Preferred Stock, Common Stock and Dividends

6 Months Ended

Jun. 30, 2012

Preferred Stock, Common Stock and Dividends

Preferred Stock, Common Stock and Dividends

Note 9 — Preferred Stock, Common Stock and Dividends

The Company has outstanding 176,000 shares of Series A cumulative perpetual preferred stock (the “Senior Preferred Stock”), issued to the US Treasury under the Company’s participation in the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”).  On July 11, 2012, the Company repurchased 40,000 shares of the total 216,000 shares of Senior Preferred Stock originally issued to the U.S.  Treasury.  The Company paid the U.S.  Treasury a total of $40 million of the $216 million it received under the TARP Capital Purchase Program, plus an accrued dividend of approximately $311,111.  The remaining 176,000 shares of Senior Preferred Stock have a par value of $.01 per share and a liquidation preference of $1,000 per share, for a total price of $176,000,000.  The Senior Preferred Stock pays dividends at a rate of 5% per year for the first five years and 9% per year thereafter.  The Senior Preferred Stock has no maturity date and ranks senior to the Company’s common stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Company.  In conjunction with the purchase of the Senior Preferred Stock, the US Treasury received a warrant (the “Warrant”) to purchase 1,326,238 shares of the Company’s common stock (the “Warrant Shares”) at $24.43 per share, which would represent an aggregate common stock investment in the Company on exercise of the warrant in full equal to 15% of the Senior Preferred Stock investment.  The term of the Warrant is ten years and was immediately exercisable.  Both the Senior Preferred Stock and Warrant are included as components of Tier 1 capital.  As of June 30, 2012, none of the Warrant had been exercised.  The Company paid dividends on the Senior Preferred Stock on February 16 and May 15, 2012, in the amount of $2,700,000 each and will pay a dividend on the Senior Preferred Stock on August 15, 2012, in the amount of $2,200,000.

Upon issuance, the fair value of the Series A shares and the associated warrants were computed as if the instruments were issued on a stand-alone basis.  The fair value of the Series A shares were estimated based on discounted cash flows, resulting in a stand-alone fair value of approximately $130.9 million.  The Company used the Black-Sholes-Merton option pricing model to estimate the fair value of the warrants, resulting in a stand-alone fair value of approximately $8.0 million.  The fair values of both were then used to record the Series A shares and Warrant on a relative fair value basis, with the warrants being recorded in Surplus as permanent equity and the Series A shares being recorded at a discount of approximately $12.4 million.  Accretion of the discount associated with the preferred stock is recognized as an increase to preferred stock dividends in determining net income available to common shareholders.  The discount is being amortized over a five year period from the respective issuance date using the effective-yield method and totaled $655,000 and $1,298,000 for the three and six months ended June 30, 2012 and $615,000 and $1,220,000 for the three and six months ended June 30, 2011, respectively.

The Company paid cash dividends to the common shareholders of $.20 per share on April 20, 2012 to all holders of record on April 2, 2012.  Cash dividends of $.19 per share were paid to common shareholders on April 18, and October 17, 2011 to all holders of record on March 28, 2011 and September 30, 2011, respectively.

The Company terminated its stock repurchase program on December 19, 2008, in connection with participating in the TARP Capital Purchase Program, which program prohibited stock repurchases, except for repurchases made in connection with the administration of an employee benefit plan in the ordinary course of business and consistent with past practices or those consented to by the Treasury Department.  The stock repurchase restrictions of the TARP Capital Purchase Program ceased to exist on December 23, 2011.  In April 2009, the Board of Directors established a formal stock repurchase program that authorized the repurchase of up to $40 million of common stock within the following twelve months and on March 22, 2012, the Board of Directors extended the repurchase program and again authorized the repurchase of up to $40 million of common stock during the twelve month period expiring on April 10, 2013, which repurchase cap the Board is inclined to increase over time.  Stock repurchases may be made from time to time, on the open market or through private transactions.  Shares repurchased in this program will be held in treasury for reissue for various corporate purposes, including employee stock option plans.  As of August 1, 2012, a total of 7,800,399 shares had been repurchased under all programs at a cost of $236,791,000.