NOTE 10 — BORROWINGS AND BORROWING CAPACITY

Short-Term Borrowings

The following table provides a summary of all short-term borrowings at the dates indicated:

	December 31,			December 31,
(Dollars in thousands)	2014			2013
Average daily balance during the year	$	40,346		$	12,297
Average interest rate during the year		0.14	%		0.14	%
Maximum month-end balance during the year		85,313			42,639
Weighted average interest rate at December 31		0.05	%		0.06	%

Customer Repurchase Agreements

Securities sold under agreements to repurchase are financing arrangements that mature within one year. At maturity, the securities underlying the agreements are returned to the Company. Customer repurchase agreements are summarized as follows:

	December 31,		December 31,
(Dollars in thousands)	2014		2013
Sweep repurchase agreements	$	8,959	$	10,006
Term repurchase agreements		323		1,324
Total	$	9,282	$	11,330

Securities sold under agreements to repurchase are secured by securities with a carrying amount of $14,900,000 and $11,330,000 at December 31, 2014 and 2013, respectively.

FHLB Advances

TCB is a member of the FHLB of Des Moines, and TSB is a member of the FHLB of Dallas. The FHLB advances are collateralized by assets, including a blanket pledge of certain loans, and are short term in nature, generally maturing within one month. Collectively at December 31, 2014 and 2013, TCB and TSB have borrowings and unused borrowing capacity with the FHLB as follows:

	December 31,		December 31,
(Dollars in thousands)	2014		2013
Borrowing capacity	$	107,361	$	131,300
Borrowings outstanding		3,000		21,000
Unused borrowing capacity	$	104,361	$	110,300

Federal Funds Purchased

The Company had no federal funds purchased at December 31, 2014 or 2013. However, as of December 31, 2014 TSB had unsecured federal funds lines of credit with two unaffiliated banks totaling $24,500,000 and TCB had unsecured federal funds lines of credit with five unaffiliated banks totaling $75,000,000.

Senior Secured Note

At December 31, 2013, the Company had a $12,573,000 secured note payable to an unaffiliated bank, secured by the common stock of TCB and TSB. The note incurred interest at a variable rate based at the prime rate, with a minimum interest rate of 4.50% and a maturity date of October 15, 2018. Terms of the note required quarterly principal payments of $314,000 plus accrued interest. At December 31, 2013, the note had a rate of 4.50%.

On November 13, 2014, the Company retired the senior secured indebtedness, consisting of the senior secured note with a principal amount at retirement of $11,300,000, a 1.0% prepayment penalty of $113,000, and accrued but unpaid interest of $41,000.

Junior Subordinated Debentures and Capital Securities

As of the date of the Company’s acquisition of NBI, NBI had junior subordinated debentures with a face value of $32,990,000 outstanding. The application of business combination accounting to the NBI acquisition resulted in an adjustment to cause the carrying value of these debt obligations to be adjusted to their fair value of $24,120,000 as of that date. The discount to face value is being amortized over the remaining life of these obligations as an adjustment increasing the interest cost of these instruments to market rates as of the acquisition date, and increasing their carrying amount to face value at their maturity.

The debentures are included on the consolidated balance sheet as liabilities; however, for regulatory purposes, the related capital securities are eligible for inclusion in regulatory capital, subject to certain limitations. All of the carrying value of $24,423,000 was allowed in the calculation of Tier I capital as of December 31, 2014.

The junior subordinated debentures are due to National Bancshares Capital Trusts II and III, 100% owned nonconsolidated subsidiaries of NBI. The debentures were issued by NBI in 2003 ($15,464,000 Capital Trust II) and 2006 ($17,526,000 Capital Trust III) in conjunction with the trusts’ issuances of NBI obligated capital securities of $15,000,000 and $17,000,000, respectively. The trusts used the proceeds from the issuances of their capital securities to buy floating rate junior subordinated deferrable interest debentures issued by NBI. These debentures are the trusts’ only assets and the interest payments from the debentures finance the distributions paid on the capital securities. These debentures are unsecured, rank junior, and are subordinate in the right of payment to all senior debt of NBI.

The debentures bear the same interest rate and terms as the capital securities, detailed as follows.

Capital Trust II — The amount of interest for any period shall be computed at a variable per annum rate of interest, reset quarterly, equal to the three-month LIBOR, as determined on the LIBOR determination date immediately preceding each distribution payment date, plus 3.00%. As of December 31, 2014 and 2013, the rate was 3.24%. The debentures mature on September 15, 2033. Since September 15, 2008, NBI has had the right to call the debentures at par.

Capital Trust III — The amount of interest for any period shall be computed at a variable per annum rate of interest, reset quarterly, equal to the three-month LIBOR, as determined on the LIBOR determination date immediately preceding each distribution payment date, plus 1.64%. As of December 31, 2014 and 2013, the rate was 1.87% and 1.88%, respectively. The debentures mature on July 7, 2036. Since July 7, 2011, NBI has had the right to call the debentures at par.

The distribution rate payable on the capital securities is cumulative and payable quarterly in arrears. NBI has the right, subject to events in default, to defer payments on interest on the debentures at any time by extending the interest payment period for a period not exceeding 20 consecutive quarters with respect to each deferral period, provided that no extension period may extend beyond the redemption or maturity date of the debentures. NBI informed the trustees that it would be deferring payments beginning in March 2011 as permitted under the provisions of the respective agreements, however, all deferred quarterly payments on Trust II were paid current in December 2013 and all deferred quarterly payments on Trust III were paid current in January of 2014.