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

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements (Tables)

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2021

Assets and Liabilities Measured at Fair Value on Recurring Basis

As of September 30, 2021 and December 31, 2020, assets and liabilities measured at fair value on a recurring basis are as follows:

	Level 1		Level 2		Level 3
			Significant
			Observable
	Quoted Prices in		Inputs with No
	Active Markets		Active Market		Significant
	for Identical		with Identical		Unobservable
	Assets		Characteristics		Inputs		Total Fair Value
	(in thousands)
September 30, 2021
Assets:
Securities available for sale:
U.S. Treasury securities	$	4,945	$	—	$	—	$	4,945
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		—		636,062		—		636,062
Collateralized mortgage obligations		—		99,883		—		99,883
Debt securities		—		98,436		—		98,436
Total U.S. government agency and sponsored agency obligations		—		834,381		—		834,381
Municipal bonds-tax exempt		—		67,670		—		67,670
Total securities available for sale	$	4,945	$	902,051	$	—	$	906,996
Derivative financial instruments	$	—	$	800	$	—	$	800

Liabilities:
Derivative financial instruments	$	—	$	769	$	—	$	769

December 31, 2020
Assets:
Securities available for sale:
U.S. Treasury securities	$	10,132	$	—	$	—	$	10,132
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		—		519,241		—		519,241
Collateralized mortgage obligations		—		133,601		—		133,601
Debt securities		—		90,807		—		90,807
Total U.S. government agency and sponsored agency obligations		—		743,649		—		743,649
Total securities available for sale	$	10,132	$	743,649	$	—	$	753,781
Derivative financial instruments	$	—	$	1,088	$	—	$	1,088

Liabilities:
Derivative financial instruments	$	—	$	1,149	$	—	$	1,149

Assets and Liabilities Measured at Fair Value on Non-Recurring Basis

As of September 30, 2021 and December 31, 2020, assets and liabilities measured at fair value on a non-recurring basis are as follows:

			Level 1		Level 2		Level 3
					Significant
					Observable
			Quoted Prices in		Inputs With No
			Active Markets		Active Market		Significant
			for Identical		With Identical		Unobservable
	Total		Assets		Characteristics		Inputs
	(in thousands)
September 30, 2021
Assets:
Collateral dependent loans ⁽¹⁾	$	12,325	$	—	$	—	$	12,325
Other real estate owned		675		—		—		675
Repossessed personal property		180		—		—		180

December 31, 2020
Assets:
Collateral dependent loans ⁽²⁾	$	63,114	$	—	$	—	$	63,114
Other real estate owned		2,360		—		—		2,360
Repossessed personal property		857		—		—		857

⁽¹⁾	Consisted of real estate loans of $12.3 million.

(2)	Consisted of real estate loans of $63.1 million and commercial and industrial loans of $41,000.

Quantitative Information about Level 3 Fair Value Assumptions for Assets Measured at Fair Value on Non-Recurring Basis

The following table represents quantitative information about Level 3 fair value assumptions for assets measured at fair value on a non-recurring basis at September 30, 2021 and December 31, 2020:

	Fair Value		Valuation Techniques	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)
September 30, 2021
Collateral dependent loans:
Real estate loans:
Commercial property
Retail	$	2,628	Market approach	Market data comparison	(28)% to 23% / (6)%
Other		128	Market approach	Market data comparison	(10)% to 5% / (3)%
Construction		7,046	Market approach	Market data comparison	(20)% to 10% / (10)%
Residential/consumer loans		2,523	Market approach	Market data comparison	(20)% to 8% / (15)%
Total real estate loans		12,325
Total	$	12,325

Other real estate owned	$	675	Market approach	Market data comparison	(20)% to (5)% / (12)%

Repossessed personal property		180	Market approach	Market data comparison	⁽³⁾

December 31, 2020
Collateral dependent loans:
Real estate loans:
Commercial property
Retail	$	6,330	Market approach	Market data comparison	(45)% to 35% / 14%
Hospitality		20,612	Market approach	Market data comparison	⁽²⁾
Other		8,410	Market approach	Market data comparison	(55)% to 34% / 15% ⁽¹⁾
Construction		24,854	Market approach	Market data comparison	(20)% to 12% / (8)%
Residential/consumer loans		2,867	Market approach	Market data comparison	(13)% to 15% / 6% ⁽¹⁾
Total real estate loans		63,073
Commercial and industrial loans:
Commercial lines of credit		41	Market approach	Market data comparison	(9)% to 15% / 6% ⁽¹⁾
Total	$	63,114

Other real estate owned	$	2,360	Market approach	Market data comparison	(35)% to 15% / (14)%

Repossessed personal property		857	Market approach	Market data comparison	⁽³⁾

⁽¹⁾

Appraisal reports utilize a combination of valuation techniques including a market approach, where prices and other relevant information generated by market transactions involving similar or comparable properties are used to determine the appraised value. Appraisals may include an ‘as is’ and ‘upon completion’ valuation scenarios. Adjustments are routinely made in the appraisal process by third-party appraisers to adjust for differences between the comparable sales and income data. Adjustments also result from the consideration of relevant economic and demographic factors with the potential to affect property values. Also, prospective values are based on the market conditions which exist at the date of inspection combined with informed forecasts based on current trends in supply and demand for the property types under appraisal. Positive adjustments disclosed in this table represent increases to the sales comparison and negative adjustment represent decreases.

⁽²⁾	No discount weighted average range available given primary valuation methodology is via discounted cash flow analysis (DCF) for going concern properties.

⁽³⁾

The equipment is usually too low in value to use a professional appraisal service. The values are determined internally using a combination of auction values, vendor recommendations and sales comparisons depending on the equipment type. Some highly commoditized equipment, such as commercial trucks have services that provide industry values.

Estimated Fair Values of Financial Instruments

The estimated fair values of financial instruments were as follows:

	September 30, 2021
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	824,347	$	824,347	$	—	$	—
Securities available for sale		906,996		4,945		902,051		—
Loans held for sale		17,881		—		19,937		—
Loans receivable, net of allowance for credit losses		4,782,252		—		—		4,774,003
Accrued interest receivable		11,943		11,943		—		—
Financial liabilities:
Noninterest-bearing deposits		2,548,591		—		2,548,591		—
Interest-bearing deposits		3,180,945		—		—		3,180,790
Borrowings and subordinated debentures		352,344		—		137,991		211,880
Accrued interest payable		1,235		1,235		—		—

	December 31, 2020
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	391,849	$	391,849	$	—	$	—
Securities available for sale		753,781		10,132		743,649		—
Loans held for sale		8,568		—		9,270		—
Loans receivable, net of allowance for credit losses		4,789,742		—		—		4,755,302
Accrued interest receivable		16,363		16,363		—		—
Financial liabilities:
Noninterest-bearing deposits		1,898,766		—		1,898,766		—
Interest-bearing deposits		3,376,242		—		—		3,380,179
Borrowings and subordinated debentures		268,972		—		151,714		118,809
Accrued interest payable		4,564		4,564		—		—