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Borrowings

3 Months Ended

Mar. 31, 2023

BORROWINGS

Short-Term Borrowings

Short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, and short-term FHLB advances with original maturities of one year or less.

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Federal funds purchased, which represent unsecured lines of credit that generally mature within one to four days, are available to the Bank through arrangements with correspondent banks and the Federal Reserve. As of both March 31, 2023 and December 31, 2022, there were no federal funds purchased outstanding.

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Securities sold under repurchase agreements, which are secured borrowings, generally are reflected at the amount of cash received in connection with the transaction. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. The Bank monitors the fair value of the underlying securities on a daily basis. There were no securities sold under repurchase agreements as of March 31, 2023. As of December 31, 2022, securities sold under repurchase agreements totaled $38 thousand.

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Short-term FHLB advances are secured borrowings available to the Bank as an alternative funding source. As of March 31, 2023 and December 31, 2022, the Bank had $25.0 million and $20.0 million, respectively, in outstanding FHLB advances with original maturities of less than one year.

Long-Term Borrowings

FHLB Advances

The Company may use FHLB advances with original maturities of more than one year as an alternative to funding sources with similar maturities, such as certificates of deposit or other deposit programs. These advances generally offer more attractive rates than other mid-term financing options. They are also flexible, allowing the Company to quickly obtain the necessary maturities and rates that best suit its overall asset/liability strategy. FHLB advances with an original maturity of more than one year are classified as long-term. As of both March 31, 2023 and December 31, 2022, the Company did not have any long-term FHLB advances outstanding.

Subordinated Debt

On October 1, 2021, the Company completed a private placement of $11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031 (the “Notes”). The Notes bear interest at a rate of 3.50% per annum for the first five years, after which the interest rate will be reset quarterly to a benchmark interest rate per annum which, subject to certain conditions provided in the Notes, will be equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”) plus 275 basis points. The Company used the net proceeds for general corporate purposes, including repurchasing of the Company’s common stock, and supporting organic growth plans, including the maintenance of capital ratios. As of both March 31, 2023 and March 31, 2022, the Notes were recorded as long-term borrowings totaling $10.7 million, net of unamortized debt issuance costs. The table below provides additional information related to the Notes as of and for the three months ended March 31, 2023 and 2022.


	March 31,			March 31,
	2023			2022
	(Dollars in Thousands)
Balance at period-end	$	10,744		$	10,671
Average balance during the period	$	10,738		$	10,655
Maximum month-end balance during the year	$	10,744		$	10,671
Average rate paid during the period, including amortization of debt issuance costs		4.20	%		4.20	%
Weighted average remaining maturity (in years)		8.50			9.50

Available Credit

As an additional funding source, the Company has available unused lines of credit with correspondent banks, the Federal Reserve and the FHLB. Certain of these funding sources are subject to underlying collateral. As of March 31, 2023 and December 31, 2022, the Company’s available unused lines of credit consisted of the following:


Available Unused Lines of Credit	Collateral Requirements	March 31, 2023	December 31, 2022
Correspondent banks	None	$28.0 million	$45.0 million
FHLB advances (1)	Subject to collateral	$243.4 million	$246.8 million
Federal Reserve	Subject to collateral	(2)	(2)

(1)

These amounts represent the total remaining credit the Company has from the FHLB, but this credit can only be utilized to the extent that underlying collateral exists. The total lendable collateral value of assets pledged (including loans and investment securities) associated with FHLB advances and letters of credit totaled $74.2 million and $68.2 million as of March 31, 2023 and December 31, 2022, respectively. The Company’s collateral exposure with the FHLB in the form of advances and letters of credit was $55.0 million and $50.0 million as of March 31, 2023 and December 31, 2022, respectively, leaving an excess of collateral of $19.2 million and $18.2 million, respectively, available to utilize for additional credit as of the respective dates. The Company also has the ability to pledge additional assets to increase the availability of borrowings.

(2)

The Company has access to the Federal Reserve’s discount window and its Bank Term Funding Program (BTFP), the latter of which was established during the three months ended March 31, 2023 in response to the liquidity events that have occurred in the banking industry. Both the discount window and the BTFP allow borrowing on pledged collateral that includes eligible investment securities and, in certain circumstances, eligible loans. The discount window allows borrowing under 90-day terms, while borrowing terms under the BTFP are up to one year. The BTFP also allows investment securities to be pledged as collateral at 100% of par value when par value is greater than fair value.