Western Independent Banker - March/April 2009 - (Page 20)

TARP Money or Not, Secondary Offerings Belong in Your Plan So, where do you not find capital? Institutional investors, trust preferreds and traditional public offerings are not currently viable options. During the past several years, a core of institutional investors entered the market, willing and able to invest in regional and community banks across the U.S. With recent developments, that source of funding has been reduced dramatically. During the past five years, banks were also able to access trust preferred to augment capital through securitization. But due to recent dislocations in the segment, securitizations have disappeared. If you can find trust preferred directly, it can be very expensive. Pricing on the issuances of trust preferred in the third quarter, which was mostly to extremely large institutions, averaged 9.75 percent—well above the 3-5 percent available previously. Traditional public offerings leveraging the broker networks of national or major regional broker dealers have also decreased dramatically as investors focus on other stock holdings. The community offering philosophy is for a bank to raise capital from the people most committed to its success—its existing investors and members of the local community, who, along with ownership, will become the bank’s most ardent customers and advocates. It calls for strong management and a supportive and involved board who will raise the capital in pieces much smaller than an institutional investor. Replacing (Paying Back) TARP Money Unless you are comfortable with the government holding equity in your bank, it may be wise to think about how you will replace that money. A secondary offering is an excellent solution. AFTER A BAD storm sweeps through a community, residents always go out to assess the damage. And we have all seen rooftops covered with blue tarps in the aftermath of a tornado or hurricane. These tarps give occupants time to inspect the damage and provide cover until repairs can be made. Having been the victim of a tornado several years ago, I know the value of getting a blue tarp up to keep the rain out, hoping a roofer can make the needed repairs quickly. In today’s economic storm, tarps have come to banking. But in this case, they are green, not blue, and they are being issued by the U.S. Department of the Treasury, not Home Depot. The green TARP (Troubled Assets Relief Program) from the U.S. Treasury has terms and conditions: interest payments, warrants for equity ownership, and executive compensation and corporate governance requirements. Enhancing the Muscle of Your TARP Money TARP money will only be a temporary fix for our struggling economy. Traditional uses of capital in the banking sector have included expanding through acquisition, pursuing organic growth by lending or even hoarding funds to support existing operations. Raising additional capital in 2009 is a great way to enhance your bank’s goals. In today’s market, if you need capital for the next two to three years, I suggest using TARP for half of the necessary funds and raising the other half. The community offering philosophy is for a bank to raise capital from the people most committed to its success—its existing investors and members of the local community, who, along with ownership, will become the bank’s most ardent customers and advocates. 20 www.wib.org Western Independent Banker http://www.wib.org

Table of Contents Feed for the Digital Edition of Western Independent Banker - March/April 2009

Western Independent Banker - March/April 2009 Contents A Message from the President & CEO Profitable Liquidity: Yes, You Can Non-Performing Assets: The Keep Versus Sell Decision Is BOLI the Way to Go? The Troubled Asset Relief Program and Its Eff ect on Executive Compensation TARP Money or Not, Secondary Offerings Belong in Your Plan 52nd Annual Conference Private Equity: Another Capital Option Strengthening Your Bank’s Bottom Line by Adapting to Difficult Times Managing Your Branch Network Capital Dealing with a Hard Insurance Market WIB Service Corporation Report WIB Calendar New Members Index of Advertisers Advertiser.com

Western Independent Banker - March/April 2009

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