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The components of interest expense associated with deposits are as follows: 

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Regulations of the Federal Reserve System require reserves to be maintained by all banking institutions according to the types and amounts of certain deposit liabilities. These requirements restrict a portion of the amounts shown as consolidated cash and due from banks from everyday usage in operation of the banks. As of December 31, 2012, the Bank did not have a minimum reserve requirement. 

## (7) Federal Home Loan Bank Borrowings 

Term advances from the FHLB totaled $35.7 million and $35.8 million at December 31, 2012 and 2011, respectively. Maturities of such borrowings at December 31, 2012 and 2011 are summarized as follows: 

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All of the Bank’s term advances with the FHLB have fixed rates and prepayment penalties. The Bank has $20.0 million of term advances that contain a conversion option, at which on certain dates the FHLB may exercise an option to convert the borrowing to a variable rate equal to the FHLB one month short-term advance rate, adjustable monthly. The Bank would then have the option to prepay the advances without penalty. The Bank may repay the advance at each respective reset date if the FHLB first exercises its option to convert the fixed-rate borrowing. 

Additionally, the Bank also has a line of credit, renewable annually each September, with the FHLB under which there were $2.7 million and $13.4 million of outstanding borrowings as of December 31, 2012 and 2011, respectively. Interest on any outstanding balance on the line of credit accrues at the federal funds rate plus 0.15% (0.23% at December 31, 2012). 

Although no loans are specifically pledged, the FHLB requires the Bank to maintain eligible collateral (qualifying loans and investment securities) that has a lending value at least equal to its required collateral. At December 31, 2012 and 2011, the Bank’s total borrowing capacity with the FHLB was approximately $52.0 million and $100.6 million, respectively. At December 31, 2012 and 2011, the Bank’s available borrowing capacity was $13.5 million and $51.5 million, respectively. The available borrowing capacity with the FHLB of Topeka is collateral based, and the Bank’s ability to borrow is subject to maintaining collateral that meets the eligibility requirements. The borrowing capacity is not committed and is subject to FHLB credit requirements and policies. In addition, the Bank must maintain a restricted investment in FHLB stock to maintain access to borrowings. 

