NOTE 10 — JUNIOR SUBORDINATED DEBENTURES

During the first half of 2004, we issued three junior subordinated notes to finance the purchase of Pacific Union Bank. The outstanding subordinated debentures related to these offerings totaled $82.4 million at December 31, 2012 and 2011 as follows:

Each of the trusts is a capital or statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in our junior subordinated debentures. The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payments of the junior subordinated debentures held by the trust. The common securities of each trust are wholly-owned by us. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon our making payment on the related junior subordinated debentures. The debentures, which are the only assets of each trust, are subordinate and junior in right of payment to all of our present and future senior indebtedness. We have fully and unconditionally guaranteed each trust’s obligations under the trust securities issued by such trust to the extent not paid or made by each trust, provided that such trust has funds available for such obligations.

Under the provisions of each issue of the junior subordinated debentures, we have the right to defer payment of interest on the debentures at any time, or from time to time, for periods not exceeding five years. If interest payments on either issue of the junior subordinated debentures are deferred, the distributions on the applicable trust preferred securities will also be deferred. However, the interest due would continue to accrue during any such interest payment deferral period.

In October 2008, we committed to the FRB that no interest payments on the junior subordinated debentures would be made without the prior written consent of the FRB. Therefore, to preserve its capital position, Hanmi Financial’s Board of Directors elected to defer quarterly interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009. In addition, we were prohibited from making interest payments on our outstanding junior subordinated debentures under the terms of the regulatory enforcement actions without the prior written consent of the FRB and the DFI. Upon termination of the regulatory enforcement actions by the FRB on December 4, 2012 and the DFI on October 29, 2012, Hanmi Financial paid accrued interest of $4.6 million on December 15, 2012 for the Trust II and, subsequent to December 31, 2012, has paid accrued interest of $5.2 million and $3.1 million in January 2013 for the Trust I and III, respectively. Accrued interest payable on the junior subordinated debentures were $8.2 million and $9.8 million at December 31, 2012 and 2011, respectively.

For the years ended December 31, 2012, 2011, and 2010, interest expense on the junior subordinated debentures totaled $2.7 million, $2.9 million and $2.8 million, respectively, and the average interest rates were 3.28 percent, 3.54 percent and 3.41 percent, respectively.

The trust preferred securities issued by the trusts are included in our Tier 1 capital for regulatory purposes, subject to quantitative and qualitative limits. Under the rules issued by FRB, restricted core capital elements (including trust preferred securities and qualifying perpetual preferred stock) can be no more than 25 percent of core capital, net of goodwill and associated deferred tax liability. The amount of such excess trust preferred securities are includable in Tier 2 capital.