Many Va. banks shun TARP deal

By: Carol Hazard | Times-Dispatch
Published: March 01, 2009

Plenty of banks are taking the U.S. government's offer of money, bolstering their capital levels to make new loans.

But most of the state-chartered banks in Virginia aren't interested in the Capital Purchase Program, which is part of the Treasury Department's Troubled Asset Relief Program.

In all, 42 of Virginia's 83 banks applied for the money, but only 16 have accepted it, according to the state Bureau of Financial Institutions. Some have backed out, and others are pondering whether to accept the money.

"It did not make sense for us," said Jeffrey M. Szyperski, chairman and chief executive of Chesapeake Financial Shares Inc., which operates 11 offices on the Northern Neck and Middle Peninsula and four in Williamsburg.

"We currently have strong capital and are coming off the best earnings year in the history of the bank." The bank also found some of the program's details troublesome, he said.

The Treasury, as part of the program, is buying up to $250 billion of preferred stock in banks. It also receives warrants enabling it to purchase even more stock in any given bank.

. . .

As a banker, Szyperski said he likes knowing who he is doing business with. He said he was uncomfortable with the uncertainty involved in the government's stake in the bank.

As part of the TARP deal, the Treasury can transfer or sell the stock to a third party at any time, he said. "Someone else in theory could buy the bank."

Also, the government has the ability to unilaterally modify the contract any time after signing, Szyperski said.

"We really don't want the government in our business . . . or in our boardroom," said Richard M. Liles, president and chief executive of the Bank of McKenney, which has branches in Chesterfield County, Colonial Heights, Dinwiddie County and Prince George County.

Bank of Virginia has received preliminary approval for $5 million. But no decision has been made about whether the Midlothian-based bank will accept the money, said Frank Bell III, president and chief executive.

"It would be a nice cushion," Bell said. These are challenging times for bank earnings, he said. "The issue we see is the rules keep changing."

Besides, Bank of Virginia is well capitalized with $201 million in total assets. Loans are not a problem, he said. "Our loan volume remains extremely strong."

. . .

Quentin L. Corbett, president of Peoples Bank of Virginia in Richmond, said his bank did not apply for TARP because there was nowhere to put the money.

"We have $15 million to $20 million sitting at the Fed that we are ready to lend. We are just not getting any applications. People are not borrowing. We are looking for good loans."

Plus, the TARP money is expensive, Corbett said. The preferred shares pay the government a 5 percent dividend the first five years and 9 percent annually thereafter, unless the shares are redeemed.

Thomas W. Winfree, president and chief executive officer of Village Bank and Trust Financial Corp. in Midlothian, said he hasn't heard yet whether the bank has been approved for $14.7 million.

"We know more about it than when we applied for the money in October," he said. "We are not sure now whether we will accept it. It comes with strings attached and a pretty hefty after-tax cost with the dividend payments."

Bruce Whitehurst, president and chief executive officer of the Virginia Bankers Association, said the Capital Purchase Program is not bailout money. Only two banks, Citigroup and Bank of America, have received bailouts.

Capital Purchase money is available only to healthy banks that are well capitalized, giving them leverage for more growth in deposits so they can make more loans, he said.

"What they should or shouldn't do is up to each bank."

Contact Carol Hazard at (804) 775-8023 or chazard@timesdispatch.com.