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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

April 2014: 

Troubled Asset Relief Program: 

Status of the Wind Down of the Capital Purchase Program: 

GAO-14-388: 

GAO Highlights: 

Highlights of GAO-14-388, a report to congressional committees. 

Why GAO Did This Study: 

CPP was established as the primary means of restoring stability to the 
financial system under the Troubled Asset Relief Program (TARP). Under 
CPP, Treasury invested almost $205 billion in 707 eligible financial 
institutions between October 2008 and December 2009. CPP recipients 
have made dividend and interest payments to Treasury on the 
investments. TARP's authorizing legislation requires GAO to report 
every 60 days on TARP activities. This report examines (1) the status 
of CPP and (2) the financial condition of institutions remaining in 
the program. 

To assess the program's status, GAO reviewed Treasury reports on the 
status of CPP. GAO also used financial and regulatory data to compare 
the financial condition of institutions remaining in CPP with those 
that had exited the program and those that did not participate. GAO 
also obtained information through a questionnaire from CPP 
participants as of November 20, 2013, and former CPP participants that 
raised capital in calendar year 2013. GAO received completed 
questionnaires from 72 of the 104 institutions. 

GAO provided a draft of this report to Treasury for its review and 
comment. Treasury generally concurred with GAO's findings. 

What GAO Found: 

The Department of Treasury (Treasury) continues to make progress in 
winding down the Capital Purchase Program (CPP). As of January 31, 
2014, Treasury's data showed that 624 of the original 707 
institutions, or about 88 percent, had exited CPP. Treasury had 
received about $225 billion from its CPP investments, exceeding the 
approximately $205 billion it had disbursed. Most institutions exited 
by repurchasing their preferred shares in full or by refinancing their 
investments through other federal programs. Treasury also continues to 
sell its investments in the institutions through auctions; a strategy 
first implemented in March 2012 to expedite the exit of a number of 
CPP participants. As of January 31, 2014, Treasury has sold all or 
part of its CPP investment in 162 institutions through auctions, 
receiving a total of about 80 percent of the principal amount. A 
relatively small number of the remaining 83 institutions accounted for 
most of the outstanding investments. Specifically, 10 institutions 
accounted for $1.5 billion or about 73 percent of the $2.1 billion in 
outstanding investments. Treasury estimated a lifetime gain of $16.1 
billion for CPP as of November 30, 2013. 

Figure: Status of Capital Purchase Program Funds and Participants, as 
of January 31, 2014: 

[Refer to PDF for image: table and pie-chart] 

Status of funding: 

Disbursed: $204.9 billion: 
* Repayments: $195.3 billion; 
* Auction proceeds: $2.8 billion; 
* Dividends/interest/other income: $18.9 billion; 
* Warrant income: $8.0 billion; 
Total proceeds: $225.0 billion; 
Write-offs and losses: -$4.7 billion; 
Outstanding investments: $2.1 billion. 

Status of participants: 
Institutions remaining in program: 83; 
Sold investment or participant merged: 29; 
In bankruptcy/receivership: 29; 
Investments sold through auction: 162; 
Investments refinanced through other federal programs: 165; 
Investments fully repaid: 239. 

Source: GAO analysis of Treasury data. 

[End of figure] 

GAO's analysis of financial data found that the institutions remaining 
in CPP were generally less financially healthy than those that have 
exited or that never participated. In particular, the remaining CPP 
institutions tended to be less profitable, hold riskier assets, and 
have lower capital levels and reserves. Most remaining participants 
also have missed scheduled dividend or interest payments, with 60 
missing their November 2013 payment. Further, 47 of the remaining CPP 
institutions were on the Federal Deposit Insurance Corporation's 
problem bank list in December 2013—that is, they demonstrated 
financial, operational, or managerial weaknesses that threatened their 
continued financial viability. Institutions that continue to miss 
dividend payments or find themselves on the problem bank list may have 
difficulty fully repaying their CPP investments because federal and 
state bank regulators may not allow these institutions to make 
dividend payments or repurchase outstanding CPP shares in an effort to 
preserve their capital and promote safety and soundness. 

View [hyperlink, http://www.gao.gov/products/GAO-14-388]. For more 
information, contact A. Nicole Clowers, 202-512-8678, clowersa@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Treasury Continues to Make Progress in Winding Down the CPP Program: 

Remaining CPP Institutions Are Generally Less Financially Healthy Than 
Those That Have Exited: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Office of Financial Stability: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: Aggregate Financial Information on Capital Purchase Program 
(CPP) Participants and Nonparticipants, as of December 31, 2013: 

Figures: 

Figure 1: Status of Institutions That Received Capital Purchase 
Program Investments, as of January 31, 2014: 

Figure 2: Status of the Capital Purchase Program, as of January 31, 
2014: 

Figure 3: Remaining Capital Purchase Program (CPP) Investments, as of 
January 31, 2014: 

Figure 4: Remaining Participation in the Capital Purchase Program 
(CPP) by State, as of January 31, 2014: 

Figure 5: Total Sales Proceeds as a Percentage of Treasury's 
Outstanding Investment by Auction, as of January 31, 2014 (Excludes 
Income from Repurchases, Dividends, and Other Sources): 

Figure 6: Number of Institutions Missing Scheduled Dividend or 
Interest Payments and Number of Institutions Participating in the 
Capital Purchase Program by Quarter, February 2009 through November 
2013: 

Figure 7: Number of Capital Purchase Program (CPP) Institutions on 
FDIC's Problem Bank List, December 2008 through December 2014: 

Abbreviations: 

CDCI: Community Development Capital Initiative: 

CPP: Capital Purchase Program: 

EESA: Emergency Economic Stabilization Act of 2008: 

FASB: Financial Accounting Standards Board: 

FDIC: Federal Deposit Insurance Corporation: 

GAAP: Generally Accepted Accounting Principles: 

SBLF: Small Business Lending Fund: 

TARP: Troubled Asset Relief Program: 

Treasury: U.S. Department of the Treasury: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

April 7, 2014: 

Congressional Committees: 

From October 2008 through December 2009, the Department of the 
Treasury (Treasury) invested almost $205 billion in 707 financial 
institutions as part of the government's efforts to help stabilize 
U.S. financial markets and the economy. These investments were made 
through the Capital Purchase Program (CPP), the first and largest 
initiative under the Troubled Asset Relief Program (TARP).[Footnote 1] 
TARP gave Treasury the authority to buy or guarantee up to $700 
billion of the "troubled assets" that were believed to be at the heart 
of the financial crisis, including mortgages, mortgage-backed 
securities, and any other financial instruments deemed appropriate, 
such as equity investments.[Footnote 2] Under this authority, in 
October 2008 Treasury created CPP to provide capital to viable 
financial institutions by purchasing preferred shares and subordinated 
debt. In return for its investments, Treasury received dividend or 
interest payments and warrants.[Footnote 3] The program was closed to 
new investments on December 31, 2009, and since then Treasury has 
continued to oversee and divest its CPP investments, collect dividend 
and interest payments, and sell warrants. As of January 31, 2014, 624 
CPP participants had exited the program, many by repurchasing their 
preferred shares or subordinated debt after consultation with their 
primary bank regulators. 

This report is based on our continuing analysis and monitoring of 
Treasury's activities in implementing the Emergency Economic 
Stabilization Act of 2008 (EESA), which provided us with broad 
oversight authorities for actions taken under TARP and required that 
we report at least every 60 days on TARP activities and performance. 
[Footnote 4] To fulfill our statutorily mandated responsibilities, we 
have been monitoring and providing updates on TARP programs, including 
CPP.[Footnote 5] This report examines (1) the status of CPP, including 
repayments and other proceeds, as well as investments outstanding; and 
(2) the financial condition of institutions remaining in CPP. 

To assess the status of CPP, we analyzed Treasury reports on 
outstanding CPP investments, dividends paid, and the number of 
institutions that made full repayments. We also sent a questionnaire 
to current CPP participants as of November 20, 2013, and former CPP 
participants that raised capital during calendar year 2013 asking if 
the upcoming increase in the interest or dividend rate on CPP 
securities had an impact on their efforts to exit the program and/or 
retire any outstanding CPP securities.[Footnote 6] We received 
completed questionnaires from 72 of the 104 institutions. To assess 
the financial condition of institutions that received investments 
under CPP, we used financial and regulatory data from SNL Financial to 
compare CPP participants remaining in the program with those that had 
exited the program and those that had never participated. We have 
assessed the reliability of SNL Financial data as part of previous 
studies through interviews with SNL officials and testing of SNL data 
against filed regulatory documents. We determined that the financial 
information we used was sufficiently reliable for the purposes of this 
report. We also leveraged our past reporting on TARP, as well as that 
of the Special Inspector General for TARP, as appropriate. Appendix I 
has more information on our scope and methodology. 

We conducted this performance audit from December 2013 to April 2014 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

Created in 2008, CPP was the primary initiative under TARP to help 
stabilize the financial markets and banking system by providing 
capital to qualifying regulated financial institutions through the 
purchase of senior preferred shares and subordinated debt.[Footnote 7] 
Rather than purchasing troubled mortgage-backed securities and whole 
loans, as initially envisioned under TARP, Treasury used CPP 
investments to strengthen financial institutions' capital levels. 
Treasury determined that strengthening capital levels was the more 
effective mechanism to help stabilize financial markets, encourage 
interbank lending, and increase confidence in lenders and investors. 
Treasury believed that strengthening the capital positions of viable 
financial institutions would enhance confidence in the institutions 
themselves and the financial system overall and increase the 
institutions' capacity to undertake new lending and support the 
economy. On October 14, 2008, Treasury allocated $250 billion of the 
original $700 billion in overall TARP funds for CPP. The allocation 
was subsequently reduced in March 2009 to reflect lower estimated 
funding needs, as evidenced by actual participation rates, and the 
program was closed to new investments on December 31, 2009. 

Under CPP, qualified financial institutions were eligible to receive 
an investment of between 1 and 3 percent of their risk-weighted 
assets, up to a maximum of $25 billion.[Footnote 8] In exchange for 
the investment, Treasury generally received senior preferred shares 
that would pay dividends at a rate of 5 percent annually for the first 
5 years and 9 percent annually thereafter.[Footnote 9] CPP investments 
made in late 2008 began paying the higher dividend or interest rate in 
late 2013 whereas the remaining investments will see the increase 
begin sometime in 2014. EESA required that Treasury also receive 
warrants to purchase shares of common or preferred stock or a senior 
debt instrument to further protect taxpayers and help ensure returns 
on the investments. Institutions are allowed to repay CPP investments 
with the approval of their primary federal bank regulator and 
afterward to repurchase warrants. 

Treasury Continues to Make Progress in Winding Down the CPP Program: 

As of January 31, 2014, a total of 624 of the 707 institutions that 
originally participated in CPP, about 88 percent, had exited the 
program. Of the 624 institutions that exited CPP, 239 institutions 
repurchased their preferred shares or subordinated debentures in full 
(see figure 1).[Footnote 10] Another 165 institutions refinanced their 
shares through other federal programs: 28 through the Community 
Development Capital Initiative (CDCI) and 137 through the Small 
Business Lending Fund (SBLF).[Footnote 11] An additional 162 
institutions had their investments sold through auction and 29 
institutions went into bankruptcy or receivership. The remaining 29 
had their investments sold by Treasury (25), or merged with another 
institution (4). 

Figure 1: Status of Institutions That Received Capital Purchase 
Program Investments, as of January 31, 2014: 

[Refer to PDF for image: pie-chart] 

Status of participants: 
Institutions remaining in program: 83; 
Sold investment or participant merged: 29; 
In bankruptcy/receivership: 29; 
Investments sold through auction: 162; 
Investments refinanced through other federal programs: 165; 
Investments fully repaid: 239. 

Source: GAO analysis of Treasury data. 

[End of figure] 

Repayments and income from dividends, interest, and warrants from CPP 
investments have exceeded the amounts originally disbursed. Treasury 
disbursed $204.9 billion to 707 financial institutions nationwide from 
October 2008 through December 2009. As of January 31, 2014, Treasury 
had received $225 billion in repayments and income from its CPP 
investments, exceeding the amount originally disbursed by $20.1 
billion (see figure 2).[Footnote 12] The repayments and income amount 
include $195.3 billion in repayments and $2.8 billion in auction sales 
of original CPP investments as well as $18.9 billion in dividends, 
interest, and other income and $8.0 billion in warrants sold. After 
accounting for write-offs and realized losses totaling $4.7 billion, 
CPP had $2.1 billion in outstanding investments as of January 31, 
2014.[Footnote 13] Treasury estimated a lifetime gain of $16.1 billion 
for CPP as of November 30, 2013.[Footnote 14] 

Figure 2: Status of the Capital Purchase Program, as of January 31, 
2014: 

[Refer to PDF for image: table] 

Assets held: 
Preferred stock; 
Common stock; 
Warrants; 
Suboordinated debt. 

Start date: October 2008; 
End date: December 2009; 
Approximate exit: Unknown. 

Status of funding: 

Disbursed: $204.9 billion: 
* Repayments[A]: $195.3 billion; 
* Auction proceeds: $2.8 billion; 
* Dividends/interest/other income: $18.9 billion; 
* Warrant income: $8.0 billion; 
Total proceeds: $225.0 billion; 
Write-offs and losses: -$4.7 billion; 
Outstanding investments: $2.1 billion. 

Source: GAO analysis of Treasury data. 

[A] The total amount of repayments includes $336 million from 
institutions that transferred to the Community Development Capital 
Initiative and $2.2 billion from institutions that transferred to the 
Small Business Lending Fund. 

[End of figure] 

Impact of Increasing Dividend or Interest Rate on CPP Securities 
Varies: 

About half of the institutions (37 of 72) that responded to our 
questionnaire about the impact of the upcoming or recent increase in 
the dividend or interest rate on CPP securities stated that it 
impacted or is impacting their efforts to exit the CPP program and/or 
retire any outstanding CPP securities.[Footnote 15] These respondents' 
comments indicated that the institutions are taking a range of 
actions. Some institutions indicated that the increase led them to 
raise alternative capital. For example, one institution completed a 
public offering of common stock and used the proceeds to redeem its 
CPP shares. Others indicated that they are working with Treasury to 
participate in a future auction or attempting to negotiate with 
Treasury to restructure the CPP debt. Still others commented that the 
increase in the interest or dividend rate will increase the burden on 
the institution, make it more difficult to raise alternative capital, 
and further reduce their ability to exit the program. Thirty-three 
institutions responded that the increase did not or is not impacting 
their efforts to exit the program or retire CPP securities. 

Remaining Capital Purchase Program Investment Concentrated in a Few 
Institutions: 

As of January 31, 2014, the 83 remaining institutions accounted for 
the $2.1 billion in outstanding investments or about 1 percent of the 
original investment. The outstanding investments were concentrated in 
a relatively small number of institutions. Specifically, the 10 
largest remaining CPP investments accounted for $1.5 billion (73 
percent) of outstanding investments and 2 institutions accounted for 
more than half of this amount (see figure 3). In contrast, the 
remaining $557 million (24 percent) was spread among the other 73 
institutions. 

Figure 3: Remaining Capital Purchase Program (CPP) Investments, as of 
January 31, 2014: 

[Refer to PDF for image: pie-chart and table] 

Number of institutions: 83; 
Percentage of outstanding CPP investment: 
Top 10 institutions: 73%; ($1.520 billion); 
Other 73 institutions: 27%; $557 million. 

Outstanding CPP investment by top 10 institutions: 

Institution: 1. Popular, Inc.
Location: San Juan, PR; 
Investment amount: $935.0 million; 
Percentage of total outstanding investment: 45.0%. 

Institution: 2. First BanCorp[A]; 
Location: San Juan, PR; 
Investment amount: $239.0 million; 
Percentage of total outstanding investment: 11.5%. 

Institution: 3. Hampton Roads Bankshares, Inc.[A]; 
Location: Norfolk, VA; 
Investment amount: $80.3 million; 
Percentage of total outstanding investment: 3.9%. 

Institution: 4. CommunityOne Bancorp[A]; 
Location: Charlotte, NC; 
Investment amount: $51.5 million; 
Percentage of total outstanding investment: 2.5%. 

Institution: 5. U.S. Century Bank; 
Location: Miami, FL; 
Investment amount: $50.2 million; 
Percentage of total outstanding investment: 2.4%. 

Institution: 6. VantageSouth Bancshares Inc. 
Location: Cary, NC; 
Investment amount: $42.8 million; 
Percentage of total outstanding investment: 2.1%. 

Institution: 7. Porter Bancorp Inc.
Location: Louisville, KY; 
Investment amount: $35.0 million; 
Percentage of total outstanding investment: 1.7%. 

Institution: 8. Royal Bancshares of Pennsylvania, Inc.
Location: Narberth, PA; 
Investment amount: $30.4 million; 
Percentage of total outstanding investment: 1.5%. 

Institution: 9. First United Corporation; 
Location: Oakland, MD; 
Investment amount: $30.0 million; 
Percentage of total outstanding investment: 1.4%. 

Institution: 10. Patriot Bancshares, Inc.
Location: Houston, TX; 
Investment amount: $26.0 million; 
Percentage of total outstanding investment: 1.3%. 

Institution: Total top 10; 
Investment amount: $1.520 billion; 
Percentage of total outstanding investment: 73.2%. 

Institution: All other CPP outstanding; 
Investment amount: $557.4 million; 
Percentage of total outstanding investment: 26.8%. 

Institution: All CPP outstanding; 
Investment amount: $2.078 billion; 
Percentage of total outstanding investment: 100.0%. 

Source: GAO analysis of Treasury data. 

[A] Original investment has been converted at a discount to common 
stock in the institution. Amount shown is original. 

[End of figure] 

As of January 31, 2014, the number of states with at least one 
institution with CPP investments outstanding was 28, and the number of 
states with at least 5 such institutions was 7 (see figure 4). 
California had the highest number of remaining CPP institutions with 
8, followed by Illinois with 7. In terms of total CPP investments 
outstanding, Puerto Rico had the largest amount ($1.2 billion), 
followed by North Carolina ($108 million), Virginia ($91 million), and 
Florida ($74 million). 

Figure 4: Remaining Participation in the Capital Purchase Program 
(CPP) by State, as of January 31, 2014: 

[Refer to PDF for image: illustrated U.S. map] 

Number of institutions participating in CPP: 

[CPP funds indicated in millions] 

Alabama: 2; 
Outstanding CPP funds: $4.47. 

Alaska: 0. 

Arizona: 2; 
Outstanding CPP funds: $6.44. 

Arkansas: 5; 
Outstanding CPP funds: $67.74. 

California: 8; 
Outstanding CPP funds: $54.12. 

Colorado: 2; 
Outstanding CPP funds: $15.72. 

Connecticut: 0. 

Delaware: 0. 

District of Columbia: 0. 

Florida: 5; 
Outstanding CPP funds: $74.31. 

Georgia: 3; 
Outstanding CPP funds: $24.18. 

Hawaii: 0. 

Idaho: 1; 
Outstanding CPP funds: $6.9. 

Illinois: 7; 
Outstanding CPP funds: $51.65. 

Indiana: 0. 

Iowa: 0. 

Kansas: 2; 
Outstanding CPP funds: $17.6.  

Kentucky: 1; 
Outstanding CPP funds: $41.3.  

Louisiana: 1; 
Outstanding CPP funds: $2.4. 

Maine: 0. 

Maryland: 6; 
Outstanding CPP funds: $62.04. 

Massachusetts: 2; 
Outstanding CPP funds: $17.06. 

Michigan: 0. 

Minnesota: 4; 
Outstanding CPP funds: $25.68. 

Mississippi: 2; 
Outstanding CPP funds: $7.44. 

Missouri: 3; 
Outstanding CPP funds: $4.51. 

Montana: 0. 

Nebraska: 0. 

Nevada: 0. 

New Hampshire: 0. 

New Jersey: 2; 
Outstanding CPP funds: $15.42. 

New Mexico: 0. 

New York: 0. 

North Carolina: 4; 
Outstanding CPP funds: $108.06. 

North Dakota: 1; 
Outstanding CPP funds: $20.09. 

Ohio: 0. 

Oklahoma: 0. 

Oregon: 0. 

Pennsylvania: 2; 
Outstanding CPP funds: $42.94. 

Puerto Rico: 2; 
Outstanding CPP funds: $1.174 billion. 

Rhode Island: 0. 

South Carolina: 5; 
Outstanding CPP funds: $48.60. 

South Dakota: 0. 

Tennessee: 1; 
Outstanding CPP funds: $17.81. 

Texas: 5; 
Outstanding CPP funds: $69.11. 

Utah: 0. 

Vermont: 0. 

Virginia: 2; 
Outstanding CPP funds: $91.03. 

Washington: 0. 

West Virginia: 0. 

Wisconsin: 1; 
Outstanding CPP funds: $5.1. 

Wyoming: 1; 
Outstanding CPP funds: $2.1. 

Sources: GAO analysis of Treasury data; Map Resources (map). 

[End of figure] 

Treasury Continues to Utilize Auctions as a Means of Winding Down the 
Program: 

Treasury began selling its investments in banks through auctions 
beginning in March 2012 as a way to balance the speed of exiting the 
investments with maximizing returns for taxpayers.[Footnote 16] As of 
January 31, 2014, Treasury had conducted a total of 23 auctions and 
received a total of about 80 percent of the principal amount (see 
figure 5).[Footnote 17] As figure 5 shows, the total proceeds from selling securities do not include any income received from repurchases, dividends, or other sources or any missed dividend or interest payments, the rights to which are sold with the securities. For example, if an institution whose securities were being sold by Treasury at auction had missed $100,000 worth of dividend payments,
the purchaser of the securities would own the right to receive those pastdue dividends if the institution can pay them. As of January 31, 2014, Treasury has sold all or part of its investments in 162 institutions, through the auction process, including the rights to approximately $207 million in missed dividends and interest payments.

Figure 5: Total Sales Proceeds as a Percentage of Treasury's 
Outstanding Investment by Auction, as of January 31, 2014 (Excludes 
Income from Repurchases, Dividends, and Other Sources): 

[Refer to PDF for image: vertical bar graph] 

Number of auctions: 1: 89%; 
Number of auctions: 2: 89%; 
Number of auctions: 3: 93%; 
Number of auctions: 4: 82%; 
Number of auctions: 5: 93%; 
Number of auctions: 6: 80%; 
Number of auctions: 7: 88%; 
Number of auctions: 8: 90%; 
Number of auctions: 9: 84%; 
Number of auctions: 10: 80%; 
Number of auctions: 11: 88%; 
Number of auctions: 12: 65%; 
Number of auctions: 13: 83%; 
Number of auctions: 14: 65%; 
Number of auctions: 15: 91%; 
Number of auctions: 16: 92%; 
Number of auctions: 17: 100%; 
Number of auctions: 18: 102%; 
Number of auctions: 19: 40%; 
Number of auctions: 20: 80%; 
Number of auctions: 21: 69%; 
Number of auctions: 22: 53%; 
Number of auctions: 23: 78%. 

Source: GAO analysis of Treasury and SNL Financial data. 

[End of figure] 

In 2013, we reported that according to Treasury officials, the auction 
results reflected the potential risk associated with the liquidity of 
the investments, the credit quality of the financial institutions 
(including their ability to make future dividend or interest 
payments), and the prospect of receiving previous missed payments that 
had accrued.[Footnote 18] For example, later auctions have tended to 
include smaller institutions with more cumulative missed payments. In 
a few cases, the prospect of recouping these missed payments made the 
institutions particularly attractive to investors and helped raise the 
sale price of those securities above their par value. Although 
Treasury has not generally recouped its full investment in individual 
institutions through the auctions, in 2013, Treasury officials told us 
that accepting a discount and transferring ownership of these 
institutions to the private sector was in the best interest of the 
taxpayer. Because of the inherent risk factors of these institutions, 
Treasury officials did not anticipate that they would be able to make 
full repayments in the near future. The officials added that had they 
chosen not to auction these positions, their values could have 
decreased later. Treasury officials also said that while auctions were 
generally priced at a discount to the principal amount, the prices 
were generally equal to or above Treasury's internal valuations. 

Remaining CPP Institutions Are Generally Less Financially Healthy Than 
Those That Have Exited: 

Institutions that remain in CPP tend to be financially weaker than 
institutions that have exited the program and institutions that did 
not receive CPP capital. Our analysis considered various measures that 
describe banking institutions' profitability, asset quality, capital 
adequacy, and ability to cover losses. We analyzed financial data on 
the 83 institutions remaining in CPP as of January 31, 2014, and 482 
former CPP institutions, which we split into three groups: (1) those 
that repaid their investments, (2) those that exited through an 
auction, and (3) those that refinanced their investments through SBLF. 
[Footnote 19] The current and former CPP institutions in our analysis 
accounted for 565 of the 707 institutions that participated in CPP. We 
compared the 565 institutions to a non-CPP group (i.e., institutions 
that have not participated in CPP) of 7,177 active financial 
institutions for which financial information was available. All 
financial information generally reflects quarterly regulatory filings 
on December 31, 2013. 

Table 1 provides the results of our analysis of these measures, 
including the following. 

* Mostly smaller institutions remain in the program and larger 
institutions tended to exit through repayment. For example, 
institutions that exited through repayment had a median asset size of 
$1.7 billion, compared with $548 million for those that refinanced 
through SBLF and $385 million for those that exited through an auction. 

* In the aggregate, the remaining institutions were noticeably less 
financially healthy than each of the groups of former CPP participants. 

* As a group, institutions that exited through auctions were 
significantly less financially healthy than the group of institutions 
that repaid their investments or refinanced through SBLF. 

* Overall, the institutions that remain in CPP are less financially 
healthy than both the group of institutions that never participated in 
CPP and the aggregate group that had exited CPP. 

Table 1: Aggregate Financial Information on Capital Purchase Program 
(CPP) Participants and Nonparticipants, as of December 31, 2013: 

Number of institutions; 
Former CPP: 
Repaid: 224; 
Auctioned; 130; 
SBLF: 128; 
Total; 482; 
Remaining CPP: 83; 
Non-CPP: 7,177. 

Assets (thousands); 
Former CPP: 
Repaid: 1,654,556; 
Auctioned; 384,723; 
SBLF: 547,828; 
Total; 715,688; 
Remaining CPP: 285,118; 
Non-CPP: 187,022. 

Texas Ratio[A]; 
Former CPP: 
Repaid: 17.18; 
Auctioned; 33.90; 
SBLF: 15.03; 
Total; 19.58; 
Remaining CPP: 53.21; 
Non-CPP: 12.37. 

Return on average assets (percent); 
Former CPP: 
Repaid: 0.86; 
Auctioned; 0.56; 
SBLF: 0.76; 
Total; 0.77; 
Remaining CPP: 0.30; 
Non-CPP: 0.75. 

Noncurrent loan percentage; 
Former CPP: 
Repaid: 1.35; 
Auctioned; 2.02; 
SBLF: 0.99; 
Total; 1.33; 
Remaining CPP: 2.83; 
Non-CPP: 1.05. 

Net charge-offs to average loans ratio; 
Former CPP: 
Repaid: 0.20; 
Auctioned; 0.36; 
SBLF: 0.12; 
Total; 0.20; 
Remaining CPP: 0.18; 
Non-CPP: 0.09. 

Tier 1 risk-based capital ratio[B]; 
Former CPP: 
Repaid: 13.14; 
Auctioned; 13.31; 
SBLF: 13.35; 
Total; 13.30; 
Remaining CPP: 11.97; 
Non-CPP: 15.61. 

Common equity Tier 1 ratio; 
Former CPP: 
Repaid: 12.21; 
Auctioned; 11.79; 
SBLF: 11.01; 
Total; 11.76; 
Remaining CPP: 10.48; 
Non-CPP: 15.48. 

Reserves to nonperforming loans ratio; 
Former CPP: 
Repaid: 77.34; 
Auctioned; 55.35; 
SBLF: 84.06; 
Total; 70.37; 
Remaining CPP: 41.92; 
Non-CPP: 76.16. 

Source: GAO analysis of SNL Financial data. 

Note: The figures in the table represent median values for all 
institutions in the particular population. We analyzed financial data 
on the 83 institutions remaining in CPP as of January 31, 2014, and 
482 former CPP institutions, accounting for 565 of the 707 
institutions that participated in CPP. Financial data were available 
from SNL Financial for 440 of the 565 institutions, and we accounted 
for the remaining 125 institutions using SNL Financial information for 
the holding company or its largest subsidiary. The 142 CPP 
institutions our analysis excluded had no data available in SNL 
Financial, had been acquired, or were defunct. 

[A] The Texas Ratio is defined as nonperforming assets plus loans 90 
or more days past due divided by tangible equity and reserves. 

[B] The Tier 1 risk-based capital ratio measures Tier 1 capital as a 
share of risk-weighted assets, 

[End of table] 

In particular, remaining CPP institutions had noticeably higher median 
Texas Ratios than each group of former CPP institutions as well as the 
non-CPP group. The Texas Ratio helps determine a bank's likelihood of 
failure by comparing its troubled loans to its capital.[Footnote 20] 
The higher the ratio, the more likely the institution is to fail. As 
of December 31, 2013, remaining CPP institutions had a median Texas 
Ratio of 53.21, compared with 19.58 for former CPP institutions and 
12.37 for the non-CPP group. Further, of the institutions that exited 
CPP, those that exited through auctions had the highest median Texas 
Ratio (33.90), compared with those that exited through full repayments 
(17.18) or by refinancing to SBLF (15.03). 

Profitability measures for remaining CPP institutions were lower than 
those for former CPP participants and the non-CPP group. For example, 
the median return on average assets measure shows how profitable a 
company is relative to its total assets and how efficient management 
is at using its assets to generate earnings. For the quarter ending 
December 31, 2013, remaining CPP institutions had a median return on 
average assets of 0.30, compared with 0.77 for former CPP institutions 
and 0.75 for the non-CPP group.[Footnote 21] Further, among the 
institutions that had exited CPP, those that participated in 
Treasury's auctions had the lowest return on average assets at 0.56, 
compared with 0.86 for those that repaid their investments and 0.76 
for those that refinanced to SBLF. 

Remaining CPP institutions also held relatively more poorly performing 
assets. For example, remaining CPP institutions had a higher median 
percentage of noncurrent loans than former CPP institutions and the 
non-CPP group. As of December 31, 2013, a median of 2.83 percent of 
loans for remaining CPP institutions were noncurrent, compared with 
1.33 percent for former CPP institutions and 1.05 percent for the non-
CPP group. Remaining CPP institutions had a median ratio of net charge-
offs to average loans (0.18) about equal to that of former CPP 
institutions (0.20), but a higher median ratio than the non-CPP group 
(0.09), as of December 31, 2013.[Footnote 22] For both of these 
ratios, the auction participants had higher values than institutions 
that made full repayments or refinanced to SBLF. 

Compared with former CPP institutions and the non-CPP group, remaining 
CPP institutions held less regulatory capital as a percentage of 
assets. Regulators require minimum amounts of capital to lessen an 
institution's risk of default and improve its ability to sustain 
operating losses. Regulatory capital can be measured in several ways, 
but we focused on Tier 1 capital, which includes both a common-equity 
capital ratio and a Tier 1 capital ratio, because it is the most 
stable form of regulatory capital.[Footnote 23] The Tier 1 risk-based 
capital ratio measures Tier 1 capital as a share of risk-weighted 
assets, and the common equity Tier 1 ratio measures common equity Tier 
1 as a share of risk-weighted assets, which generally does not include 
TARP funds. Using these measures, the remaining CPP institutions had 
lower median Tier 1 capital levels than former CPP institutions and 
the non-CPP group. The remaining CPP institutions also had a median 
common equity Tier 1 capital ratio below that of the former CPP 
institutions and the non-CPP group. As of December 31, 2013, the 
median common equity Tier 1 capital ratio for remaining CPP 
institutions was 10.48 percent of risk-weighted assets, compared with 
11.76 percent for former CPP institutions and 15.48 percent for the 
non-CPP group. 

Finally, remaining CPP institutions had significantly lower reserves 
for covering losses compared with former CPP institutions and the non-
CPP group. As of December 31, 2013, the median ratio of reserves to 
nonperforming loans was lower for remaining CPP institutions (41.92) 
than for former CPP participants (70.37) and the non-CPP group 
(76.16). Of those institutions that have exited the program, auction 
participants had the lowest ratio (55.35), compared with 77.34 for 
those that repaid their investments and 84.06 for those that 
refinanced to SBLF. 

Most Remaining CPP Participants Have Missed Dividend or Interest 
Payments: 

The number of CPP participating institutions missing dividend or 
interest payments in a given quarter increased steadily from 8 in 
February 2009 to 159 in August 2011 and has since declined each 
quarter to 60 in November 2013 (see figure 6).[Footnote 24] Almost 84 
percent, or 75 of the 89 financial institutions remaining in CPP as of 
November 30, 2013, have missed a dividend payment.[Footnote 25] Most 
of the institutions with missed payments have missed them in several 
quarters. In particular, all but one of the institutions that missed 
payments in November 2013 had also missed payments in each of the 
previous three quarters. Moreover, the 60 institutions that missed 
payments in November 2013 had an average of 13 missed payments. 

Figure 6: Number of Institutions Missing Scheduled Dividend or 
Interest Payments and Number of Institutions Participating in the 
Capital Purchase Program by Quarter, February 2009 through November 
2013: 

[Refer to PDF for image: multiple line graph] 

2009: 

February; 
Institutions missing dividend or interest payments: 8; 
Institutions remaining in CPP: 467. 

May; 
Institutions missing dividend or interest payments: 18; 
Institutions remaining in CPP: 593. 

August; 
Institutions missing dividend or interest payments: 34; 
Institutions remaining in CPP: 637. 

November; 
Institutions missing dividend or interest payments: 54; 
Institutions remaining in CPP: 645. 

2010: 

February; 
Institutions missing dividend or interest payments: 79; 
Institutions remaining in CPP: 645. 

May; 
Institutions missing dividend or interest payments: 97; 
Institutions remaining in CPP: 636. 

August; 
Institutions missing dividend or interest payments: 123; 
Institutions remaining in CPP: 616. 

November; 
Institutions missing dividend or interest payments: 132; 
Institutions remaining in CPP: 586. 

2011: 

February; 
Institutions missing dividend or interest payments: 152; 
Institutions remaining in CPP: 562. 

May; 
Institutions missing dividend or interest payments: 156; 
Institutions remaining in CPP: 543. 

August; 
Institutions missing dividend or interest payments: 159; 
Institutions remaining in CPP: 464. 

November; 
Institutions missing dividend or interest payments: 158; 
Institutions remaining in CPP: 379. 

2012: 

February; 
Institutions missing dividend or interest payments: 158; 
Institutions remaining in CPP: 363. 

May; 
Institutions missing dividend or interest payments: 153; 
Institutions remaining in CPP: 343. 

August; 
Institutions missing dividend or interest payments: 150; 
Institutions remaining in CPP: 300. 

November; 
Institutions missing dividend or interest payments: 145; 
Institutions remaining in CPP: 237. 

2013: 

February; 
Institutions missing dividend or interest payments: 125; 
Institutions remaining in CPP: 190. 

May; 
Institutions missing dividend or interest payments: 95; 
Institutions remaining in CPP: 151. 

August; 
Institutions missing dividend or interest payments: 78; 
Institutions remaining in CPP: 119. 

November; 
Institutions missing dividend or interest payments: 60; 
Institutions remaining in CPP: 89. 

Source: GAO analysis of Treasury data. 

Note: Dividend and interest payments are due on a quarterly basis. The 
number of participating institutions in any given quarter did not 
reach 707 (that is, the total number of institutions that participated 
in CPP) because institutions entered and exited the programs at 
different times. Also, 89 institutions remained in CPP as of November 
30, 2013, but as of January 31, 2014, that number had decreased to 83. 

[End of figure] 

Institutions can elect whether to pay dividends and may choose not to 
pay for a variety of reasons, including decisions that they or their 
federal and state regulators make to conserve cash and maintain (or 
increase) capital levels. Institutions are required to pay dividends 
only if they declare dividends, although unpaid cumulative dividends 
generally accrue and the institution must pay them before making 
payments to other types of shareholders, such as holders of common 
stock. However, investors view a company's ability to pay dividends as 
an indicator of its financial strength and may see failure to pay full 
dividends as a sign of financial weakness. 

The Number of Remaining CPP Institutions on FDIC's Problem Bank List 
Has Declined: 

Showing a similar trend to missed dividend or interest payments, the 
number of CPP institutions on the Federal Deposit Insurance 
Corporation's (FDIC) "problem bank list" has decreased in recent 
months after months of steady increases. This list is a compilation of 
banks with demonstrated financial, operational, or managerial 
weaknesses that threaten their continued financial viability and is 
publicly reported on a quarterly basis.[Footnote 26] As of December 
31, 2013, 47 CPP institutions were on the problem bank list (see 
figure 7). The number of these institutions increased every quarter 
beginning in March 2009, hitting a high of 134 in June 2011, even as 
the number of institutions participating in CPP declined. As figure 7 
shows, the number of problem banks fell slightly for the first time in 
the third quarter of 2011 and has declined to 47 as of December 31, 
2013. Federal and state bank regulators may not allow institutions on 
the problem bank list to make dividend payments in an effort to 
preserve their capital and promote safety and soundness. 

Figure 7: Number of Capital Purchase Program (CPP) Institutions on 
FDIC's Problem Bank List, December 2008 through December 2014: 

[Refer to PDF for image: line graph] 

2008: 

December; 
Number of institutions: 2. 

2009: 

March; 
Number of institutions: 1. 

June; 
Number of institutions: 7. 

September; 
Number of institutions: 15. 

December; 
Number of institutions: 47. 

2010: 

March; 
Number of institutions: 71. 

June; 
Number of institutions: 78. 

September; 
Number of institutions: 93. 

December; 
Number of institutions: 120. 

2011: 

March; 
Number of institutions: 127. 

June; 
Number of institutions: 134. 

September; 
Number of institutions: 132. 

December; 
Number of institutions: 132. 

2012: 

March; 
Number of institutions: 126. 

June; 
Number of institutions: 120. 

September; 
Number of institutions: 118. 

December; 
Number of institutions: 107. 

2013: 

March; 
Number of institutions: 80. 

June; 
Number of institutions: 66. 

September; 
Number of institutions: 57. 

December; 
Number of institutions: 47. 

Source: FDIC. 

Note: The numbers presented in this figure were compiled by FDIC in 
response to our request and are not otherwise maintained or published 
by FDIC. FDIC's problem bank list does not include bank holding 
companies. Bank holding company recipients of CPP funds were accounted 
for if one or more of their subsidiary depositories were designated as 
problem banks. Each subsidiary depository appearing on the list was 
counted separately. 

[End of figure] 

These observations are consistent with the analysis in our May 2013 
and March 2012 reports, which also showed that the remaining CPP 
institutions were financially weaker than institutions that had exited 
the program and institutions that did not receive CPP capital. 
[Footnote 27] 

Agency Comments: 

We provided a draft of this report to Treasury for its review and 
comment. Treasury provided written comments that we have reprinted in 
appendix II. In its written comments, Treasury generally concurred 
with our findings. Treasury noted that it had realized a positive 
return of $20.19 billion as of April 1, 2014, and that 71 institutions 
remained in the program representing a remaining investment of $1.96 
billion. Treasury also emphasized its commitment to keeping the public 
informed of its progress in winding down CPP. 

We are sending copies of this report to the Special Inspector General 
for TARP, interested congressional committees and members, and 
Treasury. The report also is available at no charge on the GAO website 
at [hyperlink, http://www.gao.gov]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. 

Signed by: 

A. Nicole Clowers: 
Director: 
Financial Markets and Community Investment: 

List of Committees: 

The Honorable Barbara Mikulski: 
Chairwoman: 
The Honorable Richard C. Shelby: 
Vice Chairman: 
Committee on Appropriations: 
United States Senate: 

The Honorable Tim Johnson: 
Chairman: 
The Honorable Mike Crapo: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Patty Murray: 
Chairman: 
The Honorable Jeff Sessions: 
Ranking Member: 
Committee on the Budget: 
United States Senate: 

The Honorable Ron Wyden: 
Chairman: 
The Honorable Orrin G. Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Hal Rogers: 
Chairman: 
The Honorable Nita Lowey: 
Ranking Member: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Paul Ryan: 
Chairman: 
The Honorable Chris Van Hollen: 
Ranking Member: 
Committee on the Budget: 
House of Representatives: 

The Honorable Jeb Hensarling: 
Chairman: 
The Honorable Maxine Waters: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Dave Camp: 
Chairman: 
The Honorable Sander Levin: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of our report were to examine (1) the status of the 
Capital Purchase Program (CPP), including repayments and other 
proceeds, as well as investments outstanding; and (2) the financial 
condition of institutions remaining in CPP. To assess the status of 
CPP at the program level, we analyzed data from the Department of the 
Treasury (Treasury). In particular, we used Treasury's January 2014 
Monthly Report to Congress to determine the dollar amounts of 
outstanding investments, the number of remaining and former 
participants, and the geographical distribution of each as of January 
31, 2014. 

To assess the financial condition of institutions that received 
investments under CPP, we used data from Treasury's Dividends and 
Interest reports from February 2009 through November 2013 to determine 
the extent to which participants had missed payments throughout the 
life of the program. To assess whether the upcoming 2014 increase in 
the dividend or interest rate on CPP securities was impacting CPP 
participants' efforts to exit the program and/or retire CPP 
securities, we sent an email containing two questions to all current 
CPP participants (89) and any past CPP participants that raised 
capital in calendar year 2013. The first question asked if the 
increase had impacted them (Yes or No) and, if yes, to describe 
actions taken. We sent the questionnaire to 104 institutions and 
received responses from 72. We used the "actions taken" responses to 
provide examples of how the increase in the dividend or interest rate 
on CPP securities is impacting CPP participants. We defined current 
CPP participants to be those institutions that Treasury classifies as 
"full investment outstanding; warrants outstanding," "full investment 
outstanding; warrants not outstanding," and "sold in part, warrants 
outstanding" in its November 20, 2013 TARP transaction report. We 
identified those CPP participants that raised capital in calendar year 
2013 using the SNL database. 

We also obtained from the Federal Deposit Insurance Corporation (FDIC) 
summary information on its quarterly problem bank list to show the 
trend of CPP institutions appearing on the list from December 2008 
through December 2013. We used financial measures for depository 
institutions that we had identified in our previous reporting on CPP. 
These measures help demonstrate an institution's financial health as 
it relates to a number of categories, including profitability, asset 
quality, capital adequacy, and loss coverage. We obtained such 
financial data for depository institutions using a private financial 
database provided by SNL Financial that contains publicly filed 
regulatory and financial reports. We merged the data with SNL 
Financial's CPP participant list to create the three comparison 
groups--remaining CPP institutions, former CPP institutions, and a non-
CPP group comprised of all institutions that did not participate in 
CPP. 

We analyzed financial data on the 83 institutions remaining in CPP as 
of January 31, 2014, and 482 former CPP institutions that exited CPP 
through full repayments, conversion to the Small Business Lending 
Fund, or Treasury's sale of its investments through an auction, 
accounting for 565 of the 707 CPP participants. We identified the 83 
institutions remaining in CPP as of January 31, 2014, using Treasury's 
January 2014 Monthly Report to Congress. The 142 CPP institutions our 
analysis excluded had no data available in SNL Financial, had been 
acquired, or were defunct. We compared the remaining and former CPP 
institutions to a non-CPP group of 7,177 active financial institutions 
for which financial information was available. We chose to present 
median values. Financial data were available from SNL Financial for 
440 of the 565 CPP institutions, and we accounted for the remaining 
125 institutions using SNL Financial information for the holding 
company or its largest subsidiary. Although this approach has 
limitations such as excluding other financial subsidiaries, we deemed 
it to be sufficient for the purpose of our work. All financial 
information reflects quarterly regulatory filings on December 31, 
2013, unless otherwise noted. We downloaded all financial data from 
SNL Financial on March 4, 2014. Finally, we leveraged our past 
reporting on the Troubled Asset Relief Program (TARP), as well as that 
of the Special Inspector General for TARP, as appropriate. 

We determined that the financial information used in this report, 
including CPP program data from Treasury and financial data on 
institutions from SNL Financial, was sufficiently reliable to assess 
the condition and status of CPP and institutions that participated in 
the program. For example, we tested the Office of Financial 
Stability's internal controls over financial reporting as they relate 
to our annual audit of the office's financial statements and found the 
information to be sufficiently reliable based on the results of our 
audits of fiscal years 2009, 2010, 2011, and 2012 financial statements 
for TARP.[Footnote 29] We have assessed the reliability of SNL 
Financial data--which are obtained from financial statements submitted 
to the banking regulators--as part of previous studies and found the 
data to be reliable for the purposes of our review. We verified that 
no changes had been made that would affect the data's reliability. 

We conducted this performance audit from December 2013 to April 2014 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Office of Financial Stability: 

Department of The Treasury
Washington, D.C. 20220: 

April 1, 2014: 

A. Nicole Clowers: 
Director: 
Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G. Street, NW: 
Washington, DC 20548: 

Dear Ms. Clowers: 

I write in response to your draft report regarding the Capital 
Purchase Program (CPP) entitled Status of the Wind Down of the Capital 
Purchase Program: The Department of the Treasury (Treasury) 
appreciates the work of the Government Accountability Office (GAO) in 
reviewing this program under the Troubled Asset Relief Program (TARP). 
We separately provided technical comments to your team. This letter 
provides our official comments to the draft report. 

The draft report provides a valuable snapshot of CPP and the 
institutions that remain in the program. As of the first quarter of 
2014, taxpayers have realized a nearly $28.31 billion positive return 
on their investments through TARP' s bank programs — almost $273.42 
billion through repayments, dividends, interest, and other income, 
compared to the $245.1 billion invested in those institutions. The 
draft report notes Treasury estimated a lifetime gain of $16.1 billion 
for CPP in November 2013. As of today's date, Treasury has recovered 
$225.09 billion on an initial CPP investment of $204.9 billion, 
representing a positive return of $20.19 billion. In addition, only 71 
of the 707 CPP participants remain in the program, representing a 
remaining Treasury investment of $1.96 billion. 

Treasury has been winding down CPP through a three-pronged strategy 
that involves (1) waiting for repayments from those institutions who 
can repay in the near future, (2) selling through competitive auctions 
investments in institutions that cannot repay in the near future, and 
(3) restructuring some of those investments in limited cases in order 
to protect the taxpayers' interest. During this wind-down process, we 
remain committed to keeping the public informed of our progress. 

Treasury values GAO's review of CPP and looks forward to continuing to 
work with you and your team as we move forward. 

Sincerely, 

Singed by: 

Timothy J. Bowler: 
Acting Assistant Secretary: 
Office of Financial Stability: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Karen Tremba (Assistant 
Director), Emily Chalmers, William Chatlos, Chris Forys, Matthew 
Keeler, Risto Laboski, Marc Molino, and Patricia Moye made significant 
contributions to this report. 

[End of section] 

Footnotes: 

[1] As authorized by the Emergency Economic Stabilization Act of 2008 
(EESA), Pub. L. No. 110-343, 122 Stat. 3765 (2008), codified at 12 
U.S.C. §§ 5201 et seq. EESA, which was signed into law on October 3, 
2008, established the Office of Financial Stability within Treasury 
and provided it with broad, flexible authorities to buy or guarantee 
troubled mortgage-related assets or any other financial instruments 
necessary to stabilize the financial markets. 

[2] Section 3(9) of EESA, 12 U.S.C. § 5202(9). EESA required that the 
appropriate committees of Congress be notified in writing that the 
Secretary of the Treasury, after consultation with the Chairman of the 
Board of Governors of the Federal Reserve System, had determined that 
it was necessary to purchase other financial instruments to promote 
financial market stability. EESA originally authorized Treasury to 
purchase or guarantee up to $700 billion in troubled assets. The Dodd-
Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-
203, 124 Stat. 1376 (2010), reduced Treasury's authority to purchase 
or insure troubled assets to a maximum of $475 billion. 

[3] A warrant is an option to buy shares of common stock or preferred 
stock at a predetermined price on or before a specified date. 

[4] Section 116 of EESA, 122 Stat. at 3783 (codified at 12 U.S.C. § 
5226). 

[5] See, for example, GAO, Capital Purchase Program; Status of the 
Program and Financial Health of Remaining Participants, [hyperlink, 
http://www.gao.gov/products/GAO-13-458] (Washington, D.C.: May 7, 
2013), Troubled Asset Relief Program: Treasury Sees Some Returns as It 
Exits Programs and Continues to Fund Mortgage Programs, [hyperlink, 
http://www.gao.gov/products/GAO-13-192] (Washington, D.C.: Jan. 7, 
2013), Capital Purchase Program: Revenues Have Exceeded Investments, 
but Concerns about Outstanding Investments Remain, [hyperlink, 
http://www.gao.gov/products/GAO-12-301] (Washington, D.C.: Mar. 8, 
2012), and Troubled Asset Relief Program: Opportunities Exist to Apply 
Lessons Learned from the Capital Purchase Program to Similarly 
Designed Programs and to Improve the Repayment Process, [hyperlink, 
http://www.gao.gov/products/GAO-11-47] (Washington, D.C.: Oct. 4, 
2010). 

[6] Throughout this report we use CPP securities to mean the senior 
preferred shares or subordinated debt Treasury received for its 
investments. 

[7] For purposes of CPP, qualifying financial institutions generally 
include stand-alone U.S.-controlled banks and savings associations, as 
well as bank holding companies and savings and loan holding companies. 

[8] Risk-weighted assets are all assets and off-balance-sheet items 
held by an institution, weighted for risk according to the federal 
banking agencies' regulatory capital standards. In May 2009, Treasury 
increased the maximum amount of CPP funding that small financial 
institutions (qualifying financial institutions with total assets of 
less than $500 million) could receive from 3 to 5 percent of risk-
weighted assets. 

[9] For S corporations, a federal business type that provides certain 
tax and other benefits, Treasury received subordinated debt rather 
than preferred shares in order to preserve these institutions' special 
tax status. The U.S. Internal Revenue Code prohibits S corporations 
from having more than one class of stock outstanding. Interest rates 
for this debt are 7.7 percent for the first 5 years and 13.8 percent 
for the remaining years. 

[10] Additionally, 4 institutions have made partial repayments but 
remain in the program. 

[11] CDCI is a TARP program that provides capital to Community 
Development Financial Institutions that have a federal depository 
institution supervisor. Structured like CPP, the program also covered 
credit unions and provides more favorable capital terms than CPP. SBLF 
was created by the Small Business Jobs Act of 2010, Pub. L. No. 111-
240, 124 Stat. 2504 (2010) to encourage small business lending. SBLF 
was a $30 billion fund operated by Treasury but separate from TARP 
that provided capital to qualified community banks and community 
development loan funds with assets of less than $10 billion. When SBLF 
closed on September 27, 2011, the program had approved $4 billion in 
disbursements to 332 institutions. Of the 332 institutions 
participating in SBLF, 137 were originally TARP participants with 
combined investments of $2.2 billion. 

[12] Treasury, Troubled Asset Relief Program (TARP) Monthly Report to 
Congress - January 2014 (Feb. 10, 2014). 

[13] Write-offs and realized losses include losses sustained from 
investments in the 29 institutions that have gone into bankruptcy or 
receivership and any losses sustained from Treasury selling its 
investment in CPP institutions. 

[14] Treasury estimates lifetime costs (or gains) on a quarterly basis 
using the aggregate value of investments at market prices in 
conjunction with the Office of Management and Budget and publishes 
them in its monthly reports to Congress. Estimated lifetime cost 
represents Treasury's best estimate of what the program will 
ultimately cost the taxpayer. Treasury's methodology for estimating 
lifetime costs includes the requirement to use a discount rate that 
reflects market risk as required by EESA for future cash flows. 

[15] Under CPP terms, CPP securities will pay a dividend or interest 
rate of 5 percent per annum until the fifth anniversary of the date of 
the investment and thereafter a rate of 9 percent per annum. The 
dividend and interest rate on CPP investments made in late 2008 
increased in late 2013 whereas the remaining investments will see the 
increase begin sometime in 2014. For nonpublic institutions, Treasury 
immediately exercised its warrants and received preferred shares 
paying dividends of 9 percent per annum. 

[16] We reported on Treasury's auction process in a previous report. 
See GAO, Troubled Asset Relief Program: Treasury's Use of Auctions to 
Exit the Capital Purchase Program, [hyperlink, 
http://www.gao.gov/products/GAO-13-630] (Washington, D.C.: July 8, 
2013). 

[17] On March 7, 2014, Treasury announced $45.1 million in proceeds 
from priced of auctions of preferred stock of four institutions. In 
addition, on March 31, 2014 Treasury announced that it was commencing 
auctions for its preferred stock and subordinated debt in an 
additional four institutions. 

[18] [hyperlink, http://www.gao.gov/products/GAO-13-630]. 

[19] We pulled data from SNL Financial on March 4, 2013. 

[20] The Texas Ratio is defined as nonperforming assets plus loans 90 
or more days past due divided by tangible equity and reserves. 

[21] Return on average assets is net income divided by average total 
assets. 

[22] A charge-off occurs when a bank recognizes that a particular 
asset or loan will not be collectible and must be written off. 

[23] In October 2013, the Office of the Comptroller of the Currency 
and the Board of Governors of the Federal Reserve System adopted final 
rules that established new minimum regulatory capital requirements for 
U.S. banking organizations. The new minimum risk-based capital ratios 
include a common equity Tier 1 capital ratio, a Tier 1 capital ratio, 
and a total capital ratio. Common equity Tier 1 capital generally 
includes retained earnings and common stock that meets certain 
criteria after making certain capital deductions and adjustments. 
Additional Tier 1 capital generally includes certain noncumulative 
perpetual preferred stock, related surplus and minority interests that 
are not included in common equity Tier 1 capital, and preferred stock 
and other instruments issued under EESA. 78 Fed. Reg. 62018. 

[24] In its dividend and interest reports, Treasury no longer 
considers a payment to be missed or unpaid once the institution (1) 
repays its investment amount and exits CPP, (2) repays dividends by 
way of capitalization at the time of exchange, or (3) enters 
bankruptcy or has its bank subsidiary placed into receivership. 
However, we included such institutions in our counts. 

[25] Under CPP terms, institutions pay cumulative dividends on their 
preferred shares, except for banks that are not subsidiaries of 
holding companies, which pay noncumulative dividends. Some other types 
of institutions, such as S corporations, received their CPP 
investments in the form of subordinated debt and pay interest rather 
than dividends. CPP dividend and interest payments are due on February 
15, May 15, August 15, and November 15 of each year, or the first 
business day subsequent to those dates. The reporting period ends on 
the last day of the calendar month in which the dividend or interest 
payment is due. The first dividend payments were due in February 2009, 
and since then, 246 of the 707 participants had missed at least one 
payment, accounting for a cumulative total of 2,137 missed payments. 
The November 30, 2013, Dividend and Interest Report is the most recent 
data available for a month in which dividends are due. 

[26] While some CPP funds were disbursed to bank holding companies, 
FDIC's problem bank list does not include them. FDIC accounted for 
bank holding companies participating in CPP when their subsidiary 
depositories were designated as problem banks. It is possible that a 
bank holding company CPP recipient downstreamed CPP funds to a 
subsidiary depository that appeared on the problem bank list. However, 
it is unclear the extent to which this downstreaming occurred and thus 
the extent to which subsidiaries on the list may have benefited from 
CPP funds. Multiple subsidiary depositories of the same CPP bank 
holding company that were designated as problem banks were counted 
separately. 

[27] See [hyperlink, http://www.gao.gov/products/GAO-12-301], 
[hyperlink, http://www.gao.gov/products/GAO-13-458]. 

[29] See GAO, Financial Audit: Office of Financial Stability (Troubled 
Asset Relief Program) Fiscal Years 2012 and 2011 Financial Statements, 
[hyperlink, http://www.gao.gov/products/GAO-13-126R] (Washington, 
D.C.: Nov. 9, 2012); Financial Audit: Office of Financial Stability 
(Troubled Asset Relief Program) Fiscal Years 2011 and 2010 Financial 
Statements, [hyperlink, http://www.gao.gov/products/GAO-12-169] 
(Washington, D.C.: Nov.10, 2011); Financial Audit: Office of Financial 
Stability (Troubled Asset Relief Program) Fiscal Years 2010 and 2009 
Financial Statements, [hyperlink, 
http://www.gao.gov/products/GAO-11-174] (Washington, D.C.: Nov.15, 
2010); and Financial Audit: Office of Financial Stability (Troubled 
Asset Relief Program) Fiscal Year 2009 Financial Statements, 
[hyperlink, http://www.gao.gov/products/GAO-10-301] (Washington, D.C.: 
Dec. 9, 2009). 

[End of section] 

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