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Monthly Archives: February 2009

Round 15 of TARP Capital Infusions – TARP Map and List of Recipients Updated

By Dustin Hall - Saturday, February 28, 2009

On February 24, 2009, the Treasury announced the completion of the fifteenth round of TARP Capital infusions.  The Treasury purchased a total of approximately $365 million in securities from 23 financial institutions on Friday, February 20, 2009, and has now invested in 441 institutions, totaling approximately $196.4 billion.

In this fifteenth round, First Merchants Corporation of Muncie, Indiana, received the largest Capital infusion, $116 million, and Lafayette Bancorp, Inc. of Oxford, Mississippi, received the smallest Capital infusion, $1.99 million. 

Click here to view our updated TARP Map.

Click here to view our updated list of TARP Capital recipients and a description of our methodology in compiling the list.

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Treasury Provides Guidance on Redeeming TARP Capital Investments

By Dustin Hall - Friday, February 27, 2009

The Treasury has provided a list of FAQs to address the changes to the Capital Purchase Program resulting from the American Recovery and Reinvestment Act of 2009 (the “Act”).  These FAQs deal with how an institution that has received TARP Capital can redeem the investment and with how the redemption affects other aspects of the investment. 

Importantly, the FAQs explicitly acknowledge that the participating institution may (1) redeem the investment under terms different from the terms contained in the original transaction documents, and (2) redeem less than the whole amount — 25% of the issue price is the minimum amount that can be redeemed.

According to the FAQs, an institution wishing to redeem should notify the Treasury and the institution’s primary regulator, who will then consult with the Treasury regarding the redemption.   Detailed payment instructions will be given to the institution after the notification and consultation process.

The institution must pay any dividends, whether cumulative or non-cumulative, that are accrued and unpaid at the time of redemption, even if the institution did not or would not actually declare dividends for the period. 

The Treasury has setup a new e-mail address to handle notifications of redemption: CPPRedemption@do.treas.gov.

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Revised TARP Capital Closing Documents

By Dustin Hall - Friday, February 27, 2009

The Treasury required two revised closing documents to be delivered in connection with TARP Capital closings that took place on February 27, 2009: the Officer’s Certificate regarding executive compensation compliance and the Side Letter Agreement. 

The revision to the Officer’s Certificate was minimal.  The provision of the EESA with which the officer was certifying compliance previously indicated “Section 111(b).”  This reference was revised to certify compliance with ”Section 111.”  We have uploaded a form of this revised Officer’s Certificate.

As we previously indicated, the Treasury added a Side Letter Agreement, addressing the modifications to EESA by the American Recovery and Reinvestment Act of 2009 (the “Act”).  SEOs of participating institutions must sign this Side Letter as part of TARP Capital transactions.  Unlike the previous version of the Side Letter Agreement, the most recent version contains an explicit acknowledgment that the participating institution shall be permitted to repay the preferred shares after consultation with the appropriate federal banking agency without regard to whether the institution has replaced the funds, and that when such preferred shares are repaid, the Treasury will liquidate the warrants associated with such preferred shares “at the current market price,” both as required by the Act.   We understand that this provision was (1) included in the Side Letter executed by companies that closed TARP Capital investments on February 20, 2009, (2) removed from a revised version, and now (3) has returned for TARP Capital investments that closed on February 27, 2009.  We have uploaded a clean version of the new Side Letter Agreement.

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Updated SEC Guidance on “Say-on-Pay”

By Rob Klingler - Thursday, February 26, 2009

On February 26, 2009, the SEC updated its Compliance and Disclosure Interpretations on the American Recovery and Reinvestment Act to explicitly state that the SEC agrees with the views expressed in Senator Dodd’s letter to Chairman Schapiro.  As a result, the SEC’s position is that all public companies that have received TARP Capital funds must offer shareholders a non-binding vote on executive compensation this year (unless a preliminary or definitive proxy was filed before February 17, 2009), and must submit a preliminary proxy for SEC review prior to mailing the proxy statement to its shareholders.

The revised SEC interpretations also make clear that the TARP recipients are required to provide the shareholder vote regardless of whether a shareholder has requested such a vote, and may not satisfy the requirement by simply asking shareholders to vote on a policy to hold such votes going forward.

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The Moving TARP Capital Executive Compensation Restrictions

By Rob Klingler - Wednesday, February 25, 2009

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the “Act”), previously just called the economic stimulus bill.  Both the complete legislation and the provisions directly related to executive compensation can now be found online. Furthermore, we have previously posted our summaries of the executive compensation provisions and the tax provisions most likely to impact community banks.

Below, we have summarized the new TARP Capital closing documents, Senator Dodd’s Letter on the Act, the effectiveness date for the provisions of the Act, the SEC’s guidance on the Act, and remaining open questions.

New TARP Capital Closing Documents

In light of the new executive compensation restrictions, the Treasury has modified the Waiver required to be signed in order to close TARP Capital investments, as well as added a side letter that addresses the modifications introduced by the Act.

The new Waiver (i) acts as a consent to all modifications required to comply with the TARP Capital restrictions; (ii) requires repayment to the company by employees of any payments made in violation of the TARP Capital restrictions; and (iii) expands the TARP Capital restrictions to include the Emergency Economic Stabilization Act, as amended (EESA), and all rules, regulations, guidance or other requirements issued under EESA, rather than just compliance with the regulations adopted by the Treasury on October 20, 2008.  As noted below, the Waiver now must be signed by the company’s senior executive officers as well by any additional highly compensated employees “required by applicable rules or regulations.”  We have uploaded a marked version of the Waiver showing the modifications.

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New Supervisory Guidance on BHC’s Dividends, Redemptions and Repurchases

By Rob Klingler - Wednesday, February 25, 2009

On February 24, 2009, the Federal Reserve published a Supervisory Letter regarding the ability of bank holding companies to declare dividends and to redeem or repurchase equity securities.  The Supervisory Letter is generally consistent with prior guidance, although places greater emphasis on discussions with the regulators prior to dividend declarations and redemption or repurchase decisions even when not explicitly required by the regulations.  Although consultation with the Federal Reserve in these situations is optional, the guidance makes clear that the failure to consult with the Federal Reserve “could result in a supervisory finding that the organization is operating in an unsafe and unsound manner.”

The Federal Reserve provides that the principles discussed in the letter are applicable to all bank holding companies, but are especially relevant for bank holding companies that are experiencing financial difficulties and/or receiving TARP Capital.  To that end, the Supervisory Letter specifically addresses the Federal Reserve’s supervisory considerations for TARP Capital participants.

TARP Capital

In addition to the general guidance provided by the Supervisory Letter and the explicit restrictions on dividends, repurchases and redemptions contained in the TARP Capital documents, the Supervisory Letter also provides guidance on how the supervisory staff will analyze TARP Capital recipients.  The guidance provides that TARP recipients should “consider and communicate reasonably in advance” to supervisory staff  how the bank holding company’s proposed dividends, capital redemptions, and capital repurchases are “consistent with the requirements applicable to its receipt of capital under the program and its ability to redeem, within a reasonable period of time and with Federal Reserve consent, its outstanding capital issuance under the program.”  The Federal Reserve’s guidance specifically calls for the redemption of the TARP Capital “as soon as reasonably feasible and appropriate.”

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A Creative Use of TARP Funds

By Rob Klingler - Tuesday, February 24, 2009

While many community banks still have not received any TARP Capital investment, many of those that have may be able to demonstrate to Congress why investments in community banks are key to getting money circulating on main street again.  One such community bank, Citizens South Bank in Gastonia, North Carolina, and its President, Kim Price, were highlighted in a recent opinion piece in the Washington Post.

And that got Price to thinking: What if Citizens were to use its federal bailout money to offer below-market mortgage rates with no closing costs to consumers who would buy a house, or a house lot, from builders and developers who had borrowed money from Citizens?

Price asked some of his loan officers to check with the builders and developers, who not surprisingly were excited enough about the project to be willing to chip in some money to help cover a portion of the forgone closing costs.  So last week, Citizens launched its marketing campaign for the $20.5 million program, in collaboration with its builder-developer customers, offering 30-year loans with an initial teaser rate of 3.5 percent for the first two years, rising to a fixed 5.5 percent rate (the current market rate) for the balance of the loan.

“As we see it, it’s a win-win-win situation all round,” Price explained to me. The builders and developers win by having a tool to help move their unsold inventory.  The consumer wins by getting a cut-rate loan.  And Citizens wins because it lowers the risk that it will have to write off even more of its commercial loans while taking a modest step to help stimulate the local economy.  And, of course, the public relations bump isn’t bad either.

Offering special mortgage rates to consumers who buy lots from the bank’s builders can be a great way to address the slowing real estate market generally, with or without TARP Capital.

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Joint Statement Promoting Privately Held Banks

By Rob Klingler - Monday, February 23, 2009

In an effort to calm the financial markets, on February 23, 2009, the Treasury, FDIC, OCC, OTS, and Federal Reserve issued a joint statement about the Capital Assistance Program and a “strong presumption” that banks should remain in private hands.

The joint statement also provides additional details about the Capital Assistance Program that was part of the Treasury’s previously announced Financial Stability Plan.  The Capital Assistance Program (presumably to become known as CAP, and not to be confused with the CPP, the Capital Purchase Program), will be “initiated” on February 25, 2009.  If the “stress test” indicates that an additional capital buffer is needed, institutions will be given an “opportunity” to raise capital privately before the government makes a capital buffer “available” to the institution.  The regulators provide that this higher level of capital “does not imply a new capital standard,” although it’s hard to see how that implication is avoided.

Any governmental infusion will be in the form of mandatory convertible preferred securities, and could be retired before conversion if the financial conditions improve.  It is not clear whether the preferred securities, prior to conversion, will be treated as Tier 1 capital.  The Treasury intends to make prior capital injections under the Capital Purchase Program also eligible to be exchanged for the new mandatory convertible preferred shares.

The joint statement concludes with an argument that widespread nationalization of banks will not occur under the Capital Assistance Program.  “Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands.”

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Round 14 of TARP Capital Infusions – TARP Map and List of Recipients Updated

By Dustin Hall - Monday, February 23, 2009

On February 17, 2009, the Treasury announced the completion of the fourteenth round of TARP Capital infusions.  The Treasury purchased a total of approximately $429 million in securities from 29 financial institutions on Friday, February 13, 2009, and has now invested in 418 institutions, totaling approximately $196 billion.

Of note in this fourteenth round, four institutions received less than $1 million each: Bern Bancshares, Inc., Bern, Kansas, received $985,000; Gregg Bancshares, Inc., Ozark, Missouri, received $825,000; Midwest Regional Bancorp, Inc., Festus, Missouri, received $700,000; and Corning Savings and Loan Association, Corning, Arkansas, received $638,000.  Westamerica Bancorporation, San Rafael, California, received the largest infusion at $84 million.

One more state joined the group of states with an institution receiving TARP Capital — Wyoming, with Financial Security Corporation receiving a $5 million infusion.  This leaves only Montana, New Mexico, and Vermont without an institution to have received TARP Capital.

Click here to view our updated TARP Map.

Click here to view our updated list of TARP Capital recipients and a description of our methodology in compiling the list.

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An Internet Guide to TARP

By Rob Klingler - Sunday, February 22, 2009

I don’t know where this originated from, but I’ve received it from multiple sources and laughed each time.  I hope you enjoy this pictorial take on the Troubled Asset Relief Program (click on the picture for the full set).

A Pictorial History of TARP

As a side note, the pictures appear to be the newest iteration of an internet hoax.

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