Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. First California Financial Group, Inc. (1370291) 10-Q published on May 10, 2013 at 4:40 pm
Reporting Period: Mar 30, 2013
On February 13, 2013, the Board of Directors of the Company and the Board of Directors of the Bank committed to a plan to wind down the EPS division. As previously disclosed in the amended Registration Statement on Form S-4 of PacWest, PacWest concluded that the EPS division was not suited to PacWest’s commercial banking business model and PacWest would proceed to exit the EPS division upon completion of the PacWest Merger. As part of the wind down of the EPS division, the Bank will terminate its membership in card processing networks and will no longer issue payment cards. The Bank intends to maintain sufficient operations and staffing within the EPS division to conduct the wind down in an orderly manner.
The Company has targeted December 31, 2013 for substantial completion of its wind down of the EPS division. In connection with the wind down of the EPS division, the Company currently estimates that it will incur total costs of approximately $2.4 million, of which (i) approximately $633,000 relates to retention costs, (ii) approximately $453,000 relates to severance and employee termination benefits, (iii) approximately $522,000 relates to contract termination costs, and (iv) approximately $780,000 relates to other associated costs. In connection with the Company’s plan to discontinue the EPS division, the Company evaluated various intangible assets related to the EPS division and determined on February 13, 2013 that an impairment charge of $4.8 million was to be recognized for the year ended December 31, 2012. The Company estimates approximately $1.7 million of the total costs will result in future cash expenditures. Therefore, we present the operations of the EPS division as “discontinued operations” for all periods presented.
Discontinued operations – On February 13, 2013, the Board of Directors of the Company and the Board of Directors of the Bank committed to a plan to wind down the EPS division. Accordingly, all income and expense related to the EPS division have been removed from continuing operations and are now included in the Condensed Consolidated Statements of Income under the caption “Income from discontinued operations.” Assets of the EPS division, which are primarily customer accounts receivable, are presented as “Assets of discontinued operations” in the Condensed Consolidated Balance Sheets. Prior periods have been restated. Except where noted, footnote disclosures relate solely to continuing operations.
In April 2013, the FDIC notified the Bank that it planned to take formal enforcement action against the Bank, to which the Bank has agreed in principle. The FDIC alleged that the Bank engaged in unsafe and unsound banking practices through its EPS Division, and among other things, violated Section 5 of the Federal Trade Commission Act by engaging in certain deceptive and unfair practices in connection with its oversight of prepaid debit card programs offered by various third-party providers, for which the Bank serves as card issuer. The FDIC has also alleged that, in connection with such prepaid card programs, the Bank violated a Treasury Department regulation governing the use of the Automated Clearing House system to deliver federal benefit payments to prepaid debit cards. The Bank understands that the formal enforcement action is likely to include certain actions to address the allegations, including making changes to certain of the Bank’s practices and products and establishing accruals for, among other costs, a civil money penalty and restitution obligations of third-party providers to certain prepaid card holders to the extent that such third-party providers are unable to satisfy such obligations.
As previously disclosed, the Board of Directors of the Company and the Bank committed to a plan to wind down the EPS division and targeted December 31, 2013 for a substantial completion of such wind down. There was no net income for this discontinued operation for the three months ended March 31, 2013 because revenues were $2.0 million and expenses were $2.0 million. Expenses included costs associated with the wind down of the division and the planned enforcement action.
For the first quarter of 2013, we had net income from discontinued operations of $0.0 million, compared with net income from discontinued operations of $0.2 million for the first quarter of 2012. Revenues from our discontinued EPS division were $2.0 million for the first quarter of 2013 compared with $1.2 million for the same quarter last year. Expenses from our discontinued EPS division were $2.0 million for the first quarter of 2013 compared with $0.8 million for the 2012 first quarter. Revenues increased because of higher transaction volumes compared to the prior period. Expenses increased because of costs associated with the wind down of the division and the planned enforcement action in the 2013 period.