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VOL. 125 | NO. 20 | Monday, February 1, 2010

Banks Find Time Right to Repay TARP

By Andy Meek

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TARP dividend payments through December include:

First Horizon: $43.4 million
Trustmark: $11.28 million
Magna Bank: $676,807
Cadence Bank: $1.87 million
Bank of Fayette County: $274,796

President Barack Obama made an effort to show his disdain for the taxpayer-funded bank bailout during his State of the Union address Wednesday night, likening its popularity to that of a root canal.

But popular or not, little by little the federal government is turning a profit from its investment of capital in hundreds of banks around the country under the Troubled Asset Relief Program. The latest report from the U.S. Treasury, current through December, shows Memphis-area banks that got TARP cash have collectively made almost $60 million in dividend payments to the government.

All told, the government has collected more than $12 billion in dividend payments through December from all TARP participants.

Local paybacks

Accepting the emergency capital starting in 2008 came with strings that included limits on executive compensation and the obligation to make regular dividend payments until the bailout money is repaid.

The $60 million in dividend payments that have flowed to Washington from the Memphis-area banking market is basically the return generated so far on the public’s investment in local banks. That figure only includes banks based in and around Memphis like First Horizon National Corp., the parent company of First Tennessee Bank, and smaller institutions such as Magna and First Alliance banks.

It also includes payments from banks with branches in Memphis and Shelby County but that are headquartered in neighboring markets, like Mississippi-based Trustmark and Cadence banks.

Trustmark, though, is now out of the program. By the end of December, the Jackson, Miss.-based bank felt optimistic enough about the economy and its own capital ratios that it got approval to return the bank’s $215 million in TARP money.

By the end of November, Magna – the third largest Memphis-area bank by assets – had returned 25 percent of its nearly $14 million slice of the TARP pie. Kirk Bailey, Magna’s chairman, president and CEO, told The Daily News his bank decided to return the money in chunks instead of all at once, the way most banks have done.

Other banks may not be far behind.

When First Horizon executives reported fourth quarter earnings several days ago, they signaled the company – which had $26.1 billion in assets at the end of the year – is close to repaying its share of TARP and may do so this year.

Thanks to an $866 million capital infusion, First Horizon is Memphis’ and Tennessee’s largest TARP recipient. The company also at the end of December had made $43.4 million in TARP dividend payments to Uncle Sam.

When Robert Patten, a bank analyst at Morgan Keegan & Co. Inc., asked about First Horizon’s TARP repayment timetable, he got an answer that leaned toward something happening this year.

“I hope we are being thoughtful about it,” said First Horizon CEO Bryan Jordan. “We have spent a lot of time trying to follow what’s unfolded in the last month and a half.

“We are in the process of discussing internally how we work with our regulators through what we consider a process to evaluate the right time and the right way to repay TARP. ... We will work with our regulators as appropriate, and I hope we make significant progress this year.”

Incentive to repay

The $60 million local figure is dwarfed by the more than $200 billion spent shoring up individual banks as part of TARP. The $60 million from Memphis-based banks also equals the roughly $60 million dividend SunTrust Banks Inc. paid by itself for the month of December.

Repaying the TARP money is the ideal banks are shooting for sooner rather than later. Banks pay a 5 percent dividend on the TARP money for the first five years they keep it. After that, the payment goes up to 9 percent, giving the banks an incentive to repay the money quickly.

The same month the U.S. Treasury reported its latest TARP dividend payments, the leader of one such bank in Memphis was in Washington with other banking and business leaders. And during a breakout session at a jobs forum convened by the White House, Tri-State Bank of Memphis President Jesse Turner Jr. presented his thoughts about the state of the local and national banking industry to U.S. Treasury Secretary Tim Geithner.

Turner’s bank is a TARP participant and through December had made a little less than $90,000 in dividend payments to the government. Geithner nodded and appeared to be taking notes while Turner spoke.

“We’ve been around, oh, 60-some years,” Turner said to the group that included Small Business Administration Administrator Karen Mills.

“We’ve been doing development lending for years. Our bank does a good bit of business with church loans, and we do have a good bit of commercial borrowers. Basically, we received some of the TARP money. We think it was a good idea. And actually, we did it more for proactive reasons.”

PROPERTY SALES 66 66 6,612
MORTGAGES 78 78 4,207
BUILDING PERMITS 158 158 16,073
BANKRUPTCIES 45 45 3,441