Five Maryland banks that took bailout money as part of the Troubled Asset Relief Program missed the August dividend payment to the federal government.
According to information gathered by SNL Financial, 115 banks throughout the country missed the Aug. 16 dividend payment required under TARP.
The Maryland banks missing the August payment were Cecil Bancorp Inc., parent company of CecilBank; Patapsco Bancorp Inc., parent company of The Patapsco Bank; Maryland Financial Bank and Rising Sun Bancorp., parent company of NBRS Financial and Harbor Bankshares, parent company of Harbor Bank.
It was Patapsco Bancorp’s second time missing a payment and Cecil Bancorp’s third. For Rising Sun Bancorp and Maryland Financial Bank it marked the fourth missed payment. Harbor Bank had been on the list earlier, made the May payment and was on the list again after missing the August payment.
“The trend we’re seeing is more and more institutions missing these payments,” Russ Yates, an analyst at SNL Financial in Charlottesville, Va. “There has been a steady increase, among smaller banks especially, of institutions missing payments.”
For some banks, they are willing to make dividend payments, but run into resistance from federal regulators who want banks to have healthy capital levels to absorb possible losses.
“If you are a bank taking provisions for loan losses and trying to maintain capital, it could put you in a position where regulators don’t want you to make the payment,” Maryland Financial Bank President and CEO Robert Chafey said. “The bank might want to make the payment, but the regulators say not to.”
Maryland Financial Bank joined TARP in March 2009 and has made $35,500 in payments. The company, a correspondent or banker’s bank, owes $92,600 in past due dividends.
The TARP agreement contains a penalty clause if a bank misses enough dividend payments. The biggest penalty comes if a bank misses six dividend payments when the Treasury gains the right to appoint two members to the company’s board of directors.
Yates said it is not uncommon for banks to be pulled in different directions when it comes to making TARP dividends. He said federal regulators are focusing on keeping bank capital levels up, and setting money aside to cover bad loans and sometimes that pushes TARP repayment down some in priority.
“We’re seeing that there can be a kind of disconnect,” Yates said. “The government wants the money and sometimes regulators are saying, ‘miss the dividend payment and maintain capital levels.’”
Harbor Bank CEO Joseph Haskins Jr. said the bank ended up on the list due to an issue with regulators.
“We were prepared to make the payment, but they wanted us to hold off,” Haskins said. “We requested to repay the TARP dividend, but the regulators wanted to come in first and review our situation.”
Calls to Rising Sun Bancorp, Patapsco Bancorp and Cecil Bancorp were not returned.
Patapsco Bancorp entered the TARP program in December 2008 when it sold the U.S. Department of Treasury $6 million of preferred stock. The company had made four scheduled payments totaling $377,866. The bank now owes $163,500 in overdue dividend payments.
Cecil Bancorp entered the TARP program in December 2008 and sold the Department of Treasury $11.6 million of preferred stock. The company has paid $516,989 so far, and owes $433,500 in past due dividends.
Rising Sun Bancorp sold $5.9 million in preferred stock to the Department of Treasury when it entered TARP in January 2009. The company has made $195,637 in dividend payments and owes $326,000 in overdue dividends.