Note 11. BORROWED FUNDS

The following table summarizes the components of borrowed funds at December 31, 2012 and 2011:

	December 31,
(in thousands)	2012		2011
FHLB advances	$	18,593	$	48,261
Subordinated debentures	25,000		25,000
Junior subordinated debentures	10,310		10,310
Total	$	53,903	$	83,571

The Company also utilizes short-term Federal funds purchased which represent overnight borrowings providing for the short-term funding requirements of the Bank and generally mature within one business day of the transaction. The Company did not purchase any short-term Federal funds during the year ended December 31, 2012. Federal Reserve Discount Window borrowings also represent overnight funding to meet the short-term liquidity requirements of the Bank and are fully collateralized with investment securities. The Company did not borrow any Federal Reserve Discount Window funds during the year ended December 31, 2012.

The following table presents borrowed funds by their maturity dates at December 31, 2012:

	December 31, 2012
	Amount		Weighted Average Interest Rate
Within one year	11,119		3.49	%
After one year but within two years	5,000		3.47	%
After two years but within three years	5,000		9.00	%
After three years but within four years	5,000		9.00	%
After four years but within five years	5,000		9.00	%
After five years	22,784		5.27	%
Total	$	53,903	5.78	%

The FHLB of Pittsburgh borrowings of $18.6 million are all fixed rate advances having maturities of more than 90 days. All advances are collateralized either under a blanket pledge agreement for commercial real estate loans, one-to-four family mortgage loans, or mortgage-backed securities. In addition, the Company is required to purchase FHLB stock based upon the amount of advances outstanding. The Company was in compliance with this requirement, having a stock investment in FHLB of Pittsburgh of $6.0 million at December 31, 2012. Loans of $118.9 million and $142.7 million, at December 31, 2012 and 2011, respectively, were pledged to collateralize FHLB advances.

The maximum amount of borrowings outstanding at any month end during the years ended December 31, 2012 and 2011 were $82.3 million and $127.7 million, respectively.

On December 14, 2006, First National Community Statutory Trust I (the “Trust”), a trust formed under Delaware law that is an unconsolidated subsidiary of the Company, issued $10.0 million of trust preferred securities (the “Trust Securities”) at a variable interest rate of 7.02%, with a scheduled maturity of December 15, 2036. The Company owns all of the ownership interest in the Trust. The proceeds from the issue were invested in $10.3 million, 7.02% Junior Subordinated Debentures (the “Debentures”) issued by the Company. The interest rate on the Trust Securities and the Debentures resets quarterly at a spread of 1.67% above the current 3-month Libor rate. The average interest rate paid on the Debentures was 2.18% in 2012, 2.00% in 2011, and 2.01% in 2010. The Debentures are unsecured and rank subordinate and junior in right to all indebtedness, liabilities and obligations of the Company. The Debentures represent the sole assets of the Trust. Interest on the Trust Securities is deferrable until a period of twenty consecutive quarters has elapsed. The Company has the option, subject to required regulatory approval of the Federal Reserve, to prepay the trust securities beginning December 15, 2011. The Company has, under the terms of the Debentures and the related Indenture, as well as the other operative corporate documents, agreed to irrevocably and unconditionally guarantee the Trust’s obligations under the Debentures. At December 31, 2012 and 2011, accrued and unpaid interest associated with the Debentures amounted to $491 thousand and $267 thousand, respectively.

The Company has reflected this investment on a deconsolidated basis. As a result, the Debentures totaling $10.3 million, have been reflected in Borrowed Funds in the consolidated statements of financial condition at December 31, 2012 and 2011 under the caption “Junior Subordinated Debentures”. The Company records interest expense on the Debentures in its consolidated statement of operations. The Company also records its common stock investment issued by First National Community Statutory Trust I in “Other Assets” in its consolidated statements of financial condition at December 31, 2012 and 2011.

On September 1, 2009, the Company offered only to accredited investors up to $25.0 million principal amount of unsecured Subordinated Notes Due September 1, 2019 at a fixed interest rate of 9% per annum (the “Notes”) in denominations of $100 thousand and integral multiples of $100 thousand in excess thereof. The Notes mature on September 1, 2019. For the first five years from issuance, the Company will pay interest only on the Notes. Commencing September 1, 2015, the Company is required to pay both interest and a portion of the principal calculated to return the entire principal amount of the Notes at maturity subject to deferral. Payments of interest are payable to registered holders of the Notes (the “Noteholders”) quarterly on the first of every third month, subject to deferral. Payments of principal will be payable to the Noteholders annually beginning on September 1, 2015. The principal balance outstanding for these notes was $25.0 million at both December 31, 2012 and 2011. At December 31, 2012 and 2011, accrued and unpaid interest associated with the Notes amounted to $5.3 million and $3.0 million, respectively.

Pursuant to the November 24, 2010 Written Agreement (the “Agreement”) with the Federal Reserve Bank of Philadelphia (the “Reserve Bank”), the Company and its nonbank subsidiary may not make any payment of interest, principal or other amounts on the Company’s subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Director. For more information refer to Note 17, “Regulatory Matters” to these consolidated financial statements.

The Company is currently deferring interest payments on the Company’s Debentures and Notes. The last payment made on the Debentures was the payment due on September 14, 2010 and the last payment made on the Notes was the payment due on September 1, 2010.