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 September 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 October 30, 2015, there were 31,975,706 outstanding shares of the Registrant’s Common Stock.



Hanmi Financial Corporation and Subsidiaries
Quarterly Report on Form 10-Q
Three and Nine Months Ended September 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)
September 30, 2015
 
December 31, 2014
Assets
 
 
 
Cash and due from banks
$
235,342

 
$
158,320

Securities available for sale, at fair value (amortized cost of $667,403 as of September 30, 2015 and $1,061,703 as of December 31, 2014)
669,340

 
1,060,717

Loans held for sale, at the lower of cost or fair value
4,871

 
5,451

Loans receivable, net of allowance for loan losses of $46,360 as of September 30, 2015 and $52,666 as of December 31, 2014
2,998,712

 
2,735,832

Accrued interest receivable
8,722

 
9,749

Premises and equipment, net
29,857

 
30,912

Other real estate owned ("OREO"), net
13,249

 
15,790

Customers’ liability on acceptances
2,704

 
1,847

Servicing assets
11,986

 
13,773

Other intangible assets, net
1,795

 
2,080

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

 
17,580

Federal Reserve Bank ("FRB") stock, at cost
14,098

 
12,273

Income tax asset
70,847

 
84,371

Bank-owned life insurance
48,067

 
48,866

Prepaid expenses and other assets
88,266

 
34,882

Total assets
$
4,214,241

 
$
4,232,443

Liabilities and stockholders’ equity
 
 
 
Liabilities:
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
1,114,621

 
$
1,022,972

Interest-bearing
2,404,073

 
2,533,774

Total deposits
3,518,694

 
3,556,746

Accrued interest payable
2,985

 
3,450

Bank’s liability on acceptances
2,704

 
1,847

FHLB advances
150,000

 
150,000

Servicing liabilities
5,176

 
5,971

Federal Deposit Insurance Corporation ("FDIC") loss sharing liability
1,173

 
2,074

Rescinded stock obligation
—

 
933

Subordinated debentures
18,669

 
18,544

Accrued expenses and other liabilities
29,391

 
39,491

Total liabilities
3,728,792

 
3,779,056

Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 32,567,286 shares (31,977,207 shares outstanding) as of September 30, 2015 and 32,488,097 shares (31,910,203 shares outstanding) as of December 31, 2014
257

 
257

Additional paid-in capital
557,116

 
554,904

Accumulated other comprehensive income, net of tax benefit of $212 as of September 30, 2015 and $1,432 as of December 31, 2014
2,158

 
463

Accumulated deficit
(3,931
)
 
(32,379
)
Less: treasury stock, at cost; 590,079 shares as of September 30, 2015 and 577,894 shares as of December 31, 2014
(70,151
)
 
(69,858
)
Total stockholders’ equity
485,449

 
453,387

Total liabilities and stockholders’ equity
$
4,214,241

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Interest and dividend income:
 
 
 
 
 
 
 
Interest and fees on loans
$
36,466

 
$
30,912

 
$
110,415

 
$
85,764

Interest on securities
2,884

 
3,158

 
9,737

 
8,166

Dividends on FRB and FHLB stock
607

 
463

 
2,205

 
1,275

Interest on deposits in other banks
68

 
29

 
156

 
67

Total interest and dividend income
40,025

 
34,562

 
122,513

 
95,272

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
3,881

 
3,278

 
11,463

 
9,653

Interest on subordinated debentures
158

 
73

 
454

 
73

Interest on FHLB advances
1

 
37

 
61

 
116

Interest on rescinded stock obligation
—

 
87

 
—

 
87

Total interest expense
4,040

 
3,475

 
11,978

 
9,929

Net interest income before provision for loan losses
35,985

 
31,087

 
110,535

 
85,343

(Negative provision) provision for loan losses
(3,704
)
 
48

 
(7,779
)
 
(7,463
)
Net interest income after provision for loan losses
39,689

 
31,039

 
118,314

 
92,806

Noninterest income:
 
 
 
 
 
 
 
Bargain purchase gain, net of deferred taxes
—

 
14,577

 
—

 
14,577

Service charges on deposit accounts
3,378

 
2,883

 
9,758

 
7,924

Trade finance and other service charges and fees
1,115

 
1,153

 
3,491

 
3,341

Gain on sales of Small Business Administration ("SBA") loans
1,621

 
1,221

 
4,878

 
2,267

Net gain on sales of securities
2,048

 
67

 
6,144

 
1,852

Disposition gains on Purchased Credit Impaired ("PCI") loans
4,334

 
—

 
8,027

 
—

Other operating income
1,065

 
1,710

 
3,246

 
3,353

Total noninterest income
13,561

 
21,611

 
35,544

 
33,314

Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
16,097

 
12,847

 
48,023

 
33,386

Occupancy and equipment
4,896

 
3,098

 
13,423

 
7,964

Data processing
1,418

 
1,476

 
4,885

 
3,746

Professional fees
1,940

 
1,386

 
5,982

 
2,786

Supplies and communications
880

 
628

 
2,638

 
1,725

Advertising and promotion
1,290

 
809

 
2,859

 
2,142

OREO expense
225

 
(741
)
 
629

 
(735
)
Other operating expenses
1,976

 
2,564

 
6,953

 
7,180

Merger and integration costs
—

 
3,415

 
1,747

 
3,572

Total noninterest expense
28,722

 
25,482

 
87,139

 
61,766

Income from continuing operations before income tax expense
24,528

 
27,168

 
66,719

 
64,354

Income tax expense
10,569

 
5,368

 
27,722

 
20,078

Income from continuing operations, net of taxes
13,959

 
21,800

 
38,997

 
44,276

Discontinued operations:
 
 
 
 
 
 
 
Income from operations of discontinued subsidiaries
—

 
—

 
—

 
37

Income tax expense
—

 
—

 
—

 
481

Loss from discontinued operations, net of taxes
—

 
—

 
—

 
(444
)
Net income
$
13,959

 
$
21,800

 
$
38,997

 
$
43,832

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

 
$
0.69

 
$
1.22

 
$
1.39

Loss from discontinued operations, net of taxes
—

 
—

 
—

 
(0.01
)
Basic earnings per share
$
0.44

 
$
0.69

 
$
1.22

 
$
1.38

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

 
$
0.68

 
$
1.22

 
$
1.39

Loss from discontinued operations, net of taxes
—

 
—

 
—

 
(0.01
)
Diluted earnings per share
$
0.44

 
$
0.68

 
$
1.22

 
$
1.38

Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
31,799,573

 
31,708,581

 
31,774,047

 
31,683,288

Diluted
31,909,808

 
32,001,419

 
31,855,024

 
31,967,876


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 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
13,959

 
$
21,800

 
$
38,997

 
$
43,832

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Unrealized gain on securities
 
 
 
 
 
 
 
Unrealized holding gain (loss) arising during period
5,064

 
(4,947
)
 
9,066

 
9,491

Less: reclassification adjustment for net gain included in net income
(2,048
)
 
(67
)
 
(6,144
)
 
(1,852
)
Unrealized loss on interest-only strip of servicing assets
(7
)
 
(3
)
 
(7
)
 
(2
)
Income tax (expense) benefit related to items of other comprehensive income
(1,274
)
 
2,102

 
(1,220
)
 
(3,322
)
Other comprehensive income (loss), net of tax
1,735

 
(2,915
)
 
1,695

 
4,315

Comprehensive income
$
15,694

 
$
18,885

 
$
40,692

 
$
48,147


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

Stock options exercised
34,382

 
—

 
34,382

 
—

 
427

 
—

 
—

 
—

 
427

Stock warrants exercised
429

 
—

 
429

 
—

 
2

 
—

 
—

 
—

 
2

Restricted stock awards, net of forfeitures
98,068

 
—

 
98,068

 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation expense
—

 
—

 
—

 
—

 
1,747

 
—

 
—

 
—

 
1,747

Cash dividends declared
—

 
—

 
—

 
—

 
—

 
—

 
(6,694
)
 
—

 
(6,694
)
Comprehensive income:
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 


Net income
—

 
—

 
—

 
—

 
—

 
—

 
43,832

 
—

 
43,832

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

 
—

 
—

 
—

 
—

 
4,315

 
—

 
—

 
4,315

Balance at September 30, 2014
32,472,323

 
(577,894
)
 
31,894,429

 
$
257

 
$
554,446

 
$
(5,065
)
 
$
(36,074
)
 
$
(69,858
)
 
$
443,706

Balance at January 1, 2015
32,488,097

 
(577,894
)
 
31,910,203

 
$
257

 
$
554,904

 
$
463

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

Stock options exercised
39,766

 
—

 
39,766

 
—

 
531

 
—

 
—

 
—

 
531

Restricted stock awards, net of forfeitures
39,423

 
—

 
39,423

 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation expense
—

 
—

 
—

 
—

 
1,681

 
—

 
—

 
—

 
1,681

Restricted stock surrendered due to employee tax liability
—

 
(12,185
)
 
(12,185
)
 
—

 
—

 
—

 
—

 
(293
)
 
(293
)
Cash dividends declared
—

 
—

 
—

 
—

 
—

 
—

 
(10,549
)
 
—

 
(10,549
)
Comprehensive income:
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 


Net income
—

 
—

 
—

 
—

 
—

 
—

 
38,997

 
—

 
38,997

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

 
—

 
—

 
—

 
—

 
1,695

 
—

 
—

 
1,695

Balance at September 30, 2015
32,567,286

 
(590,079
)
 
31,977,207

 
$
257

 
$
557,116

 
$
2,158

 
$
(3,931
)
 
$
(70,151
)
 
$
485,449

See Accompanying Notes to Consolidated Financial Statements (Unaudited)


6


Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands) 
 
Nine Months Ended September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
38,997

 
$
43,832

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
15,187

 
6,151

Share-based compensation expense
1,681

 
1,747

Negative provision for loan losses
(7,779
)
 
(7,463
)
Bargain purchase gain, net of deferred taxes
—

 
(14,577
)
Gain on sales of securities
(6,144
)
 
(1,852
)
Gain on sales of loans
(4,878
)
 
(2,267
)
Gain on sale of premises and equipment
(137
)
 
—

Disposition gains on PCI loans
(8,027
)
 
—

Loss on sale of OREO
—

 
2

Loss on sales of subsidiaries
—

 
419

Valuation adjustment on OREO
(27
)
 
—

Origination of loans held for sale
(59,273
)
 
(34,798
)
Proceeds from sales of SBA loans
66,157

 
29,826

Change in accrued interest receivable
1,027

 
609

Change in bank-owned life insurance
(524
)
 
(672
)
Change in prepaid expenses and other assets
2,042

 
(5,801
)
Change in income tax asset
12,304

 
(2,667
)
Change in accrued interest payable
(465
)
 
(821
)
Change in FDIC loss sharing liability
(901
)
 
1,997

Change in accrued expenses and other liabilities
(12,669
)
 
10,426

Net cash provided by operating activities
36,571

 
24,091

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

 
—

Proceeds from matured, called and paid-down of securities
94,108

 
61,145

Proceeds from sales of securities
352,224

 
135,834

Proceeds from sales of OREO
7,532

 
9,932

Proceeds from sales of loans
360

 
—

Proceeds from bank-owned life insurance
1,323

 
—

Cash acquired in acquisition, net of cash consideration paid
—

 
118,533

Net proceeds from sales of subsidiaries
—

 
398

Change in loans receivable, net of purchases
(154,892
)
 
(67,615
)
Purchases of securities
(111,864
)
 
(124,442
)
Purchases of premises and equipment
(1,169
)
 
(739
)
Purchases of loans receivable
(100,763
)
 
(91,325
)
Purchases of FRB stock
(1,825
)
 
(3,403
)
Net cash provided by investing activities
86,229

 
38,318

Cash flows from financing activities:
 
 
 
Change in deposits
(38,052
)
 
(13,168
)
Change in FHLB advances
—

 
(27,546
)
Redemption of rescinded stock obligation
(933
)
 
—

Proceeds from exercise of stock options
531

 
427

Cash paid for repurchases of vested shares due to employee tax liability
(293
)
 
—

Cash dividends paid
(7,031
)
 
(4,463
)
Net cash used in financing activities
(45,778
)
 
(44,750
)
Net increase in cash and cash equivalents
77,022

 
17,659

Cash and cash equivalents at beginning of year
158,320

 
179,357

Cash and cash equivalents at end of period
$
235,342

 
$
197,016

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
12,443

 
$
10,750

Income taxes
$
13,528

 
$
20,930

Non-cash activities:
 
 
 
Transfer of loans receivable to OREO
$
5,056

 
$
7,501

Transfer of loans receivable to loans held for sale
$
360

 
$
—

Due from broker on sale of securities
$
57,800

 
$
—

Note receivable from sale of insurance subsidiaries
$
—

 
$
1,394

Conversion of stock warrants into common stock
$
—

 
$
2

Income tax expense related to items in other comprehensive income
$
(1,220
)
 
$
(3,322
)
Change in unrealized gain in accumulated other comprehensive income
$
(9,059
)
 
$
(9,489
)
Cash dividends declared
$
(3,518
)
 
$
(2,231
)
See Accompanying Notes to Consolidated Financial Statements (Unaudited)


7


Hanmi Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 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 September 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 consideration paid, assets acquired and

8


liabilities assumed are summarized in the following table:
 
(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 asset
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 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 nine months ended September 30, 2015, acquisition costs of none 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 nine months ended September 30, 2015 was $95,000 and $285,000, 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 nine months ended September 30, 2015 were $1.4 million and $4.5 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 nine months ended September 30, 2015 were $46,000 and $125,000, 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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands, except per share data)
Pro forma revenues (net interest income plus noninterest income)
$
55,663

 
$
73,154

 
$
162,280

 
$
183,689

Pro forma net income from continuing operations
$
15,044

 
$
25,569

 
$
42,931

 
$
51,572

Pro forma earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.47

 
$
0.81

 
$
1.35

 
$
1.63

Diluted
$
0.47

 
$
0.80

 
$
1.35

 
$
1.61


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 September 30, 2015 or December 31, 2014. The investment in low income housing was $19.5 million and $21.3 million as of September 30, 2015 and December 31, 2014, respectively. The Bank’s unfunded commitments related to low income housing investments were $7.8 million and $11.9 million as of September 30, 2015 and December 31, 2014, respectively. As a component of income tax expense, the Bank recognized amortizations of $592,000 and $1.7 million during the three and nine months ended September 30, 2015, respectively and $592,000 and $1.0 million during the three and nine months ended September 30, 2014, respectively. Tax credits and other benefits received from the tax expenses were $839,000 and $2.5 million during the three and nine months ended September 30, 2015 and $821,000 and $1.4 million during the three and nine months ended September 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 nine months ended September 30, 2014, the discontinued operations generated noninterest income, primarily in the line item for insurance commissions, of $2.7 million. They also incurred noninterest expense in various line items of $2.7 million for the nine months ended September 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


 
Nine Months Ended September 30, 2014
 
(in thousands)
Noninterest loss
$
(14
)
Gain on disposal
51

Income before taxes
37

Provision for income taxes
481

Net loss from discontinued operations
$
(444
)

Note 5 — Securities

The following is a summary of securities available for sale as of September 30, 2015 and December 31, 2014: 
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
 
(in thousands)
September 30, 2015
 
 
 
 
 
 
 
Mortgage-backed securities (1) (2)
$
323,046

 
$
2,233

 
$
775

 
$
324,504

Collateralized mortgage obligations (1)
116,145

 
544

 
375

 
116,314

U.S. government agency securities
57,971

 
14

 
311

 
57,674

SBA loan pool securities
68,434

 
68

 
201

 
68,301

Municipal bonds-tax exempt
47,737

 
304

 
40

 
48,001

Municipal bonds-taxable
13,975

 
397

 
—

 
14,372

Corporate bonds
17,019

 
—

 
14

 
17,005

U.S. treasury securities
160

 
2

 
—

 
162

Other securities
22,916

 
179

 
88

 
23,007

Total securities available for sale
$
667,403

 
$
3,741

 
$
1,804

 
$
669,340

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 September 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
$
11,999

 
$
11,994

Over one year through five years
14,316

 
14,342

Over five years through ten years
106,586

 
106,963

Over ten years
72,395

 
72,216

Mortgage-backed securities
323,046

 
324,504

Collateralized mortgage obligations
116,145

 
116,314

Other securities
22,916

 
23,007

Total
$
667,403

 
$
669,340

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 nine months ended September 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 September 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)
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
369

 
$
76,181

 
20

 
$
406

 
$
22,447

 
9

 
$
775

 
$
98,628

 
29

Collateralized mortgage obligations
21

 
20,276

 
5

 
354

 
27,156

 
12

 
375

 
47,432

 
17

U.S. government agency securities
24

 
7,971

 
3

 
287

 
27,694

 
9

 
311

 
35,665

 
12

SBA loan pool securities
15

 
13,911

 
3

 
186

 
7,474

 
3

 
201

 
21,385

 
6

Municipal bonds-tax exempt
40

 
3,864

 
2

 
—

 
—

 
—

 
40

 
3,864

 
2

Municipal bonds-taxable
—

 
374

 
1

 
—

 
—

 
—

 
—

 
374

 
1

Corporate bonds
9

 
5,010

 
1

 
5

 
7,994

 
2

 
14

 
13,004

 
3

Other securities
—

 
—

 
—

 
88

 
937

 
3

 
88

 
937

 
3

Total
$
478

 
$
127,587

 
35

 
$
1,326

 
$
93,702

 
38

 
$
1,804

 
$
221,289

 
73

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



13


All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of September 30, 2015 and December 31, 2014 had investment grade ratings upon purchase. The issuers of these securities have not established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long-term investment grade status as of September 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 September 30, 2015 and December 31, 2014 were not other-than-temporarily impaired, and therefore, no impairment charges as of September 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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
Gross realized gains on sales of securities
$
2,048

 
$
67

 
$
6,310

 
$
1,853

Gross realized losses on sales of securities
—

 
—

 
(166
)
 
(1
)
Net realized gains on sales of securities
$
2,048

 
$
67

 
$
6,144

 
$
1,852

Proceeds from sales of securities
$
44,782

 
$
9,778

 
$
352,224

 
$
135,834

Proceeds from called, matured and paid-down of securities
$
31,245

 
$
24,591

 
$
94,108

 
$
61,145


For the three months ended September 30, 2015, there was a $2.0 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 September 30, 2014, there was a $67,000 net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized gains of $23,000 in comprehensive income.

For the nine months ended September 30, 2015, there was a $6.1 million net gain in earnings resulting from the redemption and sale of securities that had previously been recorded as net unrealized gains of $2.0 million in comprehensive income. For the three months ended September 30, 2014, there was a $1.9 million net gain in earnings resulting from the redemption and sale of securities that had previously been recorded as net unrealized losses of $498,000 in comprehensive income.

Securities available for sale with market values of $71.6 million and $76.2 million as of September 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

14


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.

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:
 
September 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
$
715,169

 
$
7,268

 
$
722,437

 
$
676,143

 
$
10,343

 
$
686,486

Hospitality
544,148

 
5,435

 
549,583

 
455,220

 
12,862

 
468,082

Gas station
334,518

 
5,786

 
340,304

 
362,815

 
7,745

 
370,560

Other
897,512

 
5,385

 
902,897

 
843,462

 
10,680

 
854,142

Construction
26,228

 
—

 
26,228

 
9,532

 
—

 
9,532

Residential property
197,070

 
1,035

 
198,105

 
121,124

 
2,499

 
123,623

Total real estate loans
2,714,645

 
24,909

 
2,739,554

 
2,468,296

 
44,129

 
2,512,425

Commercial and industrial loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial term
121,655

 
193

 
121,848

 
115,734

 
327

 
116,061

Commercial lines of credit
126,697

 
—

 
126,697

 
93,586

 
—

 
93,586

International loans
32,239

 
—

 
32,239

 
38,815

 
—

 
38,815

Total commercial and industrial loans
280,591

 
193

 
280,784

 
248,135

 
327

 
248,462

Consumer loans
24,691

 
43

 
24,734

 
27,566

 
45

 
27,611

Loans receivable (2)
3,019,927

 
25,145

 
3,045,072

 
2,743,997

 
44,501

 
2,788,498

Allowance for loans losses
(43,222
)
 
(3,138
)
 
(46,360
)
 
(51,640
)
 
(1,026
)
 
(52,666
)
Loans receivable, net
$
2,976,705

 
$
22,007

 
$
2,998,712

 
$
2,692,357

 
$
43,475

 
$
2,735,832

 
(1) 
Includes owner-occupied property loans of $1.12 billion as of both September 30, 2015 and December 31, 2014, respectively.
(2) 
Includes unamortized costs, net of unamortized fees, of $2.3 million and $3.2 million as of September 30, 2015 and December 31, 2014, respectively.

Accrued interest on loans receivable was $6.0 million and $6.4 million at September 30, 2015 and December 31, 2014, respectively. At September 30, 2015 and December 31, 2014, loans receivable totaling $606.4 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 September 30, 2015 and 2014:
 
Real Estate
 
Commercial and Industrial
 
Consumer
 
Total Non-PCI
 
(in thousands)
September 30, 2015
 
 
 
 
 
 
 
Balance at beginning of period
$
2,067

 
$
2,091

 
$
—

 
$
4,158

Origination of loans held for sale
13,867

 
7,464

 
—

 
21,331

Sales of loans held for sale
(12,199
)
 
(8,408
)
 
—

 
(20,607
)
Principal payoffs and amortization
(3
)
 
(8
)
 
—

 
(11
)
Balance at end of period
$
3,732

 
$
1,139

 
$
—

 
$
4,871

September 30, 2014
 
 
 
 
 
 
 
Balance at beginning of period
$
2,568

 
$
1,274

 
$
—

 
$
3,842

Origination of loans held for sale
15,198

 
3,031

 
—

 
18,229

Sales of loans held for sale
(12,135
)
 
(2,133
)
 
—

 
(14,268
)
Principal payoffs and amortization
(20
)
 
(26
)
 
—

 
(46
)
Balance at end of period
$
5,611

 
$
2,146

 
$
—

 
$
7,757


For the three months ended September 30, 2015, there was no reclassification of Non-PCI loans receivable as loans held for sale and Non-PCI loans held for sale of $20.6 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 September 30, 2015. For the three months ended September 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 $14.3 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 September 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 nine months ended September 30, 2015 and 2014:
 
Real Estate
 
Commercial and Industrial
 
Consumer
 
Total Non-PCI
 
(in thousands)
September 30, 2015
 
 
 
 
 
 
 
Balance at beginning of period
$
3,323

 
$
2,128

 
$
—

 
$
5,451

Origination of loans held for sale
37,601

 
21,672

 
—

 
59,273

Reclassification from loans receivable to loans held for sale
360

 
—

 
—

 
360

Sales of loans held for sale
(37,534
)
 
(22,616
)
 
—

 
(60,150
)
Principal payoffs and amortization
(18
)
 
(45
)
 
—

 
(63
)
Balance at end of period
$
3,732

 
$
1,139

 
$
—

 
$
4,871

September 30, 2014
 
 
 
 
 
 
 
Balance at beginning of period
$
—

 
$
—

 
$
—

 
$
—

Origination of loans held for sale
29,591

 
5,207

 
—

 
34,798

Sales of loans held for sale
(23,953
)
 
(3,033
)
 
—

 
(26,986
)
Principal payoffs and amortization
(27
)
 
(28
)
 
—

 
(55
)
Balance at end of period
$
5,611

 
$
2,146

 
$
—

 
$
7,757


For the nine months ended September 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 $60.2 million were sold. In addition, there was no reclassification from Non-PCI loans held for sale to Non-PCI loans receivable for the nine months ended September 30, 2015. For the nine months ended September 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 $27.0 million were sold. In addition, there was no reclassification from Non-PCI loans held for sale to Non-PCI loans receivable for the nine months ended September 30, 2014.

17



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
Nine Months Ended
 
September 30, 2015
 
September 30, 2014 (1)
 
September 30, 2015
 
September 30, 2014 (1)
 
Non-PCI Loans
 
PCI Loans
 
Total
 
 
Non-PCI Loans
 
PCI Loans
 
Total
 
 
(in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
49,468

 
$
1,352

 
$
50,820

 
$
51,886

 
$
51,640

 
$
1,026

 
$
52,666

 
$
57,555

Charge-offs
(1,748
)
 
—

 
(1,748
)
 
(1,418
)
 
(3,004
)
 
—

 
(3,004
)
 
(5,569