Hanmi Financial Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements (Tables)

Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2020

Assets and Liabilities Measured at Fair Value on Recurring Basis

As of December 31, 2020 and 2019, assets and liabilities measured at fair value on a recurring basis are as follows:

	Level 1		Level 2		Level 3
	Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs with No Active Market with Identical Characteristics		Significant Unobservable Inputs		Total Fair Value
	(in thousands)
December 31, 2020
Assets:
Securities available for sale:
U.S. Treasury securities	$	10,132	$	—	$	—	$	10,132
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		—		519,241		—		519,241
Collateralized mortgage obligations		—		133,601		—		133,601
Debt securities		—		90,807		—		90,807
Total U.S. government agency and sponsored agency obligations		—		743,649		—		743,649
Total securities available for sale	$	10,132	$	743,649	$	—	$	753,781
Derivative financial instruments	$	—	$	1,088	$	—	$	1,088

Liabilities:
Derivative financial instruments	$	—	$	1,149	$	—	$	1,149


December 31, 2019
Assets:
Securities available for sale:
U.S. Treasury securities	$	35,205	$	—	$	—	$	35,205
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		—		410,800		—		410,800
Collateralized mortgage obligations		—		164,592		—		164,592
Debt securities		—		23,879		—		23,879
Total U.S. government agency and sponsored agency obligations		—		599,272		—		599,272
Total securities available for sale	$	35,205	$	599,272	$	—	$	634,477

Assets and Liabilities Measured at Fair Value on Non-Recurring Basis

As of December 31, 2020 and 2019, assets and liabilities measured at fair value on a non-recurring basis are as follows:

			Level 1		Level 2		Level 3
	Total		Prices in Active Markets for Identical Assets		Observable Inputs with No Active Market with Identical Characteristics		Significant Unobservable Inputs
	(in thousands)
December 31, 2020
Assets:
Collateral dependent loans ⁽¹⁾	$	63,114	$	—	$	—	$	63,114
Other real estate owned		2,360		—		—		2,360
Repossessed personal property		857		—		—		857

December 31, 2019
Assets:
Collateral dependent loans ⁽²⁾	$	31,049	$	—	$	—	$	31,049
Other real estate owned		63		—		—		63
Bank-owned premises		1,900		—		—		1,900

⁽¹⁾	Consisted of real estate loans of $63.1 million, commercial and industrial loans of $41,000.

⁽²⁾	Consisted of real estate loans of $27.2 million and commercial and industrial loans of $3.9 million. $27.2 million was secured by real estate and $3.9 million was secured by personal property.

Quantitative Information about Level 3 Fair Value Comments for Assets Measured at Fair Value on Non-Recurring Basis

The following table represents quantitative information about Level 3 fair value comments for assets measured at fair value on a non-recurring basis at December 31, 2020 and 2019:

	Fair Value		Valuation Techniques	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)
December 31, 2020
Collateral dependent loans:
Real estate loans:
Commercial property
Retail	$	6,330	Market approach	Market data comparison	(45)% to 35% / 14%
Hospitality		20,612	Market approach	Market data comparison	⁽³⁾
Other		8,410	Market approach	Market data comparison	(55)% to 34% / 15% ⁽²⁾
Construction		24,854	Market approach	Market data comparison	(20)% to 12% / (8)%
Residential/consumer loans		2,867	Market approach	Market data comparison	(13)% to 15% / 6% ⁽²⁾
Total real estate loans		63,073
Commercial and industrial loans:
Commercial term		41	Market approach	Market data comparison	(9)% to 15% / 6% ⁽²⁾
Total	$	63,114

Other real estate owned	$	2,360	Market approach	Market data comparison	(35)% to 15% / (14)%

Repossessed personal property		857	Market approach	Market data comparison	⁽⁴⁾


December 31, 2019
Collateral dependent loans:
Real estate loans:
Commercial property
Other	$	13,926	Market approach	Market data comparison	⁽¹⁾
Construction		13,228	Market approach	Market data comparison	(3)% to 43% /21% ⁽²⁾
Total real estate loans		27,154
Commercial and industrial loans:
Commercial lines of credit		3,895	Market approach	Market data comparison	(8)% to 42% /18% ⁽²⁾
Total	$	31,049

Other real estate owned	$	63	Market approach	Market data comparison	⁽³⁾

Bank-owned premises		1,900	Market approach	Market data comparison	(30)% to 55% /(2)% ⁽²⁾

(1)

The values were estimated by current market data comparison, supplemented by cost information. The properties compared when possible, with others for sale and that have sold in the general time period. Adjustments are made for differences in equipment, size, cosmetics, conversions, originality, condition as well as sale terms and current economic conditions at time of sale.

(2)

Appraisal reports utilize a combination of valuation techniques including a market approach, where prices and other relevant information generated by market transactions involving similar or comparable properties are used to determine the appraised value. Appraisals may include an ‘as is’ and ‘upon completion’ valuation scenarios. Adjustments are routinely made in the appraisal process by third-party appraisers to adjust for differences between the comparable sales and income data. Adjustments also result from the consideration of relevant economic and demographic factors with the potential to affect property values. Also, prospective values are based on the market conditions which exist at the date of inspection combined with informed forecasts based on current trends in supply and demand for the property types under appraisal. Positive adjustments disclosed in this table represent increases to the sales comparison and negative adjustment represent decreases.

(3)	No discount weighted average range available given primary valuation methodology is via discounted cash flow analysis (DCF) for going concern properties.

(4)

The equipment is usually too low in value to use a professional appraisal service. The values are determined internally using a combination of auction values, vendor recommendations and sales comparisons depending on the equipment type. Some highly commoditized equipment, such as commercial trucks have services that provide industry values.

Estimated Fair Values of Financial Instruments

The estimated fair values of financial instruments were as follows:

	December 31, 2020
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	391,849	$	391,849	$	—	$	—
Securities available for sale		753,781		10,132		743,649		—
Loans held for sale		8,568		—		9,270		—
Loans receivable, net of allowance for credit losses		4,789,742		—		—		4,755,302
Accrued interest receivable		16,363		16,363		—		—
Financial liabilities:
Noninterest-bearing deposits		1,898,766		—		1,898,766		—
Interest-bearing deposits		3,376,242		—		—		3,380,179
Borrowings and subordinated debentures		268,972		—		151,714		118,809
Accrued interest payable		4,564		4,564		—		—

	December 31, 2019
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	121,678	$	121,678	$	—	$	—
Securities available for sale		634,477		35,205		599,272		—
Loans held for sale		6,020		—		6,382		—
Loans receivable, net of allowance for credit losses		4,548,739		—		—		4,520,322
Accrued interest receivable		11,742		11,742		—		—
Financial liabilities:
Noninterest-bearing deposits		1,391,624		—		1,391,624		—
Interest-bearing deposits		3,307,338		—		—		3,317,867
Borrowings and subordinated debentures		208,377		—		89,831		118,807
Accrued interest payable		11,215		11,215		—		—