NOTE 8 - NOTES PAYABLE

Notes payable consisted of the following:

		2013		2012

FHLB advances	$	5,000	$	10,000
Subordinated debentures		38,557		38,557
Other notes payable		2,020		158

	$	45,577	$	48,715

The FHLB advances are secured by a blanket pledge of eligible loans and securities and require monthly interest payments. The following advances were outstanding as of December 31:

		2013		2012
Fixed rate advances with maturity in 2013 and an interest rate of 1.35%	$	-	$	5,000
Fixed rate advances with maturity in 2014 and an interest rate of 1.72%		5,000		5,000

	$	5,000	$	10,000

In March 2008, The Bank of Kentucky, a wholly-owned subsidiary of the Company, issued $20,000 of LIBOR plus 1.75% floating rate subordinated debenture to USB Capital Resources, Inc. The debenture may be redeemed after March 2013 at face value. Final maturity is March of 2018. The subordinated debentures are classified as liabilities on the Consolidated Balance Sheets and are considered Tier 2 capital for regulatory capital purposes.

In May of 2007, The Bank of Kentucky Capital Trust II (“the Trust”), a trust subsidiary of the Company, issued $18,000 of LIBOR plus 1.47% floating rate obligated mandatory redeemable securities “Trust Preferred Securities” as part of a pooled offering. The Trust may redeem the Trust Preferred Securities, in whole but not in part, any time after May 2011 at face value. The final maturity date is May of 2037. The Trust used the proceeds from the issuance of its Trust Preferred Securities and common securities to buy $18,557 aggregate principal amount of junior subordinated debentures issued by the Company. These debentures are the Trust’s only assets, with terms similar to the Trust Preferred Securities, and mature in 2037. The subordinated debentures are classified as liabilities on the Consolidated Balance Sheets are considered as Tier 1 capital for regulatory capital purposes, subject to certain limitations. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.

Other notes payable include a capitalized lease obligation for $131 and a $1,889 note payable to US Bank. The US Bank note was utilized to fund the warrant repurchase and has a rate of one-month LIBOR plus 235 bases points and matures on June 30, 2016.

Payments on notes payable over the next five years are as follows:

2014	$	5,000
2015		-
2016		1,889
2017		131
2018		20,000
Thereafter		18,557
Total notes payable	$	45,577

The Bank maintains a $175,000 letter of credit from the Federal Home Loan Bank of Cincinnati. The letter is pledged to secure public funds deposit accounts and is secured by a blanket pledge of the Bank’s residential and commercial real estate loans.