Financially troubled Second National Federal Savings Bank, following a newly approved regulatory plan to boost capital, announced a plan yesterday to stop making cash payments to its sole preferred stockholder.
Second National, one of the state's largest thrifts with $1.75 billion in assets, said that the Public Service Resources Corp. of New Jersey, a utility, had agreed to accept additional preferred stock in lieu of cash dividends and subordinated debt payments. The suspension of the $450,000 in quarterly debt payments is contingent upon similar terms being reached with other subordinated debt holders, with whom Second National is negotiating.
The modified terms would continue until the ailing thrift meets federally required capital levels, which is expected by 1994, the thrift said.
"This modification is clearly in our mutual interest since capital distributions will not be permitted while the company is out of capital compliance," Henry A. Berliner Jr., Second National's president and chief executive, said in a statement. "The sooner we achieve capital compliance, the sooner we can resume payments to subordinated debt holders, preferred and common stockholders alike."
Second National, which has 37 branches in Maryland, Delaware, Pennsylvania, Virginia and Washington, has been hit in recent months by an onslaught of souring real estate loans. The thrift suffered an $18 million loss last year after adding nearly $37 million to its reserves for bad loans, more than 20 times the level of the year earlier.
As a result of the large loss, the thrift had fallen below two of the three capital levels set by federal regulators. Second National said earlier this month that its plan to boost capital by 1994 had been approved by the Office of Thrift Supervision, the federal agency that oversees the nation's savings and loan industry. The thrift had earlier eliminated its dividend on its common stock.
Public Service of New Jersey's holdings date to 1988, when the gas and electric utility bought $15 million of Second National's subordinated debentures. The next year, it purchased an additional $15 million in preferred stock, which yielded about $375,000 in quarterly dividends. Second National has an additional $12 million in debt outstanding, requiring about $428,000 in quarterly payments by the thrift.
The agreement between Second National and Public Service also called for the elimination of a provision that permitted Public Service to convert its preferred stock into common stock in certain circumstances.
In exchange for these amendments, the thrift said, the exercise price on 525,000 warrants held by Public Service was lowered to $2.50 a share instead of the $7.50 to $8.70 a share at which the warrants were issued. Public Service would also receive an additional 200,000 warrants under the terms of the agreement, Second National said.
Second National, traded over-the-counter, closed yesterday at $2.25, down 12 1/2 cents a share.