SUBORDINATED NOTES AND TRUST PREFERRED DEBT

9 Months Ended

Sep. 30, 2024

SUBORDINATED NOTES AND TRUST PREFERRED DEBT

At September 30, 2024 and December 31, 2023, unsecured subordinated notes payable outstanding totaled $63.1 million and $32.1 million, respectively, which qualified for Tier 2 capital subject to the regulatory capital phase out limitations. The notes are recorded on the consolidated balance sheets net of remaining debt issuance costs totaling $353 thousand and $407 thousand at September 30, 2024 and December 31, 2023, respectively, which are amortized over a 10-year period on an effective yield basis. The Company may, at its option, redeem the notes at any time upon the occurrence of certain events. As of September 30, 2024, the Company was in compliance with the covenants contained in the subordinated notes payable agreement.

The Company's subordinated notes of $32.1 million have a variable rate of three-month CME term SOFR rate, plus a spread adjustment of 0.26161% and a margin of 3.16%, through maturity. At September 30, 2024, the interest rate on the Company's subordinated debt was 8.75%. The Company may, at its option, redeem the notes, in whole or in part, on any

interest payment date, and at any time upon the occurrence of certain events. As of September 30, 2024, the Company was in compliance with the covenants contained in the subordinated notes payable agreement.

The Company assumed Codorus Valley's unsecured subordinated notes that were issued in December 2020 in the amount of $31.0 million, which may be redeemed, in whole or in part, in a principal amount with integral multiples of $10.0 million, on or after December 9, 2025 and prior to the maturity date at 100% of the principal amount, plus accrued and unpaid interest. The subordinated notes mature on December 9, 2030. The subordinated notes are also redeemable in whole or in part from time to time, upon the occurrence of specific events defined within the Note Purchase Agreements. The subordinated notes have a fixed rate of interest equal to 4.50% until December 30, 2025. After that term, the variable rate of interest is equal to the three-month CME term SOFR rate plus 4.04%. At the date of the Merger, these subordinated notes were marked to fair value at $28.6 million, with a discount of $2.4 million being amortized and netted against interest expense over the stated maturity.

The Company assumed junior subordinated trust preferred debt of $10.3 million from the Merger that was fair valued at $7.6 million with a discount of $2.7 million being amortized and netted against interest expense over the state maturity. In June 2006, Codorus Valley formed CVB Statutory Trust No. II, a wholly-owned special purpose entity whose sole purpose was to facilitate a pooled trust preferred debt issuance of $7.2 million with a stated maturity of July 7, 2036 and a variable rate of three-month CME term SOFR rate, plus a spread adjustment of 0.26161% and a margin of 1.54% through maturity. In November 2004, Codorus Valley formed CVB Statutory Trust No. I to facilitate a pooled trust preferred debt issuance of $3.1 million with a stated maturity of December 15, 2034 and a variable rate of three-month CME term SOFR rate, plus a spread adjustment of 0.26161% and a margin of 2.02% through maturity. The Company owns all of the common stock of these nonbank entities, and the debentures are the sole assets of the Trusts. The accounts of both Trusts are not consolidated for financial reporting purposes in accordance with FASB ASC 810, Consolidation. For regulatory capital purposes, the trust preferred securities qualified as Tier 1 capital, but are subject to capital limitations under the risk-based capital guidelines.

The remaining maturities of subordinated notes and trust preferred debt as of September 30, 2024 and December 31, 2023, are as follows:


		Amount
		September 30, 2024		December 31, 2023
Subordinated debt maturing:
	2028	$	32,500	$	32,500
	2030	31,000		—

Trust preferred junior subordinated debt maturing:
	2034	$	3,093	$	—
	2036	7,217		—