FRANKFORT, Ky., Sept. 21, 2016 (GLOBE NEWSWIRE) — Farmers Capital Bank Corp. announced a series of balance sheet restructuring transactions that are expected to improve its overall financial position including an increase in net interest margin, return on average assets, and return on average equity. The transactions include prepaying $100 million of high fixed-rate borrowings with contractual maturities in November 2017 and to reposition the investment securities portfolio to replace certain lower yielding short-term investments consistent with a more normalized strategy and maturity periods.
“We have been saddled by the cost of high fixed-rate borrowings related to a balance sheet leverage transaction we initiated a number of years ago. While this strategy has provided additional net interest income over the life of the transaction, it has become an increasing hindrance to our balance sheet and operating results,” stated Lloyd C. Hillard, Jr., President and Chief Executive Officer.
“This deleveraging strategy is being carried out in two steps,” continues Mr. Hillard. “First, we used a mixture of excess cash and proceeds from the sale of investment securities to fund the debt repayment. As part of this step, we were able to monetize gains in our investment portfolio to offset the prepayment cost. The second step consists of repositioning the investment portfolio by replacing lower yielding short-term bonds, accumulated in anticipation of funding the debt repayment at contractual maturity, with higher yielding bonds under a normalized investment strategy.”
Funding for the debt prepayment included excess low-yielding cash deposits of $10.4 million combined with proceeds from the sale of available-for-sale investment securities of $93.4million. The Company realized a net gain on the sale of investment securities of $3.8 million, which matched and offset the cost of prepaying the debt.
The average yield on the mix of cash and investment securities sold to fund the debt prepayment was 2.97%. The average cost of the fixed rate borrowings that were repaid was 3.95%. In addition, the Company estimates that it will add approximately 90 basis points in yield related to the repositioning of low-yielding short-term investments built up in anticipation of the debt repayment at maturity and that interest income will increase incrementally. This portion of the deleveraging strategy is still in process and is expected to be completed by the end of the current quarter or early in the fourth quarter of 2016.
Farmers Capital Bank Corporation is a bank holding company headquartered in Frankfort, Kentucky. The Company operates 34 banking locations in 21 communities throughout Central and Northern Kentucky, a data processing company, and an insurance company. Its stock is publicly traded on the NASDAQ Stock Market LLC exchange in the Global Select Market tier under the symbol: FFKT.