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Banc of California to select next CEO 'as quickly as it can be done well'

Irvine, Calif.-based Banc of California Inc. provided several updates on its management overhaul and other issues during its fourth-quarter 2016 earnings call.

The board has formed a search committee for a new CEO following the resignation of Chairman and CEO Steven Sugarman. Chief Legal Officer John Grosvenor said the company has retained Korn Ferry, an organizational and people advisory firm, to identify candidates who can "lead efforts to capitalize on growth opportunities and enhance stockholder value." External and internal candidates are being considered for the role, and the board's committee hopes to complete its search "as quickly as it can be done well," he added.

Sugarman's resignation was announced Jan. 23 alongside changes to the bank's corporate governance policies. Director Robert Sznewajs was appointed chairman after the company announced it will separate the chairman and CEO roles to comply with new policies. Chief Risk Officer Hugh Boyle is filling in as interim CEO.

"We will remain a growth organization, and I fully believe that the California market is a strong and deep market, and we continue to attract great bankers, even through these challenging times," Boyle said, adding that observers can expect additional governance measures to "come out over the near term."

A special committee, law firm WilmerHale and the SEC are conducting separate investigations into the allegations made by an anonymous blogger, which accused several company senior executives and board members of having ties with Jason Galanis. Galanis has been charged with market manipulation and several counts of fraud.

The special committee determined that statements in an Oct. 18 press release concerning the anonymous allegations contained inaccurate statements. Grosvenor said WilmerHale has not found "any violation of law" or evidence that Jason Galanis had any direct or indirect control over the company.

Executives said the bank faced higher-than-expected legal expenses, at about $4.2 million, associated with the incident, but were not keen on discussing it or Sugarman's departure in detail.

"While we cannot control for some external variables creating uncertainty in the markets for our bank, we are addressing many of the issues that have been recently raised," Boyle said. "It is the intent of the management team to focus, now in particular, on maintaining a sound and responsible strategy and day-to-day operations of the bank."

The $11.0 billion company passed the $10 billion in assets threshold in 2016. Management said the bank has invested in appropriate infrastructure over the last three to four years in preparation of crossing the threshold.

Boyle said a delay in filing the company's financials is "a little bit out of our control," but he said that he expects business to return to normal and that the deposit side of the franchise will "re-energize" after the filings occur.

Executives said the company remains focused on de-risking its balance sheet in 2017 and noted that it was able to reduce nonperforming assets by 51% and delinquent loans by 42% during the quarter, aided by divestitures of $865 million of leases, seasoned single-family residential pools and nonperforming loans.

"This historical seasoned loan strategy, with its attractive interest spread, helped the bank to diversify and build its commercial banking book of business," he added.

The company established 2017 guidance of earnings per share exceeding the consensus analyst estimate of $2.00.

Banc of California reported net income available to common stockholders of $28.2 million, or 54 cents per share, during the fourth quarter. That compares to $16.0 million, or 40 cents per share, in the year-ago period.