The clock is ticking when it comes to the borrowing costs for banks that haven’t repaid the federal government for funds received under the Troubled Asset Relief Program, including three based in Orange County.
A recent report from the TARP Special Inspector General urged the Treasury Department to “develop a clear TARP exit path to ensure that as many community banks as possible repay the TARP investment and prepare to deal with the banks that cannot.”
The Capital Purchase Program, a TARP-funded initiative, funneled $204.9 billion into 707 banks in the U.S. throughout 2008 and 2009. The money went for the Treasury Department’s purchases of preferred shares of the participants.
About half of the financial institutions have exited the program—many by buying back the shares, which bear an annualized dividend rate of 5%.
The rate will jump to 9% after five years from when the investment was made, according to the Office of the Special Inspector General.
Saigon National Bank in Westminster got $1.5 million from the Treasury Department in December 2008.
Saigon National, which has assets of $56.1 million, has yet to make a payment. It will see its dividend payment nearly double next year.
The bank has struggled since its founding and has lost more than $10 million since it took the TARP funds, including $115,000 in the first quarter.
A Saigon National executive declined to comment.
The report from TARP Inspector General left some room to cut a break to banks. It suggested the Treasury should “assess whether it should renegotiate the terms of its Capital Purchase Program contracts for those community banks that will not be able to exit TARP prior to the dividend rate increase in order to help preserve the value of taxpayers’ investments.”
Garden Grove-based U.S. Metro Bank could benefit from a renegotiation. The bank said it is laying plans to buy back its shares from the government before its dividend rate goes up in February 2014.
The bank received about $2.9 million in 2009. It hasn’t made a payment since.
“For TARP, we have two choices,” said William Im, who joined U.S. Metro as president and chief executive last year. “We have to earn the money in time or we can raise capital. Now the capital-raising environment has improved a lot.”
U.S. Metro had $91.5 million in assets at the end of the first quarter.
It was established to cater to the Korean-American market in 2006. It’s been making efforts to diversify its customer base, 80% of which is made up of Korean-Americans.
The bank posted a loss of $108,000 in the first-quarter.
“The past five years have been a nightmare for most of the local banks,” Im said. “We are glad that we survived.”
Rancho Santa Margarita-based CalWest Bancorp, the holding company of South County Bank N.A., received $4.7 million in TARP funds in January 2009.
It recently returned to profitability, earning $133,000 in the first quarter compared with a net loss of $416,000 in the same period a year earlier. The bank holding company had total assets of $159 million as of March 31.
CalWest did not return calls for comment.
Newport Beach-based Commerce Nation-al Bank is the one local bank that has paid back the TARP funds. It got $5 million in January 2009, and paid it back that year.
Pacific Coast National Bancorp was a San Clemente-based bank that received $4.1 million in 2009, but it was closed by the Federal Deposit Insurance Corp. in November and acquired by Tustin-based Sunwest Bank.
