Subordinated Debentures and Subordinated Notes Payable

9 Months Ended

Jun. 30, 2020

Subordinated Debentures and Subordinated Notes Payable

Junior Subordinated Deferrable Interest Debentures

The Company has seven trusts which were created or assumed as part of prior acquisitions that as of June 30, 2020 have 73,400 shares in the aggregate issued and outstanding, $1,000 par value, of Company Obligated Mandatorily Redeemable Preferred Securities ("Preferred Securities"). These seven trusts were established and exist for the sole purpose of issuing Preferred Securities and investing the proceeds in junior subordinated deferrable interest debentures ("Debentures") issued by the Company. The Debentures constitute the sole assets of the seven trusts. The Preferred Securities provide for cumulative cash distributions calculated at a rate based on three month LIBOR plus a range from 1.48% to 3.35% adjusted quarterly. The Company may, at one or more times, defer interest payments on the Debentures for up to 20 consecutive quarters following suspension of dividends on all capital stock, but not beyond the respective maturity date. At the end of any deferral period, all accumulated and unpaid interest must be paid. The Debentures have redemption dates ranging from January 7, 2033 to October 1, 2037; however, the Company has the option to shorten the respective maturity date for all seven Preferred Securities as the initial call option date has passed. Holders of the Preferred Securities have no voting rights. The Preferred Securities are unsecured and rank junior in priority of the payment to all of the Company's indebtedness and senior to the Company's common and preferred stock. The trusts’ ability to pay amounts due on the Preferred Securities is solely dependent upon the Company making payment on the related Debentures. The Company’s obligation under the Debentures and relevant trust agreements constitute a full, irrevocable, and unconditional guarantee on a subordinated basis by it of the obligations of the trusts under the Preferred Securities.

For regulatory purposes, the Debentures qualify as elements of capital. As of June 30, 2020 and September 30, 2019, Debentures, net of fair value adjustment, of $73.8 million and $73.7 million, respectively, were eligible for treatment as Tier 1 capital.

Relating to the trusts, the Company held as assets $2.5 million in common shares at June 30, 2020 and September 30, 2019, which are included in other assets on the consolidated balance sheets.

Subordinated Notes Payable

In 2015, the Company issued $35.0 million of 4.875% fixed-to-floating rate subordinated notes that mature on August 15, 2025 through a private placement. At June 30, 2020, the subordinated notes qualified as Tier 2 capital, however eligibility as Tier 2 capital will be reduced by 20% in the quarter ending September 2020. The notes have an interest rate of 4.875% per annum, payable semi-annually on each February 15 and August 15, which commenced on February 15, 2016 until August 15, 2020, or the date of earlier redemption, and then from August 15, 2020 to the stated maturity date or earlier redemption, the notes will bear interest at a rate per annum equal to three month LIBOR for the related interest period plus 3.15%, payable quarterly on each November 15, February 15, April 15 and August 15. The notes are subordinated in right of payment to all of the Company's senior indebtedness and effectively subordinated to all existing and future debt and all other liabilities of the Company's subsidiary bank. The Company may elect to redeem the notes (subject to regulatory approval), in whole or in part, on any early redemption date which is any interest payment date on or after August 15, 2020 at a redemption price equal to 100% of the principal amount plus any accrued and unpaid interest. Other than on an early redemption date, the notes cannot be accelerated except upon certain events of bankruptcy, insolvency or reorganization. Unamortized debt issuance costs related to these notes, which are included in Subordinated Debentures and Subordinated Notes Payable, were negligible and $0.1 million at June 30, 2020 and September 30, 2019, respectively. Proceeds from the private placement of subordinated notes repaid outstanding subordinated debt.

Subordinated debentures and subordinated notes payable are summarized as follows.


	June 30, 2020						September 30, 2019
	Amount Outstanding		Common Shares Held in Other Assets		Amount Outstanding		Common Shares Held in Other Assets
	(dollars in thousands)
Junior subordinated debentures payable to non-consolidated trusts
GW Statutory Trust IV, variable rate of 2.85%, plus 3 month LIBOR	$	23,093	$	693	$	23,093	$	693
GW Statutory Trust VI, variable rate of 1.48%, plus 3 month LIBOR	30,928		928		30,928		928
SSB Trust II, variable rate of 1.85%, plus 3 month LIBOR	2,062		62		2,062		62
HF Capital Trust III, variable rate of 3.35%, plus 3 month LIBOR	5,155		155		5,155		155
HF Capital Trust IV, variable rate of 3.10%, plus 3 month LIBOR	7,217		217		7,217		217
HF Capital Trust V, variable rate of 1.83%, plus 3 month LIBOR	5,310		310		5,310		310
HF Capital Trust VI, variable rate of 1.65%, plus 3 month LIBOR	2,155		155		2,155		155
Total junior subordinated debentures payable	75,920		$	2,520	75,920		$	2,520
Less: fair value adjustment ¹	(2,122)				(2,223)
Total junior subordinated debentures payable, net of fair value adjustment	73,798				73,697
Subordinated notes payable
Fixed to floating rate, 4.875% per annum	35,000				35,000
Less: unamortized debt issuance costs	(6)				(61)
Total subordinated notes payable	34,994				34,939
Total subordinated debentures and subordinated notes payable	$	108,792			$	108,636
¹ Adjustment reflects the fair value adjustments related to the junior subordinated deferrable interest debentures assumed as part of the HF Financial acquisition.