Financing

We depend on deposits and external financing sources to fund our operations. We employ a variety of financing arrangements, including term debt, subordinated debt, and equity. As a member of the FHLB, the Bank had secured financing capacity with the FHLB as of December 31, ~~2016~~2018 of ~~$2.0~~$3.7 billion, collateralized by a blanket lien on ~~$2.9~~$5.4 billion of ~~certain~~ qualifying ~~loans not pledged to the FRBSF.~~loans. The Bank also had secured financing capacity with the FRBSF of ~~$2.2~~$2.0 billion as of December 31, ~~2016~~2018 collateralized by liens on ~~$3.0~~$2.7 billion of qualifying loans.

Information Technology Systems

We devote significant financial and management resources to maintain stable, reliable, efficient and scalable information technology systems. Where possible, we utilize third-party software systems that are hosted and supported by nationally recognized vendors. We selectively employ proprietary software systems to support our specialty lending products. We work with our third-party vendors to monitor and maximize the efficiency of our use of their applications. We use integrated systems to originate and process loans and deposit accounts, which reduces processing time, automates numerous internal controls, improves customer experiences and reduces costs. Most customer records are maintained digitally. We also provide on-line, mobile, and telephone banking services to further improve the overall client experience. ~~We expect to migrate~~In 2018, we completed the migration of in-house and outsourced systems for managing customer accounts to an alternative platform ~~hosted by a new data processing vendor with~~to enhance the ~~initial phase completed during the second quarter of 2016~~features and ~~the additional phases scheduled~~services available to ~~be completed during 2017.~~our customers.

We use an enterprise data warehouse system in order to ~~capture,~~aggregate, analyze, and report key metrics associated with our customers and products. Data is collected across multiple systems so that standard and ad hoc reports are available to assist with managing our business.

We maintain ~~a strategic plan with respect to information technology. The~~an information technology strategic plan. This plan outlines how specific solutions support our overall goals, analyzes infrastructure for capacity planning, details migration plans to replace aging hardware and software, provides baseline projections for allocating information technology staff, discusses information security trends and measures, considers future technologies, and provides details on information technology initiatives over the next several years.

Protecting our systems to ensure the safety of our customers’ information is critical to our business. We use multiple layers of protection to control access, detect unusual activity, and reduce risk, including conducting a variety of audits and vulnerability and penetration tests on our platforms, systems and applications, and maintain comprehensive incident response plans to minimize potential risk to operations, and reduce the risk that ~~cyberattacks~~cyber-attacks would be successful. To protect our business operations against disasters, we have a backup ~~offsite~~off-site core processing system and comprehensive recovery plans.

Risk Oversight and Management

We believe risk management is another core competency of our business. We have a comprehensive risk management process that measures, monitors, evaluates, and manages the risks we assume in conducting our activities. Our oversight of this risk management process is conducted by the Company’s Board of Directors (the “Board”) and its standing committees. The committees each report to the Board and the Board has overall oversight responsibility for risk management.

Our risk framework is structured to guide decisions regarding the appropriate balance between risk and return considerations in our business. Our risk framework is based upon our business strategy, risk appetite, and financial plans approved by our Board. Our risk framework is supported by an enterprise risk management program. Our enterprise risk management program integrates all risk efforts under one common framework. This framework includes risk policies, procedures, measured and reported limits and targets, and reporting. Our Board approves our risk appetite statement, which sets forth the amount and type of risks we are willing to accept in pursuit of achieving our strategic, business, and financial objectives. Our risk appetite statement provides the context for our risk management tools, including, among others, risk policies, delegated authorities, limits, portfolio composition, underwriting standards, and operational processes.

Competition

The banking business is highly competitive. We compete nationwide with other commercial banks and financial services institutions for loans and leases, deposits, and employees. Some of these competitors are larger in total assets and capitalization, with more offices over a wider geographic area and offer a broader range of financial services than our operations. Our most direct competition for loans comes from larger regional and national banks, diversified finance companies, venture debt funds, and service-focused community banks that target the same customers as we do. In recent years, competition has increased from institutions not subject to the same regulatory restrictions as domestic banks and bank holding companies. Those competitors include non-bank specialty lenders, insurance companies, private investment funds, investment banks, financial technology companies, and other financial and non-financial institutions.

Competition is based on a number of factors, including interest rates charged on loans and leases and paid on deposits, the scope and type of banking and financial services offered, convenience of our branch locations, customer service, technological changes, and regulatory constraints. Many of our competitors are large companies that have substantial capital, technological, and marketing resources. Some of our competitors have substantial market positions and have access to a lower cost of capital or a less expensive source of funds. Because of economies of scale, our larger, nationwide competitors may offer loan pricing that is more attractive ~~that~~than what we are ~~able~~willing to offer.

Economic factors, along with legislative and technological changes, will have an ongoing impact on the competitive environment within the financial services industry. We work to anticipate and adapt to dynamic competitive conditions whether it is by developing and marketing innovative products and services, adopting or developing new technologies that differentiate our products and services, cross marketing, or providing highly personalized banking services. We strive to distinguish ourselves from other banks and financial services providers in our marketplace by providing an extremely high level of service to enhance customer loyalty and to attract and retain business.

We differentiate ourselves in the marketplace through the quality of service we provide to borrowers while maintaining competitive interest rates, loan fees and other loan terms. We emphasize personalized relationship banking services and the efficient decision-making of our lending business units. We compete effectively based on our in-depth knowledge of our borrowers' industries and their business needs based upon information received from our borrowers' key decision-makers, analysis by our experienced professionals, and interaction between these two groups; our breadth of loan product offerings and flexible and creative approach to structuring products that meet our borrowers' business and timing needs; and our dedication to superior client service. However, we can provide no assurance as to the effectiveness of these efforts on our future business or results of operations, as to our continued ability to anticipate and adapt to changing conditions, and as to sufficiently improving our services and/or banking products in order to successfully compete in the marketplace.

Employees

As of January 31, ~~2017,~~2019, we had ~~1,669~~1,833 full time equivalent employees. None of the Company's employees are represented by collective bargaining agreements.

Financial and Statistical Disclosure

Certain of our statistical information is presented within “Item 6. Selected Financial Data,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Item 7A. Quantitative and Qualitative Disclosure About Market Risk.” This information should be read in conjunction with the consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”

Supervision and Regulation

General

The Company and Bank are subject to extensive regulation under federal and state banking laws that establish a comprehensive framework for our operations. Such regulation is intended to, among other things, protect the interests of customers, including depositors, and the federal deposit insurance fund, as well as to minimize risk to the banking system as a whole. These regulations are not, however, generally charged with protecting the interests of our stockholders or other creditors. Described below are elements of selected laws and regulations applicable to our Company or the Bank. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described. Changes in applicable law or regulations, and in their application by regulatory agencies, cannot be predicted, and they may have a material effect on the business, operations, and results of our Company or the Bank. ~~Recent~~The current U.S. political ~~developments, including the change in administration in the United States, have added~~environment adds additional uncertainty to the implementation, scope, and timing of regulatory reforms, including those related to the Dodd-Frank Act.

Bank Holding Company Regulation

As a bank holding company, PacWest is registered with and subject to supervision, regulation, and examination by the FRB under the BHCA, and we are required to file with the FRB periodic reports of our operations and additional information regarding the Company and its subsidiaries as the FRB may require.

The Dodd-Frank Act requires the Company to act as a source of financial strength to the Bank including committing resources to support the Bank even at times when the Company may not be in a financial position to do so. Similarly, under the cross‑guarantee provisions of the FDIA, the FDIC can hold any FDIC‑insured depository institution liable for any loss suffered or anticipated by the FDIC in connection with (i) the default of a commonly controlled FDIC‑insured depository institution or (ii) any assistance provided by the FDIC to such a commonly controlled institution.

Pursuant to the BHCA, we are required to obtain the prior approval of the FRB before we acquire all or substantially all of the assets of any bank or the ownership or control of voting shares of any bank if, after giving effect to such acquisition, we would own or control, directly or indirectly, more than 5 percent of such bank. Pursuant to the Bank Merger Act, the prior approval of the FDIC is required for the Bank to merge with another bank or purchase all or substantially all of the assets or assume any of the deposits of another FDIC-insured depository institution. In reviewing certain merger or acquisition transactions, the federal regulators will consider the assessment of the competitive effect and public benefits of the transactions, the capital position and managerial resources of the combined organization, the risks to the stability of the U.S. banking or financial system, our performance record under the CRA, our compliance with fair housing and other consumer protection laws, and the effectiveness of all organizations involved in combating money laundering activities.

Under the BHCA, we may not engage in any business other than managing or controlling banks or furnishing services to our subsidiaries and such other activities that the FRB deems to be so closely related to banking as “to be a proper incident thereto.” We are also prohibited, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5 percent of the voting shares of any company unless the company is engaged in banking activities or the FRB determines that the activity is so closely related to banking as to be a proper incident to banking. The FRB’s approval must be obtained before the shares of any such company can be ~~acquired and, in certain cases, before any approved company can open new offices.~~acquired.

The federal regulatory agencies also have general authority to prohibit a banking subsidiary or bank holding company from engaging in an unsafe or unsound banking practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice. Further, as discussed below under “-Capital Requirements,” we are required to maintain minimum ratios of Common Equity Tier 1 capital, Tier 1 capital, and total capital to total risk‑weighted assets, and a minimum ratio of Tier 1 capital to total adjusted quarterly average assets as defined in such regulations. The level of our capital ratios may affect our ability to pay dividends or repurchase our shares. See “Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters - Dividends” and Note ~~19.~~20. Dividend Availability and Regulatory Matters of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”

The Dodd-Frank Act

The Dodd‑Frank Act, which was enacted in July 2010, significantly restructured the financial regulatory landscape in the United States, including the creation of a new systemic risk oversight body, the FSOC. The FSOC oversees and coordinates the efforts of the primary U.S. financial regulatory agencies (including the FRB, SEC, the Commodity Futures Trading Commission and the FDIC) in establishing regulations to address financial stability concerns. The Dodd-Frank Act and the FRB’s implementing regulations impose increasingly stringent regulatory requirements on financial institutions as their size and scope of activities increases. ~~With~~

In May 2018, the ~~April 7, 2014 CapitalSource Inc. merger,~~Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) was enacted. While the EGRRCPA reduced the impact of the Dodd-Frank Act on bank holding companies of our ~~total consolidated assets exceeded $15 billion, subjecting~~size, including in respect to stress testing, the Dodd-Frank Act nonetheless subjected us to additional significant regulatory ~~requirements for financial institutions with over~~requirements. In addition, as a result of the Dodd-Frank Act and our having in excess of $10 billion in total consolidated ~~assets. This substantially increased the regulations we are required to meet, particularly with respect to risk management, capital planning, and stress testing. In addition,~~assets, the Company and the Bank are ~~now~~ subject to the examination and supervision of the CFPB.

Transactions with Affiliates

Transactions between the Bank and its affiliates are regulated under federal banking law. Subject to certain exceptions set forth in the Federal Reserve Act, a bank may enter into “covered transactions” with its affiliates if the aggregate amount of the covered transactions to any single affiliate does not exceed 10 percent of the Bank’s capital stock and surplus or 20 percent of the Bank’s capital stock and surplus for covered transaction with all affiliates. Covered transactions include, among other things, extension of credit, the investment in securities, the purchase of assets, the acceptance of collateral or the issuance of a guaranty. The Dodd-Frank Act significantly expanded the coverage and scope of the limitations on affiliate transactions within a banking organization.

Dividends and Share Repurchases

The ability of the Company to pay dividends on or to repurchase its common stock, and the ability of the Bank to pay dividends to the Company, may be restricted due to several factors including: (a) the DGCL (in the case of the Company) and applicable California law (in the case of the Bank), (b) covenants contained in our subordinated debentures and borrowing agreements, and (c) the regulatory authority of the FRB, the DBO and the FDIC.

Our ability to pay dividends to our stockholders or to repurchase shares of our common stock is subject to the restrictions set forth in the DGCL. The DGCL provides that a corporation, unless otherwise restricted by its certificate of incorporation, may declare and pay dividends (or repurchase shares) out of its surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year, as long as the amount of capital of the corporation is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets. Surplus is defined as the excess of a corporation’s net assets (i.e., its total assets minus its total liabilities) over the capital associated with issuances of its common stock. Moreover, the DGCL permits a board of directors to reduce its capital and transfer such amount to its surplus. In determining the amount of surplus of a Delaware corporation, the assets of the corporation, including stock of subsidiaries owned by the corporation, must be valued at their fair market value as determined by the board of directors, regardless of their historical book value.

Our ability to pay cash dividends to our stockholders or to repurchase shares of our common stock may be limited by certain covenants contained in the indentures governing trust preferred securities issued by us or entities that we have acquired, and the debentures underlying the trust preferred securities. Generally the indentures provide that if an Event of Default (as defined in the indentures) has occurred and is continuing, or if we are in default with respect to any obligations under our guarantee agreement which covers payments of the obligations on the trust preferred securities, or if we give notice of any intention to defer payments of interest on the debentures underlying the trust preferred securities, then we may not, among other restrictions, declare or pay any dividends with respect to our common stock or repurchase shares of our common stock.

In addition, notification to the FRB is required prior to our declaring and paying a cash dividend to our stockholders during any period in which our quarterly and/or cumulative twelve‑month net earnings are insufficient to fund the dividend amount, among other requirements. Under such circumstances, we may not pay a dividend should the FRB object until such time as we receive approval from the FRB or no longer need to provide notice under applicable regulations.

In addition, prior approval of the FRB is required prior to our repurchasing shares of our common stock.

In connection with the decision regarding dividends and share repurchase programs, our Board ~~of Directors~~ will take into account general business conditions, our financial results, projected cash flows, capital requirements, contractual, legal and regulatory restrictions on the payment of dividends by the Bank to the Company and such other factors as deemed relevant. We can provide no assurance that we will continue to declare dividends on a quarterly basis or otherwise or to repurchase shares of our common stock. The declaration of dividends by the Company is subject to the discretion of our ~~Board of Directors.~~Board.

PacWest’s primary source of liquidity is the receipt of cash dividends from the Bank. Various statutes and regulations limit the availability of cash dividends from ~~Pacific Western.~~the Bank. Dividends paid by ~~Pacific Western~~the Bank are regulated by the DBO and FDIC under their general supervisory authority as it relates to a bank’s capital requirements. ~~Pacific Western~~The Bank may declare a dividend without the approval of the DBO and FDIC as long as the total dividends declared in a calendar year do not exceed either the retained earnings or the total of net earnings for three previous fiscal years less any dividend paid during such period. Dividends paid by the Bank during the previous three fiscal years exceeded the Bank's earnings during that same period by $28.5 million. Since the Bank had a retained deficit of ~~$520.0~~$643.9 million at December 31, ~~2016,~~2018, for the foreseeable future, any further cash dividends from the Bank to the Company will continue to require DBO and FDIC approval.

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity - Holding Company Liquidity” and Note ~~19.~~20. Dividend Availability and Regulatory Matters of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” for a discussion of other factors affecting the availability of dividends and limitations on the ability to declare dividends.

Capital Requirements

We are subject to the comprehensive capital framework for U.S. banking organizations known as Basel III. Basel III generally implemented the Basel Committee’s December 2010 final capital framework for strengthening international capital standards. Basel III became effective for the Company and the Bank as of January 1, 2015, subject to phase‑in periods for certain of its components and other provisions.

Basel III, among other things, (i) implemented increased capital levels for the Company and the Bank, (ii) introduced a new capital measure called CET1 and related regulatory capital ratio of CET1 to risk‑weighted assets, (iii) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, (iv) mandated that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (v) expanded the scope of the deductions from and adjustments to capital as compared to existing regulations. Under Basel III, for most banking organizations the most common form of Additional Tier 1 capital is non‑cumulative perpetual preferred stock and the most common form of Tier 2 capital is subordinated notes and a portion of the allowance for loan and lease losses, in each case, subject to Basel III specific requirements.

Pursuant to Basel III, the minimum capital ratios are as follows:

4.5% CET1 to risk‑weighted assets;

6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk‑weighted assets;

8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk‑weighted assets; and

4% Tier 1 capital to average consolidated assets as reported on regulatory financial statements (known as the “leverage ratio”).

Basel III also introduced a new “capital conservation buffer”, composed entirely of CET1, on top of the minimum risk‑weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk‑weighted assets, Tier 1 to risk‑weighted assets or ~~Total~~total capital to risk‑weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the ~~shortfall. The implementation~~shortfall and the institution’s “eligible retained income” (that is, four quarter trailing net income, net of distributions and tax effects not reflected in net income). As of January 1, 2019, the capital conservation buffer ~~began on January 1, 2016 at a 0.625% level~~is fully phased-in and ~~will increase by 0.625% on each subsequent January 1 until it reaches 2.5% on January 1, 2019. When fully phased‑in,~~ the Company and the Bank ~~will be~~are required to maintain ~~such~~an additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk‑weighted assets of at least 7%, (ii) Tier 1 capital to risk‑weighted assets of at least 8.5%, and (iii) total capital to risk‑weighted assets of at least 10.5%.

Basel III provides for a number of deductions from and adjustments to CET1. These include, for example, the requirement that ~~mortgage servicing rights,~~ deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non‑consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1.

Implementation of the deductions and other adjustments to CET1 commenced on January 1, 2015 and ~~will be~~was phased‑in ~~over a 4‑year period (beginning~~beginning at 40% ~~on January 1,~~in 2015, 60% in 2016, and ~~an additional 20% increase per year thereafter until reaching 100%).~~

~~With respect to the Bank, Basel III revised the prompt corrective action regulations as described below under “-~~ ~~Prompt Corrective Action~~”.80% for 2017 and 2018.

Basel III provides a standardized approach for risk weightings that expands the risk‑weighting categories from the previous four Basel I‑derived categories (0%, 20%, 50% and 100%) to a larger and more risk‑sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, resulting in higher risk weights for a variety of asset classes.

The Company has outstanding subordinated debentures issued to trusts, which, in turn, issued trust preferred securities. The carrying amount of subordinated debentures totaled ~~$440.7~~$453.8 million at December 31, ~~2016.~~2018. Under Basel III, none of the Company’s trust preferred securities are included in Tier 1 capital, however ~~$428.2~~$440.2 million of such trust preferred securities was included in Tier 2 capital at December 31, ~~2016.~~2018. We believe that, as of December 31, ~~2016,~~2018, the Company and the Bank met all capital adequacy requirements under Basel III. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Matters - Capital” for further information on regulatory capital requirements, capital ratios, and deferred tax asset limits as of December 31, ~~2016~~2018 for the Company and the Bank.

Stress Testing

~~As an institution with total assets in excess of $10 billion, the stress testing rules of the FRB and the FDIC require~~Though the Company and Bank are no longer required to prepare annual stress tests pursuant to the ~~Bank~~Dodd-Frank Act, we continue to ~~conduct~~prepare an annual ~~company-run~~ stress test of our capital, consolidated earnings and losses under ~~one base scenario~~adverse economic and ~~at least two supervisory~~market conditions. Our stress ~~scenarios provided by the federal bank regulators. Stress~~ test results must be reported to the regulatory agencies, and the stress testing rules require the public disclosure of a summary of the stress test results. The Company’s and Bank’s capital ratios reflected in the stress test calculations are ~~an important factor~~ considered by the FRB and FDIC in evaluating ~~the~~our capital adequacy ofand could have a

negative impact on our ability to make capital distributions in the ~~Company and the Bank and whether any proposed payments~~form of dividends or ~~stock repurchases may be deemed an unsafe or unsound practice.~~

~~Prompt Corrective Action~~

FDICIA requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. Pursuant to FDICIA, the FDIC promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. A bank’s category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.

In addition to measures taken under the prompt corrective action provisions, the Bank may be subject to potential enforcement actions by the federal or state banking agencies for unsafe or unsound practices in conducting its business or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease‑and‑desist order that can be judicially enforced, the termination of insurance for deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, and the issuance of removal and prohibition orders against institution‑affiliated parties. The enforcement of such actions through injunctions or restraining orders may be based upon a judicial determination that the agency would be harmed if such equitable relief was not granted.

share repurchases.

Safety and Soundness Standards

As required by the FDIA, guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and quality, and compensation, fees and benefits. ~~Bank holding companies with total consolidated assets of $10 billion or more are required~~The agencies have adopted regulations and interagency guidelines which set forth the safety and soundness standards used to ~~establish~~identify and ~~maintain risk management committees for their boards of directors~~address problems at insured depository institutions before capital becomes impaired. If an agency determines that a bank fails to ~~oversee~~satisfy any standard, it may require the bank ~~holding companies’ risk management framework.~~to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans. If an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the FDIA.

Deposit Insurance

The Bank is a state‑chartered, “non‑member” bank regulated by the DBO and the FDIC. ~~Pacific Western~~The Bank accepts deposits, and those deposits have the benefit of FDIC insurance up to the applicable limits. The applicable limit for FDIC insurance for most types of accounts is $250,000.

Under the FDIC's risk-based deposit premium assessment system, the assessment rates for an insured depository institution are determined by an assessment rate calculator, which is based on a number of elements that measure the risk each institution poses to the Deposit Insurance Fund. The calculated assessment rate is applied to average consolidated assets less the average tangible equity of the insured depository institution during the assessment period to determine the dollar amount of the quarterly assessment. Under the current system, premiums are assessed quarterly and could increase if, for example, criticized loans and leases and/or other higher risk assets increase or balance sheet liquidity decreases. ~~In 2010,~~

During the first quarter of 2016, the FDIC ~~adopted its~~issued a final rule implementing a 4.5 basis points surcharge on the quarterly FDIC insurance assessments of insured depository institutions with more than $10 billion in total consolidated assets. The Bank became subject to the FDIC surcharge on July 1, 2016. The surcharge continued through September 30, 2018, when the Deposit Insurance Fund ~~restoration plan to ensure that the fund~~ reserve ratio ~~reaches~~reached 1.36% of insured deposits, exceeding the statutorily required minimum reserve ratio of 1.35% of total deposits by September 30, 2020, and the FDIC's final rule with respect to this became effective July 1, 2016. Insured institutions with assets over $10 billion, such as the Bank, are responsible for funding the increase.. For the year ended December 31, ~~2016,~~2018, we incurred ~~$14.0~~$15.9 million of FDIC assessment expense.

Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Incentive Compensation

In 2010, federal banking regulators issued final joint agency guidance on Sound Incentive Compensation Policies. This guidance applies to executive and non-executive incentive plans administered by the Bank. The guidance notes that incentive compensation programs must (i) provide employees incentives that appropriately balance risk and reward, (ii) be compatible with effective controls and risk management and (iii) be supported by strong corporate governance, including oversight by the ~~board.~~Board. The FRB reviews, as part of its regular examination process, the Company’s incentive compensation programs.

In addition, the Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive based payment arrangements at specified regulated entities having at least $1 billion in total assets, such as the Company and the Bank, that encourage inappropriate risks by providing an executive officer, employee, director or principal stockholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity. In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure of incentive based compensation arrangements to regulators. The agencies proposed initial regulations in April 2011 and proposed revised regulations during the second quarter of 2016 that would establish general qualitative requirements applicable to all covered entities (and additional specific requirements for entities with total consolidated assets of at least $50 billion). The general qualitative requirements include (i) prohibiting incentive arrangements that encourage inappropriate risks by providing excessive compensation; (ii) prohibiting incentive arrangements that encourage inappropriate risks that could lead to a material financial loss; (iii) establishing requirements for performance measures to appropriately balance risk and reward; (iv) requiring board of director oversight of incentive arrangements; and (v) mandating appropriate record-keeping.

In August 2015, the SEC adopted final rules implementing the pay ratio provisions of the Dodd-Frank Act by requiring companies to disclose the ratio of the compensation of its chief executive officer to the median compensation of its employees. Under SEC guidance issued in September 2017, companies such as the Company are able to use widely-recognized tests to determine who counts as an employee under the rule, use existing internal records such as payroll and tax information and describe the ratio as an estimate. For a registrant with a fiscal year ending on December 31, such as the Company, the pay ratio was first required as part of its executive compensation disclosure in proxy statements or Form 10-Ks filed in 2018.

Consumer Regulation

We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices. Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees. Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each jurisdiction in which we operate, and civil money penalties. Failure to comply with consumer protection regulations may also result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions we may wish to pursue or our prohibition from engaging in such transactions even if approval is not required.

The CFPB has broad rulemaking, supervisory, and enforcement powers under various federal consumer financial protection laws. The CFPB is also authorized to engage in consumer financial education, track consumer complaints, request data, and promote the availability of financial services to underserved consumers and communities. The Bank is subject to direct oversight and examination by the CFPB. The CFPB has broad supervisory, examination, and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices. The CFPB also has the authority to obtain cease and desist orders providing for affirmative relief or monetary penalties. State regulation of financial products and potential enforcement actions could also adversely affect our business, financial condition, or results of operations.

~~Depositor Preference~~

The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non‑deposit creditors, including the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.

USA PATRIOT Act and Anti-Money Laundering

The PATRIOT Act, designed to deny terrorists and others the ability to obtain access to the United States financial system, has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money. The PATRIOT Act, as implemented by various federal regulatory agencies, requires the Company and the Bank to establish and implement policies and procedures with respect to, among other matters, anti‑money laundering, compliance, suspicious activity and currency transaction reporting and due diligence on customers and prospective customers. The PATRIOT Act and its underlying regulations permit information sharing for counter‑terrorist purposes between federal law enforcement agencies and financial institutions, as well as among financial institutions, subject to certain conditions, and require the FRB, the FDIC and other federal banking agencies to evaluate the effectiveness of an applicant in combating money laundering activities when considering a bank holding company acquisition and/or a bank merger act application.

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) drafts regulations implementing the PATRIOT ACT and other anti-money laundering and Bank Secrecy Act legislation. In May 2017, a FinCEN rule became effective which requires financial institutions to obtain beneficial ownership information with respect to legal entities with which such institutions conduct business, subject to certain exclusions and exemptions.

We regularly evaluate and continue to enhance our systems and procedures to continue to comply with the PATRIOT Act and other anti‑money laundering initiatives. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal, strategic, and reputational consequences for the institution and result in material fines and sanctions.

Office of Foreign Assets Control Regulation

The United States has imposed economic sanctions that affect transactions with designated foreign countries, designated nationals and others. These rules are based on their administration by OFAC. The OFAC‑administered sanctions targeting designated countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing investment‑related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal, strategic, and reputational consequences, and result in civil money penalties on the Company and the Bank.

Community Reinvestment Act ("CRA")

The CRA generally requires the Bank to identify the communities it serves and to make loans and investments, offer products, make donations in, and provide services designed to meet the credit needs of these communities. The CRA also requires the Bank to maintain comprehensive records of its CRA activities to demonstrate how we are meeting the credit needs of our communities. These documents are subject to periodic examination by the FDIC. During these examinations, the FDIC rates such institutions’ compliance with CRA as “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” The CRA requires the FDIC to take into account the record of a bank in meeting the credit needs of all of the communities served, including low‑and moderate‑income neighborhoods, in determining such rating. Failure of an institution to receive at least a “Satisfactory” rating could inhibit such institution or its holding company from undertaking certain activities, including acquisitions. The Bank received a CRA rating of ~~“Satisfactory”~~“Outstanding” as of its most recent examination. In the case of a bank holding company, such as the Company, when applying to acquire a bank, savings association, or a bank holding company, the FRB will assess the CRA record of each depository institution of the applicant bank holding company in considering the application.

In April 2018, the U.S. Department of Treasury issued a memorandum to the federal banking regulators recommending changes to the CRA’s regulations to reduce their complexity and associated burden on banks. We will continue to evaluate the impact of any changes to the CRA regulations.

Customer Information ~~Security~~Privacy and Cybersecurity

The FRB and other bank regulatory agencies have adopted guidelines for safeguarding confidential, personal, non‑public customer information. These guidelines require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to create, implement, and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazard to the security or integrity of such information, and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. We have adopted a customer information security program to comply with these requirements.

~~Privacy~~In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.

The Gramm‑Leach‑Bliley Act of 1999 ~~and the California Financial Information Privacy Act require~~(the “GLBA”) requires financial institutions to implement policies and procedures regarding the disclosure of non-public personal information about consumers to non‑affiliated third parties. ~~In general, the statutes require~~The GLBA requires disclosures to consumers on policies and procedures regarding the disclosure of such non-public personal information and, except as otherwise required by law, prohibit disclosing such information except as provided in the Bank’s policies and procedures. We have implemented privacy policies addressing these restrictions ~~which~~that are distributed regularly to all existing and new customers of the Bank.

~~Hazardous Waste Clean~~‑UpState regulators have been increasingly active in implementing privacy and ~~Climate~~‑~~Related Risk~~

~~Our primary exposure~~cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to ~~environmental laws~~implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. In June 2018, the California legislature passed the California Consumer Privacy Act of 2018 (the “California Privacy Act”), which is through our lending activities and through properties or businesses we may own, lease or acquire, or that serve as collateral for our loans, since we are not involved in any business that manufactures, uses or transports chemicals, waste, pollutants or toxins that might have a material adversescheduled to take effect on January 1, 2020. The California Privacy Act, which covers businesses that obtain or access personal information on California resident consumers, grants consumers enhanced privacy rights and control over their personal information and imposes significant requirements on covered companies with respect to consumer data privacy rights. We expect this trend of state-level activity to continue, and are continually monitoring developments in the ~~environment. Based on~~states in which we operate. For a ~~general survey~~further discussion of ~~the Bank’s loan portfolio, conversations with local appraisers~~risks related to privacy and the type of lending currently and historically done by the Bank, we are not presently aware of any actual liability for hazardous waste contamination that would be reasonably likely to have a material adverse effect on the Company as of February 20, 2017. In addition, we are not aware of any physical or regulatory consequence resulting from climate change that would have a material adverse effect upon the Company.cybersecurity, see "Item 1A. Risk Factors" included in this Form 10-K.

Regulation of Certain Subsidiaries

~~Our subsidiary,~~ S1AM is registered with the SEC under the Investment Advisers Act of 1940, as amended, and is subject to its rules and regulations. Following the completion of various studies on investment advisers and broker-dealers required by the Dodd-Frank Act, the SEC has, among other things, recommended to Congress that it consider various means to enhance the SEC’s examination authority over investment advisers, which may have an impact on S1AM that we cannot currently assess.

ITEM 1A. RISK FACTORS

In the course of conducting our business operations, we are exposed to a variety of risks, some of which are inherent in the financial services industry and others of which are more specific to our own businesses. The discussion below addresses the most significant factors, of which we are currently aware, that could affect our businesses, results of operations and financial condition. Additional factors that could affect our businesses, results of operations and financial condition are discussed in "Item 1. Business - Forward-Looking Information." However, other factors not discussed below or elsewhere in this Annual Report on Form 10-K could adversely affect our businesses, results of operations and financial condition. Therefore, the risk factors below should not be considered a complete list of potential risks we may face.

Any risk factor described in this Annual Report on Form 10-K or in any of our other SEC filings could by itself, or together with other factors, materially adversely affect our liquidity, cash flows, competitive position, business, reputation, results of operations, capital position or financial condition, including materially increasing our expenses or decreasing our revenues, which could result in material losses.

General Economic and Market Conditions Risk

Our business is adversely affected by unfavorable economic and market conditions.

U.S. economic conditions affect our operating results. The United States economy has been in a ~~slow-paced seven-year~~nine-year expansion since the Great Recession ended in 2009. This current expansion has been longer than most U.S. expansionary periods in recent ~~history, increasing~~history. In the ~~probability~~event of ~~a near-term U.S.~~an economic ~~recession. An economic~~ recession, ~~adversely affects~~ our operating results could be adversely affected because we could experience higher loan and lease charge-offs and higher operating costs. Global economic conditions also affect our operating results because global economic conditions directly influence the U.S. economic conditions. Brexit, including the possibility of Brexit without an agreement between the United Kingdom and the European Union, has the potential to impact global economic conditions which may in turn impact U.S. economic conditions, but we would not expect any direct impact as we do not operate in the United Kingdom. Various market conditions also affect our operating results. Real estate market conditions directly affect performance of our loans secured by real estate. Debt markets affect the availability of credit which impacts the rates and terms at which we offer loans and leases. Stock market downturns ~~affect businesses’ ability to raise capital and invest in business expansion. Stock market downturns~~ often signal broader economic deterioration and/or a downward trend in business earnings which may adversely ~~affects~~affect businesses’ ability to raise capital and/or service their debts.

An economic recession or a downturn in various markets could have one or more of the following adverse effects on our business:

a decrease in the demand for our loans and leases and other products and services offered by us;

a decrease in our deposit balances due to overall reductions in the accounts of customers;

a decrease in the value of our loans and leases;

an increase in the level of nonperforming and classified loans and leases:

an increase in provisions for credit losses and loan and lease charge-offs;

a decrease in net interest income derived from our lending and deposit gathering activities;

a decrease in the Company's stock price;

~~an impairment of goodwill or certain intangible assets;~~ or

an increase in our operating expenses associated with attending to the effects of ~~the above-listed circumstances.~~

Public equity offerings and mergers and acquisitions involving our Square 1 Bank Division clients or a slowdown in venture capital investment levels may reduce the market for venture capital investment and the borrowing needs of our current and potential clients, which could adversely affect our business, results of operations, or financial condition.

Our Square 1 Bank Division’s strategy is focused on providing banking products and services to entrepreneurial businesses, including in particular early- and expansion-stage companies that receive financial support from sophisticated investors, including venture capital or private equity firms, and corporate investors. We derive a meaningful share of deposits from these companies and provide them with loans as well as other banking products and services. In many cases, our credit decisions are based on our analysis of the likelihood that our venture capital-backed client will receive additional rounds of equity capital from investors. If the amount of capital available to such companies decreases, it is likely that the number of new clients and investor financial support to our existing borrowers would decrease, which could have a material adverse effect on the loan and deposit growth prospects of the Square 1 Bank Division.certain circumstances listed above.

Our ability to attract and retain qualified employees is critical to our success.

Our employees are our most important resource, and in many areas of the financial services industry, competition for qualified personnel is intense. We endeavor to attract talented and diverse new employees and retain and motivate our existing ~~employees.~~employees to assist in executing our growth, acquisition, and business strategies. We also seek to retain proven, experienced senior employees with superior talent, augmented from time to time by external hires, to provide continuity of succession of our executive management team. In addition, the Company’s Board ~~of Directors~~ oversees succession planning, including review of the succession plans for the Chief Executive Officer and other members of executive management. If for any reason we are unable to continue to attract or retain qualified employees, our performance, ~~including our competitive position,~~ could be materially and adversely affected.

Credit Risk

Credit Risk is the Risk of Loss Arising from the Inability or Failure of a Borrower or Counterparty to Meet its Obligation.

We may not recover all amounts that are contractually owed to us by our borrowers.

We are dependent on the collection of loan and lease principal, interest, and ~~fee collections~~fees to partially fund our operations. A shortfall in collections and proceeds may impair our ability to fund our operations or to repay our existing debt.

When we loan money, commit to loan money or enter into a letter of credit or other contract with a counterparty, we incur credit risk. The credit quality of our portfolio can have a significant impact on our earnings. We expect to experience charge-offs and delinquencies on our loans and leases in the future. Our clients' actual operating results may be worse than our underwriting indicated when we originated the loans and leases, and in these circumstances, if timely corrective actions are not taken, we could incur substantial impairment or loss of the value on these loans and leases. We may fail to identify problems because our client did not report them in a timely manner or, even if the client did report the problem, we may fail to address it quickly enough or at all. Even if clients provide us with full and accurate disclosure of all material information concerning their businesses, we may misinterpret or incorrectly analyze this information. Mistakes may cause us to make loans and leases that we otherwise would not have made or to fund advances that we otherwise would not have funded, either of which could result in losses on loans and leases, or necessitate that we significantly increase our allowance for loan and lease losses. As a result, we could suffer loan losses and have nonperforming loans and leases, which could have a material adverse effect on our net earnings and results of operations and financial condition, to the extent the losses exceed our allowance for loan and lease losses.

~~Additionally, some~~Some of our loans and leases are secured by a lien on specified collateral of the ~~client~~borrower and we may not obtain or properly perfect our liens or the value of the collateral securing any particular loan may not protect us from suffering a partial or complete loss if the loan becomes nonperforming and we proceed to foreclose on or repossess the collateral. In such event, we could suffer loan losses, which could have a material adverse effect on our net earnings, allowance for loan and lease losses, financial condition, and results of operations.

Additionally, loans to venture-backed companies support the borrowers’ operations, including operating losses, working capital requirements and fixed asset acquisitions. Venture-backed borrowers are at various stages in their development and are, generally, reporting operating losses. The primary sources of repayment are future additional venture capital equity investments or the sale of the company or its assets. Our venture-backed borrowers’ business plans may fail, increasing the likelihood for credit losses related to loans to venture-backed companies.

At December 31, 2018, loans to venture-backed companies totaled $1.2 billion or 7% of total loans and leases. For the year ended December 31, 2018, net charge-offs related to venture-backed borrowers totaled $24.2 million or 55% of total net charge-offs for this period. In accordance with U.S. GAAP, we maintain an allowance for loan and lease losses to provide for loan defaults and non-performance. Our allowance for loan and lease losses allocable to loans to venture-backed borrowers may not be adequate to absorb actual credit losses arising from these loans, and future provisions for credit losses could materially and adversely affect our operating results.

Our allowance for credit losses may not be adequate to cover actual losses.

In accordance with ~~generally accepted accounting principles in the United States,~~U.S. GAAP, we maintain an allowance for loan and lease losses to provide for loan and lease defaults and non-performance and a reserve for unfunded loan commitments, which, when combined, we refer to as the allowance for credit losses. Our allowance for credit losses may not be adequate to absorb actual credit losses, and future provisions for credit losses could materially and adversely affect our operating results. Our allowance for credit losses is based on prior experience and an evaluation of the risks inherent in the current portfolio. The amount of future losses is ~~susceptible to~~influenced by changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current estimates. Our federal and state regulators, as an integral part of their examination process, review our loans and leases and allowance for credit losses. While we believe our allowance for credit losses is appropriate for the risk identified in our loan and lease portfolio, we cannot provide assurance that we will not further increase the allowance for credit losses, that it will be sufficient to address losses, or that regulators will not require us to increase this allowance. Any of these occurrences could materially and adversely affect our financial condition and results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information.

Our ~~concentration of~~ loans and leases ~~to privately owned small~~are concentrated by location, collateral value, and ~~medium-sized companies and our concentration of lending to particular market sectors and~~borrower type which could exacerbate credit losses if certain markets or industries ~~could expose us to greater lending risk if the privately owned small or medium-sized company, market sector or industry~~ were to experience economic difficulties or ~~changes in the regulatory environment.~~operating issues.

Our portfolio consists primarily of real estate and commercial loans and leases to small and medium-sized privately owned businesses in a limited number of industries throughout the United States. Loan and leases made to these types of clients entail higher risks than loans and leases made to larger, publicly owned firms that are able to access a broader array of credit sources and thus more easily weather an economic downturn.

Commercial loans and leases comprised 54% of our total portfolio at December 31, 2016. At December 31, 2016, our largest commercial loan type concentration was cash flow loans, which includes leveraged loans as defined by regulatory guidance, totaling 20% of our portfolio. Cash flow loans are provided to sophisticated buyers and private equity groups, financial investors, strategic companies and sponsors to finance the acquisition or recapitalization of a business. Other significant commercial concentrations by loan type include asset-based loans at 17%, venture capital loans at 13%, and equipment finance at 4% of the total portfolio at December 31, 2016.

~~As of December 31, 2016, real~~Real estate mortgage loans and real estate construction and land loans ~~(which are predominantly commercial real estate mortgage loans) together~~ comprised ~~43%~~57% of our total ~~portfolio~~loans and our largest property type concentration was multi-family properties, totaling 18% of real estate mortgage loans. Other significant real estate mortgage loan property type concentrations were healthcare property at 17% and office properties at 15%leases at December 31, ~~2016. In addition, 49% of our~~2018. Of total loans and leases, 32% are secured by real estate ~~were~~collateral located in California, at20% are secured by multi-family properties, and 5% are secured by commercial real estate construction projects.

For real estate mortgage 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 refinancing of the properties. For real estate construction and land loans, the primary source of loan repayments is the proceeds from the sales or refinancing of the properties following the completion of construction and the stabilization/attainment of sufficient debt service coverage. 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.

We have a number of large credit relationships and individual commitments.

At December 31, ~~2016.~~2018, we had 28 credit relationships with aggregate commitments greater than $100 million. These 28 relationships had commitments that totaled $4.8 billion and corresponding outstanding balances of $2.8 billion. These relationships include loans to borrowers where a common enterprise has been determined to exist. Examples of a common enterprise are control through majority ownership, common management, or the sharing of a material guarantor. The aggregated loans typically are not cross collateralized and each borrower's performance does not usually affect the collectability of the other loans in the aggregation.

At December 31, 2018, our largest individual loan commitment was $155.0 million and we had six individual loan commitments each of $150.0 million. These commitments were for equity fund loans, lender finance loans, and commercial construction loans. At December 31, 2018, our ten largest individual loan commitments totaled $1.5 billion and had corresponding outstanding balances that totaled $732.7 million. These ten largest commitments ranged from $130.0 million to $155.0 million. These commitments were for equity fund loans, lender finance loans, commercial construction loans, other commercial real estate loans, and secured business loans. At December 31, 2017, our ten largest individual loan commitments totaled $908.9 million and had corresponding outstanding balances that totaled $516.2 million. These ten largest commitments ranged from $75.0 million to $110.0 million. These commitments were for residential construction, lender finance loans, commercial construction loans, other commercial real estate, hospitality loans, and income producing residential loans.

We are potentially vulnerable to significant loan losses in the event that the value of one of our larger borrower’s collateral rapidly declines or one of our larger borrowers becomes unable to repay its loans due to a decline in its business. A significant loss related to one of our large lending relationships or individual commitments could have a material adverse effect on our financial condition and results of operations.

A slowdown in venture capital investment levels may reduce the market for venture capital investment for our Venture Banking clients, which could adversely affect our business, results of operations, or financial condition.

Our Venture Banking group's strategy is focused on providing banking products and credit to entrepreneurial businesses, including in particular early- and expansion-stage companies that receive financial support from sophisticated investors, including venture capital or private equity firms, and corporate investors. We derive a significant portion of deposits, including large deposits, from these companies and provide them with loans as well as other banking products and services. In many cases, our credit decisions are based on our analysis of the likelihood that our venture capital-backed clients will receive additional rounds of equity capital from investors. If ~~any particular industry or market sector were to experience economic difficulties,~~ the ~~overall timing and~~ amount of ~~collections on our loans~~capital available to ~~clients operating in those industries may differ from what~~such companies decreases, we ~~expected,~~could suffer loan losses, which could have a material adverse ~~impact~~effect on our net earnings, allowance for loan and lease losses, financial condition, orand results of operations.

Market Risk

Market Risk is the Risk that Market Conditions May Adversely Impact the Value of Assets or Liabilities or Otherwise Negatively Impact Earnings. Market Risk is Inherent to the Financial Instruments Associated with our Operations, Including Loans, Deposits, Securities, Short-term Borrowings, Long-term Debt, and Derivatives.

Our business is subject to interest rate risk, and variations in interest rates may materially and adversely affect our financial performance.

Changes in the interest rate environment may reduce our profits. It is expected that we will continue to realize income from the differential or "spread" between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. Changes in market interest rates generally affect loan volume, loan yields, funding sources and funding costs. Our net interest spread depends on many factors that are partly or completely out of our control, including competition, federal economic monetary and fiscal policies, and general economic conditions.

While an increase in interest rates may increase our loan yield, it may adversely affect the ability of certain borrowers with ~~variable-rate~~variable rate loans to pay the contractual interest on and principal ~~of their obligations.~~due to us. Following an increase in interest rates, our ability to maintain a positive net interest spread is dependent on our ability to increase our loan offering rates, replace ~~loan maturities~~loans that mature and repay or that prepay before maturity with new originations, minimize increases on our deposit rates, and maintain an acceptable level and ~~mix~~composition of funding. We cannot provide assurances that we will be able to increase our loan offering rates and continue to originate loans due to the competitive landscape in which we operate. Additionally, we cannot provide assurances that we can minimize the increases in our deposit rates while maintaining an acceptable level of deposits. Finally, we cannot provide any assurances that we can maintain our current levels of noninterest-bearing deposits as customers may seek higher-yielding products when interest rates increase.

Accordingly, changes in levels of interest rates could materially and adversely affect our net interest spread, net interest margin, cost of deposits, asset quality, loan origination volume, average loan portfolio balance, liquidity, and overall profitability.

~~The price of our common stock may be volatile or may decline.~~

The trading price of our common stock may fluctuate as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations could adversely affect the market price of our common stock. Among the factors that could affect our stock price are:

~~actual or anticipated quarterly fluctuations in our periodic operating results and financial condition;~~

~~changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts;~~

~~failure to meet analysts’ revenue or earnings estimates;~~

~~cyber security breaches;~~

~~speculation in the press or investment community;~~

~~strategic actions by us or our competitors, such as acquisitions or restructurings;~~

~~actions by institutional stockholders;~~

~~fluctuations in the stock price and operating results of our competitors;~~

~~general market conditions and, in particular, developments related to market conditions for the financial services industry;~~

~~proposed or adopted regulatory changes or developments;~~

~~anticipated or pending investigations, proceedings or litigation that involve or affect us; or~~

~~domestic and international economic factors unrelated to our performance.~~

The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility during the past several years and the future performance of the stock market is inherently uncertain. As a result, the stock market generally and the market price and trading volume of our common stock specifically may be volatile. The trading price of our common stock will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, and future sales of our equity or equity-related securities. A significant decline in our stock price could result in the potential impairment of goodwill, substantial losses for individual stockholders and could lead to costly and disruptive securities litigation.

The value of our securities in our investment portfolio may decline in the future.

The fair value of our investment securities may be adversely affected by market conditions, including changes in interest rates, implied credit spreads, and the occurrence of any events adversely affecting the issuer of particular securities in our investments ~~portfolio.~~portfolio or any given market segment or industry in which we are invested. We analyze our securities on a quarterly basis to determine if an other-than-temporary impairment has occurred. The process for determining whether impairment is other-than-temporary usually requires complex, subjective judgments about the future financial performance of the issuer in order to assess the probability of receiving ~~all contractual~~ principal and interest payments onsufficient to recover our amortized cost of the security. Because of changing economic and market conditions affecting issuers, we may be required to recognize other-than-temporary impairment in future periods, which could have a material adverse effect on our business, financial condition, or results of operations.

Liquidity Risk

Liquidity Risk is the Potential Inability to Meet our Contractual and Contingent Financial Obligations, On- or Off-balance Sheet, as they Become Due.

We are subject to liquidity risk, which could adversely affect our financial condition and results of operations.

Effective liquidity management is essential for the operation of our business. Although we have implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, changes in assets, liabilities, and off-balance sheet commitments under various economic conditions, an inability to raise funds through deposits, borrowings, the sale of investment securities and other sources could have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market disruption, a decrease in the borrowing capacity assigned to our pledged assets by our secured creditors, or adverse regulatory action against us. Deterioration in economic conditions and the loss of confidence in financial institutions may increase our cost of funding and limit our access to some of our customary sources of liquidity, including, but not limited to, inter-bank borrowings, repurchase agreements and borrowings from the discount window of the FRBSF. Our ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry generally as a result of conditions faced by banking organizations in the domestic and ~~worldwide~~international credit markets.

~~We may need to raise additional capital in the future and such capital may not be available when needed or at all.~~

We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments, regulatory requirements, and business needs. As a publicly traded company, a likely source of additional funds is the capital markets, accomplished generally through the issuance of equity, both common and preferred stock, and the issuance of subordinated debentures. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance. Deterioration in economic conditions and the loss of confidence in financial institutions may increase our cost of funding and limit our access to some of our customary sources of liquidity, including, but not limited to, inter-bank borrowings, repurchase agreements and borrowings from the discount window of the FRBSF, as well as to capital markets.

We cannot provide any assurance that access to such capital and liquidity will be available to us on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers or counterparties participating in the capital markets, may materially and adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Further, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition, or results of operations.

We may be adversely affected by changes in the actual or perceived soundness or condition of other financial institutions.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial and financial soundness of other financial institutions. Financial institutions are closely related as a result of trading, investment, liquidity management, clearing, counterparty and other relationships. Loss of public confidence in any one institution, including through default, could lead to liquidity and credit problems, losses, or defaults for other institutions. Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity and credit problems, losses, or defaults by various institutions. This systemic risk may adversely affect financial intermediaries, such as clearing agencies, banks and exchanges we interact with on a daily basis or key funding providers such as the Federal Home Loan Banks, any of which could have a material adverse effect on our access to liquidity or otherwise have a material adverse effect on our business, financial condition, or results of operations.

The primary source of the holding company's liquidity from which we pay dividends, among other things, ~~we pay dividends~~ is the receipt of dividends from the Bank.

The holding company, PacWest, is a legal entity separate and distinct from the Bank and our other subsidiaries. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that the FRB, the FDIC and/or the DBO could assert that payment of dividends or other payments is an unsafe or unsound practice. In the event the Bank is unable to pay dividends to the holding company, it is likely that we, in turn, would have to discontinue capital distributions in the form of dividends or share repurchases and may have difficulty meeting our other financial obligations, including payments in respect of any outstanding indebtedness or subordinated debentures. The Bank may declare a dividend without the approval of the DBO and FDIC as long as the total dividends declared in a calendar year do not exceed either the retained earnings or the total of net earnings for the three previous fiscal years less any dividend paid during such period. Dividends paid by the Bank during the previous three fiscal years exceeded the Bank's net earnings during that same period by $28.5 million. Since the Bank had an accumulated deficit of ~~$520.0~~$643.9 million at December 31, ~~2016,~~2018, for the foreseeable future, any cash dividends from the Bank to the holding company will continue to require DBO and FDIC approval. The inability of the Bank to pay dividends to the holding company could have a material adverse effect on our business, including the market price of our common stock.

We may reduce or discontinue the payment of dividends on common stock.

Our stockholders are only entitled to receive such dividends as our Board ~~of Directors~~ may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. Our ability to pay dividends to our stockholders is subject to the restrictions set forth in Delaware law, by the FRB, and by certain covenants contained in our subordinated debentures. Notification to the FRB is also required prior to our declaring and paying a cash dividend to our stockholders during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. In addition, we may be restricted by applicable law or regulation or actions taken by our regulators, now or in the future, from paying dividends to our stockholders. We cannot provide assurance that we will continue paying dividends on our common stock at current levels or at all. A reduction or discontinuance of dividends on our common stock could have a material adverse effect on our business, including the market price of our common stock.

Capital Risk

We are subject to capital adequacy standards, and a failure to meet these standards could adversely affect our financial condition.

The Company and the Bank are each subject to capital adequacy and liquidity rules and other regulatory requirements specifying minimum amounts and types of capital that must be maintained. From time to time, the regulators implement changes to these regulatory capital adequacy and liquidity guidelines. If we fail to meet these minimum capital and liquidity guidelines and other regulatory requirements, we may be restricted in the types of activities we may conduct and may be prohibited from taking certain capital actions, such as making TruPS payments or paying executive bonuses or dividends, and repurchasing or redeeming capital securities.

We may need to raise additional capital in the future and such capital may not be available when needed or at all.

We are required by federal and state regulators to maintain adequate levels of capital. We may need to raise additional capital in the future to meet regulatory or other internal requirements. As a publicly traded company, a likely source of additional funds is the capital markets, accomplished generally through the issuance of equity, both common and preferred stock, and the issuance of subordinated debentures. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance.

We cannot provide any assurance that access to such capital will be available to us on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers or counter-parties participating in the capital markets, may materially and adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Further, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. The inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition, or results of operations.

Regulatory, Compliance and Legal Risk

We are subject to extensive regulation, which could materially and adversely affect our business.

The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, federal deposit insurance funds and the banking system as a whole, not for the protection of our stockholders and creditors. The Company is subject to regulation and supervision by the FRB, and the Bank is subject to regulation and supervision by the FDIC, DBO and CFPB. The laws and regulations applicable to us govern a variety of matters, including, but not limited to, permissible types, amounts and terms of loans and investments we make, the maximum interest rate that may be charged, consumer disclosures on the products and services we offer, the amount of reserves we must hold against our customers' deposits, the types of deposits we may accept and the rates we may pay on such deposits, maintenance of adequate capital and liquidity, restrictions on dividends and establishment of new offices by the Bank. We must obtain approval from our regulators before engaging in certain activities, including certain acquisitions, and there can be no assurance that any regulatory approvals we may require will be obtained, or obtained without conditions, either in a timely manner or at all. Our regulators have the ability to compel us to, or restrict us from, taking certain actions entirely, such as actions that our regulators deem to constitute unsafe or unsound banking practice. While we have policies and procedures designed to prevent violations of the extensive federal and state regulations, ~~we are subject to, our~~any failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in ~~orders from our regulators,~~regulatory enforcement actions, civil monetary penalties, or damage to our reputation, all of which could have a material adverse effect on our business, financial condition, or results of operation.

Regulations affecting banks and other financial institutions ~~such as the Dodd-Frank Act,~~ are undergoing continuous review and ~~change frequently.~~frequent change. The ultimate effect of such changes cannot be predicted. Because our business is highly regulated, compliance with such regulations and laws may increase our costs and limit our ability to pursue business opportunities. Also, participation in any future specific government stabilization programs may subject us to additional restrictions. There can be no assurance that laws, rules, and regulations will not be proposed or adopted in the future, which could (i) make compliance much more difficult or expensive, (ii) restrict our ability to originate, broker, or sell loans or accept certain deposits, (iii) further limit or restrict the amount of commissions, interest, or other charges earned on loans originated or sold, ~~by us,~~ or (iv) otherwise materially and adversely affect our business or prospects for business. While new legislation in 2018 scaled back portions of the ~~change in~~Dodd-Frank Act and the current administration in the United States may ultimately roll back or modify certain of the regulations adopted since the financial crisis, ~~including those adopted under~~future changes in bank regulation are uncertain and could negatively impact our business.

Though the Company and Bank are no longer required to prepare annual stress tests pursuant to the Dodd-Frank Act, uncertainty about the timing and scope of any such changes as well as the cost of complying with a new regulatory regime, may negatively impact our business, at least in the short term, even if the long-term impact of any such changes are positive for our business.

~~In October 2012, as required by the Dodd-Frank Act, the FRB and FDIC published final rules regarding company-run stress testing. As a result of these final rules~~ we ~~invest a significant amount of time and resources into conducting~~continue to prepare an annual ~~company-run~~ stress test of our capital, consolidated earnings and losses under ~~various stress scenarios provided by our regulators.~~adverse economic and market conditions. Our stress test results are considered by the FRB and FDIC in evaluating our capital adequacy and could have a negative impact on our ability to make capital distributions in the form of dividends or share repurchases.

~~We are subject to capital adequacy standards, and a failure to meet these standards could adversely affect our financial condition.~~

The Company and the Bank are each subject to capital adequacy and liquidity rules and other regulatory requirements specifying minimum amounts and types of capital that must be maintained. From time to time, the regulators implement changes to these regulatory capital adequacy and liquidity guidelines. If we fail to meet these minimum capital and liquidity guidelines and other regulatory requirements, we or our subsidiaries may be restricted in the types of activities we may conduct and may be prohibited from taking certain capital actions, such as paying dividends and repurchasing or redeeming capital securities.

The Company and its subsidiaries are subject to changes in federal and state tax laws, interpretation of existing laws and examinations and challenges by taxing authorities.

Our financial performance is impacted by federal and state tax laws. Given the current economic and political environment, and ongoing budgetary pressures, the enactment of new federal or state tax legislation ~~may occur~~ or new interpretations of existing tax laws could ~~change.~~occur. The enactment of such legislation, or changes in the interpretation of existing law, including provisions impacting income tax rates, apportionment, consolidation or combination, income, expenses, and credits, may have a material adverse effect on our financial condition, results of operations, and liquidity.

In the normal course of business, we are routinely subjected to examinations and audits from federal, state, and ~~state~~local taxing authorities regarding tax positions taken by us and the determination of the amount of tax due. These examinations may relate to income, franchise, gross receipts, payroll, property, sales and use, or other tax returns filed, or not filed, by us. The challenges made by taxing authorities may result in adjustments to the amount of taxes due, and may result in the imposition of penalties and interest. If any such challenges are not resolved in our favor, they could have a material adverse effect on our financial condition, results of operations, and liquidity.

We are subject to claims and litigation which could adversely affect our cash flows, financial condition and results of operations, or cause us significant reputational harm.

We and certain of our subsidiaries and certain of our and their directors ~~officers~~ and ~~subsidiaries~~officers may be involved, from time to time, in reviews, investigations, litigation, and other proceedings pertaining to our business activities. If claims or legal actions, whether founded or unfounded, are not resolved in a favorable manner to us, they may result in significant financial liability. Although we establish accruals for legal matters when and as required by ~~generally accepted accounting principles~~U.S. GAAP and certain expenses and liabilities in connection with such matters may be covered by insurance, the amount of loss ultimately incurred in relation to those matters may be substantially higher than the amounts accrued and/or insured. Substantial legal liability could adversely affect our business, financial condition, results of operations, and reputation.

Risk of the Competitive Environment in which We Operate

We face strong competition from financial services companies and other companies that offer banking services, which could materially and adversely affect our business.

The financial services industry has become even more competitive as a result of legislative, regulatory and technological changes and continued banking consolidation, which may increase in connection with current economic, market and political conditions. We face substantial competition in all phases of our operations from a variety of competitors, including national banks, regional banks, community banks and, more recently, financial technology (or "fintech") companies.Many of our competitors offer the same banking services that we offer and our success depends on our ability to adapt our products and services to evolving industry standards. Increased competition in our market may result in reduced new loan and lease production and/or decreased deposit balances or less favorable terms on loans and leases and/or deposit accounts. We also face competition from many other types of financial institutions, including without limitation, non-bank specialty lenders, insurance companies, private investment funds, investment banks, and other financial intermediaries. While there are a limited number of direct competitors in the venture banking market, some of our competitors have long-standing relationships with venture firms and the companies that are funded by such firms. ~~The market for our Square 1 Bank Division is extremely competitive and several~~Many of our competitors have significantly greater resources, established customer bases, more locations, and longer operating histories.

~~We also face competition from financial intermediaries that have opened production offices or that solicit deposits in our market areas.~~ Should competition in the financial services industry intensify, our ability to market our products and services may be adversely affected. If we are unable to attract and retain banking customers, we may be unable to grow or maintain the levels of our loans and deposits and our results of operations and financial condition may be adversely affected as a result. Ultimately, we may not be able to compete successfully against current and future competitors.

Our ability to maintain, attract and retain customer relationships and investors is highly dependent on our reputation.

Damage to our reputation could undermine the confidence of our current and potential customers and investors in our ability to provide high-quality financial services. Such damage could also impair the confidence of our counterparties and vendors and ultimately affect our ability to effect transactions. Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described herein, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, client personal information and privacy issues, customer and other third-party fraud, record-keeping, technology-related issues including but not limited to cyber fraud, regulatory investigations and any litigation that may arise from the failure or perceived failure to comply with legal and regulatory requirements. ~~Maintaining our reputation also depends on our ability to successfully prevent third parties from infringing on our brands and associated trademarks and our other intellectual property.~~ Defense of our reputation, trademarks, and other intellectual property, including through litigation, also could result in costs that could have a material adverse effect on our business, financial condition, or results of operations.

Risks Related to Risk Management

~~Failure to keep pace with technological change could adversely affect our business and we recently converted to a new core processing system.~~

The financial services industry experiences continuous technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. To keep pace with technology and provide sufficient scalability for growth, we completed the second phase of our conversion to a new core processing system related to managing customer accounts in January 2017 and the additional phases are scheduled to be completed during 2017. Many of our competitors, however, have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. In addition, we depend on internal and outsourced technology to support all aspects of our business operations. Interruption or failure of these systems creates a risk of business loss as a result of adverse customer experiences and possible diminishing of our reputation, damage claims or civil fines. Failure to successfully keep pace with technological change affecting the financial services industry or to successfully convert to a new core processing system could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

Our acquisitions may subject us to unknown risks.

~~Certain~~As an active acquirer having successfully completed 29 acquisitions since 2000, certain events may arise after the date of an acquisition, or we may learn of certain facts, events or circumstances after the closing of an acquisition, that may affect our financial condition or performance or subject us to risk of loss. These events include, but are not limited to: litigation resulting from circumstances occurring at the acquired entity prior to the date of acquisition; loan downgrades and credit loss provisions resulting from deterioration in the credit quality of the acquired loans; personnel changes that cause instability within a department; delays in implementing new policies or procedures or the failure to apply new policies or procedures; and other events relating to the performance of our business. Acquisitions involve inherent uncertainty and we cannot determine all potential events, facts and circumstances that could result in loss or increased costs or give assurances that our due diligence or mitigation efforts will be sufficient to protect against any such loss or increased costs.

Our ability to execute our strategic ~~activities~~initiatives successfully will depend on a variety of factors. These factors likely will vary based on the nature of the ~~activity~~initiative but may include our success in integrating the operations, services, products, personnel and systems of an acquired company into our business, operating effectively with any partner with whom we elect to do business, retaining key employees, achieving anticipated synergies, meeting expectations and otherwise realizing the undertaking's anticipated benefits. Our ability to address these matters successfully cannot be assured. In addition, our strategic initiatives may divert resources or management's attention from ongoing business operations and may subject us to additional regulatory scrutiny. If we do not successfully execute a strategic undertaking, it could adversely affect our business, financial condition, results of operations, reputation, regulatory relationships and growth prospects. ~~In addition, if we determined that the value of an acquired business had decreased and that the related goodwill is impaired, an impairment of goodwill charge to earnings would be recognized.~~ To the extent we issue capital stock in connection with future acquisitions, these transactions may be dilutive to tangible book value ~~and earnings per share~~ and will dilute share ownership.

Failure to keep pace with technological change could adversely affect our business.

The financial services industry experiences continuous technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. To keep pace with technology and provide sufficient scalability for growth, we completed the conversion to a new core processing system related to managing customer accounts during 2018. Many of our competitors, however, have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. In addition, we depend on internal and outsourced technology to support all aspects of our business operations. Interruption or failure of these systems creates a risk of business loss as a result of adverse customer experiences and possible diminishing of our reputation, damage claims or civil fines. Failure to successfully keep pace with technological change affecting the financial services industry or to successfully implement core processing strategies could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

A failure, interruption or breach in the security of our systems, or those of contracted ~~partners,~~vendors, could disrupt our business, result in the disclosure of confidential information, damage our reputation, and create significant financial and legal exposure.

Although we devote significant resources to maintain and regularly update our systems and processes that are designed to protect the security of our computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to us and our customers, there is no assurance that all of our security measures will provide absolute security.

Many financial institutions, including ~~PacWest,~~the Company, have been subjected to attempts to infiltrate the security of their websites or other systems, some involving sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage, including through the introduction of computer viruses or malware, ~~cyberattacks~~cyber-attacks and other means. We have been targeted by individuals and groups using phishing campaigns, pretext calling, malicious code and viruses, and have experienced distributed denial-of-service attacks with the objective of disrupting on-line banking services and expect to be subject to such attacks in the future.

Despite efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate, detect or recognize threats to our systems or to implement effective preventive measures against all security breaches of these types inside or outside our business, especially because the techniques used change frequently or are not recognized until launched, and because ~~cyberattacks~~cyber-attacks can originate from a wide variety of sources, including individuals or groups who are associated with external service providers or who are or may be involved in organized crime or linked to terrorist organizations or hostile foreign governments. Those parties may also attempt to fraudulently induce employees, customers, third-party service providers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. These risks may increase in the future as our web-based product offerings grow or we expand internal usage of web-based applications.

A successful penetration or circumvention of the security of our systems, ~~or the systems~~including those of ~~another market participant~~our third-party vendors, could cause serious negative consequences, including significant disruption of our operations, misappropriation of confidential information, or damage to computers or systems, and may result in violations of applicable privacy and other laws, financial loss, loss of confidence in our security measures, customer dissatisfaction, increased insurance premiums, significant litigation exposure and harm to our reputation, all of which could have a material adverse effect on our business, financial condition, results of operations, and future prospects.

We rely on other companies to provide key components of our business infrastructure.

We rely on certain third parties to provide products and services necessary to maintain day-to-day operations, such as data processing and storage, recording and monitoring transactions, on-line banking interfaces and services, Internet connections, telecommunications, and network access. Even though we have a vendor management program to help us carefully select and monitor the performance of third parties, we do not control their actions. The failure of a third-party to perform in accordance with the contracted arrangements under service level agreements as a result of changes in the third party’s organizational structure, financial condition, support for existing products and services, strategic focus, system interruption or breaches, or for any other reason, could be disruptive to our operations, which could have a material adverse effect on our business, financial condition and results of operations. Replacing these third parties could also create significant delays and expense. Accordingly, use of such third parties creates an inherent risk to our business operations.

Our controls and procedures may fail or be circumvented.

We regularly review and update our internal controls, disclosure controls and procedures, compliance monitoring activities and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, reputation and financial condition. In addition, if we identify material weaknesses or significant deficiencies in our internal control over financial reporting or are required to restate our financial statements, we could be required to implement expensive and time-consuming remedial measures. We could lose investor confidence in the accuracy and completeness of our financial reports and potentially subject us to litigation. Any material weaknesses or significant deficiencies in our internal control over financial reporting or restatement of our financial statements could have a material adverse effect on our business, results of operations, reputation, and financial condition.

Severe weather, natural disasters, acts of war or terrorism or other adverse external events could harm the Company's business.

Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business. The nature and level of severe weather and/or natural disasters cannot be predicted and may be exacerbated by global climate change. Severe weather and natural disasters could harm our operations through interference with communications, including the interruption or loss of our computer systems, which could prevent or impede us from gathering deposits, originating loans and processing and controlling the flow of business, as well as through the destruction of facilities and our operational, financial and management information systems. California, in which a substantial portion of our business ~~is located~~ and a substantial portion of our loan collateral is located, is susceptible to severe weather and natural disasters such as earthquakes, floods, droughts and wildfires. Additionally, the United States remains a target for potential acts of war or terrorism. Such severe weather, natural disasters, acts of war or terrorism or other adverse external events could negatively impact our business operations or the stability of our deposit base, cause significant property damage, adversely impact the values of collateral securing our loans and/or interrupt our borrowers' abilities to conduct their business in a manner to support their debt obligations, which could result in losses and increased provisions for credit losses. There is no assurance that our business continuity and disaster recovery program can adequately mitigate the risks of such business disruptions and interruptions.

Risk from Accounting and Other Estimates

~~Our decisions regarding~~The Company's consolidated financial statements are based in part on assumptions and estimates which, if incorrect, could cause unexpected losses in the future.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these consolidated financial statements in conformity with U.S. GAAP. Actual results could differ from these 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 fair value estimates of certain assets ~~acquired could~~and liabilities, and the realization of deferred tax assets and liabilities. These estimates may be ~~inaccurate which could materially~~adjusted as more current information becomes available, and ~~adversely affect~~any adjustment may be significant.

There are risks resulting from the extensive use of models in our ~~business,~~business.

We rely on quantitative models to measure risks and to estimate certain financial ~~condition, results~~values. Models may be used in such processes as determining the pricing of ~~operations,~~various products, grading loans and ~~future prospects.~~

~~To comply with generally accepted accounting principles, management must exercise judgment in selecting, determining,~~extending credit, measuring interest rate and ~~applying accounting methods, assumptions,~~other market risks, predicting or estimating losses, assessing capital adequacy and ~~estimates. Management makes various estimates and judgments about the collectability of acquired loans, including the creditworthiness of borrowers and~~calculating regulatory capital levels, as well as to estimate the value of financial instruments and balance sheet items. Poorly designed or implemented models present the ~~real estate and other assets serving as collateral for~~risk that our business decisions based on information incorporating model output could be adversely affected due to the ~~repayment~~inaccuracy of ~~secured loans. If the actual performance~~that information. Some of the ~~acquired loans and/or~~decisions that our regulators make, including those related to capital distributions, could be affected due to the ~~value~~perception that the quality of the ~~collateral differs materially from management's estimates, any resulting losses or increased credit loss provisions~~models used to generate the relevant information is insufficient, which could have a negative ~~effect~~impact on our ~~business, financial condition,~~ability to make capital distributions in the form of dividends or ~~results of operations.~~share repurchases.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of January 31, ~~2017,~~2019, we had a total of ~~145~~155 properties consisting of 7875 full-service branch offices and 6780 other offices. We own ~~eight~~four locations and the remaining properties are leased. Our properties are located throughout the United States, however, approximately 75% are located in California. We lease our principal office, which is located at 9701 Wilshire Blvd., Suite 700, Beverly Hills, CA 90212.

For additional information regarding properties of the Company and Pacific Western, see Note 9.8. Premises and Equipment, Net of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”

ITEM 3. LEGAL PROCEEDINGS

See Note 12. Commitments and Contingencies of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data." That information is incorporated into this item by reference.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

PART II


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Marketplace Designation ~~Sales Price Information~~ and Holders

Our common stock is listed on The Nasdaq Global Select Market and is traded under the symbol “PACW.” ~~The following table summarizes the high and low sale prices for each quarterly period during the last two years for our common stock, as quoted and reported by The Nasdaq Stock Market, or Nasdaq:~~

Dividends
Declared
Stock Sales Prices During
High Low Quarter
2015
First quarter $47.47 $41.41 $0.50
Second quarter $48.86 $43.69 $0.50
Third quarter $48.54 $40.00 $0.50
Fourth quarter $48.00 $41.11 $0.50

2016
First quarter $43.45 $29.05 $0.50
Second quarter $42.14 $35.56 $0.50
Third quarter $43.86 $36.89 $0.50
Fourth quarter $56.07 $41.10 $0.50

As of February ~~14, 2017, the closing price of our common stock on Nasdaq was $56.62 per share. As of that date,~~21, 2019, and based on the records of our transfer agent, there were approximately ~~1,672~~1,780 record holders of our common stock.

Dividends

~~The table above shows the dividends we declared and paid during the two most recent fiscal years.~~ For a discussion of dividend restrictions on the Company's common stock, or of dividends from the Company's subsidiaries to the Company, see “Item 1. Business - Supervision and Regulation - Dividends and Share Repurchases” and Note ~~19.~~20. Dividend Availability and Regulatory Matters of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of December 31, ~~2016,~~2018, regarding securities issued and to be issued under our equity compensation plans in effect during fiscal year ~~2016:~~2018:

~~Number of~~

~~Weighted~~

~~Number of Securities~~

~~Securities to be~~

~~Average~~

~~Remaining Available~~

~~Issued Upon~~

~~Exercise~~

~~for Future Issuance~~

~~Exercise of~~

~~Price of~~

~~Under Equity~~

~~Outstanding~~

~~Compensation Plans~~

~~Options, Warrants~~

~~(Excluding Securities~~

~~and Rights~~

~~Reflected in Column (a))~~

~~Plan Category~~

~~Plan Name~~

~~(a)~~

~~(b)~~

~~(c)~~

~~Equity compensation plans~~

~~The PacWest Bancorp 2003~~

~~approved by security holders~~

~~Stock Incentive Plan~~

Number of Securities

Remaining Available

Number of Securities

for Future Issuance

to be Issued

Weighted Average

Under Equity

Upon Exercise of

Exercise Price of

Compensation Plans

Outstanding

(Excluding Securities

Options, Warrants

Reflected in

and Rights

Column (a))

Plan Category

Plan Name

(a)

(b)

(c)

Equity compensation plans

PacWest Bancorp 2017

approved by security holders

Stock Incentive Plan ⁽¹⁾

86,716

⁽²⁾

—

3,078,304

⁽³⁾

PacWest Bancorp 2003

Stock Incentive Plan ⁽¹⁾

227,361

⁽⁴⁾

—

⁽⁵⁾

Equity compensation plans

not approved by security holders

None

—

Total

314,077

—

3,078,304

__________________________________ ⁽¹⁾

—

⁽²⁾

—

~~12,314,325~~

⁽³⁾

~~Equity compensation plans~~

~~not approved by security holders~~

~~None~~

—

(1)

The PacWest Bancorp ~~2003~~2017 Stock Incentive Plan (the ~~“Incentive~~“2017 Incentive Plan”) was ~~last~~ approved by our stockholders at our ~~2016~~May 15, 2017 Annual Meeting of Stockholders, ~~Meeting. The authorized number of shares available~~authorizing for issuance 4,000,000 shares. Upon approval of the 2017 Incentive Plan by our stockholders, the PacWest 2003 Stock Incentive Plan (the "2003 Incentive Plan") was frozen and no new awards can be granted under the Incentive Plan was increased to 9,000,000 shares at our 2014 Special Stockholders Meeting. Upon consummation of the CapitalSource Inc. merger on April 7, 2014, an additional 10,686,565 shares were added to the2003 Incentive Plan. Such shares were available for grant under the former CapitalSource Inc. Equity Incentive Plan and remain available for grant to: (a) former employees of CapitalSource Bank who remain employed with the Company, and (b) newly hired employees of the Company.

(2)

Amount includes PRSUs granted in 2018 that may be issued at the end of their three-year performance period if certain financial metrics are met. The number of units shown represents a target amount and the number of units that will ultimately vest is unknown. Amount does not include ~~the 1,476,132~~772,081 shares of unvested time-based restricted stock outstanding under the 2017 Incentive Plan with a zero exercise price as of December 31, ~~2016.~~2018.


(3)	The 2017 Incentive Plan permits these remaining shares to be issued in the form of options, restricted stock, or stock appreciation rights. ~~The amount includes 9,035,069 shares remaining from those added to the Incentive Plan from the CapitalSource Inc. merger.~~

(4) Amount includes 85,310 PRSUs granted in 2017 that may be issued at the end of the three-year performance period if certain financial metrics are met and 142,051 shares that vested and were issued in February 2019 related to PRSUs granted in 2016. The number shown for units granted in 2017 represents a target amount and the number of units that will ultimately vest is unknown. Amount does not include 572,575 shares of unvested time-based restricted stock outstanding under the 2003 Incentive Plan with a zero exercise price as of December 31, 2018.

(5) The 2003 Incentive Plan was frozen on May 15, 2017 and no new awards can be granted under the 2003 Incentive Plan. However, the 2017 PRSU awards were granted from the 2003 Incentive Plan and at the end of their three-year performance period, if performance is achieved and awards are earned, they will be issued from the 2003 Incentive Plan. The number of shares to be issued, if any, is unknown at this time.

Recent Sales of Unregistered Securities and Use of Proceeds

None.

Repurchases of Common Stock

The following table presents stock repurchases we made during the fourth quarter of ~~2016:~~2018:

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)
October 1 – October 31, 2016 220,835
$ 43.54
219,426
$ 390,445
November 1 – November 30, 2016 448,763
$ 42.38
433,409
$ 372,069
December 1 – December 31, 2016 —
—
—
$ 372,069
Total 669,598
$ 42.76
652,835



				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)
October 1 – October 31, 2018	7,779	$	48.40	—	$	110,126
November 1 – November 30, 2018	33,306	$	41.12	—	$	110,126
December 1 – December 31, 2018	—	$	—	—	$	110,126
Total	41,085	$	42.50	—


(1)	Includes shares repurchased pursuant to net settlement by employees ~~and directors~~ 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.awards.

(2) The Stock Repurchase Program was initially authorized by PacWest's Board of Directors on October 17, 2016, pursuant to which the Company could, until December 31, 2017, purchase shares of its common stock for an aggregate purchase price not to exceed $400 million. On November 15, 2017 PacWest's Board of Directors amended the Stock Repurchase Program to reduce the authorized purchase amount to $150 million and extend the maturity date to December 31, 2018. On February 14, 2018, PacWest's Board of Directors amended the Stock Repurchase Program to increase the authorized purchase amount to $350 million and extend the maturity date to February 28, 2019. On February 24, 2019, effective upon the maturity of the current Stock Repurchase Program on February 28, 2019, PacWest's Board of Directors authorized a new Stock Repurchase Program to purchase shares of its common stock for an aggregate purchase price not to exceed $225 million until February 29, 2020. All shares repurchased under the Stock Repurchase Programs were retired upon settlement.

Five‑Year Stock Performance Graph

The following chart compares the yearly percentage change in the cumulative stockholder return on our common stock based on the closing price during the five years ended December 31, ~~2016,~~2018, with (1) the Total Return Index for U.S. companies traded on The Nasdaq Stock Market (the “NASDAQ Composite Index”), and (2) the Total Return Index for KBW NASDAQ Regional Bank Stocks (the “KBW Regional Banking Index”). This comparison assumes $100 was invested on December 31, ~~2011~~2013, in our common stock and the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends. The Company's total cumulative ~~gain~~loss was ~~248.1%~~2.31% over the five year period ending December 31, ~~2016~~2018 compared to gains of ~~116.5%~~65.84% and ~~140.1%~~42.33% for the NASDAQ Composite Index and KBW Regional Banking Index.

* $100 invested on December 31, ~~2011~~2013 in stock or index, including reinvestment of dividends.


	Year Ended December 31,												Year Ended December 31,
Index:	2011		2012		2013		2014		2015		2016
Index													2013		2014		2015		2016		2017		2018
PacWest Bancorp	$	100.00	$	135.25	$	238.05	$	264.03	$	261.53	$	348.09	$	100.00	$	110.92	$	109.87	$	146.23	$	141.15	$	97.69
NASDAQ Composite Index	100.00		116.41		165.47		188.69		200.32		216.54		100.00		114.62		122.81		133.19		172.11		165.84
KBW Regional Banking Index	100.00		111.29		161.59		165.84		173.85		240.07		100.00		113.21		113.82		140.51		170.84		142.33

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain of our financial and statistical information for each of the years in the five‑year period ended December 31, ~~2016. This~~2018. The selected financial data should be read in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations," our audited consolidated financial statements as of December 31, ~~2016~~2018 and ~~2015,~~2017, and for each of the years in the three‑year period ended December 31, ~~2016~~2018 and the related Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.” Our acquisitions may materially affect the comparability of the information reflected in the selected financial data presented in Item 6. Further information regarding our acquisitions can be found in Note 3. Acquisitions to our consolidated financial statements.

At or For the Year Ended December 31,
2016 2015 2014 2013 2012
(In thousands, except per share amounts and percentages)
Results of Operations ⁽¹⁾:

Interest income $ 1,015,912
$ 883,938
$ 704,775
$ 309,914
$ 296,115
Interest expense (54,621 ) (60,592 ) (42,398 ) (12,201 ) (19,648 )
Net interest income 961,291
823,346
662,377
297,713
276,467
Total (provision) negative provision for credit losses (65,729 ) (45,481 ) (11,499 ) 4,210
12,819
Gain on securities 9,485
3,744
4,841
5,359
1,239
FDIC loss sharing expense, net (8,917 ) (18,246 ) (31,730 ) (26,172 ) (10,070 )
Other noninterest income 111,907
98,812
69,076
25,057
24,703
Total noninterest income 112,475
84,310
42,187
4,244
15,872
Foreclosed assets (expense) income, net (1,881 ) 668
(5,401 ) 1,503
(10,931 )
Acquisition, integration and reorganization costs (200 ) (21,247 ) (101,016 ) (40,812 ) (4,089 )
Debt termination expense —
—
—
—
(22,598 )
Other noninterest expense (448,020 ) (361,460 ) (299,175 ) (188,856 ) (172,996 )
Total noninterest expense (450,101 ) (382,039 ) (405,592 ) (228,165 ) (210,614 )
Earnings from continuing operations before
income tax expense 557,936
480,136
287,473
78,002
94,544
Income tax expense (205,770 ) (180,517 ) (117,005 ) (32,525 ) (37,743 )
Net earnings from continuing operations 352,166
299,619
170,468
45,477
56,801
Loss from discontinued operations before
income tax benefit —
—
(2,677 ) (620 ) —
Income tax benefit —
—
1,114
258
—
Net loss from discontinued operations —
—
(1,563 ) (362 ) —
Net earnings $ 352,166
$ 299,619
$ 168,905
$ 45,115
$ 56,801

Per Common Share Data:
Basic and diluted earnings per share (EPS):
Net earnings from continuing operations $ 2.90
$ 2.79
$ 1.94
$ 1.09
$ 1.54
Net earnings $ 2.90
$ 2.79
$ 1.92
$ 1.08
$ 1.54
Dividends declared during year $ 2.00
$ 2.00
$ 1.25
$ 1.00
$ 0.79
Book value per share ⁽²⁾⁽³⁾
$ 36.93
$ 36.22
$ 34.03
$ 17.65
$ 15.74
Tangible book value per share ⁽²⁾⁽³⁾
$ 18.71
$ 17.86
$ 17.17
$ 12.72
$ 13.22
Shares outstanding at year-end ⁽³⁾
121,284
121,414
103,022
45,823
37,421
Average shares outstanding for basic and diluted EPS 120,239
106,327
86,853
40,823
35,685

At or For the Year Ended December 31,
2016 2015 2014 2013 2012
(In thousands, except per share amounts and percentages)
Balance Sheet Data:
Total assets $ 21,869,767
$ 21,288,490
$ 16,234,605
$ 6,533,168
$ 5,463,658
Cash and cash equivalents 419,670
396,486
313,226
147,422
164,404
Investment securities 3,245,700
3,579,147
1,607,786
1,522,684
1,392,511
Non-PCI loans and leases 15,412,092
14,339,070
11,613,832
3,930,539
3,074,947
Allowance for credit losses, Non-PCI loans and leases 161,278
122,268
76,767
67,816
72,119
PCI loans 108,445
189,095
290,852
382,796
517,885
Goodwill 2,173,949
2,176,291
1,720,479
208,743
79,866
Core deposit and customer relationship intangibles 36,366
53,220
17,204
17,248
14,723
Deposits 15,870,611
15,666,182
11,755,128
5,280,987
4,709,121
Borrowings 905,812
621,914
383,402
113,726
12,591
Subordinated debentures 440,744
436,000
433,583
132,645
108,250
Stockholders’ equity 4,479,055
4,397,691
3,506,230
808,898
589,121

Performance Ratios:
Return on average assets 1.66 % 1.70 % 1.27 % 0.74 % 1.04 %
Return on average equity 7.85 % 7.99 % 6.11 % 6.28 % 10.01 %
Return on average tangible equity ⁽²⁾
15.52 % 15.76 % 11.88 % 8.25 % 11.76 %
Net interest margin 5.40 % 5.60 % 6.01 % 5.48 % 5.52 %
Efficiency ratio 39.8 % 38.5 % 41.6 % 60.7 % 56.4 %
Stockholders’ equity to total assets ratio ⁽²⁾
20.5 % 20.7 % 21.6 % 12.4 % 10.8 %
Tangible common equity ratio ⁽²⁾
11.5 % 11.4 % 12.2 % 9.2 % 9.2 %
Average equity to average assets 21.2 % 21.3 % 20.7 % 11.8 % 10.4 %
Dividend payout ratio 69.1 % 71.8 % 67.7 % 90.9 % 50.7 %
Tier 1 leverage ratio ⁽⁴⁾
11.91 % 11.67 % 12.34 % 11.22 % 10.53 %
Tier 1 capital ratio ⁽⁴⁾
12.31 % 12.60 % 13.16 % 15.12 % 15.17 %
Total capital ratio ⁽⁴⁾
15.56 % 15.65 % 16.07 % 16.38 % 16.43 %

Non-PCI Credit Quality Metrics:
Non-PCI nonaccrual loans and leases $ 170,599
$ 129,019
$ 83,621
$ 46,774
$ 41,762
Foreclosed assets 12,976
22,120
43,721
55,891
56,414
Total nonperforming assets 183,575
151,839
127,342
102,665
98,176

Non-PCI nonaccrual loans and leases to Non-PCI
loans and leases 1.11 % 0.90 % 0.72 % 1.19 % 1.36 %
Nonperforming assets to Non-PCI loans and leases
and foreclosed assets 1.19 % 1.06 % 1.09 % 2.58 % 3.14 %
Allowance for credit losses to Non-PCI nonaccrual
loans and leases 94.5 % 94.8 % 91.8 % 145.0 % 172.7 %
Allowance for credit losses to Non-PCI loans and leases 1.05 % 0.85 % 0.66 % 1.73 % 2.35 %
Net charge-offs to average Non-PCI loans and leases ⁽²⁾
0.15 % 0.06 % 0.02 % 0.12 % 0.33 %



	At or For the Year Ended December 31,
	2018			2017			2016			2015			2014
	(In thousands, except per share amounts and percentages)
Results of Operations ⁽¹⁾:
Interest income	$	1,161,670		$	1,052,516		$	1,015,912		$	883,938		$	704,775
Interest expense	(120,756		)	(72,945		)	(54,621		)	(60,592		)	(42,398		)
Net interest income	1,040,914			979,571			961,291			823,346			662,377
Provision for credit losses	(45,000		)	(57,752		)	(65,729		)	(45,481		)	(11,499		)
Net interest income after provision for credit losses	995,914			921,819			895,562			777,865			650,878
Gain (loss) on sale of securities	8,176			(541		)	9,485			3,744			4,841
FDIC loss sharing expense, net	—			—			(8,917		)	(18,246		)	(31,730		)
Other noninterest income	140,459			129,114			111,907			98,812			69,076
Total noninterest income	148,635			128,573			112,475			84,310			42,187
Foreclosed assets income (expense), net	751			(1,702		)	(1,881		)	668			(5,401		)
Acquisition, integration and reorganization costs	(1,770		)	(19,735		)	(200		)	(21,247		)	(101,016		)
Other noninterest expense	(510,213		)	(474,224		)	(448,020		)	(361,460		)	(299,175		)
Total noninterest expense	(511,232		)	(495,661		)	(450,101		)	(382,039		)	(405,592		)
Earnings from continuing operations before
income tax expense	633,317			554,731			557,936			480,136			287,473
Income tax expense	(167,978		)	(196,913		)	(205,770		)	(180,517		)	(117,005		)
Net earnings from continuing operations	465,339			357,818			352,166			299,619			170,468
Loss from discontinued operations before
income tax benefit	—			—			—			—			(2,677		)
Income tax benefit	—			—			—			—			1,114
Net loss from discontinued operations	—			—			—			—			(1,563		)
Net earnings	$	465,339		$	357,818		$	352,166		$	299,619		$	168,905

Per Common Share Data:
Basic and diluted earnings per share (EPS):
Net earnings from continuing operations	$	3.72		$	2.91		$	2.90		$	2.79		$	1.94
Net earnings	$	3.72		$	2.91		$	2.90		$	2.79		$	1.92
Cash dividends declared per share	$	2.30		$	2.00		$	2.00		$	2.00		$	1.25
Book value per share ⁽²⁾⁽³⁾	$	39.17		$	38.65		$	36.93		$	36.22		$	34.03
Tangible book value per share ⁽²⁾⁽³⁾	$	18.02		$	18.24		$	18.71		$	17.86		$	17.17
Shares outstanding at year-end ⁽³⁾	123,190			128,783			121,284			121,414			103,022
Average shares outstanding for basic and diluted EPS	123,640			121,613			120,239			106,327			86,853


(1)	Operating results of acquired companies are included from the respective acquisition dates. See Note 4.3. Acquisitions of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”


(2)	For information regarding this calculation, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations -Non‑GAAP Measurements.”


(3)	Includes 1,344,656 shares, 1,436,120 shares, 1,476,132 shares, 1,211,951 shares, ~~1,108,505 shares, 1,216,524 shares,~~ and ~~1,698,281~~1,108,505 shares of unvested restricted stock outstanding at December 31, 2018, 2017, 2016, 2015, ~~2014, 2013,~~ and ~~2012.~~2014.



	At or For the Year Ended December 31,
	2018			2017			2016			2015			2014
	(In thousands, except per share amounts and percentages)
Balance Sheet Data:
Total assets	$	25,731,354		$	24,994,876		$	21,869,767		$	21,288,490		$	16,234,605
Cash and cash equivalents	385,767			398,437			419,670			396,486			313,226
Investment securities	4,041,534			3,795,221			3,245,700			3,579,147			1,607,786
Loans and leases held for investment ⁽⁴⁾	17,957,713			16,914,707			15,347,530			14,289,209			11,591,641
Goodwill	2,548,670			2,548,670			2,173,949			2,176,291			1,720,479
Core deposit and customer relationship intangibles	57,120			79,626			36,366			53,220			17,204
Deposits	18,870,501			18,865,536			15,870,611			15,666,182			11,755,128
Borrowings	1,371,114			467,342			905,812			621,914			383,402
Subordinated debentures	453,846			462,437			440,744			436,000			433,583
Stockholders’ equity	4,825,588			4,977,598			4,479,055			4,397,691			3,506,230

Performance Ratios:
Return on average assets	1.91		%	1.58		%	1.66		%	1.70		%	1.27		%
Return on average equity	9.68		%	7.71		%	7.85		%	7.99		%	6.11		%
Return on average tangible equity ⁽²⁾	21.22		%	15.15		%	15.52		%	15.76		%	11.88		%
Net interest margin	5.05		%	5.10		%	5.40		%	5.60		%	6.01		%
Yield on average loans and leases	6.22		%	5.97		%	6.32		%	6.51		%	6.97		%
Cost of average total deposits	0.44		%	0.27		%	0.20		%	0.32		%	0.28		%
Efficiency ratio	41.0		%	40.8		%	39.8		%	38.5		%	41.6		%
Equity to assets ratio ⁽²⁾	18.8		%	19.9		%	20.5		%	20.7		%	21.6		%
Tangible common equity ratio ⁽²⁾	9.6		%	10.5		%	11.5		%	11.4		%	12.2		%
Average equity to average assets ratio	19.8		%	20.5		%	21.2		%	21.3		%	20.7		%
Dividend payout ratio	61.9		%	69.1		%	69.1		%	71.8		%	67.7		%

Capital Ratios (consolidated):
Tier 1 leverage ratio	10.13		%	10.66		%	11.91		%	11.67		%	12.34		%
Tier 1 capital ratio	10.01		%	10.91		%	12.31		%	12.60		%	13.16		%
Total capital ratio	12.72		%	13.75		%	15.56		%	15.65		%	16.07		%

Allowance for Credit Losses Data ⁽⁴⁾:
Allowance for credit losses	$	169,333		$	161,647		$	161,278		$	122,268		$	76,767
Allowance for credit losses to loans and leases	0.94		%	0.96		%	1.05		%	0.86		%	0.66		%
Allowance for credit losses to nonaccrual loans and leases	213.5		%	103.8		%	94.5		%	94.8		%	91.8		%
Net charge-offs to average loans and leases	0.26		%	0.40		%	0.15		%	0.06		%	0.02		%

Nonperforming Assets Data ⁽⁵⁾:
Nonaccrual loans and leases	$	79,333		$	157,545		$	173,527		$	133,615		$	108,885
Accruing loan past due 90 days or more	—			—			—			700			—
Foreclosed assets, net	5,299			1,329			12,976			22,120			43,721
Total nonperforming assets	$	84,632		$	158,874		$	186,503		$	156,435		$	152,606

Nonaccrual loans and leases to loans and leases	0.44		%	0.93		%	1.12		%	0.92		%	0.92		%
Nonperforming assets to loans and leases and
foreclosed assets	0.47		%	0.94		%	1.21		%	1.08		%	1.28		%


(4)	Amounts and ratios related to 2018 are for total loans and leases held for investment, net of deferred fees. Amounts and ratios related to 2017 and prior years are for Non-PCI loans and leases held for investment, net of deferred fees.


~~(4)~~(5)	~~Capital~~Amounts and ratios ~~presented~~ are for ~~the consolidated Company.~~total loans and leases held for investment, net of deferred fees.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

PacWest Bancorp, a Delaware corporation, is a bank holding company registered under the ~~BHCA.~~BHCA, with our corporate headquarters located in Beverly Hills, California. Our principal business is to serve as the holding company for our ~~Los Angeles‑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~~The Bank is 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 7774 full-service branches located throughout the state of California, one branch located in Durham, North Carolina, and ~~several~~numerous loan production offices ~~located in cities~~ across the ~~country. We provide commercial banking services, including~~country through our Community Banking, National Lending and Venture Banking groups. Community Banking provides real estate ~~construction, and~~loans, commercial loans, and comprehensive deposit and treasury management services to small and ~~middle-market businesses. We offer additional products and services~~medium-sized businesses conducted primarily through our ~~CapitalSource and Square 1 Bank divisions. Our CapitalSource Division~~California-based branch offices. National Lending provides ~~cash flow,~~ asset-based, equipment, ~~and~~ real estate, and security cash flow loans and treasury management services to established ~~middle market~~middle-market businesses on a national basis. ~~Our Square 1 Bank Division~~Venture Banking 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.

At December 31, ~~2016,~~2018, we had total assets of ~~$21.9~~$25.7 billion, including ~~$15.5~~$18.0 billion of total loans and leases, net of deferred fees, and $4.0 billion of securities available-for-sale, compared to $25.0 billion of total assets, including $17.5 billion of loans and leases, net of deferred fees, ~~compared to $21.3~~and $3.8 billion of ~~total assets, including $14.5 billion of loans and leases, net of deferred fees,~~securities available-for-sale at December 31, ~~2015. Total~~2017. The $736.5 million increase in total assets ~~increased $581.3 million~~ during ~~2016~~2018 was due primarily to a ~~$977.7~~$503.9 million increase in loans and leases ~~net~~and a $235.0 million increase in securities available-for-sale. The increase in loans and leases was driven mostly by production of ~~deferred fees, driven by new production,~~$4.9 billion and disbursements of $4.1 billion, offset partially by ~~a $335.6~~payoffs and paydowns of $7.8 billion and sales of $641.9 million, ~~decrease~~including settlement of the loans held for sale at December 31, 2017. The increase in securities available-for-sale was due mainly to purchases exceeding sales, principal paydowns, maturities, and ~~sales from ongoing portfolio management activities.~~other reductions.

At December 31, ~~2016,~~2018, we had total liabilities of ~~$17.4~~$20.9 billion, including total deposits of ~~$15.9~~$18.9 billion and borrowings of ~~$905.8 million~~$1.4 billion compared to ~~$16.9~~$20.0 billion of total liabilities, including total deposits of ~~$15.7~~$18.9 billion and borrowings of ~~$621.9~~$467.3 million at December 31, ~~2015.~~2017. The ~~$499.9~~$888.5 million increase in total liabilities ~~since year-end is~~during 2018 was due mainly to a ~~$2.0 billion increase in lower-cost core deposits, a $283.9~~$903.8 million increase in borrowings, primarily ~~overnight~~short-term FHLB advances, and a ~~$232.2~~$409.7 million increase in ~~brokered~~core deposits, offset partially by a $345.0 million decrease in non-core non-maturity deposits ~~offset by~~and a ~~$2.0 billion~~$59.7 million decrease in ~~higher-cost~~ time deposits. At December 31, ~~2016,~~2018, core deposits totaled ~~$12.5~~$16.3 billion, or ~~79%~~87% of total deposits, ~~and time~~including $7.9 billion of noninterest-bearing demand deposits, ~~totaled $2.2 billion,~~ or ~~14%~~42% of total deposits.

At December 31, ~~2016,~~2018, we had total stockholders' equity of ~~$4.5~~$4.8 billion compared to ~~$4.4~~$5.0 billion at December 31, ~~2015. During 2016, stockholders’~~2017. The $152.0 million decrease in stockholders' equity ~~increased $81.4 million,~~during 2018 was due mainly to ~~$352.2~~$306.4 million of common stock repurchased under the Stock Repurchase Program, $288.2 million of cash dividends paid, and a $37.2 million decline in accumulated other comprehensive income, offset partially by $465.3 million in net ~~earnings, offset by $243.4 million in dividends paid.~~earnings. Consolidated capital ratios remained strong with Tier 1 capital and total capital ratios of ~~12.31%~~10.01% and ~~15.56%~~12.72% at December 31, ~~2016.~~2018.

~~On March 31, 2016, we sold our PWEF leasing unit in Midvale, Utah, including approximately $139 million of outstanding lease balances.~~

Recent Events

~~Sale and Closure of Branches~~

In December 2016, the Bank completed the sale of two branches to First Foundation Bank. The branches were located in Laguna Hills and Seal Beach, California. The deposits of the branches totaled approximately $180 million, principally comprised of time deposits. No loans were sold in connection with the sale. In addition, the Bank will close its three branches located in the San Francisco Bay area in the first quarter of 2017. At December 31, 2016, the deposits of these branches totaled approximately $100 million. No significant one-time charges are expected to be incurred related to the closure of these branches.

Stock Repurchase Program

OnOur Stock Repurchase Program was initially authorized by PacWest's Board of Directors on October 17, 2016, ~~PacWest’s Board of Directors authorized a stock repurchase program (the “Stock Repurchase Program”),~~ pursuant to which the Company ~~may, from time to time,~~could, until December 31, 2017, purchase shares of its common stock for an aggregate purchase price not to exceed $400 million. The common stock repurchases may be effected through open market purchases or in privately negotiated transactions and may utilize derivatives or similar instrument to effect share repurchase transactions (including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, floor transactions or other similar transactions or any combinationOn November 15, 2017, PacWest's Board of Directors amended the ~~foregoing transactions).~~

~~The~~ Stock Repurchase Program ~~expires on~~to reduce the authorized purchase amount to $150 million and extend the maturity date to December 31, ~~2017.~~ 2018. On February 14, 2018, PacWest's Board of Directors amended the Stock Repurchase Program to increase the authorized purchase amount to $350 million and extend the maturity date to February 28, 2019. On February 24, 2019, effective upon the maturity of the current Stock Repurchase Program on February 28, 2019, PacWest's Board of Directors authorized a new Stock Repurchase Program to purchase shares of its common stock for an aggregate purchase price not to exceed $225 million until February 29, 2020.

The amount and exact timing of any repurchases will depend upon market conditions and other factors. The Stock Repurchase Program may be suspended or discontinued at any time. InDuring the fourth quarter of 2016, the Company repurchased 652,835 shares of common stock for a total amount of $27.9 ~~million~~million. During 2017, the Company repurchased 2,081,227 shares of common stock for a total amount of $99.7 million. During 2018, the Company repurchased 5,849,234 shares of common stock for a total amount of $306.4 million. All shares repurchased under the Stock Repurchase Program ~~and~~were retired upon settlement. At December 31, 2018, the ~~repurchased~~remaining amount that could be used to repurchase shares ~~were retired.~~under the Stock Repurchase Program was $110.1 million. After the authorization of a new Stock Repurchase Program on February 24, 2019, the amount that could be used to repurchase shares will be $225 million as of March 1, 2019.

~~Square 1 Financial, Inc.~~CU Bancorp Acquisition

PacWest acquired ~~Square 1~~CUB on October ~~6, 2015.~~20, 2017 in a transaction valued at $670.6 million. As part of the acquisition, ~~Square 1~~CU Bank, a wholly-owned subsidiary of ~~Square 1,~~CUB, was merged with and into ~~Pacific Western. At closing, we formed~~ the ~~Square 1~~Bank.

CU Bank ~~Division of Pacific Western. This division offers~~was a ~~comprehensive suite of financial services focused on entrepreneurial businesses~~commercial bank headquartered in Los Angeles, California with nine branches located in Los Angeles, Orange, Ventura, and ~~their venture capital and private equity investors nationwide.~~San Bernardino counties. We completed ~~this~~the acquisition to, ~~increase~~among other things, enhance our Southern California community bank franchise by adding a $2.1 billion loan portfolio and $2.7 billion of core ~~deposits, expand our lending products across the nation, and increase our presence in the technology and life-sciences credit markets.~~ deposits.

We recorded the acquired assets and liabilities, both tangible and intangible, at their estimated fair values as of the acquisition date and increased total assets by ~~approximately $4.6~~$3.5 billion. The application of the acquisition method of accounting resulted in goodwill of ~~$446~~$374.7 million. For further information, see Note 4.3. Acquisitions of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”

~~CapitalSource Inc. Merger~~Loan Sales and Loans Held for Sale

~~PacWest acquired CapitalSource Inc.~~In the fourth quarter of 2017, we entered into an agreement to sell $1.5 billion of cash flow loans (the "Cash Flow Loan Sale"). Of the $1.5 billion in loans sold, none were on ~~April 7, 2014.~~nonaccrual and $4.7 million were classified, and we also exited our National Lending origination operations related to general, technology, and healthcare cash flow loans. These actions were taken to lower the Company's credit risk profile and improve its funding mix. As ~~part~~of December 31, 2017, $1.0 billion of the ~~merger, CapitalSource Bank, a wholly-owned subsidiary~~loans sold had settled, while $481.1 million were classified as held for sale. The loans held for sale at December 31, 2017 settled in the first quarter of ~~CapitalSource Inc., merged~~2018. In connection with the Cash Flow Loan Sale, we recognized $2.2 million in charge-offs during the fourth quarter of 2017 to record the loans at the lower of cost or fair value.

Federal Tax Reform

The TCJA was signed into law on December 22, 2017 and ~~into Pacific Western. At closing, we formed~~represented the ~~CapitalSource Division~~first major overhaul of the ~~Bank. This division provides cash flow, asset-based, equipment and real estate loans and treasury management services~~United States federal income tax system in more than 30 years. The TCJA reduced the federal corporate tax rate from 35% to established middle market businesses on a national basis. We completed this acquisition in order to increase our loan and lease generation capabilities and to diversify our loan portfolio. We recorded the21% effective January 1, 2018. Other changes affecting us include immediate deductions for acquisitions of certain fixed assets ~~and liabilities, both tangible and intangible, at their estimated fair values as~~instead of deductions for depreciation expense over time, modification of the ~~merger date~~deduction for performance-based executive compensation, and ~~increased total assets by approximately $10.7 billion.~~limiting the amount of FDIC insurance assessments that are deductible. The ~~application of the acquisition method of accounting resulted in goodwill of $1.5 billion. For further information, see Note 4.~~ ~~Acquisitions~~ ~~of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements~~effective tax rates for 2018 and ~~Supplementary Data.”~~2017 were 26.5% and 35.5%.

Key Performance Indicators

Among other factors, our operating results generally depend ~~generally~~ 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)~~(annualized if related to a quarterly period) 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~~interest on certain loans and municipal securities based on a 21% federal statutory tax rate for 2018 and a 35% federal statutory tax ~~rate.~~rate for prior periods. Tax equivalent net interest margin is calculated as tax equivalent net interest income divided by average interest-earning assets.

Net interest income is affected by changes in both interest rates and the volume of average interest‑earning assets and interest‑bearing liabilities. 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. We assumed $5.3 billion of time deposits in the CapitalSource Inc. merger. We have substantially completed our goal to replace these higher-costing time deposits with core deposits. The acquisition of Square 1 accelerated this shift in deposit mix as nearly all of the $3.8 billion of acquired deposits were core deposits. The Square 1 acquisition increased our on-balance sheet liquidity and has enabled us to maintain adequate liquidity as we managed down the level of higher-cost time deposits.

Loan and Lease Growth

We actively seek new lending opportunities under an array of lending products. Our lending activities include real estate mortgage loans, real estate construction and land loans, commercial loans and leases, and a small amount of consumer lending. Our 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,~~construction loans are secured by a range of property types. Our commercial loans are diverse and ~~retail properties. Our C&I loan products~~generally include various asset-secured loans, equipment-secured loans and leases, ~~asset-secured loans,~~venture capital loans to ~~finance~~support venture capital firms’ operations and the operations of entrepreneurial companies ~~cash flow~~during the various phases of their early life cycles, secured business loans ~~(which are loans secured by borrower future cash flows~~originated through our Community Banking group, and ~~borrower enterprise value) and venture capital-backed~~ loans to ~~entrepreneurial companies to support the various stages of their operations.~~security alarm monitoring companies. Our loan origination process emphasizes credit quality. To augment our internal loan production, we have historically purchased multi-family loans from other banks. We ~~foster lending relationships with borrowers that~~ have ~~proven~~also purchased single-family mortgage and construction loans and private student loans from third-party lenders. These loan ~~repayment performance. Our commitment sizes vary by~~purchases help us manage the concentrations in our portfolio as they diversify the geographic, interest-rate risk, credit risk, and product composition of our loan ~~product and can range up to $100 million for certain asset-based lending arrangements and select real estate loans.~~portfolio. 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 loans and ~~nonperforming assets~~leases, nonaccrual loans and leases, 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~~likelihood of loans defaulting based on the historical degree that similar loans defaulted and ~~leases into various risk classifications,~~the resulting loss severity for these defaulted loans, 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~~resulting 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 unemployment rate, 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~~loans are concentrated in commercial real estate loans.

The Level of Noninterest Expense

Our noninterest expense includes fixed and controllable overhead, the ~~major~~largest components of which are compensation and occupancy ~~data processing, and other professional services.~~expense. 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 our consolidated efficiency ratios for the periods indicated:~~



~~Quarterly Period in 2016:~~	~~Efficiency~~ ~~Ratio~~
~~First~~	~~38.5%~~
~~Second~~	~~40.6%~~
~~Third~~	~~40.1%~~
~~Fourth~~	~~40.1%~~

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


		Year Ended December 31,										Year Ended December 31,
Efficiency Ratio:		2016			2015			2014
Efficiency Ratio											Efficiency Ratio	2018			2017			2016
		(Dollars in thousands)										(Dollars in thousands)
Noninterest expense	Noninterest expense	$	450,101		$	382,039		$	405,592		Noninterest expense	$	511,232		$	495,661		$	450,101
Less:	Intangible asset amortization	16,517			9,410			6,268			Intangible asset amortization	22,506			14,240			16,517
	Foreclosed assets expense (income), net	1,881			(668		)	5,401			Foreclosed assets (income) expense, net	(751		)	1,702			1,881
	Acquisition, integration, and reorganization costs	200			21,247			101,016			Acquisition, integration and reorganization costs	1,770			19,735			200
Noninterest expense used for efficiency ratio	Noninterest expense used for efficiency ratio	$	431,503		$	352,050		$	292,907		Noninterest expense used for efficiency ratio	$	487,707		$	459,984		$	431,503

Net interest income (tax equivalent)	Net interest income (tax equivalent)	$	980,811		$	834,814		$	668,769		Net interest income (tax equivalent)	$	1,048,915		$	999,362		$	980,811
Noninterest income	Noninterest income	112,475			84,310			42,187			Noninterest income	148,635			128,573			112,475
Net revenues	Net revenues	1,093,286			919,124			710,956			Net revenues	1,197,550			1,127,935			1,093,286
Less:	Gain on sale of securities	9,485			3,744			4,841			Gain (loss) on sale of securities	8,176			(541		)	9,485
	Gain on sale of owned office building	—			—			1,570
Net revenues used for efficiency ratio	Net revenues used for efficiency ratio	$	1,083,801		$	915,380		$	704,545		Net revenues used for efficiency ratio	$	1,189,374		$	1,128,476		$	1,083,801

Efficiency ratio⁽¹⁾		39.8		%	38.5		%	41.6		%
Efficiency ratio											Efficiency ratio	41.0		%	40.8		%	39.8		%


~~(1)~~	~~Noninterest expense used for efficiency ratio divided by net revenues used for efficiency ratio.~~

Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable; however, actual results may ultimately differ significantly from these estimates and assumptions, which could have a material ~~impact~~adverse effect on the carrying value of assets and liabilities at the balance sheet dates and on our results of operations for the reporting periods.

Our significant accounting policies and practices are described in Note 1. Nature of Operations and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data." We have identified several policies and estimates 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,~~on loans and leases held for investment, accounting for business combinations, and the realization of deferred income tax assets and ~~the accounting for business combinations.~~liabilities.

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

The allowance for credit losses on ~~Non-PCI~~ loans and leases held for investment is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The allowance for loan and lease losses is reported as a reduction of outstanding loan and lease balances and the reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the consolidated balance sheets. ~~The following discussion is for Non-PCI loans and leases and the related allowance for credit losses. Refer to "—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~~has a general reserve component for unimpaired loans and leases ~~with no credit impairment~~ and a specific reserve component for impaired loans and ~~leases determined to be impaired.~~leases.

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~~Impaired loans ~~(under $250,000),~~and leases with ~~a few exceptions for certain loan types, are generally~~outstanding balances less than or equal to $250,000 may not be individually assessed for impairment but are ~~evaluated collectively.~~assessed with reserves based on the average loss severity on historical impaired loans with similar risk characteristics.

~~The~~

Our allowance methodology ~~we use to estimate~~for the general reserve component ~~of our allowance for credit losses considers~~includes both quantitative and qualitative ~~criteria.~~loss factors which are applied to our population of unimpaired loans and leases to estimate our general reserves. The quantitative ~~criteria uses our actual~~loss factors consider the likelihood of loans defaulting based on the historical ~~loan~~degree that similar loans defaulted and ~~lease charge-off experience~~the degree of credit losses based on ~~pools~~the historical average degree of loss experienced for these similar loans and leases ~~to establish loss factors that are applied to our current~~pooled both by loan ~~and~~or 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~~type and credit risk ~~ratings, giving greater weight to~~rating; loans with more adverse credit risk ~~ratings. We recognize~~ratings have higher quantitative loss factors. The qualitative loss factors consider, among other things, current economic trends and forecasts, current collateral values and performance trends, credit performance trends, and the loan portfolio's current composition. As noted below in "- Allowance for Loan and Lease Losses - Change in Methodology," we changed our methodology for calculating the ALLL in the second quarter of 2018. See that ~~the determination of the allowance~~section 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.details regarding this change.

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

current economic trends and forecasts;

current ~~commercial real estate~~collateral 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 loan commitments using the same loss factors as used for the allowance for loan and lease ~~losses and~~losses. The reserve for unfunded loan commitments is computed ~~based only on the~~using expected future usage of the unfunded ~~commitments.~~commitments based on historical usage of unfunded commitments for the various loan types.

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

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

Special Mention: Loans and leases ~~classified~~rated 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~~rated 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~~rated as "doubtful" have all the weaknesses of those ~~classified~~rated 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 7.6. Loans and Leases of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."

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 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.

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.

Our federal and state banking regulators, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Our regulators may require the Company to recognize additions to the allowance based on their judgments related to information available to them at the time of their examinations.

Allowance for Loan and Lease Losses ~~on PCI Loans~~- Change in Methodology

~~We measure the~~The allowance for loan and lease losses (“ALLL”) represents management’s estimate of probable credit losses inherent in the loan portfolio as of the balance sheet date. Our methodology to estimate the ALLL has three basic elements that include specific reserves for ~~PCI~~individually evaluated impaired loans, ~~at the end of each financial reporting period~~a quantitative general allowance for all other loans (including individually evaluated loans determined not to be impaired), and qualitative adjustments based on ~~expected cash flows~~other factors which may be internal or external to the Company.

During the second quarter of 2018, we changed our ~~PCI~~methodology used to estimate the quantitative general allowance due to the growth and increased complexity of the loan portfolio.

The new ALLL methodology included three primary changes: the quantitative component now employs a probability of default/loss given default ("PD/LGD") methodology; the loan segmentation groups our loan portfolio into 21 loan pools with similar risk characteristics (as opposed to 34 loan pools used under the previous methodology); and the historical range of loan performance history, or look-back period, was lengthened by one year to ten years.

The new PD/LGD methodology estimates the likelihood of loans defaulting based on the historical degree that similar loans defaulted, and it estimates the degree of credit loss based on the historical average degree of loss experienced for these similar loans. ~~Decreases~~The reduced number of loan pools provides greater statistical validity by having more default and loss histories within each pool for the quantitative general allowance estimation. The look-back period was extended to capture loan performance back to January 1, 2009, one year longer than under the historical loss migration methodology. Extending this look-back period includes more historical loan performance information. The loss emergence period was unchanged as we continue to use seven quarters.

The methodology to estimate specific reserves for individually evaluated impaired loans did not change. The methodology to derive qualitative adjustments based on other internal or ~~(increases) in~~external factors was updated to align with the ~~amount~~new PD/LGD methodology being applied to estimate the quantitative general allowance for unimpaired loans. As a result, the composition of the ALLL changed as the quantitative component increased and the qualitative component decreased as the new quantitative methodology now encompasses more information, such as the longer look-back period, that previously required a qualitative adjustment as part of determining the total ALLL estimate. These 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 a (negative provision) for credit losses on such loans. For example, a decrease in the expected cash flows of PCI loans wouldALLL methodology did not result in ~~an additional reserve requirement and a provision for PCI loan credit losses would be recorded.~~material changes to management's overall ALLL estimate at June 30, 2018.

Business Combinations

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC Topic 805, "Business Combinations." Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including other identifiable assets, exceeds the purchase price, a bargain purchase gain is recognized. Assets acquired and liabilities assumed which involve contingencies must also be recognized at their estimated fair value, provided such fair value can be determined during the measurement period. Acquisition-related costs, including severance, conversion and other restructuring charges, such as abandoned space accruals, are expensed. Results of operations of an acquired business are included in the statement of earnings from the date of acquisition.

~~Goodwill~~Deferred Tax Assets 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 are instead tested for impairment at least annually.

Our other intangible assets with definite lives include core deposit and customer relationship intangibles. The establishment and subsequent amortization of these intangible assets requires several assumptions including, among other things, the estimated cost to service deposits acquired, discount rates, estimated attrition rates, and useful lives. These intangibles are being amortized over their estimated useful lives up to 10 years and tested for impairment quarterly. If the value of the core deposit intangible or the customer relationship intangible is determined to be less than the carrying value in future periods, a write-down would be taken through a charge to our earnings. The most significant element in the evaluation of these intangibles is the attrition rate of the acquired customer relationships. If such attrition rate were to accelerate from that which we expected, the intangible asset may have to be reduced by a charge to earnings. The attrition rate is influenced by many factors, the most significant of which are alternative yields for loans and deposits available to customers and the level of competition from other financial institutions and financial services companies.

~~Deferred Income Tax Assets~~Liabilities

Our deferred ~~income~~ tax assets and liabilities arise from differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We determine whether a deferred tax asset is realizable based on facts and circumstances, including our current and projected future tax position, the historical level of our taxable income, and estimates of our future taxable income. In most cases, the realization of deferred tax assets is based on our future profitability. If we were to experience either reduced profitability or operating losses in a future period, the realization of our deferred tax assets may no longer be considered more likely than not and, accordingly, we could be required to record a valuation allowance on our deferred tax assets by charging earnings.

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 use the following non-GAAP measures in this Form 10-K:

~~Core NIM and core loan and lease yield:~~ The tax equivalent NIM and loan and lease yield are impacted by volatility in accelerated accretion of acquisition discounts due to the prepayment of acquired loans and leases. We disclose the core NIM and core loan and lease yield to provide an indication of what these measures would be without the effects of accelerated 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.~~

~~Adjusted allowance for credit losses to loans and leases:~~ As the allowance for credit losses takes into consideration credit deterioration on acquired loans and leases only after the purchase date and an estimate of credit losses is included in their initial fair values, we disclose two adjusted allowance for credit losses to loans and leases ratios in addition to the allowance for credit losses to loans and leases. The first adjusted allowance for credit losses to loans and leases excludes the allowance related to acquired loans and leases from the numerator and the acquired loans and leases from the denominator. The second ratio adds back the remaining unamortized purchase discount to both the numerator and the denominator. We disclose these ratios to more clearly illustrate the amounts established on our balance sheet for credit losses related to acquired loans in addition to the allowance for credit losses. See "- Balance Sheet Analysis - ~~Allowance for Credit Losses on Non-PCI Loans and Leases" for a reconciliation of these non-GAAP measurements to the GAAP measurement as of the dates 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 reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods presented.


		Year Ended December 31,										Year Ended December 31,
Return on Average Tangible Equity:		2016			2015			2014
Return on Average Tangible Equity											Return on Average Tangible Equity	2018			2017			2016
		(Dollars in thousands)										(Dollars in thousands)
Net earnings	Net earnings	$	352,166		$	299,619		$	168,905		Net earnings	$	465,339		$	357,818		$	352,166

Average stockholders' equity	Average stockholders' equity	$	4,488,862		$	3,751,995		$	2,763,726		Average stockholders' equity	$	4,809,667		$	4,641,495		$	4,488,862
Less:	Average intangible assets	2,219,756			1,850,988			1,342,286			Average intangible assets	2,616,820			2,279,010			2,219,756
Average tangible common equity	Average tangible common equity	$	2,269,106		$	1,901,007		$	1,421,440		Average tangible common equity	$	2,192,847		$	2,362,485		$	2,269,106

Return on average equity ⁽¹⁾	Return on average equity ⁽¹⁾	7.85		%	7.99		%	6.11		%	Return on average equity ⁽¹⁾	9.68		%	7.71		%	7.85		%
Return on average tangible equity ⁽²⁾	Return on average tangible equity ⁽²⁾	15.52		%	15.76		%	11.88		%	Return on average tangible equity ⁽²⁾	21.22		%	15.15		%	15.52		%

_____________________________


(1)	Net earnings divided by average stockholders' equity.


(2)	Net earnings divided by average tangible common equity.


Tangible Common Equity Ratio/	December 31,									December 31,
Tangible Book Value Per Share:	2016			2015			2014
Tangible Book Value Per Share										2018			2017			2016
	(Dollars in thousands, except per share data)									(Dollars in thousands, except per share data)
PacWest Bancorp Consolidated:
Stockholders’ equity	$	4,479,055		$	4,397,691		$	3,506,230		$	4,825,588		$	4,977,598		$	4,479,055
Less: Intangible assets	2,210,315			2,229,511			1,737,683			2,605,790			2,628,296			2,210,315
Tangible common equity	$	2,268,740		$	2,168,180		$	1,768,547		$	2,219,798		$	2,349,302		$	2,268,740

Total assets	$	21,869,767		$	21,288,490		$	16,234,605		$	25,731,354		$	24,994,876		$	21,869,767
Less: Intangible assets	2,210,315			2,229,511			1,737,683			2,605,790			2,628,296			2,210,315
Tangible assets	$	19,659,452		$	19,058,979		$	14,496,922		$	23,125,564		$	22,366,580		$	19,659,452

Equity to assets ratio	20.48		%	20.66		%	21.60		%	18.75		%	19.91		%	20.48		%
Tangible common equity ratio⁽¹⁾	11.54		%	11.38		%	12.20		%	9.60		%	10.50		%	11.54		%
Book value per share	$	36.93		$	36.22		$	34.03		$	39.17		$	38.65		$	36.93
Tangible book value per share	$	18.71		$	17.86		$	17.17
Tangible book value per share ⁽²⁾										$	18.02		$	18.24		$	18.71
Shares outstanding	121,283,669			121,413,727			103,022,017			123,189,833			128,782,878			121,283,669

Pacific Western Bank:
Stockholders’ equity	$	4,374,478		$	4,276,279		$	3,378,879
Less: Intangible assets	2,210,315			2,229,511			1,737,683
Tangible common equity	$	2,164,163		$	2,046,768		$	1,641,196
Total assets	$	21,848,644		$	21,180,689		$	15,995,719
Less: Intangible assets	2,210,315			2,229,511			1,737,683
Tangible assets	$	19,638,329		$	18,951,178		$	14,258,036
Equity to assets ratio	20.02		%	20.19		%	21.12		%
Tangible common equity ratio⁽¹⁾	11.02		%	10.80		%	11.51		%


(1)	Tangible common equity divided by tangible assets.


(2)	Tangible common equity divided by shares outstanding.

Results of Operations

Acquisitions Impact Earnings Performance

The comparability of financial information is affected by our acquisitions. We completed the ~~following acquisitions during~~acquisition of CUB on October 20, 2017, thereby impacting the comparability of the three years ~~ended December 31, 2016: (1) CapitalSource Inc. on April 7, 2014 and (2) Square 1 on October 6, 2015. These acquisitions have been~~presented. This acquisition was accounted for using the acquisition method of accounting and, accordingly, ~~their~~CUB's operating results have been included in the consolidated financial statements from ~~their respective~~its acquisition ~~dates.~~date.

Earnings Performance

~~2016~~2018 Compared to ~~2015~~2017

Net earnings for the year ended December 31, ~~2016~~2018 were ~~$352.2~~$465.3 million, or ~~$2.90~~$3.72 per diluted share, compared to net earnings for the year ended December 31, ~~2015~~2017 of ~~$299.6~~$357.8 million, or ~~$2.79~~$2.91 per diluted share. The ~~$52.5~~$107.5 million increase in net earnings was due to higher net interest income of ~~$137.9~~$61.3 million, lower income tax expense of $28.9 million, a lower provision for credit losses of $12.8 million, and higher noninterest income of ~~$28.2~~$20.1 million, offset partially by higher noninterest expense of ~~$68.1~~$15.6 million. The increase in net interest income was due mainly to higher balances of average loans and leases and average investment securities and a higher yield on average loans and leases, offset partially by a lower yield on average investment securities and higher interest expense. The decrease in income tax expense was due primarily to the TCJA which reduced our effective tax rate to 26.5% for the year ended December 31, 2018 from 35.5% for 2017. The decrease in the provision for credit losses was due mainly to lower specific provisions for impaired loans during 2018, higher recoveries of charge-off loans during 2018, and lower amounts of loans rated special mention and classified at December 31, 2018 compared to December 31, 2017. The increase in noninterest income was due mostly to a higher gain on sale of securities of $8.7 million, higher warrant income of $4.9 million, higher other commissions and fees of $4.1 million, and higher other income of $3.7 million. The increase in noninterest expense was due mainly to higher compensation expense of $16.0 million, higher intangible asset amortization of $8.3 million, higher other professional services expense of $4.6 million, and higher occupancy expense of $4.4 million, offset partially by lower acquisition, integration and reorganization costs of $18.0 million. The increases in these expense categories are primarily due to twelve months of CUB incremental operating expenses in 2018 compared to only 72 days of expense in 2017.

2017 Compared to 2016

Net earnings for the year ended December 31, 2017 were $357.8 million, or $2.91 per diluted share, compared to net earnings for the year ended December 31, 2016 of $352.2 million, or $2.90 per diluted share. The $5.7 million increase in net earnings was due to higher net interest income of $18.3 million, higher noninterest income of $16.1 million, a ~~higher~~lower provision for credit losses of ~~$20.2~~$8.0 million, and lower income tax expense of $8.9 million, offset partially by higher noninterest expense of $45.6 million. ~~These increases were due primarily to including the operations of Square 1 for the entire 2016 period and only subsequent to the October 6, 2015 acquisition date for the 2015 period.~~ The increase in net interest income was attributable to higher average interest-earning asset balances, ~~and lower interest expense,~~ offset by lower discount accretion on acquired loans, ~~and~~ lower ~~yields~~yield on average loans and leases, and ~~investment securities.~~higher interest expense. The increase in noninterest income was due mainly to higher ~~other commissions and fees, higher~~ leased equipment income, higher gain on sale of ~~securities,~~loans and leases, lower FDIC loss sharing expense, and higher ~~service charges on deposit accounts,~~other income, offset partially by lower ~~dividends~~gain on sale of securities. The lower provision for credit losses was due primarily to lower general reserves of $14.1 million related to the sale of cash flow loans and ~~realized gains on equity investments.~~

~~2015 Compared to 2014~~

~~Net earnings for the year ended~~lower amounts of loans rated special mention and classified at December 31, ~~2015 were $299.6 million, or $2.79 per diluted share,~~2017 compared to ~~net earnings for the year ended~~ December 31, ~~2014 of $168.9 million, or $1.92 per diluted share.~~2016, offset partially by higher specific provisions for impaired loans during 2017. The ~~$130.7~~increase in noninterest expense was due mostly to a $19.5 million increase in ~~net earnings was due to higher net interest income of $161.0 million, higher noninterest income of $42.1 million, and lower~~ acquisition, integration and reorganization ~~costs of $79.8 million, offset by higher noninterest~~ expense of $56.2 million (excluding acquisition, integration, and reorganization costs) and a higher provision for credit losses of $34.0 million. These changes, excluding acquisition, integration, and reorganization costs, were due primarily to including the operations of CapitalSource Inc. for the entire 2015 period and only subsequentrelated to the ~~April 7, 2014 merger date~~CUB acquisition and incremental operating expenses of approximately $10 million for ~~the 2014 period, and to the inclusion of the~~CUB's operations of Square 1 subsequent to the October 6, 2015 acquisition date. The increase in net interest income was attributable mainly to higher average interest-earning asset balances. The increase in noninterest income was due mainly to higher dividends and realized gains on equity investments, lower FDIC loss sharing expense, higher other commissions and fees, and higher leased equipment income.post-acquisition, primarily compensation expense.

Net Interest Income

Net interest income, which is our principal source of revenue, represents the difference between interest earned on interest‑earning assets and interest paid on interest‑bearing liabilities. Net interest margin is net interest income expressed as a percentage of average interest‑earning assets. 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 years indicated:


																			Year Ended December 31,
																			2018						2017						2016
	Year Ended December 31,																				Interest		Yields				Interest		Yields				Interest		Yields
	2016						2015						2014						Average		Income/		and		Average		Income/		and		Average		Income/		and
	Average Balance		Interest Income/ Expense		Yields and Rates		Average Balance		Interest Income/ Expense		Yields and Rates		Average Balance		Interest Income/ Expense		Yields and Rates		Balance		Expense		Rates		Balance		Expense		Rates		Balance		Expense		Rates
	(Dollars in thousands)																		(Dollars in thousands)
ASSETS:
PCI loans	$	134,101	$	51,905	38.71	%	$	212,630	$	31,909	15.01	%	$	347,124	$	57,105	16.45	%
Non-PCI loans and leases	14,487,467		872,389		6.02	%	12,368,432		787,185		6.36	%	9,079,217		599,992		6.61	%
Total loans and leases ⁽¹⁾	14,621,568		924,294		6.32	%	12,581,062		819,094		6.51	%	9,426,341		657,097		6.97	%
Loans and leases ⁽¹⁾⁽²⁾																			$	16,863,673	$	1,048,984	6.22	%	$	15,954,026	$	953,200	5.97	%	$	14,621,568	$	924,294	6.32	%
Investment securities⁽²⁾⁽⁴⁾	3,344,920		110,077		3.29	%	2,150,408		75,836		3.53	%	1,574,294		53,737		3.41	%	3,809,383		118,605		3.11	%	3,504,808		117,564		3.35	%	3,344,920		110,077		3.29	%
Deposits in financial institutions	206,404		1,061		0.51	%	182,804		476		0.26	%	129,920		333		0.26	%	116,282		2,082		1.79	%	137,228		1,543		1.12	%	206,404		1,061		0.51	%
Total interest‑earning assets⁽²⁾⁽⁴⁾	18,172,892		1,035,432		5.70	%	14,914,274		895,406		6.00	%	11,130,555		711,167		6.39	%	20,789,338		1,169,671		5.63	%	19,596,062		1,072,307		5.47	%	18,172,892		1,035,432		5.70	%
Other assets	3,002,178						2,664,570						2,191,833						3,516,020						3,038,673						3,002,178
Total assets	$	21,175,070					$	17,578,844					$	13,322,388					$	24,305,358					$	22,634,735					$	21,175,070

LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking deposits	$	1,141,476	$	2,439	0.21	%	$	786,702	$	1,041	0.13	%	$	634,435	$	434	0.07	%	$	2,445,094	20,049		0.82	%	$	1,928,249	8,715		0.45	%	$	1,141,476	2,439		0.21	%
Money market deposits	4,357,921		12,276		0.28	%	2,473,556		4,794		0.19	%	1,667,322		3,333		0.20	%	5,107,888		39,194		0.77	%	5,027,453		22,924		0.46	%	4,357,921		12,276		0.28	%
Savings deposits	758,973		1,528		0.20	%	747,688		2,020		0.27	%	618,398		1,709		0.28	%	641,720		1,009		0.16	%	707,301		1,162		0.16	%	758,973		1,528		0.20	%
Time deposits	2,996,953		15,269		0.51	%	5,128,028		33,648		0.66	%	4,363,819		21,856		0.50	%	1,856,126		19,888		1.07	%	2,247,168		12,893		0.57	%	2,996,953		15,269		0.51	%
Total interest‑bearing deposits	9,255,323		31,512		0.34	%	9,135,974		41,503		0.45	%	7,283,974		27,332		0.38	%
Total interest-bearing deposits																			10,050,828		80,140		0.80	%	9,910,171		45,694		0.46	%	9,255,323		31,512		0.34	%
Borrowings	471,578		2,259		0.48	%	194,468		554		0.28	%	92,767		496		0.53	%	570,216		11,985		2.10	%	388,896		3,638		0.94	%	471,578		2,259		0.48	%
Subordinated debentures	439,130		20,850		4.75	%	433,752		18,535		4.27	%	353,828		14,570		4.12	%	454,702		28,631		6.30	%	447,684		23,613		5.27	%	439,130		20,850		4.75	%
Total interest‑bearing liabilities	10,166,031		54,621		0.54	%	9,764,194		60,592		0.62	%	7,730,569		42,398		0.55	%	11,075,746		120,756		1.09	%	10,746,751		72,945		0.68	%	10,166,031		54,621		0.54	%
Noninterest‑bearing demand
deposits	6,370,452						3,916,702						2,652,076						8,211,475						7,076,445						6,370,452
Other liabilities	149,725						145,953						176,017						208,470						170,044						149,725
Total liabilities	16,686,208						13,826,849						10,558,662						19,495,691						17,993,240						16,686,208
Stockholders’ equity	4,488,862						3,751,995						2,763,726						4,809,667						4,641,495						4,488,862
Total liabilities and
stockholders' equity	$	21,175,070					$	17,578,844					$	13,322,388					$	24,305,358					$	22,634,735					$	21,175,070
Net interest income
(tax equivalent) ⁽²⁾			$	980,811					$	834,814					$	668,769
Net interest income ⁽⁴⁾																					$	1,048,915					$	999,362					$	980,811
Net interest rate spread(4)					5.16	%					5.38	%					5.84	%					4.54	%					4.79	%					5.16	%
Net interest margin(4)					5.40	%					5.60	%					6.01	%					5.05	%					5.10	%					5.40	%

Total deposits ⁽³⁾⁽⁵⁾	$	15,625,775	$	31,512	0.20	%	$	13,052,676	$	41,503	0.32	%	$	9,936,050	$	27,332	0.28	%	$	18,262,303	$	80,140	0.44	%	$	16,986,616	$	45,694	0.27	%	$	15,625,775	$	31,512	0.20	%
Funding sources ⁽⁴⁾	$	16,536,483	$	54,621	0.33	%	$	13,680,896	$	60,592	0.44	%	$	10,382,645	$	42,398	0.41	%

_____________________

Contractual Obligations

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

December 31, 2016
Due Due in Due in Due
Within One to Three to After
One Year Three Years Five Years Five Years Total
(In thousands)
Time deposits⁽¹⁾
$ 1,974,593
$ 173,935
$ 23,415
$ 28
$ 2,171,971
Short-term FHLB and American Financial
Exchange borrowings 905,000
—
—
—
905,000
Long-term debt obligations⁽¹⁾
470
334
8
538,973
539,785
Contractual interest⁽²⁾
3,022
1,859
753
—
5,634
Operating lease obligations 29,300
53,799
40,709
37,443
161,251
Other contractual obligations 35,169
21,442
12,506
19,593
88,710
Total $ 2,947,554
$ 251,369
$ 77,391
$ 596,037
$ 3,872,351



	December 31, 2018
			Due After		Due After
	Due		One Year		Three Years		Due
	Within		Through		Through		After
	One Year		Three Years		Five Years		Five Years		Total
	(In thousands)
Time deposits ⁽¹⁾	$	1,895,210	$	101,616	$	8,812	$	—	$	2,005,638
Short-term borrowings	1,371,000		—		—		—		1,371,000
Long-term debt obligations ⁽¹⁾	106		8		—		541,344		541,458
Contractual interest ⁽²⁾	12,394		1,515		233		—		14,142
Operating lease obligations	32,845		57,119		38,607		29,923		158,494
Other contractual obligations	53,451		58,648		11,620		28,469		152,188
Total	$	3,365,006	$	218,906	$	59,272	$	599,736	$	4,242,920


(1)	Excludes purchase accounting fair value adjustments.


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

Operating lease obligations, time deposits, and debt obligations are discussed in Note 9.8. Premises and Equipment, Net, Note 10. Deposits, and Note 11. Borrowings and Subordinated Debentures of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.” 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 ~~and lease-related~~ commitments, of which only a portion is expected to be ~~funded.~~funded, and standby letters of credit. At December 31, ~~2016,~~2018, our loan ~~and lease-related~~ commitments ~~including~~and standby letters of credit ~~totaled $4.4 billion. These~~were $7.5 billion and $364.2 million. The loan commitments, a portion of which result in funded loans, ~~and leases,~~ 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 12. Commitments and Contingencies of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”

Recent Accounting Pronouncements

See Note 1. Nature of Operations and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” for information on recent accounting pronouncements and their expected impact, if any, on our consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk - Foreign Currency Exchange

We enter into foreign exchange contracts with our clients and ~~counterparty~~counter-party banks primarily for the purpose of offsetting or hedging clients' ~~transaction and economic~~foreign currency exposures arising out of commercial ~~transactions.~~transactions, and we enter into cross currency swaps and foreign exchange forward contracts to hedge exposures to loans and debt instruments denominated in foreign currencies. We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. ~~Dollar.~~Dollar, and the derivative instruments that hedge those exposures. As of December 31, 2018, the U.S. Dollar notional amounts of loans receivable and subordinated debentures payable denominated in foreign currencies were $48.3 million and $29.6 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures were $51.3 million and $29.2 million. We recognized foreign currency translation net gains of ~~$0.5~~$0.3 million, $0.3 million, and ~~$0.2~~$0.5 million for the years ended December 31, 2018, 2017, and 2016, ~~and 2015. In June 2015, we hedged our Euro-denominated subordinated debentures with a cross currency swap to reduce the related foreign currency translation volatility.~~respectively.

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~~ 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 December 31, ~~2016,~~2018, the results of which are presented below. Our NII simulation ~~and MVE models indicate~~indicates that our balance sheet is ~~asset sensitive.~~asset-sensitive, while our MVE model indicates that our balance sheet had a slightly liability-sensitive profile. An ~~asset sensitive~~asset-sensitive profile ~~indicates~~would suggest that a sudden sustained increase in rates would result in an increase in our estimated NII and MVE, while a ~~liability sensitive~~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~~NII that would result over the next 12 months from immediate and sustained changes in interest rates as of December 31, ~~2016.~~2018. 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~~NII forecasted using both increasing and decreasing interest rate scenarios using the forward yield curve at December 31, ~~2016.~~2018. In order to arrive at the base case, we extend our balance sheet at December 31, ~~2016~~2018 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing ~~spreads~~ as of December 31, ~~2016.~~2018. Based on such repricing, we calculate an estimated tax equivalent 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‑~~variable rate, which are assumed to reprice in accordance with their contractual terms. Some loans and investment securities include the opportunity of prepayment (imbedded options) and the simulation model uses prepayment assumptions to estimate these prepayments and reinvest these proceeds at current simulated yields. Our ~~deposit products~~interest-bearing deposits 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 12 month NII simulation model as of December 31, 2018 assumes interest-bearing deposits reprice at 46% of the change in market rates (this is commonly referred to as the "deposit beta"). The effects of certain balance sheet attributes, such as ~~fixed‑rate~~fixed-rate loans, ~~variable‑rate~~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, loan and deposit pricing, 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 ~~as of December 31, 2016,~~ forecasted net interest income and net interest margin for the next 12 months using ~~a base market interest rate~~the static balance sheet and ~~the estimated change to~~forward yield curve as the base scenario, ~~given~~with immediate and sustained parallel upward and downward movements in interest rates of 100, 200 and 300 basis ~~points:~~points as of the date indicated:


	Forecasted				Forecasted	Forecasted			Forecasted	Forecasted
	Net Interest		Percentage	Forecasted	Net Interest	Net Interest		Percentage	Net Interest	Net Interest
December 31, 2016	Income		Change	Net Interest	Margin Change
						Income		Change	Margin	Margin Change
December 31, 2018						(Tax Equivalent)		From Base	(Tax Equivalent)	From Base
						(Dollars in millions)
Interest Rate Scenario:	(Tax Equivalent)		From Base	Margin	From Base
	(Dollars in millions)
Up 300 basis points	$	1,116.8	15.0%	5.89%	0.77%	$	1,147.6	9.4%	5.13%	0.45%
Up 200 basis points	$	1,070.0	10.2%	5.64%	0.52%	$	1,115.9	6.4%	4.98%	0.30%
Up 100 basis points	$	1,022.2	5.2%	5.39%	0.27%	$	1,082.4	3.2%	4.83%	0.15%
BASE CASE	$	971.3	—	5.12%	—	$	1,048.7	—	4.68%	—
Down 100 basis points	$	934.3	(3.8)%	4.93%	(0.19)%	$	1,011.6	(3.5)%	4.52%	(0.16)%
Down 200 basis points	$	918.8	(5.4)%	4.84%	(0.28)%	$	976.2	(6.9)%	4.36%	(0.32)%
Down 300 basis points	$	911.8	(6.1)%	4.81%	(0.31)%	$	961.4	(8.3)%	4.29%	(0.39)%

Total base case year 1 tax equivalent NII was ~~$971.3 million~~$1.0 billion at December 31, ~~2016~~2018 compared to ~~$942.8 million~~$1.1 billion at December 31, ~~2015.~~2017. The ~~$28.5~~$17.6 million ~~increase~~decrease in year 1 tax equivalent NII was ~~due primarily~~attributable to ~~a $936 million~~higher cost of funds and an increase in the mix of interest-bearing liabilities, offset partially by the positive impact from loan ~~and lease~~ portfolio ~~balance and a four basis point increase in base case net interest margin.~~growth.

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~~The most favorable alternate rate vector that we model is the “Bear Flattener” scenario, ~~provides for market~~when short-term rates to increase ~~during~~faster than long-term rates, and the ~~next six months~~least favorable alternate rate vector that we model is the “Bull Steepener,” when short-term rates fall faster than long-term rates. In the “Bear Flattener” scenario, Year 1 tax equivalent NII increases by 0.3%, and in ~~accordance with~~ the ~~forward yield curve and thereafter to increase~~“Bull Steepener” scenario, Year 1 tax equivalent NII decreases by ~~25 basis points every six months. The expected first year NII under this alternative rising rate scenario would be approximately 0.7% lower than the base case.~~2.1%.

Of the ~~$15.5~~$18.0 billion of total loans in the portfolio, $11.0 billion have variable interest rate terms (excluding hybrid loans discussed below). At December 31, ~~2016, $8.1~~2018, $10.9 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~~a change in their index. Approximately ~~67%~~52% of the ~~total~~ variable-rate loans (excluding hybrid loans) have a LIBOR index rate.

Of the $186 million of loans with rates below their floor rates at December 31, 2018, $174 million (93.6%) will rise above their floor rates with a 100 basis point increase in market rates. LIBOR is expected to be phased out after 2021, as such the Company is assessing the impacts of this transition and exploring alternatives to use in place of LIBOR. The ~~following table presents~~business processes impacted relate primarily to our variable-rate loans ~~at their floors~~ and ~~the amounts for~~our subordinated debentures, both of which ~~the fully-indexed rates would rise off of the floors and reprice as a result of the rate increases shown:~~are indexed to LIBOR.

December 31, 2016
Cumulative Rate
Amount of Increase
Variable-Rate Needed to
Loans Reprice
(Dollars in millions)
$ 2,649
0 - 100 bps
$ 2,804
101 - 200 bps
$ 2,928
201 - 300 bps
$ 2,935
> 300 bps

Additionally, ~~certain~~approximately $3.3 billion of variable-rate hybrid loans do not immediately reprice because the loans contain an initial ~~fixed-rate~~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 ~~$120.0~~$286 million, ~~$321.0~~$551 million, and ~~$519.0 million~~$1.2 billion 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 December 31, ~~2016.~~2018.

The following table shows the projected change in the market value of equity for the set of rate scenarios presented as of ~~December 31, 2016:~~the date indicated:


								Ratio of								Ratio of
	Projected		Dollar			Percentage	Percentage	Projected	Projected		Dollar			Percentage	Percentage	Projected
December 31, 2016	Market Value		Change			Change	of Total	Market Value
									Market Value		Change			Change	of Total	Market Value
December 31, 2018									of Equity		From Base			From Base	Assets	to Book Value
									(Dollars in millions)
Interest Rate Scenario:	of Equity		From Base			From Base	Assets	to Book Value
	(Dollars in millions)
Up 300 basis points	$	5,732.8	$	72.6		1.3%	26.2%	128.0%	$	5,447.8	$	(58.2	)	(1.1)%	21.2%	112.9%
Up 200 basis points	$	5,714.9	$	54.7		1.0%	26.1%	127.6%	$	5,469.4	$	(36.6	)	(0.7)%	21.3%	113.3%
Up 100 basis points	$	5,692.5	$	32.2		0.6%	26.0%	127.1%	$	5,484.7	$	(21.3	)	(0.4)%	21.3%	113.7%
BASE CASE	$	5,660.2	$	—		—	25.9%	126.4%	$	5,506.0	$	—		—	21.4%	114.1%
Down 100 basis points	$	5,633.3	$	(26.9	)	(0.5)%	25.8%	125.8%	$	5,521.4	$	15.4		0.3%	21.5%	114.4%
Down 200 basis points	$	5,608.6	$	(51.6	)	(0.9)%	25.6%	125.2%	$	5,547.4	$	41.4		0.8%	21.6%	115.0%
Down 300 basis points	$	5,448.0	$	(212.2	)	(3.7)%	24.9%	121.6%	$	5,316.5	$	(189.5	)	(3.4)%	20.7%	110.2%

Total base case projected market value of equity was ~~$5.7~~$5.5 billion at December 31, ~~2016~~2018 compared to ~~$5.2~~$6.6 billion at December 31, ~~2015.~~2017. The projected market value of equity ~~increased~~decreased by ~~$438 million~~$1.1 billion, while our overall MVE sensitivity profile has remained relatively unchanged. The ~~increase~~decrease in base case market value of equity was due primarily to: (1) ~~an $81~~a $1.0 billion decrease in the mark-to-market adjustment for loans and leases resulting from higher credit spreads used for the loan value calculation and (2) a $152 million ~~increase~~decrease in the book value of stockholders' equity, ~~(2)~~offset partially by (3) a ~~$250~~$122 million decrease in the mark-to-market adjustment for total deposits due to the ~~higher forward yield curve and a shift in the deposit mix from time deposits to non-maturity deposits with longer duration, and (3) a $100 million~~overall increase in the ~~mark-to-market adjustment for loans~~level of market interest rates. The decrease in the book value of stockholders' equity was due mainly to $306 million of common stock repurchases under the Stock Repurchase Program, $288 million of cash dividends paid, and ~~leases due to lower credit spreads used for the valuation.~~a $37 million decline in accumulated other comprehensive income, offset partially by $465 million in net earnings.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Contents



Management’s Report on Internal Control Over Financial Reporting	8490
Report of Independent Registered Public Accounting Firm	8591
Consolidated Balance Sheets as of December 31, ~~2016~~2018 and ~~2015~~2017	8693
Consolidated Statements of Earnings for the Years Ended December 31, ~~2016, 2015~~2018, 2017, and ~~2014~~2016	8794
Consolidated Statements of Comprehensive Income for the Years Ended December 31, ~~2016, 2015~~2018, 2017, and ~~2014~~2016	8895
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, ~~2016, 2015~~2018, 2017, and ~~2014~~2016	8996
Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2016, 2015~~2018, 2017, and ~~2014~~2016	9097
Notes to Consolidated Financial Statements	9299

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of PacWest Bancorp, including its consolidated subsidiaries, is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management maintains a comprehensive system of controls intended to ensure that transactions are executed in accordance with management’s authorization, assets are safeguarded, and financial records are reliable. Management also takes steps to see that information and communication flows are effective and to monitor performance, including performance of internal control procedures.

As of December 31, ~~2016,~~2018, PacWest Bancorp management assessed the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, ~~2016,~~2018, is effective.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the control procedures may deteriorate.

KPMG LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this Annual Report on Form 10‑K, has issued a report on the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2016.~~2018. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2016,~~2018, is included in this Item under the heading “Report of Independent Registered Public Accounting Firm.”

Report of Independent Registered Public Accounting Firm

~~The~~

To the Stockholders and Board of Directors ~~and Stockholders~~

PacWest Bancorp:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of PacWest Bancorp and subsidiaries (the Company) as of December 31, ~~2016~~2018 and ~~2015, and~~2017, the related consolidated statements of earnings, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, ~~2016.~~2018, and the related notes (collectively, the consolidated financial statements). We also have audited ~~PacWest Bancorp’s~~the Company's internal control over financial reporting as of December 31, ~~2016,~~2018, based on criteria established in Internal ~~Control-Integrated~~Control - Integrated Framework (2013) ~~(2013)~~ issued by the Committee of Sponsoring Organizations of the Treadway ~~Commission (COSO). PacWest Bancorp’s~~Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on ~~these~~the Company's consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the consolidated financial ~~statements, assessing~~statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, ~~and~~as well as evaluating the overall presentation of the consolidated financial ~~statement presentation.~~statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PacWest Bancorp and subsidiaries as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, PacWest Bancorp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in ~~Internal Control-Integrated Framework~~ ~~(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.~~

/s/ KPMG LLP

We have served as the auditor for the Company or its predecessors since 1982.

Los Angeles, California

February ~~28, 2017~~27, 2019

PACWEST BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	December 31,						December 31,
	2016			2015			2018			2017
	(Dollars in thousands, except par value amounts)						(Dollars in thousands, except par value amounts)
ASSETS
ASSETS:
Cash and due from banks	$	337,965		$	161,020		$	175,830		$	233,215
Interest-earning deposits in financial institutions	81,705			235,466			209,937			165,222
Total cash and cash equivalents	419,670			396,486			385,767			398,437
Securities available-for-sale, at fair value	3,223,830			3,559,437			4,009,431			3,774,431
Federal Home Loan Bank stock, at cost	21,870			19,710			32,103			20,790
Total investment securities	3,245,700			3,579,147			4,041,534			3,795,221
Gross loans and leases	15,520,537			14,528,165
Loans held for sale, at lower of cost or fair value							—			481,100
Gross loans and leases held for investment							18,026,365			17,032,221
Deferred fees, net	(64,583		)	(49,911		)	(68,652		)	(59,478		)
Allowance for loan and lease losses	(157,238		)	(115,111		)	(132,472		)	(139,456		)
Total loans and leases, net	15,298,716			14,363,143
Total loans and leases held for investment, net							17,825,241			16,833,287
Equipment leased to others under operating leases	229,905			197,452			292,677			284,631
Premises and equipment, net	38,594			39,197			34,661			31,852
Foreclosed assets, net	12,976			22,120			5,299			1,329
Deferred tax asset, net	94,112			126,389			17,489			—
Goodwill	2,173,949			2,176,291			2,548,670			2,548,670
Core deposit and customer relationship intangibles, net	36,366			53,220			57,120			79,626
Other assets	319,779			335,045			522,896			540,723
Total assets	$	21,869,767		$	21,288,490		$	25,731,354		$	24,994,876

LIABILITIES:
Noninterest-bearing deposits	$	6,659,016		$	6,171,455		$	7,888,915		$	8,508,044
Interest-bearing deposits	9,211,595			9,494,727			10,981,586			10,357,492
Total deposits	15,870,611			15,666,182			18,870,501			18,865,536
Borrowings	905,812			621,914			1,371,114			467,342
Subordinated debentures	440,744			436,000			453,846			462,437
Accrued interest payable and other liabilities	173,545			166,703			210,305			221,963
Total liabilities	17,390,712			16,890,799			20,905,766			20,017,278

Commitments and contingencies (Note 12)
Commitments and contingencies

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 December 31, 2016 and 2015;
122,803,029 and 122,791,729 shares issued, respectively, includes 1,476,132 and 1,211,951
Common stock ($0.01 par value, 200,000,000 shares authorized at December 31, 2018 and 2017;
125,079,705 and 130,491,108 shares issued, respectively, includes 1,344,656 and 1,436,120
shares of unvested restricted stock, respectively)	1,228			1,228			1,251			1,305
Additional paid-in capital	4,162,132			4,405,775			3,722,723			4,287,487
Retained earnings	366,073			13,907			1,182,674			723,471
Treasury stock, at cost (1,519,360 and 1,378,002 shares at December 31, 2016 and 2015)	(56,360		)	(51,047		)
Accumulated other comprehensive income, net	5,982			27,828
Treasury stock, at cost (1,889,872 and 1,708,230 shares at December 31, 2018 and 2017)							(74,985		)	(65,836		)
Accumulated other comprehensive (loss) income, net							(6,075		)	31,171
Total stockholders' equity	4,479,055			4,397,691			4,825,588			4,977,598
Total liabilities and stockholders' equity	$	21,869,767		$	21,288,490		$	25,731,354		$	24,994,876



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



Common Stock, par value $0.01 per share		The Nasdaq Stock Market, LLC
(Title of Each Class)		(Name of Exchange on Which Registered)



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.



PART I

	Forward‑Looking Information	43
	Available Information	54
	Glossary of Acronyms, Abbreviations, and Terms	65
Item 1.	Business	7
	~~General~~	7
	~~Our Business Strategy~~	7
	~~Loan Concentrations~~	13
	~~Current Developments~~	14
	~~Financing~~	15
	~~Information Technology Systems~~	15
	~~Risk Oversight and Management~~	15
	~~Competition~~	16
	~~Employees~~	16
	~~Financial and Statistical Disclosure~~	16
	~~Supervision and Regulation~~	176
Item 1A.	Risk Factors	2526
Item 1B.	Unresolved Staff Comments	3537
Item 2.	Properties	3537
Item 3.	Legal Proceedings	3537
Item 4.	Mine Safety Disclosure	3537

PART II

ITEM 5.	Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	36
	~~Marketplace Designation, Sales Price Information and Holders~~	36
	~~Dividends~~	36
	~~Securities Authorized for Issuance under Equity Compensation Plans~~	37
	~~Recent Sales of Unregistered Securities and Use of Proceeds~~	37
	~~Repurchases of Common Stock~~	37
	~~Five‑Year Stock Performance Graph~~	3738
ITEM 6.	Selected Financial Data	3941
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4143
	~~Overview~~	41
	~~Recent Events~~	41
	~~Key Performance Indicators~~	42
	~~Critical Accounting Policies~~	44
	~~Non-GAAP Measurements~~	47
	~~Results of Operations~~	49
	~~Balance Sheet Analysis~~	61
	~~Regulatory Matters~~	75
	~~Liquidity~~	77
	~~Contractual Obligations~~	79
	~~Off-Balance Sheet Arrangements~~	79
	~~Recent Accounting Pronouncements~~	79



ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	8086
ITEM 8.	Financial Statements and Supplementary Data	83
	~~Contents~~	83
	~~Management’s Report on Internal Control Over Financial Reporting~~	84
	~~Report of Independent Registered Public Accounting Firm~~	85
	~~Consolidated Balance Sheets as of December 31, 2016 and 2015~~	86
	~~Consolidated Statements of Earnings for the Years Ended December 31, 2016, 2015 and 2014~~	87
	~~Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014~~	88
	~~Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014~~	89
	~~Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014~~	90
	~~Notes to Consolidated Financial Statements~~	92
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~147~~161
ITEM 9A.	Controls and Procedures	~~147~~161
ITEM 9B.	Other Information	~~147~~161

PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance	~~147~~162
ITEM 11.	Executive Compensation	~~147~~162
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~148~~162
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	~~148~~162
ITEM 14.	Principal Accountant Fees and Services	~~148~~162

PART IV

ITEM 15.	Exhibits and Financial Statement Schedules	~~148~~163
ITEM 16.	Form 10-K Summary	~~149~~164
SIGNATURES		~~150~~165



~~ALM~~AFX	~~Asset Liability Management~~American Financial Exchange	FRB	Board of Governors of the Federal Reserve System
~~ASC~~ALLL	~~Accounting Standards Codification~~Allowance for Loan and Lease Losses	FRBSF	Federal Reserve Bank of San Francisco
~~ASU~~ALM	~~Accounting Standards Update~~Asset Liability Management	FSOC	Financial Stability Oversight Council
ASC	Accounting Standards Codification	GLBA	Gramm-Leach-Bliley Act of 1999
ASU	Accounting Standards Update	IPO	Initial Public Offering
ATM	Automated Teller Machine	IRR	Interest Rate Risk
Basel III	A comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013.	~~IRR~~LIHTC	~~Interest Rate Risk~~Low Income Housing Tax Credit
BHCA	Bank Holding Company Act of 1956, as amended	MBS	Mortgage-Backed Securities
BOLI	Bank Owned Life Insurance	MVE	Market Value of Equity
~~CapitalSource Inc.~~Brexit	~~A company acquired on April 7, 2014~~Britain Exit (from the European Union)	NII	Net Interest Income
~~CapitalSource Division~~California Privacy Act	~~A division~~California Consumer Privacy Act of ~~Pacific Western Bank, formed at the closing of the CapitalSource Inc. merger~~2018	NIM	Net Interest Margin
~~C&I~~CDI	~~Commercial and Industrial~~Core Deposit Intangible Assets	Non-PCI	Non-Purchased Credit Impaired
~~CDI~~CECL	~~Core Deposit Intangible Assets~~Current Expected Credit Loss	OCC	Office of the Comptroller of the Currency
CET1	Common Equity Tier 1	OFAC	U.S Treasury Department of Office of Foreign Assets Control
~~CET1~~CFPB	~~Common Equity Tier 1~~Consumer Financial Protection Bureau	OREO	Other Real Estate Owned
~~CFPB~~CMOs	~~Consumer Financial Protection Bureau~~Collateralized Mortgage Obligations	PD/LGD	Probability of Default/Loss Given Default
CRA	Community Reinvestment Act	PWEF	Pacific Western Equipment Finance
~~CMOs~~CRI	~~Collateralized Mortgage Obligations~~Customer Relationship Intangible Assets	PATRIOT Act	Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
~~Core Loan and Lease Yield~~CUB	~~Loan and lease yield adjusted for accelerated accretion of acquisition discounts from early payoffs of~~CU Bancorp (a company acquired ~~loans~~on October 20, 2017)	PCI	Purchased Credit Impaired
~~Core NIM~~CU Bank	~~NIM adjusted for accelerated accretion~~California United Bank (a wholly-owned subsidiary of ~~acquisition discounts from early payoffs of acquired loans~~CUB)	PRSUs	Performance-Based Restricted Stock Units
~~CRA~~DBO	~~Community Reinvestment Act~~California Department of ~~1977~~Business Oversight	S1AM	Square 1 Asset Management, Inc.
~~CRI~~DGCL	~~Customer Relationship Intangible Assets~~Delaware General Corporation Law	SBA	Small Business Administration
~~DBO~~Dodd-Frank Act	~~California Department of Business Oversight~~Dodd-Frank Wall Street Reform and Consumer Protection Act	SEC	Securities and Exchange Commission
~~DGCL~~DTAs	~~Delaware General Corporation Law~~Deferred Tax Assets	SNCs	Shared National Credits
~~Dodd-Frank Act~~EGRRCPA	~~Dodd-Frank Wall Street Reform~~Economic Growth, Regulatory Relief, and Consumer Protection Act	Square 1	Square 1 Financial, Inc. (a company acquired on October 6, 2015)
~~DTA~~	~~Deferred Tax Assets~~	~~Square 1 Bank Division~~	~~A division of Pacific Western Bank formed at the closing of the Square 1 acquisition~~
Efficiency Ratio	Noninterest expense (less intangible asset amortization, net foreclosed assets income/expense, and acquisition, integration and reorganization costs) divided by net revenues (the sum of tax equivalent net interest income plus noninterest income, less gain/loss on sale of securities and gain/loss on sales of assets other than loans and leases)	Tax Equivalent Net Interest Income	Net interest income adjusted for ~~tax-equivalent~~tax equivalent adjustments related to tax-exempt ~~income~~interest on certain loans and municipal securities
FASB	Financial Accounting Standards Board	Tax Equivalent NIM	NIM adjusted for ~~tax-equivalent~~tax equivalent adjustments related to tax-exempt ~~income~~interest on certain loans and municipal securities
~~FCAL~~	~~First California Financial Group, Inc. (a company acquired on May 31, 2013)~~	~~TDRs~~	~~Troubled Debt Restructurings~~
FDIA	Federal Deposit Insurance Act	~~TRSAs~~TCJA	~~Time-Based Restricted Stock Awards~~Tax Cuts and Jobs Act
FDIC	Federal Deposit Insurance Corporation	~~TruPS~~TDRs	~~Trust Preferred Securities~~Troubled Debt Restructurings
FDICIA	Federal Deposit Insurance Corporation Improvement Act	~~U.S. GAAP~~TRSAs	~~U.S. Generally Accepted Accounting Principles~~Time-Based Restricted Stock Awards
FHLB	Federal Home Loan Bank of San Francisco	TruPS	Trust Preferred Securities
FinCEN	Financial Crimes Enforcement Network	U.S. GAAP	U.S. Generally Accepted Accounting Principles
		VIE	Variable Interest Entity


	December 31, 2016				December 31, 2015				December 31, 2018				December 31, 2017				December 31, 2016
			% of				% of				% of				% of				% of
	Amount		Total		Amount		Total		Amount		Total		Amount		Total		Amount		Total
	(Dollars in thousands)								(Dollars in thousands)
Real estate mortgage:
Commercial	$	4,396,696	28	%	$	4,645,533	33	%	$	4,824,298	27	%	$	5,385,740	32	%	$	4,396,696	28	%
Residential	1,314,036		9	%	1,211,209		8	%
Income producing and other residential									3,093,843		17	%	2,466,894		14	%	1,314,036		9	%
Total real estate mortgage	5,710,732		37	%	5,856,742		41	%	7,918,141		44	%	7,852,634		46	%	5,710,732		37	%
Real estate construction and land:
Commercial	581,246		4	%	345,991		2	%	912,583		5	%	769,075		5	%	581,246		4	%
Residential	384,001		2	%	184,382		1	%	1,321,073		8	%	822,154		5	%	384,001		2	%
Total real estate construction and land	965,247		6	%	530,373		3	%	2,233,656		13	%	1,591,229		10	%	965,247		6	%
Total real estate	6,675,979		43	%	6,387,115		44	%	10,151,797		57	%	9,443,863		56	%	6,675,979		43	%
Commercial:
Cash flow ⁽¹⁾	3,112,890		20	%	3,073,965		21	%
Asset-based	2,611,796		17	%	2,547,665		18	%	3,305,421		18	%	2,924,950		17	%	2,948,941		19	%
Venture capital	1,987,900		13	%	1,458,013		10	%	2,038,748		11	%	2,122,735		13	%	1,987,900		13	%
Equipment finance	691,967		4	%	890,349		6	%
Other commercial ⁽¹⁾									2,060,426		12	%	2,071,394		12	%	3,467,712		22	%
Total commercial	8,404,553		54	%	7,969,992		55	%	7,404,595		41	%	7,119,079		42	%	8,404,553		54	%
Consumer	375,422		3	%	121,147		1	%	401,321		2	%	409,801		2	%	375,422		3	%
Total loans and leases, net of deferred fees ⁽²⁾	$	15,455,954	100	%	$	14,478,254	100	%
Total loans and leases held for
investment, net of deferred fees									$	17,957,713	100	%	$	16,972,743	100	%	$	15,455,954	100	%


(1)	~~Includes leveraged loans of $2.3 billion and $2.2 billion at~~At December 31, 2018, the remaining balances of the technology, healthcare, and general cash flow loans held for investment of the lending businesses that we exited in December 2017 totaled $92.5 million. At December 31, 2017 and 2016, ~~and 2015.~~


~~(2)~~	~~Includes PCI~~the balances of these loans ~~of $108.4~~totaled $249.3 million and ~~$189.0 million at December 31, 2016 and 2015, of which the majority~~$2.3 billion. Such cash flow loans are included in the ~~Real Estate Mortgage category~~"Other commercial" loan portfolio class in ~~this~~the table.



			Dividends
			Declared
	Stock Sales Prices		During
	High	Low	Quarter
2015
First quarter	$47.47	$41.41	$0.50
Second quarter	$48.86	$43.69	$0.50
Third quarter	$48.54	$40.00	$0.50
Fourth quarter	$48.00	$41.11	$0.50

2016
First quarter	$43.45	$29.05	$0.50
Second quarter	$42.14	$35.56	$0.50
Third quarter	$43.86	$36.89	$0.50
Fourth quarter	$56.07	$41.10	$0.50


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


(2)	Includes discount accretion on acquired loans of $29.3 million, $26.1 million, and $79.5 million for 2018, 2017, and 2016, respectively.


(3)	Includes tax-equivalent adjustments of $6.5 million, $19.4 million, and $19.5 million ~~$11.5 million,~~for 2018, 2017, and ~~$6.4 million for~~ 2016, ~~2015 and 2014,~~ respectively, related to tax-exempt ~~income~~interest on municipal securities. The federal statutory rate utilized was 21% for 2018 and 35% for ~~all years.~~2017 and 2016.


(5)	Total deposits is the sum of interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.


~~(4)~~	Funding sources is the sum of interest-bearing liabilities and noninterest-bearing demand deposits. The cost of funding sources is calculated as annualized total interest expense divided by average funding sources.


	2016 Compared to 2015									2015 Compared to 2014							2018 Compared to 2017									2017 Compared to 2016
	Total			Increase (Decrease)						Total		Increase (Decrease)					Total			Increase (Decrease)						Total			Increase (Decrease)
	Increase			Due to						Increase		Due to					Increase			Due to						Increase			Due to
	(Decrease)			Volume			Rate			(Decrease)		Volume		Rate			(Decrease)			Volume			Rate			(Decrease)			Volume			Rate
	(In thousands)																(In thousands)
Interest Income:
Loans and leases(1)	$	105,200		$	129,575		$	(24,375	)	$	161,997	$	189,541	$	(27,544	)	$	95,784		$	55,647		$	40,137		$	28,906		$	81,346		$	(52,440	)
Investment securities (tax equivalent)	34,241			39,612			(5,371		)	22,099		20,263		1,836
Investment securities ⁽²⁾																	1,041			9,815			(8,774		)	7,487			5,334			2,153
Deposits in financial institutions	585			68			517			143		138		5			539			(264		)	803			482			(449		)	931
Total interest income(2)	140,026			169,255			(29,229		)	184,239		209,942		(25,703		)	97,364			65,198			32,166			36,875			86,231			(49,356		)

Interest Expense:
Interest checking deposits	1,398			592			806			607		124		483			11,334			2,807			8,527			6,276			2,397			3,879
Money market deposits	7,482			4,690			2,792			1,461		1,565		(104		)	16,270			373			15,897			10,648			2,118			8,530
Savings deposits	(492		)	30			(522		)	311		350		(39		)	(153		)	(105		)	(48		)	(366		)	(99		)	(267		)
Time deposits	(18,379		)	(11,951		)	(6,428		)	11,792		4,256		7,536			6,995			(2,569		)	9,564			(2,376		)	(4,141		)	1,765
Total interest-bearing deposits	(9,991		)	(6,639		)	(3,352		)	14,171		6,295		7,876			34,446			506			33,940			14,182			275			13,907
Borrowings	1,705			1,153			552			58		366		(308		)	8,347			2,272			6,075			1,379			(455		)	1,834
Subordinated debentures	2,315			232			2,083			3,965		3,398		567			5,018			375			4,643			2,763			413			2,350
Total interest expense	(5,971		)	(5,254		)	(717		)	18,194		10,059		8,135			47,811			3,153			44,658			18,324			233			18,091

Net interest income (tax equivalent)	$	145,997		$	174,509		$	(28,512	)	$	166,045	$	199,883	$	(33,838	)
Net interest income ⁽²⁾																	$	49,553		$	62,045		$	(12,492	)	$	18,551		$	85,998		$	(67,447	)


(1)	Starting with the third quarter of 2017, includes tax-equivalent adjustments related to tax-exempt interest on loans.


(2)	See "- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment" for detail of charge-offs and recoveries by loan portfolio segment, class, and subclass for the periods presented.


	Three Months Ended						Three Months Ended
	December 31,			September 30,			December 31,			September 30,
	2016			2016			2018			2018
	(Dollars in thousands, except per share data)						(Dollars in thousands, except per share data)
Earnings Summary:
Interest income	$	261,773		$	247,855		$	302,739		$	292,642
Interest expense	(13,468		)	(13,220		)	(40,974		)	(32,325		)
Net interest income	248,305			234,635			261,765			260,317
Provision for credit losses	(23,215		)	(8,471		)	(12,000		)	(11,500		)
Net interest income after provision for credit losses							249,765			248,817
Gain on sale of securities	515			382			786			826
Other noninterest income	28,380			26,538			32,740			36,086
Total noninterest income	28,895			26,920			33,526			36,912
Foreclosed assets (expense) income, net	(2,693		)	248
Foreclosed assets income, net							311			257
Acquisition, integration and reorganization costs							(970		)	(800		)
Other noninterest expense	(115,929		)	(110,958		)	(128,576		)	(127,610		)
Total noninterest expense	(118,622		)	(110,710		)	(129,235		)	(128,153		)
Earnings before income taxes	135,363			142,374			154,056			157,576
Income tax expense	(49,716		)	(48,479		)	(39,015		)	(41,289		)
Net earnings	$	85,647		$	93,895		$	115,041		$	116,287

Performance Measures:
Diluted earnings per share	$	0.71		$	0.77		$	0.93		$	0.94
Annualized return on:
Average assets	1.59		%	1.77		%	1.84		%	1.89		%
Average tangible equity ⁽¹⁾⁽²⁾	14.88		%	16.15		%	21.23		%	21.61		%
Net interest margin (tax equivalent)	5.47		%	5.26		%	4.91		%	4.99		%
Core net interest margin (tax equivalent) ⁽³⁾	5.09		%	5.08		%
Yield on average loans and leases (tax equivalent)							6.27		%	6.20		%
Cost of average total deposits							0.62		%	0.46		%
Efficiency ratio	40.1		%	40.1		%	41.7		%	40.9		%


(1)	Calculation reduces average equity by average intangible assets.


~~(3)~~	~~Calculation excludes accelerated accretion of acquisition discounts from early payoffs of acquired loans.~~



	December 31, 2016				December 31, 2015
	Fair		% of		Fair		% of
Security Type:	Value		Total		Value		Total
	(Dollars in thousands)
Residential MBS and CMOs:
Agency MBS	$	502,443	16	%	$	667,840	19	%
Agency CMOs	146,289		4	%	194,755		6	%
Private label CMOs	125,469		4	%	144,796		4	%
Municipal securities	1,456,459		45	%	1,547,331		43	%
Agency commercial MBS	547,692		17	%	391,441		11	%
Corporate debt securities	47,509		1	%	48,424		1	%
Collateralized loan obligations	156,887		5	%	132,189		4	%
SBA securities	178,845		6	%	211,157		6	%
US Treasury securities	—		—	%	69,380		2	%
Agency debt securities	—		—	%	36,913		1	%
Asset-backed and other securities	62,237		2	%	115,211		3	%
Total securities available-for-sale	$	3,223,830	100	%	$	3,559,437	100	%


(1)	~~Represents~~In connection with our adoption of ASU 2016-01 and ASU 2018-03 on January 1, 2018, we reclassified $7.1 million of equity investments from securities available-for-sale to other assets in the ~~yield for the month~~first quarter of ~~December 2016~~. 2018. The reclassification was applied prospectively without prior period amounts being restated.


(1)	Rates on tax-exempt securities are contractual rates and are not presented on a tax-equivalent basis.


(1)	~~Includes PCI loans of $108.4 million~~Loans and ~~$189.0 million at December 31, 2016~~leases by portfolio class and ~~2015, of which the majority are included in the Real Estate Mortgage category in this table.~~subclass not available.



	Year Ended
Loan and Lease Roll Forward: ⁽¹⁾	December 31, 2016
	(Dollars in thousands)
Beginning balance	$	14,478,254
New production	4,118,330
Existing loans and leases:
Principal repayments, net⁽²⁾	(2,844,553		)
Loan and lease sales	(120,144		)
Transfers to foreclosed assets	(781		)
Charge-offs	(35,954		)
Sale of PWEF leasing unit	(139,198		)
Ending balance	$	15,455,954

Weighted average rate on new production	4.92		%



	Year Ended			Year Ended
Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees ⁽¹⁾	December 31, 2018			December 31, 2017
	(Dollars in thousands)
Balance, beginning of year	$	16,972,743		$	15,455,954
Additions:
Production	4,888,614			4,685,763
Disbursements	4,104,335			3,204,272
Total production and disbursements	8,992,949			7,890,035
Reductions:
Payoffs	(4,289,297		)	(3,801,592		)
Paydowns	(3,480,997		)	(2,769,309		)
Total payoffs and paydowns	(7,770,294		)	(6,570,901		)
Sales	(161,729		)	(1,316,259		)
Transfers to foreclosed assets	(16,914		)	(580		)
Charge-offs	(59,042		)	(80,296		)
Transfers to loans held for sale	—			(481,100		)
Total reductions	(8,007,979		)	(8,449,136		)
Loans acquired through CUB acquisition	—			2,075,890
Balance, end of year	$	17,957,713		$	16,972,743

Weighted average rate on production ⁽²⁾	5.23		%	4.98		%


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



	Due in One		Due After One to		Due After
December 31, 2016	Year or Less		Five Years		Five Years		Total
	(In thousands)
Non-PCI Loans and Leases:
Real estate mortgage	$	727,017	$	2,953,578	$	1,937,361	$	5,617,956
Real estate construction and land	391,044		568,943		2,852		962,839
Commercial	1,605,069		5,712,670		1,073,821		8,391,560
Consumer	9,159		84,844		281,172		375,175
Total Non-PCI	2,732,289		9,320,035		3,295,206		15,347,530
PCI Loans	24,886		32,365		51,173		108,424
Total loans and leases, net of deferred fees	$	2,757,175	$	9,352,400	$	3,346,379	$	15,455,954



	Due After One Year
	Fixed		Variable
December 31, 2016	Rate		Rate		Total
	(In thousands)
Non-PCI Loans:
Real estate mortgage	$	1,293,939	$	3,597,000	$	4,890,939
Real estate construction and land	178,114		393,681		571,795
Commercial	1,302,842		5,483,649		6,786,491
Consumer	226,697		139,319		366,016
Total Non-PCI	3,001,592		9,613,649		12,615,241
PCI Loans	36,690		46,848		83,538
Total	$	3,038,282	$	9,660,497	$	12,698,779



	December 31, 2016					December 31, 2015
	Obligors	Amount		% of Total		Obligors	Amount		% of Total
	(Dollars in thousands)
Nonaccrual	1	$	30,252	36	%	3	$	47,091	34	%
Large, rated companies ⁽¹⁾	2	38,399		46	%	2	50,972		37	%
All others	8	15,075		18	%	19	39,262		29	%
Total oil and gas support services	11	$	83,726	100	%	24	$	137,325	100	%


~~(1)~~	~~Borrowing entity or obligor contractual counterparty rated BB+ or higher.~~


	December 31,															December 31,
Non-PCI Allowance for Credit Losses Data:	2016			2015			2014			2013			2012
Allowance for Credit Losses Data ⁽¹⁾																2018			2017			2016			2015			2014
	(Dollars in thousands)															(Dollars in thousands)
Allowance for loan and lease losses	$	143,755		$	105,534		$	70,456		$	60,241		$	65,899		$	132,472		$	133,012		$	143,755		$	105,534		$	70,456
Reserve for unfunded loan commitments	17,523			16,734			6,311			7,575			6,220			36,861			28,635			17,523			16,734			6,311
Total allowance for credit losses	$	161,278		$	122,268		$	76,767		$	67,816		$	72,119		$	169,333		$	161,647		$	161,278		$	122,268		$	76,767

Allowance for credit losses to loans and leases	1.05		%	0.85		%	0.66		%	1.73		%	2.35		%
held for investment																0.94		%	0.96		%	1.05		%	0.86		%	0.66		%
Allowance for credit losses to nonaccrual loans and leases	94.5		%	94.8		%	91.8		%	145.0		%	172.7		%
held for investment																213.5		%	103.8		%	94.5		%	94.8		%	91.8		%


	Year Ended December 31,															Year Ended December 31,
Non-PCI Allowance for Credit Losses:	2016			2015			2014			2013			2012
Allowance for Credit Losses Roll Forward ⁽¹⁾																2018			2017			2016			2015			2014
	(Dollars in thousands)															(Dollars in thousands)
Allowance for credit losses, beginning of year	$	122,268		$	76,767		$	67,816		$	72,119		$	93,783
Provision (negative provision) for credit losses:
Addition to (reduction in) allowance for loan and lease losses	60,211			42,604			11,746			(1,355		)	(9,750		)
Balance, beginning of year ⁽²⁾																$	168,091		$	161,278		$	122,268		$	76,767		$	67,816
Provision for credit losses:
Addition to allowance for loan and lease losses																36,774			52,214			60,211			42,604			11,746
Addition to (reduction in) reserve for unfunded loan
commitments	789			5,677			(1,264		)	1,355			(2,250		)	8,226			6,786			789			5,677			(1,264		)
Total provision (negative provision) for credit losses	61,000			48,281			10,482			—			(12,000		)
Total provision for credit losses																45,000			59,000			61,000			48,281			10,482
Loans and leases charged off:
Real estate mortgage	(2,059		)	(2,489		)	(2,080		)	(4,552		)	(7,680		)	(8,190		)	(2,410		)	(2,059		)	(2,489		)	(2,080		)
Real estate construction and land	—			—			—			—			(492		)	—			—			—			—			—
Commercial	(32,210		)	(13,354		)	(9,463		)	(6,409		)	(4,608		)	(50,481		)	(70,709		)	(32,210		)	(13,354		)	(9,463		)
Consumer	(823		)	(156		)	(332		)	(198		)	(290		)	(371		)	(1,023		)	(823		)	(156		)	(332		)
Total loans and leases charged off	(35,092		)	(15,999		)	(11,875		)	(11,159		)	(13,070		)	(59,042		)	(74,142		)	(35,092		)	(15,999		)	(11,875		)
Recoveries on loans charged off:
Real estate mortgage	4,519			3,582			2,640			2,507			1,598			2,350			1,209			4,519			3,582			2,640
Real estate construction and land	673			1,082			156			1,654			49			195			429			673			1,082			156
Commercial	7,794			3,399			6,265			2,621			1,622			12,566			9,415			7,794			3,399			6,265
Consumer	116			410			1,283			74			137			173			132			116			410			1,283
Total recoveries on loans charged off	13,102			8,473			10,344			6,856			3,406			15,284			11,185			13,102			8,473			10,344
Net charge-offs	(21,990		)	(7,526		)	(1,531		)	(4,303		)	(9,664		)	(43,758		)	(62,957		)	(21,990		)	(7,526		)	(1,531		)
Fair value of acquired reserve for unfunded commitments	—			4,746			—			—			—
Allowance for credit losses, end of year	$	161,278		$	122,268		$	76,767		$	67,816		$	72,119
Fair value of acquired reserve for unfunded loan
commitments																—			4,326			—			4,746			—
Balance, end of year																$	169,333		$	161,647		$	161,278		$	122,268		$	76,767

Net charge-offs to average loans and leases	0.15		%	0.06		%	0.02		%	0.12		%	0.33		%	0.26		%	0.40		%	0.15		%	0.06		%	0.02		%


(2)	The allowance for loan losses related to PCI loans of $6.4 million as of December 31, 2017 is reflected in the beginning balance for 2018.