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

Annual report pursuant to Section 13 and 15(d)

Share-based Compensation

Share-based Compensation

12 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

At December 31, 2016, we had three incentive plans, the Year 2000 Stock Option Plan (the “2000 Plan”), the 2007 Equity Compensation Plan (the “2007 Plan”) which replaced the 2000 Plan and the 2013 Equity Compensation Plan (the “2013 Plan” and with the 2000 Plan and 2007 Plan, the “Plans”) which replaced the 2007 Plan.

The 2013 Plan provides awards of any options, stock appreciation right, restricted stock award, restricted stock unit award, share granted as a bonus or in lieu of another award, dividend equivalent, other stock-based award or performance award, together with any other right or interest to a participant under the plan. Plan participant includes executives and other employees, officers, directors, consultants and other persons who provide services to the Company or its related entities. Although no future stock options may be granted under the 2007 Plan and 2000 Plan, certain employees, directors and officers of Hanmi Financial and its subsidiaries still hold options to purchase Hanmi Financial common stock under the 2013 Plan. Under the 2013 Plan, we may grant equity incentive awards for up to 1,500,000 shares of common stock. As of December 31, 2016, 646,664 shares were still available for issuance under the 2013 Plan.

The Company adopted Accounting Standards Update ("ASU") 2016-09, Compensation - Stock Compensation, during the three months ended March 31, 2016. Adoption of this ASU did not have a material impact on the Company's financial statements. As a result of adoption of this ASU, excess tax benefits related to the Company's share-based compensation were recognized as income tax expense in the consolidated statement of income in 2016.

The table below provides the share-based compensation expense and related tax benefits for the periods indicated:



	Year Ended December 31,
	2016		2015		2014
	(In thousands)
Share-based compensation expense	$	3,008	$	2,241	$	2,165
Related tax benefits	$	1,191	$	755	$	516

As of December 31, 2016, unrecognized share-based compensation expense was as follows



	Unrecognized Expense		Average Expected Recognition Period
	(In thousands)
Stock option awards	$	99	0.8 years
Restricted stock awards	3,836		2.3 years
Total unrecognized share-based compensation expense	$	3,935	2.2 years

2013 and 2007 Equity Compensation Plans and 2000 Stock Option Plan

Stock Options

All stock options granted under the Plans have an exercise price equal to the fair market value of the underlying common stock on the date of grant. Stock options granted under the Plans generally vest based on three to five years of continuous service and expire 10 years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the Plan). New shares of common stock are issued or treasury shares are utilized upon the exercise of stock options.

The weighted-average fair value per share of options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	Year Ended December 31,
		2015		2014
Weighted-average assumption
Dividend yield		1.80	%	1.27	%
Expected volatility		25.00	%	35.18	%
Expected term		3 years		3 years
Risk-free interest rate		1.11	%	0.86	%

Expected volatility was determined based on the historical weekly volatility of our stock price over a period equal to the expected term of the options granted. The expected term of the options represents the period that options granted are expected to be outstanding based primarily on the historical exercise behavior associated with previous option grants. The risk-free interest rate was based on the U.S. Treasury yield curve at the time of grant for a period equal to the expected term of the options granted.

The following information under the Plans is presented for the periods indicated:



	Year Ended December 31,
	2016		2015		2014
	(In thousands, except per share data)
Grant date fair value of options granted	$	—	$	78	$	583
Fair value of options vested	$	2,322	$	2,668	$	2,141
Total intrinsic value of options exercised (1)	$	1,862	$	488	$	353
Cash received from options exercised	$	1,453	$	616	$	467
Weighted-average estimated fair value per share of options granted	$	—	$	3.62	$	4.79


(1)	Intrinsic value represents the difference between the closing stock price on the exercise date and the exercise price, multiplied by the number of options.

The following is a summary of stock option transactions under the Plans for the periods indicated:



	Year Ended December 31,
	2016				2015				2014
	Number of Shares		Weighted- Average Exercise Price Per Share		Number of Shares		Weighted- Average Exercise Price Per Share		Number of Shares		Weighted- Average Exercise Price Per Share
Options outstanding at beginning of period	510,148		$	24.38	603,872		$	23.78	546,595		$	28.09
Options granted	—		$	—	28,000		$	23.47	158,000		$	21.30
Options exercised	(94,997	)	$	15.29	(46,516	)	$	13.24	(37,569	)	$	12.42
Options forfeited	(125	)	$	144.00	(71,608	)	$	20.59	(30,917	)	$	14.64
Options expired	(27,125	)	$	154.09	(3,600	)	$	136.79	(32,237	)	$	106.70
Options outstanding at end of period	387,901		$	17.49	510,148		$	24.38	603,872		$	23.78
Options exercisable at end of period	341,561		$	16.85	333,460		$	27.16	224,766		$	33.35

The following is a summary of transactions for non-vested stock options under the Plans for the periods indicated:



	Year Ended December 31,
	2016				2015				2014
	Number of Shares		Weighted- Average Exercise Price Per Share		Number of Shares		Weighted- Average Exercise Price Per Share		Number of Shares		Weighted- Average Exercise Price Per Share
Non-vested options outstanding at beginning of period	176,688		$	19.13	379,106		$	18.11	391,625		$	15.56
Options granted	—		$	—	28,000		$	23.47	158,000		$	21.30
Options vested	(130,223	)	$	17.83	(158,810	)	$	16.80	(139,602	)	$	15.34
Options forfeited	(125	)	$	144.00	(71,608	)	$	20.59	(30,917	)	$	14.64
Non-vested options outstanding at end of period	46,340		$	22.42	176,688		$	19.13	379,106		$	18.11

As of December 31, 2016, stock options outstanding under the Plans were as follows:



	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Shares	Intrinsic Value (1)		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life	Number of Shares	Intrinsic Value (1)		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life
				(In thousands except share and per share data)
$10.88 to $14.99	36,901	$	835	$	12.27	5.4 years	36,901	$	835	$	12.27	5.4 years
$15.00 to $19.99	265,000	4,861		16.55		6.7 years	255,000	4,710		16.43		6.7 years
$20.00 to $24.83	86,000	1,056		22.62		7.7 years	49,660	509		22.39		7.5 years
	387,901	$	6,752	$	17.49	6.8 years	341,561	$	6,054	$	16.85	6.6 years


(1)	Intrinsic value represents the difference between the closing stock price on the last trading day of the period, which was $34.90 as of December 31, 2016, and the exercise price, multiplied by the number of options.

Restricted Stock Awards

Restricted stock awards under the Plans become fully vested after a certain number of years or after certain performance criteria are met. Hanmi Financial becomes entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted shares when the restrictions are released and the shares are issued. Restricted shares are forfeited if officers and employees terminate prior to the lapsing of restrictions. Forfeitures of restricted stock are treated as cancelled shares.

The table below provides information for restricted stock awards under the 2013 Plan for the periods indicated:



	2016				2015				2014
	Number of Shares		Weighted- Average Grant Date Fair Value Per Share		Number of Shares		Weighted- Average Grant Date Fair Value Per Share		Number of Shares		Weighted- Average Grant Date Fair Value Per Share
Restricted stock at beginning of period	137,114		$	20.74	173,222		$	19.58	116,082		$	16.43
Restricted stock granted	287,179		$	15.52	58,092		$	22.53	119,988		21.56
Restricted stock vested	(77,515	)	$	19.75	(68,017	)	$	19.16	(53,515	)	$	17.61
Restricted stock forfeited	(2,820	)	$	21.58	(26,183	)	$	21.16	(9,333	)	$	17.05
Restricted stock at end of period	343,958		$	16.60	137,114		$	20.74	173,222		$	19.58

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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