Annual report pursuant to Section 13 and 15(d)

Subordinated Debentures

v3.22.0.1
Subordinated Debentures
12 Months Ended
Dec. 31, 2021
Debt Disclosure [Abstract]  
Borrowings

Note 9 — Borrowings

 

Borrowings consisted of FHLB advances, which represent collateralized obligations with the FHLB. The following is a summary of contractual maturities of FHLB advances:

 

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

 

 

Outstanding

Balance

 

 

Weighted

Average

Rate

 

 

Outstanding

Balance

 

 

Weighted

Average

Rate

 

 

 

(dollars in thousands)

 

Advances due within 12 months

 

$

50,000

 

 

 

1.62

%

 

$

50,000

 

 

 

1.61

%

Advances due over 12 months through 24 months

 

 

50,000

 

 

 

0.97

%

 

 

50,000

 

 

 

1.62

%

Advances due over 24 months through 36 months

 

 

37,500

 

 

 

0.40

%

 

 

50,000

 

 

 

0.97

%

Outstanding advances

 

$

137,500

 

 

 

1.05

%

 

$

150,000

 

 

 

1.40

%

 

 

The following is financial data pertaining to FHLB advances:

 

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Weighted-average interest rate at end of year

 

 

1.05

%

 

 

1.40

%

 

 

1.70

%

Weighted-average interest rate during the year

 

 

1.17

%

 

 

1.42

%

 

 

1.89

%

Average balance of FHLB advances

 

$

145,277

 

 

$

156,601

 

 

$

40,374

 

Maximum amount outstanding at any month-end

 

$

162,500

 

 

$

300,000

 

 

$

285,000

 

 

We have pledged loans receivable with market values of $2.30 billion as collateral with the FHLB for this borrowing facility. The total borrowing capacity available from the collateral that has been pledged is $1.84 billion, of which $1.61 billion remained available as of December 31, 2021. At December 31, 2021, we had $32.8 million available for use through the Federal Reserve Bank of San Francisco Discount Window, as we pledged securities with carrying values of $34.7 million, and there were no borrowings.

At December 31, 2021, advances from the FHLB were $137.5 million, a decrease of $12.5 million from $150.0 million at December 31, 2020. All of the FHLB advances were term borrowings at December 31, 2021 and 2020. For the years ended December 31, 2021, 2020 and 2019, interest expense on FHLB advances were $1.7 million, $2.2 million and $763,000, respectively, and the weighted-average interest rates were 1.17 percent, 1.42 percent and 1.89 percent, respectively.

Note 10 — Subordinated Debentures

On August 20, 2021, the Company issued Fixed-to-Floating Subordinated Notes (“2021 Notes”) of $110.0 million with a final maturity date of September 1, 2031. The 2021 Notes have an initial fixed interest rate of 3.75 percent per annum, payable semi-annually 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 2021 Notes will bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be the Three-Month Term SOFR) plus 310 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year. If the then current three-month term SOFR rate is less than zero, the three-month SOFR will be deemed to be zero. Debt issuance cost was $2.1 million, which is being amortized through the 2021 Notes maturity date. At December 31, 2021, the balance of the 2021 Notes included in the Company’s Consolidated Balance Sheet, net of issuance cost, was $108.0 million. The amortization of debt issuance cost was $62,000 for the year ended December 31, 2021.

 

The Company issued Fixed-to-Floating Subordinated Notes (“2017 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 percent per annum, payable semi-annually on March 30 and September 30 of each year. From and including March 30, 2022 and thereafter, the 2017 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 percent 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 Note’s maturity date.

 

During the year ended December 31, 2021, the Company acquired $12.7 million of the 2017 Notes on the open market at a premium to par of $343,000 and accelerated the amortization of $174,000 in debt issuance costs, resulting in $517,000 in incremental interest expense. The amortization of debt issuance cost was $341,000, $205,000 and $193,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

 

At December 31, 2021 and 2020, the balance of Fixed-to-Floating Subordinated Notes included in the Company’s Consolidated Balance Sheet, net of debt issuance cost, was $194.2 million and $98.5 million, respectively.

 

 

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 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 December 31, 2021 and 2020, the balance of Subordinated Debentures included in the Company’s Consolidated Balance Sheets, net of discount of $6.0 million and $6.4 million, was $20.8 million and $20.4 million, respectively. The amortization of discount was $402,000, $390,000 and $376,000 for the years ended December 31, 2021, 2020 and 2019, respectively.