Posted 11/4/2013 12:00 am
Updated 10 months ago
Seven Arkansas lenders remain under the umbrella of the U.S. Treasury’s TARP program in the aftermath of the 2008 financial meltdown. The group collectively received more than $126 million through the Capital Purchase Program-Troubled Asset Relief Program.
The disposition of the financial institutions is as varied as their repayment history and respective exit strategies from the program. Some TARP participants are in the throes of severe financial distress, while some are merely capital-challenged.
Others continue to operate profitably and are biding their time to repay the low-cost funds. Some bankers are caught in a regulatory Catch 22.
“Under the consent order [with the Office of the Comptroller of the Currency], we’re prohibited from paying any dividends,” said Jerry Pavlas, president and CEO of Little Rock’s One Bank & Trust.
The $393 million-asset bank is among the lenders restricted from declaring dividends to repay the U.S. Treasury because of capital concerns. Without dividends flowing from One Bank to its holding company, OneFinancial Corp., quarterly payments on the holding company’s $17.3 million in TARP money become a fiscal impossibility.
It’s a situation shared by White River Bancshares Co. and its Signature Bank of Arkansas in Fayetteville. The $488 million-asset lender is under a consent order with the Federal Deposit Insurance Corp. that blocks dividends.
“We would like to have that lifted as soon as possible, but that’s not really in our control,” said Gary Head, chairman, president and CEO of Signature Bank. “We intend to pay back every bit of money we owe. Right now, it’s a decision I don’t have a choice in making.”
Head is uncertain what the future holds for White River Bancshares and the TARP program. Treasury officials have begun selling the government’s stake in some participating lenders. The preferred shares backing the government’s $16.8 million investment in Signature Bank’s holding company haven’t made the for-sale list.
“Whether they decide to sell them or not is up to them,” Head said. “There’s a lot of conversation about that.”
The only Arkansas TARP participant to exit the program through a sale was Corning Savings & Loan Association. The thrift received $638,000 on Feb. 13, 2009, from the U.S. Treasury, and the government sold its preferred shares securing the TARP investment at a 10 percent discount on Nov. 30, 2012.
Among Arkansas banking companies, White River Bancshares holds the distinction of taking TARP money but saying no to a requested Treasury observer attending board of directors meetings.
“Every other shareholder can’t put themselves on the board,” Head said. “My concern is what information could be FOI-able.”
The concern is the presence of a Treasury observer would subject the private board meetings to public scrutiny under the Freedom of Information Act.
Michael Donnell, chief financial officer of Danville’s Chambers Bancshares Inc., said his company is still weighing its options regarding its exit from the TARP program.
“At this time, a final decision has not been made,” Donnell said in an email response.
The company received $19.8 million in TARP funds. Its $777 million-asset Chambers Bank last year absorbed Peterson Holding Co. after that two-bank holding company defaulted on a loan secured by stock. Peterson owned Decatur State Bank and Grand Savings Bank of Grove, Okla. Chambers Bank sold Grand Savings for an undisclosed sum in April to a local investment group led by Tony Steele and Guy Cable.
• Liberty Bancshares Inc. of Jonesboro juggled federal funding through two programs before cashing out recently.
Liberty received $57.5 million in TARP funds but left the program in July 2011. The holding company of $2.8 billion-asset Liberty Bank of Arkansas stepped out of TARP’s capital purchase program and into another U.S. Treasury-administered program: the Small Business Lending Fund.
The program could punish participants with rates as high as 9 percent for not putting the money to work or reward participants with interest rates as low as 1 percent for increased small-business lending.
Liberty’s SBLF obligations were repaid on Oct. 24 when its $280 million sale to Conway’s Home Bancshares Inc. was completed.
• The U.S. Treasury has categorized repayment from the largest recipient of TARP funds in Arkansas as “Currently Not Collectible.” Rogers Bancshares Inc. of Little Rock received $25 million and soon began a string of 15 missed quarterly payments. The investment, used to bolster Metropolitan National Bank’s waning capital, is expected to be a large if not total loss.
Rogers Bancshares filed Chapter 11 bankruptcy on July 5 after Metropolitan posted combined losses of $96 million since 2009. Among the debts listed by Rogers Bancshares is more than $5.8 million owed to the U.S. Treasury for dividend payments.
The line of creditors ahead of Uncle Sam doesn’t bode well, even with a pending $53.6 million sale to Simmons First National Corp. of Pine Bluff.
“At the end of the day, there may be some money, but it wouldn’t be much,” said Jack Williams, founding partner in the Little Rock law firm of Williams & Anderson, which represents Rogers Bancshares in the Chapter 11 case.
“Nobody can say for sure because we don’t know what the size of all the claims will be before we get to the unsecured creditors.”
In round numbers, Ford Financial Fund II of Dallas stands to recoup more than $2 million in fees, expenses and more associated with its role as the stalking horse bidder in the sale of Rogers Bancshares stock.
After other administrative fees and expenses associated with the bankruptcy are paid, three trust preferred creditors are next in line with claims that will leave little if anything for remaining unsecured creditors.
The trio is tied to debt of $41.2 million plus unpaid interest of $5.6 million associated with loans to Rogers Bancshares.
• Southern Bancorp Inc. of Arkadelphia initially participated in TARP’s capital purchase program to the tune of $11 million.
The holding company of $1.2 billion-asset Southern Bancorp Bank exchanged the CPP funding in 2010 for more favorable terms and expanded the government investment to $33.8 million under TARP’s Community Development Capital Initiative program.
CPP investments feature locked-in interest rates that escalate in five years. The annual interest rate under TARP’s CDCI program is set at 2 percent for the first eight years and jumps to 9 percent after that.
The funds helped Southern Bancorp expand its footprint for community development lending that included acquisitions of Timberland Bank of El Dorado and First Delta Bankshares Inc., the $309 million-asset holding company for First National Bank of Blytheville and the Bank of Trumann.
TARP’s CPP funds were disbursed to bank holding companies via equity (senior preferred shares of stock) or debt (subordinated debentures).
The senior preferred shares carry an annual interest rate of 5 percent for the first five years, which increases to 9 percent after that.
The subordinated debentures bear an annual interest rate of 7.7 percent for the first five years; that climbs to 13.8 percent after that. If the debt isn’t repaid by year five, the U.S. Treasury gains an additional subordinated debt claim equal to 5 percent of the investment.
• Riverside Bancshares Inc. of Little Rock, Community First Bancshares Inc. of Harrison and other Arkansas TARP players will face a decision whether to stay in the program when a five-year interest spike comes into play in 2014.Both Riverside Bank of Sparkman and Community First Bank have operated profitably and signed aboard TARP to tap into inexpensive capital.
David Morton, CEO of Community First Bank, and Louis Melton, Harrison market president for the bank, couldn’t be reached for comment. Community First has reduced its TARP debt to $9.8 million, and its five-year anniversary is April 3, 2014.
Stephen Davis, chairman and president of Riverside Bancshares, said efforts are in motion to repay the remaining $776,981 before its fifth TARP anniversary on May 15.
“We’re in discussions now to redeem our TARP shares early,” Davis said. “We’re looking at doing that during the next six months.”
White River Bancshares owes $15.2 million, with a five-year anniversary of Feb. 20. OneFinancial Corp. owes $13.5 million, with a five-year anniversary of June 5.