Preferred Bank said late Monday that it raised $77 million through a private preferred stock placement that will enable it to meet terms of a regulatory consent order but significantly dilute current shares.
The Los Angeles bank said net proceeds would be used for general corporate purposes and to meet capital requirements of a consent order from the California Department of Financial Institutions and the Federal Deposit Insurance Corp. The bank said it had expected to raise $70 million but increased the offering due to investor interest.
Preferred Bank primarily caters to the region’s Chinese-American community and suffered from bad loan losses during the recession.
The placement was comprised of 77,000 shares of Series A convertible preferred stock sold at $1,000 per share. The preferred stock will convert into common stock after shareholder approval is obtained. Each share of preferred stock will be convertible into 666.67 shares of common stock for a total 51.3 million new shares. The estimated conversion price is $1.50.
Preferred Bank currently has 15.7 million shares outstanding and a market cap of $37.7 million. In addition to institutional buyers, the company said more than half of the funds raised came from directors and officers of the bank, and a “network of friends and customers.”
“This transaction puts our capital ratios well beyond those required by our consent order and will allow us to continue the significant progress we have made in implementing our business plan and improving asset quality,” said Chief Executive Li Yu in a statement.
The announcement was made after the markets closed. Shares earlier closed down 15 cents, or 6 percent, to $2.27 on the Nasdaq.
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