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PREFERRED STOCK
12 Months Ended
Dec. 31, 2011
PREFERRED STOCK

NOTE 10 – PREFERRED STOCK

 

On February 13, 2009, the Company entered into a Letter Agreement (the “Purchase Agreement”) with the United States Department of Treasury (the “Treasury Department”) under the Troubled Asset Relief Program (TARP) Capital Purchase Program (“CPP”), pursuant to which the Company issued 34,000 shares of Series A Non-Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”) for a total price of $34 million. The Series A Preferred Stock is to pay cumulative dividends at an annual dividend rate of 5% for the first five years and thereafter at an annual dividend rate of 9%. No cash dividends can be paid to common stockholders unless all dividends on the Series A Preferred Stock have been declared and paid in full (or an amount sufficient for the payment of the dividends on the Series A Preferred Stock has been set aside for the payment of such dividends). Pursuant to the American Recovery and Reinvestment Act of 2009 (the “ARRA”), the Company may redeem the Series A Preferred Stock at any time, subject to the approval of its primary federal regulator.

 

As part of its purchase of the Series A Preferred Stock, the Treasury Department received a warrant (the “Warrant”) to purchase 274,784 shares of the Company’s common stock at an initial per share exercise price of $18.56. The Warrant provides for the adjustment of the exercise price and the number of shares of common stock issuable upon exercise pursuant to customary anti-dilution provisions. The Warrant expires ten years from the issuance date.

 

Both the Series A Preferred Stock and the Warrant are accounted for as components of Tier 1 capital. The net proceeds received from the Treasury Department were allocated between the Series A Preferred Stock and Warrant based on relative fair value. The Series A Preferred Stock will be accreted to liquidation value over the expected life of the shares, with accretion charged to retained earnings.

 

On December 22, 2010, the Company repurchased $17 million of the outstanding $34 million of its Series A Preferred Stock, issued in February 2009 to the Treasury Department pursuant to the TARP-CPP.

 

On November 23, 2011, the Company repurchased the final $17 million of the original outstanding $34 million of its Series A Preferred Stock,

 

The Warrant to purchase 274,784 shares of common stock is still outstanding as of December 31, 2011.