Farmers Capital Bank in Frankfort, Ky., has announced a plan to restructure its balance sheet.
The $1.8 billion-asset bank is prepaying $100 million of high fixed-rate borrowings with contractual maturities in November 2017.
It will prepay the debt with excess low-yielding cash deposits of $10 million and $3.8 million in net proceeds from the sale of available-for-sale investment securities.
The bank had a 4% average cost on the fixed-rate borrowings that were repaid. The mix of cash and investment securities sold to fund the debt prepayment results in a 3% average yield, the bank said in a news release this week.
The bank estimates an additional 90 basis points in yield tied to the repositioning of low-yield, short-term investments built up in anticipation of the debt repayment. It also expects interest income will increase incrementally. It could accomplish those parts of its plan by the end of the third quarter or early in the fourth quarter.
In January the bank announced that it would extinguish $15 million of subordinated debt for a $4.1 million pretax gain in the first quarter.