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Tag Archives: Capital Purchase Program

Senate Considering $30 Billion Small Business Lending Fund for Community Banks

On June 29, 2010, the Senate voted to commence debate on the Small Business Jobs and Credit Act of 2010, a bill passed by the House on June 17, 2010 which includes a $30 billion fund for small business lending through the provision of capital to community banks. This legislation would implement the program described in President Obama’s State of the Union address earlier this year.  Obama has promoted the program by saying that it “takes money repaid by Wall Street banks to provide capital for community banks on Main Street” that can in turn help small businesses create jobs. In the latest version of the bill presented to the Senate,  certain banks with less than $10 billion in assets would be eligible for government infusions of capital, dividend payments on which would decrease with increasing levels of small business lending.  Banks are also generally permitted to use this capital to refinance existing TARP obligations.  The substitute amendment currently before the Senate cuts out a provision of the House bill to permit eligible banks to amortize recent real estate loan losses over as many as 10 years.

The original Obama proposal called on Congress to transfer TARP money to create the fund, but the fund has evolved as a completely separate initiative.  Acknowledging this possible confusion, Section 3111(a) of the bill specifically provides that the fund “is established as separate and distinct from the Troubled Asset Relief Program established by the Emergency Economic Stabilization Act of 2008” and that an institution “shall not, by virtue of a capital investment under the Small Business Lending Fund Program, be considered a recipient of the Troubled Asset Relief Program.”  Proponents continue the political battle to detach this potentially negative association from a bill that would target recovery on Main Street.

The Small Business Lending Fund

Title III of the bill currently before the Senate establishes the fund and authorizes the government to make up to $30 billion in capital investments into eligible institutions.  These investments would be similar to TARP infusions but would not result in executive compensation and other restrictions.  Banks up to $10 billion in assets would generally be eligible to apply for funding. However, the Small Business Lending Fund will not be a source of capital for the banks most in need of additional capital.  Banks on the FDIC’s Troubled Bank List (generally those with composite CAMELS ratings of 4 or 5) would be ineligible to participate. As with the Capital Purchase Program, the program is designed to provide assistance to otherwise healthy institutions.  Each institution’s primary federal banking regulator will continue to have a significant say in whether the institution should receive any funds under the Small Business Lending Fund.

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Email This Content Email This Content Posted in TARP Capital, Troubled Institutions. Tagged with , , . By Barry Hester - Tuesday, July 6, 2010

TARP Use of Capital Survey Due Thursday, April 15, 2010

The Treasury Department is conducting a survey on how all TARP CPP recipients used the capital provided by TARP during 2009.  Specifically, the Treasury is seeking to collect information to understand what actions institutions took, or were able to avoid taking, because of CPP funding.  In addition to collecting feedback through the surveys, the Treasury will also publish summary balance sheet and income statement information from each institution’s regulatory filings.

Survey responses are due Thursday, April 15, 2010.

While responding to the survey is not required under the TARP CPP agreements or regulations, banks failing to respond are likely subject to possible criticism from their primary regulator.  For example, FIL-1-2009 encourages state non-member banks to document how the CPP funds were used and encourages summarizing such information in public documents.  While the Use of Capital Survey is not explicitly listed, FDIC examiners may take the failure to respond as an affront to their regulatory guidance.

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Email This Content Email This Content Posted in TARP Capital. Tagged with , . By Rob Klingler - Monday, April 12, 2010

TARP Special Master Requests Historical Compensation Data

On March 23, 2010, the Special Master for TARP Executive Compensation issued a letter to all financial institutions that received TARP CPP funds prior to February 17, 2009.  The letter requests compensation data to permit the Special Master to review all bonuses, retention awards and other compensation paid to the institution’s senior executive officers and next 20 most highly-compensated employees from the receipt of TARP CPP funds through February 17, 2009.

In the event the Special Master determines that such compensation is inconsistent with the purposes of TARP or otherwise contrary to the public interest, the Treasury shall seek to negotiate with the TARP CPP recipient and the affected employee for appropriate reimbursements to the federal government.

The review is applicable to all institutions that received TARP assistance prior to February 17, 2009, even if the institution has repaid such funds.  Institutions that received TARP assistance after February 17, 2009 are not included in the review.  A complete list of the affected TARP institutions is included as an appendix to the Special Master’s letter.

Institutions must confirm receipt of the Special Master’s request no later than April 6, 2010, and must submit the required data and certification not later than April 22, 2010.

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Email This Content Email This Content Posted in TARP Capital. Tagged with , , . By Rob Klingler - Tuesday, March 30, 2010

Treasury Expands TARP Program for CDFI’s; Contemplates Private Matching Investments

On February 3, 2010, the Treasury Department announced enhancements to the TARP Capital Purchase Program for Community Development Financial Institutions (CDFIs).  In addition to significant improvements for CDFIs, for the first time the Treasury Department has formally announced that it will consider private matching investments to determine bank viability – which could be a significant signal of how the Treasury might treat community banks under the proposed $30 billion Small Business Lending Fund.

Basic Program Terms

  • CDFI’s can apply for capital equal to up to 5 percent of their total risk weighted assets.
  • The dividend rate on the preferred stock will be 2% for eight years (as opposed to 5% for five years under the original Capital Purchase Program) before increasing to 9%.
  • CDFI’s with existing TARP Capital Purchase Program investments will be eligible to transfer those investments into this program (effectively lowering the carrying costs of the capital and potentially providing additional capital, if desired).
  • Consistent with the previous terms for CDFI’s, CDFI’s will not be required to issue any warrants or other additional equity kickers to the Treasury Department under the program.

Matching Capital

As noted above, for the first time the Treasury Department has formally recognized the possibility of institutions raising matching private capital to become eligible for TARP capital.  Specifically, the new plan contemplates that if a CDFI might not otherwise be approved by its regulator, it will be eligible to participate “so long as it can raise enough private capital that – when matched with the Treasury capital up to 5 percent of risk-weighted assets – it can reach viability.”  The new private capital will have to be junior to the TARP investment (i.e. common stock or preferred stock with lower preferences – although potentially higher dividend rates – than the TARP preferred stock).

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Email This Content Email This Content Posted in TARP Capital. Tagged with , , , , . By Rob Klingler - Thursday, February 4, 2010

President Obama Proposes $30 Billion Small Business Lending Fund

Carrying through with his announcement in the State of the Union, on February 2, 2010, President Obama provided the outlines of a proposed $30 billion Small Business Lending Fund to provide capital to community banks, with incentives to increase small business lending.  As proposed, the program will require Congressional approval to move the funds outside of TARP, which should remove the applicability of the executive compensation and governance restrictions and is also hoped to remove the stigma associated with TARP funds.

Based on the initial fact sheet, the terms appear generally comparable to the financial terms under the Capital Purchase Program, with reductions in the dividend rate for the first five years triggered by increases in small business lending.  Every 2.5% increase in small business lending through December 31, 2011 over 2009 levels would trigger a 1% decrease in dividend rate, down to a minimum rate of 1%.

Banks with less than $1 billion in assets would be eligible to receive a capital investment of up to 5% of their risk-weighted assets.  Banks with between $1 and $10 billion in assets would be eligible to receive a capital investment of up to 3% of their risk-weighted assets.  Participation in the program will require approval by the bank’s primary federal regulator, although no details are available as to the standards that will be employed.

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Email This Content Email This Content Posted in Small Business, TARP Capital. Tagged with , , . By Rob Klingler - Tuesday, February 2, 2010

State of the Union – TARP Money for Community Banks

In his January 27, 2010 State of the Union address, President Obama renewed his call for using some of the TARP money for community banks in an effort to drive small business lending.

So tonight, I’m proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat.

This proposal would be consistent with President Obama’s speech last October in which he stated the broad outlines of a new program to provide additional capital to community banks in an effort to spur lending to smaller business, as well as Secretary Geithner’s extension of the TARP program.

We understand that government officials have indicated that additional details on the program will be rolled out by Treasury officials in the coming days.  We have previously analyzed the known terms of such an expansion, based on the guidance provided last October.

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Email This Content Email This Content Posted in TARP Capital. Tagged with , , . By Rob Klingler - Thursday, January 28, 2010

TARP Programs Completed

Two of the more commonly discussed programs that Treasury implemented pursuant to its discretion under TARP, the Capital Purchase Program (the “CPP”) and the Capital Assistance Program (the “CAP”), have been closed.

According to the Treasury’s FAQs, as of December 31, 2009, the Treasury will not make any additional investments under the CPP.  Over 700 institutions participated in the CPP, representing institutions from every state, except Montana and Vermont, and from Puerto Rico and Washington D.C.  California’s institutions were most highly represented, with 72 institutions receiving CPP funds.  Illinois and Missouri followed with 47 and 32 institutions, respectively, receiving CPP funds.

Although Treasury Secretary Geithner has extended TARP generally to October 3, 2010 and President Obama previously announced an that initiative would be developed for small community banks, there is currently no Treasury program aimed at providing capital support for community banks.

The CAP, which was intended to provide capital support to financial institutions in conjunction with the stress tests, was closed on November 9, 2009, without making any investments.

We will provide an update if the Treasury develops and implements any new program.

Email This Content Email This Content Posted in TARP Capital. Tagged with , , , . By Dustin Hall - Monday, January 25, 2010

December TARP Capital Infusions – TARP Map and List of Recipients Updated

During the month of December, the Treasury completed rounds fifty-two, fifty-three, fifty-four, fifty-five, and fifty-six of TARP Capital infusions.  In these five rounds, which closed on December 4,  December 11, December 18, December 22, and December 29, respectively, the Treasury purchased a total of approximately $159 million in securities from 37 financial institutions (24 of which previously received a TARP capital infusion).  Through December 2009, the Treasury had invested in 709 institutions, totaling approximately $204.9 billion.

In these five rounds, First Community Financial Partners received the largest infusion, $22 million, and Valley Financial Group Ltd. received the smallest infusion, $1.3 million.

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Email This Content Email This Content Posted in TARP Capital. Tagged with , , , , . By Dustin Hall - Friday, January 22, 2010

November TARP Capital Infusions – TARP Map and List of Recipients Updated

During the month of November, the Treasury completed rounds forty-nine, fifty, and fifty-one of TARP Capital infusions.  In these three rounds, which closed on November 6,  November 13, and November 20, respectively, the Treasury purchased a total of approximately $38 million in securities from 7 financial institutions (3 of which previously received a TARP capital infusion).  Through November 2009, the Treasury had invested in 696 institutions, totaling approximately $204.7 billion.

In these three rounds, Presidio Bank, San Francisco, California, received the largest infusion, $10 million, and Community Pride Bank Corporation, received the smallest infusion, $4.4 million.

Of note during the month of November, F&M Bancshares, HPK Financial Corporation, and Metropolitan Capital Corp., joined WashingtonFirst Bankshares, Inc. as institutions to receive a second investment from Treasury in connection with the TARP expansion for community banks.  F&M Bancshares received an additional $3.5 million and had already received $4.6 million; HPK Financial Corporation received an additional $5 million and had already received $4 million; and Metropolitan Capital Corp. received an additional $2.4 million and had already received $2 million.

During November, nine financial institutions (one of which had already re-paid a portion of its funds) re-paid their TARP capital investments: Bank of Ozarks, Inc. ($75 million), LSB Corporation ($15 million), Wainwright Bank & Trust ($22 million), Union Bankshares Corp. ($59 million), Midwest Regional Bancorp, Inc. ($700,000), 1st United Bancorp, Inc. ($10 million), Magna Bank ($3.5 million, approximately 25% of the outstanding amount), Frontier Bancshares, Inc. ($1.6 million), and Westamerica Bancorporation ($41.9 million, completing its repayment).  As of the end of November, 2009, 53 financial institutions had re-paid all, or some portion, of their TARP Capital investment, bringing the total amount re-paid to approximately $71 billion.  At the end of November 2009,  Treasury’s outstanding investment equaled approximately $133.7 billion.

As discussed in another post,  TARP has been extended until October 3, 2010. 

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Email This Content Email This Content Posted in TARP Capital. Tagged with , , , , . By Dustin Hall - Wednesday, December 16, 2009

Treasury Clarifies Interim Final Rule regarding TARP Executive Compensation Limitations

On December 7, 2009, the Treasury Department published corrections to the preamble and certain provisions of the interim final rules regarding TARP Standards for Compensation and Corporate Governance.

The amendments are generally technical in nature and are designed to clarify certain ambiguities in the original interim final rule and to conform the certification language to reflect the deadlines generally set forth in the regulation and to correct certain cross-references.

The two most important clarifications relate to the identification of most highly compensated employees and the applicability of the “say on pay” requirements.

With regard to the identification of the most highly compensated employees, the correcting amendments make clear that the senior executive officers should NOT be excluded from determinations of the most highly compensated employees.  The rule also makes clear that senior executive officers should not be double-counted; if a provision is applicable to the senior executive officers and a certain number of the most highly compensated employees of the TARP recipient, the senior executive officers (because they are already subject to the provision) are excluded for purposes of determining the most highly compensated employees that are also subject to the provision.  Accordingly, for TARP recipients that received less than $25 million in Capital Purchase Program funding, the prohibition on the payment or accrual of bonus will apply only to the most highly compensated employee (regardless of whether such employee is a senior executive officer).

The correcting amendments also make clear that private companies are not subject to the requirement to provide shareholders a “say on pay.”  Only TARP recipients otherwise subject to SEC regulation are required to provide shareholders with a nonbinding resolution on executive compensation.

Email This Content Email This Content Posted in TARP Capital. Tagged with , . By Rob Klingler - Monday, December 14, 2009