Banks tap TARP

Six banks with branches in the Columbia market have received money in the federal bailout, with varying degrees of involvement, motivation and plans for repayment.

Thirty Missouri-based institutions had received $1.9 billion as of mid-June, or approximately 0.3 percent of total funds pledged through the Troubled Assets Relief Program, according to an investigative journalism Web site, ProPublica. The Missouri banks include Hawthorn Bancshares of Lee’s Summit and two based in Boone County – Calvert Financial Corp., holding company for Main Street Bank, and The Landrum Company, parent of Landmark Bank.

The institutions with branches in mid-Missouri that have received TARP funds, with their headquarters location, presence in Columbia market and specific amounts, include:

• Bank of America, Charlotte, four local offices (5,734 outside market) $52.5 billion.
• U.S. Bancorp (U.S. Bank), Minneapolis, four local offices (2,592 outside market), $6.6 billion (returned June 9). 
• Regions Financial Corporation (Regions Bank), Birmingham, four local offices (1,920 offices outside market), $3.5 billion. 
• Hawthorn Bancshares (Hawthorn Bank), Lee’s Summit, one local office (24 outside market), $30.3 million.
• The Landrum Co. (Landmark Bank, formerly First National Bank), Columbia, nine local offices (26 outside market), $15 million.
• Calvert Financial Corp., Ashland, (Mainstreet Bank) one local office (two outside market) $1 million 

The data culled by ProPublica comes from Treasury Department figures, other government agencies and/or news releases and regulatory filings from institutions receiving bailout money.

Government funds have been allocated to financial institutions across the nation in a series of measures designed to address what financialstability.gov, a Treasury Department Web site, refers to as “a crisis of confidence, of capital, of credit and of consumer and business demand.” A significant catalyst of the financial crisis was the meltdown of the subprime mortgage markets.

Several Missouri recipients were quick to point out that participation was motivated by an opportunity to boost their lending and increase stability rather than by ill financial condition. Landmark Bank and Hawthorn Bank, for example, were among those that took TARP funds as part of the voluntary Capital Purchase Program, available only for healthy institutions.

“I know that there’s a common misconception out there that banks that took the TARP money are financially hurting, and that’s simply not the case for the banks that were part of the Capital Purchase Program,” said Kathleen Bruegenhemke, senior VP and chief risk officer for Hawthorn Bank, which has one banking center in Columbia and four in Jefferson City.

The CPP is designed to “encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy,” according to the Treasury Department.

Additional institutions participating in CPP include Calvert Financial Corporation, Investors Financial Corporation of Pettis County, U.S. Bancorp, Regions Financial Corporation and Bank of America, according to ProPublica; Bank of America, however, has also participated in several other government programs, the ProPublica site shows. According to financialstability.gov, Missouri-based banks have accounted for over $854 million in CPP transactions.

In an e-mail to the Columbia Business Times, Landmark Bank Chairman and CEO Jeff MacLellan said his bank “accepted CPP funds in order to increase lending in our communities.” Increased lending, he added, “will help to speed the economic recovery” in those communities, which is the purpose of the CPP. (Landmark has operations in Texas and Oklahoma and changed its name in Missouri from First National Bank earlier this year).

Service to local communities became the bottom line for Landmark Bank. “In an economic downturn like the one we are in, communities need their banks to come through for them,” MacLellan said. “We are a little different than many Columbia banks since we have locations in 25 towns across Missouri, Oklahoma and Texas. Many of these are small, rural communities for which we are the economic engine, a responsibility we don’t take lightly.”

Bruegenhemke said the CPP money would allow Hawthorn to do several things: increase the deposit base to support loan growth, provide additional liquidity and supply capital for any strategic opportunities. Ultimately, though, she stressed the funds were an insurance policy during a time of economic tumult.

Both Bruegenhemke and MacLellan described a smooth application process, which included communication with their regulators and confirmation of their banks’ overall health. Internally, Bruegenhemke said Hawthorn officials asked themselves three questions before applying for CPP funds: Did they want the money? Did they need the money? What would they do with the money?

“We didn’t know if we wanted the money but we also didn’t know how the financial market landscape was going to change come Monday morning, things were changing so rapidly,” Bruegenhemke said of the situation last October when the bank was analyzing whether to participate in the program.

Strong capital ratios and liquidity meant CPP money wasn’t a necessity, but uncertainty about the depth and length of the economic downturn made those funds an “insurance policy against the unknown,” Bruegenhemke said.

As part of the Capital Purchase Program, institutions can be subject to compensation restrictions, something both MacLellan and Bruegenhemke acknowledged. MacLellan stated that government provisions accompanying CPP had “little or no effect on a community bank like Landmark.” Bruegenhemke noted the stipulations had produced some internal effect, such as executive officers not receiving bonuses, but that the bank’s lending programs and other normal operations had not, as of yet, been affected.

While several mid-Missouri banks took TARP funds, a number of other institutions declined to participate.

The Callaway Bank President and CEO Bruce Harris wrote in a message on the company’s Web site, “You will not see The Callaway Bank’s name on any list of banks who have accepted government bailout funds.” Harris added the bank was “not in need of additional capital in order to firm up our balance sheet” and championed its conservative approach. “Since our capital is strong, TARP did not make sense to us from a balance sheet perspective,” Harris wrote in an e-mail to the Business Times.

Mary Wilkerson, a vice president and director of marketing for Boone County National Bank, said BCNB’s conservative approach to business helped it avoid any risks that would have necessitated involvement with TARP.

While local institutions took different approaches to TARP, representatives from banks on both sides of the process agreed on several points, including the belief that money distributed among mid-Missouri banks would contribute to the financial stability of the region. Wilkerson said that the stability of the financial system is “extremely important” and that it’s “not a bad thing” if other institutions got involved with TARP.

Matt Williams, Columbia market president for Hawthorn, said: “Community banks are the lifeblood of small business across the country so for us to continue to lend money is very vital to the economy.”

Additionally, several local executives said people should not view what is happening at their local bank through the lens of troubled institutions of a larger scale and scope. Wilkerson said there is “very little resemblance” between what’s happening at community banks and the level of risk and complexity undertaken by national institutions popularly deemed “too big to fail.”

MacLellan added that, in the case of banks such as Landmark, “the terms ‘TARP’ and ‘bailout’ are unhelpful and inaccurate when describing participation in programs for healthy banks.”

Banks across the country have begun exploring the idea of paying TARP funds back, and 10 have received approval from the government to pay back nearly $68 billion in TARP funds, according to recent published accounts. Several institutions contacted said they had either firm plans or intentions to pay back the funds they had received. U.S. Bank, for example, has already been approved to redeem the $6.6 billion of preferred stock issued under the CPP.

“We went through the stress test and passed with flying colors,” said Stephen Burch, U.S. Bank’s Columbia market president. “The strength of our company is that we don’t need to retain those TARP funds, which from a safety and soundness standpoint, I think, is what a lot of people are interested in currently when they’re looking for a bank.”

According to Bruegenhemke, Hawthorn Bank would like to pay back the funds but is taking a wait-and-see approach in hopes it no longer needs the “insurance policy” the money provides. Bruegenhemke added that Hawthorn definitely intends to pay back the money within five years when the anticipated “cost of…dividends go from 5 percent to 9 percent.”

Banks taking part in CPP remain confident in their decisions. MacLellan described Landmark’s participation with CPP as a win-win situation in which interest paid on the money benefits the taxpayer and “increased lending in the community is good for our customers and will help stimulate the local economy.”