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Note 9 - Securities Sold Under Agreements to Repurchase and Other Long-term Borrowings

12 Months Ended

Dec. 31, 2015

9. 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 greater than one year. 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)	2015		Rate			2014		Rate
Federal Home Loan Bank advances	$	18,806		3.98	%	$	18,961		3.99	%
Subordinated notes payable		48,970		1.94			48,970		1.71
Securities sold under agreements to repurchase		101,474		3.90			100,763		3.92
Total long-term borrowings	$	169,250		3.34	%	$	168,694		3.29	%

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, 2015, interest rates on all FHLB advances are fixed and range between 2.99% and 5.81%, averaging 3.98%, over a remaining weighted average maturity period of 1.8 years. At December 31, 2014, interest rates on FHLB advances ranged between 2.99% and 5.81%, averaging 3.99%, over a remaining weighted average maturity period of 2.8 years. Long-term FHLB borrowings of $18.0 million at year-end 2015 and 2014 were callable quarterly. None of the long-term FHLB advances are convertible to a floating interest rate.

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 $119 million from the FHLB at year-end 2015.

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. The trust preferred securities mature September 30, 2035 and are redeemable at any time by the Trust at par. Subsequent to year-end 2015, the Company terminated Trust II as a result of the early extinguishment of debt issued to the trust. Refer to Note 24 for additional information.

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 trust preferred securities to the public with an initial fixed rate of 6.60% through October 2012, thereafter at a variable rate of interest, reset quarterly, equal to the 3-month LIBOR plus a predetermined spread of 132 basis points. The trust preferred securities mature on November 1, 2037 and are redeemable at any time by the Trust at par. 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. There have been no deferrals of interest payments during the life of the Trusts.

The subordinated notes are redeemable in whole or in part, without penalty, at the Company’s option. The notes are junior in right of payment of all present and future senior indebtedness. At December 31, 2015 and 2014 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 for 2015 were 2.10%, 2.26%, and 1.65% for Trust I, Trust II, and Trust III, respectively. For 2014 these rates were 1.76%, 1.91%, and 1.55% 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 other assets. The Company records interest expense on the corresponding notes issued to the Trusts on its statements of income.

The subordinated notes, net of the Company’s investment in the Trusts, may be included in Tier 1 capital (with certain limitations applicable) under current regulatory capital guidelines and interpretations. The net amount of subordinated notes in excess of the limit may be included in Tier 2 capital, subject to restrictions. At year-end 2015 and 2014, the Company’s Tier 1 capital included $47.5 million, which represents the full amount of the subordinated notes net of the Company’s investment in the Trusts.

The Company entered into a balance sheet leverage transaction in 2007 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 $100 million at December 31, 2015, are callable on a quarterly basis, and mature in November 2017. The repurchase agreements are held by three of the Company’s subsidiary banks and are guaranteed by the Parent Company. The Company has $1.5 million of other long-term repurchase agreements outstanding at December 31, 2015 made in the ordinary course of business with commercial customers. The average interest rate related to these other fixed rate borrowings is 0.88%.

Maturities of long-term borrowings at December 31, 2015 are as follows:


(In thousands)	Amount
2016	$	716
2017		115,256
2018		3,249
2019		270
2020		789
Thereafter		48,970
Total	$	169,250

Securities sold under agreements to repurchase represent transactions where the Company sells certain of its investment securities and agrees to repurchase them at a specific date in the future. Securities sold under agreements to repurchase are accounted for as secured borrowing and reflect the amount of cash received in connection with the transaction.

Securities sold under agreements to repurchase are collateralized by U.S. government agency securities, primarily mortgage-backed securities. The Company may be required to provide additional collateral securing the borrowings in the event of principal pay downs or a decrease in the market value of the pledged securities. The Company mitigates this risk by monitoring the market value and liquidity of the collateral and ensuring that it holds a sufficient level of eligible securities to cover potential increases in collateral requirements.

The following table represents the remaining maturity of both short and long-term repurchase agreements disaggregated by the class of securities pledged.


	Remaining Contractual Maturity of the Agreements
December 31, 2015 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Four Years		Total
U.S. government agency securities	$	33,151	$	1,202	$	-	$	716	$	100,758	$	135,827
Total	$	33,151	$	1,202	$	-	$	716	$	100,758	$	135,827