Federal Home Loan Bank Advances

6 Months Ended

Jun. 30, 2011

Federal Home Loan Bank Advances

Federal Home Loan Bank Advances

(5) Federal Home Loan Bank Advances

The Bank had outstanding borrowings of $60,437,000 at June 30, 2011, via six separate advances.  For five advances totaling $60 million, all of which are non-callable, interest payments are due monthly, with principal due at maturity.  The sixth advance totals $437,000, and principal and interest payments are due monthly based on a 15 year amortization schedule.  In the fourth quarter of 2010, Bancorp restructured and extended terms on two advances with FHLB resulting in lower interest cost over the remaining term of these advances.  Prepayment penalties totaling $1,336,000 were incurred.  In accordance with US GAAP, prepayment penalties associated with the modification of advances are to be amortized over the life of the new advances as interest expense, resulting in effective interest rates greater than the contractual rate paid to FHLB.  The following is a summary of the contractual maturities and average effective rates as of June 30, 2011:

(In thousands)	Advance		Rate
2013	$	20,000	1.55	%
2014	20,000		2.43	%
2015	20,000		3.34	%
2024	437		2.40	%
	$	60,437	2.44	%

Advances from the FHLB are collateralized by certain commercial and residential real estate mortgage loans under a blanket mortgage collateral agreement and FHLB stock.

The Bank’s agreement with the Federal Home Loan Bank of Cincinnati (FHLB) enables the Bank to borrow up to an additional $184.5 million as of June 30, 2011 under terms to be established at the time of the advance. The Bank also has a standby letter of credit from the FHLB for $17.8 million outstanding at June 30, 2011.  Under Kentucky law, customer cash balances in investment management and trust accounts, may be retained as deposits in the Bank.  Kentucky law requires these deposit accounts above the $250,000 per account protection provided by the FDIC to be backed by some form of collateral.  The standby letter of credit from the FHLB collateralizes these accounts beyond the FDIC protection as required by Kentucky law.