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SALE OF BUSINESS UNIT (DISCONTINUED OPERATIONS) | 9 Months Ended
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Sep. 30, 2018
Discontinued Operations and Disposal Groups [Abstract] |
SALE OF BUSINESS UNIT (DISCONTINUED OPERATIONS) | SALE OF BUSINESS UNIT (DISCONTINUED OPERATIONS) 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 single family residential (SFR) mortgage loans. Assets sold to Caliber included mortgage servicing rights (MSRs) on certain conventional agency SFR mortgage loans. The Banc Home Loans division, along with certain other mortgage banking related assets and liabilities that were 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 agency 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 a cash payment for the net book value of certain assets acquired by Caliber, totaling $2.5 million, upon the closing of the transaction. Additionally, the Company is entitled to receive an earn-out, payable quarterly, based on performance over the 38 months following completion of the transaction. During the three and nine months ended September 30, 2018, the Company recognized an earn-out of $786 thousand and $2.2 million, respectively. During the three and nine months ended September 30, 2017, the Company recognized an earn-out of $228 thousand. Since the completion of the transaction, the Company has recognized a total earn-out of $3.3 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 MSRs of $37.8 million on approximately $3.86 billion in unpaid balances of conventional agency mortgage loans, subject to adjustment under certain circumstances. During the three and nine months ended September 30, 2018, the Company recorded $0 and $1.3 million, respectively, to net gain on disposal of discontinued operations included in Income from discontinued operations before income taxes in the Consolidated Statements of Operations. Net gain on disposal of discontinued operations recognized in the first half of 2018 was primarily the result of the release of $1.0 million in liability for estimated discretionary incentive compensation payments to certain employees transferred to Caliber as the amount paid was less than the accrued liability. To date, the entire transaction has resulted in a net gain on disposal of $15.1 million. The following table summarizes the calculation of the net gain on disposal of discontinued operations:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  | Total Net Gain on Disposal After Completion of Sale
($ in thousands) |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Proceeds from the transaction |  | $ | — |  |  | $ | (14 | ) |  | $ | — |  |  | $ | 63,054 |  |  | $ | 63,054 |
Compensation expense related to the transaction |  | — |  |  | — |  |  | 1,003 |  |  | (3,500 | ) |  | (2,497 | )
Other transaction costs |  | — |  |  | 225 |  |  | 272 |  |  | (3,478 | ) |  | (3,159 | )
Net cash proceeds |  | — |  |  | 211 |  |  | 1,275 |  |  | 56,076 |  |  | 57,398 |
Book value of certain assets sold |  | — |  |  | — |  |  | — |  |  | (2,455 | ) |  | (2,455 | )
Book value of MSRs sold |  | — |  |  | — |  |  | — |  |  | (37,772 | ) |  | (37,772 | )
Goodwill |  | — |  |  | — |  |  | — |  |  | (2,100 | ) |  | (2,100 | )
Net gain on disposal |  | $ | — |  |  | $ | 211 |  |  | $ | 1,275 |  |  | $ | 13,749 |  |  | $ | 15,071 |
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 tables present the financial information of discontinued operations as of the dates or for the periods indicated: Statements of Financial Condition of Discontinued Operations
($ in thousands) |  | September 30, 2018 |  | December 31, 2017
ASSETS |  |  |  |
Loans held-for-sale, carried at fair value (1) (2) |  | $ | 20,290 |  |  | $ | 38,696 |
Other assets |  | — |  |  | 204 |
Assets of discontinued operations |  | $ | 20,290 |  |  | $ | 38,900 |
LIABILITIES |  |  |  |
Accrued expenses and other liabilities (1) |  | $ | — |  |  | $ | 7,819 |
Liabilities of discontinued operations |  | $ | — |  |  | $ | 7,819 |
(1) | Includes $0 and $7.1 million of loans sold to Government National Mortgage Association (GNMA) that were delinquent more than 90 days and subject to a repurchase option by the Company at September 30, 2018 and December 31, 2017, respectively. As such, the Company was deemed to have regained control over those previously transferred assets and has re-recognized them with an offsetting liability 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.
(2) | Includes $9.3 million and $24.1 million of non-performing loans at September 30, 2018 and December 31, 2017.
Statements of Operations of Discontinued Operations
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in thousands) |  | 2018 |  | 2017 |  | 2018 |  | 2017
Interest income |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 130 |  |  | $ | 917 |  |  | $ | 505 |  |  | $ | 6,979 |
Total interest income |  | 130 |  |  | 917 |  |  | 505 |  |  | 6,979 |
Noninterest income |  |  |  |  |  |  |  |
Net gain on disposal |  | — |  |  | 211 |  |  | 1,275 |  |  | 13,749 |
Loan servicing income |  | — |  |  | — |  |  | — |  |  | 1,551 |
Net revenue from mortgage banking activities |  | 108 |  |  | 13 |  |  | 396 |  |  | 43,083 |
All other income |  | 786 |  |  | 238 |  |  | 2,200 |  |  | 990 |
Total noninterest income |  | 894 |  |  | 462 |  |  | 3,871 |  |  | 59,373 |
Noninterest expense |  |  |  |  |  |  |  |
Salaries and employee benefits |  | 5 |  |  | 416 |  |  | 20 |  |  | 38,384 |
Occupancy and equipment |  | — |  |  | 359 |  |  | — |  |  | 3,754 |
Professional fees |  | — |  |  | 270 |  |  | — |  |  | 2,462 |
Outside Service Fees |  | — |  |  | 567 |  |  | — |  |  | 6,180 |
Data processing |  | — |  |  | 141 |  |  | — |  |  | 668 |
Advertising |  | — |  |  | 75 |  |  | — |  |  | 1,357 |
Restructuring expense |  | — |  |  | 279 |  |  | — |  |  | 3,794 |
All other expenses |  | 95 |  |  | 1,230 |  |  | 107 |  |  | 3,354 |
Total noninterest expense |  | 100 |  |  | 3,337 |  |  | 127 |  |  | 59,953 |
Income (loss) from discontinued operations before income taxes |  | 924 |  |  | (1,958 | ) |  | 4,249 |  |  | 6,399 |
Income tax expense (benefit) |  | 256 |  |  | (799 | ) |  | 1,171 |  |  | 2,614 |
Income (loss) from discontinued operations |  | $ | 668 |  |  | $ | (1,159 | ) |  | $ | 3,078 |  |  | $ | 3,785 |
Statements of Cash Flows of Discontinued Operations
|  | Nine Months Ended September 30,
($ in thousands) |  | 2018 |  | 2017
Net cash provided by operating activities |  | $ | 13,869 |  |  | $ | 348,648 |
Net cash provided by investing activities |  | — |  |  | 56,076 |
Net cash provided by discontinued operations |  | $ | 13,869 |  |  | $ | 404,724 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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