BY KEITH BENMAN, Times of Northwest Indiana
kbenman@nwitimes.com
Some community banks in Northwest Indiana are beginning to consider applying for a piece of the U.S. Treasury's $700 billion bailout in order to expand branches, make more loans or strengthen balance sheets.
"There are a number of different ways you can use that money," said Centier Chief Executive Officer Michael Schrage. "It won't be a matter of just the weak banks using it."
Originally, region bankers were cool to the bailout program. But as larger banks snapped up the money, some local bankers said they realized they may need to take another look at the program to stay competitive.
Centier is considering applying for the U.S. Treasury funds to help finance branches in new markets in Indiana, Schrage said. The Treasury money would not be the deciding factor in the expansion, but it could accelerate it, Schrage said.
The Treasury makes the cash infusions by buying preferred stock in the banks. Banks then must pay a 5 percent dividend to the government for five years. At the end of that period, the interest rate kicks up to 9 percent.
Some 60 large publicly traded banks already have been approved for $149 billion in bailout funds, according to Reuters.
Region-based Peoples Bank is taking a good look at the U.S. Treasury program as an alternative for raising capital, CEO David Bochnowski said. However, the plan seems to have drawbacks, including that terms can be changed at any time by Congress or the Treasury.
"This black hole provision really puts anyone who takes TARP funds in an uncertain position," Bochnowski said, using the acronym for the Treasury rescue program.
Both Peoples Bank and Centier remain in strong financial health and do not need the Treasury's money to strengthen balance sheets, officials at the banks said.
Both banks have seen an increase in loan activity in recent months. Peoples Bank which is publicly traded, announced an 8.9 percent increase in quarterly earnings.
The bailout money has the potential to speed up the trend of merger and acquisition in the industry, said Joe DeHaven, CEO of the Indiana Bankers Association.
Whether that will reignite interest in mergers and acquisitions in Northwest Indiana remains to be seen, DeHaven said. In the past four years, three prominent local banks with historical roots in the region were swallowed up by larger banks.
Already, Pittsburgh-based PNC Financial Services Group has used a $7.7 billion bailout infusion to cement an agreement to buy Cleveland-based National City Bank. That means National City's 10 Northwest Indiana branches will switch to the PNC banner.
JP Morgan Chase, with 34 branches in the region, has received $25 billion in bailout funds. Fifth Third, with a dozen branches locally, has received approval to receive $3.45 billion.