Subordinated Notes, net

9 Months Ended

Sep. 30, 2021

Subordinated Notes, net

Subordinated Notes, net

Note 9—Subordinated Notes, net

The subordinated notes (the “Notes”) were as follows:

	September 30,		December 31,
	2021		2020
Subordinated notes (principal amount)	$	65,000	$	65,000
Unamortized note premium		360		411
Unamortized debt issuance costs		—		(70)
Total	$	65,360	$	65,341

The Notes bore interest at 7% per annum, payable semi-annually on April 15 and October 15 in arrears, through April 2021, after which the Notes have a variable interest rate of the three-month LIBOR rate plus a margin of 5.82%. The interest rate was 5.95% and 7.0% at September 30, 2021 and December 31, 2020, respectively. Premiums and debt issuance costs are amortized over the contractual term of the Notes into interest expense using the effective interest method. Interest expense on these Notes was $972 and $1,178 for the three months ended September 30, 2021 and 2020, respectively, and $3,157 and $3,533 for the nine months ended September 30, 2021 and 2020, respectively. The Notes mature in April 2026.

On or after April 14, 2021, the Company may redeem the Notes, in whole or in part, at an amount equal to 100% of the outstanding principal amount being redeemed plus accrued interest, in a principal amount with integral multiples of $1. There have been no redemptions of the Notes. The Notes are not subject to redemption by the noteholders.

The Notes are unsecured obligations and are subordinated in right of payment to all existing and future indebtedness, deposits and other liabilities of the Company’s current and future subsidiaries, including the Bank’s deposits as well as the Company’s subsidiaries’ liabilities to general creditors and liabilities arising during the ordinary course of business. The Notes may be included in Tier 2 capital for the Company under current regulatory guidelines and interpretations. As long as the Notes are outstanding, the Company is permitted to pay dividends if prior to such dividends, the Bank is considered well capitalized, as defined by regulatory guidelines.

The Company currently may not issue new debt without the prior approval of the FRB.