BORROWINGS

Federal Home Loan Bank Borrowings

Advances payable to the Federal Home Loan Bank are summarized as follows:



	2013				2012
			Weighted				Weighted
			Average				Average
	Total		Contractual		Total		Contractual
	Outstanding		Rate		Outstanding		Rate
	(Dollars in thousands)
Stated Maturity
2013	$	—	—	%	$	163,245	0.60	%
2014	105,027		0.55	%	10,431		4.11	%
2015	3,074		5.81	%	8,372		3.54	%
2016	—		—	%	—		—	%
2017	31,290		4.02	%	83,145		3.79	%
2018	—		—	%	5,446		2.07	%
Subtotal	$	139,391	1.44	%	$	270,639	1.84	%
Amortizing advances	903				930
Total Federal Home Loan Bank Advances	$	140,294			$	271,569

To manage the interest rate risk of these advances, the Company has entered into interest rate swaps, effectively converting $100.0 million and $150.0 million of the FHLB advances to fixed interest rates at December 31, 2013 and 2012, respectively. These swaps carried a weighted average interest rate of 2.68% and 2.66% at December 31, 2013 and 2012, respectively, and have various maturity dates ranging from December 2014 through December 2018.

During 2013 the Company prepaid $60.0 million of these advances assumed as part of the Central acquisition. The difference between the exit price and the net carrying amount of the debt resulted in a gain on extinguishment of debt of $763,000.

The Company’s FHLB advances are collateralized by a blanket pledge agreement on the Bank’s FHLB stock, certain qualified investment securities, deposits at the Federal Home Loan Bank, and by residential mortgages, and certain commercial real estate loans held in the Bank’s portfolio. The Bank’s unused remaining available borrowing capacity at the Federal Home Loan Bank was approximately $668.1 million and $661.9 million at December 31, 2013 and 2012, respectively, inclusive of a $5.0 million line of credit. At December 31, 2013 and 2012, the Company was in compliance with the FHLB collateral requirements.

Short-Term Debt

The following table summarizes short-term borrowings:

The Company’s short-term borrowings consisted of the following as of the periods indicated:



	December 31
	2013		2012
	(Dollars in thousands)
Customer repurchase agreements	$	149,288	$	153,359
Line of credit advances	5,000		12,000
Total short-term borrowings	$	154,288	$	165,359

The interest expense on short-term borrowings was $276,000, $363,000, and $536,000 as of December 31, 2013, 2012, and 2011, respectively.

Customer Repurchase Agreements. In a security repurchase agreement with the Bank’s customers, the Bank will generally sell a security, agreeing to repurchase either the same or substantially the same security on a specified later date, at a price greater than the original sales price. The securities underlying these agreements with customers are held in segregated safekeeping accounts by the Bank’s safekeeping agents, to minimize the potential risk that the borrower may not return the security underlying the agreements. The Customer repurchase agreements are primarily collateralized by U.S. Government agency mortgage-backed securities. The amount of investments pledged against customer repurchase agreements was $169.0 million and $172.4 million at December 31, 2013 and 2012, respectively.

Line of Credit Borrowings. The revolving line of credit, which is an obligation of the parent company, accrues interest at an adjusted LIBOR rate. The line of credit provides for borrowings of up to $10.0 million (reduced from $20.0 million with a 2013 amendment) and matures on November 8, 2014. The amounts outstanding at December 31, 2013 and 2012 are shown in the table above.

The table below sets forth additional information on certain short-term borrowing categories as of and for the periods indicated:



	2013				2012				2011
			Weighted				Weighted				Weighted
			Average				Average				Average
			Interest				Interest				Interest
	Amount		Rate		Amount		Rate		Amount		Rate
Customer Repurchase Agreements	(Dollars in thousands)
Balance outstanding at end of year	$	149,288	0.13	%	$	153,359	0.13	%	$	166,128	0.32	%
Average daily balance outstanding	147,195		0.13	%	160,589		0.20	%	143,902		0.37	%
Maximum balance outstanding at any month end	164,180		N/A		178,171		N/A		167,093		N/A

Long-Term Debt

The following table summarizes long-term debt as of the periods indicated:



	December 31
	2013		2012
	(Dollars in thousands)
Wholesale repurchase agreements	$	50,000	$	50,000
Junior subordinated debentures
Capital Trust V	51,547		51,547
Slades Ferry Trust I	10,310		10,310
Central Trust I	5,258		5,258
Central Trust II	6,791		7,012
Subordinated debentures	30,000		30,000
Total long-term debt	$	153,906	$	154,127

The interest expense on long-term debt was $7.0 million, $7.1 million, and $7.6 million as of December 31, 2013, 2012, and 2011, respectively.

Wholesale Repurchase Agreements: In a wholesale security repurchase agreement with established firms, the Bank will generally sell a security, agreeing to repurchase either the same or substantially the same security on a specified later date, at a price greater than the original sales price. The securities underlying these agreements with these counterparties are primarily collateralized by U.S. Government agency mortgage-backed securities, which are delivered to broker/dealers. The amount of investments pledged against wholesale repurchase agreements was $50.1 million and $49.7 million at December 31, 2013 and 2012, respectively. At December 31, 2013, there is one outstanding wholesale repurchase agreement with a maturity date of August 23, 2015.

Junior Subordinated Debentures: The junior subordinated debentures are issued to various trust subsidiaries of the Company. These trusts are considered to be variable interest entities for which the Company is not the primary beneficiary, and therefore the accounts of the trusts are not included in the Company’s consolidated financial statements. These trusts were formed for the purpose of issuing trust preferred securities, which were then sold in a private placement offering. The proceeds from the sale of the securities and the issuance of common stock by these trusts were invested in these Junior Subordinated Debentures issued by the Company.

For regulatory purposes, bank holding companies are allowed to include trust preferred securities in Tier 1 capital up to a certain limit. Provisions in the Dodd-Frank Act generally exclude trust preferred securities from Tier 1 capital, but a grandfather provision will permit bank holding companies with consolidated assets of less than $15 billion, such as the Company, to continue to include these instruments in Tier 1 capital, but no such securities issued in the future will count as Tier 1 capital.

Information relating to these trust preferred securities are as follows:



Trust		Description of Capital Securities
Capital Trust V		$50.0 million due in 2037, interest at a variable rate (LIBOR plus 1.48%), which has been effectively converted to a fixed rate of 6.52% until December 28, 2016, through the use of an interest rate swap. These securities are callable quarterly, until maturity.

Slades Ferry Trust I		$10.0 million due in 2034, bearing interest at a variable rate (LIBOR plus 2.79%). These securities callable quarterly, until maturity.

Central Trust I		$5.1 million due in 2034, bearing interest at a variable rate (LIBOR plus 2.44%). These securities are callable quarterly, until maturity.

Central Trust II		$5.9 million due in 2037, bearing a fixed interest rate 7.015% until March 15, 2017. Subsequent to this date, the interest will be variable (LIBOR plus 1.65%) and the securities will become callable quarterly, until maturity.

All obligations under these trust preferred securities are unconditionally guaranteed by the Company.

Subordinated Debentures: The subordinated debentures were issued to USB Capital Resources, Inc., a wholly-owned subsidiary of U.S. Bank National Association. The subordinated debt matures on October 1, 2019, however with regulatory approval, the Bank may redeem the subordinated debt without penalty at any time on or after October 1, 2014. The interest rate was fixed at 7.02% through August of 2013, and is now a floating rate of LIBOR plus 3.00%.

The following table sets forth the contractual maturities of long-term debt over the next five years:



	2014		2015		2016		2017		2018		Thereafter		Total
	(Dollars in thousands)
Wholesale repurchase agreements	$	—	$	50,000	$	—	$	—	$	—	$	—	$	50,000
Junior subordinated debentures
Capital trust V	—		—		—		—		—		51,547		51,547
Slades ferry trust I	—		—		—		—		—		10,310		10,310
Central trust I	—		—		—		—		—		5,258		5,258
Central trust II	—		—		—		—		—		6,791		6,791
Subordinated debentures	—		—		—		—		—		30,000		30,000