Like many community banks, First Bancshares Inc. in Hattiesburg, Miss., quite reluctantly took Troubled Asset Relief Program funds, accepting only half what it qualified for.
Yet the $500 million-asset company is now going back for seconds.
It is one of 84 banking companies and credit unions that have tapped the Treasury Department's Community Development Capital Initiative. The program, the most recent iteration of Tarp, is designed to extend less expensive capital — totaling 5% of risk-weighted assets — to institutions that lend to underserved communities. Through the program, companies that received Tarp funds were able to refinance the investment, trimming the coupon from 5% to 2% annually.
First Bancshares refinanced its $5 million Tarp allocation and accepted another $12.12 million.
"We only took about half of the amount we qualified for Tarp," said M. Ray "Hoppy" Cole, the president and chief executive of First Bancshares. "More than likely, we were going to have to do an offering, and this was a great alternative to that."
In all, the Treasury has invested $570 million through the program, which was closed on Sept. 30. Refinanced Tarp infusions made up $358 million of that total, and another $100 million went to companies that already had Tarp money. Newcomers to the government program, largely credit unions issuing subordinated debt, received $111 million.
Jeannine Jacokes, the chief executive and policy adviser at the Community Development Bankers Association, said the Treasury could have invested as much as $830 million had every bank and credit union certified as a community development financial institution applied and been approved for the program.
"The lion's share was able to access this important capital," Jacokes said in an interview. "Not everybody that we would have liked to have seen receive an infusion did, but it is still a pretty significant amount."
The program's most notable rejection was of the $2.2 billion-asset ShoreBank in Chicago, which sought a $75 million infusion from the fund to accompany $125 million it raised. It was not approved, and ShoreBank failed in August.
Jacokes and other community development advocates had been advocating a better Treasury program for community development banks since late 2008.
These investments carry a 2% coupon for the first eight years, as long as a company does 60% of its business in communities considered to be underserved. Otherwise, the rules are the same as in the Tarp program.
The less expensive coupon led First Bancshares to convert to a community development bank, Cole said. Until then, though his bank was already doing this type of work, he had not considered obtaining the designation, which has given his bank other advantages such as a first-time homebuyers program.
"Up to this point, we really hadn't put together how useful the designation could be," Cole said.
For the most part, unlike with the $30 billion small-business lending fund that is getting the cold shoulder, community development bankers see advantages — and few detriments — to this program. That is largely because community development banks have a hard time finding capital.
"This is low-cost, long-term capital, and that is all but nonexistent elsewhere," Tamara Gurney, the president and chief executive of Mission Valley Bancorp. in Sun Valley, Calif., said in an interview. "This gives us some breathing room to get out of the cycle."
Mission Valley refinanced its $5.5 million in Tarp funds and accepted another $4.8 million through the CDCI program.
Gurney said the capital would boost her $255 million-asset bank's leverage ratio to about 16%, giving it room to help customers with things like debt restructurings.
The capital also will let Mission Valley extend loans to new customers, something for which it was criticized during a recent exam. "We took Tarp in the beginning to stay in the game, and we are standing by that with this program," Gurney said. "Some of these borrowers have viable business plans, they just need some oxygen. You help them out now, and you'll have a customer for life."
