LNB Bancorp (LNBB) in Lorain, Ohio, is inching its way toward exiting the Troubled Asset Relief Program.

The $1.2 billion-asset parent of Lorain National Bank said Monday that it has repurchased 25% of the preferred shares it issued to the Treasury Department in December 2008 that have since been sold to a third-party investor.

The buyback equals $6.3 million of $25.2 million it received from Tarp.  LNB will have to pay a 9% dividend on the shares starting in December 2013 unless it redeems the remaining shares before then. The company pays 5% currently.

"This transaction is the first step in our intention to eventually repurchase or redeem all of the Series B preferred stock that was originally issued to the Treasury," Daniel Klimas, chief executive of LNB, said in a news release. "We are pleased that we were able to fund this initial repurchase using cash from accumulated earnings and excess capital."

"This approach is consistent with our previously stated intention to carefully balance our need to maintain a strong capital position with our objectives of building shareholder value and protecting the interests of our shareholders," Klimas added.

LNB is among hundreds of community banks that may have to decide whether to raise capital to avoid a jump in the dividend rate on preferred shares they issued under Tarp or to let the rate reset and cut into profits.

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