TARP debt still saddles two Idaho banks

The rallying Idaho banking industry so far has left Syringa and Idaho Banking Co. behind.

zkyle@idahostatesman.comDecember 2, 2013 

Clarification: AmericanWest Bank and Sterling Savings Bank have had their regulator orders lifted in recent years. The original version of this story was unclear about whether or not the orders were still active.

Some of the banks that took the greatest losses during the recession have since recovered and expanded their networks. But the hard times have yet to end for Syringa Bank and Idaho Banking Co.

In 2009, the two Boise banks accepted nearly $15 million from the federal government’s Troubled Asset Relief Program, meant to keep loans flowing through banks as the recession slowed down their appetite for lending. For its money, the government received preferred stock in the banks.

Syringa and Idaho Banking Co. — which together have lost nearly $73 million since 2007 — haven’t bought back any of the stock or made any of the 5 percent dividend payments owed to the Treasury.

Now their bill from the government is about to get bigger. Repaying will become more costly when the dividends the banks owe increase to 9 percent starting Dec. 18.

TARP: A SHELTER FROM THE ECONOMIC STORM

In 2009, the U.S. banking industry was crumbling under the weight of billions in loans that turned bad when the real estate bubble burst. To stave off widespread closures, the Treasury pumped $245 billion into 707 U.S. banks, including four in Idaho: D.L. Evans Bank in Burley, Intermountain Community Bancorp in Sandpoint, and Syringa and Idaho Banking Co.

D.L. Evans Bank accepted $20 million in TARP money in 2009, the year it reported a $3.7 million loss. President and CEO John Evans III said TARP allowed the bank to continue lending during the bad years.

The bank repaid the Treasury’s $20 million plus $3.7 million in dividends in 2011 after accepting $30 million from another Treasury program, the Small Business Lending Fund, which was created to stimulate lending. D.L. Evans switched in order to take advantage of the second plan’s lower interest rate, which will drop from 5 percent to 3 percent Jan. 1. The fund provides for a rate decrease for institutions that increase lending by 6 percent in a year, a threshold D.L. Evans passed by building its loan portfolio to $630 million in 2013.

The bank reported a $6.9 million profit through the first three quarters of 2013. Evans said the TARP money spurred the turnaround. Since bank payments and dividends nationwide have brought in $28 billion more than the Treasury distributed, taxpayers have come out ahead, he said.

“(TARP) got a black eye in the press,” Evans said. “It was labeled as a bailout, but it wasn’t a bailout. It enabled us to expand.”

That’s because the banks needed the extra capital to meet regulatory requirements that they have enough money to remain solvent if some loans aren’t repaid. That money was all but impossible to raise privately in 2009, so the government stepped in as a lender of last resort.

Some banks delayed repaying TARP money because the 5 percent dividend rate made it a relatively cheap source of capital, said Peter Crabb, professor of finance and economics at Northwest Nazarene University in Nampa.

That may be the case for Intermountain Community Bancorp, the parent company of Intermountain Community Bank, Panhandle State Bank and Magic Valley Bank.

Intermountain reported a $6.9 million profit through three quarters. Yet the bank waited until last month to pay back the full $27 million TARP investment — then the 11th-highest outstanding TARP debt in the nation — in a single payment. Federal regulators asked to place an observer on Intermountain’s board of directors in 2011 after Intermountain missed 12 dividend payments totaling $4.1 million, but the bank successfully rejected the request after getting current on its payments.

Intermountain President and CEO Curt Hecker said repaying the $27 million all at once was always the leading plan among the options he considered. Paying back the TARP money before the dividend rate increases from 5 to 9 percent will save the bank about a million dollars next year, he said.

But TARP wasn’t the end of federal intervention for Idaho’s troubled banks.

UNDER THE FEDERAL THUMB

Five struggling Idaho banks signed consent orders from federal regulators agreeing to improve their financial stability or face enforcement actions.

The banks were Idaho First Bank in McCall, Bank of Idaho in Idaho Falls, The Farmer’s National Bank of Buhl, Syringa and Idaho Banking Co.

Several banks chartered in other states but operating in Idaho also signed consent orders, including Bank of the Cascades, Sterling Savings Bank and AmericanWest Bank.

Banks under orders are prohibited from changing executives, building new branches, offering new financial products or acquiring other banks.

“Basically, you are frozen in time until you improve your financial condition,” said Gavin Gee, director of the Idaho Department of Finance.

Several of the banks built up cash reserves, were released from orders and expanded aggressively.

Idaho First Bank of McCall, which was hit hard by the decline of the McCall tourism industry and housing market during the recession, had its order dropped this year. It is now opening a branch in Boise.

Bank of the Cascades was released from its consent order this year, too. It then doubled its assets by outbidding the much larger Banner Bank to buy Home Federal Bank of Nampa for $265.7 million.

Farmer’s, Syringa and Idaho Banking Co. are the only banks still under regulatory orders. Syringa and Idaho Banking Co. have federal observers assigned to keep tabs on their financial conditions.

ZOMBIE BANKS

Syringa and Idaho Banking Co. wouldn’t have survived without TARP money, said Crabb, the NNU economist.

“It was a liquidity crisis, a cash crunch,” Crabb said. “Even if they could have made new mortgage loans, they would have had to hold them on the books themselves, and they didn’t have any capital to do that.”

Idaho Banking Co. reported a $92,000 profit in its latest quarter, its first profit in more than four years. Syringa has reduced its losses from $27 million in 2009 to $1.7 million so far this year.

Still, a last-minute TARP payment that would save Idaho Banking Co. from paying higher dividend rates seems unlikely. The same holds true for Syringa.

The banks remain in a semiviable state, Crabb said. With TARP and the consent orders restricting them, they service their customers. They issue loans. But they can’t repay their debts. They cannot build branches or make other strategic moves.

Under the consent orders, they can’t even pay dividends to attract investors — a restriction that applies even to TARP, Gee said. That’s one reason why Syringa and Idaho Banking Co. have each missed all 16 quarterly TARP dividend payments.

Crabb said the government should have let the banks fail.

“You make enough money to keep the lights on, but you don’t do anything to generate profitability or to expand the economy,” he said. “That’s a zombie. That’s not really living.”

Neither bank returned calls requesting comment.

Zach Kyle: 377-6464 Twitter: @IDS_zachkyle

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