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EX-32.2 - EXHIBIT 32.2 - HANMI FINANCIAL CORPexhibit3222016q3.htm
EX-32.1 - EXHIBIT 32.1 - HANMI FINANCIAL CORPexhibit3212016q3.htm
EX-31.2 - EXHIBIT 31.2 - HANMI FINANCIAL CORPexhibit3122016q3.htm
EX-31.1 - EXHIBIT 31.1 - HANMI FINANCIAL CORPexhibit3112016q3.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 September 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 November 4, 2016, there were 32,273,924 outstanding shares of the Registrant’s Common Stock.




Hanmi Financial Corporation and Subsidiaries
Quarterly Report on Form 10-Q
Three and Nine Months Ended September 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) September 30, 2016
 
December 31, 2015
Assets
 
 
 
Cash and due from banks
$
130,197

 
$
164,364

Securities available for sale, at fair value (amortized cost of $537,820 as of September 30, 2016 and $700,627 as of December 31, 2015)
548,961

 
698,296

Loans held for sale, at the lower of cost or fair value
6,425

 
2,874

Loans receivable, net of allowance for loan losses of $38,972 as of September 30, 2016 and $42,935 as of December 31, 2015
3,513,687

 
3,140,381

Accrued interest receivable
10,160

 
9,501

Premises and equipment, net
27,682

 
29,834

Other real estate owned ("OREO"), net
10,971

 
8,511

Customers’ liability on acceptances
1,041

 
3,586

Servicing assets
10,833

 
11,744

Core deposit intangible, net
1,456

 
1,701

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

 
16,385

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

 
14,098

Income tax asset
50,145

 
57,174

Bank-owned life insurance
49,149

 
48,340

Prepaid expenses and other assets
25,088

 
27,732

Total assets
$
4,402,180

 
$
4,234,521

Liabilities and stockholders’ equity
 
 
 
Liabilities:
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
1,231,967

 
$
1,155,518

Interest-bearing
2,539,240

 
2,354,458

Total deposits
3,771,207

 
3,509,976

Accrued interest payable
2,444

 
3,177

Bank’s liability on acceptances
1,041

 
3,586

FHLB advances
55,000

 
170,000

Servicing liabilities
3,426

 
4,784

Federal Deposit Insurance Corporation ("FDIC") loss sharing liability
1,701

 
1,289

Subordinated debentures
18,888

 
18,703

Accrued expenses and other liabilities
17,275

 
29,088

Total liabilities
3,870,982

 
3,740,603

Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 32,865,393 shares (32,252,774 shares outstanding) as of September 30, 2016 and issued 32,566,522 shares (31,974,359 shares outstanding) as of December 31, 2015
33

 
257

Additional paid-in capital
560,906

 
557,761

Accumulated other comprehensive income (loss), net of tax expense of $3,586 as of September 30, 2016 and tax benefit of $2,007 as of December 31, 2015
7,555

 
(315
)
Retained earnings
33,413

 
6,422

Less: treasury stock, at cost; 612,619 shares as of September 30, 2016 and 592,163 shares as of December 31, 2015
(70,709
)
 
(70,207
)
Total stockholders’ equity
531,198

 
493,918

Total liabilities and stockholders’ equity
$
4,402,180

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Interest and dividend income:
 
 
 
 
 
 
 
Interest and fees on loans
$
41,150

 
$
36,466

 
$
120,862

 
$
110,415

Interest on securities
2,701

 
2,884

 
8,604

 
9,737

Dividends on FRB and FHLB stock
419

 
607

 
1,540

 
2,205

Interest on deposits in other banks
55

 
68

 
152

 
156

Total interest and dividend income
44,325

 
40,025

 
131,158

 
122,513

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
4,358

 
3,881

 
11,769

 
11,463

Interest on subordinated debentures
206

 
158

 
584

 
454

Interest on FHLB advances
179

 
1

 
673

 
61

Total interest expense
4,743

 
4,040

 
13,026

 
11,978

Net interest income before provision for loan losses
39,582

 
35,985

 
118,132

 
110,535

Negative provision for loan losses
(1,450
)
 
(3,704
)
 
(4,490
)
 
(7,779
)
Net interest income after provision for loan losses
41,032

 
39,689

 
122,622

 
118,314

Noninterest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
2,883

 
3,378

 
8,782

 
9,758

Trade finance and other service charges and fees
992

 
1,115

 
3,099

 
3,491

Gain on sales of Small Business Administration ("SBA") loans
1,616

 
1,621

 
4,247

 
4,878

Net gain on sales of securities
46

 
2,048

 
46

 
6,144

Disposition gains on Purchased Credit Impaired ("PCI") loans
789

 
4,334

 
3,411

 
8,027

Other operating income
2,348

 
1,065

 
5,423

 
3,246

Total noninterest income
8,674

 
13,561

 
25,008

 
35,544

Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
15,950

 
16,097

 
47,710

 
48,023

Occupancy and equipment
3,917

 
4,896

 
11,351

 
13,423

Data processing
1,330

 
1,418

 
4,219

 
4,885

Professional fees
1,090

 
1,940

 
4,063

 
5,982

Supplies and communications
821

 
880

 
2,266

 
2,638

Advertising and promotion
1,153

 
1,290

 
2,769

 
2,859

OREO expense
73

 
225

 
721

 
629

Merger and integration costs

 

 

 
1,747

Other operating expenses
4,003

 
1,976

 
9,170

 
6,953

Total noninterest expense
28,337

 
28,722

 
82,269

 
87,139

Income before income tax expense
21,369

 
24,528

 
65,361

 
66,719

Income tax expense
8,248

 
10,569

 
23,288

 
27,722

Net income
$
13,121

 
$
13,959

 
$
42,073

 
$
38,997

Basic earnings per share
$
0.41

 
$
0.44

 
$
1.31

 
$
1.22

Diluted earnings per share
$
0.41

 
$
0.44

 
$
1.31

 
$
1.22

Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
31,912,470

 
31,799,573

 
31,880,466

 
31,774,047

Diluted
32,088,233

 
31,909,808

 
32,031,295

 
31,855,024


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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
13,121

 
$
13,959

 
$
42,073

 
$
38,997

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Unrealized (loss) gain on securities:
 
 
 
 
 
 
 
Unrealized holding (loss) gain arising during period
(2,629
)
 
5,064

 
13,518

 
9,066

Less: reclassification adjustment for net gain included in net income
(46
)
 
(2,048
)
 
(46
)
 
(6,144
)
Unrealized loss on interest-only strip of servicing assets

 
(7
)
 
(9
)
 
(7
)
Income tax benefit (expense) related to items of other comprehensive income
1,109

 
(1,274
)
 
(5,593
)
 
(1,220
)
Other comprehensive (loss) income, net of tax
(1,566
)
 
1,735

 
7,870

 
1,695

Comprehensive income
$
11,555

 
$
15,694

 
$
49,943

 
$
40,692


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
39,766

 

 
39,766

 

 
531

 

 

 

 
531

Restricted stock awards, net of forfeitures
39,423

 

 
39,423

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 
1,681

 

 

 

 
1,681

Restricted stock surrendered due to employee tax liability

 
(12,185
)
 
(12,185
)
 

 

 

 

 
(293
)
 
(293
)
Cash dividends declared

 

 

 

 

 

 
(10,549
)
 

 
(10,549
)
Net income

 

 

 

 

 

 
38,997

 

 
38,997

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

 

 

 

 

 
1,695

 

 

 
1,695

Balance at September 30, 2015
32,567,286

 
(590,079
)
 
31,977,207

 
$
257

 
$
557,116

 
$
2,158

 
$
(3,931
)
 
$
(70,151
)
 
$
485,449

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
42,584

 

 
42,584

 

 
592

 

 

 

 
592

Restricted stock awards, net of forfeitures
256,287

 

 
256,287

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 
2,329

 

 

 

 
2,329

Restricted stock surrendered due to employee tax liability

 
(20,456
)
 
(20,456
)
 

 

 

 

 
(502
)
 
(502
)
Cash dividends declared

 

 

 

 

 

 
(15,082
)
 

 
(15,082
)
Net income

 

 

 

 

 

 
42,073

 

 
42,073

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

 

 

 

 

 
7,870

 

 

 
7,870

Balance at September 30, 2016
32,865,393

 
(612,619
)
 
32,252,774

 
$
33

 
$
560,906

 
$
7,555

 
$
33,413

 
$
(70,709
)
 
$
531,198

See Accompanying Notes to Consolidated Financial Statements (Unaudited)


6



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands) 
 
Nine Months Ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
42,073

 
$
38,997

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
10,848

 
15,187

Share-based compensation expense
2,329

 
1,681

Negative provision for loan losses
(4,490
)
 
(7,779
)
Gain on sales of securities
(46
)
 
(6,144
)
Gain on sales of SBA loans
(4,247
)
 
(4,878
)
Gain on sale of premises and equipment
(1,053
)
 
(137
)
Disposition gains on PCI loans
(3,411
)
 
(8,027
)
Valuation adjustment on OREO
721

 
(27
)
Origination of SBA loans held for sale
(60,248
)
 
(59,273
)
Proceeds from sales of SBA loans
61,494

 
66,157

Change in accrued interest receivable
(659
)
 
1,027

Change in bank-owned life insurance
(809
)
 
(524
)
Change in prepaid expenses and other assets
3,791

 
2,042

Change in income tax asset
1,436

 
12,304

Change in accrued interest payable
(733
)
 
(465
)
Change in FDIC loss sharing liability
412

 
(901
)
Change in accrued expenses and other liabilities
(10,533
)
 
(12,669
)
Net cash provided by operating activities
36,875

 
36,571

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

 
1,195

Proceeds from redemption of FRB stock
14,423

 

Proceeds from matured, called and repayment of securities
98,771

 
94,108

Proceeds from sales of securities available for sale
78,282

 
352,224

Proceeds from sales of OREO
2,306

 
7,532

Proceeds from sales of loans

 
360

Proceeds from bank-owned life insurance

 
1,323

Change in loans receivable, excluding purchases
(229,063
)
 
(154,892
)
Purchases of securities
(19,992
)
 
(111,864
)
Purchases of premises and equipment
982

 
(1,169
)
Purchases of loans receivable
(143,189
)
 
(100,763
)
Purchases of FRB stock
(325
)
 
(1,825
)
Net cash (used in) provided by investing activities
(197,805
)
 
86,229

Cash flows from financing activities:
 
 
 
Change in deposits
261,231

 
(38,052
)
Change in overnight FHLB borrowings
(115,000
)
 

Redemption of rescinded stock obligation

 
(933
)
Proceeds from exercise of stock options
592

 
531

Cash paid for treasury shares acquired in respect of share-based compensation
(502
)
 
(293
)
Cash dividends paid
(19,558
)
 
(7,031
)
Net cash provided by (used in) financing activities
126,763

 
(45,778
)
Net (decrease) increase in cash and cash equivalents
(34,167
)
 
77,022

Cash and cash equivalents at beginning of year
164,364

 
158,320

Cash and cash equivalents at end of period
$
130,197

 
$
235,342

 
 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
13,759

 
$
12,443

Income taxes
$
21,654

 
$
13,528

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

 
$
5,056

Transfer of loans receivable to loans held for sale
$

 
$
360

Due from broker on sale of securities
$

 
$
57,800

Income tax (expense) benefit related to items in other comprehensive income
$
(5,593
)
 
$
(1,220
)
Change in unrealized gain in accumulated other comprehensive income
$
(13,518
)
 
$
(9,059
)
Cash dividends declared
$
(15,082
)
 
$
(10,549
)
See Accompanying Notes to Consolidated Financial Statements (Unaudited)


7



Hanmi Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2016 and 2015
Note 1 — Organization and 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. Effective July 19, 2016, the Bank voluntarily withdrew from the Federal Reserve System ("Federal Reserve"). As a result, the Bank became a state non-member bank and will be regulated by the California Department of Business Oversight and the FDIC. During the third quarter in 2016, the Federal Reserve canceled the Bank's holdings of Federal Reserve stock for $14.4 million in cash.

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 September 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 the Notes to Consolidated Financial Statements 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 September 30, 2016 and December 31, 2015: 
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
 
(in thousands)
September 30, 2016
 
 
 
 
 
 
 
Mortgage-backed securities (1) (2)
$
239,569

 
$
3,778

 
$
102

 
$
243,245

Collateralized mortgage obligations (1)
84,277

 
174

 
238

 
84,213

U.S. government agency securities
7,499

 
20

 

 
7,519

SBA loan pool securities
4,585

 

 
40

 
4,545

Municipal bonds-tax exempt
160,371

 
6,865

 

 
167,236

Municipal bonds-taxable
13,434

 
491

 

 
13,925

Corporate bonds
5,012

 

 
1

 
5,011

U.S. treasury securities
157

 
1

 

 
158

Mutual funds
22,916

 
280

 
87

 
23,109

Total securities available for sale
$
537,820

 
$
11,609

 
$
468

 
$
548,961

 
 
 
 
 
 
 
 
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 $54.5 million and $58.6 million as of September 30, 2016 and December 31, 2015, respectively.






9



The amortized cost and estimated fair value of securities as of September 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
80,351

 
80,744

Over five years through ten years
215,587

 
221,175

Over ten years
241,881

 
247,041

Total
$
537,820

 
$
548,961

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 September 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)
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
17

 
$
9,799

 
5

 
$
85

 
$
11,639

 
3

 
$
102

 
$
21,438

 
8

Collateralized mortgage obligations
110

 
34,898

 
13

 
127

 
12,721

 
7

 
237


47,619


20

U.S. government agency securities
1

 
3,000

 
1

 

 

 

 
1


3,000


1

SBA loan pool securities

 

 

 
40

 
4,545

 
2

 
40


4,545


2

Corporate bonds
1

 
5,010

 
1

 

 

 

 
1


5,010


1

Mutual funds

 

 

 
87

 
938

 
3

 
87


938


3

Total
$
129

 
$
52,707

 
20

 
$
339

 
$
29,843

 
15

 
$
468

 
$
82,550

 
35

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 bonds
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 September 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 September 30, 2016 and December 31, 2015. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.


10



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 September 30, 2016 and December 31, 2015 were not other-than-temporarily impaired, and therefore, no impairment charges as of September 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 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Gross realized gains on sales of securities
$
396

 
$
2,048

 
$
396

 
$
6,310

Gross realized losses on sales of securities
(350
)
 

 
(350
)
 
(166
)
Net realized gains on sales of securities
$
46

 
$
2,048

 
$
46

 
$
6,144

Proceeds from sales of securities
$
78,282

 
$
44,782

 
$
78,282

 
$
352,224


For the three months ended September 30, 2016, there was a $46,000 net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized gains of $321,000 in comprehensive income. For the three months ended September 30, 2015, there was a $2.0 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.

For the nine months ended September 30, 2016, there was a $46,000 net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized losses of $314,000 in comprehensive income. For the nine months ended September 30, 2015, there was a $6.1 million net gain in earnings resulting from the sale of securities that had previously been recorded as net unrealized gains of $2.0 million in comprehensive income.

Securities available for sale with market values of $108.5 million and $72.0 million as of September 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:
 
September 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
$
819,604

 
$
2,470

 
$
822,074

 
$
735,501

 
$
4,849

 
$
740,350

Hospitality
618,355

 
3,925

 
622,280

 
539,345

 
4,080

 
543,425

Gas station
271,552

 
2,833

 
274,385

 
319,363

 
4,292

 
323,655

Other (2)
1,088,687

 
5,147

 
1,093,834

 
973,243

 
5,418

 
978,661

Construction
67,439

 

 
67,439

 
23,387

 

 
23,387

Residential property
329,695

 
980

 
330,675

 
234,879

 
1,157

 
236,036

Total real estate loans
3,195,332

 
15,355

 
3,210,687

 
2,825,718

 
19,796

 
2,845,514

Commercial and industrial loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial term
144,754

 
135

 
144,889

 
152,602

 
171

 
152,773

Commercial lines of credit
145,738

 

 
145,738

 
128,224

 

 
128,224

International loans
29,029

 

 
29,029

 
31,879

 

 
31,879

Total commercial and industrial loans
319,521

 
135

 
319,656

 
312,705

 
171

 
312,876

Consumer loans (3)
22,266

 
50

 
22,316

 
24,879

 
47

 
24,926

Loans receivable
3,537,119

 
15,540

 
3,552,659

 
3,163,302

 
20,014

 
3,183,316

Allowance for loans losses
(33,439
)
 
(5,533
)
 
(38,972
)
 
(37,494
)
 
(5,441
)
 
(42,935
)
Loans receivable, net
$
3,503,680

 
$
10,007

 
$
3,513,687

 
$
3,125,808

 
$
14,573

 
$
3,140,381

 
(1) 
Includes owner-occupied property loans of $715.9 million and $737.5 million as of September 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 $19.3 million and $21.8 million as of September 30, 2016 and December 31, 2015, respectively.

Accrued interest on loans receivable was $7.5 million and $7.9 million at September 30, 2016 and December 31, 2015, respectively. At September 30, 2016 and December 31, 2015, loans receivable of $1.0 billion 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 September 30, 2016 and 2015:
 
Real Estate
 
Commercial and Industrial
 
Total Non-PCI
 
(in thousands)
September 30, 2016
 
 
 
 
 
Loans held for sale, at beginning of period
$
9,293

 
$
3,540

 
$
12,833

Originations
11,272

 
6,417

 
17,689

Sales
(15,968
)
 
(8,122
)
 
(24,090
)
Principal payoffs and amortization
(2
)
 
(5
)
 
(7
)
Loans held for sale, at end of period
$
4,595

 
$
1,830

 
$
6,425

 
 
 
 
 
 
September 30, 2015
 
 
 
 
 
Loans held for sale, at beginning of period
$
2,067

 
$
2,091

 
$
4,158

Originations
13,867

 
7,464

 
21,331

Sales
(12,199
)
 
(8,408
)
 
(20,607
)
Principal payoffs and amortization
(3
)
 
(8
)
 
(11
)
Loans held for sale, at end of period
$
3,732

 
$
1,139

 
$
4,871


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

 
$
2,034

 
$
2,874

Originations
40,120

 
20,128

 
60,248

Sales
(36,361
)
 
(20,304
)
 
(56,665
)
Principal payoffs and amortization
(4
)
 
(28
)
 
(32
)
Loans held for sale, at end of period
$
4,595

 
$
1,830

 
$
6,425

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

 
$
2,128

 
$
5,451

Originations
37,601

 
21,672

 
59,273

Reclassification from loans receivable
360

 

 
360

Sales
(37,534
)
 
(22,616
)
 
(60,150
)
Principal payoffs and amortization
(18
)
 
(45
)
 
(63
)
Loans held for sale, at end of period
$
3,732

 
$
1,139

 
$
4,871


    










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
 
September 30, 2016
 
September 30, 2015
 
Non-PCI Loans
 
PCI Loans
 
Total
 
Non-PCI Loans
 
PCI Loans
 
Total
 
(in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
34,259

 
$
5,448

 
$
39,707

 
$
49,468

 
$
1,352

 
$
50,820

Charge-offs
(111
)
 
(5
)
 
(116
)
 
(1,748
)
 

 
(1,748
)
Recoveries on loans previously charged off
831

 

 
831

 
992

 

 
992

Net loan (charge-offs) recoveries
720

 
(5
)
 
715

 
(756
)
 

 
(756
)
(Negative provision) provision
(1,540
)
 
90

 
(1,450
)
 
(5,490
)
 
1,786

 
(3,704
)
Balance at end of period
$
33,439

 
$
5,533

 
$
38,972

 
$
43,222

 
$
3,138

 
$
46,360


 
As of and for the Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
Non-PCI Loans
 
PCI Loans
 
Total
 
Non-PCI Loans
 
PCI Loans
 
Total
 
(in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
37,494

 
$
5,441

 
$
42,935

 
$
51,640

 
$
1,026

 
$
52,666

Charge-offs
(1,410
)
 
(142
)
 
(1,552
)
 
(3,004
)
 

 
(3,004
)
Recoveries on loans previously charged off
2,079

 

 
2,079

 
4,477

 

 
4,477

Net loan (charge-offs) recoveries
669

 
(142
)
 
527

 
1,473

 

 
1,473

(Negative provision) provision
(4,724
)
 
234

 
(4,490
)
 
(9,891
)
 
2,112

 
(7,779
)
Balance at end of period
$
33,439

 
$
5,533

 
$
38,972

 
$
43,222

 
$
3,138

 
$
46,360


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 September 30, 2016 and 2015:
 
Real Estate
 
Commercial and Industrial
 
Consumer
 
Unallocated
 
Total
 
(in thousands)
September 30, 2016
 
 
 
 
 
 
 
 
 
Allowance for loan losses on Non-PCI loans:
 
 
 
 
 
 
 
 
 
Beginning balance
$
28,116

 
$
5,502

 
$
242

 
$
399

 
$
34,259

Charge-offs
(18
)
 
(93
)
 

 

 
(111
)
Recoveries on loans previously charged off
337

 
494

 

 

 
831

Negative provision
(479
)
 
(622
)
 
(40
)
 
(399
)
 
(1,540
)
Ending balance
$
27,956

 
$
5,281

 
$
202

 
$

 
$
33,439

Ending balance: individually evaluated for impairment
$
2,723

 
$
495

 
$

 
$

 
$
3,218

Ending balance: collectively evaluated for impairment
$
25,233

 
$
4,786

 
$
202

 
$

 
$
30,221

Non-PCI loans receivable:
 
 
 
 
 
 
 
 
 
Ending balance
$
3,195,332

 
$
319,521

 
$
22,266

 
$

 
$
3,537,119

Ending balance: individually evaluated for impairment
$
18,522

 
$
4,705

 
$
680

 
$

 
$
23,907

Ending balance: collectively evaluated for impairment
$
3,176,810

 
$
314,816

 
$
21,586

 
$

 
$
3,513,212

Allowance for loan losses on PCI loans:
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,400

 
$
41

 
$
7

 
$

 
$
5,448

Charge-offs
(5
)
 

 

 

 
(5
)
Provision
89

 
1

 

 

 
90

Ending balance: acquired with deteriorated credit quality
$
5,484

 
$
42

 
$
7

 
$

 
$
5,533


 
 
 
 
 
 
 
 
 
PCI loans receivable
$
15,355

 
$
135

 
$
50

 
$

 
$
15,540

 
 
 
 
 
 
 
 
 
 
September 30, 2015
 
 
 
 
 
 
 
 
 
Allowance for loan losses on Non-PCI loans:
 
 
 
 
 
 
 
 
 
Beginning balance
$
39,898

 
$
8,245

 
$
172

 
$
1,153

 
$
49,468

Charge-offs
(334
)
 
(1,414
)
 

 

 
(1,748
)
Recoveries on loans previously charged off
745

 
244

 
3

 

 
992

(Negative provision) provision
(5,867
)
 
700

 
(78
)
 
(245
)
 
(5,490
)
Ending balance
$
34,442

 
$
7,775