Subordinated Debentures

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Subordinated Debentures

Subordinated Debentures

On April 15, 2021, the Company redeemed the subordinated notes totaling $25.0 million that the Company assumed as part of the acquisition of Plaza Bancorp, Inc. in 2017. Prior to redemption, such subordinated notes carried a fixed interest rate of 7.125% and were scheduled to mature on June 26, 2025. These subordinated notes were called at 103% of the principal amount of the notes, plus accrued and unpaid interest, for an aggregate amount of $25.8 million. The Company recorded a loss on early debt extinguishment of $647,000 after considering a $103,000 fair value mark related to purchase accounting adjustments.

On July 1, 2021, the Company redeemed $135.0 million subordinated notes acquired from Opus and $5.2 million junior subordinated debt associated with Heritage Oaks Capital Trust II. Prior to redemption, the subordinated notes and junior subordinated debt securities carried an interest rate of 5.50% and 1.92%, respectively. On July 7, 2021, the Company redeemed $5.2 million junior subordinated debt associated with Santa Lucia Bancorp (CA) Capital Trust. Prior to redemption, the junior subordinated debt securities carried an interest rate of 1.66%. The subordinated notes and junior subordinated debt were redeemed at par, plus accrued and unpaid interest, for an aggregate amount of $149.2 million. The Company recorded a net gain on early debt extinguishment of $970,000 related to purchase accounting adjustments. Subsequent to the redemptions of these junior subordinated debt securities, the Company’s unconsolidated Delaware statutory trust subsidiaries, Heritage Oaks Capital Trust II and Santa Lucia Bancorp (CA) Capital Trust, that were used as business trusts for the purpose of issuing trust preferred securities to third party investors were dissolved.

As of September 30, 2021, the Company had three issuances of subordinated notes with an aggregate carrying value of $330.4 million and a weighted interest rate of 5.33%, compared with five issuances of subordinated notes and two issuances of junior subordinated debt securities, with an aggregate carrying value of $501.5 million and a weighted interest rate of 5.38% at December 31, 2020.

The following table summarizes our outstanding subordinated debentures as of the dates indicated:

						September 30, 2021		December 31, 2020
(Dollars in thousands)	Stated Maturity	Current Interest Rate		Current Principal Balance		Carrying Value
Subordinated notes
Subordinated notes due 2024, 5.75% per annum	September 3, 2024	5.75	%	$	60,000	$	59,641	$	59,552
Subordinated notes due 2029, 4.875% per annum until May 15, 2024, 3-month LIBOR +2.5% thereafter	May 15, 2029	4.875	%	125,000		123,068		122,877
Subordinated notes due 2030, 5.375% per annum until June 15, 2025, 3-month SOFR +5.170% thereafter	June 15, 2030	5.375	%	150,000		147,699		147,501
Subordinated notes due 2025, 7.125% per annum	June 26, 2025	—	%	—		—		25,109
Subordinated notes due 2026, 5.50% per annum until June 30 2021, 3-month LIBOR +4.285% thereafter	July 1, 2026	—	%	—		—		138,371
Total subordinated notes				335,000		330,408		493,410
Subordinated debt
Heritage Oaks Capital Trust II (junior subordinated debt), 3-month LIBOR+1.72%	January 1, 2037	—	%	—		—		4,121
Santa Lucia Bancorp (CA) Capital Trust (junior subordinated debt), 3-month LIBOR+1.48%	July 7, 2036	—	%	—		—		3,980
Total subordinated debt				—		—		8,101
Total subordinated debentures				$	335,000	$	330,408	$	501,511

In connection with the various issuances of subordinated notes, the Corporation obtained ratings from Kroll Bond Rating Agency (“KBRA”). KBRA assigned investment grade ratings of BBB+ and BBB for the Corporation’s senior unsecured debt and subordinated debt, respectively, and a deposit and senior unsecured debt rating of A- and subordinated debt of BBB+ for the Bank. The Corporation’s and Bank’s ratings were reaffirmed in June 2021 by KBRA.

For additional information on the Company’s subordinated debentures, see “Note 14 — Subordinated Debentures” to the consolidated financial statements of the Company’s 2020 Form 10-K. 

For regulatory capital purposes, subordinated notes and the trust preferred securities qualify as Tier 2 capital. The redemption of subordinated notes totaling $25.0 million during the second quarter of 2021 reduced the Company’s Tier 2 capital by approximately $20.0 million. The redemption of subordinated notes and trust preferred securities totaling $145.4 million during the third quarter of 2021 reduced the Company’s Tier 2 capital by approximately $146.0 million. Following these redemptions, the regulatory total capital ratios of the Company and the Bank continued to exceed regulatory minimums to be well-capitalized and the fully phased-in capital conservation buffer.