Convertible Notes and Subordinated Debentures

12 Months Ended

Dec. 31, 2024

Subordinated Debentures and Convertible Notes

SUBORDINATED DEBENTURES

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 represented a premium of 22.50% to the closing stock price on the date of the pricing of the notes). Holders of the convertible notes had the option to convert all or a portion of the notes at any time on or after February 15, 2023. The convertible notes were callable 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, 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.

On May 15, 2023, most of the Company’s holders of the convertible notes elected to exercise their optional put right and the Company paid off $197.1 million principal amount of notes in cash. In addition, during the year ended December 31, 2023, the Company also repurchased its notes in the aggregate principal amount of $19.9 million and recorded a gain on debt extinguishment of $405 thousand. The repurchased notes were immediately cancelled subsequent to the repurchase. These repurchases are separate from the optional put and were made through a third-party broker. No notes were repurchased or paid off in the twelve month ended December 31, 2024.

The carrying value of the convertible notes at December 31, 2024 and 2023, was $444 thousand. The capitalized issuance costs were fully amortized at both December 31, 2024 and 2023.

Interest expense on the convertible notes for the years ended December 31, 2024, 2023, and 2022, totaled $9 thousand, $1.9 million, and $5.3 million, respectively. Interest expense for the Company’s convertible notes in 2023 and 2022 consisted of accrued interest on the convertible note coupon and interest expense from capitalized issuance costs. Interest expense for 2024 consisted of accrued interest on the convertible note coupon. Issuance cost capitalization expense was recorded for only the first five outstanding years of the convertible notes.

Subordinated Debentures

At December 31, 2024, 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 subordinated 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 subordinated debentures, or upon earlier redemption as provided in the indentures. The Company has the right to redeem the subordinated 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 subordinated debentures for up to five years.

The following table is a summary of trust preferred securities and subordinated debentures at December 31, 2024:


Issuance Trust	Issuance Date	Trust Preferred Security Amount		Carrying Value of Subordinated Debentures		Rate Type	Current Rate	Maturity Date
		(Dollars in thousands)
Nara Capital Trust III	06/05/2003	$	5,000	$	5,155	Variable	7.77%	06/15/2033
Nara Statutory Trust IV	12/22/2003	5,000		5,155		Variable	7.77%	01/07/2034
Nara Statutory Trust V	12/17/2003	10,000		10,310		Variable	7.56%	12/17/2033
Nara Statutory Trust VI	03/22/2007	8,000		8,248		Variable	6.27%	06/15/2037
Center Capital Trust I	12/30/2003	18,000		15,473		Variable	7.77%	01/07/2034
Wilshire Trust II	03/17/2005	20,000		16,937		Variable	6.40%	03/17/2035
Wilshire Trust III	09/15/2005	15,000		12,148		Variable	6.02%	09/15/2035
Wilshire Trust IV	07/10/2007	25,000		19,570		Variable	6.00%	09/15/2037
Saehan Capital Trust I	03/30/2007	20,000		16,144		Variable	6.21%	06/30/2037
Total		$	126,000	$	109,140

The carrying value of the subordinated debentures at December 31, 2024 and 2023, was $109.1 million and $107.8 million, respectively. At December 31, 2024 and 2023, acquired subordinated debentures had remaining discounts of $20.8 million and $22.1 million, respectively. The carrying balance of the subordinated 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 December 31, 2024 and 2023, and was included in other assets on the Company’s Consolidated Statements of Financial Condition. Although the subordinated debentures 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.