SEBRING - Highlands Independent Bank is one of seven Florida banks delinquent on the repayment of its TARP dividends.
Those seven Florida banks owe the U.S. Treasury $101 million in principal and have "missed $16.8 million in divided and interest payments," according to the July report of the Special Inspector General to the Troubled Asset Relief Program update Congress.
The banks received federal bailout funds during the recession. As of June 30, 20 percent of the 707 U.S. banks that took money had not repaid the interest; 25 banks failed; TARP's investments in other banks were auctioned at a discount.
Chrysler, GM, AIG, JP Morgan Chase and Bank of America were among companies that took funds under several TARP programs. Eighty percent of the 80 banks have repaid the principal.
"According to Treasury, as of June 30, 2013, 236 TARP recipients (224 banks and credit unions, two auto companies and AIG had paid back all of their principal or repurchased shares, although Chrysler and AIG did so at a loss to Treasury," the SIG report said.
John Shoop, president of the Sebring bank, said $6.7 million was taken four years ago when HIB was considering expansion into other communities. The federal government took preferred stock in HIB, Shoop said.
"When we had applied and received those funds, they were not strictly for bailout. Under the economic stimulus plan, they were for business expansion too," Shoop said. "We were looking at expanding in the surrounding communities."
However, the bank didn't expand during the Great Recession. The main bank at 2600 U.S. 27 has five branches: downtown Sebring, south Sebring, Sun N' Lake, Avon Park and Lake Placid.
Shoop said the bank has accrued the dividend money on a monthly basis to reimburse TARP, but banks with less than 8 percent in tier 1 capital are prevented from doing so by the Federal Reserve. Page 97 of the SIG report says HIB has missed 10 dividend and interest payments totaling $912,875.
"The money is there. We can pay it. It's an accounting issue," Shoop said. "Once we're allowed to pay the payments, we will."
The other six Florida banks are U.S. Century Bank in Doral, Florida Bank Group of Tampa, Marine Bank & Trust of Vero Beach, GulfSouth Private Bank of Destin and Alarion Financial of Ocala.
Bauer Financial Ratings has lowered HIB's status to one star. For comparison purposes, the same service rates TD Bank with four stars and Wauchula State Bank with 3.5 stars.
Other companies rate banks, but Bauer is the main service, Shoop acknowledged. On its website, Bauer stated that every institution it rates is considered financially sound and is operating well above its regulatory capital requirements. Banks are either profitable or had only an insignificant loss for the reporting quarter.
"This rating system strictly looks at some key numbers and does not formally investigate internal processes that have a great effect on how a bank operates and its condition," Shoop wrote in a separate email. "We disagree with this rating due to the underlying strength of the bank and the improving conditions.
"These ratings can change from quarter to quarter, and have in the past," Shoop wrote. "We have been as high as a five star, and at every level in between."
"We've gone through pretty much what our community has," Shoop said. "We feel the same pain as guy down the street that has been struggling with this crisis."
"Highlands Independent Bancshares Inc., the bank's holding company, applied for and received funds through the TARP program in March of 2009," Shoop wrote in a separate email. "Funds were made available for various purposes as part of the government's economic stimulus program. The TARP funds are not a 'bailout' program as, at some point in time, in that they have to be repaid.
"At the time funds were received, the initial purpose of these funds was for expansion into our surrounding counties. Shortly thereafter, from the collapse of the economic conditions of the country, the company altered its plans and did not pursue expansion but chose to preserve its capital position," Shoop wrote. "The impact of the severe decline in real estate values throughout Florida had affected banks throughout the state, and we were no exception. Dramatically declining asset valuations have strained the resources of bank customers on both the business and consumer sides.
"As bankers for these customers, we see the impact on our own financial statements," Shoop wrote. "The scenario has been unfolding in Florida for five full years and the ripple effect has been significant.
"The money from TARP is held under the United States Treasury in the form of a preferred stock and is an obligation of the holding company, not with the bank itself," Shoop wrote. "All dividend payments under the agreement were made until the holding company was informed by the Federal Reserve that any institution having a Tier 1 capital ratio under their desired ratio of 8 percent was to suspend any future dividend payments.
"Regulatory guidelines maintain that an institution that has in excess of 5 percent capital is well capitalized. Our holding company ratio is at 5.5 percent. The bank is also at that level," Shoop wrote. "The holding company continues to accrue and expense the dividends payments each month and when it is allowed, the holding company will resume paying them. At such time when able, TARP will be repaid in full. The repayment of TARP does not have any impact on the bank."
"To be very clear, TARP in no way affects the abilities of the bank to serve the financial needs of its loan and deposit customers," Shoop wrote. "As an FDIC-insured bank, all customer deposits are fully insured to the highest limits set by the FDIC, which is $250,000 per depositor. Depositors may qualify for even more coverage, if they have funds in different ownership categories.
"Highlands Independent Bank has a very strong underlying base. We have a very good liquidity position, very strong core deposits and very strong positive core earnings. We have a dedicated staff and board of directors, along with a very loyal customer base (that) has been with us in this through thick and thin," Shoop wrote. "The bank has been a part of the Highlands County community for 28 years and we plan to be here for many more. The economic conditions of our county are improving and the foundation of the bank continues to strengthen. Be assured our management and board of directors are taking every possible step to protect the interests of our employees, customers and shareholders in these times."
The entire TARP report can be found at www.sigtarp.gov/Quarterly%20Reports/July_24_2013_Report_to_Congress.pdf