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10. Borrowed Funds

6 Months Ended

Jun. 30, 2013

Short-term borrowings: A summary of short-term borrowings is presented below:

	Six Months Ended June 30, 2013
					Federal Funds
		Short-term			Purchased
		FHLB			and Lines
Dollars in thousands		Advances			of Credit
Balance at June 30	$	15,800		$	962
Average balance outstanding for the period		17,398			3,474
Maximum balance outstanding at
any month end during period		45,000			5,961
Weighted average interest rate for the period		0.25	%		0.25	%
Weighted average interest rate for balances
outstanding at June 30		0.25	%		0.25	%

	Year Ended December 31, 2012
					Federal Funds
		Short-term			Purchased
		FHLB			and Lines
Dollars in thousands		Advances			of Credit
Balance at December 31	$	3,000		$	958
Average balance outstanding for the year		12,291			957
Maximum balance outstanding at
any month end		20,000			958
Weighted average interest rate for the year		0.24	%		0.25	%
Weighted average interest rate for balances
outstanding at December 31		0.25	%		0.25	%

	Six Months Ended June 30, 2012
					Federal Funds
		Short-term			Purchased
		FHLB			and Lines
Dollars in thousands		Advances			of Credit
Balance at June 30	$	10,000		$	957
Average balance outstanding for the period		14,162			956
Maximum balance outstanding at
any month end during period		20,000			957
Weighted average interest rate for the period		0.22	%		0.25	%
Weighted average interest rate for balances
outstanding at June 30		0.23	%		0.25	%

Long-term borrowings: Our long-term borrowings of $163.6 million, $203.3 million and $253.6 million at June 30, 2013, December 31, 2012, and June 30, 2012 respectively, consisted primarily of advances from the Federal Home Loan Bank (“FHLB”) and structured reverse repurchase agreements with two unaffiliated institutions. 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.

					Balance at
	Balance at June 30,				December 31,
Dollars in thousands	2013		2012		2012
Long-term FHLB advances	$	82,649	$	157,609	$	122,693
Long-term reverse repurchase agreements		72,000		87,000		72,000
Term loans		8,916		9,026		8,575
Total	$	163,565	$	253,635	$	203,268

The term loans are secured by the common stock of our subsidiary bank. $5.4 million bears a variable interest rate of prime minus 50 basis points with a final maturity of 2017, and $3.5 million bears a fixed rate of 8% with a final maturity of 2023.

Our long term FHLB borrowings and reverse repurchase agreements bear both fixed and variable rates and mature in varying amounts through the year 2019.

The average interest rate paid on long-term borrowings for the six month period ended June 30, 2013 was 3.86% compared to 3.95% for the first six months of 2012.

Subordinated debentures: We have subordinated debt totaling $16.8 million at June 30, 2013, December 31, 2012, and June 30, 2012. 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 and a term of 7.5 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 $19.6 million at June 30, 2013, December 31, 2012, and June 30, 2012.

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 $3.5 million in capital securities and $109,000 in common securities and invested the proceeds in $3.61 million of debentures. SFG Capital Trust II issued $7.5 million in capital securities and $232,000 in common securities and invested the proceeds in $7.73 million of debentures. SFG Capital Trust III issued $8.0 million in capital securities and $248,000 in common securities and invested the proceeds in $8.25 million 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:

				Subordinated
				debentures owed
		Long-term	Subordinated	to unconsolidated
Dollars in thousands		borrowings	debentures	subsidiary trusts
Year Ending December 31,	2013	$ 49	$ -	$ -
	2014	82,527	-	-
	2015	1,909	10,000	-
	2016	28,911	-	-
	2017	919	-	-
	Thereafter	49,250	6,800	19,589
		$ 163,565	$ 16,800	$ 19,589

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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