SUBORDINATED DEFERRABLE INTEREST DEBENTURES |
9 Months Ended |
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Sep. 30, 2011 | |
| SUBORDINATED DEFERRABLE INTEREST DEBENTURES |
NOTE 10 - SUBORDINATED DEFERRABLE INTEREST DEBENTURES
On
September 2, 2008, ServisFirst Capital Trust I, a subsidiary of the
Company (the “2008 Trust”), sold 15,000 shares of its
8.5% trust preferred securities to accredited investors for
$15,000,000 or $1,000 per share and 463,918 shares of its common
securities to the Company for $463,918 or $1.00 per share. The 2008
Trust invested the $15,463,918 of the proceeds from such sale in
the Company’s 8.5% junior subordinated deferrable interest
debenture due September 1, 2038 in the principal amount of
$15,463,918 (the “Debenture”) which was issued pursuant
to an Indenture dated as of September 2, 2008 between the Company
and Wilmington Trust Company as trustee (the “2008
Indenture”). The Debenture bears a fixed rate of interest at
8.5% per annum and is subordinate and junior in right of payment to
all of the Company’s senior debt; provided, however, the
Company will not incur any additional senior debt in excess of 0.5%
of the Company’s average assets for the fiscal year
immediately preceding, unless such incurrence is approved by a
majority of the holders of the outstanding trust preferred
securities.
Holders
of the trust preferred securities are entitled to receive
distributions accruing from the original date of issuance. The
distributions are payable quarterly in arrears on December 1, March
1, June 1 and September 1 of each year, commencing December 1,
2008. The distributions accrue at an annual fixed rate of 8.5%.
Payments of distributions on the trust preferred securities will be
deferred in the event interest payments on the Debenture is
deferred, which may occur at any time and from time to time, for up
to 20 consecutive quarterly periods. During
any deferral period, the Company may not pay dividends or make
certain other distributions or payments as provided for in the 2008
Indenture. If payments are deferred, holders accumulate
additional distributions thereon at 8.5%, compounded quarterly, to
the extent permitted by law.
In
addition, the Company issued a total of 75,000 warrants, each with
the right to purchase one share of the Company’s common stock
for a purchase price of $25.00. The warrants were issued in
increments of 500 for each $100,000 of trust preferred securities
purchased. Each warrant is exercisable for a period beginning upon
its date of issuance and ending upon the later to occur of either
(i) September 1, 2013 or (ii) 60 days following the date upon which
the Company’s common stock becomes listed for trading upon a
“national securities exchange” as defined under the
Securities Exchange Act of 1934. The Company estimated the fair
value of each warrant using a Black-Scholes-Merton valuation model
and determined the fair value per warrant to be $5.65. This total
value of $423,000 was recorded as a discount and reduced the net
book value of the Debenture to $15,052,000 with an offsetting
increase to the Company’s additional paid-in capital. The
discount will be amortized over a three-year period.
The
trust preferred securities are subject to mandatory redemption upon
repayment of the Debenture at its maturity, September 1, 2038, or
its earlier redemption. The Debenture is redeemable by the Company
for any reason. In the event of the redemption of the
trust preferred securities, the holders of the trust preferred
securities will be entitled to receive $1,000 per share plus
accumulated and unpaid distributions thereon (including accrued
interest thereon), if any, to the date of payment.
The
Company has the right at any time to terminate the 2008 Trust and
cause the Debenture to be distributed to the holders of the trust
preferred securities in liquidation of the 2008 Trust. This right
is optional and wholly within the Company’s discretion as set
forth in the 2008 Indenture.
Payment
of periodic cash distributions and payment upon liquidation or
redemption with respect to the trust preferred securities are
guaranteed by the Company to the extent of funds held by the 2008
Trust (the “Preferred Securities Guarantee”). The
Preferred Securities Guarantee, when taken together with the
Company’s other obligations under the Debenture, constitutes
a full and unconditional guarantee, on a subordinated basis, by the
Company of payments due on the trust preferred
securities.
The
Company is required by the Federal Reserve Board to maintain
certain levels of capital for bank regulatory purposes. The Federal
Reserve Board has determined that certain cumulative preferred
securities having the characteristics of trust preferred securities
qualify as minority interests, which is included in Tier 1 capital
for bank and financial holding companies. In calculating the amount
of Tier 1 qualifying capital, the trust preferred securities can
only be included up to the amount constituting 25% of total Tier 1
capital elements (including trust preferred securities). Such Tier
1 capital treatment provides the Company with a more cost-effective
means of obtaining capital for bank regulatory purposes than if the
Company were to issue preferred stock.
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