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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
NIMLease Yield NIMLease 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
AmountNIM AmountNIM
(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 DepositsTime DepositsTotal Estimated
Under $100,000 Time ContractualEffective
Time Deposit Maturities $100,000 or MoreDepositsRateRate
(Dollars in thousands)
Due in three months or less$ 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 RollforwardLeases 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 RollforwardLoans 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 andAllowance/Coverage Loans andAllowance/Coverage
Credit Risk Coverage RatiosLeasesDiscountRatio LeasesDiscountRatio
(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
AmountCategory AmountCategory 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
InterestAverage InterestAverage InterestAverage
Average Income/Yield/ Average Income/Yield/ Average Income/Yield/
BalanceExpenseCost BalanceExpenseCost BalanceExpenseCost
(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%
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(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
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(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 andDecember 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%
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(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.

Contact: Matthew P. Wagner President and CEO Phone: 310-887-8520 Patrick J. Rusnak Executive Vice President and CFO 714-989-4705

Source:PacWest Bancorp