Banc of California is planning to lay off roughly 140 corporate workers this spring, marking the latest chapter in a tale of a highflying company that has come back to earth.

The $11.2 billion-asset company in early March gave employees a 60-day notice of a round of layoffs, according to an internal memo obtained by American Banker.

The cuts will begin May 1 at the company’s Irvine headquarters and offices in Santa Ana, Calif., according to a Warn Act notice obtained by American Banker. A Warn report compiled by California's Employment Development Department lists 45 planned job cuts at the Irvine location and 94 layoffs in Santa Ana.

The Santa Ana office is a 250,000-square-foot building Banc of California bought in late 2015 as part of a plan to move its corporate headquarters. The Irvine address doubles as the offices for Banc Home Loans, a mortgage division being sold to Caliber Home Loans in a previously announced deal that should reduce headcount by about 900 jobs.

The Warn notice, which is typically required when companies plan large-scale layoffs, said cuts will involve “specified departments and positions” as part of a planned reorganization.

“We understand that change can be difficult and we are acutely aware of the impact that these initiatives have on our staff,” Hugh Boyle, the company’s interim CEO, and Francisco Turner, its interim president, wrote in the March 13 memo to employees. “However, these changes are necessary to ensure that Banc of California can continue to grow and be well positioned to best serve California’s entrepreneurs, businesses and communities.”

The cuts further punctuate the end to a rapid growth period at Banc of California. Rising expenses cut into profits and, by extension, returns, upsetting some investors. Meanwhile, the company has become the target of a Securities and Exchange Commission probe of its disclosure practices.

Employment swelled in the years after the former First PacTrust was recapitalized in 2013, as then-CEO Steven Sugarman aggressively expanded through acquisitions and organic growth in mortgage lending. The company also built infrastructure tied to management's ambitious growth plans.

The number of full-time employees rose from 128 at the end of 2011 to nearly 1,800 at Dec. 31, according to the company’s annual reports. Salaries, excluding commissions, increased from $14 million to $197 million over the same period.

Banc of California has said that the nonmortgage layoffs will save it about $20 million a year.

A source familiar with the layoffs said the company is cutting jobs across several departments, including IT, marketing, human resources and business intelligence. Another source said that half of the people on his IT team had been laid off. The employees asked not to be named due to fear of reprisal by the company.

Banc of California has hired Right Management, a division of Manpower, to offer outplacement services to employees, according to a separation letter sent this month to employees set to be laid off. Workers were also given a pamphlet listing dates for two-day workshops that began on Monday.

One of the sources said Banc of California is moving its corporate staff to Santa Ana and that Caliber could take over the lease at the Irvine office building. Banc of California may also announce a second round of layoffs that could eliminate another 60 to 100 positions, the source said.

A Banc of California spokesman confirmed the job cuts listed on the Warn report, though he could not discuss any other moves the company might be planning.

The sale of the mortgage division, along with the estimated corporate layoffs, would lower employment to about 760 employees, the company’s lowest headcount since 2012, when it had just $1.7 billion in assets.

Banc of California certainly has room to make meaningful cuts, industry experts said.

“After the recapitalization they threw a lot of money into infrastructure to get ready for faster growth and a bigger balance sheet,” said Timur Braziler, an analyst at Wells Fargo Securities. “That was their biggest competitive advantage in 2016 when the production was coming online. While others were struggling with outdated systems these guys were able to build it on the go and hit the ground running.”

While a number of corporate layoffs may be indirectly tied to the soon-to-be-jettisoned mortgage operations, Tim Coffey, an analyst at FIG Partners, said Banc of California had noticeable inefficiencies, pointing to a decision to have general counsels for each business line. “I’ve never seen that before,” he said.

“The cutbacks are reflective of a broader strategic shift that focuses more on profitability as opposed to growth for growth’s sake, which had been the mantra for the past year and a half,” Coffey said. “There’s a drive to make this company more efficient.”

The company has also been looking to offset the costs of a $100 million stadium naming rights deal with the Los Angeles Football Club, a professional soccer franchise set to kick in this year. Sugarman took heat for that deal, largely due to its price tag and because his brother is one of the team’s investors.

An anonymous blogger in October raised questions about related-party transactions at the company. Banc of California quickly responded with a press release stating that its board had launched an independent investigation into the claims.

The board disclosed several months later that the release had inaccurate statements, notably that management — and not the board — had authorized the probe. While the release had characterized the investigation as independent, the law firm involved had previously represented Sugarman and the company.

While an separate investigation by the board found no signs of wrongdoing, other than the accuracy of the October press release, the situation prompted the Securities and Exchange Commission to launch its own probe into the company's disclosures.

Banc of California’s recently reconstituted board may be driving some of the recent changes, industry experts said.

Banc of California split the roles of chairman and CEO after Sugarman’s resignation in January. It also added Kirk Wycoff, a managing partner of Patriot Financial Partners with banking experience, and Richard Lashley, a managing principal at PL Capital Advisors and former KPMG corporate financial adviser, to its board.

The company on Tuesday agreed to a truce with Legion Partners Asset Management, a big investor that had taken issue with Sugarman’s management. Banc of California will increase the size of its board by two members.

Legion, in return, will scrap plans to push for two board seats. Its nominees, a former bank chairman and a retired investment banker, will be considered for the board openings.

Patriot, PL Capital and Legion collectively own about a fifth of Banc of California’s stock.

“You’ve got a board that has new voices who understand what it means to be a highly profitable financial institution and they are dictating a new strategy to management,” Coffey said. “Sugarman wasn’t a banker … and controlling costs was never a high priority for him.”

“The strength of the board has drastically improved in recent months,” Braziler said. “I think the way this bank got started was a little cavalier given Steve’s background as a lawyer and an investment banker.”

Expense management is one of several things the board and management could do to boost the company's long-term value, industry observers said. Banc of California could shed more assets, including a stockpile of collateralized-loan obligations and residential mortgages held in its portfolio. At the same time, it could allow brokered deposits to roll off.

The goal should be to improve returns by becoming more of a commercial bank, which seemed to be the message management sent to employees earlier this week.

"As we continue the transformation of our business, we are confident that we have the right-sized team in place to be successful and to continue to win market share in California," Boyle and Turner wrote in their memo. "Through proactive expense management and focus on our businesses, we are confident that we can win in California and continue to build a strong and stable banking franchise."

Doing so will take time, industry experts said.

“This year will be challenging from an operational standpoint,” Braziler said.

“Transitioning to a commercial model takes time and it isn’t easy to do,” Coffey said. “It will take them at least a year to get things turned around and prove to people that all the bugs are fixed.”

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