PACWEST BANCORP - Quarter Report: 2017 March (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 March 31, 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 April 26, 2017, there were 119,870,416 shares of the registrant's common stock outstanding, excluding 1,537,717 shares of unvested restricted stock.

PACWEST BANCORP

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)	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63
Item 4.	Controls and Procedures	66

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 6.	Index to Exhibits	67
Signatures		68

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."



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

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



	March 31,			December 31,
	2017			2016
	(Unaudited)
	(Dollars in thousands, except par value amounts)
ASSETS:
Cash and due from banks	$	184,608		$	337,965
Interest-earning deposits in financial institutions	111,892			81,705
Total cash and cash equivalents	296,500			419,670
Securities available-for-sale, at fair value	3,336,992			3,223,830
Federal Home Loan Bank stock, at cost	17,901			21,870
Total investment securities	3,354,893			3,245,700
Gross loans and leases	15,622,871			15,520,537
Deferred fees, net	(66,182		)	(64,583		)
Allowance for loan and lease losses	(161,307		)	(157,238		)
Total loans and leases, net	15,395,382			15,298,716
Equipment leased to others under operating leases	224,580			229,905
Premises and equipment, net	28,908			38,594
Foreclosed assets, net	12,842			12,976
Deferred tax asset, net	88,765			94,112
Goodwill	2,173,949			2,173,949
Core deposit and customer relationship intangibles, net	33,302			36,366
Other assets	318,133			319,779
Total assets	$	21,927,254		$	21,869,767

LIABILITIES:
Noninterest-bearing deposits	$	6,789,808		$	6,659,016
Interest-bearing deposits	9,541,200			9,211,595
Total deposits	16,331,008			15,870,611
Borrowings	460,609			905,812
Subordinated debentures	442,516			440,744
Accrued interest payable and other liabilities	185,015			173,545
Total liabilities	17,419,148			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 March 31, 2017 and
December 31, 2016, 122,968,677 and 122,803,029 shares issued, respectively, including
1,537,717 and 1,476,132 shares of unvested restricted stock, respectively)	1,230			1,228
Additional paid-in capital	4,108,478			4,162,132
Retained earnings	444,321			366,073
Treasury stock, at cost (1,560,544 and 1,519,360 shares at March 31, 2017 and December 31, 2016)	(58,641		)	(56,360		)
Accumulated other comprehensive income, net	12,718			5,982
Total stockholders' equity	4,508,106			4,479,055
Total liabilities and stockholders' equity	$	21,927,254		$	21,869,767

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS



	Three Months Ended
	March 31,			December 31,			March 31,
	2017			2016			2016
	(Unaudited)
	(Dollars in thousands, except per share amounts)
Interest income:
Loans and leases	$	224,178		$	238,223		$	236,375
Investment securities	23,039			23,403			22,547
Deposits in financial institutions	192			147			308
Total interest income	247,409			261,773			259,230
Interest expense:
Deposits	8,377			7,369			9,073
Borrowings	1,018			631			581
Subordinated debentures	5,562			5,468			4,982
Total interest expense	14,957			13,468			14,636
Net interest income	232,452			248,305			244,594
Provision for credit losses	24,728			23,215			20,140
Net interest income after provision for credit losses	207,724			225,090			224,454
Noninterest income:
Service charges on deposit accounts	3,758			3,557			3,856
Other commissions and fees	10,390			12,036			11,489
Leased equipment income	9,475			8,614			8,244
Gain on sale of loans and leases	712			119			245
Gain (loss) on sale of securities	(99		)	515			8,110
FDIC loss sharing expense, net	—			—			(2,415		)
Other income	10,878			4,054			5,010
Total noninterest income	35,114			28,895			34,539
Noninterest expense:
Compensation	64,880			66,013			61,065
Occupancy	11,608			12,076			12,632
Data processing	7,015			6,574			5,904
Other professional services	3,378			4,880			3,572
Insurance and assessments	4,791			4,124			4,965
Intangible asset amortization	3,064			3,176			4,746
Leased equipment depreciation	5,625			5,291			5,024
Foreclosed assets expense (income), net	143			2,693			(561		)
Acquisition, integration and reorganization costs	500			—			200
Other expense	15,540			13,795			13,141
Total noninterest expense	116,544			118,622			110,688
Earnings before income taxes	126,294			135,363			148,305
Income tax expense	(47,626		)	(49,716		)	(57,849		)
Net earnings	$	78,668		$	85,647		$	90,456

Earnings per share:
Basic	$	0.65		$	0.71		$	0.74
Diluted	$	0.65		$	0.71		$	0.74
Dividends declared per share	$	0.50		$	0.50		$	0.50

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Three Months Ended
	March 31,			December 31,			March 31,
	2017			2016			2016
	(Unaudited)
	(In thousands)
Net earnings	$	78,668		$	85,647		$	90,456
Other comprehensive income (loss), net of tax:
Unrealized net holding gains (losses) on securities
available-for-sale arising during the period	11,184			(111,045		)	43,093
Income tax (expense) benefit related to net unrealized
holding gains (losses) arising during the period	(4,507		)	45,259			(17,655		)
Unrealized net holding gains (losses) on securities
available-for-sale, net of tax	6,677			(65,786		)	25,438
Reclassification adjustment for net (gains) losses
included in net earnings ⁽¹⁾	99			(515		)	(8,110		)
Income tax expense (benefit) related to reclassification
adjustment	(40		)	210			3,323
Reclassification adjustment for net (gains) losses
included in net earnings, net of tax	59			(305		)	(4,787		)
Other comprehensive income (loss), net of tax	6,736			(66,091		)	20,651
Comprehensive income	$	85,404		$	19,556		$	111,107

^{___________________________________}


(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



	Three Months Ended March 31, 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	—		—		—			78,668			—			—		78,668
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax	—		—		—			—			—			6,736		6,736
Restricted stock awarded and
earned stock compensation,
net of shares forfeited	165,648		2		6,468			—			—			—		6,470
Restricted stock surrendered	(41,184	)	—		—			—			(2,281		)	—		(2,281		)
Cash dividends paid	—		—		(60,833		)	—			—			—		(60,833		)
Balance, March 31, 2017	121,408,133		$	1,230	$	4,108,478		$	444,321		$	(58,641	)	$	12,718	$	4,508,106

________________________


(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



	Three Months Ended
	March 31,
	2017			2016
	(Unaudited)
	(In thousands)
Cash flows from operating activities:
Net earnings	$	78,668		$	90,456
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	8,496			8,219
Amortization of net premiums on securities available-for-sale	10,601			9,523
Amortization of intangible assets	3,064			4,746
Provision for credit losses	24,728			20,140
Gain on sale of foreclosed assets	—			(504		)
Gain on sale of loans and leases	(712		)	(245		)
Gain on sale of premises and equipment	(560		)	(6		)
Loss (gain) on sale of securities	99			(8,110		)
Gain on BOLI death benefit	(471		)	(542		)
Unrealized loss (gain) on derivatives and foreign currencies, net	202			(250		)
Earned stock compensation	6,470			5,046
Loss on sale of PWEF leasing unit	—			720
Tax effect included in stockholders' equity of restricted stock vesting	—			(3,795		)
Decrease in accrued and deferred income taxes, net	1,091			24,726
Decrease in other assets	661			5,756
Decrease (increase) in accrued interest payable and other liabilities	10,852			(23,722		)
Net cash provided by operating activities	143,189			132,158

Cash flows from investing activities:
Net increase in loans and leases	(157,244		)	(170,465		)
Proceeds from sales of loans and leases	37,173			26,903
Proceeds from maturities and paydowns of securities available-for-sale	92,612			61,626
Proceeds from sales of securities available-for-sale	42,996			343,031
Purchases of securities available-for-sale	(248,187		)	(52,236		)
Net redemptions of Federal Home Loan Bank stock	3,969			2,460
Proceeds from sales of foreclosed assets	212			4,443
Purchases of premises and equipment, net	(1,944		)	(2,896		)
Proceeds from sales of premises and equipment	10,290			6
Proceeds from sale of leasing unit	—			138,809
Proceeds from BOLI death benefit	1,192			1,853
Net decrease (increase) of equipment leased to others under operating leases	114			(12,300		)
Net cash (used in) provided by investing activities	(218,817		)	341,234

Cash flows from financing activities:
Net increase (decrease) in noninterest-bearing deposits	131,170			(31,310		)
Net increase (decrease) in interest-bearing deposits	329,605			(193,315		)
Net decrease in borrowings	(445,203		)	(68,483		)
Common stock repurchased and restricted stock surrendered	(2,281		)	(141		)
Tax effect included in stockholders' equity of restricted stock vesting	—			3,795
Cash dividends paid	(60,833		)	(60,906		)
Net cash used in financing activities	(47,542		)	(350,360		)
Net (decrease) increase in cash and cash equivalents	(123,170		)	123,032
Cash and cash equivalents, beginning of period	419,670			396,486
Cash and cash equivalents, end of period	$	296,500		$	519,518

Supplemental disclosures of cash flow information:
Cash paid for interest	$	14,352		$	15,080
Cash paid for income taxes	2,834			15,773
Loans transferred to foreclosed assets	78			129

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. 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 March 31, 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 announcement of the CU Bancorp merger.

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 Standard 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. An income tax benefit of $1.1 million was recognized during the three months ended March 31, 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)

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. Regarding time deposits disclosures, we previously presented the categories as: (1) under $100,000, and (2) $100,000 or more, but now are using the current FDIC insurance limit of $250,000 and presenting the categories as: (1) $250,000 and under, and (2) over $250,000.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 March 31, 2017 is 5.2 years. The aggregate CDI and CRI 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.

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



	Three Months Ended
	March 31,			December 31,			March 31,
	2017			2016			2016
	(In thousands)
Gross Amount of CDI and CRI:
Balance, beginning of period	$	64,187		$	73,702		$	95,524
Fully amortized portion	—			(9,515		)	—
Reduction due to sale of PWEF leasing unit	—			—			(1,700		)
Balance, end of period	64,187			64,187			93,824
Accumulated Amortization:
Balance, beginning of period	(27,821		)	(34,160		)	(42,304		)
Amortization	(3,064		)	(3,176		)	(4,746		)
Fully amortized portion	—			9,515			—
Reduction due to sale of PWEF leasing unit	—			—			1,363
Balance, end of period	(30,885		)	(27,821		)	(45,687		)
Net CDI and CRI, end of period	$	33,302		$	36,366		$	48,137

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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:



	March 31, 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	$	471,851	$	6,088	$	(3,383	)	$	474,556	$	499,185	$	6,222	$	(2,964	)	$	502,443
Agency CMOs	137,720		1,661		(449		)	138,932		145,258		1,528		(497		)	146,289
Private label CMOs	147,818		3,461		(1,879		)	149,400		122,707		4,199		(1,437		)	125,469
Municipal securities	1,464,306		22,686		(3,711		)	1,483,281		1,447,064		15,406		(6,011		)	1,456,459
Agency commercial MBS	718,483		2,488		(8,900		)	712,071		555,552		1,798		(9,658		)	547,692
Corporate debt securities	17,000		1,211		—			18,211		47,100		680		(271		)	47,509
Collateralized loan obligations	126,306		1,809		(142		)	127,973		155,440		1,685		(238		)	156,887
SBA securities	168,084		589		(339		)	168,334		179,085		510		(750		)	178,845
Asset-backed and other securities	63,966		460		(192		)	64,234		62,264		358		(385		)	62,237
Total	$	3,315,534	$	40,453	$	(18,995	)	$	3,336,992	$	3,213,655	$	32,386	$	(22,211	)	$	3,223,830

As of March 31, 2017, securities available-for-sale with a fair value of $424.7 million were pledged as collateral for borrowings, public deposits and other purposes as required by various statutes and agreements.

During the three months ended March 31, 2017, we sold $43.1 million of securities available-for-sale for a gross realized gain of $204,000 and a gross realized loss of $303,000. During the three months ended March 31, 2016, we sold $334.9 million of securities available-for-sale for a gross realized gain of $8.9 million and a gross realized loss of $0.8 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:



	March 31, 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	$	139,928	$	(1,802	)	$	113,812	$	(1,581	)	$	253,740	$	(3,383	)
Agency CMOs	34,796		(312		)	18,797		(137		)	53,593		(449		)
Private label CMOs	88,381		(1,548		)	24,843		(331		)	113,224		(1,879		)
Municipal securities	334,546		(3,711		)	—		—			334,546		(3,711		)
Agency commercial MBS	380,604		(8,900		)	—		—			380,604		(8,900		)
Collateralized loan obligations	17,964		(24		)	17,067		(118		)	35,031		(142		)
SBA securities	44,618		(103		)	29,674		(236		)	74,292		(339		)
Asset-backed and other securities	15,972		(156		)	6,957		(36		)	22,929		(192		)
Total	$	1,056,809	$	(16,556	)	$	211,150	$	(2,439	)	$	1,267,959	$	(18,995	)

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



	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	)

We reviewed the securities that were in a loss position at March 31, 2017, and concluded their 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:



	March 31, 2017
	Amortized		Fair
Maturity	Cost		Value
	(In thousands)
Due in one year or less	$	18,084	$	18,221
Due after one year through five years	235,439		238,871
Due after five years through ten years	879,297		885,026
Due after ten years	2,182,714		2,194,874
Total securities available-for-sale	$	3,315,534	$	3,336,992

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.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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
	March 31,		December 31,		March 31,
	2017		2016		2016
	(In thousands)
Taxable interest	$	12,166	$	11,849	$	11,396
Non-taxable interest	10,381		10,323		10,726
Dividend income	492		1,231		425
Total interest income on investment securities	$	23,039	$	23,403	$	22,547

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.

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



	March 31, 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	$	5,904,995		$	88,918		$	5,993,913		$	5,635,675		$	92,793		$	5,728,468
Real estate construction and land	1,123,123			2,326			1,125,449			975,032			2,409			977,441
Commercial	8,115,953			4,863			8,120,816			8,426,236			12,994			8,439,230
Consumer	382,447			246			382,693			375,149			249			375,398
Total gross loans and leases	15,526,518			96,353			15,622,871			15,412,092			108,445			15,520,537
Deferred fees, net	(66,164		)	(18		)	(66,182		)	(64,562		)	(21		)	(64,583		)
Total loans and leases, net of deferred fees	15,460,354			96,335			15,556,689			15,347,530			108,424			15,455,954
Allowance for loan and lease losses	(149,826		)	(11,481		)	(161,307		)	(143,755		)	(13,483		)	(157,238		)
Total loans and leases, net	$	15,310,528		$	84,854		$	15,395,382		$	15,203,775		$	94,941		$	15,298,716

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Non‑PCI Loans and Leases

The following tables present an aging analysis of our Non‑PCI loans and leases by portfolio segment and class as of the dates indicated:



	March 31, 2017
	30 - 89		90 or More
	Days		Days		Total
	Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Commercial	$	9,218	$	3,975	$	13,193	$	4,365,745	$	4,378,938
Residential	844		1,879		2,723		1,505,308		1,508,031
Total real estate mortgage	10,062		5,854		15,916		5,871,053		5,886,969
Real estate construction and land:
Commercial	—		—		—		666,185		666,185
Residential	—		362		362		441,689		442,051
Total real estate construction and land	—		362		362		1,107,874		1,108,236
Commercial:
Cash flow	598		2,915		3,513		3,129,896		3,133,409
Asset-based	500		204		704		2,390,379		2,391,083
Venture capital	14,381		257		14,638		1,920,311		1,934,949
Equipment finance	251		—		251		622,986		623,237
Total commercial	15,730		3,376		19,106		8,063,572		8,082,678
Consumer	77		—		77		382,394		382,471
Total Non-PCI loans and leases	$	25,869	$	9,592	$	35,461	$	15,424,893	$	15,460,354



	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 Non-PCI loans and leases	$	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 by portfolio segment and class as of the dates indicated:



	March 31, 2017						December 31, 2016
	Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
	(In thousands)
Real estate mortgage:
Commercial	$	66,216	$	4,312,722	$	4,378,938	$	62,454	$	4,291,179	$	4,353,633
Residential	5,826		1,502,205		1,508,031		6,881		1,257,442		1,264,323
Total real estate mortgage	72,042		5,814,927		5,886,969		69,335		5,548,621		5,617,956
Real estate construction and land:
Commercial	—		666,185		666,185		—		578,838		578,838
Residential	362		441,689		442,051		364		383,637		384,001
Total real estate construction and land	362		1,107,874		1,108,236		364		962,475		962,839
Commercial:
Cash flow	53,611		3,079,798		3,133,409		53,908		3,053,484		3,107,392
Asset-based	1,165		2,389,918		2,391,083		2,118		2,606,927		2,609,045
Venture capital	15,289		1,919,660		1,934,949		11,687		1,971,469		1,983,156
Equipment finance	30,388		592,849		623,237		32,848		659,119		691,967
Total commercial	100,453		7,982,225		8,082,678		100,561		8,290,999		8,391,560
Consumer	173		382,298		382,471		339		374,836		375,175
Total Non-PCI loans and leases	$	173,030	$	15,287,324	$	15,460,354	$	170,599	$	15,176,931	$	15,347,530

At March 31, 2017, nonaccrual loans and leases totaled $173.0 million and included $9.6 million of loans and leases 90 or more days past due, $4.0 million of loans and leases 30 to 89 days past due, and $159.4 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.

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 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.



	March 31, 2017						December 31, 2016
	Classified		Nonclassified		Total		Classified		Nonclassified		Total
	(In thousands)
Real estate mortgage:
Commercial	$	100,202	$	4,278,736	$	4,378,938	$	99,641	$	4,253,992	$	4,353,633
Residential	9,680		1,498,351		1,508,031		17,540		1,246,783		1,264,323
Total real estate mortgage	109,882		5,777,087		5,886,969		117,181		5,500,775		5,617,956
Real estate construction and land:
Commercial	403		665,782		666,185		409		578,429		578,838
Residential	362		441,689		442,051		364		383,637		384,001
Total real estate construction and land	765		1,107,471		1,108,236		773		962,066		962,839
Commercial:
Cash flow	175,511		2,957,898		3,133,409		177,661		2,929,731		3,107,392
Asset-based	32,285		2,358,798		2,391,083		28,112		2,580,933		2,609,045
Venture capital	75,222		1,859,727		1,934,949		52,646		1,930,510		1,983,156
Equipment finance	30,388		592,849		623,237		32,848		659,119		691,967
Total commercial	313,406		7,769,272		8,082,678		291,267		8,100,293		8,391,560
Consumer	346		382,125		382,471		424		374,751		375,175
Total Non-PCI loans and leases	$	424,399	$	15,035,955	$	15,460,354	$	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 as of the dates indicated:



	March 31, 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	$	72,042	$	47,119	$	119,161	$	69,335	$	54,750	$	124,085
Real estate construction and land	362		6,321		6,683		364		6,893		7,257
Commercial	100,453		2,920		103,373		100,561		3,157		103,718
Consumer	173		141		314		339		152		491
Total	$	173,030	$	56,501	$	229,531	$	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 by portfolio segment and class as of and for the dates indicated:



	March 31, 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	$	14,350	$	15,257	$	633	$	63,325	$	65,031	$	6,266
Residential	3,502		3,570		437		8,424		8,612		585
Real estate construction and land:
Residential	—		—		—		213		213		—
Commercial:
Cash flow	50,690		65,605		8,901		51,272		52,910		12,474
Asset-based	1,430		1,423		144		4,395		4,861		2,144
Venture capital	12,206		12,254		3,222		5,821		5,880		3,294
Equipment finance	—		—		—		1,524		4,636		—
Consumer	187		191		90		270		280		170
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	96,032	$	105,317			$	44,557	$	51,402
Residential	5,277		6,408				7,779		8,940
Real estate construction and land:
Commercial	6,111		6,111				6,680		6,680
Residential	572		576				364		366
Commercial:
Cash flow	2,925		5,718				2,852		5,939
Asset-based	2,651		3,782				664		1,652
Venture capital	3,083		9,907				5,866		8,939
Equipment finance	30,388		51,682				31,324		53,319
Consumer	127		198				221		292
Total Non-PCI Loans and Leases With
and Without an Allowance Recorded:
Real estate mortgage	$	119,161	$	130,552	$	1,070	$	124,085	$	133,985	$	6,851
Real estate construction and land	6,683		6,687		—		7,257		7,259		—
Commercial	103,373		150,371		12,267		103,718		138,136		17,912
Consumer	314		389		90		491		572		170
Total	$	229,531	$	287,999	$	13,427	$	235,551	$	279,952	$	24,933

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



	Three Months Ended March 31,
	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	$	14,350	$	206	$	19,471	$	243
Residential	3,501		12		4,198		24
Real estate construction and land:
Residential	—		—		743		4
Commercial:
Cash flow	43,172		—		20,823		12
Asset-based	1,162		15		3,696		27
Venture capital	4,693		—		—		—
Equipment finance	—		—		49,322		—
Consumer	187		—		341		3
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	92,753	$	560	$	54,132	$	217
Residential	5,216		15		5,405		14
Real estate construction and land:
Commercial	6,111		67		7,202		62
Residential	572		2		—		—
Commercial:
Cash flow	2,821		5		2,683		1
Asset-based	2,279		25		1,181		15
Venture capital	2,429		—		—		—
Equipment finance	30,388		—		—		—
Consumer	127		2		797		—
Total Non-PCI Loans and Leases With
and Without an Allowance Recorded:
Real estate mortgage	$	115,820	$	793	$	83,206	$	498
Real estate construction and land	6,683		69		7,945		66
Commercial	86,944		45		77,705		55
Consumer	314		2		1,138		3
Total	$	209,761	$	909	$	169,994	$	622

_________________________


(1)	For Non-PCI loans and leases reported as impaired at March 31, 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 table presents new troubled debt restructurings of Non-PCI loans for the periods indicated:



	Three Months Ended March 31,
	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	$	64	$	—	4	$	3,140	$	3,140
Residential	2	42		42		1	165		165
Commercial:
Cash flow	2	106		106		4	257		257
Asset-based	2	613		613		2	629		629
Venture capital	3	13,065		13,065		—	—		—
Equipment finance	—	—		—		2	2,660		2,660
Consumer	1	97		97		1	60		60
Total	11	$	13,987	$	13,923	14	$	6,911	$	6,911

The following table presents troubled debt restructurings that subsequently defaulted for the periods indicated:



	Three Months Ended March 31,
	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 mortgage:
Commercial	—	$	—		1	$	230
Consumer	1	28			—	—
Total	1	$	28	(2)	1	$	230	(3)

_________________________

(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 March 31, 2017, the population of defaulted restructured loans includes only those loans restructured after March 31, 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 March 31, 2017, and there were no charge-offs.


(3)	Represents the balance at March 31, 2016, and there were no charge-offs.

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 by portfolio segment and PCI loans for the periods indicated:



	Three Months Ended March 31, 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	(1,544		)	—		(19,285		)	(99		)	(20,928		)	(2,230		)	(23,158		)
Recoveries	230			8		2,448			53			2,739			—			2,739
Provision (negative provision)	(1,083		)	423		25,118			(198		)	24,260			228			24,488
Balance, end of period	$	35,368		$	10,476	$	102,134		$	1,848		$	149,826		$	11,481		$	161,307

Ending Allowance by
Impairment Methodology:
Individually evaluated for
impairment	$	1,070		$	—	$	12,267		$	90		$	13,427
Collectively evaluated for
impairment	$	34,298		$	10,476	$	89,867		$	1,758		$	136,399
Acquired loans with
deteriorated credit quality															$	11,481

Ending Loans and Leases by
Impairment Methodology:
Individually evaluated for
impairment	$	118,275		$	6,683	$	103,221		$	281		$	228,460
Collectively evaluated for
impairment	5,768,694			1,101,553		7,979,457			382,190			15,231,894
Acquired loans with
deteriorated credit quality															$	96,335
Ending balance	$	5,886,969		$	1,108,236	$	8,082,678		$	382,471		$	15,460,354		$	96,335		$	15,556,689

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



	Three Months Ended March 31, 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	(737		)	—			(4,045		)	(591		)	(5,373		)	(163		)	(5,536		)
Recoveries	999			152			314			16			1,481			—			1,481
Provision (negative provision)	(7,817		)	(413		)	26,606			789			19,165			140			19,305
Balance, end of period	$	29,099		$	6,876		$	83,957		$	875		$	120,807		$	9,554		$	130,361

Ending Allowance by
Impairment Methodology:
Individually evaluated for
impairment	$	1,954		$	21		$	27,902		$	163		$	30,040
Collectively evaluated for
impairment	$	27,145		$	6,855		$	56,055		$	712		$	90,767
Acquired loans with
deteriorated credit quality																$	9,554

Ending Loans and Leases by
Impairment Methodology:
Individually evaluated for
impairment	$	90,830		$	7,945		$	96,614		$	1,102		$	196,491
Collectively evaluated for
impairment	5,539,467			567,528			7,893,955			109,520			14,110,470
Acquired loans with
deteriorated credit quality																$	176,556
Ending balance	$	5,630,297		$	575,473		$	7,990,569		$	110,622		$	14,306,961		$	176,556		$	14,483,517

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5. FORECLOSED ASSETS

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



	March 31,		December 31,
Property Type	2017		2016
	(In thousands)
Construction and land development	$	11,224	$	11,224
Multi‑family	601		652
Commercial real estate	78		—
Total other real estate owned, net	11,903		11,876
Other foreclosed assets	939		1,100
Total foreclosed assets, net	$	12,842	$	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
Foreclosures	78
Reductions related to sales	(212		)
Balance, March 31, 2017	$	12,842

NOTE 6. BORROWINGS AND SUBORDINATED DEBENTURES

Borrowings

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



	March 31, 2017				December 31, 2016
			Weighted				Weighted
			Average				Average
	Amount		Rate		Amount		Rate
	(Dollars in thousands)
Non‑recourse debt	$	609	6.58	%	$	812	6.41	%
FHLB secured advances	290,000		0.80	%	735,000		0.59	%
FHLB unsecured overnight advance	130,000		0.81	%	130,000		0.55	%
American Financial Exchange borrowings	40,000		1.05	%	40,000		0.81	%
Total borrowings	$	460,609			$	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 March 31, 2017, this debt had a weighted average remaining maturity of 2.0 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 March 31, 2017 of $2.7 billion, collateralized by a blanket lien on $3.9 billion of certain qualifying loans not pledged to the FRBSF. As of March 31, 2017, the balance outstanding was a $290.0 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.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of March 31, 2017, the Bank had secured borrowing capacity of $2.2 billion collateralized by liens covering $3.0 billion of certain qualifying loans. As of March 31, 2017 and December 31, 2016, there were no balances outstanding.

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

Federal Funds Arrangements with Commercial Banks. As of March 31, 2017, the Bank had unsecured lines of credit of $80.0 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 March 31, 2017 and December 31, 2016, there were no balances outstanding. The Bank is a member of the American Financial Exchange, 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 March 31, 2017, the balance outstanding was $40.0 million, which consisted of a $36.0 million overnight borrowing and a total of $4.0 million in two separate one-month borrowings, comprised of $2.0 million with an April 17, 2017 maturity date and another $2.0 million with an April 28, 2017 maturity date. 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 an January 20, 2017 maturity date.

Subordinated Debentures

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



	March 31, 2017					December 31, 2016					Date	Maturity	Rate Index
Series	Amount			Rate		Amount			Rate		Issued	Date	(Quarterly Reset)
	(Dollars in thousands)
Trust V	$	10,310		4.25	%	$	10,310		4.09	%	8/15/2003	9/17/2033	3 month LIBOR + 3.10
Trust VI	10,310			4.18	%	10,310			4.01	%	9/3/2003	9/15/2033	3 month LIBOR + 3.05
Trust CII	5,155			4.10	%	5,155			3.95	%	9/17/2003	9/17/2033	3 month LIBOR + 2.95
Trust VII	61,856			3.79	%	61,856			3.64	%	2/5/2004	4/23/2034	3 month LIBOR + 2.75
Trust CIII	20,619			2.82	%	20,619			2.65	%	8/15/2005	9/15/2035	3 month LIBOR + 1.69
Trust FCCI	16,495			2.73	%	16,495			2.56	%	1/25/2007	3/15/2037	3 month LIBOR + 1.60
Trust FCBI	10,310			2.68	%	10,310			2.51	%	9/30/2005	12/15/2035	3 month LIBOR + 1.55
Trust CS 2005-1	82,475			3.08	%	82,475			2.91	%	11/21/2005	12/15/2035	3 month LIBOR + 1.95
Trust CS 2005-2	128,866			2.99	%	128,866			2.84	%	12/14/2005	1/30/2036	3 month LIBOR + 1.95
Trust CS 2006-1	51,545			2.99	%	51,545			2.84	%	2/22/2006	4/30/2036	3 month LIBOR + 1.95
Trust CS 2006-2	51,550			2.99	%	51,550			2.84	%	9/27/2006	10/30/2036	3 month LIBOR + 1.95
Trust CS 2006-3 ⁽¹⁾	27,572			1.72	%	27,185			1.74	%	9/29/2006	10/30/2036	3 month EURIBOR + 2.05
Trust CS 2006-4	16,470			2.99	%	16,470			2.84	%	12/5/2006	1/30/2037	3 month LIBOR + 1.95
Trust CS 2006-5	6,650			2.99	%	6,650			2.84	%	12/19/2006	1/30/2037	3 month LIBOR + 1.95
Trust CS 2007-2	39,177			2.99	%	39,177			2.84	%	6/13/2007	7/30/2037	3 month LIBOR + 1.95
Gross subordinated debentures	539,360					538,973
Unamortized discount ⁽²⁾	(96,844		)			(98,229		)
Net subordinated debentures	$	442,516				$	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:



	March 31,		December 31,
	2017		2016
	(In thousands)
Loan commitments to extend credit	$	4,497,373	$	4,166,703
Standby letters of credit	221,718		211,398
	$	4,719,091	$	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.

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 March 31, 2017 and December 31, 2016, we had commitments to contribute capital to these entities totaling $31.7 million and $26.6 million. We also had commitments to contribute up to an additional $2.4 million and $2.8 million to private equity funds at March 31, 2017 and December 31, 2016. In addition, at March 31, 2017, we had a commitment to purchase approximately $6.8 million of loans that terminates in June 2017. The amount purchased will be based, in part, on the amount of portfolio paydowns which occur during the commitment period.

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 is conducting 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. We understand that the investigation is focused on whether any civil or criminal laws were violated by FCB or its employees. Pacific Western is cooperating with the investigation.

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
	March 31, 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	$	474,556	$	—	$	474,556	$	—
Agency CMOs	138,932		—		138,932		—
Private label CMOs	149,400		—		104,119		45,281
Municipal securities	1,483,281		—		1,483,281		—
Agency commercial MBS	712,071		—		712,071		—
Corporate debt securities	18,211		—		18,211		—
Collateralized loan obligations	127,973		—		127,973		—
SBA securities	168,334		—		168,334		—
Asset-backed and other securities	64,234		1,960		54,398		7,876
Total securities available-for-sale	3,336,992		1,960		3,281,875		53,157
Derivative assets	427		—		427		—
Equity warrants	5,368		—		—		5,368
Total recurring assets	$	3,342,787	$	1,960	$	3,282,302	$	58,525
Derivative liabilities	$	3,295	$	—	$	3,295	$	—

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
Derivative assets	694		—		694		—
Equity warrants	5,497		—		—		5,497
Total recurring assets	$	3,230,021	$	2,080	$	3,157,169	$	70,772
Derivative liabilities	$	3,285	$	—	$	3,285	$	—

During the three months ended March 31, 2017, there were no transfers of assets between Level 1 and Level 2, and no transfers in or out of Level 3 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:



	March 31, 2017
	Private Label CMOs		Asset-Backed Securities (1)
		Weighted		Weighted
	Range	Average	Range	Average
Unobservable Inputs	of Inputs	Input	of Inputs	Input
Voluntary annual prepayment speeds	2.4% - 32.6%	8.8%	5% - 5%	5.0%
Annual default rates	0% - 14.5%	2.3%	1% - 1%	1.0%
Loss severity rates	0% - 92.9%	41.0%	15% - 15%	15.0%
Discount rates	0% - 10.3%	4.4%	3.5% - 3.5%	3.5%

_________________________________


(1)	There was only one asset-backed security at March 31, 2017.

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:



	March 31, 2017
	Equity Warrants
	Weighted
	Average
Unobservable Inputs	Input
Volatility	17.8%
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	1,063			25			155
Total included in other comprehensive income	(534		)	(42		)	—
Sales	(4,732		)	—			(518		)
Issuances	—			—			234
Net settlements	(7,418		)	(480		)	—
Balance, March 31, 2017	$	45,281		$	7,876		$	5,368

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



	Fair Value Measurement as of
	March 31, 2017
Measured on a Non‑Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired Non‑PCI loans	$	73,047	$	—	$	—	$	73,047



	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
Losses on Assets	March 31,
Measured on a Non‑Recurring Basis	2017		2016
	(In thousands)
Impaired Non‑PCI loans	$	13,617	$	12,909

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:

March 31, 2017

Valuation

Unobservable

Weighted

Asset

Fair Value

Technique

Inputs

Range

Average

(In thousands)

Impaired Non-PCI loans

65,114

Discounted cash flows

Discount rates

0% - 8.75%

6.60%

7,933

Third party appraisals

No discounts

Total non-recurring Level 3

73,047

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 a summary of the carrying values and estimated fair values of certain financial instruments as of the dates indicated:



	March 31, 2017
	Carrying or
	Contract		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	184,608	$	184,608	$	184,608	$	—	$	—
Interest‑earning deposits in financial institutions	111,892		111,892		111,892		—		—
Securities available‑for‑sale	3,336,992		3,336,992		1,960		3,281,875		53,157
Investment in FHLB stock	17,901		17,901		—		17,901		—
Investments carried at cost	1,175		12,412		—		—		12,412
Loans and leases, net	15,395,382		15,526,920		—		—		15,526,920
Derivative assets	427		427		—		427		—
Equity warrants	5,368		5,368		—		—		5,368

Financial Liabilities:
Deposits:
Demand, money market, interest checking,
and savings deposits	13,923,143		13,923,143		—		13,923,143		—
Time deposits	2,407,865		2,399,793		—		2,399,793		—
Borrowings	460,609		460,627		456,000		4,627		—
Subordinated debentures	442,516		425,914		—		425,914		—
Derivative liabilities	3,295		3,295		—		3,295		—

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



	December 31, 2016
	Carrying or
	Contract		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, net	15,298,716		15,494,808		—		1,661		15,493,147
Derivative assets	694		694		—		694		—
Equity warrants	5,497		5,497		—		—		5,497

Financial Liabilities:
Deposits:
Demand, money market, interest checking,
and savings deposits	13,698,321		13,698,321		—		13,698,321		—
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 March 31, 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
	March 31,			December 31,			March 31,
	2017			2016			2016
	(Dollars in thousands, except per share data)
Basic Earnings Per Share:
Net earnings	$	78,668		$	85,647		$	90,456
Less: Earnings allocated to unvested restricted stock⁽¹⁾	(999		)	(1,004		)	(1,067		)
Net earnings allocated to common shares	$	77,669		$	84,643		$	89,389

Weighted-average basic shares and unvested restricted
stock outstanding	121,346			121,464			121,598
Less: Weighted-average unvested restricted stock
outstanding	(1,503		)	(1,450		)	(1,392		)
Weighted-average basic shares outstanding	119,843			120,014			120,206

Basic earnings per share	$	0.65		$	0.71		$	0.74

Diluted Earnings Per Share:
Net earnings allocated to common shares	$	77,669		$	84,643		$	89,389

Weighted-average basic shares outstanding	119,843			120,014			120,206

Diluted earnings per share	$	0.65		$	0.71		$	0.74

________________________


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

NOTE 10. STOCK-BASED COMPENSATION

The Company’s 2003 Stock Incentive Plan as amended and restated, or the 2003 Plan, permits stock-based compensation awards to officers, directors, key employees and consultants. As of March 31, 2017, the 2003 Plan authorized grants of stock‑based compensation instruments to purchase or issue up to 19,686,565 shares of Company common stock, subject to adjustments provided by the 2003 Plan. As of March 31, 2017, there were 12,148,677 shares available for grant under the 2003 Plan.

Restricted Stock

Restricted stock amortization totaled $6.5 million, $6.1 million, and $5.0 million for the three months ended March 31, 2017, December 31, 2016 and March 31, 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 March 31, 2017 totaled $52.8 million.

Time-Based Restricted Stock Awards

At March 31, 2017, there were 1,537,717 shares of unvested TRSAs outstanding. 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 March 31, 2017, there were 239,025 units of 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 Plan until they vest. PRSUs are granted and initially expensed based on a target number. The number of awards 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. 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. 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.

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, while earlier application is permitted only for annual and interim periods beginning after December 31, 2016. The Company has completed the assessment phase of implementing this new standard. In the assessment phase, the Company determined which revenue streams are within the scope and those that are excluded from the scope of the new standard. Substantially all of the Company's revenues are excluded from the scope of the new standard. For the revenue streams determined to be within the scope of the new standard, the Company examined a sample of customer contracts to determine the appropriate accounting for those contracts under the new standard. The Company is currently evaluating the need for any accounting or operational changes related to implementing the requirements of the new standard. The Company will use the modified retrospective transition method and does not expect the provisions of ASU 2014-09 to have a material impact on its consolidated financial position or results of operations. 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 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 is evaluating the effect that ASU 2016-02 will have on its financial statements and related disclosures.

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 impairment of many financial assets. Currently, the 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 is reviewing software options to assist in meeting the requirements of ASU-2016-13. The Company is developing an implementation plan and is planning to engage a third-party vendor and commence early-stage model development in 2017. 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.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires entities to recognize at the transaction date the income tax consequences of intercompany asset transfers other than inventory. ASU 2016-16 is effective for interim and annual periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, but only at the beginning of an annual period for which no financial statements (interim or annual) have already been issued or made available for issuance. The Company is evaluating the effect that ASU 2016-16 will have on its financial statements and related disclosures.

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.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 12. SUBSEQUENT EVENTS

CU Bancorp Merger Announcement

On April 6, 2017, PacWest announced the signing of a definitive agreement and plan of merger (the "Agreement") whereby PacWest will acquire CU Bancorp in a transaction valued at approximately $705 million.

CU Bancorp, headquartered in Los Angeles, California, is the parent of California United Bank, a California state-chartered non-member bank, with approximately $3.0 billion in assets and nine branches located in Los Angeles, Orange, Ventura, and San Bernardino counties at December 31, 2016. In connection with the transaction, California United Bank will be merged into Pacific Western Bank, the principal operating subsidiary of PacWest Bancorp.

The transaction, which was approved by the PacWest and CU Bancorp boards of directors, is expected to close in the fourth quarter of 2017 and is subject to customary closing conditions, including obtaining approval by CU Bancorp’s shareholders and bank regulatory authorities.

As of December 31, 2016, on a pro forma consolidated basis, the combined company would have approximately $25.0 billion in assets and 87 branches, prior to contemplated consolidations.

Under terms of the Agreement, CU Bancorp shareholders will receive 0.5308 shares of PacWest common stock and $12.00 in cash for each share of CU Bancorp. Based on PacWest’s April 5, 2017 closing price of $51.72, the total value of the merger consideration is $39.45 per CU Bancorp share.

Common Stock Dividends

On May 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 May 31, 2017 to stockholders of record at the close of business on May 22, 2017.

We have evaluated events that have occurred subsequent to March 31, 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 pending acquisition of CU Bancorp, 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, including the pending CU Bancorp acquisition, and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;


•	our ability to obtain regulatory approvals and meet other closing conditions to the pending CU Bancorp acquisition on the expected terms and schedule;


•	changes in our stock price before completion of the pending CU Bancorp acquisition, including as a result of the financial performance of the Company or CU Bancorp prior to closing;


•	the reaction to the pending CU Bancorp 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;


•	changes in 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. 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 86.9% of our net revenues (net interest income plus noninterest income).

At March 31, 2017, we had total assets of $21.9 billion, including $15.6 billion of loans and leases, net of deferred fees, compared to $21.9 billion of total assets, including $15.5 billion of loans and leases, net of deferred fees, at December 31, 2016. Total assets increased $57.5 million during the three months ended March 31, 2017 due to a $100.7 million increase in loans and leases, net of deferred fees, driven by new production, and a $113.2 million increase in securities available-for-sale due to purchases, offset partially by a decrease of $123.2 million in cash and cash equivalents.

At March 31, 2017, we had total liabilities of $17.4 billion, including total deposits of $16.3 billion and borrowings of $460.6 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 $28.4 million increase in total liabilities since year-end was due to a $245.2 million increase in lower-cost core deposits and a $235.6 million increase in higher-cost time deposits, offset partially by a $445.2 million decrease in borrowings, primarily overnight FHLB advances, and a $20.4 million decrease in brokered non-maturity deposits. At March 31, 2017, core deposits totaled $12.8 billion, or 78% of total deposits, and time deposits totaled $2.4 billion, or 15% of total deposits.

Recent Events

CU Bancorp Merger Announcement

As of December 31, 2016, on a pro forma consolidated basis, the combined company would have approximately $25.0 billion in assets and 87 branches, prior to contemplated consolidations.

Sale/Leaseback Transaction

In the first quarter of 2017, the Company sold four properties with an aggregate book value of $9.7 million to an unaffiliated 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 income on certain 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
		March 31,			December 31,			March 31,
Efficiency Ratio		2017			2016			2016
		(Dollars in thousands)
Noninterest expense		$	116,544		$	118,622		$	110,688
Less:	Intangible asset amortization	3,064			3,176			4,746
	Foreclosed assets (income) expense, net	143			2,693			(561		)
	Acquisition, integration, and reorganization costs	500			—			200
Noninterest expense used for efficiency ratio		$	112,837		$	112,753		$	106,303

Net interest income (tax equivalent)		$	237,235		$	253,131		$	249,540
Noninterest income		35,114			28,895			34,539
Net revenues		272,349			282,026			284,079
Less:	Gain (loss) on sale of securities	(99		)	515			8,110
Net revenues used for efficiency ratio		$	272,448		$	281,511		$	275,969

Efficiency ratio		41.4		%	40.1		%	38.5		%

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:

•

Net interest margin excluding acquired loan discount accretion and loan and lease yield excluding acquired loan discount accretion: The tax equivalent NIM and loan and lease yield are impacted by volatility in accretion of acquisition discounts on acquired loans and leases. We disclose the NIM excluding acquired loan discount accretion and loan and lease yield excluding acquired loan discount accretion to provide an indication of what these measures would be without the effects of acquired loan discount accretion as we believe this indicates a "normalized" measure and a more accurate indicator of future performance. See “- Results of Operations - Net Interest Income” for a reconciliation of these non-GAAP measurements to the GAAP measurements for the periods presented.

•

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 reconciliation of these non-GAAP measurements to the GAAP measurements is presented in the following tables for and as of the periods presented:



		Three Months Ended
		March 31,			December 31,			March 31,
Return on Average Tangible Equity		2017			2016			2016
		(Dollars in thousands)
Net earnings		$	78,668		$	85,647		$	90,456

Average stockholders' equity		$	4,503,675		$	4,501,948		$	4,438,602
Less:	Average intangible assets	2,209,112			2,212,042			2,227,520
Average tangible common equity		$	2,294,563		$	2,289,906		$	2,211,082

Return on average equity ⁽¹⁾		7.08		%	7.57		%	8.20		%
Return on average tangible equity ⁽²⁾		13.90		%	14.88		%	16.45		%

___________________________________


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


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



Tangible Common Equity Ratio/	March 31,			December 31,
Tangible Book Value Per Share	2017			2016
	(Dollars in thousands, except per share data)
PacWest Bancorp Consolidated:
Stockholders’ equity	$	4,508,106		$	4,479,055
Less: Intangible assets	2,207,251			2,210,315
Tangible common equity	$	2,300,855		$	2,268,740
Total assets	$	21,927,254		$	21,869,767
Less: Intangible assets	2,207,251			2,210,315
Tangible assets	$	19,720,003		$	19,659,452
Equity to assets ratio	20.56		%	20.48		%
Tangible common equity ratio⁽¹⁾	11.67		%	11.54		%
Book value per share	$	37.13		$	36.93
Tangible book value per share	$	18.95		$	18.71
Shares outstanding	121,408,133			121,283,669

Pacific Western Bank:
Stockholder's equity	$	4,405,770		$	4,374,478
Less: Intangible assets	2,207,251			2,210,315
Tangible common equity	$	2,198,519		$	2,164,163
Total assets	$	21,910,720		$	21,848,644
Less: Intangible assets	2,207,251			2,210,315
Tangible assets	$	19,703,469		$	19,638,329
Equity to assets ratio	20.11		%	20.02		%
Tangible common equity ratio⁽¹⁾	11.16		%	11.02		%

_______________________________________


(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
	March 31,			December 31,			March 31,
Performance Measures	2017			2016			2016
Diluted earnings per share	$	0.65		$	0.71		$	0.74
Annualized return on:
Average assets	1.47		%	1.59		%	1.72		%
Average tangible equity ⁽¹⁾⁽²⁾	13.90		%	14.88		%	16.45		%
Net interest margin (tax equivalent)	5.16		%	5.47		%	5.53		%
Net interest margin (tax equivalent) excluding
acquired loan discount accretion ⁽²⁾	5.02		%	5.01		%	4.91		%
Efficiency ratio	41.4		%	40.1		%	38.5		%

_____________________________


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


(2)	See "Non-GAAP Measurements."

First Quarter of 2017 Compared to Fourth Quarter of 2016

Net earnings were $78.7 million, or $0.65 per diluted share, for the first quarter of 2017, compared to $85.6 million, or $0.71 per diluted share, for the fourth quarter of 2016. The quarter‑over‑quarter decrease of $7.0 million in net earnings was due to lower net interest income of $15.9 million and a higher provision for credit losses of $1.5 million, offset by higher noninterest income of $6.2 million and lower noninterest expense of $2.1 million. The decrease in net interest income was due to lower discount accretion on acquired loans, offset by a higher average loan and lease balance. The decrease in accretion was due primarily to lower accelerated accretion from payoffs of acquired loans, including $13.5 million from the payoff of a nonaccrual PCI loan in the fourth quarter of 2016. The level of provision for credit losses for the first quarter of 2017 was mainly attributable to specific provisions for impaired loans and general provisions from increased general reserve loss factors which are influenced by net charge-off experience. The increase in noninterest income was due mainly to a $5.0 million legal settlement with a former borrower and a $1.2 million increase in loan syndication fees, offset by lower loan prepayment fees. The decrease in noninterest expense was due mostly to lower foreclosed assets expense.

First Quarter of 2017 Compared to First Quarter of 2016

Net earnings for the first quarter of 2017 were $78.7 million, or $0.65 per diluted share, compared to net earnings for the first quarter of 2016 of $90.5 million, or $0.74 per diluted share. The $11.8 million decrease in net earnings was due to lower net interest income of $12.1 million, a higher provision for credit losses of $4.6 million, and higher noninterest expense of $5.9 million. The decrease in net interest income was due to lower discount accretion on acquired loans, offset by a higher average loan and lease balance. 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 level of provision for credit losses for the first quarter of 2017 was mainly attributable to specific provisions for impaired loans and general provisions from increased general reserve loss factors which are influenced by net charge-off experience. The increase in noninterest expense was due mostly to higher compensation expense, data processing expense and other expense.

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
	March 31, 2017						December 31, 2016						March 31, 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	$	89,335	$	4,250	19.29	%	$	104,234	$	17,481	66.72	%	$	167,626	$	20,072	48.16	%
Non-PCI loans and leases	15,207,709		219,928		5.86	%	14,904,034		220,742		5.89	%	14,303,539		216,303		6.08	%
Total loans and leases ⁽¹⁾	15,297,044		224,178		5.94	%	15,008,268		238,223		6.31	%	14,471,165		236,375		6.57	%
Investment securities ⁽²⁾	3,257,448		27,822		3.46	%	3,293,003		28,229		3.41	%	3,460,293		27,493		3.20	%
Deposits in financial institutions	100,751		192		0.77	%	111,918		147		0.52	%	230,293		308		0.54	%
Total interest‑earning assets ⁽²⁾	18,655,243		252,192		5.48	%	18,413,189		266,599		5.76	%	18,161,751		264,176		5.85	%
Other assets	2,990,291						3,014,761						3,036,843
Total assets	$	21,645,534					$	21,427,950					$	21,198,594

LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking deposits	$	1,505,439	1,167		0.31	%	$	1,449,346	951		0.26	%	$	926,256	383		0.17	%
Money market deposits	4,866,720		4,410		0.37	%	4,740,944		3,672		0.31	%	3,848,753		2,415		0.25	%
Savings deposits	711,529		298		0.17	%	751,817		331		0.18	%	753,371		444		0.24	%
Time deposits	2,246,547		2,502		0.45	%	2,384,973		2,415		0.40	%	3,860,272		5,831		0.61	%
Total interest‑bearing deposits	9,330,235		8,377		0.36	%	9,327,080		7,369		0.31	%	9,388,652		9,073		0.39	%
Borrowings	596,903		1,018		0.69	%	505,567		631		0.50	%	494,725		581		0.47	%
Subordinated debentures	441,521		5,562		5.11	%	440,907		5,468		4.93	%	436,535		4,982		4.59	%
Total interest‑bearing liabilities	10,368,659		14,957		0.59	%	10,273,554		13,468		0.52	%	10,319,912		14,636		0.57	%
Noninterest‑bearing demand deposits	6,595,346						6,496,221						6,273,249
Other liabilities	177,854						156,227						166,831
Total liabilities	17,141,859						16,926,002						16,759,992
Stockholders’ equity	4,503,675						4,501,948						4,438,602
Total liabilities and
stockholders' equity	$	21,645,534					$	21,427,950					$	21,198,594
Net interest income (tax equivalent) ⁽²⁾			$	237,235					$	253,131					$	249,540
Net interest rate spread					4.89	%					5.24	%					5.28	%
Net interest margin					5.16	%					5.47	%					5.53	%

Total deposits ⁽³⁾	$	15,925,581	$	8,377	0.21	%	$	15,823,301	$	7,369	0.19	%	$	15,661,901	$	9,073	0.23	%
Funding sources ⁽⁴⁾	$	16,964,005	$	14,957	0.36	%	$	16,769,775	$	13,468	0.32	%	$	16,593,161	$	14,636	0.35	%

_____________________


(1)	Includes nonaccrual loans and leases and loan fees.


(2)	Includes tax-equivalent adjustments of $4.8 million, $4.8 million, and $4.9 million for the three months ended March 31, 2017, December 31, 2016, and March 31, 2016, respectively, related to tax-exempt income 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.

First Quarter of 2017 Compared to Fourth Quarter of 2016

Net interest income decreased by $15.9 million to $232.5 million for the first quarter of 2017 compared to $248.3 million for the fourth quarter of 2016 due to lower discount accretion on acquired loans, offset by a higher average loan and lease balance. The loan and lease yield for the first quarter of 2017 was 5.94% compared to 6.31% for the fourth quarter of 2016. The decrease in the loan and lease yield was principally due to the lower discount accretion on acquired loans. Total discount accretion on acquired loans was $6.4 million in the first quarter of 2017 (17 basis points on the loan and lease yield) compared to $21.2 million in the fourth quarter of 2016 (56 basis points on the loan and lease yield). The decrease in accretion was due primarily to lower accelerated accretion from payoffs of acquired loans, including $13.5 million from the payoff of a nonaccrual PCI loan in the fourth quarter of 2016.

The tax equivalent NIM for the first quarter of 2017 was 5.16% compared to 5.47% for the fourth quarter of 2016. The decrease in the tax equivalent NIM was due mostly to lower discount accretion on acquired loans. Total discount accretion on acquired loans contributed 14 basis points to the NIM in the first quarter of 2017 and 46 basis points in the fourth quarter of 2016. The taxable equivalent adjustment for tax-exempt interest income contributed 10 points to the tax equivalent NIM for the first quarter of 2017 and fourth quarter of 2016.

The cost of total deposits increased to 0.21% in the first quarter of 2017 from 0.19% in the fourth quarter of 2016 due to higher average costs and balances of non-core interest-bearing deposits.

The tax equivalent net interest income and NIM as well as the loan and lease interest income and loan and lease yield are impacted by volatility in accretion of acquisition discounts on acquired loans and leases. The effects of this are shown in the following tables for the periods indicated:



	Three Months Ended					Three Months Ended
	March 31, 2017					December 31, 2016
				Impact on					Impact on
	Amount			NIM		Amount			NIM
	(Dollars in thousands)
Net interest income/NIM (tax equivalent)	$	237,235		5.16	%	$	253,131		5.47	%
Less:
Accelerated accretion of acquisition discounts
from early payoffs of acquired loans	(2,944		)	(0.06	)%	(17,454		)	(0.38	)%
Remaining accretion of Non-PCI loan acquisition discounts	(3,505		)	(0.08	)%	(3,726		)	(0.08	)%
Total acquired loan discount accretion	(6,449		)	(0.14	)%	(21,180		)	(0.46	)%
Net interest income/NIM excluding total acquired
loan discount accretion ⁽¹⁾	$	230,786		5.02	%	$	231,951		5.01	%

__________________________________


(1)	See "Non-GAAP Measurements."



	Three Months Ended					Three Months Ended
	March 31, 2017					December 31, 2016
				Impact on					Impact on
				Loan and					Loan and
	Amount			Lease Yield		Amount			Lease Yield
	(Dollars in thousands)
Loan and lease interest income/Yield	$	224,178		5.94	%	$	238,223		6.31	%
Less:
Accelerated accretion of acquisition discounts
from early payoffs of acquired loans	(2,944		)	(0.08	)%	(17,454		)	(0.46	)%
Remaining accretion of Non-PCI loan acquisition discounts	(3,505		)	(0.09	)%	(3,726		)	(0.10	)%
Total acquired loan discount accretion	(6,449		)	(0.17	)%	(21,180		)	(0.56	)%
Loan and lease interest income/Yield excluding total
acquired loan discount accretion ⁽¹⁾	$	217,729		5.77	%	$	217,043		5.75	%

__________________________________


(1)	See "Non-GAAP Measurements."

First Quarter of 2017 Compared to First Quarter of 2016

Net interest income decreased by $12.1 million to $232.5 million for the first quarter of 2017 compared to $244.6 million for the first quarter of 2016 due to lower discount accretion on acquired loans, offset by a higher average loan and lease balance. The loan and lease yield for the first quarter of 2017 was 5.94% compared to 6.57% for the same quarter of 2016. The decrease in the loan and lease yield was due mainly to the lower discount accretion on acquired loans and yields on newly originated loans being lower than the average portfolio yield. Total discount accretion on acquired loans was $6.4 million in the first quarter of 2017 (17 basis points on the loan and lease yield) compared to $27.9 million in the first quarter of 2016 (77 basis points on the loan and lease yield). The 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 first quarter of 2017 was 5.16% compared to 5.53% for the same quarter last year. The decrease in the tax equivalent NIM was due mostly to the decrease in the loan and lease yield as described above, offset by the higher yield on average investment securities and loans and leases comprising a higher percentage of average interest-earning assets. Total discount accretion on acquired loans contributed 14 basis points to the NIM for the first quarter of 2017 compared to 62 basis points for the first quarter of 2016. Tax-exempt interest income contributed 10 basis points to the tax equivalent NIM for the first quarter of 2017 and 11 basis points for the first quarter of 2016.

The cost of total deposits decreased to 0.21% for the first quarter of 2017 from 0.23% for the first quarter of 2016 due mainly to a lower average cost and balance of time deposits.



	Three Months Ended					Three Months Ended
	March 31, 2017					March 31, 2016
				Impact on					Impact on
	Amount			NIM		Amount			NIM
	(Dollars in thousands)
Net interest income/NIM (tax equivalent)	$	237,235		5.16	%	$	249,540		5.53	%
Less:
Accelerated accretion of acquisition discounts
from early payoffs of acquired loans	(2,944		)	(0.06	)%	(19,465		)	(0.43	)%
Remaining accretion of Non-PCI loan acquisition discounts	(3,505		)	(0.08	)%	(8,403		)	(0.19	)%
Total acquired loan discount accretion	(6,449		)	(0.14	)%	(27,868		)	(0.62	)%
Net interest income/NIM excluding total acquired
loan discount accretion ⁽¹⁾	$	230,786		5.02	%	$	221,672		4.91	%

__________________________________


(1)	See "Non-GAAP Measurements."



	Three Months Ended					Three Months Ended
	March 31, 2017					March 31, 2016
				Impact on					Impact on
				Loan and					Loan and
	Amount			Lease Yield		Amount			Lease Yield
	(Dollars in thousands)
Loan and lease interest income/Yield	$	224,178		5.94	%	$	236,375		6.57	%
Less:
Accelerated accretion of acquisition discounts
from early payoffs of acquired loans	(2,944		)	(0.08	)%	(19,465		)	(0.54	)%
Remaining accretion of Non-PCI loan acquisition discounts	(3,505		)	(0.09	)%	(8,403		)	(0.23	)%
Total acquired loan discount accretion	(6,449		)	(0.17	)%	(27,868		)	(0.77	)%
Loan and lease interest income/Yield excluding total
acquired loan discount accretion ⁽¹⁾	$	217,729		5.77	%	$	208,507		5.80	%

__________________________________


(1)	See "Non-GAAP Measurements."

Provision for Credit Losses

The following table sets forth the details of the provision for credit losses and allowance for credit losses data for the periods indicated:



	Three Months Ended
	March 31,			December 31,			March 31,
	2017			2016			2016
	(Dollars in thousands)
Provision For Credit Losses:
Addition to allowance for Non‑PCI loan and lease losses	$	24,260		$	20,800		$	19,165
Addition to reserve for unfunded loan commitments	240			200			835
Total provision for Non‑PCI loan and lease credit losses	24,500			21,000			20,000
Provision for PCI loan losses	228			2,215			140
Total provision for credit losses	$	24,728		$	23,215		$	20,140

Non‑PCI Credit Quality Metrics:
Net charge‑offs on Non-PCI
loans and leases	$	18,189		$	13,792		$	3,892
Annualized net charge‑offs to
average Non-PCI loans and leases	0.49		%	0.37		%	0.11		%
At period end:
Allowance for credit losses	167,589			161,278			120,807
Non‑PCI nonaccrual loans and leases	173,030			170,599			130,418
Non‑PCI classified loans and leases	424,399			409,645			384,698
Allowance for credit losses to Non‑PCI
loans and leases	1.08		%	1.05		%	0.96		%
Allowance for credit losses to Non‑PCI
nonaccrual loans and leases	96.9		%	94.5		%	106.1		%

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 and a provision for credit losses on our PCI loans. The provision for credit losses on our Non‑PCI loans and leases is based on our allowance methodology and is an expense, or contra‑expense, that, in our judgment, is required to maintain an adequate allowance for credit losses. Our allowance methodology uses our actual historical loan and lease charge-off experience on pools of similar loans and leases, considers the current credit risk ratings, giving greater weight to loans with more adverse credit risk ratings, and considers qualitative criteria such as current economic trends and forecasts, current commercial real estate values and performance trends, and the loan portfolio credit performance trends. The provision for credit losses on our PCI loans results from decreases or increases in expected cash flows on such loans compared to those previously estimated.

We recorded a total provision for credit losses of $24.7 million in the first quarter of 2017, $23.2 million in the fourth quarter of 2016, and $20.1 million in the first quarter of 2016 in accordance with our allowance methodology. The increase in the provision for credit losses for the first quarter of 2017 compared to the fourth quarter of 2016 was attributable mainly to specific provisions for impaired loans that were classified or impaired at December 31, 2016 and general provisions from increased general reserve loss factors which are influenced by net charge-off experience.

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 “- Balance Sheet Analysis - Allowance for Loan Losses on PCI Loans” contained herein.

Noninterest Income

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



	Three Months Ended
	March 31,			December 31,		March 31,
Noninterest Income	2017			2016		2016
	(In thousands)
Service charges on deposit accounts	$	3,758		$	3,557	$	3,856
Other commissions and fees	10,390			12,036		11,489
Leased equipment income	9,475			8,614		8,244
Gain on sale of loans and leases	712			119		245
Gain (loss) on sale of securities	(99		)	515		8,110
FDIC loss sharing expense, net	—			—		(2,415		)
Other income:
Dividends and realized gains on equity investments	1,345			1,453		246
Warrant income	155			1,101		274
Other	9,378			1,500		4,490
Total noninterest income	$	35,114		$	28,895	$	34,539

First Quarter of 2017 Compared to Fourth Quarter of 2016

Noninterest income increased by $6.2 million to $35.1 million for the first quarter of 2017 compared to $28.9 million for the fourth quarter of 2016 due mostly to a $7.9 million increase in other income attributable mainly to a $5.0 million legal settlement with a former borrower and a $1.2 million increase in loan syndication fees. This was offset by a decrease in other commissions and fees of $1.6 million driven by a decrease in loan prepayment and unused commitment fees of $2.0 million. Warrant income decreased $0.9 million due mainly to lower realized gains on exercised warrants.

First Quarter of 2017 Compared to First Quarter of 2016

Noninterest income increased by $0.6 million to $35.1 million for the first quarter of 2017 compared to $34.5 million for the first quarter of 2016 due mostly to higher other income of $4.9 million, lower FDIC loss sharing expense of $2.4 million, higher leased equipment income of $1.2 million, and higher dividends and realized gains on equity investments of $1.1 million, offset by lower gain on sale of securities of $8.2 million and lower other commissions and fees of $1.1 million. Regarding the increase in other income, the first quarter of 2017 included a $5.0 million legal settlement with a former borrower and $1.2 million in loan syndication fees, while the first quarter of 2016 included a $0.9 million loan syndication fee, a $0.6 million death benefit received on a BOLI policy, and a $0.7 million loss on the sale of the PWEF leasing unit. The decrease in FDIC loss sharing expense was due to the termination of all FDIC loss sharing agreements in the second quarter of 2016. Regarding the increase in dividends and realized gains on equity investments, the first quarter of 2017 included dividends received of $0.7 million and net gains of $0.6 million on the sale of equity investments, while the first quarter of 2016 included dividends received of $0.2 million and net gains of $0.1 million on the sale of equity investments. The $1.6 million decrease in other commissions and fees was comprised of reductions in loan prepayment penalty fees and unused commitment fees of $2.2 million and $0.4 million, respectively, offset by increases of $0.4 million from credit card fees, $0.4 million from foreign exchange fees, $0.4 million from letter of credit fees, and $0.3 million from customer success fees.

Noninterest Expense

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



	Three Months Ended
	March 31,		December 31,		March 31,
Noninterest Expense	2017		2016		2016
	(In thousands)
Compensation	$	64,880	$	66,013	$	61,065
Occupancy	11,608		12,076		12,632
Data processing	7,015		6,574		5,904
Other professional services	3,378		4,880		3,572
Insurance and assessments	4,791		4,124		4,965
Intangible asset amortization	3,064		3,176		4,746
Leased equipment depreciation	5,625		5,291		5,024
Foreclosed assets (income) expense, net	143		2,693		(561		)
Acquisition, integration and reorganization costs	500		—		200
Other expense:
Loan expense	3,387		3,140		2,155
Other	12,153		10,655		10,986
Total noninterest expense	$	116,544	$	118,622	$	110,688

First Quarter of 2017 Compared to Fourth Quarter of 2016

Noninterest expense decreased by $2.1 million to $116.5 million for the first quarter of 2017 compared to $118.6 million for the fourth quarter of 2016. The decrease was due mostly to a decrease in foreclosed assets expense of $2.6 million, a decrease in other professional services expense of $1.5 million, and a decrease in compensation expense of $1.1 million, offset by an increase in other expense of $1.5 million. Foreclosed assets expense decreased due primarily to a $2.6 million write-down recorded in the fourth quarter of 2016. Other professional services expense decreased due to lower legal expense and consulting expense. The $1.1 million reduction in compensation expense was attributable to lower bonus and severance expense, offset by a seasonal increase in payroll taxes. The increase in other expense was attributable mainly to a $1.5 million accrual in the first quarter of 2017 to increase our reserve for probable loss contingencies.

First Quarter of 2017 Compared to First Quarter of 2016

Noninterest expense increased by $5.9 million to $116.5 million for the first quarter of 2017 compared to $110.7 million for the first quarter of 2016. The increase was due mostly to higher compensation expense of $3.8 million, higher loan expense of $1.2 million, higher other expense of $1.2 million, and higher data processing expense of $1.1 million, offset by lower intangible asset amortization of $1.7 million and lower occupancy expense of $1.0 million. Compensation expensed increased due mainly to higher salary expense of $1.3 million, higher stock-based compensation expense of $1.4 million, and higher bonus expense of $1.1 million. Loan expense increased due to higher legal-related and other loan expenses and lower recoveries of legal costs, offset partially by higher fee income from servicing. Other expense increased due primarily to a $1.5 million accrual in the first quarter of 2017 to increase our reserve for probable loss contingencies. Intangible asset amortization decreased due mainly to the accelerated amortization taken in the prior year on our intangible assets, in particular the Square 1 CDI and CRI, in addition to the CDI related to a prior year acquisition that was nearly fully amortized in the first quarter of 2016.

Income Taxes

The effective tax rate for the first quarter of 2017 was 37.7% compared to 36.7% for the fourth quarter of 2016 and 39.0% for the first quarter of 2016. The estimated effective tax rate for the full year 2017 is approximately 38.1%. 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:



	March 31, 2017					December 31, 2016
	Fair		% of		Duration	Fair		% of		Duration
Security Type	Value		Total		(in years)	Value		Total		(in years)
	(Dollars in thousands)
Residential MBS and CMOs:
Agency MBS	$	474,556	14	%	3.0	$	502,443	16	%	3.4
Agency CMOs	138,932		4	%	2.6	146,289		4	%	3.0
Private label CMOs	149,400		5	%	5.2	125,469		4	%	3.5
Municipal securities	1,483,281		44	%	7.3	1,456,459		45	%	6.3
Agency commercial MBS	712,071		21	%	5.5	547,692		17	%	4.9
Corporate debt securities	18,211		1	%	11.7	47,509		1	%	4.9
Collateralized loan obligations	127,973		4	%	0.1	156,887		5	%	0.1
SBA securities	168,334		5	%	1.9	178,845		6	%	3.8
Asset-backed and other securities	64,234		2	%	3.7	62,237		2	%	3.5
Total securities available-for-sale	$	3,336,992	100	%	5.4	$	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:



	March 31, 2017
	Fair		% of
Municipal Securities by State	Value		Total
	(Dollars in thousands)
California	$	209,589	14	%
New York	176,888		12	%
Washington	161,703		11	%
Texas	113,815		8	%
Ohio	93,406		6	%
District of Columbia	64,596		4	%
Massachusetts	64,177		4	%
Florida	51,487		4	%
Oregon	49,516		3	%
Utah	44,689		3	%
Total of 10 largest states	1,029,866		69	%
All other states	453,415		31	%
Total municipal securities	$	1,483,281	100	%

Loans and Leases

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



	March 31, 2017				December 31, 2016
			% of				% of
	Amount		Total		Amount		Total
	(Dollars in thousands)
Real estate mortgage:
Healthcare real estate	$	953,740	6	%	$	955,477	6	%
Hospitality	688,908		5	%	689,158		4	%
SBA program	470,088		3	%	454,196		3	%
Other commercial real estate	2,308,187		15	%	2,297,865		15	%
Total commercial real estate	4,420,923		29	%	4,396,696		28	%
Income producing residential	1,427,409		9	%	1,169,267		8	%
Owner-occupied residential	127,537		1	%	144,769		1	%
Total residential real estate	1,554,946		10	%	1,314,036		9	%
Total real estate mortgage	5,975,869		39	%	5,710,732		37	%
Real estate construction and land:
Commercial	668,510		4	%	581,246		4	%
Residential	442,051		3	%	384,001		2	%
Total real estate construction and land	1,110,561		7	%	965,247		6	%
Total real estate loans	7,086,430		46	%	6,675,979		43	%
Commercial:
Technology cash flow	1,069,838		7	%	1,047,683		7	%
Security cash flow	516,149		3	%	440,340		3	%
Healthcare cash flow	740,638		5	%	799,030		5	%
Other cash flow	811,571		6	%	825,837		5	%
Total cash flow	3,138,196		21	%	3,112,890		20	%
Lender finance & timeshare	1,476,896		9	%	1,666,855		11	%
Healthcare asset-based	171,684		1	%	180,580		1	%
Other asset-based	742,581		5	%	764,361		5	%
Total asset-based	2,391,161		15	%	2,611,796		17	%
Equity funds group	261,695		2	%	325,047		2	%
Early stage	445,520		3	%	448,458		3	%
Expansion stage	940,877		6	%	920,006		6	%
Later stage	286,857		1	%	294,389		2	%
Total venture capital	1,934,949		12	%	1,987,900		13	%
Equipment finance	623,237		4	%	691,967		4	%
Total commercial	8,087,543		52	%	8,404,553		54	%
Consumer	382,716		2	%	375,422		3	%
Total loans and leases, net of deferred fees	$	15,556,689	100	%	$	15,455,954	100	%

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 by the top 10 states and all other states combined (in the order presented for the current quarter-end) as of the dates indicated:



	March 31, 2017				December 31, 2016
			% of				% of
Real Estate Loans by State	Amount		Total		Amount		Total
	(Dollars in thousands)
California	$	3,377,854	48	%	$	3,248,735	49	%
New York	566,475		8	%	524,833		8	%
Florida	506,688		7	%	478,984		7	%
Texas	316,055		4	%	364,689		5	%
Virginia	235,867		3	%	231,162		3	%
Arizona	189,826		3	%	166,499		3	%
Illinois	179,742		3	%	178,726		3	%
Pennsylvania	167,579		2	%	160,303		2	%
Washington	142,504		2	%	49,301		1	%
New Jersey	120,250		2	%	95,265		1	%
Total of 10 largest states	5,802,840		82	%	5,498,497		82	%
All other states	1,283,590		18	%	1,177,482		18	%
Total real estate loans	$	7,086,430	100	%	$	6,675,979	100	%

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



	Three Months Ended
Loan and Lease Roll Forward ⁽¹⁾	March 31, 2017
	(Dollars in thousands)
Beginning balance	$	15,455,954
New production	1,048,841
Existing loans and leases:
Principal repayments, net ⁽²⁾	(888,409		)
Loan and lease sales	(36,461		)
Transfers to foreclosed assets	(78		)
Charge-offs	(23,158		)
Ending balance	$	15,556,689

Weighted average rate on new production	4.91		%

_______________________________________


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


(2)	Includes principal repayments on existing loans, changes in revolving lines of credit (repayments and draws), loan participation sales, and other changes within the loan portfolio.

Allowance for Credit Losses on Non-PCI Loans and Leases

The allowance for credit losses on Non-PCI loans and leases 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" 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 contains 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.

The methodology we use to estimate the general reserve component of our allowance for credit losses considers both quantitative and qualitative criteria. The quantitative criteria uses our actual historical loan and lease charge-off experience on pools of similar loans and leases to establish loss factors that are applied to our current loan and lease balances to estimate inherent credit losses. When estimating the general reserve component for the various pools of similar loan types, the loss factors applied to the loan pools consider the current credit risk ratings, giving greater weight to loans with more adverse credit risk ratings. We recognize that the determination of the allowance for credit losses is sensitive to the assigned credit risk ratings and inherent loss rates at any given point in time. 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 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 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 as of the dates indicated:



	March 31,			December 31,			March 31,
Non-PCI Allowance for Credit Losses Data	2017			2016			2016
	(Dollars in thousands)
Allowance for loan and lease losses	$	149,826		$	143,755		$	120,807
Reserve for unfunded loan commitments	17,763			17,523			17,569
Total allowance for credit losses	$	167,589		$	161,278		$	138,376

Allowance for credit losses to loans and leases	1.08		%	1.05		%	0.96		%
Allowance for credit losses to nonaccrual loans and leases	96.9		%	94.5		%	106.1		%

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



	Three Months Ended
	March 31,			December 31,			March 31,
Non-PCI Allowance for Credit Losses	2017			2016			2016
	(Dollars in thousands)
Allowance for credit losses, beginning of period	$	161,278		$	154,070		$	122,268
Provision for credit losses:
Addition to allowance for loan and lease losses	24,260			20,800			19,165
Addition to reserve for unfunded loan commitments	240			200			835
Provision for credit losses	24,500			21,000			20,000
Loans and leases charged off:
Real estate mortgage	(1,544		)	(154		)	(737		)
Commercial	(19,285		)	(17,905		)	(4,045		)
Consumer	(99		)	(24		)	(591		)
Total loans and leases charged off	(20,928		)	(18,083		)	(5,373		)
Recoveries on loans charged off:
Real estate mortgage	230			167			999
Real estate construction and land	8			488			152
Commercial	2,448			3,614			314
Consumer	53			22			16
Total recoveries on loans charged off	2,739			4,291			1,481
Net charge-offs	(18,189		)	(13,792		)	(3,892		)
Allowance for credit losses, end of period	$	167,589		$	161,278		$	138,376

Annualized net charge-offs to
average loans and leases	0.49		%	0.37		%	0.11		%

Allowance for Loan Losses on PCI Loans

We measure the allowance for loan losses for PCI loans 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 for the periods indicated:



	Three Months Ended
	March 31,			December 31,		March 31,
PCI Allowance for Loan Losses	2017			2016		2016
	(In thousands)
Allowance for loan losses, beginning of period	$	13,483		$	11,229	$	9,577
Provision for loan losses	228			2,215		140
Net (charge-offs) recoveries	(2,230		)	39		(163		)
Allowance for loan losses, end of period	$	11,481		$	13,483	$	9,554

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:



	March 31,			December 31,			March 31,
	2017			2016			2016
	(Dollars in thousands)
Nonaccrual Non-PCI loans and leases	$	173,030		$	170,599		$	130,418
Nonaccrual PCI loans	2,404			2,928			3,241
Total nonaccrual loans and leases	175,434			173,527			133,659
Accruing Non-PCI loans contractually past due 90 days or more	—			—			2,538
Foreclosed assets, net	12,842			12,976			18,310
Total nonperforming assets	$	188,276		$	186,503		$	154,507

Performing troubled debt restructured loans⁽¹⁾	$	56,501		$	64,952		$	66,829
Classified Non-PCI loans and leases	$	424,399		$	409,645		$	384,698
Nonaccrual loans and leases to loans and leases	1.12		%	1.12		%	0.92		%
Nonperforming assets to loans and leases and foreclosed assets, net	1.20		%	1.20		%	1.06		%
Classified Non-PCI loans and leases to Non-PCI loans and leases	2.73		%	2.66		%	2.68		%

_______________________________________


(1)	Excludes PCI loans.

Nonperforming assets include Non-PCI and PCI nonaccrual loans and leases and foreclosed assets and totaled $188.3 million at March 31, 2017 compared to $186.5 million at December 31, 2016. The $1.8 million increase in nonperforming assets during the first quarter of 2016 was due to a $1.9 million increase in nonaccrual loans and leases, offset by a $0.1 million decrease in foreclosed assets. The ratio of nonperforming assets to loans and leases and foreclosed assets was 1.20% at March 31, 2017, unchanged from 1.20% at December 31, 2016. During the first quarter of 2017, Non-PCI classified loans and leases increased by $14.8 million to $424.4 million as new downgrades exceeded resolutions.

Nonaccrual Loans and Leases

During the first quarter of 2017, nonaccrual loan and leases increased by $1.9 million to $175.4 million at March 31, 2017 due mainly to new nonaccrual additions of $33.7 million, offset by $19.1 million in net charge-offs and $12.7 million in principal payments and other reductions.

As of March 31, 2017, the Company's ten largest Non-PCI loan relationships on nonaccrual status had an aggregate carrying value of $145.6 million and represented 84.1% of total Non-PCI nonaccrual loans and leases. The largest of these relationships had an aggregate carrying value of $47.6 million and is a 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 during 2016.

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



	Non-PCI Nonaccrual Loans and Leases								Non-PCI Accruing and
	March 31, 2017				December 31, 2016				30 - 89 Days Past Due
			% of				% of		March 31,		December 31,
			Loan				Loan		2017		2016
	Amount		Category		Amount		Category		Amount		Amount
	(Dollars in thousands)
Real estate mortgage:
Commercial	$	66,216	1.5	%	$	62,454	1.4	%	$	7,383	$	7,691
Residential	5,826		0.4	%	6,881		0.5	%	640		5,524
Total real estate mortgage	72,042		1.2	%	69,335		1.2	%	8,023		13,215
Real estate construction and land:
Commercial	—		—	%	—		—	%	—		—
Residential	362		0.1	%	364		0.1	%	—		—
Total real estate construction and land	362		—	%	364		—	%	—		—
Commercial:
Cash flow	53,611		1.7	%	53,908		1.7	%	394		153
Asset-based	1,165		—	%	2,118		0.1	%	—		1,500
Venture capital	15,289		0.8	%	11,687		0.6	%	13,265		13,295
Equipment finance	30,388		4.9	%	32,848		4.7	%	115		218
Total commercial	100,453		1.2	%	100,561		1.2	%	13,774		15,166
Consumer	173		—	%	339		0.1	%	49		224
Total Non-PCI loans and leases	$	173,030	1.1	%	$	170,599	1.1	%	$	21,846	$	28,605

Foreclosed Assets

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



	March 31,		December 31,		March 31,
Property Type	2017		2016		2016
	(In thousands)
Construction and land development	$	11,224	$	11,224	$	13,800
Multi-family	601		652		—
Commercial real estate	78		—		—
Single family residence	—		—		897
Total OREO, net	11,903		11,876		14,697
Other foreclosed assets	939		1,100		3,613
Total foreclosed assets	$	12,842	$	12,976	$	18,310

During the first quarter of 2016, foreclosed assets decreased by $0.1 million to $12.8 million at March 31, 2017 due to reductions related to sales of $0.2 million, offset by foreclosures of $0.1 million.

Performing Troubled Debt Restructured Loans

During the first quarter of 2017, Non-PCI performing troubled debt restructured loans decreased by $8.5 million to $56.5 million due to $7.7 million in payoffs and other reductions and $1.2 million in transfers of performing troubled debt restructured loans to nonaccrual status, offset by $0.4 million in additions. At March 31, 2017, we had $47.1 million in real estate mortgage loans, $6.3 million in real estate construction and land loans, $2.9 million in commercial loans, and $0.2 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 loan restructurings and have remained on accrual status after the loan 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 at the dates indicated:



	March 31, 2017				December 31, 2016
			% of				% of
Deposit Category	Amount		Total		Amount		Total
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	6,789,808	42	%	$	6,659,016	42	%
Interest checking deposits	1,509,902		9	%	1,448,394		9	%
Money market deposits	3,758,962		23	%	3,705,385		23	%
Savings deposits	710,401		4	%	711,039		5	%
Total core deposits	12,769,073		78	%	12,523,834		79	%
Brokered non-maturity deposits	1,154,070		7	%	1,174,487		7	%
Total non-maturity deposits	13,923,143		85	%	13,698,321		86	%
Time deposits $250,000 and under	1,998,597		12	%	1,758,434		11	%
Time deposits over $250,000	409,268		3	%	413,856		3	%
Total time deposits	2,407,865		15	%	2,172,290		14	%
Total deposits	$	16,331,008	100	%	$	15,870,611	100	%

Total deposits increased by $460.4 million during the first quarter to $16.3 billion, due mainly to an increase in core deposits of $245.2 million and an increase in time deposits of $235.6 million. At March 31, 2017, core deposits totaled $12.8 billion, or 78% of total deposits, including $6.8 billion of noninterest-bearing demand deposits, or 42% of total deposits.

Brokered time deposits totaled $744.0 million and $405.5 million at March 31, 2017 and December 31, 2016.

The following table summarizes the maturities of time deposits, together with their weighted average contractual rate, as of the dates indicated:



	March 31, 2017
	Time		Time
	Deposits		Deposits		Total
	$250,000		Over		Time		Contractual
Maturity	and Under		$250,000		Deposits		Rate
	(Dollars in thousands)
Due in three months or less	$	576,910	$	130,793	$	707,703	0.36%
Due in over three months through six months	516,646		200,321		716,967		0.45%
Due in over six months through twelve months	753,860		60,444		814,304		0.65%
Due in over 12 months through 24 months	103,329		10,268		113,597		0.69%
Due in over 24 months	47,852		7,442		55,294		0.59%
Total	$	1,998,597	$	409,268	$	2,407,865	0.51%

At December 31, 2016	$	1,758,434	$	413,856	$	2,172,290	0.41%

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 March 31, 2017, total off-balance sheet client investment funds were $1.5 billion, of which $1.3 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 March 31, 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 March 31, 2017, such disallowed amounts were $1.3 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 which applied to the Company and the Bank were as follows: 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.

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		Minimum
		Minimum	Required	Minimum	Required
		Required	Plus Capital	Required	Plus Capital
		For Capital	Conservation	For Well	Conservation
		Adequacy	Buffer	Capitalized	Buffer Fully
	Actual	Purposes	Phase-In (1)	Requirement	Phased-In
March 31, 2017
PacWest Bancorp Consolidated
Tier 1 capital (to average assets)	11.87%	4.00%	4.000%	N/A	4.00%
CET1 capital (to risk weighted assets)	12.31%	4.50%	5.750%	N/A	7.00%
Tier 1 capital (to risk weighted assets)	12.31%	6.00%	7.250%	N/A	8.50%
Total capital (to risk weighted assets)	15.56%	8.00%	9.250%	N/A	10.50%

Pacific Western Bank
Tier 1 capital (to average assets)	11.36%	4.00%	4.000%	5.00%	4.00%
CET1 capital (to risk weighted assets)	11.79%	4.50%	5.750%	6.50%	7.00%
Tier 1 capital (to risk weighted assets)	11.79%	6.00%	7.250%	8.00%	8.50%
Total capital (to risk weighted assets)	12.74%	8.00%	9.250%	10.00%	10.50%



December 31, 2016
PacWest Bancorp Consolidated
Tier 1 capital (to average assets)	11.91%	4.00%	4.000%	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%	4.000%	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 March 31, 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.

Beginning January 1, 2016, Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order 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 March 31, 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.

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 $442.5 million at March 31, 2017. At March 31, 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 $429.8 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, subject to availability, of $130.0 million with the FHLB and $80.0 million with correspondent banks, both for the purchase of overnight funds. As of March 31, 2017, there was a $130.0 million balance outstanding related to the FHLB unsecured line of credit. The Bank is a member of the American Financial Exchange, 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 March 31, 2017, there was a $40.0 million balance outstanding.

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



	March 31,			December
Primary Liquidity - On-Balance Sheet	2017			2016
	(Dollars in thousands)
Cash and due from banks	$	184,608		$	337,965
Interest-earning deposits in financial institutions	111,892			81,705
Securities available-for-sale	3,336,992			3,223,830
Less: pledged securities	(424,692		)	(425,511		)
Total primary liquidity	$	3,208,800		$	3,217,989

Ratio of primary liquidity to total deposits	19.6		%	20.3		%



Secondary Liquidity - Off-Balance Sheet	March 31,			December
Available Secured Borrowing Capacity	2017			2016
	(In thousands)
Total secured borrowing capacity with the FHLB	$	2,728,762		$	2,010,739
Less: secured advances outstanding	(290,000		)	(735,000		)
Net secured borrowing capacity with the FHLB	2,438,762			1,275,739
Secured borrowing capacity with the FRBSF	2,193,347			2,210,692
Total secondary liquidity	$	4,632,109		$	3,486,431

During the three months ended March 31, 2017, the Company's primary liquidity decreased by $9.2 million due to a $153.4 million decrease in cash and due from banks, offset partially by a $113.2 million increase in securities available-for-sale and a $30.2 million increase in interest-earning deposits in financial institutions. The Company's secondary liquidity increased by $1.1 billion during the first quarter due to a $718.0 million increase in the borrowing capacity on the secured credit line with the FHLB and a $445.0 million decrease in related advances outstanding, offset partially by a $17.3 million decrease in the borrowing capacity on the secured credit line with the FRBSF.

As a member of the FHLB, the Bank had secured financing capacity with the FHLB as of March 31, 2017 of $2.7 billion, collateralized by a blanket lien on $3.9 billion of certain qualifying loans not pledged to the FRBSF. The Bank also had secured financing capacity with the FRBSF of $2.2 billion as of March 31, 2017 collateralized by liens on $3.0 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 March 31, 2017, core deposits totaled $12.8 billion and represented 78% 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.

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 FHLB borrowings), Wholesale Funding Ratio (measurement of wholesale funding divided by interest-earning assets), and other guidelines developed for measuring and maintaining liquidity. As of March 31, 2017, we were in compliance with all of our established liquidity guidelines.

We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At March 31, 2017, brokered deposits totaled $1.9 billion, consisting of $744.0 million of brokered time deposits, $1.2 billion of non-maturity brokered sweep accounts, and $12.1 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 sweep 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.

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 months ended March 31, 2017, PacWest received $65.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of $502.1 million at March 31, 2017, for the foreseeable future, any dividends from the Bank to the holding company will continue to require DBO and FDIC approval.

At March 31, 2017, PacWest had $494.4 million in cash, 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 CU Bancorp acquisition.

Contractual Obligations

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



	March 31, 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⁾	$	2,238,276	$	143,369	$	25,502	$	20	$	2,407,167
Short-term FHLB and American Financial
Exchange borrowings	460,000		—		—		—		460,000
Long-term debt obligations⁽¹⁾	325		284		—		539,360		539,969
Contractual interest⁽²⁾	5,718		1,501		770		—		7,989
Operating lease obligations	30,078		54,025		40,004		37,296		161,403
Other contractual obligations	32,244		23,330		12,559		18,086		86,219
Total	$	2,766,641	$	222,509	$	78,835	$	594,762	$	3,662,747

_______________________________________


(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 March 31, 2017, our loan commitments, including standby letters of credit, totaled $4.7 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' transaction and economic exposures arising out of commercial transactions. 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. We recognized a foreign currency translation net loss of $0.2 million for the three months ended March 31, 2017 and a $0.6 million foreign currency translation net gain for the three months ended March 31, 2016. Our Euro-denominated subordinated debentures are hedged with a cross currency swap to reduce the related foreign currency translation volatility.

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 March 31, 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 March 31, 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 March 31, 2017. In order to arrive at the base case, we extend our balance sheet at March 31, 2017 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing as of March 31, 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
	Net Interest		Percentage	Forecasted	Net Interest
March 31, 2017	Income		Change	Net Interest	Margin Change
Interest Rate Scenario	(Tax Equivalent)		From Base	Margin	From Base
	(Dollars in millions)
Up 300 basis points	$	1,141.4	16.0%	5.97%	0.83%
Up 200 basis points	$	1,090.6	10.9%	5.70%	0.56%
Up 100 basis points	$	1,038.6	5.6%	5.43%	0.29%
BASE CASE	$	983.8	—	5.14%	—
Down 100 basis points	$	938.6	(4.6)%	4.91%	(0.23)%
Down 200 basis points	$	922.3	(6.2)%	4.82%	(0.32)%
Down 300 basis points	$	914.4	(7.1)%	4.78%	(0.36)%

Total base case year 1 tax equivalent NII was $983.8 million at March 31, 2017 compared to $971.3 million at December 31, 2016. The $12.5 million increase in year 1 NII was due primarily to a $97 million increase in the loan and lease portfolio balance and a two basis point increase in base case net interest margin.

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. One such scenario provides for market rates to increase during the next six months in accordance with the forward yield curve and thereafter to increase by 25 basis points every six months. The expected first year NII under this alternative rising rate scenario would be approximately 0.2% higher than the base case.

Of the $15.6 billion of total loans in the portfolio, $11.0 billion have variable interest rate terms (excluding hybrid loans discussed below). At March 31, 2017, $9.4 billion of these variable-rate loans have a loan rate higher than their floor rate, which allows them to reprice upwards at their next reprice date upon an increase 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:



March 31, 2017
Cumulative		Rate
Amount of		Increase
Variable-Rate		Needed to
Loans		Reprice
(Dollars in millions)
$	1,283	0 - 100 bps
$	1,425	101 - 200 bps
$	1,525	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 $193 million, $372 million, and $633 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 March 31, 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
March 31, 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	$	5,560.4	$	(51.5	)	(0.9	)%	25.4	%	123.3	%
Up 200 basis points	$	5,581.6	$	(30.3	)	(0.5	)%	25.5	%	123.8	%
Up 100 basis points	$	5,600.5	$	(11.4	)	(0.2	)%	25.5	%	124.2	%
BASE CASE	$	5,611.9	$	—		—	%	25.6	%	124.5	%
Down 100 basis points	$	5,615.7	$	3.9		0.1	%	25.6	%	124.6	%
Down 200 basis points	$	5,632.1	$	20.2		0.4	%	25.7	%	124.9	%
Down 300 basis points	$	5,489.1	$	(122.7	)	(2.2	)%	25.0	%	121.8	%

Total base case projected market value of equity was $5.6 billion at March 31, 2017 compared to $5.7 billion at December 31, 2016. The projected market value of equity decreased by $48 million while our overall MVE sensitivity profile has shifted to be slightly liability-sensitive. The decrease in base case market value of equity was due primarily to a $79 million decrease in the mark-to-market adjustment for loans and leases due to an increase in the discount rate used to determine loan values, offset by a $29 million increase in the book value of stockholders' equity. The results of the rate shock analysis of MVE shifted to slightly liability sensitive at March 31, 2017, compared to slightly asset sensitive at December 31, 2016 due to a change in the modeling of certain municipal bonds, which resulted in a longer duration estimate in the up rate shock scenarios reflected in the table above.

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 first 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)
January 1, 2017 - January 31, 2017	—	$	—	—	$	372,069
February 1, 2017 - February 28, 2017	41,184	55.39		—	$	372,069
March 1, 2017 - March 31, 2017	—	—		—	$	372,069
Total	41,184	$	55.39	—

__________________________


(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).
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 7, 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.
10.3	Form of Stock Unit Award Agreement pursuant to the Company's 2003 Stock Incentive Plan, as amended.
31.1	Section 302 Certification of Chief Executive Officer. *
31.2	Section 302 Certification of Chief Financial Officer. *
32.1	Section 906 Certification of Chief Executive Officer. *
32.2	Section 906 Certification of Chief Financial Officer. *
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016, (ii) the Condensed Consolidated Statements of Earnings for the three months ended March 31, 2017, December 31, 2016, and March 31, 2016, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017, December 31, 2016, and March 31, 2016, (iv) the Condensed Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 2017, (v) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 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:	May 9, 2017	/s/ Bart R. Olson
		Bart R. Olson
		Executive Vice President and Chief Accounting Officer