April 25, 2018
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Bailout used by Maine banks

The Associated Press

PORTLAND, Maine — Bar Harbor Bankshares might not seem like a candidate for a bailout.

The company that owns 12 Bar Harbor Bank & Trust branches reported record earnings for 2008. And it serves a coastal region that hasn’t been hit as hard as the rest of Maine by the real estate crash and the recession.

Nonetheless, the company — and about 550 banks elsewhere in the country — took federal Troubled Asset Relief Program money as the government worked feverishly to jump-start lending. Bar Harbor’s nearly $19 million was part of about $200 billion invested under TARP’s Capital Purchase Program.

That money is trickling into communities even as healthy community banks like Bar Harbor Bankshares consider whether to return the money — partly because many of them didn’t need it, partly because of public perception that TARP money went only to struggling banks.

Some bankers are increasingly frustrated over unwanted federal intrusion and the politicization of the federal program. So far, at least 12 banks have returned more than $1 billion.

“Many recipients are champing at the bit to pay it back to get the government out of their boardrooms,” said Gerard Cassidy, managing director of bank equity research at RBC Capital Markets. Cassidy had advised healthy banks to reject TARP money.

For Bar Harbor Bankshares, money from TARP’s Capital Purchase Program represented a capital boost of about 27 percent, enabling it to make up to $200 million in loans.

Joseph M. Murphy, president and chief executive, said he recognizes that his bank has done well at a time when large banks have struggled. But he couldn’t turn down additional capital at favorable terms.

“When you have a record year in bad times, the one thing you don’t want to be is euphoric. You want to be practical,” Murphy said.

The company is using the TARP money to make loans to small- to medium-size businesses such as hotels and restaurants serving tourists, to invest in the secondary mortgage market and to help municipalities that face reduced state funding.

Community banks elsewhere are finding similar uses for TARP money.

In Wisconsin, Baraboo Bancorp Inc. earmarked all of its $20.7 million for loans for homes, cars, businesses and farms, said chairman and chief executive Merlin E. Zitzner.

“The loan demand out here is crazy,” Zitzner said. “We’ve had to hire five or six loan processors because we’re helping hundreds and hundreds of people refinance their houses.”

But not all banks are keeping the money.

In West Virginia, Centra Financial Holdings Inc. in Morgantown became the first bank to return its TARP Capital Purchase Program money — $15 million, plus interest.

Centra hoped to use part of the money to acquire smaller, struggling banks, in addition to bolstering its capital for small-business loans, said spokesman John Fahey.

Three weeks after getting the money, the federal government changed the rules so the money couldn’t be used for acquisitions, Fahey said. In addition, new rules held out the possibility of the government influencing interest rates for loans and whom the bank could hire, he said.

There are no regrets, however, at Syringa Bank in Boise, Idaho.

President and CEO Jerry Aldape said his small six-branch bank was well-capitalized despite losing between $7 million and $8 million in 2008. Not knowing how the economy would be in 2011 and 2012, however, pushed him into applying for $8 million from the program.

Aldape said the economy continues to give conflicting signals, with Federal Reserve Chairman Ben Bernanke talking about the economy growing by year’s end while unemployment continues to rise.

“Those two contradictory comments scare me a little bit. Until I see real life in the economy, I want to make sure I’m around in 2011 and 2012,” he said. The TARP funding, he said, “ensures that we’ll have the capital to survive almost anything.”

Back in Bar Harbor, Murphy said his company is three months into the program, but it’s evaluating the timing on returning the federal money.

Taking the money was a good defensive strategy at the time, Murphy said. Since then, however, the federal government has been changing the rules, and healthy banks are taking a public relations hit.

The bank will know more about its situation this summer after the annual influx of tourists and their spending that’s crucial to local economy, Murphy said. If the local economy is bouncing back, then Bar Harbor would consider accelerating its timetable for returning the money.

“Every single healthy bank that participated is looking at what the circumstances would be that would tip the balance to returning it,” he said.

Associated Press writers Dinesh Ramde in Milwaukee, Tim Huber in Charleston, W.Va., and John Miller in Boise, Idaho, contributed to this report.

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