Borrowed Funds and Subordinated Debt

12 Months Ended

Dec. 31, 2020

Borrowed funds and subordinated debt outstanding at December 31, for the years indicated are summarized as follows:


	2020				2019				2018
(Dollars in thousands)	Amount		Average Rate		Amount		Average Rate		Amount		Average Rate
Borrowed funds	$	4,774	0.30	%	$	96,173	1.86	%	$	100,492	2.67	%


Subordinated debt	73,744		5.69	%	14,872		6.22	%	14,860		6.23	%
Total borrowed funds and subordinated debt	$	78,518	5.36	%	$	111,045	2.44	%	$	115,352	3.13	%

At December 31, 2020, 2019, and 2018, borrowed funds were comprised solely of FHLB borrowings.

The contractual maturity distribution as of December 31, 2020, of borrowed funds with the weighted average cost for each category is set forth below:


	2020				2019				2018
(Dollars in thousands)	Balance		Rate		Balance		Rate		Balance		Rate
Overnight	$	—	—	%	$	92,000	1.85	%	$	100,000	2.68	%
Within 12 months	4,316		0.33	%	3,697		2.22	%	—		—	%
Over 5 years	458		—	%	476		—	%	492		—	%

At December 31, 2020 and December 31, 2019, the FHLB borrowings, excluding overnight advances, were related to specific lending projects under the FHLB's community development program.

Maximum FHLB and other borrowings outstanding at any month end during 2020, 2019, and 2018 were $96.2 million, $96.2 million, and $100.5 million, respectively.

The following table summarizes the average balance and average cost of borrowed funds for the years indicated:


	Year ended December 31,
	2020				2019				2018
(Dollars in thousands)	Average Balance		Average Cost		Average Balance		Average Cost		Average Balance		Average Cost
FHLB advances	$	35,762	1.65	%	$	15,885	2.42	%	$	22,250	1.72	%
FRB PPPLF advances	4,703		0.35	%	—		—	%	—		—	%
Other borrowings	14		1.07	%	55		2.64	%	—		—	%
Total borrowed funds	$	40,479	1.50	%	$	15,940	2.42	%	$	22,250	1.72	%

The Company's primary borrowing source is the FHLB, however the Company may choose to borrow from other established business partners. "Other borrowings" represents overnight advances from the FRB Discount Window or federal funds purchased from correspondent banks, advanced as part of our annual test of these external funding facilities.

As a member of the FHLB, the Bank has the potential capacity to borrow an amount up to the value of its discounted qualified collateral. Borrowings from the FHLB are secured by certain securities from the Company's investment portfolio not otherwise pledged and certain residential and commercial real estate loans. At December 31, 2020, based on qualifying collateral less outstanding advances, the Bank had the capacity to borrow additional funds from the FHLB of up to approximately $500.0 million. In addition, based on qualifying collateral, the Bank had the capacity to borrow funds from the FRB Discount Window up to approximately $215.0 million at December 31, 2020. The Bank also has pre-approved borrowing arrangements with large correspondent banks to provide overnight and short-term borrowing capacity. In April 2020, the Company established access to the FRB's PPPLF, which provides funding secured by the pledge of PPP loans. Advances issued under the PPPLF are non-recourse. The amount and term of an

advance matches the amount and remaining term of the PPP loans pledged. The Bank had the ability to borrow up to approximately $453.1 million under the PPPLF at December 31, 2020, in addition to the Discount Window capacity noted above.

The Company had outstanding subordinated debt of $73.7 million, net of deferred issuance costs, at December 31, 2020, and $14.9 million at both December 31, 2019 and December 31, 2018.

On July 7, 2020, the Company issued $60.0 million of fixed-to-floating rate, 10 year subordinated notes (the "2020 Notes"). In January 2015, the Company issued $15.0 million of fixed-to-floating rate, 15 year subordinated notes ("the 2015 Notes"). The Notes are intended to qualify as Tier 2 capital for regulatory purposes

The 2015 Notes mature on January 30, 2030 (the "Maturity Date") and are currently callable by the Company at a premium, subject to regulatory approval, and at par beginning January 30, 2025. The 2015 Notes pay interest at a fixed rate of 6.00% per annum through January 30, 2025, after which floating monthly rates apply. Original debt issuance costs of $190 thousand have been netted against the subordinated debt on the consolidated balance sheet in accordance with accounting guidance. These costs are being amortized to interest expense over the life of the Notes.

The 2020 Notes mature on July 15, 2030 and are callable at the Company's option on or after July 15, 2025. The 2020 Notes pay interest at a fixed rate of 5.25% per annum through October 15, 2025, after which floating quarterly rates apply. Original debt issuance costs were $1.2 million and have been netted against the subordinated debt on the consolidated balance sheet in accordance with accounting guidance. These costs are being amortized to interest expense over the life of the Notes.

See also Note 17, "Fair Value Measurements," to the Company's consolidated financial statements of this Form 10-K, contained below, for further information regarding the Company's fair value measurements for borrowed funds and subordinated debt.

See Note 2, "Investment Securities," and Note 3, "Loans," to the Company's consolidated financial statements of this Form 10-K, contained above, for further information regarding securities and loans pledged for borrowed funds. Refer to the "Borrowed Funds" and "Liquidity" sections in the "Financial Condition" section in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operation," of this Form 10-K for additional information about other sources of funding available to the Company.