Note 8 - Securities Sold Under Agreements to Repurchase and Other Long-term Borrowings

12 Months Ended

Dec. 31, 2011

8.	Securities Sold Under Agreements to Repurchase and Other Long-term Borrowings

Long-term securities sold under agreements to repurchase and other borrowings represent borrowings with an original maturity of one year or more. The table below displays a summary of the ending balance and average rate for borrowed funds on the dates indicated.


			Average					Average
December 31, (Dollars in thousands)	2011		Rate			2010		Rate
Federal Home Loan Bank advances	$	40,694		4.14	%	$	53,155		4.01	%
Subordinated notes payable		48,970		4.16			48,970		4.11
Securities sold under agreements to repurchase		150,000		3.96			150,000		3.96
Other							84		2.32
Total long-term	$	239,664		4.03	%	$	252,209		4.00	%

Long-term FHLB advances are made pursuant to several different credit programs, which have their own interest rates and range of maturities. At December 31, 2011, interest rates on FHLB advances are fixed and range between 2.60% and 6.90%, averaging 4.14%, over a remaining maturity period of up to nine years. At December 31, 2010, interest rates on FHLB advances ranged between 2.60% and 6.90%, averaging 4.01%, over a remaining maturity period of up to ten years. Long-term FHLB borrowings of $28.0 million and $35.0 million at year-end 2011 and 2010, respectively, are putable quarterly. Long-term FHLB advances of $10.0 million at December 31, 2011 and 2010 are convertible to a floating interest rate. These advances may convert, at FHLB’s option, to a floating interest rate indexed to the three-month LIBOR only if LIBOR equals or exceeds 7%. Three-month LIBOR was at .58% and .30% at year-end 2011 and 2010, respectively

For FHLB advances, the subsidiary banks pledge FHLB stock and fully disbursed, otherwise unencumbered, 1-4 family first mortgage loans as collateral for these advances as required by the FHLB. Based on this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow up to an additional $65.8 million from the FHLB at year-end 2011.

During 2005 the Company completed two private offerings of trust preferred securities through two separate Delaware statutory trusts sponsored by the Company. Farmers Capital Bank Trust I (“Trust I”) sold $10.0 million of preferred securities and Farmers Capital Bank Trust II (“Trust II”) sold $15.0 million of preferred securities. The proceeds from the offerings were used to fund the cash portion of the acquisition of Citizens Bancorp, Inc., the former parent company of Citizens Northern.

Farmers Capital Bank Trust III (“Trust III”), a Delaware statutory trust sponsored by the Company, was formed during 2007 for the purpose of financing the cost of acquiring Company shares under a share repurchase program. Trust III sold $22.5 million of 6.60% (fixed through November 2012, thereafter at a variable rate of interest, reset quarterly, equal to the 3-month LIBOR plus a predetermined spread of 132 basis points) trust preferred securities to the public. The trust preferred securities, which pay interest quarterly, mature on November 1, 2037, may be redeemed by the Trust at par any time on or after November 1, 2012. Trust I, Trust II, and Trust III are hereafter collectively referred to as the “Trusts”.

The Trusts used the proceeds from the sale of preferred securities, plus capital contributed to establish the trusts, to purchase the Company’s subordinated notes in amounts and bearing terms that parallel the amounts and terms of the respective preferred securities. The subordinated notes to Trust I and Trust II mature in 2035 and in 2037 for Trust III, and bear a floating interest rate (current three-month LIBOR plus 150 basis points in the case of the notes held by Trust I, current three-month LIBOR plus 165 basis points in the case of the notes held by Trust II, and current three-month LIBOR plus 132 basis points in the case of the notes held by Trust III). Interest on the notes is payable quarterly. Interest payments to the Trusts and distributions to preferred shareholders by the Trusts may be deferred for 20 consecutive quarterly periods.

The subordinated notes are redeemable in whole or in part, without penalty, at the Company’s option beginning September 30, 2010 and mature on September 30, 2035 with respect to Trust I and Trust II. For Trust III, the subordinated notes are redeemable in whole or in part, without penalty, at the Company’s option on or after November 1, 2012. The notes are junior in right of payment of all present and future senior indebtedness. At December 31, 2011 and 2010 the balance of the subordinated notes payable to Trust I, Trust II, and Trust III was $10.3 million, $15.5 million, and $23.2 million, respectively. The interest rates in effect as of the last determination date in 2011 were 1.87%, 2.02%, and 6.60% for Trust I, Trust II, and Trust III, respectively. For 2010 these rates were 1.79%, 1.94%, and 6.60% for Trust I Trust II, and Trust III, respectively.

The Company is not considered the primary beneficiary of the Trusts; therefore the Trusts are not consolidated into its financial statements. Accordingly, the Company does not report the securities issued by the Trusts as liabilities, but instead reports as liabilities the subordinated notes issued by the Company and held by the Trusts. The Company, which owns all of the common securities of the Trusts, accounts for its investment in each of the Trusts as assets. The Company records interest expense on the corresponding notes issued to the Trusts on its statement of operations.

The subordinated notes may be included in Tier 1 capital (with certain limitations applicable) under current regulatory capital guidelines and interpretations. The amount of subordinated notes in excess of the limit may be included in Tier 2 capital, subject to restrictions.

During 2007, the Company entered into a balance sheet leverage transaction whereby it borrowed $200 million in multiple fixed rate term repurchase agreements with an initial weighted average cost of 3.95% and invested the proceeds in Government National Mortgage Association (“GNMA”) bonds, which were pledged as collateral. The Company is required to secure the borrowed funds by GNMA bonds valued at 106% of the outstanding principal balance. The borrowings have an outstanding balance of $150 million at December 31, 2011 with remaining maturities as follows: $50 million due November 2012 and the remaining $100 million due November 2017. At December 31, 2011, $100 million of the borrowings are putable quarterly and the remaining $50 million are putable quarterly beginning in the fourth quarter of 2012. The repurchase agreements are held by each of the Company’s three subsidiary banks that are participating in the transaction and are guaranteed by the Parent Company.

Maturities of long-term borrowings at December 31, 2011 are as follows:


(In thousands)	Amount
2012	$	61,225
2013		2,000
2014		8,046
2015
2016
Thereafter		168,393
Total	$	239,664