BANC OF CALIFORNIA, INC. - FORM 8-K - EX-99.1

Attached files

file	filename
EX-2.2 - EX-2.2 - BANC OF CALIFORNIA, INC.	d367915dex22.htm
EX-2.1 - EX-2.1 - BANC OF CALIFORNIA, INC.	d367915dex21.htm
8-K - FORM 8-K - BANC OF CALIFORNIA, INC.	d367915d8k.htm

Exhibit 99.1

BANC OF CALIFORNIA, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Overview

On March 30, 2017, Banc of California, N. A. (the “Bank”), a wholly-owned subsidiary of Banc of California, Inc. (the “Company”), completed the previously announced transactions pursuant to:

(i) the Asset Purchase Agreement, dated as of February 28, 2017, by and between the Bank and Caliber Home Loans, Inc., a Delaware corporation (the “Purchaser”), a copy of which is filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 5, 2017 (the “APA”), pursuant to which the Bank agreed to sell and the Purchaser agreed to purchase specified assets of the Bank’s “Banc Home Loans” division, which relate to the Bank’s business (the “Business”) of originating, processing, underwriting, funding and selling residential mortgage loans (the “APA Transaction”), and

(ii) the Bulk Servicing Rights Purchase and Sale Agreement, dated as of February 28, 2017, by and between the Bank and the Purchaser, a copy of which is filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2017 (the “MSR Agreement”), pursuant to which the Bank agreed to sell and the Purchaser agreed to purchase the mortgage servicing rights on approximately $3.8 billion in unpaid balances of conventional agency mortgage loans to the Purchaser (the “MSR Transaction,” and together with the APA Transaction, the “Transaction”).

Basis of Presentation

The following unaudited pro forma condensed consolidated financial information reflects adjustments to the Company’s historical financial results as reported under the U.S. Generally Accepted Accounting Principles (“GAAP”) in connection with the Transaction. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2016 has been prepared with the assumption that the Transaction was completed and sold as of January 1, 2016. The unaudited pro forma condensed consolidated statement of financial condition as of December 31, 2016 has been prepared with the assumption that the Transaction was completed and sold as of that date.

The unaudited pro forma condensed consolidated financial information do not purport to be indicative of the results of operations or the financial condition which would have actually resulted if the Transaction had been completed on the dates indicated and do not purport to indicate the results of future operations.

The historical financial statements have been adjusted in the unaudited pro forma financial information to give effect to pro forma events that are: (i) directly attributable to the discontinued operation; and (ii) factually supportable. The unaudited pro forma statements of operations for the years ended December 31, 2015 and 2014 have been presented excluding the operating results related to the Transaction, which have been reclassified as discontinued operations under Accounting Standards Codification (“ASC”) 205-20.

The unaudited pro forma financial information: (i) adjusts for certain assets and liabilities that either are being reallocated between continuing and discontinued operations or that are required to be settled as required by the related agreements; (ii) includes adjustments to certain revenue and expenses associated with affiliated transactions, previously eliminated in the Company’s consolidated statements of operations, that will no longer be eliminated after the sale; and (iii) includes adjustments to allocate income tax expense between continuing and discontinued operations.

The As Reported column in the unaudited pro forma statement of financial condition and in the unaudited pro forma statements of operations reflect the Company’s historical financial statements for the periods presented and does not reflect any adjustments related to the events. Assumptions and estimates underlying the Pro Forma Adjustments column are described in the accompanying notes.

The unaudited pro forma financial information has been prepared by the Company based upon assumptions deemed appropriate by the Company’s management and are based upon information and assumptions available at the time of filing the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2017. An explanation of certain assumptions is set forth under the notes to the unaudited pro forma condensed consolidated financial statements.

The unaudited pro forma condensed consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X. The following unaudited pro forma financial information should be read in conjunction with: (i) the accompanying notes to the unaudited pro forma financial information; and (ii) the audited consolidated financial statements of the Company which were included in the Company’s annual report on Form 10-K filed with the SEC on March 1, 2017.

Banc of California, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2016

(in thousands, except share and per share data)


	As Reported		Discontinued Operation		Continuing Operation		Pro Forma Adjustments			Pro Forma Continuing Operations
Interest and dividend income	$	384,972	$	15,128	$	369,844	$	—		$	369,844
Interest expense		59,499		20		59,479		(2,257)	⁽¹⁾		57,222

Net interest income		325,473		15,108		310,365		2,257			312,622
Provision for loan and lease losses		5,271		—		5,271					5,271
Noninterest income
Customer service fees		5,147		—		5,147		—			5,147
Loan servicing income		5,385		4,428		957		—			957
Net gain on sale of securities available-for-sale		29,405		—		29,405		—			29,405
Net gain on sale of loans		35,895		—		35,895		—			35,895
Net revenue on mortgage banking activities		167,024		167,024		—		—			—
Advisory service fees		1,507		—		1,507		—			1,507
Loan brokerage income		4,519		268		4,251		—			4,251
All other income		22,998		1,206		21,792		—			21,792

Total noninterest income		271,880		172,926		98,954		—			98,954
Noninterest expense
Salaries and employee benefits		257,918		111,771		146,147		(16,912)	⁽²⁾		129,235
Occupancy and equipment		49,018		10,972		38,046		(5,190)	⁽²⁾		32,856
Professional fees		31,293		920		30,373		(3,672)	⁽²⁾		26,701
Outside service fees		13,052		7,887		5,165		(181)	⁽²⁾		4,984
Data processing		10,833		2,522		8,311		(63)	⁽²⁾		8,248
Advertising		10,740		3,846		6,894		(722)	⁽²⁾		6,172
Regulatory assessments		8,186		—		8,186		(995)	⁽²⁾		7,191
Loss on investments in alternative energy partnerships, net		31,510		—		31,510		—			31,510
Reversal for loan repurchases		(3,352)		(2,981)		(371)		—			(371)
Amortization of intangible assets		4,851		—		4,851		—			4,851
Impairment on intangible assets		690		—		690		—			690
All other expenses		27,937		3,367		24,570		2,048	⁽²⁾⁽³⁾		26,618

Total noninterest expense		442,676		138,304		304,372		(25,687)			278,685

Income before income taxes		149,406		49,730		99,676		27,944			127,620
Income tax expense		33,990		20,578		13,412		11,564	⁽⁴⁾		24,976

Net income		115,416		29,152		86,264		16,380			102,644
Preferred stock dividends		19,914		—		19,914		—			19,914

Net income available to common stockholders	$	95,502	$	29,152	$	66,350	$	16,380		$	82,730

Pro forma earnings per total common share from continuing operations:
Basic	$	1.97								$	1.70
Diluted	$	1.94								$	1.67
Weighted average shares of total common share outstanding:
Basic		46,828,463									46,828,463
Diluted		47,638,105									47,638,105

Banc of California, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2015

(in thousands, except share and per share data)


	As Reported		Discontinued Operation		Continuing Operation
Interest and dividend income	$	266,338	$	12,531	$	253,807
Interest expense		42,621		29		42,592

Net interest income		223,717		12,502		211,215
Provision for loan and lease losses		7,469		—		7,469
Noninterest income
Customer service fees		4,057		—		4,057
Loan servicing income		2,974		1,568		1,406
Net gain on sale of securities available-for-sale		3,258		—		3,258
Net gain on sale of loans		37,211		—		37,211
Net revenue on mortgage banking activities		144,685		144,685		—
Advisory service fees		9,868		—		9,868
Loan brokerage income		3,140		315		2,825
All other income		15,026		(2,098)		17,124

Total noninterest income		220,219		144,470		75,749
Noninterest expense
Salaries and employee benefits		213,114		98,269		114,845
Occupancy and equipment		41,405		11,040		30,365
Professional fees		20,193		693		19,500
Outside service fees		8,831		4,383		4,448
Data processing		8,184		2,173		6,011
Advertising		6,156		2,689		3,467
Regulatory assessments		5,644		—		5,644
Provision for loan repurchases		2,326		2,322		4
Amortization of intangible assets		5,836		—		5,836
Impairment on intangible assets		258		—		258
All other expenses		20,254		2,655		17,599

Total noninterest expense		332,201		124,224		207,977

Income before income taxes		104,266		32,748		71,518
Income tax expense		42,194		13,199		28,995

Net income		62,072		19,549		42,523
Preferred stock dividends		9,823		—		9,823

Net income available to common stockholders	$	52,249	$	19,549	$	32,700

Pro forma earnings per total common share from continuing operations:
Basic	$	1.36			$	0.83
Diluted	$	1.34			$	0.82
Weighted average shares of total common share outstanding:
Basic		37,046,594				37,046,594
Diluted		37,598,509				37,598,509

Banc of California, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2014

(in thousands, except share and per share data)


	As Reported		Discontinued Operation		Continuing Operation
Interest and dividend income	$	188,139	$	8,494	$	179,645
Interest expense		32,862		38		32,824

Net interest income		155,277		8,456		146,821
Provision for loan and lease losses		10,976		—		10,976
Noninterest income
Customer service fees		1,490		—		1,490
Loan servicing income		4,199		799		3,400
Net gain on sale of securities available-for-sale		1,183		—		1,183
Net gain on sale of loans		19,828		—		19,828
Net revenue on mortgage banking activities		95,430		95,430		—
Advisory service fees		12,904		—		12,904
Loan brokerage income		8,674		35		8,639
All other income		1,929		199		1,730

Total noninterest income		145,637		96,463		49,174
Noninterest expense
Salaries and employee benefits		162,879		73,885		88,994
Occupancy and equipment		33,443		11,501		21,942
Professional fees		19,247		458		18,789
Outside service fees		6,372		2,422		3,950
Data processing		5,231		1,832		3,399
Advertising		5,016		2,098		2,918
Regulatory assessments		4,182		—		4,182
Provision for loan repurchases		2,808		2,688		120
Amortization of intangible assets		4,079		—		4,079
Impairment on intangible assets		48		—		48
All other expenses		20,167		991		19,176

Total noninterest expense		263,472		95,875		167,597

Income before income taxes		26,466		9,044		17,422
Income tax (benefit) expense		(3,739)		3,352		(7,091)

Net income		30,205		5,692		24,513
Preferred stock dividends		3,640		—		3,640

Net income available to common stockholders	$	26,565	$	5,692	$	20,873

Pro forma earnings per total common share from continuing operations:
Basic	$	0.91			$	0.71
Diluted	$	0.90			$	0.70
Weighted average shares of total common share outstanding:
Basic		28,044,441				28,044,441
Diluted		28,248,223				28,248,223

Banc of California, Inc.

Unaudited Pro Forma Consolidated Statement of Financial Condition

As of December 31, 2016

(in thousands)


	As Reported		Discontinued Operation		Continuing Operation		Pro Forma Adjustments				Pro Forma Continuing Operations
ASSETS
Cash and cash equivalents	$	439,510	$	—	$	439,510	$	56,881		⁽⁵⁾	$	496,391
Time deposits in financial institutions		1,000		—		1,000		—				1,000
Securities available-for-sale		2,381,488		—		2,381,488		—				2,381,488
Securities held-to-maturity		884,234		—		884,234		—				884,234
Loans held-for-sale		704,651		406,633		298,018		—				298,018
Loans and leases receivable, net of allowance for loan and lease losses		5,994,308		—		5,994,308		—				5,994,308
Federal Home Loan Bank and other bank stock		67,842		—		67,842		—				67,842
Servicing rights, net		77,617		37,681		39,936		—				39,936
Other real estate owned, net		2,502		1,485		1,017		—				1,017
Premises and equipment, net		143,617		2,700		140,917		—				140,917
Goodwill		39,244		2,100		37,144		—				37,144
Other intangible assets, net		13,617		—		13,617		—				13,617
Deferred income tax		9,989		—		9,989		—				9,989
Income tax receivable		16,009		—		16,009		—				16,009
Bank owned life insurance investment		102,512		—		102,512		—				102,512
Other assets		151,713		33,380		118,333		—				118,333

Total assets	$	11,029,853	$	483,979	$	10,545,874	$	56,881			$	10,602,755


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	9,142,150	$	—	$	9,142,150	$	—			$	9,142,150
Advances from Federal Home Loan Bank		490,000		—		490,000		(405,865)		⁽⁶⁾		84,135
Other borrowings		67,922		—		67,922		—				67,922
Notes payable, net		175,378		—		175,378		—				175,378
Reserve for loss on repurchased loans		7,974		—		7,974		—				7,974
Accrued expenses and other liabilities		166,190		35,633		130,557		—				130,557
Inter-division borrowings		—		402,610		(402,610)		402,610		⁽⁶⁾		—

Total liabilities		10,049,614		438,243		9,611,371		(3,255	)			9,608,116
Total stockholders’ equity		980,239		45,736		934,503		60,136		⁽⁷⁾		994,639

Total liabilities and stockholders’ equity	$	11,029,853	$	483,979	$	10,545,874	$	56,881			$	10,602,755

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

(1)	Pro forma adjustment represents the amount of interest expense reduction that the Company would have realized by reducing advances from Federal Home Loan Bank to support the “Banc Home Loan” division’s business activities during the year ended December 31, 2016.

(2)	Pro forma adjustment represents general corporate overhead costs, which were historically allocated to the “Banc Home Loans.”

(3)	Pro forma adjustment includes the amount of fees of $5.1 million paid to the “Banc Home Loans” division from other divisions of the Bank for the services they provided.

(4)	Tax rate of 41.4 percent, which was the Bank’s effective tax rate, was utilized for adjusting tax effects on pro forma adjustments.

(5)	Pro forma adjustment represents net cash received from the Transaction.

Net cash proceeds from the Transaction


	Amount
		(in thousands)

Proceeds from the Transaction	$	63,881

Compensation expense related to the Transaction		(4,000)

Estimated other transaction cost		(3,000)

Net cash proceeds	$	56,881

(6)	The Transaction could allow management to reduce advances from Federal Home Loan Bank.

(7)	Pro forma adjustment represents equity held at the “Banc Home Loans” of $45.7 million and net gain on sale of $14.4 million.

Net gain on sale


	Amount
		(in thousands)
Net cash proceeds	$	56,881

Book value of certain assets sold		(2,700)

MSRs sold		(37,681)

Goodwill		(2,100)

Net gain on sale	$	14,400

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