Small Banks Not Shying From TARP

By ROBIN SIDEL Enterprise Bank has one office, three shareholders and $4 million in fresh capital from the U.S. government's Troubled Asset Relief Program. "That's not a bailout. That's being patriotic," said Chuck Leyh, president and chief executive of the Allison Park, Pa., bank's parent company, Enterprise Financial Services Group. Enterprise Bank, which has $180 million in assets and turned a first-quarter profit of $85,000, plans to funnel the money it got from the Treasury Department on June 12 into loans to fledgling businesses in western Pennsylvania. In contrast to Wall Street firms like J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and American Express Co. that returned $68.25 billion in one day this month to escape TARP and all the strings that were attached, a steady stream of small banks still is lining up for government money. Since May 31, 20 small banks have received a total of $164.1 million in taxpayer-funded capital, according to the Treasury's latest available figures. Half of those banks got the money in the same week that 10 big financial institutions gave theirs back. Analysts see no end in sight to the trend. The recession and borrowers are squeezing most of the 8,200 federally insured commercial banks and savings institutions in the U.S., so even a dollop of TARP funds could make a difference. Some banks are turning to the government to fill a void left by investors who are leery about pouring money into the sector, despite the rebound by bank stocks since early March. Meanwhile, the rules and stigma of TARP that turned some executives such as J.P. Morgan Chairman and CEO James Dimon against the program are irrelevant to small institutions. Their employees usually don't fly on corporate jets or collect hefty bonuses that trigger outrage from taxpayers, customers and Congress. And curbs on dividend payments are a modest price to pay for greater assurance that the banks can plow ahead with their core mission to gather local deposits, lend them nearby and support local charities, some recent TARP recipients said. Still, unflattering headlines and television talking heads that have jabbed at TARP since it was launched last October made some small-bank executives wary about lining up for government money. Berkshire Bancorp Inc., a five-branch, five-year-old bank in Wyomissing, Pa., with $133 million in assets, raised $3 million from private investors in 2007. Executives were looking for more capital to fuel the bank's growth, deciding to take $2.9 million from TARP on June 12 rather than spend time and money on a capital-raising program that might flop. Bank officials debated the pros and cons, bracing for tough questions from customers and investors. "We spent a lot of time with more than 400 shareholders, explaining to them what the plan was and our reasoning behind it," said Norman Heilenman, Berkshire's chairman and chief executive. "There have been a lot of questions, but we haven't had negative reaction." Without the $15 million River Valley Bancorporation Inc. got two weeks ago, the Wausau, Wis., bank would have been forced to rein in lending. "One of the only other options is to borrow from large banks and, frankly, they're not in the market to do that," said Steve Anderson, president and CEO of River Valley, with $925 million in assets and 18 branches in Michigan and Wisconsin. Last year, River Valley sold a corporate plane that ferried executives between branches that are about four hours from each other by car. Smaller TARP recipients have a leg up on big banks that tapped the rescue program. Because small institutions often are closely held, they typically haven't publicly announced getting TARP. Treasury officials publish a spreadsheet that includes a running list of all TARP recipients. In April, Mark Hanna, president and CEO of Virginia Co. Bank, announced at the Newport News, Va., bank's shareholder meeting that the four-year-old, two-branch bank was approved for $4.7 million in TARP funds. The initial reaction from some investors was negative, but they warmed up after being told that preferred shares issued to the government wouldn't dilute their holdings, he said. "We haven't received a single customer complaint or comment, but they may not know," Mr. Hanna said. Overall, 633 U.S. banks have received a total of $199.57 billion in TARP money, according to the Treasury. Of the 32 banks to repay a combined $70.12 billion to the government so far, about 20 are small institutions. Separately, the Treasury on Friday issued details on the procedures that banks must follow if they want to repurchase warrants that the government received as part of the capital infusions. The 10 big banks that repaid TARP funds earlier this month are wrestling with that issue and must submit their assessment about the value of the warrants by the end of next week. —Tom McGinty contributed to this article. Write to Robin Sidel at robin.sidel@wsj.com