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SALES OF SUBSIDIARY AND BUSINESS UNITS | 9 Months Ended
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Sep. 30, 2017
Discontinued Operations and Disposal Groups [Abstract] |
SALES OF SUBSIDIARY AND BUSINESS UNITS | SALES OF SUBSIDIARY AND BUSINESS UNITS The Palisades Group Sale On May 5, 2016, the Company completed the sale of all of its membership interests in The Palisades Group, a wholly owned subsidiary of the Company, to an entity wholly owned by Stephen Kirch and Jack Macdowell, the then-acting Chief Executive Officer and Chief Investment Officer of The Palisades Group, respectively. As part of the sale, The Palisades Group issued to the Company a 10 percent, $5.0 million note due May 5, 2018 (the Note). The Company recognized a gain on sale of subsidiary of $3.7 million on its Consolidated Statements of Operations for the three months ended June 30, 2016. The following table summarizes the calculation of the gain on sale of The Palisades Group:
| Three Months Ended June 30, 2016
| (In thousands)
Consideration received (paid) |
Liabilities forgiven by The Palisades Group | $ | 1,862 |
Liabilities assumed by the Company | (1,078 | )
The Note | 2,370 |
Aggregate fair value of consideration received | 3,154 |
Less: net assets sold (carrying amount of The Palisades Group) | (540 | )
Gain on sale of The Palisades Group | $ | 3,694 |
The Company estimated various potential future cash flow projection scenarios for The Palisades Group and established probability thresholds for each scenario to arrive at a probability-weighted cash flow expectation, which was then discounted to yield a fair value of the Note at sale date of $2.4 million. On September 28, 2016, the Note was paid in full in cash prior to maturity and the Company recognized an additional gain of $2.8 million, which was included in Other Income in the Consolidated Statements of Operations for the three months ended September 30, 2016. Commercial Equipment Finance Business Sale On October 27, 2016, the Company sold its Commercial Equipment Finance business unit from its Commercial Banking segment to Hanmi Bank, a wholly-owned subsidiary of Hanmi Financial Corporation (Hanmi). As part of the transaction, Hanmi acquired $217.2 million of equipment leases diversified across the U.S. with concentrations in California, Georgia and Texas. An additional $25.4 million of equipment leases were transferred during December 2016. Hanmi retained most of the Company’s former Commercial Equipment Finance employees. The Company recorded a gain on sale of business unit of $2.6 million in its Consolidated Statements of Operations for the three months ended December 31, 2016. Banc Home Loans Sale On March 30, 2017, the Company completed the sale of specific assets and activities related to its Banc Home Loans division to Caliber Home Loans, Inc. (Caliber). The Banc Home Loans division largely represented the Company's Mortgage Banking segment, the activities of which related to originating, servicing, underwriting, funding and selling residential mortgage loans. Assets sold to Caliber included mortgage servicing rights (MSRs) on certain conventional agency residential mortgage loans. The Banc Home Loans division, along with certain other mortgage banking related assets and liabilities that will be sold or settled separately within one year, is classified as discontinued operations in the accompanying Consolidated Statements of Financial Condition and Consolidated Statements of Operations. Certain components of the Company’s Mortgage Banking segment, including MSRs on certain conventional government single family residential (SFR) mortgage loans that were not sold as part of the Banc Home Loans sale and the repurchase reserves related to previously sold loans, have been classified as continuing operations in the financial statements as they will continue to be part of the Company’s ongoing operations. The specific assets acquired by Caliber include, among other things, the leases relating to the Company’s dedicated mortgage loan origination offices and rights to certain portions of the Company’s unlocked pipeline of residential mortgage loan applications. Caliber has assumed certain obligations and liabilities of the Company under the acquired leases, and with respect to the employment of transferred employees. The Company received a $25.0 million cash premium payment, in addition to the net book value of certain assets acquired by Caliber, totaling $2.5 million, upon closing of the transaction. Additionally, the Company could receive an earn-out, payable quarterly, based on future performance over the 38 months following completion of the transaction. During the six months ended September 30, 2017 subsequent to the completion of Banc Home Loan sale on March 30, 2017, the Company recognized an earn-out of $228 thousand in Income (loss) from Discontinued Operations in the Consolidated Statements of Operations. Caliber retains an option to buy out the future earn-out payable to the Company in exchange for cash consideration of $35.0 million, less the aggregate amount of all earn-out payments made prior to the date on which Caliber makes the payment of the buyout amount. Caliber also purchased the MSRs of $37.8 million on approximately $3.86 billion in unpaid balances of conventional agency mortgage loans, subject to adjustment under certain circumstances. The entire transaction resulted in a net gain on disposal of $13.7 million. The Banc Home Loans division originated conforming SFR mortgage loans and sold these loans in the secondary market. The amount of net revenue on mortgage banking activities was a function of mortgage loans originated for sale and the fair values of these loans and related derivatives. Net revenue on mortgage banking activities included mark to market pricing adjustments on loan commitments and forward sales contracts, and initial capitalized value of MSRs. The following table summarizes the calculation of the net gain on disposal of discontinued operations:
| Nine Months Ended September 30, 2017
| (In thousands)
Proceeds from the transaction | $ | 63,054 |
Compensation expense related to the transaction | (3,500 | )
Other transaction costs | (3,478 | )
Net cash proceeds | 56,076 |
Book value of certain assets sold | (2,455 | )
Book value of MSRs sold | (37,772 | )
Goodwill | (2,100 | )
Net gain on disposal | $ | 13,749 |
The following tables present the financial information of discontinued operations as of the dates or for the periods indicated: Statements of Financial Condition of Discontinued Operations
| September 30, 2017 |  | December 31, 2016
| (In thousands)
ASSETS |  |  |
Loans held-for-sale, carried at fair value (1) | $ | 58,954 |  |  | $ | 406,338 |
Loans held-for-sale, carried at lower of cost or fair value | — |  |  | 295 |
Servicing rights carried at fair value | — |  |  | 37,681 |
Premises, equipment, and capital leases, net | — |  |  | 2,700 |
Goodwill | — |  |  | 2,100 |
Other assets | 621 |  |  | 33,380 |
Assets of discontinued operations | $ | 59,575 |  |  | $ | 482,494 |
LIABILITIES |  |  |
Accrued expenses and other liabilities (1) | $ | 12,500 |  |  | $ | 34,480 |
Liabilities of discontinued operations | $ | 12,500 |  |  | $ | 34,480 |
(1) | Includes $8.4 million and $16.5 million of GNMA loans, respectively, that are delinquent more than 90 days and subject to a repurchase option by the Company at September 30, 2017 and December 31, 2016. As such, the Company is deemed to have regained control over those previously transferred assets and has re-recognized them with an offsetting liability recognized in Accrued Expenses and Other Liabilities in the Statements of Financial Condition of Discontinued Operations, as a secured borrowing. Because the Company intends to exercise its option to repurchase and sell them within one year, they have been classified as part of discontinued operations.
Statements of Operations of Discontinued Operations
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2017 |  | 2016 |  | 2017 |  | 2016
| (In thousands)
Interest income |  |  |  |  |  |  |
Loans, including fees | $ | 917 |  |  | $ | 4,113 |  |  | $ | 6,979 |  |  | $ | 11,002 |
Total interest income | 917 |  |  | 4,113 |  |  | 6,979 |  |  | 11,002 |
Noninterest income |  |  |  |  |  |  |
Net gain on disposal | 211 |  |  | — |  |  | 13,749 |  |  | — |
Loan servicing income (loss) | — |  |  | 2,022 |  |  | 1,551 |  |  | (2,473 | )
Net revenue on mortgage banking activities | 13 |  |  | 50,159 |  |  | 43,083 |  |  | 127,638 |
Loan brokerage income | 6 |  |  | 86 |  |  | 164 |  |  | 97 |
All other income | 232 |  |  | 333 |  |  | 826 |  |  | 805 |
Total noninterest income | 462 |  |  | 52,600 |  |  | 59,373 |  |  | 126,067 |
Noninterest expense |  |  |  |  |  |  |
Salaries and employee benefits | 416 |  |  | 30,900 |  |  | 38,384 |  |  | 82,891 |
Occupancy and equipment | 359 |  |  | 2,692 |  |  | 3,754 |  |  | 8,377 |
Professional fees | 270 |  |  | 250 |  |  | 2,462 |  |  | 896 |
Outside Service Fees | 567 |  |  | 1,517 |  |  | 6,180 |  |  | 4,121 |
Data processing | 141 |  |  | 725 |  |  | 668 |  |  | 1,915 |
Advertising | 75 |  |  | 958 |  |  | 1,357 |  |  | 2,976 |
Restructuring expense | 279 |  |  | — |  |  | 3,794 |  |  | — |
All other expenses | 1,230 |  |  | 1,097 |  |  | 3,354 |  |  | 1,941 |
Total noninterest expense | 3,337 |  |  | 38,139 |  |  | 59,953 |  |  | 103,117 |
Income (loss) from discontinued operations before income taxes | (1,958 | ) |  | 18,574 |  |  | 6,399 |  |  | 33,952 |
Income tax (benefit) expense | (799 | ) |  | 7,816 |  |  | 2,614 |  |  | 14,045 |
Income (loss) from discontinued operations | $ | (1,159 | ) |  | $ | 10,758 |  |  | $ | 3,785 |  |  | $ | 19,907 |
Statements of Cash Flows of Discontinued Operations
| Nine Months Ended September 30,
| 2017 |  | 2016
| (In thousands)
Net cash provided by (used in) operating activities | $ | 348,648 |  |  | $ | (111,263 | )
Net cash provided by investing activities | 56,076 |  |  | — |
Net cash provided by (used in) discontinued operations | $ | 404,724 |  |  | $ | (111,263 | )

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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