Annual report pursuant to Section 13 and 15(d)

Acquisition

v3.3.1.900
Acquisition
 12 Months Ended
Dec. 31, 2015
Business Combinations [Abstract]  
Acquisition
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 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 equity of $1.27 billion, $1.17 billion and $93.3 million, respectively. Total loans and deposits were $297.3 million and $1.1 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 consideration paid, assets acquired and liabilities assumed are summarized in the following table:
 
As Remeasured (1)
 
(In thousands)
Consideration paid:
 
CBI stockholders
$
50,000

Redemption of preferred and cumulative unpaid dividends
28,675

Accrued interest on subordinated debentures
—

 
78,675

Assets acquired:
 
Cash and cash equivalents
197,209

Securities available for sale
663,497

Loans
297,272

Premises and equipment
17,925

Other real estate owned
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Rescinded stock obligation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
)

 
(1)
There were no measurement period adjustments recorded during the year ended December 31, 2015. All adjustments were recorded in the year ended December 31, 2014.
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 $2.0 million million and $6.6 million for the years ended December 31, 2015 and 2014, respectively, were expensed as incurred as merger and integration costs. These expenses are comprised primarily of system conversion costs and professional fees. 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 loan 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.
The following table summarizes the accretable yield on the PCI 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 10 years on an accelerated basis and reviewed for impairment as circumstances warrant. The CDI amortization expense for the years ended December 31, 2015 and 2014 was $379,000 and $133,000, 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 the 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 accretion of time deposits premium for the years ended December 31, 2015 and 2014 was $5.6 million and $2.3 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 years ended December 31, 2015 and 2014 was $176,000 and $71,000, respectively.
Unaudited Pro Forma Results of Operations
The following table presents the 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.
 
 
Year Ended December 31, 2014
 
 
(In thousands)
Pro forma revenues (net interest income plus noninterest income)
 
$
225,120

Pro forma net income from continuing operations
 
$
56,448

Pro forma earnings per share from continuing operations:
 
 
Basic
 
$
1.78

Diluted
 
$
1.77