued operations allocated to common shares		-				-				(57	)			-				(1,545	)
Net earnings allocated to common shares	$	71,151			$	68,967			$	70,190			$	296,727			$	166,964
Weighted-average basic shares and unvested restricted stock outstanding		120,385				103,048				103,045				107,401				87,871
Less: weighted-average unvested restricted stock outstanding		(1,133	)			(985	)			(1,132	)			(1,074	)			(1,018	)
Weighted-average basic shares outstanding		119,252				102,063				101,913				106,327				86,853
Basic earnings per share:
Net earnings from continuing operations	$	0.60			$	0.68			$	0.69			$	2.79			$	1.94
Net earnings from discontinued operations		-				-				-				-				(0.02	)
Net earnings	$	0.60			$	0.68			$	0.69			$	2.79			$	1.92
Diluted Earnings Per Share:
Net earnings from continuing operations allocated to common shares	$	71,151			$	68,967			$	70,247			$	296,727			$	168,509
Net earnings from discontinued operations allocated to common shares		-				-				(57	)			-				(1,545	)
Net earnings allocated to common shares	$	71,151			$	68,967			$	70,190			$	296,727			$	166,964
Weighted-average basic shares outstanding		119,252				102,063				101,913				106,327				86,853
Diluted earnings per share:
Net earnings from continuing operations	$	0.60			$	0.68			$	0.69			$	2.79			$	1.94
Net earnings from discontinued operations		-				-				-				-				(0.02	)
Net earnings	$	0.60			$	0.68			$	0.69			$	2.79			$	1.92
_______________________________________
(1) Represents cash dividends paid to holders of unvested stock, net of estimated forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.

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, 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.
  

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.

PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
	Three Months Ended												Year Ended
Adjusted Net Earnings and	December 31,				September 30,				December 31,				December 31,
Related Ratios		2015				2015				2014				2015				2014
	(Dollars in thousands)
Net earnings	$	71,841			$	69,616			$	70,999			$	299,619			$	168,905
Less: Tax benefit on discontinued operations		-				-				(47	)			-				(1,114	)
Add: Tax expense on continuing operations		49,380				39,777				43,261				180,517				117,005
Pre-tax earnings		121,221				109,393				114,213				480,136				284,796
Add: Acquisition, integration and reorganization costs		17,600				747				7,381				21,247				101,016
Less: FDIC loss sharing expense, net		(4,291	)			(4,449	)			(4,360	)			(18,246	)			(31,730	)
Gain on sale of loans and leases		183				27				7				373				601
Gain on securities		-				655				-				3,744				4,841
Covered OREO income (expense), net		2,920				(20	)			(176	)			2,931				1,172
Gain on sale of owned office building		-				-				-				-				1,570
Adjusted pre-tax earnings before accelerated discount accretion		140,009				113,927				126,123				512,581				409,358
Less: Accelerated discount accretion from early payoffs of acquired loans		5,511				9,659				11,421				51,969				38,867
Adjusted pre-tax earnings		134,498				104,268				114,702				460,612				370,491
Tax expense (1)		(50,571	)			(39,205	)			(46,684	)			(173,190	)			(150,790	)
Adjusted net earnings	$	83,927			$	65,063			$	68,018			$	287,422			$	219,701
Average assets	$	20,825,248			$	16,690,177			$	15,892,761			$	17,578,844			$	13,322,388
Average stockholders' equity	$	4,346,162			$	3,572,765			$	3,500,291			$	3,751,995			$	2,763,726
Less: Average intangible assets		2,177,631				1,741,902				1,739,977				1,850,988				1,342,286
Average tangible common equity	$	2,168,531			$	1,830,863			$	1,760,314			$	1,901,007			$	1,421,440
Return on average assets (2)		1.37	%			1.65	%			1.77	%			1.70	%			1.27	%
Return on average equity (3)		6.56	%			7.73	%			8.05	%			7.99	%			6.11	%
Return on average tangible equity (4)		13.14	%			15.09	%			16.00	%			15.76	%			11.88	%
Adjusted return on average assets (5)		1.60	%			1.55	%			1.70	%			1.64	%			1.65	%
Adjusted return on average equity (6)		7.66	%			7.22	%			7.71	%			7.66	%			7.95	%
Adjusted return on average tangible equity (7)		15.35	%			14.10	%			15.33	%			15.12	%			15.46	%
_________________________________
(1) Full-year actual effective rates of 37.6% used for 2015 periods and 40.7% used for 2014 periods.
(2) Annualized net earnings divided by average assets.
(3) Annualized net earnings divided by average stockholders' equity.
(4) Annualized net earnings divided by average tangible common equity.
(5) Annualized adjusted net earnings divided by average assets.
(6) Annualized adjusted net earnings divided by average stockholders' equity.
(7) Annualized adjusted net earnings divided by average tangible common equity.

 

PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
	December 31,				September 30,				June 30,				March 31,				December 31,
Tangible Common Equity Ratio		2015				2015				2015				2015				2014
	(Dollars in thousands)
PacWest Bancorp Consolidated:
Stockholders' equity	$	4,397,691			$	3,581,704			$	3,551,490			$	3,533,361			$	3,506,230
Less: Intangible assets		2,229,511				1,741,084				1,742,581				1,744,083				1,737,683
Tangible common equity	$	2,168,180			$	1,840,620			$	1,808,909			$	1,789,278			$	1,768,547
Total assets	$	21,288,490			$	16,814,105			$	16,697,020			$	16,643,940			$	16,234,605
Less: Intangible assets		2,229,511				1,741,084				1,742,581				1,744,083				1,737,683
Tangible assets	$	19,058,979			$	15,073,021			$	14,954,439			$	14,899,857			$	14,496,922
Equity to assets ratio		20.66	%			21.30	%			21.27	%			21.23	%			21.60	%
Tangible common equity ratio (1)		11.38	%			12.21	%			12.10	%			12.01	%			12.20	%
Book value per share	$	36.22			$	34.76			$	34.46			$	34.29			$	34.03
Tangible book value per share (2)	$	17.86			$	17.86			$	17.55			$	17.36			$	17.17
Shares outstanding		121,413,727				103,053,694				103,051,989				103,044,257				103,022,017
Pacific Western Bank:
Stockholders' equity	$	4,276,279			$	3,466,817			$	3,440,715			$	3,410,276			$	3,378,879
Less: Intangible assets		2,229,511				1,741,084				1,742,581				1,744,083				1,737,683
Tangible common equity	$	2,046,768			$	1,725,733			$	1,698,134			$	1,666,193			$	1,641,196
Total assets	$	21,180,689			$	16,707,072			$	16,555,610			$	16,458,591			$	15,995,719
Less: Intangible assets		2,229,511				1,741,084				1,742,581				1,744,083				1,737,683
Tangible assets	$	18,951,178			$	14,965,988			$	14,813,029			$	14,714,508			$	14,258,036
Equity to assets ratio		20.19	%			20.75	%			20.78	%			20.72	%			21.12	%
Tangible common equity ratio		10.80	%			11.53	%			11.46	%			11.32	%			11.51	%
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(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by shares outstanding.