Subordinated Debt Securities

9 Months Ended

Sep. 30, 2023

Subordinated Debt Securities [Abstract]

Subordinated Debt Securities

12. Subordinated Debt Securities

We issued trust preferred securities through Trust I and Trust II.  These Delaware statutory trusts are sponsored and wholly-owned by Hallmark, and each was created solely for the purpose of issuing the trust preferred securities.  Each trust pays dividends on its preferred securities at the same rate each quarter as interest is paid on the junior subordinated debt securities.  Under the terms of the junior subordinated debt securities, we pay interest only each quarter and the

principal of each note at maturity. The applicable interest rate is adjusted each quarter and until June 30, 2023 the benchmark interest rate LIBOR was utilized in the quarterly interest rate determination. Due to LIBOR reaching end of life, the benchmark rate is now the three month Secured Overnight Financing Rate, “SOFR”, rate plus the three month Tenor spread in accordance with the Board of Governors of the Federal Reserve System adoption of a final rule to implement the Adjustable Interest Rate Act  effective February 27, 2023. The subordinated debt securities of each trust are uncollateralized and do not require maintenance of minimum financial covenants. Each trust pays dividends on its preferred securities at the same rate each quarter as interest is paid on the junior subordinated debt securities.  Under the terms of the trust subordinated debt securities, we pay interest only each quarter and the principal of each note at maturity.  We may elect to defer payments of interest on the trust subordinated debt securities by extending the interest payment period for up to 20 consecutive quarterly periods.  As of September 30, 2023, we have deferred interest for 12 consecutive quarters. During any such extension period, interest continues to accrue on the trust subordinated debt securities, as well as interest on such accrued interest. As of September 30, 2023, we have deferred $8.5 million of interest on the trust subordinated securities which is included in our Consolidated Balance Sheets as a liability in the line item accounts payable and other accrued expenses.

The following table summarizes the nature and terms of the junior subordinated debt and trust preferred securities:

		Hallmark		Hallmark
		Statutory		Statutory
		Trust I		Trust II
Issue date		June 21, 2005		August 23, 2007
Principal amount of trust preferred securities	$	30,000	$	25,000
Principal amount of junior subordinated debt securities	$	30,928	$	25,774
Maturity date of junior subordinated debt securities		June 15, 2035		September 15, 2037
Trust common stock	$	928	$	774
Interest rate, per annum		Three Month SOFR + Three Month Tenor + 3.25%		Three Month SOFR + Three Month Tenor + 2.90%
Current interest rate at September 30, 2023		8.92%		8.57%