Note 12 - Subordinated Notes

12 Months Ended

Dec. 31, 2021

Subordinated Notes

Subordinated Notes

Note 12. Subordinated Notes

Subordinated notes as of December 31, 2021 and 2020 are summarized as follows:

		Amount Outstanding	Interest Rate			Amount Outstanding	Interest Rate
		as of December 31, 2021	as of December 31, 2021			as of December 31, 2020	as of December 31, 2020		Maturity Date
		(dollars in thousands)
Subordinated debenture dated 9/14/20	$	50,000	5.125	%	$	50,000	5.125	%	9/15/2030
Subordinated debenture dated 2/1/19		65,000	5.375	%		65,000	5.375	%	2/15/2029
Subordinated debenture dated 4/30/16*		-	—	%		2,000	4.00	%	4/30/2026
Subordinated debenture dated 9/15/16*		-	—	%		3,000	4.00	%	9/15/2026
Debt issuance costs		(1,150)				(1,309)
Total Subordinated Debentures	$	113,850			$	118,691
*Assumed in acquisition of SFCB

On September 14, 2020, the Company completed a private offering of $50.0 million in aggregate principal amount of fixed-to-floating subordinated notes that mature on September 15, 2030. The subordinated notes, which qualify as Tier 2 capital for the Company, bear interest at a fixed rate of 5.125% per year, from and including September 14, 2020 to, but excluding, September 15, 2025 or earlier redemption date.  From and including September 15, 2025 to,

but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate, which is expected to be the then current three-month term SOFR plus 500 basis points.  Interest on the subordinated notes is payable quarterly, commencing on December 15, 2020. The subordinated notes are redeemable by the Company at its option, in whole or in part, on any interest payment date on or after September 15, 2025.  The subordinated notes are redeemable by the Company in whole but not in part, under certain limited circumstances set forth in the subordinated notes.  Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the subordinated notes being redeemed, together with any accrued and unpaid interest on the subordinated notes being

redeemed to, but excluding, the date of redemption.  The subordinated notes are subordinate in the right of payment to the Company’s senior indebtedness and the indebtedness and other liabilities of the subsidiary banks.

In addition, the Company has $65.0 million in aggregate principal amount of fixed-to-floating subordinated notes that mature on February 15, 2029. Net proceeds, after deducting the underwriting discount and estimated expenses, were $63.4 million.  The subordinated notes, which qualify as Tier 2 capital for the Company, bear interest at a fixed rate of 5.375% per year from and after February 12, 2019 to, but excluding, February 15, 2024 or earlier redemption date.  From and after February 15, 2024 to, but excluding, the maturity date or earlier redemption date, the interest

Note 12. Subordinated Notes (continued)

will reset quarterly to the then current three-month LIBOR plus 282 basis points.  Interest on the subordinated notes is payable semi-annually, commencing on August 15, 2019 during the five year fixed term and thereafter quarterly, commencing on February 15, 2024.  The subordinated notes are redeemable by the Company at its option, in whole or in part, on any interest payment date on or after February 15, 2024.  The subordinated notes are redeemable by the Company in whole but not in part, under certain limited circumstances set forth in the subordinated notes.  Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the subordinated notes being redeemed, together with any accrued and unpaid interest on the subordinated notes being redeemed to, but excluding, the date of redemption.  The subordinated notes are subordinate in the right of payment to the Company’s senior indebtedness and the indebtedness and other liabilities of the subsidiary banks.  Unamortized debt issuance costs related to the subordinated notes totaled $1.2 million and $1.3 million at December 31, 2021 and 2020, respectively.  The Company used a portion of the net proceeds from the offering to repay term notes totaling $21.3 million and the outstanding balance of $9.0 million on its revolving line of credit.   

As part of the merger with Springfield Bancshares, the Company assumed two subordinated debentures with a fair value of $4.8 million which were prepaid in full in 2021 with no resulting gain or loss.