Banc of California NA will record a $35 million specific loan loss provision and related charge-off with respect to a line of credit originated in November 2017 to a borrower engaged in the financing of California liquor licenses. Banc of California Inc., meanwhile, expects to incur a $1.1 million charge for a cancellation of a swap contract associated with the loan.
The line of credit was guaranteed by San Diego-based ANI Development LLC.
In August, the SEC filed charges and obtained a consented-to asset freeze against ANI Development, its principal Gina Champion-Cain and a relief defendant for allegedly operating a multiyear $300 million scheme that defrauded about 50 investors, including the bank's borrower, according to a filing.
In its complaint, which was filed in federal district court in San Diego, the SEC accused the defendants of fraudulently raising millions of dollars from investors by claiming to offer them an opportunity to make short-term, high-interest loans to parties seeking to acquire California alcohol licenses. Contrary to defendants' representations, the investor funds were not used to make loans to alcohol license applicants. Instead, Champion-Cain allegedly directed significant amounts of investor funds to a relief defendant that she controlled, according to the complaint.
The Santa Ana, Calif.-based bank is continuing to investigate the matter and has contacted the SEC, according to a filing.
The parent company of the bank estimates that the after-tax impact of the provision and the swap cancellation for the third quarter will be $27.9 million based on a 22% effective tax rate, or 54 cents per common share. At $35 million, the charge-off is equivalent to approximately 0.52% of the company's $6.7 billion gross loan portfolio as reported at June 30.
