Second National makes deal on debt New agreement is aimed at satisfying regulators

May 11, 1991|By David Conn

Second National Federal Savings Bank, an Annapolis and Salisbury thrift that has been working to satisfy federal regulators' demands for more capital, announced yesterday that it had reached an agreement with two major debt holders that will boost capital and lower interest payments.

Second National said that the holders of $27 million of debt had agreed to various concessions that will add more than $9.5 million to the bank's capital and help it begin to reach the federally required capital level of 3 percent of assets.

In March the thrift announced that it was $9.9 million below core capital requirements and $15.8 million under capital levels tied to the riskiness of its portfolio. It exceeded tangible capital requirements by $14.6 million.

That announcement followed news of a 1990 fourth-quarter loss of $5.5 million, or 80 cents a share. In the first quarter, which ended in March, the company reported a profit of $259,000, despite an addition of $1.5 million to loan-loss reserves, but it has been working to restructure its debt to return to compliance with federal capital standards.

According to the announcement, Second National reached debt restructuring agreements with two major institutional debt holders, Public Service Resources Corp., which holds $15 million in debentures, and Washington Square Capital Inc., a consortium of insurance companies that hold $12 million in debentures.

The agreements will dilute the rest of the shareholders' equity in Second National and will leave them further behind in line for dividends when the thrift resumes those payments on its common and preferred stock, according to Elisabeth Albert Hayes, a banking analyst at the Chapin Davis investment firm in Baltimore. But, she said, "it gives them a lot of breathing room," and it allowed Second National "to raise capital, which is difficult in this environment."

The agreements will:

* Allow the two institutional debt holders to exchange some of their debt for common and preferred stock, and for some of the bank's commercial real estate loans;

* Lower the price at which those investors can exchange warrants for common stock;

* Extend the maturity date on some of the debt, but lower the interest rate;

* Require the bank to resume cash interest payments on some of the debt.

"The willingness of PSCR and Washington Square to accept a form of payment other than cash on its subordinated debentures and to invest in the common stock of our company will materially assist Second National in advancing the time of full capital compliance," Second National President and CEO Henry A. Berliner Jr. said in a statement.

Chief Financial Officer William T. Russell III said the savings bank plans to reach compliance with federal requirements by the second half of 1993, 1 1/2 years before the December 1994 deadline.

In March, Second National said it would stop paying interest on the nearly $27 million in debentures.

The thrift must now resume cash payments on $2 million of PSCR's debt, and to issue common and preferred stock in exchange for payments on much of the rest.

The Washington Square consortium has agreed to allow Second National to prepay $5 million of its debt, and to accept stock and real estate loans for most of the rest.

Second National has 37 branches and assets of $1.75 billion.

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