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

Quarterly report pursuant to Section 13 or 15(d)

Borrowings and Subordinated Debentures

Borrowings and Subordinated Debentures

9 Months Ended

Sep. 30, 2019

Borrowings

At September 30, 2019, the Bank had $75.0 million in term advances outstanding with the FHLB with a weighted average interest rate of 1.71%. At December 31, 2018, the Bank had $55.0 million of FHLB overnight advances with a weighted average rate of 1.94%. The interest expense for the three and nine months ended September 30, 2019 were $367,000 and $439,000, respectively, and $1.3 million and $3.0 million, respectively, for the same periods in the prior year.



	September 30, 2019				December 31, 2018
($ in thousands)	Outstanding Balance		Weighted Average Rate		Outstanding Balance		Weighted Average Rate
Overnight advances	$	—	—	%	$	55,000	1.94	%
Advances due within 12 months	25,000		1.75	%	—		—	%
Advances due over 12 months through 24 months	25,000		1.66	%	—		—	%
Advances due over 24 months through 36 months	25,000		1.72	%	—		—	%
Borrowings	$	75,000	1.71	%	$	55,000	1.94	%

The Bank maintains a secured credit facility with the FHLB, allowing the Bank to borrow on an overnight and term basis. The Bank had $1.2 billion of loans pledged as collateral with the FHLB, which provides $1.0 billion in borrowing capacity, of which $769.6 million remained available at September 30, 2019.

The Bank also has securities with market values of $30.2 million pledged with the Federal Reserve Bank (“FRB”), which provides $29.6 million in available borrowing capacity through the Fed Discount Window. There were no outstanding borrowings with the FRB as of September 30, 2019 and December 31, 2018.

Subordinated Debentures

The Company issued Fixed-to-Floating Subordinated Notes (the “Notes”) of $100.0 million on March 21, 2017, with a final maturity on March 30, 2027. The Notes have an initial fixed interest rate of 5.45% per annum, payable semi-annually on March 30 and September 30 of each year. From and including March 30, 2022 and thereafter, the Notes bear interest at a floating rate equal to the then current three-month LIBOR, as calculated on each applicable date of determination, plus 3.315% payable quarterly. If the then current three-month LIBOR is less than zero, three-month LIBOR will be deemed to be zero. Debt issuance cost was $2.3 million, which is being amortized through the Notes' maturity date. At September 30, 2019 and December 31, 2018, the balance of Notes included in the Company's consolidated balance sheet, net of debt issuance cost, was $98.3 million and $98.1 million, respectively. The amortization of debt issuance cost was $49,000 and $46,000 for the three months ended September 30, 2019 and 2018, respectively, and $144,000 and $136,000 for the nine months ended September 30, 2019 and 2018, respectively.

The Company assumed Junior Subordinated Deferrable Interest Debentures (“Subordinated Debentures”) as a result of the acquisition of Central Bancorp Inc. (“CBI”) in 2014 with an unpaid principal balance of $26.8 million and an estimated fair value of $18.5 million. The $8.3 million discount is being amortized to interest expense through the debentures' maturity date of March 15, 2036. CBI formed a trust in 2005 and issued $26.0 million of Trust Preferred Securities (“TPS”) at 6.26 percent fixed rate for the first five years and a variable rate at the three-month LIBOR plus 140 basis points thereafter and invested the proceeds in the Subordinated Debentures. The Company may redeem the Subordinated Debentures at an earlier date if certain conditions are met. The TPS will be subject to mandatory redemption if the Subordinated Debentures are repaid by the Company. Interest is payable quarterly, and the Company has the option to defer interest payments on the Subordinated Debentures from time to time for a period not to exceed five consecutive years. At September 30, 2019 and December 31, 2018, the balance of Subordinated Debentures included in the Company's consolidated balance sheets, net of discount of $6.9 million and $7.1 million, was $19.9 million and $19.7 million, respectively. The amortization of discount was $96,000 and $92,000 for the three months ended September 30, 2019, and 2018, respectively, and $280,000 and $264,000 for the nine months ended September 30, 2019 and 2018, respectively.