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 $101.0 million available on a short term line of credit with the Federal Reserve Bank at December 31, 2016, which is primarily secured by commercial and industrial loans and consumer loans. We also had $6 million available on an unsecured line of credit with a correspondent bank.

At December 31, 2016, our subsidiary banks had combined additional borrowings availability of $342.6 million 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, 2016, we had $107.0 million borrowing availability through credit lines and Federal funds purchased agreements. Federal funds purchased mature the next business day. A summary of short-term borrowings is presented below.



	2016						2015
Dollars in thousands	Short-term FHLB Advances			Federal Funds Purchased			Short-term FHLB Advances			Federal Funds Purchased
Balance at December 31	$	221,000		$	3,461		$	167,950		$	3,444
Average balance outstanding for the period	187,420			3,456			146,412			4,690
Maximum balance outstanding at any month end during period	231,200			3,462			171,160			7,438
Weighted average interest rate for the period	0.79		%	0.75		%	0.43		%	0.50		%
Weighted average interest rate for balances
outstanding at December 31	0.60		%	0.51		%	0.35		%	0.26		%

Long-term borrowings: Our long-term borrowings of $46.7 million and $75.6 million at December 31, 2016 and 2015, respectively, consisted primarily of advances from the FHLB and structured repurchase agreements with 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 December 31,
Dollars in thousands	2016		2015
Long-term FHLB advances	$	767	$	873
Long-term repurchase agreements	45,000		72,000
Term loan	903		2,708
Total	$	46,670	$	75,581

The average interest rate paid on long-term borrowings during 2016 was 4.44% compared to 4.39% in 2015.

The term loan at December 31, 2016 is secured by the common stock of our subsidiary bank, bears a variable interest rate of prime minus 50 basis points with a final maturity of 2017. Our long term FHLB borrowings and reverse repurchase agreements bear both fixed and variable rates and mature in varying amounts through the year 2026. The long-term repurchase agreements mature in 2018.

The securities underlying the repurchase agreements are under our control and secure the total outstanding 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. At December 31, 2016, residential mortgage-backed securities issued by government sponsored agencies with a fair value of $48.0 million were pledged as collateral for the long-term repurchase agreements.

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 December 31, 2016 and 2015.

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:



Dollars in thousands	Long-term borrowings		Subordinated debentures owed to unconsolidated subsidiary trusts
2017	$	918	$	—
2018	45,017		—
2019	18		—
2020	19		—
2021	20		—
Thereafter	678		19,589
Total	$	46,670	$	19,589