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, 2023

Assets and Liabilities Measured at Fair Value on Recurring Basis

As of September 30, 2023 and December 31, 2022, 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, 2023
Assets:
Securities available for sale:
U.S. Treasury securities	$	70,922	$	—	$	—	$	70,922
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		—		422,726		—		422,726
Mortgage-backed securities - commercial		—		45,966		—		45,966
Collateralized mortgage obligations		—		86,258		—		86,258
Debt securities		—		129,919		—		129,919
Total U.S. government agency and sponsored agency obligations		—		684,869		—		684,869
Municipal bonds-tax exempt		—		61,451		—		61,451
Total securities available for sale	$	70,922	$	746,320	$	—	$	817,242
Derivative financial instruments	$	—	$	8,602	$	—	$	8,602

Liabilities:
Derivative financial instruments	$	—	$	8,493	$	—	$	8,493

December 31, 2022
Assets:
Securities available for sale:
U.S. Treasury securities	$	48,026	$	—	$	—	$	48,026
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		—		465,152		—		465,152
Mortgage-backed securities - commercial		—		51,292		—		51,292
Collateralized mortgage obligations		—		85,485		—		85,485
Debt securities		—		138,499		—		138,499
Total U.S. government agency and sponsored agency obligations		—		740,428		—		740,428
Municipal bonds-tax exempt		—		65,384		—		65,384
Total securities available for sale	$	48,026	$	805,812	$	—	$	853,838
Derivative financial instruments	$	—	$	7,507	$	—	$	7,507

Liabilities:
Derivative financial instruments	$	—	$	7,375	$	—	$	7,375

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

As of September 30, 2023 and December 31, 2022, 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, 2023
Assets:
Collateral dependent loans (1)	$	6,842	$	—	$	—	$	6,842
Other real estate owned		117		—		—		117
Repossessed personal property		1,320		—		—		1,320

December 31, 2022
Assets:
Collateral dependent loans (2)	$	2,694	$	—	$	—	$	2,694
Other real estate owned		117		—		—		117
Repossessed personal property		467		—		—		467
Servicing assets		7,176		—		—		7,176

(1)

Consisted of real estate loans of $2.0 million and commercial and industrial loans of $4.8 million, which were secured by real estate and business assets.

(2)

Consisted of real estate loans of $2.7 million.

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, 2023 and December 31, 2022:


	Fair Value		Valuation Techniques	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)
September 30, 2023
Collateral dependent loans:
Real estate loans:
Commercial property
Retail	$	1,637	Market approach	Adjustments to market data	5% to 20% / 15%	(1)
Hospitality		333	Market approach	Adjustments to market data	(30)% to 35% / (3)%
Other		22	Market approach	Adjustments to market data	(25)% to 5% / (10%)	(1)
Residential		3	Market approach	Adjustments to market data	(15)% to 3% / (6)%	(1)
Total real estate loans		1,995
Commercial and industrial loans		4,847	Market approach	Adjustments to market data	(20)% to 55% / (3)%	(1)
Total	$	6,842

Other real estate owned	$	117	Market approach	Adjustments to market data	(10)% to 5% / (2)%	(1)

Repossessed personal property		1,320	Market approach	Adjustments to market data		(2)

December 31, 2022
Collateral dependent loans:
Real estate loans:
Commercial property
Retail	$	1,930	Market approach	Adjustments to market data	5% to 25% / 16%	(1)
Other		256	Market approach	Adjustments to market data	(42)% to 3% / (24)%	(1)
Residential		508	Market approach	Adjustments to market data	(15)% to 3% / (1)%	(1)
Total real estate loans		2,694
Total	$	2,694

Other real estate owned	$	117	Market approach	Adjustments to market data	(20)% to 20% / (2)%	(1)

Repossessed personal property		467	Market approach	Adjustments to market data		(2)

Servicing assets		7,176	Market approach	Prepayment rate Discount rate	11% to 17% / 16% 22% to 25% / 22%	(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 adjustments represent decreases.

(2)

The equipment is usually too small 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.

(3)

Fair value is based on a valuation model using the present value of estimated future cash flows, prepayment speeds, default rates, and discount rates. Servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into income over the period of the estimated future net servicing income of the underlying loans.

Estimated Fair Values of Financial Instruments

The estimated fair values of financial instruments were as follows:


	September 30, 2023
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	289,006	$	289,006	$	—	$	—
Securities available for sale		817,242		70,922		746,320		—
Loans held for sale		11,767		—		11,721		—
Loans receivable, net of allowance for credit losses		5,953,472		—		—		5,784,828
Accrued interest receivable		20,715		20,715		—		—
Financial liabilities:
Noninterest-bearing deposits		2,161,238		—		2,161,238		—
Interest-bearing deposits		4,098,834		—		—		4,098,244
Borrowings and subordinated debentures		292,360		—		159,632		127,334
Accrued interest payable		50,286		50,286		—		—


	December 31, 2022
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	352,421	$	352,421	$	—	$	—
Securities available for sale		853,838		48,026		805,812		—
Loans held for sale		8,043		—		8,423		—
Loans receivable, net of allowance for credit losses		5,895,610		—		—		5,808,190
Accrued interest receivable		18,537		18,537		—		—
Financial liabilities:
Noninterest-bearing deposits		2,539,602		—		2,539,602		—
Interest-bearing deposits		3,628,470		—		—		3,623,827
Borrowings and subordinated debentures		479,409		—		345,867		126,828
Accrued interest payable		7,792		7,792		—		—