Acquisitions

The Company accounted for the following transaction 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 loans, core deposit intangible, securities and deposits with the assistance of third party valuations.

Security California Bancorp Acquisition

On January 31, 2016, the Company completed its acquisition of Security California Bancorp (“SCAF”) whereby we acquired $714 million in total assets, $456 million in loans and $637 million in total deposits. Under the terms of the merger agreement, each share of SCAF common stock was converted into the right to receive 0.9629 shares of the Corporation’s common stock. The value of the total deal consideration was $120 million, which includes $788,000 of aggregate cash consideration to the holders of SCAF stock options and the issuance of 5,815,051 shares of the Corporation’s common stock, valued at $119 million based on a closing stock price of $20.53 per share on January 29, 2016.

SCAF was the holding company of Security Bank of California, a Riverside, California, based state-chartered bank with six branches located in Riverside County, San Bernardino County and Orange County.

Goodwill in the amount of $51.7 million was recognized in the SCAF 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 SCAF as of January 31, 2016 and the fair value adjustments and amounts recorded by the Company in 2016 under the acquisition method of accounting:



	SCAF Book Value			Fair Value Adjustments			Fair Value
ASSETS ACQUIRED	(dollars in thousands)
Cash and cash equivalents	$	40,947		$	—		$	40,947
Interest-bearing deposits with financial institutions	1,972			—			1,972
Investment securities	191,881			(1,627		)	190,254
Loans, gross	467,197			(11,039		)	456,158
Allowance for loan losses	(7,399		)	7,399			—
Fixed assets	5,335			(1,145		)	4,190
Core deposit intangible	493			3,826			4,319
Deferred tax assets	5,618			1,130			6,748
Other assets	10,589			(1,227		)	9,362
Total assets acquired	$	716,633		$	(2,683	)	$	713,950
LIABILITIES ASSUMED
Deposits	$	636,450		$	141		$	636,591
Other Liabilities	9,063			(220		)	8,843
Total liabilities assumed	645,513			(79		)	645,434
Excess of assets acquired over liabilities assumed	$	71,120		$	(2,604	)	68,516
Consideration paid							120,174
Goodwill recognized							$	51,658

The fair values are preliminary estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. In the second quarter of 2016, the Company made a $146,000 adjustment to fixed assets and goodwill. As of March 31, 2017, the Company finalized its fair values with this acquisition.

For loans acquired from SCAF, 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
	SCAF
	(dollars in thousands)
Contractual amounts due	$	539,806
Cash flows not expected to be collected	2,765
Expected cash flows	537,041
Interest component of expected cash flows	80,883
Fair value of acquired loans	$	456,158

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

The operating results of the Company for the three months ending March 31, 2016 include the operating results of SCAF 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 SCAF were effective as of January 1, 2016. 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,
	2017		2016
	(dollars in thousands)
Net interest and other income	$	43,884	$	40,090
Net income	9,521		6,583
Basic earnings per share	0.35		0.26
Diluted earnings per share	0.34		0.25