Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - PACIFIC PREMIER BANCORP INCFinancial_Report.xls
EX-31.1 - PPBI FORM 10-Q 2014-Q3 EX 31.1 - PACIFIC PREMIER BANCORP INCppbi_10q2014q3ex311.htm
EX-32 - PPBI FORM 10-Q 2014-Q3 EX 32 - PACIFIC PREMIER BANCORP INCppbi_10q2014q3ex32.htm
EX-31.2 - PPBI FORM 10-Q 2014-Q3 EX 31.2 - PACIFIC PREMIER BANCORP INCppbi_10q2014q3ex312.htm
 




UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
(Mark One)
 
(X)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2014
 
OR
 
( )        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
 
Commission File Number 0-22193
 
(Exact name of registrant as specified in its charter)
 
DELAWARE
33-0743196
(State or other jurisdiction of incorporation or organization)
(I.R.S Employer Identification No.)
 
 
 
 
17901 VON KARMAN AVENUE, SUITE 1200, IRVINE, CALIFORNIA 92614
 
(Address of principal executive offices and zip code)
 
(949) 864-8000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X ] No [_]
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X] No [_]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
 
Large accelerated filer
[ ]
Accelerated filer
[X]
Non-accelerated filer
[ ]
Smaller reporting company
[  ]
       
(Do not check if a smaller
 reporting company)
     
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes [ ] No [X]
 
The number of shares outstanding of the registrant's common stock as of November 6, 2014 was 16,894,216.



PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
FOR THE QUARTER ENDED SEPTEMBER 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
PART I - FINANCIAL INFORMATION

 

 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
(dollars in thousands, except share data)
 
                   
   
September 30,
   
December 31,
   
September 30,
 
ASSETS
 
2014
   
2013
   
2013
 
   
(Unaudited)
   
(Audited)
   
(Unaudited)
 
Cash and due from banks
  $ 103,356     $ 126,787     $ 61,393  
Federal funds sold
    275       26       26  
Cash and cash equivalents
    103,631       126,813       61,419  
Investment securities available for sale
    282,202       256,089       282,846  
FHLB and other stock, at cost
    18,643       15,450       10,827  
Loans held for sale, net
    -       3,147       3,176  
Loans held for investment
    1,548,004       1,240,123       1,138,969  
Allowance for loan losses
    (10,767 )     (8,200 )     (7,994 )
Loans held for investment, net
    1,537,237       1,231,923       1,130,975  
Accrued interest receivable
    6,762       6,254       5,629  
Other real estate owned
    752       1,186       1,186  
Premises and equipment
    9,402       9,864       9,829  
Deferred income taxes
    10,721       8,477       9,029  
Bank owned life insurance
    26,642       24,051       23,862  
Intangible assets
    5,867       6,628       6,881  
Goodwill
    22,950       17,428       17,428  
Other assets
    9,439       6,877       5,933  
TOTAL ASSETS
  $ 2,034,248     $ 1,714,187     $ 1,569,020  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                       
LIABILITIES:
                       
Deposit accounts:
                       
Noninterest bearing
  $ 425,166     $ 366,755     $ 363,606  
Interest bearing
    1,118,300       939,531       920,528  
Total deposits
    1,543,466       1,306,286       1,284,134  
FHLB advances and other borrowings
    195,561       204,091       86,474  
Subordinated debentures
    70,310       10,310       10,310  
Accrued expenses and other liabilities
    27,054       18,274       16,948  
TOTAL LIABILITIES
    1,836,391       1,538,961       1,397,866  
STOCKHOLDERS’ EQUITY:
                       
Common stock, $.01 par value; 25,000,000 shares authorized;17,069,216 shares at Sepember 30, 2014, 16,656,279 shares at December 31, 2013, and 16,641,991 shares at September 30, 2013 issued and outstanding
    171       166       166  
Additional paid-in capital
    150,062       143,322       143,014  
Retained earnings
    47,540       34,815       30,611  
Accumulated other comprehensive income (loss), net of tax (benefit) of $59 at September 30, 2014, ($2,152) at December 31, 2013, and ($1,843) at September 30, 2013
    84       (3,077 )     (2,637 )
TOTAL STOCKHOLDERS’ EQUITY
    197,857       175,226       171,154  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 2,034,248     $ 1,714,187     $ 1,569,020  

Accompanying notes are an integral part of these consolidated financial statements.
 
 

 

 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(dollars in thousands, except per share data)
 
(unaudited)
 
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30, 2014
   
September 30, 2013
   
September 30, 2014
   
September 30, 2013
 
INTEREST INCOME
                       
Loans
  $ 19,550     $ 14,420     $ 54,057     $ 41,504  
Investment securities and other interest-earning assets
    1,484       1,954       4,230       4,041  
Total interest income
    21,034       16,374       58,287       45,545  
INTEREST EXPENSE
                               
Deposits
    1,317       1,045       3,589       3,097  
FHLB advances and other borrowings
    294       244       792       722  
Subordinated debentures
    403       77       553       230  
Total interest expense
    2,014       1,366       4,934       4,049  
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
    19,020       15,008       53,353       41,496  
PROVISION FOR LOAN LOSSES
    1,284       646       3,263       1,264  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    17,736       14,362       50,090       40,232  
NONINTEREST INCOME
                               
Loan servicing fees
    547       237       1,685       881  
Deposit fees
    412       485       1,329       1,382  
Net gain from sales of loans
    1,775       982       3,621       1,927  
Net gain from sales of investment securities
    363       305       523       1,373  
Other-than-temporary impairment recovery (loss) on investment securities, net
    5       16       28       (19 )
Other income
    1,365       296       1,804       932  
Total noninterest income
    4,467       2,321       8,990       6,476  
NONINTEREST EXPENSE
                               
Compensation and benefits
    7,490       5,948       20,866       16,732  
Premises and occupancy
    1,723       1,600       4,877       4,222  
Data processing and communications
    420       824       2,036       2,214  
Other real estate owned operations, net
    11       (1 )     65       610  
FDIC insurance premiums
    257       201       760       537  
Legal, audit and professional expense
    625       679       1,603       1,523  
Marketing expense
    318       307       736       777  
Office and postage expense
    441       375       1,155       960  
Loan expense
    258       282       633       714  
Deposit expense
    747       497       2,255       1,172  
Merger related expense
    -       -       626       6,723  
Other expense
    1,053       1,059       2,913       2,622  
Total noninterest expense
    13,343       11,771       38,525       38,806  
NET INCOME BEFORE INCOME TAX
    8,860       4,912       20,555       7,902  
INCOME TAX
    3,410       1,846       7,830       3,113  
NET INCOME
  $ 5,450     $ 3,066     $ 12,725     $ 4,789  
                                 
EARNINGS PER SHARE
                               
Basic
  $ 0.32     $ 0.19     $ 0.75     $ 0.31  
Diluted
  $ 0.31     $ 0.18     $ 0.73     $ 0.29  
                                 
WEIGHTED AVERAGE SHARES OUTSTANDING
                               
Basic
    17,069,216       16,640,471       17,078,945       15,512,508  
Diluted
    17,342,882       17,482,230       17,385,835       16,314,701  

Accompanying notes are an integral part of these consolidated financial statements.

 

 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(dollars in thousands)
 
(unaudited)
 
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Net income
  $ 5,450     $ 3,066     $ 12,725     $ 4,789  
Other comprehensive income (loss), net of tax (benefit):
                               
Unrealized holding gains (losses) on securities arising during the period, net of income taxes (benefits) (1)
    320       (799 )     3,469       (2,933 )
Reclassification adjustment for net gain on sale of securities included in net income, net of income taxes (2)
    (214 )     (179 )     (308 )     (809 )
Net unrealized gain (loss) on securities, net of income taxes
    106       (978 )     3,161       (3,742 )
Comprehensive income
  $ 5,556     $ 2,088     $ 15,886     $ 1,047  
                                 
(1) Income taxes on the unrealized gains (losses) on securities was $75,000 for the three months ended September 30, 2014, ($683,000) million for the three months ended September 30, 2013, $2.2 million for the nine months ending September 30, 2014 and ($2.6) million for the first nine months ending September 30, 2013.
 
(2) Income taxes on the reclassification adjustment for net gain on sale of securities included in net income was $149,000 for the three months ended September 30, 2014, $126,000 for the three months ended September 30, 2013, $215,000 for the nine months ending Septmeber 30, 2014 and $564,000 for the nine months ending September 30, 2013.
 



 

 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
 
(dollars in thousands)
 
(unaudited)
 
                                     
   
Common Stock
Shares
   
Common Stock
   
Additional Paid-in Capital
   
Accumulated Retained
Earnings
   
Accumulated Other Comprehensive Income
   
Total Stockholders’ Equity
 
                                     
Balance at December 31, 2013
    16,656,279     $ 166     $ 143,322     $ 34,815     $ (3,077 )   $ 175,226  
Net income
                            12,725               12,725  
Other comprehensive income
                                    3,161       3,161  
Share-based compensation expense
                    377                       377  
Common stock repurchased and retired
    (262,897 )     (2 )     (2,755 )                     (2,757 )
Common stock issued
    562,469       6       9,006                       9,012  
Stock options exercised
    113,365       1       112                       113  
Balance at September 30, 2014
    17,069,216     $ 171     $ 150,062     $ 47,540     $ 84     $ 197,857  
                                                 
Balance at December 31, 2012
    13,661,648     $ 137     $ 107,453     $ 25,822     $ 1,105     $ 134,517  
Net income
                            4,789               4,789  
Other comprehensive income
                                    (3,742 )     (3,742 )
Share-based compensation expense
                    680                       680  
Common stock repurchased and retired
    (10,960 )     -       (41 )                     (41 )
Common stock issued
    2,972,472       29       34,895                       34,924  
Stock options exercised
    18,831       -       27                       27  
Balance at September 30, 2013
    16,641,991     $ 166     $ 143,014     $ 30,611     $ (2,637 )   $ 171,154  

Accompanying notes are an integral part of these consolidated financial statements.




 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(in thousands)
 
(unaudited)
 
   
Nine Months Ended
 
   
September 30,
 
   
2014
   
2013
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 12,725     $ 4,789  
Adjustments to net income:
               
Depreciation and amortization expense
    1,636       1,423  
Provision for loan losses
    3,263       1,264  
Share-based compensation expense
    377       680  
Loss on sale and disposal of premises and equipment
    23       2  
Loss on sale of other real estate owned
    17       226  
Write down of other real estate owned
    -       354  
Amortization of premium/discounts on securities held for sale, net
    1,958       2,319  
Amortization of loan mark-to-market discount from acquisitions
    (1,632 )     (2,032 )
Loss from fair market value adjustment to loans held for sale
    180       -  
Gain on sale of investment securities available for sale
    (523 )     (1,373 )
Other-than-temporary impairment loss (recovery) on investment securities, net
    (28 )     19  
Gain on sale of loans held for investment
    (3,621 )     (1,927 )
Recoveries on loans
    87       344  
Principal payments from loans held for sale
    31       505  
Deferred income tax provision
    (2,244 )     (2,142 )
Change in accrued expenses and other liabilities, net
    2,310       5,562  
Income from bank owned life insurance, net
    (591 )     (470 )
Change in accrued interest receivable and other assets, net
    (3,070 )     1,196  
Net cash provided by operating activities
    10,898       10,739  
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from sale and principal payments on loans held for investment
    229,887       131,619  
Net change in undisbursed loan funds
    43,436       246,814  
Purchase and origination of loans held for investment
    (495,070 )     (463,706 )
Proceeds from sale of other real estate owned
    777       1,488  
Principal payments on securities available for sale
    21,535       27,528  
Purchase of securities available for sale
    (129,636 )     (98,799 )
Proceeds from sale or maturity of securities available for sale
    91,907       212,314  
Investment in bank own life insurance
    (2,000 )     -  
Purchases of premises and equipment
    (1,123 )     (3,010 )
Purchase of Federal Reserve Bank stock
    (1,520 )     (1,276 )
Redemption (purchase) of FHLB stock
    (1,673 )     2,349  
Cash acquired (disbursed) in acquisitions, net
    (7,793 )     138,751  
Net cash provided by (used in) investing activities
    (251,273 )     194,072  
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net increase (decrease) in deposit accounts
    237,180       (161,359 )
Proceeds from issuance of subordinated debt
    58,804       -  
Repayment of FHLB advances and other borrowings, net
    (76,147 )     (45,931 )
Proceeds from issuance of common stock, net of issuance cost
    -       4,560  
Proceeds from exercise of stock options
    113       27  
Repurchase of common stock
    (2,757 )     (41 )
Net cash provided by (used in) financing activities
    217,193       (202,744 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (23,182 )     2,067  
CASH AND CASH EQUIVALENTS, beginning of period
    126,813       59,352  
CASH AND CASH EQUIVALENTS, end of period
  $ 103,631     $ 61,419  
                 
                 
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
(in thousands)
 
(unaudited)
 
                 
   
Nine Months Ended
 
   
September 30,
 
     2014    2013  
                 
SUPPLEMENTAL CASH FLOW DISCLOSURES
               
Interest paid
  $ 4,615     $ 4,012  
Income taxes paid
    11,450       6,825  
Assets acquired (liabilities assumed and capital created) in acquisitions (See Note 4):
               
Investment securities
    -       347,196  
FHLB and TIB Stock
    -       1,765  
Loans
    78,833       68,815  
Core deposit intangible
    -       4,766  
Other real estate owned
    -       752  
Goodwill
    5,522       18,234  
Fixed assets
    74       1,446  
Other assets
    702       12,468  
Deposits
    -       (540,725 )
Other borrowings
    (67,617 )     (16,905 )
Other liabilities
    (709 )     (7,199 )
Additional paid-in capital
    (9,012 )     (29,364 )
                 
NONCASH INVESTING ACTIVITIES DURING THE PERIOD
               
Transfers from loans to other real estate owned
  $ 360     $ 244  
Investment securities available for sale purchased and not settled
  $ 5,982     $ -  
Loans held for sale transfer to loans held for investment
  $ 2,936     $ -  

Accompanying notes are an integral part of these consolidated financial statements.
 


 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(UNAUDITED)
Note 1 - Basis of Presentation
 
The consolidated financial statements include the accounts of Pacific Premier Bancorp, Inc. (the “Corporation”) and its wholly owned subsidiaries, including Pacific Premier Bank (the “Bank”) (collectively, the “Company,” “we,” “our” or “us”).  All significant intercompany accounts and transactions have been eliminated in consolidation.
 
In the opinion of management, the consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of September 30, 2014, December 31, 2013, and September 30, 2013, the results of its operations and comprehensive income for the three and nine months ended September 30, 2014 and 2013 and the changes in stockholders’ equity and cash flows for the nine months ended September 30, 2014 and 2013.  Operating results or comprehensive income for the three and nine months ended September 30, 2014 are not necessarily indicative of the results or comprehensive income that may be expected for any other interim period or the full year ending December 31, 2014.
 
Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Annual Report”).
 
The Company accounts for its investments in its wholly owned special purpose entity, PPBI Trust I, under the equity method whereby the subsidiary’s net earnings are recognized in the Company’s statement of operations.
 
Note 2 – Recently Issued Accounting Pronouncements
 
Accounting Standards Adopted in 2014
 
 
In July 2013, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2013-11,"Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists."  The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability.  The Company adopted the provisions of ASU No. 2013-11 effective January 1, 2014.  The adoption of ASU No. 2013-11 had no impact on the Company's Consolidated Financial Statements. 
 
 
Accounting Standards Pending Adoption
 
 
In January 2014, the FASB issued ASU No. 2014-01,"Accounting for Investments in Qualified Affordable Housing Projects."  ASU No. 2014-01 permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met.  Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense.  This new guidance also requires new disclosures for all investors in these projects.  ASU No. 2014-01 is effective for interim and annual reporting periods beginning after December 15, 2014.  Upon adoption, the guidance must be applied retrospectively to all periods presented.  However, entities that use the effective yield method to account for investments in these projects before adoption may continue to do so for these pre-existing investments.  The Company currently accounts for such investments using the effective yield method and plans to continue to do so for these pre-existing investments after adopting ASU No. 2014-01 on January 1, 2015.  The Company expects investments made after January 1, 2015 to meet the criteria required for the proportional amortization method and plans to make such an accounting policy election.  The adoption of ASU No. 2014-01 is not expected to have a material impact on the Company's Consolidated Financial Statements.
 
In January 2014, the FASB issued ASU No. 2014-04,"Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure."  The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized.  ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.  ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014.  The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company's Consolidated Financial Statements.
 
Note 3 – Significant Accounting Policies
 
Certain Acquired Loans:  As part of business acquisitions, the Bank acquires certain loans that have shown evidence of credit deterioration since origination.  These acquired loans are recorded at the allocated fair value, such that there is no carryover of the seller’s allowance for loan losses.  Such acquired loans are accounted for individually.  The Bank estimates the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of the allocated fair value is recorded as interest income over the remaining life of the loan (accretable yield).  The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference).  Over the life of the loan, expected cash flows continue to be estimated.  If the present value of expected cash flows is less than the carrying amount, a loss is recorded through the allowance for loan losses.  If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.
 
Goodwill and Core Deposit Intangible: Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed.  The Company has selected December 31 as the date to perform the annual impairment test.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.  Goodwill is the only intangible asset with an indefinite life on our balance sheet.
 
Core deposit intangible assets arising from whole bank acquisitions are amortized on an accelerated method over their estimated useful lives, which range from 6 to 10 years.
 
Use of Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.  Actual results could differ from those estimates.  The allowance for loan losses, the fair value of stock-based compensation awards, the fair values of financial instruments and the status of contingencies are particularly subject to change.
 
Note 4 –  Acquisitions
 
The Company accounted for the following transactions 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 core deposit intangible, securities and deposits with the assistance of third party valuations.  The fair value of other real estate owned (“OREO”) was based on recent appraisals of the properties.
 
The estimated fair values in these acquisitions are subject to refinement as additional information relative to the closing date fair values become available through the measurement period, which can extend for up to one year after the closing date of the transaction.  While additional significant changes to the closing date fair values are not expected, any information relative to the changes in these fair values will be evaluated to determine if such changes are due to events and circumstances that existed as of the acquisition date.  During the measurement period, any such changes will be recorded as part of the closing date fair value.
 
Infinity Franchise Holdings Acquisition
 
On January 30, 2014, the Company completed its acquisition of Infinity Franchise Holdings, LLC (“Infinity Holdings”) and its wholly owned operating subsidiary Infinity Franchise Capital, LLC (“IFC” and together with Infinity Holdings, “IFH”), a national lender to franchisees in the quick service restaurant (“QSR”) industry, and other direct and indirect subsidiaries utilized in its business.  The value of the total consideration paid for the IFH acquisition was $17.4 million, which consisted of $8.3 million paid in cash and the issuance of 562,469 shares of the Corporation’s stock, which was valued at $16.02 per share as measured by the 10-day average closing price immediately prior to closing of the transaction.
 
The acquisition of IFH is expected to further diversify our loan portfolio with commercial and industrial and owner-occupied commercial real estate loans, to deploy excess liquidity into higher yielding assets, to positively impact our net interest margin and to further leverage our strong capital base.  The QSR franchisee lending business is a niche market that we believe provides attractive growth opportunities for the Company in the future.  IFH had no delinquent loans or adversely classified assets as of the acquisition date; and the acquisition is expected to be accretive to our 2014 earnings per share.
 
Goodwill in the amount of $5.5 million was recognized in the IFH 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 IFH as of January 30, 2014 and the provisional fair value adjustments and amounts recorded by the Company in 2014 under the acquisition method of accounting:
 

   
IFH
Book Value
   
Fair Value
Adjustments
   
Fair
Value
 
   
(dollars in thousands)
 
ASSETS ACQUIRED
                 
Cash and cash equivalents
  $ 555     $ -     $ 555  
Loans, gross
    78,833       -       78,833  
Deferred loan costs
    1,082       (1,082 )     -  
Allowance for loan losses
    (268 )     268       -  
Other assets
    776       -       776  
Total assets acquired
  $ 80,978     $ (814 )   $ 80,164  
                         
LIABILITIES ASSUMED
                       
Bank loan
  $ 67,617     $ -     $ 67,617  
Accrued compensation
    495       -       495  
Other liabilities
    214       -       214  
Total liabilities assumed
    68,326       -       68,326  
Excess of assets acquired over liabilities assumed
  $ 12,652     $ (814 )     11,838  
Consideration paid
                    17,360  
Goodwill recognized
                  $ 5,522  


San Diego Trust Bank Acquisition
 
On June 25, 2013, the Company completed its acquisition of San Diego Trust Bank (“SDTB”) in exchange for consideration valued at $30.6 million which consisted of $16.2 million of cash and 1,198,255 shares of the Corporation’s common stock.
 
SDTB was a San Diego, California based state-chartered bank.  The acquisition was an opportunity for the Company to acquire a banking network that complemented our existing banking franchise and expanded into a new market area.  Additionally, the SDTB acquisition improved the Company’s deposit base by lowering our cost of deposits and providing an opportunity to accelerate future core deposit growth in the San Diego, California, market area.
 
Goodwill in the amount of $5.6 million was recognized in the SDTB acquisition.  Goodwill recognized in this transaction is not deductible for income tax purposes.
 
The following table represents the assets acquired and liabilities assumed of SDTB as of June 25, 2013 and the provisional fair value adjustments and amounts recorded by the Company in 2013 under the acquisition method of accounting:
 

   
SDTB
Book Value
   
Fair Value
Adjustments
   
Fair
Value
 
   
(dollars in thousands)
 
ASSETS ACQUIRED
                 
Cash and cash equivalents
  $ 30,252     $ -     $ 30,252  
Investment securities
    124,960       (155 )     124,805  
Loans, gross
    42,945       (223 )     42,722  
Allowance for loan losses
    (1,013 )     1,013       -  
Other real estate owned
    752       -       752  
Core deposit intangible
    -       2,836       2,836  
Other assets
    9,856       -       9,856  
Total assets acquired
  $ 207,752     $ 3,471     $ 211,223  
                         
LIABILITIES ASSUMED
                       
Deposits
  $ 183,901     $ 6     $ 183,907  
Deferred tax liability (asset)
    (333 )     1,507       1,174  
Other liabilities
    1,823       (729 )     1,094  
Total liabilities assumed
    185,391       784       186,175  
Excess of assets acquired over liabilities assumed
  $ 22,361     $ 2,687       25,048  
Consideration paid
                    30,622  
Goodwill recognized
                  $ 5,574  


First Association Bank Acquisition
 
On March 15, 2013, the Company completed its acquisition of First Association Bank (“FAB”) in exchange for consideration valued as of the closing at $57.9 million which consisted of $43.0 million of cash and 1,279,217 shares of the Corporation’s common stock.
 
FAB was a Dallas, Texas, based bank which specialized in providing commercial banking services to home owner association (“HOA”) management companies throughout the United States.  The FAB acquisition was an opportunity for the Company to acquire a highly efficient, consistently profitable and niche-focused business that complimented our banking franchise.  Additionally, this acquisition improved the Company’s deposit base by lowering our cost of deposits and providing a platform to accelerate future core deposit growth from HOAs.
 
Goodwill in the amount of $11.9 million was recognized in the FAB acquisition.  Goodwill recognized in this transaction is not deductible for income tax purposes.
 
The following table represents the assets acquired and liabilities assumed of FAB as of March 15, 2013, the provisional fair value adjustments and amounts recorded by the Company in 2013 under the acquisition method of accounting:
 

   
FAB
Book Value
   
Fair Value
Adjustments
   
Fair
Value
 
ASSETS ACQUIRED
 
(dollars in thousands)
 
Cash and cash equivalents
  $ 167,663     $ -     $ 167,663  
Investment securities
    219,913       2,478       222,391  
Loans, gross
    26,264       158       26,422  
Allowance for loan losses
    (224 )     224       -  
Core deposit intangible
    -       1,930       1,930  
Other assets
    5,823       -       5,823  
Total assets acquired
  $ 419,439     $ 4,790     $ 424,229  
                         
LIABILITIES ASSUMED
                       
Deposits
  $ 356,737     $ 81     $ 356,818  
Borrowings
    16,905       -       16,905  
Deferred tax liability
    -       3,918       3,918  
Other Liabilities
    536       -       536  
Total liabilities assumed
    374,178       3,999       378,177  
Excess of assets acquired over liabilities assumed
  $ 45,261     $ 791       46,052  
Consideration paid
                    57,906  
Goodwill recognized
                  $ 11,854  


There were no purchased credit impaired loans acquired from FAB, SDTB or IFH.  For loans acquired from FAB, SDTB and IFH, 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
 
   
FAB
   
SDTB
   
IFH
 
   
(dollars in thousands)
 
                   
Contractual amounts due
  $ 32,107     $ 47,251     $ 98,320  
Cash flows not expected to be collected
    -       -       -  
Expected cash flows
    32,107       47,251       98,320  
Interest component of expected cash flows
    5,685       4,529       19,487  
Fair value of acquired loans
  $ 26,422     $ 42,722     $ 78,833  

In accordance with generally accepted accounting principles, there was no carryover of the allowance for loan losses that had been previously recorded by FAB, SDTB or IFH.
 
The operating results of the Company for the nine months ending September 30, 2014 include the operating results of FAB, SDTB and IFH since their respective acquisition dates.  The following table presents the net interest and other income, net income and earnings per share as if the acquisition of IFH was effective as of January 1, 2014 and as if the acquisitions of FAB and SDTB were effective as of January 1, 2013.  There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income and earnings per share presented below:
 

   
Nine months Ended September 30,
 
   
2014
   
2013
 
             
Net interest and other income
  $ 62,378     $ 53,232  
                 
Net income
  $ 12,344     $ 5,027  
                 
Basic earnings per share
  $ 0.72     $ 0.27  
                 
Diluted earnings per share
  $ 0.71     $ 0.26  


Note 5 – Investment Securities
 
The amortized cost and estimated fair value of securities were as follows:
 

   
September 30, 2014
 
   
Amortized Cost
   
Unrealized
Gain
   
Unrealized
Loss
   
Estimated
Fair Value
 
   
(in thousands)
 
Investment securities available for sale:
 
 
                   
Municipal bonds
  $ 97,358     $ 1,495     $ (268 )   $ 98,585  
Mortgage-backed securities
    184,701       180       (1,264 )     183,617  
Total securities available for sale
  $ 282,059     $ 1,675     $ (1,532 )   $ 282,202  
                                 
   
December 31, 2013
 
   
Amortized Cost
   
Unrealized
Gain
   
Unrealized
Loss
   
Estimated
Fair Value
 
   
(in thousands)
 
Investment securities available for sale:
                               
U.S. Treasury
  $ 73     $ 8     $ -     $ 81  
Municipal bonds
    95,388       589       (1,850 )     94,127  
Mortgage-backed securities
    165,857       12       (3,988 )     161,881  
Total securities available for sale
  $ 261,318     $ 609     $ (5,838 )   $ 256,089  
                                 
   
September 30, 2013
 
   
Amortized Cost
   
Unrealized
Gain
   
Unrealized
Loss
   
Estimated
Fair Value
 
   
(in thousands)
 
Investment securities available for sale:
                               
U.S. Treasury
  $ 73     $ 9     $ -     $ 82  
Municipal bonds
    95,971       709       (1,795 )     94,885  
Mortgage-backed securities
    191,282       182       (3,585 )     187,879  
Total securities available for sale
  $ 287,326     $ 900     $ (5,380 )   $ 282,846  

 
At September 30, 2014, the Company had $9.2 million in Federal Home Loan Bank (“FHLB”) stock, $5.4 million in Federal Reserve Bank (“FRB”) stock, and $4.1 million in other stock, all carried at cost.  During the nine months ended September 30, 2014, the FHLB has repurchased $2.2 million of the Company’s excess FHLB stock through its stock repurchase program.
 
At September 30, 2014, mortgage-backed securities (“MBS”) with an estimated par value of $63.4 million and a fair value of $65.5 million were pledged as collateral for the Bank’s three reverse repurchase agreements which totaled $28.5 million and HOA reverse repurchase agreements which totaled $16.1 million.
 
The table below shows the number, fair value and gross unrealized holding losses of the Company’s investment securities by investment category and length of time that the securities have been in a continuous loss position.
 

   
September 30, 2014
 
   
Less than 12 months
   
12 months or Longer
   
Total
 
   
Number
   
Fair Value
   
Gross Unrealized Holding Losses
   
Number
   
Fair Value
   
Gross Unrealized Holding Losses
   
Number
   
Fair Value
   
Gross Unrealized Holding Losses
 
   
(dollars in thousands)
 
                                                       
Municipal bonds
    29     $ 16,804     $ (183 )     26     $ 10,459     $ (85 )     55     $ 27,263     $ (268 )
Mortgage-backed securities
    22       85,248       (256 )     9       42,516       (1,008 )     31       127,764       (1,264 )
Total
    51     $ 102,052     $ (439 )     35     $ 52,975     $ (1,093 )     86     $ 155,027     $ (1,532 )
                                                                         
   
December 31, 2013
 
   
Less than 12 months
   
12 months or Longer
   
Total
 
   
Number
   
Fair Value
   
Gross Unrealized Holding Losses
   
Number
   
Fair Value
   
Gross Unrealized Holding Losses
   
Number
   
Fair Value
   
Gross Unrealized Holding Losses
 
   
(dollars in thousands)
 
                                                                         
Municipal bonds
    133     $ 61,524     $ (1,850 )     -     $ -     $ -       133     $ 61,524     $ (1,850 )
Mortgage-backed securities
    45       140,704       (3,075 )     1       12,607       (913 )     46       153,311       (3,988 )
Total
    178     $ 202,228     $ (4,925 )     1     $ 12,607     $ (913 )     179     $ 214,835     $ (5,838 )
                                                                         
   
September 30, 2013
 
   
Less than 12 months
   
12 months or Longer
   
Total
 
   
Number
   
Fair Value
   
Gross Unrealized Holding Losses
   
Number
   
Fair Value
   
Gross Unrealized Holding Losses
   
Number
   
Fair Value
   
Gross Unrealized Holding Losses
 
   
(dollars in thousands)
 
                                                                         
Municipal bonds
    131     $ 60,183     $ (1,795 )     -     $ -     $ -       131     $ 60,183     $ (1,795 )
Mortgage-backed securities
    39       136,513       (2,725 )     1       13,117       (860 )     40       149,630       (3,585 )
Total
    170     $ 196,696     $ (4,520 )     1     $ 13,117     $ (860 )     171     $ 209,813     $ (5,380 )


 
The amortized cost and estimated fair value of investment securities available for sale at September 30, 2014, by contractual maturity are shown in the table below.
 

   
One Year
   
More than One
   
More than Five Years
   
More than
   
 
 
   
or Less
   
Year to Five Years
   
to Ten Years
   
Ten Years
   
Total
 
   
Amortized
   
Fair
   
Amortized
   
Fair
   
Amortized
   
Fair
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
   
Cost
   
Value
   
Cost
   
Value
   
Cost
   
Value
 
   
(dollars in thousands)
 
Investment securities available for sale:
                                                           
Municipal bonds
  $ -     $ -     $ 12,828     $ 12,877     $ 41,817     $ 42,379     $ 42,713     $ 43,329     $ 97,358     $ 98,585  
Mortgage-backed securities
    -       -       -       -       30,477       30,394       154,224       153,223       184,701       183,617  
Total investment securities available for sale
    -       -       12,828       12,877       72,294       72,773       196,937       196,552       282,059       282,202  


Any temporary impairment is a result of the change in market interest rates and not the underlying issuers’ ability to repay.  The Company has the intent and ability to hold these securities until the temporary impairment is eliminated.  Accordingly, the Company has not recognized the temporary impairment in earnings.
 
Unrealized gains and losses on investment securities available for sale are recognized in stockholders’ equity as accumulated other comprehensive income or loss.  At September 30, 2014, the Company had accumulated other comprehensive income of $143,000, or $84,000 net of tax, compared to accumulated other comprehensive loss of $5.2 million, or $3.1 million net of tax, at December 31, 2013.
 
Note 6 – Loans Held for Investment
 
The following table sets forth the composition of our loan portfolio in dollar amounts at the dates indicated:
 

   
September 30, 2014
   
December 31, 2013
   
September 30, 2013
 
   
(in thousands)
 
Business loans:
                 
Commercial and industrial
  $ 360,700     $ 187,035     $ 173,720  
Commercial owner occupied (1)
    237,996       221,089       222,162  
SBA
    20,482       10,659       6,455  
Warehouse facilities
    108,093       87,517       49,104  
Real estate loans:
                       
Commercial non-owner occupied
    355,984       333,544       304,979  
Multi-family
    262,588       233,689       218,929  
One-to-four family (2)
    125,326       145,235       152,667  
Construction
    67,118       13,040       2,835  
Land
    6,103       7,605       7,371  
Other loans
    3,521       3,839       3,793  
Total gross loans (3)
    1,547,911       1,243,252       1,142,015  
Less loans held for sale, net
    -       3,147       3,176  
Total gross loans held for investment
    1,547,911       1,240,105       1,138,839  
Deferred loan origination costs/(fees) and premiums/(discounts), net
    93       18       130  
Allowance for loan losses
    (10,767 )     (8,200 )     (7,994 )
Loans held for investment, net
  $ 1,537,237     $ 1,231,923     $ 1,130,975  
                         
(1) Majority secured by real estate.
                       
(2)  Includes second trust deeds.
                       
(3) Total gross loans for September 30, 2014 are net of (i) the unaccreted mark-to-market discounts on Canyon National Bank ("Canyon National") loans of $1.5 million, on Palm Desert National Bank ("Palm Desert National") loans of $1.7 million, and on SDTB loans of $145,000 and (ii) the mark-to-market premium on FAB loans of $31,000.
 


From time to time, we may purchase or sell loans in order to manage concentrations, maximize interest income, change risk profiles, improve returns and generate liquidity.
 
The Company makes residential and commercial loans held for investment to customers located primarily in California.  Consequently, the underlying collateral for our loans and a borrower’s ability to repay may be impacted unfavorably by adverse changes in the economy and real estate market in the region.
 
Under applicable laws and regulations, the Bank may not make secured loans to one borrower in excess of 25% of the Bank’s unimpaired capital plus surplus and likewise in excess of 15% for unsecured loans.  These loans-to-one borrower limitations result in a dollar limitation of $63.2 million for secured loans and $37.9 million for unsecured loans at September 30, 2014.  At September 30, 2014, the Bank’s largest aggregate outstanding balance of loans to one borrower was $34.2 million of secured credit.
 
Purchased Credit Impaired
 
The following table provides a summary of the Company’s investment in purchased credit impaired loans, acquired from Canyon National and Palm Desert National, as of the period indicated:
 

   
September 30, 2014
 
   
Canyon National
   
Palm Desert National
   
Total
 
   
(in thousands)
 
Business loans:
                 
Commercial and industrial
  $ 92     $ -     $ 92  
Commercial owner occupied
    555       -       555  
Real estate loans:
                       
Commercial non-owner occupied
    971       -       971  
One-to-four family
    -       8       8  
Total purchase credit impaired
  $ 1,618     $ 8     $ 1,626  


    On the acquisition date, the amount by which the undiscounted expected cash flows of the purchased credit impaired loans exceed the estimated fair value of the loan is the “accretable yield.”  The accretable yield is measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the purchased credit impaired loan.  At September 30, 2014, the Company had $1.6 million of purchased credit impaired loans, none of which were placed on nonaccrual status.
 
The following table summarizes the accretable yield on the purchased credit impaired for the nine months ended September 30, 2014:
 

   
Nine Months Ended
 
   
September 30, 2014
             
   
Canyon National
   
Palm Desert National
   
Total
 
   
(in thousands)
 
                   
Balance at the beginning of period
  $ 1,623     $ 53     $ 1,676  
Accretion
    (192 )     (1 )     (193 )
Disposals and other
    (17 )     -       (17 )
Change in accretable yield
    -       -       -  
Balance at the end of period
  $ 1,414     $ 52     $ 1,466  

 
Impaired Loans
 
The following tables provide a summary of the Company’s investment in impaired loans as of the period indicated:

 
               
Impaired Loans
                   
   
Contractual
Unpaid Principal Balance
   
Recorded Investment
   
With Specific Allowance
   
Without Specific Allowance
   
Specific Allowance for Impaired Loans
   
Average Recorded Investment
   
Interest Income Recognized
 
   
(in thousands)
 
September 30, 2014
                                         
Business loans:
                                         
Commercial and industrial
  $ -     $ -