A new avenue may be opening for community banks seeking to tap the trust-preferred securities market, an opportunity typically reserved for larger institutions.

A $21.5 million fund has been organized to invest in the securities of two community banking companies in Florida and one in Texas. Sterne, Agee & Leach, the Birmingham, Ala.-based investment banking firm, will manage the fund, known as the SAL Trust Preferred Fund I.

Because of tax benefits, trust-preferreds are the least expensive way for banks and thrifts to raise regulatory capital. The banks pay interest, which is tax-deductible, to the trust. On the other side, the trust pays dividends to its owners, all corporations. Because the corporations receive dividends rather than interest, the income is subject to a substantially lower tax rate.

Until now, smaller financial institutions usually have been stymied by the high cost of preparing their smaller offerings.

Various vehicles for the pooling and packaging of smaller banks' securities have been suggested, but few have proved entirely successful.

"This basically allows community banks access to the trust-preferred market through a structure that permits them to share costs without making them liable for the performance of each other,'' said Craig R. Heyward, a managing director in the capital markets group at Sterne Agee.

The latest effort involves a closed-end investment fund created to invest in trust-preferred securities issued by capital trusts formed by First Bancorp Inc. of Naples, Fla., First Southern Bancorp Inc. of Boca Raton, Fla., and Central Community Corp. of Temple, Tex.

A prospectus was issued last month for a proposed offering of 860,000 shares of the trust, priced at $25 each. The banking companies pay the costs of organizing the fund and offering the shares. Sterne Agee Asset Management will receive an annual fee equal to 0.1% of the Fund's net asset value, calculated quarterly.

Plans are to list the fund on the American Stock Exchange. It will offer investors a dividend on the fund shares, yet to be determined. The prospectus warned that the fund is intended for long-term investors and should not be viewed as a trading vehicle.

First Bancorp operates Gulf Coast National Bank, which has four offices in the Naples area and plans to open a fifth later this year on nearby Marco Island. It is the largest independent bank in Collier County, which is experiencing rapid growth and has the highest median family income in Florida.

The company also runs First National Bank of the Florida Keys, based in Marathon, Fla. It has two offices in Marathon, two in Key West at the lower point of the Florida Keys, and one in Islamorada, at the upper end of the keys.

First Southern operates three offices in Boca Raton and one each in Lighthouse Point, Coral Springs, and Fort Lauderdale.

Central Community operates First State Bank of Central Texas, with 12 offices in six counties surrounding Austin.

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