Citizens First Bancorp plans to raise $53 million through a rights offering a capital-raising method gaining favor among weak banks.

The Glen Rock, N.J., company, which has been hit by non-performing construction lending, is among a handful of banks that have offered or plan to offer existing shareholders the right to buy common stock at a discount.

Riggs National Corp., Washington, and Equimark Corp., Pittsburgh, paved the way earlier this year, when each raised about $50 million through rights offerings.

Hibernia Corp., New Orleans, which is also awash in bad loans, plans a rights offering, though it has not disclosed the terms. Midlantic Corp., Edison, N.J., is a candidate as well, say analysts. Midlantic officials were unavailable for comment.

Rights offerings are intended for companies that cannot inspire enough investor confidence to support public stock offerings.

"Rights offerings aren't for every bank," said Edward D. Herlihy, as lawyer with Wachtell, Lipton, Rosen & Katz in New York. "But they are a means for raising capital for an undercapitalized institution if the markets are closed to them."

Under Citizen First's rights offering, stockholders will be able to purchase one share for every share they own. The price per share is $2.50, $2 less than the current trading price and well under book value. There are 21.4 million outstanding shares.

If the offer succeeds, the $2.5 billion company will come close to the capital levels required by the Office of the Comptroller of the Currency in a cease-and-desist order issued in 1990.

At the end of the first quarter, the bank's Tier 1 and total capital ratios were 4.57% and 6.65% respectively.

Previously Avoided

According to analysts, the rights offering would boost the Tier 1 capital ratio to 7.4% and the total capital ratio to 9.8%.

Still, Citizens will fall short of the omptroller's requirement of 8.5% Tier 1 and 10% overall capital, which the bank must reach by mid-1993. Citizens First said it will reach those goals by retaining earnings.

"We felt it is in the best interest of the shareholders to replenish the capital in the bank and at the same time to protect their ownership in the company," said Rodney T. Verblaauw, president of Citizens First.

The rights offering is being underwritten by Ladenberg, Thalmann & Co. and Keefe, Bruyette & Woods Inc.

Bad loans have taken their toll on earnings and capital. Its worst year was 1990, when it lost $102.4 million and the Tier 1 capital ratio fell to 3.59%. The bank showed modest earnings of $3 million last year.

Last quarter, the bank's non-performing assets appeared stable, suggesting the worst was behind it. The bank earned $11 million in the period.

In the past, banks shied away from rights offerings. They were seen as admissions that a bank's financial condition was worse than suspected.

However, regulators continue to push banks to boost capital. To get there, some banks can only raise money from shareholders, who, it is thought, will invest new money to protect their old money.

"I think these will become increasingly popular," said Thomas Vartanian, a lawyer with Fried, Frank, Harris, Shriver & Jacobson in Washington. "My clients are talking more about this, and I expect we'll see many more offerings in the next year or two."

One problem with rights offerings is that because the shares are offered at a discount, per share earnings are diluted.

Bankers argue that rights offerings do not diminish shareholders' stakes, which protects their dividends. If the banks sold shares to a new investor, the transaction would reduce existing shareholders' ownership stakes.

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