BIZ BEAT: Wisconsin Banks Pay Off TARP With Government Funds

NOTE: The following story first appeared on WISC-TV. It combines U.S. Treasury data and local insight for a snapshot of Madison-area banks’ health nearly three years after receiving federal aid.

MADISON — Three Wisconsin banks have paid back government money with funds meant for small-business lending, but the banks said it’s justified.

The Troubled Asset Relief Program, or TARP, started in 2008 to help banks get through the recession and eventually lent more than $2.6 billion to 21 Wisconsin banks. Only six have paid the money back, with the rest either unable or in no hurry to do the same.

The Bank of Deerfield was among the financial institutions that used money it received from the Small Business Lending Fund to pay back TARP, according to U.S. Treasury data.

“We were looking at paying it off regardless of whether or not we received Small Business Lending Funds and we had the ability to do so,” Bank of Deerfield President Sigurd Bringe said. “To get (SBLF) funding, we had to provide a business plan in terms of how we were going to utilize that money to increase our business lending in our communities.”

Its parent company, Deerfield Financial Corporation, paid off its $2.64 million TARP loan Sept. 8. Two other banks, Nicolet National Bank in Green Bay and Pigeon Falls State Bank in Pigeon Falls, also used small-business funds to pay back $15 million and $1.5 million in TARP loans, respectively, records indicate.

The plan makes sense because it allows the three banks to break free of TARP’s restrictions, such as limits on executive compensation and transparency requirements, University of Wisconsin-Madison finance professor Ken Kavajecz said.

“You’ve switched incentives on these banks from, ‘I can’t pay my executives. I have a lot of oversight on what I’m doing,’ to now, ‘My objective is really to lend to small businesses,’” Kavajecz said. “Which we know are the most dynamic part of the labor market.”

He said the three banks could lower their quarterly dividend payment to the government from 5 percent to 1 percent if they follow through with lending to small businesses. If they don’t, “they are on the hook” for an even higher payment rate, Kavajecz said.

As those banks clean their balance sheets of TARP money, 15 Wisconsin banks still hold the money. The list includes two Madison-based institutions, Anchor Bank and Park Bank. Anchor owes $110 million, while Park has $23.2 million in TARP loans.

Anchor won’t pay the money back anytime soon because the government has ordered it not to. The bank has missed 10 consecutive dividend payments as it fixes its lending practices and previous troubled loans, said Mark Timmerman, Anchor BanCorp’s executive vice president.

Anchor faces the government placing people on its board of directors as a result, Kavajecz said.”There are repercussions. They are stark. They are important,” he said. “So, if a bank can avoid those, they will.”

Park Bank is sticking to its plan to repay TARP money over five years, Chief Executive Jim Hegenbarth said in a statement.

Neither Park nor Anchor will consider using Small Business Lending Fund money to pay back TARP, leaders at both banks said.