Magazine article American Banker

Citizens First Opting for a Rights Offering

Magazine article American Banker

Citizens First Opting for a Rights Offering

Article excerpt

Citizens First Bancorp plans to raise $53 million through a rights offering a capital-raising method gaining favor among weak banks.

The Glen Rock, N.J., company, which has been hit by non-performing construction lending, is among a handful of banks that have offered or plan to offer existing shareholders the right to buy common stock at a discount.

Riggs National Corp., Washington, and Equimark Corp., Pittsburgh, paved the way earlier this year, when each raised about $50 million through rights offerings.

Hibernia Corp., New Orleans, which is also awash in bad loans, plans a rights offering, though it has not disclosed the terms. Midlantic Corp., Edison, N.J., is a candidate as well, say analysts. Midlantic officials were unavailable for comment.

Rights offerings are intended for companies that cannot inspire enough investor confidence to support public stock offerings.

"Rights offerings aren't for every bank," said Edward D. Herlihy, as lawyer with Wachtell, Lipton, Rosen & Katz in New York. "But they are a means for raising capital for an undercapitalized institution if the markets are closed to them."

Under Citizen First's rights offering, stockholders will be able to purchase one share for every share they own. The price per share is $2.50, $2 less than the current trading price and well under book value. There are 21.4 million outstanding shares.

If the offer succeeds, the $2.5 billion company will come close to the capital levels required by the Office of the Comptroller of the Currency in a cease-and-desist order issued in 1990.

At the end of the first quarter, the bank's Tier 1 and total capital ratios were 4.57% and 6.65% respectively.

Previously Avoided

According to analysts, the rights offering would boost the Tier 1 capital ratio to 7.4% and the total capital ratio to 9.8%.

Still, Citizens will fall short of the omptroller's requirement of 8. …

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