Long Term Debt and Other Borrowings

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

Long Term Debt and Other Borrowings

Long Term Debt and Other Borrowings

Subordinated notes: On August 17, 2022, the Company completed a private placement of $75.0 million of fixed-to-floating rate subordinated notes to certain qualified investors, of which $19.3 million was purchased by existing or former members of the board of directors and their affiliates. The notes will be used for capital management and general corporate purposes, including, without limitation, the redemption of existing subordinated notes. The subordinated notes have a maturity date of September 1, 2032 and bear interest, payable semi-annually, at the rate of 6.00% per annum until September 1, 2027. On that date, the interest rate will be adjusted to float at a rate equal to the three-month Term SOFR plus 329.0 basis points (8.18% as of March 31, 2023) until maturity. The notes include a right of prepayment, on or after August 17, 2027 or, 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 the Company for regulatory capital purposes. Eligible amounts will be phased out by 20% per year beginning five years before the maturity date of the notes. Debt issuance costs incurred in conjunction with the notes were $1.5 million, of which $0.1 million has been amortized as of March 31, 2023. 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 March 31, 2023 and December 31, 2022, the Company’s subordinated debt outstanding was $73.6 million and $73.6 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 $1.1 billion at March 31, 2023 and $1.0 billion at December 31, 2022. At March 31, 2023 and December 31, 2022, the Company had $120.0 million and $100.0 million of outstanding borrowings, respectively. As of March 31, 2023

and December 31, 2022, the Company had letters of credit (“LCs”) issued on its behalf totaling $666.5 million and $686.5 million, respectively, as discussed below.

At March 31, 2023 and December 31, 2022, LCs totaling $186.5 million and $206.5 million, respectively, were pledged to secure State of California deposits, and LCs totaling $480.0 million and $480.0 million, respectively, were pledged to secure local agency deposits. The LCs issued reduced the Company’s available borrowing capacity to $278.1 million and $216.3 million as of March 31, 2023 and December 31, 2022, respectively.

At March 31, 2023 and December 31, 2022, the Company had seven unsecured federal funds lines of credit totaling $190.0 million with seven of its correspondent banks, respectively. There were no amounts outstanding at March 31, 2023 and December 31, 2022.

At March 31, 2023 and December 31, 2022, the Company had the ability to borrow from the Federal Reserve Discount Window. At March 31, 2023 and December 31, 2022, the borrowing capacity under this arrangement was $76.7 million and $21.9 million, respectively. There were no amounts outstanding at March 31, 2023 and December 31, 2022. The borrowing line is secured by liens on the Company’s construction and agricultural loan portfolios and certain available-for-sale securities.