Why PlainsCapital agreed to participate in the

U.S. Treasury's Capital Purchase Program

In December 2008, PlainsCapital Corporation received $87.6 million from the issuance of preferred stock to the U.S. Department of the Treasury as part of its voluntary Capital Purchase Program (CPP). The purpose of the Capital Purchase Program is to inject capital into financially healthy banks that are well positioned to make loans to creditworthy individuals and businesses. PlainsCapital Corporation Chairman and CEO Alan B. White responds to some of the top questions he’s received about PlainsCapital’s participation in the CPP.

How strong and stable is PlainsCapital Bank?

ABW: Our financial position is exceptionally strong. Prior to our participation in the CPP, we were considered to be well capitalized by regulatory standards* and since receiving the funds, our capital ratios have increased substantially (Figure 1).  As of 12/31/08, PlainsCapital has $495 million in capital to support our lending efforts. And our total assets grew in December 2008 as a result of the increase in our loan volume and growth in our investment securities (Figure 2). We can continue to grow our total assets significantly and still remain well capitalized.           

Why did PlainsCapital decide to accept capital from the U.S. Treasury?

ABW: We felt we could put the capital to good use in the communities in Texas where we do business. Lending to individuals and businesses is what we do best, so we are well positioned to deploy the capital into our local communities in a timely manner. There is no quick fix to the economic downturn, but the sooner PlainsCapital and other CPP participant banks deploy this capital, the sooner our country will begin seeing some economic relief.

Was the capital from the U.S. Treasury free?

ABW: The capital from the U.S. Department of the Treasury was not “free”.  The capital is an investment in PlainsCapital for which we issued preferred stock. So long as the U.S. Treasury maintains its investment in PlainsCapital, we will pay them quarterly dividends on this capital. In fact, our first dividend was paid to Treasury on February 17, 2009.

What exactly does PlainsCapital intend to do with the capital from the CPP?

ABW: The goal of the CPP is to deploy the capital from the U.S. Treasury into the marketplace, primarily through loans. PlainsCapital Bank will make consumer loans, student loans, mortgage loans, SBA loans, owner occupied real estate loans, and provide loans and capital equipment leases to municipalities.
 

Has PlainsCapital already begun deploying the capital from the CPP?

ABW: Yes. We put the Capital Purchase Program funds to work immediately after receiving them. In fact, we experienced a significant increase in our total loans in December 2008. Because many banks slowed or reduced their lending in the third quarter of last year, we gained many new loan customers throughout the quarter. And with the additional capital from the CPP, our loans in the month of December increased even more (Figure 3). The Capital Purchase Program allows us to help many more customers than we could have without it. In addition, we’re helping the economy and our local communities by purchasing municipal bonds as investment securities (Figure 4).

Is the CPP different from TARP?

ABW: The CPP was designed for healthy banks only and is just one of several components of TARP. Within a few weeks after the creation of the Troubled Assets Relief Program (TARP), government officials realized that shoring up only troubled banks through TARP would be complicated and time-consuming. The country needed relief right away. So, the CPP was created as an opportunity to inject capital into healthy banks that were well positioned to deploy the capital to the public. At PlainsCapital, we’ve built our success on our expert lending capabilities and our commitment to the communities where we do business.  We were a natural fit for the CPP. 

Click here to download the pdf version of the Capital Purchase Program Q & A

*Definition per Section 325.103 of FDIC Law.