February 5, 2009
Authored by: Robert Klingler
We correlated the Treasury’s official list of TARP Capital Recipients through February 2, 2009 with the FDIC’s Statistics on Depository Institutions (with data as of September 30, 2009) to identify the characteristics of community banks that have received TARP Capital funding.
In order to preserve comparability, we limited our search to stand-alone banks and one-bank holding companies with total assets of less than $1 billion. We identified 161 institutions that met this criteria and had received TARP Capital through February 2, 2009. The institutions ranged from $46.9 million in total assets (Mainstreet Bank in Ashland, Missouri) to $990.0 million (First Federal Savings Bank of Elizabethtown in Elizabethtown, Kentucky). The composite group included 87 state non-member banks, 37 state member banks, 29 national banks, and 8 federal thrifts. The group included representatives from 36 states.
Overall, the 161 institutions, prior to the receipt of TARP funding, generally had very strong capital positions, and were well reserved, but they do show higher concentrations in real estate than expected given today’s emphasis on concentrations.
158 of the 161 institutions were considered well-capitalized as of September 30, 2008. The three institutions that were not well-capitalized as of September 30, 2008 each recognized significant losses on their securities portfolios, presumably due to Fannie and Freddie preferred holdings. We have generally excluded those three banks from our analysis below, as the losses they suffered on their securities portfolio distort any measures of loan quality due to decreased capital.
Excluding the three banks with GSE losses, the average Total Risk-Based Capital Ratio of the other 158 recipients was 12.57% (and the median was 11.64%). The average Tier 1 Risk-Based Capital Ratio was 11.37% (and the median was 10.39%). The average Leverage Ratio was 9.59% (and the median was 8.82%).
Non-performing assets (90 days past due, nonaccrual and OREO) to total loans for all recipients ranged from a low of 0% to a high of 6.9%, with an average of 1.6%, and a median of 1.9%. NPAs to total capital ranged from a low of 0% to a high of 50.3%, with an average of 12.5% and a median of 11.0%. “Texas” ratios were similarly low, ranging from 0% to a high of 49.5%, with an average of 12.1% and a median of 10.5%. The allowance for loan and leases losses ranged from a low of 0.46% to a high of 3.60%, with an average of 1.29% and a median of 1.21%.
Concentrations, however, were much higher than we expected to see. The average recipient of TARP Capital funds had a CRE concentration of 383.1% of total capital and an ADC concentration of 123.5% of total capital. CRE Concentrations ranged from 29.4% to 665.7%, with a median of 396.6%. ADC concentrations ranged from 0% to 352.2% with a median of 108.2%. These results are not consistent with the standards that we are being told are being applied today, and this deviance may well reflect what is driving the comments of regional regulators that the standards being imposed by Treasury are changing.
We suspect the concentrations in real estate may also be indicative of the types of community banks that feel the greatest incentive to participate in the TARP Capital program. Following philosophical objections to socialism and concerns about additional Congressional oversight, the question we are most likely to hear from community bankers is whether they can use the additional capital. We suspect that community banks with concentrations in real estate are also the banks (a) most likely to feel the impact of the current recession and (b) more likely to be in higher growth markets.