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

Annual report pursuant to Section 13 and 15(d)

Securities

Securities

12 Months Ended

Dec. 31, 2016

Investments, Debt and Equity Securities [Abstract]

The following is a summary of securities available for sale as of December 31, 2016 and 2015:



	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
	(In thousands)
December 31, 2016
Mortgage-backed securities (1) (2)	$	230,489	$	598	$	1,457	$	229,630
Collateralized mortgage obligations (1)	77,447		6		1,002		76,451
U.S. government agency securities	7,499		—		58		7,441
SBA loan pool securities	4,356		—		210		4,146
Municipal bonds-tax exempt	159,789		236		1,995		158,030
Municipal bonds-taxable	13,391		319		9		13,701
Corporate bonds	5,010		5		—		5,015
U.S. treasury securities	156		—		—		156
Mutual funds	22,916		—		522		22,394
Total securities available for sale	$	521,053	$	1,164	$	5,253	$	516,964

December 31, 2015
Mortgage-backed securities (1) (2)	$	286,450	$	392	$	2,461	$	284,381
Collateralized mortgage obligations (1)	97,904		79		997		96,986
U.S. government agency securities	48,478		—		656		47,822
SBA loan pool securities	63,670		7		411		63,266
Municipal bonds-tax exempt	162,101		1,820		19		163,902
Municipal bonds-taxable	13,932		189		88		14,033
Corporate bonds	5,017		—		24		4,993
U.S. treasury securities	159		1		—		160
Mutual funds	22,916		—		163		22,753
Total securities available for sale	$	700,627	$	2,488	$	4,819	$	698,296

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


(2)	Include securities collateralized by home equity conversion mortgages with total estimated fair value of $52.9 million and $58.6 million as of December 31, 2016 and 2015, respectively.

The amortized cost and estimated fair value of securities as of December 31, 2016, by contractual or expected

maturity, are shown below. Collateralized mortgage obligations are included in the table shown below based on their expected

maturities. Mutual funds do not have contractual maturities. However, they are included in the table shown below as over ten

years since the Company intends to hold these securities for at least this duration. All other securities are included based on their contractual maturities.



	Available for Sale
	Amortized Cost		Estimated Fair Value
	(In thousands)
Within one year	$	337	$	337
Over one year through five years	78,893		78,747
Over five years through ten years	212,719		211,025
Over ten years	229,104		226,855
Total	$	521,053	$	516,964

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 year ended December 31, 2016.

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 December 31, 2016 and 2015:



	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)
December 31, 2016
Mortgage-backed securities	$	1,345	$	102,647	38	$	112	$	11,350	3	$	1,457	$	113,997	41
Collateralized mortgage obligations	676		60,786		27	326		10,579		7	1,002		71,365		34
U.S. government agency securities	58		7,441		3	—		—		—	58		7,441		3
SBA loan pool securities	—		—		—	210		4,146		2	210		4,146		2
Municipal bonds-tax exempt	1,995		125,004		54	—		—		—	1,995		125,004		54
Municipal bonds-taxable	9		2,904		2	—		—		—	9		2,904		2
Mutual funds	413		21,478		4	109		916		3	522		22,394		7
Total	$	4,496	$	320,260	128	$	757	$	26,991	15	$	5,253	$	347,251	143
December 31, 2015
Mortgage-backed securities	$	1,734	$	193,931	52	$	727	$	21,659	9	$	2,461	$	215,590	61
Collateralized mortgage obligations	335		48,970		18	662		32,964		13	997		81,934		31
U.S. government agency securities	201		23,289		8	455		24,533		8	656		47,822		16
SBA loan pool securities	161		50,499		12	250		7,036		3	411		57,535		15
Municipal bonds-tax exempt	19		8,922		6	—		—		—	19		8,922		6
Municipal bonds-taxable	88		7,106		4	—		—		—	88		7,106		4
Corporate bonds	24		4,994		1	—		—		—	24		4,994		1
Mutual funds	66		21,820		3	97		928		3	163		22,748		6
Total	$	2,628	$	359,531	104	$	2,191	$	87,120	36	$	4,819	$	446,651	140

All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of December 31, 2016 and December 31, 2015 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 December 31, 2016 and December 31, 2015. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.

FASB ASC 320 requires other-than-temporarily impaired 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 December 31, 2016 and December 31, 2015 were not other-than-temporarily impaired, and therefore, no impairment charges as of December 31, 2016 and December 31, 2015 were warranted.

Realized gains and losses on sales of securities and proceeds from sales of securities were as follows for the periods indicated:



	Year Ended December 31,
	2016			2015			2014
	(In thousands)
Gross realized gains on sales of securities	$	396		$	6,776		$	2,012
Gross realized losses on sales of securities	(350		)	(165		)	(1		)
Net realized gains on sales of securities	$	46		$	6,611		$	2,011
Proceeds from sales of securities	$	78,282		$	456,098		$	169,533

For the year ended December 31, 2016, there was a $46,000 net gain in earnings resulting from the redemption and sale of securities that had previously been recognized as net unrealized losses of $314,000 in comprehensive income. For the year ended December 31, 2015, there was a $6.6 million net gain in earnings resulting from the redemption and sale of securities that had previously been recorded as net unrealized gains of $1.9 million in comprehensive income.

Securities available for sale with market values of $133.0 million and $72.0 million as of December 31, 2016 and 2015, respectively, were pledged to secure FHLB advances, public deposits and for other purposes as required or permitted by law.

- Definition

The entire disclosure for investments in certain debt and equity securities.

+ References + Details