The president of Farmers Capital Bank Corporation said the company plans to begin repaying federal stabilization money next year.
The corporation received $30 million under the U.S. Department of Treasury’s Capital Purchase Program. Tony Busseni, president and CEO, said the company will begin paying back the money by selling stock in 2010.
Farmers Capital Bank Corporation is the holding company for Farmers Bank and several subsidiaries, including United Bank in Versailles, First Citizens in Elizabethtown, First Citizens North in Newport and Lawrenceburg Bank and Trust. It has assets of $2.3 billion.
The loan allowed the company to continue doing business but wasn’t used for pay raises or dividends, Busseni said.
The company has 7.5 million shares of stock outstanding and has authority to issue up to 5 million additional shares, he said.
No additional shares have been issued yet, because Busseni is not happy with the price being offered.
“We’re trying to time it … to when the market will be more conducive to raising capital for community banks,” he said.
The plan is to repay most or the entire $30 million federal loan with a 5 percent dividend before 2011, he said.
Shareholders approved the move to issue additional shares at a meeting in November by a margin of 2-1, Busseni said. The move will dilute current shareholders, but that’s an accepted risk, Busseni said.
“The shareholders understand that most everybody needs more capital these days,” he said.
However, Farmers faces the same challenges other companies are dealing with including bad loans and slumping income, Busseni said.
“Lots of customers can’t pay us right now,” he said. “They can’t sell anything and produce enough cash flow.”
Non-performing loans increased 50 percent from $29 million in March 2009 to $44.5 million in September at Farmers according to a Securities and Exchange Commission report.
Demand for loans has also dropped, Busseni said.
“Most businesses aren’t expanding – they’re cutting back,” Busseni said. “People aren’t buying, and that’s not going to change until they see the economy turning around.”
Allowances for non-performing loans have increased, driven by losses on residential development loans, according to a report filed by Farmers.
According to a report from the SEC, regulators are requiring banks to maintain higher reserves to deal with more losses.
Farmers agreed to a memorandum of understanding with state and local regulators in October. The order required the company to reduce its common stock dividend from 25 cents per share to 10 cents per share.
Future dividends will require approval from regulators.
The holding company also infused $11 million to Farmers Bank and $10.5 million to United Bank after being ordered to increase leverage ratios. Busseni said no more capital infusions will be required.
Since 1928, Farmers Bank has been the depository for the commonwealth clearing state payroll checks and tax refunds.
In a recent filing with the Federal Deposit Insurance Corporation, Farmers Bank reported having a negative net loss of $38,000 in September compared to net gains of $4.3 million in September 2008.
Founded in 1850, Farmers Bank has five branches in Frankfort.