As the U.S. Department of the Treasury enacts a plan announced in May to wind down the Troubled Asset Relief Program, one of the four Springfield-area financial institution that participated in the Capital Purchase Program has yet to repurchase shares and the others are at various stages of exiting the program.
Through the program, participating banks received funds and pay the government a dividend of 5 percent for the first five years and 9 percent in year six. Local participating institutions were Great Southern Bancorp Inc., Gregg Bancshares Inc., Guaranty Federal Bancshares Inc. and Liberty Bancshares Inc.
According to documents obtained through the Treasury:
- Great Southern moved its $58 million from the TARP CPP program to the Small Business Lending Fund, another Treasury Program that encourages small-business lending;
- Gregg Bancshares, the Ozark-based holding company for Glasgow Savings Bank in Glasgow, Mo., has to date repaid none of the $825,000 it received through the sale of preferred stock;
- Guaranty Federal Bancshares, Inc., in June repaid $5 million of the $17 million it received through the program and announced plans to purchase remaining outstanding shares by January 2014, when the interest rate is set to rise to 9 percent; and
- Liberty Bancshares repurchased its $21.9 million in stock in August 2011.
Shaun Burke, president and CEO of Guaranty Federal, said participating in TARP made sense at the time.
“It helped us tremendously,” he said. “We took it just after the financial crisis hit and economic downturn was there. The capital markets had absolutely locked up tight, especially for smaller community banks. At the time, we didn’t necessarily need it, but we were encouraged to take it. We are very glad we did. We were able to provide lending services to small business and consumers.”
Great Southern’s decision to participate in TARP funding was driven by a desire for flexibility in lending, said Chief Financial Officer Rex Copeland.
“We were able to continue to make loans to creditworthy borrowers in this process,” Copeland said. “We were well in excess of well-capital levels, but it just put us further in excess of those levels, so it was just another level of capital cushion,” Copeland said.
Burke said the 5 percent interest rate also was appealing.
“Even when it escalates to 9 percent in 2014, it’s still relatively cheap capital,” Burke said, noting that he expects Guaranty’s current capital levels and future earnings to be sufficient for repurchasing remaining shares without having to raise additional funding.
In the process of shifting from the CPP program to the Small Business Lending Fund, Great Southern paid about $6.4 million to repurchase some of its common shares. Copeland said the small-business fund program operates similarly to the CPP but with a descending interest rate.
“There’s qualified lending areas, and if you increase your lending in those qualified areas, it can reduce your borrowing rate,” Copeland said. “Initially, it was 5 percent, but if you have enough growth in the qualified loan areas you can bring your costs down to 1 percent, which we have done,” Copeland said.
As with the CPP, after a period of five years, interest rates with the Small Business Lending Fund rise to 9 percent if it’s not repaid. Thus far, Great Southern has not established a date to repay.
“That’s something that our board and our management reviews on an ongoing basis,” Copeland said.
Treasury spokesman Matt Anderson said a specific date for winding down the TARP program has not been set.
For institutions with outstanding balances, there are three options: repurchase the stock, restructure or see the stock auctioned off to third parties.
“In some cases, folks are going to repay us over the next 12 to 18 months. But for those banks that we don’t expect to repurchase their shares over that time frame, we’re going to go forward with restructuring in a limited number of circumstances, and also a third party would buy the majority of the remainder,” Anderson said.
Repurchasing has been the choice for most institutions that participated in the TARP program. In April, Birmingham, Ala.-based Regions Financial Corp., which operates three Regions Bank branches in Springfield and eight others in other southwest Missouri cities, completed its repurchase of $3.5 billion of Series A preferred stock. That repurchase was funded by a common stock public offering of 152.9 million shares, and Regions was the last big bank to repay its TARP funds, according to past Springfield Business Journal coverage.
The Treasury reported in May that after investing a total of $245 billion in TARP, it already had recovered $264 billion through the program, representing a profit of $19 billion for U.S. taxpayers.
“I think it’s been a very successful program in that it both helped stabilize the economy during a period of intense financial crisis, and the bank portion has already provided a significant profit to taxpayers,” Anderson said.[[In-content Ad]]
