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PacWest Bancorp and CapitalSource Agree to Merge


July 23 - PacWest Bancorp (Nasdaq: PACW) and CapitalSource Inc. (NYSE: CSE) have announced the signing of a definitive agreement and plan of merger whereby PacWest and CapitalSource will merge in a transaction valued at approximately $2.3 billion. The combined company will be called PacWest Bancorp and the combined subsidiary bank will be called Pacific Western Bank. The CapitalSource national lending operation will continue to do business under the name CapitalSource as a division of Pacific Western Bank.

CapitalSource Inc., headquartered in Los Angeles, is the parent of CapitalSource Bank, a California Industrial Bank with approximately $8.7 billion in assets at June 30, 2013, and 21 branches located in southern and central California. In connection with the transaction, CapitalSource Bank will be merged into Pacific Western Bank, the Los Angeles-based wholly owned subsidiary of PacWest Bancorp.
Pacific Western Bank had $6.7 billion in assets at June 30, 2013, and 75 branches across 10 California counties.

The independent directors of PacWest and CapitalSource unanimously approved the transaction. On completion of the transaction, the combined company board will have 13 directors, eight representatives from PacWest and five representatives from CapitalSource.

Matt Wagner, CEO of PacWest Bancorp and chairman and CEO of Pacific Western Bank, will be CEO of the combined company and of Pacific Western Bank. James J. Pieczynski, CEO of CapitalSource, will become president of the new CapitalSource division of Pacific Western Bank, incorporating all of the current CapitalSource lending operations. John Eggemeyer, chairman of PacWest Bancorp, will become chairman of the combined company. Tad Lowrey, chairman and CEO of CapitalSource Bank will become non-executive chairman of Pacific Western Bank. The combined company will remain headquartered in Los Angeles and will have senior executives from each of the organizations in key positions.

The transaction, currently expected to close in the first quarter of 2014, is subject to customary conditions, including the approval of bank regulatory authorities and the stockholders of both companies. Certain stockholders of CapitalSource and PacWest, including all current directors, have agreed to vote in favor of the transaction.

As of June 30, 2013, on a pro forma consolidated basis, the combined company would have had approximately $15.4 billion in assets with 96 branches throughout California. The combined institution would be the 6th largest publicly-owned bank headquartered in California, and the eighth largest commercial bank headquartered in California (out of more than 232 financial institutions in the state).

Under the terms of the agreement, CapitalSource shareholders will receive $2.47 in cash and 0.2837 shares of PacWest common stock for each share of CapitalSource common stock. The total value of the CSE per share merger consideration, based on the closing price of PacWest shares on July 19, 2013, of $32.32, is $11.64.

The transaction is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes and CapitalSource shareholders are not expected to recognize gain or loss to the extent of the stock consideration received. Giving effect to the transaction, existing shareholders of PacWest are expected to own approximately 45 percent of the outstanding shares of the combined company and CapitalSource shareholders are expected to own approximately 55 percent.

Matt Wagner, CEO of PacWest Bancorp, commented, "This transaction represents the combination of two outstanding organizations. CapitalSource has built an enviable lending platform and growth engine. PacWest has a valuable community banking franchise and a low cost deposit base driven by our high percentage of noninterest bearing demand deposits. The combination of these two franchises will create a formidable company going forward, with a strong balance sheet and capital base, attractive margins and good earnings momentum."

"The combination of CapitalSource and PacWest will produce tremendous benefits for the shareholders of both companies, said James J. Pieczynski, CEO of CapitalSource. PacWest fills the need of CapitalSource for a more stable and low cost deposit base. CapitalSource will give PacWest a more robust and diverse lending presence. Both institutions share a conservative credit culture and have talented and dedicated employees that will make the combined company much more than the sum of its parts going forward."

"We have worked hard over the last five years to build a high performing bank and we are proud of our success," said Tad Lowrey, CapitalSource Bank chairman and CEO. "PacWest is the perfect partner to accelerate and expand our capacity to serve the credit needs of middle market and small businesses and to broaden the products and services we can offer to our deposit customers here in California once the merger into Pacific Western Bank is completed."