Magazine article American Banker

Calif. Bank's Payout PLan Confronts Tarp Obstacle

Magazine article American Banker

Calif. Bank's Payout PLan Confronts Tarp Obstacle

Article excerpt

Byline: Marissa Fajt

Mechanics Bank in Richmond, Calif., is testing the Treasury Department's flexibility for banks participating in the Troubled Asset Relief Program.

The $2.7 billion-asset Mechanics, which received approval for a $60 million capital infusion from the Treasury, says it has asked for permission to issue a fifth dividend for 2008. Under the Treasury program, banks that receive Tarp funds cannot pay dividends more than four times a year unless they receive special permission.

Steve Buster, Mechanics' president and chief executive officer, said the bank intends to accept the Tarp money whether it wins approval to pay a special dividend or not.

"We are preparing for the worst and hoping for the best," he said. "We are extremely well capitalized" -Mechanics' total risk-based capital-to-assets ratio at Sept. 30 was 14.96% - "but nobody is sure if we are approaching a recession or a depression. ...We haven't seen anything like the fourth quarter before and we want to make sure the bank is a long-term survivor."

Still, he said the request is not unreasonable considering the privately held company "has a long history" of issuing five dividends a year - four smaller ones and a fifth based on the bank's performance for the year. The amount it will pay for 2008 has not been set, but in 2007 it paid out a performance dividend of $100 per share, for a total of $1.9 million.

"We want to make sure shareholders enjoy the same sort of dividend that they have in the past," Mr. Buster said.

A bank that receives Tarp capital can issue four dividends a year as long as it is in good standing on its Treasury commitment, but the dividend paid cannot exceed the amount of previous payouts without the Treasury's approval. …

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