PACWEST BANCORP - Quarter Report: 2017 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

Commission File No. 001-36408

PACWEST BANCORP

(Exact name of registrant as specified in its charter)



Delaware		33-0885320
(State of Incorporation)		(I.R.S. Employer Identification No.)

9701 Wilshire Blvd., Suite 700

Beverly Hills, CA 90212

(Address of Principal Executive Offices, Including Zip Code)

(310) 887-8500

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

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



þ Large accelerated filer		o Accelerated filer

o Non-accelerated filer	(Do not check if a smaller reporting company)	o Smaller reporting company

		o Emerging growth company

o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

As of October 27, 2017, there were 128,935,736 shares of the registrant's common stock outstanding, excluding 1,364,336 shares of unvested restricted stock.

PACWEST BANCORP

SEPTEMBER 30, 2017 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS



		Page

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Earnings (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)	6
	Condensed Consolidated Statement Changes in Stockholders' Equity (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70
Item 4.	Controls and Procedures	73

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	74
Item 1A.	Risk Factors	74
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 6.	Index to Exhibits	75
Signatures		76

PART I

Glossary of Acronyms, Abbreviations, and Terms

The acronyms, abbreviations, and terms listed below are used in various sections of this Form 10-Q, including "Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."



AFX	American Financial Exchange	FHLB	Federal Home Loan Bank of San Francisco
ALM	Asset Liability Management	FRB	Board of Governors of the Federal Reserve System
ASC	Accounting Standards Codification	FRBSF	Federal Reserve Bank of San Francisco
ASU	Accounting Standards Update	IRR	Interest Rate Risk
Basel III	A comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013.	MBS	Mortgage-Backed Securities
BHCA	Bank Holding Company Act of 1956, as amended	MVE	Market Value of Equity
BOLI	Bank Owned Life Insurance	NII	Net Interest Income
CapitalSource Inc.	A company acquired on April 7, 2014	NIM	Net Interest Margin
CapitalSource Division	A division of Pacific Western Bank, formed at the closing of the CapitalSource Inc. merger	Non-PCI	Non-Purchased Credit Impaired
C&I	Commercial and Industrial	OREO	Other Real Estate Owned
CDI	Core Deposit Intangible Assets	PWEF	Pacific Western Equipment Finance, a leasing unit sold March 31, 2016
CET1	Common Equity Tier 1	PCI	Purchased Credit Impaired
CMOs	Collateralized Mortgage Obligations	PRSUs	Performance-Based Restricted Stock Units
CRI	Customer Relationship Intangible Assets	S1AM	Square 1 Asset Management, Inc.
CUB	CU Bancorp (a company acquired on October 20, 2017)	SBA	Small Business Administration
CU Bank	California United Bank (a wholly-owned subsidiary of CUB)	SEC	Securities and Exchange Commission
DBO	California Department of Business Oversight	Square 1	Square 1 Financial, Inc. (a company acquired on October 6, 2015)
DTAs	Deferred Tax Assets	Square 1 Bank Division	A division of Pacific Western Bank formed at the closing of the Square 1 acquisition
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act	Tax Equivalent Net Interest Income	Net interest income adjusted for tax-equivalent adjustments related to tax-exempt interest on certain loans and municipal securities
Efficiency Ratio	Noninterest expense (less intangible asset amortization, net foreclosed assets income/expense, and acquisition, integration and reorganization costs) divided by net revenues (the sum of tax equivalent net interest income plus noninterest income, less gain/loss on sale of securities and gain/loss on sales of assets other than loans and leases)	Tax Equivalent NIM	NIM adjusted for tax-equivalent adjustments related to tax-exempt income on municipal securities
FASB	Financial Accounting Standards Board	TDRs	Troubled Debt Restructurings
FCAL	First California Financial Group, Inc. (a company acquired on May 31, 2013)	TRSAs	Time-Based Restricted Stock Awards
FDIC	Federal Deposit Insurance Corporation	U.S. GAAP	U.S. Generally Accepted Accounting Principles

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



	September 30,			December 31,
	2017			2016
	(Unaudited)
	(Dollars in thousands, except par value amounts)
ASSETS:
Cash and due from banks	$	147,579		$	337,965
Interest-earning deposits in financial institutions	122,439			81,705
Total cash and cash equivalents	270,018			419,670
Securities available-for-sale, at fair value	3,532,230			3,223,830
Federal Home Loan Bank stock, at cost	17,250			21,870
Total investment securities	3,549,480			3,245,700
Gross loans and leases held for investment	15,756,285			15,520,537
Deferred fees, net	(65,768		)	(64,583		)
Allowance for loan and lease losses	(159,606		)	(157,238		)
Total loans and leases held for investment, net	15,530,911			15,298,716
Equipment leased to others under operating leases	233,866			229,905
Premises and equipment, net	28,910			38,594
Foreclosed assets, net	11,630			12,976
Deferred tax asset, net	65,321			94,112
Goodwill	2,173,949			2,173,949
Core deposit and customer relationship intangibles, net	27,188			36,366
Other assets	351,659			319,779
Total assets	$	22,242,932		$	21,869,767

LIABILITIES:
Noninterest-bearing deposits	$	6,911,874		$	6,659,016
Interest-bearing deposits	9,861,371			9,211,595
Total deposits	16,773,245			15,870,611
Borrowings	250,399			905,812
Subordinated debentures	448,126			440,744
Accrued interest payable and other liabilities	160,494			173,545
Total liabilities	17,632,264			17,390,712

Commitments and contingencies (Note 7)

STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)	—			—
Common stock ($0.01 par value, 200,000,000 shares authorized at September 30, 2017 and
December 31, 2016, 123,122,892 and 122,803,029 shares issued, respectively, including
1,393,874 and 1,476,132 shares of unvested restricted stock, respectively)	1,231			1,228
Additional paid-in capital	4,000,543			4,162,132
Retained earnings	639,434			366,073
Treasury stock, at cost (1,673,098 and 1,519,360 shares at September 30, 2017 and December 31, 2016)	(64,153		)	(56,360		)
Accumulated other comprehensive income, net	33,613			5,982
Total stockholders' equity	4,610,668			4,479,055
Total liabilities and stockholders' equity	$	22,242,932		$	21,869,767

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS



	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
	2017			2017			2016			2017			2016
	(Unaudited)
	(Dollars in thousands, except per share amounts)
Interest income:
Loans and leases	$	235,666		$	234,618		$	225,370		$	694,462		$	686,071
Investment securities	24,762			24,689			22,187			72,490			67,154
Deposits in financial institutions	538			237			298			967			914
Total interest income	260,966			259,544			247,855			767,919			754,139
Interest expense:
Deposits	13,071			10,205			7,247			31,653			24,143
Borrowings	188			1,066			695			2,272			1,628
Subordinated debentures	6,017			5,800			5,278			17,379			15,382
Total interest expense	19,276			17,071			13,220			51,304			41,153
Net interest income	241,690			242,473			234,635			716,615			712,986
Provision for credit losses	15,119			11,499			8,471			51,346			42,514
Net interest income after provision for credit losses	226,571			230,974			226,164			665,269			670,472
Noninterest income:
Service charges on deposit accounts	3,465			3,510			3,488			10,733			10,977
Other commissions and fees	9,944			10,583			12,528			30,917			35,090
Leased equipment income	8,332			11,635			8,538			29,442			25,305
Gain on sale of loans and leases	2,848			649			157			4,209			790
Gain on sale of securities	1,236			1,651			382			2,788			8,970
FDIC loss sharing expense, net	—			—			—			—			(8,917		)
Other income	5,557			7,254			1,827			23,689			11,365
Total noninterest income	31,382			35,282			26,920			101,778			83,580
Noninterest expense:
Compensation	64,413			65,288			62,661			194,581			185,900
Occupancy	12,729			11,811			12,010			36,148			36,835
Data processing	6,459			6,337			6,234			19,811			17,782
Other professional services	4,213			3,976			4,625			11,567			11,598
Insurance and assessments	4,702			4,856			4,324			14,349			14,240
Intangible asset amortization	3,049			3,065			4,224			9,178			13,341
Leased equipment depreciation	4,862			5,232			5,298			15,719			15,608
Foreclosed assets expense (income), net	2,191			(157		)	(248		)	2,177			(812		)
Acquisition, integration and reorganization costs	1,450			1,700			—			3,650			200
Loan expense	3,421			3,884			1,931			10,692			6,231
Other expense	11,053			11,715			9,651			34,921			30,556
Total noninterest expense	118,542			117,707			110,710			352,793			331,479
Earnings before income taxes	139,411			148,549			142,374			414,254			422,573
Income tax expense	(37,945		)	(54,902		)	(48,479		)	(140,473		)	(156,054		)
Net earnings	$	101,466		$	93,647		$	93,895		$	273,781		$	266,519

Earnings per share:
Basic	$	0.84		$	0.77		$	0.77		$	2.26		$	2.19
Diluted	$	0.84		$	0.77		$	0.77		$	2.26		$	2.19
Dividends declared per share	$	0.50		$	0.50		$	0.50		$	1.50		$	1.50

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
	2017			2017			2016			2017			2016
	(Unaudited)
	(In thousands)
Net earnings	$	101,466		$	93,647		$	93,895		$	273,781		$	266,519
Other comprehensive income (loss), net of tax:
Unrealized net holding gains (losses) on securities
available-for-sale arising during the period	7,812			30,340			(15,954		)	49,336			83,653
Income tax (expense) benefit related to net unrealized
holding gains arising during the period	(3,198		)	(12,350		)	6,509			(20,055		)	(34,111		)
Unrealized net holding gains (losses) on securities
available-for-sale, net of tax	4,614			17,990			(9,445		)	29,281			49,542
Reclassification adjustment for net gains
included in net earnings ⁽¹⁾	(1,236		)	(1,651		)	(382		)	(2,788		)	(8,970		)
Income tax expense related to reclassification
adjustment	506			672			156			1,138			3,673
Reclassification adjustment for net gains
included in net earnings, net of tax	(730		)	(979		)	(226		)	(1,650		)	(5,297		)
Other comprehensive income (loss), net of tax	3,884			17,011			(9,671		)	27,631			44,245
Comprehensive income	$	105,350		$	110,658		$	84,224		$	301,412		$	310,764

^{___________________________________}


(1)	Entire amounts are recognized in "Gain on sale of securities" on the Condensed Consolidated Statements of Earnings.

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY



	Nine Months Ended September 30, 2017
	Common Stock													Accumulated
					Additional									Other
			Par		Paid-in			Retained			Treasury			Comprehensive
	Shares		Value		Capital			Earnings			Stock			Income		Total
	(Unaudited)
	(Dollars in thousands)
Balance, December 31, 2016	121,283,669		$	1,228	$	4,162,132		$	366,073		$	(56,360	)	$	5,982	$	4,479,055
Cumulative effect of change in
accounting principle (1)	—		—		711			(420		)	—			—		291
Net earnings	—		—		—			273,781			—			—		273,781
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax	—		—		—			—			—			27,631		27,631
Restricted stock awarded and
earned stock compensation,
net of shares forfeited	319,863		3		20,195			—			—			—		20,198
Restricted stock surrendered	(153,738	)	—		—			—			(7,793		)	—		(7,793		)
Cash dividends paid	—		—		(182,495		)	—			—			—		(182,495		)
Balance, September 30, 2017	121,449,794		$	1,231	$	4,000,543		$	639,434		$	(64,153	)	$	33,613	$	4,610,668

________________________


(1)	Impact due to adoption on January 1, 2017 of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting."

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Nine Months Ended
	September 30,
	2017			2016
	(Unaudited)
	(In thousands)
Cash flows from operating activities:
Net earnings	$	273,781		$	266,519
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	23,798			24,761
Amortization of net premiums on securities available-for-sale	30,238			28,012
Amortization of intangible assets	9,178			13,341
Provision for credit losses	51,346			42,514
Gain on sale of foreclosed assets	(282		)	(837		)
Provision for losses on foreclosed assets	2,138			—
Gain on sale of loans and leases	(4,209		)	(790		)
Gain on sale of premises and equipment	(388		)	(23		)
Gain on sale of securities	(2,788		)	(8,970		)
Gain on BOLI death benefit	(1,050		)	(539		)
Unrealized gain on derivatives and foreign currencies, net	(449		)	(374		)
Earned stock compensation	20,198			17,275
Loss on sale of PWEF leasing unit	—			720
Tax effect included in stockholders' equity of restricted stock vesting	—			(4,226		)
Decrease in accrued and deferred income taxes, net	10,164			74,946
(Increase) decrease in other assets	(32,765		)	1,224
Decrease in accrued interest payable and other liabilities	(20,738		)	(23,600		)
Net cash provided by operating activities	358,172			429,953

Cash flows from investing activities:
Net increase in loans and leases	(567,291		)	(514,224		)
Proceeds from sales of loans and leases	293,808			106,109
Proceeds from maturities and paydowns of securities available-for-sale	329,876			184,644
Proceeds from sales of securities available-for-sale	185,533			392,841
Purchases of securities available-for-sale	(804,710		)	(303,742		)
Net redemptions of Federal Home Loan Bank stock	4,620			324
Proceeds from sales of foreclosed assets	1,455			7,973
Purchases of premises and equipment, net	(5,892		)	(6,185		)
Proceeds from sales of premises and equipment	10,306			24
Proceeds from sale of PWEF leasing unit	—			138,955
Proceeds from BOLI death benefit	2,478			3,238
Net increase of equipment leased to others under operating leases	(17,956		)	(15,802		)
Net cash used in investing activities	(567,773		)	(5,845		)

Cash flows from financing activities:
Net increase in noninterest-bearing deposits	255,874			352,784
Net increase (decrease) in interest-bearing deposits	649,776			(371,005		)
Net decrease in borrowings	(655,413		)	(78,873		)
Restricted stock surrendered	(7,793		)	(4,611		)
Tax effect included in stockholders' equity of restricted stock vesting	—			4,226
Cash dividends paid	(182,495		)	(182,750		)
Net cash provided by (used in) financing activities	59,949			(280,229		)

Net (decrease) increase in cash and cash equivalents	(149,652		)	143,879
Cash and cash equivalents, beginning of period	419,670			396,486
Cash and cash equivalents, end of period	$	270,018		$	540,365

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Nine Months Ended
	September 30,
	2017		2016
	(Unaudited)
	(In thousands)
Supplemental disclosures of cash flow information:
Cash paid for interest	$	48,402	$	41,392
Cash paid for income taxes	146,321		82,721
Loans transferred to foreclosed assets	580		129
Transfers from loans held for investment to loans held for sale	175,158		—

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1. ORGANIZATION

PacWest Bancorp, a Delaware corporation, is a bank holding company registered under the BHCA, with our corporate headquarters located in Beverly Hills, California. Our principal business is to serve as the holding company for our wholly-owned subsidiary, Pacific Western Bank. References to "Pacific Western" or the "Bank" refer to Pacific Western Bank together with its wholly-owned subsidiaries. References to "we," "us," or the "Company" refer to PacWest Bancorp together with its subsidiaries on a consolidated basis. When we refer to "PacWest" or to the "holding company," we are referring to PacWest Bancorp, the parent company, on a stand-alone basis.

We are focused on relationship-based business banking to small, middle-market and venture-backed businesses nationwide. At September 30, 2017, the Bank offers a broad range of loan and lease and deposit products and services through 74 full-service branches located throughout the State of California, one branch located in Durham, North Carolina, and several loan production offices located in cities across the country. We provide commercial banking services, including real estate, construction, and commercial loans, and comprehensive deposit and treasury management services to small and middle-market businesses. We offer additional products and services through our CapitalSource and Square 1 Bank divisions. Our CapitalSource Division provides cash flow, asset-based, equipment, and real estate loans and treasury management services to established middle market businesses on a national basis. Our Square 1 Bank Division 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. In addition, we provide investment advisory and asset management services to select clients through Square 1 Asset Management, Inc., a wholly-owned subsidiary of the Bank and a SEC-registered investment adviser.

We generate our revenue primarily from interest received on loans and leases and, to a lesser extent, from interest received on investment securities, and fees received in connection with deposit services, extending credit and other services offered, including foreign exchange services. Our major operating expenses are compensation, occupancy, general operating expenses, and the interest paid by the Bank on deposits and borrowings.

We have completed 28 acquisitions from May 1, 2000 through September 30, 2017. Our acquisitions have been accounted for using the acquisition method of accounting and, accordingly, the operating results of the acquired entities have been included in the consolidated financial statements from their respective acquisition dates. See Note 12. Subsequent Events, for information regarding the completion of the CU Bancorp acquisition on October 20, 2017.

Significant Accounting Policies

Except as discussed below, our accounting policies are described in Note 1. Nature of Operations and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission ("Form 10-K").

Accounting Standards Adopted in 2017

Effective January 1, 2017, the Company adopted ASU 2016-09, "Improvements to Employee Share-Based Accounting." ASU 2016-09 changed aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. The recognition of excess tax benefits and tax deficiencies in the income statement was adopted prospectively. Income tax benefits of $0.03 million and $1.5 million were recognized during the three and nine months ended September 30, 2017 as a result of the adoption of ASU 2016-09. We expect the requirements of ASU 2016-09 to result in fluctuations in our effective tax rate from period to period based upon the timing of share-based award vestings.

In connection with the adoption of ASU 2016-09, we elected to recognize forfeitures on stock-based compensation awards when they occur, instead of estimating forfeitures at the grant date of the awards and throughout the vesting period. The modified retrospective application of this change in accounting principle resulted in a cumulative adjustment charge to retained earnings of $420,000, net of income taxes. We elected to present the classification of excess tax benefits on the statement of cash flows using a prospective transition method and the prior period has not been adjusted.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Effective July 1, 2017, the Company early-adopted ASU 2017-08, "Receivables - Nonrefundable Fees and Other Costs (Subtopic 210-20): Premium Amortization on Purchased Callable Debt Securities." ASU 2017-08 requires certain premiums on callable debt securities to be amortized to the earliest call date. The amortization period for discounts on callable debt securities was not impacted. The adoption of this ASU had no material impact on the Company's consolidated financial position, results of operations, or cash flows.

Basis of Presentation

Our interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K.

Use of Estimates

We have made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for credit losses, the carrying value of intangible assets, the realization of deferred tax assets, and the fair value estimates of assets acquired and liabilities assumed in acquisitions. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period’s presentation format. On the condensed consolidated statements of earnings, beginning with our June 30, 2017 results, we began presenting a new line for "Loan expense" as that category exceeded the disclosure materiality threshold, which previously had been included as part of "Other expense." Included in loan expense are costs related to servicing our loans including legal fees. Prior to 2017, time deposit disclosures were presented as: (1) under $100,000, and (2) $100,000 or more. We are now using the current FDIC insurance limit of $250,000 and presenting the categories as: (1) $250,000 and under, and (2) over $250,000.

NOTE 2. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations. Goodwill and other intangible assets generated from business combinations and deemed to have indefinite lives are not subject to amortization and instead are tested for impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Impairment exists when the carrying value of the goodwill exceeds its implied fair value. An impairment loss would be recognized in an amount equal to that excess as a charge to "Noninterest expense" in the condensed consolidated statements of earnings.

Our other intangible assets with definite lives include CDI and CRI. CDI and CRI are amortized over their respective estimated useful lives and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or loan and lease customers acquired. The weighted average amortization period remaining for all of our CDI and CRI as of September 30, 2017 is 4.7 years and the aggregate amortization expense is expected to be $11.5 million for 2017. The estimated aggregate amortization expense related to these intangible assets for each of the next five years is $8.8 million for 2018, $6.7 million for 2019, $4.7 million for 2020, $3.0 million for 2021, and $1.7 million for 2022.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:



	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
	2017			2017			2016			2017			2016
	(In thousands)
Gross Amount of CDI and CRI:
Balance, beginning of period	$	64,187		$	64,187		$	76,513		$	64,187		$	95,524
Fully amortized portion	(2,190		)	—			(2,811		)	(2,190		)	(20,122		)
Reduction due to sale of PWEF leasing unit	—			—			—			—			(1,700		)
Balance, end of period	61,997			64,187			73,702			61,997			73,702
Accumulated Amortization:
Balance, beginning of period	(33,950		)	(30,885		)	(32,747		)	(27,821		)	(42,304		)
Amortization	(3,049		)	(3,065		)	(4,224		)	(9,178		)	(13,341		)
Fully amortized portion	2,190			—			2,811			2,190			20,122
Reduction due to sale of PWEF leasing unit	—			—			—			—			1,363
Balance, end of period	(34,809		)	(33,950		)	(34,160		)	(34,809		)	(34,160		)
Net CDI and CRI, end of period	$	27,188		$	30,237		$	39,542		$	27,188		$	39,542

NOTE 3. INVESTMENT SECURITIES

Securities Available-for-Sale

The following table presents amortized cost, gross unrealized gains and losses, and fair values of securities available-for-sale as of the dates indicated:



	September 30, 2017									December 31, 2016
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
Security Type	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(In thousands)
Residential MBS and CMOs:
Agency MBS	$	375,357	$	4,569	$	(2,385	)	$	377,541	$	499,185	$	6,222	$	(2,964	)	$	502,443
Agency CMOs	175,429		1,655		(1,134		)	175,950		145,258		1,528		(497		)	146,289
Private label CMOs	131,149		4,001		(600		)	134,550		122,707		4,199		(1,437		)	125,469
Municipal securities	1,501,196		49,362		(1,408		)	1,549,150		1,447,064		15,406		(6,011		)	1,456,459
Agency commercial MBS	996,963		5,764		(6,813		)	995,914		555,552		1,798		(9,658		)	547,692
Corporate debt securities	17,000		2,125		—			19,125		47,100		680		(271		)	47,509
Collateralized loan obligations	19,119		66		(9		)	19,176		155,440		1,685		(238		)	156,887
SBA securities	166,949		1,363		(284		)	168,028		179,085		510		(750		)	178,845
Asset-backed and other securities	92,345		804		(353		)	92,796		62,264		358		(385		)	62,237
Total	$	3,475,507	$	69,709	$	(12,986	)	$	3,532,230	$	3,213,655	$	32,386	$	(22,211	)	$	3,223,830

As of September 30, 2017, securities available-for-sale with a fair value of $339.8 million were pledged as collateral for borrowings, public deposits and other purposes as required by various statutes and agreements.

During the three months ended September 30, 2017, we sold $98.3 million of securities available-for-sale for a gross realized gain of $1.3 million and a gross realized loss of $0.1 million. During the three months ended September 30, 2016, we sold $39.1 million of securities available-for-sale for a gross realized gain of $1.0 million and a gross realized loss of $0.6 million.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

During the nine months ended September 30, 2017, we sold $182.7 million of securities available-for-sale for a gross realized gain of $3.3 million and a gross realized loss of $0.5 million. During the nine months ended September 30, 2016, we sold $383.9 million of securities available-for-sale for a gross realized gain of $10.6 million and a gross realized loss of $1.6 million.

Unrealized Losses on Securities Available-for-Sale

The following tables present the gross unrealized losses and fair values of securities available-for-sale that were in unrealized loss positions, for which other-than-temporary impairments have not been recognized in earnings, as of the dates indicated:



	September 30, 2017
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Security Type	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Residential MBS and CMOs:
Agency MBS	$	52,840	$	(271	)	$	127,695	$	(2,114	)	$	180,535	$	(2,385	)
Agency CMOs	55,606		(891		)	18,436		(243		)	74,042		(1,134		)
Private label CMOs	45,494		(386		)	18,080		(214		)	63,574		(600		)
Municipal securities	78,784		(329		)	29,203		(1,079		)	107,987		(1,408		)
Agency commercial MBS	338,883		(2,920		)	106,766		(3,893		)	445,649		(6,813		)
Collateralized loan obligations	7,162		(9		)	—		—			7,162		(9		)
SBA securities	42,963		(284		)	—		—			42,963		(284		)
Asset-backed and other securities	39,723		(295		)	8,162		(58		)	47,885		(353		)
Total	$	661,455	$	(5,385	)	$	308,342	$	(7,601	)	$	969,797	$	(12,986	)



	December 31, 2016
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Security Type	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Residential MBS and CMOs:
Agency MBS	$	149,281	$	(1,691	)	$	122,902	$	(1,273	)	$	272,183	$	(2,964	)
Agency CMOs	44,111		(416		)	25,316		(81		)	69,427		(497		)
Private label CMOs	49,067		(906		)	30,155		(531		)	79,222		(1,437		)
Municipal securities	644,424		(6,011		)	—		—			644,424		(6,011		)
Agency commercial MBS	349,550		(9,658		)	—		—			349,550		(9,658		)
Corporate debt securities	29,829		(271		)	—		—			29,829		(271		)
Collateralized loan obligations	12,450		(37		)	39,231		(201		)	51,681		(238		)
SBA securities	69,293		(407		)	39,024		(343		)	108,317		(750		)
Asset-backed and other securities	18,213		(309		)	7,851		(76		)	26,064		(385		)
Total	$	1,366,218	$	(19,706	)	$	264,479	$	(2,505	)	$	1,630,697	$	(22,211	)

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

We reviewed the securities that were in an unrealized loss position at September 30, 2017, and concluded their unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. Accordingly, we determined the securities were temporarily impaired and we did not recognize such impairment in the condensed consolidated statements of earnings. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any temporarily impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any temporarily impaired securities before recovery of their amortized cost.

Contractual Maturities of Securities Available-for-Sale

The following table presents the contractual maturities of our securities available-for-sale portfolio based on amortized cost and carrying value as of the date indicated:



	September 30, 2017
	Amortized		Fair
Maturity	Cost		Value
	(In thousands)
Due in one year or less	$	17,879	$	18,352
Due after one year through five years	326,552		331,164
Due after five years through ten years	962,429		969,431
Due after ten years	2,168,647		2,213,283
Total securities available-for-sale	$	3,475,507	$	3,532,230

Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities may differ from contractual maturities because obligors and/or issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Interest Income on Investment Securities

The following table presents the composition of our interest income on investment securities for the periods indicated:



	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
	2017		2017		2016		2017		2016
	(In thousands)
Taxable interest	$	13,576	$	13,515	$	11,446	$	39,257	$	34,248
Non-taxable interest	10,795		10,750		10,333		31,926		31,562
Dividend income	391		424		408		1,307		1,344
Total interest income on investment securities	$	24,762	$	24,689	$	22,187	$	72,490	$	67,154

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4. LOANS AND LEASES

Our loan and lease portfolio includes originated and purchased loans and leases. Originated and purchased loans and leases for which there was no evidence of credit deterioration at their acquisition date and for which it was probable that we would be able to collect all contractually required payments, are referred to collectively as Non-PCI loans. Generally, PCI loans are purchased loans for which there was, at the acquisition date, evidence of credit deterioration since their origination and for which it was probable that collection of all contractually required payments was unlikely.

Non-PCI loans are carried at the principal amount outstanding, net of deferred fees and costs, and in the case of acquired loans, net of purchase discounts and premiums. Deferred fees and costs and purchase discounts and premiums on acquired non-impaired loans are recognized as an adjustment to interest income over the contractual life of the loans primarily using the effective interest method or taken into income when the related loans are paid off or included in the carrying amount of loans that are sold.

PCI loans are accounted for in accordance with ASC Subtopic 310‑30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality." For PCI loans, at the time of acquisition we (i) calculate the contractual amount and timing of undiscounted principal and interest payments (the "undiscounted contractual cash flows") and (ii) estimate the amount and timing of undiscounted expected principal and interest payments (the "undiscounted expected cash flows"). The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The difference between the undiscounted cash flows expected to be collected and the estimated fair value of the acquired loans is the accretable yield. The nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the PCI loan portfolio; such amount is subject to change over time based on the performance of such loans. The carrying value of PCI loans is reduced by payments received, both principal and interest, and increased by the portion of the accretable yield recognized as interest income.

Loans Held for Sale

In the second quarter of 2017, we entered into two agreements to sell loans with balances totaling $175.2 million and the associated unfunded commitments of $19.3 million, primarily from our healthcare portfolios. The $175.2 million of loans were reported as loans held for sale at June 30, 2017 and the sales were completed in July. In connection with the transfer of loans to held for sale, we recognized $7.2 million in charge-offs during the second quarter related to our healthcare portfolio loans in order to record the loans at the lower of cost or fair value. There were no loans held for sale at September 30, 2017.

Loans and Leases Held for Investment

The following table summarizes the composition of our loans and leases held for investment as of the dates indicated:



	September 30, 2017									December 31, 2016
	Non-PCI									Non-PCI
	Loans			PCI						Loans			PCI
	and Leases			Loans			Total			and Leases			Loans			Total
	(In thousands)
Real estate mortgage	$	6,146,978		$	58,077		$	6,205,055		$	5,635,675		$	92,793		$	5,728,468
Real estate construction and land	1,266,791			—			1,266,791			975,032			2,409			977,441
Commercial	7,894,115			4,194			7,898,309			8,426,236			12,994			8,439,230
Consumer	385,892			238			386,130			375,149			249			375,398
Total gross loans and leases held for
investment	15,693,776			62,509			15,756,285			15,412,092			108,445			15,520,537
Deferred fees, net	(65,753		)	(15		)	(65,768		)	(64,562		)	(21		)	(64,583		)
Total loans and leases held for investment,
net of deferred fees	15,628,023			62,494			15,690,517			15,347,530			108,424			15,455,954
Allowance for loan and lease losses	(152,770		)	(6,836		)	(159,606		)	(143,755		)	(13,483		)	(157,238		)
Total loans and leases held for
investment, net	$	15,475,253		$	55,658		$	15,530,911		$	15,203,775		$	94,941		$	15,298,716

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Non‑PCI Loans and Leases Held for Investment

The following tables present an aging analysis of our Non‑PCI loans and leases held for investment, net of deferred fees, by portfolio segment and class as of the dates indicated:



	September 30, 2017
	30 - 89		90 or More
	Days		Days		Total
	Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Commercial	$	1,685	$	3,664	$	5,349	$	4,306,899	$	4,312,248
Residential	282		1,740		2,022		1,816,926		1,818,948
Total real estate mortgage	1,967		5,404		7,371		6,123,825		6,131,196
Real estate construction and land:
Commercial	—		—		—		680,949		680,949
Residential	—		—		—		568,273		568,273
Total real estate construction and land	—		—		—		1,249,222		1,249,222
Commercial:
Cash flow	140		1,484		1,624		2,728,771		2,730,395
Asset-based	—		—		—		2,577,390		2,577,390
Venture capital	3,142		948		4,090		1,955,345		1,959,435
Equipment finance	—		690		690		593,782		594,472
Total commercial	3,282		3,122		6,404		7,855,288		7,861,692
Consumer	286		272		558		385,355		385,913
Total	$	5,535	$	8,798	$	14,333	$	15,613,690	$	15,628,023



	December 31, 2016
	30 - 89		90 or More
	Days		Days		Total
	Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Commercial	$	8,590	$	3,303	$	11,893	$	4,341,740	$	4,353,633
Residential	5,694		1,999		7,693		1,256,630		1,264,323
Total real estate mortgage	14,284		5,302		19,586		5,598,370		5,617,956
Real estate construction and land:
Commercial	—		—		—		578,838		578,838
Residential	364		—		364		383,637		384,001
Total real estate construction and land	364		—		364		962,475		962,839
Commercial:
Cash flow	191		1,821		2,012		3,105,380		3,107,392
Asset-based	1,500		2		1,502		2,607,543		2,609,045
Venture capital	13,589		5,769		19,358		1,963,798		1,983,156
Equipment finance	1,417		3,051		4,468		687,499		691,967
Total commercial	16,697		10,643		27,340		8,364,220		8,391,560
Consumer	224		—		224		374,951		375,175
Total	$	31,569	$	15,945	$	47,514	$	15,300,016	$	15,347,530

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

It is our policy to discontinue accruing interest when principal or interest payments are past due 90 days or more unless the loan is both well secured and in the process of collection or when, in the opinion of management, there is a reasonable doubt as to the collectability of a loan or lease in the normal course of business. Interest income on nonaccrual loans is recognized only to the extent cash is received and the principal balance of the loan is deemed collectable.

The following table presents our nonaccrual and performing Non‑PCI loans and leases held for investment, net of deferred fees, by portfolio segment and class as of the dates indicated:



	September 30, 2017						December 31, 2016
	Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
	(In thousands)
Real estate mortgage:
Commercial	$	63,096	$	4,249,152	$	4,312,248	$	62,454	$	4,291,179	$	4,353,633
Residential	3,186		1,815,762		1,818,948		6,881		1,257,442		1,264,323
Total real estate mortgage	66,282		6,064,914		6,131,196		69,335		5,548,621		5,617,956
Real estate construction and land:
Commercial	—		680,949		680,949		—		578,838		578,838
Residential	—		568,273		568,273		364		383,637		384,001
Total real estate construction and land	—		1,249,222		1,249,222		364		962,475		962,839
Commercial:
Cash flow	33,514		2,696,881		2,730,395		53,908		3,053,484		3,107,392
Asset-based	3,977		2,573,413		2,577,390		2,118		2,606,927		2,609,045
Venture capital	22,686		1,936,749		1,959,435		11,687		1,971,469		1,983,156
Equipment finance	30,942		563,530		594,472		32,848		659,119		691,967
Total commercial	91,119		7,770,573		7,861,692		100,561		8,290,999		8,391,560
Consumer	296		385,617		385,913		339		374,836		375,175
Total	$	157,697	$	15,470,326	$	15,628,023	$	170,599	$	15,176,931	$	15,347,530

At September 30, 2017, nonaccrual loans and leases totaled $157.7 million and included $8.8 million of loans and leases 90 or more days past due, $0.7 million of loans and leases 30 to 89 days past due, and $148.2 million of loans and leases current with respect to contractual payments that were placed on nonaccrual status based on management’s judgment regarding their collectability. Nonaccrual loans and leases totaled $170.6 million at December 31, 2016, including $15.9 million of the loans and leases 90 or more days past due, $3.0 million of loans and leases 30 to 89 days past due, and $151.7 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.

As of September 30, 2017, our ten largest Non-PCI loan relationships on nonaccrual status had an aggregate carrying value of $129.1 million and represented 81.9% of total Non-PCI nonaccrual loans and leases. The largest of these relationships consisted of a $45.5 million healthcare real estate loan secured by a continuing care retirement facility that migrated to nonaccrual status during the third quarter of 2016 due to weak operating performance and cash flow difficulties.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents the credit risk rating categories for Non‑PCI loans and leases held for investment, net of deferred fees, by portfolio segment and class as of the dates indicated. Nonclassified loans and leases are those with a credit risk rating of either pass or special mention, while classified loans and leases are those with a credit risk rating of either substandard or doubtful.



	September 30, 2017						December 31, 2016
	Classified		Nonclassified		Total		Classified		Nonclassified		Total
	(In thousands)
Real estate mortgage:
Commercial	$	95,272	$	4,216,976	$	4,312,248	$	99,641	$	4,253,992	$	4,353,633
Residential	7,652		1,811,296		1,818,948		17,540		1,246,783		1,264,323
Total real estate mortgage	102,924		6,028,272		6,131,196		117,181		5,500,775		5,617,956
Real estate construction and land:
Commercial	—		680,949		680,949		409		578,429		578,838
Residential	—		568,273		568,273		364		383,637		384,001
Total real estate construction and land	—		1,249,222		1,249,222		773		962,066		962,839
Commercial:
Cash flow	128,207		2,602,188		2,730,395		177,661		2,929,731		3,107,392
Asset-based	19,645		2,557,745		2,577,390		28,112		2,580,933		2,609,045
Venture capital	62,602		1,896,833		1,959,435		52,646		1,930,510		1,983,156
Equipment finance	30,942		563,530		594,472		32,848		659,119		691,967
Total commercial	241,396		7,620,296		7,861,692		291,267		8,100,293		8,391,560
Consumer	457		385,456		385,913		424		374,751		375,175
Total	$	344,777	$	15,283,246	$	15,628,023	$	409,645	$	14,937,885	$	15,347,530

In addition to our internal risk rating process, our federal and state banking regulators, as an integral part of their examination process, periodically review the Company’s loan and lease risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to information available to them at the time of their examinations. Risk rating downgrades generally result in increases in the provisions for credit losses and the allowance for credit losses.

Non‑PCI nonaccrual loans and leases and performing troubled debt restructured loans are considered impaired for reporting purposes. Troubled debt restructurings are a result of rate reductions, term extensions, fee concessions, and debt forgiveness, or a combination thereof.

The following table presents the composition of our impaired loans and leases held for investment, net of deferred fees, by portfolio segment as of the dates indicated:



	September 30, 2017						December 31, 2016
			Performing		Total				Performing		Total
	Nonaccrual		Troubled		Impaired		Nonaccrual		Troubled		Impaired
	Loans		Debt		Loans		Loans		Debt		Loans
	and		Restructured		and		and		Restructured		and
	Leases		Loans		Leases		Leases		Loans		Leases
	(In thousands)
Real estate mortgage	$	66,282	$	47,473	$	113,755	$	69,335	$	54,750	$	124,085
Real estate construction and land	—		5,764		5,764		364		6,893		7,257
Commercial	91,119		3,209		94,328		100,561		3,157		103,718
Consumer	296		106		402		339		152		491
Total	$	157,697	$	56,552	$	214,249	$	170,599	$	64,952	$	235,551

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables present information regarding our Non‑PCI impaired loans and leases held for investment, net of deferred fees, by portfolio segment and class as of and for the dates indicated:



	September 30, 2017						December 31, 2016
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
Impaired Loans and Leases	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial	$	14,716	$	15,536	$	682	$	63,325	$	65,031	$	6,266
Residential	3,074		3,269		471		8,424		8,612		585
Real estate construction and land:
Residential	—		—		—		213		213		—
Commercial:
Cash flow	31,114		40,068		8,720		51,272		52,910		12,474
Asset-based	2,499		2,514		422		4,395		4,861		2,144
Venture capital	20,039		22,377		5,870		5,821		5,880		3,294
Equipment finance	—		—		—		1,524		4,636		—
Consumer	106		105		17		270		280		170
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	92,295	$	103,306			$	44,557	$	51,402
Residential	3,670		3,906				7,779		8,940
Real estate construction and land:
Commercial	5,764		5,762				6,680		6,680
Residential	—		—				364		366
Commercial:
Cash flow	2,559		4,690				2,852		5,939
Asset-based	4,528		6,479				664		1,652
Venture capital	2,647		6,741				5,866		8,939
Equipment finance	30,942		49,742				31,324		53,319
Consumer	296		368				221		292
Total Non-PCI Loans and Leases With
and Without an Allowance Recorded:
Real estate mortgage	$	113,755	$	126,017	$	1,153	$	124,085	$	133,985	$	6,851
Real estate construction and land	5,764		5,762		—		7,257		7,259		—
Commercial	94,328		132,611		15,012		103,718		138,136		17,912
Consumer	402		473		17		491		572		170
Total	$	214,249	$	264,863	$	16,182	$	235,551	$	279,952	$	24,933

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



	Three Months Ended September 30,
	2017				2016
	Weighted		Interest		Weighted		Interest
	Average		Income		Average		Income
Impaired Loans and Leases	Balance⁽¹⁾		Recognized		Balance⁽¹⁾		Recognized
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial	$	14,716	$	214	$	18,580	$	262
Residential	3,074		14		2,505		15
Real estate construction and land:
Residential	—		—		736		4
Commercial:
Cash flow	31,114		2		25,933		9
Asset-based	2,372		29		2,730		5
Venture capital	18,298		—		6,878		—
Equipment finance	—		—		42,913		—
Consumer	106		2		346		3
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	92,183	$	635	$	59,090	$	518
Residential	3,670		15		9,573		70
Real estate construction and land:
Commercial	5,764		74		7,870		57
Commercial:
Cash flow	2,338		11		2,330		1
Asset-based	1,501		29		2,535		37
Venture capital	2,647		—		—		—
Equipment finance	30,942		—		—		—
Consumer	296		—		76		—
Total Non-PCI Loans and Leases With
and Without an Allowance Recorded:
Real estate mortgage	$	113,643	$	878	$	89,748	$	865
Real estate construction and land	5,764		74		8,606		61
Commercial	89,212		71		83,319		52
Consumer	402		2		422		3
Total	$	209,021	$	1,025	$	182,095	$	981

_________________________


(1)	For Non-PCI loans and leases reported as impaired at September 30, 2017 and 2016, amounts were calculated based on the period of time such loans and leases were impaired during the reported period.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



	Nine Months Ended September 30,
	2017				2016
	Weighted		Interest		Weighted		Interest
	Average		Income		Average		Income
Impaired Loans and Leases	Balance⁽¹⁾		Recognized		Balance⁽¹⁾		Recognized
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial	$	14,716	$	634	$	18,220	$	781
Residential	3,074		41		2,325		42
Real estate construction and land:
Residential	—		—		736		11
Commercial:
Cash flow	31,114		5		20,417		26
Asset-based	2,079		83		2,278		14
Venture capital	9,621		—		2,542		—
Equipment finance	—		—		41,587		—
Consumer	106		6		330		8
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	90,631	$	1,924	$	54,747	$	1,209
Residential	3,650		44		6,990		130
Real estate construction and land:
Commercial	5,764		220		7,106		169
Commercial:
Cash flow	1,995		14		2,232		1
Asset-based	1,171		54		1,828		77
Venture capital	1,922		—		—		—
Equipment finance	30,560		—		—		—
Consumer	296		—		74		1
Total Non-PCI Loans and Leases With
and Without an Allowance Recorded:
Real estate mortgage	$	112,071	$	2,643	$	82,282	$	2,162
Real estate construction and land	5,764		220		7,842		180
Commercial	78,462		156		70,884		118
Consumer	402		6		404		9
Total	$	196,699	$	3,025	$	161,412	$	2,469

_________________________


(1)	For Non-PCI loans and leases reported as impaired at September 30, 2017 and 2016, amounts were calculated based on the period of time such loans and leases were impaired during the reported period.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables present our troubled debt restructurings of Non-PCI loans held for investment by portfolio segment and class for the periods indicated:



	Three Months Ended September 30,
	2017					2016
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
		Outstanding		Outstanding			Outstanding		Outstanding
	Number	Recorded		Recorded		Number	Recorded		Recorded
Troubled Debt Restructurings	of Loans	Investment		Investment		of Loans	Investment		Investment
	(Dollars in thousands)
Real estate mortgage:
Commercial	1	$	998	$	998	2	$	1,147	$	1,147
Residential	3	566		10		1	93		93
Real estate construction and land:
Commercial	—	—		—		1	1,245		1,245
Commercial:
Cash flow	3	9,491		255		2	25		25
Asset-based	2	2,655		2,655		1	25		25
Venture capital	4	15,308		15,308		—	—		—
Equipment finance	—	—		—		1	39,912		39,912
Consumer	—	—		—		1	21		21
Total	13	$	29,018	$	19,226	9	$	42,468	$	42,468



	Nine Months Ended September 30,
	2017					2016
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
		Outstanding		Outstanding			Outstanding		Outstanding
	Number	Recorded		Recorded		Number	Recorded		Recorded
Troubled Debt Restructurings	of Loans	Investment		Investment		of Loans	Investment		Investment
	(Dollars in thousands)
Real estate mortgage:
Commercial	5	$	2,527	$	2,463	7	$	5,287	$	5,287
Residential	8	1,328		489		7	5,136		5,136
Real estate construction and land:
Commercial	—	—		—		1	1,245		1,245
Residential	1	362		—		—	—		—
Commercial:
Cash flow	12	26,385		17,150		12	30,582		30,582
Asset-based	7	4,433		4,433		5	2,158		2,158
Venture capital	9	28,465		28,465		—	—		—
Equipment finance	—	—		—		7	44,196		42,572
Consumer	1	97		97		4	819		111
Total	43	$	63,597	$	53,097	43	$	89,423	$	87,091

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Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables present troubled debt restructurings of Non-PCI loans held for investment by portfolio segment and class that subsequently defaulted for the periods indicated:



	Three Months Ended September 30,
	2017			2016
Troubled Debt Restructurings	Number	Recorded		Number	Recorded
That Subsequently Defaulted	of Loans	Investment⁽¹⁾		of Loans	Investment⁽¹⁾
	(Dollars in thousands)
Real estate construction and land:
Commercial	—	$	—	1	$	1,245
Commercial:
Asset-based	—	—		1	2
Total	—	$	—	2	$	1,247	(2)

_________________________

(1)

The population of defaulted restructured loans for the period indicated includes only those loans restructured during the preceding 12-month period. For example, for the 12-month period ended September 30, 2017, the population of defaulted restructured loans includes only those loans restructured after September 30, 2016. The table excludes defaulted troubled restructurings in those classes for which the recorded investment was zero at the end of the period.


(2)	Represents the balance at September 30, 2016, and there were no charge-offs.



	Nine Months Ended September 30,
	2017			2016
Troubled Debt Restructurings	Number	Recorded		Number	Recorded
That Subsequently Defaulted	of Loans	Investment⁽¹⁾		of Loans	Investment⁽¹⁾
	(Dollars in thousands)
Real estate construction and land:
Commercial	—	$	—	1	$	1,245
Commercial:
Asset-based	—	—		1	2
Equipment finance	—	—		1	39,912		(3)
Total	—	$	—	3	$	41,159	(2)

_________________________

(1)


(2)	Represents the balance at September 30, 2016, and there were no charge-offs.


(3)	The term of the modification for this loan expired in the second quarter of 2016 and was not renewed until the third quarter of 2016. Thus, the loan was in payment default under the loan's original terms at June 30, 2016. The modified terms were extended an additional six months in April 2017.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Allowance for Loan and Lease Losses

The following tables present a summary of the activity in the allowance for loan and lease losses on Non‑PCI loans and leases held for investment by portfolio segment and PCI loans held for investment for the periods indicated:



	Three Months Ended September 30, 2017
				Real Estate
	Real Estate			Construction								Total			Total
	Mortgage			and Land		Commercial			Consumer			Non-PCI			PCI			Total
	(In thousands)
Allowance for Loan
and Lease Losses:
Balance, beginning of period	$	37,122		$	11,318	$	88,364		$	2,075		$	138,879		$	7,079		$	145,958
Charge-offs	(531		)	—		(4,984		)	(413		)	(5,928		)	(79		)	(6,007		)
Recoveries	36			353		4,447			29			4,865			217			5,082
Provision (negative provision)	(186		)	22		14,366			752			14,954			(381		)	14,573
Balance, end of period	$	36,441		$	11,693	$	102,193		$	2,443		$	152,770		$	6,836		$	159,606



	Nine Months Ended September 30, 2017
				Real Estate
	Real Estate			Construction								Total			Total
	Mortgage			and Land		Commercial			Consumer			Non-PCI			PCI			Total
	(In thousands)
Allowance for Loan
and Lease Losses:
Balance, beginning of period	$	37,765		$	10,045	$	93,853		$	2,092		$	143,755		$	13,483		$	157,238
Charge-offs	(2,217		)	—		(46,965		)	(625		)	(49,807		)	(5,768		)	(55,575		)
Recoveries	286			370		8,848			104			9,608			275			9,883
Provision (negative provision)	607			1,278		46,457			872			49,214			(1,154		)	48,060
Balance, end of period	$	36,441		$	11,693	$	102,193		$	2,443		$	152,770		$	6,836		$	159,606

Ending Allowance by
Impairment Methodology:
Individually evaluated for
impairment	$	1,153		$	—	$	15,012		$	17		$	16,182
Collectively evaluated for
impairment	$	35,288		$	11,693	$	87,181		$	2,426		$	136,588
Acquired loans with
deteriorated credit quality															$	6,836

Ending Loans and Leases by
Impairment Methodology:
Individually evaluated for
impairment	$	113,304		$	5,764	$	94,078		$	106		$	213,252
Collectively evaluated for
impairment	6,017,892			1,243,458		7,767,614			385,807			15,414,771
Acquired loans with
deteriorated credit quality															$	62,494
Ending balance	$	6,131,196		$	1,249,222	$	7,861,692		$	385,913		$	15,628,023		$	62,494		$	15,690,517

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



	Three Months Ended September 30, 2016
				Real Estate
	Real Estate			Construction								Total			Total
	Mortgage			and Land		Commercial			Consumer			Non-PCI			PCI			Total
	(In thousands)
Allowance for Loan
and Lease Losses:
Balance, beginning of period	$	29,331		$	7,853	$	93,404		$	1,412		$	132,000		$	11,289		$	143,289
Charge-offs	(302		)	—		(9,606		)	(16		)	(9,924		)	(531		)	(10,455		)
Recoveries	2,414			27		3,553			56			6,050			—			6,050
Provision	5,498			803		2,240			80			8,621			471			9,092
Balance, end of period	$	36,941		$	8,683	$	89,591		$	1,532		$	136,747		$	11,229		$	147,976



	Nine Months Ended September 30, 2016
				Real Estate
	Real Estate			Construction								Total			Total
	Mortgage			and Land		Commercial			Consumer			Non-PCI			PCI			Total
	(In thousands)
Allowance for Loan
and Lease Losses:
Balance, beginning of period	$	36,654		$	7,137	$	61,082		$	661		$	105,534		$	9,577		$	115,111
Charge-offs	(1,905		)	—		(14,306		)	(798		)	(17,009		)	(862		)	(17,871		)
Recoveries	4,352			185		4,179			95			8,811			—			8,811
Provision (negative provision)	(2,160		)	1,361		38,636			1,574			39,411			2,514			41,925
Balance, end of period	$	36,941		$	8,683	$	89,591		$	1,532		$	136,747		$	11,229		$	147,976

Ending Allowance by
Impairment Methodology:
Individually evaluated for
impairment	$	7,299		$	11	$	23,631		$	179		$	31,120
Collectively evaluated for
impairment	$	29,642		$	8,672	$	65,960		$	1,353		$	105,627
Acquired loans with
deteriorated credit quality															$	11,229

Ending Loans and Leases by
Impairment Methodology:
Individually evaluated for
impairment	$	139,059		$	8,700	$	92,637		$	376		$	240,772
Collectively evaluated for
impairment	5,325,882			822,815		7,977,050			256,128			14,381,875
Acquired loans with
deteriorated credit quality															$	120,199
Ending balance	$	5,464,941		$	831,515	$	8,069,687		$	256,504		$	14,622,647		$	120,199		$	14,742,846

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Allowance for Credit Losses

The Non-PCI allowance for credit losses is the combination of the Non-PCI allowance for loan and lease losses and the Non-PCI reserve for unfunded loan commitments. The Non-PCI reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets. The following tables present a summary of the activity in the Non-PCI allowance for loan and lease losses, Non-PCI reserve for unfunded loan commitments, and PCI allowance for loan losses for the periods indicated:



	Three Months Ended September 30, 2017
	Non-PCI
	Allowance for			Reserve for					PCI			Total
	Loan and			Unfunded Loan		Allowance for			Allowance for			Allowance for
	Lease Losses			Commitments		Credit Losses			Loan Losses			Credit Losses
	(In thousands)
Balance, beginning of period	$	138,879		$	20,263	$	159,142		$	7,079		$	166,221
Charge-offs	(5,928		)	—		(5,928		)	(79		)	(6,007		)
Recoveries	4,865			—		4,865			217			5,082
Net charge-offs	(1,063		)	—		(1,063		)	138			(925		)
Provision (negative provision)	14,954			546		15,500			(381		)	15,119
Balance, end of period	$	152,770		$	20,809	$	173,579		$	6,836		$	180,415



	Nine Months Ended September 30, 2017
	Non-PCI
	Allowance for			Reserve for					PCI			Total
	Loan and			Unfunded Loan		Allowance for			Allowance for			Allowance for
	Lease Losses			Commitments		Credit Losses			Loan Losses			Credit Losses
	(In thousands)
Balance, beginning of period	$	143,755		$	17,523	$	161,278		$	13,483		$	174,761
Charge-offs	(49,807		)	—		(49,807		)	(5,768		)	(55,575		)
Recoveries	9,608			—		9,608			275			9,883
Net charge-offs	(40,199		)	—		(40,199		)	(5,493		)	(45,692		)
Provision (negative provision)	49,214			3,286		52,500			(1,154		)	51,346
Balance, end of period	$	152,770		$	20,809	$	173,579		$	6,836		$	180,415



	Three Months Ended September 30, 2016
	Non-PCI
	Allowance for			Reserve for						PCI			Total
	Loan and			Unfunded Loan			Allowance for			Allowance for			Allowance for
	Lease Losses			Commitments			Credit Losses			Loan Losses			Credit Losses
	(In thousands)
Balance, beginning of period	$	132,000		$	17,944		$	149,944		$	11,289		$	161,233
Charge-offs	(9,924		)	—			(9,924		)	(531		)	(10,455		)
Recoveries	6,050			—			6,050			—			6,050
Net charge-offs	(3,874		)	—			(3,874		)	(531		)	(4,405		)
Provision (negative provision)	8,621			(621		)	8,000			471			8,471
Balance, end of period	$	136,747		$	17,323		$	154,070		$	11,229		$	165,299

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



	Nine Months Ended September 30, 2016
	Non-PCI
	Allowance for			Reserve for					PCI			Total
	Loan and			Unfunded Loan		Allowance for			Allowance for			Allowance for
	Lease Losses			Commitments		Credit Losses			Loan Losses			Credit Losses
	(In thousands)
Balance, beginning of period	$	105,534		$	16,734	$	122,268		$	9,577		$	131,845
Charge-offs	(17,009		)	—		(17,009		)	(862		)	(17,871		)
Recoveries	8,811			—		8,811			—			8,811
Net charge-offs	(8,198		)	—		(8,198		)	(862		)	(9,060		)
Provision	39,411			589		40,000			2,514			42,514
Balance, end of period	$	136,747		$	17,323	$	154,070		$	11,229		$	165,299

NOTE 5. FORECLOSED ASSETS

The following table summarizes foreclosed assets as of the dates indicated:



	September 30,		December 31,
Property Type	2017		2016
	(In thousands)
Construction and land development	$	9,319	$	11,224
Multi‑family	—		652
Commercial real estate	65		—
Single family residence	1,668		—
Total other real estate owned, net	11,052		11,876
Other foreclosed assets	578		1,100
Total foreclosed assets, net	$	11,630	$	12,976

The following table presents the changes in foreclosed assets, net of the valuation allowance, for the period indicated:



	Foreclosed
	Assets
	(In thousands)
Balance, December 31, 2016	$	12,976
Transfers to foreclosed assets from loans	580
Other additions	1,385
Provision for losses	(2,138		)
Reductions related to sales	(1,173		)
Balance, September 30, 2017	$	11,630

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6. BORROWINGS AND SUBORDINATED DEBENTURES

Borrowings

The following table summarizes our borrowings as of the dates indicated:



	September 30, 2017				December 31, 2016
			Weighted				Weighted
			Average				Average
	Amount		Rate		Amount		Rate
	(Dollars in thousands)
Non‑recourse debt	$	399	6.82	%	$	812	6.41	%
FHLB secured advances	115,000		1.14	%	735,000		0.59	%
FHLB unsecured overnight advance	135,000		1.15	%	130,000		0.55	%
AFX borrowings	—		—	%	40,000		0.81	%
Total borrowings	$	250,399			$	905,812

The non‑recourse debt represents the payment stream of certain equipment leases sold to third parties. The debt is secured by the leased equipment and all interest rates are fixed. As of September 30, 2017, this debt had a weighted average remaining maturity of 1.9 years.

The Bank has established secured and unsecured lines of credit under which it may borrow funds from time to time on a term or overnight basis from the FHLB, the FRBSF, and other financial institutions.

FHLB Secured Line of Credit. The Bank had secured financing capacity with the FHLB as of September 30, 2017 of $3.0 billion, collateralized by a blanket lien on $4.4 billion of certain qualifying loans not pledged to the FRBSF. As of September 30, 2017, the balance outstanding was a $115.0 million overnight advance. As of December 31, 2016, the balance outstanding was $735.0 million, which consisted of a $435.0 million overnight advance and a $300.0 million one-month advance with a January 23, 2017 maturity date.

FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of September 30, 2017, the Bank had secured borrowing capacity of $2.2 billion collateralized by liens covering $2.9 billion of certain qualifying loans. As of September 30, 2017 and December 31, 2016, there were no balances outstanding.

FHLB Unsecured Line of Credit. The Bank has a $135.0 million unsecured line of credit with the FHLB for the purchase of overnight funds, of which $135.0 million was outstanding at September 30, 2017. At December 31, 2016, the balance outstanding was $130.0 million.

Federal Funds Arrangements with Commercial Banks. As of September 30, 2017, the Bank had unsecured lines of credit of $75.0 million with correspondent banks for the purchase of overnight funds, subject to availability of funds. These lines are renewable annually and have no unused commitment fees. As of September 30, 2017 and December 31, 2016, there were no balances outstanding. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of September 30, 2017, there was no balance outstanding. At December 31, 2016, the balance outstanding was $40.0 million, which consisted of a $26.0 million overnight borrowing and a $14.0 million one-month borrowing with a January 20, 2017 maturity date.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Subordinated Debentures

The following table summarizes the terms of each issuance of subordinated debentures outstanding as of the dates indicated:



	September 30, 2017					December 31, 2016					Date	Maturity	Rate Index
Series	Amount			Rate		Amount			Rate		Issued	Date	(Quarterly Reset)
	(Dollars in thousands)
Trust V	$	10,310		4.42	%	$	10,310		4.09	%	8/15/2003	9/17/2033	3 month LIBOR + 3.10
Trust VI	10,310			4.37	%	10,310			4.01	%	9/3/2003	9/15/2033	3 month LIBOR + 3.05
Trust CII	5,155			4.27	%	5,155			3.95	%	9/17/2003	9/17/2033	3 month LIBOR + 2.95
Trust VII	61,856			4.06	%	61,856			3.64	%	2/5/2004	4/23/2034	3 month LIBOR + 2.75
Trust CIII	20,619			3.01	%	20,619			2.65	%	8/15/2005	9/15/2035	3 month LIBOR + 1.69
Trust FCCI	16,495			2.92	%	16,495			2.56	%	1/25/2007	3/15/2037	3 month LIBOR + 1.60
Trust FCBI	10,310			2.87	%	10,310			2.51	%	9/30/2005	12/15/2035	3 month LIBOR + 1.55
Trust CS 2005-1	82,475			3.27	%	82,475			2.91	%	11/21/2005	12/15/2035	3 month LIBOR + 1.95
Trust CS 2005-2	128,866			3.26	%	128,866			2.84	%	12/14/2005	1/30/2036	3 month LIBOR + 1.95
Trust CS 2006-1	51,545			3.26	%	51,545			2.84	%	2/22/2006	4/30/2036	3 month LIBOR + 1.95
Trust CS 2006-2	51,550			3.26	%	51,550			2.84	%	9/27/2006	10/30/2036	3 month LIBOR + 1.95
Trust CS 2006-3 ⁽¹⁾	30,422			1.72	%	27,185			1.74	%	9/29/2006	10/30/2036	3 month EURIBOR + 2.05
Trust CS 2006-4	16,470			3.26	%	16,470			2.84	%	12/5/2006	1/30/2037	3 month LIBOR + 1.95
Trust CS 2006-5	6,650			3.26	%	6,650			2.84	%	12/19/2006	1/30/2037	3 month LIBOR + 1.95
Trust CS 2007-2	39,177			3.26	%	39,177			2.84	%	6/13/2007	7/30/2037	3 month LIBOR + 1.95
Gross subordinated debentures	542,210					538,973
Unamortized discount ⁽²⁾	(94,084		)			(98,229		)
Net subordinated debentures	$	448,126				$	440,744

___________________


(1)	Denomination is in Euros with a value of €25.8 million.


(2)	Amount represents the fair value adjustment on subordinated debentures assumed in acquisitions.

Interest payments made by the Company on subordinated debentures are considered dividend payments under FRB regulations. Bank holding companies, such as PacWest, are required to notify the FRB prior to declaring and paying a dividend during any period in which quarterly and/or cumulative twelve‑month net earnings are insufficient to fund the dividend amount, among other requirements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 7. COMMITMENTS AND CONTINGENCIES

Lending Commitments

The Company is a party to financial instruments with off‑balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The following table presents a summary of the financial instruments described above as of the dates indicated:



	September 30,		December 31,
	2017		2016
	(In thousands)
Loan commitments to extend credit	$	5,037,084	$	4,166,703
Standby letters of credit	237,052		211,398
Total	$	5,274,136	$	4,378,101

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The increase in loan commitments to extend credit is primarily a result of the continued growth of our construction and venture capital portfolios in 2017.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. We provide standby letters of credit in conjunction with several of our lending arrangements and property lease obligations. Most guarantees expire within one year from the date of issuance. If a borrower defaults on its commitments subject to any letter of credit issued under these arrangements, we would be required to meet the borrower's financial obligation but would seek repayment of that financial obligation from the borrower. In some cases, borrowers have pledged cash and investment securities as collateral with us under these arrangements.

In addition, we invest in low income housing project partnerships, which provide income tax credits, and in small business investment companies that call for capital contributions up to an amount specified in the partnership agreements. As of September 30, 2017 and December 31, 2016, we had commitments to contribute capital to these entities totaling $43.1 million and $26.6 million. We also had commitments to contribute up to an additional $2.5 million and $2.8 million to private equity funds at September 30, 2017 and December 31, 2016. In addition, at September 30, 2017, we had a commitment to purchase approximately $7.8 million of loans that terminates in June 2018.

Legal Matters

In the ordinary course of our business, the Company is party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon currently available information, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations.

Kinde Durkee Investigation

The United States Attorney's Office for the Eastern District of California concluded an investigation relating to the handling by First California Bank ("FCB") of its banking relationship with Kinde Durkee. Ms. Durkee, who had maintained certain of her accounts with FCB, was convicted in 2012 of embezzling funds from certain California politicians, among others. FCB, a wholly-owned subsidiary of FCAL, was acquired by PacWest Bancorp and merged into Pacific Western Bank in May 2013. The investigation was concluded in September 2017 with a cash settlement of $1.75 million. The claims settled are allegations only, and there has been no determination of liability. The settled claims relate exclusively to conduct by First California prior to its acquisition by PacWest Bancorp.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 8. FAIR VALUE MEASUREMENTS

ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three‑level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:


•	Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets.

•

Level 2: Observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data, either directly or indirectly, for substantially the full term of the financial instrument. This category generally includes municipal securities, agency residential and commercial MBS, collateralized loan obligations, registered publicly rated private label CMOs and asset-backed securitizations.

•

Level 3: Inputs to a valuation methodology that are unobservable, supported by little or no market activity, and significant to the fair value measurement. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant management judgment or estimation. This category also includes observable inputs from a pricing service not corroborated by observable market data, and includes our non-rated private label CMOs, non-rated private label asset-backed securities, and equity warrants.

We use fair value to measure certain assets and liabilities on a recurring basis, primarily securities available‑for‑sale and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for impaired loans and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long‑lived assets.

The following tables present information on the assets and liabilities measured and recorded at fair value on a recurring basis as of the dates indicated:



	Fair Value Measurements as of
	September 30, 2017
Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available‑for‑sale:
Residential MBS and CMOs:
Agency MBS	$	377,541	$	—	$	377,541	$	—
Agency CMOs	175,950		—		175,950		—
Private label CMOs	134,550		—		96,614		37,936
Municipal securities	1,549,150		—		1,549,150		—
Agency commercial MBS	995,914		—		995,914		—
Corporate debt securities	19,125		—		19,125		—
Collateralized loan obligations	19,176		—		19,176		—
SBA securities	168,028		—		168,028		—
Asset-backed and other securities	92,796		4,808		45,603		42,385
Total securities available-for-sale	3,532,230		4,808		3,447,101		80,321
Equity warrants	5,158		—		—		5,158
Other derivative assets	1,221		—		1,221		—
Total recurring assets	$	3,538,609	$	4,808	$	3,448,322	$	85,479
Derivative liabilities	$	564	$	—	$	564	$	—

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



	Fair Value Measurements as of
	December 31, 2016
Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available‑for‑sale:
Residential MBS and CMOs:
Agency MBS	$	502,443	$	—	$	502,443	$	—
Agency CMOs	146,289		—		146,289		—
Private label CMOs	125,469		—		68,567		56,902
Municipal securities	1,456,459		—		1,456,459		—
Agency commercial MBS	547,692		—		547,692		—
Corporate debt securities	47,509		—		47,509		—
Collateralized loan obligations	156,887		—		156,887		—
SBA securities	178,845		—		178,845		—
Asset-backed and other securities	62,237		2,080		51,784		8,373
Total securities available-for-sale	3,223,830		2,080		3,156,475		65,275
Equity warrants	5,497		—		—		5,497
Other derivative assets	694		—		694		—
Total recurring assets	$	3,230,021	$	2,080	$	3,157,169	$	70,772
Derivative liabilities	$	3,285	$	—	$	3,285	$	—

During the nine months ended September 30, 2017, there were no transfers of assets between Level 1 and Level 2, and there was a $0.7 million transfer of assets from Level 3 to Level 1 of the fair value hierarchy for assets measured on a recurring basis.

The following table presents information about quantitative inputs and assumptions used to determine the fair values provided by our third party pricing service for our Level 3 private label CMOs and asset-backed securities available-for-sale measured at fair value on a recurring basis as of the date indicated:



	September 30, 2017
	Private Label CMOs		Asset-Backed Securities
		Weighted		Weighted
	Range	Average	Range	Average
Unobservable Inputs	of Inputs	Input	of Inputs	Input
Voluntary annual prepayment speeds	3.2% - 25.5%	9.6%	5% - 15%	13.5%
Annual default rates	0.1% - 13.6%	2.2%	1% - 2%	1.8%
Loss severity rates	4.0% - 95.9%	46.9%	10% - 60%	52.4%
Discount rates	1.6% - 9.9%	4.6%	3.2% - 4.3%	3.6%

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents information about quantitative inputs and assumptions used in the modified Black-Scholes option pricing model to determine the fair value for our Level 3 equity warrants measured at fair value on a recurring basis as of the date indicated:



	September 30, 2017
	Equity Warrants
	Weighted
	Average
Unobservable Inputs	Input
Volatility	17.3%
Risk-free interest rate	1.7%
Remaining life assumption (in years)	3.8

The following table summarizes activity for our Level 3 private label CMOs available-for-sale, asset-backed securities available-for-sale, and equity warrants measured at fair value on a recurring basis for the period indicated:



	Private			Asset-Backed			Equity
	Label CMOs			Securities			Warrants
	(In thousands)
Balance, December 31, 2016	$	56,902		$	8,373		$	5,497
Total included in earnings	2,114			314			1,701
Total included in other comprehensive income	(578		)	(349		)	—
Purchases	—			37,722			—
Issuances	—			—			720
Sales	(4,732		)	—			(2,106		)
Net settlements	(15,770		)	(3,675		)	—
Transfers to securities available-for-sale	—			—			(654		)
Balance, September 30, 2017	$	37,936		$	42,385		$	5,158

The following tables present assets measured at fair value on a non‑recurring basis as of the dates indicated:



	Fair Value Measurement as of
	September 30, 2017
Measured on a Non‑Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired Non‑PCI loans	$	63,463	$	—	$	6,779	$	56,684
OREO	9,100		—		9,100		—
Total non-recurring	$	72,563	$	—	$	15,879	$	56,684



	Fair Value Measurement as of
	December 31, 2016
Measured on a Non‑Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired Non‑PCI loans	$	149,749	$	—	$	1,661	$	148,088
OREO	11,224		—		11,224		—
Investments carried at cost	242		—		—		242
Total non-recurring	$	161,215	$	—	$	12,885	$	148,330

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents losses recognized on assets measured on a nonrecurring basis for the periods indicated:



	Three Months Ended				Nine Months Ended
Losses on Assets	September 30,				September 30,
Measured on a Non‑Recurring Basis	2017		2016		2017		2016
	(In thousands)
Impaired Non‑PCI loans	$	4,427	$	12,935	$	17,895	$	27,301
OREO	2,124		—		2,124		—
Total losses	$	6,551	$	12,935	$	20,019	$	27,301

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of the date indicated:

September 30, 2017

Valuation

Unobservable

Weighted

Asset

Fair Value

Technique

Inputs

Range

Average

(In thousands)

Impaired Non-PCI loans

55,365

Discounted cash flows

Discount rates

2.00% - 8.93%

6.84%

1,319

Third party appraisals

No discounts

Total non-recurring Level 3

56,684

ASC Topic 825, “Financial Instruments,” requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.

The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:



	September 30, 2017
	Carrying		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	147,579	$	147,579	$	147,579	$	—	$	—
Interest‑earning deposits in financial institutions	122,439		122,439		122,439		—		—
Securities available‑for‑sale	3,532,230		3,532,230		4,808		3,447,101		80,321
Investment in FHLB stock	17,250		17,250		—		17,250		—
Investments carried at cost	1,006		10,702		—		—		10,702
Loans and leases held for investment, net	15,530,911		15,700,815		—		6,779		15,694,036
Equity warrants	5,158		5,158		—		—		5,158
Other derivative assets	1,221		1,221		—		1,221		—

Financial Liabilities:
Core deposits	13,531,300		13,531,300		—		13,531,300		—
Non-core non-maturity deposits	1,118,694		1,118,694		—		1,118,694		—
Time deposits	2,123,251		2,114,655		—		2,114,655		—
Borrowings	250,399		250,399		250,000		399		—
Subordinated debentures	448,126		431,173		—		431,173		—
Derivative liabilities	564		564		—		564		—

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



	December 31, 2016
	Carrying		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	337,965	$	337,965	$	337,965	$	—	$	—
Interest‑earning deposits in financial institutions	81,705		81,705		81,705		—		—
Securities available‑for‑sale	3,223,830		3,223,830		2,080		3,156,475		65,275
Investment in FHLB stock	21,870		21,870		—		21,870		—
Investments carried at cost	1,416		3,843		—		—		3,843
Loans and leases held for investment, net	15,298,716		15,494,808		—		1,661		15,493,147
Equity warrants	5,497		5,497		—		—		5,497
Other derivative assets	694		694		—		694		—

Financial Liabilities:
Core deposits	12,523,834		12,523,834		—		12,523,834		—
Non-core non-maturity deposits	1,174,487		1,174,487		—		1,174,487		—
Time deposits	2,172,290		2,166,187		—		2,166,187		—
Borrowings	905,812		905,838		591,000		314,838		—
Subordinated debentures	440,744		424,507		—		424,507		—
Derivative liabilities	3,285		3,285		—		3,285		—

For information regarding the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820), and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825), see Note 1. Nature of Operations and Summary of Significant Accounting Policies, and Note 13. Fair Value Measurements, to the Consolidated Financial Statements of the Company's 2016 Annual Report on Form 10-K.

Limitations

Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect income taxes or any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on what management believes to be reasonable judgments regarding expected future cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimated fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Since the fair values have been estimated as of September 30, 2017, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 9. EARNINGS PER SHARE

The following table presents the computations of basic and diluted net earnings per share for the periods indicated:



	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
	2017			2017			2016			2017			2016
	(Dollars in thousands, except per share data)
Basic Earnings Per Share:
Net earnings	$	101,466		$	93,647		$	93,895		$	273,781		$	266,519
Less: Earnings allocated to unvested restricted stock⁽¹⁾	(1,149		)	(1,080		)	(1,048		)	(3,239		)	(2,983		)
Net earnings allocated to common shares	$	100,317		$	92,567		$	92,847		$	270,542		$	263,536

Weighted-average basic shares and unvested restricted
stock outstanding	121,447			121,422			121,818			121,405			121,739
Less: Weighted-average unvested restricted stock
outstanding	(1,394		)	(1,455		)	(1,401		)	(1,450		)	(1,425		)
Weighted-average basic shares outstanding	120,053			119,967			120,417			119,955			120,314

Basic earnings per share	$	0.84		$	0.77		$	0.77		$	2.26		$	2.19

Diluted Earnings Per Share:
Net earnings allocated to common shares	$	100,317		$	92,567		$	92,847		$	270,542		$	263,536

Weighted-average basic shares outstanding	120,053			119,967			120,417			119,955			120,314

Diluted earnings per share	$	0.84		$	0.77		$	0.77		$	2.26		$	2.19

________________________


(1)	Represents cash dividends paid to holders of unvested restricted stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.

NOTE 10. STOCK-BASED COMPENSATION

The Company’s 2017 Stock Incentive Plan, or the 2017 Plan, permits stock-based compensation awards to officers, directors, key employees and consultants. As of September 30, 2017, the 2017 Plan authorized grants of stock‑based compensation instruments to purchase or issue up to 4,000,000 shares of Company common stock. As of September 30, 2017, there were 3,837,850 shares available for grant under the 2017 Plan.

Restricted Stock

Restricted stock amortization totaled $6.5 million, $6.6 million, and $5.6 million for the three months ended September 30, 2017, June 30, 2017 and September 30, 2016 and, $19.6 million and $16.6 million for the nine months ended September 30, 2017 and 2016. Such amounts are included in "Compensation expense" on the condensed consolidated statements of earnings. The amount of unrecognized compensation expense related to unvested TRSAs and PRSUs as of September 30, 2017 totaled $47.5 million.

Time-Based Restricted Stock Awards

At September 30, 2017, there were 1,393,874 shares of unvested TRSAs outstanding pursuant to the Company's 2003 and 2017 Stock Incentive Plans (the "Plans"). The TRSAs generally vest over a service period of three or four years from the date of the grant or immediately upon death of an employee. Compensation expense related to TRSAs is based on the fair value of the underlying stock on the award date and is recognized over the vesting period using the straight‑line method.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Performance-Based Restricted Stock Units

At September 30, 2017, there were 239,025 unvested PRSUs outstanding. The PRSUs will vest only if performance goals with respect to certain financial metrics are met over a three-year performance period. The PRSUs are not considered issued and outstanding under the 2003 Stock Incentive Plan until they vest. PRSUs are granted and initially expensed based on a target number. The number of shares that will ultimately vest based on actual performance will range from zero to a maximum of either 150% or 200% of target. Compensation expense related to PRSUs is based on the fair value of the underlying stock on the award date and is amortized over the vesting period using the straight-line method unless it is determined that: (1) attainment of the financial metrics is less than probable, in which case a portion of the amortization is suspended, or (2) attainment of the financial metrics is improbable, in which case a portion of the previously recognized amortization is reversed and also suspended. If it is determined that attainment of a financial measure higher than target is probable, the amortization will increase to up to 150% or 200% of the target amortization amount. Annual PRSU expense may vary during the three-year performance period based upon changes in management's estimate of the number of shares that may ultimately vest. In the case where the performance target for the PRSU's is based on a market condition (such as total shareholder return), the amortization is neither reversed nor suspended if it is subsequently determined that the attainment of the performance target is less than probable or improbable.

NOTE 11. RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2014, the FASB issued ASU 2014-09, "Revenue Recognition (Topic 606): Revenue from Contracts with Customers." ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 to annual and interim periods beginning after December 15, 2017. We have completed the assessment phase and substantially completed our implementation plan for adopting this new standard. In the assessment phase, we determined which revenue streams were within the scope and those that were excluded from the scope of the new standard. Substantially all of the Company's revenues, such as interest income, are excluded from the scope of the new standard. For the revenue streams determined to be within the scope of the new standard, we examined customer contracts to determine the appropriate accounting for those contracts under the new standard. We evaluated the need for any changes to our accounting, operations, and internal controls related to implementing the requirements of the new standard and have made some changes as needed. However, the new standard will not significantly impact the timing or amounts recognized. The Company will use the cumulative effect transition method and does not expect the provisions of ASU 2014-09 to have a material impact on our consolidated financial statements. The Company will adopt this standard effective January 1, 2018.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which will significantly change the income statement impact of equity investments and the recognition of changes in fair value of financial liabilities when the fair value option is elected. For equity investments with readily determinable fair values, entities must measure these investments at fair value and recognize changes in fair value in net income. For equity investments without readily determinable fair values, entities have the option to either measure these investments at fair value or at cost, adjusted for changes in observable prices, minus impairment. Changes in measurement under either alternative must be recognized in net income. ASU 2016-01 will be effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted only for the provisions related to the recognition of changes in fair value of financial liabilities, which does not apply to the Company. The Company will adopt this standard effective January 1, 2018 and does not expect the provisions of ASU 2016-01 to have a material impact on its consolidated financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which, among other things, requires lessees to recognize most leases on-balance sheet, which will result in an increase in their reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP. ASU 2016-02 supersedes Topic 840, Leases. ASU 2016-02 is effective for annual and interim periods in fiscal years beginning after December 15, 2018 and mandates a modified retrospective transition method for all entities. The Company has begun to assess the impact of the new standard on its financial statements and related disclosures and is currently evaluating the existing lease portfolio and working through its implementation plan. The impact to the Company will be primarily related to leased branches and office space. The Company will adopt the standard effective January 1, 2019.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which significantly changes the way entities recognize credit losses and impairment of many financial assets. Currently, the credit loss and impairment model is based on incurred losses, and investments are recognized as impaired when there is no longer an assumption that future cash flows will be collected in full under the originally contracted terms. Under the current expected credit loss ("CECL") model, the new standard requires immediate recognition of estimated credit losses expected to occur over the remaining life of the asset. The Company has set up a multidisciplinary project team, developed an implementation plan, selected a software solution, and has selected a third-party vendor to assist with the assessment phase of the project. ASU 2016-13 is effective for interim and annual periods in fiscal years beginning after December 15, 2019. The Company is evaluating the effect that ASU 2016-13 will have on its consolidated financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which addressed eight issues related to the statement of cash flows, including proceeds from the settlement of BOLI policies. ASU 2016-15 is effective for interim and annual periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. If an entity early adopts ASU 2016-15 in an interim period, adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. An entity that elects early adoption must adopt all of the amendment in the same period. Entities should apply ASU 2016-15 using a retrospective transition method to each period presented. If it is impracticable for an entity to apply ASU 2016-15 retrospectively for some of the issues, it may apply the amendments for those issues prospectively as of the earliest date practicable. ASU 2016-15 will result in some changes in classification in the consolidated statements of cash flows, which the Company does not expect will be significant, and will not have any impact on its consolidated financial position or results of operations. The Company will adopt this standard on January 1, 2018.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which provides a new framework for determining whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for annual periods in fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2019. The Company does not expect ASU 2017-01 to have a material impact on its financial condition or results of operations.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which intends to simplify goodwill impairment testing by eliminating the second step of the analysis under which the implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. ASU 2017-04 instead requires entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit's fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit. ASU 2017-04 must be applied prospectively and is effective for the Company on January 1, 2020. Early adoption is permitted. The Company does not expect ASU 2017-04 to have a material impact on its financial condition or results of operations.

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting," which clarifies what constitutes a modification of a share-based payment award. ASU 2017-09 is effective for interim and annual periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The Company will adopt this standard on January 1, 2018 and does not expect ASU 2017-09 to have a material impact on its financial condition or results of operations.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 12. SUBSEQUENT EVENTS

CU Bancorp Acquisition

On October 20, 2017, PacWest completed the acquisition of CU Bancorp ("CUB"). As part of the acquisition, California United Bank (“CU Bank”), a wholly-owned subsidiary of CUB, was merged with and into PacWest's wholly-owned banking subsidiary, Pacific Western Bank.

Under the terms of the Agreement and Plan of Merger, each CUB common share, except dissenting shares, and each restricted stock award was converted into the right to receive 0.5308 of a share of PacWest common stock and $12.00 in cash, and each outstanding CUB stock option was settled in cash pursuant to terms of the Agreement and Plan of Merger. PacWest issued an aggregate of approximately 9.3 million shares of PacWest common stock and paid approximately $224 million in cash to CUB common shareholders and equity award holders. Based on the closing price of PacWest’s common stock on October 20, 2017 of $47.99 per share, the aggregate consideration paid to CUB common shareholders and equity awards holders was approximately $671 million. Former holders of CUB common stock as a group received shares of PacWest common stock in the acquisition constituting approximately 7% of the outstanding shares of PacWest common stock immediately after the acquisition.

CU Bank was a commercial bank headquartered in Los Angeles, California. We completed the acquisition to, among other things, enhance our Southern California community bank franchise by adding a $2.1 billion loan portfolio and $2.7 billion of core deposits.

Common Stock Dividends

On November 1, 2017, the Company announced that the Board of Directors had declared a quarterly cash dividend of $0.50 per common share. The cash dividend is payable on November 30, 2017 to stockholders of record at the close of business on November 20, 2017.

We have evaluated events that have occurred subsequent to September 30, 2017 and have concluded there are no other subsequent events that would require recognition in the accompanying consolidated financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Information

This Form 10-Q 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 recent acquisition of CUB, capital management, including reducing excess capital, intentions to expand the Bank’s lending business; net interest income, net interest margin, allowance for loan and lease losses, deposit growth, loan and lease portfolio growth and production, liquidity, profitability, goodwill and intangible assets, interest rate risk management, and effective tax rates. All statements contained in this Form 10-Q 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:


•	our ability to complete future acquisitions and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;


•	the reaction to the recent CUB acquisition of the companies' customers, employees and counterparties;


•	our ability to compete effectively against other financial service providers in our markets;


•	the effect of the current low interest rate environment or impact of changes in interest rates or levels of market activity, especially on the fair value of our loan and investment portfolios;


•	deterioration, weaker than expected improvement, a continued sluggish recovery, or other changes in the state of the economy or the markets in which we conduct business (including the levels of initial public offerings and mergers and acquisitions), which may affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans;


•	changes in credit quality and the effect of credit quality on our provision for credit losses and allowance for loan and lease losses;


•	our ability to attract deposits and other sources of funding or liquidity;


•	the need to retain capital for strategic or regulatory reasons;


•	the impact of the Dodd-Frank Act on our business, business strategies and cost of operations;


•	compression of the net interest margin due to changes in the interest rate environment, forward yield curves, loan products offered, spreads on newly originated loans and leases and/or asset mix;


•	reduced demand for our services due to strategic or regulatory reasons;


•	our ability to successfully execute on initiatives relating to enhancements of our technology infrastructure, including client-facing systems and applications;


•	legislative or regulatory requirements or changes, including an increase to capital requirements, and increased political and regulatory uncertainty;


•	the impact on our reputation and business from our interactions with business partners, counterparties, service providers and other third parties;


•	higher than anticipated increases in operating expenses;


•	lower than expected dividends paid from the Bank to the holding company;


•	a deterioration in the overall macroeconomic conditions or the state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge;


•	the effectiveness of our risk management framework and quantitative models;


•	the costs and effects of legal, compliance, and regulatory actions, changes and developments, including the impact of adverse judgments or settlements in litigation, the initiation and resolution of regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews;


•	the impact on the value of our DTAs and on our net income or regulatory capital if corporate tax rates in the U.S. are reduced, or if other changes are made to tax laws or regulations affecting our business, including the disallowance of tax benefits by tax authorities and/or changes in tax filing jurisdictions or entity classifications; and


•	our success at managing risks involved in the foregoing items and all other risk factors described in our audited consolidated financial statements, and other risk factors described in this Form 10-Q and other documents filed or furnished by PacWest with the SEC.

All forward-looking statements included in this Form 10-Q are based on information available at the time the statement is made. 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.

Overview

PacWest Bancorp is a bank holding company registered under the BHCA. Our principal business is to serve as the holding company for our Beverly Hills‑based wholly-owned banking subsidiary, Pacific Western Bank. References to “Pacific Western” or the “Bank” refer to Pacific Western Bank together with its wholly-owned subsidiaries. References to “we,” “us,” or the “Company” refer to PacWest Bancorp together with its subsidiaries on a consolidated basis. When we refer to “PacWest” or to the “holding company,” we are referring to PacWest Bancorp, the parent company, on a stand-alone basis.

We are focused on relationship-based business banking to small, middle-market and venture-backed businesses nationwide. At September 30, 2017, the Bank offers a broad range of loan and lease and deposit products and services through 74 full-service branches located throughout the state of California, one branch located in Durham, North Carolina, and several loan production offices located in cities across the country. We provide commercial banking services, including real estate, construction, and commercial loans, and comprehensive deposit and treasury management services to small and middle-market businesses. We offer additional products and services through our CapitalSource and Square 1 Bank divisions. Our CapitalSource Division provides cash flow, asset-based, equipment, and real estate loans and treasury management services to established middle market businesses on a national basis. Our Square 1 Bank Division 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. In addition, we provide investment advisory and asset management services to select clients through Square 1 Asset Management, Inc., a wholly-owned subsidiary of the Bank and a SEC-registered investment adviser.

In managing the top line of our business, we focus on loan growth, loan yield, deposit cost, and net interest margin. Net interest income, on a year-to-date basis in 2017, accounted for 87.6% of our net revenues (net interest income plus noninterest income).

At September 30, 2017, we had total assets of $22.2 billion, including $15.7 billion of loans and leases held for investment, net of deferred fees, and $3.5 billion of securities available-for-sale, compared to $21.9 billion of total assets, including $15.5 billion of loans and leases held for investment, net of deferred fees, and $3.2 billion of securities available-for-sale at December 31, 2016. The $373.2 million increase in total assets during the nine months ended September 30, 2017 was due primarily to a $234.6 million increase in loans and leases, driven by new production of $3.1 billion, and a $308.4 million increase in securities available-for-sale, due mainly to purchases of $804.7 million, offset partially by a $149.7 million decrease in cash and cash equivalents.

At September 30, 2017, we had total liabilities of $17.6 billion, including total deposits of $16.8 billion and borrowings of $250.4 million, compared to $17.4 billion of total liabilities, including $15.9 billion of total deposits and $905.8 million of borrowings at December 31, 2016. The $241.6 million increase in total liabilities since year-end was due mainly to a $1.0 billion increase in core deposits, offset partially by a $655.4 million decrease in borrowings, primarily short-term FHLB advances, a $55.8 million decrease in non-core non-maturity deposits, and a $49.0 million decrease in time deposits. At September 30, 2017, core deposits totaled $13.5 billion, or 81% of total deposits, and time deposits totaled $2.1 billion, or 13% of total deposits.

Recent Events

CU Bancorp Acquisition

On October 20, 2017, we completed the acquisition of CU Bancorp (“CUB”) in a transaction valued at approximately $671 million. As part of the acquisition, California United Bank, a wholly-owned subsidiary of CUB, was merged with and into PacWest's wholly-owned banking subsidiary, Pacific Western Bank. As of October 20, 2017, CUB had $2.7 billion of core deposits and $2.1 billion of loans, with nine branches located in Los Angeles, Orange, Ventura, and San Bernardino counties. For further information, see Note 12, Subsequent Events, in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

Loan Sales and Loans Held for Sale

In the second quarter of 2017, we sold $46.0 million of loans consisting primarily of loans from our healthcare portfolios. Additionally, we entered into two agreements to sell loans with balances totaling $175.2 million and the associated unfunded commitments of $19.3 million, primarily from our healthcare portfolios. The $175.2 million of loans were reported as held for sale at June 30, 2017 and the sales were completed in July. As a result of the second quarter loan sales and transfers to loans held for sale, our healthcare cash flow portfolio held for investment decreased from $740.6 million at March 31, 2017 to $514.7 million at June 30, 2017, which included two non-pass rated credits of $26.1 million.

In connection with the transfer of loans to held for sale, we recognized $7.2 million in charge-offs during the second quarter of 2017 in order to record the loans at the lower of cost or fair value. Additionally, our nonaccrual loans held for investment decreased by $5.3 million and our classified loans held for investment decreased by $44.8 million as a result of the loans transferred to held for sale.

There were no loans held for sale at September 30, 2017.

Sale/Leaseback Transaction

In the first quarter of 2017, the Company sold four properties with an aggregate book value of $9.7 million to a third party and simultaneously leased back the properties under one lease with an initial term of five years and three leases with initial terms of 10 years. The aggregate purchase price was $12.1 million which resulted in a gain of $0.6 million recognized in the first quarter and a deferred gain of $1.8 million to be recognized over the respective terms of the new leases.

Key Performance Indicators

Among other factors, our operating results generally depend on the following key performance indicators:

The Level of Net Interest Income

Net interest income is the excess of interest earned on our interest‑earning assets over the interest paid on our interest‑bearing liabilities. Net interest margin is net interest income (annualized) expressed as a percentage of average interest‑earning assets. Tax equivalent net interest income is net interest income increased by an adjustment for tax-exempt interest on certain loans and municipal securities based on a 35% federal statutory tax rate. Tax equivalent net interest margin is calculated as tax equivalent net interest income divided by average interest-earning assets.

Our primary interest‑earning assets are loans and investment securities, and our primary interest‑bearing liabilities are deposits. Contributing to our high net interest margin is our high yield on loans and leases and competitive cost of deposits. While our deposit balances will fluctuate depending on deposit holders’ perceptions of alternative yields available in the market, we seek to minimize the impact of these variances by attracting a high percentage of noninterest‑bearing deposits.

Loan and Lease Growth

We actively seek new lending opportunities under an array of commercial real estate loans and C&I lending products. Our targeted collateral for our real estate loan offerings includes multifamily properties, healthcare properties, office properties, hospitality properties, industrial properties, and retail properties. Our C&I loan products include equipment-secured loans and leases, asset-secured loans, loans to finance companies, cash flow loans (which are loans secured by borrower future cash flows and borrower enterprise value) and venture capital-backed loans to entrepreneurial companies to support the various stages of their operations. Our loan origination process emphasizes credit quality. We foster lending relationships with borrowers that have proven loan repayment performance. Our commitment sizes vary by loan product and can range up to $100 million for certain asset-based lending arrangements and select real estate loans. We price loans to preserve our interest spread and maintain our net interest margin. Achieving net loan growth is subject to many factors, including maintaining strict credit standards, competition from other lenders, and borrowers that opt to prepay loans.

The Magnitude of Credit Losses

We emphasize credit quality in originating and monitoring our loans and leases, and we measure our success by the levels of our classified and nonperforming assets and net charge‑offs. We maintain an allowance for credit losses on loans and leases, which is the sum of our allowance for loan and lease losses and our reserve for unfunded loan commitments. Provisions for credit losses are charged to operations as and when needed for both on and off‑balance sheet credit exposure. Loans and leases which are deemed uncollectable are charged off and deducted from the allowance for loan and lease losses. Recoveries on loans and leases previously charged off are added to the allowance for loan and lease losses. The provision for credit losses on the loan and lease portfolio is based on our allowance methodology which considers various credit performance measures such as historical and current net charge‑offs, the levels and trends of nonaccrual and classified loans and leases, the migration of loans and leases into various risk classifications, and the overall level of outstanding loans and leases. For originated and acquired non‑impaired loans, a provision for credit losses may be recorded to reflect credit deterioration after the origination date or after the acquisition date, respectively. For PCI loans, a provision for credit losses may be recorded to reflect decreases in expected cash flows on such loans compared to those previously estimated.

We regularly review our loans and leases to determine whether there has been any deterioration in credit quality stemming from borrower operations or changes in collateral value or other factors which may affect collectability of our loans and leases. Changes in economic conditions, such as the rate of economic growth, the rate of inflation, the unemployment rate, increases in the general level of interest rates, declines in real estate values, changes in commodity prices (such as crude oil), and adverse conditions in borrowers’ businesses, could negatively impact our borrowers and cause us to adversely classify loans and leases. An increase in classified loans and leases generally results in increased provisions for credit losses and an increased allowance for credit losses. Any deterioration in the commercial real estate market may lead to increased provisions for credit losses because of our concentration in commercial real estate loans.

The Level of Noninterest Expense

Our noninterest expense includes fixed and controllable overhead, the major components of which are compensation, occupancy, data processing, and other professional services. It also includes costs that tend to vary based on the volume of activity, such as loan and lease production and the number and complexity of foreclosed assets. We measure success in controlling both fixed and variable costs through monitoring of the efficiency ratio. We calculate the efficiency ratio by dividing noninterest expense (less intangible asset amortization, net foreclosed assets expense (income), and acquisition, integration and reorganization costs) by net revenues (the sum of tax equivalent net interest income plus noninterest income, less gain (loss) on sale of securities and gain (loss) on sales of assets other than loans and leases).

The following table presents the calculation of our efficiency ratio for the periods indicated:



		Three Months Ended									Nine Months Ended
		September 30,			June 30,			September 30,			September 30,
Efficiency Ratio		2017			2017			2016			2017			2016
		(Dollars in thousands)
Noninterest expense		$	118,542		$	117,707		$	110,710		$	352,793		$	331,479
Less:	Intangible asset amortization	3,049			3,065			4,224			9,178			13,341
	Foreclosed assets expense (income), net	2,191			(157		)	(248		)	2,177			(812		)
	Acquisition, integration and reorganization costs	1,450			1,700			—			3,650			200
Noninterest expense used for efficiency ratio		$	111,852		$	113,099		$	106,734		$	337,788		$	318,750

Net interest income (tax equivalent)		$	246,575		$	247,322		$	239,473		$	731,132		$	727,680
Noninterest income		31,382			35,282			26,920			101,778			83,580
Net revenues		277,957			282,604			266,393			832,910			811,260
Less:	Gain on sale of securities	1,236			1,651			382			2,788			8,970
Net revenues used for efficiency ratio		$	276,721		$	280,953		$	266,011		$	830,122		$	802,290

Efficiency ratio		40.4		%	40.3		%	40.1		%	40.7		%	39.7		%

Critical Accounting Policies

The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. We have identified several policies as being critical because they require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for credit losses, the carrying values of intangible assets, the realization of deferred income tax assets, and the accounting for business combinations. For further information, refer to our Annual Report on Form 10‑K for the year ended December 31, 2016.

Non-GAAP Measurements

We use 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. The methodology for determining these non-GAAP measures may differ among companies. We used the following non-GAAP measures in this Form 10-Q:

•

Return on average tangible equity, tangible common equity ratio, 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 the related GAAP measures of return on average equity, equity to assets ratio, and book value per share, respectively. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods presented.



		Three Months Ended									Nine Months Ended
		September 30,			June 30,			September 30,			September 30,
Return on Average Tangible Equity		2017			2017			2016			2017			2016
		(Dollars in thousands)
Net earnings		$	101,466		$	93,647		$	93,895		$	273,781		$	266,519

Average stockholders' equity		$	4,592,489		$	4,545,276		$	4,530,701		$	4,547,472		$	4,484,468
Less:	Average intangible assets	2,202,922			2,205,814			2,217,564			2,205,927			2,222,346
Average tangible common equity		$	2,389,567		$	2,339,462		$	2,313,137		$	2,341,545		$	2,262,122

Return on average equity ⁽¹⁾		8.77		%	8.26		%	8.24		%	8.05		%	7.94		%
Return on average tangible equity ⁽²⁾		16.85		%	16.06		%	16.15		%	15.63		%	15.74		%

___________________________________


(1)	Annualized net earnings divided by average stockholders' equity.


(2)	Annualized net earnings divided by average tangible common equity.



Tangible Common Equity Ratio/	September 30,			December 31,
Tangible Book Value Per Share	2017			2016
	(Dollars in thousands, except per share data)
Stockholders’ equity	$	4,610,668		$	4,479,055
Less: Intangible assets	2,201,137			2,210,315
Tangible common equity	$	2,409,531		$	2,268,740

Total assets	$	22,242,932		$	21,869,767
Less: Intangible assets	2,201,137			2,210,315
Tangible assets	$	20,041,795		$	19,659,452

Equity to assets ratio	20.73		%	20.48		%
Tangible common equity ratio⁽¹⁾	12.02		%	11.54		%
Book value per share	$	37.96		$	36.93
Tangible book value per share	$	19.84		$	18.71
Shares outstanding	121,449,794			121,283,669

_______________________________________


(1)	Tangible common equity divided by tangible assets.

Results of Operations

Earnings Performance

The following table presents performance metrics for the periods indicated:



	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
Performance Measures	2017			2017			2016			2017			2016
Diluted earnings per share	$	0.84		$	0.77		$	0.77		$	2.26		$	2.19
Annualized return on:
Average assets	1.82		%	1.71		%	1.77		%	1.67		%	1.69		%
Average tangible equity ⁽¹⁾⁽²⁾	16.85		%	16.06		%	16.15		%	15.63		%	15.74		%
Net interest margin (tax equivalent)	5.08		%	5.21		%	5.26		%	5.15		%	5.37		%
Efficiency ratio	40.4		%	40.3		%	40.1		%	40.7		%	39.7		%

_____________________________


(1)	Calculation reduces average stockholder's equity by average intangible assets.


(2)	See "Non-GAAP Measurements."

Third Quarter of 2017 Compared to Second Quarter of 2017

Net earnings for the third quarter of 2017 were $101.5 million, or $0.84 per diluted share, compared to net earnings for the second quarter of 2017 of $93.6 million, or $0.77 per diluted share. The $7.8 million increase in net earnings was due primarily to lower income tax expense of $17.0 million, offset partially by lower noninterest income of $3.9 million and a higher provision for credit losses of $3.6 million. The decrease in income tax expense was due to a $13.6 million reversal of a valuation allowance related to tax credits in the third quarter of 2017 which, based on a change in estimate in our latest analysis, are more likely than not to be utilized before they expire. The decrease in noninterest income was due mainly to lower leased equipment income and lower other income. The increase in the provision for credit losses was due primarily to loan risk rating downgrades combined with net portfolio growth.

Third Quarter of 2017 Compared to Third Quarter of 2016

Net earnings for the third quarter of 2017 were $101.5 million, or $0.84 per diluted share, compared to net earnings for the third quarter of 2016 of $93.9 million, or $0.77 per diluted share. The $7.6 million increase in net earnings was due to lower income tax expense of $10.5 million, higher net interest income of $7.1 million, and higher noninterest income of $4.5 million, offset partially by a higher provision for credit losses of $6.6 million and higher noninterest expense of $7.8 million. The decrease in income tax expense was due to a $13.6 million reversal of a valuation allowance related to tax credits in the third quarter of 2017, offset partially by certain discrete tax items recognized in the third quarter of 2016 which reduced income tax expense for that period. The increase in net interest income was due mainly to a higher average loan and lease balance, offset by lower discount accretion on acquired loans and higher interest expense on interest-bearing liabilities. The increase in noninterest income was due mostly to higher gain on sale of loans and leases, higher other income, higher dividends and realized gains on equity investments, and a higher gain on sale of securities, offset partially by lower other commissions and fees. The increase in noninterest expense was due mostly to higher foreclosed assets expense, compensation expense, loan expense, acquisition, integration and reorganization costs, and other expense, offset by lower intangible asset amortization.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Net earnings for the nine months ended September 30, 2017 were $273.8 million, or $2.26 per diluted share, compared to net earnings for the nine months ended September 30, 2016 of $266.5 million, or $2.19 per diluted share. The $7.3 million increase in net earnings was due to lower income tax expense of $15.6 million, higher net interest income of $3.6 million, and higher noninterest income of $18.2 million, offset partially by a higher provision for credit losses of $8.8 million and higher noninterest expense of $21.3 million as compared to the nine months ended September 30, 2016. The decrease in income tax expense was due to a $13.6 million reversal of a valuation allowance related to tax credits in the third quarter of 2017. The increase in net interest income was due mainly to a higher average loan and lease balance, offset by lower discount accretion on acquired loans and higher interest expense on interest-bearing liabilities. The decrease in accretion was due primarily to lower accelerated accretion from payoffs of acquired loans, including $12.1 million from the payoff of a nonaccrual PCI loan in the first quarter of 2016. The increase in noninterest income was due mostly to lower FDIC loss sharing expense and higher other income. The decrease in FDIC loss sharing expense was due to the early termination of all FDIC loss sharing agreements in the second quarter of 2016. The increase in noninterest expense was due mostly to higher compensation expense, loan expense, other expense, acquisition, integration and reorganization costs, foreclosed asset expense, and data processing expense, offset by lower intangible asset amortization.

Net Interest Income

Net interest income is affected by changes in both interest rates and the volume of average interest‑earning assets and interest‑bearing liabilities. The following table summarizes the distribution of average assets, liabilities and stockholders’ equity, as well as interest income and yields earned on average interest‑earning assets and interest expense and rates paid on average interest‑bearing liabilities, presented on a tax equivalent basis, for the periods indicated:



	Three Months Ended
	September 30, 2017						June 30, 2017						September 30, 2016
			Interest		Yields				Interest		Yields				Interest		Yields
	Average		Income/		and		Average		Income/		and		Average		Income/		and
	Balance		Expense		Rates		Balance		Expense		Rates		Balance		Expense		Rates
	(Dollars in thousands)
ASSETS:
PCI loans	$	60,126	$	3,308	21.83	%	$	68,759	$	4,643	27.08	%	$	117,781	$	5,868	19.82	%
Non-PCI loans and leases	15,514,904		232,510		5.95	%	15,429,162		229,975		5.98	%	14,417,170		219,502		6.06	%
Total loans and leases ⁽¹⁾	15,575,030		235,818		6.01	%	15,497,921		234,618		6.07	%	14,534,951		225,370		6.17	%
Investment securities ⁽²⁾	3,510,956		29,495		3.33	%	3,436,785		29,538		3.45	%	3,338,209		27,025		3.22	%
Deposits in financial institutions	171,455		538		1.24	%	96,087		237		0.99	%	238,425		298		0.50	%
Total interest‑earning assets ⁽²⁾	19,257,441		265,851		5.48	%	19,030,793		264,393		5.57	%	18,111,585		252,693		5.55	%
Other assets	2,880,433						2,905,809						2,960,468
Total assets	$	22,137,874					$	21,936,602					$	21,072,053

LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking deposits	$	2,146,125	2,960		0.55	%	$	1,709,699	1,697		0.40	%	$	1,161,931	604		0.21	%
Money market deposits	4,914,803		6,307		0.51	%	4,907,865		4,993		0.41	%	4,514,525		3,303		0.29	%
Savings deposits	707,367		289		0.16	%	708,389		296		0.17	%	764,415		341		0.18	%
Time deposits	2,256,259		3,515		0.62	%	2,366,399		3,219		0.55	%	2,666,434		2,999		0.45	%
Total interest‑bearing deposits	10,024,554		13,071		0.52	%	9,692,352		10,205		0.42	%	9,107,305		7,247		0.32	%
Borrowings	61,071		188		1.22	%	457,774		1,066		0.93	%	583,982		695		0.47	%
Subordinated debentures	447,012		6,017		5.34	%	443,756		5,800		5.24	%	439,970		5,278		4.77	%
Total interest‑bearing liabilities	10,532,637		19,276		0.73	%	10,593,882		17,071		0.65	%	10,131,257		13,220		0.52	%
Noninterest‑bearing demand deposits	6,858,816						6,646,349						6,274,294
Other liabilities	153,932						151,095						135,801
Total liabilities	17,545,385						17,391,326						16,541,352
Stockholders’ equity	4,592,489						4,545,276						4,530,701
Total liabilities and
stockholders' equity	$	22,137,874					$	21,936,602					$	21,072,053
Net interest income (tax equivalent) ⁽²⁾			$	246,575					$	247,322					$	239,473
Net interest rate spread					4.75	%					4.92	%					5.03	%
Net interest margin					5.08	%					5.21	%					5.26	%

Total deposits ⁽³⁾	$	16,883,370	$	13,071	0.31	%	$	16,338,701	$	10,205	0.25	%	$	15,381,599	$	7,247	0.19	%
Funding sources ⁽⁴⁾	$	17,391,453	$	19,276	0.44	%	$	17,240,231	$	17,071	0.40	%	$	16,405,551	$	13,220	0.32	%

_____________________


(1)	Includes nonaccrual loans and leases and loan fees. Starting with the third quarter of 2017, includes tax-equivalent adjustments related to tax-exempt interest on loans.


(2)	Includes tax-equivalent adjustments of $4.7 million, $4.8 million, and $4.8 million for the three months ended September 30, 2017, June 30, 2017, and September 30, 2016, respectively, related to tax-exempt interest on municipal securities. The federal statutory tax rate utilized was 35% for the periods.


(3)	Total deposits is the sum of total 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 total 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.



	Nine Months Ended
	September 30, 2017						September 30, 2016
			Interest		Yields				Interest		Yields
	Average		Income/		and		Average		Income/		and
	Balance		Expense		Rates		Balance		Expense		Rates
	(Dollars in thousands)
ASSETS:
PCI loans	$	72,633	$	12,200	22.46	%	$	144,129	$	34,425	31.90	%
Non-PCI loans and leases	15,385,050		682,414		5.93	%	14,347,598		651,646		6.07	%
Total loans and leases ⁽¹⁾	15,457,683		694,614		6.01	%	14,491,727		686,071		6.32	%
Investment securities ⁽²⁾	3,402,658		86,855		3.41	%	3,362,352		81,848		3.25	%
Deposits in financial institutions	123,023		967		1.05	%	238,129		914		0.51	%
Total interest‑earning assets ⁽²⁾	18,983,364		782,436		5.51	%	18,092,208		768,833		5.68	%
Other assets	2,925,110						2,997,922
Total assets	$	21,908,474					$	21,090,130

LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking deposits	$	1,789,435	5,824		0.44	%	$	1,038,103	1,488		0.19	%
Money market deposits	4,896,639		15,710		0.43	%	4,229,315		8,604		0.27	%
Savings deposits	709,080		883		0.17	%	761,376		1,197		0.21	%
Time deposits	2,289,771		9,236		0.54	%	3,202,436		12,854		0.54	%
Total interest‑bearing deposits	9,684,925		31,653		0.44	%	9,231,230		24,143		0.35	%
Borrowings	369,953		2,272		0.82	%	460,165		1,628		0.47	%
Subordinated debentures	444,117		17,379		5.23	%	438,534		15,382		4.69	%
Total interest‑bearing liabilities	10,498,995		51,304		0.65	%	10,129,929		41,153		0.54	%
Noninterest‑bearing demand deposits	6,701,135						6,328,223
Other liabilities	160,872						147,510
Total liabilities	17,361,002						16,605,662
Stockholders’ equity	4,547,472						4,484,468
Total liabilities and
stockholders' equity	$	21,908,474					$	21,090,130
Net interest income (tax equivalent) ⁽²⁾			$	731,132					$	727,680
Net interest rate spread					4.86	%					5.14	%
Net interest margin					5.15	%					5.37	%

Total deposits ⁽³⁾	$	16,386,060	$	31,653	0.26	%	$	15,559,453	$	24,143	0.21	%
Funding sources ⁽⁴⁾	$	17,200,130	$	51,304	0.40	%	$	16,458,152	$	41,153	0.33	%

_____________________


(1)	Includes nonaccrual loans and leases and loan fees. Starting with the third quarter of 2017, includes tax-equivalent adjustments related to tax-exempt interest on loans.


(2)	Includes tax-equivalent adjustments of $14.4 million and $14.7 million for the nine months ended September 30, 2017 and 2016, respectively, related to tax-exempt interest on municipal securities. The federal statutory tax rate utilized was 35% for the periods.


(3)	Total deposits is the sum of total 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 total 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.

Third Quarter of 2017 Compared to Second Quarter of 2017

Net interest income decreased by $0.8 million to $241.7 million for the third quarter of 2017 compared to $242.5 million for the second quarter of 2017 due mainly to interest expense growth exceeding interest income growth. Interest income increased due to one additional day in the period and a higher average loan and lease balance, offset by a lower yield on average loans and leases. The loan and lease yield for the third quarter of 2017 was 6.01% compared to 6.07% for the second quarter of 2017. The decrease in the loan and lease yield was principally due to the decrease in discount accretion on acquired loans and lower loan fee income. Total discount accretion on acquired loans was $5.5 million in the third quarter of 2017 (14 basis points on the loan and lease yield) compared to $7.5 million in the second quarter of 2017 (20 basis points on the loan and lease yield).

The tax equivalent NIM for the third quarter of 2017 was 5.08% compared to 5.21% for the second quarter of 2017. The decrease in the tax equivalent NIM was mostly due to the decrease in discount accretion on acquired loans and loan fee income and a higher cost of average interest-bearing liabilities. Total discount accretion on acquired loans contributed 11 basis points to the NIM for the third quarter of 2017 and 16 basis points for the second quarter of 2017. The taxable equivalent adjustment for tax-exempt interest income on municipal securities contributed 10 points to the tax equivalent NIM for the third quarter of 2017 and second quarter of 2017.

The cost of average total deposits increased to 0.31% in the third quarter of 2017 from 0.25% in the second quarter of 2017 due to higher rates paid for non-core deposits and select large-balance deposit customers.

Third Quarter of 2017 Compared to Third Quarter of 2016

Net interest income increased by $7.1 million to $241.7 million for the third quarter of 2017 compared to $234.6 million for the third quarter of 2016 due mainly to a higher average balance of loans and leases and a higher yield and average balance of investment securities, offset partially by a lower yield on average loans and leases and higher interest expense. The loan and lease yield for the third quarter of 2017 was 6.01% compared to 6.17% for the same quarter of 2016. The decrease in the loan and lease yield was due mainly to lower discount accretion on acquired loans, offset partially by repricing of variable-rate loans attributable to the increase in market interest rates during the first half of 2017. Total discount accretion on acquired loans was $5.5 million in the third quarter of 2017 (14 basis points on the loan and lease yield) compared to $14.2 million in the third quarter of 2016 (39 basis points on the loan and lease yield).

The tax equivalent NIM for the third quarter of 2017 was 5.08% compared to 5.26% for the same quarter last year. The decrease in the tax equivalent NIM was due mostly to the decrease in the yield on loans and leases as described above, and a higher cost of average interest-bearing liabilities, offset partially by the higher yield on average investment securities. Total discount accretion on acquired loans contributed 11 basis points to the NIM for the third quarter of 2017 and 31 basis points for the third quarter of 2016. Tax-exempt interest income on municipal securities contributed 10 basis points to the tax equivalent NIM for the third quarter of 2017 and 11 basis points for the third quarter of 2016.

The cost of average total deposits increased to 0.31% for the third quarter of 2017 from 0.19% for the third quarter of 2016 due mainly to higher costs and average balances of non-core non-maturity deposits and brokered time deposits.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Net interest income increased by $3.6 million to $716.6 million for the nine months ended September 30, 2017 compared to $713.0 million for the nine months ended September 30, 2016 due mainly to a higher average balance of loans and leases and a higher yield on average investment securities, partially offset by a lower yield on average loans and leases, higher interest expense, and one less day in the period. The loan and lease yield for the nine months ended September 30, 2017 was 6.01% compared to 6.32% for the same period in 2016. The decrease in the loan and lease yield was due mainly to lower discount accretion on acquired loans, partially offset by repricing of variable-rate loans attributable to the increase in market interest rates during the first half of 2017. Total discount accretion on acquired loans was $19.4 million for the nine months ended September 30, 2017 (17 basis points on the loan and lease yield) compared to $58.3 million for the same period in 2016 (54 basis points on the loan and lease yield). The decrease in accretion was primarily due to lower accelerated accretion from payoffs of acquired loans, including $12.1 million from the payoff of a nonaccrual PCI loan in the first quarter of 2016.

The tax equivalent NIM for the nine months ended September 30, 2017 was 5.15% compared to 5.37% for the same period last year. The decrease in the tax equivalent NIM was due mostly to the decrease in the yield on average loans and leases as described above, and a higher cost of average interest-bearing liabilities, offset partially by the higher yield on average investment securities. Total discount accretion on acquired loans contributed 13 basis points to the NIM for the nine months ended September 30, 2017 and 43 basis points for the same period last year. Tax-exempt interest income on municipal securities contributed 10 basis points to the tax equivalent NIM for the nine months ended September 30, 2017 and 11 basis points for the for the nine months ended September 30, 2016.

The cost of average total deposits increased to 0.26% for the nine months ended September 30, 2017 from 0.21% for the nine months ended September 30, 2016 due mainly to higher costs and average balances of non-core non-maturity deposits and brokered time deposits.

Provision for Credit Losses

The following table sets forth the details of the provision for credit losses on loans and leases held for investment and information regarding Non-PCI credit quality metrics for the periods indicated:



	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
	2017			2017			2016			2017			2016
	(Dollars in thousands)
Provision For Credit Losses:
Addition to allowance for Non‑PCI loan and lease losses	$	14,954		$	10,000		$	8,621		$	49,214		$	39,411
Addition to reserve for unfunded loan commitments	546			2,500			(621		)	3,286			589
Total provision for Non‑PCI loan and lease credit losses	15,500			12,500			8,000			52,500			40,000
(Negative provision) provision for PCI loan losses	(381		)	(1,001		)	471			(1,154		)	2,514
Total provision for credit losses	$	15,119		$	11,499		$	8,471		$	51,346		$	42,514

Non‑PCI Credit Quality Metrics:
Net charge‑offs on Non-PCI loans and leases
held for investment	$	1,063		$	20,947		$	3,874		$	40,199		$	8,198
Annualized net charge‑offs to
average Non-PCI loans and leases	0.03		%	0.54		%	0.11		%	0.35		%	0.08		%
At period end:
Allowance for credit losses	173,579			159,142			154,070
Non‑PCI nonaccrual loans and leases ⁽¹⁾	157,697			172,576			171,085
Non‑PCI classified loans and leases⁽¹⁾	344,777			339,977			417,541
Allowance for credit losses to Non‑PCI
loans and leases held for investment	1.11		%	1.02		%	1.05		%
Allowance for credit losses to Non‑PCI
nonaccrual loans and leases held for investment	110.1		%	92.2		%	90.1		%

______________________


(1)	Excludes loans held for sale carried at lower of cost or fair value at June 30, 2017.

Provisions for credit losses are charged to earnings for both on and off‑balance sheet credit exposures. We have a provision for credit losses on our Non‑PCI loans and leases held for investment and a provision for credit losses on our PCI loans held for investment. The provision for credit losses on our Non‑PCI loans and leases held for investment is based on our allowance methodology and is an expense that, in our judgment, is required to maintain an adequate allowance for credit losses. The allowance for loan and lease losses is comprised of a general reserve component for unimpaired loans and leases and a specific reserve component for impaired loans and leases, the latter being the aggregation of individual loan impairment analyses. Our allowance methodology for the general reserve component includes both quantitative and qualitative loss factors that are applied against the population of unimpaired loans and leases. The quantitative loss factors are the average charge-offs experienced over a prescribed historical look-back period pooled both by loan or lease type and credit risk rating; loans with more adverse credit risk ratings have higher quantitative loss factors. The qualitative loss factors consider, among other things, current economic trends and forecasts, current commercial real estate values and performance trends, and the loan portfolio's current composition and credit performance trends. The provision for credit losses on our PCI loans held for investment results from changes in expected cash flows on such loans compared to those previously estimated.

We recorded a total provision for credit losses of $15.1 million in the third quarter of 2017, $11.5 million in the second quarter of 2017, and $8.5 million in the third quarter of 2016. The provision for credit losses for the nine months ended September 30, 2017 was $51.3 million compared to $42.5 million for the same period last year. The increase in the provision for credit losses for the third quarter of 2017 compared to the second quarter of 2017 was due primarily to loan risk rating downgrades combined with net portfolio growth.

Charge-offs of $5.9 million for the third quarter of 2017 included $3.4 million for venture capital loans. Charge-offs of $23.0 million for the second quarter of 2017 included $11.0 million for venture capital loans and $7.2 million related to the recording of the healthcare portfolio loans at the lower of cost or fair value at the time of transfer to loans held for sale. Recoveries of $4.9 million in the third quarter of 2017 and $2.0 million in the second quarter of 2017 included $2.6 million and$1.3 million, respectively, related to venture capital loans previously charged off.

Certain circumstances may lead to increased provisions for credit losses in the future. Examples of such circumstances are an increased amount of classified and/or impaired loans and leases, net loan and lease and unfunded commitment growth, and changes in economic conditions. Changes in economic conditions include the rate of economic growth, the rate of inflation, the unemployment rate, increases in the general level of interest rates, declines in real estate values, and adverse conditions in borrowers’ businesses. See further discussion in “- Balance Sheet Analysis - Allowance for Credit Losses on Non‑PCI Loans and Leases Held for Investment” and “- Balance Sheet Analysis - Allowance for Loan Losses on PCI Loans Held for Investment” contained herein.

Noninterest Income

The following table summarizes noninterest income by category for the periods indicated:



	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
Noninterest Income	2017		2017		2016		2017		2016
	(In thousands)
Service charges on deposit accounts	$	3,465	$	3,510	$	3,488	$	10,733	$	10,977
Other commissions and fees	9,944		10,583		12,528		30,917		35,090
Leased equipment income	8,332		11,635		8,538		29,442		25,305
Gain on sale of loans and leases	2,848		649		157		4,209		790
Gain on sale of securities	1,236		1,651		382		2,788		8,970
FDIC loss sharing expense, net	—		—		—		—		(8,917		)
Other income:
Dividends and realized gains on equity investments	1,845		1,587		377		4,777		2,808
Warrant income	731		815		213		1,701		301
Other	2,981		4,852		1,237		17,211		8,256
Total noninterest income	$	31,382	$	35,282	$	26,920	$	101,778	$	83,580

Third Quarter of 2017 Compared to Second Quarter of 2017

Noninterest income decreased by $3.9 million to $31.4 million for the third quarter of 2017 compared to $35.3 million for the second quarter of 2017 due mainly to lower leased equipment income of $3.3 million attributable to lower gains on early lease terminations, and lower other income of $1.9 million, offset partially by a higher gain on sale of loans and leases of $2.2 million. The decrease in other income was due to a BOLI death benefit and higher recoveries from third parties included in the second quarter of 2017.

Third Quarter of 2017 Compared to Third Quarter of 2016

Noninterest income increased by $4.5 million to $31.4 million for the third quarter of 2017 compared to $26.9 million for the third quarter of 2016 due mostly to a higher gain on sale of loans and leases of $2.7 million, higher other income of $1.7 million, higher dividends and realized gains on equity investments of $1.5 million, and a higher gain on sale of securities of $0.9 million, offset partially by lower other commissions and fees of $2.6 million. The increase in other income was due primarily to a $1.1 million legal settlement recorded in the third quarter of 2017 and an increase in foreign currency translation net gains. The increase in dividends and realized gains on equity investments was due mainly to higher dividends received of $1.3 million. The decrease in other commissions and fees was due primarily to lower loan prepayment penalty fees of $3.5 million, offset partially by higher foreign exchange fees of $0.7 million and higher credit card fees of $0.5 million.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Noninterest income increased by $18.2 million to $101.8 million for the nine months ended September 30, 2017 compared to $83.6 million for the nine months ended September 30, 2016 due mostly to higher other income of $9.0 million, lower FDIC loss sharing expense of $8.9 million, higher leased equipment income of $4.1 million, higher gain on sale of loans and leases of $3.4 million, higher dividends and realized gains on equity investments of $2.0 million, and higher warrant income of $1.4 million, offset partially by a lower gain on sale of securities of $6.2 million and lower other commissions and fees of $4.2 million. The increase in other income was due mainly to a $5.0 million legal settlement with a former borrower recorded in the first quarter of 2017, a separate legal settlement for $1.1 million recorded in the third quarter of 2017, higher syndication fees, higher BOLI income, and a loss on the sale of our Pacific Western Equipment Finance leasing unit in the first quarter of 2016. The decrease in FDIC loss sharing expense was due to the termination of all FDIC loss sharing agreements in the second quarter of 2016. Leased equipment income increased due to a higher average balance of leased equipment in 2017 and higher gains from early lease terminations. The increase in gain on sale of loans and leases was attributable to a net gain of $4.2 million on sales of $289.6 million of loans during the nine months ended September 30, 2017 compared to a net gain of $0.8 million on sales of $105.3 million of loans and leases during the 2016 period. The increase in dividends and realized gains on equity investments was due mainly to higher dividends received of $2.7 million, offset partially by lower gains on equity investments of $0.8 million. The decrease in gain on sale of securities was attributable to a net gain of $2.8 million on sales of $182.7 million of securities during the nine months ended September 30, 2017 compared to a net gain of $9.0 million on sales of $383.9 million of securities during the 2016 period. The decrease in other commissions and fees was due primarily to lower loan prepayment penalty fees of $7.7 million, offset partially by higher credit card fees of $1.6 million, higher syndication fees of $1.4 million, and higher foreign exchange fees of $0.9 million.

Noninterest Expense

The following table summarizes noninterest expense by category for the periods indicated:



	Three Months Ended								Nine Months Ended
	September 30,		June 30,			September 30,			September 30,
Noninterest Expense	2017		2017			2016			2017		2016
	(In thousands)
Compensation	$	64,413	$	65,288		$	62,661		$	194,581	$	185,900
Occupancy	12,729		11,811			12,010			36,148		36,835
Data processing	6,459		6,337			6,234			19,811		17,782
Other professional services	4,213		3,976			4,625			11,567		11,598
Insurance and assessments	4,702		4,856			4,324			14,349		14,240
Intangible asset amortization	3,049		3,065			4,224			9,178		13,341
Leased equipment depreciation	4,862		5,232			5,298			15,719		15,608
Foreclosed assets expense (income), net	2,191		(157		)	(248		)	2,177		(812		)
Acquisition, integration and reorganization costs	1,450		1,700			—			3,650		200
Loan expense	3,421		3,884			1,931			10,692		6,231
Other	11,053		11,715			9,651			34,921		30,556
Total noninterest expense	$	118,542	$	117,707		$	110,710		$	352,793	$	331,479

Third Quarter of 2017 Compared to Second Quarter of 2017

Noninterest expense increased by $0.8 million to $118.5 million for the third quarter of 2017 compared to $117.7 million for the second quarter of 2017. The increase was due mostly to a $2.3 million increase in foreclosed asset expense, offset by a decrease in compensation expense of $0.9 million, and a decrease in other expense of $0.7 million. The increase in foreclosed assets expense was due to a write-down of $2.1 million on foreclosed property. The decrease in compensation expense was due primarily to a lower vacation accrual and lower payroll taxes. The decrease in other expense was due mainly to a $1.1 million charge recorded in the second quarter of 2017 related to the sale of the unfunded commitments portion of the healthcare loan sale (see "- Recent Events - Loan Sales and Loans Held for Sale").

Third Quarter of 2017 Compared to Third Quarter of 2016

Noninterest expense increased by $7.8 million to $118.5 million for the third quarter of 2017 compared to $110.7 million for the third quarter of 2016. The increase was due mostly to higher foreclosed asset expense of $2.4 million, higher compensation expense of $1.8 million, higher loan expense of $1.5 million, higher acquisition, integration and reorganization costs of $1.5 million, and higher other expense of $1.4 million, offset by lower intangible asset amortization of $1.2 million. The increase in foreclosed asset expense was due to a write-down of $2.1 million on foreclosed property as described above. Compensation expensed increased due mainly to higher salary expense of $1.5 million. Loan expense increased due to higher legal-related and other loan expenses, offset partially by higher fee income from servicing. Acquisition, integration and reorganization costs increased due to costs associated with the CUB acquisition. Other expense increased due primarily to higher business development expenses of $0.6 million, higher employee-related expenses of $0.4 million, and $0.3 million for a legal settlement. Intangible asset amortization decreased due mainly to a decline in the amortization recorded on the Square 1 CDI and CRI. In addition, the CDI related to a previous acquisition was fully amortized in the second quarter of 2016.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Noninterest expense increased by $21.3 million to $352.8 million for the nine months ended September 30, 2017 compared to $331.5 million for the nine months ended of 2016. The increase was due mostly to higher compensation expense of $8.7 million, higher loan expense of $4.5 million, higher other expense of $4.4 million, higher acquisition, integration and reorganization costs of $3.5 million, higher foreclosed asset expense of $3.0 million, and higher data processing expense of $2.0 million, offset by lower intangible asset amortization of $4.2 million. Compensation expense increased due to higher salary expense of $4.6 million, higher stock-based compensation expense of $2.9 million, higher bonus expense of $1.3 million, and higher commissions expense of $1.0 million, offset partially by higher deferred loan costs of $1.1 million. Loan expense increased due primarily to higher legal-related and other loan expenses, lower fee income from servicing, and lower recoveries of legal costs. Other expense increased due primarily to a $1.75 million legal settlement, a $1.1 million charge in the second quarter of 2017 related to the sale of the unfunded commitments portion of the healthcare loan sale, and higher business development expenses of $1.2 million. Acquisition, integration and reorganization costs increased due to costs associated with the CUB acquisition. The increase in foreclosed asset expense was due mainly to a write-down of $2.1 million on foreclosed property as described above, lower gains on sales of $0.6 million, and higher operating expenses of $0.3 million. Intangible asset amortization decreased due mainly to a decline in the amortization recorded on the Square 1 CDI and CRI. In addition, the CDI related to a previous acquisition was fully amortized in the second quarter of 2016.

Income Taxes

The effective tax rate for the third quarter of 2017 was 27.2% compared to 37.0% for the second quarter of 2017 and 34.1% for the third quarter of 2016. The effective tax rate was 33.9% and 36.9% for the nine months ended September 30, 2017 and 2016. The decrease in the effective tax rate for the third quarter of 2017 and nine months ended September 30, 2017 was primarily due to the reversal of a $13.6 million valuation allowance related to tax credits in the third quarter of 2017 which, based on a change in estimate in our latest analysis, are more likely than not to be utilized before they expire. The decrease in the effective tax rate for the nine months ended September 30, 2017 was also attributable, to a lesser extent, to tax benefits recorded in 2017 due to the adoption of ASU 2016-09 on January 1, 2017. The estimated effective tax rate for the full year 2017 is approximately 35%. The Company's blended statutory tax rate for federal and state is 41%.

Balance Sheet Analysis

Securities Available-for-Sale

The following table presents the composition and durations of our securities available-for-sale as of the dates indicated:



	September 30, 2017					June 30, 2017					December 31, 2016
	Fair		% of		Duration	Fair		% of		Duration	Fair		% of		Duration
Security Type	Value		Total		(in years)	Value		Total		(in years)	Value		Total		(in years)
	(Dollars in thousands)
Residential MBS and CMOs:
Agency MBS	$	377,541	11	%	2.8	$	404,320	12	%	2.9	$	502,443	16	%	3.4
Agency CMOs	175,950		5	%	3.4	133,792		4	%	2.4	146,289		4	%	3.0
Private label CMOs	134,550		4	%	4.9	159,701		5	%	4.9	125,469		4	%	3.5
Municipal securities	1,549,150		44	%	7.9	1,534,554		44	%	7.6	1,456,459		45	%	6.3
Agency commercial MBS	995,914		28	%	5.5	918,210		26	%	5.5	547,692		17	%	4.9
Corporate debt securities	19,125		—	%	11.9	19,185		—	%	12.0	47,509		1	%	4.9
Collateralized loan
obligations	19,176		—	%	0.2	66,301		2	%	0.2	156,887		5	%	0.1
SBA securities	168,028		5	%	1.9	178,056		5	%	2.0	178,845		6	%	3.8
Asset-backed and
other securities	92,796		3	%	3.5	60,441		2	%	3.6	62,237		2	%	3.5
Total securities
available-for-sale	$	3,532,230	100	%	5.9	$	3,474,560	100	%	5.7	$	3,223,830	100	%	4.8

The following table shows the geographic composition of the majority of our municipal securities portfolio as of the date indicated:



	September 30, 2017
	Fair		% of
Municipal Securities by State	Value		Total
	(Dollars in thousands)
California	$	251,496	16	%
New York	171,680		11	%
Washington	166,535		11	%
Texas	105,972		7	%
Ohio	92,197		6	%
District of Columbia	77,364		5	%
Oregon	69,315		4	%
Massachusetts	59,547		4	%
Utah	55,064		4	%
Alabama	45,862		3	%
Total of 10 largest states	1,095,032		71	%
All other states	454,118		29	%
Total municipal securities	$	1,549,150	100	%

Loans and Leases Held for Investment

The following table presents the composition of our total loans and leases held for investment as of the dates indicated:



	September 30, 2017				June 30, 2017				December 31, 2016
			% of				% of				% of
	Amount		Total		Amount		Total		Amount		Total
	(Dollars in thousands)
Real estate mortgage:
Healthcare real estate	$	840,638	5	%	$	901,688	6	%	$	955,477	6	%
Hospitality	695,605		4	%	712,365		5	%	689,158		4	%
SBA program	484,897		3	%	483,484		3	%	454,196		3	%
Other commercial real estate	2,317,793		16	%	2,320,926		14	%	2,297,865		15	%
Total commercial real estate	4,338,933		28	%	4,418,463		28	%	4,396,696		28	%
Income producing residential	1,730,383		11	%	1,596,398		10	%	1,169,267		8	%
Owner-occupied residential	119,941		1	%	122,871		1	%	144,769		1	%
Total residential real estate	1,850,324		12	%	1,719,269		11	%	1,314,036		9	%
Total real estate mortgage	6,189,257		40	%	6,137,732		39	%	5,710,732		37	%
Real estate construction and land:
Commercial	680,950		5	%	691,828		5	%	581,246		4	%
Residential	568,273		4	%	473,282		3	%	384,001		2	%
Total real estate construction and land	1,249,223		9	%	1,165,110		8	%	965,247		6	%
Total real estate	7,438,480		49	%	7,302,842		47	%	6,675,979		43	%
Commercial:
Technology cash flow	915,863		6	%	995,235		6	%	1,047,683		7	%
Security cash flow	562,754		4	%	545,904		4	%	440,340		3	%
Healthcare cash flow	484,888		3	%	514,681		3	%	799,030		5	%
Other cash flow	770,949		4	%	779,146		5	%	825,837		5	%
Total cash flow	2,734,454		17	%	2,834,966		18	%	3,112,890		20	%
Lender finance & timeshare	1,594,196		10	%	1,435,301		9	%	1,666,855		11	%
Healthcare asset-based	118,222		1	%	155,847		1	%	180,580		1	%
Other asset-based	865,052		5	%	801,055		5	%	764,361		5	%
Total asset-based	2,577,470		16	%	2,392,203		15	%	2,611,796		17	%
Expansion stage	890,756		6	%	951,502		6	%	920,006		6	%
Early stage	464,506		3	%	450,282		3	%	448,458		3	%
Equity funds group	341,401		2	%	309,820		2	%	325,047		2	%
Later stage	262,826		1	%	289,823		2	%	294,389		2	%
Total venture capital	1,959,489		12	%	2,001,427		13	%	1,987,900		13	%
Equipment finance	594,473		4	%	613,550		4	%	691,967		4	%
Total commercial	7,865,886		49	%	7,842,146		50	%	8,404,553		54	%
Consumer	386,151		2	%	398,469		3	%	375,422		3	%
Total loans and leases held for investment,
net of deferred fees ⁽¹⁾	$	15,690,517	100	%	$	15,543,457	100	%	$	15,455,954	100	%

_____________________________________


(1)	Excludes loans held for sale carried at lower of cost or fair value at June 30, 2017.

Our real estate portfolio exposes us to risk elements associated with mortgage loans on commercial property. For commercial real estate loans, the respective primary and secondary sources of loan repayments are the net operating incomes of the properties and the proceeds from the sales or refinancings of the properties. As such, our commercial real estate borrowers generally are required to refinance the loans with us or another lender or sell the properties to repay our loans.

The following table presents the geographic composition of our real estate loans held for investment by the top 10 states and all other states combined (in the order presented for the current quarter-end) as of the dates indicated:



	September 30, 2017				December 31, 2016
			% of				% of
Real Estate Loans by State	Amount		Total		Amount		Total
	(Dollars in thousands)
California	$	3,523,200	48	%	$	3,248,735	49	%
New York	670,982		9	%	524,833		8	%
Florida	479,990		7	%	478,984		7	%
Texas	345,166		5	%	364,689		5	%
Virginia	235,588		3	%	231,162		3	%
Arizona	219,930		3	%	166,499		3	%
Illinois	179,613		2	%	178,726		3	%
Washington	174,168		2	%	49,301		1	%
Pennsylvania	171,081		2	%	160,303		2	%
Georgia	157,421		2	%	118,629		2	%
Total of 10 largest states	6,157,139		83	%	5,521,861		83	%
All other states	1,281,341		17	%	1,154,118		17	%
Total real estate loans held for investment	$	7,438,480	100	%	$	6,675,979	100	%

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



	Three Months Ended			Nine Months Ended
Loans and Leases Held for Investment Roll Forward ⁽¹⁾	September 30, 2017			September 30, 2017
	(Dollars in thousands)
Balance, beginning of period	$	15,543,457		$	15,455,954
New production	1,002,887			3,129,506
Existing loans and leases:
Payoffs	(903,395		)	(3,072,964		)
Paydowns	(637,674		)	(1,956,583		)
Disbursements	722,777			2,479,882
Sales ⁽²⁾	(31,528		)	(113,965		)
Transfers to foreclosed assets	—			(580		)
Charge-offs	(6,007		)	(55,575		)
Transfers to loans held for sale ⁽³⁾	—			(175,158		)
Balance, end of period	$	15,690,517		$	15,690,517

Weighted average rate on new production	5.04		%	4.96		%

_______________________________________


(1)	Includes direct financing leases but excludes equipment leased to others under operating leases.


(2)	Sales for the three and nine months ended September 30, 2017 exclude sales of loans that were transferred to loans held for sale at June 30, 2017.


(3)	These loans were sold in July 2017 from the held for sale portfolio.

Allowance for Credit Losses on Non-PCI Loans and Leases Held for Investment

The allowance for credit losses on Non-PCI loans and leases held for investment is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The allowance for loan and lease losses is reported as a reduction of outstanding loan and lease balances and the reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets. The following discussion is for Non-PCI loans and leases and the related allowance for credit losses. Refer to "- Balance Sheet Analysis - Allowance for Loan Losses on PCI Loans Held for Investment" for the policy on PCI loans. For loans and leases acquired and measured at fair value and deemed non-impaired on the acquisition date, our allowance methodology measures deterioration in credit quality or other inherent risks related to these acquired assets that may occur after the acquisition date.

The allowance for credit losses is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan and lease portfolio and other extensions of credit at the balance sheet date. The allowance is based upon our review of the credit quality of the loan and lease portfolio, which includes loan and lease payment trends, borrowers' compliance with loan agreements, borrowers' current and budgeted financial performance, collateral valuation trends, and current economic factors and external conditions that may affect our borrowers' ability to make payments to us in accordance with contractual terms. Loans and leases that are deemed to be uncollectable are charged off and deducted from the allowance. The provision for loan and lease losses and recoveries on loans and leases previously charged off are added to the allowance.

The allowance for loan and lease losses has a general reserve component for loans and leases with no credit impairment and a specific reserve component for loans and leases determined to be impaired.

A loan or lease is considered impaired when it is probable that we will be unable to collect all amounts due according to the original contractual terms of the agreement. We assess our loans and leases for impairment on an ongoing basis using certain criteria such as payment performance, borrower reported financial results and budgets, and other external factors when appropriate. We measure impairment of a loan or lease based upon the fair value of the underlying collateral if the loan or lease is collateral-dependent or the present value of cash flows, discounted at the effective interest rate, if the loan or lease is not collateral-dependent. To the extent a loan or lease balance exceeds the estimated collectable value, a specific reserve or charge-off is recorded depending upon either the certainty of the estimate of loss or the fair value of the loan’s collateral if the loan is collateral-dependent. Smaller balance loans (under $250,000), with a few exceptions for certain loan types, are generally not individually assessed for impairment but are evaluated collectively.

Our allowance methodology for the general reserve component includes both quantitative and qualitative loss factors which are applied to our population of unimpaired loans and leases to estimate our general reserves. The quantitative loss factors are the average charge-offs experienced over a prescribed historical look-back period on loans and leases pooled both by loan or lease type and credit risk rating; loans with more adverse credit risk ratings have higher quantitative loss factors. The qualitative loss factors consider, among other things, current economic trends and forecasts, current commercial real estate values and performance trends, and the loan portfolio's current composition and credit performance trends.

The qualitative criteria we consider when establishing the loss factors include the following:


•	current economic trends and forecasts;


•	current commercial real estate values, performance trends, and overall outlook in the markets where we lend;


•	legal and regulatory matters that could impact our borrowers’ ability to repay our loans and leases;


•	loan and lease portfolio composition and any loan concentrations;


•	current lending policies and the effects of any new policies or policy amendments;


•	loan and lease production volume and mix;


•	loan and lease portfolio credit performance trends;


•	results of our independent credit review; and


•	changes in management related to credit administration functions.

We estimate the reserve for unfunded commitments using the same loss factors as used for the allowance for loan and lease losses and is computed based only on the expected usage of the unfunded commitments.

The allowance for credit losses is directly correlated to the credit risk ratings of our loans. To ensure the accuracy of our credit risk ratings, an independent credit review function assesses the appropriateness of the credit risk ratings assigned to loans on a regular basis. The credit risk ratings assigned to every loan and lease are either “pass,” “special mention,” “substandard,” or “doubtful” and defined as follows:


•	Pass: Loans and leases classified as "pass" are not adversely classified and collection and repayment in full are expected.


•	Special Mention: Loans and leases classified as "special mention" have a potential weakness that requires management's attention. If not addressed, these potential weaknesses may result in further deterioration in the borrower's ability to repay the loan or lease.


•	Substandard: Loans and leases classified as "substandard" have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the possibility that we will sustain some loss if the weaknesses are not corrected.


•	Doubtful: Loans and leases classified as "doubtful" have all the weaknesses of those classified as "substandard," with the additional trait that the weaknesses make collection or repayment in full highly questionable and improbable.

In addition, we may refer to the loans and leases with assigned credit risk ratings of "substandard" and "doubtful" together as "classified" loans and leases. For further information on classified loans and leases, see Note 4. Loans and Leases, of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

Management believes the allowance for credit losses is appropriate for the known and inherent risks in our Non-PCI loan and lease portfolio and the credit risk ratings and inherent loss rates currently assigned are appropriate. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's financial statements. In addition, current credit risk ratings are subject to change as we continue to monitor our loans and leases. To the extent we experience, for example, increased levels of borrower loan defaults, borrowers’ noncompliance with our loan agreements, adverse changes in collateral values, or negative changes in economic and business conditions that adversely affect our borrowers, our classified loans and leases may increase. Higher levels of classified loans and leases generally result in increased provisions for credit losses and an increased allowance for credit losses. Although we have established an allowance for credit losses that we consider appropriate, there can be no assurance that the established allowance will be sufficient to absorb future losses.

The following table presents information regarding the allowance for credit losses on Non-PCI loans and leases held for investment as of the dates indicated:



	September 30,			June 30,			March 31,			September 30,
Non-PCI Allowance for Credit Losses Data	2017			2017			2017			2016
	(Dollars in thousands)
Allowance for loan and lease losses	$	152,770		$	138,879		$	149,826		$	136,747
Reserve for unfunded loan commitments	20,809			20,263			17,763			17,323
Total allowance for credit losses	$	173,579		$	159,142		$	167,589		$	154,070

Allowance for credit losses to loans and leases held for investment	1.11		%	1.02		%	1.08		%	1.05		%
Allowance for credit losses to nonaccrual loans and leases held for investment	110.1		%	92.2		%	96.9		%	90.1		%

The following table presents the changes in our allowance for credit losses on Non-PCI loans and leases held for investment for the periods indicated:



	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
Non-PCI Allowance for Credit Losses	2017			2017			2016			2017			2016
	(Dollars in thousands)
Balance, beginning of period	$	159,142		$	167,589		$	149,944		$	161,278		$	122,268
Provision for credit losses:
Addition to allowance for loan and lease losses	14,954			10,000			8,621			49,214			39,411
Addition to reserve for unfunded loan commitments	546			2,500			(621		)	3,286			589
Provision for credit losses	15,500			12,500			8,000			52,500			40,000
Loans and leases charged off:
Real estate mortgage	(531		)	(142		)	(302		)	(2,217		)	(1,905		)
Commercial:
Cash flow	(846		)	(11,599		)	(167		)	(25,554		)	(1,792		)
Asset-based	(714		)	(99		)	—			(1,212		)	(659		)
Venture capital	(3,424		)	(10,980		)	—			(20,181		)	(146		)
Equipment finance	—			(18		)	(9,439		)	(18		)	(11,709		)
Total commercial	(4,984		)	(22,696		)	(9,606		)	(46,965		)	(14,306		)
Consumer	(413		)	(113		)	(16		)	(625		)	(798		)
Total loans and leases charged off	(5,928		)	(22,951		)	(9,924		)	(49,807		)	(17,009		)
Recoveries on loans charged off:
Real estate mortgage	36			20			2,414			286			4,352
Real estate construction and land	353			9			27			370			185
Commercial:
Cash flow	312			267			3,362			711			3,593
Asset-based	146			420			148			705			472
Venture capital	2,597			1,252			35			4,054			91
Equipment finance	1,392			14			8			3,378			23
Total commercial	4,447			1,953			3,553			8,848			4,179
Consumer	29			22			56			104			95
Total recoveries on loans charged off	4,865			2,004			6,050			9,608			8,811
Net charge-offs	(1,063		)	(20,947		)	(3,874		)	(40,199		)	(8,198		)
Balance, end of period	$	173,579		$	159,142		$	154,070		$	173,579		$	154,070

Annualized net charge-offs to average loans and leases	0.03		%	0.54		%	0.11		%	0.35		%	0.08		%

Allowance for Loan Losses on PCI Loans Held for Investment

We measure the allowance for loan losses for PCI loans held for investment at the end of each financial reporting period based on expected cash flows of our PCI loans. Decreases or increases in the amount and changes in the timing of expected cash flows on the PCI loans as of the financial reporting date compared to those previously estimated are usually recognized by recording a provision or negative provision, respectively, for loan losses on such loans. For example, generally a decrease in the expected cash flows of PCI loans would result in an additional reserve requirement and a provision for PCI loan losses would be recorded.

The following table presents the changes in our allowance for loan losses on PCI loans held for investment for the periods indicated:



	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
PCI Allowance for Loan Losses	2017			2017			2016			2017			2016
	(In thousands)
Balance, beginning of period	$	7,079		$	11,481		$	11,289		$	13,483		$	9,577
(Negative provision) provision for loan losses	(381		)	(1,001		)	471			(1,154		)	2,514
Net recoveries (charge-offs)	138			(3,401		)	(531		)	(5,493		)	(862		)
Balance, end of period	$	6,836		$	7,079		$	11,229		$	6,836		$	11,229

Nonperforming Assets, Performing Troubled Debt Restructured Loans, and Classified Loans and Leases

The following table presents nonperforming assets, performing troubled debt restructured loans, and classified loans and leases information as of the dates indicated:



	September 30,			June 30,			December 31,			September 30,
	2017			2017			2016			2016
	(Dollars in thousands)
Nonaccrual Non-PCI loans and leases held for investment ⁽¹⁾	$	157,697		$	172,576		$	170,599		$	171,085
Nonaccrual PCI loans held for investment	1,761			1,980			2,928			3,478
Total nonaccrual loans and leases held for investment	159,458			174,556			173,527			174,563
Foreclosed assets, net	11,630			13,278			12,976			15,113
Total nonperforming assets	$	171,088		$	187,834		$	186,503		$	189,676

Performing troubled debt restructured loans held for investment ⁽²⁾	$	56,552		$	55,910		$	64,592		$	70,348
Classified Non-PCI loans and leases held for investment ⁽¹⁾	$	344,777		$	339,977		$	409,645		$	417,541
Nonaccrual loans and leases held for investment to
loans and leases held for investment	1.01		%	1.12		%	1.12		%	1.18		%
Nonperforming assets to loans and leases held for investment
and foreclosed assets, net	1.09		%	1.20		%	1.20		%	1.28		%
Classified Non-PCI loans and leases held for investment
to Non-PCI loans and leases held for investment	2.20		%	2.19		%	2.66		%	2.84		%

_______________________________________


(1)	Excludes loans held for sale carried at lower of cost or fair value at June 30, 2017.


(2)	Excludes PCI loans.

Nonperforming assets include Non-PCI and PCI nonaccrual loans and leases held for investment and foreclosed assets and totaled $171.1 million at September 30, 2017 compared to $187.8 million at June 30, 2017. The ratio of nonperforming assets to loans and leases held for investment and foreclosed assets decreased to 1.09% at September 30, 2017 from 1.20% at June 30, 2017. During the third quarter of 2017, Non-PCI classified loans and leases held for investment increased by $4.8 million to $344.8 million as new downgrades exceeded resolutions.

Nonaccrual Loans and Leases Held for Investment

During the third quarter of 2017, nonaccrual loan and leases held for investment decreased by $15.1 million to $159.5 million at September 30, 2017 due mainly to $5.7 million in charge-offs and $23.0 million in principal payments and other reductions, offset by nonaccrual additions of $13.6 million.

As of September 30, 2017, the Company's ten largest Non-PCI loan relationships on nonaccrual status had an aggregate carrying value of $129.1 million and represented 81.9% of total Non-PCI nonaccrual loans and leases. The largest of these relationships consisted of a $45.5 million healthcare real estate loan secured by a continuing care retirement facility that migrated to nonaccrual status during the third quarter of 2016 due to weak operating performance and cash flow difficulties.

The following table presents our Non-PCI nonaccrual loans and leases held for investment 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
	September 30, 2017				June 30, 2017				30 - 89 Days Past Due
			% of				% of		September 30,		June 30,
			Loan				Loan		2017		2017
	Amount		Category		Amount		Category		Amount		Amount
	(Dollars in thousands)
Real estate mortgage:
Commercial	$	63,096	1.5	%	$	65,599	1.5	%	$	1,446	$	3,734
Residential	3,186		0.2	%	5,229		0.3	%	282		46
Total real estate mortgage	66,282		1.1	%	70,828		1.2	%	1,728		3,780
Commercial:
Cash flow	33,514		1.2	%	43,169		1.5	%	72		201
Asset-based	3,977		0.2	%	1,718		0.1	%	—		—
Venture capital	22,686		1.2	%	25,278		1.3	%	2,720		23,171
Equipment finance	30,942		5.2	%	31,111		5.1	%	—		—
Total commercial	91,119		1.2	%	101,276		1.3	%	2,792		23,372
Consumer	296		0.1	%	472		0.1	%	286		—
Total held for investment ⁽¹⁾	$	157,697	1.0	%	$	172,576	1.1	%	$	4,806	$	27,152

_______________________________________


(1)	Excludes loans held for sale carried at lower of cost or fair value at June 30, 2017.

Foreclosed Assets

The following table presents foreclosed assets (primarily OREO) by property type as of the dates indicated:



	September 30,		June 30,		December 31,		September 30,
Property Type	2017		2017		2016		2016
	(In thousands)
Construction and land development	$	9,319	$	11,443	$	11,224	$	13,800
Multi-family	—		—		652		—
Commercial real estate	65		65		—		—
Single family residence	1,668		1,018		—		—
Total OREO, net	11,052		12,526		11,876		13,800
Other foreclosed assets	578		752		1,100		1,313
Total foreclosed assets	$	11,630	$	13,278	$	12,976	$	15,113

During the third quarter of 2017, foreclosed assets decreased by $1.6 million to $11.6 million at September 30, 2017 due primarily to a write-down of $2.1 million on foreclosed property and reductions related to sales of $0.2 million, offset by additions of $0.7 million.

Performing Troubled Debt Restructured Loans Held for Investment

During the third quarter of 2017, Non-PCI performing troubled debt restructured loans held for investment increased by $0.6 million to $56.6 million due mainly to $0.5 million in new additions and $0.3 million in transfers from nonaccrual status to accrual status, offset by $0.2 million in payoffs and other reductions. At September 30, 2017, we had $47.5 million in real estate mortgage loans, $5.8 million in real estate construction and land loans, $3.2 million in commercial loans, and $0.1 million in consumer loans that were accruing interest under the terms of troubled debt restructurings.

The majority of the number of performing troubled debt restructured loans were on accrual status prior to the restructurings and have remained on accrual status after the restructurings due to the borrowers making payments before and after the restructurings.

Deposits

The following table presents the balance of each major category of deposits as of the dates indicated:



	September 30, 2017				June 30, 2017				December 31, 2016
			% of				% of				% of
Deposit Category	Amount		Total		Amount		Total		Amount		Total
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	6,911,874	41	%	$	6,701,039	40	%	$	6,659,016	42	%
Interest checking deposits	1,957,485		12	%	1,762,016		10	%	1,448,394		9	%
Money market deposits	3,967,224		24	%	4,033,471		24	%	3,705,385		23	%
Savings deposits	694,717		4	%	721,048		4	%	711,039		5	%
Total core deposits	13,531,300		81	%	13,217,574		78	%	12,523,834		79	%
Non-core non-maturity deposits	1,118,694		6	%	1,329,324		8	%	1,174,487		7	%
Total non-maturity deposits	14,649,994		87	%	14,546,898		86	%	13,698,321		86	%
Time deposits $250,000 and under	1,770,439		11	%	1,940,872		12	%	1,758,434		11	%
Time deposits over $250,000	352,812		2	%	387,207		2	%	413,856		3	%
Total time deposits	2,123,251		13	%	2,328,079		14	%	2,172,290		14	%
Total deposits	$	16,773,245	100	%	$	16,874,977	100	%	$	15,870,611	100	%

Total deposits decreased by $101.7 million during the third quarter to $16.8 billion, due mainly to a decrease in non-core non-maturity deposits of $210.6 million and a decrease in time deposits of $204.8 million, offset partially by an increase in core deposits of $313.7 million. The decrease in non-core non-maturity deposits was planned based upon year-to-date core deposit growth and in anticipation of the core deposits being acquired from CUB. At September 30, 2017, core deposits totaled $13.5 billion, or 81% of total deposits, including $6.9 billion of noninterest-bearing demand deposits, or 41% of total deposits.

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



	Time Deposits
	$250,000		Over
Maturity	and Under		$250,000		Total
	(In thousands)
Due in three months or less	$	607,436	$	112,808	$	720,244
Due in over three months through six months	532,766		172,846		705,612
Due in over six months through twelve months	505,340		50,205		555,545
Due in over 12 months through 24 months	82,233		8,738		90,971
Due in over 24 months	42,664		8,215		50,879
Total at September 30, 2017	$	1,770,439	$	352,812	$	2,123,251

Total at June 30, 2017	$	1,940,872	$	387,207	$	2,328,079

Client Investment Funds

In addition to deposit products, we also offer select clients non-depository cash investment options through S1AM, our registered investment adviser subsidiary, and third-party money market sweep products. S1AM provides customized investment advisory and asset management solutions. At September 30, 2017, total off-balance sheet client investment funds were $1.9 billion, of which $1.6 billion was managed by S1AM.

Regulatory Matters

Capital

Bank regulatory agencies measure capital adequacy through standardized risk-based capital guidelines that compare different levels of capital (as defined by such guidelines) to risk-weighted assets and off-balance sheet obligations. At September 30, 2017, banks considered to be “well capitalized” must maintain a minimum Tier 1 leverage ratio of 5.00%, a minimum common equity Tier 1 risk-based capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, and a minimum total risk-based capital ratio of 10.00%. Regulatory capital requirements limit the amount of deferred tax assets that may be included when determining the amount of regulatory capital. Deferred tax asset amounts in excess of the calculated limit are disallowed from regulatory capital. At September 30, 2017, such disallowed amounts were $4.0 million for the Company and $0.1 million for the Bank. No assurance can be given that the regulatory capital deferred tax asset limitation will not increase in the future or that the Company or Bank will not have increased deferred tax assets that are disallowed.

Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, became effective for the Company and the Bank on January 1, 2015, subject to phase-in periods for certain components and other provisions. The most significant provisions of Basel III applicable to the Company and the Bank were the phase-out of trust preferred securities from Tier 1 capital, the higher risk-weighting of high volatility and past due real estate loans, and the capital treatment of deferred tax assets and liabilities above certain thresholds.

Beginning January 1, 2016, Basel III required all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. At September 30, 2017, the Company and Bank were in compliance with the capital conservation buffer requirement. The capital conservation buffer will increase by 0.625% each year through 2019, at which point, the common equity tier 1, tier 1 and total capital ratio minimums inclusive of the capital conservation buffer will be 7.0%, 8.5% and 10.5%, respectively.

The following table presents a comparison of our actual capital ratios to the minimum required ratios and well capitalized ratios as of the dates indicated:



		Minimum Required
			Plus Capital		Plus Capital
		For Capital	Conservation	For Well	Conservation
		Adequacy	Buffer	Capitalized	Buffer Fully
	Actual	Purposes	Phase-In (1)	Requirement	Phased-In
September 30, 2017
PacWest Bancorp Consolidated
Tier 1 capital (to average assets)	12.02%	4.00%	4.00%	N/A	4.00%
CET1 capital (to risk weighted assets)	12.52%	4.50%	5.75%	N/A	7.00%
Tier 1 capital (to risk weighted assets)	12.52%	6.00%	7.25%	N/A	8.50%
Total capital (to risk weighted assets)	15.74%	8.00%	9.25%	N/A	10.50%

Pacific Western Bank
Tier 1 capital (to average assets)	11.46%	4.00%	4.00%	5.00%	4.00%
CET1 capital (to risk weighted assets)	11.95%	4.50%	5.75%	6.50%	7.00%
Tier 1 capital (to risk weighted assets)	11.95%	6.00%	7.25%	8.00%	8.50%
Total capital (to risk weighted assets)	12.89%	8.00%	9.25%	10.00%	10.50%



		Minimum Required
			Plus Capital		Plus Capital
		For Capital	Conservation	For Well	Conservation
		Adequacy	Buffer	Capitalized	Buffer Fully
	Actual	Purposes	Phase-In (1)	Requirement	Phased-In
December 31, 2016
PacWest Bancorp Consolidated
Tier 1 capital (to average assets)	11.91%	4.00%	4.00%	N/A	4.00%
CET1 capital (to risk weighted assets)	12.31%	4.50%	5.125%	N/A	7.00%
Tier 1 capital (to risk weighted assets)	12.31%	6.00%	6.625%	N/A	8.50%
Total capital (to risk weighted assets)	15.56%	8.00%	8.625%	N/A	10.50%

Pacific Western Bank
Tier 1 capital (to average assets)	11.40%	4.00%	4.00%	5.00%	4.00%
CET1 capital (to risk weighted assets)	11.78%	4.50%	5.125%	6.50%	7.00%
Tier 1 capital (to risk weighted assets)	11.78%	6.00%	6.625%	8.00%	8.50%
Total capital (to risk weighted assets)	12.72%	8.00%	8.625%	10.00%	10.50%

_______________________________________


(1)	Ratios for September 30, 2017 reflect the minimum required plus capital conservation buffer phase-in for 2017; ratios for December 31, 2016 reflect the minimum required plus capital conservation buffer phase-in for 2016. The capital conservation buffer increases by 0.625% each year through 2019.

Subordinated Debentures

We issued or assumed through mergers subordinated debentures to trusts that were established by us or entities we previously acquired, which, in turn, issued trust preferred securities. The carrying value of subordinated debentures totaled $448.1 million at September 30, 2017. At September 30, 2017, none of the trust preferred securities were included in the Company's Tier I capital under the phase-out limitations of Basel III, and $435.0 million were included in Tier II capital.

Dividends on Common Stock and Interest on Subordinated Debentures

As a bank holding company, PacWest is required to notify the FRB prior to declaring and paying a dividend to stockholders during any period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. Interest payments made by us on subordinated debentures are considered dividend payments under FRB regulations.

Liquidity

Liquidity Management

The goals of our liquidity management are to ensure the ability of the Company to meet its financial commitments when contractually due and to respond to other demands for funds such as the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers who have unfunded commitments. We have an Executive Management Asset Liability Management Committee ("Executive ALM Committee"), which is comprised of members of senior management and is responsible for managing commitments to meet the needs of customers while achieving our financial objectives. Our Executive ALM Committee meets regularly to review funding capacities, current and forecasted loan demand, and investment opportunities.

We manage our liquidity by maintaining pools of liquid assets on-balance sheet, consisting of cash and due from banks, interest-earning deposits in other financial institutions, and unpledged investment securities available-for-sale, which we refer to as our primary liquidity. In addition, we also maintain available borrowing capacity under secured borrowing lines with the FHLB and the FRBSF, which we refer to as our secondary liquidity. In addition to its secured lines of credit, the Bank also maintains unsecured lines of credit for the purpose of overnight funds, subject to availability, of $135.0 million with the FHLB and $75.0 million with correspondent banks. As of September 30, 2017, there was a $135.0 million balance outstanding related to the FHLB unsecured line of credit. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of September 30, 2017, the Bank had no borrowings outstanding through the AFX.

The following tables provide a summary of the Bank’s primary and secondary liquidity levels at the dates indicated:



	September 30,			June 30,			December 31,
Primary Liquidity - On-Balance Sheet	2017			2017			2016
	(Dollars in thousands)
Cash and due from banks	$	147,579		$	180,330		$	337,965
Interest-earning deposits in financial institutions	122,439			107,150			81,705
Securities available-for-sale	3,532,230			3,474,560			3,223,830
Less: pledged securities	(339,815		)	(430,182		)	(425,511		)
Total primary liquidity	$	3,462,433		$	3,331,858		$	3,217,989

Ratio of primary liquidity to total deposits	20.6		%	19.7		%	20.3		%



Secondary Liquidity - Off-Balance Sheet	September 30,			June 30,			December 31,
Available Secured Borrowing Capacity	2017			2017			2016
	(In thousands)
Secured borrowing capacity with the FHLB	$	3,033,258		$	2,916,358		$	2,010,739
Less: secured advances outstanding	(115,000		)	(85,000		)	(735,000		)
Net secured borrowing capacity with the FHLB	2,918,258			2,831,358			1,275,739
Secured borrowing capacity with the FRBSF	2,170,255			2,201,579			2,210,692
Total secondary liquidity	$	5,088,513		$	5,032,937		$	3,486,431

During the three months ended September 30, 2017, the Company's primary liquidity increased by $130.6 million due to a $90.4 million decrease in pledged securities, a $57.7 million increase in securities available-for-sale, and a $15.3 million increase in interest-earning deposits in financial institutions, offset partially by a $32.8 million decrease in cash due from banks. The Company's secondary liquidity increased by $55.6 million during the third quarter due mainly to a $116.9 million increase in the borrowing capacity on the secured borrowing line with the FHLB, offset partially by a $31.3 million decrease in the borrowing capacity on the secured credit line with the FRBSF and a $30.0 million increase in the amount borrowed from the secured borrowing line with the FHLB.

As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB as of September 30, 2017 of $3.0 billion, collateralized by a blanket lien on $4.4 billion of certain qualifying loans not pledged to the FRBSF. The Bank also had secured borrowing capacity with the FRBSF of $2.2 billion as of September 30, 2017 collateralized by liens on $2.9 billion of qualifying loans.

In addition to our primary liquidity, we generate liquidity from cash flows from our loan and securities portfolios and from our large base of core customer deposits, defined as noninterest-bearing demand, interest checking, savings, and non-brokered money market accounts. At September 30, 2017, core deposits totaled $13.5 billion and represented 81% of the Company's total deposits. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Bank promoting long-standing relationships and stable funding sources. See "- Balance Sheet Analysis - Deposits" for additional information and detail of our core deposits.

Our deposit balances may decrease if interest rates increase significantly or if corporate customers withdraw funds from the Bank. In order to address the Bank’s liquidity risk as deposit balances may fluctuate, the Bank maintains adequate levels of available off-balance sheet liquidity.

We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At September 30, 2017, brokered deposits totaled $1.8 billion, consisting of $759.6 million of brokered time deposits, $1.1 billion of non-maturity brokered accounts, and $9.4 million of other brokered deposits. At December 31, 2016, brokered deposits totaled $1.6 billion, consisting of $405.5 million of brokered time deposits, $1.2 billion of non-maturity brokered accounts, and $12.2 million of other brokered deposits. We have increased the amount of our brokered deposits in recent quarters because of the large amount of deposits that can be obtained in a short period of time to manage liquidity and funding needs.

Our liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Coverage and Crisis Coverage Ratios (measurements of liquid assets to expected short-term liquidity required for the loan and deposit portfolios under normal and stressed conditions), Loan to Funding Ratio (measurement of gross loans net of fees divided by deposits plus borrowings), Wholesale Funding Ratio (measurement of wholesale funding divided by interest-earning assets), and other guidelines developed for measuring and maintaining liquidity. As of September 30, 2017, we were in compliance with all of our established liquidity guidelines.

Holding Company Liquidity

PacWest acts a source of financial strength for the Bank which can also include being a source of liquidity. The primary sources of liquidity for the holding company include dividends from the Bank, intercompany tax payments from the Bank, and PacWest's ability to raise capital, issue subordinated debt, and secure outside borrowings. Our ability to obtain funds for the payment of dividends to our stockholders, the repurchase of shares of common stock, and other cash requirements is largely dependent upon the Bank’s earnings. The Bank is subject to restrictions under certain federal and state laws and regulations that limit its ability to transfer funds to the holding company through intercompany loans, advances, or cash dividends.

Dividends paid by California state-chartered banks are regulated by the FDIC and the DBO under their general supervisory authority as it relates to a bank’s capital requirements. A state bank may declare a dividend without the approval of the DBO and the FDIC as long as the total dividends declared in a calendar year do not exceed either the retained earnings or the total of net profits for three previous fiscal years less any dividends paid during such period. During the three and nine months ended September 30, 2017, PacWest received $65.0 million and $195.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of $466.9 million at September 30, 2017, for the foreseeable future, any dividends from the Bank to the holding company will continue to require DBO and FDIC approval.

At September 30, 2017, PacWest had $507.9 million in cash and due from banks, of which substantially all is on deposit at the Bank. We believe this amount of cash, along with anticipated dividends from the Bank, will be sufficient to fund the holding company’s cash flow needs over the next 12 months, including any stock repurchases pursuant to the Company's Stock Repurchase Program and cash consideration required in connection with the CUB acquisition.

Contractual Obligations

The following table summarizes the known contractual obligations of the Company as of the date indicated:



	September 30, 2017
	Due		Due in		Due in		Due
	Within		One to		Three to		After
	One Year		Three Years		Five Years		Five Years		Total
	(In thousands)
Time deposits⁽¹⁾	$	1,981,251	$	116,086	$	25,645	$	119	$	2,123,101
Short-term borrowings	250,000		—		—		—		250,000
Long-term debt obligations⁽¹⁾	233		166		—		542,210		542,609
Contractual interest⁽²⁾	4,943		1,024		745		7		6,719
Operating lease obligations	30,358		53,764		39,122		36,241		159,485
Other contractual obligations	33,066		29,851		9,839		16,360		89,116
Total	$	2,299,851	$	200,891	$	75,351	$	594,937	$	3,171,030

_______________________________________


(1)	Excludes purchase accounting fair value adjustments.


(2)	Excludes interest on subordinated debentures as these instruments are variable rate.

Long-term debt obligations include subordinated debentures. Debt obligations are also discussed in Note 6. Borrowings and Subordinated Debentures, in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in “Item 1. Condensed Consolidated Financial Statements (Unaudited).” Operating lease obligations are discussed in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016. The other contractual obligations relate to our minimum liability associated with our data and item processing contract with a third-party provider, commitments to contribute capital to investments in low income housing project partnerships and private equity funds, commitments to purchase loans, and commitments under deferred compensation arrangements.

We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate liquidity levels. We expect to maintain adequate liquidity levels through profitability, loan and lease payoffs, securities repayments and maturities, and continued deposit gathering activities. We also have in place various borrowing mechanisms for both short-term and long-term liquidity needs.

Off-Balance Sheet Arrangements

Our obligations also include off-balance sheet arrangements consisting of loan commitments, of which only a portion is expected to be funded. At September 30, 2017, our loan commitments, including standby letters of credit, totaled $5.3 billion. The commitments, a portion of which result in funded loans, increase our profitability through net interest income when drawn. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources, as described in "- Liquidity - Liquidity Management," have been and are expected to be sufficient to meet the cash requirements of our lending activities. For further information on loan commitments, see Note 7. Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This analysis should be read in conjunction with text under the caption "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2016, which text is incorporated herein by reference. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Item 2 regarding such forward-looking information.

Market Risk - Foreign Currency Exchange

We enter into foreign exchange contracts with our clients and counterparty banks primarily for the purpose of offsetting or hedging clients' foreign currency exposures arising out of commercial transactions, and we enter into cross currency swaps to hedge exposures to loans and debt instruments denominated in foreign currencies. We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. Dollar, and the cross currency swaps that hedge those exposures. As of September 30, 2017, the U.S. Dollar notional amounts of loans receivable and subordinated debentures payable denominated in foreign currencies were $8.0 million and $30.4 million, and the U.S. Dollar notional amounts of cross currency swaps outstanding to hedge these foreign currency exposures were $6.8 million and $29.2 million. We recognized foreign currency translation net gains of $0.4 million and $0.7 million for the nine months ended September 30, 2017 and 2016.

Asset/Liability Management and Interest Rate Sensitivity

Interest Rate Risk

We measure our IRR position on at least a quarterly basis using two methods: (i) NII simulation analysis; and (ii) MVE modeling. The Executive ALM Committee and the Board Asset Liability Management Committee review the results of these analyses quarterly. If hypothetical changes to interest rates cause changes to our simulated net present value of equity and/or net interest income outside our pre‑established limits, we may adjust our asset and liability mix in an effort to bring our interest rate risk exposure within our established limits.

We evaluated the results of our NII simulation model and MVE model prepared as of September 30, 2017, the results of which are presented below. Our NII simulation indicates that our balance sheet is asset-sensitive, while our MVE model indicates that our balance sheet had a slightly liability-sensitive profile. An asset-sensitive profile would suggest that a sudden sustained increase in rates would result in an increase in our estimated net interest income and market value of equity, while a liability-sensitive profile would suggest that these amounts would decrease.

Net Interest Income Simulation

We used a NII simulation model to measure the estimated changes in net interest income that would result over the next 12 months from immediate and sustained changes in interest rates as of September 30, 2017. This model is an interest rate risk management tool and the results are not necessarily an indication of our future net interest income. This model has inherent limitations and these results are based on a given set of rate changes and assumptions at one point in time. We have assumed no growth in either our total interest‑sensitive assets or liabilities over the next 12 months, therefore the results reflect an interest rate shock to a static balance sheet.

This analysis calculates the difference between net interest income forecasted using both increasing and decreasing interest rate scenarios using the forward yield curve at September 30, 2017. In order to arrive at the base case, we extend our balance sheet at September 30, 2017 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing as of September 30, 2017. Based on such repricing, we calculate an estimated NII and NIM for each rate scenario.

The NII simulation model is dependent upon numerous assumptions. For example, the substantial majority of our loans are variable‑rate, which are assumed to reprice in accordance with their contractual terms. Some loans and investment securities include the opportunity of prepayment (embedded options) and the simulation model uses prepayment assumptions to estimate these prepayments and reinvest these proceeds at current simulated yields. Our deposit products reprice at our discretion and are assumed to reprice more slowly in a rising or declining interest rate environment and usually reprice at a rate less than the change in market rates. The effects of certain balance sheet attributes, such as fixed‑rate loans, variable‑rate loans that have reached their floors, and the volume of noninterest‑bearing deposits as a percentage of earning assets, impact our assumptions and consequently the results of our NII simulation model. Changes that could vary significantly from our assumptions include loan and deposit growth or contraction, changes in the mix of our earning assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on our net interest income.

The following table presents forecasted net interest income and net interest margin for the next 12 months using the forward yield curve as the base scenario and shocking the base scenario given immediate and sustained parallel upward and downward movements in interest rates of 100, 200 and 300 basis points as of the date indicated:




	Forecasted			Forecasted	Forecasted
	Net Interest		Percentage	Net Interest	Net Interest
September 30, 2017	Income		Change	Margin	Margin Change
Interest Rate Scenario	(Tax Equivalent)		From Base	(Tax Equivalent)	From Base
	(Dollars in millions)
Up 300 basis points	$	1,146.6	15.9%	5.88%	0.81%
Up 200 basis points	$	1,096.0	10.8%	5.62%	0.55%
Up 100 basis points	$	1,044.2	5.6%	5.36%	0.29%
BASE CASE	$	988.9	—	5.07%	—
Down 100 basis points	$	934.9	(5.5)%	4.80%	(0.27)%
Down 200 basis points	$	915.6	(7.4)%	4.70%	(0.37)%
Down 300 basis points	$	906.6	(8.3)%	4.65%	(0.42)%

Total base case year 1 tax equivalent NII was $988.9 million at September 30, 2017 compared to $998.2 million at June 30, 2017. The $9.3 million decrease in year 1 NII was attributable to a decrease in the assumed pricing spreads on new loan originations, increased funding costs on deposits, and a lower loan portfolio average balance due to the sale of the loans designated as held for sale at June 30, 2017, offset partially by an increase in the average balance of securities and a lower average balance of borrowings.

In addition to parallel interest rate shock scenarios, we also model various alternative rate vectors that are viewed as more likely to occur in a typical monetary policy tightening cycle. The most favorable alternate rate vector that we model is the “Bear Flattener” scenario, when short term rates increase faster than long term rates, and the least favorable alternate rate vector that we model is the “Bull Steepener,” when short term rates fall faster than long term rates. In the “Bear Flattener” scenario that we model, Year 1 NII increases by 1.4%, and in the “Bull Steepener” scenario that we model, Year 1 NII decreases by 2.9%.

Of the $15.8 billion of total loans in the portfolio, $10.9 billion have variable interest rate terms (excluding hybrid loans discussed below). At September 30, 2017, $10.4 billion of these variable-rate loans have a loan rate higher than their floor rate, which allows them to reprice at their next reprice date upon a change in their index. Approximately 67% of the total variable-rate loans have a LIBOR index rate.

The following table presents variable-rate loans at their floors and the amounts for which the fully-indexed rates would rise off of the floors and reprice as a result of the rate increases shown:



September 30, 2017
Cumulative		Rate
Amount of		Increase
Variable-Rate		Needed to
Loans		Reprice
(Dollars in millions)
$	379.4	0 - 100 bps
$	526.0	101 - 200 bps
$	547.2	201 - 300 bps

Additionally, certain variable-rate hybrid loans do not immediately reprice because the loans contain an initial fixed-rate period before they become variable. The cumulative amounts of hybrid loans that would switch from being fixed-rate to variable-rate because the initial fixed-rate term would expire were approximately $245 million, $408 million, and $722 million in the next one, two, and three years.

Market Value of Equity

We measure the impact of market interest rate changes on the net present value of estimated cash flows from our assets, liabilities and off‑balance sheet items, defined as the market value of equity, using our MVE model. This simulation model assesses the changes in the market value of our interest‑sensitive financial instruments that would occur in response to an instantaneous and sustained increase or decrease in market interest rates of 100, 200, and 300 basis points. This analysis assigns significant value to our noninterest-bearing deposit balances. The projections include various assumptions regarding cash flows and interest rates and are by their nature forward‑looking and inherently uncertain.

The MVE model is an interest rate risk management tool and the results are not necessarily an indication of our actual future results. Actual results may vary significantly from the results suggested by the market value of equity table. Loan prepayments and deposit attrition, changes in the mix of our earning assets or funding sources, and future asset/liability management decisions, among others, may vary significantly from our assumptions. The base case is determined by applying various current market discount rates to the estimated cash flows from the different types of assets, liabilities and off‑balance sheet items existing at September 30, 2017.

The following table shows the projected change in the market value of equity for the set of rate scenarios presented as of the date indicated:



										Ratio of
	Projected		Dollar			Percentage		Percentage		Projected
September 30, 2017	Market Value		Change			Change		of Total		Market Value
Interest Rate Scenario	of Equity		From Base			From Base		Assets		to Book Value
	(Dollars in millions)
Up 300 basis points	$	5,740.0	$	(96.2	)	(1.6	)%	25.8	%	124.5	%
Up 200 basis points	$	5,775.2	$	(61.0	)	(1.0	)%	26.0	%	125.3	%
Up 100 basis points	$	5,809.6	$	(26.6	)	(0.5	)%	26.1	%	126.0	%
BASE CASE	$	5,836.2	$	—		—	%	26.2	%	126.6	%
Down 100 basis points	$	5,851.3	$	15.1		0.3	%	26.3	%	126.9	%
Down 200 basis points	$	5,870.3	$	34.1		0.6	%	26.4	%	127.3	%
Down 300 basis points	$	5,721.1	$	(115.1	)	(2.0	)%	25.7	%	124.1	%

Total base case projected market value of equity was $5.8 billion at September 30, 2017, an increase of $46 million compared to June 30, 2017. The increase in base case market value of equity was due primarily to a $51 million increase in the book value of stockholders' equity and a $27 million decrease in the mark-to-market adjustment for total deposits, offset partially by a $32 million decrease in the fair value of loans.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was carried out by the Company's management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective.

There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 7. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements (Unaudited) is incorporated herein by reference.

In addition, in the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon information currently available to us, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations.

ITEM 1A. RISK FACTORS

For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors disclosed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2016. See also "Forward-Looking Information" disclosed in Part I, Item 2 of this quarterly report on Form 10-Q.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents stock purchases made during the third quarter of 2017:



				Total Number of	Maximum Dollar
				Shares Purchased	Value of Shares
				as Part of	That May Yet
		Average		Publicly	Be Purchased
	Total Number of	Price Paid		Announced	Under the
Purchase Dates	Shares Purchased (1)	Per Share		Program (2)	Program (2)
					(In thousands)
July 1, 2017 - July 31, 2017	—	$	—	—	$	372,069
August 1, 2017 - August 31, 2017	4,892	$	48.01	—	$	372,069
September 1, 2017 - September 30, 2017	—	$	—	—	$	372,069
Total	4,892	$	—	—

__________________________


(1)	Includes shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards, and shares repurchased pursuant to the Company's publicly announced Stock Repurchase Program.


(2)	On October 17, 2016, PacWest’s Board of Directors authorized a Stock Repurchase Program, pursuant to which the Company may, from time to time until December 31, 2017, purchase shares of its common stock for an aggregate purchase price not to exceed $400 million. All shares repurchased under the Stock Repurchase Program were retired upon settlement.

ITEM 6. INDEX TO EXHIBITS



Exhibit Number	Description
2.3	Agreement and Plan of Merger dated March 1, 2015 between PacWest Bancorp and Square 1 Financial, Inc. (Exhibit 2.1 to Form 8-K filed on March 5, 2015 and incorporated herein by this reference).
2.4	Agreement and Plan of Merger dated April 5, 2017 between PacWest Bancorp and CU Bancorp (Exhibit 2.1 to Form 8-K filed on April 6, 2017 and incorporated herein by reference).
3.1	Certificate of Incorporation, as amended, of PacWest Bancorp, a Delaware corporation, dated April 22, 2008 (Exhibit 3.1 to Form 8-K filed on May 14, 2008 and incorporated herein by this reference).
3.2	Certificate of Amendment of Certificate of Incorporation of PacWest Bancorp, a Delaware Corporation, dated May 14, 2010 (Exhibit 3.1 to Form 8-K filed on May 14, 2010 and incorporated herein by this reference).
3.5	Amended and Restated Bylaws of PacWest Bancorp, a Delaware corporation, dated November 5, 2014 (Exhibit 3.5 to Form 10-Q filed on November 10, 2014 and incorporated herein by this reference).
10.1	PacWest Bancorp 2003 Stock Incentive Plan, as amended and restated, dated May 16, 2016 (Exhibit 10.1 to Form 8-K filed on May 18, 2016 and incorporated herein by this reference).
10.2	Form of Stock Award Agreement pursuant to the Company's 2003 Stock Incentive Plan, as amended and restated (Exhibit 10.2 to Form 10-Q filed on November 7, 2016 and incorporated herein by this reference).
10.3	Form of Stock Unit Award Agreement pursuant to the Company's 2003 Stock Incentive Plan, as amended and restated (Exhibit 10.3 to Form 10-Q filed on November 7, 2016 and incorporated herein by this reference).
10.4	PacWest Bancorp 2017 Stock Incentive Plan, as amended, dated May 15, 2017 (Exhibit 10.1 to Form S-8 filed on May 15, 2017 and incorporated herein by this reference).
10.5	Form of Stock Unit Award Agreement and Grant Notice pursuant to the Company's 2017 Stock Incentive Plan, as amended (Exhibit 10.2 to Form 8-K filed on May 18, 2017 and incorporated herein by reference).
10.6	Form of Stock Award Agreement and Grant Notice pursuant to the Company's 2017 Stock Incentive Plan, as amended (Exhibit 10.3 to Form 8-K filed on May 18, 2017 and incorporated herein by reference).
31.1	Section 302 Certification of Chief Executive Officer (Filed herewith).
31.2	Section 302 Certification of Chief Financial Officer (Filed herewith).
32.1	Section 906 Certification of Chief Executive Officer (Filed herewith).
32.2	Section 906 Certification of Chief Financial Officer (Filed herewith).
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (ii) the Condensed Consolidated Statements of Earnings for the three months ended September 30, 2017, June 30, 2017, and September 30, 2016 and nine months ended September 30, 2017 and 2016, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended September 30, 2017, June 30, 2017, and September 30, 2016 and nine months ended September 30, 2017 and 2016, (iv) the Condensed Consolidated Statement of Changes in Stockholders' Equity for the nine months ended September 30, 2017, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (vi) the Notes to Condensed Consolidated Financial Statements (Filed herewith).

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		PACWEST BANCORP

Date:	November 7, 2017	/s/ Bart R. Olson
		Bart R. Olson
		Executive Vice President and Chief Accounting Officer