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

Quarterly report pursuant to Section 13 or 15(d)

Accounting for Investments in Qualified Affordable Housing Projects

Accounting for Investments in Qualified Affordable Housing Projects

6 Months Ended

Jun. 30, 2014

Accounting Changes And Error Corrections [Abstract]

Accounting for Investments in Qualified Affordable Housing Projects

Note 2 — 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 323-720 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 Jauary 1, 2012 was a negative $1.1 million. Net income in the three and six months ended June 30, 2013 decreased by $32,000 and $84,000, 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 Balance Sheets, Statement of Income and Statement of Cash Flows for the respective periods:

Hanmi Financial Corporations and Subsidiaries

Consolidated Balance Sheet (Unaudited)


	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
Income tax assets		63,536		305			63,841
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 Statement of Income (Unaudited)


	For the Three Months Ended June 30, 2013
	As Previously Reported		Effect of Change in Accounting Principle			As Adjusted
	(In thousands, except per share data)
Interest and dividend income	$	30,379	$	—		$	30,379
Interest expense		3,225		—			3,225

Net interest income	$	27,154	$	—		$	27,154
Non-interest income		6,738		—			6,738
Non-interest expense		18,796		(189	)		18,607

Income before provision for income taxes	$	15,096	$	189		$	15,285
Provision for income taxes		5,737		221			5,958

Income from continuing operations	$	9,359	$	(32	)	$	9,327

Earnings per share from continuing operations
Basic	$	0.30	$	—		$	0.30

Diluted	$	0.29	$	—		$	0.29


	For the Six Months Ended June 30, 2013
	As Previously Reported		Effect of Change in Accounting Principle			As Adjusted
	(In thousands, except per share data)
Interest and dividend income	$	59,774	$	—		$	59,774
Interest expense		7,016		—			7,016

Net interest income	$	52,758	$	—		$	52,758
Non-interest income		13,887		—			13,887
Non-interest expense		36,640		(377	)		36,263

Income before provision for income taxes	$	30,005	$	377		$	30,382
Provision for income taxes		10,465		461			10,926

Income from continuing operations	$	19,540	$	(84	)	$	19,456

Earnings per share from continuing operations
Basic	$	0.62	$	—		$	0.62
Diluted	$	0.62	$	—		$	0.62

Hanmi Financial Corporations and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)


	For the Six Months Ended June 30, 2013
	As Previously			Effect of Change in
	Reported			Accounting Principle			As Adjusted
	(In thousands)
Cash flows from operating activities:
Net income	$	19,629		$	(84	)	$	19,545
Total adjustment in net income		10,313			84			10,397

Net cash provided by operating activities	$	29,942		$	—		$	29,942
Cash flows from investing activities:
Net cash used in investing activities		(103,814	)		—			(103,814	)
Cash flows from financing activities:
Net cash used in financing activities		(116,315	)		—			(116,315	)

Net decrease in cash and cash equivalents	$	(190,187	)	$	—		$	(190,187	)
Cash and cash equivalents at beginning of period		268,047			—			268,047

Cash and cash equivalents at end of period	$	77,860		$	—		$	77,860

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 June 30, 2014 or December 31, 2013. The investment in low income housing was $12.4 million and $3.0 million as of June 30, 2014 and December 31, 2013, respectively. The Bank’s unfunded commitments related to low income housing investments was $9.8 million as of June 30, 2014 and zero as of December 31, 2013. The Bank recognized $276,000 and $447,000 as a component of income tax expense during the three and six months ended June 30, 2014, respectively, and tax credits and other benefits received from the tax expenses were $423,000 and $665,000 during the three and six months ended June 30, 2014, respectively.