LNB Bancorp in Lorain, Ohio, has retired a large chunk of its bailout money by offering its owners common stock.
The $1.2 billion-asset company (LNBB) announced Friday it issued 1.36 million shares of its common stock to certain, unnamed investors in exchange for 9,733 shares of its Series B preferred stock. The preferred stock was valued at $1,000 per share and the common shares were issued at $7.16 per share. The exchange was priced at a 13% discount to the company's stock price on Friday and at 62% of its book value.
The Series B preferred is what LNB issued to the Treasury in late 2008 in exchange for $25.22 million in capital from the Troubled Asset Relief Program. In June 2012 the Treasury sold its stake in LNB through a modified Dutch auction for roughly $870 a share, or $22 million, as part of its push to wind down the program.
The conversion helps the company in two ways: it boosts its tangible common equity ratio to 6.82% from 5.98% on a pro-forma basis and it eliminates $487,000 in dividend payments it would have paid this year. The preferred stock carries a 5% coupon that resets to 9% after five years.
"This transaction is consistent with our 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," Daniel E. Klimas, chief executive of LNB, said in a press release. "This transaction puts us in a position where we expect that our retained earnings can play a more significant role in the funding of any redemption or repurchasing activity going forward."
In the fourth quarter the company redeemed $6.3 million of the Tarp stake through retained earnings and excess capital. It now has $9.2 million outstanding.
Umberto Fedeli, an investor who holds roughly 9% of the company's common stock, has been pressuring LNB to redeem the Tarp shares in advance of the rate hike. He bought a stake in the Tarp auction but said he was not involved in the conversion.