ACQUISITION

6 Months Ended

Jun. 30, 2018

Note 3 – ACQUISITION 

On April 28, 2017, to increase its market area, reduce net funding costs, and improve operating efficiency, the Company acquired all the assets and assumed all the liabilities of First ULB Corp. (“FULB”) and its subsidiary, United Business Bank, FSB. The Company added eight locations including seven full service branches and one loan production office. The branch offices are located in Oakland, San Jose, Sacramento, San Francisco, Glendale, California and Albuquerque, New Mexico and Tukwila, Washington. The loan production office is located in Los Angeles, California. The Company paid a total of $41.9 million comprised of cash of $19.0 million and 1,371,579 shares of its common stock at a price of $16.66 per share in exchange for all of the common shares outstanding of FULB. Each share of FULB common stock was converted into .9733 share of the Company’s common stock. As of the merger date, the fair value of FULB’s consolidated assets totaled approximately $473.1 million and deposits totaled approximately $428.0 million. The fair value of estimates are subject to change during the measurement period, after the acquisition date as additional information relative to the acquisition date fair values becomes available. The merger transaction is accounted for using the acquisition method of accounting for business combinations FASB ASC 805, Business Combinations. The net assets acquired and the liabilities assumed totaled approximately $32.8 million at the date of merger. The Company also assumed the Floating Rate Junior Subordinated Deferrable Interest Debentures issued by FULB (the “Subordinated Debentures”) which are held by the First ULB Statutory Trust 1 (the “Trust”) and the lease obligation related to each facility.

On November 3, 2017, to enhance its market share in the state of Washington, the Company acquired Plaza Bank (“Plaza Bank”) adding one branch office located in Seattle, Washington. The Company issued 626,381 shares of its common stock at a price of $19.10 per share in exchange for the all of the common shares outstanding of Plaza Bank. Each share of Plaza Bank’s common stock outstanding was converted into .084795 share of the Company’s common stock. As of the merger date, the fair value of Plaza Bank’s assets totaled approximately $75.8 million and deposits totaled approximately $54.2 million. The fair value of estimates are subject to change during the measurement period, after the acquisition date as additional information relative to the acquisition date fair values becomes available. The merger transaction is accounted for using the acquisition method of accounting for business combinations FASB ASC 805, Business Combinations. The net assets acquired and the liabilities assumed totaled approximately $10.8 million at the date of merger. The Company assumed the lease obligation related to the branch facility.

The acquisitions resulted in $10.4 million in goodwill which represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. Goodwill mainly reflects expected value created through the combined operations of the acquisitions which we evaluate for impairment annually.

Pro Forma Results of Operations

The operating results of the Company for the year ended December 31, 2017 and 2016 include the operating results of FULB and Plaza Bank since their respective acquisition dates. The following table represents the net interest and other income, basic earnings per share and diluted earning per share as if the acquisition with FULB and Plaza Bank were effective as of January 1, 2017 and 2016 for the respective year in which each acquisition was closed. The unaudited pro forma information in the following table is intended for informational purposes only and is not necessarily indicative of our future operating results for operating results that would have occurred had the mergers been completed at the beginning of each respective year. No assumptions have been applied to the pro forma results of operation regarding possible revenue enhancements, expense efficiencies or asset dispositions.

The contribution of the acquired operations from FULB and Plaza Bank to our results of operations for the 2017 is as follows:

	Actual		Proforma
	Six Months Ended June 30,
	2018		2017
Net interest income	$	25,014	$	23,260
Net income		8,357		5,109

Basic earnings per share	$	0.99	$	0.66
Diluted earnings per share		0.99		0.66

The core deposit intangible represents the estimated future benefits of acquired deposits and is recorded separately from the related deposits. The transactions resulted in a core deposit intangible asset of $4.8 million from the acquisitions, of which $850,000 was amortized in 2017 and $578,000 was amortized in the first half of 2018. It is amortized on an accelerated basis over an estimated ten-year life. The amortization is higher in the early years and then declines in the later years. The asset is evaluated periodically for impairment. No impairment loss was recognized as of June 30, 2018.

Acquisition-related expenses are recognized as incurred and continue until all systems have been converted and operational functions become fully integrated. We incurred acquisition-related expenses in the consolidated statements of comprehensive income in 2017 as follows:

	Period Recognized
	Q2-2017		Q4-2017
	FULB		Plaza		Total
Acquisition related expenses in 2017
Professional fees	$	349	$	225	$	574
Data processing		1,586		855		2,441
Salaries and employee benefits		212		75		287
Other		120		54		174
Total	$	2,267	$	1,209	$	3,476