Citizens First Bancorp hit its target of raising $53.5 million through a rights offering to shareholders, a good sign for other weak banks seeking to boost capital this way.
In addition to the rights offering, the Glen Rock, N.J., company raised $18.5 million more from the sale of seven million shares to directors and institutional investors.
Most of the proceeds will be used to increase. capital at the lead bank, Citizens First National Bank. Citizens was compelled to boost capital under a 1990 cease-and-desist order from the Office of the Comptroller of the Currency.
"The intent was to raise enough capital to carry us through not just the recapitalization of the bank under the terms of the OCC order, but to provide for future growth." said Allan D. Nichols, chairman of the holding company, which has $2.4 billion in assets.
The bank unit will get all but $5 million of the proceeds, raising its Tier 1 capital ratio to 9% from 5.48%, he said. The new leverage ratio is 6.45%, up from 3.98%, and the total capital ratio is 10.3%, up from 6.77%. Mr. Nichols said.
Citizens First is the third bank to complete a rights offering this year. These deals enable existing shareholders to buy more stock at a discount to the market price. Equimark Corp., Pittsburgh, and Riggs National Bank, Washington, paved the way,
"The Citizens First deal increases the prospect that rights offerings will be done successfully in the future," said Edward J. Herlihy, a banking lawyer with Wachtell, Lipton, Rosen & Katz in New York. "The market seems quite receptive to these deals."
Recently, Constellation Bancorp in Elizabeth, N.J.; Independent Bank Corp. of Rockland, Mass.; and Hibernia Corp. in New Orleans announced rights offerings. Hibernia plans to raise about $80 million, according to a filing with the Securities and Exchange Commission. Details of the other offerings have not been disclosed.
Investment bankers are not predicting a landslide of rights offerings from thinly capitalized or undercapitalized banks. But they said a number of banks and thrifts are discussing such transactions and will file plans with the SEC within the next few quarters.
"To the extent that these are successful, others will pursue them," said John Oros, an investment banker with Goldman, Sachs & Co. "A rights offering will work for a number of companies
A rights offering can be a cheap way to raise money because an issuer can avoid the investment banking fees of an underwritten stock sale.
But the offerings are often a last resort for weak banks without easy access to the capital markets. The deals are dilutive, and consequently not always popular with shareholders.
"A rights offering is a double-edged sword." said Mr. Oros. "You turn to folks with an existing stake to buy the shares. and if they don't they risk losing it all."
But regulatory demands that Citizens First boost capital gave it little choice.
The bank began to generate core earnings in the second quarter. which means that tangible equity is no longer eroding, according to Elizabeth A. Summers, an analyst with Ryan, Beck & Co., West Orange, N.J. At midyear, nonperforming loans made up 10.7% of all loans and foreclosed real estate.
"I'm absolutely confident the bank is turning around," said Alfred Teo, an outside director and the largest shareholder, with just under 10% of shares outstanding. "We have a super franchise."At a Glance Results of Citizens FirstBancorp's rights offering toshareholders Number of 21.4 million shares sold Price per share $2.50 Amount raised $53.5 million Purchases by investors(*) $18.5 million Use of funds Boost capital of Citizens First National Bank Underwriters Keefe. Bruyette & Woods Inc.: Ladenberg, Thalmann & Co.(*) In conjunction with rights offering,Citizens First agreed to sell new sharesto directors and institutional investorsat $2.50 a share. Source Citizens First Bancorp