Quarterly report [Sections 13 or 15(d)]

Borrowings and Subordinated Debentures

v3.26.3
Borrowings and Subordinated Debentures
 9 Months Ended
Sep. 30, 2026
Debt Disclosure [Abstract]  
Borrowings and Subordinated Debentures

Note 8 — Borrowings and Subordinated Debentures

Borrowings consisted of FHLB advances, which represent collateralized obligations with the FHLB. FHLB advances allow for open basis (no maturity) borrowing or term borrowing. Borrowing terms can be overnight or for finite periods of time. The following is a summary of contractual maturities of FHLB advances:

 

 

 

September 30, 2026

 

 

December 31, 2025

 

 

 

Outstanding
Balance

 

 

Weighted
Average Rate

 

 

Outstanding
Balance

 

 

Weighted
Average Rate

 

 

 

(dollars in thousands)

 

Open advances

 

$

—

 

 

 

—

%

 

$

—

 

 

 

—

%

Advances due within 12 months

 

 

—

 

 

 

—

 

 

 

150,000

 

 

 

4.02

 

Advances due over 12 months through 24 months

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Outstanding advances

 

$

—

 

 

 

—

%

 

$

150,000

 

 

 

4.02

%

 

 

The following is financial data pertaining to FHLB advances:

 

 

 

September 30, 2026

 

 

December 31, 2025

 

 

 

(dollars in thousands)

 

Weighted-average interest rate at end of period

 

 

0.00

%

 

 

4.02

%

Weighted-average interest rate during the period1

 

 

3.96

%

 

 

4.52

%

Average balance of FHLB advances1

 

$

27,747

 

 

$

82,390

 

Maximum amount outstanding at any month-end

 

$

—

 

 

$

150,000

 

 

(1)
During the nine months ended September 30, 2026 and twelve months ended December 31, 2025

 

We had loans pledged to the FHLB as collateral with carrying values of $2.30 billion and $2.40 billion as of September 30, 2026 and December 31, 2025, respectively. The total borrowing capacity available from pledged collateral was $1.70 billion and $1.76 billion at September 30, 2026 and December 31, 2025, respectively. The remaining available borrowing capacity from pledged collateral was $1.52 billion and $1.46 billion at September 30, 2026 and December 31, 2025, respectively. As of September 30, 2026, borrowing capacity was reduced by $180.0 million in FHLB letters of credit, which were collateral for public fund deposits from the State of California. As of December 31, 2025, the borrowing capacity reduction was $150.0 million for the same purpose.

 

We also had loans pledged as collateral to the Federal Reserve Bank of San Francisco Discount Window with carrying values of $1.19 billion and $528.1 million as of September 30, 2026 and December 31, 2025, respectively. The borrowing capacity available through the Discount Window based on pledged loans was $833.5 million and $424.5 million as of September 30, 2026 and December 31, 2025, respectively. There was no balance outstanding as of September 30, 2026 or December 31, 2025.

There was no interest expense on FHLB advances for the three months ended September 30, 2026. There was $0.3 million of interest expense on FHLB advances for the three months ended September 30, 2025. Interest expense on FHLB advances for the nine months ended September 30, 2026 and 2025 was $0.8 million and $3.0 million, respectively.

 

On July 30, 2026, the Company issued $55.0 million of 6.50% Fixed-to-Floating Subordinated Notes (“2036 Notes”) with a maturity date of July 31, 2036. The 2036 Notes have an initial fixed interest rate of 6.50% per annum, payable semiannually in arrears on January 31 and July 31 of each year, up to but excluding July 31, 2031. From July 31, 2031 and thereafter, the 2036 Notes will bear interest at a floating rate per annum equal to the three-month SOFR plus 234 basis points, payable quarterly in arrears on January 31, April 30, July 31, and October 31 of each year. If the then-current three-month SOFR is less than zero, the three-month SOFR will be deemed to be zero. Debt issuance costs of $0.9 million are being amortized through the 2036 Notes’ maturity date. At September 30, 2026, the balance of the 2036 Notes included in the Company’s consolidated balance sheets, net of issuance costs, was $54.1 million.

On September 1, 2026, the Company redeemed all $110.0 million of its Fixed-to-Floating Subordinated Notes (“2031 Notes”), which were originally issued on August 20, 2021 with a maturity date of September 1, 2031. The 2031 Notes had an initial fixed interest rate of 3.75% per annum, payable semiannually in arrears on March 1 and September 1 of each year, up to but excluding September 1, 2026. From and including September 1, 2026 and thereafter, the 2031 Notes would have borne interest at a floating rate per annum equal to the three-month SOFR plus 310 basis points, payable quarterly in arrears. This redemption resulted in the recognition of the unamortized debt issuance costs of $1.1 million, which is included in other operating expenses on the consolidated statements of income. Prior to the redemption, debt issuance costs were being amortized through the 2031 Notes’ maturity date. At December 31, 2025, the balance of the 2031 Notes included in the Company’s consolidated balance sheets, net of issuance costs, was $108.7 million.

 

The Company assumed Junior Subordinated Deferrable Interest Debentures (“Subordinated Debentures”) as a result of an acquisition 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. A trust was formed in 2005, which issued $26.0 million of Trust Preferred Securities (“TPS”) at a 6.26% fixed rate for the first five years and a variable rate of three-month LIBOR plus 140 basis points thereafter and invested the proceeds in the Subordinated Debentures. Beginning September 15, 2023, the variable rate on the TPS changed to three-month SOFR plus 166 basis points, representing the credit spread of 140 basis points and a 26 basis point adjustment to convert three-month LIBOR to three-month SOFR. On September 15, 2026, the Company purchased an interest rate cap to hedge the interest rate risk on the Subordinated Debentures. See Note 15 - Derivatives and Hedging Activities for details.

 

The rate on the TPS at September 30, 2026 was 5.56%. 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, 2026 and December 31, 2025, the balance of Subordinated Debentures, net of discount of $4.0 million and $4.3 million, was $22.8 million and $22.5 million, respectively. These amounts do not reflect the consolidation of Hanmi Financial Corporation’s $0.8 million investment in the trust that issued the TPS. On a consolidated basis, the balance of Subordinated Debentures, net of discount, was $22.0 million and $21.7 million at September 30, 2026 and December 31, 2025, respectively. Amortization of the discount was $108,000 and $104,000 for the three months ended September 30, 2026 and 2025, respectively, and $316,000 and $328,000 for the nine months ended September 30, 2026 and 2025, respectively.