October 15, 2011 in City

Washington Trust repays TARP debt

By The Spokesman-Review
 
Rates can differ

TARP funds carried a 5 percent dividend requirement on participating banks. The Small Business Lending Fund also requires a 5 percent dividend, though that rate falls to as low as 1 percent depending on how much of the money is loaned to qualifying small business borrowers.

Washington Trust Bank has repaid its $110 million TARP obligation to the U.S. Treasury Department.

At the same time, the Spokane-based bank borrowed $89.1 million from a different Treasury program to spur small business lending across the Northwest.

Bank President Jack Heath called the moves strategic transactions designed to exit Washington Trust’s involvement in the Troubled Asset Relief Program, while tapping new money from a program that gives qualifying community banks the money and incentive to find borrowers and create jobs.

Some reports, including a story in the Wall Street Journal last week, questioned whether other banks in similar situations were simply using new, less restrictive Small Business Lending Fund money from the Treasury to, in essence, refinance their stigmatized and onerous TARP debts rather than use the money to offer new small business loans.

Companies are increasingly shedding their involvement in TARP. Data collection company SNL Financial reported that 279 of the 707 financial institutions that received money from the program have redeemed at least a portion of their debt.

Washington Trust accepted TARP funds in January 2009 as a defensive mechanism, Heath said.

“We took the money as insurance against the horrendous economic uncertainty,” he said. “In the end we were very fortunate.”

The bank remained profitable, built a large reserve for loan losses and used the presence of the TARP funds as a safety net – assurance that the bank could withstand a major blow.

As conditions for the bank improved, he said, Washington Trust asked the Treasury Department for permission to repay TARP.

Regulators reviewed the bank’s financial condition and gave the request for TARP redemption the OK, Heath said.

As that process moved along, Heath said, the bank made late application to the SBLF program, which was created in 2010. Washington Trust intends to deploy all of the $89.1 million borrowed under SBLF within 2  ½ years.

About 900 banks applied for SBLF money, though only 300 received approval.

“If we can’t get that money into the hands of small businesses, we’ll repay it right away,” Heath said.

Washington Trust was the only regional bank to participate in the SBLF program.


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