SHORT-TERM BORROWINGS AND LONG-TERM DEBT

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

SHORT-TERM BORROWINGS AND LONG-TERM DEBT

8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Federal Home Loan Bank Advances and Other Borrowings

The Bank is a member of the Federal Home Loan Bank of Des Moines (the "FHLB") and maintained a $1.94 billion line of credit as of September 30, 2023, compared to $2.23 billion at December 31, 2022. At September 30, 2023, $1.82 billion was undrawn under this arrangement, compared to $2.19 billion at December 31, 2022. There were no short-term borrowings under this arrangement at September 30, 2023, compared to $5.0 million at December 31, 2022. Letters of credit under this arrangement that are used to collateralize certain government deposits totaled $72.0 million as of September 30, 2023, compared to $36.0 million as of December 31, 2022. There were $50.0 million in long-term borrowings under this arrangement bearing interest rates between 4.02% and 4.62% at September 30, 2023, compared to no long-term borrowings at December 31, 2022. FHLB advances and standby letters of credit available at September 30, 2023 were secured by certain real estate loans with a carrying value of $3.19 billion in accordance with the collateral provisions of the Advances, Security and Deposit Agreement with the FHLB.

The Bank had additional unused borrowings available at the Federal Reserve of $290.3 million and $75.9 million at September 30, 2023 and December 31, 2022, respectively. Certain commercial and commercial real estate loans with a carrying value totaling $136.7 million and $125.0 million at September 30, 2023 and December 31, 2022, respectively, were pledged as collateral on our line of credit with the Federal Reserve. In addition, investment securities with a carrying value of $199.7 million as of September 30, 2023, were pledged to the Federal Reserve in support of the line of credit. No investment securities were pledged to the Federal Reserve in support of the line of credit as of December 31, 2022. The Federal Reserve does not have the right to sell or repledge these loans and investment securities.

The Bank is a member bank of the Pacific Coast Bankers' Bank ("PCBB") and had unused unsecured credit lines available at the PCBB of $50.0 million and $100.0 million at September 30, 2023 and December 31, 2022, respectively.

The Bank had additional unused unsecured credit lines available at Wells Fargo of $25.0 million at September 30, 2023 and December 31, 2022.

Subordinated Debentures

In September 2004, we created a wholly-owned statutory trust, CPB Capital Trust IV ("Trust IV"). Trust IV issued $30.0 million in floating rate trust preferred securities which bore an interest rate of three-month LIBOR plus 2.45% and maturing on December 15, 2034. The principal assets of Trust IV are $30.9 million of the Company's junior subordinated debentures with an identical interest rate and maturity as the Trust IV trust preferred securities. Trust IV issued $0.9 million of common securities to the Company.

In December 2004, we created a wholly-owned statutory trust, CPB Statutory Trust V ("Trust V"). Trust V issued $20.0 million in floating rate trust preferred securities which bore an interest rate of three-month LIBOR plus 1.87% and maturing on December 15, 2034. The principal assets of Trust V are $20.6 million of the Company's junior subordinated debentures with an identical interest rate and maturity as the Trust V trust preferred securities. Trust V issued $0.6 million of common securities to the Company.

On July 3, 2023, after the cessation of the LIBOR benchmark rate on June 30, 2023, the Company amended its Trust IV and Trust V debt agreements to replace the LIBOR-based reference rate with an adjusted CME Term Secured Overnight Financing Rate ("SOFR") plus a tenor spread adjustment. Accounting Standards Codification ("ASC") 848 allows us to account for the modification as a continuation of the existing contract without additional analysis.

The following table present's the Company's junior subordinated debentures outstanding, which are recorded in long-term debt on the Company's consolidated balance sheets as of the dates presented:

(dollars in thousands)
Name of Trust	September 30, 2023		Interest Rate	December 31, 2022		Interest Rate
Trust IV	$	30,928	Three-month CME Term SOFR + tenor spread adjustment of 0.26% + 2.45%	$	30,928	Three-month LIBOR + 2.45%
Trust V	20,619		Three-month CME Term SOFR + tenor spread adjustment of 0.26% + 1.87%	20,619		Three-month LIBOR + 1.87%
Total	$	51,547		$	51,547

The Company is not considered the primary beneficiary of Trusts IV and V. Therefore, the trusts are not considered a variable interest entity and are not consolidated in the Company's financial statements. Rather the subordinated debentures are shown as a liability on the Company's consolidated balance sheets. The Company's investment in the common securities of the trusts are included in investment in unconsolidated entities in the Company's consolidated balance sheets.

The floating trust preferred securities, the junior subordinated debentures that are the assets of Trusts IV and V and the common securities issued by Trusts IV and V are redeemable in whole or in part on any interest payment date on or after December 15, 2009 for Trust IV and V, or at any time in whole but not in part within 90 days following the occurrence of certain events. Our obligations with respect to the issuance of the trust preferred securities constitute a full and unconditional guarantee by the Company of each trust's obligations with respect to its trust preferred securities. Subject to certain exceptions and limitations, we may elect from time to time to defer interest payments on the subordinated debentures, which would result in a deferral of distribution payments on the related trust preferred securities, for up to 20 consecutive quarterly periods without default or penalty.

The subordinated debentures may be included in Tier 1 capital, with certain limitations applicable, under current regulatory guidelines and interpretations.

Subordinated Notes

The following table presents the Company's subordinated notes outstanding as of the dates presented:

(dollars in thousands)
Description	September 30, 2023		December 31, 2022		Interest Rate
October 2020 Private Placement	$	55,000	$	55,000	4.75% for the first five years. Resets quarterly thereafter to the then current three-month SOFR plus 456 basis points.

On October 20, 2020, the Company completed a $55.0 million private placement of ten-year fixed-to-floating rate subordinated notes, which will be used to support regulatory capital ratios and for general corporate purposes. The Company exchanged the privately placed notes for registered notes with the same terms and in the same aggregate principal amount at the end of the fourth quarter of 2020. The subordinated notes bear a fixed interest rate of 4.75% for the first five years through November 1, 2025 and will reset quarterly thereafter for the remaining five years to the then current three-month SOFR, as published by the Federal Reserve Bank of New York, plus 456 basis points.

The subordinated notes may be included in Tier 2 capital, with certain limitations applicable, under current regulatory guidelines and interpretations. The subordinated notes had a carrying value of $54.5 million, net of unamortized debt issuance costs of $0.5 million, at September 30, 2023.