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ABA POOLED TRUST PREFERRED SECURITIES PROGRAM
| Market Profile | Program Benefits | Program Contacts | Pooling Now Makes TPS Affordable for Community Banks Trust Preferred Securities (TPS) provide a way for banks to raise Tier 1 Capital, receive a tax deduction and avoid shareholder dilution. TPS are treated as Tier 1 Capital for regulatory purposes and are treated as debt for federal income tax purposes. Since dividends (interest) on TPS are deductible for tax purposes, the effective cost of TPS for the issuer is about 40% less than its nominal coupon rate or what would be the cost of ordinary preferred stock. The pooling of TPS offers a number of community banks the opportunity to access this form of equity in a way that they probably could not cost-efficiently do on their own. With pooled TPS, community bank holding companies' Trust Preferred Securities are purchased by a pooling vehicle that in turn sells securities to investors, buying interests in the pool rather than securities issued by individual participating banks. BACKGROUNDAs part of its mission to help banks with funding solutions, ABA's Funding and Liquidity Steering Group recommended that the ABA research and identify a provider of pooled TPS that could assist the community bank market. Following a review focusing on finding the most experienced provider in structuring and closing TPS pools, and who could best meet the needs of ABA's community bank members in reliability, flexibility, and cost-efficiency, the ABA endorsement was awarded to FTN Financial, a division of First Tennessee Bank, National Association, and Keefe, Bruyette & Woods (KBW). Bank holding companies typically of at least $50 million in assets that want or need to raise Tier 1 capital may be a candidate for issuing pooled TPS through the FTN Financial /KBW program. Other eligibility requirements will apply. HOW BANKS USE TPS CAPITAL / FUNDING
HOW BANKS BENEFIT BY POOLING
NEW COST SAVINGS
The Pooled Trust Preferred Securities Program of FTN Financial and KBW is endorsed by the American Bankers Association, through its affiliate, the Corporation for American Banking and its subsidiary ABA Business Services, LLC a licensed broker/dealer and member of FINRA. CAPITAL TREATMENT OF TPS
On March 1, 2005, the Federal Reserve issued its long-awaited final rule preserving the regulatory capital treatment of TPS. Under the final rule, holding companies may continue to include TPS in Tier 1 Capital up to 25% of the sum of core capital elements (including TPS), provided that after the end of a transition period (effective March 31, 2009), institutions would be required to net goodwill (less any associated deferred tax liability) from this calculation. COMPANIES ADMINISTERING PROGRAM
ABA CONTACTS Robin Gordon (202) 663-5128; E-mail: rgordon@aba.com |
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