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SUBORDINATED DEFERRABLE INTEREST DEBENTURES
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6 Months Ended |
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Jun. 30, 2011
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| 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”). 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
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 debentures 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
(i) prior to September 1, 2011, in whole upon the occurrence of a
Special Event, as defined in the Indenture, or (ii) in whole or in
part on or after September 1, 2011 for any reason. In the event of
the redemption of the trust preferred securities prior to September
1, 2011, the holders of the trust preferred securities will be
entitled to $1,050 per share, plus accumulated and unpaid
distributions thereon (including accrued interest thereon), if any,
to the date of payment. In the event of the redemption of the trust
preferred securities on or after September 1, 2011, 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 Trust. This right is
optional and wholly within the Company’s discretion as set
forth in the 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 Trust
(the “Preferred Securities Guarantee”). The Preferred
Securities Guarantee, when taken together with the Company’s
other obligations under the debentures, 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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