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Note 6 - Term Debt

9 Months Ended

Sep. 30, 2020

NOTE 6. TERM DEBT

Term debt at September 30, 2020 and December 31, 2019 consisted of the following.

(Amounts in thousands)	September 30, 2020			December 31, 2019
Term Debt:
Federal Home Loan Bank of San Francisco borrowings	$	10,000		$	—
Subordinated Debt		10,000			10,000
Unamortized debt issuance costs		(7	)		(43	)
Net term debt	$	19,993		$	9,957

Future contractual maturities of term debt at September 30, 2020 are as follows.

(Amounts in thousands)	2020		2021		2022		2023		2024		Thereafter		Total
Future Maturities:
Federal Home Loan Bank of San Francisco borrowings	$	5,000	$	5,000	$	—	$	—	$	—	$	—	$	10,000
Subordinated Debt		—		—		—		—		—		10,000		10,000
Total future maturities	$	5,000	$	5,000	$	—	$	—	$	—	$	10,000	$	20,000

Federal Home Loan Bank of San Francisco Borrowings

We have an available line of credit with the Federal Home Loan Bank of San Francisco of $390.6 million at September 30, 2020, subject to certain collateral requirements, namely the amount of pledged loans and investment securities. The line of credit is secured by an investment in Federal Home Loan Bank of San Francisco stock, certain real estate secured loans that have been specifically pledged to the Federal Home Loan Bank of San Francisco pursuant to collateral requirements, and certain pledged securities held in the Bank’s investment securities portfolio.

The Bank had $10.0 million in borrowings from the Federal Home Loan Bank of San Francisco at September 30, 2020. The borrowing has an interest rate of 0% with $5.0 million due in November of 2020 and $5.0 million due in May of 2021. There were no borrowings outstanding from the Federal Home Loan Bank of San Francisco at December 31, 2019. The average balance outstanding on Federal Home Loan Bank of San Francisco term advances during the nine months ended September 30, 2020 and year ended December 31, 2019 was $8.8 million and $9.6 million, respectively. The maximum amount outstanding from the Federal Home Loan Bank of San Francisco at any month end during the nine months ended September 30, 2020 and year ended December 31, 2019 was $40.0 million. As of September 30, 2020, the Bank was required to hold an investment in Federal Home Loan Bank of San Francisco stock of $7.4 million recorded in Other Assets in the Consolidated Balance Sheets. Our investments in Federal Home Loan Bank of San Francisco stock are restricted investment securities, carried at cost, evaluated for impairment, and excluded from securities accounted for under ASC Topic 320 and ASC Topic 321.

As of September 30, 2020, we have pledged $513.3 million of our commercial real estate and residential real estate loans and $32.8 million in securities as collateral for the line of credit with the Federal Home Loan Bank of San Francisco.

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. During the second quarter of 2019, we completed the early repayment and termination of this variable-rate debt agreement.

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 through December 19, 2020, 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 preferred stock and common stock of the Holding Company and all future junior subordinated debt obligations. 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.

Federal Funds

We have entered into nonbinding unsecured federal funds line of credit agreements with three financial institutions to support short-term liquidity needs. The lines totaled $75.0 million at September 30, 2020 and had interest rates ranging from 0.12% to 0.30%. Advances under the lines are subject to funds availability, continued borrower eligibility, and may have consecutive day usage restrictions. The credit arrangements are reviewed and renewed annually. At September 30, 2020 and December 31, 2019, we had no outstanding federal funds purchased balances and no outstanding advances on any of the Bank’s federal funds lines of credit.

Federal Reserve Bank

We have an available line of credit with the Federal Reserve Bank totaling $8.4 million at September 30, 2020, subject to collateral requirements, namely the amount of certain pledged loans. At September 30, 2020 and December 31, 2019, we had no outstanding advances on our line of credit with the Federal Reserve Bank. As of September 30, 2020, we have pledged $14.2 million of our commercial loans as collateral for the credit line with the Federal Reserve Bank.

In April of 2020, we received approval from the Federal Reserve Bank to participate in the Paycheck Protection Program Liquidity Facility (“PPPLF”). The credit facility provides term funding for loans made under the PPP. Advances under the PPPLF will be collateralized with PPP loans, bear a fixed rate of interest at 0.35% and are to be repaid as the underlying loans are paid down, forgiven, or sold to the SBA. Participating institutions will receive preferential capital treatment for loans that are funded with this borrowing facility. To date, we have not utilized the liquidity available to us under the PPPLF and its associated beneficial capital treatment.