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Tuesday, June 15, 2010 6:04 PM ET
91 institutions defer May's TARP dividend
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Industry Document: TARP Dividend and Interest Deferrals 6/14/2010
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Data feature produced by SNL's research groups in cooperation with the news department, leverages SNL's unrivaled data resources to highlight emerging trends and topics of interest.

Ninety-one banks and thrifts missed the dividend due May 17 on preferred stock issued under the Troubled Asset Relief Program, a June 11 U.S. Treasury Department report indicated. Of the 91, 23 did not make a payment for the first time since entering TARP. This compares to 74 delinquencies in February and 55 missed payments in November 2009.

Overall, 20 institutions have missed four payments, while eight institutions — the two largest being Santa Barbara, Calif.-based Pacific Capital Bancorp and Madison, Wis.-based Anchor BanCorp Wisconsin Inc. — have missed five payments. Westminster, Calif.-based Saigon National Bank recently missed its sixth dividend payment, which the company disclosed prior to the payment date. Under the terms of the Capital Purchase Program, failure to pay dividends for six dividend periods triggers the Treasury's right to elect two directors to the institution's board.

The 91 delinquent institutions have received approximately $3.5 billion for preferred shares issued under CPP, approximately 1.7% of the $204.9 billion issued to the more than 700 participants of the program. The largest TARP recipient delinquent on payments is San Juan, Puerto Rico-based First BanCorp., which received $400 million in government funds. Flint, Mich.-based Citizens Republic Bancorp Inc.; Spokane, Wash.-based Sterling Financial Corp.; and Greenville, S.C.-based The South Financial Group Inc. each received $300 million or more in exchange for preferred stock issued under CPP.

The 23 newly delinquent institutions received slightly more than $300 million in government funds, the largest being Asheboro, N.C.-based FNB United Corp., which issued $51.5 million in preferred shares to the Treasury. A bankers' bank is also included among the bunch. Bankers' Bank of the West Bancorp Inc., located in Denver, received $12.6 million in exchange for preferred stock.

Nineteen of the 23 of the first-time deferrers are bank holding companies, which means they pay cumulative dividends, and missed payments accrue. Banks without holding companies pay noncumulative dividends.

In some cases, state regulators can restrict banks from paying dividends if their accumulated earnings do not meet a certain threshold. Also, some banks need shareholder approval before they can pay capital distributions.

Missed dividend payments can highlight the financial risks that the U.S. government has taken in investing in the banking community. New York-based CIT Group Inc.'s bankruptcy and the failures of San Clemente, Calif.-based Pacific Coast National Bancorp and San Francisco-based UCBH Holdings Inc. led to $2.6 billion in Treasury losses. All three institutions had previously missed dividend payments.

The Treasury will also likely lose its $89.4 million investment in Melrose Park, Ill.-based Midwest Banc Holdings Inc., which failed after its subsidiary, Elmwood Park, Ill.-based Midwest Bank and Trust Co., was placed into receivership May 14. Midwest had originally issued $84.8 million in TARP preferred stock, but it then exchanged that amount plus accrued dividends on March 8 for $89.4 million of series G mandatorily convertible preferred stock. Prior to the exchange, Midwest had been delinquent on four TARP-related dividends.

The Treasury has also accepted partial losses on its investment in South Financial, which Toronto-based Toronto-Dominion Bank agreed to acquire. The Treasury green-lighted Toronto-Dominion's acquisition of South Financial's $347 million in TARP preferred stock and associated warrants at a discounted price of approximately $130.6 million in cash consideration. The transaction discharges all the accrued but unpaid dividends on the preferred stock. South Financial had missed one dividend prior to the announced acquisition. The company also missed the May payment.

Additional institutions have followed a similar strategy that Midwest Banc Holdings took in exchanging its TARP preferred shares. Ionia, Mich.-based Independent Bank Corp. traded its TARP preferred stock April 16, replacing $72 million in TARP preferreds with $74.4 million in mandatorily convertible preferred stock. Before missing the May dividend payment on its convertible preferred stock, Independent previously missed two dividend payments on its TARP preferred shares.

Sterling Financial has also begun the process of exchanging its $303 million in TARP preferreds for mandatorily convertible preferred stock, entering into an agreement with the Treasury on April 29. The closing of the exchange is dependent on regulatory and stockholder approval. Including the May dividend, Sterling Financial has missed its last four dividend payments on its preferred shares issued to the Treasury.

Similarly, Norfolk, Va.-based Hampton Roads Bankshares Inc. announced May 24 that it intends to convert the $80.3 million in preferred shares issued to the government for mandatorily convertible preferred stock. Hampton Roads has not made payment on its last three TARP-related dividends.

Click here for a template showing a full list of TARP-related dividend and interest deferrals.

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As of the May dividend, 103 companies have missed at least one of the six dividends on their TARP preferred shares since the program's inception. This excludes companies that made late payments or repaid all delinquent and current dividends. Also not included is Hato Rey, Puerto Rico-based Popular Inc., which the Treasury indicated missed its August 2009 TARP dividend payment. The company did not make payment on time due to the exchange of its preferred stock for non-tax-deductable trust preferred securities, which pay a distribution rate equal to the preferred dividend rate. The company paid a $13 million exchange fee in connection with the transaction. The Treasury noted that the bank made a payment Aug. 24, 2009.

Six additional companies missed the May interest payments on subordinated debentures issued under the Capital Purchase Program: St. Paul, Minn.-based Alliance Financial Services Inc.; Minneapolis-based Duke Financial Group Inc.; New Orleans-based First Trust Corp.; Sedalia, Mo.-based Investors Financial Corp. of Pettis County Inc.; Jamestown, N.D.-based Security State Bank Holding Co.; and Orange, Texas-based OSB Financial Services Inc. First Trust Corp. missed its first interest payment, while OSB Financial Services has now missed three payments. The companies' status as S-Corps prevents the companies from issuing preferred equity.

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Article updated at 12:00 p.m. ET on June 16, 2010, to remove Beach Business Bank and Harbor Bankshares Corp. from the list of TARP participants that have missed a dividend payment to the U.S. Treasury, as the institutions made the May 17 payment as well as all historical unpaid dividends.
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