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

Quarterly report pursuant to Section 13 or 15(d)

Securities

Securities

3 Months Ended

Mar. 31, 2019

Investments, Debt and Equity Securities [Abstract]

The following is a summary of securities available for sale as of the dates indicated:



	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
	(in thousands)
March 31, 2019
U.S. Treasury securities	$	54,584	$	148	$	4	$	54,728
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities	356,973		566		2,938		354,601
Collateralized mortgage obligations	153,286		298		1,557		152,027
Debt securities	17,472		74		53		17,493
Total U.S. government agency and sponsored agency obligations	527,731		938		4,548		524,121
Municipal bonds-tax exempt	41,797		839		15		42,621
Total securities available for sale	$	624,112	$	1,925	$	4,567	$	621,470

December 31, 2018
U.S. Treasury securities	$	39,768	$	69	$	7	$	39,830
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities	300,957		61		5,984		295,034
Collateralized mortgage obligations	124,550		74		2,332		122,292
Debt securities	7,499		—		97		7,402
Total U.S. government agency and sponsored agency obligations	433,006		135		8,413		424,728
Municipal bonds-tax exempt	110,670		197		517		110,350
Total securities available for sale	$	583,444	$	401	$	8,937	$	574,908

The amortized cost and estimated fair value of securities as of March 31, 2019, by contractual or expected maturity, are shown below. Collateralized mortgage obligations are included in the table shown below based on their expected maturities. All other securities are included based on their contractual maturities.



	Available for Sale
	Amortized Cost		Estimated Fair Value
	(in thousands)
Within one year	$	32,693	$	32,694
Over one year through five years	146,323		145,744
Over five years through ten years	232,279		231,518
Over ten years	212,817		211,514
Total	$	624,112	$	621,470

Gross unrealized losses on 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 March 31, 2019 and December 31, 2018:



	Holding Period
	Less Than 12 Months					12 Months or More					Total
	Gross Unrealized Loss		Estimated Fair Value		Number of Securities	Gross Unrealized Loss		Estimated Fair Value		Number of Securities	Gross Unrealized Loss		Estimated Fair Value		Number of Securities
	(in thousands, except number of securities)
March 31, 2019
U.S. Treasury securities	$	4	$	19,773	3	$	—	$	—	—	$	4	$	19,773	3
U.S. government agency and sponsored agency obligations
Mortgage-backed securities	19		13,442		2	2,919		214,791		101	2,938		228,233		103
Collateralized mortgage obligations	17		17,874		5	1,540		92,822		50	1,557		110,696		55
Debt securities	—		—		—	53		7,447		3	53		7,447		3
Total U.S. government agency and sponsored agency obligations	36		31,316		7	4,512		315,060		154	4,548		346,376		161
Municipal bonds-tax exempt	—		—		—	15		3,993		3	15		3,993		3
Total	$	40	$	51,089	10	$	4,527	$	319,053	157	$	4,567	$	370,142	167

December 31, 2018
U.S. Treasury securities	$	7	$	14,797	2	$	—	$	—	—	$	7	$	14,797	2
U.S. government agency and sponsored agency obligations
Mortgage-backed securities	226		41,527		10	5,758		244,550		106	5,984		286,077		116
Collateralized mortgage obligations	59		13,732		3	2,273		92,532		49	2,332		106,264		52
Debt securities	—		—		—	97		7,402		3	97		7,402		3
Total U.S. government agency and sponsored agency obligations	285		55,259		13	8,128		344,484		158	8,413		399,743		171
Municipal bonds-tax exempt	29		8,196		5	488		65,644		30	517		73,840		35
Total	$	321	$	78,252	20	$	8,616	$	410,128	188	$	8,937	$	488,380	208

All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of March 31, 2019 and December 31, 2018 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 March 31, 2019 and December 31, 2018. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.

The Company does not intend to sell these securities and it is more likely than not that we will not be required to sell the investments before the recovery of their amortized cost basis. In addition, the unrealized losses on municipal securities are not considered other-than-temporarily impaired, as the bonds are rated investment grade and there are no credit quality concerns with the issuers. Interest payments have been made as scheduled, and management believes this will continue in the future and the bonds will be repaid in full as scheduled. 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 March 31, 2019 and December 31, 2018 were not other-than-temporarily impaired, and therefore, no impairment charges as of March 31, 2019 and December 31, 2018 were warranted.

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



	Three Months Ended March 31,
	2019		2018
	(in thousands)
Gross realized gains on sales of securities	$	725	$	—
Gross realized losses on sales of securities	—		(957		)
Net realized gains (losses) on sales of securities	$	725	$	(957	)

Proceeds from sales of securities	$	69,187	$	21,958

During the three months ended March 31, 2019, there was a $725,000 net gain in earnings resulting from the sale of securities. Net unrealized loss of $206,000 related to these securities had previously been recorded in accumulated other comprehensive income as of the beginning of the period in 2019.

In January 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825). This new guidance, among other provisions, amends accounting related to the classification and measurement of investments in equity securities. We adopted this guidance, as required, in the first quarter of 2018. ASU 2016-01 requires the amounts reported in accumulated other comprehensive income for equity securities that exist as of the date of adoption previously classified as available-for-sale be reclassified to retained earnings. The Company reduced the balance of securities by $529,000 as of January 1, 2018, representing the loss related to all of our mutual fund equity securities, which resulted in a net reduction of retained earnings of $382,000 and an increase of $147,000 in net deferred tax assets based on the transition requirements of this standard.

During the three months ended March 31, 2018, we sold all of our mutual fund equity securities with gross realized losses of $957,000. The Company recorded a $428,000 net loss in earnings resulting from the sale of these securities. The remaining loss of $529,000 related to these sold securities was recorded as a transition adjustment upon adoption of ASU 2016-01 as of the beginning of the period as described in the preceding paragraph.

Securities available for sale with market values of $30.0 million and $29.9 million as of March 31, 2019 and December 31, 2018, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.