With the financial markets falling apart in late 2008, the parent of Baltimore County Savings Bank figured it couldn't hurt to have more capital on hand.
So BCSB Bancorp applied for the federal banking bailout program and received $10.8 million in aid, believing the U.S. Treasury's stated intention that the investments would be available only to "good banks," said Joseph J. Bouffard, the bank's president and chief executive.
Given the public's negative perception of the Troubled Asset Relief Program, or TARP, Bouffard was thrilled last month when his Perry Hall-based company repaid the money in full, plus dividend payments it has already made, becoming the latest bank to exit the controversial program.
"It was huge," Bouffard said of having paid off the money. "From our standpoint, it's first of all a tribute to the strength of the organization: the fact that we have a very strong capital position, and also, to a lesser extent, our regulators have that kind of faith in us. They approved our payback without us going out and raising additional capital."
While many large banks such as Morgan Stanley, Goldman Sachs and Citigroup have repaid their bailout aid, an increasing number of smaller financial institutions are missing quarterly dividend payments. During the latest round of paybacks in November, 123 banks missed payments, including five in Maryland, according to the Treasury Department's latest figures. That was up from 115 in August and 91 in May.
The median asset for U.S. banks that have missed payments is about $397 million, according to research firm SNL Financial. This indicates that smaller institutions are still struggling with the weak economy, especially in harder-hit regions such as California and Florida, said Kevin Curry, a senior analyst at SNL Financial.
"The larger banks could diversify more and raise capital more easily," Curry said.
In Maryland, 20 banks and thrifts received a combined $458 million in TARP assistance, according to SNL Financial. Provident Bankshares received the largest amount of aid, totaling $151.5 million, which was assumed by M&T Bank Corp. when the mid-Atlantic financial powerhouse acquired Maryland's largest independent bank in late 2008.
Of the remaining 19 Maryland-based institutions, five paid back their total balance, while Bethesda-based Eagle Bancorp made a partial repayment. Olney-based Sandy Spring Bancorp in December repaid the remaining balance of its $83 million TARP loan, the second largest aid amount in Maryland after Provident Bankshares'.
However, six Maryland banks have missed at least one quarterly dividend payment in the past year.
Rising Sun Bancorp, which received $5.9 million in TARP money, for instance, has missed five consecutive quarterly payments, having not made one since August 2009. Executives at the Cecil County holding company for NBRS Financial Bank could not be reached for comment.
Participating banks make dividend payments with the approval of their primary federal regulator. Some banks can choose to preserve their capital and not make a payment, according to the Treasury Department.
But if a bank fails to pay dividends for six quarterly periods, Treasury officials can appoint two directors to the bank's board. Nineteen banks in the United States had missed six or more payments by the end of January, yet so far the federal agency has not taken that step.
Maryland Financial Bank missed four dividend payments but paid the most recent one, in November. The Towson-based bank, which serves other financial institutions, got $1.7 million in aid, the smallest amount of TARP funds received by a Maryland bank.
Under the guidance of its regulator, the Towson-based bank skipped the payments to maintain its capital levels and to put aside more money for loan losses, said Robert R. Chafey, president and chief executive officer. Moreover, the bank was not posting a consistent profit, Chafey said.
But the bank posted a profit of $30,222 and $40,238 in the third and fourth quarters, allowing it to make its November payment. Maryland Financial plans to make its next quarterly payment this month.
"We've earned our way to pay the TARP payment," Chafey said.
Baltimore-based Harbor Bankshares Corp., whose namesake bank is under a consent order with regulators, said that agreement prevents it from making its dividend payments. The bank, which received $6.8 million in TARP funds, stopped making the quarterly payments after agreeing in April to the consent order, which required the bank to reduce its commercial real estate loans and maintain a certain level of capital. The bank has missed the past two payments.
Joseph Haskins Jr., Harbor's chairman and chief executive officer, said the bank has asked regulators for permission to start making its payments.
The consent order has "given us the notion that we can't make the payment," Haskins said. "But we have the cash to make the payment."
Haskins said the TARP funds helped the bank remain well-capitalized, as regulators have required community banks to put more money aside for loan losses.
Bouffard, of Baltimore County Savings Bank, said repaying the TARP funds will save the company $540,000 in annual dividend payments.
It also got rid of the stigma associated with TARP, he said.
"I thought [taking the TARP money] was a positive step for our bank, but subsequently it turned out not to be because of the perceptions" that the bank was taking a bailout from the government, Bouffard said.