BORROWINGS

Federal Home Loan Bank Borrowings

Advances payable to the Federal Home Loan Bank as of December 31 are summarized as follows:



	2017				2016
			Weighted				Weighted
			Average				Average
	Total		Contractual		Total		Contractual
	Outstanding		Rate		Outstanding		Rate
	(Dollars in thousands)
Stated Maturity
2017	$	—	—	%	$	50,000	2.43	%
2018	52,475		1.58	%	—		—	%
Subtotal	52,475		1.58	%	50,000		2.43	%
Amortizing advances	789				819
Total Federal Home Loan Bank Advances	$	53,264			$	50,819

To manage the interest rate risk of these advances, the Company may enter into interest rate swap agreements which effectively fix the rate of the borrowing. Inclusive of the impact of these swap arrangements, the weighted average rate of the FHLB borrowings was 2.47% and 3.42% at December 31, 2017 and 2016, respectively.

During 2016, exclusive of the impact from the NEB acquisition, the Company repaid $49.0 million of FHLB borrowings prior to the maturity date of the borrowings. This prepayment resulted in a loss on extinguishment of debt of $437,000. The Company also repaid $13.0 million of FHLB borrowings in 2015, resulting in a loss on extinguishment of debt of $122,000. There were no prepayments made during 2017.

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 FHLB, and by residential mortgages, and certain commercial real estate loans held in the Bank’s portfolio. The carrying value of the loans pledged as collateral for these borrowings totaled $1.5 billion and $1.4 billion at December 31, 2017 and 2016, respectively. The Bank’s unused remaining available borrowing capacity at the FHLB was approximately $954.8 million and $793.1 million at December 31, 2017 and 2016, respectively, inclusive of a $5.0 million line of credit. At December 31, 2017 and 2016, the Company had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB's collateral pledging program.

Short-Term Debt

The Company’s short-term borrowings consist of customer repurchase agreements, and amounted to $162.7 million and $176.9 million at December 31, 2017 and 2016, respectively.

The interest expense on short-term borrowings was $257,000, $208,000, and $210,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

Customer Repurchase Agreements. The Company can raise additional liquidity by entering into repurchase agreements at its discretion. These repurchases are accounted for as a secured borrowing transaction for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement the Company is subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, the Company enters into repurchase agreements that stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by the Company's safekeeping agents.

The table below sets forth the remaining contractual maturity of the Company’s repurchase agreements allocated by source of collateral at the dates indicated:



	December 31
	2017		2016
	(Dollars in thousands)
Sources of Collateral
U.S. government agency securities	$	16,867	$	20,233
Agency mortgage-backed securities	51,273		79,079
Agency collateralized mortgage obligations	94,539		77,601
Total customer repurchase agreements (1)	$	162,679	$	176,913

(1) All customer repurchase agreements have an overnight and continuous maturity date.

For further information regarding the Company's repurchase agreements see Note 12, Balance Sheet Offsetting.

Long-Term Debt

The following table summarizes long-term debt, net of debt issuances costs, as of the periods indicated:



	December 31
	2017		2016
	(Dollars in thousands)
Junior subordinated debentures
Capital Trust V	$	51,503	$	51,500
Slades Ferry Trust I	10,229		10,224
Central Trust I	5,258		5,302
Central Trust II	6,083		6,081
Subordinated debentures	34,682		34,635
Total long-term debt	$	107,755	$	107,742

The interest expense on long-term debt was $4.0 million, $5.8 million, and $6.6 million for the years ended December 31, 2017, 2016, and 2015, respectively.

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, however, holding companies with consolidated assets of less than $15 billion, such as the Company, are able 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 of 3 month LIBOR plus 1.48% (3.07% at December 31, 2017),which, effective on January 17, 2017, has been converted to a fixed rate of 2.84% through the use of an interest rate swap. Prior to 2017, this borrowing had been converted to a fixed rate of 6.52%, through the use of an interest rate swap which expired on December 28, 2016. These securities are callable quarterly, until maturity.
Slades Ferry Trust I	$10.0 million due in 2034, bearing interest at a variable rate of 3 month LIBOR plus 2.79% (4.39% at December 31, 2017). These securities are callable quarterly, until maturity.
Central Trust I	$5.1 million due in 2034, bearing interest at a variable rate of 3 month LIBOR plus 2.44% (4.03% at December 31, 2017). These securities are callable quarterly, until maturity.
Central Trust II	$5.9 million due in 2037, bearing interest at a variable rate of 3 month LIBOR plus 1.65% (3.24% at December 31, 2017), beginning in March of 2017. Previously, the interest was at a fixed rate of 7.015%. These securities are callable quarterly, until maturity.

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

Subordinated Debentures: At December 31, 2017 and 2016 there was $35.0 million of outstanding principal amount subordinated debentures at the bank holding company. The subordinated debentures were issued to several investors via private placement on November 17, 2014. The subordinated debt matures on November 15, 2024, however with regulatory approval, the Bank may redeem the subordinated debt without penalty at any scheduled payment date on or after November 15, 2019 with 30 days notice. The interest rate is fixed at 4.75% through November 15, 2019, after which it converts to LIBOR plus 2.98%.

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



	2018		2019		2020		2021		2022		Thereafter		Total
	(Dollars in thousands)
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	—		—		—		—		—		6,083		6,083
Subordinated debentures	—		—		—		—		—		35,000		35,000
Total	$	—	$	—	$	—	$	—	$	—	$	108,198	$	108,198