DBJ... Banks sill owe billions in TARP funds

From Dayton Business Journal…

Banks still owe billions in unpaid TARP funds

by Ginger Christ , DBJ Staff Reporter

Monday, December 20, 2010

More than three-quarters of Ohio banks that borrowed money from the federal government through the Troubled Asset Relief Program, or TARP, have yet to repay the loans, leaving a $7.6 billion balance hanging over the state’s banking industry.

Of the five Ohio banks that operate in the Dayton region, only two — LCNB Corp. of Lebanon and First Financial Bancorp of Cincinnati — squared away their TARP debt. LCNB (NASDAQ: LCNB) in October 2009 repaid its $13.4 million loan and First Financial (NASDAQ: FFBC) in February repaid the $80 million it borrowed.

In total, 17 Ohio banks participated in TARP, borrowing $7.8 billion. Fourteen state banks have yet to repay TARP funds.

(Click here for database of all TARP funds borrowed by 700 banks nationwide and how much has been repaid.)

In November, banks paid the U.S. Treasury $750 million in TARP dividends.

Ohio banks still indebted include: Cincinnati-based Fifth Third Bancorp (NASDAQ: FITB), $3.4 billion; Columbus-based Huntington Bancshares (NASDAQ: HBAN), $1.4 billion; and Dayton-based TCNB Financial Corp., $2 million. However, Huntington on Thursday said it plans to make good on its $1.4 billion debt to the federal government by year end.

While the majority of TARP funds borrowed by Ohio banks hasn’t been repaid, nationally it is a different story. Roughly 80 percent of the TARP money, or $165 billion, has been repaid, with $38 billion yet to be collected. However more than 600 of the 700 banks nationwide have not repaid TARP funds. A number of the national players with a Dayton presence already have covered the TARP investments, such as:

• Charlotte-based Bank of America Corporation (NYSE: BAC) in December 2009 repaid $15 billion;

• Pittsburgh-based PNC (NYSE: PNC) in February repaid $7.6 billion;

• Minneapolis-based U.S. Bancorp (NYSE: USB) in June 2009 repaid its $6.6 billion loan; and

• JPMorgan Chase & Co. (NYSE: JPM) in June 2009 repaid $25 billion.

No timeline requirement exists for banks to repay the TARP funds the U.S. Treasury invested in their companies in 2008 and 2009. The funds were part of a federal effort to stabilize financial institutions and offset the downward spiral of the economy. But, for banks such as Columbus-based Huntington Bancshares, eliminating an encumbrance to the government gives the company more freedom, Dayton president Ron Cloyd said.

“We’re comfortable with our own financial strength. There really is no deadline for repayment. It’s more about, ‘when is the economy right?’” Cloyd said.

If Huntington does repay the government soon, the bank will be the first of the three top borrowers in the state to do so. The money loaned to those three financial institutions — Huntington, Cleveland-based KeyCorp (NYSE: KEY) and Fifth Third — represents 93 percent of the TARP funds invested in the state.

Fifth Third CEO Kevin Kabat has said the bank does not need the TARP money, but will use patience in paying it back. Earlier this year Kabat said Fifth Third would repay the money by the end of the year, but later softened that stance.

LCNB president Steve Foster said his bank, which was the second in the state to repay its loan — looked to quickly cover its debt to the government because the strings attached to the funds became “onerous.” LCNB, despite its financial stability, initially accepted the federal bailout funds because it thought the capital would help the bank continue its lending practices during the downturn in the economy.

“To be honest, it was pretty scary times,” Foster said of the economic climate in 2008. “No one knew where the economy was going to go.”

However, loan requests significantly dropped in the subsequent months, giving LCNB little reason to keep the funds and continue to make dividends and interest payments to the government.

“The community banks were not into subprime lending, not into some of the riskier lending that hurt some of the larger banks,” Foster said. “We weathered that very well. We were in good shape.”