Edgar Filing: BANC OF CALIFORNIA, INC.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2014

¨	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 001-35522

BANC OF CALIFORNIA, INC.

(Exact name of registrant as specified in its charter)

Maryland

(State or other jurisdiction of

incorporation or organization)

04-3639825

(IRS Employer Identification No.)

18500 Von Karman Ave, Suite 1100, Irvine, California

(Address of principal executive offices)

92612

(Zip Code)

(949) 236-5211

(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 (Section 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 the definitions of “large accelerated filer,” “accelerated filer,” “and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of April 30, 2014, the registrant had outstanding 19,875,104 shares of voting common stock and 596,018 shares of Class B non-voting common stock.

BANC OF CALIFORNIA, INC.

FORM 10-Q QUARTERLY REPORT

March 31, 2014

Table of Contents


		Page

Part I – Financial Information			5

Item 1	Financial Statements		5

Item 2	Management’s Discussion and Analysis of Financial Condition and Result of Operations		52

Item 3	Quantitative and Qualitative Disclosures About Market Risk		75

Item 4	Controls and Procedures		77

Part II – Other Information			78

Item 1	Legal Proceedings		78

Item 1A	Risk Factors		78

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		80

Item 3	Defaults Upon Senior Securities		82

Item 4	Mine Safety Disclosure		82

Item 5	Other Information		82

Item 6	Exhibits		83

SIGNATURES			89

Forward-looking Statements

When used in this report and in public shareholder communications, in other documents of Banc of California, Inc. (the “Company,” “we,” “us” and “our”) filed with or furnished to the Securities and Exchange Commission (the “SEC”), or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “guidance” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements may relate to our future financial performance, strategic plans or objectives, revenue, expense or earnings projections, or other financial items. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following:

i.	the ability of the Company to successfully integrate the branches its wholly owned bank subsidiary, Banc of California, N.A. (the “Bank”), is expected to acquire from Banco Popular North America (“BPNA”);

ii.	the Company’s ability to receive regulatory approval and otherwise satisfy the closing conditions for the pending acquisition of branches from BPNA, including raising sufficient financing from public or private offerings to complete the acquisition of branches from BPNA;

iii.

risks that the Company’s merger and acquisition activities, including but not limited to the pending acquisition of the BPNA branches and the recently completed acquisitions of The Private Bank of California (PBOC), The Palisades Group, LLC and CS Financial, Inc., as well as the recent merger of the Company’s subsidiary banks, may disrupt current plans and operations and lead to difficulties in customer and employee retention, risks that the amount of the costs, fees, expenses and charges related to these transactions could be significantly higher than anticipated and risks that the expected revenues, cost savings, synergies and other benefits of these transactions might not be realized within the anticipated timetables or at all;

iv.	risks that funds obtained from capital raising activities will not be utilized efficiently or effectively;

v.	a worsening of current economic conditions, as well as turmoil in the financial markets;

vi.

the credit risks of lending activities, which may be affected by deterioration in real estate markets and the financial condition of borrowers, may lead to increased loan and lease delinquencies, losses and nonperforming assets in our loan and lease portfolio, and may result in our allowance for loan and lease losses not being adequate to cover actual losses and require us to materially increase our loan and lease loss reserves;

vii.	the quality and composition of our securities portfolio;

viii.

changes in general economic conditions, either nationally or in our market areas;

ix.	continuation of the historically low short-term interest rate environment, changes in the levels of general interest rates, and the relative differences between short- and long-term interest rates, deposit interest rates, our net interest margin and funding sources;

x.	fluctuations in the demand for loans and leases, the number of unsold homes and other properties and fluctuations in commercial and residential real estate values in our market area;

xi.

results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan and lease losses, write-down asset values, increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;

xii.	legislative or regulatory changes that adversely affect our business, including changes in regulatory capital or other rules;

xiii.

our ability to control operating costs and expenses;

xiv.	staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges;

xv.	errors in our estimates in determining fair value of certain of our assets, which may result in significant declines in valuation;

xvi.	the network and computer systems on which we depend could fail or experience a security breach;

xvii.

our ability to attract and retain key members of our senior management team;

xviii.

costs and effects of litigation, including settlements and judgments;

xix.	increased competitive pressures among financial services companies;

xx.	changes in consumer spending, borrowing and saving habits;

xxi.	adverse changes in the securities markets;

xxii.

earthquake, fire or other natural disasters affecting the condition of real estate collateral;

xxiii.

the availability of resources to address changes in laws, rules or regulations or to respond to regulatory actions;

xxiv.

inability of key third-party providers to perform their obligations to us;

xxv.

changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board or their application to our business, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;

xxvi.

war or terrorist activities; and

xxvii.

other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in this report and from time to time in other documents that we file with or furnish to the SEC, including, without limitation, the risks described under “Item 1A. Risk Factors” presented elsewhere in this report.

The Company undertakes no obligation to update any such statement to reflect circumstances or events that occur after the date on which the forward-looking statement is made, except as required by law.

PART I – FINANCIAL INFORMATION

ITEM 1 –

FINANCIAL STATEMENTS

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands, except share and per share data)

(Unaudited)


	March 31,			December 31,
	2014			2013
ASSETS
Cash and due from banks	$	5,733		$	4,937
Interest-bearing deposits		327,906			105,181

Total cash and cash equivalents		333,639			110,118
Time deposits in financial institutions		1,745			1,846
Securities available for sale, at fair value		107,525			170,022
Loans held for sale, carried at fair value		169,197			192,613
Loans held for sale, carried at lower of cost or fair value		831,197			524,120
Loans and leases receivable, net of allowance of $20,003 at March 31, 2014 and $18,805 at December 31, 2013		2,376,992			2,427,306
Federal Home Loan Bank and other bank stock, at cost		26,801			22,600
Servicing rights, net ($8,407 measured at fair value at March 31, 2014 and $13,535 at December 31, 2013)		8,734			13,883
Servicing rights held for sale, carried at fair value		10,146			—
Accrued interest receivable		10,962			10,866
Other real estate owned, net		150			—
Premises, equipment, and capital leases, net		67,278			66,260
Bank-owned life insurance		18,928			18,881
Goodwill		32,868			30,143
Affordable housing fund investment		5,454			5,628
Income tax receivable		2,769			2,995
Other intangible assets, net		11,213			12,152
Other assets		15,036			18,590

Total assets	$	4,030,634		$	3,628,023

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing deposits	$	430,925		$	429,158
Interest-bearing deposits		2,678,221			2,489,486

Total deposits		3,109,146			2,918,644
Advances from Federal Home Loan Bank		395,000			250,000
Federal funds purchased		70,000			—
Notes payable, net		82,416			82,320
Reserve for loss on repurchased loans		5,866			5,427
Accrued expenses and other liabilities		42,880			46,763

Total liabilities		3,705,308			3,303,154
Commitments and contingent liabilities
Preferred stock, $0.01 par value per share, 50,000,000 shares authorized:
Series A, non-cumulative perpetual preferred stock, $1,000 per share liquidation preference, 32,000 shares authorized, 32,000 shares issued and outstanding at March 31, 2014 and December 31, 2013		31,934			31,934
Series B, non-cumulative perpetual preferred stock, $1,000 per share liquidation preference, 10,000 shares authorized, 10,000 shares issued and outstanding at March 31, 2014 and December 31, 2013		10,000			10,000
Series C, 8.00% non-cumulative perpetual preferred stock, $1,000 per share liquidation preference, 40,250 shares authorized, 40,250 shares issued and outstanding at March 31, 2014 and December 31, 2013		37,943			37,943
Common stock, $0.01 par value per share, 446,863,844 shares authorized; 21,131,708 shares issued and 19,666,469 shares outstanding at March 31, 2014; 20,959,286 shares issued and 19,561,469 shares outstanding at December 31, 2013		211			210
Class B non-voting non-convertible Common stock, $.01 par value per share, 3,136,156 shares authorized; 590,068 shares issued and outstanding at March 31, 2014 and 584,674 shares issued and outstanding at December 31, 2013		6			6
Additional paid-in capital		258,861			256,306
Retained earnings		14,398			16,981
Treasury stock, at cost (1,465,239 shares at March 31, 2014 and 1,397,817 shares at December 31, 2013)		(27,726	)		(27,911	)
Accumulated other comprehensive income (loss), net		(301	)		(600	)

Total shareholders' equity		325,326			324,869

Total liabilities and shareholders' equity	$	4,030,634		$	3,628,023

See accompanying notes to consolidated financial statements

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data)

(Unaudited)


	Three months ended
	March 31,
	2014			2013
Interest and dividend income
Loans, including fees	$	41,530		$	18,537
Securities		924			498
Dividends and other interest-earning assets		322			133

Total interest and dividend income		42,776			19,168
Interest expense
Deposits		5,735			1,999
Federal Home Loan Bank advances		100			63
Notes payable and other interest-bearing liabilities		1,756			1,747

Total interest expense		7,591			3,809

Net interest income		35,185			15,359
Provision for loan and lease losses		1,929			2,168

Net interest income after provision for loan and lease losses		33,256			13,191
Noninterest income
Customer service fees		253			546
Loan servicing income		1,253			188
Income from bank owned life insurance		47			38
Net gain (loss) on sales of securities available for sale		507			308
Net gain on sale of loans		2,603			312
Net gain on mortgage banking activities		17,324			16,370
Other income		3,291			166

Total noninterest income		25,278			17,928
Noninterest expense
Salaries and employee benefits		34,681			19,080
Occupancy and equipment		8,537			3,193
Professional fees		3,865			2,297
Data processing		791			910
Advertising		1,075			522
Regulatory assessments		941			381
Loan servicing and foreclosure expense		175			204
Operating loss on equity investment		174			159
Valuation allowance for other real estate owned		—			79
Net (gain) loss on sales of other real estate owned		—			(114	)
Provision for loan repurchases		571			256
Amortization of intangible assets		939			367
All other expense		6,019			2,224

Total noninterest expense		57,768			29,558

Income before income taxes		766			1,561
Income tax expense		9			632

Net income		757			929
Preferred stock dividends		910			288

Net income (loss) available to common shareholders	$	(153	)	$	641

Basic earnings (loss) per common share	$	(0.01	)	$	0.05
Diluted earnings (loss) per common share	$	(0.01	)	$	0.05
Basic earnings (loss) per class B common share	$	(0.01	)	$	0.05
Diluted earnings (loss) per class B common share	$	(0.01	)	$	0.05

See accompanying notes to consolidated financial statements

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

(Unaudited)


	Three months ended
	March 31,
	2014			2013
Net income	$	757		$	929
Unrealized (loss) gain on available-for-sale securities:
Unrealized gain (loss) arising during the period, net of tax (expense) benefit of none and none, respectively		1,023			100
Reclassification adjustment for (gain) loss included in net income, net of tax (expense) benefit of none and none, respectively		(507	)		(308	)

Total change in unrealized loss (gain) on available-for-sale securities		516			(208	)
Unrealized gain on cash flow hedge
Unrealized gain (loss) arising during the period, net of tax (expense) benefit of none and none, respectively		(217	)		—

Total change in unrealized gain on cash flow hedge		(217	)		—
Total other comprehensive (loss) income, net of tax		299			(208	)

Comprehensive income	$	1,056		$	721

See accompanying notes to consolidated financial statements

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in thousands, except share and per share data)

(Unaudited)


	Preferred Stock						Common Stock				Additional Paid-			Retained			Treasury			Accumulated Other Comprehensive
	Series A		Series B		Series C		Class A		Class B		in Capital			Earnings			Stock			Income (Loss)			Total
Balance at December 31, 2012	$	31,934	$	—	$	—	$	120	$	11	$	154,563		$	26,550		$	(25,818	)	$	1,397		$	188,757
Comprehensive income (loss):
Net loss		—		—		—		—		—		—			929			—			—			929
Other comprehensive income, net		—		—		—		—		—		—			—			—			(208	)		(208	)
Purchase of 5,973 shares of treasury stocks		—		—		—		—		—		—			—			(32	)		—			(32	)
Stock option compensation expense		—		—		—		—		—		93			—			—			—			93
Restricted stock compensation expense		—		—		—		—		—		428			—			—						428
Issuance of stock awards		—		—		—		—		—		55			—			—						55
Dividends declared ($0.12 per common share)		—		—		—		—		—		—			(1,436	)		—			—			(1,436	)
Preferred stock dividends		—		—		—		—		—		—			(288	)		—			—			(288	)

Balance at March 31, 2013	$	31,934	$	—	$	—	$	120	$	11	$	155,139		$	25,755		$	(25,850	)	$	1,189		$	188,298

Balance at December 31, 2013	$	31,934	$	10,000	$	37,943	$	210	$	6	$	256,306		$	16,981		$	(27,911	)	$	(600	)	$	324,869
Comprehensive income:
Net income		—		—		—		—		—		—			757			—			—			757
Other comprehensive income, net		—		—		—		—		—		—			—			—			299			299
Issuance of common stock		—		—		—		1		—		999			—			—			—			1,000
Capital raise cost		—		—		—		—		—		(50	)		—			—			—			(50	)
Purchase of 7,562 shares of treasury stock		—		—		—		—		—		—			—			(97	)		—			(97	)
Exercise of stock options		—		—		—		—		—		757			—			—			—			757
Stock option compensation expense		—		—		—		—		—		99			—			—			—			99
Restricted stock compensation expense		—		—		—		—		—		824			—			—			—			824
Issuance of stock awards		—		—		—		—		—		—			—			—			—			—
Issuance of stock awards from treasury stock		—		—		—		—		—		(282	)		—			282			—			—
Shares purchased under the Dividend Reinvestment Plan		—		—		—		—		—		208			(202	)		—			—			6
Dividends declared ($0.12 per common share)		—		—		—		—		—		—			(2,228	)		—			—			(2,228	)
Preferred stock dividends		—		—		—		—		—		—			(910	)		—			—			(910	)

Balance at March 31, 2014	$	31,934	$	10,000	$	37,943	$	211	$	6	$	258,861		$	14,398		$	(27,726	)	$	(301	)	$	325,326

See accompanying notes to consolidated financial statements

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	Three months ended
	March 31,
	2014			2013
Cash flows from operating activities:
Net income	$	757		$	929
Adjustments to reconcile net income to net cash used in operating activities
Provision for loan losses		1,929			2,168
Provision for loan repurchases		571			256
Net gain on mortgage banking activities		(17,324	)		(16,370	)
Gain on sale of loans		(2,603	)		(312	)
Net amortization (accretion) of securities		229			572
Depreciation on premises and equipment		1,562			723
Amortization of intangibles		939			367
Amortization of debt issuance cost		96			96
Stock option compensation expense		99			93
Stock award compensation expense		824			428
Bank owned life insurance income		(47	)		(38	)
Operating loss on equity investment		174			159
Net (gain) loss on sale of securities available for sale		(507	)		(308	)
Loss on disposal of premises and equipment		119			—
Gain on sale of other real estate owned		—			(114	)
Gain on sale of property and equipment		—			(2	)
Increase in valuation allowances on other real estate owned		—			79
Originations of loans held for sale from mortgage banking		(511,451	)		(332,808	)
Originations of other loans held for sale		(373,002	)		—
Proceeds from sales of and principal collected on loans held for sale from mortgage banking		548,284			341,863
Proceeds from sales of and principal collected on other loans held for sale		93,407			—
Change in deferred loan (costs) fees		46			(207	)
Amortization of premiums and discounts on purchased loans		(10,436	)		(2,573	)
Change in accrued interest receivable		(96	)		(49	)
Change in other assets		3,005			478
Change in accrued interest payable and other liabilities		(4,502	)		1,047

Net cash used in operating activities		(267,927	)		(3,523	)
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale		50,973			8,064
Proceeds from maturities and calls of securities available-for-sale		2,754			3,639
Proceeds from principal repayments of securities available-for-sale		10,741			19,485
Purchases of securities available-for-sale		(1,177	)		(9,881	)
Net cash used in acquisitions		(1,000	)		—
Loan originations and principal collections, net		(16,352	)		(59,049	)
Purchase of loans		(2,093	)		(332,343	)
Purchase of Federal Home Loan Bank and Other Bank Stocks		(4,201	)		(2	)
Proceeds from sale of loans held for investment		51,813			20,045
Net change in time deposits in financial institutions		101			1,392
Proceeds from sale of other real estate owned		—			3,283
Additions to premises and equipment		(2,853	)		(2,269	)
Payments of capital lease obligations		(232	)		(43	)

Net cash provided by (used in) investing activities		88,474			(347,679	)

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)


	Three months ended
	March 31,
	2014			2013
Cash flows from financing activities:
Net increase in deposits		190,502			392,456
Net increase in Federal Home Loan Bank advances		145,000			(25,000	)
Net increase in federal funds sold		70,000			—
Capital raise cost		(50	)		—
Purchase of treasury stock		(97	)		(32	)
Proceeds from exercise of stock options		757			—
Issuance of stock awards		—			55
Dividends paid on preferred stock		(910	)		(288	)
Dividends paid on common stock		(2,228	)		(1,436	)

Net cash provided by financing activities		402,974			365,755

Net change in cash and cash equivalents		223,521			14,553
Cash and cash equivalents at beginning of year		110,118			108,643

Cash and cash equivalents at end of year	$	333,639		$	123,196

Supplemental cash flow information
Interest paid on deposits and borrowed funds	$	7,609		$	15,359
Income taxes paid		—			—
Supplemental disclosure of noncash activities
Transfer from loans to other real estate owned, net	$	150		$	—
Transfer of loans receivable to loans held for sale, net of transfer of $963 from allowance for loan and leases losses		59,137			—
Transfer of loans held for sale to loans receivable		6,984
Equipment acquired under capital leases		989			714

See accompanying notes to consolidated financial statements

BANC OF CALIFORNIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2014

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The accompanying unaudited consolidated financial statements include the accounts of Banc of California, Inc. (the Company, we, us and our) and its wholly owned subsidiaries, Banc of California, National Association (the Bank), the Palisades Group, LLC (the Palisades Group), and PTB Property Holdings, LLC, as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013, except that the accounts of the Palisades Group were not included for amounts for the three months ended March 31, 2013. Significant intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, all references to the Company include its wholly owned subsidiaries.

Nature of Operations: The principal business of the Company is the ownership of the Bank. The Bank operates under a national bank charter issued by the Office of the Comptroller of the Currency (the OCC), its primary regulator. The Bank is a member of the Federal Home Loan Bank (FHLB) system, and maintains insurance on deposit accounts with the Federal Deposit Insurance Corporation (FDIC). PTB Property Holdings, LLC manages and disposes of other real estate owned properties and the Palisades Group provides financial advisory and asset management services.

The Bank is engaged in the business of retail banking, with operations conducted through 16 banking offices, serving San Diego, Los Angeles, and Orange counties, California and 53 producing loan production offices in California, Arizona, Oregon, Montana, Virginia, North Carolina, Maryland and Washington as of March 31, 2014. As of March 31, 2014, single family residential (SFR) mortgage loans and Green loans (SFR mortgage lines of credit) accounted for approximately 42.4 percent and 6.0 percent, respectively, of the Company’s loan and lease portfolio, with a high percentage of such loans concentrated in Southern California. The customer’s ability to repay their loans or leases is dependent on the real estate market and general economic conditions in the area.

The accounting and reporting polices of the Company are based upon U.S. generally accepted accounting principles (GAAP) and conform to predominant practices within the banking industry. The Company has not made any significant changes in its critical accounting policies or in its estimates and assumptions from those disclosed in its 2013 Annual Report on Form 10-K other than the adoption of new accounting pronouncements and other authoritative guidance that became effective for the Company on or after January 1, 2014. Refer to Accounting Pronouncements for discussion of accounting pronouncements adopted in 2014.

Basis of Presentation: The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by GAAP are not included herein. These interim statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2013 filed by the Company with the Securities and Exchange Commission. The December 31, 2013 balance sheet presented herein has been derived from the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission, but does not include all of the disclosures required by GAAP.

In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial position and consolidated results of operations for the periods presented. Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation.

The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year.

Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ. The allowance for loan and lease losses, reserve for loss on repurchased loans, servicing rights, other real estate owned, realization of deferred tax assets, goodwill, other intangible assets, derivatives, fair value of assets and liabilities acquired in business combinations, and the fair value of financial instruments are particularly subject to change and such change could have a material effect on the consolidated financial statements.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance is established when necessary to reduce deferred tax assets when it is more-likely-than-not that a portion or all of the net deferred tax assets will not be realized. The Company had $17.0 million and $17.3 million of valuation allowance related to its deferred tax assets at March 31, 2014 and December 31, 2013, respectively (See further discussion in Note 11, Income Taxes).

Accounting Pronouncements: During the three months ended March 31, 2014, the following pronouncements applicable to the Company were issued or became effective:

In January 2014, the FASB issued guidance within ASU 2014-01, “Accounting for Investments in Qualified Affordable Housing Projects.” The amendments in ASU 2014-01 to Topic 323, “Equity Investments and Joint Ventures,” provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments permit 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 (benefit). The amendments are effective for fiscal years, and interim periods within those years, beginning after December 31, 2014 and should be applied retrospectively to all periods presented. Early adoption is permitted. All of the Company's affordable housing fund investments are within the scope of this guidance. The Company is in the process of evaluating the impact that adoption of this guidance may have on its consolidated financial statements.

In January 2014, the FASB issued ASU No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” ASU 2014-04 clarifies that an in substance repossession or foreclosure has occurred, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or 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. Interim and annual disclosure is required of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. ASU 2014-04 is effective using either the modified retrospective transition method or a prospective transition method for fiscal years and interim periods within those years, beginning after December 15, 2014, and early adoption is permitted. The Company is in the process of evaluating the impact that adoption of this guidance may have on its consolidated financial statements.

NOTE 2 – BUSINESS COMBINATIONS AND BRANCH SALES

The Company completed the following acquisitions during the time period between January 1, 2013 and March 31, 2014 and used the acquisition method of accounting. Accordingly, the operating results of the acquired entities have been included in the consolidated financial statements from their respective dates of acquisition. The following table presents a summary of acquired assets and assumed liabilities along with a summary of the acquisition consideration as of the dates of acquisition:


	Acquisition and Date Acquired
	Renovation				The Palisades		Private Bank
	Ready		CS Financial		Group, LLC		of California
	January 31,		October 31,		September 10,		July 1,
	2014		2013		2013		2013
	($ in thousands)
Assets acquired:
Cash and due from banks	$	—	$	482	$	900	$	33,752
Interest-bearing deposits		—		—		5		—
Federal funds sold		—		—		—		—
Securities available for sale		—		—		—		219,298
Loans held for sale		—		4,982		—		—
Loans and leases receivable		—		—		—		385,256
Federal Home Loan Bank and other bank stock, at cost		—		—		—		—
Servicing rights		—		—		—		—
Premises, equipment, and capital leases		—		1,050		—		1,501
Income tax receivable		—		—		—		682
Goodwill		3,000		8,057		—		14,763
Other intangible assets		—		—		—		10,400
Other assets		—		621		364		6,578

Total assets acquired	$	3,000	$	15,192	$	1,269	$	672,230

Liabilities assumed:
Deposits	$	—	$	—	$	—	$	561,689
Advances from Federal Home Loan Bank		—		—		—		41,833
Other liabilities		1,000		7,270		1,219		2,481

Total liabilities assumed	$	1,000	$	7,270	$	1,219	$	606,003

SBLF preferred stock assumed	$	—	$	—	$	—	$	10,000

Total consideration paid	$	2,000	$	7,922	$	50	$	56,227

Summary of consideration
Cash paid	$	1,000	$	1,500	$	50	$	27,915
Common stock issued	$	1,000	$	1,964	$	—	$	28,282
Replacement awards	$	—	$	—	$	—	$	30
Stock warrants issued	$	—	$	—	$	—	$	—
Noninterest-bearing note	$	—	$	3,150	$	—	$	—
Performance based equity	$	—	$	1,308	$	—	$	—
Earn-out liabilities	$	1,000	$	—	$	—	$	—

RenovationReady® Acquisition

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

The RenovationReady® acquisition was accounted for under GAAP guidance for business combinations. The purchased identifiable intangible assets and assumed liabilities were recorded at their estimated fair values as of January 31, 2014. Because of the short time period between the acquisition date and March 31, 2014, the Company used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The closing date valuations related to other intangible assets and assumed liabilities are preliminary and could differ significantly when finalized.

CS Financial Acquisition

Effective October 31, 2013, the Company acquired CS Financial, Inc. (CS Financial), a California corporation and Southern California-based mortgage banking firm controlled by former Company director and current Company executive Jeffery T. Seabold. CS Financial became a wholly owned subsidiary of the Bank. For additional information regarding this transaction, see note 18-Related-Party Transactions.

The CS Financial acquisition was accounted for under GAAP guidance for business combinations. The purchased assets, including identifiable intangible assets and assumed liabilities were recorded at their estimated fair values as of October 31, 2013. Because of the short time period between the acquisition date and March 31, 2014, the Company used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The closing date valuations related to loans, premises, equipment, capital leases, other intangible assets, other assets, and assumed liabilities are preliminary and could differ significantly when finalized.

The Palisades Group, LLC, Acquisition

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

The Palisades Group acquisition was accounted for under GAAP guidance for business combinations. The assets and liabilities were recorded at their estimated fair values as of the September 10, 2013 acquisition date. No goodwill was recognized.

The Private Bank of California Acquisition

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

Pursuant to the terms of the PBOC Merger Agreement, the Company paid aggregate merger consideration of (1) 2,082,654 shares of Company common stock (valued at $28.3 million based on the $13.58 per share closing price of Company common stock on July 1, 2013), and (2) $25.3 million in cash. Additionally, the Company paid out $2.7 million for certain outstanding options to acquire PBOC common stock in accordance with the PBOC Merger Agreement and converted the remaining outstanding PBOC stock options to the Company stock options with an assumed fair value of approximately $30 thousand. On the basis of the number of shares of PBOC common stock issued and outstanding immediately prior to the completion of the merger, each outstanding share of PBOC common stock was converted into the right to receive $6.52 in cash and 0.5379 shares of Company common stock.

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

PBOC provided a range of financial services, including credit and deposit products as well as cash management services, from its headquarters located in the Century City area of Los Angeles, California as well as full-service branches in Hollywood and Irvine, and a loan production office in downtown Los Angeles. PBOC’s target clients included high-net worth and high income individuals, business professionals and their professional service firms, business owners, entertainment service businesses and non-profit organizations.

In accordance with GAAP guidance for business combinations, the Company has expensed approximately $2.6 million of direct acquisition costs and recorded $14.8 million of goodwill and $10.4 million of other intangible assets. The other intangible assets are primarily related to core deposits and are being amortized on an accelerated basis over 2-7 years. Loans that were acquired from PBOC that were considered credit impaired were written down at the acquisition date in accordance with purchase accounting to fair value. In addition, the allowance for loan losses for all PBOC loans was not carried over to the Company’s allowance for loan and lease losses. A full valuation allowance for the deferred tax asset was recorded based on management’s evaluation of the expectation of recovery of deferred tax assets for the Company. For tax purposes purchase accounting adjustments, including goodwill are all nontaxable and/or non-deductible.

Pro Forma Information

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


	Three months ended
	March 31,
	2014 (Actual)			2013
	(In thousands, except per share data)
Net interest income	$	35,185		$	20,527
Provision for loan and lease losses		1,929			2,517
Noninterest income		25,278			24,610
Noninterest expense		57,768			39,425

Income (loss) before income taxes		766			3,195
Income tax expense (benefit)		9			1,318

Net income (loss)	$	757		$	1,877

Basic earnings (loss) per common share	$	(0.01	)	$	0.11
Diluted earnings (loss) per common share	$	(0.01	)	$	0.11

The above unaudited pro forma financial information for 2013 includes the pre-acquisition periods for PBOC, Palisades, and CS Financial. The above unaudited pro forma financial information includes pre-acquisition provisions for loan and lease losses recognized by PBOC and CS Financial of $349 thousand for the three months ended March 31, 2013. No pro forma information for RenovationReady is presented for the three months ended March 31, 2014, as it is immaterial. The above pro forma financial information for the three months ended March 31, 2013 does not include cost saves or integration costs and may not be reflective of what the actual results would have been for such period had the transactions occurred at the beginning of such period.

Branch Sales

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

NOTE 3 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair Value Hierarchy. ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The topic describes three levels of inputs that may be used to measure fair value:

•

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Securities Available for Sale. The fair values of securities available for sale are generally determined by quoted market prices, if available (Level 1), or by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). The fair values of the Company’s Level 3 securities are determined by the Company or an independent third-party provider using a discounted cash flow methodology. The methodology uses discount rates that are based upon observed market yields for similar securities. Prepayment speeds are estimated based upon the prepayment history of each bond and a detailed analysis of the underlying collateral. Gross weighted average coupon, geographic concentrations, loan to value, FICO and seasoning are among the different loan attributes that are factored into our prepayment curve. Default rates and severity are estimated based upon geography of the collateral, delinquency, modifications, loan to value ratios, FICO scores, and past performance.

Impaired Loans and Leases. The fair value of impaired loans and leases with specific allocations of the allowance for loan and lease losses based on collateral values is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Loans Held for Sale. The fair value of loans held for sale is based on commitments outstanding from investors as well as what secondary markets are currently offering for portfolios with similar characteristics. Therefore, loans held for sale subjected to recurring fair value adjustments are classified as Level 2. The Company had $169.2 million and $192.6 million of loans held for sale at such fair values at March 31, 2014 and December 31, 2013, respectively. The Company also had $831.2 million and $524.1 million of non-conforming jumbo mortgage loans held for sale at the lower of cost or fair value at March 31, 2014 and December 31, 2013, respectively. The Company obtains quotes, bid or pricing indications on all or part of these loans directly from the buyers. Premiums and discounts received or to be received on the quotes, bids or pricing indications are indicative of the fact that the cost is lower or higher than fair value.

Derivative Assets and Liabilities. The Company’s derivative assets and liabilities are carried at fair value as required by GAAP and are accounted for as freestanding derivatives. The Company has entered into pay-fixed, receive-variable interest rate swap contracts with institutional counterparties to hedge against variability in cash flow attributable to interest rate risk caused by changes in the LIBOR benchmark interest rate on the Company’s ongoing LIBOR-based variable rate deposits. The Company is accounting for the swaps as cash flow hedges under ASC 815. The other derivative assets are interest rate lock commitments (IRLCs) with prospective residential mortgage borrowers whereby the interest rate on the loan is locked by borrower prior to funding. These IRLCs are determined to be derivative instruments in accordance with GAAP. Additional derivative assets and liabilities, typically mortgage-backed to-be-announced (TBA) securities, are used to hedge fair value changes, driven by changes in interest rates, on the Company’s mortgage assets. The Company hedges the period from the interest rate lock (assuming a fall-out factor) to the date of the loan sale. The estimated fair value is based on current market prices for similar instruments. Given the meaningful level of secondary market activity for derivative contracts, active pricing is available for similar assets and accordingly, the Company classifies its derivative assets and liabilities as Level 2.

Servicing Rights – Mortgage. The Company retains servicing on some of its mortgage loans sold and elected the fair value option for valuation of these mortgage servicing rights (MSRs). The value is based on a third party provider that calculates the present value of the expected net servicing income from the portfolio based on key factors that include interest rates, prepayment assumptions, discount rate and estimated cash flows. Because of the significance of unobservable inputs, these servicing rights are classified as Level 3.

Other Real Estate Owned Assets. Other real estate owned assets (OREO) are recorded at the fair value less estimated costs to sell at the time of foreclosure. The fair value of other real estate owned assets is generally based on recent real estate appraisals adjusted for estimated selling costs. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and result in a Level 3 classification of the inputs for determining fair value. Only OREO with a valuation allowance are considered to be carried at fair value. For the three months ended March 31, 2014 and 2013, the Company experienced none and $79 thousand in valuation allowance expense for those assets, respectively.

Assets and Liabilities Measured on a Recurring and Non-Recurring Basis

Available-for-sale securities, certain conforming mortgage loans held for sale, derivative assets and liabilities, and servicing rights—mortgage are measured at fair value on a recurring basis, whereas impaired loans and leases, non-conforming jumbo mortgage loans held for sale and other real estate owned are measured at fair value on a non-recurring basis.

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated:


			Fair Value Measurements Level
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level One)		(Level Two)		(Level Three)
	(In thousands)
March 31, 2014:
Assets
Available-for-sale securities:
SBA loan pools securities	$	1,702	$	—	$	1,702	$	—
U.S. government-sponsored entities and agency securities		1,958		—		1,958		—
Private label residential mortgage-backed securities		5,067		—		5,067		—
Agency mortgage-backed securities		98,798		—		98,798		—
Loans held for sale		169,197		—		169,197		—
Derivative assets⁽¹⁾		4,469		—		4,469		—
Mortgage servicing rights⁽²⁾		18,553		—		10,146		8,407
Liabilities
Derivative liabilities ⁽³⁾		64		—		64		—
December 31, 2013:
Assets
Available-for-sale securities:
SBA loan pools securities	$	1,736	$	—	$	1,736	$	—
U.S. government-sponsored entities and agency securities		1,920		—		1,920		—
Private label residential mortgage-backed securities		14,752		—		14,752		—
Agency mortgage-backed securities		151,614		—		151,614		—
Loans held for sale		192,613		—		192,613		—
Derivative assets⁽¹⁾		5,493		—		5,493		—
Mortgage servicing rights⁽²⁾		13,535		—		—		13,535
Liabilities
Derivative liabilities ⁽³⁾		—		—		—		—

⁽¹⁾

Included in other assets on the consolidated statements of financial condition

⁽²⁾

Included in servicing rights, net and servicing rights held for sale on the consolidated statements of financial condition

⁽³⁾

Included in accrued expenses and other liabilities on the consolidated statements of financial condition

During the three months ended March 31, 2014, the Company entered into an agreement with a third party to sell servicing rights on mortgage loans with $941.1 million of outstanding unpaid principal balance at March 31, 2014 for a fair value of $10.1 million. The sale closed on April 1, 2014. The fair values on the sold MSRs are carried at the closing price of the transaction at March 31, 2014, therefore, we transferred the amount to Level 2. The Company will continue to be the interim servicer until later in the second quarter.

The following table presents the Company’s financial assets and liabilities measured at fair value on a non-recurring basis as of the dates indicated:


			Fair Value Measurements Level
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level One)		(Level Two)		(Level Three)
	(In thousands)
March 31, 2014:
Assets
Impaired loans:
Real estate 1-4 family first mortgage	$	10,160	$	—	$	3,094	$	7,066
Real estate mortgage		3,218		—		—		3,218
Multifamily		1,674		—		—		1,674
HELOC’s, home equity loans, and other consumer installment credit		212		—		212		—
Other real estate owned
Real estate 1-4 family first mortgage		150		—		150		—
December 31, 2013:
Assets
Impaired loans:
Real estate 1-4 family first mortgage	$	12,814	$	—	$	8,769	$	4,045
Real estate mortgage		3,868		—		105		3,763
Multifamily		1,972		—		—		1,972
HELOC’s, home equity loans, and other consumer installment credit		249		—		216		33
Commercial and industrial		33		—		—		33
SBA		10		—		—		10

The Company did not have any other real estate owned at December 31, 2013.

The following table presents the gains and (losses) recognized on assets measured at fair value on a non-recurring basis for the periods indicated:


	Three months ended
	March 31,
	2014			2013
	(In thousands)
Impaired loans:
Real estate 1-4 family first mortgage	$	(151	)	$	(124	)
Multifamily		—			(296	)
HELOC’s, home equity loans, and other consumer installment credit		(2	)		(2	)
Other real estate owned assets		—			35

The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods indicated:


	Private label
	residential			Mortgage
	mortgage-backed			Servicing
	securities			Rights			Total
	(In thousands)
Balance of recurring Level 3 assets at December 31, 2013	$	—		$	13,535		$	13,535
Transfers out of Level 3 ⁽¹⁾		—			(9,185	)		(9,185	)
Total gains or losses (realized/unrealized):
Included in earnings—realized		—			—			—
Included in earnings—fair value adjustment		—			315			315
Included in other comprehensive income		—			—			—
Amortization of premium (discount)		—			—			—
Additions		—			4,326			4,326
Sales and settlements		—			(584	)		(584	)

Balance of recurring Level 3 assets at March 31, 2014	$	—		$	8,407		$	8,407

Balance of recurring Level 3 assets at December 31, 2012	$	2,214		$	1,739		$	3,953
Transfers out of Level 3 ⁽¹⁾		—			—			—
Total gains or losses (realized/unrealized):
Included in earnings—realized		—			—			—
Included in earnings—fair value adjustment		—			25			25
Included in other comprehensive income		(1	)		—			(1	)
Amortization of premium (discount)		—			—			—
Additions		—			910			910
Sales and settlements		(294	)		(95	)		(389	)

Balance of recurring Level 3 assets at March 31, 2013	$	1,919		$	2,579		$	4,498

(1)

The Company’s policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstances that cause the transfer.

The following table presents quantitative information about Level 3 fair value measurements on a recurring basis as of the dates indicated:


	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	($ in thousands)
March 31, 2014:
Mortgage servicing rights	$	8,407	Discounted cash flow	Discount rate	10.00% to 17.89% (10.81%)
				Prepayment rate	3.92% to 34.54% (13.17%)
December 31, 2013:
Mortgage servicing rights	$	13,535	Discounted cash flow	Discount rate	10.00% to 17.94% (10.26%)
				Prepayment rate	4.19% to 34.54% (9.85%)

The significant unobservable inputs used in the fair value measurement of the Company’s servicing rights include the discount rate and estimated cash flows. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results.

The significant unobservable inputs used in the fair value measurement of the Company’s private label and agency residential mortgage backed securities are prepayment rates, collateral default rates, and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the collateral default rates is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

The following table presents the carrying amounts and estimated fair values of financial assets and liabilities as of the dates indicated:


	Carrying		Fair Value Measurements Level
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
March 31, 2014:
Financial assets
Cash and cash equivalents	$	333,639	$	333,639	$	—	$	—	$	333,639
Time deposits in financial institutions		1,745		1,745		—		—		1,745
Securities available-for-sale		107,525		—		107,525		—		107,525
FHLB and other bank stock		26,801		—		26,801		—		26,801
Loans held for sale		1,000,394		—		1,000,394		—		1,000,394
Loans and leases receivable, net of allowance		2,376,992		—		—		2,414,917		2,414,917
Accrued interest receivable		10,962		10,962		—		—		10,962
Derivative assets		4,469		—		4,469		—		4,469
Financial liabilities
Deposits		3,109,146		—		3,074,457		—		3,074,457
Advances from the FHLB		395,000		—		395,074		—		395,074
Federal funds purchased		70,000		70,000		—		—		70,000
Notes payable		82,416		86,615		—		—		86,615
Derivative liabilities		64		—		64		—		64
Accrued interest payable		1,628		1,628		—		—		1,628
December 31, 2013:
Financial assets
Cash and cash equivalents	$	110,118	$	110,118	$	—	$	—	$	110,118
Time deposits in financial institutions		1,846		1,846		—		—		1,846
Securities available-for-sale		170,022		—		170,022		—		170,022
FHLB and other bank stock		22,600		—		22,600		—		22,600
Loans held for sale		716,733		—		719,496		—		719,496
Loans and leases receivable, net of allowance		2,427,306		—		—		2,460,953		2,460,953
Accrued interest receivable		10,866		10,866		—		—		10,866
Derivative assets		5,493		—		5,493		—		5,493
Financial liabilities
Deposits		2,918,644		—		2,877,650		—		2,877,650
Advances from the FHLB		250,000		—		250,090		—		250,090
Notes payable		82,320		85,564		—		—		85,564
Derivative liabilities		—		—		—		—		—
Accrued interest payable		1,646		1,646		—		—		1,646

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, time deposits in financial institutions, and accrued interest receivable and payable. The methods for determining the fair values for securities available for sale, and derivatives assets and liabilities are described above. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of FHLB advances and long-term debt is based on current rates for similar financing, and therefore not indicative of an exit price. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. Carrying amount of federal funds purchased is the estimated fair value due to the short-term nature of this liability, as all outstanding federal funds purchased were over-night borrowings at March 31, 2014. The fair value of off-balance-sheet items is not considered material (or is based on the current fees or costs that would be charged to enter into or terminate such arrangements) and is not presented.

NOTE 4 – SECURITIES AVAILABLE FOR SALE

The following table presents the amortized cost and fair value of the available-for-sale investment securities portfolio and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) as of the dates indicated:


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(In thousands)
March 31, 2014:
Available-for-sale
SBA loan pools securities	$	1,749	$	—	$	(47	)	$	1,702
U.S. government-sponsored entities and agency securities		1,930		28		—			1,958
Private label residential mortgage-backed securities		5,086		10		(29	)		5,067
Agency mortgage-backed securities		99,731		31		(964	)		98,798

Total securities available for sale	$	108,496	$	69	$	(1,040	)	$	107,525

December 31, 2013:
Available-for-sale
SBA loan pools securities	$	1,794	$	—	$	(58	)	$	1,736
U.S. government-sponsored entities and agency securities		1,928		—		(8	)		1,920
Private label residential mortgage-backed securities		14,653		135		(36	)		14,752
Agency mortgage-backed securities		153,134		299		(1,819	)		151,614

Total securities available for sale	$	171,509	$	434	$	(1,921	)	$	170,022

The following table presents amortized cost and fair value of the available-for-sale securities portfolio by expected maturity. In the case of residential mortgage-backed securities and SBA loan pool securities, expected maturities may differ from contractual maturities because borrowers generally have the right to call or prepay obligations with or without call or prepayment penalties. For that reason, mortgage-backed securities and SBA loan pool securities are not included in the maturity categories.


	March 31, 2014
	Amortized
	Cost		Fair Value
	(In thousands)
Maturity:
Available-for-sale
Within one year	$	—	$	—
One to five years		—		—
Five to ten years		1,930		1,958
Greater than ten years		—		—
SBA loan pools, private label residential mortgage backed and agency mortgage-backed securities		106,566		105,567

Total	$	108,496	$	107,525

At March 31, 2014 and December 31, 2013, there were no holdings of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10 percent of shareholders’ equity.

The following table summarizes the investment securities with unrealized losses at March 31, 2014 and December 31, 2013, respectively, by security type and length of time in a continuous unrealized loss position:


	Less Than 12 Months					12 Months or Longer					Total
			Gross					Gross					Gross
			Unrealized			Fair		Unrealized			Fair		Unrealized
	Fair Value		Losses			Value		Losses			Value		Losses
	(In thousands)
March 31, 2014:
Available-for-sale
SBA loan pools securities	$	1,702	$	(47	)	$	—	$	—		$	1,702	$	(47	)
U.S. government-sponsored entities and agency securities		—		—			—		—			—		—
Private label residential mortgage-backed securities		1,219		(15	)		2,931		(14	)		4,150		(29	)
Agency mortgage-backed securities		86,795		(950	)		1,798		(14	)		88,593		(964	)

Total available-for-sale	$	89,716	$	(1,012	)	$	4,729	$	(28	)	$	94,445	$	(1,040	)

December 31, 2013:
Available-for-sale
SBA loan pools securities	$	1,736	$	(58	)	$	—	$	—		$	1,736	$	(58	)
U.S. government-sponsored entities and agency securities		1,920		(8	)		—		—			1,920		(8	)
Private label residential mortgage-backed securities		2,064		(11	)		3,913		(25	)		5,977		(36	)
Agency mortgage-backed securities		114,104		(1,790	)		1,821		(29	)		115,925		(1,819	)

Total available-for-sale	$	119,824	$	(1,867	)	$	5,734	$	(54	)	$	125,558	$	(1,921	)

The Company recorded no other-than-temporary impairment (OTTI) for securities available for sale for the three months ended March 31, 2014 and 2013.

At March 31, 2014, the Company’s securities available for sale portfolio consisted of 80 securities, 67 of which were in an unrealized loss position. The unrealized losses are related to an overall increase in interest rates and a decrease in prepayment speeds of the agency mortgage-backed securities.

The Company’s private label residential mortgage-backed securities in unrealized loss positions had fair values of $4.2 million with unrealized losses of $29 thousand at March 31, 2014. The Company’s agency residential mortgage-backed securities in unrealized loss positions had fair values of $88.6 million with unrealized losses of $964 thousand at March 31, 2014. The Company’s private label residential mortgage-backed securities in unrealized loss positions had fair values of $6.0 million with unrealized losses of $36 thousand at December 31, 2013. The Company’s agency residential mortgage-backed securities in unrealized loss positions had fair values of $115.9 million with unrealized losses of $1.8 million at December 31, 2013.

The Company monitors to ensure it has adequate credit support and as of March 31, 2014, the Company does not have the intent to sell these securities and it is not likely that it will be required to sell the securities before their anticipated recoveries. Of the Company’s $107.5 million securities portfolio, $107.3 million were rated AAA, AA or A, and $231 thousand were rated BBB based on the most recent credit rating from the rating agencies as of March 31, 2014. The Company considers the lowest credit rating for identification of potential OTTI.

NOTE 5 – LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The following table presents the balances in the Company’s loans and leases portfolio as of the dates indicated:


	Non-Traditional Mortgages (NTM)			Traditional Loans			Total NTM and Traditional Loans			Purchased Credit Impaired			Total Loans and Leases Receivable
	(In thousands)
March 31, 2014:
Commercial:
Commercial and industrial	$	—		$	297,646		$	297,646		$	1,538		$	299,184
Real estate mortgage		—			545,968			545,968			14,613			560,581
Multi-family		—			155,382			155,382			—			155,382
SBA		—			23,064			23,064			3,477			26,541
Construction		—			25,144			25,144			—			25,144
Lease financing		—			48,537			48,537			—			48,537
Consumer:
Real estate 1-4 family first mortgage		120,668			602,448			723,116			292,039			1,015,155
Green Loans (HELOC) - First Liens		143,708						143,708						143,708
Green Loans (HELOC) - Second Liens		4,921						4,921						4,921
Other HELOC's, home equity loans, and other consumer installment credit		113			115,973			116,086			1,756			117,842

Total Gross Loans	$	269,410		$	1,814,162		$	2,083,572		$	313,423		$	2,396,995

Percentage to total gross loans		11.2	%		75.7	%		86.9	%		13.1	%		100.0	%
Allowance for loan losses														(20,003	)

Loans and leases receivable, net													$	2,376,992

December 31, 2013:
Commercial:
Commercial and industrial	$	—		$	283,743		$	283,743		$	4,028		$	287,771
Real estate mortgage		—			514,869			514,869			15,014			529,883
Multi-family		—			141,580			141,580			—			141,580
SBA		—			23,740			23,740			3,688			27,428
Construction		—			24,933			24,933			—			24,933
Lease financing		—			31,949			31,949			—			31,949
Consumer:
Real estate 1-4 family first mortgage		156,490			667,526			824,016			314,820			1,138,836
Green Loans (HELOC) - First Liens		147,705			—			147,705			—			147,705
Green Loans (HELOC) - Second Liens		5,289			—			5,289			—			5,289
Other HELOC's, home equity loans, and other consumer installment credit		113			108,888			109,001			1,736			110,737

Total Gross Loans	$	309,597		$	1,797,228		$	2,106,825		$	339,286		$	2,446,111

Percentage to total gross loans		12.7	%		73.4	%		86.1	%		13.9	%		100.0	%
Allowance for loan losses														(18,805	)

Loans and leases receivable, net													$	2,427,306

Non Traditional Mortgage Loans

The Company’s non-traditional mortgage (NTM) portfolio is comprised of three interest only products: Green Account Loans (Green Loans), hybrid interest only fixed or adjustable rate mortgage (Interest Only) loans and a small number of additional loans with the potential for negative amortization. As of March 31, 2014 and December 31, 2013, the non-traditional mortgage loans totaled $269.4 million, or 11.2 percent of the total gross loan portfolio, and $309.6 million, or 12.7 percent of the total gross loan portfolio, respectively. Total NTM portfolio decreased by $40.2 million, or 13.0 percent, during the three months ended March 31, 2014.


	March 31, 2014								December 31, 2013
	Count		Amount			Percent			Count		Amount			Percent
	($ in thousands)
Green Loans (HELOC) - first liens		167	$	143,708			53.3	%		173	$	147,705			47.6	%
Interest-only - first liens		221		105,446			39.1	%		244		139,867			45.2	%
Negative amortization		35		15,222			5.7	%		37		16,623			5.4	%

Total NTM - first liens		423		264,376			98.1	%		454		304,195			98.2	%
Green Loans (HELOC) - second liens		20	$	4,921			1.8	%		23	$	5,289			1.7	%
Interest-only - second liens		1		113			0.1	%		1		113			0.1	%

Total NTM - second liens		21		5,034			1.9	%		24		5,402			1.8	%

Total NTM loans		444	$	269,410			100.0	%		478	$	309,597			100.0	%

Total gross loan portfolio			$	2,396,995							$	2,446,111
% of NTM to total gross loan portfolio				11.2	%							12.7	%

Green Loans

Green Loans are single family residential first and second mortgage lines of credit with a linked checking account that allows all types of deposits and withdrawals to be performed. The loans are generally interest only with a 15 year balloon payment due at maturity. At March 31, 2014, Green Loans totaled $148.6 million, a decrease of $4.4 million, or 2.9 percent from $153.0 million at December 31, 2013, primarily due to reductions in principal balance and payoffs. As of March 31, 2014 and December 31, 2013, $5.6 million and $5.7 million, respectively, of the Company’s Green Loans were non-performing. As a result of their unique payment feature, Green Loans possess higher credit risk due to the potential of negative amortization; however, management believes the risk is mitigated through the Company’s loan terms and underwriting standards, including its policies on loan-to-value ratios and the Company’s contractual ability to curtail loans when the value of underlying collateral declines. The Company discontinued origination of the Green Loan products in 2011.

Interest Only Loans

Interest only loans are primarily single family residential first mortgage loans with payment features that allow interest only payment in initial periods before converting to a fully amortizing loan. As of March 31, 2014, our interest only loans decreased by $34.4 million, or 24.6 percent, to $105.6 million from $140.0 million at December 31, 2013, primarily due to transfers to loans held for sale of $23.9 million and net amortization of $10.5 million. As of March 31, 2014 and December 31, 2013, $843 thousand and $752 thousand of the interest only loans were non-performing, respectively.

Loans with the Potential for Negative Amortization

Negative amortization loans decreased by $1.4 million, or 8.4 percent, to $15.2 million as of March 31, 2014 from $16.6 million as of December 31, 2013. The Company discontinued origination of negative amortization loans in 2007. As of March 31, 2014 and December 31, 2013, $983 thousand and $1.2 million of the loans that had the potential for negative amortization were non-performing, respectively. These loans pose a potentially higher credit risk because of the lack of principal amortization and potential for negative amortization; however, management believes the risk is mitigated through the loan terms and underwriting standards, including the Company’s policies on loan-to-value ratios.

Risk Management of Non-Traditional Mortgages

The Company has assessed that the most significant performance indicators for non-traditional mortgages are loan-to-value (LTV) and FICO scores. Accordingly, the Company manages credit risk in the NTM portfolio through semi-annual review of the loan portfolio that includes refreshing FICO scores on the Green Loans and home equity lines of credit, as needed in conjunction with portfolio management, and ordering third party automated valuation models. The loan review is designed to provide a method of identifying borrowers who may be experiencing financial difficulty before they actually fail to make a loan payment. Upon receipt of the updated FICO scores, an exception report is run to identify loans with a decrease in FICO of 10 percent or more and/or a resulting FICO of 620 or less. The loans are then further analyzed to determine if the risk rating should be downgraded which will increase the reserves the Company will establish for potential losses. A report of the semi-annual loan review is published and regularly monitored.

As these loans are revolving lines of credit, the Company, based on the loan agreement and loan covenants of the particular loan, as well as applicable rules and regulations, could suspend the borrowing privileges or reduce the credit limit at any time the Company reasonably believes that the borrower will be unable to fulfill their repayment obligations under the agreement or certain other conditions are met. In many cases, the decrease in FICO is the first red flag that the borrower may have difficulty in making their future payment obligations.

As a result, the Company proactively manages the portfolio by performing detailed analysis on its portfolio with emphasis on the NTM portfolio. The Company’s Internal Asset Review Committee (IARC) conducts meetings on at least a quarterly basis review the loans classified as special mention, substandard, or doubtful and determines whether suspension or reduction in credit limit is warranted. If the line has been suspended and the borrower would like to have their credit privileges reinstated, they would need to provide updated financials showing their ability to meet their payment obligations.

On the Interest Only loans, the Company projects future payment changes to determine if there will a material increase in required payment and then monitors the loans for possible delinquency. The individual loans are monitored for possible downgrading of risk rating, and trends within the portfolio are identified that could affect other interest only loans scheduled for payment changes in the near future.

Non Traditional Mortgage Performance Indicators

The following table presents the Company’s non-traditional one-to-four family residential mortgage Green Loans first lien portfolio at March 31, 2014 and December 31, 2013 by FICO scores:


	March 31, 2014							December 31, 2013							Changes
	Count		Amount		Percent			Count		Amount		Percent			Count			Amount			Percent
	($ in thousands)
FICO Score
800+		7	$	1,178		0.8	%		7	$	1,382		0.9	%		—		$	(204	)		-0.1	%
700-799		91		71,894		50.0	%		94		74,876		50.8	%		(3	)		(2,982	)		-0.8	%
600-699		43		41,985		29.2	%		44		42,739		28.9	%		(1	)		(754	)		0.3	%
<600		13		11,907		8.3	%		14		11,965		8.1	%		(1	)		(58	)		0.2	%
No FICO		13		16,744		11.7	%		14		16,743		11.3	%		(1	)		1			0.4	%

Totals		167	$	143,708		100.0	%		173	$	147,705		100.0	%		(6	)	$	(3,997	)		0.0	%

The Company updates FICO scores on a semi-annual basis, typically in second and fourth quarter or as needed in conjunction with proactive portfolio management. As such, the FICO scores did not materially change from December 31, 2013 to March 31, 2014, but the change during the quarter reflects loans that were paid off during the quarter.

Loan to Value

The table below represents the Company’s one-to-four SFR non-traditional mortgage first lien portfolio by LTV as of the dates indicated:


	Green							Interest-Only							Negative Amortization							Total
	Count		Amount		Percent			Count		Amount		Percent			Count		Amount		Percent			Count		Amount		Percent
	($ in thousands)
March 31, 2014:
LTV’s (1)
< 61		81	$	82,430		57.4	%		75	$	43,389		41.2	%		14	$	5,670		37.2	%		170	$	131,489		49.8	%
61-80		49		37,055		25.8	%		39		18,777		17.8	%		14		7,181		47.2	%		102		63,013		23.8	%
81-100		25		14,108		9.8	%		41		20,911		19.8	%		6		1,967		12.9	%		72		36,986		14.0	%
> 100		12		10,115		7.0	%		66		22,369		21.2	%		1		404		2.7	%		79		32,888		12.4	%

Totals		167	$	143,708		100.0	%		221	$	105,446		100.0	%		35	$	15,222		100.0	%		423	$	264,376		100.0	%

December 31, 2013:
LTV’s (1)
< 61		90	$	78,807		53.3	%		80	$	65,181		46.6	%		13	$	4,930		29.7	%		183	$	148,918		49.0	%
61-80		38		33,604		22.8	%		51		28,999		20.7	%		13		7,643		45.9	%		102		70,246		23.1	%
81-100		26		14,917		10.1	%		43		21,474		15.4	%		8		3,277		19.7	%		77		39,668		13.0	%
> 100		19		20,377		13.8	%		70		24,213		17.3	%		3		773		4.7	%		92		45,363		14.9	%

		173	$	147,705		100.0	%		244	$	139,867		100.0	%		37	$	16,623		100.0	%		454	$	304,195		100.0	%

(1)

LTV represents estimated current loan to value ratio, determined by dividing current unpaid principal balance by latest estimated property value received per the Company’s policy

The decrease in interest only was primarily due to transfers to loans held for sales, and reductions in principal balance and payoffs. The Company updates LTV on a semi-annual basis, typically in second and fourth quarter or as needed in conjunction with proactive portfolio management. As such, the LTV did not materially change from December 31, 2013 to March 31, 2014, but the change during the quarter reflects loans that were paid off during the quarter.

Allowance for Loan and Lease Losses

The Company has an established credit risk management process that includes regular management review of the loan and lease portfolio to identify problem loans and leases. During the ordinary course of business, management becomes aware of borrowers and lessees that may not be able to meet the contractual requirements of the loan and lease agreements. Such loans and leases are subject to increased monitoring. Consideration is given to placing the loan or lease on non-accrual status, assessing the need for additional allowance for loan and lease losses, and partial or full charge-off. The Company maintains the allowance for loan and lease losses at a level that is considered adequate to cover the estimated and known inherent risks in the loan portfolio.

The Company also maintains a reserve for unfunded loan commitments at a level that is considered adequate to cover the estimated and known inherent risks. The probability of usage of the unfunded loan commitments and credit risk factors determined based on outstanding loan balance of same customer or outstanding loans that shares similar credit risk exposure are used to determine the adequacy of the reserve. As of March 31, 2014 and December 31, 2013, the reserve for unfunded loan commitments was $1.6 million and $1.4 million, respectively.

The credit risk monitoring system is designed to identify impaired and potential problem loans, and to permit periodic evaluation of impairment and the adequacy level of the allowance for credit losses in a timely manner. In addition, the Board of Directors of the Bank has adopted a credit policy that includes a credit review and control system which it believes should be effective in ensuring that the Company maintains an adequate allowance for credit losses. The Board of Directors provides oversight and guidance for management’s allowance evaluation process, including quarterly valuations, and consideration of management’s determination of whether the allowance is adequate to absorb losses in the loan and lease portfolio. The determination of the amount of the allowance for loan and lease losses and the provision for loan and lease losses is based on management’s current judgment about the credit quality of the loan and lease portfolio and takes into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for loan and lease losses. The nature of the process by which the Company determines the appropriate allowance for loan and lease losses requires the exercise of considerable judgment. Additions to the allowance for loan and lease losses are made by charges to the provision for loan and lease losses. Identified credit exposures that are determined to be uncollectible are charged against the allowance for loan and lease losses. Recoveries of previously charged off amounts, if any, are credited to the allowance for loan and lease losses.

The following table presents a summary of activity in the allowance for loan and lease losses and ending balances of loans evaluated for impairment for the periods indicated:


	Three months ended
	March 31,
	2014			2013
	(In thousands)
Balance at beginning of year	$	18,805		$	14,448
Loans and leases charged off		(203	)		(906	)
Recoveries of loans and leases previously charged off		435			305
Transfer of loans to held-for-sale		(963	)		—
Provision for loan and lease losses		1,929			2,168

Balance at end of year	$	20,003		$	16,015

The following table presents the activity and balance in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment and is based on the impairment method as of or for the periods ended dates indicated:


																				HELOC’s,
																				Home Equity
																	Real Estate			Loans, and
	Commercial		Commercial														1-4 family			Other
	and		Real Estate			Multi-								Lease			First			Consumer
	Industrial		Mortgage			Family			SBA			Construction		Financing			Mortgage			Credit			Unallocated			TOTAL
	(In thousands)
March 31, 2014:
Allowance for loan and lease losses:
Balance as of December 31, 2012	$	1,822	$	5,484		$	2,566		$	235		$	244	$	428		$	7,044		$	532		$	450		$	18,805
Charge-offs		—		—			—			(17	)		—		—			(151	)		(35	)		—			(203	)
Recoveries		26		316			—			92			—		—			—			1			—			435
Transfer of loans to held-for-sale		—		—			—			—			—		—			(963	)		—			—			(963	)
Provision		519		649			154			(99	)		108		194			217			284			(97	)		1,929

Balance as of December 31, 2013	$	2,367	$	6,449		$	2,720		$	211		$	352	$	622		$	6,147		$	782		$	353		$	20,003

Individually evaluated for impairment	$	—	$	—		$	37		$	—		$	—	$	—		$	25		$	—		$	—		$	62
Collectively evaluated for impairment		2,367		6,449			2,683			211			352		622			5,926			782			353			19,745
Acquired with deteriorated credit quality		—		—			—			—			—		—			196			—			—			196

Total ending allowance balance	$	2,367	$	6,449		$	2,720		$	211		$	352	$	622		$	6,147		$	782		$	353		$	20,003

Loans:
Individually evaluated for impairment	$	—	$	3,218		$	1,674		$	—		$	—	$	—		$	10,160		$	212		$	—		$	15,264
Collectively evaluated for impairment		297,646		542,750			153,708			23,064			25,144		48,537			856,664			120,795			—			2,068,308
Acquired with deteriorated credit quality		1,538		14,613			—			3,477			—		—			292,039			1,756			—			313,423

Total ending loan balances	$	299,184	$	560,581		$	155,382		$	26,541		$	25,144	$	48,537		$	1,158,863		$	122,763		$	—		$	2,396,995

March 31, 2013:
Allowance for loan and lease losses:
Balance as of December 31, 2012	$	263	$	3,178		$	1,478		$	118		$	21	$	261		$	8,855		$	274		$	—		$	14,448
Charge-offs		—		(105	)		(384	)		(125	)		—		(23	)		(262	)		(7	)		—			(906	)
Recoveries		—		—			88			125			—		2			90			—			—			305
Provision		218		625			362			15			273		23			529			(70	)		193			2,168

Balance as of March 31, 2013	$	481	$	3,698		$	1,544		$	133		$	294	$	263		$	9,212		$	197		$	193		$	16,015

Individually evaluated for impairment	$	—	$	38		$	329		$	—		$	—	$	—		$	1,095		$	—					$	1,462
Collectively evaluated for impairment		481		3,636			1,215			133			294		263			7,902			197			193			14,314
Acquired with deteriorated credit quality				24														215									239

Total ending allowance balance	$	481	$	3,698		$	1,544		$	133		$	294	$	263		$	9,212		$	197		$	193		$	16,015

Loans:
Individually evaluated for impairment	$	—	$	2,511		$	2,336		$	—		$	—	$	—		$	17,062		$	—					$	21,909
Collectively evaluated for impairment		74,564		307,338			123,329			30,329			6,831		16,418			806,197			21,901						1,386,907
Acquired with deteriorated credit quality		4,781		21,616			838