Banker Robert A. Catanzaro shrugs off the stigma worries of many banks that have accepted money from the federal Troubled Asset Relief Program (TARP).
While other banking executives have been rethinking their participation in TARP in part because it has become synonymous with government bailouts, Catanzaro, president of Independence Bank in East Greenwich, says he likes the program, and he wants his small institution to stay in it for the long haul.
In January, Independence Bank received $1.07 million from the U.S. Treasury as part of TARP’s Capital Purchase Program, designed to inject money into healthy banks to thaw the credit markets. In exchange, the bank agreed to give the government preferred shares that pay a 5 percent annual dividend.
For Independence Bank, the cash infusion has helped provide more capital for lending to small businesses and homeowners, Catanzaro said last week. That, in turn, has boosted the privately held bank’s growth rate.
“We think it’s a decent program,” he said. “And we don’t see any reason to pay it back right now because we want to grow.”
Independence is one of five banks with local branches that participated in the Capital Purchase Program after it was first launched late last year, but Independence is the only one that has not paid back the money already, or said it planned to soon.
In announcing their payback plans, the other local banks – Bancorp Rhode Island, Independent Bank Corp. in Rockland, Mass., and Webster Financial Corp. in Waterbury, Conn. – have cited the stigma associated with TARP as one of the reasons for exiting.
“There was a lot of negativity associated with the so-called bailout money,” said Ralph R. Valente, senior vice president of marketing at Independent Bank, parent of Rockland Trust, which has branches in southeastern Massachusetts. “We felt we weren’t part of that.”
Financial giant Bank of America Corp. – No. 2 in Rhode Island by deposits – has said recently that it wants to repay part of the $45 billion it has received from the U.S. Treasury as part of the TARP.
Rhode Island’s part in the TARP program has remained relatively small.
Aside from Bank of America, Rhode Island largest banking players didn’t participate in TARP. Both Providence-based Citizens Financial Group, parent of Citizens Bank, and Sovereign Bancorp – No. 1 and No. 3 respectively in Rhode Island by deposits – were not eligible for government aid because both are owned by foreign banks.
By comparison, 10 banks in Massachusetts took a combined $2.34 billion, including $78.16 million that went to Independent Bank. In Connecticut, seven banks took $3.83 billion, including Webster’s $400 million infusion.
Despite the eagerness to exit early among the five local participants, other institutions haven’t been so quick to leave. Three of the 10 Massachusetts banks in TARP have repaid the money. None in Connecticut have done so, although Webster has signaled it plans to soon.
Nationwide, only 35 of the 650 banks that have received TARP injections have paid them back. And the program lives on, still providing capital in exchange for preferred stock and warrants.
Valente said Independent Bank, the Rockland Trust parent company, didn’t need the $78.16 million from the Capital Purchase Program when it decided to take it in January.
At the time, the credit markets had frozen, the economy was in a global meltdown and the future looked gloomy. With a price tag of a 5 percent dividend, the money appeared inexpensive.
The bank felt a sense of duty “to help out the community,” Valente said.
Bank executive also believed the additional capital would allow Massachusetts’ largest community bank to participate in big commercial-lending deals in which they typically “didn’t get to sit at the table,” Valente said.
But soon, Independent was chaffing under the controls of the government, which among other things was looking to have a say in executive compensation.
While concerns about the pay of some chief executives across the country was warranted, Valente said, the Treasury considered regulating pay for the 25 highest-paid people at each TARP institution.
“At Rockland Trust, those are key contributors, but they’re not making a ton of money,” Valente said.
Another problem: the stigma of having taken “bailout money,” even though the Capital Purchase Program was intended for healthy banks and regulators were encouraging participation.
Three months later, with financial markets stabilized, Independent Bank paid back its full share and stepped away.
If bank executives knew then what they know now about TARP, “we would have taken a pass,” Valente said.
But ultimately it was the improved economy that convinced them that the additional capital was no longer needed.
Last month, the bank repurchased the Treasury’s $30 million preferred stock investment. The company has not said whether it has repurchased warrants authorizing the Treasury to purchase 192,967 shares.
The bank said last week that participation in the program cost $1.7 million in dividends, but Sherman said she had no regrets about signing on in December, when credit markets were seized.
“Our community had credit demands and we wanted to meet the demand,” she said. “It was a reasonable decision at the time.”
Webster Financial Corp., the parent of Webster Bank, said it used the $400 million it received to bolster its lending.
In exchange for the TARP money, Webster is paying about $20 million in dividends to the Treasury this year.
Edward Steadman, Webster’s vice president of public affairs, said the bank has completed $1.3 billion worth of mortgage originations, refinancing and modifications since the start of the year. The bank said it also has modified 163 mortgages to head off foreclosures.
Now Webster is preparing to submit a repayment plan to the Treasury.
“A lot has changed in the last year,” Steadman said, referring to improved financial market conditions. “Now the time is right to start paying the money back.”
Back at Independence Bank in East Greenwich, the $1.07 million continues to be a boon. The one-branch bank’s assets have climbed to $82.14 million as of June 30, up 58.75 percent from $51.74 million a year earlier, according to filings with the Federal Deposit Insurance Corporation.
Net loans and leases were $44.49 million on June 30, up 20.29 percent from a year ago, the FDIC filings said.
For Catanzaro, the growth has been worth the $50,000 dividend payment to the Treasury. And the stigma doesn’t bother him much. Borrowers are more concerned about whether the bank has enough capital to make the loan, Catanzaro said.
“The loan pipeline is starting to pick up,” he said. “Ultimately, [the TARP money] has enabled us to increase our lending.” •
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