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Long Term Debt and Other Borrowings
 6 Months Ended
Jun. 30, 2021
Debt Disclosure [Abstract]  
Long Term Debt and Other Borrowings

Note 7: Long Term Debt and Other Borrowings

 

Subordinated Notes: On November 8, 2019, the Company completed a private placement of $3.75 million of fixed-to-floating rate subordinated notes to certain qualified investors. All of the debt was purchased by four existing members of the board of directors or their affiliates. The notes were used for general corporate purposes, capital management, and to support future growth. The subordinated notes have a maturity date of September 15, 2027 and bear interest, payable semi-annually, at the rate of 5.50% per annum until September 15, 2022. On that date, the interest rate will be adjusted to float at a rate equal to the three-month LIBOR rate plus 354.4 basis points (3.67% as of June 30, 2021) until maturity. The notes include a right of prepayment, on or after September 15, 2022 and, in certain limited circumstances, before that date. The indebtedness evidenced by the subordinated notes, including principal and interest, is unsecured and subordinate and junior in right to payment to general and secured creditors and depositors of the Company.

 

The Company has $25.0 million in principal of fixed-to-floating rate subordinated notes to certain qualified investors, of which $8.0 million is owned by an entity that is controlled by a member of the board of directors and three shareholders. The notes were used for general corporate purposes, capital management, and to support future growth. The subordinated notes have a maturity date of September 15, 2027 and bear interest, payable semi-annually, at the rate of 6.00% per annum until September 15, 2022. On that date, the interest rate will be adjusted to float at a rate equal to the three-month LIBOR rate plus 404.4 basis points (4.17% as of June 30, 2021) until maturity. The notes include a right of prepayment, on or after September 15, 2022 and, in certain limited circumstances, before that date. The indebtedness evidenced by the subordinated notes, including principal and interest, is unsecured and subordinate and junior in right to payment to general and secured creditors and depositors of the Company.

 

The subordinated notes have been structured to qualify as Tier 2 capital for regulatory capital purposes. Debt issuance costs incurred in conjunction with the notes were $0.6 million, of which $0.2 million has been amortized through June 30, 2021. The Company reflects debt issuance costs as a direct deduction from the face of the note. The debt issuance costs are amortized into interest expense through the maturity period. At June 30, 2021 and December 31, 2020, the Company’s subordinated debt outstanding was $28.4 million and $28.3 million, respectively.

 

Other Borrowings: In 2005, and through an amendment in 2014, the Company entered into an agreement with the FHLB which granted the FHLB a blanket lien on all loans receivable (except for construction and agricultural loans) as collateral for a borrowing line. Based on the dollar volume of qualifying loan collateral, the Company had a total financing availability of $516.7 million at June 30, 2021 and $519.3 million at December 31, 2020. At June 30, 2021 and December 31, 2020, the Company had no outstanding borrowings. As of June 30, 2021 and December 31, 2020, the Company had letters of credit (“LC”) issued on its behalf totaling $319.5 million and $293.5 million, respectively, as discussed below.

 

As of June 30, 2021, LCs totaling $29.5 million were pledged to secure State of California deposits and $290.0 million were pledged to secure local agency deposits. As of December 31, 2020, LCs totaling $13.5 million were pledged to secure State of California deposits and $280.0 million were pledged to secure local agency deposits. The outstanding borrowings and the LCs issued reduced the Company’s available borrowing capacity to $197.2 million and $284.8 million as of June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021 and December 31, 2020, the Company also had three unsecured federal funds lines of credit totaling $75.0 million with three of its correspondent banks, respectively. There were no amounts outstanding at June 30, 2021 and December 31, 2020.

 

At June 30, 2021 and December 31, 2020, the Company had the ability to borrow from the Federal Reserve Discount Window. At June 30, 2021 and December 31, 2020, the borrowing capacity under this arrangement was $26.5 million and $25.9 million, respectively. There were no amounts outstanding at June 30, 2021 and December 31, 2020. The borrowing line is secured by liens on the Company’s construction and agricultural loan portfolios.