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

9 Months Ended

Sep. 30, 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 income in the three and nine months ended September 30, 2013 increased by $135,000 and $51,000, 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 (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 Statements of Income (Unaudited)


	For the Three Months Ended September 30, 2013
	As Previously Reported		Effect of Change in Accounting Principle			As Adjusted
	(In thousands, except per share data)
Interest and dividend income	$	31,627	$	—		$	31,627
Interest expense		3,153		—			3,153

Net interest income	$	28,474	$	—		$	28,474
Noninterest income		6,059		—			6,059
Noninterest expense		17,811		(175	)		17,636

Income before provision for income taxes	$	16,722	$	175		$	16,897
Provision for income taxes		6,542		40			6,582

Income from continuing operations	$	10,180	$	135		$	10,315

Earnings per share from continuing operations
Basic	$	0.32	$	0.01		$	0.33
Diluted	$	0.32	$	0.01		$	0.33


	For the Nine Months Ended September 30, 2013
	As Previously Reported		Effect of Change in Accounting Principle			As Adjusted
	(In thousands, except per share data)
Interest and dividend income	$	91,401	$	—		$	91,401
Interest expense		10,169		—			10,169

Net interest income	$	81,232	$	—		$	81,232
Noninterest income		19,945		—			19,945
Noninterest expense		54,451		(553	)		53,898

Income before provision for income taxes	$	46,726	$	553		$	47,279
Provision for income taxes		17,008		502			17,510

Income from continuing operations	$	29,718	$	51		$	29,769

Earnings per share from continuing operations
Basic	$	0.94	$	—		$	0.94
Diluted	$	0.94	$	—		$	0.94

Hanmi Financial Corporations and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)


	For the Nine Months Ended September 30, 2013
	As Previously Reported			Effect of Change in Accounting Principle			As Adjusted
	(In thousands)
Cash flows from operating activities:
Net income	$	29,879		$	51		$	29,930
Total adjustment in net income		18,098			(51	)		18,047

Net cash provided by operating activities	$	47,977		$	—		$	47,977
Cash flows from investing activities:
Net cash used in investing activities		(71,768	)		—			(71,768	)
Cash flows from financing activities:
Net cash used in financing activities		(50,402	)		—			(50,402	)

Net decrease in cash and cash equivalents	$	(74,193	)	$	—		$	(74,193	)
Cash and cash equivalents at beginning of period		268,047			—			268,047

Cash and cash equivalents at end of period	$	193,854		$	—		$	193,854

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 September 30, 2014 or December 31, 2013. The investment in low income housing was $21.8 million and $3.0 million as of September 30, 2014 and December 31, 2013, respectively. The Bank’s unfunded commitments related to low income housing investments was $12.6 million as of September 30, 2014 and there were none as of December 31, 2013. The Bank recognized $592,000 and $1.0 million as a component of income tax expense during the three and nine months ended September 30, 2014, respectively, and tax credits and other benefits received from the tax expenses were $821,000 and $1.4 million during the three and nine months ended September 30, 2014, respectively.