Farmers Capital Bank : Announces Fourth Quarter Earnings

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Farmers Capital Bank Corporation 202 West Main Street l Post Office Box 309 Frankfort, Kentucky 40602-0309

phone: [phone] l Fax: [phone]

www.farmerscapital.com

NEWS RELEASE January 20, 2016

Farmers Capital Bank Corporation Announces Fourth Quarter Earnings

Frankfort, Kentucky - Farmers Capital Bank Corporation (NASDAQ: FFKT) (the "Company") reported net income of

$3.6 million or $.48 per common share and $15.0 million or $1.95 per common share for the fourth quarter and twelve months ended December 31, 2015, respectively. Net income for the current quarter is down $248 thousand or 6.5% compared with the linked quarter, a decrease of $.03 per common share. Net income for the current quarter is down $574 thousand or 13.8% when compared to the fourth quarter of 2014. In the twelve month comparison, net income is down

$1.5 million or 8.9%. On a per common share basis, net income decreased $.03 or 5.9% when compared to the prior-year fourth quarter and increased $.01 or 0.5% in the twelve-month comparison. The Company's redemption of its preferred shares beginning in the second quarter of 2014 has positively impacted net income available to common shareholders in the comparisons to 2014.

Summary

Linked Quarter Comparison Twelve Month Comparison

x Net income down $248 thousand or 6.5% x Net income down $1.5 million or 8.9%

x Nonperforming assets down $1.2 million or 2.1% to $54.1 million

x Nonperforming assets down $13.9 million or 20.4%

x Net interest income up $89 thousand or 0.7% x Net interest income down $1.6 million or 3.0%

x Net interest margin 3.26% compared to 3.25% x Net interest margin 3.29% compared to 3.37%

x Credit to provision for loan losses of $722 thousand compared to $898 thousand

x Net other real estate expenses up $413 thousand or 158% to $675 thousand

x Loans (net of unearned income) up $24.1 million or 2.6% to $959 million

x Credit to provision for loan losses of $3.4 million compared to $4.4 million

x Net other real estate expenses down $3.6 million or 67.9% to $1.7 million

x Loans (net of unearned income) up $27.3 million or 2.9%

x Shareholders equity up $2.1 million or 1.2% x Shareholders' equity up $2.8 million or 1.6%

x Preferred stock redeemed during 2015:

$10.0 million

x Tangible book value per common share up $1.74 or 8.0%

"We had a strong quarter of loan growth, where net loans increased $24.1 million or 2.6%. On an annualized basis, this represents 10.3%," says Lloyd C. Hillard, Jr., President and Chief Executive Officer of the Company. "This marks the third successive quarterly increase and the largest single quarter of growth since the fourth quarter of 2007. While we continue to maintain our strong underwriting standards, current loan demand continues to be encouraging."

"Nonperforming assets continue to improve, and are down $1.2 million or 2.1% for the quarter and $13.9 million or 20.4% from a year ago," continues Mr. Hillard. "We have no loans that are ninety days or more past due and still accruing, and our performing restructured loans comprise 74% of our nonperforming loans."

A summary of nonperforming assets follows for the periods indicated.

(In thousands)	December 31, 2015	September 30, 2015	June 30, 2015	March 31, 2015	December 31, 2014
Nonaccrual loans	$8,380	$8,201	$9,921	$11,113	$11,508
Loans 90 days or more past due and still accruing	-	-	-	2	-
Restructured loans	23,831	24,155	24,272	25,833	24,429
Total nonperforming loans	32,211	32,356	34,193	36,948	35,937

Other real estate owned	21,843	22,868	26,214	29,700	31,960
Other foreclosed assets	-	-	39	66	52
Total nonperforming assets	$54,054	$55,224	$60,446	$66,714	$67,949

Ratio of total nonperforming loans to total loans

(net of unearned income)	3.4%	3.5%	3.7%	4.0%	3.9%
Ratio of total nonperforming assets to total assets	3.0	3.1	3.5	3.7	3.8

Activity during the current quarter for nonaccrual loans, restructured loans, and other real estate owned follows:

(In thousands)

Nonaccrual Loans

Restructured Loans

Other Real Estate Owned

Balance at September 30, 2015 $8,201 $24,155 $22,868

Additions 1,274 - -

Principal paydowns (684) (324) - Transfers to performing status - - - Transfers to other real estate owned and other changes, net (205) - 240

Charge-offs/write-downs (206) - (506) Proceeds from sales - - (700)

Net loss on sales - - (59)

Balance at December 31, 2015 $8,380 $23,831 $21,843

Nonperforming loans decreased $145 thousand or 0.4% during the quarter. Nonaccrual loans increased $179 thousand or 2.2% driven by one credit relationship secured mainly by commercial real estate. The decrease of $1.0 million or 4.5% in other real estate owned is due to a combination of sales activity and impairment charges to adjust carrying amounts to their estimated fair value less cost to sell. Other real estate owned has decreased $10.1 million or 31.7% compared to a year earlier and is at the lowest level since third quarter of 2009.

The allowance for loan losses was $10.3 million or 1.08% of loans outstanding at December 31, 2015. At September 30, 2015 and year-end 2014, the allowance for loan losses was $11.3 million or 1.21% and $14.0 million or 1.50% of net loans outstanding, respectively. Net loan charge-offs were $240 thousand in the current three months compared with $24 thousand in the linked quarter. Net charge-offs as a percentage of outstanding loans were 0.03% for the current quarter.

Fourth Quarter 2015 Compared to Third Quarter 2015

• Net income was $3.6 million or $.48 per common share for the fourth quarter of 2015, a decrease of $248 thousand or $.03 per common share compared to the linked quarter. The decrease in net income is primarily attributed to higher net other real estate expenses of $413 thousand or 158%. The credit to the provision for loan losses decreased $176 thousand or 19.6% and noninterest income decreased $116 thousand or 2.0%. Net interest income increased $89 thousand or 0.7%. Income tax expense decreased $359 thousand or 24.9%.

• The increase in net interest income of $89 thousand is due to a combination of higher interest income of $49 thousand or 0.3% and lower interest expense of $40 thousand or 1.9%. Interest income on investment securities increased $42 thousand or 1.3%. Interest expense on deposits decreased $47 thousand or 6.5% in the comparison.

• Net interest margin was 3.26% for the current quarter, an increase of one basis points from 3.25% in the linked quarter. Net interest spread was 3.10% and 3.09% in the current and linked quarters, respectively. Overall cost of funds decreased one basis points to 0.67%.

• The Company recorded a credit to the provision for loan losses of $722 thousand and $898 thousand for the current and linked quarter, respectively. Overall credit quality trends remain positive and continue to improve. As a percentage of total loans, nonperforming loans, early stage delinquencies, and loans graded as substandard or below are all at their lowest level in at least the last six years. Historical loss rates improved as $5.9 million of net charge-offs from the fourth quarter of 2011 rolled out of the sixteen quarter look-back period and was replaced by the current quarter net charge-offs of $240 thousand. Net charge-offs increased in the linked quarter comparison but continue to be at recent historical lows.

• While historical loss rates may continue improving in the near term due to elevated charge-offs falling out of the look-back period, this improvement may not necessarily correlate to a lower provision for loan losses. Other qualitative factors, such as changes in loan volume, the overall makeup of the portfolio, economic conditions, and other risk factors applied to historical loss rates may offset to some degree the impact of decreases to the historical loss rates.

• Noninterest income was $5.6 million for the current quarter, a decrease of $116 thousand or 2.0% in the comparison. The decrease in noninterest income is mainly attributed to lower trust income of $115 thousand or 17.2%, and lower allotment processing fees of $103 thousand or 9.7%. Trust income decreased mainly due to lower managed asset values related to market value declines. The decrease in allotment processing fees is related to lower processing volume. Partially offsetting those decreases were higher nondeposit service charges, commissions, and fees of $47 thousand or 3.3% and higher net gains on the sale of mortgage loans of $46 thousand or 20.9%. The increase in nondeposit service charges, commissions, and fees was driven by higher insurance premium income of $97 thousand due to the timing of a large policy renewal. Net gains on the sale of mortgage loans in the current quarter includes $131 thousand related to two larger-balance commercial loans.

• Noninterest expenses were $14.7 million, an increase of $404 thousand or 2.8%. The increase was driven by higher expenses related to repossessed real estate and salaries and employee benefits of $413 thousand or 158% and $288 thousand or 3.7%, respectively. These were partially offset by lower legal fees and deposit insurance expense of $142 thousand or 48.6% and $62 thousand or 15.6%, respectively.

• The increase in expenses related to repossessed real estate is mainly due to higher impairment charges of $477 thousand partially offset by a decrease in the net loss from property sales of $79 thousand or 57.2%. The increase in salaries and employee benefits was due to higher salaries and related payroll taxes of $456 thousand, including the accrual of discretionary bonuses at year-end to certain key employees of $231 thousand. Offsetting the increase in salaries and related payroll taxes is lower employee benefits of $167 thousand due to claims activity related to the Company's self-funded health insurance plan.

• Legal fees were higher in the linked quarter due to fees related to previously identified problem loan activity in the normal course of business. The reduction in deposit insurance expense is due to further improvement in the risk ratings at the Company's subsidiary banks, which is used in the determination of the amount payable.

• Income tax expense was $1.1 million for the current quarter, a decrease of $359 thousand or 24.9% compared with $1.4 million for the linked quarter. The effective income tax rates were 23.2% and 27.3% for the current and linked quarter, respectively. The decrease in the effective income tax rate is mainly attributed to lower pretax income, made up by a higher mix of tax-exempt versus taxable sources of revenue and tax benefits related to the Company's captive insurance subsidiary.

  Fourth Quarter 2015 Compared to Fourth Quarter 2014

• Net income was $3.6 million for the fourth quarter of 2015, a decrease of $574 thousand or 13.8% compared to the fourth quarter of 2014. On a per common share basis, net income was $.48, down $.03 or 5.9%. Per common share net income was positively impacted by the Company's redemption of its outstanding preferred shares, which decreased preferred dividends by $377 thousand in the comparison. The preferred share redemptions took place in three separate transactions of 10,000 shares each, beginning in the second quarter of 2014 and concluding in June 2015.

• The decrease in net income is primarily attributed to a lower credit to the provision for loan losses of $850 thousand or 54.1%, lower net interest income of $276 thousand or 2.1%, and lower noninterest income of $194 thousand or 3.4%. Income tax expense decreased $657 thousand or 37.8%.

• The $276 thousand decrease in net interest income was driven by lower interest income of $499 thousand or 3.2%, which offset a reduction in interest expense of $223 thousand or 9.5%. Interest income on loans and investment

securities decreased $261 thousand or 2.1% and $255 thousand or 7.4%, respectively. Interest expense on deposits decreased $238 thousand or 26.0% in the comparison.

• Net interest margin was 3.26% for the current quarter, down six basis points compared with 3.32% a year earlier. Net interest spread was 3.10% and 3.16% in the current and year-ago quarters, respectively. Overall cost of funds decreased five basis points to 0.67%.

• The Company recorded a credit to the provision for loan losses of $722 thousand and $1.6 million for the current and year-ago quarters, respectively. The credit to the provision is attributed to continuing improvement in the credit quality of the loan portfolio. The lower credit to the provision is mainly driven by a greater decline in watch list and impaired loans in the year-ago quarter compared to the current quarter combined with an increase in loans during the current quarter compared to a decrease in the prior-year quarter. As a percentage of total loans, nonperforming loans, early stage delinquencies, and loans graded as substandard or below are all at their lowest level in at least the last six years. Historical loss rates continue to improve as a result of lower recent charge-off activity.

• Noninterest income was $5.6 million, down $194 thousand or 3.4% in the comparison. The decrease was driven mainly by lower allotment processing fees of $256 thousand or 21.0% and lower trust income of $136 thousand or 19.8%, partially offset by higher nondeposit service charges, commissions, and fees of $191 thousand or 14.7% and an increase in net gains on the sale of mortgage loans of $119 thousand or 81.0%. The year-ago quarter also included a nonrecurring receipt of $113 thousand related to a legal settlement.

• Allotment processing fees are down due to lower volume. The decrease in trust income is mainly attributable to an unusually large nonrecurring estate fee of $162 thousand in the year-ago quarter, partially offset by a nonrecurring fee of $58 thousand in the current quarter. The increase in nondeposit service charges, commissions, and fees was driven by higher insurance premium income of $98 thousand due to the timing of a large policy renewal. Net gains on the sale of mortgage loans in the current quarter includes $131 thousand related to two larger-balance commercial loans.

• Noninterest expenses were $14.7 million for the current quarter, a decrease of $89 thousand or 0.6%. The decrease was driven by lower expenses related to repossessed real estate of $667 thousand or 49.7%, offset by higher salaries and employee benefit expenses of $522 thousand or 6.9%.

• Repossessed real estate expenses decreased as a result of lower development, maintenance, and operating costs of

  $450 thousand or 80.4%, a lower net loss from property sales of $171 thousand or 74.3%, and lower impairment charges of $46 thousand or 8.3% compared to the prior year fourth quarter. The increase in salaries and employee benefits was driven by higher salaries and related payroll taxes of $450 thousand or 7.2%, including the accrual of discretionary bonuses at year-end to certain key employees of $231 thousand.

• Income tax expense was $1.1 million for the current quarter, a decrease of $657 thousand or 37.8% compared to

  $1.7 million for the fourth quarter of 2014. The effective income tax rates were 23.2% and 29.5% for the current and year-ago quarters, respectively. The decrease in the effective income tax rate is mainly attributed to lower pretax income, made up by a higher mix of tax-exempt versus taxable sources of revenue and tax benefit related to the Company's captive insurance subsidiary.

  Twelve-month Comparison

• Net income was $15.0 million for the twelve months ended December 31, 2015, a decrease of $1.5 million or 8.9% compared to a year earlier. On a per common share basis, net income was $1.95, up $.01 or 0.5%. Per common share net income was positively impacted by the Company's redemption of its outstanding preferred shares, which decreased preferred dividends by $1.5 million in the comparison. The preferred share redemptions took place in three separate transactions of 10,000 shares each, beginning in the second quarter of 2014 and concluding in June 2015.

• The decrease in net income is primarily attributed to lower net interest income of $1.6 million or 3.0%, lower noninterest income of $1.1 million or 4.6%, and a decrease in the credit to the provision for loan losses of $935 thousand or 21.4%. These amounts were partially offset by a decrease in noninterest expenses of $1.3 million or 2.2%. Income tax expense decreased $806 thousand or 13.2%.

• The decrease in net interest income was driven by lower interest income of $3.1 million or 4.8%, which more than offset a reduction in interest expense of $1.5 million or 14.9%. Interest income on loans and investment securities