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

Annual report pursuant to Section 13 and 15(d)

Accounting for Investments in Qualified Affordable Housing Projects

Accounting for Investments in Qualified Affordable Housing Projects

12 Months Ended

Dec. 31, 2014

Accounting Changes and Error Corrections [Abstract]

Accounting for Investments in Qualified Affordable Housing Projects

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 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 as of January 1, 2012 was a negative $1.1 million. Net incomes for the years ended December 31, 2014 and 2013 decreased by $49,000 and $50,000, respectively, due to the change in accounting principle.

The following tables present the effect of the retrospective application of this change in accounting principle on the Company’s Consolidated Balance Sheets, Statements of Income and Statement of Cash Flows for the respective periods:

Hanmi Financial Corporations and Subsidiaries

Consolidated Balance Sheet


	As of December 31, 2013
	As Previously Reported		Effect of Change in Accounting Principle			As Adjusted
	(In thousands)
Assets
Cash and cash equivalents	$	179,357	$	—		$	179,357
Securities available for sale		530,926		—			530,926
Loans receivable		2,177,498		—			2,177,498
Deferred tax assets		51,767		121			51,888
Current tax assets		11,769		184			11,953
Other assets		104,222		(1,465	)		102,757

Total assets	$	3,055,539	$	(1,160	)	$	3,054,379

Liabilities and stockholders’ equity
Liabilities	$	2,654,302	$	—		$	2,654,302
Stockholders’ equity		401,237		(1,160	)		400,077

Total liabilities and stockholders’ equity	$	3,055,539	$	(1,160	)	$	3,054,379

Hanmi Financial Corporations and Subsidiaries

Consolidated Statements of Income


	As Previously Reported			Effect of Change in Accounting Principle			As Adjusted
	(In thousands, except per share data)
For the Year Ended December 31, 2013
Interest and dividend income	$	119,140		$	—		$	119,140
Interest expense		13,507			—			13,507

Net interest income	$	105,633		$	—		$	105,633
Noninterest income		27,900			—			27,900
Noninterest expense		71,656			(639	)		71,017

Income before provision for income taxes	$	61,877		$	639		$	62,516
Provision for income taxes		22,044			688			22,732

Income from continuing operations	$	39,833		$	(49	)	$	39,784

Earnings per share from continuing operations
Basic	$	1.26		$	—		$	1.26
Diluted	$	1.26		$	—		$	1.26
For the Year Ended December 31, 2012
Interest and dividend income	$	117,282		$	—		$	117,282
Interest expense		18,745			—			18,745
Provision for credit losses		6,000			—			6,000

Net interest income	$	92,537		$	—		$	92,537
Noninterest income		21,413			—			21,413
Noninterest expense		71,231			(620	)		70,611

Income before provision for income taxes	$	42,719		$	620		$	43,339
(Benefit) provision for income taxes		(47,488	)		670			(46,818	)

Income from continuing operations	$	90,207		$	(50	)	$	90,157

Earnings per share from continuing operations
Basic	$	2.87		$	(0.01	)	$	2.86
Diluted	$	2.86		$	—		$	2.86

Hanmi Financial Corporations and Subsidiaries

Consolidated Statement of Cash Flows


	As Previously Reported			Effect of Change in Accounting Principle			As Adjusted
	(In thousands)
For the Year Ended December 31, 2013
Cash flows from operating activities:
Net income	$	39,906		$	(49	)	$	39,857
Total adjustment in net income		20,812			49			20,861

Net cash provided by operating activities	$	60,718		$	—		$	60,718
Cash flows from investing activities:
Net cash used in investing activities		(304,366	)		—			(304,366	)
Cash flows from financing activities:
Net cash provided by financing activities		154,958			—			154,958

Net decrease in cash and cash equivalents	$	(88,690	)	$	—		$	(88,690	)
Cash and cash equivalents at beginning of period		268,047			—			268,047

Cash and cash equivalents at end of period	$	179,357		$	—		$	179,357

For the Year Ended December 31, 2012
Cash flows from operating activities:
Net income	$	90,374		$	(50	)	$	90,324
Total adjustment in net income		(37,547	)		50			(37,497	)

Net cash provided by operating activities	$	52,827		$	—		$	52,827
Cash flows from investing activities:
Net cash used in investing activities		(37,158	)		—			(37,158	)
Cash flows from financing activities:
Net cash provided by financing activities		50,695			—			50,695

Net increase in cash and cash equivalents	$	66,364		$	—		$	66,364
Cash and cash equivalents at beginning of period		201,683			—			201,683

Cash and cash equivalents at end of period	$	268,047		$	—		$	268,047

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 December 31, 2014 or December 31, 2013. The investment in low income housing was $21.3 million and $3.0 million as of December, 2014 and 2013, respectively. The Bank’s unfunded commitments related to low income housing investments was $11.9 million as of December 31, 2014 and there were none as of December 31, 2013. The Bank recognized $1.6 million and $804,000 as a component of income tax expense for the year ended December 31, 2014 and 2013, respectively, and tax credits and other benefits received from the tax expenses were $1.6 million and $775,000 for the year ended December 31, 2014 and 2013, respectively.