Note 8. Borrowings

Federal Home Loan Bank borrowings

The Bank is a member of the Federal Home Loan Bank of Boston (“FHLB”). At December 31, 2013, the Bank has the ability to borrow from the FHLB based on a certain percentage of the value of the Bank’s qualified collateral, as defined in the FHLB Statement of Products Policy, comprised mainly of mortgage-backed securities and loans segregated as collateral for the FHLB. The additional amount available under this agreement as of December 31, 2013 was $37,000,000. In accordance with an agreement with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances. In addition, the Company has a $2,000,000 available line of credit with the FHLB. At December 31, 2013 and 2012, there were no advances outstanding under this line of credit. During 2013, $50,000,000 of FHLB advances with interest rates ranging from 0.77% to 3.69%, were paid off and a $10,000,000 FHLB advance with an interest rate of 2.19% was restructured. The restructured advance allowed the Company to reduce the effective interest rates, from 2.19% to 0.77%, and to extend the maturity for one year, in accordance with ASC 470-50, “Debt Modifications and Extinguishments”. At December 31, 2013 and 2012, outstanding advances from the FHLB aggregated $57,000,000 and $50,000,000 respectively, with average interest rates ranging from 0.19% to 1.17%.

Repurchase agreements

At December 31, 2013 and 2012, the Company had $0 and $7,000,000 of securities sold under agreements to repurchase bearing interest at a fixed rate of 4.3475%. During 2013, the $7,000,000 of repurchase agreements with an interest rate of 4.41% was repaid.

Junior subordinated debt owed to unconsolidated trust

During 2003, the Company formed the Trust of which 100% of the Trust’s common securities are owned by the Company. The Trust has no independent assets, and exists for the sole purpose of issuing trust securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures issued by the Company. The Trust issued $8,000,000 of trust preferred securities in 2003.

Trust preferred securities currently qualify for up to 25% of the Company’s Tier I Capital, with the excess qualifying as Tier 2 Capital. On March 1, 2005, the Federal Reserve Board of Governors, which is the banking regulator for the Holding Company, approved final rules that allowed for the continued inclusion of outstanding and prospective issuances of trust preferred securities in regulatory capital, subject to new, stricter limitations, which became effective March 31, 2009 and had no impact on the Company.

The subordinated debentures of $8,248,000 are unsecured obligations of the Company and are subordinate and junior in right of payment to all present and future senior indebtedness of the Company. The Company has entered into a guarantee, which together with its obligations under the subordinated debentures and the declaration of trust governing the Trust, including its obligations to pay costs, expenses, debts and liabilities, other than trust securities, provides a full and unconditional guarantee of amounts on the capital securities. The subordinated debentures, which bear interest at the three-month LIBOR plus 3.15% (3.39585% at December 31, 2013), mature on March 26, 2033. Beginning in the second quarter of 2009, the Company began deferring interest payments on the subordinated debentures as permitted under the terms of the debentures. Interest is still being accrued and charged to operations. The Company may only defer the payment of interest for 20 consecutive quarters, or thru March, 2014, and all accrued interest must be paid at the completion of the deferral period, June 2014. As of December 31, 2013, the accrued interest payable is approximately $1.4 million.

The duration of the Trust is 30 years, with an early redemption feature at the Company’s option on a quarterly basis which commenced March 26, 2008. The Trust securities also bear interest at the three month LIBOR plus 3.15%.

Maturity of borrowings

The contractual maturities of the Company’s borrowings at December 31, 2013, by year, are as follows:


	Fixed Rate		Floating Rate		Total
2014	$	57,000,000	$	—	$	57,000,000
2015		—		—		—
2016		—		—		—
2017		—		—		—
2018		—		—		—
Thereafter		—		8,248,000		8,248,000

Total borrowings	$	57,000,000	$	8,248,000	$	65,248,000