Hanmi Financial Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Securities

Securities

9 Months Ended

Sep. 30, 2018

Investments, Debt and Equity Securities [Abstract]

The following is a summary of securities available for sale as of September 30, 2018 and December 31, 2017:



	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
	(in thousands)
September 30, 2018
Mortgage-backed securities ⁽¹⁾	$	308,054	$	51	$	9,719	$	298,386
Collateralized mortgage obligations ⁽¹⁾	121,541		6		3,892		117,655
U.S. government agency securities	7,499		—		147		7,352
Municipal bonds-tax exempt	111,328		9		2,059		109,278
U.S. treasury securities	39,675		—		110		39,565
Total securities available for sale	$	588,097	$	66	$	15,927	$	572,236

December 31, 2017
Mortgage-backed securities ⁽¹⁾	$	306,166	$	145	$	2,702	$	303,609
Collateralized mortgage obligations ⁽¹⁾	119,658		8		1,898		117,768
U.S. government agency securities	7,499		—		85		7,414
Municipal bonds-tax exempt	125,601		1,943		69		127,475
U.S. treasury securities	152		—		—		152
Mutual funds	22,916		—		530		22,386
Total securities available for sale	$	581,992	$	2,096	$	5,284	$	578,804


⁽¹⁾	Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.

The amortized cost and estimated fair value of securities as of September 30, 2018, by contractual or expected maturity, are shown below. Collateralized mortgage obligations are included in the table shown below based on their expected maturities. All other securities are included based on their contractual maturities.



	Available for Sale
	Amortized Cost		Estimated Fair Value
	(in thousands)
Within one year	$	18,067	$	18,027
Over one year through five years	116,744		114,401
Over five years through ten years	228,679		222,171
Over ten years	224,607		217,637
Total	$	588,097	$	572,236

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, 2018 and December 31, 2017:



	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, 2018
Mortgage-backed securities	$	2,484	$	109,384	44	$	7,235	$	183,568	72	$	9,719	$	292,952	116
Collateralized mortgage obligations	453		26,235		7	3,439		89,706		47	3,892		115,941		54
U.S. government agency securities	—		—		—	147		7,352		3	147		7,352		3
Municipal bonds-tax exempt	1,811		98,667		43	248		7,034		4	2,059		105,701		47
U.S. treasury securities	110		39,565		5	—		—		—	110		39,565		5
Total	$	4,858	$	273,851	99	$	11,069	$	287,660	126	$	15,927	$	561,511	225

December 31, 2017
Mortgage-backed securities	$	1,855	$	197,621	66	$	847	$	56,998	25	$	2,702	$	254,619	91
Collateralized mortgage obligations	773		65,726		20	1,125		49,986		32	1,898		115,712		52
U.S. government agency securities	15		1,484		1	70		5,930		2	85		7,414		3
Municipal bonds-tax exempt	48		11,541		6	21		2,737		2	69		14,278		8
Mutual funds	—		—		—	530		22,382		6	530		22,382		6
Total	$	2,691	$	276,372	93	$	2,593	$	138,033	67	$	5,284	$	414,405	160

All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of September 30, 2018 and December 31, 2017 included securities with issuers which have not established any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.

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 securities before the recovery of their amortized cost basis. Interest payments have been made as scheduled, and management believes this will continue in the future and that the securities 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, 2018 and December 31, 2017 were not other-than-temporarily impaired, and therefore, no impairment charges as of September 30, 2018 and December 31, 2017 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,
	2018		2017		2018			2017
	(in thousands)
Gross realized gains on sales of securities	$	19	$	267	$	87		$	1,473
Gross realized losses on sales of securities	—		—		(957		)	—
Net realized (losses) gains on sales of securities	$	19	$	267	$	(870	)	$	1,473

Proceeds from sales of securities	$	3,426	$	17,644	$	34,751		$	70,333

In January 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825). This new guidance, among other provisions, amends accounting related to the classification and measurement of investments in equity securities. We adopted this guidance, as required, in the first quarter of 2018. ASU 2016-01 requires the amounts reported in accumulated other comprehensive income for equity securities that exist as of the date of adoption previously classified as available-for-sale be reclassified to retained earnings. The Company reduced the balance of securities by $529,000 as of January 1, 2018, representing the loss related to all of our mutual fund equity securities, which resulted in a net reduction of retained earnings of $382,000 and an increase of $147,000 in net deferred tax assets based on the transition requirements of this standard.

For the three months ended September 30, 2018 and 2017, there was a $19,000 and $267,000 net gain in earnings resulting from the sale of securities, respectively. Net unrealized gains of $21,000 and $227,000 related to these sold securities had previously been recorded in accumulated other comprehensive income as of the beginning of the period in 2018 and 2017, respectively.

During the nine months ended September 30, 2018, there was $87,000 in gains included in earnings resulting from sale of securities which had $116,000 in previously recorded unrealized gains in accumulated other comprehensive income. Additionally, during the nine months ended September 30, 2018, we sold all of our mutual fund equity securities with gross realized losses of $957,000. The Company recorded a $428,000 net loss in earnings resulting from the sale of these securities in the three months ended March 31, 2018. The remaining loss of $529,000 related to these sold securities was recorded as a transition adjustment upon adoption of ASU 2016-01 as of the beginning of the period as described in the preceding paragraph. There was a $1.5 million net gain in earnings resulting from sales of securities during the nine months ended September 30, 2017, that had previously been recorded as net unrealized gains of $971,000 in comprehensive income.

Securities available for sale with market values of $29.7 million and $130.1 million as of September 30, 2018 and December 31, 2017, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.