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

Quarterly report pursuant to Section 13 or 15(d)

Investment Securities

Investment Securities

6 Months Ended

Jun. 30, 2011

Investment Securities [Abstract]

INVESTMENT SECURITIES

NOTE 4 — INVESTMENT SECURITIES

The following is a summary of investment securities held to maturity:


			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value
	(In Thousands)
June 30, 2011:
Municipal Bonds	$	697	$	—	$	—	$	697
Mortgage-Backed Securities ⁽¹⁾		136		2		—		138


	$	833	$	2	$	—	$	835


December 31, 2010:
Municipal Bonds	$	696	$	—	$	—	$	696
Mortgage-Backed Securities ⁽¹⁾		149		2		—		151


	$	845	$	2	$	—	$	847


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

The following is a summary of investment securities available for sale:


			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value
	(In Thousands)
June 30, 2011:
Collateralized Mortgage Obligations ⁽¹⁾	$	124,940	$	1,114	$	125	$	125,929
Mortgage-Backed Securities ⁽¹⁾		115,019		2,793		35		117,777
U.S. Government Agency Securities		106,162		260		97		106,325
Corporate Bonds		20,454		23		92		20,385
Municipal Bonds		9,296		80		120		9,256
Asset-Backed Securities ⁽²⁾		6,476		323		—		6,799
Other Securities		3,305		17		41		3,281
Equity Securities ⁽³⁾		647		—		187		460


	$	386,299	$	4,610	$	697	$	390,212


December 31, 2010:
Collateralized Mortgage Obligations ⁽¹⁾	$	139,053	$	470	$	2,330	$	137,193
U.S. Government Agency Securities		114,066		98		830		113,334
Mortgage-Backed Securities ⁽¹⁾		108,436		2,137		731		109,842
Municipal Bonds		22,420		48		1,440		21,028
Corporate Bonds		20,449		13		257		20,205
Asset-Backed Securities ⁽²⁾		7,115		269		—		7,384
Other Securities		3,305		—		46		3,259
Equity Securities ⁽³⁾		647		226		—		873


	$	415,491	$	3,261	$	5,634	$	413,118


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

⁽²⁾		Collaterized debentures of small business investment companies and state and local development companies, and guaranteed by SBA.

⁽³⁾		Balances presented for amortized cost, representing two equity securities, were net of an OTTI charge of $790,000, which was related to a credit loss, as of December 31, 2010. We recorded an OTTI charge of $790,000 to write down the value of one equity investment to its fair value during the year ended December 31, 2010.

The amortized cost and estimated fair value of investment securities at June 30, 2011, by contractual maturity, are shown below. Although collateralized mortgage obligations, mortgage-backed securities and asset-backed securities have contractual maturities through 2041, expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available for Sale				Held to Maturity
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
			(In Thousands)
Within One Year	$	—	$	—	$	—	$	—
Over One Year Through Five Years		103,279		103,360		697		697
Over Five Years Through Ten Years		32,191		32,199		—		—
Over Ten Years		3,747		3,688		—		—
Collateralized Mortgage Obligations		124,940		125,929		—		—
Mortgage-Backed Securities		115,019		117,777		136		138
Asset-Backed Securities		6,476		6,799		—		—
Equity Securities		647		460		—		—


	$	386,299	$	390,212	$	833	$	835

In accordance with FASB ASC 320, “Investments — Debt and Equity Securities,” amended current other-than-temporary impairment (“OTTI”) guidance, we periodically evaluate our investments for OTTI. For the three and six months ended June 30, 2011 and 2010, there were no OTTI charges recorded in earnings.

Gross unrealized losses on investment 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 June 30, 2011 and December 31, 2010:


	Holding Period
	Less than 12 Months						12 Months or More						Total
	Gross		Estimated		Number		Gross		Estimated		Number		Gross		Estimated		Number
Investment Securities	Unrealized		Fair		of		Unrealized		Fair		of		Unrealized		Fair		of
Available for Sale	Losses		Value		Securities		Losses		Value		Securities		Losses		Value		Securities
							(In Thousands)
June 30, 2011:
Mortgage-Backed Securities	$	35	$	4,744		1	$	—	$	—		—	$	35	$	4,744		1
Collateralized Mortgage Obligations		125		29,630		8		—		—		—		125		29,630		8
Municipal Bonds		59		2,827		5		61		2,323		2		120		5,150		7
U.S. Government Agency Securities		97		26,903		7		—		—		—		97		26,903		7
Equity Securities		187		460		2		—		—		—		187		460		2
Other Securities		—		—		—		41		958		1		41		958		1
Corporate Bonds		74		12,895		3		18		2,982		1		92		15,877		4


	$	577	$	77,459		26	$	120	$	6,263		4	$	697	$	83,722		30


December 31, 2010:
Mortgage-Backed Securities	$	731	$	62,738		16	$	—	$	—		—	$	731	$	62,738		16
Collateralized Mortgage Obligations		2,330		99,993		20		—		—		—		2,330		99,993		20
Municipal Bonds		1,440		16,907		11		—		—		—		1,440		16,907		11
U.S. Government Agency Securities		830		69,266		14		—		—		—		830		69,266		14
Other Securities		3		1,997		2		43		957		1		46		2,954		3
Corporate Bonds		257		17,210		5		—		—		—		257		17,210		5


	$	5,591	$	268,111		68	$	43	$	957		1	$	5,634	$	269,068		69

All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of June 30, 2011 and December 31, 2010 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 June 30, 2011. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.

The unrealized losses on investments in U.S. agencies securities were caused by changes in market interest rates or the widening of market spreads subsequent to the purchase of these securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than par. Because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

The unrealized losses on obligations of political subdivisions were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors published credit ratings of these securities and no adverse ratings changes have occurred since the date of purchase of obligations of political subdivisions which are in an unrealized loss position as of June 30, 2011. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

Of the residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at June 30, 2011, all of them are issued and guaranteed by U.S. government sponsored entities.

The unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not by concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

FASB ASC 320 requires other-than-temporarily impaired investment 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. We do not intend to sell these securities and it is not more likely than not that we will be required to sell the investments before the recovery of its amortized cost bases. 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 June 30, 2011 and December 31, 2010 are not other-than-temporarily impaired, and therefore, no impairment charges as of June 30, 2011 and December 31, 2010 are warranted.

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


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2011			2010		2011			2010
				(In Thousands)
Gross Realized Gains on Sales of Investment Securities	$	969		$	—	$	969		$	210
Gross Realized Losses on Sales of Investment Securities		(1,039	)		—		(1,039	)		(105	)

Net Realized Gains on Sales of Investment Securities	$	(70	)	$	—	$	(70	)	$	105

Proceeds from Sales of Investment Securities	$	157,777		$	—	$	157,777		$	3,252
Tax Expense on Sales of Investment Securities	$	—		$	—	$	—		$	45

For the three months ended June 30, 2011, $6.2 million ($3.6 million, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income, and we recognized a $70,000 loss in earnings resulting from the sale of investment securities that had previously recorded net unrealized losses of $1.3 million in comprehensive income. For the three months ended June 30, 2010, $1.9 million ($1.1 million, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income. For the six months ended June 30, 2011, $6.3 million ($3.6 million, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income, and we recognized a $70,000 loss in earnings resulting from the sale of investment securities that had previously recorded net unrealized losses of $1.5 million in comprehensive income. For the six months ended June 30, 2010, $2.9 million ($1.7 million, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income, and we recognized a $105,000 gain in earnings resulting from the sale of investment securities that had previously recorded net unrealized gains of $99,000 in comprehensive income.

Investment securities available for sale with carrying values of $66.2 million and $118.0 million as of June 30, 2011 and December 31, 2010, respectively, were pledged to secure FHLB advances, public deposits and for other purposes as required or permitted by law.

- Definition

Tabular disclosure of marketable securities. This may consist of investments in certain debt and equity securities, short-term investments and other assets.

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