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
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Leak of grand jury information could cost Attorney General Kane
- For Steelers, a fight to finish for playoff berth
- The bullet inside your body ‘becomes a part of you’
- Executive stayed busy with business, civic work
- Freezing rain hits Western Pennsylvania, many accidents reported
- Pitt beats Syracuse, snaps 3-game losing streak
- Pirates enter Plan B with Martin off market
- Springdale Library to pay rent to borough
- Starkey: No explaining Steelers, AFC North
- Islanders outwork Penguins to sweep back-to-back meetings
- Kane’s office backtracks on prosecution in email scandal