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TPS: An Effective Capital Raising Tool

FNC helps bank clients develop customized, cost-effective funding solutions. We are pleased to offer Trust Preferred Securities, or TPS, hybrid instruments with features similar to both debt and equity. Capital from TPS offerings can be used for purposes such as Acquisition, Stock Repurchase, Growth and Debt Refinancing.

Advantages of Trust Preferred Securities

In 1996, the Federal Reserve Board issued a decision that TPS could qualify as Tier 1 capital, up to a maximum of 25%. Because TPS are not classified as common equity and are not, therefore, included in the calculation of a bank’s earnings per share or return on equity, they can be used to boost regulatory capital without diluting common shareholders’ stock. In addition, the dividends payable under TPS are—unlike preferred stock dividends—considered to be interest payments and are tax deductible.

TPS are long-term instruments (with a 30-year maturity) and are non-callable for five years. In terms of subordination, TPS rank higher than subordinated debt and lower than equity in a bank’s capital.

Trust Preferred Pools

The introduction of trust preferred pools, in 1999, made it possible for a significant number of smaller community banks to issue TPS. Pools are structured so that no single issuer represents too large a portion of the pool. As a result, no single issuer is engaging in a “public offering” for which it would have to effect a registration. In addition, out-of-pocket costs are lower than in a stand-alone offering. Participants in the pool share equally in the expense and the proceeds. Most pools range in size between $2 million and $30 million, although they can be much larger.

We invite you to contact FNC to request a free brochure and explore how the benefits of Trust Preferred Pools might help you meet your financing needs.

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