The Company maintains a collateralized line of credit with the FHLB of San Francisco. Under this line, the Company can borrow from the FHLB on a short-term (typically overnight) or long-term (over one year) basis. As of December 31, 2011, and December 31, 2010, the Company had no overnight borrowings from the FHLB. The Company had $189,653,000 of loans and no securities pledged to the FHLB as collateral on a line of credit of $107,268,000 at December 31, 2011. The Company had $221,093,000 of loans and no securities pledged to the FHLB as collateral on a line of credit of $111,781,000 at December 31, 2010.

The Company can also borrow from the FRB's discount window. The Company had approximately $241,196,000 of loans pledged to the FRB as collateral on an available line of credit of approximately $166,672,000 at December 31, 2011, none of which was outstanding. The Company had approximately $134,482,000 of loans pledged to the FRB as collateral on an available line of credit of approximately $77,924,000 at December 31, 2010, none of which was outstanding.

At December 31, 2011, the Company has Federal funds purchase arrangements and lines of credit available of $55,000,000. There were no Federal funds purchased at December 31, 2011 and 2010.

There were no securities sold under agreements to repurchase at December 31, 2011, compared to $5,000,000 at December 31, 2010. Securities sold under agreement to purchase were secured by mortgage backed securities with an amortized cost of approximately $6,254,000 at December 31, 2010.

Securities sold under agreements to repurchase are financing arrangements that mature within two and a half years. At maturity, the securities underlying the agreements are returned to the Company. Information concerning securities sold under agreements to repurchase is summarized as follows:

	December 31,

	2011			2010			2009
	(Dollars in thousands)
Average balance during the year	$	712		$	18,767		$	28,822
Average interest rate during the year		3.37	%		2.23	%		2.73	%
Maximum month-end balance during the year	$	5,000		$	25,000		$	35,000
Average rate at December 31		N/A			3.09	%		2.35	%

Interest payments on the subordinated notes payable to the Company's subsidiary grantor Trusts are deductible for tax purposes. The subordinated debt is not registered with the Securities and Exchange Commission. For regulatory reporting purposes, the subordinated debt qualifies for Tier 1 capital treatment. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, certain trust preferred securities will no longer be eligible to be included as Tier 1 capital for regulatory purposes. However, an exception to this statutory prohibition applies to securities issued prior to May 19, 2010 by bank holding companies with less than $15 billion of total assets. Therefore, our trust preferred securities will continue to be eligible to be treated as Tier 1 capital, subject to other rules and limitations.

	2011		2010

	(Dollars in thousands)
Subordinated debentures due to Heritage Capital Trust I with interest payable semi-annually at 10.875%, redeemable with a premium beginning March 8, 2010 and with no premium beginning March 8, 2020, due March 8, 2030	$	7,217	$	7,217
Subordinated debentures due to Heritage Statutory Trust I with interest payable semi-annually at 10.6%, redeemable with a premium beginning September 7, 2010 and with no premium beginning September 7, 2020, due September 7, 2030		7,206		7,206
Subordinated debentures due to Heritage Statutory Trust II with interest payable quarterly based on 3-month Libor plus 3.58% (4.16% at December 31, 2011), redeemable with a premium beginning July 31, 2006 and with no premium beginning July 31, 2011, due July 31, 2031		5,155		5,155
Subordinated debentures due to Heritage Statutory Trust III with interest payable quarterly based on 3-month Libor plus 3.40% (3.98% at December 31, 2011), redeemable with no premium beginning September 26, 2007 and due September 26, 2032		4,124		4,124

Total	$	23,702	$	23,702

In November 2009, the Company announced that it was exercising its right to defer regularly scheduled interest payments on its $23,702,000 of junior subordinated notes relating to its trust preferred securities. From the time it deferred interest payments, the Company accrued the expense of each deferred interest payment at the normal rate on a compounded basis. On June 24, 2011, the Company paid all of the deferred interest payments on its outstanding trust preferred subordinated debt securities in the amount of $3,884,000, which included all payments due through September 8, 2011. As a result of the June 2011 interest payment, and the payment of regularly scheduled interest payments in the third and fourth quarter of 2011, the Company is current with respect to interest accrued on trust preferred subordinated debt securities.