The difference between CAP and CPP is much more than a letter, and Citizens Republic Bancorp Inc. of Flint, Mich., may become the first company to reap the benefits.

The company said Thursday that it has applied for up to $290 million from the Capital Assistance Program, which the Treasury Department created in February. Of that amount, as much as $100 million would be used to redeem a third of the preferred shares Citizens Republic issued to the Treasury last year under the Bush administration's Capital Purchase Program.

The government would remain a big investor in Citizens Republic, and many of the terms would be less favorable to the company. But CAP investments have one big advantage over the predecessor program: the preferred shares are convertible to common ones. Converting increases a company's tangible common equity ratio — a current focal point for investors.

"We are preparing our arsenal of alternatives that will keep our capital cushions above well capitalized," said Charles D. Christy, Citizens Republic's chief financial officer. "We are positioning ourselves to get through the storm."

Other options under consideration at the $13 billion-asset company include selling common shares in the market and exchanging debt for equity.

"They all have pros and cons," Christy said. "We would be looking at ones that raise both regulatory capital ratios and increase our tangible common equity ratio."

On March 31 that ratio stood at 5.53%. Analysts generally consider a tangible common equity ratio below 5% to be worrisome. Christy said that if its gets the CAP infusion, Citizens Republic would immediately convert the shares, and that just the $190 million not used to pay off the CPP investment would boost the tangible common equity ratio to 6.88%.

Analysts said they weren't aware of any other community banks that have applied for the new program, but like the old program, banks are not required to disclose the application. Additionally, observers said there may be little fanfare surrounding CAP because the Treasury has yet to make an investment under it and the application deadline is not until Nov. 9.

Jason O'Donnell, an analyst with Boenning & Scattergood Inc., said the most likely option of those presented by Citizens Republic is the CAP investment. That's because he said it can be tough to persuade shareholders to agree to a debt exchange, and CAP comes with an attractive fixed price of $1.50 when the shares convert from preferred to common.

With a 9% dividend, CAP is more expensive than its predecessor, which carries a 5% dividend for the first five years before jumping to 9%. (However, once the preferred shares under CAP convert to common ones, the government receives the same dividend as other common shareholders.)

CAP also comes with tougher restrictions for things like management compensation and stress testing. Companies can receive investments for up to 2% of their risk-weighted assets; in the older program the limit is 3% to 5%, depending on asset size.

"Given the uncertainties in the economy overall, it doesn't hurt to apply," Christy said.

The company also said Thursday that it is asking shareholders to increase the number of outstanding shares sevenfold. Of its 150 million shares, 149 million are accounted for, giving the company little wiggle room to raise capital, particularly given its stock price, which was trading at 93 cents in the days leading up to the announcement. Shares of the company fell a dime on Friday and were trading at 83 cents each at midday.

On March 31, Citizens Republic was well capitalized under regulatory definitions, with a total risk-based capital ratio of 14.23%. Nonperforming assets made up $550.6 million, or 6.25% of total assets — a 69% increase from a year earlier.

Christy said the company has no immediate plans to tap the lines of possible capital, and that it just wants to make sure it can act quickly. But O'Donnell said he viewed Thursday's announcement as far from proactive.

"I view this as them saying that credit losses are accelerating at a faster rate than they anticipated," he said. "They are moving toward an action that would dilute shareholders by half or more from already low levels. That sends a strong signal that they have a capital shortage on their hands, maybe not this quarter, but they see it happening" eventually.

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