XML 61 R11.htm IDEA: XBRL DOCUMENT v2.4.0.8
Business Combinations
6 Months Ended
Jun. 30, 2013
Business Combinations [Abstract]  
Business Combinations
Business Combinations

The Company applies the acquisition method of accounting for business combinations under ASC 805 - Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed as incurred as merger and integration expenses.

Foster Bankshares, Inc.     
On April 15, 2013, the Company entered into an Agreement and Plan of Merger with Foster Bankshares, Inc., a Delaware corporation and a Chicago-based company, ("Foster") dated April 15, 2013. At June 30, 2013, Foster had total assets of approximately $381.0 million, including $302.1 million of gross loans and $333.2 million in deposits.
The transaction is valued at approximately $4.6 million, valuing each outstanding share of Foster common stock at $34.67. Foster shareholders will have a choice between electing to receive the cash value per share or, for shareholders who qualify as accredited investors, 2.62771 shares of BBCN common stock for each share of Foster common stock or a combination thereof, with no limitations on the consideration mix. The consideration for the transaction is subject to reduction in certain events. Foster has no outstanding options or warrants. The transaction is expected to be completed in the third quarter of 2013.

Pacific International Bancorp, Inc.     
On February 15, 2013, the Company completed the acquisition of Pacific International Bancorp, Inc. ("PIB"), a Seattle based company, pursuant to an Agreement and Plan of Merger, dated October 22, 2012. The Company acquired PIB in order to increase the Company's presence in terms of branch offices and deposit market share in the Seattle market. PIB's primary subsidiary, Pacific International Bank, a Washington state-chartered bank, operated four bank branches in the Seattle metropolitan area.
In connection with the acquisition, the consideration paid, the assets acquired, and the liabilities assumed are summarized in the following table:
 
(In thousands)

Consideration paid:
 
 
BBCN common stock issued
$
8,437

 
Cash in lieu of fractional shares paid to PIB stockholders
1

 
Redemption of Preferred Stock
7,475

 
     Total consideration paid
$
15,913

 
 
 
Assets Acquired:
 
 
Cash and cash equivalents
$
25,968

 
Investment securities available for sale
7,810

 
Loans, net
131,589

 
FRB and FHLB stock
1,829

 
OREO
3,418

 
Deferred tax assets, net
7,316

 
Other assets
3,118

Liabilities Assumed:
 
 
Deposits
(143,665
)
 
Borrowings
(14,698
)
 
Subordinated debentures
(4,108
)
 
Other liabilities
(5,074
)
Total identifiable net assets
$
13,503

Excess of consideration paid over fair value of net assets acquired (goodwill)
$
2,410



The Company estimated the fair value for most loans acquired from PIB by utilizing a methodology wherein loans with comparable characteristics were aggregated by type of collateral, remaining maturity, and repricing terms. Cash flows for each pool were determined by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. To estimate the fair value of the remaining loans, management analyzed the value of the underlying collateral of the loans, assuming the fair values of the loans were derived from the eventual sale of the collateral. The value of the collateral was based on recently completed appraisals adjusted to the valuation date based on recognized industry indices. We discounted those values using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of PIB’s allowance for loan losses associated with the loans we acquired as the loans were initially recorded at fair value. The loans acquired with deteriorated credit quality from PIB as of February 15, 2013 were as follows:
 
(In thousands)
Contractually required principal and interest at acquisition
$
54,462

Contractual cash flows not expected to be collected (nonaccretable discount)
9,687

Expected cash flows at acquisition
44,775

Interest component of expected cash flows (accretable discount)
4.945

Fair value of acquired loans
$
39,830


The fair value of savings and transactional deposit accounts acquired from PIB was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit were valued by comparing the contractual cost of the the portfolio to an identical portfolio bearing current market rates. The projected cash flows from maturing certificates were calculated based on contractual rates. The fair value of the certificates of deposit was calculated by discounting their contractual cash flows at a market rate for a certificate of deposit with a corresponding maturity
The fair value of borrowings assumed was determined by estimating projected future cash outflows and discounting them at a market rate of interest.
The fair value of the net deferred tax assets acquired from PIB was provisional and adjustments to the provisional amount may occur during the measurement period as the Company obtains additional information about the facts and circumstances that existed as of the acquisition date.
The $2.4 million of goodwill recognized in the PIB acquisition represents the future economic benefit arising from the acquisition including: the creation of a platform that can support future operations and strengthening the Company's existing presence in the Pacific Northwest market. Goodwill is not amortized for book purposes and is not deductible for tax purposes.
The goodwill arising from the PIB acquisition was reduced by a net $1.1 million down to $92.3 million due to adjustments to the deferred tax asset, which was provisional as of March 31, 2013, and other adjustments of certain acquisition date fair value asset and liability estimates during the second quarter of 2013.
 
For the three months ended June 30, 2013
 
(In thousands)
Balance, beginning of period
$
93,404

Acquired goodwill

Adjustment
(1,116
)
Impairment

Balance, end of period
$
92,288


    
The operating results of PIB from the date of acquisition through June 30, 2013 are included in the Condensed Consolidated Statement of Income for 2013 and are not material to the total consolidated operating results for the three and six month period ended June 30, 2013 and, consequently, no pro forma information is presented. Direct costs related to the acquisition were expensed as incurred as merger related expenses. The Company incurred $81 thousand and $1.3 million in PIB acquisition related expenses during three months and six months ended June 30, 2013, respectively. These expenses were comprised of salaries and benefits, occupancy expenses, professional services, and other non-interest expense.