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Subordinated Debentures and Convertible Notes | 9 Months Ended
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Sep. 30, 2022
Subordinated Borrowings [Abstract] |
Subordinated Debentures and Convertible Notes | Subordinated Debentures and Convertible Notes Subordinated Debt At September 30, 2022, the Company had nine wholly owned subsidiary grantor trusts that had issued $126.0 million of pooled trust preferred securities. Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the indentures. The trusts used the net proceeds from the offering to purchase a like amount of subordinated debentures (the “Debentures”). The Debentures are the sole assets of the trusts. The Company’s obligations under the subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole (but not in part) on a quarterly basis at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. The Company also has a right to defer consecutive payments of interest on the debentures for up to five years. The following table is a summary of trust preferred securities and Debentures at September 30, 2022:
Issuance Trust |  | Issuance Date |  | Trust Preferred Security Amount |  | Carrying Value of Debentures |  | Rate Type |  | Current Rate |  | Maturity Date
|  |  |  | (Dollars in thousands) |  |  |  |  |  |
Nara Capital Trust III |  | 06/05/2003 |  | $ | 5,000 |  |  | $ | 5,155 |  |  | Variable |  | 6.443% |  | 06/15/2033
Nara Statutory Trust IV |  | 12/22/2003 |  | 5,000 |  |  | 5,155 |  |  | Variable |  | 5.362% |  | 01/07/2034
Nara Statutory Trust V |  | 12/17/2003 |  | 10,000 |  |  | 10,310 |  |  | Variable |  | 6.477% |  | 12/17/2033
Nara Statutory Trust VI |  | 03/22/2007 |  | 8,000 |  |  | 8,248 |  |  | Variable |  | 4.943% |  | 06/15/2037
Center Capital Trust I |  | 12/30/2003 |  | 18,000 |  |  | 14,874 |  |  | Variable |  | 5.362% |  | 01/07/2034
Wilshire Trust II |  | 03/17/2005 |  | 20,000 |  |  | 16,375 |  |  | Variable |  | 5.317% |  | 03/17/2035
Wilshire Trust III |  | 09/15/2005 |  | 15,000 |  |  | 11,671 |  |  | Variable |  | 4.693% |  | 09/15/2035
Wilshire Trust IV |  | 07/10/2007 |  | 25,000 |  |  | 18,856 |  |  | Variable |  | 4.673% |  | 09/15/2037
Saehan Capital Trust I |  | 03/30/2007 |  | 20,000 |  |  | 15,614 |  |  | Variable |  | 5.294% |  | 06/30/2037
Total |  |  |  | $ | 126,000 |  |  | $ | 106,258 |  |  |  |  |  |  |
The carrying value of Debentures at September 30, 2022 and December 31, 2021 was $106.3 million and $105.4 million, respectively. At September 30, 2022 and December 31, 2021, acquired Debentures had remaining discounts of $23.6 million and $24.5 million, respectively. The carrying balance of Debentures is net of remaining discounts and includes common trust securities. The Company’s investment in the common trust securities of the issuer trusts was $3.9 million at September 30, 2022 and December 31, 2021 and is included in other assets. Although the subordinated debt issued by the trusts are not included as a component of stockholders’ equity in the Consolidated Statements of Financial Condition, the debt is treated as capital for regulatory purposes. The Company’s trust preferred security debt issuances (less common trust securities) are includable in Tier 1 capital up to a maximum of 25% of capital on an aggregate basis as they were grandfathered in under BASEL III. Any amount that exceeds 25% qualifies as Tier 2 capital. Convertible Notes In 2018, the Company issued $217.5 million aggregate principal amount of 2.00% convertible senior notes maturing on May 15, 2038 in a private offering to qualified institutional buyers under Rule 144A of the Securities Act of 1933. The convertible notes can be converted into shares of the Company’s common stock at an initial rate of 45.0760 shares per $1,000 principal amount of the notes (equivalent to an initial conversion price of approximately $22.18 per share of common stock which represents a premium of 22.50% to the closing stock price on the date of the pricing of the notes). Holders of the convertible notes have the option to convert all or a portion of the notes at any time on or after February 15, 2023. Prior to February 15, 2023, the convertible notes cannot be converted unless under certain specified scenarios. The convertible notes can be called by the Company, in part or in whole, on or after May 20, 2023 for 100% of the principal amount in cash. Holders of the convertible notes also have the option to put the notes back to the Company on May 15, 2023, May 15, 2028, or May 15, 2033 for 100% of the principal amount in cash. The convertible notes can be settled in cash, stock, or a combination of stock and cash at the option of the Company. The convertible notes issued by the Company were initially separated into a debt component and an equity component which represents the stock conversion option. The present value of the convertible notes was calculated based on a discount rate of 4.25%, which represented the current offering rate for similar types of debt without conversion options. The difference between the principal amount of the notes and the present value was recorded as the convertible note discount and additional paid-in capital. The issuance costs related to the offering were also allocated into a debt component to be capitalized, and an equity component in the same percentage allocation of debt and equity of the convertible note. On January 1, 2021, the Company early adopted ASU 2020-06 under the modified retrospective approach. Subsequently, the Company accounts for its convertible notes as a single debt instrument. At the adoption of ASU 2020-06, portions previously allocated to equity and the remaining convertible notes discount were both reversed. The reversal of the equity portions of the convertible notes totaled $18.3 million, net of taxes which was recorded as a reduction to additional paid-in capital. The adoption of ASU 2020-06 resulted in a $10.7 million net adjustment to beginning retained earnings. The value of the convertible notes at issuance and the carrying value as of September 30, 2022 and December 31, 2021 are presented in the tables below:
|  |  |  |  |  | September 30, 2022
|  | Capitalization Period |  | Gross Carrying Amount |  | Total Capitalization |  | Carrying Amount
|  |  |  | (Dollars in thousands)
Convertible notes principal balance |  |  |  | $ | 217,500 |  |  |  |  | $ | 217,500 |
Issuance costs to be capitalized |  | 5 years |  | (4,119) |  |  | $ | 3,532 |  |  | (587) |
Carrying balance of convertible notes |  |  |  | $ | 213,381 |  |  | $ | 3,532 |  |  | $ | 216,913 |
|  |  |  |  |  | December 31, 2021
|  | Capitalization Period |  | Gross Carrying Amount |  | Total Capitalization |  | Carrying Amount
|  |  |  | (Dollars in thousands)
Convertible notes principal balance |  |  |  | $ | 217,500 |  |  |  |  | $ | 217,500 |
Issuance costs to be capitalized |  | 5 years |  | (4,119) |  |  | $ | 2,828 |  |  | (1,291) |
Carrying balance of convertible notes |  |  |  | $ | 213,381 |  |  | $ | 2,828 |  |  | $ | 216,209 |
Interest expense on the convertible notes for the three and nine months ended September 30, 2022 totaled $1.3 million and $4.0 million, respectively. Interest expense on the convertible notes for the three and nine months ended September 30, 2021 totaled $1.3 million and $4.0 million, respectively. With the adoption of ASU 2020-06, interest expense for the Company’s convertible notes consists of accrued interest on the convertible note coupon and interest expense from capitalized issuance costs. Issuance cost capitalization expense will only be recorded for the first five outstanding years of the convertible notes.

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- Definition The entire disclosure for borrowings under subordinated debt agreements that qualify as available in computing net capital under SEC's uniform net capital rule, including restrictive covenants, collateral, interest rates and due dates, amounts due by date and amount owed in total. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 470 -Section 45 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6479118&loc=d3e64650-112822 + Details
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