PacWest Bancorp announced net earnings for the second quarter of 2016 of $82.2 million

OREANDA-NEWS. PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the second quarter of 2016 of $82.2 million, or $0.68 per diluted share, compared to net earnings for the first quarter of 2016 of $90.5 million, or $0.74 per diluted share.  The decrease in net earnings was due mostly to lower accretion on acquired loans and leases, lower gain on sales of securities and the cost of terminating FDIC loss sharing agreements offset by lower credit loss provision as compared to the first quarter of 2016. 

Matt Wagner, President and CEO, commented, “We are very pleased with our strong second quarter results which produced a return on assets of 1.57% and a return on tangible equity of 14.61%. This performance was driven by our above-peer net interest margin, an efficiency ratio of 40.6% and strong asset quality which resulted in minimal charge-offs.”

Patrick Rusnak, Executive Vice President and CFO stated, “Our second quarter core tax equivalent net interest margin (NIM) remained relatively steady at 5.11% and excluding all purchase accounting items increased 7 basis points to 5.00%. The second quarter NIM benefited from an improved average earning asset mix and a 3 basis point decrease in the cost of deposits.”

Mr. Rusnak continued, “We are also pleased with the continued transformation of our deposit portfolio as core deposits were 75% of total deposits compared to 52% a year ago. With $158 million of net loan growth for the second quarter, we continue to expect mid-single digit loan growth for the year.”

Mr. Wagner continued, “We continue to be focused on two important corporate initiatives for 2016. These are the conversion of our core processing systems, the first phase of which was completed during the second quarter, and the submission of our first DFAST stress test to our regulators, after which we expect to more actively evaluate plans to reduce capital levels.”

FINANCIAL HIGHLIGHTS

	At or For the Three Months Ended												At or For the Six Months Ended
	June 30,				March 31,								June 30,
		2016				2016			Change					2016				2015			Change
	(Dollars in thousands, except per share data)
Financial Highlights:
Net Earnings	$	82,168			$	90,456			$	(8,288	)		$	172,624			$	158,162			$	14,462
Diluted Earnings Per Share	$	0.68			$	0.74			$	(0.06	)		$	1.42			$	1.54			$	(0.12	)
Return on Average Assets		1.57	%			1.72	%			(0.15	)			1.65	%			1.95	%			(0.30	)
Return on Average
Tangible Equity (1)		14.61	%			16.45	%			(1.84	)			15.52	%			17.71	%			(2.19	)
Net Interest Margin
(tax equivalent)		5.33	%			5.53	%			(0.20	)			5.43	%			5.92	%			(0.49	)
Core Net Interest Margin
(tax equivalent) (1)		5.11	%			5.10	%			0.01				5.10	%			5.38	%			(0.28	)
Efficiency Ratio		40.6	%			38.5	%			2.1				39.5	%			37.4	%			2.1
Total Assets	$	21,147,139			$	21,031,009			$	116,130			$	21,147,139			$	16,697,020			$	4,450,119
Loans and Leases, Net
of Deferred Fees	$	14,641,460			$	14,483,517			$	157,943			$	14,641,460			$	12,034,189			$	2,607,271
Noninterest-Bearing
Deposits	$	6,222,696			$	6,139,963			$	82,733			$	6,222,696			$	3,396,688			$	2,826,008
Core Deposits	$	11,411,992			$	10,970,318			$	441,674			$	11,411,992			$	6,584,606			$	4,827,386
Total Deposits	$	15,148,009			$	15,441,375			$	(293,366	)		$	15,148,009			$	12,581,816			$	2,566,193
Noninterest-Bearing
Deposits as Percentage
of Total Deposits		41	%			40	%			1				41	%			26	%			15
Core Deposits as
Percentage of Total
Deposits		75	%			71	%			4				75	%			52	%			23
Tangible Common Equity
Ratio (1)		12.12	%			11.87	%			0.25				12.12	%			12.10	%			0.02
Tangible Book Value Per
Share (1)	$	18.83			$	18.33			$	0.50			$	18.83			$	17.55			$	1.28
(1) Non-GAAP measure.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased by $10.8 million to $233.8 million in the second quarter of 2016 compared to $244.6 million for the first quarter of 2016 due to lower accretion on acquired loans.  The decrease in accretion was related mostly to lower accelerated accretion from the payoff of one purchased credit impaired (“PCI”) loan in the first quarter. Total accretion on acquired loans was $16.2 million in the second quarter of 2016 (45 basis points on the loan and lease yield) compared to $27.9 million in the first quarter of 2016 (77 basis points on the loan and lease yield).  The loan and lease yield for the second quarter of 2016 was 6.24% compared to 6.57% for the first quarter of 2016.  The decrease in the loan and lease yield was due to the lower accretion on acquired loans and the yield on new production being lower than the current portfolio yield. Excluding accelerated accretion, the core loan and lease yield was 5.97% in the second quarter compared to 6.03% in the first quarter.   

The tax equivalent NIM for the second quarter of 2016 was 5.33% compared to 5.53% for the first quarter of 2016.  The decrease in the NIM was due to lower accretion on acquired loans. Such accretion contributed 36 basis points to the NIM in the second quarter of 2016 and 62 basis points to the NIM in the first quarter of 2016.  Excluding accelerated accretion, the core tax equivalent NIM was 5.11% for the second quarter compared to 5.10% for the first quarter.    

The cost of total deposits decreased to 0.20% in the second quarter from 0.23% in the first quarter of 2016 due to the increased average balance of noninterest-bearing deposits combined with a lower average cost and balance of time deposits.

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
		June 30, 2016							March 31, 2016
					Loan and							Loan and
		NIM			Lease Yield				NIM			Lease Yield
Reported			5.33	%		6.24	%			5.53	%		6.57	%
Less:	Accelerated accretion of acquisition
	discounts from early payoffs of
	acquired loans		(0.22	)%		(0.27	)%			(0.43	)%		(0.54	)%
Core			5.11	%		5.97	%			5.10	%		6.03	%

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
		June 30, 2016							March 31, 2016
					Impact on							Impact on
		Amount			NIM				Amount			NIM
		(Dollars in thousands)
Net interest income/NIM		$	238,667			5.33	%		$	249,540			5.53	%
Less:	Accelerated accretion of acquisition
	discounts from early payoffs of
	acquired loans		(9,780	)		(0.22	)%			(19,465	)		(0.43	)%
	Remaining accretion of Non-PCI loan
	acquisition discounts		(6,407	)		(0.14	)%			(8,403	)		(0.19	)%
	Total accretion of loan acquisition
	discounts		(16,187	)		(0.36	)%			(27,868	)		(0.62	)%
	Amortization of TruPS discount		1,393			0.03	%			1,395			0.03	%
	Accretion of time deposits premium		(172	)		0.00	%			(270	)		(0.01	)%
			(14,966	)		(0.33	)%			(26,743	)		(0.60	)%
Net interest income/NIM - excluding purchase
accounting		$	223,701			5.00	%		$	222,797			4.93	%

Noninterest Income

Noninterest income decreased by $12.4 million to $22.1 million for the second quarter of 2016 due mostly to a $7.6 million decrease in net gains on sales of securities and a $4.1 million increase in FDIC loss sharing expense. The second quarter of 2016 included minimal sales of securities compared to $335 million of securities sales in the first quarter resulting in the lower net gains.  The higher FDIC loss sharing expense was due mainly to the $6.0 million pre-tax charge related to the early termination of our loss share agreements with the FDIC.  In addition, dividends and gains on equity investments increased by $1.9 million and other income decreased by $1.2 million.  First quarter other income included a loan syndication fee ($0.9 million), a death benefit received on a BOLI policy ($0.6 million) and a loss on the sale of the Pacific Western Equipment Finance (“PWEF”) leasing unit ($0.7 million); there were no similar items in the second quarter.

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

	Three Months Ended
	June 30,				March 31,				Increase
Noninterest Income		2016				2016			(Decrease)
	(In thousands)
Service charges on deposit accounts	$	3,633			$	3,856			$	(223	)
Other commissions and fees		11,073				11,489				(416	)
Leased equipment income		8,523				8,244				279
Gain on sale of loans and leases		388				245				143
Gain on securities		478				8,110				(7,632	)
FDIC loss sharing expense, net		(6,502	)			(2,415	)			(4,087	)
Other income:
Dividends and realized gains on equity investments		2,185				246				1,939
Foreign currency translation net gains		324				606				(282	)
Income recognized on early repayment of leases		27				922				(895	)
Other		1,992				3,236				(1,244	)
Total noninterest income	$	22,121			$	34,539			$	(12,418	)

Noninterest Expense

Noninterest expense decreased by $0.6 million to $110.1 million for the second quarter compared to $110.7 million for the first quarter of 2016.  Noninterest expense decreased in most expense categories in the second quarter due partly to the sale of the PWEF leasing unit at the end of the first quarter. Compensation expense increased $1.1 million due mostly to higher stock-based compensation and incentive expense offset by lower payroll tax expense. Foreclosed assets income is lower by $0.6 million due to lower gains on foreclosed asset sales compared to the prior quarter.  

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

	Three Months Ended
	June 30,				March 31,				Increase
Noninterest Expense		2016				2016			(Decrease)
	(In thousands)
Compensation	$	62,174			$	61,065			$	1,109
Occupancy		12,193				12,632				(439	)
Data processing		5,644				5,904				(260	)
Other professional services		3,223				3,572				(349	)
Insurance and assessments		4,951				4,965				(14	)
Intangible asset amortization		4,371				4,746				(375	)
Leased equipment depreciation		5,286				5,024				262
Foreclosed assets (income), net		(3	)			(561	)			558
Acquisition, integration and reorganization costs		-				200				(200	)
Other expense:
Loan expense		2,323				2,155				168
Other		9,919				10,986				(1,067	)
Total noninterest expense	$	110,081			$	110,688			$	(607	)

Income Taxes

The overall effective income tax rate was 37.7% in the second quarter of 2016 and 39.0% in the first quarter of 2016.  Although the second quarter benefited from a lower effective tax rate, the expected effective tax rate for the calendar year 2016 remains around 39%.

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Average total loans and leases for the second quarter of 2016 was relatively unchanged from the first quarter while period-end total loans and leases increased by $157.9 million in the second quarter to $14.6 billion at June 30, 2016.  The net increase was driven by second quarter originations and purchases of $931.4 million, offset partially by principal repayments of $720.0 million.     

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

	Three Months Ended
	June 30,				March 31,
Loan and Lease Roll Forward (1)		2016				2016
	(In thousands)
Beginning balance	$	14,483,517			$	14,478,254
New production		931,423				842,064
Existing loans and leases:
Principal repayments, net (2)		(720,003	)			(665,281	)
Loan and lease sales		(51,597	)			(26,657	)
Transfers to foreclosed assets		-				(129	)
Charge-offs		(1,880	)			(5,536	)
Sale of PWEF		-				(139,198	)
Ending balance	$	14,641,460			$	14,483,517
Weighted average yields on new production		5.06	%			5.29	%
(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:

	June 30,				March 31,				December 31,				June 30,
Loan and Lease Portfolio		2016				2016				2015				2015
	(In thousands)
Real estate mortgage:
Commercial	$	4,519,209			$	4,640,419			$	4,642,088			$	4,596,301
Residential		1,164,784				1,149,998				1,211,209				1,026,239
Total real estate mortgage		5,683,993				5,790,417				5,853,297				5,622,540
Real estate construction and land:
Commercial		417,144				308,192				349,436				230,372
Residential		281,788				269,965				184,382				119,825
Total real estate construction and land		698,932				578,157				533,818				350,197
Total real estate loans		6,382,925				6,368,574				6,387,115				5,972,737
Commercial:
Cash flow		3,048,439				3,173,424				3,073,965				2,857,928
Asset-based		2,683,913				2,589,598				2,547,665				2,212,467
Venture capital		1,666,352				1,507,788				1,458,013				-
Equipment finance		646,940				733,228				890,349				904,488
Total commercial		8,045,644				8,004,038				7,969,992				5,974,883
Consumer		212,891				110,905				121,147				86,569
Total loans and leases, net of
deferred fees	$	14,641,460			$	14,483,517			$	14,478,254			$	12,034,189
Total unfunded loan commitments	$	3,888,686			$	3,812,554			$	3,580,655			$	2,111,637

Loan growth in the second quarter came primarily from the consumer, construction and venture capital portfolios. The construction and venture capital portfolios also accounted for most of the growth in our unfunded commitments during the quarter.

Credit Exposure Affected by Low Oil Prices

At June 30, 2016, we had 19 outstanding loan and lease relationships totaling $116.9 million to borrowers involved in the oil and gas services industry, down from $127.7 million at March 31, 2016.  The collateral for this credit exposure includes primarily equipment, such as drilling equipment and transportation vehicles.  The reserves related to this credit exposure total approximately 18%.  At June 30, 2016, five relationships totaling $48.5 million were on nonaccrual status and were classified, up from three relationships totaling $45.5 million at March 31, 2016.  The largest of these relationships had an aggregate outstanding balance of $39.9 million at June 30, 2016.    

Deposits and Client Investment Funds

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

	June 30,				March 31,				December 31,				June 30,
Deposit Category		2016				2016				2015				2015
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	6,222,696			$	6,139,963				6,171,455			$	3,396,688
Interest checking deposits		1,035,395				921,189				874,349				722,231
Money market deposits		3,392,811				3,144,843				2,782,974				1,722,633
Savings deposits		761,090				764,323				742,795				743,054
Total core deposits		11,411,992				10,970,318				10,571,573				6,584,606
Brokered non-maturity deposits		972,820				985,784				942,253				651,925
Total non-maturity deposits		12,384,812				11,956,102				11,513,826				7,236,531
Time deposits under $100,000		1,114,074				1,357,598				1,656,227				2,328,109
Time deposits of $100,000 and over		1,649,123				2,127,675				2,496,129				3,017,176
Total time deposits		2,763,197				3,485,273				4,152,356				5,345,285
Total deposits	$	15,148,009			$	15,441,375			$	15,666,182			$	12,581,816
Noninterest-bearing demand deposits
as percentage of total deposits		41	%			40	%			39	%			26	%
Core deposits as percentage of total deposits		75	%			71	%			67	%			52	%

At June 30, 2016, core deposits totaled $11.4 billion, or 75% of total deposits, including $6.2 billion of noninterest-bearing demand deposits, or 41% of total deposits. 

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 June 30, 2016 were $1.5 billion, of which $1.2 billion was managed by S1AM.     

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

A provision for credit losses of $13.9 million was recorded in the second quarter of 2016 compared to $20.1 million in the first quarter of 2016.  The second quarter provision consisted of $12.0 million for Non-PCI loans and leases and $1.9 million for PCI loans and leases. The allowance for Non-PCI credit losses to Non-PCI loans and leases coverage ratio increased to 1.03% at June 30, 2016 from 0.96% at March 31, 2016. 

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

		Three Months Ended June 30, 2016
		Non-PCI
Allowance for Credit		Loans and				Unfunded				Total				PCI
Losses Rollforward		Leases				Commitments				Non-PCI				Loans				Total
		(In thousands)
Beginning balance		$	120,807			$	17,569			$	138,376			$	9,554			$	147,930
Charge-offs			(1,712	)			-				(1,712	)			(168	)			(1,880	)
Recoveries			1,280				-				1,280				-				1,280
Net charge-offs			(432	)			-				(432	)			(168	)			(600	)
Provision			11,625				375				12,000				1,903				13,903
Ending balance		$	132,000			$	17,944			$	149,944			$	11,289			$	161,233
		Three Months Ended March 31, 2016
		Non-PCI
Allowance for Credit		Loans and				Unfunded				Total				PCI
Losses Rollforward		Leases				Commitments				Non-PCI				Loans				Total
		(In thousands)
Beginning balance		$	105,534			$	16,734			$	122,268			$	9,577			$	131,845
Charge-offs			(5,373	)			-				(5,373	)			(163	)			(5,536	)
Recoveries			1,481				-				1,481				-				1,481
Net charge-offs			(3,892	)			-				(3,892	)			(163	)			(4,055	)
Provision			19,165				835				20,000				140				20,140
Ending balance		$	120,807			$	17,569			$	138,376			$	9,554			$	147,930

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:

	June 30, 2016										March 31, 2016
	Non-PCI										Non-PCI
Credit Risk	Loans and			Allowance/			Coverage				Loans and			Allowance/			Coverage
Coverage Ratios	Leases			Discount			Ratio				Leases			Discount			Ratio
	(Dollars in thousands)
Ending balance	$	14,566,425		$	149,944			1.03	%		$	14,365,915		$	138,376			0.96	%
Acquired loans		(5,131,674	)		(37,440	)		(1	)			(5,468,875	)		(34,231	)		(1	)
Adjusted balance	$	9,434,751		$	112,504			1.19	%		$	8,897,040		$	104,145			1.17	%
Ending balance	$	14,566,425		$	149,944			1.03	%		$	14,365,915		$	138,376			0.96	%
Unamortized net discount		65,391			65,391			(2	)			78,761			78,761			(2	)
Adjusted balance	$	14,631,816		$	215,335			1.47	%		$	14,444,676		$	217,137			1.50	%
(1) Allowance attributed to $5.1 billion and $5.5 billion of acquired Non-PCI loans at June 30, 2016 and March 31, 2016,  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 $5.1 billion and $5.5 billion of acquired Non-PCI loans at June 30, 2016 and  March 31, 2016, 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 $65.4 million at  June 30, 2016, is expected to be substantially accreted to income by the end of 2018.

Non-PCI loans and leases at June 30, 2016 included $9.4 billion of originated loans and leases that were not obtained through acquisitions. The related allowance for loan and lease losses totaled $97.7 million, or 1.04% of the outstanding balance.

CREDIT QUALITY

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

	June 30,				March 31,
Non-PCI Credit Quality Metrics		2016				2016
	(Dollars in thousands)
Nonaccrual loans and leases	$	127,655			$	130,418
Classified loans and leases		441,035				384,698
Performing restructured loans		71,709				66,829
Allowance for credit losses		149,944				138,376
Net charge-offs (for the quarter)		432				3,892
Provision for credit losses (for the quarter)		12,000				20,000
Allowance for credit losses to loans and leases		1.03	%			0.96	%
Allowance for credit losses to nonaccrual loans
and leases		117.5	%			106.1	%
Nonaccrual loans and leases to loans and leases		0.88	%			0.91	%
Nonperforming assets to loans and leases and
foreclosed assets		0.99	%			1.05	%
Classified loans and leases to loans and leases		3.03	%			2.68	%

Classified loans and leases increased largely as a result of a $50 million healthcare real estate loan being classified due to declining operating performance.

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:

	Non-PCI Nonaccrual Loans and Leases														Non-PCI Accruing and
	June 30, 2016							March 31, 2016							30-89 Days Past Due
				% of							% of				June 30,				March 31,
				Loan							Loan					2016				2016
	Amount			Category				Amount			Category				Amount				Amount
	(Dollars in thousands)
Real estate mortgage:
Commercial	$	29,183			1	%		$	30,357			1	%		$	2,126			$	4,968
Residential		4,238			-	%			5,807			1	%			171				730
Total real estate mortgage		33,421			1	%			36,164			1	%			2,297				5,698
Real estate construction and land:
Commercial		-			-	%			-			-	%			-				-
Residential		368			-	%			370			-	%			-				-
Total real estate
construction and land		368			-	%			370			-	%			-				-
Commercial:
Cash flow		38,146			1	%			39,665			1	%			389				639
Asset-based		1,986			-	%			2,046			-	%			-				-
Venture capital		1,088			-	%			-			-	%			3,548				9,554
Equipment finance (1)		52,432			8	%			51,247			7	%			-				1,870
Total commercial		93,652			1	%			92,958			1	%			3,937				12,063
Consumer		214			-	%			926			1	%			-				30
Total Non-PCI loans and
leases	$	127,655			1	%		$	130,418			1	%		$	6,234			$	17,791
(1) Includes nonaccrual leases and loans to companies involved in the oil and gas industries of $48.5 million and $45.5 million at  June 30, 2016 and March 31, 2016, respectively.

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

	June 30,				March 31,
Nonperforming Assets		2016				2016
	(Dollars in thousands)
Nonaccrual Non-PCI loans and leases	$	127,655			$	130,418
Nonaccrual PCI Loans (1)		2,025				3,241
Total nonaccrual loans and leases		129,680				133,659
Non-PCI accruing loan contractually past due
90 days or more		-				2,538
Foreclosed assets, net		16,181				18,310
Total nonperforming assets	$	145,861			$	154,507
Nonaccrual loans and leases to loans and leases		0.88	%			0.92	%
Nonperforming assets to loans and leases
and foreclosed assets		0.99	%			1.06	%
(1) Represents legacy CapitalSource borrowing relationships placed on nonaccrual status  as of the acquisition date.

ABOUT PACWEST BANCORP

PacWest Bancorp (“PacWest”) is a bank holding company with $21 billion in assets with one wholly-owned banking subsidiary, Pacific Western Bank (“Pacific Western”). The Bank has 79 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 loan and lease portfolio growth, allowance for loan and lease losses, capital management, including reducing excess capital, and effective tax rates. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words “anticipate,” “assume,” “intend,” “believe,” “forecast,” “expect,” “estimate,” “plan,” “continue,” “will,” “should,” “look forward” and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such forward-looking statements for a variety of factors, including without limitation:

• changes in economic or competitive market conditions could negatively impact investment or lending opportunities or product pricing and services;
• loan repayments higher than expected;
• higher than anticipated delinquencies, charge-offs, and loan and lease losses;
• 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;
• the need to retain capital for strategic or regulatory reasons;
• changes in economic or competitive market conditions;
• the financial performance of the Company;
• stock price fluctuations;
• 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 and/or require an increased provision for loan and lease losses;
• results of our DFAST submissions;
• changes in tax laws or regulations affecting our business;
• our inability to generate sufficient earnings;
• tax planning or disallowance of tax benefits by tax authorities;
• changes in tax filing jurisdictions or entity classifications; and
• other risk factors described in documents filed by PacWest with the U.S. Securities and Exchange Commission (“SEC”).

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

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
	June 30,				March 31,				December 31,
	2016				2016				2015
	(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks	$	226,471			$	161,977			$	161,020
Interest-earning deposits in financial institutions		218,882				357,541				235,466
Total cash and cash equivalents		445,353				519,518				396,486
Securities available-for-sale, at estimated fair value		3,347,546				3,240,586				3,559,437
Federal Home Loan Bank stock, at cost		24,214				17,250				19,710
Total investment securities		3,371,760				3,257,836				3,579,147
Non-PCI loans and leases		14,566,425				14,365,915				14,339,070
PCI loans		136,901				176,607				189,095
Total gross loans and leases		14,703,326				14,542,522				14,528,165
Deferred fees, net		(61,866	)			(59,005	)			(49,911	)
Total loans and leases, net of deferred fees		14,641,460				14,483,517				14,478,254
Allowance for loan and lease losses		(143,289	)			(130,361	)			(115,111	)
Total loans and leases, net		14,498,171				14,353,156				14,363,143
Equipment leased to others under operating leases		204,062				205,163				197,452
Premises and equipment, net		38,718				39,713				39,197
Foreclosed assets, net		16,181				18,310				22,120
Deferred tax asset, net		24,413				91,126				126,389
Goodwill		2,175,791				2,175,791				2,176,291
Core deposit and customer
relationship intangibles, net		43,766				48,137				53,220
Other assets		328,924				322,259				335,045
Total assets	$	21,147,139			$	21,031,009			$	21,288,490
LIABILITIES:
Noninterest-bearing deposits	$	6,222,696			$	6,139,963			$	6,171,455
Interest-bearing deposits		8,925,313				9,301,412				9,494,727
Total deposits		15,148,009				15,441,375				15,666,182
Borrowings		918,208				551,401				621,914
Subordinated debentures		439,322				438,723				436,000
Accrued interest payable and other liabilities		128,296				142,918				166,703
Total liabilities		16,633,835				16,574,417				16,890,799
STOCKHOLDERS' EQUITY (1)		4,513,304				4,456,592				4,397,691
Total liabilities and stockholders’ equity	$	21,147,139			$	21,031,009			$	21,288,490
Book value per share	$	37.05			$	36.60			$	36.22
Tangible book value per share (2)	$	18.83			$	18.33			$	17.86
Shares outstanding		121,819,849				121,771,252				121,413,727
(1) Includes net unrealized gain on securities available-for-sale, net	$	81,744			$	48,479			$	27,828
(2) Non-GAAP measure.

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
	Three Months Ended													Six Months Ended
	June 30,				March 31,				June 30,					June 30,
		2016				2016				2015					2016				2015
	(Dollars in thousands, except per share data)
Interest income:
Loans and leases	$	224,326			$	236,375			$	203,781				$	460,701				405,878
Investment securities		22,420				22,547				14,570					44,967				26,765
Deposits in financial institutions		308				308				104					616				126
Total interest income		247,054				259,230				218,455					506,284				432,769
Interest expense:
Deposits		7,823				9,073				11,233					16,896				21,712
Borrowings		352				581				88					933				323
Subordinated debentures		5,122				4,982				4,582					10,104				9,107
Total interest expense		13,297				14,636				15,903					27,933				31,142
Net interest income		233,757				244,594				202,552					478,351				401,627
Provision for credit losses		13,903				20,140				6,529					34,043				22,963
Net interest income after provision
for credit losses		219,854				224,454				196,023					444,308				378,664
Noninterest income:
Service charges on deposit accounts		3,633				3,856				2,612					7,489				5,186
Other commissions and fees		11,073				11,489				7,123					22,562				12,519
Leased equipment income		8,523				8,244				5,375					16,767				10,757
Gain on sale of loans and leases		388				245				163					633				163
Gain (loss) on securities		478				8,110				(186	)				8,588				3,089
FDIC loss sharing expense, net		(6,502	)			(2,415	)			(5,107	)				(8,917	)			(9,506	)
Other income		4,528				5,010				9,643					9,538				18,286
Total noninterest income		22,121				34,539				19,623					56,660				40,494
Noninterest expense:
Compensation		62,174				61,065				49,033					123,239				96,770
Occupancy		12,193				12,632				10,588					24,825				21,188
Data processing		5,644				5,904				4,402					11,548				8,710
Other professional services		3,223				3,572				3,332					6,795				6,553
Insurance and assessments		4,951				4,965				4,716					9,916				7,741
Intangible asset amortization		4,371				4,746				1,502					9,117				3,003
Leased equipment depreciation		5,286				5,024				3,103					10,310				6,206
Foreclosed assets (income), net		(3	)			(561	)			(2,340	)				(564	)			(2,004	)
Acquisition, integration and
reorganization costs		-				200				900					200				2,900
Other expense		12,242				13,141				10,040					25,383				18,569
Total noninterest expense		110,081				110,688				85,276					220,769				169,636
Earnings before income taxes		131,894				148,305				130,370					280,199				249,522
Income tax expense		(49,726	)			(57,849	)			(45,287	)				(107,575	)			(91,360	)
Net earnings	$	82,168			$	90,456			$	85,083				$	172,624			$	158,162
Basic and diluted earnings per share	$	0.68			$	0.74			$	0.83				$	1.42			$	1.54

 

PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS PER SHARE CALCULATIONS
	Three Months Ended												Six Months Ended
	June 30,				March 31,				June 30,				June 30,
		2016				2016				2015				2016				2015
	(Dollars in thousands, except per share data)
Basic Earnings Per Share:
Net earnings	$	82,168			$	90,456			$	85,083			$	172,624			$	158,162
Less: earnings allocated to unvested
restricted stock (1)		(863	)			(1,067	)			(807	)			(1,933	)			(1,570	)
Net earnings allocated to common
shares	$	81,305			$	89,389			$	84,276			$	170,691			$	156,592
Weighted-average basic shares and
unvested restricted stock outstanding		121,799				121,598				103,030				121,698				103,033
Less: weighted-average unvested
restricted stock outstanding		(1,481	)			(1,392	)			(1,060	)			(1,436	)			(1,091	)
Weighted-average basic shares
outstanding		120,318				120,206				101,970				120,262				101,942
Basic earnings per share	$	0.68			$	0.74			$	0.83			$	1.42			$	1.54
Diluted Earnings Per Share:
Net earnings allocated to common
shares	$	81,305			$	89,389			$	84,276			$	170,691			$	156,592
Weighted-average basic shares
outstanding		120,318				120,206				101,970				120,262				101,942
Diluted earnings per share	$	0.68			$	0.74			$	0.83			$	1.42			$	1.54
(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.

PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
	Three Months Ended
	June 30, 2016										March 31, 2016										June 30, 2015
				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	$	147,270		$	8,484			23.17	%		$	167,626		$	20,072			48.16	%		$	228,217		$	7,894			13.87	%
Non-PCI loans and leases		14,321,320			215,842			6.06	%			14,303,539			216,303			6.08	%			11,879,799			195,887			6.61	%
Total loans and leases		14,468,590			224,326			6.24	%			14,471,165			236,375			6.57	%			12,108,016			203,781			6.75	%
Investment securities (1)		3,288,819			27,330			3.34	%			3,460,293			27,493			3.20	%			1,672,590			16,739			4.01	%
Deposits in financial
institutions		245,666			308			0.50	%			230,293			308			0.54	%			161,683			104			0.26	%
Total interest-earning
assets		18,003,075			251,964			5.63	%			18,161,751			264,176			5.85	%			13,942,289			220,624			6.35	%
Other assets		2,996,867										3,036,843										2,521,022
Total assets	$	20,999,942									$	21,198,594									$	16,463,311
Liabilities and
Stockholders' Equity:
Interest checking	$	1,024,763			501			0.20	%		$	926,256			383			0.17	%		$	741,966			202			0.11	%
Money market		4,321,533			2,886			0.27	%			3,848,753			2,415			0.25	%			2,065,190			1,088			0.21	%
Savings		766,309			412			0.22	%			753,371			444			0.24	%			740,878			555			0.30	%
Time		3,086,492			4,024			0.52	%			3,860,272			5,831			0.61	%			5,559,903			9,388			0.68	%
Total interest-bearing
deposits		9,199,097			7,823			0.34	%			9,388,652			9,073			0.39	%			9,107,937			11,233			0.49	%
Borrowings		300,428			352			0.47	%			494,725			581			0.47	%			81,164			88			0.43	%
Subordinated debentures		439,081			5,122			4.69	%			436,535			4,982			4.59	%			432,656			4,582			4.25	%
Total interest-bearing
liabilities		9,938,606			13,297			0.54	%			10,319,912			14,636			0.57	%			9,621,757			15,903			0.66	%
Noninterest-bearing
demand deposits		6,437,720										6,273,249										3,157,129
Other liabilities		140,023										166,831										135,677
Total liabilities		16,516,349										16,759,992										12,914,563
Stockholders' equity		4,483,593										4,438,602										3,548,748
Total liabilities and
stockholders' equity	$	20,999,942									$	21,198,594									$	16,463,311
Net interest income (2)				$	238,667									$	249,540									$	204,721
Net interest spread (2)								5.09	%									5.28	%									5.69	%
Net interest margin (2)								5.33	%									5.53	%									5.89	%
Total deposits (3)	$	15,636,817		$	7,823			0.20	%		$	15,661,901		$	9,073			0.23	%		$	12,265,066		$	11,233			0.37	%
Funding sources (4)	$	16,376,326		$	13,297			0.33	%		$	16,593,161		$	14,636			0.35	%		$	12,778,886		$	15,903			0.50	%
(1) Includes tax equivalent adjustments of $4.9 million, $4.9 million, and $2.2 million for the three months ended June 30, 2016, March 31, 2016, and June 30, 2015 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
	June 30,				March 31,				December 31,				September 30,				June 30,
		2016				2016				2015				2015				2015
	(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks	$	226,471			$	161,977			$	161,020			$	154,652			$	207,598
Interest-earning deposits in financial
institutions		218,882				357,541				235,466				81,642				433,033
Total cash and cash equivalents		445,353				519,518				396,486				236,294				640,631
Securities available-for-sale		3,347,546				3,240,586				3,559,437				1,809,364				1,698,158
Federal Home Loan Bank stock		24,214				17,250				19,710				17,250				17,250
Total investment securities		3,371,760				3,257,836				3,579,147				1,826,614				1,715,408
Non-PCI loans and leases		14,566,425				14,365,915				14,339,070				12,300,057				11,846,314
PCI loans		136,901				176,607				189,095				193,340				222,691
Total gross loans and leases		14,703,326				14,542,522				14,528,165				12,493,397				12,069,005
Deferred fees, net		(61,866	)			(59,005	)			(49,911	)			(41,192	)			(34,816	)
Total loans and leases, net of
deferred fees		14,641,460				14,483,517				14,478,254				12,452,205				12,034,189
Allowance for loan and lease losses		(143,289	)			(130,361	)			(115,111	)			(103,271	)			(99,375	)
Total loans and leases, net		14,498,171				14,353,156				14,363,143				12,348,934				11,934,814
Equipment leased to others under
operating leases		204,062				205,163				197,452				161,508		-		117,182
Premises and equipment, net		38,718				39,713				39,197				36,475				35,984
Foreclosed assets, net		16,181				18,310				22,120				33,216				31,668
Deferred tax asset, net		24,413				91,126				126,389				169,760				211,556
Goodwill		2,175,791				2,175,791				2,176,291				1,728,380				1,728,380
Core deposit and customer
relationship intangibles, net		43,766				48,137				53,220				12,704				14,201
Other assets		328,924				322,259				335,045				260,220				267,196
Total assets	$	21,147,139			$	21,031,009			$	21,288,490			$	16,814,105			$	16,697,020
LIABILITIES:
Noninterest-bearing deposits	$	6,222,696			$	6,139,963			$	6,171,455			$	3,508,682			$	3,396,688
Interest-bearing deposits		8,925,313				9,301,412				9,494,727				8,607,081				9,185,128
Total deposits		15,148,009				15,441,375				15,666,182				12,115,763				12,581,816
Borrowings		918,208				551,401				621,914				552,497				2,751
Subordinated debentures		439,322				438,723				436,000				435,417				433,944
Accrued interest payable and other
liabilities		128,296				142,918				166,703				128,724				127,019
Total liabilities		16,633,835				16,574,417				16,890,799				13,232,401				13,145,530
STOCKHOLDERS' EQUITY (1)		4,513,304				4,456,592				4,397,691				3,581,704				3,551,490
Total liabilities and stockholders’
equity	$	21,147,139			$	21,031,009			$	21,288,490			$	16,814,105			$	16,697,020
Book value per share	$	37.05			$	36.60			$	36.22			$	34.76			$	34.46
Tangible book value per share (2)	$	18.83			$	18.33			$	17.86			$	17.86			$	17.55
Shares outstanding		121,819,849				121,771,252				121,413,727				103,053,694				103,051,989
(1) Includes net unrealized gain on
securities available-for-sale, net	$	81,744			$	48,479			$	27,828			$	24,459			$	16,255
(2) Non-GAAP measure.

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS
	Three Months Ended
	June 30,				March 31,				December 31,				September 30,				June 30,
		2016				2016				2015				2015				2015
	(Dollars in thousands, except per share data)
Interest income:
Loans and leases	$	224,326			$	236,375			$	219,677			$	193,539			$	203,781
Investment securities		22,420				22,547				23,648				13,955				14,570
Deposits in financial institutions		308				308				172				178				104
Total interest income		247,054				259,230				243,497				207,672				218,455
Interest expense:
Deposits		7,823				9,073				9,391				10,400				11,233
Borrowings		352				581				159				72				88
Subordinated debentures		5,122				4,982				4,748				4,680				4,582
Total interest expense		13,297				14,636				14,298				15,152				15,903
Net interest income		233,757				244,594				229,199				192,520				202,552
Provision for credit losses		13,903				20,140				13,772				8,746				6,529
Net interest income after provision
for credit losses		219,854				224,454				215,427				183,774				196,023
Noninterest income:
Service charges on deposit accounts		3,633				3,856				3,901				2,601				2,612
Other commissions and fees		11,073				11,489				12,691				6,376				7,123
Leased equipment income		8,523				8,244				7,791				5,475				5,375
Gain on sale of loans and leases		388				245				183				27				163
Gain (loss) on securities		478				8,110				-				655				(186	)
FDIC loss sharing expense, net		(6,502	)			(2,415	)			(4,291	)			(4,449	)			(5,107	)
Other income		4,528				5,010				7,783				5,073				9,643
Total noninterest income		22,121				34,539				28,058				15,758				19,623
Noninterest expense:
Compensation		62,174				61,065				58,992				48,152				49,033
Occupancy		12,193				12,632				12,194				10,762				10,588
Data processing		5,644				5,904				5,585				4,322				4,402
Other professional services		3,223				3,572				3,811				3,396				3,332
Insurance and assessments		4,951				4,965				5,450				3,805				4,716
Intangible asset amortization		4,371				4,746				4,910				1,497				1,502
Leased equipment depreciation		5,286				5,024				4,235				3,162				3,103
Foreclosed assets (income), net		(3	)			(561	)			(3,185	)			4,521				(2,340	)
Acquisition, integration and
reorganization costs		-				200				17,600				747				900
Other expense		12,242				13,141				12,672				9,775				10,040
Total noninterest expense		110,081				110,688				122,264				90,139				85,276
Earnings before income taxes		131,894				148,305				121,221				109,393				130,370
Income tax expense		(49,726	)			(57,849	)			(49,380	)			(39,777	)			(45,287	)
Net earnings	$	82,168			$	90,456			$	71,841			$	69,616			$	85,083
Basic and diluted earnings per share	$	0.68			$	0.74			$	0.60			$	0.68			$	0.83

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER SELECTED FINANCIAL DATA
	At or For the Three Months Ended
	June 30,				March 31,				December 31,				September 30,				June 30,
		2016				2016				2015				2015				2015
	(Dollars in thousands)
Performance Ratios:
Return on average assets (1)		1.57	%			1.72	%			1.37	%			1.65	%			2.07	%
Return on average equity (1)		7.37	%			8.20	%			6.56	%			7.73	%			9.62	%
Return on average tangible equity (1)(2)		14.61	%			16.45	%			13.14	%			15.09	%			18.90	%
Yield on average loans and leases		6.24	%			6.57	%			6.21	%			6.34	%			6.75	%
Yield on average interest-earning
assets (3)		5.63	%			5.85	%			5.54	%			5.88	%			6.35	%
Cost of average total deposits		0.20	%			0.23	%			0.24	%			0.33	%			0.37	%
Cost of average time deposits		0.52	%			0.61	%			0.63	%			0.66	%			0.68	%
Cost of average interest-bearing
liabilities		0.54	%			0.57	%			0.55	%			0.63	%			0.66	%
Cost of average funding sources		0.33	%			0.35	%			0.35	%			0.46	%			0.50	%
Net interest rate spread (3)		5.09	%			5.28	%			4.99	%			5.25	%			5.69	%
Net interest margin (3)		5.33	%			5.53	%			5.22	%			5.46	%			5.89	%
Efficiency ratio		40.6	%			38.5	%			39.3	%			39.6	%			38.0	%
Core net interest margin (2)(3)		5.11	%			5.10	%			5.10	%			5.19	%			5.33	%
Noninterest expense as a percentage
of average assets (1)		2.11	%			2.10	%			2.33	%			2.14	%			2.08	%
Average Balances:
Loans and leases	$	14,468,590			$	14,471,165			$	14,031,102			$	12,112,881			$	12,108,016
Interest-earning assets		18,003,075				18,161,751				17,777,534				14,198,482				13,942,289
Total assets		20,999,942				21,198,594				20,825,248				16,690,177				16,463,311
Noninterest-bearing deposits		6,437,720				6,273,249				6,043,900				3,486,780				3,157,129
Interest-bearing deposits		9,199,097				9,388,652				9,633,393				8,993,681				9,107,937
Total deposits		15,636,817				15,661,901				15,677,293				12,480,461				12,265,066
Borrowings and subordinated
debentures		739,509				931,260				641,529				504,591				513,820
Interest-bearing liabilities		9,938,606				10,319,912				10,274,922				9,498,272				9,621,757
Funding sources		16,376,326				16,593,161				16,318,822				12,985,052				12,778,886
Stockholders' equity		4,483,593				4,438,602				4,346,162				3,572,765				3,548,748
(1) Annualized.
(2) Non-GAAP measure.
(3) Tax equivalent.