PSB among banks receiving CPP funds

SANDPOINT — Panhandle State Bank received $27 million in December as part of government's Capital Purchase Program.

It was one of three Idaho banks to receive money under the Treasury Department's CPP portion of the Troubled Asset Relief Program. Only banks that were considered healthy qualified for CPP money.

Even though Idaho's largest community bank system, with assets topping $1 billion, is well capitalized and very secure, CEO Curt Hecker viewed the CPP money as a low-interest loan and not taking the money would have put the bank "at a competitive disadvantage."

"We loan approximately $60 million of new money a month so this infusion of cash wouldn't help us if we mismanaged it," he said. "The country would be very disappointed if we loaned the entire $27 million for one loan even though we easily could do that."

Instead, Panhandle State Bank plans to use the money as leverage to help multiply the number and amount of loans it can make. The funds also provided the impetus to reinvest in PSB's many customers and many communities.

The bank has been revisiting existing commercial accounts to see if they need money. PSB is also restructuring existing loans.

"Some businesses took out loans 12-18 months ago and now the asset is appraised at 20 percent of what it was back then," Hecker said. "It is time to revisit that loan to help out the business."

Unfortunately, loan demand for credit worthy businesses is down while the opposite is true. People and businesses with credit and payment issues have increased applications.

"We have to make good loans," Hecker said. "We have always been very conscious of that and that is why we are in good shape."

Many people are confused about the TARP money and some misrepresent the cash as a bailout. In PSB's case, it is not true.

While some of the multibillion dollar banks, like Citi Bank and Wells Fargo, received bailout money, a good portion of the federal money went to help prop up well-run banks that had seen loan activity money slow to a trickle. In addition to that, there was less money for the banks to borrow at affordable rates to turn around and loan out.

"We are accountable to the federal government and our stockholders to use this money wisely," Hecker said. "We are tracking how we use the money because we know the public demands accountability."

Hecker is aware of the national publicity that has tagged the TARP and CPP funds as a bailout and that banks are being accused of hoarding the money and not lending it out.

For Hecker it makes good business sense to loan that money out to help prop up the local economy.

The CPP funds basically purchased preferred stock in the bank. As a result the bank borrowed the $27 million at 5 percent interest, if the money is paid back in five years. The interest jumps up to 9 percent after that.

The same amount of money would have cost the bank 10 to 12 percent right now.

"We are getting a deal on this money," Hecker said. "That is why we want to maximize what we can do with it."

If the bank's stock rises from what it was purchased at, the government could sell it later and make even more of a profit in the transaction. The profit would go back to the taxpayers.

The board of directors and a majority of shareholders voted to accept the funds in December.

The bank is set to introduce some intiatives February in its communities to help nonprofit organizations.

Panhandle State Bank was founded in 1981 in Sandpoint. Today, it has 17 branches in three states.