Junior Subordinated Debentures

12 Months Ended

Dec. 31, 2022

At December 31, 2022 and 2021, the Company’s junior subordinated debentures were as follows:


Coastal (WA) Statutory Trust I	Aggregate Principal Amount December 31, 2022		Aggregate Principal Amount December 31, 2021
	(dollars in thousands)
Total liability, at par	$	3,609	$	3,609
Less: unamortized debt issuance costs	(21)		(23)
Total liability, at carrying value	$	3,588	$	3,586

On December 15, 2004, the Company issued $3.6 million floating rate junior subordinated debentures to Coastal (WA) Statutory Trust I, which was formed for the issuance of trust preferred securities. The debentures bear interest at three-month LIBOR plus 2.10% (fully indexed rate of 6.87% and 2.30% at December 31, 2022 and 2021, respectively). Interest is payable quarterly. Interest expense of $143,000 and $84,000 was recognized during 2022 and 2021, respectively, and accrued interest payable on these securities totaled $12,000 and $4,000 at December 31, 2022 and 2021, respectively. There are no principal payments due on these debentures in the next five years.

The Trust is not consolidated with the Company. Accordingly, the Company reports the subordinated debentures held by the Trust as liabilities. The Company owns all of the common securities of the trust. The trust preferred securities issued by the trust rank equally with the common securities in right of payment, except that if an event of default under the indenture governing the note has occurred and is continuing, the preferred securities will rank senior to the common securities in right of payment.

On December 16, 2022, the Federal Reserve Board adopted a final rule that implements the LIBOR Act by identifying benchmark rates based on SOFR (Secured Overnight Financing Rate) that will replace LIBOR formerly known as the London Interbank Offered Rate, in certain financial contracts after June 30, 2023. Congress enacted the LIBOR Act, which was signed into law in March 2022, to provide a uniform, nationwide solution for so-called tough legacy contracts that do not have clear and practicable provisions for replacing LIBOR after June 30, 2023. The LIBOR Act also establishes a litigation safe harbor for lenders that select a LIBOR replacement under certain situations, including the use of a replacement rate selected by the Federal Reserve. As required by the law, the final rule identifies replacement benchmark

rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR in contracts subject to the Act. These contracts include U.S. contracts that do not mature before LIBOR ends and that lack adequate "fallback" provisions that would replace LIBOR with a practicable replacement benchmark rate. We believe that we will be able to use the benchmark replacements and transition protections provided by the LIBOR Act and Federal Reserve rule to manage through the transition away from LIBOR.