Treasury nets $3.2M loss on TARP in region
As the last bank in the region exits the Troubled Asset Relief Program on the five-year anniversary of the federal aid program, the U.S. Treasury has recouped most of its investment in the Tri-Counties, taking a loss of $3.2 million on the $259.6 million it disbursed to area lenders.
By paying off $2.1 million in federal aid it received at the height of the financial crisis, Ojai Community Bank becomes the last of the region’s banks to exit TARP. All told, the U.S. Treasury received $256.4 million on the $259.6 million in aid it disbursed to nine banks in the Tri-Counties.
Ojai Community, a small lender based in Ojai, took the unusual step of paying off its TARP debt with a loan taken from another financial institution, after restructuring itself in to a holding company. The bank said it believes it is the first in the nation to exit the program this way.
“The program was designed to help, it helped, and now we’re moving on,” CEO David Brubaker told the Business Times. “My general feeling is that the banking industry is getting stronger and the future is bright.”
In May, the bank’s shareholders approved a financial strategy forming a new bank holding company called OCB Bancorp. The holding company then acquired Ojai Community Bank in an exchange for stock. Previous shareholders of the bank now own OCB Bancorp in its entirety.
The shuffling of shares allowed the holding company — which is exempt from capital requirements because it has less than $500 million in assets — to borrow $2.3 million from another bank and down-stream the capital back to the bank in a move to replace the TARP capital, according to a statement from the firm.
Brubaker declined to say who the lender was.
In a statement, the bank said the deal is better for its investors: “The net results are that shareholders continue to own their respective shares in their local community bank, the net cost of borrowing has been reduced, and the government funds have been repaid.”
The bank also noted that it was paying a 5 percent annual dividend on the funds that would have increased to 9 percent at year-end if it did not pay off TARP.
“Paying off the TARP is a positive step forward for the bank,” Chairman Don Scanlin said in a statement. “The program did what it was supposed to do, but the unfortunate consequence was the stigma attached to it. If there’s any stigma left, we’re now out from under it.”
The Treasury created TARP in 2008, in response to the financial crisis. With a price tag of $475 billion, the bailout disbursed funds to banks large and small to shore up their balance sheets and open up lending.
Most of the nation’s largest banks, including Citigroup and Bank of America, left the program early on. But as of the end of September, 211 financial institutions are still sitting on TARP funds, according to the U.S. Treasury’s latest report to Congress. That figure includes 31 banks for which the Treasury now holds only warrants to purchase stock.
As of Sept. 30, U.S. taxpayers were owed $53.4 million under TARP, according to the Treasury, but $30.7 billion were in the form of write-offs, realized losses, or amounts currently not collectible because of pending bankruptcies or receiverships, leaving $22.7 billion in TARP funds outstanding.
Many community banks, which have fewer options to raise capital than their Wall Street counterparts, have been slower to pay off TARP than the too-big-to-fail giants.
Brubaker of Ojai Community said that when TARP was rolled out in 2008, it was a godsend to community banks. “We felt that having additional capital going in to a problematic time for the economy would be the right thing to do, but there weren’t a lot of alternatives to raising capital at the time,” he said. “We looked at it initially as TARP was something offered to successful banks as a way to help them help the system through the financial crisis.”
But with the interest on TARP set to jump from 5 percent to 9 percent at year-end, many lenders have been looking for ways to get out. Of the nine banks in the Tri-Counties who took the federal aid, all have now repaid it. [See table, below].
The largest TARP recipient in the region was Pacific Capital Bancorp, the former parent company of Santa Barbara Bank & Trust, which accepted $180.6 million in TARP funds. As part of a $500 million private equity recapitalization in 2010, SBB&T struck a deal with banking regulators and the U.S. Treasury in which the government’s stake in the bank was converted to common stock. After SBB&T was purchased by San Francisco-based Union Bank last year, the Treasury sold its shares for $165.9 million in cash, plus a warrant for $393,121.
The next-largest TARP recipient was First California Financial Group, a Westlake Village-based bank that was acquired earlier this year by Los Angeles-based PacWest Bancorp. In 2011, First California repaid the $25 million in bailout funds by tapping the Treasury’s Small Business Lending Fund program, a different government aid program to banks designed to boost small-business lending.
Paso Robles-based Heritage Oaks Bancorp accepted $21 million in federal aid, which it paid off in August after executing a successful turnaround strategy. The bank is currently looking to acquire Mission Community Bank in a deal expected to close early next year.
|Company||TARP received||Cash paid back||TARP exit date|
|Pacific Capital Bancorp *||$180,634,000.00||$168,483,804||November 2012|
|First California Financial Group **||$25,000,000.00||$28,810,847||July 2011|
|Heritage Oaks Bancorp||$21,000,000.00||$27,241,335||August 2013|
|Community West Bancshares||$15,600,000.00||$14,341,140||June 2013|
|Mission Community Bank ***||$5,116,000.00||$5,875,584||December 2011|
|Santa Lucia Bank ****||$4,000,000.00||$3,131,111||October 2011|
|California Oaks State Bank *****||$3,300,000.00||$3,802,219||December 2010|
|Santa Clara Valley Bank||$2,900,000.00||$2,697,208||April 2013|
|Ojai Community Bank||$2,080,000.00||$2,080,000||September 2012|
NOTES TO TABLE:* In 2010, Pacific Capital repaid TARP in full with shares of its common stock. When Pacific Capital was sold to San Francisco-based Union Bank in August 2012, the Treasury received $165.9 million in exhange for of its common stock and $393,121 in exhange for its TARP warrant. ** First California exited TARP in 2011 by entering into the Treasury’s Small Business Lending Fund program, designed to boost small-business lending by providing banks with new government funds to replace TARP. The bank was acquired earlier this year by Los Angeles-based PacWest Bacorp. *** Heritage Oaks Bancorp is purchasing Mission Community in a deal expected to close in the first quarter of 2014. **** Santa Lucia was acquired by Mission Community in October 2011. **** California Oaks was acquired by Encino-based California United Bank in December 2011.
[ Source: U.S. Treasury Department’s September 2013 quarterly TARP report to Congress.]