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Acquisitions
3 Months Ended
Mar. 31, 2015
Acquisitions  
Acquisitions

 

Note 4 —  Acquisitions

 

The Company accounted for the following 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.

 

The estimated fair values in these acquisitions are subject to refinement as additional information relative to the closing date fair values become available through the measurement period, which can extend for up to one year after the closing date of the transaction.  While additional significant changes to the closing date fair values are not expected, any information relative to the changes in these fair values will be evaluated to determine if such changes are due to events and circumstances that existed as of the acquisition date.  During the measurement period, any such changes will be recorded as part of the closing date fair value.

 

Independence Bank Acquisition

 

On January 26, 2015, the Company completed its acquisition of Independence Bank (“IDPK”) in exchange for consideration valued at $78.5, 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, 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 $28.1 million was recognized in the IDPK acquisition.  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:

 

 

 

IDBK
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

 

3,252

 

717

 

3,969

 

Bank owned life insurance

 

11,276

 

 

 

11,276

 

Core deposit intangible

 

904

 

1,999

 

2,903

 

Other assets

 

3,756

 

105

 

3,860

 

Total assets acquired

 

$

422,378

 

$

(869

)

$

421,508

 

 

 

 

 

 

 

 

 

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

 

$

51,477

 

$

(1,082

)

50,394

 

Consideration paid

 

 

 

 

 

78,454

 

Goodwill recognized

 

 

 

 

 

$

28,060

 

 

Infinity Franchise Holdings Acquisition

 

On January 30, 2014, the Company completed its acquisition of Infinity Franchise Holdings, LLC (“Infinity Holdings”) and its wholly owned operating subsidiary Infinity Franchise Capital, LLC (“IFC” and together with Infinity Holdings, “IFH”), a national lender to franchisees in the quick service restaurant (“QSR”) industry, and other direct and indirect subsidiaries utilized in its business.  The value of the total consideration paid for the IFH acquisition was $17.4 million, which consisted of $8.3 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.

 

The acquisition of IFH further diversified our loan portfolio with commercial and industrial and owner-occupied commercial real estate loans, deployed excess liquidity into higher yielding assets, to positively impact our net interest margin and further leveraged our strong capital base.  The QSR franchisee lending business is a niche market that we believe provides attractive growth opportunities for the Company in the future.  IFH had no delinquent loans or adversely classified assets as of the acquisition date; and the acquisition was accretive to our 2014 earnings per share.

 

Goodwill in the amount of $5.5 million was recognized in the IFH 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 IFH 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:

 

 

 

IFH
Book Value

 

Fair Value
Adjustments

 

Fair
Value

 

 

 

(dollars in thousands)

 

ASSETS ACQUIRED

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

555

 

$

 

$

555

 

Loans, gross

 

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

 

 

There were no purchased credit impaired loans acquired from IFH.  For loans acquired from IFH 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

 

 

 

IFH

 

IDPK

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Contractual amounts due

 

$

98,320 

 

$

453,987 

 

Cash flows not expected to be collected

 

 

3,795 

 

Expected cash flows

 

98,320 

 

450,192 

 

Interest component of expected cash flows

 

19,487 

 

117,299 

 

Fair value of acquired loans

 

$

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 IFH or IDPK.

 

The operating results of the Company for the three months ending March 31, 2015 include the operating results of IDPK since the acquisition date.  The operating results of the Company for the three months ending March 31, 2014 include the operating results of IFH since the acquisition date.  The following table presents the net interest and other income, net income and earnings per share as if the acquisitions of IFH and IDPK were effective as of January 1, 2014.  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,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Net interest and other income

 

$

24,687 

 

$

19,715 

 

 

 

 

 

 

 

Net income

 

802 

 

3,028 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.04 

 

$

0.14 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.04 

 

$

0.14