UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From                      To                     
Commission File Number: 000-30421
 
 
 HANMI FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 
 
Delaware
 
95-4788120
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
3660 Wilshire Boulevard, Penthouse Suite A
Los Angeles, California
 
90010
(Address of Principal Executive Offices)
 
(Zip Code)
(213) 382-2200
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
 
 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
¨
Accelerated Filer
x
Non-Accelerated Filer
 
¨  (Do Not Check if a Smaller Reporting Company)
Smaller Reporting Company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x
As of July 31, 2015, there were 31,977,091 outstanding shares of the Registrant’s Common Stock.




Hanmi Financial Corporation and Subsidiaries
Quarterly Report on Form 10-Q
Three and Six Months Ended June 30, 2015
Table of Contents
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 


2



Part I — Financial Information
Item 1. Financial Statements
Hanmi Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
 
(Unaudited)
June 30, 2015
 
December 31, 2014
Assets
 
 
 
Cash and cash equivalents
$
153,231

 
$
158,320

Securities available for sale, at fair value (amortized cost of $729,763 as of June 30, 2015 and $1,061,703 as of December 31, 2014)
728,683

 
1,060,717

Loans held for sale, at the lower of cost or fair value
4,158

 
5,451

Loans receivable, net of allowance for loan losses of $50,820 as of June 30, 2015 and $52,666 as of December 31, 2014
2,826,086

 
2,735,832

Accrued interest receivable
8,133

 
9,749

Premises and equipment, net
30,656

 
30,912

Other real estate owned ("OREO"), net
11,857

 
15,790

Customers’ liability on acceptances
1,638

 
1,847

Servicing assets
13,125

 
13,773

Other intangible assets, net
1,890

 
2,080

Investment in Federal Home Loan Bank ("FHLB") stock, at cost
16,385

 
17,580

Investment in Federal Reserve Bank ("FRB") stock, at cost
13,517

 
12,273

Income tax assets
82,819

 
84,371

Bank-owned life insurance
48,041

 
48,866

Prepaid expenses and other assets
30,551

 
34,882

Total assets
$
3,970,770

 
$
4,232,443

Liabilities and stockholders’ equity
 
 
 
Liabilities:
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
1,061,823

 
$
1,022,972

Interest-bearing
2,377,958

 
2,533,774

Total deposits
3,439,781

 
3,556,746

Accrued interest payable
3,443

 
3,450

Bank’s liability on acceptances
1,638

 
1,847

FHLB advances

 
150,000

Servicing liabilities
5,368

 
5,971

Federal Deposit Insurance Corporation ("FDIC") loss sharing liability
116

 
2,074

Rescinded stock obligation
150

 
933

Subordinated debentures
18,623

 
18,544

Accrued expenses and other liabilities
28,911

 
39,491

Total liabilities
3,498,030

 
3,779,056

Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 32,552,736 shares (31,974,842 shares outstanding) as of June 30, 2015 and 32,488,097 shares (31,910,203 shares outstanding) as of December 31, 2014
257

 
257

Additional paid-in capital
556,289

 
554,904

Accumulated other comprehensive income, net of tax benefit of $1,486 as of June 30, 2015 and $1,432 as of December 31, 2014
423

 
463

Accumulated deficit
(14,371
)
 
(32,379
)
Less: treasury stock, at cost; 577,894 shares as of June 30, 2015 and December 31, 2014
(69,858
)
 
(69,858
)
Total stockholders’ equity
472,740

 
453,387

Total liabilities and stockholders’ equity
$
3,970,770

 
$
4,232,443


See Accompanying Notes to Consolidated Financial Statements (Unaudited)

3



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(in thousands, except share and per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Interest and dividend income:
 
 
 
 
 
 
 
Interest and fees on loans
$
36,915

 
$
27,522

 
$
73,949

 
$
54,851

Taxable interest on securities
2,959

 
2,375

 
6,813

 
4,912

Tax-exempt interest on securities
20

 
20

 
40

 
96

Interest on interest-bearing deposits in other banks
40

 
18

 
88

 
38

Dividends on FRB stock
201

 
172

 
385

 
340

Dividends on FHLB stock
915

 
236

 
1,213

 
472

Total interest and dividend income
41,050

 
30,343

 
82,488

 
60,709

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
3,802

 
3,153

 
7,582

 
6,375

Interest on FHLB advances
4

 
30

 
60

 
78

Interest on subordinated debentures
151

 

 
296

 

Total interest expense
3,957

 
3,183

 
7,938

 
6,453

Net interest income before provision for loan losses
37,093

 
27,160

 
74,550

 
54,256

Negative provision for loan losses
(2,495
)
 
(3,866
)
 
(4,480
)
 
(7,166
)
Net interest income after provision for loan losses
39,588

 
31,026

 
79,030

 
61,422

Noninterest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
3,169

 
2,568

 
6,380

 
5,041

Trade finance and other service charges and fees
1,109

 
1,166

 
2,376

 
2,188

Gain on sales of Small Business Administration ("SBA") loans
1,573

 
498

 
3,257

 
1,045

Net gain on sales of securities
1,912

 
364

 
4,096

 
1,785

Disposition gains on Purchased Credit Impaired ("PCI") loans
2,470

 

 
3,693

 

Other operating income
900

 
892

 
2,181

 
1,643

Total noninterest income
11,133

 
5,488

 
21,983

 
11,702

Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
15,542

 
10,280

 
31,926

 
20,539

Occupancy and equipment
4,224

 
2,469

 
8,527

 
4,866

Merger and integration costs
136

 
72

 
1,747

 
157

Data processing
1,335

 
1,112

 
3,467

 
2,270

OREO expense
(13
)
 

 
404

 
5

Professional fees
1,701

 
652

 
4,042

 
1,400

Supplies and communications
928

 
595

 
1,758

 
1,097

Advertising and promotion
1,046

 
753

 
1,569

 
1,333

Other operating expenses
2,219

 
2,206

 
5,382

 
4,270

Total noninterest expense
27,118

 
18,139

 
58,822

 
35,937

Income from continuing operations before provision for income taxes
23,603

 
18,375

 
42,191

 
37,187

Provision for income taxes
9,619

 
6,866

 
17,153

 
14,710

Income from continuing operations, net of taxes
13,984

 
11,509

 
25,038

 
22,477

Discontinued operations:
 
 
 
 
 
 
 
(Loss) income from operations of discontinued subsidiaries

 
(1
)
 

 
37

Income tax expense

 
466

 

 
481

Loss from discontinued operations, net of taxes

 
(467
)
 

 
(444
)
Net income
$
13,984

 
$
11,042

 
$
25,038

 
$
22,033

Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations, net of taxes
$
0.44

 
$
0.36

 
$
0.79

 
$
0.71

Loss from discontinued operations, net of taxes

 
(0.01
)
 

 
(0.01
)
Basic earnings per share
$
0.44

 
$
0.35

 
$
0.79

 
$
0.70

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations, net of taxes
$
0.44

 
$
0.36

 
$
0.79

 
$
0.70

Loss from discontinued operations, net of taxes

 
(0.01
)
 

 
(0.01
)
Diluted earnings per share
$
0.44

 
$
0.35

 
$
0.79

 
$
0.69

Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
31,774,692

 
31,681,033

 
31,761,067

 
31,670,436

Diluted
31,908,719

 
31,974,253

 
31,874,484

 
31,950,313


See Accompanying Notes to Consolidated Financial Statements (Unaudited)


4



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
 
Three Months Ended June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
13,984

 
$
11,042

 
$
25,038

 
$
22,033

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Unrealized gain on securities
 
 
 
 
 
 
 
Unrealized holding (loss) gain arising during period
(8,041
)
 
6,340

 
4,002

 
14,438

Less: reclassification adjustment for net gain included in net income
(1,912
)
 
(364
)
 
(4,096
)
 
(1,785
)
Unrealized gain on interest-only strip of servicing assets

 

 

 
1

Income tax benefit (expense) related to items of other comprehensive income
4,177

 
(2,617
)
 
54

 
(5,424
)
Other comprehensive (loss) income
(5,776
)
 
3,359

 
(40
)
 
7,230

Comprehensive income
$
8,208

 
$
14,401

 
$
24,998

 
$
29,263


See Accompanying Notes to Consolidated Financial Statements (Unaudited)


5



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except share data)
 
Common Stock - Number of Shares
 
Stockholders’ Equity
 
Shares Issued
 
Treasury Shares
 
Shares Outstanding
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive (Loss) Income
 
Accumulated Deficit
 
Treasury Stock, at Cost
 
Total Stockholders’ Equity
Balance at January 1, 2014
32,339,444

 
(577,894
)
 
31,761,550

 
$
257

 
$
552,270

 
$
(9,380
)
 
$
(73,212
)
 
$
(69,858
)
 
$
400,077

Exercises of stock options
33,695

 

 
33,695

 

 
418

 

 

 

 
418

Exercises of stock warrants
363

 

 
363

 

 
2

 

 

 

 
2

Restricted stock awards, net of shares forfeited
65,348

 

 
65,348

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 
1,051

 

 

 

 
1,051

Cash dividends declared

 

 

 

 

 

 
(4,463
)
 

 
(4,463
)
Comprehensive income:
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 


Net income

 

 

 

 

 

 
22,033

 

 
22,033

Change in unrealized gain on securities available for sale and interest-only strips, net of income taxes

 

 

 

 

 
7,230

 

 

 
7,230

Balance at June 30, 2014
32,438,850

 
(577,894
)
 
31,860,956

 
$
257

 
$
553,741

 
$
(2,150
)
 
$
(55,642
)
 
$
(69,858
)
 
$
426,348

Balance at January 1, 2015
32,488,097

 
(577,894
)
 
31,910,203

 
$
257

 
$
554,904

 
$
463

 
$
(32,379
)
 
$
(69,858
)
 
$
453,387

Exercises of stock options
26,455

 

 
26,455

 

 
363

 

 

 

 
363

Restricted stock awards, net of shares forfeited
38,184

 

 
38,184

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 
1,022

 

 

 

 
1,022

Cash dividends declared

 

 

 

 

 

 
(7,030
)
 

 
(7,030
)
Comprehensive income:
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 


Net income

 

 

 

 

 

 
25,038

 

 
25,038

Change in unrealized loss on securities available for sale and interest-only strips, net of income taxes

 

 

 

 

 
(40
)
 

 

 
(40
)
Balance at June 30, 2015
32,552,736

 
(577,894
)
 
31,974,842

 
$
257

 
$
556,289

 
$
423

 
$
(14,371
)
 
$
(69,858
)
 
$
472,740

See Accompanying Notes to Consolidated Financial Statements (Unaudited)


6



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands) 
 
Six Months Ended June 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
25,038

 
$
22,033

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
9,573

 
3,283

Share-based compensation expense
1,022

 
1,051

Negative provision for loan losses
(4,480
)
 
(7,166
)
Gain on sales of securities
(4,096
)
 
(1,785
)
Gain on sales of loans
(3,257
)
 
(1,045
)
Disposition gains on PCI loans
(3,693
)
 

Loss on sale of OREO

 
2

Loss on sales of subsidiaries

 
419

Valuation adjustment on OREO
(228
)
 

Origination of loans held for sale
(37,942
)
 
(16,569
)
Proceeds from sales of SBA loans
43,443

 
14,009

Change in accrued interest receivable
1,616

 
700

Change in FDIC loss sharing liability
(1,958
)
 

Change in bank-owned life insurance
(498
)
 
(447
)
Change in prepaid expenses and other assets
4,225

 
(4,777
)
Change in income tax assets
1,606

 
5,202

Change in accrued interest payable
(7
)
 
57

Change in accrued expenses and other liabilities
(14,405
)
 
11,416

Net cash provided by operating activities
15,959

 
26,383

Cash flows from investing activities:
 
 
 
Proceeds from redemption of FHLB stock
1,195

 

Proceeds from matured or called securities
62,863

 
36,553

Proceeds from sales of securities
307,442

 
126,056

Proceeds from sales of OREO
6,096

 
734

Proceeds from sales of loans held for sale
360

 

Proceeds from bank-owned life insurance
1,323

 

Net proceeds from sales of subsidiaries

 
398

Change in loans receivable, net of purchases
(23,135
)
 
(118,166
)
Purchases of securities
(40,484
)
 
(124,442
)
Purchases of premises and equipment
(1,292
)
 
(611
)
Purchases of loans receivable
(64,553
)
 

Purchases of FRB stock
(1,244
)
 
(2,643
)
Net cash provided by (used in) investing activities
248,571

 
(82,121
)
Cash flows from financing activities:
 
 
 
Change in deposits
(116,965
)
 
32,524

Change in FHLB advances
(150,000
)
 
(30,546
)
Redemption of rescinded stock obligation
(783
)
 

Proceeds from exercise of stock options
363

 
418

Cash dividends paid
(2,234
)
 
(2,233
)
Net cash (used in) provided by financing activities
(269,619
)
 
163

Net decrease in cash and cash equivalents
(5,089
)
 
(55,575
)
Cash and cash equivalents at beginning of year
158,320

 
179,357

Cash and cash equivalents at end of period
$
153,231

 
$
123,782

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
7,945

 
$
6,396

Income taxes
$
14,338

 
$
8,916

Non-cash activities:
 
 
 
Transfer of loans receivable to OREO
$
2,711

 
$
1,714

Transfer of loans receivable to loans held for sale
$
360

 
$

Note receivable from sale of insurance subsidiaries
$

 
$
1,394

Conversion of stock warrants into common stock
$

 
$
2

Income tax benefit (expense) related to items of other comprehensive income
$
54

 
$
(5,424
)
Change in unrealized gain in accumulated other comprehensive income
$
(4,002
)
 
$
(14,438
)
Cash dividends declared
$
(7,030
)
 
$
(2,230
)
See Accompanying Notes to Consolidated Financial Statements (Unaudited)


7



Hanmi Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three and Six months ended June 30, 2015 and 2014
Note 1 — Basis of Presentation

Hanmi Financial Corporation (“Hanmi Financial,” the “Company,” “we,” “us” or “our”) was formed as a holding company of Hanmi Bank (the “Bank”) and registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 in 2000. Our primary operations are related to traditional banking activities, including the acceptance of deposits and the lending and investing of money through operation of the Bank.

On August 31, 2014, Hanmi Financial completed its acquisition of Central Bancorp, Inc., a Texas corporation (“CBI”). See Note 2 - Acquisition and Note 6 - Loans for accounting policies regarding purchased loans. During the second quarter of 2014, we sold two subsidiaries, Chun-Ha Insurance Services, Inc., a California corporation (“Chun-Ha”), and All World Insurance Services, Inc., a California corporation (“All World”). See Note 4 - Sale of Insurance Subsidiaries and Discontinued Operations.

In management’s opinion, the accompanying unaudited consolidated financial statements of Hanmi Financial and its subsidiaries reflect all adjustments of a normal and recurring nature that are necessary for a fair presentation of the results for the interim period ended June 30, 2015, but are not necessarily indicative of the results that will be reported for the entire year or any other interim period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The aforementioned unaudited consolidated financial statements are in conformity with GAAP. Such interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. The interim information should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “2014 Annual Report on Form 10-K”).

The preparation of interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates subject to change include, among other items, the fair value estimates of assets acquired and liabilities assumed in the CBI acquisition as discussed in Note 2 - Acquisition. The acquired assets and assumed liabilities of CBI were measured at their estimated fair values. The Company made significant estimates and exercised significant judgment in estimating fair values and accounting for such acquired assets and assumed liabilities. Certain prior period amounts have been reclassified to conform to current period presentation.

Descriptions of our significant accounting policies are included in Note 1 - Summary of Significant Accounting Policies in our 2014 Annual Report on Form 10-K. During the second quarter of 2014, we adopted an accounting policy related to accounting for investments in low-income housing tax credit according to Financial Accounting Standards Board (“FASB”) ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. See Note 3 - Accounting for Investments in Qualified Affordable Housing Projects.

Note 2 — Acquisition

Acquisition of Central Bancorp, Inc.

On August 31, 2014, Hanmi Financial completed its acquisition of CBI, the parent company of United Central Bank (“UCB”). In the merger with CBI, each share of CBI common stock was exchanged for $17.64 per share or $50.0 million in the aggregate. In addition, Hanmi Financial paid $28.7 million to redeem CBI preferred stock immediately prior to the consummation of the merger. The merger consideration was funded from consolidated cash of Hanmi Financial. At August 31, 2014, CBI had total assets, liabilities and net assets of $1.27 billion, $1.17 billion and $93.3 million respectively. Total loans and deposits were $297.3 million and $1.10 billion, respectively, at August 31, 2014.
    
CBI was headquartered in Garland, Texas and through UCB, operated 23 branch locations within Texas, Illinois, Virginia, New York, New Jersey and California. The combined companies operate as Hanmi Financial Corporation and Hanmi Bank, respectively, with banking operations under the Hanmi Bank brand. The acquisition was accounted for under the acquisition method of accounting pursuant to ASC 805, Business Combinations. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. The Company made significant estimates and exercised significant judgment in estimating the fair values and accounting for such acquired assets and assumed liabilities.

8



Such fair values are preliminary estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. The fair values are based on provisional valuation estimates of the fair values of the acquired assets and assumed liabilities. The valuation of acquired income tax assets and liabilities were based on a preliminary estimates and are subject to change as the provisional amounts are finalized. Such changes to the preliminary estimates during the measurement period are recorded as retrospective adjustments to the consolidated financial statements. During the measurement period, the Company identified retrospective adjustments to certain of the provisional amounts recorded that had the net effect of increasing the bargain purchase gain, net of deferred taxes by $8.0 million.
 
The following table presents the purchase price allocation reported as of the acquisition date:
 
(in thousands)
Consideration paid:
 
CBI Stockholders
$
50,000

Redemption of preferred stock and cumulative unpaid dividends
28,675

 
78,675

Assets acquired:
 
Cash and cash equivalents
197,209

Securities available for sale
663,497

Loans
297,272

Premises and equipment
17,925

OREO
25,952

Income tax assets, net
12,011

Core deposit intangible
2,213

FDIC loss sharing assets
11,413

Bank-owned life insurance
18,296

Servicing assets
7,497

Other assets
14,636

Total assets acquired
1,267,921

Liabilities assumed:
 
Deposits
1,098,997

Subordinated debentures
18,473

Rescinded stock obligation
15,485

FHLB advances
10,000

Servicing liabilities
6,039

Other liabilities
25,675

Total liabilities assumed
1,174,669

Total identifiable net assets
$
93,252

Bargain purchase gain, net of deferred taxes
$
14,577

 
The provisional application of the acquisition method of accounting resulted in a bargain purchase gain of $14.6 million. The operations of CBI are included in our operating results since the acquisition date. Acquisition-related costs of $6.6 million for the year ended December 31, 2014 were expensed as incurred as merger and integration costs. These expenses are comprised primarily of system conversion costs and professional fees. For the three and six months ended June 30, 2015, acquisition costs of $136,000 and $1.7 million, respectively, were expensed as incurred as merger and integration costs. The $297.3 million estimated fair value of loans acquired from CBI was determined by utilizing a discounted cash flow methodology considering credit and interest rate risk. Cash flows were determined by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value based on a current market rate for similar loans. There was no carryover of CBI’s allowance for loan losses associated with the loans acquired as loans were initially recorded at fair value.


9



The following table summarizes the accretable yield on the purchased credit impaired loans acquired from the CBI merger at August 31, 2014.
 
(in thousands)
Undiscounted contractual cash flows
$
93,623

Nonaccretable discount
(17,421
)
Undiscounted cash flow to be collected
76,202

Estimated fair value of PCI loans
65,346

Accretable yield
$
10,856


The core deposit intangible (“CDI”) of $2.2 million was recognized for the core deposits acquired from CBI. The CDI is amortized over its useful life of approximately ten years on an accelerated basis and reviewed for impairment at least quarterly. The amortization of the CDI for the three and six months ended June 30, 2015 was $95,000 and $190,000, respectively.

The fair value of savings and transactional deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Expected cash flows were utilized for fair value calculation of the certificates of deposit based on the contractual terms of the certificates of deposit and the cash flows were discounted based on a current market rate for certificates of deposit with corresponding maturities. The premium of $11.3 million was recognized for certificates of deposit acquired from CBI. The amortization of premium for the three and six months ended June 30, 2015 were $1.5 million and $3.1 million, respectively.

The fair value of subordinated debentures was determined by estimating projected future cash flows and discounting them at a market rate of interest. A discount of $8.3 million was recognized for subordinated debentures, which will be amortized over their contractual term. The amortization of discount for the three and six months ended June 30, 2015 were $41,000 and $79,000, respectively.

Unaudited Pro Forma Results of Operations

The following table presents our unaudited pro forma results of operations for the periods presented as if the CBI acquisition had been completed on January 1, 2014. The unaudited pro forma results of operations include the historical accounts of Hanmi Financial and CBI and pro forma adjustments as may be required, including the amortization of intangibles with definite lives and the amortization or accretion of any premiums or discounts arising from fair value adjustments for assets acquired and liabilities assumed. The unaudited pro forma information is intended for informational purposes only and is not necessarily indicative of our future operating results or operating results that would have occurred had the CBI acquisition been completed at the beginning of 2014. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands, except per share data)
Pro forma revenues (net interest income plus noninterest income)
$
53,491

 
$
49,343

 
$
107,022

 
$
105,589

Pro forma net income from continuing operations
$
15,276

 
$
8,521

 
$
27,887

 
$
24,801

Pro forma earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.48

 
$
0.27

 
$
0.88

 
$
0.78

Diluted
$
0.48

 
$
0.27

 
$
0.87

 
$
0.78


Note 3 — Accounting for Investments in Qualified Affordable Housing Projects

The Bank invests in qualified affordable housing projects (low income housing) and previously accounted for them under the equity method of accounting. The Bank recognized its share of partnership losses in other operating expenses with the tax benefits recognized in the income tax provision. In January 2014, the FASB issued ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, which amends ASC 323 to provide the ability to elect the proportional amortization method with the amortization expense and tax benefits recognized through the income tax provision. This ASU is effective for the annual period beginning after December 15, 2014, with early adoption being permitted. The Bank elected to early adopt the provisions of the ASU in the second quarter of 2014 and elected the proportional amortization method as

10



retrospective transition. This accounting change in the amortization methodology resulted in changes to account for amortization recognized in prior periods, which impacted the balance of tax credit investments and related tax accounts. The investment amortization expense is presented as a component of the income tax provision.

The cumulative effect of the retrospective application of this accounting principle was a $1.1 million charge to stockholders' equity as of January 1, 2012. Net income in the three months ended March 31, 2014 decreased by $44,000 due to the change in accounting principle.
    
The Bank determined that there were no events or changes in circumstances indicating that it is more likely than not that the carrying amount of the investment will not be realized. Therefore, no impairment was recognized as of June 30, 2015 or December 31, 2014. The investment in low income housing was $20.1 million and $21.3 million as of June 30, 2015 and December 31, 2014, respectively. The Bank’s unfunded commitments related to low income housing investments were $8.5 million and $11.9 million as of June 30, 2015 and December 31, 2014, respectively. As a component of income tax expense, the Bank recognized amortizations of $586,000 and $1.2 million during the three and six months ended June 30, 2015, respectively and $276,000 and $447,000 during the three and six months ended June 30, 2014, respectively. Tax credits and other benefits received from the tax expenses were $832,000 and $1.6 million during the three and six months ended June 30, 2015 and $423,000 and $665,000 during the three and six months ended June 30, 2014, respectively.

Note 4 — Sale of Insurance Subsidiaries and Discontinued Operations

In June, 2014, Hanmi Financial sold its insurance subsidiaries, Chun-Ha and All World, and entered into a stock purchase agreement for their sale. The subsidiaries were classified as held for sale in April 2014 and accounted for as discontinued operations. The operations and cash flows of the businesses have been eliminated and in accordance with the provisions of ASC 205, Presentation of Financial Statements, the results are reported as discontinued operations for all periods presented.

Hanmi Financial completed the sale of its two insurance subsidiaries to Chunha Holding Corporation on June 30, 2014 when total assets and net assets of Chun-Ha and All World were $5.6 million and $3.3 million as of June 30, 2014, respectively. The total sales price was $3.5 million, of which $2.0 million was paid upon signing. The remaining $1.5 million will be payable in three equal installments on each anniversary of the closing date through June 30, 2017.

The sale resulted in a $51,000 gain, offset by a $470,000 capital gain tax, a $14,000 operating loss and an $11,000 income tax expense. Consequently, the net loss from discontinued operations for the second quarter of 2014 was $444,000, or $0.01 per diluted share. For the three and six months ended June 30, 2014, the discontinued operations generated noninterest income, primarily in the line item for insurance commissions, of $1.3 million and $2.7 million, respectively. They also incurred noninterest expense in various line items of $1.4 million and $2.7 million for the three and six months ended June 30, 2014.

Summarized financial information for our discontinued operations related to Chun-Ha and All World are as follows:
 
June 30, 2014
 
(in thousands)
Cash and cash equivalents
$
1,602

Premises and equipment, net
90

Other intangible assets, net
1,089

Other assets
2,855

Total assets
$
5,636

Income tax payable
$
415

Accrued expenses and other liabilities
1,878

Total liabilities
$
2,293

Net assets of discontinued operations
$
3,343


11



 
June 30, 2014
 
Three Months Ended
 
Six Months Ended
 
(in thousands)
Noninterest loss
$
(52
)
 
$
(14
)
Gain on disposal
51

 
51

(Loss) income before taxes
(1
)
 
37

Provision for income taxes
466

 
481

Net loss from discontinued operations
$
(467
)
 
$
(444
)

Note 5 — Securities

The following is a summary of securities available for sale as of June 30, 2015 and December 31, 2014: 
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
 
(in thousands)
June 30, 2015
 
 
 
 
 
 
 
Mortgage-backed securities (1) (2)
$
379,574

 
$
1,374

 
$
1,380

 
$
379,568

Collateralized mortgage obligations (1)
154,968

 
1,061

 
660

 
155,369

U.S. government agency securities
63,969

 
4

 
1,312

 
62,661

SBA loan pool securities
71,960

 
83

 
357

 
71,686

Municipal bonds-tax exempt
3,589

 
37

 

 
3,626

Municipal bonds-taxable
15,607

 
271

 
46

 
15,832

Corporate bonds
17,019

 
1

 
44

 
16,976

U.S. treasury securities
161

 
1

 

 
162

Other securities
22,916

 

 
113

 
22,803

Total securities available for sale
$
729,763

 
$
2,832

 
$
3,912

 
$
728,683

December 31, 2014
 
 
 
 
 
 
 
Mortgage-backed securities (1) (2)
$
571,678

 
$
2,811

 
$
1,203

 
$
573,286

Collateralized mortgage obligations (1)
188,704

 
417

 
1,074

 
188,047

U.S. government agency securities
129,857

 
172

 
1,822

 
128,207

SBA loan pool securities
109,983

 
52

 
588

 
109,447

Municipal bonds-tax exempt
4,319

 
71

 

 
4,390

Municipal bonds-taxable
16,615

 
398

 
91

 
16,922

Corporate bonds
17,018

 
2

 
72

 
16,948

U.S. treasury securities
163

 

 

 
163

Other securities
22,916

 
57

 
80

 
22,893

Equity securities
450

 

 
36

 
414

Total securities available for sale
$
1,061,703

 
$
3,980

 
$
4,966

 
$
1,060,717

                              
(1) 
Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities
(2) 
A portion of the mortgage-backed securities is comprised of home mortgage-backed securities backed by home equity conversion mortgages


12



The amortized cost and estimated fair value of securities as of June 30, 2015, by contractual maturity, are shown below. Although mortgage-backed securities and collateralized mortgage obligations have contractual maturities through 2064, expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
Available for Sale
 
Amortized Cost
 
Estimated Fair Value
 
(in thousands)
Within one year
$
11,998

 
$
11,973

Over one year through five years
17,329

 
17,208

Over five years through ten years
98,196

 
97,498

Over ten years
44,782

 
44,264

Mortgage-backed securities
379,574

 
379,568

Collateralized mortgage obligations
154,968

 
155,369

Other securities
22,916

 
22,803

Total
$
729,763

 
$
728,683

FASB ASC 320, Investments – Debt and Equity Securities, requires us to periodically evaluate our investments for other-than-temporary impairment (“OTTI”). There was no OTTI charge during the six months ended June 30, 2015 and 2014.
    
Gross unrealized losses on securities available for sale, the estimated fair value of the related securities and the number of securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows as of June 30, 2015 and December 31, 2014
 
Holding Period
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Gross Unrealized Loss
 
Estimated Fair Value
 
Number of Securities
 
Gross Unrealized Loss
 
Estimated Fair Value
 
Number of Securities
 
Gross Unrealized Loss
 
Estimated Fair Value
 
Number of Securities
 
(in thousands, except number of securities)
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
595

 
$
94,908

 
32

 
$
785

 
$
22,781

 
9

 
$
1,380

 
$
117,689

 
41

Collateralized mortgage obligations
114

 
28,201

 
8

 
546

 
28,654

 
12

 
660

 
56,855

 
20

U.S. government agency securities
394

 
29,596

 
11

 
918

 
30,061

 
10

 
1,312

 
59,657

 
21

SBA loan pool securities
19

 
13,971

 
3

 
338

 
11,362

 
4

 
357

 
25,333

 
7

Municipal bonds-taxable
46

 
6,086

 
5

 

 

 

 
46

 
6,086

 
5

Corporate bonds
17

 
5,004

 
1

 
27

 
7,971

 
2

 
44

 
12,975

 
3

Other securities
25

 
21,861

 
3

 
88

 
937

 
3

 
113

 
22,798

 
6

Total
$
1,210

 
$
199,627

 
63

 
$
2,702

 
$
101,766

 
40

 
$
3,912

 
$
301,393

 
103

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
288

 
$
102,704

 
21

 
$
915

 
$
50,625

 
19

 
$
1,203

 
$
153,329

 
40

Collateralized mortgage obligations
350

 
78,191

 
21

 
724

 
33,308

 
13

 
1,074

 
111,499

 
34

U.S. government agency securities

 
5,000

 
1

 
1,822

 
73,142

 
26

 
1,822

 
78,142

 
27

SBA loan pool securities
155

 
85,062

 
15

 
433

 
11,975

 
4

 
588

 
97,037

 
19

Municipal bonds-taxable

 

 

 
91

 
5,538

 
5

 
91

 
5,538

 
5

Corporate bonds
4

 
5,021

 
1

 
68

 
7,925

 
2

 
72

 
12,946

 
3

Other securities

 

 

 
80

 
1,945

 
4

 
80

 
1,945

 
4

Equity securities
36

 
214

 
1

 

 

 

 
36

 
214

 
1

Total
$
833

 
$
276,192

 
60

 
$
4,133

 
$
184,458

 
73

 
$
4,966

 
$
460,650

 
133


All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of June 30, 2015 and December 31, 2014 had investment grade ratings upon purchase. The issuers of these securities have not established

13



any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long-term investment grade status as of June 30, 2015 and December 31, 2014. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.

FASB ASC 320 requires OTTI securities to be written down when fair value is below amortized cost in circumstances where: (1) an entity has the intent to sell a security; (2) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (3) an entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more likely than not the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value. If an entity does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in other comprehensive income.

The Company does not intend to sell these securities and it is more likely than not that we will not be required to sell the investments before the recovery of its amortized cost basis. In addition, the unrealized losses on municipal and corporate bonds are not considered other-than-temporarily impaired, as the bonds are rated investment grade and there are no credit quality concerns with the issuers. Interest payments have been made as scheduled, and management believes this will continue in the future and that the bonds will be repaid in full as scheduled. Therefore, in management’s opinion, all securities that have been in a continuous unrealized loss position for the past 12 months or longer as of June 30, 2015 and December 31, 2014 were not other-than-temporarily impaired, and therefore, no impairment charges as of June 30, 2015 and December 31, 2014 were warranted.

Realized gains and losses on sales of securities and proceeds from sales of securities were as follows for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
Gross realized gains on sales of securities
$
2,067

 
$
365

 
$
4,262

 
$
1,786

Gross realized losses on sales of securities
(155
)
 
(1
)
 
(166
)
 
(1
)
Net realized gains on sales of securities
$
1,912

 
$
364

 
$
4,096

 
$
1,785

Proceeds from sales of securities
$
130,594

 
$
40,822

 
$
307,442

 
$
126,056


For the three months ended June 30, 2015, there was a $1.9 million net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized gains of $4.1 million in comprehensive income. For the three months ended June 30, 2014, there was a $364,000 net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized gains of $100,000 in comprehensive income.

For the six months ended June 30, 2015, there was a $4.1 million net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized gains of $1.2 million in comprehensive income. For the three months ended June 30, 2014, there was a $1.8 million net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized losses of $177,000 in comprehensive income.

Securities available for sale with market values of $71.1 million and $76.2 million as of June 30, 2015 and December 31, 2014, respectively, were pledged to secure FHLB advances, public deposits and for other purposes as required or permitted by law.

Note 6 — Loans

The loan portfolio includes originated and purchased loans. Loans are originated by the Company with the intent to hold them for investment and are stated at the principal amount outstanding, net of unearned income. Unearned income includes deferred unamortized nonrefundable loan fees and direct loan origination costs. Net deferred fees or costs are recognized as an adjustment to interest income over the contractual life of the loans using the effective interest method or taken into income when the related loans are paid off or sold. The amortization of loan fees or costs is discontinued when a loan is placed on nonaccrual status. Interest income is recorded on an accrual basis in accordance with the terms of the respective loan and includes prepayment penalties.


14



Purchased loans, which are loans we have acquired through our acquisition of other banks or purchased from other institutions, are stated at the principal amount outstanding, net of unearned discounts or unamortized premiums. All loans acquired in acquisitions are initially measured and recorded at their fair value on the acquisition date. A component of the initial fair value measurement is an estimate of the credit losses over the life of the purchased loans. Purchased loans are also evaluated for impairment as of the acquisition date and are accounted for as "acquired non-impaired" or "purchased credit impaired" loans.

Purchased non-impaired loans are those loans for which there was no evidence of credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments. Purchased non-impaired loans, together with originated loans, are referred to as non-purchased credit impaired ("Non-PCI") loans. Purchase discounts or premiums on Non-PCI loans is recognized as an adjustment to interest income over the contractual life of such loans using the effective interest method or taken into income when the related loans are paid off or sold.

Purchased credit impaired ("PCI") loans are accounted for in accordance with ASC Subtopic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality." A purchased loan is deemed to be credit impaired when there is evidence of credit deterioration since its origination and it is probable at the acquisition date that we would be unable to collect all contractually required payments. We apply PCI loan accounting when we acquire loans deemed to be impaired.

For PCI loans, at the time of acquisition we (i) calculated the contractual amount and timing of undiscounted principal and interest payments (the "undiscounted contractual cash flows") and (ii) estimated the amount and timing of undiscounted expected principal and interest payments (the "undiscounted expected cash flows"). The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the PCI loan portfolios; such amount is subject to change over time based on the performance of such loans. The carrying value of PCI loans is reduced by payments received, both principal and interest, and increased by the portion of the accretable yield recognized as interest income.

The excess of expected cash flows at acquisition over the initial fair value of acquired impaired loans is referred to as the "accretable yield" and is recorded as interest income over the estimated life of the loans using the effective yield. If estimated cash flows are indeterminable, the recognition of interest income will cease to be recognized.

At acquisition, the Company may aggregate PCI loans into pools having common credit risk characteristics such as product type, geographic location and risk rating. Increases in expected cash flows over those previously estimated increase the accretable yield and are recognized as interest income prospectively. Decreases in the amount and changes in the timing of expected cash flows compared to those previously estimated decrease the accretable yield and usually result in a provision for loan losses and the establishment of an allowance for loan losses. As the accretable yield increases or decreases from changes in cash flow expectations, the offset is a decrease or increase to the nonaccretable difference. The accretable yield is measured at each financial reporting date based on information then currently available and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans.

The Board of Directors and management review and approve the Bank’s loan policy and procedures on a regular basis to reflect issues such as regulatory and organizational structure changes, strategic planning revisions, concentrations of credit, loan delinquencies and nonperforming loans, problem loans, and policy adjustments.

Real estate loans are loans secured by liens or interest in real estate, to provide purchase, construction, and refinance on real estate properties. Commercial and industrial loans consist of commercial term loans, commercial lines of credit, and Small Business Administration (“SBA”) loans. Consumer loans consist of auto loans, personal loans, and home equity lines of credit. We maintain management loan review and monitoring departments that review and monitor pass graded loans as well as problem loans to prevent further deterioration.

The majority of the Bank’s loan portfolio consists of commercial real estate, and commercial and industrial loans. The Bank has been diversifying and monitoring commercial real estate loans based on property types, tightening underwriting standards and portfolio liquidity and management, and has not exceeded certain specified limits set forth in the Bank’s loan policy.


15



Loans receivable consisted of the following as of the dates indicated:
 
June 30, 2015
 
December 31, 2014
 
Non-PCI Loans
 
PCI Loans
 
Total
 
Non-PCI Loans
 
PCI Loans
 
Total
 
(in thousands)
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial property (1)
 
 
 
 
 
 
 
 
 
 
 
Retail
$
690,097

 
$
9,358

 
$
699,455

 
$
675,072

 
$
10,343

 
$
685,415

Hospitality
492,289

 
10,345

 
502,634

 
454,499

 
12,862

 
467,361

Gas station
337,566

 
5,955

 
343,521

 
362,240

 
7,745

 
369,985

Other
840,735

 
5,885

 
846,620

 
842,126

 
10,680

 
852,806

Construction
21,310

 

 
21,310

 
9,517

 

 
9,517

Residential property
171,071

 
2,055

 
173,126

 
120,932

 
2,499

 
123,431

Total real estate loans
2,553,068

 
33,598

 
2,586,666

 
2,464,386

 
44,129

 
2,508,515

Commercial and industrial loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial term
111,676

 
267

 
111,943

 
116,073

 
327

 
116,400

Commercial lines of credit
115,382

 

 
115,382

 
93,860

 

 
93,860

International loans
33,864

 

 
33,864

 
38,929

 

 
38,929

Total commercial and industrial loans
260,922

 
267

 
261,189

 
248,862

 
327

 
249,189

Consumer loans
26,274

 
43

 
26,317

 
27,512

 
45

 
27,557

Total gross loans
2,840,264

 
33,908

 
2,874,172

 
2,740,760

 
44,501

 
2,785,261

Allowance for loans losses
(49,468
)
 
(1,352
)
 
(50,820
)
 
(51,640
)
 
(1,026
)
 
(52,666
)
Deferred loan costs
2,734

 

 
2,734

 
3,237

 

 
3,237

Loans receivable, net
$
2,793,530

 
$
32,556

 
$
2,826,086

 
$
2,692,357

 
$
43,475

 
$
2,735,832

 
(1) 
Includes owner-occupied property loans of $1.16 billion and $1.12 billion as of June 30, 2015 and December 31, 2014, respectively.

Accrued interest on loans receivable was $6.1 million and $6.4 million at June 30, 2015 and December 31, 2014, respectively. At June 30, 2015 and December 31, 2014, loans receivable totaling $735.2 million and $840.0 million respectively, were pledged to secure advances from the FHLB and the FBR discount window.


16



The following table details the information on the sales and reclassifications of loans receivable to loans held for sale (excluding PCI loans) by portfolio segment for the three months ended June 30, 2015 and 2014:
 
Real Estate
 
Commercial and Industrial
 
Consumer
 
Total Non-PCI
 
(in thousands)
June 30, 2015
 
 
 
 
 
 
 
Balance at beginning of period
$
7,226

 
$
1,451

 
$

 
$
8,677

Origination of loans held for sale
6,807

 
8,027

 

 
14,834

Reclassification from loans receivable to loans held for sale
360

 

 

 
360

Sales of loans held for sale
(12,321
)
 
(7,368
)
 

 
(19,689
)
Principal payoffs and amortization
(5
)
 
(19
)
 

 
(24
)
Balance at end of period
$
2,067

 
$
2,091

 
$

 
$
4,158

June 30, 2014
 
 
 
 
 
 
 
Balance at beginning of period
$
390

 
$

 
$

 
$
390

Origination of loans held for sale
8,124

 
2,091

 

 
10,215

Sales of loans held for sale
(5,944
)
 
(815
)
 

 
(6,759
)
Principal payoffs and amortization
(2
)
 
(2
)
 

 
(4
)
Balance at end of period
$
2,568

 
$
1,274

 
$

 
$
3,842


For the three months ended June 30, 2015, a Non-PCI loan receivable of $360,000 was reclassified as loans held for sale and Non-PCI loans held for sale of $19.7 million were sold. In addition, there was no reclassification from Non-PCI loans held for sale to Non-PCI loans receivable for the three months ended June 30, 2015. For the three months ended June 30, 2014, there was no reclassification of Non-PCI loans receivable as Non-PCI loans held for sale and Non-PCI loans held for sale of $6.8 million were sold. In addition, there was no reclassification from Non-PCI loans held for sale to Non-PCI loans receivable for the three months ended June 30, 2014.

The following table details the information on the sales and reclassifications of loans receivable to loans held for sale (excluding PCI loans) by portfolio segment for the six months ended June 30, 2015 and 2014:
 
Real Estate
 
Commercial and Industrial
 
Consumer
 
Total Non-PCI
 
(in thousands)
June 30, 2015
 
 
 
 
 
 
 
Balance at beginning of period
$
3,323

 
$
2,128

 
$

 
$
5,451

Origination of loans held for sale
23,734

 
14,208

 

 
37,942

Reclassification from loans receivable to loans held for sale
360

 

 

 
360

Sales of loans held for sale
(25,335
)
 
(14,208
)
 

 
(39,543
)
Principal payoffs and amortization
(15
)
 
(37
)
 

 
(52
)
Balance at end of period
$
2,067

 
$
2,091

 
$

 
$
4,158

June 30, 2014
 
 
 
 
 
 
 
Balance at beginning of period
$

 
$

 
$

 
$

Origination of loans held for sale
14,393

 
2,176

 

 
16,569

Sales of loans held for sale
(11,818
)
 
(899
)
 

 
(12,717
)
Principal payoffs and amortization
(7
)
 
(3
)
 

 
(10
)
Balance at end of period
$
2,568

 
$
1,274

 
$

 
$
3,842


For the six months ended June 30, 2015, a Non-PCI loan receivable of $360,000 was reclassified as loans held for sale and Non-PCI loans held for sale of $39.5 million were sold. In addition, there was no reclassification from Non-PCI loans held for sale to Non-PCI loans receivable for the six months ended June 30, 2015. For the six months ended June 30, 2014, there was no reclassification of Non-PCI loans receivable as Non-PCI loans held for sale, and Non-PCI loans held for sale of $12.7

17



million were sold. In addition, there was no reclassification from Non-PCI loans held for sale to Non-PCI loans receivable for the six months ended June 30, 2014.

Activity in the allowance for loan losses and allowance for off-balance sheet items was as follows for the periods indicated:
 
As of and for the
Three Months Ended
 
As of and for the
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
 
Non-PCI Loans
 
PCI Loans
 
Total
 
 
Non-PCI Loans
 
PCI Loans
 
Total
 
 
(in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
51,515

 
$
1,436

 
$
52,951

 
$
56,593

 
$
51,640

 
$
1,026

 
$
52,666

 
$
57,555

Charge-offs
(1,221
)
 
52

 
(1,169
)
 
(2,547
)
 
(1,255
)
 

 
(1,255
)
 
(4,151
)
Recoveries on loans previously charged off
1,793

 
(352
)
 
1,441

 
1,741

 
3,485

 

 
3,485

 
5,992

Net loan recoveries (charge-offs)
572

 
(300
)
 
272

 
(806
)
 
2,230

 

 
2,230

 
1,841