Feds boost bank loans, spending
Photo/David A. Rodgers
Jim Delamater, president and CEO of Northeast Bancorp in Lewiston, which received $4.2 million from the federal Capital Purchase Program
A federal program designed to pump capital into the nation’s banks has driven up commercial lending at the four Maine banks that collected more than $50 million from the effort.
The Capital Purchase Program, created as part of the Targeted Asset Relief Program enacted last fall, was aimed at providing healthy, well-capitalized banks with $218 billion total in additional funds to ensure continued lending. The federal government provided the capital to banks by purchasing non-voting stocks and participating banks agreed to pay a 5% dividend rate per year for the first five years. After five years, the rate jumps to 9%.
Steven Ward, senior vice president and CFO of The First Bancorp in Damariscotta, says his bank’s total risk-based capital is now above 14%, up from 11% at the end of last year.
“In addition to giving us greater ability to weather the current economic storm, it also provides us with more of an opportunity to work with borrowers who are struggling to remain current on their payments,” he says.
The First Bancorp requested the most of all Maine’s banks participating in CPP, borrowing $25 million in early January.
Ward says The First increased its commercial loan portfolio by $30.4 million, or 7.3%, in the first half of 2009, with the loans going to small businesses in coastal Maine.
Bar Harbor Bankshares, Katahdin Bankshares Corp. and Northeast Bancorp are also participating in the program.
Joseph Murphy, president and CEO of Bar Harbor Bankshares, which requested $18.75 million in CPP funds, says the bank has been able to increase commercial lending 8% over the same quarter last year, mostly to larger, well-established companies looking to expand.
“We’ve had a very strong residential lending year to date with a significant increase in mortgage refinancing and home equity loans,” he says. “We’ve also been lending aggressively to municipalities. Many are unsure about how much support they will get from the state.”
Though many would like to see the additional loans have an instant effect on the economy, Katahdin Bankshares Corp. President and CEO Jon Prescott says it takes time for capital to circulate.
“(The program) did raise our capital levels and grow loans more than otherwise possible,” he says. “Over the last six months, we’ve had $19 million in (commercial) loan growth over the same period last year, but it takes a year or two to really get out there.”
Of the $218 billion authorized under CPP, $203 billion was loaned out to 648 institutions nationwide and $70 billion was repaid as of June 30, according to the TARP quarterly report to Congress filed July 21. Forty-one percent of the money went to smaller institutions with the remainder to mega banks like Wells Fargo and Citigroup. The program was extended to include mutual holding companies and mutual banks, and in May was approved to include banks with less than $500 million in assets.
Chris Pinkham, president of the Maine Association of Community Banks, says the federal program for added capital isn’t an end-all for turning the economy around, but a piece of the puzzle.
“The reality is, if you add that list together, you get more than $50 million that’s getting loaned in Maine,” he says. “Maine is historically capital poor; sometimes banks have to buy capital deposits to satisfy loan demand. So even with a 5% coupon, the program was pretty appealing.”
Pinkham says the biggest problem facing Maine’s bankers continues to be identifying the businesses that are struggling but will eventually be able to pay back loans.
“We’ve seen a pretty strong increase in demand; the challenge is making sure people can afford the debt,” says Jim Delamater, president and CEO of Northeast Bancorp in Lewiston, where commercial lending has been “robust.” “In the 28 years I’ve been here, we’ve had the same standards and don’t change them with the times — we don’t think it’s a good thing to provide more than a person can afford.”
While all of Maine’s participants agreed they have no complaints so far with the administration of the program, their chief gripe has been the public’s perception of the program as a bailout for struggling banks. That perception and the federal strings attached are the primary reasons more banks haven’t taken the TARP offer, according to industry observers.
“Except for a handful of the largest banks in the country — the ‘too-big-to-fail’ banks — this was not a bailout,” says Ward of The First Bancorp. “Instead, it was a program designed to inject equity capital into the banking system and provide much-needed stability after the near meltdown that took place in the late third and early fourth quarters of 2008. As our primary regulator was quick to point out, it is a program for healthy banks, not for banks that were about to fail.”
Lloyd LaFountain, superintendent of the Maine Bureau of Financial Institutions, says periodic examinations of the state’s financial institutions haven’t revealed anything out of the ordinary with respect to the use of TARP funds. The CPP participants are required to report monthly to the Inspector General of the U.S. Treasury on commercial and consumer loans.
Under the initial rules for CPP issued by the U.S. Treasury, the minimum period of investment was three years, but that has since been relaxed. Even so, none of the Maine banks have immediate plans to repay the capital anytime soon, according to their chief executives.
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