Last November we wrote that the hot topic among bankers attending the ABA Community Bank Investor Conference in New York was whether they should pursue funds from the Treasury Department’s Troubled Asset Relief Program (TARP).

There was no clear-cut consensus at that time, though there was already an emerging body of evidence that suggested only fairly strong institutions would be approved. A panel of two banking analysts and one institutional investor came to the conclusion that it probably was better to take the money if given the chance – as relatively cheap capital in the face of a recession with no end in sight.

As the TARP picture has become somewhat clearer seven months later, we have updated our recommendations on how best to communicate with stakeholders regarding TARP. Whether you have taken the TARP, never applied or withdrawn your application, properly communicating your decision and strategy remains vital when discussing the TARP with your stakeholders.

Tapped the TARP

While the key messages we listed in our November 2008 issue are still relevant, including the fact that the TARP is an extremely low-cost source of capital that provides “insurance” funding in a time of great uncertainty, other developments in the last several months require further attention from a communications standpoint.

The primary issues are that the media have nearly exclusively referred to TARP as a “bailout,” and their extensive coverage has seldom discussed what banks are actually doing with the capital.

It is important to counter the fallacious labeling of TARP as “bailout money” by rightly referring to TARP funds as an investment the government has taken in your bank – that will be repaid with interest. Repeat this correct description at every opportunity.

It’s equally important to highlight in various communications channels the specific areas where your bank has put the TARP money to use, especially if it is in boosting consumer lending.

Coastal Banking Company (OTCBB: CBCO) has noted in its quarterly earnings releases, quarterly report and annual report that it has utilized its TARP funding to increase mortgage lending activity, which it believes is key to the economic recovery of its coastal South Carolina and Florida markets. To quote from its 2008 annual report:

“That is why we funded more than $130 million of new residential mortgage loans in December 2008 and January 2009 alone, which is an increase of more than 60 percent in average monthly loan originations when compared to the first 11 months of 2008, before we received the TARP investment. Because we are operating from a strong capital position, we can fully leverage the TARP to support our local communities.”

Tossed the TARP

Many banks that decided to pass on the TARP have issued press releases stating that fact. Most often they cite the open-ended and ever-changing conditions for accepting the TARP funds, which have become potentially too onerous and restrictive. Also, the fact that the timing of the approval process for the TARP has been random at best, with no apparent rhyme or reason as to when a bank might expect to receive its investment, has led many bank CEOs to consider other alternatives.

Some institutions are turning to private placements to raise additional capital. Southeastern Bank Financial Corp. (OTCBB: SBFC), recently announced the completion of its efforts to raise $12 million in additional capital. It also took the opportunity to explain to its stakeholders why it withdrew its TARP application and decided to go it alone.

Continue to Communicate

As time passes and the economy continues to struggle, it is important to remind constituents of the reasons why you accepted or passed on the TARP, and what you are doing to maintain adequate capital levels. Many consumers and investors have short memories. Don’t expect one press release to continue to allay their concerns indefinitely.

Consider updating stakeholders through periodic letters from the CEO or, better yet, start sending out a quarterly report or stakeholder newsletter. These are great vehicles to regularly update key constituents on progress toward strategic initiatives established to manage through the recession.

Whether your bank tapped the TARP or not, regular communications with your constituents remains the key to maintaining public confidence in your institution. Saying nothing and hoping for the best is not an option.

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