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Tiny Banks Lending LargeThe Nations Mega-Banks Arent Using Bailout Cash for Loans, But Local Banks AreABC NEWS Business Unit February 4, 2009

Scott Mayerowitz Text

Page 1 of 3 Tiny Banks Lending Large | ABC NEWS Business Unit February 4, 2009

I N T H E N E W S

Michael Daniels runs a small bank in Green Bay, Wis.,that recently received $15 million in taxpayer money.

When he got the money, Daniels did something a bitrare in banking circles these days: He lent it out tohomebuyers and small businesses.

Were making loans, Daniels said. The window is

open. Its never been closed.

Thats exactly what government leaders want banks to dowith money from the Troubled Assets Relief Program, butwhat apparently not enough of them are doing.

A Federal Reserve study released just this week showedthat banks are continuing to make it harder for people toget all types of loans.

But Daniels and a handful of executives -- mostly atsmaller banks -- are doing everything possible to helptheir communities out.

This bank can only be as good as the community itoperates in, said Daniels, president and chief operatingofficer of the five-branch Nicolet National Bank. Werevery invested in this community.

Daniels did take the TARP money as a bit of a safety netin case the economy totally tanks. But, for the mostpart, Nicolet National Bank plans to pump that cash backinto the local economy.

In fact, Daniels and the bank officers have so muchconfidence in their loans that they raised another $9.5

million through a private stock offering at the same timethey got the TARP funds at the end of December. About40 percent of that new private capital came from bankdirectors and insiders.

We put our own money right alongside it, Daniels said.

You put your money where your mouth is.

Like many other banks, Nicolet has had its fair share ofloans go bad. But it still has plenty of capital on handbecause its own investments, in Daniels words, arechocolate and vanilla.

To date, the government has pumped $387.4 billion ofTARP funds into the nations financial system. Of that,$195.33 billion went to 359 institutions in 45 states andPuerto Rico. (The rest of it went to insurance giant AIG,General Motors, Chrysler and to guarantee other bankloans.)

Large Banks Have Yet to Lend

Americas largest banks have not been as willing tospend. The banks have come under intense criticism forrefusing to detail how they are spending the taxpayermoney.

The government wants banks to lend out money they got from the Troubled Assets ReliefProgram, or TARP, but apparently, not enough of them are doing it.(Getty/ABC News)


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Citigroup, which has received $45 billion of TARPmoney and been under criticism for its sponsorship ofa New York sports stadium, announced Tuesday that itput $25.7 billion from TARP back into mortgages. Citialso used another $2.5 billion of government funds forpersonal and business loans, $1 billion for student loansand put $5.8 billion toward credit card loans.

Paul Miller, managing director of FBR Capital Markets,said that banks face a difficult balancing act. If banks loantoo much, they throw off their debt ratio and possiblyhurt their stock price.

Banks need to be careful, Miller said. They have towalk a very fine line.

But if they dont loan enough, politicians and the publicwill be annoyed that they arent doing enough.

Thats what the politicians want, they want results. Andthe results are not going to be as simple as a lendingincrease, Miller said.

The smaller, community banks are better capitalizedthan the big banks, Miller added, and, therefore, more

willing to make new loans.

The people that are lending [the TARP money] outdidnt really need it, he said.

Central Bancorp, in the Boston metro area, is one ofthose banks.

The bank has taken out large ads in the Boston Globeannouncing We have money to lend.

Were vigorously pushing that money, said WilliamMorrissey, the banks chief operating officer. We want tomake mortgages. We have the money to invest.

It is a similar story in Maryland where three small bankbrands owned by Shore Bancshares took TARP money,but didnt need it to shore up its finances. The banks --Felton Bank of Delaware, The Centreville National Bankof Maryland and The Talbot Bank of Easton -- are alllending as vigorously as they did in the past, according toCEO Moorhead Vermilye.

We have continued to loan money and support thecommunity, he said.

Local Banks More Willing to Give Money

Other regional banks in his market have pulled their

horns in and Vermilyes banks have swooped in to fillthe void.

The loans are going to small businesses andhomeowners.

The residents of Talbot County are looking toward usto keep them viable, Vermilye said. It indicates to thecommunity that we are the lender of choice in this area.

Weve done exactly what the Treasury wanted us to do,he added. It is important that we get out the picture thatall of this isnt bailout money. Its also not being used

inappropriately.

C.R. Rusty Cloutier, president and CEO of MidSouthBancorp, is taking things one step further. Hes on a roadtrip though Louisiana and Texas holding town hall-style meetings, telling the public that his bank has money

Tiny Banks Lending Large | ABC NEWS Business Unit February 4, 2009

The government wants banks to lend out money they got from the Troubled Assets ReliefProgram, or TARP, but apparently, not enough of them are doing it.(ABC News Photo Illustration)


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and is loaning it out.

Most people are unwilling to borrow money right now,Cloutier said. They are not interested in borrowing. Theyare very nervous.

Most of our customers and the new people are verynervous about taking on any new debt, he added.

He said its almost like getting a 1-year-old to eat his peas.His customers just dont want to take on any new risk.

Weve got plenty of money to lend, wed love to lend,he said.

There are some large banks that have received TARPfunds and increased their lending, but not many.

SunTrust, which received $4.9 billion in TARP funds, isone bank that did increase lending.

We have said consistently and publicly that we are inbusiness to make good loans to creditworthy borrowers.

We are out there every day in the marketplace, in a verydifficult economic environment, seeking opportunitiesto do that; the loan growth reported in our fourth quarterresults reflects those efforts, Barry Koling, a spokesman

for SunTrust, said in an e-mail.

BB&T has also increased lending.

In the spirit of TARP, our aim has been to target areaswith liquidity and funding challenges that are beyond ourbanking network, spokesman Bob Denham said in ane-mail. BB&T has been able to provide commercial andindustrial loans, auto finance for consumers, insurancepremium finance for small businesses, and commercialand small business equipment finance.

Tiny Banks Lending Large | ABC NEWS Business Unit February 4, 2009

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