IMCB to keep $27M in federal funds

SANDPOINT — Last Monday, President Obama dressed down top executives from Bank of America, U.S. Bancorp and other lending institutions and told them to cut loose with the taxpayer money that hauled them back from the brink of financial ruin this year. After being rescued from a collapse that was “of their own making,” he told the bankers, they now have an obligation to put that money to work in the form of small business loans that are needed to jump-start the economy.

Hours earlier, Citigroup became the latest banking giant to announce it would pay the money back, rather than pay it out. After being buried in the fallout from making bad loans in a red-hot real estate environment, Citigroup gladly stepped up to collect its $45 billion in federal money from the Treasury Department.

The increased level of federal scrutiny and regulation that came along with the deal was too much for the bank, however, and it announced it was handing back $20 billion in an effort to avoid government influence over controversial matters such as employee compensation and executive bonuses.

Here in Sandpoint, Inter-mountain Community Bancorp said it will hold on to the $27 million it received from the federal government in early 2009.

IMCB is way down on the long list of TARP recipients — one of four banks in Idaho to receive the funds and the largest recipient in the Gem State, its share represents less than one-tenth of 1 percent of the total funds the Treasury Department doled out when the $700 billion Troubled Asset Relief Program was hastily passed and put into place by the Bush Administration.

According to Curt Hecker, IMCB’s president and chief executive officer, the federal money his bank received is playing a big part in local stimulus programs offered through the network of 20 regional banks that make up the Sandpoint-headquartered corporation. Those programs, which involve bank employees as volunteers, have placed $1.2 million into economic development and community organizations so far this year, according to Hecker.

Through the end of November, he added, IMCB had loaned more than $470 million in 2009 throughout the markets it serves in Idaho, Washington and Oregon.

During an interview on Wednesday, Hecker discussed his initial reasoning for accepting the TARP funds, as well as his rationale for continuing to use it. He also talked about why he believes no bank should be allowed to become “too big too fail” and how the federal government’s new regulations — despite the president’s own wishes — might be throttling down smaller lenders’ ability to infuse business loans into the economy.

Almost exactly a year ago, you were trying to decide whether or not to take $27 million from the government. A year down the road, what’s your take on the decision you made to accept that money?

A year down the road, it was definitely the right decision, given the severity of the economic crisis. Without being able to utilize those funds, we wouldn’t have had the success we have had with our Powered by Community initiative. We have been able to continue to use those funds and keep the bank in a safe position as we navigate these troubled waters.

Any plans for IMCB to pay the money back to the government earlier than planned?

No, we’re going to put it to use. I still think the crisis exists for this year and then there’s going to be a recovery time period. We need to continue to deploy dollars into the community, so until we see a recovery that’s stronger than it is right now, it would not be prudent for us to repay those dollars.

You’re seeing the headlines now that some of the larger banks are paying that TARP money back, but that’s not because of profitability — they’re doing capital raises (selling stock) to repay it.

The whole issue is surrounding “too big to fail,” which got us into this mess. And we continue to go down that path of the large banks getting even larger, which is scary, from my standpoint.

You’ve been a vocal opponent of banks being “too big to fail.. Do you see anything in the way of proposed regulation that leads you to believe the government will address that situation?

Right now, I have my doubts. There has been legislation discussed and bills that have been written that really haven’t gone anywhere. We continue to get lots of new regulation on consumer protection issues and also the consolidation of all the regulators into one “master regulator,” which is just making government bigger, from that standpoint.

My overall concern is that we’re not addressing the problem that originally got us to this point and, in fact, may be exacerbating the problem as we’ve seen about 130 banks to-date this year that have failed. The bulk of those banks have been acquired or pulled back into the larger banks again. So we’re seeing a mass consolidation.

Let me understand what you’re saying — the big banks that created these problems are still getting bigger and the government’s regulatory arm is getting bigger, as well?

That’s right. Obviously, I’m tilted in favor of what goes on in our communities. We can talk all day about how banking in the United States works, but I’m worried about Sandpoint, Coeur d’Alene, Bonners Ferry and Priest River and what type of help our communities are seeing as a result of this.

On the grand scale, Wall Street banks are getting the benefits and Main Street America is not getting its fair shake.

Let’s get back to TARP money — is there a way to pin down how much of that $27 million has gone out in the form of business loans and other local stimulus?

That is a really hard question and one of the biggest problems in trying to explain TARP, because it goes into the capital accounts of banks. We have to maintain capital ratios to keep the bank in a safe and sound position, which we’ve done.

We have had losses and our customers have had a lot of economic problems throughout the year, so the way that TARP money is being used is to work with our existing customer base to work them out of what I’ll call the “old economy.. In 2005, when we saw the peak of the economy, real estate prices were very high and seemed to just continue to be going up. We all felt that the economy was reasonably stable at that point.

The reality today is that we’ve got a “new economy” that has significantly lower values and a lot of deflation within it. In that conversion process, we have an old economy that we really can’t lend into and we’re trying to get our customers into a new economy with lower price sets. That’s where we’re trying to use those TARP funds.

That makes sense, but let me ask it a different way: Once you get the TARP money into the bank as capital, it becomes bank money. Is some of that money being used in the Powered by Community programs?

Yes. We have about 100 different Powered by Community projects that we’re working on throughout the bank and they hit on civic, cultural and social issues, as well as direct-to-business and banking issues. They’re comprehensive in scope.

We’re also focusing dollars to support the economic development councils in virtually every one of our communities. We’ve created hubs and marketed directly to our local community businesses in order to pool resources and education and we’ve done a lot of separate town hall meetings to encourage collaboration between businesses.

We’ve worked with educational training for literacy programs and seminars on coaching and networking for the non-profit sectors and we’ve been putting on technology seminars for businesses throughout the state and helped provide additional IT infrastructure to small businesses.

On the giving front, we’re putting in new platforms to provide support for crisis shelters to help people who are in dire need and we’ve continued our work with affordable housing and financial education.

On the lending side, we’ve had a real big emphasis on utilizing the Small Business Administration, as well as the USDA and the FHA, in some really great ways to be able to get more dollars and get more loans out to help some of our smaller businesses in problem situations.

The president gave big bank execs a pretty stern lecture earlier this week. But is it really possible for banks to flow that money right into the economy, or is the federal government somewhat naïve when it comes to the complexities of financial markets?

I don’t want to say they’re naïve — I’ll use the term “paradox.”  The government’s regulatory issues have created a paradox where we have the Treasury on one side needing to justify the TARP monies and account for how it has been spent and the FDIC on the other side, where you have a significant tightening of the underwriting standards and requirements for higher capital levels to be maintained within the banking system.

So banks are being regulated on both sides, creating a very thin line. Obviously, we want to lend money into our communities and be able to spur economic development and make those improvements, but at the same time, we need to make safe and sound loans, which is much more difficult in a troubled environment.

Is that a line that can be walked. Can loans still be made in that environment?

Yes, yes they can. I liken it to the analogy of the old economy and the new economy. It’s a cycle that we have to go through to make that happen. I think we’re in a better position today than we were a year ago. One year ago today, we were in a position where banks weren’t even able to make loans between one another. Today, that problem has gone away and the old economy of 2005 has gone away. But I would say we’re in the middle of making the conversion from the old to the new economy. We can make loans as we work with our borrowers and talk about new valuations and creative ideas that make sense in today’s environment.

What has changed in the overall economy since you decided to accept the TARP money a year ago?

What has changed is that we have a much stronger grip on the reality of the problems. A year ago, I saw a lot of denial about just how bad the crisis was going to be. Today, I see that people are accepting the crisis and hitting the conflicts head-on and dealing with it.

I see action happening now, so I’m much more positive. Even though 2010 is still going to be a very, very difficult year and our recovery from this crisis probably won’t begin, significantly, until 2011 and 2012, I see people are dealing with it and working through it.

I also get a sense that traditional values like pragmatism and frugality are being accepted and it’s a way of living now. And I see that as really positive for our communities and the country as a whole.