Report: Florida's Banks and TARP

Mike Vogel | 7/1/2009

“There’s been a lot of misunderstanding about what TARP is about.” — C. Andrew Lawrence, CEO, Marine Bank & Trust, Vero Beach [Photo:Matt Dean]

Last year, as the recession deepened, David Bridgeman, CEO of Orange City-based Pinnacle Bank, didn’t like what he saw ahead. He says his bank was doing fine. But he and his board realized that Pinnacle — like plenty of other banks in Florida — would need more capital or would have to cut off lending if the recession continued too long.

The markets where bankers usually raise capital through stock offerings and the like were paralyzed, and so Bridgeman and Pinnacle turned to the only game in town, the Troubled Asset Relief Program created by Congress during the Bush administration (and now run by the Obama administration). Pinnacle applied for $4.4 million and got it in March.

Including Pinnacle, 100 Florida-based banks — roughly a third of the total — have applied for TARP funds. As of June, the Treasury has approved the applications of 18 banks that have borrowed a total of $223 million [“TARP in Florida”]. Most of the remaining 80 or so applications are pending.

Behind the numbers of applicants and non-applicants is a split between banks that see TARP money as an opportunity and those that shun it as dangerous business. Those CEOs who would comment about seeking TARP funds are unanimous that their banks are fundamentally healthy. TARP is borrowing, not a bailout, they say [“Payback”]. Some, like Bridgeman, are using their TARP money as a rainy day fund to continue lending. Others who borrowed TARP funds have used them to gobble up market share. All decry the stigma they believe TARP carries because of its association with the big, troubled banks, saying TARP was intended to keep healthy banks lending.

TARP: By the Numbers 1,800 — Number of institutions nationally that were initially eligible for TARP 100 — Florida-based financial institutions that have applied for TARP funds 18 — Florida-based institutions that have received TARP funds $223 million — Total TARP funds loaned to Florida banks 29th — Florida’s rank nationally in the amount of TARP funds received by its banks

Other Florida banks, however, have decided they want nothing to do with TARP — whose loans come with conditions that make the federal government a shareholder in the banks that borrow. The spirited split between TARP-seekers and TARP-avoiders was on display recently at a bankers meeting in New Orleans, says Ernest Pinner, CEO of CenterState Banks of Florida in Davenport. “Those who didn’t take it were saying how smart they were,” says Pinner, whose bank was the first in Florida approved for TARP, receiving $27.9 million in November.

While TARP’s impact on Florida’s overall economy is hard to assess, the next few years likely will reveal which bankers made the right choices: Will some bankers who avoided TARP money lose market share to those who took the risk of borrowing from the federal government and so had the capital to keep growing? Or will those free of part-federal ownership be more free to maneuver? And will all the banks who borrow TARP money be able to repay it as they plan within five years, or will some end up with the federal government as a business partner indefinitely? “It’s conceivable for some institutions there is no exit strategy,” says Rudy Schupp, CEO of 1st United Bank in Boca Raton, a TARP recipient.

Miami banking analyst and consultant Ken Thomas isn’t a fan of TARP. He says that when meeting with a bank’s directors, he writes on a board: “TARP = TRAP Desperate.” He tells directors to imagine an empty chair at their board table filled by Massachusetts Democratic Rep. Barney Frank. Because of the adverse publicity and government strings attached, “I generally recommend against doing it unless it’s absolutely critical,” says Thomas.

Concerns like those prompted Naples-based Bank of Florida to withdraw its TARP application this year, saying the program was being seen as a bailout of weak institutions rather than a way to help stronger banks lead local economic recoveries. The bank also cited the conditions the government attached to the funds [“Strings Attached”], potential costs and uncertainty whether the government might change the rules in midstream. In announcing the withdrawal, CEO Michael McMullan said TARP didn’t fit well with “our strategic initiatives, which include potential acquisitions,” and that the bank had sufficient access to capital without it.

Tags: Banking & Finance