Acquisitions

Grandpoint Capital, Inc. Acquisition

Effective as of July 1, 2018, the Company completed the acquisition of Grandpoint Capital, Inc. (“Grandpoint”), the holding company of Grandpoint Bank, a California-chartered bank, with $3.1 billion in total assets, $2.4 billion in gross loans and $2.5 billion in total deposits at June 30, 2018.

Pursuant to the terms of the merger agreement, each outstanding share of Grandpoint voting common stock and Grandoint non-voting common stock was converted into the right to receive 0.4750 shares of the Corporation's common stock. The value of the total transaction consideration was approximately $629 million, which included approximately $28.1 million in aggregate cash consideration payable to holders of Grandpoint share-based compensation awards and the issuance of 15,758,039 shares of the Corporation's common stock, valued at $38.15 per share, which was the closing price of the Corporation's common stock on June 29, 2018, the last trading day prior to the consummation of the Merger.

Goodwill in the amount of $312 million was recognized in the Grandpoint 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 Grandpoint as of July 1, 2018 and the fair value adjustments and amounts recorded by the Company in 2018 under the acquisition method of accounting, which are subject to adjustment for up to one year after the merger date:



	Grandpoint Book Value			Fair Value Adjustments			Fair Value
ASSETS ACQUIRED	(dollars in thousands)
Cash and cash equivalents	$	147,551		$	—		$	147,551
Investment securities	395,905			(3,047		)	392,858
Loans, gross	2,404,042			(51,654		)	2,352,388
Allowance for loan losses	(18,665		)	18,665			—
Fixed assets	6,015			3,107			9,122
Core deposit intangible	5,093			66,850			71,943
Deferred tax assets	14,185			(9,649		)	4,536
Other assets	97,441			(195		)	97,246
Total assets acquired	$	3,051,567		$	24,077		$	3,075,644
LIABILITIES ASSUMED
Deposits	$	2,506,663		$	266		$	2,506,929
Borrowings	255,155			(232		)	254,923
Other liabilities	23,687			1,172			24,859
Total liabilities assumed	2,785,505			1,206			2,786,711
Excess of assets acquired over liabilities assumed	$	266,062		$	22,871		288,933
Consideration paid							601,172
Goodwill recognized							$	312,239

Plaza Bancorp Acquisition

Effective as of November 1, 2017, the Company completed the acquisition of Plaza Bancorp (“Plaza”), the holding company of Plaza Bank, a California-chartered bank with $1.3 billion in total assets, $1.1 billion in gross loans and $1.1 billion in total deposits at October 31, 2017.

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 the Corporation's 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 Corporation's common stock, which had a value of $40.40 per share, which was the closing price of the Corporation's common stock on October 31, 2017, the last trading day prior to the consummation of the acquisition.

Goodwill in the amount of $123 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:



	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			10,575			10,773
Deferred tax assets	11,849			(6,343		)	5,506
Other assets	19,495			(589		)	18,906
Total assets acquired	$	1,245,740		$	10,000		$	1,255,740
LIABILITIES ASSUMED
Deposits	$	1,081,727		$	1,224		$	1,082,951
Borrowings	40,755			397			41,152
Other liabilities	8,956			(451		)	8,505
Total liabilities assumed	1,131,438			1,170			1,132,608
Excess of assets acquired over liabilities assumed	$	114,302		$	8,830		123,132
Consideration paid							245,761
Goodwill recognized							$	122,629

The fair values are estimates and are subject to adjustment for up to one year after the merger date. Since the acquisition, the Company has made net adjustments of $1.3 million related to core deposit intangibles, deferred tax assets, loans and other assets and liabilities.

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 California-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.

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 the Corporation's common stock. The value of the total deal consideration was approximately $467 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 $270 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	445,299			(2,376		)	442,923
Loans, gross	1,384,949			(20,261		)	1,364,688
Allowance for loan losses	(17,200		)	17,200			—
Fixed assets	35,567			(665		)	34,902
Core deposit intangible	3,207			24,916			28,123
Deferred tax assets	17,850			(7,606		)	10,244
Other assets	55,235			(21		)	55,214
Total assets acquired	$	2,003,635		$	11,187		$	2,014,822
LIABILITIES ASSUMED
Deposits	$	1,668,085		$	1,465		$	1,669,550
Borrowings	139,150			(116		)	139,034
Other Liabilities	8,059			293			8,352
Total liabilities assumed	1,815,294			1,642			1,816,936
Excess of assets acquired over liabilities assumed	$	188,341		$	9,545		197,886
Consideration paid							467,439
Goodwill recognized							$	269,553

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. During the quarter ended June 30, 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 Grandpoint, Plaza and HEOP were recorded at fair value at the date of each acquisition. A valuation of Grandpoint's, Plaza's and HEOP's loan portfolios was performed by a third party 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 periods and prepayment rates based on industry standards.

The Company also determined the fair value of the core deposit intangible, securities, real property, leases, deposits and long-term borrowings with the assistance of third-party valuations. The fair value of other real estate owned ("OREO") was based on recent appraisals of the properties less estimated costs to sell.

The core deposit intangible on non-maturing deposits 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 Grandpoint, Plaza and HEOP, the contractual amounts due, expected cash flows to be collected, interest component and fair value as of their respective acquisition dates were as follows:



	Acquired Loans
	Grandpoint		Plaza		HEOP
			(dollars in thousands)
Contractual amounts due	$	3,496,905	$	1,708,685	$	1,717,191
Cash flows not expected to be collected	39,230		20,152		4,442
Expected cash flows	3,457,675		1,688,533		1,712,749
Interest component of expected cash flows	1,105,287		625,632		348,061
Fair value of acquired loans	$	2,352,388	$	1,062,901	$	1,364,688

In accordance with U.S. GAAP, there was no carryover of the allowance for loan losses that had been previously recorded by Grandpoint, Plaza and HEOP.

The operating results of the Company for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017 and the nine months ended September 30, 2018 and September 30, 2017 include the operating results of Grandpoint, Plaza and HEOP since their acquisition dates. The following table presents the net interest and other income, net income and earnings per share as if the acquisition of Grandpoint, 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						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
	2018		2018		2017		2018		2017
	(dollars in thousands)
Net interest and other income	$	118,276	$	117,652	$	118,364	$	352,546	$	326,968
Net income	28,392		28,835		32,897		93,922		76,913
Basic earnings per share	0.46		0.47		0.53		1.52		1.25
Diluted earnings per share	0.46		0.46		0.53		1.50		1.24