CAPITAL PURCHASE 

PROGRAM

Status of the Program 

and Financial Health 

of Remaining 

Participants

Report to Congressional Committees

May 2013

GAO-13-458

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-458, a report to 

congressional committees

May 2013

CAPITAL PURCHASE PROGRAM

Status of the Program and Financial Health of Remaining 

Participants

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 provided a draft of this report to 

Treasury for its review and comment. 

Treasury generally concurred with 

GAO’s findings.

What GAO Found

As of March 31, 2013, the Department of the Treasury (Treasury) had received 

about $222 billion from its Capital Purchase Program (CPP) investments, 

exceeding the approximately $205 billion it had disbursed. Treasury estimated at 

the end of December 2012 that CPP would have an approximate lifetime income 

of $15 billion after all institutions had exited the program. Treasury’s March 2013 

data showed that 534 of the original 707 institutions had exited CPP. Most of 

these institutions exited by repurchasing their preferred shares in full or by

refinancing their investments through other federal programs. In March 2012, 

Treasury began selling its investments in the institutions through auctions, 

expediting the exit of a number of CPP participants. A relatively small number of 

the remaining 173 institutions accounted for most of the funds outstanding. 

Specifically, 25 institutions accounted for $4.2 billion, or 68 percent, of the $6.1 

billion in outstanding investments. These investments were relatively widely 

dispersed throughout the United States, with 39 states having at least one

institution with investments outstanding and 12 states having at least 5 such 

institutions. 

Status of Capital Purchase Program Funds and Participants 

Note: “Other” includes institutions that went into bankruptcy or receivership, had their investments 

sold by Treasury, or merged with another institution.

The institutions remaining in CPP are generally less financially healthy than 

those that have exited. In particular, most remaining participants have missed 

scheduled dividend or interest payments. For example, 125 remaining institutions 

missed their February 2013 payment. Further, 107 remaining CPP institutions 

were on the Federal Deposit Insurance Corporation’s problem bank list in 

December 2012—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. GAO’s analysis also 

showed that the remaining CPP institutions were financially weaker than those 

that had exited the program or had never participated. In particular, the remaining 

CPP institutions tended to be less profitable, hold riskier assets, and have lower

capital levels and reserves.

View GAO-13-458. For more information, 

contact A. Nicole Clowers at (202) 512-8678 

or clowersa@gao.gov.
Page i GAO-13-458 Capital Purchase Program

Letter 1 

Background 3

Treasury Estimates a Lifetime Gain for CPP as Institutions 

Continue to Exit the Program 4

Remaining CPP Institutions Are Generally Less Financially Healthy 

Than Those That Have Exited 9

Agency Comments and Our Evaluation 16

Appendix I Objectives, Scope, and Methodology 19

Appendix II Comments from the Office of Financial Stability 21

Appendix III GAO Contact and Staff Acknowledgments 22

Table

Table 1: Aggregate Financial Information on the Analysis 

Population, as of December 31, 2012 13

Figures

Figure 1: Status of the Capital Purchase Program, as of March 31, 

2013 5

Figure 2: Status of Institutions That Received Capital Purchase 

Program Investments, as of March 31, 2013 6

Figure 3: Remaining Capital Purchase Program Investments, as of 

March 31, 2013 7

Figure 4: Remaining Participation in the Capital Purchase Program 

by State, as of March 31, 2013 8

Figure 5: Number of Institutions Missing Scheduled Dividend or 

Interest Payments and Number of Institutions 

Participating in the Capital Purchase Program by Quarter, 

February 2009 through February 2013 10

Figure 6: Number of Capital Purchase Program Institutions on 

FDIC’s Problem Bank List, December 2008 through 

December 2012 11

Contents 
Page ii GAO-13-458 Capital Purchase Program

Abbreviations

CDCI Community Development Capital Initiative

CPP Capital Purchase Program

EESA Emergency Economic Stabilization Act of 2008

FDIC Federal Deposit Insurance Corporation

SBLF Small Business Lending Fund

TARP Troubled Asset Relief Program

Treasury U.S. Department of the Treasury

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Page 1 GAO-13-458 Capital Purchase Program

441 G St. N.W.

Washington, DC 20548

May 7, 2013

Congressional Committees

From October 2008 through December 2009, the U.S. 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).1 TARP gave 

Treasury the authority to buy or guarantee up to almost $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.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.3

 

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. 

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 March 31, 2013, about threequarters of CPP participants had exited the program, many by 

repurchasing their preferred shares or subordinated debt with the 

approval of their primary bank regulators.

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 Helping Families Save Their Homes Act of 2009, 

Pub. L. No. 111-22, Div. A, 123 Stat. 1632 (2009), amended EESA to reduce the 

maximum allowable amount of outstanding troubled assets under EESA by almost $1.3 

billion, from $700 billion to $698.7 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. 

 
 

Page 2 GAO-13-458 Capital Purchase Program

This report is based upon 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.4 To fulfill our 

statutorily mandated responsibilities, we have been monitoring and 

providing updates on TARP programs, including CPP.5

To assess the status of CPP, we analyzed Treasury reports on the status 

of CPP, including reports on outstanding investments, dividends paid, and 

the number of institutions that had repaid their investments. To assess 

the financial condition of institutions that received investments under 

CPP, we used financial and regulatory data to compare CPP participants 

remaining in the program with those that had exited the program and 

those that had never participated. We determined that the financial 

information we used was sufficiently reliable to assess the condition and 

status of CPP and institutions that participated in the program. 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.

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.

We conducted this performance audit from January 2013 to May 2013 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.

 

4

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

5

See, for example, GAO, Troubled Asset Relief Program: Treasury Sees Some Returns 

as It Exits Programs and Continues to Fund Mortgage Programs, GAO-13-192

(Washington, D.C.: Jan. 7, 2013), Capital Purchase Program: Revenues Have Exceeded 

Investments, but Concerns about Outstanding Investments Remain, 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, GAO-11-47 (Washington, D.C.: Oct. 4, 

2010).
 

Page 3 GAO-13-458 Capital Purchase Program

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.6

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.

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. The 

program was closed to new investments on December 31, 2009. The 

Office of Financial Stability was established within Treasury to implement 

TARP in consultation with federal banking regulators.

7 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.8

 

6

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 most 

savings and loan holding companies. 

EESA required that Treasury also receive warrants to 

purchase shares of common or preferred stock or a senior debt 

7

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. 

8

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.

Background 
 

Page 4 GAO-13-458 Capital Purchase Program

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.

Nine major financial institutions were initially included in CPP.9 These 

institutions did not follow the application process that was ultimately 

developed, but were included because Treasury and the federal banking 

regulators considered them essential to the operation of the financial 

system. At the time, these nine institutions held about 55 percent of U.S. 

banking assets and provided a variety of services, including retail, 

wholesale, and investment banking and custodial and processing 

services. According to Treasury officials, the nine financial institutions 

agreed to participate in CPP in part to signal the program’s importance to 

the stability of the financial system. Initially, Treasury approved $125 

billion in capital purchases for these institutions and completed the 

transactions with eight of them on October 28, 2008, for a total of $115 

billion. The remaining $10 billion was disbursed after the merger of Bank 

of America Corporation and Merrill Lynch & Co., Inc. was completed in 

January 2009. Treasury ultimately disbursed about $205 billion to 707 

financial institutions through December 2009.

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 March 31, 2013, Treasury 

had received $222.0 billion in repayments and income from its CPP 

investments, exceeding the amount originally disbursed by $17.1 billion 

(see fig. 1).10

 

9

The nine major financial institutions were Bank of America Corporation; Citigroup, Inc.; 

JPMorgan Chase & Co.; Wells Fargo & Company; Morgan Stanley; The Goldman Sachs 

Group, Inc.; The Bank of New York Mellon Corporation; State Street Corporation; and 

Merrill Lynch & Co., Inc. 

The repayments and income amount included $193.1 billion 

in repayments and $2.3 billion in auction sales of original CPP 

investments as well as $18.8 billion in dividends, interest, and other 

income, and $7.8 billion in warrants sold. After accounting for write-offs 

and realized losses totaling $3.4 billion, CPP had $6.1 billion in 

10Treasury, Troubled Asset Relief Program (TARP) Monthly Report to Congress – March 

2013 (Apr. 10, 2013).

Treasury Estimates a 

Lifetime Gain for CPP 

as Institutions 

Continue to Exit the 

Program 
 

Page 5 GAO-13-458 Capital Purchase Program

outstanding investments as of March 31, 2013. Treasury had estimated a 

lifetime gain of $15.1 billion for CPP as of December 31, 2012.11

Figure 1: Status of the Capital Purchase Program, as of March 31, 2013

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.

About 76 percent (534) of the 707 institutions that originally participated in 

CPP had exited the program as of March 31, 2013. Of the 534 institutions 

that exited CPP, 203 institutions exited by repurchasing their preferred 

shares in full (see fig. 2).12

 

11Treasury estimates lifetime costs 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.

Another 165 institutions exited CPP by 

refinancing their investments through other federal programs: 28 through 

the Community Development Capital Initiative (CDCI) and 137 through 

12Additionally, 17 institutions have made partial repayments but remain in the program.
 

Page 6 GAO-13-458 Capital Purchase Program

the Small Business Lending Fund (SBLF).13 An additional 120 institutions 

had their investments sold through auction. Treasury began selling its 

investments in banks through auctions beginning in March 2012 as a way 

to expedite its exit from this program and transfer ownership to the private 

markets.14

Figure 2: Status of Institutions That Received Capital Purchase Program

Investments, as of March 31, 2013

Finally, the remaining 46 institutions went into bankruptcy or 

receivership (23), had their investments sold by Treasury (20), or merged 

with another institution (3).

 

13SBLF 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. The 

Community Development Capital Initiative (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. 

14We plan to examine Treasury’s wind-down strategy for CPP and the use of auctions in a 

future report.
 

Page 7 GAO-13-458 Capital Purchase Program

Note: “Other” includes institutions that went into bankruptcy or receivership, had their investments 

sold by Treasury, or merged with another institution.

As of March 31, 2013, 24 percent (173) of the original 707 institutions 

remained in CPP. These institutions accounted for the $6.1 billion in 

outstanding investments. The outstanding investments were concentrated 

in a relatively small number of institutions. Specifically, 25 remaining CPP 

investments accounted for $4.2 billion, or 68 percent of outstanding 

investments (see fig. 3). In contrast, the remaining $2.0 billion (32 

percent) was spread among the remaining 148 institutions.

Figure 3: Remaining Capital Purchase Program Investments, as of March 31, 2013

On a geographical basis, outstanding CPP investments were relatively 

widely disbursed throughout the United States. Thirty-nine states had at 

least 1 institution with CPP investments outstanding, and 12 states had at 

least 5 such institutions (see fig. 4). California had the highest number of 

remaining CPP institutions with 17, followed by Missouri with 11. In terms 

of total CPP investments outstanding, however, Puerto Rico had the 
 

Page 8 GAO-13-458 Capital Purchase Program

largest amount ($1.3 billion), followed by Georgia ($1.0 billion), Missouri 

($420 million), and Michigan ($379 million).

Figure 4: Remaining Participation in the Capital Purchase Program by State, as of March 31, 2013
 

Page 9 GAO-13-458 Capital Purchase Program

Of the 190 financial institutions remaining in CPP as of February 28, 

2013, 125 missed their most recent scheduled dividend or interest 

payment.15 The number of institutions missing dividend or interest 

payments increased steadily from 8 in February 2009 to 159 in August 

2011 and has since declined each quarter to 125 in February 2013 (see 

fig. 5).16

 

15Under 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 1,901 missed payments.

Despite the recent decline, the proportion of the remaining 

institutions that missed scheduled payments has continued to rise. For 

example, the percentage of banks with missed payments when 

participation stood at 467 in February 2009 was 2 percent, or 8 

participants. In February 2013, with just 190 participants, the percentage 

stood at 66 percent, or 125 participants with missed payments. Further, 

most of the institutions with missed payments have missed them in 

several quarters. In particular, 119 of the 125 institutions that missed 

payments in February 2013 had also missed payments in each of the 

previous three quarters. Moreover, prior to February 2013 these 125 

institutions had missed an average of 9.4 payments, and just 2 had never 

missed a previous payment.

16In 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.

Remaining CPP 

Institutions Are 

Generally Less 

Financially Healthy 

Than Those That 

Have Exited

Most Remaining CPP 

Participants Have Missed 

Dividend or Interest 

Payments
 

Page 10 GAO-13-458 Capital Purchase Program

Figure 5: Number of Institutions Missing Scheduled Dividend or Interest Payments and Number of Institutions Participating in 

the Capital Purchase Program by Quarter, February 2009 through February 2013

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 program at different times. Also, 190 

institutions remained in CPP as of February 28, 2013, but as of March 31, 2013, that number had 

decreased to 173.

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.

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 

The Number of Remaining 

CPP Institutions on FDIC’s 

Problem Bank List Has 

Declined
 

Page 11 GAO-13-458 Capital Purchase Program

quarterly basis.17

Figure 6: Number of Capital Purchase Program Institutions on FDIC’s Problem Bank List, December 2008 through December 

2012

As of December 31, 2012, 107 CPP institutions were on 

the problem bank list (see fig. 6). 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 (see fig. 5). As figure 6 shows, the number of problem banks fell 

slightly for the first time in the third quarter of 2011 and has declined to 

107. 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.

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 

 

17While 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 benefitted from CPP funds. Multiple subsidiary depositories of the same 

CPP bank holding company that were designated as problem banks were counted 

separately.
 

Page 12 GAO-13-458 Capital Purchase Program

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.

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 187 remaining 

CPP institutions and 422 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. The current and former CPP institutions in our analysis 

accounted for 609 of the 707 institutions that participated in CPP. We 

compared the 609 institutions to a non-CPP group (i.e., institutions that 

have not participated in CPP) of 8,049 active financial institutions for 

which financial information was available. All financial information 

generally reflects quarterly regulatory filings on December 31, 2012.

Our analysis shows that mostly smaller institutions remain in the program 

and that larger institutions tended to exit through repayment. For 

example, institutions that exited through repayment had a median asset 

size of $2.2 billion, compared with $550 million for those that refinanced 

through SBLF and $503 million for those that exited through an auction 

(see table 1). Moreover, in the aggregate, the remaining institutions were 

noticeably less financially healthy than each of the groups of former CPP 

participants. Further, 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. Finally, the group of 

institutions that never participated in CPP was also more financially 

healthy than the group of institutions that remain in the program, and 

based on some measures, more so than the group that had exited CPP.

Remaining CPP 

Institutions Are Financially 

Weaker Than Former CPP 

and Non-CPP Institutions
 

Page 13 GAO-13-458 Capital Purchase Program

Table 1: Aggregate Financial Information on the Analysis Population, as of December 31, 2012 

Former CPP Remaining

CPP

Non- 

 Repaid Auctioned SBLF Total CPP

Number of institutions 176 112 134 422 187 8,049 

Assets (dollars in thousands) $2,214,200 $502,553 $549,527 $770,658 $368,545 $194,708 

Texas Ratio 20.77 40.78 16.78 23.05 49.72 15.22 

Return on average assets 0.88 0.61 0.77 0.78 0.45 0.76 

Noncurrent loan percentage 1.74 2.81 1.24 1.76 3.21 1.43 

Net charge-offs to average loans 0.33 0.66 0.27 0.38 0.90 0.19 

Tier 1 risk-based capital ratio 13.10 13.43 13.74 13.46 12.87 15.24 

Common equity Tier 1 ratio 12.28 11.39 11.10 11.62 10.58 15.09 

Reserves to nonperforming loans 76.08 48.49 80.07 65.51 42.60 65.10 

Loan loss provisions to net charge-offs 86.25 65.70 105.11 85.71 35.13 59.38 

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 187 remaining CPP institutions and 422 former CPP institutions, 

accounting for 609 of the 707 institutions that participated in CPP. Financial data were available from 

SNL Financial for 471 of the 609 institutions, and we accounted for the remaining 138 institutions 

using SNL Financial information for the holding company’s largest subsidiary. The 98 CPP institutions 

our analysis excluded had no data available in SNL Financial, had been acquired, or were defunct.

In particular, remaining CPP institutions had noticeably higher 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.18

Profitability measures for remaining CPP institutions were lower than 

those for former CPP participants and the non-CPP group. For example, 

the return on average assets measure shows how profitable a company is 

relative to its total assets and how efficient management is at using its 

The higher the ratio, the more 

likely the institution is to fail. As of December 31, 2012, remaining CPP 

institutions had a median Texas Ratio of 49.72, compared with 23.05 for 

former CPP institutions and 15.22 for the non-CPP group. Further, of the 

institutions that exited CPP, those that exited CPP through auctions had 

the highest median Texas Ratio (40.78), compared with those that exited 

through full repayments (20.77) or by refinancing to SBLF (16.78).

 

18The Texas Ratio is defined as nonperforming assets plus loans 90 or more days past 

due divided by tangible equity and reserves.
 

Page 14 GAO-13-458 Capital Purchase Program

assets to generate earnings. For the quarter ending December 31, 2012, 

remaining CPP institutions had a median return on average assets of 

0.45, compared with 0.78 for former CPP institutions and 0.76 for the 

non-CPP group.19

Remaining CPP institutions also held relatively more poorly performing 

assets. For example, remaining CPP institutions had a higher percentage 

of noncurrent loans than former CPP institutions and the non-CPP group. 

As of December 31, 2012, a median of 3.21 percent of loans for 

remaining CPP institutions were noncurrent, compared with 1.76 percent 

for former CPP institutions and 1.43 percent for the non-CPP group. 

Remaining CPP institutions also had a higher median ratio of net chargeoffs to average loans (0.90) than both former CPP institutions (0.38) and 

the non-CPP group (0.19), as of December 31, 2012.

Further, among the institutions that had exited CPP, 

those that participated in Treasury’s auctions had the lowest return on 

average assets at 0.61, compared with 0.88 for those that repaid their 

investments and 0.77 for those that refinanced to SBLF.

20

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. Capital can be measured in several ways, but we focused on Tier 

1 capital, which includes both risk-based and common risk-based 

measures, because it is the most stable form of regulatory capital.

For both of these 

ratios, the auction participants had higher values than institutions that 

made full repayments or refinanced to SBLF.

21

 

19Return on average assets is net income divided by average total assets.

The 

Tier 1 risk-based capital ratio measures Tier 1 capital as a share of riskweighted assets, and the common equity Tier 1 ratio measures common 

equity Tier 1 as a share of risk-weighted assets. Using these measures, 

the remaining CPP institutions had lower Tier 1 capital levels than former 

20A charge-off occurs when a bank recognizes that a particular asset or loan will not be 

collectible and must be written off.

21Tier 1 capital includes the core capital elements that are considered the most reliable 

and stable, such as common stock, noncumulative perpetual preferred stock, and minority 

interests in consolidated subsidiaries. Total capital includes Tier 1 capital and Tier 2 

capital, or supplementary capital. Risk-weighted assets are on- and off-balance sheet 

assets adjusted for their risk characteristics.
 

Page 15 GAO-13-458 Capital Purchase Program

CPP institutions and the non-CPP group. These differences are similar to, 

but less pronounced than, those for other measures we analyzed. As of 

December 31, 2012, Tier 1 capital accounted for 12.87 percent of riskweighted assets for remaining CPP institutions, compared with 13.46 

percent for former CPP institutions and 15.24 percent for the non-CPP 

group. Among those that had exited CPP, however, the Tier 1 capital 

levels for auction participants were lower than those that refinanced to 

SBLF but higher than those that had repaid.

Because Tier 1 capital for the remaining institutions includes funds 

received through TARP, ratios using common equity Tier 1—which 

generally does not include TARP funds—may better illustrate these 

institutions’ capital adequacy. As with the Tier 1 risk-based capital ratio, 

the common equity Tier 1 ratio for remaining CPP institutions was below 

the ratios for the former CPP institutions and the non-CPP group. As of 

December 31, 2012, common equity Tier 1 for remaining CPP institutions 

had a median of 10.58 percent of risk-weighted assets, compared with 

11.62 percent for former CPP institutions and 15.09 percent for the nonCPP 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, 2012, the ratio of reserves to nonperforming 

loans was lower for remaining CPP institutions (42.60) than for former 

CPP participants (65.51) and the non-CPP group (65.10). We also 

compared loan loss provisions to net charge-offs and found that the 

remaining CPP institutions had lower ratios (35.13) than former CPP 

institutions (85.71) and the non-CPP group (59.38). For both of these 

ratios, the auction participants had lower values than institutions that

made full repayments or refinanced to SBLF.

These findings are consistent with the analysis in our March 2012 report, 

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.22

 

22See 

In that report, we noted that Treasury’s 

quarterly financial analysis of CPP institutions did not distinguish between 

remaining and former CPP institutions. Given the differences between 

these two groups, we recommended that Treasury consider analyzing 

GAO-12-301. 
 

Page 16 GAO-13-458 Capital Purchase Program

and reporting on them separately. To date, Treasury has not implemented 

this recommendation. We maintain that doing so would provide greater 

transparency about the financial health of institutions remaining in CPP.

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 $17.1 billion on its 

CPP investments as of April 25, 2013, and that 164 institutions remained 

in the program representing a remaining investment of $5.7 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 Financial Stability Oversight 

Board, 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 http://www.gao.gov.

If you or your staffs have any questions about this report, please contact 

A. Nicole Clowers at (202) 512-8678 or clowersa@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.

A. Nicole Clowers

Director

Financial Markets and Community Investment

Agency Comments 

and Our Evaluation
 

Page 17 GAO-13-458 Capital Purchase Program

List of Addressees

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 Max Baucus

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
 

Page 18 GAO-13-458 Capital Purchase Program

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
Appendix I: Objectives, Scope, and 

Methodology

Page 19 GAO-13-458 Capital Purchase Program

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 March 2013 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 March 31, 2013.

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 February 2013 to determine the extent to 

which participants had missed payments throughout the life of the 

program. We also obtained from the Federal Deposit Insurance 

Corporation summary information on its quarterly problem bank list to 

show the trend of CPP institutions appearing on the list from December 

2008 through December 2012. We used financial measures for 

depository institutions that we had identified in our previous reporting on 

CPP1

We analyzed financial data on 187 remaining CPP institutions and 422 

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 609 of the 707 CPP 

participants. The 98 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 8,049 active financial institutions for which financial information was 

. 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.

 

1

See GAO, Capital Purchase Program: Revenues Have Exceeded Investments, but 

Concerns about Outstanding Investments Remain, GAO-12-301 (Washington, D.C.: Mar. 

8, 2012).

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 20 GAO-13-458 Capital Purchase Program

available. Financial data were available from SNL Financial for 471 of the 

609 CPP institutions, and we accounted for the remaining 138 institutions 

using SNL Financial information for the holding company’s largest 

subsidiary. All financial information reflects quarterly regulatory filings on 

December 31, 2012, unless otherwise noted. We downloaded all financial 

data from SNL Financial on April 4, 2013. 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.2

We conducted this performance audit from January 2013 to May 2013 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. 

We have assessed the reliability of SNL 

Financial data—which is 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.

 

2

See GAO, Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) 

Fiscal Years 2012 and 2011 Financial Statements, 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, 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, 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, GAO-10-301 (Washington, D.C.: 

Dec. 9, 2009).
Appendix II: Comments from the Office of 

Financial Stability

Page 21 GAO-13-458 Capital Purchase Program

Appendix II: Comments from the Office of 

Financial Stability
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 22 GAO-13-458 Capital Purchase Program

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

In addition to the contact named above, Karen Tremba (Assistant 

Director), Christopher Forys, Michael Mikota, Emily Chalmers, William 

Chatlos, Marc Molino, and Patricia Moye made significant contributions to 

this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(250713)
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