SIFI » Topics » Junior Subordinated Debt Owed to Unconsolidated Trust

This excerpt taken from the SIFI 10-K filed Mar 30, 2006.

Junior Subordinated Debt Owed to Unconsolidated Trust

On March 25, 2002, SI Bancorp, MHC (formerly SI Bancorp, Inc.), formed SI Capital Trust I, which became its wholly-owned subsidiary when it purchased all of the Trust’s common securities. The Trust has no independent assets or operations, and was formed for the sole purpose of issuing trust securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures issued by SI Bancorp, MHC.

The Trust issued $7.0 million of trust preferred securities in 2002. Pursuant to FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities” issued in December 2003, SI Bancorp, MHC deconsolidated the Trust at December 31, 2003. As a result, the statement of financial condition at December 31, 2005 and 2004 includes $7.2 million of junior subordinated debt, which was previously presented in the statement of financial condition as $7.0 million in trust preferred securities after a consolidation elimination entry of $217,000. The Company’s investment in the Trust of $217,000 is included in other assets. The overall effect on the financial position and operating results of the Company as a result of the deconsolidation was not material. On September 24, 2004, all of the common stock of SI Capital Trust I was contributed to the Company from SI Bancorp, MHC. At that point, SI Capital Trust I became a wholly-owned subsidiary of the Company.

The subordinated debt securities are unsecured obligations of the Company and are subordinate and junior in right of payment to all present and future senior indebtedness of the Company. The Company has entered into a guarantee, which together with its obligations under the subordinated debt securities and the declaration of trust governing the Trust, including its obligations to pay costs, expenses, debts and liabilities, other than trust securities, provides a full and unconditional guarantee of amounts on the capital securities. If the Company defers interest payments on the junior subordinated debt securities, or otherwise is in default of the obligations, the Company would be prohibited from making dividend payments to its shareholders. The junior subordinated debentures, which bear interest at six-month LIBOR plus 3.70% mature on April 22, 2032 and can be redeemed at the Company’s option in 2007, subject to regulatory approval.

The trust securities also bear interest at six-month LIBOR plus 3.70%. The duration of the trust is 30 years; however, the trust securities are redeemable at par at the Trust’s option in 2007.

The contractual maturities of borrowings, by year, at December 31, 2005 are as follows:

 

(Dollars in Thousands)   

FHLB

Advances (1)(2)

    Subordinated
Debt
    Total  

2006 (3)

   $ 13,161     $ —       $ 13,161  

2007 (3)

     15,337       —         15,337  

2008 (2)(3)

     19,431       —         19,431  

2009

     4,000       —         4,000  

2010 (2)

     19,000       —         19,000  

Thereafter (2)

     17,000       7,217       24,217  
                        

TOTAL LONG-TERM DEBT

   $ 87,929     $ 7,217     $ 95,146  
                        

WEIGHTED-AVERAGE RATE

     3.97 %     8.15 %     4.29 %

(1) Interest rates on the FHLB advances are primarily fixed. A variable rate advance of $2.0 million matures in 2008.

 

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Table of Contents

SI FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005, 2004 AND 2003

 

(2) Includes FHLB advances that are callable in the aggregate of $6.0 million during 2006. These advances are reported based on their scheduled maturity in the summary table presented above.
(3) Includes amortizing advances requiring monthly principal and interest payments.
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