Discontinued Operations

12 Months Ended

Dec. 31, 2015

Discontinued Operations [Abstract]

Discontinued Operations

Note W—Discontinued Operations

The Company performed a strategic evaluation of its businesses in the third quarter of 2014 and decided to discontinue its commercial lending operations and focus on its specialty finance lending.  The loans which constitute the commercial loan portfolio are in the process of dispositionto independent purchasers.  As such, financial results of the commercial lending operations are presented as separate from continuing operations on the consolidated statements of operations, and the assets of the commercial lending operations to be disposed are presented as assets held for sale on the consolidated balance sheets.

The following table presents financial results of the commercial lending business included in net income (loss) from discontinued operations for the twelve months ended December 31, 2015, 2014 and 2013.

	For the year ended December 31,
	2015		2014	2013
		(in thousands)
Interest income	$                           28,925		$                           44,097	$                           53,972
Interest expense	-		-	-
Provision for loan and lease losses	-		26,919	58,038
Net interest income (loss) after provision	28,925		17,178	(4,066)
Non interest income	2,513		1,624	1,357
Non interest expense	18,645		(35,823)	8,960
Income (loss) before taxes	12,793		54,625	(11,669)
Income taxes	4,721		19,331	16,269
Net income (loss)	$                             8,072		$                           35,294	$                         (27,938)

	December 31,	December 31,
	2015	2014
	(in thousands)
Loans, net	$                         568,748	$                         867,399
Other assets	15,161	20,530
Total assets	$                         583,909	$                         887,929

Based upon an independent third party review performed as of September 30, 2014, the first reporting date after discontinuance of commercial loan operations, the Company marked the $1.20 billion commercial lending portfolio balance as of that date to lower of cost or market.  An independent third party financial advisory firm performed the lower of cost or market valuation, using the income approach in a discounted cash flow model.  Large balance commercial loans were modeled on a loan level basis. Small balance commercial loans were modeled on a pool basis where loans are grouped by common characteristics including loan type, loan collateral, amortization type and coupon.  The expected cash flows for the loans or pools were derived from the contractual loan terms, adjusted for prepayments and credit considerations as applicable.  The loan level credit analysis was also performed by an independent third party which reviewed the majority of the credit portfolio for credit inputs into the model. Based on that review, weighted average fair values were applied to the loans not specifically reviewed. Discount rates used in the model were derived from observable market interest rates or credit spreads for comparable loans including national and regional commercial loan pricing surveys, dealer market research and market pricing quotations for new issuance.  Market quoted interest rates were adjusted for the subject loan or pool to account for differences in loan characteristics including loan term, loan size, loan vintage and loan credit quality. These analyses are performed at each quarterly and annual reporting period.

Various elements of the lower of cost or market valuation are as follows:

Measured on a recurring basis	Valuation techniques	Significant unobservable inputs	Range
Large balance commercial loans	Discounted cash flows	Discount rate	3.13%-9.09%
Small balance commercial loans	Discounted cash flows	Discount rate	4.18%-7.08%

The Company has sold loans with a book value of approximately $342.2 million, of the approximately $1.1 billion in book value of loans in that portfolio as of the September 30, 2014 date of discontinuance of operations. The $342.2 million of loans sold had a face value of approximately $417.1 million. These sales were comprised of the following:  Loans with an approximate face and book value of $267.6 million and $192.7 million, respectively, were sold in the fourth quarter of 2014 to a private securitization entity. The securitization is managed by an independent investor, which contributed $16 million of equity to that entity.  The balance of the sale was financed by the Bank and is reflected on the consolidated balance sheet as investment in unconsolidated entity.  After $74.9 million of loan charges reflected in the difference between the face value and book value of the loans sold to the securitization, the Company recognized a gain on sale of $17.0 million.  In the second quarter of 2015, an additional $149.6 million of loans were sold at a gain of approximately $2.2 million.  The Company continues to pursue additional loan sales.