Farmers Capital Bank in Frankfort, Ky., plans to extinguish $15 million of subordinated debt.
The $1.8 billion-asset company expects to record a $4.1 million pretax gain during the first quarter from the transaction. It also should improve net interest margin, earnings per share and tangible common equity, Chief Executive Lloyd Hilliard Jr. said in a news release.
The debt was issued to Farmers Capital Bank Trust II, a Delaware-based statutory trust the company established in 2005 to issue preferred securities through a private offering. The proceeds for that offering were then loaned to the company in exchange for subordinated debentures that carried similar terms to those securities.
Farmers Capital said it decided to retire the debt after it became aware that the $15 million in securities the trust issued were set to be auctioned off as part of the liquidation of a larger pooled collateralized debt obligation. The trustee accepted the bank's bid of $10.9 million for the securities, allowing for the pretax gain.
Farmers Capital said the transaction is expected to close next week. After the transaction closes, the company will begin to cancel the preferred securities and retire the debentures.