Some area banks don't want fed's help

By Andy Ostmeyer

aostmeyer@joplinglobe.com

Several community banks in Southwest Missouri have waived off any help from the federal government. Some worry that such help comes with too high a price.

Others are exploring the possibility of allowing the Treasury Department to buy millions of dollars worth of ownership shares in their banks.

“Thank you, we don’t need the federal government’s money,” said Pat O’Neal, chief financial officer for Lamar Bank and Trust. “Our earnings, our capitalization, our loan portfolio are in good shape.”

As part of the federal government’s $700 billion bailout, known officially as the Troubled Assets Relief Program, or TARP, $250 billion was set aside for the Capital Purchase Program, which Treasury Secretary Henry Paulson called “a key component” of the financial rescue.

The Treasury Department is using its money to buy preferred stock in banks, which then must agree to certain conditions, including limits on executive compensation and a ban on lucrative retirement deals called golden parachutes, so long as the federal government holds the equity.

“This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything,” Paulson said when introducing the program in October. He said the shares eventually would be bought back “with a reasonable return.”

The amount of money available to local banks is set according to a formula based on their risk and other factors.

Lamar Bank and Trust was eligible for $2 million, according to Tom Main, president and chief executive officer.

Other banks opting out of the federal program include First State Bank of Joplin; Community Bank and Trust, based in Neosho; Southwest Missouri Bank, in Joplin and Carthage; and Arvest and Commerce banks.

“We’re OK,” said Alden Buerge, chairman and chief executive officer of First State Bank. “We don’t need that. We’re well-capitalized.”

Rudy Farber, chairman of Community Bank and Trust, noted that banks like his didn’t dabble in some of the trading and problems that afflicted the Wall Street investment banks.

“They didn’t become involved in the derivative market, where there are credit-default swaps,” he said.

Farber also likened being a banker to being a physician: Give a patient too little medicine, and he’ll die; give him too much, and he’ll die, too.

“We have followed a philosophy for years and years,” he said. “Nobody wins if you loan money to people who don’t have a reasonable chance of paying the bank.”

Garry Denney, chairman and chief executive officer of Southwest Missouri Bank, said it also opted out of the federal assistance.

“We do not intend to participate,” he said. “We simply do not need it.

“They do it in the form of a capital injection by purchasing ownership. That just doesn’t sound a desirable thing to us. I mean that in a business sense, not in any kind of personal sense.

“We’re an independent bank, and it would strain that label a little bit if you invited the government in as part owner of your bank.”

Denney told his board that he feared that allowing the government to buy shares in the bank would be the camel’s nose under the tent.

David Kemper, Commerce Bancshares chairman and chief executive officer, said in a statement: “While we think it is good for our industry and the economy, we have made a business decision not to seek the federal CPP (Capital Purchase Program) funds. Commerce’s earnings, capital and liquidity are strong and sufficient to grow our business and take advantage of new opportunities.”

Kevin Sabin, president and chief operating officer of Arvest, said in a statement: “Arvest has sufficient capital needed to fund expansion and to support the borrowing needs of our customers.

“The trade territories in which we operate have avoided the worst of the real estate issues experienced elsewhere, and we are optimistic these markets will continue to have healthy local economies.”

But several other banks with a strong presence in the region are opting for the money.

U.S. Bancorp (U.S. Bank) announced last month that it had received approval for the sale of $6.6 billion of its preferred stock to the U.S. Treasury as part of the program.

U.S. Bank is a major bank operating in more than half the states in the country.

Although it is taking advantage of the CPP, Steve Dale, spokesman for the bank, said that should not be interpreted as any indication that the bank is in trouble.

“We’re strong,” he said. “We’re stable. We’re sound.” He said the money available through the Capital Purchase Program will allow for increased lending and investment to stimulate the economy.

Great Southern Bancorp said last week that it has received preliminary approval for an investment of about $60 million.

That bank’s chief executive, Joseph Turner, said it is a “healthy” institution and “well capitalized by all regulatory benchmarks.”

Lee Keith, chief executive officer of Mid-Missouri Bank, said last week: “We’re evaluating this right now. We’ve taken a hard look at it. We intend to apply for those funds.”

Keith said Mid-Missouri is eligible for up to $15 million, but applying for it doesn’t mean it will be used.

He also said that tapping into the program should not send a signal about the bank’s health.

“I think if a community bank would decide to apply for capital funds, it should make a bank customer even more comfortable, because obviously the Treasury is not going to approve banks they don’t have comfort with,” he said.

Paul Merski, chief economist with the Independent Community Bankers of America, said community banks haven’t generally been a part of the credit problem.

“They didn’t get trapped up in subprime lending,” he said. “They didn’t get trapped in exotic lending and investment products.”

But what has happened is that access to capital for many lenders remains tight.

“The capital markets are still largely frozen,” Merski said. “In some cases, it (CPP) may be the only source of capital banks can get.”

He said a survey of more than 450 members found that only 20 percent expressed a desire to tap into the federal aid, 30 percent said they would look into it, and half had no interest in it whatsoever.

Local community bankers emphasized that there is a difference between the investment banks on Wall Street, where many of the serious problems have been reported, and their kinds of hometown and regional banks.

Buerge, Farber and others noted that community banks are heavily regulated by state and federal authorities.

Deposits in community banks are insured for up to $250,000, and now, even non-interest-bearing accounts, such as checking accounts, also are insured by the Federal Deposit Insurance Corp. with no limits on the amount.

“The particular problems that have bedeviled the (investment bank) industry are not prevalent within community banks,” said Denney, with Southwest Missouri Bank.

Andy Ostmeyer is the metro editor for The Joplin Globe.

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