Two
banks that are failing to make quarterly dividend payments to the Treasury Department on the taxpayer money
they received through the Troubled Asset Relief Program were cited for having "unsafe"
and "unsound" banking practices shortly before they received the aid.
One recipient - Seacoast National Bank in Stuart, Fla. - was cited by regulators just two days before it got its TARP money.
The other - OneUnited Bank in Boston - received its capital infusion from Treasury just weeks after regulators ordered the bank to stop providing its executives excessive compensation and benefits.
Even though the banks' activities raised enough concern that federal regulators had to take official action, Treasury still opted to invest $62.1 million in those institutions.
That move now appears to have been a gross miscalculation. Both banks have stopped making quarterly dividend payments - which were a condition of receiving the aid - on the preferred stock they issued to the government in return for their TARP money.
Each has failed to make five consecutive payments. Together, they are $4 million in arrears. If either misses the next payment, due Monday, Treasury will be able to take the drastic step of appointing a pair of directors to that bank's board, something it has never done before.
Six other banks also are on the verge of missing six payments.
Another, Saigon National Bank, has already done so. Treasury has indicated it is in the process of determining its next move there.
Treasury officials say that enforcement actions aren't necessarily a negative indicator of an institution's viability. They also note that the banks' primary federal regulators deemed the banks viable for the purposes of TARP -- based upon capital, asset quality, management and other factors -- before Treasury provided the taxpayer money.
Seacoast National Bank
The holding company of 44-branch Seacoast National Bank got $50 million in TARP money on Dec. 19, 2008. That was just two days after its regulator, the Office of the Comptroller of the Currency, issued enforcement orders against the bank.
The OCC found "unsafe and unsound banking practices relating to asset quality and earnings performance" at the bank, according to the enforcement order. It instructed Seacoast to develop programs to reduce credit risk, improve its criticized assets, and manage its commercial real estate concentration.
It is unclear why, exactly, the company has not been paying its TARP, which have an accumulated value of $3.1 million. Seacoast's chief financial officer, William R. Hahl did not return calls from BailoutSleuth for this story.
The company finished 2009 with a loss of $150.4 million, largely due to its exposure to the problematic Florida real estate market. Although Seacoast is still losing money, its situation appears to be improving.
Losses for the first half of 2010 totaled only $15.4 million. Seacoast's capital ratios have improved since it received the TARP aid, and it now rated very well capitalized. It is also reducing it problem assets.
CapGen Capital Group III LP bought more than 10 percent of the company's common stock for $13.5 million in 2009. CapGen is led by Eugene Ludwig, a former OCC head. Seacoast also sold $9.8 million in new stock earlier that year.
Interestingly, the failures of other banks in Florida could benefit the bank. "Seacoast is now the sole remaining convenient local bank in our core market," said Chairman and CEO Dennis S. Hudson. "Our capital strength today places us among the most well-capitalized Florida banks, and we are well-positioned for the future." The bank, with $1.8 billion in deposits and $2.1 billion in assets, is the largest bank headquartered in Florida's Treasure Coast, on the east side of the state.
OneUnited
OneUnited Bank, which bills itself as "the first black-owned Internet bank," received $12.1 million in TARP aid on Dec. 19, 2008. The bank strives to "be the premier banking institution for urban communities across America," according to its web site, with a focus on originating and purchasing mortgage loans.
But less than two months before OneUnited got its TARP money, the FDIC issued a cease-and-desist order upon finding "unsafe or unsound banking practices and violations of law" at the institution. The 38-page document included a laundry list of orders, instructing the bank and its board of directors to stop giving officers "excessive compensation" and to enhance its supervision of those executives. It also ordered the bank to improve its capital, liquidity, earnings and underwriting standards while reducing its problem assets. The bank still has not come into full compliance with the capital ratios that the FDIC ordered.
OneUnited also was ordered to sell vehicles it provided to officers, to reduce the health benefits it provided its chairman and chief executive, Kevin L. Cohee, to hire a consultant to review the deferred compensation awarded to him, and to prohibit reimbursement of personal expenses to directors, officers and employees.
Because the bank is not publicly traded, the company is not required to disclose those salaries. It's also unclear why OneUnited has stopped paying dividends, which are worth $753,900. John Trotter, its chief financial officer, did not return calls from BailoutSleuth.
The bank suffered net operating losses of $33.1 million in 2008 but had net operating income of $1.7 million last year. It lost $354,000 in the first quarter of 2010.
Last year, a House ethics panel examined whether Rep. Maxine Waters (D-Calif.) played a role in helping OneUnited secure TARP funds. She reportedly helped arrange a meeting between bank executives and then-Treasury Secretary Henry M. Paulson in which the company pleaded for aid. At the time, her husband owned shares in the bank worth $250,000 to $500,000 and at one point served on the bank's board. She has denied wrongdoing and is awaiting a congressional trial.
Below are the other TARP Capital Purchase Program recipients that have missed five dividends and could have Treasury-appointed directors on their boards if they miss a sixth.
Anchor BanCorp Wisconsin Inc.
Madison, Wis.
Value of dividends: $7.1
million
TARP aid: $110 million
(Jan. 30, 2009)
Branches: 75
Deposits: $3.6 billion
Assets: $4.4 billion
Bauer Financial bank
rating: 0
The bank's own accounting firm "expressed substantial doubt" about the bank's ability to continue, according to its most recent annual report.
AnchorBank has reported "low levels of capital, significant operating losses and significant deterioration in the quality of its assets." According to its own Securities and Exchange Commission filings, its lack of future liquidity sources also raises questions about its ability to survive.
The bank recently announced a net loss of $26.6 million for the quarter ending March 31, and a $177.1 million loss over the last year. It is in the process of selling off branches in an effort to raise capital. Investors attempted last year to put $400 million into Anchor, but the bank's other lenders reportedly objected to the terms of the deal.
A June 2009 order from the banks' regulator, the Office of Thrift Supervision, said that "unsafe and unsound practices" at the bank have caused insufficient liquidity, earnings and capital ratios. That order prohibits the bank from paying dividends without OTS approval.
The bank also has been ordered to boost its capital ratios, among other requirements. The company admits that it can't even ensure that the capital restoration plan it was required to submit can be implemented, and that there is a risk that the bank will be placed into conservatorship or receivership.
CEO Chris Bauer, who took over a year ago, has reportedly spoken with new investors who may take a controlling interest in the bank.
Blue Valley Ban Corp.
Overland Park, Kan.
Value of dividends: $1.4
million
TARP aid: $21.8 million
(Dec. 5, 2008)
Branches: 5
Deposits: $662.2 million
Assets: $842.8 million
Bauer Financial bank
rating: 2
The company struggled due to its concentration in real estate lending, and in November 2009, the Federal Reserve ordered the bank to develop a capital plan, to take steps to limit its credit risk, and to stop paying dividends unless regulators give their permission.
Now, Bank of Blue Valley may be turning things around. The company had a net loss of $873,000 in the first quarter of 2010 - a marked improvement over its net loss of $8.1 million for the first quarter of 2010, according to its quarterly report.
In its 2009 annual report, the company said it did not know when it would start paying the dividends it owes the Treasury Department. Mark Fortino, the bank's chief financial officer, did not return calls for this story.
Los Angeles, Calif.
Value of dividends:
$524,600
TARP aid: $7.7 million
(Jan. 23, 2009)
Branches:
Deposits: $298.5 million
Assets: $363.4 million
Bank rating: 3
The bank opened in 2005 with the intention of serving the Korean-American community. In 2007, it signed a deal with Hana Financial Group Inc. of South Korea giving that company a 37.5 percent interest in the bank.
After losing $513,000 in 2009, the bank had net operating losses of $339,000 in the first quarter of 2010. The bank has just three branches, deposits of $3 million and assets of $3.6 million. It is not under federal enforcement orders.
Chief Financial Officer Kaye Kim did not return calls from BailoutSleuth. But in an interview with another publication, she did seem worried about the prospect of getting Treasury-appointed board members. "Adding another two persons at this juncture could be a plus because they bring additional expertise," she told American Banker earlier this summer.
Houston, Texas
Value of dividends:
$213,500
TARP aid: $3.1 million
(Feb. 6, 2009)
Branches: 2
Deposits: $118.2 million
Assets: $138.7 million
Bank rating: 3
The bank has struggled since it opened in 2006. That year, it suffered net operating losses of $574,000, followed by $1.8 million in 2007, $2.9 million in 2008 and $194,000 in 2009.
It may be improving, as it reported net operating income of $118,000 for the second quarter.
Chief Executive Bill Wilcock did not return BailoutSleuth's calls.
Lone Star Bank is under
enforcement orders from the FDIC to boost its capital and develop plans to
strengthen management and address its substandard assets, among other things.
The order also prohibits the bank from paying dividends without permission, which
could prolong its position as one of TARP's so-called dividend deadbeats.
Pacific Capital Bank, N.A.
Santa Barbara, Calif.
Value of dividends: $11.3
million
TARP aid: $180.6 million
(Nov. 21, 2008)
Branches: 51
Deposits: $5.6 billion
Assets: $7.4 billion
Bank rating: 0
The company had a net loss of $421.3 million last year, on top of a $22.7 million loss in 2008. Through the first quarter of this year, it had lost an additional $79.6 million. The bank got a new CFO this month
In May, the OCC slapped the bank with a cease-and-desist order instructing it to develop a new strategic plan, boost its capital ratios, address its commercial real estate concentrations, and improve liquidity, among other provisions.
On April 29, the company entered into an investment agreement with a subsdiary of banker Gerald J. Ford's Ford Financial Fund, L.P. Ford Financial will invest $500 million in the company, through the purchase of newly issued common stock. At that point, it will own 91 percent of the bank's common stock.
San Mateo, Calif.
Value of dividends:
$586,100
TARP aid: $8.7 million
(Feb. 20, 2009)
Branches: 4
Deposits: $362.3 million
Assets: $397.9 million
Bank rating: 3
United American's chief financial officer, Gerald Brown, said the bank must get permission from the California Department of Financial Institutions to make the dividend payments, which it has so far been unable to do. He said he doesn't know whether the bank will get that permission before it's time to make a sixth payment. "I can't guess what their decision will be," Brown said.
Neither the bank nor its holding company are under federal enforcement orders.
The bank reported a loss of $1.55 million for the first half of this year, and a loss of $5.8 million in 2009.