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Old Second Bank in Aurora, Ill., aims to prove that it and other Tarp banks that burned through all their common equity can survive.
March 7 -
Many community banks could find themselves in the same dilemma as LNB in Ohio, which is weighing the pleas of activist shareholder Umberto Fedeli to repurchase its Tarp shares from private investors. It has to choose between paying higher dividends or a costly capital raise.
October 11
LNB Bancorp in Lorain, Ohio, has retired a large chunk of its bailout money by offering its owners common stock.
The $1.2 billion-asset company (LNBB) announced Friday it issued 1.36 million shares of its common stock to certain, unnamed investors in exchange for 9,733 shares of its Series B preferred stock. The preferred stock was valued at $1,000 per share and the common shares were issued at $7.16 per share. The exchange was priced at a 13% discount to the company's stock price on Friday and at 62% of its book value.
The Series B preferred is what LNB issued to the Treasury in late 2008 in exchange for $25.22 million in capital from the Troubled Asset Relief Program. In June 2012 the Treasury sold its stake in LNB through a modified Dutch auction for roughly $870 a share, or $22 million, as part of its push to wind down the program.
The conversion helps the company in two ways: it boosts its tangible common equity ratio to 6.82% from 5.98% on a pro-forma basis and it eliminates $487,000 in dividend payments it would have paid this year. The preferred stock carries a 5% coupon that resets to 9% after five years.
"This transaction is consistent with our stated intention to carefully balance our need to maintain a strong capital position with our objectives of building shareholder value and protecting the interests of our shareholders," Daniel E. Klimas, chief executive of LNB, said in a press release. "This transaction puts us in a position where we expect that our retained earnings can play a more significant role in the funding of any redemption or repurchasing activity going forward."
In the fourth quarter the company redeemed $6.3 million of the Tarp stake through retained earnings and excess capital. It now has $9.2 million outstanding.
Umberto Fedeli, an investor who holds roughly 9% of the company's common stock, has been pressuring LNB to redeem the Tarp shares in advance of the rate hike. He bought a stake in the Tarp auction but said he was not involved in the conversion.
