SALES OF BRANCH, SUBSIDIARY AND BUSINESS UNITS

Branch Sale

On September 25, 2015, the Company sold two branches and certain related assets and deposit liabilities to AUB. The transaction included a transfer of $46.9 million of deposits to AUB. Additionally, as part of the transaction, the leases related to both branch locations were assumed by AUB. The Company recognized a gain of $163 thousand from this transaction, which is included in Other Income on the Consolidated Statements of Operations for the year ended December 31, 2015.

The Company also sold certain loans of $40.2 million to AUB as part of the transaction. The Company recognized a gain of $644 thousand from the sale of these loans, which is included in Net Gain on Sale of Loans on the Consolidated Statements of Operations for the year ended December 31, 2015.

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 who serve as the 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 Company recognized a gain on sale of subsidiary of $3.7 million on its Consolidated Statements of Operations for the year ended December 31, 2016.

The following table summarizes the calculation of the gain on sale of The Palisades Group recognized:



($ in thousands)	Year Ended December 31, 2016
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 is included in Other Income on the Consolidated Statements of Operations for the year ended December 31, 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. 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 during the year 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. 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 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 SFR mortgage loans that were not sold as part of the Banc Home Loans sale and repurchase reserves related to previously sold loans, have been classified as continuing operations in the financial statements as they remain 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 the 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 nine months ended December 31, 2017 subsequent to the completion of Banc Home Loan sale on March 30, 2017, the Company recognized an earn-out of $1.1 million in Income from Discontinued Operations on the Consolidated Statements of Operations.

Caliber retains an option to buy out the future earn-out payable to the Company for cash consideration of $35.0 million, less the aggregate amount of all earn-out payments made prior to the date on which Caliber pays 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 $13.8 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:



($ in thousands)	Year Ended December 31, 2017
Proceeds from the transaction	$	63,054
Compensation expense related to the transaction	(3,500		)
Other transaction costs	(3,431		)
Net cash proceeds	56,123
Book value of certain assets sold	(2,455		)
Book value of MSRs sold	(37,772		)
Goodwill	(2,100		)
Net gain on disposal	$	13,796

The following tables present the financial information of discontinued operations as of the dates and for the periods indicated:

Statements of Financial Condition of Discontinued Operations



	December 31,
($ in thousands)	2017		2016
ASSETS
Loans held-for-sale, carried at fair value ⁽¹⁾	$	38,696	$	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	204		33,380
Assets of discontinued operations	$	38,900	$	482,494
LIABILITIES
Accrued expenses and other liabilities ⁽¹⁾	$	7,819	$	34,480
Liabilities of discontinued operations	$	7,819	$	34,480

(1)

Includes $7.1 million and $16.5 million of GNMA loans, respectively, that were delinquent more than 90 days and subject to a repurchase option by the Company at December 31, 2017 and 2016, respectively. 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



	Year Ended December 31,
($ in thousands)	2017		2016		2015
Interest income
Loans, including fees	$	7,052	$	15,128	$	12,531
Total interest income	7,052		15,128		12,531
Noninterest income
Net gain on disposal	13,796		—		—
Loan servicing income	1,551		4,752		1,568
Net revenue on mortgage banking activities	42,889		167,024		144,685
Loan brokerage income	164		268		315
All other income	1,707		1,206		(2,097		)
Total noninterest income	60,107		173,250		144,471
Noninterest expense
Salaries and employee benefits	38,374		111,771		98,269
Occupancy and equipment	3,964		10,972		11,040
Professional fees	2,546		920		693
Outside Service Fees	5,625		6,063		4,383
Data processing	687		2,522		2,173
Advertising	1,357		3,846		2,689
Restructuring expense	3,794		—		—
All other expenses	3,648		3,367		2,655
Total noninterest expense	59,995		139,461		121,902
Income from discontinued operations before income taxes	7,164		48,917		35,100
Income tax expense	2,929		20,241		14,146
Income (loss) from discontinued operations	$	4,235	$	28,676	$	20,954

Statements of Cash Flows of Discontinued Operations



	Year Ended December 31,
($ in thousands)	2017		2016			2015
Net cash provided by (used in) operating activities	$	365,045	$	(19,757	)	$	(80,100	)
Net cash provided by investing activities	56,123		—			—
Net cash provided by (used in) discontinued operations	$	421,168	$	(19,757	)	$	(80,100	)