ACQUISITIONS

The following assets acquired and liabilities assumed of the acquired entities are presented at estimated fair value as of their respective acquisition dates:



	Acquisition and Date Acquired
	CapitalSource Inc.		First California Financial Group		American Perspective Bank		Celtic Capital Corporation		Pacific Western Equipment Finance
	April 7, 2014		May 31, 2013		August 1, 2012		April 3, 2012		January 3, 2012
	(In thousands)
Assets Acquired:
Cash and due from banks	$	768,553	$	6,124	$	3,370	$	3,435	$	7,092
Interest‑earning deposits in financial institutions	60,612		266,889		10,081		—		—
Investment securities available‑for‑sale	382,797		4,444		48,887		—		—
FHLB stock	46,060		9,518		1,412		—		—
Loans and leases	6,877,427		1,049,613		197,279		54,963		140,959
Equipment leased to others under operating leases	160,015		—		—		—		—
Premises and equipment	12,663		15,322		—		—		—
Foreclosed assets	6,382		13,772		1,561		—		—
FDIC loss sharing asset	—		17,241		—		—		—
Income tax assets	312,757		33,360		2,194		19		—
Goodwill	1,518,381		129,070		15,047		6,645		19,033
Core deposit and customer relationship intangibles	6,720		7,927		1,924		1,300		1,700
Leases in process	—		—		—		—		19,162
Other assets⁽¹⁾	582,985		27,576		2,040		720		1,887
Total assets acquired	$	10,735,352	$	1,580,856	$	283,795	$	67,082	$	189,833
Liabilities Assumed:
Noninterest‑bearing deposits	$	4,631	$	361,166	$	40,673	$	—	$	—
Interest‑bearing deposits	6,236,419		739,713		178,891		—		—
Other borrowings	992,109		—		5,315		46,804		15,839
Borrowings from parent	—		—		—		—		128,677
Subordinated debentures	300,918		24,061		—		—		—
Discontinued operations	—		184,619		—		—		—
Accrued interest payable and other liabilities	124,087		19,729		840		2,278		10,317
Total liabilities assumed	$	7,658,164	$	1,329,288	$	225,719	$	49,082	$	154,833
Total consideration paid	$	3,077,188	$	251,568	$	58,076	$	18,000	$	35,000

Summary of consideration:
Cash paid	$	483,118	$	—	$	58,076	$	18,000	$	35,000
PacWest common stock issued	2,594,070		242,268		—		—		—
Cancellation of FCAL common stock owned by PacWest (at acquisition date fair value)	—		9,300		—		—		—
Total	$	3,077,188	$	251,568	$	58,076	$	18,000	$	35,000

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(1)	The CapitalSouce, Inc. amount includes a $484 million receivable for securities sales proceeds.

CapitalSource Inc. Merger

We acquired CapitalSource Inc. on April 7, 2014. As part of the merger, CapitalSource Bank (“CSB”), a wholly-owned subsidiary of CapitalSource Inc., merged with and into Pacific Western Bank. We completed the merger in order to increase our loan and lease generation capabilities and to diversify our loan portfolio.

Upon closing, we created the CapitalSource Division of the Bank. The CapitalSource Division lends throughout the United States, providing middle-market businesses asset-secured loans, equipment-secured loans and leases, and cash flow loans and providing real estate investment firms real estate loans secured by various property types. When we refer to "CapitalSource Inc." we are referring to the company acquired on April 7, 2014 and when we refer to the "CapitalSource Division" we are referring to a division of the Bank that provides on a nationwide basis senior secured real estate loans, equipment loans and leases, asset-based loans, loans to finance companies, and cash flow loans secured by the enterprise value of the borrowing entity.

In the merger with CapitalSource Inc., each share of CapitalSource Inc. common stock was converted into the right to receive $2.47 in cash and 0.2837 of a share of PacWest common stock. PacWest issued an aggregate of approximately 56.6 million shares of PacWest common stock to CapitalSource Inc. stockholders. Based on the closing price of PacWest’s common stock on April 7, 2014 of $45.83 per share, the aggregate consideration paid to CapitalSource Inc. common stockholders and holders of equity awards to acquire CapitalSource Inc. common stock was approximately $3.1 billion.

CSB was a commercial lender which operated under a California Industrial Loan Bank charter headquartered in Los Angeles, California. CSB provided financial products to small to middle-market businesses nationwide and also provided certain depository products and services excluding demand deposit accounts to consumers in Southern and Central California. CSB’s loan origination efforts were conducted nationwide, and continue as part of the CapitalSource Division, with offices located in Chevy Chase, Maryland; Los Angeles, California; St. Louis, Missouri; Denver, Colorado; Chicago, Illinois; and New York, New York.

The integration of CSB’s deposit system and the conversion of CSB’s branches to Pacific Western Bank’s operating platform were completed over the weekend of April 12, 2014. CSB had 21 branches, 12 of which were closed in the consolidation with Pacific Western at the close of business on April 11, 2014 and one overlapping Pacific Western branch was closed as well. All remaining branches opened on Monday, April 14, 2014 as Pacific Western branches.

The CapitalSource Inc. merger has been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the merger date. We made significant estimates and exercised significant judgment in estimating fair values and accounting for such acquired assets and liabilities. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. The application of the acquisition method of accounting resulted in goodwill of $1.5 billion. All of the recognized goodwill is expected to be non‑deductible for tax purposes. The fair values of the acquired tax assets are still subject to change.

As required by the merger agreement and as described in the joint proxy statement/prospectus relating to the merger, the Board of Directors of PacWest adopted a Tax Asset Protection Plan (the “Plan”). This Plan is similar to the Tax Benefit Preservation Plan that CapitalSource Inc. had in place prior to the merger. The purpose of the Plan is to seek to preserve PacWest’s ability to utilize net operating loss carryforwards and certain other tax assets (collectively, the “NOLs”) for U.S. federal income tax purposes that PacWest and certain of its subsidiaries have. The Plan seeks to protect the ability to utilize the NOLs by mitigating the potential for an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).

In general, an “ownership change” would occur if PacWest’s “5‑percent shareholders,” as defined under Section 382 of the Code, collectively increase their ownership in PacWest, in relation to their respective historical low points, by more than 50 percentage points over a rolling three‑year period. Institutional holders that file as “investment advisers” for SEC purposes, such as mutual fund companies that hold PacWest common stock on behalf of several individual mutual funds where no single fund owns five percent or more of PacWest’s common stock, generally are not treated as “5‑percent shareholders” for purposes of Section 382 of the Code.

First California Financial Group Acquisition

On May 31, 2013, we acquired First California Financial Group, Inc. As part of this acquisition, First California Bank ("FCB"), a wholly-owned subsidiary of FCAL, merged with and into Pacific Western. The FCAL acquisition has been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the May 31, 2013 acquisition date. The application of the acquisition method of accounting resulted in goodwill of $129.1 million. All of the recognized goodwill is expected to be non‑deductible for tax purposes.

FCB was a full‑service commercial bank headquartered in Westlake Village, California. FCB provided a full range of banking services, including revolving lines of credit, term loans, commercial real estate loans, construction loans, consumer loans and home equity loans to individuals, professionals, and small to mid‑sized businesses. FCB operated 15 branches throughout Southern California in the Los Angeles, Orange, Riverside, San Bernardino, San Diego, Ventura, and San Luis Obispo Counties. We completed the conversion and integration of the FCB branches to Pacific Western’s operating platform in June 2013 and as a result, we added seven locations to our branch network. We made this acquisition to expand our presence in Southern California.

American Perspective Bank Acquisition

On August 1, 2012, Pacific Western completed the acquisition of American Perspective Bank, or APB, previously headquartered in San Luis Obispo, California. Pacific Western acquired all of the outstanding common stock of APB for $58.1 million in cash and APB was merged with and into Pacific Western; we refer to this transaction as the APB acquisition. APB operated two branches located in San Luis Obispo and Santa Maria, California, and a loan production office located in Paso Robles, California, which has since been converted to a full‑service branch. The APB acquisition strengthened our presence in the Central Coast region.

Celtic Capital Corporation Acquisition

On April 3, 2012, Pacific Western completed the acquisition of Celtic Capital Corporation, or Celtic, an asset‑based lending company based in Santa Monica, California. Pacific Western acquired all of the capital stock of Celtic for $18.0 million in cash and Celtic became a wholly‑owned subsidiary of Pacific Western; we refer to this transaction as the Celtic acquisition. Celtic focuses on providing asset‑based loans to borrowers across the United States for amounts generally up to $5.0 million The Celtic acquisition diversified our lending portfolio, expanded our product lines, and deployed excess liquidity into higher yielding assets. In July 2014, we sold Celtic to an unaffiliated third party. As a result of the sale, we wrote-off goodwill of $6.6 million and the remaining CRI balance of $0.5 million.

Pacific Western Equipment Finance Acquisition

On January 3, 2012, Pacific Western completed the acquisition of Pacific Western Equipment Finance (formerly known as Marquette Equipment Finance, and which we refer to as EQF), an equipment leasing company based in Midvale, Utah. Pacific Western acquired all of the capital stock of EQF for $35.0 million in cash and EQF became a division of Pacific Western; we refer to this transaction as the EQF acquisition. The EQF acquisition diversified our loan portfolio, expanded our product lines, and deployed excess liquidity into higher yielding assets.

Acquisition-Related Charges

For each acquisition, we developed an integration plan for the Company that addressed, among other things, requirements for staffing, systems platforms, compliance-related activities, branch locations and other facilities. Based on these plans, we incurred acquisition-related charges which included severance, stock-based compensation, systems integration and facilities-related charges. These charges, along with legal, accounting, investment banking, valuation and other professional fees necessary to effect a business combination, were charged to acquisition, integration and reorganization costs on the consolidated statements of earnings. We incurred and charged to expense $101.0 million, $40.8 million and $4.1 million of such costs in 2014, 2013 and 2012.

The following table presents acquisition, integration and reorganization costs by major category for the years indicated:



	Year Ended December 31,
	2014		2013		2012
	(In thousands)
Severance and employee-related⁽¹⁾	$	57,868	$	21,497	$	260
System conversion and integration	1,868		3,829		1,312
Asset writedowns, lease terminations and other facilities-related	6,353		3,212		—
Asset financing segment reorganization	10,073		—		—
Investment banking deal costs	16,117		5,309		1,298
Other (legal, accounting, insurance, consulting)	8,737		6,965		1,219
Total acquisition, integration and reorganization costs	$	101,016	$	40,812	$	4,089

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(1)	Amount includes $26.1 million in 2014 and $12.4 million in 2013 for accelerated vesting of restricted stock.

Unaudited Pro Forma Results of Operations

The following table presents our unaudited pro forma results of operations for the years presented as if the CapitalSource Inc. and FCAL acquisitions had been completed on January 1, 2013. The unaudited pro forma results of operations include the historical accounts of the Company, CapitalSource Inc. and FCAL and pro forma adjustments, including the amortization of intangibles with definite lives and the amortization or accretion of any premiums or discounts arising from fair value adjustments for assets acquired and liabilities assumed. The unaudited pro forma information is intended for informational purposes only and is not necessarily indicative of our future operating results or operating results that would have occurred had the CapitalSource Inc. and FCAL acquisitions been completed at the beginning of 2013. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions.



	Year Ended December 31,
	2014		2013
	(Dollars in thousands, except per share data)
Pro forma revenues (net interest income plus noninterest income)	$	797,296	$	833,373
Pro forma net earnings from continuing operations	$	252,258	$	251,347
Pro forma net earnings from continuing operations per share:
Basic	$	2.45	$	2.46
Diluted	$	2.45	$	2.46

Revenues and pre-tax net earnings from operations related to CapitalSource Inc. from the April 7, 2014 merger date through December 31, 2014, and included in the consolidated statement of earnings, were $400.6 million and $184.6 million.