Funds Borrowed

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

Funds Borrowed

(5) FUNDS BORROWED

The following table presents outstanding balances of funds borrowed.

	Payments Due for the Twelve Months Ending September 30,
(Dollars in thousands)	2024		2025		2026		2027		2028		Thereafter		September 30, 2023 (1)		December 31, 2022(1)		Interest Rate (2)
Deposits (3)	$	718,976	$	568,943	$	285,870	$	167,466	$	116,424	$	—	$	1,857,679	$	1,609,672		2.96	%
Privately placed notes		3,000		—		31,250		—		92,750		—		127,000		121,000		7.99
SBA debentures and borrowings		5,489		14,000		14,000		2,000		1,250		34,000		70,739		68,512		3.52
Preferred securities		—		—		—		—		—		33,000		33,000		33,000		7.79
Federal reserve and other borrowings		10,000		—		—		—		—		—		10,000		—		5.85
Total	$	737,465	$	582,943	$	331,120	$	169,466	$	210,424	$	67,000	$	2,098,418	$	1,832,184		3.35	%

(1)Excludes deferred financing costs of $8.2 million and $7.0 million as of September 30, 2023 and December 31, 2022.

(2)Weighted average contractual rate as of September 30, 2023.

(3)Balance excludes $1.5 million and $1.3 million of strategic partner reserve deposits as of September 30, 2023 and December 31, 2022.

(A) DEPOSITS

Most deposits are raised through the use of investment brokerage firms that package time deposits in denominations of less than $250,000 qualifying for FDIC insurance into larger pools that are sold to the Bank. The rates paid on the deposits are highly competitive with market rates paid by other financial institutions. Additionally, a brokerage fee is paid, depending on the maturity of the deposits, which averages less than 0.15%. Interest on the deposits is accrued daily and paid monthly, quarterly, semiannually, or at maturity. In October 2020, the Bank began to originate time deposits through internet listing services. These deposits are from other financial institutions and, as of September 30, 2023 and December 31, 2022, the Bank had $12.1 million and $12.4 million in listing service deposit balances. In April 2023, the Bank began to originate retail savings deposits through a third-party service provider and, as of September 30, 2023, the Bank had $18.0 million in retail savings deposit balances. The following table presents the maturity of the deposit pools, which includes strategic partner reserve deposits, as of September 30, 2023.

(Dollars in thousands)	September 30, 2023
Three months or less	$	204,577
Over three months through six months		157,064
Over six months through one year		357,335
Over one year		1,140,203
Total deposits	$	1,859,179

(B) FEDERAL RESERVE DISCOUNT WINDOW AND OTHER BORROWINGS

In March 2023, the Bank established a discount window line of credit at the Federal Reserve. As of September 30, 2023, the Bank had approximately $37.0 million in investment securities pledged as collateral to the Federal Reserve. The current advance rate on the pledged securities is 100% of fair value, for a total of approximately $37.0 million in secured borrowing capacity, of which none was utilized as of September 30, 2023.

The Bank has borrowings arrangements with several commercial banks. These agreements are accommodations that can be terminated at any time, for any reason, and allow the Bank to borrow up to $75.0 million. As of September 30, 2023, $10.0 million was outstanding on these lines, with $65.0 million available.

(C) PRIVATELY PLACED NOTES

In September 2023, the Company completed a private placement to certain institutional investors of $39.0 million aggregate principal amount of 9.25% unsecured senior notes due September 2028, with interest payable semiannually. The Company used the net proceeds from the offering for general corporate purposes, including the repurchase of $33.0 million of the 8.25% notes issued in March 2019 with a maturity date of March 2024 described below.

In February 2021, the Company completed a private placement to certain institutional investors of $25.0 million aggregate principal amount of 7.25% unsecured senior notes due February 2026, with interest payable semiannually. In March 2021, an additional $3.3 million principal amount of such notes was issued to certain institutional investors. Subsequently in April 2021, an additional $3.0 million principal amount of such notes was issued to certain institutional investors. The Company used the net proceeds from the offering for general corporate purposes, including repayment of outstanding debt.

In December 2020, the Company completed a private placement to certain institutional investors of $33.6 million aggregate principal amount of 7.50% unsecured senior notes due December 2027, with interest payable semiannually. In February and March 2021, an additional $8.5 million principal amount of such notes was issued to certain institutional investors. Subsequently in April 2021, an additional $11.7 million principal amount of such notes was issued to certain institutional investors. The Company used the net proceeds from the offering for general corporate purposes, including repayment of outstanding debt.

In March 2019, the Company completed a private placement to certain institutional investors of $30.0 million aggregate principal amount of 8.25% unsecured senior notes due March 2024, with interest payable semiannually. The Company used the net proceeds from the offering for general corporate purposes, including repaying certain borrowings under its notes payable to banks at a discount which led to a gain of $4.1 million in 2019. In August 2019, an additional $6.0 million principal amount of such notes was issued to certain institutional investors. As described above, in September 2023, the Company repurchased and cancelled $33.0 million of these notes, leaving $3.0 million principal amount remaining outstanding as of September 30, 2023.

(D) SBA DEBENTURES AND BORROWINGS

Over the years, the SBA has approved commitments for MCI and FSVC, typically for a four-and-a-half year term and a 1% fee, which fee was paid. During 2017, the SBA restructured FSVC’s debentures with SBA totaling $33.5 million in principal into a new loan by the SBA to FSVC in the principal amount of $34.0 million, or the SBA Loan. In connection with the SBA Loan, FSVC executed a Note, or the SBA Note, with an effective date of March 1, 2017, in favor of SBA, in the principal amount of $34.0 million. The SBA Loan bears interest at a rate of 3.25% and all remaining unpaid principal and interest are due on April 30, 2024, the maturity date. As of September 30, 2023, $70.7 million was outstanding, including $0.5 million under the SBA Note.

On July 10, 2023, MCI accepted a commitment from the SBA for $20.0 million in debenture financing. In connection with the commitment, MCI paid the SBA a leverage fee of $0.2 million, with an additional $0.4 million fee to be paid pro-rata as MCI draws under the commitment. As of September 30, 2023, $4.8 million of the commitment had been drawn, and $10.3 million was drawable, with the balance of $5.0 million drawable upon the infusion of $2.5 million of capital from either the capitalization of retained earnings or a capital infusion into MCI from the Company.

(E) PREFERRED SECURITIES

In June 2007, the Company issued and sold $36.1 million aggregate principal amount of unsecured junior subordinated notes to Fin Trust which, in turn, sold $35.0 million of preferred securities to Merrill Lynch International and issued 1,083 shares of common stock to the Company. Prior to the cessation of LIBOR on June 30, 2023, the notes bore a variable rate of interest of 90-day LIBOR plus 2.13%. With the cessation of LIBOR, interest is calculated using the Secured Overnight Financing Rate (SOFR) adjusted by a relevant spread adjustment of approximately 26 basis points, plus 2.13%. The notes mature in September 2037 and are prepayable at par. Interest is payable quarterly in arrears. The terms of the preferred securities and the notes are substantially identical. In December 2007, $2.0 million of the preferred securities were repurchased from a third-party investor. As of September 30, 2023, $33.0 million was outstanding on the preferred securities.

(F) COVENANT COMPLIANCE

Certain of the Company's debt agreements contain financial covenants that require the Company to maintain certain financial ratios and minimum tangible net worth. As of September 30, 2023, the Company was in compliance with all such covenants.