Long-Term Debt

12 Months Ended

Dec. 31, 2022

(In Thousands)

Long-term debt as of December 31, 2022 and 2021 is summarized as follows:


	2022		2021
Federal Home Loan Bank advances	$	—	$	417

Junior subordinated debentures	112,042		111,373
Subordinated notes	316,091		359,419
Total long-term debt	$	428,133	$	471,209

Federal Home Loan Bank Advances

The Company did not prepay any outstanding long-term advances from the FHLB during 2022 and 2020. In connection with the prepayment of $150,000 in long-term advances from the FHLB during 2021, the Company incurred penalty charges of $6,123 which is included in the line item “Debt prepayment penalty” in the Consolidated Statements of Income.

Junior Subordinated Debentures

The Company owns the outstanding common securities of business trusts that issued corporation-obligated mandatorily redeemable preferred capital securities to third-party investors. The trusts used the proceeds from the issuance of their preferred capital securities and common securities (collectively referred to as “capital securities”) to buy floating rate junior subordinated debentures issued by the Company (or by companies that the Company subsequently acquired). The debentures are the trusts’ only assets and interest payments from the debentures finance the distributions paid on the capital securities. Distributions on the capital securities are payable quarterly at a rate per annum equal to the interest rate being earned by the trusts on the debentures held by the trusts. The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures. The Company has entered into an agreement which fully and unconditionally guarantees the capital securities of each trust subject to the terms of the guarantee.

The interest rate on the debentures reprices quarterly equal to the three-month LIBOR at the determination date plus the applicable spread. The debentures owned by the respective trusts are currently redeemable at par. The following table provides the details of the debentures as of December 31, 2022:


	Principal Amount		Carrying Value		Spread (in bps)	Year of Maturity	Amount Included in Tier 1 Capital
PHC Statutory Trust I	$	20,619	$	20,619	285	2033	$	20,000
PHC Statutory Trust II	31,959		31,959		187	2035	31,000
Capital Bancorp Capital Trust I	12,372		12,372		150	2035	12,000
First M&F Statutory Trust I	30,928		23,751		133	2036	22,822
Brand Trust I	10,310		9,573		205	2035	9,263
Brand Trust II	5,155		5,205		300	2037	5,050
Brand Trust III	5,155		5,205		300	2038	5,050
Brand Trust IV	3,093		3,358		375	2038	3,265
Total			$	112,042			$	108,450

The Company has entered into interest rate swap agreements on the PHC Statutory Trust I, Capital Bancorp Capital Trust I, and First M&F Statutory Trust I pursuant to which the Company received an amount approximately equal to the interest paid on the debentures and paid a fixed rate of interest equal to 5.49%, 4.42%, and 4.18%, respectively, at December 31, 2022.

The Company has classified $108,450 of the debentures described in the above paragraphs as Tier 1 capital. Federal Reserve guidelines limit the amount of securities that, similar to the Company’s junior subordinated debentures, are includable in Tier 1 capital, but these guidelines did not impact the amount of debentures the Company includes in Tier 1 capital. Although the Company’s existing junior subordinated debentures are currently unaffected by these Federal Reserve guidelines, on account of changes enacted as part of the Dodd-Frank Act, any new trust preferred securities are not includable in Tier 1 capital. Further, if the Company makes any acquisition now that it exceeds $15,000,000 in assets, the Company will lose Tier 1 treatment of our junior subordinated debentures.

For more information about the Company’s derivative financial instruments, see Note 13, “Derivative Instruments.”

Subordinated notes

During October and December 2021, respectively, the Company redeemed at par its $15,000 6.50% fixed-to-floating rate subordinated notes and redeemed $30,000 of its aggregate $60,000 5.00% fixed-to-floating rate subordinated notes, with the remaining $30,000 of such notes redeemed in the first quarter of 2022.

The Company has issued and sold fixed-to-floating rate subordinated notes (referred to collectively as the “Notes”) in underwritten public offerings at a price equal to 100% of the aggregate principal amounts of the Notes. Interest on the Notes is payable semi-annually in arrears at the applicable fixed rate until but excluding the fixed to floating transition date and payable quarterly in arrears thereafter at the applicable benchmark rate plus spread, until but excluding the maturity date or earlier redemption date. A summary of the Notes is as follows:


Issue Date	Initial principal		Fixed rate	Fixed to floating transition date	Benchmark rate	Spread (in bps)	Debt outstanding		Maturity
August 22, 2016	$	40,000	5.50%	September 1, 2026	3-month LIBOR	407.1	$	40,000	September 1, 2031
September 3, 2020	$	100,000	4.50%	September 15, 2030	3-month SOFR	402.5	$	100,000	September 15, 2035
November 23, 2021	$	200,000	3.00%	December 1, 2026	3-month SOFR	191	$	200,000	December 1, 2031
Debt issuance costs and fair value adjustment							(23,909)
Total subordinated debt							$	316,091

Beginning with the fixed to floating transition date and on any interest payment date thereafter, the Company may redeem the applicable Notes in whole or in part at a redemption price equal to 100% of the principal amount of the respective Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption.

The Company may also redeem any series of the Notes at any time, at the Company’s option, in whole or in part, if: (i) a change or prospective change in law occurs that could prevent the Company from deducting interest payable on the Notes for U.S. federal income tax purposes; (ii) a subsequent event occurs that could preclude the Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption price is 100% of the principal amount of the Notes being redeemed plus any accrued and unpaid interest to but excluding the redemption date. There is no sinking fund for the benefit of the Notes, and none of the Notes are convertible or exchangeable.

The aggregate stated maturities of long-term debt outstanding at December 31, 2022, are summarized as follows:


	Federal Home Loan Bank advances		Junior subordinated debentures		Subordinated notes		Total
2023	$	—	$	—	$	—	$	—
2024	—		—		—		—
2025	—		—		—		—
2026	—		—		—		—
2027	—		—		—		—
Thereafter	—		112,042		316,091		428,133
Total	$	—	$	112,042	$	316,091	$	428,133