Borrowed Funds and Trust Preferred Securities

Borrowed Funds

The following table presents federal funds purchased, securities sold under agreements to repurchase and the components of our borrowed funds which consist of FHLB advances, long-term subordinated debt, and fixed and variable junior subordinated debentures:



	As of December 31,
	2013		2012
Federal funds purchased and securities sold under agreements to repurchase	$	851,535	$	1,104,525
Borrowed Funds
FHLB advances	$	200,323	$	136,546
Subordinate debentures	249,928		—
Fixed and variable junior subordinate deferral debentures	74,500		—
Other	277		337
Total borrowed funds	$	525,028	$	136,883

Securities sold under agreements to repurchase are secured by securities with a carrying value of $1.0 billion and $723.0 million at December 31, 2013 and 2012, respectively. Securities sold under agreements to repurchase have an overnight maturity at December 31, 2013. Selected financial statement information pertaining to the securities sold under agreements to repurchase is as follows:



	As of December 31,
	2013			2012			2011
Federal funds purchased and securities sold under agreements to repurchase
Average balance during the year	$	949,068		$	949,756		$	925,803
Weighted-average annual interest rate during the year	0.13		%	0.12		%	0.36		%
Maximum month-end balance	$	1,123,795		$	1,104,525		$	1,014,720

FHLB advances were secured by a lien on residential and other real estate-related loans totaling $2.4 billion at December 31, 2013 and $1.2 billion at December 31, 2012. The FHLB advances have interest rates that range from 1.54% to 4.12% as of December 31, 2013.

The Corporation issued subordinated notes as part of a public offering on February 4, 2013 in conjunction with the Citizens merger. The offering consisted of $250 million aggregate principal amount of subordinated notes due February 4, 2023 bearing interest at an annual rate of 4.35% payable semi-annually in arrears on February 4 and August 4 of each year.

Selected financial statement information pertaining to the Corporation's borrowed funds is as follows:



	As of December 31,
	2013			2012			2011
Borrowed funds
Average balance during the year	$	474,473		$	175,989		$	298,835
Weighted-average annual interest rate during the year	3.62		%	2.51		%	2.11		%
Maximum month-end balance	$	527,155		$	178,489		$	327,997

The following table illustrates the contractual maturities of the Corporation's borrowed funds at December 31, 2013:



	One Year		One to		Three to		Over Five
	or Less		Three Years		Five Years		Years		Total
Borrowed funds
FHLB advances	$	39,883	$	143,470	$	211	$	16,759	$	200,323
Subordinate debentures	—		—		—		249,928		249,928
Fixed and variable junior subordinate deferral debentures	—		—		—		74,500		74,500
Other	63		138		76		—		277
Total borrowed funds	$	39,946	$	143,608	$	287	$	341,187	$	525,028

Trust Preferred Securities

As part of the merger with Citizens, the Corporation now has two active wholly owned trusts formed for the purpose of issuing securities which qualify as regulatory capital. Each of the two active trusts has issued separate offerings of trust preferred securities to investors in 2006 and 2003. The gross proceeds from the issuances were used to purchase junior subordinated deferrable interest debentures issued by Citizens, now assumed by the Corporation, which is the sole asset of each trust. The trust preferred securities of the 2003 special purpose trust are callable at par and must be redeemed in thirty years after issuance while the securities of the 2006 enhanced trust became callable on September 15, 2011 and mature on September 15, 2066. The 2006 enhanced trust preferred securities are listed on the New York Stock Exchange (NYSE symbol CTZ-PrA). The trust preferred securities held by these entities qualify as Tier 1 capital and are classified as long-term debt. In the event of certain changes or amendments to regulatory requirements or federal tax rules, the capital securities are redeemable in whole. In accordance with GAAP, the financial statements of the Trusts are not included in the Corporation's consolidated financial statements. In conjunction with these trusts, the Corporation assumed variable rate junior subordinated deferrable debentures due June 2033 in an amount approximating $25.7 million, associated with the trust preferred securities held by this trust. This debenture bears interest at an annual rate equal to three-month LIBOR plus 3.10%, payable quarterly. Interest is adjusted on a quarterly basis not to exceed 11.75%. This debenture is an unsecured obligation of the Corporation and is junior in right of payment to all future senior indebtedness of the Corporation. The Corporation has guaranteed that interest payments on this debenture made to the trust that will be distributed by the trust to the holders of the trust preferred securities. The trust preferred securities of the special purpose trust are currently callable, at par, and must be redeemed thirty years after issuance. The Corporation additionally assumed 7.50% junior subordinated debentures due September 2066 in an amount approximating $48.7 million (NYSE symbol CTZ-PrA). On October 3, 2006, Citizens Funding Trust I completed a public offering whereby the gross proceeds from the issuance were used to purchase a junior subordinated deferrable interest debenture issued by Citizens, now assumed by the Corporation. This debenture ranks junior to the Corporations outstanding debt, including the other outstanding junior subordinated debentures. The securities of the 2006 enhanced trust became callable on September 15, 2011 and matures on September 15, 2066.

The Dodd-Frank Act changes the regulatory capital standards that apply to BHCs by requiring the phase-out of the treatment of trust preferred securities and cumulative preferred securities as Tier 1 eligible capital. The three-year phase-out period, commenced January 1, 2013 and will ultimately require us to treat our mandatorily redeemable trust preferred securities as Tier 2 capital. Additionally, U.S. capital rules finalized in July 2013 will require phasing TruPs from Tier 1 to Tier 2 capital consistent with the Dodd-Frank Act's implementation of Basel III. A more thorough discussion of current rulemaking regarding the implementation of U.S. Basel III is in the “Supervision and Regulation” section of this report.