More TARP banks switch to lower-cost aid program

Three more banks that got taxpayer money through the Troubled Asset Relief Program have exchanged their Treasury Department funding and joined the growing Community Development Capital Initiative Program (CDCI). 

The three, all of which originally got investments through TARP's Capital Purchase Program, are Mission Valley Bancorp of Sun Valley, Calif.; M&F Bancorp of Durham, N.C. and Carver Bancorp of New York.

According to its Sept. 2, 2010 transaction report,  the Treasury has now invested more than $143 million in 11 institutions participating in the community development initiative. All are existing TARP recipients that converted from the Capital Purchase Program (CPP).

The Community Development Capital Initiative allows certain banks and thrifts to exchange their funding, which carried a 5 percent annual dividend rate, for 2 percent CDCI funding. In some cases, they also can receive additional public aid at the lower rate.  Credit unions, which were barred from the original TARP program, may also apply.

The aim of the newer program is to provide lower-cost capital to institutions that lend to small businesses in "the country's hardest-hit communities."  Participation requires the Treasury's certification that the bank, thrift or credit union targets more than 60 percent of its small business lending and other economic development activities to "underserved communities."

Although the community development initiative was unveiled on February 3, the first transactions related to the program did not materialize until July 30.

On August 20, both Mission Valley Bancorp and M&F Bancorp, exchanged all of their 5 percent funding through the Capital Purchase Program for aid at the lower rate. Mission Valley had received $5.5 million through its original TARP investment, while M&F had received $11.7 million.

Neither bank received any additional investment from the Treasury.

Mission Valley announced on Aug. 17, that it lost $329,000 in the first half of the year. The bank attributed the deficit to higher loan loss provisions, a category that it hopes to reduce in the near future.  According to Tamara Gurney, president and chief executive officer, Mission Valley anticipates that "the need for additional provisions for possible loan losses may be reduced, thereby resulting in increases to net income through the remainder of 2010."

M&F, on the other hand, reported that its second-quarter earnings tripled to $300,000, compared to the $100,000 for the same period in 2009.  Its total assets rose 4.8 percent of 2010, a development that left Kim D. Saunders, its chief executive officer, "extremely pleased."  M&F said the move from the Capital Purchase Program to the Community Development Capital Initiative should save the bank nearly $300,000 a year in dividend payments to the Treasury.

On August 27, Carver Bancorp, the company of the largest African- and Caribbean-American operated bank in the United States, swapped its $19 million in original TARP funding for money at the lower rate. The shift to the community development program is expected to save Carver about $569,000 in annual dividend payments to the Treasury.  The company, which procured its initial money in January 2009, did not sell warrants to the Treasury for either transaction. 

Carver has not reported an annual profit since 2008.  In February 2009, federal regulators insisted that it lower both the number and amount of commercial loans.  Deborah C. Wright, chairwoman and chief executive officer of Carver, expressed her gratitude for the Treasury's willingness to recognize the value of so-called Community Development Financial Institutions to treat them in a unique manner.

"We appreciate the U.S. Treasury's leadership in recognizing the unique role of CDFI and dearth of capital in urban communities," she said.

Carver conducts most of its business in disadvantaged communities. 

Under the terms of the Capital Purchase Program, the 5 percent dividend jumps to 9 percent after five years.  The CDCI Program, however, does not require  recipients to pay more than a 2 percent dividend for the first eight years.  After that, the rate rises to 9 percent.

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