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EX-31.1 - PPBI FORM 10-Q 2015 Q1 EX 31.1 - PACIFIC PREMIER BANCORP INCppbi10q-2015qex3111.htm
EX-31.2 - PPBI FORM 10-Q 2015 Q1 EX 31.2 - PACIFIC PREMIER BANCORP INCppbi10q-2015q1ex312.htm
EX-32 - PPBI FORM 10-Q 2015 Q1 EX 32 - PACIFIC PREMIER BANCORP INCppbi10q-2015q1ex32.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 March 31, 2015
 
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 May 8, 2015 was 21,511,426.
 
 

 
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
FOR THE QUARTER ENDED MARCH 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
 
 
(dollars in thousands, except share data)
 
                   
   
March 31,
   
December 31,
   
March 31,
 
ASSETS
 
2015
   
2014
   
2014
 
   
(Unaudited)
   
(Audited)
   
(Unaudited)
 
Cash and due from banks
  $ 178,096     $ 110,650     $ 124,143  
Federal funds sold
    275       275       276  
Cash and cash equivalents
    178,371       110,925       124,419  
Investment securities available for sale
    280,461       201,638       202,142  
FHLB and other stock, at cost
    30,586       17,067       14,104  
Loans held for investment
    2,131,387       1,628,622       1,325,372  
Allowance for loan losses
    (13,646 )     (12,200 )     (8,685 )
Loans held for investment, net
    2,117,741       1,616,422       1,316,687  
Accrued interest receivable
    8,769       7,131       5,865  
Other real estate owned
    997       1,037       752  
Premises and equipment
    9,591       9,165       9,643  
Deferred income taxes
    12,815       9,383       9,180  
Bank owned life insurance
    38,377       26,822       26,240  
Intangible assets
    8,203       5,614       6,374  
Goodwill
    51,010       22,950       22,950  
Other assets
    16,079       10,743       6,926  
TOTAL ASSETS
  $ 2,753,000     $ 2,038,897     $ 1,745,282  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                       
LIABILITIES:
                       
Deposit accounts:
                       
Noninterest bearing checking
  $ 619,763     $ 456,754     $ 412,871  
Interest-bearing:
                       
Checking
    130,869       131,635       137,285  
Money market/savings
    809,408       600,764       529,348  
Retail certificates of deposit
    406,649       365,168       350,690  
Wholesale/brokered certificates of deposit
    76,477       76,505       5,009  
Total interest-bearing
    1,423,403       1,174,072       1,022,332  
Total deposits
    2,043,166       1,630,826       1,435,203  
FHLB advances and other borrowings
    343,434       116,643       95,506  
Subordinated debentures
    70,310       70,310       10,310  
Accrued expenses and other liabilities
    22,843       21,526       15,403  
TOTAL LIABILITIES
    2,479,753       1,839,305       1,556,422  
STOCKHOLDERS’ EQUITY:
                       
Common stock, $.01 par value; 25,000,000 shares authorized;21,387,818 shares at March 31, 2015, 16,903,884 shares at December 31, 2014,  and 17,224,977 shares at March 31, 2014 issued and outstanding
    214       169       172  
Additional paid-in capital
    218,528       147,474       152,325  
Retained earnings
    53,220       51,431       37,447  
Accumulated other comprehensive income (loss), net of tax (benefit) of $898 at March 31, 2015, $362 at December 31, 2014 and ($757) at March 31, 2014
    1,285       518       (1,084 )
TOTAL STOCKHOLDERS’ EQUITY
    273,247       199,592       188,860  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 2,753,000     $ 2,038,897     $ 1,745,282  

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

 

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
 
 
(dollars in thousands, except per share data)
 
(unaudited)
 
             
   
Three Months Ended
 
   
March 31, 2015
   
March 31, 2014
 
INTEREST INCOME
           
Loans
  $ 24,513     $ 16,585  
Investment securities and other interest-earning assets
    1,557       1,437  
Total interest income
    26,070       18,022  
INTEREST EXPENSE
               
Deposits
    1,606       1,069  
FHLB advances and other borrowings
    375       243  
Subordinated debentures
    971       75  
Total interest expense
    2,952       1,387  
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
    23,118       16,635  
PROVISION FOR LOAN LOSSES
    1,830       949  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    21,288       15,686  
NONINTEREST INCOME
               
Loan servicing fees
    901       856  
Deposit fees
    582       454  
Net gain from sales of loans
    -       548  
Net gain from sales of investment securities
    116       62  
Other-than-temporary impairment recovery (loss) on investment securities, net
    -       13  
Other income
    427       119  
Total noninterest income
    2,026       2,052  
NONINTEREST EXPENSE
               
Compensation and benefits
    9,522       6,891  
Premises and occupancy
    1,829       1,588  
Data processing and communications
    702       1,131  
Other real estate owned operations, net
    48       13  
FDIC insurance premiums
    314       237  
Legal, audit and professional expense
    521       593  
Marketing expense
    603       176  
Office and postage expense
    499       369  
Loan expense
    193       184  
Deposit expense
    805       761  
Merger related expense
    3,992       626  
Other expense
    1,441       972  
Total noninterest expense
    20,469       13,541  
NET INCOME BEFORE INCOME TAX
    2,845       4,197  
INCOME TAX
    1,056       1,565  
NET INCOME
  $ 1,789     $ 2,632  
                 
EARNINGS PER SHARE
               
Basic
  $ 0.09     $ 0.15  
Diluted
  $ 0.09     $ 0.15  
                 
WEIGHTED AVERAGE SHARES OUTSTANDING
               
Basic
    20,091,924       17,041,594  
Diluted
    20,382,832       17,376,001  

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



 
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
 
 
(dollars in thousands)
 
(unaudited)
 
             
   
Three Months Ended
 
   
March 31,
 
   
2015
   
2014
 
             
Net income
  $ 1,789     $ 2,632  
Other comprehensive income (loss), net of tax (benefit):
         
Unrealized holding gains (losses) on securities arising during the period, net of income taxes (benefits) (1)
    835       2,029  
Reclassification adjustment for net gain on sale of securities included in net income, net of income taxes (2)
    (68 )     (36 )
Net unrealized gain (loss) on securities, net of income taxes
    767       1,993  
Comprehensive income
  $ 2,556     $ 4,625  
                 
(1) Income taxes on the unrealized gains (losses) on securities was $584,000 for the three months ended March 31, 2015 and $1.4 million for the three months ended March 31, 2014.
 
(2) Income taxes on the reclassification adjustment for net gain on sale of securities included in net income was $48,000 for the three months ended March 31, 2015 and $26,000 for the three months ended March 31, 2014.
 



 
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
 
 
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
 
(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, 2014
    16,903,884     $ 169     $ 147,474     $ 51,431     $ 518     $ 199,592  
Net income
                            1,789               1,789  
Other comprehensive income
                                    767       767  
Share-based compensation expense
                    200                       200  
Common stock issued
    4,480,645       45       70,884                       70,929  
Warrants exercised
    2,456       -       15                       15  
Repurchase of common stock
    (5,833 )     -       (93 )                     (93 )
Exercise of stock options
    6,666       -       48                       48  
Balance at March 31, 2015
    21,387,818     $ 214     $ 218,528     $ 53,220     $ 1,285     $ 273,247  
                                                 
Balance at December 31, 2013
    16,656,279     $ 166     $ 143,322     $ 34,815     $ (3,077 )   $ 175,226  
Net income
                            2,632               2,632  
Other comprehensive income
                                    1,993       1,993  
Share-based compensation expense
                    181                       181  
Common stock repurchased and retired
    (3,936 )     -       (284 )                     (284 )
Common stock issued
    562,469       6       9,006                       9,012  
Stock options exercised
    10,165       -       100                       100  
Balance at March 31, 2014
    17,224,977     $ 172     $ 152,325     $ 37,447     $ (1,084 )   $ 188,860  

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




 
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
 
 
(in thousands)
 
(unaudited)
 
   
Three Months Ended
 
   
March 31,
 
   
2015
   
2014
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 1,789     $ 2,632  
Adjustments to net income:
               
Depreciation and amortization expense
    610       549  
Amortization of Loan Fees and Discounts
    (357 )     -  
Provision for loan losses
    1,830       949  
Share-based compensation expense
    200       181  
Loss on sale and disposal of premises and equipment
    -       23  
Loss on sale of other real estate owned
    -       11  
Write down of other real estate owned
    40       -  
Amortization of premium/discounts on securities held for sale, net
    804       637  
Accretion of loan mark-to-market discount from acquisitions
    (371 )     (579 )
Gain on sale of investment securities available for sale
    (116 )     (62 )
Other-than-temporary impairment recovery on investment securities, net
    -       (13 )
Gain on sale of loans held for investment
    -       (548 )
Recoveries on loans
    12       37  
Principal payments from loans held for sale
    -       31  
Loss on loans held for sale
    -       180  
Deferred income tax benefit (provision)
    -       (703 )
Change in accrued expenses and other liabilities, net
    1,144       (3,916 )
Income from bank owned life insurance, net
    (279 )     (189 )
Change in accrued interest receivable and other assets, net
    (4,934 )     (372 )
Net cash provided by (used in) operating activities
    372       (1,152 )
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from sale and principal payments on loans held for investment
    106,409       87,580  
Decrease (increase) in undisbursed loan funds
    (39,395 )     17,651  
Purchase and origination of loans held for investment
    (236,554 )     (108,020 )
Proceeds from sale of other real estate owned
    -       423  
Principal payments on securities available for sale
    6,851       6,212  
Purchase of securities available for sale
    (40,077 )     (4,976 )
Proceeds from sale or maturity of securities available for sale
    8,771       56,081  
Investment in bank owned life insurance
    -       (2,000 )
Purchases of premises and equipment
    (525 )     (277 )
Redemption (purchase) of Federal Reserve Bank stock
    506       (6 )
Redemption (purchase) of FHLB stock
    (11,656 )     1,352  
Cash acquired (disbursed) in acquisitions, net
    2,961       (7,793 )
Net cash provided by (used in) investing activities
    (202,709 )     46,227  
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net increase (decrease) in deposit accounts
    76,322       128,917  
Repayment of FHLB advances and other borrowings, net
    -       (176,202 )
Proceeds from FHLB advances
    193,491       -  
Proceeds from exercise of stock options
    48       100  
Warrants exercised
    15       -  
Repurchase of common stock
    (93 )     (284 )
Net cash provided by (used in) financing activities
    269,783       (47,469 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    67,446       (2,394 )
CASH AND CASH EQUIVALENTS, beginning of period
    110,925       126,813  
CASH AND CASH EQUIVALENTS, end of period
  $ 178,371     $ 124,419  
                 
SUPPLEMENTAL CASH FLOW DISCLOSURES
               
Interest paid
  $ 3,853     $ 1,104  
Income taxes paid
    3,700       3,500  
Assets acquired (liabilities assumed and capital created) in acquisitions (See Note 4):
               
Investment securities
    53,752       -  
FHLB and Other Stock
    2,369       -  
Loans
    332,893       78,833  
Core deposit intangible
    2,903       -  
Deferred income tax
    3,969       -  
Bank owned life insurance
    11,276       -  
Goodwill
    28,060       5,522  
Fixed assets
    2,134       74  
Other assets
    1,726       702  
Deposits
    (336,018 )     -  
Other borrowings
    (33,300 )     (67,617 )
Other liabilities
    (1,796 )     (709 )
Common stock and additional paid-in capital
    (70,929 )     (9,012 )
                 
NONCASH INVESTING ACTIVITIES DURING THE PERIOD
               
Investment securities available for sale purchased and not settled
  $ -     $ 557  
Loans held for sale transfer to loans held for investment
  $ -     $ 2,936  

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

 

 
 
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
March 31, 2015
(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 March 31, 2015, December 31, 2014, and March 31, 2014, the results of its operations and comprehensive income for the three months ended March 31, 2015 and 2014 and the changes in stockholders’ equity and cash flows for the three months ended March 31, 2015 and 2014.  Operating results or comprehensive income for the three months ended March 31, 2015 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, 2015.
 
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, 2014 (the “2014 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 2015
 
In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-01, Investments-Equity Method and Joint Ventures (Topic 323): "Accounting for Investments in Qualified Affordable Housing Projects."  This Update 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 for public business entities and after December 15, 2015 for non public business entities.  Upon adoption, the guidance must be applied retrospectively to all periods presented.  However, entities that used 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 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 election.  The Company adopted the provisions of ASU No. 2014-01 effective January 1, 2015.  The adoption had no impact on the Company’s Consolidated Financial Statements.
 
In January 2014, the FASB issued ASU No. 2014-04, Receivables-Troubled Debt Restructuring By Creditors (Subtopic 310-40): “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 Company adopted the provisions of ASU No. 2014-4 effective January 1, 2015.  The adoption had no impact on the Company’s Consolidated Financial Statements.
 
In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860):"Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures."  This Update aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financings with the accounting for other typical repurchase agreements.  Going forward, these transactions would all be accounted for as secured borrowings.  The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting.  The Update requires a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction.  The Update also requires expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings.  The Update is effective for interim or annual period beginning after December 15, 2014.  All of the Company's repurchase agreements are typical in nature (i.e., not repurchase-to-maturity transactions or repurchase agreements executed as a repurchase financing) and are accounted for as secured borrowings.  The Company adopted the provisions of ASU No. 2014-11 effective January 1, 2015.  The adoption had no impact on the Company’s Consolidated Financial Statements.
 
In August 2014, the FASB issued ASU No. 2014-14 Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): “Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure”.  This Update addresses classification of government-guaranteed mortgage loans, including those where guarantees are offered by the Federal Housing Administration (“FHA”), the U.S. Department of Housing and Urban Development (“HUD”), and the U.S. Department of Veterans Affairs (“VA”).  Although current accounting guidance stipulates proper measurement and classification in situations where a creditor obtains from a debtor, assets in satisfaction of a receivable (such as through foreclosure), current guidance does not specify how to measure and classify foreclosed mortgage loans that are government-guaranteed.  Under the provisions of this Update, a creditor would derecognize a mortgage loan that has been foreclosed upon, and recognize a separate receivable if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, (3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  This Update is effective for interim and annual periods beginning after December 15, 2014 for public business entities and after December 15, 2015 for non public business entities.  The Company adopted the provisions of ASU No. 2014-14 effective January 1, 2015.  The adoption had no impact on the Company’s Consolidated Financial Statements.
 
Accounting Standards Pending Adoption
 
In August 2014, the FASB issued guidance within ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  This Update provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern.  The amendments require management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards.  This Update is effective for interim and annual periods ending after December 15, 2016.  The adoption of this guidance 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.
 
Independence Bank Acquisition
 
On January 26, 2015, the Company completed its acquisition of Independence Bank (“IDPK”) in exchange for consideration valued at $78.5, which consisted of $6.1 million of cash consideration for IDPK common stockholders, $1.5 million of aggregate cash consideration to the holders of IDPK stock options and warrants, and the issuance of 4,480,645 shares of the Corporation’s common stock, which was valued at $70.9 million based on the closing stock price of the Company’s common stock on January 26, 2015 of $15.83 per share.
 
IDPK was a Newport Beach, California based state-chartered bank.  The acquisition was an opportunity for the Company to strengthen its competitive position as one of the premier community banks headquartered in Southern California.  Additionally, the IDPK acquisition enhanced and connected the Company’s footprint in Southern California. 
 
Goodwill in the amount of $28.1 million was recognized in the IDPK acquisition.  Goodwill recognized in this transaction is not deductible for income tax purposes.
 
The following table represents the assets acquired and liabilities assumed of IDPK as of January 26, 2015 and the provisional fair value adjustments and amounts recorded by the Company in 2015 under the acquisition method of accounting: 

 
   
IDBK
Book Value
   
Fair Value
Adjustments
   
Fair
Value
 
   
(dollars in thousands)
 
ASSETS ACQUIRED
                 
Cash and cash equivalents
  $ 10,486           $ 10,486  
Investment securities
    56,503       (382 )     56,121  
Loans, gross
    339,502       (6,609 )     332,893  
Allowance for loan losses
    (3,301 )     3,301       -  
Deferred income taxes
    3,252       717       3,969  
Bank owned life insurance
    11,276               11,276  
Core deposit intangible
    904       1,999       2,903  
Other assets
    3,756       105       3,860  
Total assets acquired
  $ 422,378     $ (869 )   $ 421,508  
                         
LIABILITIES ASSUMED
                       
Deposits
  $ 335,685     $ 333     $ 336,018  
FHLB advances
    33,300               33,300  
Other liabilities
    1,916       (120 )     1,796  
Total liabilities assumed
    370,901       213       371,114  
Excess of assets acquired over liabilities assumed
  $ 51,477     $ (1,082 )     50,394  
Consideration paid
                    78,454  
Goodwill recognized
                  $ 28,060  


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 further diversified our loan portfolio with commercial and industrial and owner-occupied commercial real estate loans, deployed excess liquidity into higher yielding assets, to positively impact our net interest margin and further leveraged 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 was 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  


There were no purchased credit impaired loans acquired from IFH.  For loans acquired from IFH and IDPK, 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
 
   
IFH
   
IDPK
 
   
(dollars in thousands)
 
             
Contractual amounts due
  $ 98,320     $ 453,987  
Cash flows not expected to be collected
    -       3,795  
Expected cash flows
    98,320       450,192  
Interest component of expected cash flows
    19,487       117,299  
Fair value of acquired loans
  $ 78,833     $ 332,893  


In accordance with generally accepted accounting principles, there was no carryover of the allowance for loan losses that had been previously recorded by IFH or IDPK.
 
The operating results of the Company for the three months ending March 31, 2015 include the operating results of IDPK since the acquisition date.  The operating results of the Company for the three months ending March 31, 2014 include the operating results of IFH since the acquisition date.  The following table presents the net interest and other income, net income and earnings per share as if the acquisitions of IFH and IDPK were effective as of January 1, 2014.  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 March 31,
 
   
2015
   
2014
 
             
Net interest and other income
  $ 24,687     $ 19,715  
Net income
  $ 802     $ 3,028  
Basic earnings per share
  $ 0.04     $ 0.14  
Diluted earnings per share
  $ 0.04     $ 0.14  


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

   
March 31, 2015
 
   
Amortized
 Cost
   
Unrealized
Gain
   
Unrealized
Loss
   
Estimated
Fair Value
 
   
(in thousands)
 
Investment securities available for sale:
 
 
                   
Municipal bonds
  $ 103,997     $ 1,718     $ (192 )   $ 105,523  
Mortgage-backed securities
    174,281       1,097       (440 )     174,938  
Total securities available for sale
  $ 278,278     $ 2,815     $ (632 )   $ 280,461  
                                 
   
December 31, 2014
 
   
Amortized
Cost
   
Unrealized
Gain
   
Unrealized
Loss
   
Estimated
Fair Value
 
   
(in thousands)
 
Investment securities available for sale:
                               
Municipal bonds
  $ 88,599     $ 1,235     $ (173 )   $ 89,661  
Mortgage-backed securities
    112,159       432       (614 )     111,977  
Total securities available for sale
  $ 200,758     $ 1,667     $ (787 )   $ 201,638  
                                 
   
March 31, 2014
 
   
Amortized
 Cost
   
Unrealized
Gain
   
Unrealized
Loss
   
Estimated
Fair Value
 
   
(in thousands)
 
Investment securities available for sale:
                               
Municipal bonds
  $ 77,062     $ 848     $ (586 )     77,324  
Mortgage-backed securities
    126,921       65       (2,168 )     124,818  
Total securities available for sale
  $ 203,983     $ 913     $ (2,754 )   $ 202,142  


At March 31, 2015, the Company had $21.9 million in Federal Home Loan Bank (“FHLB”) stock, $5.4 million in Federal Reserve Bank (“FRB”) stock, and $3.3 million in other stock, all carried at cost.  During the three months ended March 31, 2015, the Company had net purchases of $13.5 million of FHLB stock through the FHLB stock purchase program.
 
At March 31, 2015, mortgage-backed securities (“MBS”) with an estimated par value of $59.6 million and a fair value of $61.7 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 $14.9 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.
 

   
March 31, 2015
 
   
Less than 12 months
   
12 months or Longer
   
Total
 
               
Gross
               
Gross
               
Gross
 
               
Unrealized
               
Unrealized
               
Unrealized
 
         
Fair
   
Holding
         
Fair
   
Holding
         
Fair
   
Holding
 
   
Number
   
Value
   
Losses
   
Number
   
Value
   
Losses
   
Number
   
Value
   
Losses
 
   
(dollars in thousands)
 
                                                       
Municipal bonds
    48     $ 20,818     $ (179 )     3     $ 1,073     $ (13 )     51     $ 21,891     $ (192 )
Mortgage-backed securities
    10       21,857       (66 )     3       15,111       (374 )     13       36,968       (440 )
Total
    58     $ 42,675     $ (245 )     6     $ 16,184     $ (387 )     64     $ 58,859     $ (632 )
                                                                         
   
December 31, 2014
   
   
Less than 12 months
   
12 months or Longer
   
Total
 
                   
Gross
                   
Gross
                   
Gross
 
                   
Unrealized
                   
Unrealized
                   
Unrealized
 
           
Fair
   
Holding
           
Fair
   
Holding
           
Fair
   
Holding
 
   
Number
   
Value
   
Losses
   
Number
   
Value
   
Losses
   
Number
   
Value
   
Losses
 
   
(dollars in thousands)
 
                                                                         
Municipal bonds
    35     $ 18,129     $ (117 )     16     $ 6,510     $ (56 )     51     $ 24,639     $ (173 )
Mortgage-backed securities
    7       24,353       (105 )     4       18,842       (509 )     11       43,195       (614 )
Total
    42     $ 42,482     $ (222 )     20     $ 25,352     $ (565 )     62     $ 67,834     $ (787 )
                                                                         
   
March 31, 2014
 
   
Less than 12 months
   
12 months or Longer
   
Total
 
                   
Gross
                   
Gross
                   
Gross
 
                   
Unrealized
                   
Unrealized
                   
Unrealized
 
           
Fair
   
Holding
           
Fair
   
Holding
           
Fair
   
Holding
 
   
Number
   
Value
   
Losses
   
Number
   
Value
   
Losses
   
Number
   
Value
   
Losses
 
   
(dollars in thousands)
 
                                                                         
Municipal bonds
    74     $ 36,765     $ (476 )     12     $ 5,046     $ (110 )     86     $ 41,811     $ (586 )
Mortgage-backed securities
    32       93,299       (1,422 )     1       12,312       (746 )     33       105,611       (2,168 )
Total
    106     $ 130,064     $ (1,898 )     13     $ 17,358     $ (856 )     119     $ 147,422     $ (2,754 )

The amortized cost and estimated fair value of investment securities available for sale at March 31, 2015, 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
  $ 466     $ 470     $ 21,044     $ 21,076     $ 35,914     $ 36,539     $ 46,573     $ 47,438     $ 103,997     $ 105,523  
Mortgage-backed securities
    -       -       251       255       27,988       28,208       146,042       146,475       174,281       174,938  
Total investment securities available for sale
  $ 466     $ 470     $ 21,295     $ 21,331     $ 63,902     $ 64,747     $ 192,615     $ 193,913     $ 278,278     $ 280,461  


    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 March 31, 2015, the Company had accumulated other comprehensive income of $2.2 million, or $1.3 million net of tax, compared to accumulated other comprehensive loss of $880,000 or $518,000 net of tax, at December 31, 2014.
 
Note 6 – Loans Held for Investment
 
The following table sets forth the composition of our loan portfolio in dollar amounts at the dates indicated:
 

   
March 31, 2015
   
December 31, 2014
   
March 31, 2014
 
   
(in thousands)
 
Business loans:
                 
Commercial and industrial
  $ 420,218     $ 428,207     $ 271,877  
Commercial owner occupied (1)
    352,351       210,995       223,848  
SBA
    49,855       28,404       11,045  
Warehouse facilities
    216,554       113,798       81,033  
Real estate loans:
                       
Commercial non-owner occupied
    452,422       359,213       333,490  
Multi-family
    397,130       262,965       223,200  
One-to-four family (2)
    116,735       122,795       141,469  
Construction
    111,704       89,682       29,857  
Land
    7,243       9,088       6,170  
Other loans
    6,641       3,298       3,480  
Total gross loans (3)
    2,130,853       1,628,445       1,325,469  
Less loans held for sale, net
    -       -       -  
Total gross loans held for investment
    2,130,853       1,628,445       1,325,469  
Deferred loan origination costs/(fees) and premiums/(discounts), net
    534       177       (97 )
Allowance for loan losses
    (13,646 )     (12,200 )     (8,685 )
Loans held for investment, net
  $ 2,117,741     $ 1,616,422     $ 1,316,687  
                         
(1) Majority secured by real estate.
                       
(2)  Includes second trust deeds.
                       
(3) Total gross loans for March 31, 2015 are net of (i) the unaccreted mark-to-market discounts on Canyon National Bank ("Canyon National") loans of $1.2 million, on Palm Desert National Bank ("Palm Desert National") loans of $1.3 million, on SDTB loans of $151,000, and on IDPK loans of $6.9 million and (ii) the mark-to-market premium on FAB loans of $28,000.
 


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 $83.9 million for secured loans and $50.4 million for unsecured loans at March 31, 2015.  At March 31, 2015, the Bank’s largest aggregate outstanding balance of loans to one borrower was $44.9 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, Palm Desert National and IDPK, as of the period indicated:
 

   
March 31, 2015
 
   
Canyon National
   
Palm Desert National
   
IDPK
   
Total
 
   
(in thousands)
 
Business loans:
                       
Commercial and industrial
  $ 95     $ -     $ 601     $ 696  
Commercial owner occupied
    549       -       2,388       2,937  
Real estate loans:
                               
Commercial non-owner occupied
    965       -       1,379       2,344  
One-to-four family
    -       1       -       1  
Total purchase credit impaired
  $ 1,609     $ 1     $ 4,368     $ 5,978  


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 March 31, 2015, the Company had $6.0 million of purchased credit impaired loans, of which $1.7 million were placed on nonaccrual status.
 
The following table summarizes the accretable yield on the purchased credit impaired for the three months ended March 31, 2015:

 
   
Three Months Ended
 
   
March 31, 2015
 
   
Canyon National
   
Palm Desert National
   
IDPK
   
Total
 
   
(in thousands)
 
                         
Balance at the beginning of period
  $ 1,351     $ 52     $ -     $ 1,403  
Accretable yield at acquisition
    -       -       602       602  
Accretion
    (47 )     -       (30 )     (77 )
Disposals and other
    -       -       (4 )     (4 )
Change in accretable yield
    -       -       -       -  
Balance at the end of period
  $ 1,304     $ 52     $ 568     $ 1,924  


 
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)
 
March 31, 2015
                                         
Business loans:
                                         
Commercial and industrial
  $ 2,225     $ 1,853     $ -     $ 1,853     $ -     $ 618     $ -  
Commercial owner occupied
    438       379       -       379       -       382       7  
Real estate loans:
                                                       
Commercial non-owner occupied
    698       458       -       458       -       465       12  
One-to-four family
    254       232       -       232       -       234       5  
Totals
  $ 3,615     $ 2,922     $ -     $ 2,922     $ -     $ 1,699     $ 24  
                                                         
                   
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)
 
December 31, 2014
                                                       
Business loans:
                                                       
Commercial and industrial
  $ -     $ -     $ -     $ -     $ -     $ 11     $ -  
Commercial owner occupied
    440       388       -       388       -       514       46  
SBA
    -       -       -       -       -