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EX-32.2 - EXHIBIT 32.2 - HANMI FINANCIAL CORPexhibit3222016q2.htm
EX-32.1 - EXHIBIT 32.1 - HANMI FINANCIAL CORPexhibit3212016q2.htm
EX-31.2 - EXHIBIT 31.2 - HANMI FINANCIAL CORPexhibit3122016q2.htm
EX-31.1 - EXHIBIT 31.1 - HANMI FINANCIAL CORPexhibit3112016q2.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 June 30, 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 August 5, 2016, there were 32,263,445 outstanding shares of the Registrant’s Common Stock.




Hanmi Financial Corporation and Subsidiaries
Quarterly Report on Form 10-Q
Three and Six Months Ended June 30, 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) June 30, 2016
 
December 31, 2015
Assets
 
 
 
Cash and due from banks
$
156,632

 
$
164,364

Securities available for sale, at fair value (amortized cost of $622,459 as of June 30, 2016 and $700,627 as of December 31, 2015)
636,275

 
698,296

Loans held for sale, at the lower of cost or fair value
12,833

 
2,874

Loans receivable, net of allowance for loan losses of $39,707 as of June 30, 2016 and $42,935 as of December 31, 2015
3,409,603

 
3,140,381

Accrued interest receivable
10,552

 
9,501

Premises and equipment, net
29,752

 
29,834

Other real estate owned ("OREO"), net
11,846

 
8,511

Customers’ liability on acceptances
2,456

 
3,586

Servicing assets
11,337

 
11,744

Core deposit intangible, net
1,537

 
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
52,161

 
57,174

Bank-owned life insurance
48,851

 
48,340

Prepaid expenses and other assets
26,690

 
27,732

Total assets
$
4,441,333

 
$
4,234,521

Liabilities and stockholders’ equity
 
 
 
Liabilities:
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
1,189,528

 
$
1,155,518

Interest-bearing
2,399,761

 
2,354,458

Total deposits
3,589,289

 
3,509,976

Accrued interest payable
3,107

 
3,177

Bank’s liability on acceptances
2,456

 
3,586

FHLB advances
280,000

 
170,000

Servicing liabilities
3,921

 
4,784

Federal Deposit Insurance Corporation ("FDIC") loss sharing liability
18

 
1,289

Subordinated debentures
18,821

 
18,703

Accrued expenses and other liabilities
18,536

 
29,088

Total liabilities
3,916,148

 
3,740,603

Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 32,863,007 shares (32,260,320 shares outstanding) as of June 30, 2016 and issued 32,566,522 shares (31,974,359 shares outstanding) as of December 31, 2015
33

 
257

Additional paid-in capital
560,089

 
557,761

Accumulated other comprehensive income (loss), net of tax expense of $4,695 as of June 30, 2016 and tax benefit of $2,007 as of December 31, 2015
9,121

 
(315
)
Retained earnings
26,396

 
6,422

Less: treasury stock, at cost; 602,687 shares as of June 30, 2016 and 592,163 shares as of December 31, 2015
(70,454
)
 
(70,207
)
Total stockholders’ equity
525,185

 
493,918

Total liabilities and stockholders’ equity
$
4,441,333

 
$
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 June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Interest and dividend income:
 
 
 
 
 
 
 
Interest and fees on loans
$
40,645

 
$
36,915

 
$
79,712

 
$
73,949

Interest on securities
2,886

 
2,979

 
5,903

 
6,853

Dividends on FRB and FHLB stock
579

 
1,116

 
1,121

 
1,598

Interest on deposits in other banks
49

 
40

 
97

 
88

Total interest and dividend income
44,159

 
41,050

 
86,833

 
82,488

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
3,684

 
3,802

 
7,410

 
7,582

Interest on subordinated debentures
196

 
151

 
379

 
296

Interest on FHLB advances
299

 
4

 
494

 
60

Total interest expense
4,179

 
3,957

 
8,283

 
7,938

Net interest income before provision for loan losses
39,980

 
37,093

 
78,550

 
74,550

Negative provision for loan losses
(1,515
)
 
(2,403
)
 
(3,040
)
 
(4,076
)
Net interest income after provision for loan losses
41,495

 
39,496

 
81,590

 
78,626

Noninterest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
2,898

 
3,169

 
5,899

 
6,380

Trade finance and other service charges and fees
1,064

 
1,109

 
2,109

 
2,376

Gain on sales of Small Business Administration ("SBA") loans
1,774

 
1,573

 
2,632

 
3,257

Net gain on sales of securities

 
1,912

 

 
4,096

Disposition gains on Purchased Credit Impaired ("PCI") loans
1,963

 
2,470

 
2,622

 
3,693

Other operating income
1,674

 
900

 
3,072

 
2,181

Total noninterest income
9,373

 
11,133

 
16,334

 
21,983

Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
16,061

 
15,542

 
31,759

 
31,926

Occupancy and equipment
3,938

 
4,224

 
7,434

 
8,527

Data processing
1,454

 
1,335

 
2,889

 
3,467

Professional fees
1,509

 
1,701

 
2,974

 
4,042

Supplies and communications
709

 
928

 
1,445

 
1,758

Advertising and promotion
1,094

 
1,046

 
1,616

 
1,569

OREO expense (income)
183

 
(13
)
 
648

 
404

Merger and integration costs

 
136

 

 
1,747

Other operating expenses
2,915

 
2,127

 
5,167

 
4,978

Total noninterest expense
27,863

 
27,026

 
53,932

 
58,418

Income before income tax expense
23,005

 
23,603

 
43,992

 
42,191

Income tax expense
8,857

 
9,619

 
15,040

 
17,153

Net income
$
14,148

 
$
13,984

 
$
28,952

 
$
25,038

Basic earnings per share
$
0.44

 
$
0.44

 
$
0.90

 
$
0.79

Diluted earnings per share
$
0.44

 
$
0.44

 
$
0.90

 
$
0.79

Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
31,882,489

 
31,774,692

 
31,864,427

 
31,761,067

Diluted
32,029,910

 
31,908,719

 
32,001,163

 
31,874,484


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 June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
14,148

 
$
13,984

 
$
28,952

 
$
25,038

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrealized gain (loss) on securities:
 
 
 
 
 
 
 
Unrealized holding gain (loss) arising during period
6,424

 
(8,041
)
 
16,147

 
4,002

Less: reclassification adjustment for net gain (loss) included in net income

 
(1,912
)
 

 
(4,096
)
Unrealized loss on interest-only strip of servicing assets
(9
)
 

 
(9
)
 
 
Income tax (expense) benefit related to items of other comprehensive income
(2,658
)
 
4,177

 
(6,702
)
 
54

Other comprehensive income (loss), net of tax
3,757

 
(5,776
)
 
9,436

 
(40
)
Comprehensive income
$
17,905

 
$
8,208

 
$
38,388

 
$
24,998


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
26,455

 

 
26,455

 

 
363

 

 

 

 
363

Restricted stock awards, net of forfeitures
38,184

 

 
38,184

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 
1,022

 

 

 

 
1,022

Cash dividends declared

 

 

 

 

 

 
(7,030
)
 

 
(7,030
)
Net income

 

 

 

 

 

 
25,038

 

 
25,038

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

 

 

 

 

 
(40
)
 

 

 
(40
)
Balance at June 30, 2015
32,552,736

 
(577,894
)
 
31,974,842

 
$
257

 
$
556,289

 
$
423

 
$
(14,371
)
 
$
(69,858
)
 
$
472,740

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
40,209

 

 
40,209

 

 
562

 

 

 

 
562

Restricted stock awards, net of forfeitures
256,276

 

 
256,276

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 
1,542

 

 

 

 
1,542

Restricted stock surrendered due to employee tax liability

 
(10,524
)
 
(10,524
)
 

 

 

 

 
(247
)
 
(247
)
Cash dividends declared

 

 

 

 

 

 
(8,978
)
 

 
(8,978
)
Net income

 

 

 

 

 

 
28,952

 

 
28,952

Change in unrealized gain on securities available for sale and unrealized loss on interest-only strip of servicing assets, net of income taxes

 

 

 

 

 
9,436

 

 

 
9,436

Balance at June 30, 2016
32,863,007

 
(602,687
)
 
32,260,320

 
$
33

 
$
560,089

 
$
9,121

 
$
26,396

 
$
(70,454
)
 
$
525,185

See Accompanying Notes to Consolidated Financial Statements (Unaudited)


6



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands) 
 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
28,952

 
$
25,038

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
7,595

 
9,573

Share-based compensation expense
1,542

 
1,022

Negative provision for loan losses
(3,040
)
 
(4,076
)
Gain on sales of securities

 
(4,096
)
Gain on sales of SBA loans
(2,632
)
 
(3,257
)
Gain on sale of premises and equipment
(35
)
 

Disposition gains on PCI loans
(2,622
)
 
(3,693
)
Valuation adjustment on OREO
648

 
(228
)
Origination of SBA loans held for sale
(42,559
)
 
(37,942
)
Proceeds from sales of SBA loans
35,119

 
43,443

Change in accrued interest receivable
(1,051
)
 
1,616

Change in bank-owned life insurance
(511
)
 
(498
)
Change in prepaid expenses and other assets
882

 
4,225

Change in income tax asset
(1,689
)
 
1,606

Change in accrued interest payable
(70
)
 
(7
)
Change in FDIC loss sharing liability
(1,271
)
 
(1,958
)
Change in accrued expenses and other liabilities
(8,366
)
 
(14,809
)
Net cash provided by operating activities
10,892

 
15,959

Cash flows from investing activities:
 
 
 
Proceeds from redemption of FHLB stock

 
1,195

Proceeds from matured, called and repayment of securities
74,063

 
62,863

Proceeds from sales of securities available for sale

 
307,442

Proceeds from sales of OREO
1,297

 
6,096

Proceeds from sales of loans

 
360

Proceeds from bank-owned life insurance

 
1,323

Change in loans receivable, excluding purchases
(171,240
)
 
(23,135
)
Purchases of securities

 
(40,484
)
Purchases of premises and equipment
(1,393
)
 
(1,292
)
Purchases of loans receivable
(97,200
)
 
(64,553
)
Purchases of FRB stock
(325
)
 
(1,244
)
Net cash (used in) provided by provided by investing activities
(194,798
)
 
248,571

Cash flows from financing activities:
 
 
 
Change in deposits
79,313

 
(116,965
)
Change in overnight FHLB borrowings
110,000

 
(150,000
)
Redemption of rescinded stock obligation

 
(783
)
Proceeds from exercise of stock options
562

 
363

Cash paid for treasury shares acquired in respect of share-based compensation
(247
)
 

Cash dividends paid
(13,454
)
 
(2,234
)
Net cash provided by (used in) financing activities
176,174

 
(269,619
)
Net decrease in cash and cash equivalents
(7,732
)
 
(5,089
)
Cash and cash equivalents at beginning of year
164,364

 
158,320

Cash and cash equivalents at end of period
$
156,632

 
$
153,231

 
 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
8,353

 
$
7,945

Income taxes
$
16,486

 
$
14,338

Non-cash activities:
 
 
 
Transfer of loans receivable to OREO
$
4,318

 
$
2,711

Transfer of loans receivable to loans held for sale
$

 
$
360

Income tax (expense) benefit related to items in other comprehensive income
$
(6,702
)
 
$
54

Change in unrealized gain in accumulated other comprehensive income
$
(16,147
)
 
$
(4,002
)
Cash dividends declared
$
(8,978
)
 
$
(7,030
)
See Accompanying Notes to Consolidated Financial Statements (Unaudited)


7



Hanmi Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three and Six Months Ended June 30, 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 June 30, 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 June 30, 2016 and December 31, 2015: 
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
 
(in thousands)
June 30, 2016
 
 
 
 
 
 
 
Mortgage-backed securities (1) (2)
$
262,223

 
$
4,129

 
$
77

 
$
266,275

Collateralized mortgage obligations (1)
85,678

 
554

 
91

 
86,141

U.S. government agency securities
15,491

 
53

 

 
15,544

SBA loan pool securities
56,553

 
62

 
190

 
56,425

Municipal bonds-tax exempt
160,951

 
8,475

 

 
169,426

Municipal bonds-taxable
13,476

 
616

 

 
14,092

Corporate bonds
5,014

 

 
13

 
5,001

U.S. treasury securities
157

 
1

 

 
158

Mutual funds
22,916

 
382

 
85

 
23,213

Total securities available for sale
$
622,459

 
$
14,272

 
$
456

 
$
636,275

 
 
 
 
 
 
 
 
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 $55.7 million and $58.6 million as of June 30, 2016 and December 31, 2015, respectively.






9



The amortized cost and estimated fair value of securities as of June 30, 2016, by contractual or expected maturity, are shown below. Collateralized mortgage obligations are included in the table shown below based on their expected maturities. 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. All other securities are included based on their contractual maturities.
 
Available for Sale
 
Amortized Cost
 
Estimated Fair Value
 
(in thousands)
Within one year
$
1

 
$
1

Over one year through five years
93,040

 
93,762

Over five years through ten years
273,361

 
279,870

Over ten years
256,057

 
262,642

Total
$
622,459

 
$
636,275

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 June 30, 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)
June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
43

 
$
10,746

 
4

 
$
34

 
$
10,912

 
3

 
$
77

 
$
21,658

 
7

Collateralized mortgage obligations
10

 
12,778

 
6

 
81

 
13,879

 
7

 
91


26,657


13

SBA loan pool securities
117

 
35,639

 
10

 
73

 
14,518

 
5

 
190


50,157


15

Corporate bonds

 

 

 
13

 
5,001

 
1

 
13


5,001


1

Mutual funds

 

 

 
85

 
941

 
3

 
85


941


3

Total
$
170

 
$
59,163

 
20

 
$
286

 
$
45,251

 
19

 
$
456

 
$
104,414

 
39

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 June 30, 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 investment grade status as of June 30, 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

10



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 June 30, 2016 and December 31, 2015 were not other-than-temporarily impaired, and therefore, no impairment charges as of June 30, 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 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
 
 
 
 
Gross realized gains on sales of securities
$

 
$
2,067

 
$

 
$
4,262

Gross realized losses on sales of securities

 
(155
)
 

 
(166
)
Net realized gains on sales of securities
$

 
$
1,912

 
$

 
$
4,096

Proceeds from sales of securities
$

 
$
130,594

 
$

 
$
307,442


There were no sales of securities during the six-month period ended June 30, 2016. For the three months ended June 30, 2015, there was a $1.9 million net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized gains of $4.1 million in comprehensive income. For the six months ended June 30, 2015, there was a $4.1 million net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized gains of $1.2 million in comprehensive income.

Securities available for sale with market values of $97.6 million and $72.0 million as of June 30, 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:
 
June 30, 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
$
790,968

 
$
2,543

 
$
793,511

 
$
735,501

 
$
4,849

 
$
740,350

Hospitality
602,826

 
3,250

 
606,076

 
539,345

 
4,080

 
543,425

Gas station
277,873

 
2,888

 
280,761

 
319,363

 
4,292

 
323,655

Other (2)
1,123,195

 
5,151

 
1,128,346

 
973,243

 
5,418

 
978,661

Construction
26,382

 

 
26,382

 
23,387

 

 
23,387

Residential property
295,505

 
991

 
296,496

 
234,879

 
1,157

 
236,036

Total real estate loans
3,116,749

 
14,823

 
3,131,572

 
2,825,718

 
19,796

 
2,845,514

Commercial and industrial loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial term
143,487

 
146

 
143,633

 
152,602

 
171

 
152,773

Commercial lines of credit
121,326

 

 
121,326

 
128,224

 

 
128,224

International loans
28,114

 

 
28,114

 
31,879

 

 
31,879

Total commercial and industrial loans
292,927

 
146

 
293,073

 
312,705

 
171

 
312,876

Consumer loans (3)
24,614

 
51

 
24,665

 
24,879

 
47

 
24,926

Loans receivable
3,434,290

 
15,020

 
3,449,310

 
3,163,302

 
20,014

 
3,183,316

Allowance for loans losses
(34,259
)
 
(5,448
)
 
(39,707
)
 
(37,494
)
 
(5,441
)
 
(42,935
)
Loans receivable, net
$
3,400,031

 
$
9,572

 
$
3,409,603

 
$
3,125,808

 
$
14,573

 
$
3,140,381

 
(1) 
Includes owner-occupied property loans of $1.28 billion and $1.20 billion as of June 30, 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 $20.6 million and $21.8 million as of June 30, 2016 and December 31, 2015, respectively.

Accrued interest on loans receivable was $7.3 million and $7.9 million at June 30, 2016 and December 31, 2015, respectively. At June 30, 2016 and December 31, 2015, loans receivable of $758.4 million and $557.7 million, respectively, were pledged to secure borrowing facilities 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 June 30, 2016 and 2015:
 
Real Estate
 
Commercial and Industrial
 
Total Non-PCI
 
(in thousands)
June 30, 2016
 
 
 
 
 
Loans held for sale, at beginning of period
$
1,824

 
$
759

 
$
2,583

Originations
22,376

 
8,031

 
30,407

Sales
(14,905
)
 
(5,247
)
 
(20,152
)
Principal payoffs and amortization
(1
)
 
(4
)
 
(5
)
Loans held for sale, at end of period
$
9,294

 
$
3,539

 
$
12,833

 
 
 
 
 
 
June 30, 2015
 
 
 
 
 
Loans held for sale, at beginning of period
$
7,226

 
$
1,451

 
$
8,677

Originations
6,807

 
8,027

 
14,834

Reclassification from loans receivable
360

 

 
360

Sales
(12,321
)
 
(7,368
)
 
(19,689
)
Principal payoffs and amortization
(5
)
 
(19
)
 
(24
)
Loans held for sale, at end of period
$
2,067

 
$
2,091

 
$
4,158


The following table includes the activity for loans held for sale (excluding PCI loans) by portfolio segment for the six months ended June 30, 2016 and 2015:
 
Real Estate
 
Commercial and Industrial
 
Total Non-PCI
 
(in thousands)
June 30, 2016
 
 
 
 
 
Loans held for sale, at beginning of period
$
840

 
$
2,034

 
$
2,874

Originations
28,849

 
13,710

 
42,559

Sales
(20,393
)
 
(12,182
)
 
(32,575
)
Principal payoffs and amortization
(2
)
 
(23
)
 
(25
)
Loans held for sale, at end of period
$
9,294

 
$
3,539

 
$
12,833

 
 
 
 
 
 
June 30, 2015
 
 
 
 
 
Loans held for sale, at beginning of period
$
3,323

 
$
2,128

 
$
5,451

Originations
23,734

 
14,208

 
37,942

Reclassification from loans receivable
360

 

 
360

Sales
(25,335
)
 
(14,208
)
 
(39,543
)
Principal payoffs and amortization
(15
)
 
(37
)
 
(52
)
Loans held for sale, at end of period
$
2,067

 
$
2,091

 
$
4,158


    









13



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
 
June 30, 2016
 
June 30, 2015
 
Non-PCI Loans
 
PCI Loans
 
Total
 
Non-PCI Loans
 
PCI Loans
 
Total
 

 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
35,381

 
$
5,645

 
$
41,026

 
$
51,515

 
$
1,436

 
$
52,951

Charge-offs
(662
)
 
(137
)
 
(799
)
 
(1,221
)
 
52

 
(1,169
)
Recoveries on loans previously charged off
995

 

 
995

 
1,793

 
(352
)
 
1,441

Net loan (charge-offs) recoveries
333

 
(137
)
 
196

 
572

 
(300
)
 
272

(Negative provision) provision
(1,455
)
 
(60
)
 
(1,515
)
 
(2,619
)
 
216

 
(2,403
)
Balance at end of period
$
34,259

 
$
5,448

 
$
39,707

 
$
49,468

 
$
1,352

 
$
50,820


 
As of and for the Six Months Ended
 
June 30, 2016
 
June 30, 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
(1,299
)
 
(137
)
 
(1,436
)
 
(1,255
)
 

 
(1,255
)
Recoveries on loans previously charged off
1,248

 

 
1,248

 
3,485

 

 
3,485

Net loan (charge-offs) recoveries
(51
)
 
(137
)
 
(188
)
 
2,230

 

 
2,230

(Negative provision) provision
(3,184
)
 
144

 
(3,040
)
 
(4,402
)
 
326

 
(4,076
)
Balance at end of period
$
34,259

 
$
5,448

 
$
39,707

 
$
49,468

 
$
1,352

 
$
50,820


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.

14



The following table details the information on the allowance for loan losses by portfolio segment as of and for the three months ended June 30, 2016 and 2015:
 
Real Estate
 
Commercial and Industrial
 
Consumer
 
Unallocated
 
Total
 
(in thousands)
June 30, 2016
 
 
 
 
 
 
 
 
 
Allowance for loan losses on Non-PCI loans:
 
 
 
 
 
 
 
 
 
Beginning balance
$
28,278

 
$
6,289

 
$
255

 
$
559

 
$
35,381

Charge-offs
(156
)
 
(506
)
 

 

 
(662
)
Recoveries on loans previously charged off
97

 
845

 
53

 

 
995

Negative provision
(103
)
 
(1,126
)
 
(66
)
 
(160
)
 
(1,455
)
Ending balance
$
28,116

 
$
5,502

 
$
242

 
$
399

 
$
34,259

Ending balance: individually evaluated for impairment
$
2,589

 
$
422

 
$

 
$

 
$
3,011

Ending balance: collectively evaluated for impairment
$
25,527

 
$
5,080

 
$
242

 
$
399

 
$
31,248

Non-PCI loans receivable:
 
 
 
 
 
 
 
 
 
Ending balance
$
3,116,749

 
$
292,927

 
$
24,614

 
$

 
$
3,434,290

Ending balance: individually evaluated for impairment
$
20,412

 
$
5,089

 
$
686

 
$

 
$
26,187

Ending balance: collectively evaluated for impairment
$
3,096,337

 
$
287,838

 
$
23,928

 
$

 
$
3,408,103

Allowance for loan losses on PCI loans:
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,599

 
$
44

 
$
2

 
$

 
$
5,645

Charge-offs
(137
)
 

 

 

 
(137
)
(Negative provision) provision
(62
)
 
(3
)
 
5

 

 
(60
)
Ending balance: acquired with deteriorated credit quality
$
5,400

 
$
41

 
$
7

 
$

 
$
5,448


 
 
 
 
 
 
 
 
 
PCI loans receivable
$
14,823

 
$
146

 
$
51

 
$

 
$
15,020

 
 
 
 
 
 
 
 
 
 
June 30, 2015
 
 
 
 
 
 
 
 
 
Allowance for loan losses on Non-PCI loans:
 
 
 
 
 
 
 
 
 
Beginning balance
$
42,550

 
$
7,786

 
$
185

 
$
994

 
$
51,515

Charge-offs
(101
)
 
(1,120
)
 

 

 
(1,221
)
Recoveries on loans previously charged off
1,263

 
530

 

 

 
1,793

(Negative provision) provision
(3,814
)
 
1,049

 
(13
)
 
159

 
(2,619
)
Ending balance
$
39,898

 
$
8,245

 
$
172

 
$
1,153

 
$
49,468

Ending balance: individually evaluated for impairment
$
3,798

 
$
1,503

 
$

 
$

 
$
5,301

Ending balance: collectively evaluated for impairment
$
36,100

 
$
6,742

 
$
172