INB paying off TARP loan

Spokane-based Northwest Bancorporation, the parent company of Inland Northwest Bank, will use $12.5 million it raised recently to pay off the money it received in 2009 from the U.S. Treasury’s Troubled Asset Relief Program.

In January 2009, the company applied for and received about $11 million from TARP. Created by the Treasury Department at the time when major financial institutions were failing and threatening the economy, TARP was widely seen as a bailout for troubled banks.

CEO Randy Fewel, who was at the helm of INB in 2009, said the Spokane community bank was not struggling. But the board chose to apply for $11 million in TARP money after being encouraged to do so by the Treasury Department.

As part of the deal, INB had to commit to making quarterly payments on the preferred stock that it gave to Treasury in return for the money.

In February those dividends are poised to jump from 5 percent to 9 percent unless INB buys back the shares, Fewel said.

In addition, earlier this year the Treasury Department chose to sell off the preferred shares to 18 bidders in varying amounts, raising more than $11 million in the sale, Fewel said.

INB bid on those shares but was not successful, Fewel said.

To raise capital for the repayment, INB issued $6 million in unsecured notes and warrants to two major investors, INB board officer Harlan D. Douglass and Community BanCapital, a Portland investment fund. The Portland firm acquired $4.5 million, and Douglass the remainder.

INB then raised another $6.5 million through the sales of 1 million shares of common stock.

The TARP repayment will be completed by using that money along with $900,000 in cash, pending regulatory approval, Fewel said.

INB, which has seven branches in Spokane and four in Kootenai County, has roughly $400 million in assets, according to Fewel. It’s had seven consecutive profitable quarters, he added.

While taking TARP funds provided some financial cushion, Fewel said the program proved to be a mixed blessing for the bank.

Back in late 2008, bank officials believed that if they didn’t apply for TARP funds “and many other local banks did, we might be perceived as one of the weaker ones,” Fewel said.

“If I knew then how difficult it was going to be to deal with Treasury and how the FDIC and the Federal Reserve were going to make us defer the dividend payments, I wouldn’t have applied,” he said.

On the other hand, the $11 million from TARP helped the bank’s officers sleep better at night during the recession. Because INB needed to meet federally established “stress test” regulatory thresholds, life during the past three years could have been harder than it was, Fewel added.

“The regulatory tests and exams during that period could have been much more difficult if we had $11 million less in capital,” he said.