Banc Of California, Inc. · NYSE:BANC
Banc Of California — Houlihan Lokey 2014 Financial Services Conference
32 slides from Banc Of California's conference presentation, Mar 5, 2014
Slide 1: Palisades Residential Mortgage Credit Risk Management Overview
+. PALISADES RESIDENTIAL MorTGaGe CrebiT RISK MANAGEMENT OVERVIEW ¢ S Jack L. MACDOWELL, JR., CFA CHIEF INVESTMENT OF March | 2014
Slide 2: Forward-Looking Statements
4 y ¢ FORWARD-LOOKING STATEMENTS ro When used in this presentation and in documents filed with or furnished to the Securities and Exchange Commission (the “SEC"), in press releases or other public shareholder communications, or in oral statements made with the approval of an authorized executive off
Slide 3: Palisades
PALISADES An SEC-registered investment adviser and subsidiary of Banc of California, Inc. (NASDAQ: BANC) = Banc of California is the $3.5+ billion financial holding company of Banc of California, N.A. = Palisades specializes in residential mortgage credit, real estate and fixed income strategies Dil
Slide 4: Development of Core Tenets
4 y (4 DEVELOPMENT OF CORE TENETS ro TEAM EXPERIENCE Vendor Underwriting = Loan Management [f securitization “’Oole Loan Portfolio & Aggregation Servici . 5 Fi ‘ & Securities Asset ervicing (Captive & 34 ff / Financing Trading Management Party) & Origination
Slide 5: Quality Partners
~ Quality Partners Solutions aimed at Keeping Borrowers in Home Management Tenets Maintain Cash Flow Preservation of Value Ensure Alignment of Interests Client Tenets Offer Transparency Maintain Control of Assets
Slide 6: Palisades' Platform
4 y (4 PALISADES’ PLATFORM ro ¥_. PALISADES \ MARKET INTELLIGENCE / \\ PORTFOLIO / ANALYTICS / REPORTING y GM aNe3 USE STEEL MANAGEMENT * Sourcing * Underwriting = Document Negotiation Strategy Formation * Valuation * Loan Level Compliance * Entity Formations Loan Level Decisions * Fee Reconciliatio
Slide 7: Why Did We Build This and What Do We Do With It?
WHY DID WE BUILD THIS AND WHAT DO WE DO WITH IT?
Slide 8: Residential Credit Markets
4 y (4 RESIDENTIAL CREDIT MARKETS ro MARKETS. = Palisades provides clients with access to diversified pool of residential assets = Portfolios may be constructed with varying degrees of credit risk and duration ~ = NON-PERFORMING MORTGAGE LOANS SEASONED LOANS = SUB-PERFORMING MORTGAGE LOANS = RE-PERF
Slide 9: Mortgage Delinquencies Continue to Improve
y) MorTGAGE DELINQUENCIES CONTINUE TO IMPROVE = Serious mortgage delinquencies have improved significantly since depths of crisis = Delinquencies are 6.39% versus the 10.06% at peak = Foreclosures are now reported to be 2.86% versus peak of 4.64% 16.0 ia Foreclosure % 100 30+ Day Delinquency % % of
Slide 10: Residential Credit Market: Build Market in Home Prices
y ( RESIDENTIAL CREDIT MARKET: ro BuLt MARKET IN HOME PRICES = Home prices have stabilized and been improving consistently for 20 months = Home prices are up 24% from the trough reached in 2012 = Home prices remain 20% % below their peak = Accommodative policy linked to housing market (rates - home
Slide 11: Lending Markets
4 v0 LENDING MARKETS = Most new origination has been focused on refinance market to take advantage of low rates = 1H’2013 had significant interest from mortgage conduits to acquire prime jumbo loans = Rise in rates created competition from bank balance sheets = Refinance wave subsided leaving mortga
Slide 12: Capital Markets / Securitization
4 y (4 RESIDENTIAL CREDIT MARKET: ro CAPITAL MARKETS / SECURITIZATION = Capital markets for securitization are coming back in new form = Plain vanilla offerings which are significantly less complex have been issued = Mostly in the prime jumbo space for rated deals = Strong demand from investors for
Slide 13: Seasoned Mortgage Loans
4 y (4 RESIDENTIAL CREDIT MARKETS ro SEASONED MORTGAGE LOANS = While market is improving in most every facet, banks still have legacy assets to sell = Banks alone have more than $100 billion in troubled debt restructurings* * Regulatory scrutiny and increased FDIC premiums * — Incentivized to sell =
Slide 14: Profile of Investment in Re-Performing Loan Market
PROFILE OF INVESTMENT IN RE-PERFORMING LOAN MARKET SEASONED MORTGAGE LOANS (CONTINUED) 4 Ve = Quality monthly cash flow = Positively skewed return profile INVESTMENT = Downside protection (defaults, home prices) PROFILE = Upside: home prices, economy, lending, confidence and capital markets = Inflat
Slide 15: Return Attribution
4 RETURN ATTRIBUTION vA RETURN ATTRIBUTION FOR RE-PERFORMING LOANS = Interest cash flow = Recovery of purchase price discount = Resolution of assets Return Attribution (% of total) RETURN ATTRIBUTION (% OF TOTAL RETURN) 100% 80% 60% 40% 0% LPO DD DD > 2 PPE PO PSE P EPPO PCP a FPF H HK FW KE Ve 2 2
Slide 16: Expanded Credit & Non-QM Loan Origination
EXPANDED CREDIT & NON-QM LOAN ORIGINATION DEVELOPING RESIDENTIAL LOAN MARKET Low LTV ratio Expanded credit score box (down to 620 FICO) Higher debt-to-income ratio limits Fully documented borrower income and assets Verified employment Adhere to “Ability-to-Repay Rule” guidelines EXPANDED CREDIT & No
Slide 17: Mezzanine & Subordinate Securities
(4 MEZZANINE & SUBORDINATE SECURITIES ro PROPRIETARY STRUCTURED TRANSACTIONS = Issue and retain mezzanine and subordinate securities = Focus on control and oversight capabilities SENIOR = Institutional Investors LOANS = Institutional Investors = Palisades SUBORDINATE = = Palisades | cqury |
Slide 18: Pre-Closing Activities
PRE-CLOSING ACTIVITIES
Slide 19: Proprietary Loan Level Valuation Model
4 v0 PROPRIETARY LOAN LEVEL VALUATION MODEL y LLU T Loan Level Investment Forecast Tool <) PALISADES: = Used for seasoned residential loans = Each loan is modeled down 8 different paths 1, Foreclosure and distressed liquidation 2. Prepayment in full 3. Short sale or refinance 4. Modification = Proba
Slide 20: Diligence
4 v0 DILIGENCE IN Compliance review Title & lien review Delinquent tax & HOA fee search Property value reconciliation Collection note review Review daily due diligence data Collateral inventory Rebuttal process All hands on deck — everyone participates in diligence Servicing notes - Occupancy, Emplo
Slide 21: Post Closing Activity: Transfer Oversight Summary
4 y (4 Post CLOSING ACTIVITY: TRANSFER OVERSIGHT SUMMARY ro SERVICING TRANSFER IN Tasks & responsibilities checklist Verify post-transfer data integrity Prioritize high risk transfer assets Review / modify Goodbye Letter Review / modify Welcome Letter Conduct post-transfer calls Follow “right party”
Slide 22: Post Closing Activity: Trailing Document & Rep/Warranty
y (aq Post CLOSING AcTiviTy: TRAILING DOCUMENT & REP/WARRANTY ~ POST CLOSING IN Rep & warranty breach demands Trailing document review Closing assignments Closing endorsements Collateral curing Important to ensure regular review of collateral inventory Trailing document list sets forth collateral se
Slide 23: Portfolio Management
4 y (4 PORTFOLIO MANAGEMENT ro Executive Leadership CEO. clo CFO. Weekly meetings & 360° feedback loop i C Accounting _) Compliance (Portfolio Manager «—» Portfolio Manager «—»( Portfolio Manager ) Portfolio Management (Credit Risk Mgmt.) FC/BK Specialist ¢ Legal ) == Portfolio Analyst Portfolio Ana
Slide 24: Portfolio Management: Servicing Partners
PORTFOLIO MANAGEMENT: SERVICING PARTNERS SERVICING PARTNER SELECTION Track record of 3% party special servicing Strong financial position with no legacy securitized servicing liabilities Government and rating agency approvals Fully compliant with strong governance “Not too big — not too small” SELEN
Slide 25: Portfolio Management
4 y (4 PORTFOLIO MANAGEMENT ro JAN SERVICING = Review daily servicing notes = Review monthly cash flow and resolution reports = Update servicing and resolution strategies and procedures = Track credit and performance metrics = Monthly management review of loan servicing strategy and credit metrics A
Slide 26: Active Asset Management
4 y (4 ACTIVE ASSET MANAGEMENT ro RE-PERFORMING LOANS (“RPLs”) = Daily tracking and reconciliation of right party borrower contact and cash collections = Strategies aimed at stabilizing rolling delinquencies = Emphasis on optimal payment methods including registering borrowers for ACH payment NON-PE
Slide 27: Resolution and Disposition
4 y (4 RESOLUTION AND DISPOSITION ro Pay-OFF AS AGREED = Develop strategic plan for improving loan pay-off metrics = Manage loan modification, write-off, refinancing and other programs = Adopt and amend loan modification, refinancing, and forgiveness programs = Recommend strategy for each asset (sho
Slide 28: Loan Management System
y (4 LOAN MANAGEMENT SYSTEM ro SERVICER DATA GLASS® Data Management ) GLASS® Software Loan Management (Gusiness Logic — integrity Checks ~ Exception Identification) e e a - o all ST j Reporting LOAN MANAGEMENT SYSTEM = Populated with nightly data feeds from the servicers Over 250 fields of data come
Slide 29: Fee & Expense Reconciliation
y (4 Fee & EXPENSE RECONCILIATION ro Palisades’ Loan Management System Loan Level Daily/Monthly Fees Loan Level Fee/Expense Report Palisades’ PM/Reporting Team
Slide 30: What's Next?
WHAT’S NEXT?
Slide 31: Vision for the Future
4 y (4 VISION FOR THE FUTURE ro NEXT STEPS = Process of transitioning more than $3.0 billion of seasoned loans to platform = Provide liquidity to banks for their seasoned NPL and RPL disposition needs = Provide liquidity to market for non-QM and expanded credit mortgage products = Manager of mortgag
Slide 32: Stephen M. Kirch
go ~ STEPHEN M. KIRCH CHIEF EXECUTIVE OFFICER stephen.kirch@palisades.us.com 424-280-7570 Jack L. MACDOWELL, JR., CFA CHIEF INVESTMENT OFFICER jack.macdowell@palisades.us.com 424-280-7570 Troy A. GRANDE, CFA CHIEF FINANCIAL OFFICER troy.grande@palisades.us.com 424-280-7575 WWW. palisades.us.com
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