Acquisitions

Independence Bank Acquisition

On January 26, 2015, the Company completed its acquisition of Independence Bank (“IDPK”) in exchange for consideration valued at $79.8 million, which consisted of $6.1 million of cash consideration for IDPK common stockholders, $1.5 million of aggregate cash consideration to the holders of IDPK stock options and warrants, $1.3 million fair market value of warrants assumed and the issuance of 4,480,645 shares of the Corporation’s common stock, which was valued at $70.9 million based on the closing stock price of the Company’s common stock on January 26, 2015 of $15.83 per share.

IDPK was a Newport Beach, California based state-chartered bank. The acquisition was an opportunity for the Company to strengthen its competitive position as one of the premier community banks headquartered in Southern California. Additionally, the IDPK acquisition enhanced and connected the Company’s footprint in Southern California.

Goodwill in the amount of $27.9 million was recognized in the IDPK 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 IDPK as of January 26, 2015 and the provisional fair value adjustments and amounts recorded by the Company in 2015 under the acquisition method of accounting:



	IDPK Book Value			Fair Value Adjustments			Fair Value
	(dollars in thousands)
ASSETS ACQUIRED
Cash and cash equivalents	$	10,486		$	—		$	10,486
Investment securities	56,503			(382		)	56,121
Loans, gross	339,502			(6,609		)	332,893
Allowance for loan losses	(3,301		)	3,301			—
Deferred income taxes	5,266			(472		)	4,794
Bank owned life insurance	11,276			—			11,276
Core deposit intangible	904			1,999			2,903
Other assets	3,756			780			4,536
Total assets acquired	$	424,392		$	(1,383	)	$	423,009

LIABILITIES ASSUMED
Deposits	335,685			333			336,018
FHLB advances	33,300			—			33,300
Other liabilities	1,916			(120		)	1,796
Total liabilities assumed	370,901			213			371,114
Excess of assets acquired over liabilities assumed	$	53,491		$	(1,596	)	51,895
Consideration paid							79,777
Goodwill recognized							$	27,882

Infinity Franchise Holdings Acquisition

On November 18, 2013, the Company announced that it had entered into a definitive agreement to acquire privately held Infinity Franchise Holdings, LLC (“Infinity Holdings”) and its wholly owned operating subsidiary Infinity Franchise Capital, LLC (“IFC” and together with Infinity Holdings, “Infinity”), a national lender to franchisees in the quick service restaurant (“QSR”) industry, and other direct and indirect subsidiaries utilized in its business. The acquisition was completed on January 30, 2014, whereby we acquired $81.0 million in assets, $709,000 in liabilities and paid off their credit facility of $67.6 million. Infinity had no delinquent loans or adversely classified assets as of the acquisition date. The acquisition of Infinity further diversified our loan portfolio with commercial and industrial and owner-occupied commercial real estate loans and positively impacted our net interest margin. The QSR franchisee lending business is a niche market that provides attractive growth opportunities for the Company in the future. The value of the total consideration paid for the Infinity acquisition was $17.4 million, which consisted of $9.0 million paid in cash and the issuance of 562,469 shares of the Corporation’s stock, which was valued at $16.02 per share as measured by the 10-day average closing price immediately prior to closing of the transaction.

Goodwill in the amount of $5.5 million was recognized in this 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 deductible for income tax purposes.

The following table represents the assets acquired and liabilities assumed of IFC as of January 30, 2014 and the provisional fair value adjustments and amounts recorded by the Company in 2014 under the acquisition method of accounting:



	IFC Book Value			Fair Value Adjustments			Fair Value
	(dollars in thousands)
ASSETS ACQUIRED
Cash and cash equivalents	$	555		$	—		$	555
Loans	78,833			—			78,833
Deferred loan costs	1,082			(1,082		)	—
Allowance for loan losses	(268		)	268			—
Other assets	776			—			776
Total assets acquired	$	80,978		$	(814	)	$	80,164
LIABILITIES ASSUMED
Bank loan	$	67,617		$	—		$	67,617
Accrued compensation	495			—			495
Other liabilities	214			—			214
Total liabilities assumed	68,326			—			68,326
Excess of assets acquired over liabilities assumed	$	12,652		$	(814	)	11,838
Consideration paid							17,360
Goodwill recognized							$	5,522

San Diego Trust Bank Acquisition

On June 25, 2013, the Company completed its acquisition of San Diego Trust Bank (“SDTB”) in exchange for consideration valued at $30.6 million which consisted of $16.2 million of cash and 1,198,255 shares of the Corporation’s common stock.

SDTB was a San Diego, California based state-chartered bank. The acquisition was an opportunity for the Company to acquire a banking network that complemented our existing banking franchise and expanded into a new market area. Additionally, the SDTB acquisition improved the Company’s deposit base by lowering our cost of deposits and providing an opportunity to accelerate future core deposit growth in the San Diego, California, market area.

Goodwill in the amount of $5.6 million was recognized in this 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 SDTB as of June 25, 2013 and the provisional fair value adjustments and amounts recorded by the Company in 2013 under the acquisition method of accounting:



	SDTB Book Value			Fair Value Adjustments			Fair Value
	(dollars in thousands)
ASSETS ACQUIRED
Cash and cash equivalents	$	30,252		$	—		$	30,252
Investment securities	124,960			(155		)	124,805
Loans, gross	42,945			(223		)	42,722
Allowance for loan losses	(1,013		)	1,013			—
Other real estate owned	752			—			752
Core deposit intangible	—			2,836			2,836
Other assets	9,856			—			9,856
Total assets acquired	$	207,752		$	3,471		$	211,223
LIABILITIES ASSUMED
Deposits	$	183,901		$	6		$	183,907
Deferred tax liability (asset)	(333		)	1,507			1,174
Other liabilities	1,823			(729		)	1,094
Total liabilities assumed	185,391			784			186,175
Excess of assets acquired over liabilities assumed	$	22,361		$	2,687		25,048
Consideration paid							30,622
Goodwill recognized							$	5,574

First Association Bank Acquisition

On March 15, 2013, the Company completed its acquisition of First Association Bank (“FAB”) in exchange for consideration valued as of the closing at $57.9 million which consisted of $43.0 million of cash and 1,279,217 shares of the Corporation’s common stock.

FAB was a Dallas, Texas, based bank which specialized in providing commercial banking services to home owner association (“HOA”) management companies throughout the United States. The FAB acquisition was an opportunity for the Company to acquire a highly efficient, consistently profitable and niche-focused business that complimented our banking franchise. Additionally, this acquisition improved the Company’s deposit base by lowering our cost of deposits and providing a platform to accelerate future core deposit growth from HOAs.

Goodwill in the amount of $11.9 million was recognized in this 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 FAB as of March 15, 2013, the provisional fair value adjustments and amounts recorded by the Company in 2013 under the acquisition method of accounting:



	FAB Book Value			Fair Value Adjustments		Fair Value
ASSETS ACQUIRED	(dollars in thousands)
Cash and cash equivalents	$	167,663		$	—	$	167,663
Investment securities	219,913			2,478		222,391
Loans, gross	26,264			158		26,422
Allowance for loan losses	(224		)	224		—
Core deposit intangible	—			1,930		1,930
Other assets	5,823			—		5,823
Total assets acquired	$	419,439		$	4,790	$	424,229
LIABILITIES ASSUMED
Deposits	$	356,737		$	81	$	356,818
Borrowings	16,905			—		16,905
Deferred tax liability	—			3,918		3,918
Other Liabilities	536			—		536
Total liabilities assumed	374,178			3,999		378,177
Excess of assets acquired over liabilities assumed	$	45,261		$	791	46,052
Consideration paid						57,906
Goodwill recognized						$	11,854

The Company accounted for these transactions under the acquisition method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of the core deposit intangible, securities and deposits with the assistance of third-party valuations. The fair value of other real estate owned (“OREO”) was based on recent appraisals of the properties.

There were no purchased credit impaired loans acquired from FAB, SDTB or IFC. For loans acquired from FAB, SDTB, IFC and IDPK, 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
	FAB		SDTB		IFC		IDPK
	(dollars in thousands)
Contractual amounts due	$	32,107	$	47,251	$	98,320	$	453,987
Cash flows not expected to be collected	—		—		—		3,795
Expected cash flows	32,107		47,251		98,320		450,192
Interest component of expected cash flows	5,685		4,529		19,487		117,299
Fair value of acquired loans	$	26,422	$	42,722	$	78,833	$	332,893

In accordance with generally accepted accounting principles there was no carryover of the allowance for loan losses that had been previously recorded by FAB, SDTB, IFC and IDPK

The operating results of the Company for the twelve months ending December 31, 2015 include the operating results of FAB, SDTB, IFC, and IDPK since their respective acquisition dates. The following table presents the net interest and other income, net income and earnings per share as if the merger with FAB, SDTB, IFC and IDPK were effective as of January 1, 2015, 2014 and 2013 for the respective year in which each acquisition was closed. The unaudited pro forma information in the following table 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 mergers been completed at the beginning of each respective year. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions.

Unaudited pro forma net interest and other income, net income and earnings per share presented below:



	Twelve months Ended December 31,
	2015		2014		2013
Net interest and other income	$	122,426	$	110,727	$	84,988
Net income	25,862		20,428		11,123
Basic earnings per share	$	1.22	$	0.95	$	0.54
Diluted earnings per share	$	1.20	$	0.94	$	0.52