BUSINESS COMBINATIONS AND BRANCH SALES

The Company completed the following acquisitions between January 1, 2013 and December 31, 2015 and used the acquisition method of accounting. Accordingly, the operating results of the acquired entities have been included in the consolidated financial statements from their respective dates of acquisition.

The following table presents a summary of acquired assets and assumed liabilities along with a summary of the acquisition consideration as of the dates of acquisition:



	Acquisition and Date Acquired
	Banco Popular Branches		Renovation Ready		CS Financial		The Palisades Group		Private Bank of California
	November 8, 2014		January 31, 2014		October 31, 2013		September 10, 2013		July 1, 2013
	(In thousands)
Assets acquired
Cash and due from banks	$	5,532	$	—	$	482	$	900	$	33,752
Interest-bearing deposits	—		—		—		5		—
Securities available-for-sale	—		—		—		—		219,298
Loans held-for-sale	—		—		4,982		—		—
Loans and leases receivable	1,065,088		—		—		—		385,256
Premises, equipment, and capital leases	9,002		—		704		—		1,501
Income tax receivable	—		—		—		—		682
Goodwill	7,653		2,239		7,178		—		15,126
Other intangible assets	15,777		761		690		—		10,400
Other assets	2,301		—		608		364		6,578
Total assets acquired	$	1,105,353	$	3,000	$	14,644	$	1,269	$	672,593
Liabilities assumed
Deposits	$	1,076,906	$	—	$	—	$	—	$	561,890
Advances from Federal Home Loan Bank	—		—		—		—		41,833
Other liabilities	506		1,000		6,722		1,219		2,481
Total liabilities assumed	1,077,412		1,000		6,722		1,219		606,204
SBLF preferred stock assumed	—		—		—		—		10,000
Total consideration paid	$	27,941	$	2,000	$	7,922	$	50	$	56,389
Summary of consideration
Cash paid	$	27,941	$	1,000	$	1,500	$	50	$	28,077
Common stock issued	—		1,000		1,964		—		28,282
Replacement awards	—		—		—		—		30
Noninterest-bearing note	—		—		3,150		—		—
Performance based equity	—		—		1,308		—		—
Earn-out liabilities	—		1,000		—		—		—

Banco Popular’s California Branch Network Acquisition

Effective November 8, 2014, the Bank acquired 20 full-service branches from Banco Popular North America (BPNA) in the Southern California banking market (the BPNA Branch Acquisition). The purchase price, net of deposit premiums received of $3.9 million, was $24.0 million. At the time of its completion, the transaction added $1.07 billion in loans and $1.08 billion in deposits to the Bank.

The following table summarizes the total consideration transferred as a part of the BPNA Branch Acquisition as well as the fair value adjustments to the BPNA balance sheet as of the respective acquisition date:



	November 8, 2014
	(In thousands)
Total Consideration				$	27,941
Net assets pre-acquisition				24,027
Fair value adjustments
Loans receivable	$	(19,526	)
Core Deposit Intangibles	15,777
Certificates of deposit purchase premium	(1,208		)
Premises and equipment	1,218
Total fair value adjustments				(3,739		)
Fair value of net assets acquired				20,288
Consideration paid in excess of fair value of net assets acquired (goodwill)				$	7,653

The Company recorded core deposit intangible assets of $15.8 million as part of the BPNA Branch Acquisition. Core deposit intangible assets were valued using a net cost savings method and was calculated as the present value of the estimated net cost savings attributable to the core deposit base over the expected remaining life of the deposits. The cost savings derived from the core deposit balance were calculated as the difference between the prevailing alternative cost of funds and the estimated cost of the core deposits. The core deposit intangible is being amortized over its estimated useful life of ten years using the sum of years-digits amortization methodology.

The fair value of loans acquired from BPNA was estimated by utilizing a methodology wherein similar loans were aggregated into pools. 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 based on a market rate for similar loans. There was no carryover of BPNA's allowance for loan losses associated with the acquired loans as the loans were initially recorded at fair value.

The fair value of savings and transaction deposit accounts acquired from BPNA 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 projecting the expected cash flows based on the remaining contractual terms of the certificates of deposit. These cash flows were discounted based on market rates for certificates of deposit with corresponding remaining maturities.

Direct costs related to the BPNA Branch Acquisition were expensed as incurred and amounted to $4.3 million for the year ended December 31, 2014.

During the year ended December 31, 2015, the Company finalized its purchase accounting for the BPNA Branch Acquisition and recorded the measurement period adjustments. The measurement period adjustments included recording Goodwill of $7.7 million, an additional discount of $7.4 million to Loans and Leases Receivable, and an additional premium of $292 thousand to Deposits. Recorded in the Consolidated Statements of Operations, the cumulative life to date measurement period adjustments related to the loan discount and deposit premium amortization were a $33 thousand decrease in Interest and Dividend Income on Loans and a $110 thousand decrease in Interest Expense on Deposits, respectively.

RenovationReady® Acquisition

Effective January 31, 2014, the Company acquired certain assets, including service contracts and intellectual property, of RenovationReady, a provider of specialized loan services to financial institutions and mortgage bankers that originate agency eligible residential renovation and construction loan products.

The RenovationReady acquisition was accounted for under GAAP guidance for business combinations. The purchased identifiable intangible assets and assumed liabilities were recorded at their estimated fair values as of January 31, 2014. The Company recorded $2.2 million of goodwill and $761 thousand of other intangible assets. The other intangible assets are related to a customer relationship intangible.

CS Financial Acquisition

Effective October 31, 2013, the Company acquired CS Financial, Inc. (CS Financial), a California corporation and Southern California-based mortgage banking firm controlled by former Company director and current Bank executive Jeffrey T. Seabold. As a result of the acquisition, CS Financial became a wholly owned subsidiary of the Bank. For additional information regarding this transaction, see Note 25.

The purchased assets, including identifiable intangible assets, and assumed liabilities were recorded at their estimated fair values as of October 31, 2013. The Company recorded $7.2 million of goodwill and $690 thousand of other intangible assets. The other intangible assets are related to a trade name intangible.

The Palisades Group, LLC Acquisition

Effective September 10, 2013, the Company acquired The Palisades Group, a Delaware limited liability company and a registered investment adviser under the Investment Advisers Act of 1940, pursuant to the terms of the Amended and Restated Units Purchase Agreement dated as of November 30, 2012, amended and restated as of August 12, 2013, for $50 thousand. The Palisades Group provides financial advisory and asset management services to third parties, including the Bank, with respect to the purchase, sale and management of portfolios of residential mortgage loans.

The Palisades Group acquisition was accounted for under GAAP guidance for business combinations. The assets and liabilities were recorded at their estimated fair values at the acquisition date. No goodwill was recognized.

The Private Bank of California Acquisition

Effective July 1, 2013, the Company completed its acquisition of The Private Bank of California, (PBOC) pursuant to the terms of the Agreement and Plan of Merger, dated as of August 21, 2012, as amended (the PBOC Merger Agreement), by and between the Company, Beach Business Bank (then a separate subsidiary bank of the Company) and PBOC. PBOC merged with and into Beach Business Bank, with Beach Business Bank continuing as the surviving entity in the merger and a wholly owned subsidiary of the Company, and changing its name to “The Private Bank of California.” On October 11, 2013, The Private Bank of California was merged with the Company’s other wholly owned banking subsidiary, Banc of California, National Association (formerly Pacific Trust Bank), to form the Bank.

Pursuant to the terms of the PBOC Merger Agreement, the Company paid aggregate merger consideration of (i) 2,082,654 shares of Company common stock (valued at $28.3 million based on the $13.58 per share closing price of Company common stock on July 1, 2013), and (ii) $25.4 million in cash. Additionally, the Company paid $2.7 million for the cancellation of certain outstanding options to acquire PBOC common stock in accordance with the PBOC Merger Agreement and converted the remaining outstanding PBOC stock options to Company stock options with an assumed fair value of approximately $30 thousand. On the basis of the number of shares of PBOC common stock issued and outstanding immediately prior to the completion of the merger, each outstanding share of PBOC common stock was converted into the right to receive $6.52 in cash and 0.5379 shares of Company common stock.

In addition, upon completion of the acquisition, each share of preferred stock issued by PBOC as part of the Small Business Lending Fund (SBLF) program of the United States Department of Treasury (10,000 shares in the aggregate with a liquidation preference amount of $1,000 per share) was converted automatically into one substantially identical share of preferred stock of the Company. The terms of the preferred stock issued by the Company in exchange for the PBOC preferred stock are substantially identical to the preferred stock previously issued by the Company as part of its own participation in the SBLF program (32,000 shares in aggregate with a liquidation preference amount of $1,000 per share).

In accordance with GAAP guidance for business combinations, the Company expensed approximately $2.6 million of direct acquisition costs, all of which were recognized in 2013, and recorded $15.1 million of goodwill and $10.4 million of other intangible assets. The other intangible assets are primarily related to core deposits and are being amortized on an accelerated basis over 2-7 years. Loans acquired from PBOC that were considered credit impaired were written down to fair value at the acquisition date in accordance with purchase accounting. In addition, the ALLL for all PBOC loans was not carried over to the Company’s ALLL. A full valuation allowance for the deferred tax asset was recorded based on management’s evaluation of the expectation of recovery of deferred tax assets for the Company. For tax purposes, purchase accounting adjustments, including goodwill are all nontaxable and/or non-deductible.

Unaudited Pro Forma Information

While the BPNA Branch Acquisition is considered a purchase of a business for accounting purposes, pro forma income statement information is not presented because the BPNA Branch Acquisition does not represent the acquisition of a business which has continuity both before and after the acquisition. Pro formation income statement information for RenovationReady is not presented because it is immaterial.

The following table presents unaudited pro forma information as if the acquisitions of PBOC, The Palisades Group, and CS Financial had occurred on January 1, 2013 after giving effect to certain adjustments. The unaudited pro forma information for the year ended December 31, 2013 includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects.



	Year Ended December 31, 2013
	(In thousands, except per share data)
Net interest income	$	107,607
Provision for loan and lease losses	8,822
Noninterest income	118,459
Noninterest expense	207,513
Income before income taxes	9,731
Income tax expense	8,984
Net income	747
Preferred stock dividends	2,185
Net loss available to common stockholders	$	(1,438	)
Basic loss per total common share	$	(0.09	)
Diluted loss per total common share	$	(0.09	)

The above unaudited pro forma financial information for 2013 includes the pre-acquisition periods for PBOC, The Palisades Group, and CS Financial. The above unaudited pro forma financial information includes pre-acquisition provisions for loan and lease losses recognized by PBOC and CS Financial of $859 thousand for the year ended December 31, 2013. The above pro forma financial information does not include cost saves or integration costs and may not be reflective of what the actual results would have been for the applicable period had the transaction occurred at the beginning of the period.

Building Sale

On June 25, 2015, the Company sold an improved real property office complex located at 1588 South Coast Drive, Costa Mesa, California (the Property) at a sale price of approximately $52.3 million with a gain on sale of $9.9 million. The Property had a book value of $42.3 million at the sale date. Additionally, the Company incurred selling costs of $2.3 million for this transaction, which were reported in Professional Fees and All Other Expenses in the Consolidated Statements of Operations.

Branch Sales

On September 25, 2015, the Bank completed a branch sale transaction to Americas United Bank, a California banking corporation (AUB). In the transaction, the Bank sold two branches and certain related assets and deposit liabilities to AUB. The transaction included a transfer of $46.9 million of deposits to AUB. Additionally, as part of the transaction, the leases related to both locations were assumed by AUB. The Company recognized a gain of $163 thousand from this transaction, which is included in Other Income in the Consolidated Statements of Operations.

The Bank also sold certain loans of $40.2 million to AUB as part of the transaction. The Company recognized a gain of $644 thousand from the sale of these loans, which is included in Net Gain on Sale of Loans in the Consolidated Statements of Operations.

On October 4, 2013, the Bank sold eight branches and related assets and deposit liabilities to a Washington state chartered bank (AWB). The transaction was completed with a transfer of $464.3 million deposits to AWB in exchange for a deposit premium of 2.3 percent. Certain other assets related to the branches include the real estate for three of the branch locations and certain overdraft and other credit facilities related to the deposit accounts. The Company recognized a gain of $12.6 million from this transaction, of which $12.1 million was recognized in 2013.