NOTE 11. BORROWED FUNDS

Our subsidiary bank is a member of the Federal Home Loan Bank ("FHLB"). Membership in the FHLB makes available short-term and long-term advances under collateralized borrowing arrangements with each subsidiary bank. All FHLB advances are collateralized primarily by similar amounts of residential mortgage loans, certain commercial loans, mortgage backed securities and securities of U. S.

Government agencies and corporations. We had $90 million available on a short term line of credit with the Federal Reserve Bank at December 31, 2011, which is primarily secured by commercial and industrial loans and consumer loans.

At December 31, 2011, our subsidiary banks had combined additional borrowings availability of $137,084,000 from the FHLB. Short-term FHLB advances are granted for terms of 1 to 365 days and bear interest at a fixed or variable rate set at the time of the funding request.

Short-term borrowings: At December 31, 2011, we had $90,135,000 borrowing availability through credit lines and Federal funds purchased agreements. A summary of short-term borrowings is presented below.


					2011
								Federal Funds
		Short-term			Short-term			Purchased
		FHLB			Repurchase			and Lines
Dollars in thousands		Advances			Agreements			of Credit
Balance at December 31	$	15,000		$	-		$	956
Average balance outstanding
for the year		2,753			531			954
Maximum balance outstanding
at any month end		15,000			1,233			956
Weighted average interest
rate for the year		0.17	%		0.15	%		0.25	%
Weighted average interest
rate for balances
outstanding at December 31		0.15	%		0.00	%		0.25	%



					2010
								Federal Funds
		Short-term			Short-term			Purchased
		FHLB			Repurchase			and Lines
Dollars in thousands		Advances			Agreements			of Credit
Balance at December 31	$	-		$	629		$	953
Average balance outstanding
for the year		13,724			1,084			1,364
Maximum balance outstanding
at any month end		45,000			1,787			3,617
Weighted average interest
rate for the year		0.42	%		0.34	%		1.39	%
Weighted average interest
rate for balances
outstanding at December 31		0.00	%		0.15	%		0.25	%

Federal funds purchased and repurchase agreements mature the next business day. The securities underlying the repurchase agreements are under our control and secure the total outstanding daily balances. We generally account for securities sold under agreements to repurchase as collateralized financing transactions and record them at the amounts at which the securities were sold, plus accrued interest. Securities, generally U.S. government and Federal agency securities, pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party. The fair value of collateral provided is continually monitored and additional collateral is provided as needed.

Long-term borrowings: Our long-term borrowings of $270,254,000 and $304,109,000 as of December 31, 2011 and 2010, respectively, consisted primarily of advances from the FHLB and structured reverse repurchase agreements with two unaffiliated institutions.


		Balance at December 31,
Dollars in thousands		2011		2010
Long-term FHLB advances	$	160,325	$	182,375
Long-term reverse repurchase agreements		100,000		110,000
Term loan		9,929		11,734
Total	$	270,254	$	304,109

The term loan represents a long-term borrowing with an unaffiliated banking institution which is secured by the common stock of our subsidiary bank, bears a variable interest rate of prime minus 50 basis points, and matures in 2017.

Long-term borrowings bear both fixed and variable interest rates and mature in varying amounts through the year 2019. The average interest rate paid on long-term borrowings during 2011 and 2010 approximated 4.08% and 5.53%, respectively.

Subordinated debentures: We have subordinated debt totaling $16.8 million at December 31, 2011 and 2010. The subordinated debt qualifies as Tier 2 capital under Federal Reserve Board guidelines, until the debt is within 5 years of its maturity; thereafter the amount qualifying as Tier 2 capital is reduced by 20 percent each year until maturity. During 2009, we issued $6.8 million in subordinated debt, of which $5 million was issued to an affiliate of a director of Summit. We also issued $1.0 million and $0.8 million to two unrelated parties. These three issuances bear an interest rate of 10 percent per annum, a term of 10 years, and are not prepayable by us within the first five years. During 2008, we issued $10 million of subordinated debt to an unrelated institution, which bears a variable interest rate of 1 month LIBOR plus 275 basis points, a term of 7.5 years, and is not prepayable by us within the first two and one half years.

Subordinated debentures owed to unconsolidated subsidiary trusts: We have three statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the "capital securities") for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the "debentures"). The debentures held by the trusts are their sole assets. Our subordinated debentures totaled $19,589,000 at December 31, 2011 and 2010.

In October 2002, we sponsored SFG Capital Trust I, in March 2004, we sponsored SFG Capital Trust II, and in December 2005, we sponsored SFG Capital Trust III, of which 100% of the common equity of each trust is owned by us. SFG Capital Trust I issued $3,500,000 in capital securities and $109,000 in common securities and invested the proceeds in $3,609,000 of debentures. SFG Capital Trust II issued $7,500,000 in capital securities and $232,000 in common securities and invested the proceeds in $7,732,000 of debentures. SFG Capital Trust III issued $8,000,000 in capital securities and $248,000 in common securities and invested the proceeds in $8,248,000 of debentures. Distributions on the capital securities issued by the trusts are payable quarterly at a variable interest rate equal to 3 month LIBOR plus 345 basis points for SFG Capital Trust I, 3 month LIBOR plus 280 basis points for SFG Capital Trust II, and 3 month LIBOR plus 145 basis points for SFG Capital Trust III, and equals the interest rate earned on the debentures held by the trusts, and is recorded as interest expense by us. The capital securities are subject to mandatory redemption in whole or in part, upon repayment of the debentures. We have entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of the guarantee. The debentures of each Capital Trust are redeemable by us quarterly.

The capital securities held by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under Federal Reserve Board guidelines. In accordance with these Guidelines, trust preferred securities generally are limited to 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.

A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows:


Dollars in thousands		Amount
2012	$	67,437
2013		41,898
2014		83,429
2015		11,909
2016		1,911
Thereafter		100,059
Total	$	306,643