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SALES OF BRANCH, SUBSIDIARY AND BUSINESS UNITS | 12 Months Ended
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Dec. 31, 2018
Discontinued Operations and Disposal Groups [Abstract] |
SALES OF BRANCH, SUBSIDIARY AND BUSINESS UNITS | SALES OF BRANCH, 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 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 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 consolidated 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 year ended December 31, 2018 and 2017, the Company recognized an earn-out of $2.8 million and $1.1 million, respectively. Since the completion of the transaction, the Company has recognized a total earn-out of $4.0 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. During the year ended December 31, 2018 and 2017, the Company recorded $1.4 million and $13.8 million, respectively, to net gain on disposal of discontinued 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. During the two years ended December 31, 2018, the entire transaction has resulted in a net gain on disposal of $15.2 million. The Banc Home Loans division originated conforming SFR mortgage loans and sold these loans in the secondary market. The amount of net revenue on mortgage banking activities was a function of mortgage loans originated for sale and the fair values of these loans and related derivatives. Net revenue on mortgage banking activities included mark to market pricing adjustments on loan commitments and forward sales contracts, and initial capitalized value of MSRs. The following table summarizes the calculation of the net gain on disposal of discontinued operations:
|  | Year Ended December, 31 |  |
($ in thousands) |  | 2018 |  | 2017 |  | Total Net Gain on Disposal After Completion of Sale
Proceeds from the transaction |  | $ | — |  |  | $ | 63,054 |  |  | $ | 63,054 |
Compensation expense related to the transaction |  | 1,003 |  |  | (3,500 | ) |  | (2,497 | )
Other transaction costs |  | 436 |  |  | (3,431 | ) |  | (2,995 | )
Net cash proceeds |  | 1,439 |  |  | 56,123 |  |  | 57,562 |
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 |  | $ | 1,439 |  |  | $ | 13,796 |  |  | $ | 15,235 |
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) |  | 2018 |  | 2017
ASSETS |  |  |  |
Loans held-for-sale, carried at fair value (1) |  | $ | 19,490 |  |  | $ | 38,696 |
Loans held-for-sale, carried at lower of cost or fair value |  | — |  |  | — |
Servicing rights carried at fair value |  | — |  |  | — |
Premises, equipment, and capital leases, net |  | — |  |  | — |
Goodwill |  | — |  |  | — |
Other assets |  | — |  |  | 204 |
Assets of discontinued operations |  | $ | 19,490 |  |  | $ | 38,900 |
LIABILITIES |  |  |  |
Accrued expenses and other liabilities (1) |  | $ | — |  |  | $ | 7,819 |
Liabilities of discontinued operations |  | $ | — |  |  | $ | 7,819 |
(1) | Includes $0 and $7.1 million of GNMA loans, respectively, that were delinquent more than 90 days and subject to a repurchase option by the Company at December 31, 2018 and 2017, respectively. As such, the Company is deemed to have regained control over those previously transferred assets and has re-recognized them with an offsetting liability recognized in Accrued Expenses and Other Liabilities in the Statements of Financial Condition of Discontinued Operations, as a secured borrowing. Because the Company intends to exercise its option to repurchase and sell them within one year, they have been classified as part of discontinued operations.
Statements of Operations of Discontinued Operations
|  | Year Ended December 31,
($ in thousands) |  | 2018 |  | 2017 |  | 2016
Interest income |  |  |  |  |  |
Loans, including fees |  | $ | 665 |  |  | $ | 7,052 |  |  | $ | 15,128 |
Total interest income |  | 665 |  |  | 7,052 |  |  | 15,128 |
Noninterest income |  |  |  |  |  |
Net gain on disposal |  | 1,439 |  |  | 13,796 |  |  | — |
Loan servicing income |  | — |  |  | 1,551 |  |  | 4,752 |
Net revenue on mortgage banking activities |  | 428 |  |  | 42,889 |  |  | 167,024 |
All other income |  | 2,200 |  |  | 1,871 |  |  | 1,474 |
Total noninterest income |  | 4,067 |  |  | 60,107 |  |  | 173,250 |
Noninterest expense |  |  |  |  |  |
Salaries and employee benefits |  | 20 |  |  | 38,374 |  |  | 111,771 |
Occupancy and equipment |  | — |  |  | 3,964 |  |  | 10,972 |
Professional fees |  | — |  |  | 2,546 |  |  | 920 |
Outside Service Fees |  | — |  |  | 5,625 |  |  | 6,063 |
Data processing |  | 8 |  |  | 687 |  |  | 2,522 |
Advertising |  | — |  |  | 1,357 |  |  | 3,846 |
Restructuring expense |  | — |  |  | 3,794 |  |  | — |
All other expenses |  | 108 |  |  | 3,648 |  |  | 3,367 |
Total noninterest expense |  | 136 |  |  | 59,995 |  |  | 139,461 |
Income from discontinued operations before income taxes |  | 4,596 |  |  | 7,164 |  |  | 48,917 |
Income tax expense |  | 1,271 |  |  | 2,929 |  |  | 20,241 |
Income from discontinued operations |  | $ | 3,325 |  |  | $ | 4,235 |  |  | $ | 28,676 |
Statements of Cash Flows of Discontinued Operations
|  | Year Ended December 31,
($ in thousands) |  | 2018 |  | 2017 |  | 2016
Net cash provided by (used in) operating activities |  | $ | 14,916 |  |  | $ | 365,045 |  |  | $ | (19,757 | )
Net cash provided by investing activities |  | — |  |  | 56,123 |  |  | — |
Net cash provided by (used in) discontinued operations |  | $ | 14,916 |  |  | $ | 421,168 |  |  | $ | (19,757 | )

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: 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 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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