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Note 11 - Term Debt

3 Months Ended

Mar. 31, 2016

NOTE 11. TERM DEBT

Term debt at March 31, 2016 and December 31, 2015 consisted of the following.

(Amounts in thousands)	March 31, 2016			December 31, 2015
Federal Home Loan Bank of San Francisco borrowings	$	—		$	75,000
Senior debt		9,667			9,917
Unamortized debt issuance costs		(14	)		(15	)
Subordinated debt		10,000			10,000
Unamortized debt issuance costs		(199	)		(208	)
Corning lease		172			—
Net term debt	$	19,626		$	94,694

Future contractual maturities of term debt at March 31, 2016 are as follows.

(Amounts in thousands)	2016		2017		2018		2019		2020		Thereafter		Total
Senior debt	$	667	$	1,000	$	1,000	$	1,000	$	1,000	$	5,000	$	9,667
Subordinated debt		—		—		—		—		—		10,000		10,000
Corning lease		32		41		44		46		9		—		172
Total future maturities	$	699	$	1,041	$	1,044	$	1,046	$	1,009	$	15,000	$	19,839

Federal Home Loan Bank of San Francisco Borrowings

The maximum amount outstanding from the Federal Home Loan Bank of San Francisco under term advances at any month end during the three months ended March 31, 2016 and the year ended December 31, 2015 was $80.0 million and $120.0 million, respectively. The average balance outstanding on Federal Home Loan Bank of San Francisco term advances during the three months ended March 31, 2016 and the year ended December 31, 2015 was $71.8 million and $87.6 million, respectively. During the three months ended March 31, 2016, all outstanding Federal Home Loan Bank of San Francisco term advances were repaid. The weighted average interest rates on the borrowings outstanding at December 31, 2015, was 0.33%.

The Federal Home Loan Bank of San Francisco line of credit is secured by an investment in Federal Home Loan Bank of San Francisco stock, certain real estate mortgage loans which have been specifically pledged to the Federal Home Loan Bank of San Francisco pursuant to their collateral requirements, and securities held in the Bank’s investment securities portfolio. As of March 31, 2016, the Bank was required to hold an investment in Federal Home Loan Bank of San Francisco stock of $4.5 million. Furthermore, we have pledged $349.6 million of our commercial and real estate mortgage loans for the line of credit with the Federal Home Loan Bank of San Francisco. As of March 31, 2016, we held $19.0 million in securities with the Federal Home Loan Bank of San Francisco for pledging purposes. All of the securities pledged to the Federal Home Loan Bank of San Francisco were unused as collateral as of March 31, 2016.

Senior Debt

In December of 2015, the Holding Company, entered into a senior debt loan agreement to borrow $10.0 million from another financial institution. The loan is payable in monthly installments of $83 thousand principal, plus accrued and unpaid interest, commencing on January 1, 2016 and continuing to and including December 10, 2020. The loan may be prepaid in whole or in part at any time without any prepayment premium or penalty. The principal amount of the loan bears interest at a variable rate, resetting monthly that is equal to the sum of the current three month LIBOR plus 400 basis points. In December of 2015, the Holding Company incurred senior debt issuance costs of $15 thousand, which are being amortized over the life of the loan as additional interest expense. The loan is secured by a pledge from the Holding Company of all of the outstanding stock of Redding Bank of Commerce.

Subordinated Debt

In December of 2015, the Holding Company issued $10.0 million in aggregate principal amount of fixed to floating rate subordinated notes due in 2025. The subordinated debt initially bears interest at 6.88% per annum for a five-year term, payable semi-annually. Thereafter, interest on the subordinated debt will be paid at a variable rate equal to three month LIBOR plus 526 basis points, payable quarterly until the maturity date. In December of 2015, the Holding Company incurred subordinated debt issuance costs of $210 thousand, which are being amortized over the initial five year term as additional interest expense.

The subordinated debt is subordinate and junior in right of payment to the prior payment in full of all existing and future claims of creditors and depositors of the Holding Company and its subsidiaries, whether now outstanding or subsequently created. The subordinated debt ranks equally with all other unsecured subordinated debt, except any which by its terms is expressly stated to be subordinated to the subordinated debt. The subordinated debt ranks senior to all future junior subordinated debt obligations, preferred stock and common stock of the Holding Company. The subordinated debt is recorded as term debt on the Holding Company’s Balance Sheet; however, for regulatory purposes, it is treated as Tier 2 capital by the Holding Company.

The subordinated debt will mature on December 10, 2025 but may be prepaid at the Holding Company’s option and with regulatory approval at any time on or after five years after the Closing Date or at any time upon certain events, such as a change in the regulatory capital treatment of the subordinated debt or the interest on the subordinated debt is no longer deductible by the Holding Company for United States federal income tax purposes.

Corning Lease

As part of the acquisition of branches from Bank of America, the Bank entered into a capital lease with Bank of America for the branch located in Corning, California. The total obligation under the lease agreement is $172 thousand payable over a four-year period in monthly installments of principal and interest at a 6.0% annual interest rate. The fair value of the capital lease obligation was determined using a discounted cash flow based on the contractual interest rate of the lease agreement. The fair value of the leased asset is included in premises and equipment and the lease liability is included with term debt obligations. Amortization of the leased asset is included with the provision for depreciation and amortization as part of our premises and equipment expense in our Consolidated Statements of Operations. The lease may terminate early upon receipt of certification that there are no adverse environmental conditions. Upon termination of the lease agreement, the net present value of the lease becomes due and title will be transferred to the Bank.