MNC maintains 29-cent dividend


MNC Financial Inc., defying weeks of rumors and the expectations of many who follow the company, said yesterday that it would continue paying its regular quarterly dividend of 29 cents a share while moving forward with a plan to accept a large cash infusion from its biggest shareholder.

The decision, reached after a daylong board meeting yesterday, meant not only that a quarter-century of increasing annual dividends remained on track but that the directors apparently felt confident enough in the banking company's financial health to retain the big quarterly payout, observers said.

The banking company, parent of Maryland National Bank and American Security Bank, said its common stock dividend would be payable Sept. 28 to stockholders of record Sept. 21. MNC closed yesterday unchanged at $7.50 a share on the New York Stock Exchange.

The company declined to elaborate on its announcement, which came after the market closed, but analysts were encouraged by the apparent approval bestowed on the dividend by federal regulators who are wrapping up their examination of the company's banks.

"It's obviously a good sign that they are maintaining the dividend," said Kyle Prechtl Legg, a banking analyst at Alex. Brown Inc. in Baltimore. "I cannot imagine that that was declared in a vacuum with regard to regulators. I can't imagine that if things were blowing up all around them, they wouldn't know that and would declare a dividend with that knowledge."

But many banking analysts and local industry executives said they were surprised by the MNC board's move -- or lack of one. They had expected that, at a time when real estate was continuing to slump and when the company was expected to pare its employee ranks, the directors of MNC would feel pressure to curtail the dividend, which stands at $1.16 a share a year.

To cover the dividend, MNC, with 84.8 million common shares outstanding, would have to earn $98 million in after-tax income for the year, or about $150 million before taxes, based on the company's tax rate of 34 percent last year.

Still, the news was expected to be welcome to stockholders. Stockholders in Maryland own an estimated 17 million MNC shares.

Yesterday's announcement also said that the board approved a stock-purchase agreement with Alfred Lerner on a plan to raise $180 million in new capital. Under the proposed arrangement, Mr. Lerner -- the company's largest shareholder with an 8.9 percent stake and an MNC director -- would be joined by other directors in purchasing newly issued preferred stock.

Some analysts said that though the dividend news was cause for optimism, maintaining the the full payout at such a financially difficult time for the banking company also raised some questions.

The deal with Mr. Lerner, they noted, is planned to carry a hefty cash dividend of 12 percent annually on the preferred shares. Some analysts wondered whether cutting the dividend would have been more prudent than paying out capital in the form of a common stock dividend only to raise other capital from Mr. Lerner.

In addition, MNC is in the midst of a reorganization that is expected to result in layoffs over the next several months. The cuts are aimed at paring expenses following the company's $75 million loss during the second quarter and continued weakness in real estate, sources at MNC said.

"I think it's sort of mixed news," said David S. Penn, an analyst with Legg Mason Inc. in Baltimore. "On the one hand, they're raising some expensive capital" from Mr. Lerner. "But the good news," he said, "is the signal they're sending out to the market that they're not going down the tubes. Given their earnings in the first and second quarter, it doesn't look prudent, but we'll have to wait and see."

MNC also said yesterday that, beginning with its quarter ending in December, its directors will meet the month after the quarter ends to consider the dividend rather than during the quarter's final month.

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