Note 8 — Borrowings and Subordinated Debentures

At September 30, 2021, the Bank had no overnight advances and $137.5 million of term advances outstanding with the FHLB with a weighted average interest rate of 1.05 percent. At December 31, 2020, the Bank had no overnight advances and $150.0 million of term advances with the FHLB with a weighted average rate of 1.40 percent. The Bank had no outstanding borrowings with the Federal Reserve Bank (“FRB”) under the Paycheck Protection Program Lending Facility (“PPPLF”) as of September 30, 2021 or December 31, 2020. Interest expense on borrowings for the three months ended September 30, 2021 and 2020 was $409,000 and $582,000, respectively. Interest expense on borrowings for the nine months ended September 30, 2021 and 2020 was $1.3 million and $1.8 million, respectively.

The following is financial data pertaining to FHLB advances:

The Bank maintains a secured credit facility with the FHLB, allowing the Bank to borrow on an overnight and term basis. The Bank had $2.17 billion of loans pledged as collateral with the FHLB as of September 30, 2021 and December 31, 2020. Remaining available borrowing capacity was $1.37 billion, subject to the FHLB statutory lending limit of $1.61 billion and $1.44 billion at September 30, 2021 and December 31, 2020, respectively.

The Bank also had securities with market values of $26.1 million and $27.3 million at September 30, 2021 and December 31, 2020, respectively, pledged with the FRB, which provided $24.6 million and $26.3 million in available borrowing capacity through the Fed Discount Window as of September 30, 2021 and December 31, 2020, respectively.

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 2017 Notes have an initial fixed interest rate of 5.45 percent per annum, payable semiannually 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. At September 30, 2021 and December 31, 2020, the balance of 2017 Notes included in the Company’s Consolidated Balance Sheet, net of debt issuance cost, was $86.1 million and $98.5 million, respectively. During the three and nine months ended September 30, 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.

On August 20, 2021, the Company issued additional 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 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 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 $2.0 million, which is being amortized through the Note’s

maturity date. At September 30, 2021, the balance of the 2021 Notes included in the Company’s Consolidated Balance Sheet, net of issuance cost, was $108.0 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 percent fixed rate for the first five years and a variable rate at the three-month LIBOR plus 140 basis points thereafter. 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, 2021 and December 31, 2020, the balance of Subordinated Debentures included in the Company’s Consolidated Balance Sheets, net of discount of $6.1 million and $6.4 million, was $20.7 million and $20.4 million, respectively. The amortization of discount was $102,000 and $99,000 for the three months ended September 30, 2021 and 2020, respectively, and $300,000 and $291,000, for the nine months ended September 30, 2021 and 2020, respectively.