Subordinated Debentures

3 Months Ended

Mar. 31, 2021

As of March 31, 2021, the Company had five issuances of subordinated notes and two issuances of junior subordinated debt securities, with an aggregate carrying value of $501.6 million and a weighted interest rate of 5.38%, compared 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:


						March 31, 2021		December 31, 2020
	Stated Maturity	Current Interest Rate		Current Principal Balance		Carrying Value
				(Dollars in thousands)
Subordinated notes
Subordinated notes due 2024, 5.75% per annum	September 3, 2024	5.75	%	$	60,000	$	59,581	$	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		122,941		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		147,567		147,501
Subordinated notes due 2025, 7.125% per annum	June 26, 2025	7.125	%	25,000		25,103		25,109
Subordinated notes due 2026, 5.50% per annum until June 30 2021, 3-month LIBOR +4.285% thereafter	July 1, 2026	5.50	%	135,000		138,282		138,371
Total subordinated notes				495,000		493,474		493,410
Subordinated debt
Heritage Oaks Capital Trust II (junior subordinated debt), 3-month LIBOR+1.72%	January 1, 2037	1.96	%	5,248		4,138		4,121
Santa Lucia Bancorp (CA) Capital Trust (junior subordinated debt), 3-month LIBOR+1.48%	July 7, 2036	1.72	%	5,155		3,999		3,980
Total subordinated debt				10,403		8,137		8,101
Total subordinated debentures				$	505,403	$	501,611	$	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 rating of A- and subordinated debt of

BBB+ for the Bank. The Corporation’s and Bank’s ratings were reaffirmed in June 2020 by KBRA following the announcement of the consummated acquisition of Opus.

As of March 31, 2021, the Corporation has two unconsolidated Delaware statutory trust subsidiaries, Heritage Oaks Capital Trust II and Santa Lucia Bancorp (CA) Capital Trust. Both are used as business trusts for the purpose of issuing trust preferred securities to third party investors. The junior subordinated debt was issued in connection with the trust preferred securities offerings. The Corporation is not allowed to consolidate any trust preferred securities into the Company’s consolidated financial statements. The resulting effect on the Company’s consolidated financial statements is to report the subordinated debentures as a component of the Company’s liabilities, and its ownership interest in the trusts as a component of other assets on the Company’s consolidated financial statements.

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, the trust preferred securities are included in Tier 2 capital at March 31, 2021. Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 require that if a depository institution holding company exceeds $15 billion in total consolidated assets due to an acquisition, then trust preferred securities are to be excluded from Tier 1 capital beginning in the period in which the transaction occurred. During the second quarter of 2020, the Company’s acquisition of Opus resulted in total consolidated assets exceeding $15 billion; accordingly, trust preferred securities are excluded from the Company’s Tier 1 capital. The Company and the Bank also has subordinated debt that qualifies as Tier 2 capital.