BORROWED FUNDS

Short-term borrowings at December 31, 2011 and 2010 are presented in the following tables. Borrowings from the Federal Reserve are payable on demand and are collateralized by state, county and municipal securities (refer to Note 2). Interest under this arrangement is payable at 50 basis points above the target federal funds rate as quoted by the Federal Reserve Board. Unused lines of credit from various correspondent banks totaled $48.1 million at December 31, 2011.



Short-Term Borrowings Excluding Federal Home Loan Bank ("FHLB") Advances
	Balance at year end		Weight average interest rate at year end		Maximum amount outstanding at any month-end		Average Daily balance outstanding during year		Average annual interest rate paid
December 31, 2011
Overnight borrowings from the Federal Reserve Bank	$	945,844	—	%	1,135,139		1,003,514		—
Securities sold under agreement to repurchase	37,864,098		0.84	%	47,868,704		38,175,000		0.76	%
Federal funds purchased	—		—	%	—		5,069		0.92	%
Total short-term borrowings excluding FHLB advances	$	38,809,942

December 31, 2010
Overnight borrowings from the Federal Reserve Bank	$	1,014,734	—	%	$	1,684,024	$	1,158,653	—	%
Securities sold under agreement to repurchase	36,934,414		0.88	%	46,801,365		41,775,432		0.93	%
Federal funds purchased	—		—	%	—		2,700		0.84	%
Total short-term borrowings excluding FHLB advances	$	37,949,148

The principal balance of short term advances from the FHLB consist of the following at December 31, 2011 and 2010:



Maturity	Interest Rate		2011		2010
2/28/2011	5.37	%	$	—	$	2,000,000
5/2/2011	1.72	%	—		5,000,000
7/16/2012	3.90	%	1,000,000
			$	1,000,000	$	7,000,000

Long-term Borrowings

Long-term borrowings at December 31, 2011 consisted of junior subordinated debentures of $36,084,000 with an average annual interest rate of 2.04% and an average daily balance of $36,084,000. The long-term FHLB advances are presented below. Also, included in long-term borrowings is a structured wholesale repurchase agreement with a balance of $5,000,000 at year end, an average daily balance of $5,000,000, an average interest rate of 2.64%, and a year-end interest rate of 2.27%. Also included in long-term borrowings is the fair market value adjustment associated with the borrowings acquired in the American Community acquisition of $(1,335,865) at December 31, 2011. Long-term borrowings at December 31, 2010 consisted of junior subordinated debentures of $36,084,000 with an average annual interest rate of 2.11% and an average daily balance of $36,084,000. The long-term FHLB advances are presented below. Also, included in long-term borrowings is a structured wholesale repurchase agreement with a balance of $5,000,000 at year end, an average daily balance of $4,999,943, an average interest rate of 2.64%, and a year-end interest rate of 2.60%. Also included in long-term borrowings is the fair market value adjustment associated with the borrowings acquired in the American Community acquisition of $(1,278,804) at December 31, 2010.

Pursuant to a collateral agreement with the FHLB, advances are collateralized by all of the Bank's FHLB stock and qualifying first mortgage, commercial, and home equity line loans. The balance of the lendable collateral value of all loans as of December 31, 2011 was approximately $49.8 million with $22.8 million remaining available. This agreement with the FHLB provides for a line of credit up to 20% of the Bank's assets.

The following table presents long-term advances from the FHLB at December 31, 2011 and 2010:



Maturity	Interest Rate		2011		2010
7/16/2012	3.9	%	—		1,000,000
1/10/2013	3.1	%	—		10,000,000
2/25/2013	3.45	%	—		5,000,000
7/21/2014	2.31	%	10,000,000		—
7/21/2014	2.62	%	5,000,000		—
1/11/2015	2.99	%	5,000,000		5,000,000
4/27/2015	2.97	%	5,000,000		5,000,000
2/28/2018	2.93	%	—		5,000,000
10/29/2018	0.25	%	719,690		736,159
12/19/2023	2	%	260,952		277,424
			$	25,980,642	$	32,013,583

FHLB advances, both short and long-term, had average annual interest rate paid during the year of 2.27% and 2.60% for 2011 and 2010, respectively. The weighted average interest rate at December 31, 2011 and 2010 was 2.62% and 2.99%, respectively. Maximum amount of FHLB advances outstanding at any month-end during the years 2011 and 2010 was $39,010,883 and $39,042,749 respectively.

On November 1, 2007, the Company created Yadkin Valley Statutory Trust I (“the Trust”) to issue trust preferred securities in conjunction with the Company issuing junior subordinated debentures to the Trust. The terms of the junior subordinated debentures are substantially the same as the terms of the trust preferred securities. The interest rate in effect is the three-month LIBOR plus 1.32%. The effective interest rate was 1.87% and 1.62% at December 31, 2011 and 2010, respectively. The Company’s obligations under the debentures and a separate guarantee agreement constitute a full and unconditional guarantee by the Company of the obligations of the Trust.

On November 1, 2007, the Trust completed the sale of $25.0 million of trust preferred securities. The trust preferred securities mature in 30 years and can be called by the Trust without penalty after five years. The Trust used the proceeds from the sale of the securities to purchase the Company’s junior subordinated deferrable interest notes due 2037 (the “Debenture”). The net proceeds from the offering were used by the Company in connection with the acquisition of Cardinal, and for general corporate purposes. Currently, regulatory capital rules allow trust preferred securities to be included as a component of regulatory capital for the Company up to certain limits. This treatment has continued despite the deconsolidation of these instruments for financial reporting purposes.

The Company assumed junior subordinated debt in the amount of $10.0 million in the American Community acquisition. American Community had a trust that issued trust preferred securities which pay cumulative cash distributions quarterly at a rate priced off 90-day LIBOR plus 280 basis points. The interest rate at December 31, 2011 and December 31, 2010 was 3.38% and 3.09%, respectively. The preferred securities are redeemable on December 15, 2033. The Company’s obligations under the debentures and a separate guarantee agreement constitute a full and unconditional guarantee by the Company of the obligations of the Trust.

The Company deferred interest payments on the trust preferred securities in the second, third and fourth quarters of 2011. The total amount of deferred interest payments as of December 31, 2011 was $571,000 and is recorded in other liabilities. The Company also may be required to defer interest payments on the trust preferred securities in the future given liquidity levels at the holding company.

Under the accounting for variable interest entities, the Company’s $774,000 and $310,000 investment in the common equity of the Trusts are included in the consolidated balance sheets as other assets and funded by long-term debt. The income and interest expense received from and paid to the Trust, respectively, is included in the consolidated statements of income (loss) and comprehensive income (loss) as other noninterest income and interest expense.