Acquisitions

Plaza Bancorp Acquisition

Effective as of November 1, 2017, the Company completed the acquisition of Plaza Bancorp (OTC Market Group Pink Sheets: PLZZ) (“Plaza”), the holding company of Plaza Bank, a California chartered banking corporation headquartered in Irvine, California with $1.3 billion in total assets, $1.1 billion in gross loans and $1.1 billion in total deposits.

Pursuant to the terms of the merger agreement, each outstanding share of Plaza common stock was converted into the right to receive 0.2000 shares of Company common stock. The value of the total deal consideration was approximately $246 million, which included approximately $6.5 million of aggregate cash consideration payable to holders of unexercised options and warrants exercisable for shares of Plaza common stock, and the issuance of 6,049,373 shares of the Company's common stock, which had a value of $40.40 per share, which was the closing price of the Company's common stock on October 31, 2017, the last trading day prior to the consummation of the acquisition.

Goodwill in the amount of $122 million was recognized in the Plaza acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill recognized in this transaction is not deductible for income tax purposes.

The following table represents the assets acquired and liabilities assumed of Plaza as of November 1, 2017 and the fair value adjustments and amounts recorded by the Company in 2017 under the acquisition method of accounting, which are subject to adjustment for up to one year after the merger date:



	Plaza Book Value			Fair Value Adjustments			Fair Value
ASSETS ACQUIRED	(dollars in thousands)
Cash and cash equivalents	$	150,459		$	—		$	150,459
Loans, gross	1,069,359			(6,458		)	1,062,901
Allowance for loan losses	(13,009		)	13,009			—
Fixed assets	7,389			(194		)	7,195
Core deposit intangible	198			11,382			11,580
Deferred tax assets	11,849			(6,859		)	4,990
Other assets	19,495			(330		)	19,165
Total assets acquired	$	1,245,740		$	10,550		$	1,256,290
LIABILITIES ASSUMED
Deposits	$	1,081,727		$	1,224		$	1,082,951
Borrowings	40,755			397			41,152
Other Liabilities	8,956			(622		)	8,334
Total liabilities assumed	1,131,438			999			1,132,437
Excess of assets acquired over liabilities assumed	$	114,302		$	9,551		123,853
Consideration paid							245,761
Goodwill recognized							$	121,908

Heritage Oaks Bancorp Acquisition

Effective as of April 1, 2017, the Company completed the acquisition of Heritage Oaks Bancorp ("HEOP"), the holding company of Heritage Oaks Bank, a Paso Robles, California based state-chartered bank (“Heritage Oaks Bank”) with $2.0 billion in total assets, $1.4 billion in gross loans and $1.7 billion in total deposits at March 31, 2017. Heritage Oaks Bank operated branches within San Luis Obispo and Santa Barbara Counties and a loan production office in Ventura County.

Pursuant to the terms of the merger agreement, each outstanding share of HEOP common stock was converted into the right to receive 0.3471 shares of corporate common stock. The value of the total deal consideration was approximately $468 million, which included approximately $3.9 million of aggregate cash consideration payable to holders of HEOP share-based compensation awards, and the issuance of 11,959,022 shares of the Corporation's common stock, which had a value of $38.55 per share, which was the closing price of the Corporation's common stock on March 31, 2017, the last trading day prior to the consummation of the acquisition.

Goodwill in the amount of $269 million was recognized in the HEOP acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill recognized in this transaction is not deductible for income tax purposes.

The following table represents the assets acquired and liabilities assumed of HEOP as of April 1, 2017 and the fair value adjustments and amounts recorded by the Company in 2017 under the acquisition method of accounting:



	HEOP Book Value			Fair Value Adjustments			Fair Value
ASSETS ACQUIRED	(dollars in thousands)
Cash and cash equivalents	$	78,728		$	—		$	78,728
Investment securities	447,520			(4,597		)	442,923
Loans, gross	1,387,949			(23,300		)	1,364,649
Allowance for loan losses	(17,200		)	17,200			—
Fixed assets	35,567			(665		)	34,902
Core deposit intangible	—			28,123			28,123
Deferred tax assets	17,850			(6,567		)	11,283
Other assets	55,223			(9		)	55,214
Total assets acquired	$	2,005,637		$	10,185		$	2,015,822
LIABILITIES ASSUMED
Deposits	1,668,079			1,471			1,669,550
Borrowings	141,996			(2,962		)	139,034
Other Liabilities	7,290			771			8,061
Total liabilities assumed	1,817,365			(720		)	1,816,645
Excess of assets acquired over liabilities assumed	$	188,272		$	10,905		199,177
Consideration paid							468,131
Goodwill recognized							$	268,954

The fair values are estimates and are subject to adjustment for up to one year after the merger date. In the third quarter of 2017, the Company made a $1.1 million adjustment to deferred tax assets and the deal consideration. As of March 31, 2018, the Company finalized its fair values with this acquisition.

The Company accounted for these transactions under the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition.

The loan portfolios of Plaza and HEOP were recorded at fair value at the date of each acquisition. A valuation of Plaza and HEOP's loan portfolio was performed as of the acquisition dates to assess the fair value of the loan portfolio. The loan portfolios were both segmented into two groups; loan with credit deterioration and loans without credit deterioration, and then split further by loan type. The fair value was calculated on an individual loan basis using a discounted cash flow analysis. The discount rate utilized was based on a weighted average cost of capital, considering the cost of equity and cost of debt. Also factored into the fair value estimates were loss rates, recovery period and prepayment rates based on industry standards.

The Company also determined the fair value of the core deposit intangible, securities and deposits with the assistance of third-party valuations as well as the fair value of OREO was based on recent appraisals of the properties.

The core deposit intangible on non-maturing deposit was determined by evaluating the underlying characteristics of the deposit relationships, including customer attrition, deposit interest rates, service charge income, overhead expense and costs of alternative funding. Since the fair value of intangible assets are calculated as if they were stand-alone assets, the presumption is that a hypothetical buyer of the intangible asset would be able to take advantage of potential tax benefits resulting from the asset purchase. The value of the benefit is the present value over the period of the tax benefit, using the discount rate applicable to the asset.

In determining the fair value of certificates of deposit, a discounted cash flow analysis was used, which involved present valuing the contractual payments over the remaining life of the certificates of deposit at market-based interest rates.

For loans acquired from Plaza and HEOP, the contractual amounts due, expected cash flows to be collected, interest component and fair value as of the respective acquisition dates were as follows:



	Acquired Loans
	Plaza		HEOP
	(dollars in thousands)
Contractual amounts due	$	1,708,685	$	1,717,191
Cash flows not expected to be collected	20,152		4,442
Expected cash flows	1,688,533		1,712,749
Interest component of expected cash flows	625,592		348,100
Fair value of acquired loans	$	1,062,941	$	1,364,649

In accordance with generally accepted accounting principles, there was no carryover of the allowance for loan losses that had been previously recorded by Plaza and HEOP.

The operating results of the Company for the three months ended March 31, 2018, December 31, 2017 and March 31, 2017 include the operating results of Plaza and HEOP since its acquisition date. The following table presents the net interest and other income, net income and earnings per share as if the acquisition of Plaza and HEOP were effective as of January 1, 2017. There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income and earnings per share presented below:



	Three Months Ended
	March 31,		December 31,		March 31,
	2018		2017		2017
	(dollars in thousands)
Net interest and other income	$	86,694	$	90,469	$	77,840
Net income	28,002		12,189		13,771
Basic earnings per share	0.61		0.27		0.30
Diluted earnings per share	0.60		0.26		0.30