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EX-32.2 - EXHIBIT 32.2 - HANMI FINANCIAL CORPexhibit3222016q1.htm
EX-31.1 - EXHIBIT 31.1 - HANMI FINANCIAL CORPexhibit3112016q1.htm
EX-31.2 - EXHIBIT 31.2 - HANMI FINANCIAL CORPexhibit3122016q1.htm
EX-32.1 - EXHIBIT 32.1 - HANMI FINANCIAL CORPexhibit3212016q1.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From                      To                     
Commission File Number: 000-30421
 
 
 HANMI FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 
 
Delaware
 
95-4788120
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
3660 Wilshire Boulevard, Penthouse Suite A
Los Angeles, California
 
90010
(Address of Principal Executive Offices)
 
(Zip Code)
(213) 382-2200
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
 
 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
x
Accelerated Filer
¨

Non-Accelerated Filer
 
¨  (Do Not Check if a Smaller Reporting Company)
Smaller Reporting Company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x
As of May 5, 2016, there were 32,251,187 outstanding shares of the Registrant’s Common Stock.




Hanmi Financial Corporation and Subsidiaries
Quarterly Report on Form 10-Q
Three Months Ended March 31, 2016
Table of Contents
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 


2



Part I — Financial Information
Item 1. Financial Statements
Hanmi Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
 
(Unaudited) March 31, 2016
 
December 31, 2015
Assets
 
 
 
Cash and due from banks
$
137,464

 
$
164,364

Securities available for sale, at fair value (amortized cost of $667,640 as of March 31, 2016 and $700,627 as of December 31, 2015)
675,032

 
698,296

Loans held for sale, at the lower of cost or fair value
2,583

 
2,874

Loans receivable, net of allowance for loan losses of $41,026 as of March 31, 2016 and $42,935 as of December 31, 2015
3,265,453

 
3,140,381

Accrued interest receivable
10,626

 
9,501

Premises and equipment, net
30,112

 
29,834

Other real estate owned ("OREO"), net
9,411

 
8,511

Customers’ liability on acceptances
2,809

 
3,586

Servicing assets
11,452

 
11,744

Core deposit intangible, net
1,619

 
1,701

Federal Home Loan Bank ("FHLB") stock, at cost
16,385

 
16,385

Federal Reserve Bank ("FRB") stock, at cost
14,423

 
14,098

Income tax asset
56,456

 
57,174

Bank-owned life insurance
48,612

 
48,340

Prepaid expenses and other assets
28,311

 
27,732

Total assets
$
4,310,748

 
$
4,234,521

Liabilities and stockholders’ equity
 
 
 
Liabilities:
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
1,172,444

 
$
1,155,518

Interest-bearing
2,327,548

 
2,354,458

Total deposits
3,499,992

 
3,509,976

Accrued interest payable
3,249

 
3,177

Bank’s liability on acceptances
2,809

 
3,586

FHLB advances
250,000

 
170,000

Servicing liabilities
4,588

 
4,784

Federal Deposit Insurance Corporation ("FDIC") loss sharing liability
1,266

 
1,289

Subordinated debentures
18,759

 
18,703

Accrued expenses and other liabilities
19,225

 
29,088

Total liabilities
3,799,888

 
3,740,603

Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 32,842,495 shares (32,249,512 shares outstanding) as of March 31, 2016 and issued 32,566,522 shares (31,974,359 shares outstanding) as of December 31, 2015
33

 
257

Additional paid-in capital
558,945

 
557,761

Accumulated other comprehensive income (loss), net of tax expense of $2,037 as of March 31, 2016 and tax benefit of $2,007 as of December 31, 2015
5,364

 
(315
)
Retained earnings
16,742

 
6,422

Less: treasury stock, at cost; 592,983 shares as of March 31, 2016 and 592,163 shares as of December 31, 2015
(70,224
)
 
(70,207
)
Total stockholders’ equity
510,860

 
493,918

Total liabilities and stockholders’ equity
$
4,310,748

 
$
4,234,521


See Accompanying Notes to Consolidated Financial Statements (Unaudited)

3



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(in thousands, except share and per share data)
 
Three Months Ended March 31,
 
2016
 
2015
Interest and dividend income:
 
 
 
Interest and fees on loans
$
39,067

 
$
37,034

Interest on securities
3,017

 
3,874

Dividends on FRB and FHLB stock
542

 
482

Interest on deposits in other banks
48

 
48

Total interest and dividend income
42,674

 
41,438

Interest expense:
 
 
 
Interest on deposits
3,727

 
3,780

Interest on subordinated debentures
183

 
145

Interest on FHLB advances
195

 
56

Total interest expense
4,105

 
3,981

Net interest income before provision for loan losses
38,569

 
37,457

Negative provision for loan losses
(1,525
)
 
(1,673
)
Net interest income after provision for loan losses
40,094

 
39,130

Noninterest income:
 
 
 
Service charges on deposit accounts
3,001

 
3,211

Trade finance and other service charges and fees
1,044

 
1,267

Gain on sales of Small Business Administration ("SBA") loans
858

 
1,684

Net gain on sales of securities

 
2,184

Disposition gains on Purchased Credit Impaired ("PCI") loans
659

 
1,222

Other operating income
1,399

 
1,282

Total noninterest income
6,961

 
10,850

Noninterest expense:
 
 
 
Salaries and employee benefits
15,698

 
16,384

Occupancy and equipment
3,496

 
4,303

Data processing
1,436

 
2,132

Professional fees
1,464

 
2,341

Supplies and communications
736

 
830

Advertising and promotion
522

 
523

OREO expense
465

 
417

Merger and integration costs

 
1,611

Other operating expenses
2,251

 
2,851

Total noninterest expense
26,068

 
31,392

Income before income tax expense
20,987

 
18,588

Income tax expense
6,183

 
7,534

Net income
$
14,804

 
$
11,054

Basic earnings per share
$
0.46

 
$
0.35

Diluted earnings per share
$
0.46

 
$
0.35

Weighted-average shares outstanding:
 
 
 
Basic
31,846,371

 
31,747,299

Diluted
31,928,103

 
32,026,723


See Accompanying Notes to Consolidated Financial Statements (Unaudited)

4



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
 
Three Months Ended March 31,
 
2016
 
2015
Net income
$
14,804

 
$
11,054

Other comprehensive income, net of tax:
 
 
 
Unrealized gain on securities:
 
 
 
Unrealized holding gain arising during period
9,723

 
12,043

Less: reclassification adjustment for net gain included in net income

 
(2,184
)
Income tax expense related to items of other comprehensive income
(4,044
)
 
(4,123
)
Other comprehensive income, net of tax
5,679

 
5,736

Comprehensive income
$
20,483

 
$
16,790


See Accompanying Notes to Consolidated Financial Statements (Unaudited)


5



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except share data)
 
Common Stock - Number of Shares
 
Stockholders’ Equity
 
Shares Issued
 
Treasury Shares
 
Shares Outstanding
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated (Deficit) Retained Earnings
 
Treasury Stock, at Cost
 
Total Stockholders’ Equity
Balance at January 1, 2015
32,488,097

 
(577,894
)
 
31,910,203

 
$
257

 
$
554,904

 
$
463

 
$
(32,379
)
 
$
(69,858
)
 
$
453,387

Stock options exercised
19,581

 

 
19,581

 

 
278

 

 

 

 
278

Restricted stock awards, net of forfeitures
3,850

 

 
3,850

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 
528

 

 

 

 
528

Cash dividends declared

 

 

 

 

 

 
(3,513
)
 

 
(3,513
)
Comprehensive income:
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 


Net income

 

 

 

 

 

 
11,054

 

 
11,054

Change in unrealized gain on securities available for sale, net of income taxes

 

 

 

 

 
5,736

 

 

 
5,736

Balance at March 31, 2015
32,511,528

 
(577,894
)
 
31,933,634

 
$
257

 
$
555,710

 
$
6,199

 
$
(24,838
)
 
$
(69,858
)
 
$
467,470

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
32,566,522

 
(592,163
)
 
31,974,359

 
$
257

 
$
557,761

 
$
(315
)
 
$
6,422

 
$
(70,207
)
 
$
493,918

Correction of accounting for the 2011 1-for-8 stock split






(224
)

224









Stock options exercised
22,209

 

 
22,209

 

 
341

 

 

 

 
341

Restricted stock awards, net of forfeitures
253,764

 

 
253,764

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 
619

 

 

 

 
619

Restricted stock surrendered due to employee tax liability

 
(820
)
 
(820
)
 

 

 

 

 
(17
)
 
(17
)
Cash dividends declared

 

 

 

 

 

 
(4,484
)
 

 
(4,484
)
Comprehensive income:
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 


Net income

 

 

 

 

 

 
14,804

 

 
14,804

Change in unrealized gain on securities available for sale, net of income taxes

 

 

 

 

 
5,679

 

 

 
5,679

Balance at March 31, 2016
32,842,495

 
(592,983
)
 
32,249,512

 
$
33

 
$
558,945

 
$
5,364

 
$
16,742

 
$
(70,224
)
 
$
510,860

See Accompanying Notes to Consolidated Financial Statements (Unaudited)


6



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands) 
 
Three Months Ended March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
14,804

 
$
11,054

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
3,982

 
5,441

Share-based compensation expense
619

 
528

Negative provision for loan losses
(1,525
)
 
(1,673
)
Gain on sales of securities

 
(2,184
)
Gain on sales of SBA loans
(858
)
 
(1,684
)
Gain on sale of premises and equipment
(35
)
 

Disposition gains on PCI loans
(659
)
 
(1,222
)
Valuation adjustment on OREO
465

 
(215
)
Origination of SBA loans held for sale
(12,152
)
 
(23,108
)
Proceeds from sales of SBA loans
13,662

 
21,996

Change in accrued interest receivable
(1,125
)
 
511

Change in bank-owned life insurance
(272
)
 
(253
)
Change in prepaid expenses and other assets
(441
)
 
(257
)
Change in income tax asset
(3,326
)
 
(6,230
)
Change in accrued interest payable
72

 
47

Change in FDIC loss sharing liability
(23
)
 
(1,531
)
Change in accrued expenses and other liabilities
(7,354
)
 
(6,568
)
Net cash provided by (used in) operating activities
5,834

 
(5,348
)
Cash flows from investing activities:
 
 
 
Proceeds from matured, called and repayment of securities
30,884

 
34,613

Proceeds from sales of securities available for sale

 
176,848

Proceeds from sales of OREO
117

 
4,038

Proceeds from bank-owned life insurance

 
1,323

Change in loans receivable, excluding purchases
(93,113
)
 
13,952

Purchases of premises and equipment
(990
)
 
(903
)
Purchases of loans receivable
(30,687
)
 
(43,979
)
Purchases of FRB stock
(325
)
 
(1
)
Net cash (used in) provided by provided by investing activities
(94,114
)
 
185,891

Cash flows from financing activities:
 
 
 
Change in deposits
(9,984
)
 
(4,070
)
Change in overnight FHLB borrowings
80,000

 
(150,000
)
Redemption of rescinded stock obligation

 
(783
)
Proceeds from exercise of stock options
341

 
278

Cash paid for treasury shares acquired in respect of share-based compensation
(17
)
 

Cash dividends paid
(8,960
)
 
(2,234
)
Net cash provided by (used in) financing activities
61,380

 
(156,809
)
Net (decrease) increase in cash and cash equivalents
(26,900
)
 
23,734

Cash and cash equivalents at beginning of year
164,364

 
158,320

Cash and cash equivalents at end of period
$
137,464

 
$
182,054

 
 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
4,034

 
$
3,934

Income taxes
$
9,887

 
$
13,172

Non-cash activities:
 
 
 
Transfer of loans receivable to OREO
$
676

 
$
627

Income tax expense related to items in other comprehensive income
$
(4,044
)
 
$
(4,123
)
Change in unrealized gain in accumulated other comprehensive income
$
(9,723
)
 
$
(12,043
)
Cash dividends declared
$
(4,482
)
 
$
(3,513
)
See Accompanying Notes to Consolidated Financial Statements (Unaudited)


7



Hanmi Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended March 31, 2016 and 2015
Note 1 — Basis of Presentation

Hanmi Financial Corporation (“Hanmi Financial,” the “Company,” “we,” “us” or “our”) is a bank holding company whose subsidiary is Hanmi Bank (the “Bank”). Our primary operations are related to traditional banking activities, including the acceptance of deposits and the lending and investing of money through operation of the Bank.

In management’s opinion, the accompanying unaudited consolidated financial statements of Hanmi Financial and its subsidiaries reflect all adjustments of a normal and recurring nature that are necessary for a fair presentation of the results for the interim period ended March 31, 2016, but are not necessarily indicative of the results that will be reported for the entire year or any other interim period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The aforementioned unaudited consolidated financial statements are in conformity with GAAP. Such interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. The interim information should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “2015 Annual Report on Form 10-K”).

The preparation of interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates subject to change include, among other items, the determination of allowance for loan losses and various other assets and liabilities measured at fair value.

Certain prior period amounts have been reclassified to conform to current period presentation. Descriptions of our significant accounting policies are included in Note 1 - Summary of Significant Accounting Policies in our 2015 Annual Report on Form 10-K.



8



Note 2 — Securities

The following is a summary of securities available for sale as of March 31, 2016 and December 31, 2015: 
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
 
(in thousands)
March 31, 2016
 
 
 
 
 
 
 
Mortgage-backed securities (1) (2)
$
271,395

 
$
2,642

 
$
447

 
$
273,590

Collateralized mortgage obligations (1)
91,947

 
404

 
222

 
92,129

U.S. government agency securities
39,982

 
66

 
8

 
40,040

SBA loan pool securities
60,811

 
12

 
216

 
60,607

Municipal bonds-tax exempt
161,527

 
4,599

 

 
166,126

Municipal bonds-taxable
13,888

 
425

 

 
14,313

Corporate bonds
5,016

 

 
18

 
4,998

U.S. treasury securities
158

 
2

 

 
160

Mutual funds
22,916

 
240

 
87

 
23,069

Total securities available for sale
$
667,640

 
$
8,390

 
$
998

 
$
675,032

 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
Mortgage-backed securities (1) (2)
$
286,450

 
$
392

 
$
2,461

 
$
284,381

Collateralized mortgage obligations (1)
97,904

 
79

 
997

 
96,986

U.S. government agency securities
48,478

 

 
656

 
47,822

SBA loan pool securities
63,670

 
7

 
411

 
63,266

Municipal bonds-tax exempt
162,101

 
1,820

 
19

 
163,902

Municipal bonds-taxable
13,932

 
189

 
88

 
14,033

Corporate bonds
5,017

 

 
24

 
4,993

U.S. treasury securities
159

 
1

 

 
160

Mutual funds
22,916

 

 
163

 
22,753

Total securities available for sale
$
700,627

 
$
2,488

 
$
4,819

 
$
698,296

                              
(1) 
Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.
(2) 
Include securities collateralized by home equity conversion mortgages with total estimated fair value of $56.9 million and $58.6 million as of March 31, 2016 and December 31, 2015, respectively.






9



The amortized cost and estimated fair value of securities as of March 31, 2016, by contractual maturity, are shown below. Mortgage-backed securities and collateralized mortgage obligations are included in the table shown below based on their contractual maturities. However, their expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mutual funds do not have contractual maturities. However, they are included in the table shown below as over ten years since the Company intends to hold these securities for at least this duration.
 
Available for Sale
 
Amortized Cost
 
Estimated Fair Value
 
(in thousands)
Within one year
$
25

 
$
25

Over one year through five years
87,158

 
87,606

Over five years through ten years
300,008

 
303,688

Over ten years
280,449

 
283,713

Total
$
667,640

 
$
675,032

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, 2016 and December 31, 2015:
 
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, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
281

 
$
65,007

 
12

 
$
166

 
$
18,704

 
8

 
$
447

 
$
83,711

 
20

Collateralized mortgage obligations
43

 
18,161

 
7

 
179

 
15,364

 
8

 
222

 
33,525

 
15

U.S. government agency securities

 

 

 
8

 
7,984

 
3

 
8

 
7,984

 
3

SBA loan pool securities
125

 
47,102

 
12

 
91

 
7,193

 
3

 
216

 
54,295

 
15

Municipal bonds-tax exempt

 
854

 
1

 

 

 

 

 
854

 
1

Corporate bonds
18

 
4,998

 
1

 

 

 

 
18

 
4,998

 
1

Mutual funds

 

 

 
87

 
939

 
3

 
87

 
939

 
3

Total
$
467

 
$
136,122

 
33

 
$
531

 
$
50,184

 
25

 
$
998

 
$
186,306

 
58

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
1,734

 
$
193,931

 
52

 
$
727

 
$
21,659

 
9

 
$
2,461

 
$
215,590

 
61

Collateralized mortgage obligations
335

 
48,970

 
18

 
662

 
32,964

 
13

 
997

 
81,934

 
31

U.S. government agency securities
201

 
23,289

 
8

 
455

 
24,533

 
8

 
656

 
47,822

 
16

SBA loan pool securities
161

 
50,499

 
12

 
250

 
7,036

 
3

 
411

 
57,535

 
15

Municipal bonds-tax exempt
19

 
8,922

 
6

 

 

 

 
19

 
8,922

 
6

Municipal bonds-taxable
88

 
7,106

 
4

 

 

 

 
88

 
7,106

 
4

Corporate binds
24

 
4,994

 
1

 

 

 

 
24

 
4,994

 
1

Mutual funds
66

 
21,820

 
3

 
97

 
928

 
3

 
163

 
22,748

 
6

Total
$
2,628

 
$
359,531

 
104

 
$
2,191

 
$
87,120

 
36

 
$
4,819

 
$
446,651

 
140


All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of March 31, 2016 and December 31, 2015 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

10



investment grade status as of March 31, 2016 and December 31, 2015. 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 securities before the recovery of their amortized cost basis. In addition, the unrealized losses on municipal and corporate bonds 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 that 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, 2016 and December 31, 2015 were not other-than-temporarily impaired, and therefore, no impairment charges as of March 31, 2016 and December 31, 2015 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,
 
2016
 
2015
 
(in thousands)
Gross realized gains on sales of securities
$

 
$
2,194

Gross realized losses on sales of securities

 
(10
)
Net realized gains on sales of securities
$

 
$
2,184

Proceeds from sales of securities
$

 
$
176,848


For the three months ended March 31, 2016, there was no gain or loss included in earnings resulting from the sale of securities. For the three months ended March 31, 2015, there was a $2.2 million net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized gains of $535,000 in comprehensive income.

Securities available for sale with market values of $70.2 million and $72.0 million as of March 31, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.



11



Note 3 — Loans

Loans Receivable, Net

Loans receivable consisted of the following as of the dates indicated:
 
March 31, 2016
 
December 31, 2015
 
Non-PCI Loans
 
PCI Loans
 
Total
 
Non-PCI Loans
 
PCI Loans
 
Total
 
(in thousands)
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial property (1)
 
 
 
 
 
 
 
 
 
 
 
Retail
$
772,454

 
$
4,264

 
$
776,718

 
$
735,501

 
$
4,849

 
$
740,350

Hospitality
544,708

 
4,099

 
548,807

 
539,345

 
4,080

 
543,425

Gas station
313,571

 
4,613

 
318,184

 
319,363

 
4,292

 
323,655

Other (2)
1,053,306

 
5,495

 
1,058,801

 
973,243

 
5,418

 
978,661

Construction
27,017

 

 
27,017

 
23,387

 

 
23,387

Residential property
255,334

 
1,154

 
256,488

 
234,879

 
1,157

 
236,036

Total real estate loans
2,966,390

 
19,625

 
2,986,015

 
2,825,718

 
19,796

 
2,845,514

Commercial and industrial loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial term
140,559

 
161

 
140,720

 
152,602

 
171

 
152,773

Commercial lines of credit
124,962

 

 
124,962

 
128,224

 

 
128,224

International loans
29,950

 

 
29,950

 
31,879

 

 
31,879

Total commercial and industrial loans
295,471

 
161

 
295,632

 
312,705

 
171

 
312,876

Consumer loans (3)
24,783

 
49

 
24,832

 
24,879

 
47

 
24,926

Loans receivable
3,286,644

 
19,835

 
3,306,479

 
3,163,302

 
20,014

 
3,183,316

Allowance for loans losses
(35,381
)
 
(5,645
)
 
(41,026
)
 
(37,494
)
 
(5,441
)
 
(42,935
)
Loans receivable, net
$
3,251,263

 
$
14,190

 
$
3,265,453

 
$
3,125,808

 
$
14,573

 
$
3,140,381

 
(1) 
Includes owner-occupied property loans of $1.23 billion and $1.20 billion as of March 31, 2016 and December 31, 2015, respectively.
(2) 
Includes, among other property types, mixed-use, apartment, office, industrial, faith-based facilities and warehouse; the remaining real estate categories represent less than one percent of the Bank's total loans.
(3) 
Consumer loans include home equity lines of credit of $21.7 million and $21.8 million as of March 31, 2016 and December 31, 2015, respectively.

Accrued interest on loans receivable was $7.1 million and $7.9 million at March 31, 2016 and December 31, 2015, respectively. At March 31, 2016 and December 31, 2015, loans receivable of $518.9 million and $557.7 million, respectively, were pledged to secure advances from the FHLB and the FRB's discount window.


12



Loans Held for Sale

The following table includes the activity for loans held for sale (excluding PCI loans) by portfolio segment for the three months ended March 31, 2016 and 2015:
 
Real Estate
 
Commercial and Industrial
 
Total Non-PCI
 
(in thousands)
March 31, 2016
 
 
 
 
 
Loans held for sale, at beginning of period
$
840

 
$
2,034

 
$
2,874

Originations
6,473

 
5,679

 
12,152

Sales
(5,488
)
 
(6,935
)
 
(12,423
)
Principal payoffs and amortization
(1
)
 
(19
)
 
(20
)
Loans held for sale, at end of period
$
1,824

 
$
759

 
$
2,583

 
 
 
 
 
 
March 31, 2015
 
 
 
 
 
Loans held for sale, at beginning of period
$
3,323

 
$
2,128

 
$
5,451

Originations
16,927

 
6,181

 
23,108

Sales
(13,014
)
 
(6,840
)
 
(19,854
)
Principal payoffs and amortization
(10
)
 
(18
)
 
(28
)
Loans held for sale, at end of period
$
7,226

 
$
1,451

 
$
8,677


There was no reclassification of Non-PCI loans receivable to loans held for sale during the three months ended March 31, 2016 and 2015.

Allowance for Loan Losses

Activity in the allowance for loan losses was as follows for the periods indicated:
 
As of and for the Three Months Ended
 
March 31, 2016
 
March 31, 2015
 
Non-PCI Loans
 
PCI Loans
 
Total
 
Non-PCI Loans
 
PCI Loans
 
Total
 

 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
37,494

 
$
5,441

 
$
42,935

 
$
51,640

 
$
1,026

 
52,666

Charge-offs
(637
)
 

 
(637
)
 
(34
)
 
(52
)
 
(86
)
Recoveries on loans previously charged off
253

 

 
253

 
1,692

 
352

 
2,044

Net loan (charge-offs) recoveries
(384
)
 

 
(384
)
 
1,658

 
300

 
1,958

(Negative provision) provision
(1,729
)
 
204

 
(1,525
)
 
(1,783
)
 
110

 
(1,673
)
Balance at end of period
$
35,381

 
$
5,645

 
$
41,026

 
$
51,515

 
$
1,436

 
52,951


Management believes the allowance for loan losses is appropriate to provide for probable losses inherent in the loan portfolio. However, the allowance is an estimate that is inherently uncertain and depends on the outcome of future events. Management’s estimates are based on previous loss experience; volume, growth and composition of the loan portfolio; the value of collateral; and current economic conditions. Our lending is concentrated generally in real estate, commercial, SBA and trade finance lending to small and middle market businesses primarily in California, Texas and Illinois.








13




The following table details the information on the allowance for loan losses by portfolio segment as of and for the three months ended March 31, 2016 and 2015:
 
Real Estate
 
Commercial and Industrial
 
Consumer
 
Unallocated
 
Total
 
(in thousands)
March 31, 2016
 
 
 
 
 
 
 
 
 
Allowance for loan losses on Non-PCI loans:
 
 
 
 
 
 
 
 
 
Beginning balance
$
29,800

 
$
7,081

 
$
242

 
$
371

 
$
37,494

Charge-offs
(535
)
 
(102
)
 

 

 
(637
)
Recoveries on loans previously charged off
93

 
160

 

 

 
253

(Negative provision) provision
(1,080
)
 
(850
)
 
13

 
188

 
(1,729
)
Ending balance
$
28,278

 
$
6,289

 
$
255

 
$
559

 
$
35,381

Ending balance: individually evaluated for impairment
$
3,334

 
$
759

 
$

 
$

 
$
4,093

Ending balance: collectively evaluated for impairment
$
24,944

 
$
5,530

 
$
255

 
$
559

 
$
31,288

Non-PCI loans receivable:
 
 
 
 
 
 
 
 
 
Ending balance
$
2,966,390

 
$
295,471

 
$
24,783

 
$

 
$
3,286,644

Ending balance: individually evaluated for impairment
$
25,595

 
$
6,441

 
$
700

 
$

 
$
32,736

Ending balance: collectively evaluated for impairment
$
2,940,795

 
$
289,030

 
$
24,083

 
$

 
$
3,253,908

Allowance for loan losses on PCI loans:
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,397

 
$
42

 
$
2

 
$

 
$
5,441

Provision
202

 
2

 

 

 
204

Ending balance: acquired with deteriorated credit quality
$
5,599

 
$
44

 
$
2

 
$

 
$
5,645


 
 
 
 
 
 
 
 
 
PCI loans receivable
$
19,625

 
$
161

 
$
49

 
$

 
$
19,835

 
 
 
 
 
 
 
 
 
 
March 31, 2015
 
 
 
 
 
 
 
 
 
Allowance for loan losses on Non-PCI loans:
 
 
 
 
 
 
 
 
 
Beginning balance
$
41,194

 
$
9,142

 
$
220

 
$
1,084

 
$
51,640

Charge-offs

 
(34
)
 

 

 
(34
)
Recoveries on loans previously charged off
32

 
1,660

 

 

 
1,692

Provision (negative provision)
1,324

 
(2,982
)
 
(35
)
 
(90
)
 
(1,783
)
Ending balance
$
42,550

 
$
7,786

 
$
185

 
$
994

 
$
51,515

Ending balance: individually evaluated for impairment
$
3,386

 
$
1,913

 
$

 
$

 
$
5,299

Ending balance: collectively evaluated for impairment
$
39,164

 
$
5,873

 
$
185

 
$
994

 
$
46,216

Non-PCI loans receivable:
 
 
 
 
 
 
 
 
 
Ending balance
$
2,499,323

 
$
250,351

 
$
25,942

 
$

 
$
2,775,616

Ending balance: individually evaluated for impairment
$
33,537

 
$
11,570

 
$
1,823

 
$

 
$
46,930

Ending balance: collectively evaluated for impairment
$
2,465,786

 
$
238,781

 
$
24,119

 
$

 
$
2,728,686

Allowance for loan losses on PCI loans:
 
 
 
 
 
 
 
 
 
Beginning balance
$
895

 
$
131

 
$

 
$

 
$
1,026

Charge-offs
(52
)
 

 

 

 
(52
)
Recoveries on loans previously charged off

 
352

 

 

 
352

Provision (negative provision)
475

 
(365
)
 

 

 
110

Ending balance: acquired with deteriorated credit quality
$
1,318

 
$
118

 
$

 
$

 
$
1,436

 
 
 
 
 
 
 
 
 
 
PCI loans receivable
$
40,616

 
$
281

 
$
44

 
$

 
$
40,941










14




Loan Quality Indicators

As part of the on-going monitoring of the credit quality of our loan portfolio, we utilize an internal loan grading system to identify credit risk and assign an appropriate grade, from 0 to 8, for each loan in our loan portfolio. Third party loan reviews are performed throughout the year. Additional adjustments are made when determined to be necessary. The loan grade definitions are as follows:
Pass and Pass-Watch: Pass and pass-watch loans, grades 0-4, are in compliance in all respects with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weaknesses as defined under “Special Mention,” “Substandard” or “Doubtful.” This category is the strongest level of the Bank’s loan grading system. It incorporates all performing loans with no credit weaknesses. It includes cash and stock/security secured loans or other investment grade loans.
Special Mention: A special mention credit, grade 5, has potential weaknesses that deserve management’s close attention. If not corrected, these potential weaknesses may result in deterioration of the repayment prospects of the debt and result in a Substandard classification. Loans that have significant actual, not potential, weaknesses are considered more severely classified.
Substandard: A substandard credit, grade 6, has a well-defined weakness that jeopardizes the liquidation of the debt. A credit graded Substandard is not protected by the sound worth and paying capacity of the borrower, or of the value and type of collateral pledged. With a Substandard loan, there is a distinct possibility that the Bank will sustain some loss if the weaknesses or deficiencies are not corrected.
Doubtful: A doubtful credit, grade 7, is one that has critical weaknesses that would make the collection or liquidation of the full amount due improbable. However, there may be pending events which may work to strengthen the credit, and therefore the amount or timing of a possible loss cannot be determined at the current time.
Loss: A loan classified as loss, grade 8, is considered uncollectible and of such little value that their continuance as an active bank asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be possible in the future. Loans classified as loss are charged off in a timely manner.

Under regulatory guidance, loans graded special mention or worse are considered criticized loans and loans graded substandard or worse are considered classified loans.


15



     As of March 31, 2016 and December 31, 2015, pass/pass-watch, special mention and classified loans (excluding PCI loans), disaggregated by loan class, were as follows:
 
Pass/Pass-Watch
 
Special Mention
 
Classified
 
Total
 
(in thousands)
March 31, 2016
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial property
 
 
 
 
 
 
 
Retail
$
764,216

 
$
4,826

 
$
3,412

 
$
772,454

Hospitality
526,393

 
6,636

 
11,679

 
544,708

Gas station
306,330

 
3,772

 
3,469

 
313,571

Other
1,039,280

 
6,352

 
7,674

 
1,053,306

Construction
27,017

 

 

 
27,017

Residential property
254,407

 
52

 
875

 
255,334

Commercial and industrial loans:
 
 
 
 
 
 

Commercial term
134,120

 
2,366

 
4,073

 
140,559

Commercial lines of credit
124,659

 
195

 
108

 
124,962

International loans
27,940

 
2,010

 

 
29,950

Consumer loans
23,715

 
81

 
987

 
24,783

Total Non-PCI loans
$
3,228,077

 
$
26,290

 
$
32,277

 
$
3,286,644

 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial property
 
 
 
 
 
 
 
Retail
$
722,483

 
$
9,519

 
$
3,499

 
$
735,501

Hospitality
517,462

 
9,604

 
12,279

 
539,345

Gas station
309,598

 
5,897

 
3,868

 
319,363

Other
953,839

 
8,662

 
10,742

 
973,243

Construction
23,387

 

 

 
23,387

Residential property
232,862

 
58

 
1,959

 
234,879

Commercial and industrial loans:
 
 
 
 
 
 


Commercial term
145,773

 
2,370

 
4,459

 
152,602

Commercial lines of credit
127,579

 
195

 
450

 
128,224

International loans
29,719

 
2,160

 

 
31,879

Consumer loans
22,707

 
91

 
2,081

 
24,879

Total Non-PCI loans
$
3,085,409

 
$
38,556

 
$
39,337

 
$
3,163,302

 

16



The following is an aging analysis of loans (excluding PCI loans), disaggregated by loan class, as of the dates indicated:
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 Days or More Past Due
 
Total Past Due
 
Current
 
Total
 
Accruing 90 Days or More Past Due
 
(in thousands)
March 31, 2016