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

3 Months Ended

Mar. 31, 2015

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 incomes for the three months ended March 31, 2014 decreased $44,000 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 March 31, 2014
	As Previously Reported		Effect of Change in Accounting Principle			As Adjusted
	(In thousands)
Assets
Cash and cash equivalents	$	204,384	$	—		$	204,384
Securities available for sale		520,990		—			520,990
Loans receivable		2,221,520		—			2,221,520
Income tax assets		53,227		273			53,500
Other assets		96,841		(1,477	)		95,364

Total assets	$	3,096,962	$	(1,204	)	$	3,095,758

Liabilities and stockholders’ equity
Liabilities	$	2,682,247	$	—		$	2,682,247
Stockholders’ equity		414,715		(1,204	)		413,511

Total liabilities and stockholders’ equity	$	3,096,962	$	(1,204	)	$	3,095,758

Hanmi Financial Corporations and Subsidiaries

Consolidated Statements of Income (Unaudited)


	As Previously Reported			Effect of Change in Accounting Principle			As Adjusted
	(In thousands, except per share data)
For the Three Months Ended March 31, 2014
Interest and dividend income	$	30,367		$	—		$	30,367
Interest expense		3,269			—			3,269
Negative provision for credit losses		(3,300	)		—			(3,300	)

Net interest income		30,398			—			30,398
Noninterest income		6,214			—			6,214
Noninterest expense		17,961			(162	)		17,799

Income before provision for income taxes		18,651			162			18,813
Provision for income taxes		7,638			206			7,844

Income from continuing operations	$	11,013		$	(44	)	$	10,969

Earnings per share from continuing operations
Basic	$	0.35		$	—		$	0.35
Diluted	$	0.35		$	(0.01	)	$	0.34

Hanmi Financial Corporations and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)


	As Previously Reported			Effect of Change in Accounting Principle			As Adjusted
	(In thousands)
For the Three Months Ended March 31, 2014
Cash flows from operating activities:
Net income	$	11,035		$	(44	)	$	10,991
Total adjustment in net income		12,230			44			12,274

Net cash provided by operating activities		23,265			—			23,265
Cash flows from investing activities:
Net cash provided by investing activities		2,418			—			2,418
Cash flows from financing activities:
Net cash used in financing activities		(656	)		—			(656	)

Net increase in cash and cash equivalents		25,027			—			25,027
Cash and cash equivalents at beginning of period		179,357			—			179,357

Cash and cash equivalents at end of period	$	204,384		$	—		$	204,384

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 March 31, 2015 or December 31, 2014. The investment in low income housing was $20.7 million and $21.3 million as of March 31, 2015 and December 31, 2014, respectively. The Bank’s unfunded commitments related to low income housing investments were $9.9 million and $11.9 million as of March 31, 2015 and December 31, 2014, respectively. The Bank recognized $584,000 and $171,000 as a component of income tax expense during the three months ended March 31, 2015 and 2014, respectively, and tax credits and other benefits received from the tax expenses were $829,000 and $255,000 during the three months ended March 31, 2015 and 2014, respectively.