NOTE 18. TRUST PREFERRED SECURITIES

In connection with our acquisition of Mercer Insurance Group, we acquired three statutory business trusts formed by Mercer Insurance Group to issue floating rate capital securities (“Trust Preferred Securities”) and to invest the proceeds in junior subordinated debentures of Mercer Insurance Group. Mercer Insurance Group holds $488,000 of equity securities to capitalize the Trusts. The three trusts issued a total of $15,500,000 Trust Preferred Securities to the public. The following Trust Preferred Securities were outstanding as of December 31, 2011:



(In Thousands)	Issue Date	Amount		Interest Rate	Maturity Date
Financial Pacific Statutory Trust I	12/4/2002	$	5,032	LIBOR + 4.00%	12/4/2032
Financial Pacific Statutory Trust II	5/15/2003	3,017		LIBOR + 4.10%	5/15/2033
Financial Pacific Trust III	9/30/2003	7,577		LIBOR + 4.05%	9/30/2033
Total Trust Preferred Securities		$	15,626

Financial Pacific Statutory Trust I (“Trust I”) is a Connecticut statutory business trust. Trust I issued 5,000,000 shares of the Trust Preferred Securities at a price of $1 per share for $5,000,000 and purchased $5,155,000 in junior subordinated debentures from Mercer Insurance Group that mature on December 4, 2032. The annual effective rate of interest at December 31, 2011 is 4.527 percent.

Financial Pacific Statutory Trust II (“Trust II”) is a Connecticut statutory business trust. Trust II issued 3,000,000 shares of the Trust Preferred Securities at a price of $1 per share for $3,000,000 and purchased $3,093,000 in junior subordinated debentures from Mercer Insurance Group that mature on May 15, 2033. The annual effective rate of interest at December 31, 2011 is 4.557 percent.

Financial Pacific Trust III (“Trust III”) is a Delaware statutory business trust. Trust III issued 7,500,000 shares of the Trust Preferred Securities at a price of $1 per share for $7,500,000 and purchased $7,740,000 in junior subordinated debentures from Mercer Insurance Group that mature on September 30, 2033. The annual effective rate of interest at December 31, 2011 is 4.419 percent.

We have the right, at any time, so long as there are no continuing events of default, to defer payments of interest on the junior subordinated debentures for a period not exceeding 20 consecutive quarters, but not beyond the stated maturity of the junior subordinated debentures. To date no interest has been deferred. Total interest expense for the year ended December 31, 2011 was $1,055,000.

The Trust Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption. We have the right to redeem the junior subordinated debentures after December 4, 2007 for Trust I, after May 15, 2008 for Trust II and after September 30, 2008 for Trust III. Mercer Insurance Group has not exercised these rights as of December 31, 2011.

Trust II was redeemed along with the corresponding junior subordinated debentures on February 15, 2012 for $3,129,000 and Trust I was redeemed along with the corresponding junior subordinated debentures on March 5, 2012 for $5,214,000.