Amcore Financial Inc. in Rockford, Ill., has bought itself some time to raise capital by deferring the interest payments on its trust-preferred securities.

The deferral will let the $5 billion-asset Amcore save $3.3 million this year — which analysts said would come in handy for the struggling company.

"In light of the current economic conditions, many banks across the country are choosing to defer interest payments on their trust-preferred securities in order to preserve capital," Judith Carré Sutfin, Amcore's chief financial officer, said in an e-mail. "We believe this action is prudent, given today's market conditions."

Companies are allowed to defer payments on trust-preferreds for up to five years. Exercizing this right has been a problem for the banks that had bought the securities. Many have taken impairment charges, and Rainier Pacific Financial Group Inc. in Tacoma and Republic First Bancorp Inc. in Philadelphia have had to restate fourth-quarter results.

Brian Martin, an analyst at Howe Barnes Hoefer & Arnett in Chicago, wrote in a Feb. 24 research note that Amcore would be in a precarious situation had it not deferred the payments last month. The company has about $5 million in cash to meet its annual expenses, which would total as much as $6 million had it made the trust-preferred payments.

"This deferral should help prolong its survivability until sometime in 2010," Martin wrote.

The Amcore Bank subsidiary lost money last year, so it could not pay dividends to the holding company. Martin wrote that he expects this to remain true for 2009.

Despite management's efforts to clean up the balance sheet with cost-cutting, loan sales and provisioning, credit problems from loans to residential developers burgeoned last year. Amcore lost $32 million last quarter, after earning $7.5 million a year earlier. Its provision for loan losses grew ninefold from a year earlier, to $57.5 million.

The company has not said whether it has applied for an infusion under the Treasury's Troubled Asset Relief Program. On its fourth-quarter conference call, executives said Amcore was exploring all capital-raising options. Observers said Amcore's performance would make approval of Tarp funding a long shot.

Michael Iannaccone, the president of the Chicago advisory firm MDI Investments Inc., said market conditions make it nearly impossible for any banking company to raise capital, let alone one that is hurting as much as Amcore.

Investors will probably warm to banks once they have a clearer understanding of the role government intends to play, Iannaccone said. But even then Amcore would be hard-pressed to find investors — at least without giving away control of the company, he said.

He estimated that the company needs $100 million to keep its bank unit "well capitalized" under regulatory definitions. On Dec. 31, its leverage ratio was 6.14% and its Tier 1 risk-based capital ratio was 7.63% — well above the regulatory thresholds. However, the bank's total risk-based capital ratio was 10.14%, just 14 basis points above the minimum.

Amcore's stock is trading at about 90 cents a share, so an infusion that size from a single investor would give it at least an 80% interest. This would require the investor to form a bank holding company, something Iannaccone said most do not want to do. (Bank regulators require any stockholder with more than a 30% interest to form a holding company.)

"There are people out there who have money to invest, but they are telling me that they don't want to register as a bank holding company," Iannaccone said. "You would need at least three separate investors" to recapitalize Amcore.

Amcore's only internal option is to continue shrinking, Iannaccone said. "They are in [a] bind," he said. "It is going to be tough."

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