Business Combinations

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Business Combinations

2. Business Combinations

Delta National Bancorp

On November 18, 2016, the Company completed the acquisition of Delta National Bancorp. Delta National Bancorp was incorporated under the laws of the State of California on December 21, 1981, for the purpose of serving as a bank holding company under the Bank Holding Act of 1956. Its wholly owned subsidiary, Delta Bank, N.A., operated as a commercial bank with branches in the cities of Manteca, Riverbank, Turlock, and Modesto, California. The acquisition enhances our market presence and added $32.4 million in loans, $103.7 million in deposits and $38.7 million in investment securities to the Company. Effective December 9, 2016, the Modesto branch was closed after Management determined that our customers and the business community could be easily supported from our current Modesto location. The assets acquired and liabilities assumed, both tangible and intangible, were recorded at their fair values as of the acquisition date in accordance with ASC 805, Business Combinations. The acquisition was treated as a "reorganization" within the meaning of section 368(a)(1)(A) of the Internal Revenue Code and is considered tax-free for U.S. federal income tax purposes.

The following table reflects the book value and estimated fair value of the assets acquired and liabilities assumed related to the Delta National Bancorp Acquisition:

	Delta National Bancorp
(in thousands)	Book Value		Fair Value
Assets Acquired:
Cash and Cash Equivalents	$	34,009	$	34,009
Investments		38,727		38,727
Loans		32,885		32,410
Core Deposit Intangible		-		959
Deferred Tax Asset		-		893
Other Assets		6,263		7,873
Total Assets Acquired	$	111,884	$	114,871
Liabilities Assumed
Deposits:
Demand		35,106		35,106
Interest-Bearing Transaction		20,572		20,572
Savings and Money Market		33,091		33,091
Time		14,930		14,930
Total Deposits	$	103,699	$	103,699
Other Liabilities		161		161
Total liabilities assumed	$	103,860	$	103,860
Cash Paid				2,258
Fair Value of Common Stock Issued				6,921
Total Merger Consideration			$	9,179

The following table presents the net assets acquired from Delta National Bancorp and the estimated fair value adjustment:

(in thousands)	Acquisition Date November 18, 2016
Book Value of Net Assets Acquired	$	8,024
Fair Value Adjustments:
Loans		(1,063	)
Reversal of Allowance for Loan Loss		588
Core Deposit Intangible Asset		959
Other Assets & Liabilities, net		1,610
Total Purchase Accounting Adjustments	$	2,094
Deferred Tax Asset (tax effect of purchase accounting adjustments at 42%)		(880	)
DTA Carryforward		1,773
Fair Value of Net Assets Acquired	$	11,011
Fair Value of Net Assets Acquired		11,011
Less Merger Consideration		(9,179	)
Bargain Purchase Gain	$	1,832

The following is a description of the methods used to determine the fair value of significant assets and liabilities presented above.

Cash and Cash Equivalents: The carrying amount for cash and due from banks, interest-bearing deposits with banks and federal funds sold are a reasonable estimate of fair value based on the short-term nature of these assets.

Investments: Fair value for investments was obtained from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment spreads, credit information and the bond’s terms and conditions.

Loans: Fair value for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, and amortization status. Loans were individually assessed, with some assumptions being applied from the aggregate pool level to the individual loan itself. The discount rates used for loans are based on a build-up method that considers credit ratings, funding, liquidity, and other adjustments. No credit impaired loans were acquired as part of this business combination.

Core Deposit Intangible (CDI): This intangible asset represents the value of the relationships with deposit customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost the deposit base, reserve requirements and the net maintenance cost attributable to customer deposits. The CDI is being amortized over 10 years based on the estimated economic benefits received.

Other Assets: Other assets are composed of real property assets which include two branch premises and various ORE properties. These assets were valued in November and December 2016 via USPAP-compliant appraisals for the 100% interest in the fee simple estate by a state licensed appraiser.

Deposits: The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the contractual interest rates on such time deposits.

Debt: The fair values of long-term debt instruments are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments.

The Company issued 11,932 shares of common stock to Delta National Bancorp’s common stock holders. The shares issued were valued at $580 per share. The share price was based upon valuations completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder.