Region's smaller banks have yet to pay back TARP funds
The biggest of the dozen banks in the area to receive bailout money during the financial crisis have long since repaid the government. But nearly all of the smaller ones have not.
Reason: There's no real incentive for smaller, community banks to rush to repay, say experts and bank spokesmen.
The main piece of the October 2008 bailout package known as TARP -- for "Troubled Asset Relief Program" -- gave participating banks millions, or even billions, by selling preferred stock to the government, and then paying a dividend on that stock to the U.S. Treasury quarterly.
"It serves as a good capital cushion," said Richard Spencer, chief executive of Fidelity Bancorp Inc., Perrysville, which has not yet repaid the $7 million it received in December 2008. "In these uncertain economic times, it's a cheap source of capital."
But larger banks, such as PNC Financial Services and Huntington Bancshares, repaid TARP money in 2010 or 2009. That's largely because, unlike community banks, big banks frequently utilize the public markets to raise capital and don't want to appear weak, said experts.
"If they have TARP money, it's more difficult for them to go out and raise money in the capital markets because there's a knid of stigma attached," said Anthony Carfang, partner at Treasury Strategies, Chicago, a consultant to major banks worldwide.
The lone local exception to the repayment pattern is AmeriServ Financial Inc. The Johnstown-based bank repaid its $21 million in TARP money last Friday by using another Treasury program, the Small Business Lending Fund.
The fund is similar to TARP in that AmeriServ sold $21 million in preferred shares to the fund and will pay the government a 5 percent quarterly dividend. But under the fund's terms, a bank can decrease that dividend rate to as low as 1 percent if it makes enough $10 million-or-under loans to small businesses with under $50 million in annual revenue.
"That's the sweet spot of where we lend anyway," said Jeffrey Stopko, AmeriServ chief financial officer. "In the worst case, if we weren't able to increase our lending, the rate stays at 5 percent, which is what we were paying with TARP."
Experts such as Antony Davies, associate professor of economics at Duquesne University's A.J. Palumbo School of Business, question whether the federal bank bailout was well-conceived or necessary in the first place.
"What disturbs me about TARP was there were big banks that were strong-armed into taking the money," said Davies. "That looks less like providing liquidity to the banking system than it does like the government trying to exert control over private industry."
Under the terms of TARP, banks pay a 5 percent dividend for five years after they received the money. But after that, the dividend rate increases to 9 percent.
For example, Fidelity pays a dividend of $87,500 per quarter to Treasury on the $7 million in TARP proceeds it received in December 2008. But the bank's dividend liability stands to jump to $157,500 per quarter in December 2013 when the rate resets to 9 percent.
"We'll certainly pay it back before the dividend spikes to 9 percent," Spencer said.
S&T Bancorp Inc. has the largest unpaid TARP amount, $109 million, to repay of any of the region's dozen banks that tapped the program. The Indiana, Pa.-based bank is "continuing to explore our options," said Senior Vice President Rob Jorgenson.
Parkvale Financial Corp., Monroeville, intends to repay its $32 million in TARP money before the end of the year, it said in mid-June, when it announced a merger into FNB Corp. Parkvale executives could not be reached yesterday.Additional Information:
A dozen banks in the Pittsburgh area received $15.9 billion from the government's Troubled Asset Relief Program in 2008 and 2009. Five of them have yet to repay the money.*
• S&T Bancorp $109 million
• Parkvale Financial $32 million
• TriState Capital $23 million
• Fidelity Bancorp $7 million
• Enterprise Financial $4 million
(*AmeriServ Financial repaid $21 million on Aug. 12.)
Source: Tribune-Review research