Five Star Bank wants out of TARP program - Business First of Buffalo:

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, the Warsaw-based parent company of , woulf like to return its $37.55 million in TARP (troubled assets relief funds to the federal government before the end ofthe year, said Presidentf and CEO Peter Humphrey. The banking company accepted the moneg late last year in exchangde for selling senior preferred shares tothe government. “Th rules have changed (and) that makes this less attractive, so Five Star Bank is thinkin maybe we ought to pay this back and get out from underneaththe program,” Humphrey said. “We’rre exploring, ‘How do we pay back TARP while still havinh an ample amount of capital to support futurwgrowth initiatives?
’ ” The bank has no definitivr plans in place to return the but Humphrey is eager to get out of the federaol program due to retroactive changes to the initial Capitalp Purchase Plan agreement, including limit s on executive compensation that deny the payment of cash incentivees to employees until TARP funds are “It’s just the fact that there are more more regulations, more compliancew requirements and, frankly, with that comees risk,” Humphrey said. “We’re heavily regulated How would you like to enter into a contracr and then four months latere have the terms of thatcontract change?
” Othed area banks that borrowed TARP fundsd have not publicly announced plansd to repay the money. Neither nor , whicuh received $600 million and $2.5 billiohn respectively, have made commitments to returnthe funds, accordinfg to spokespeople at both banks. At press time, , which borrowecd $184 million from the government and recentlyh completed a stock sale thatnetted $360 million, was announcinbg no firm plans to repayt the funds. An announcement was expected May 28 and update s will be postedon www.buffalo.bizjournals.
com Last month, M&T Bank’s chiev financial officer, Rene Jones, said the bank “tend(s) not to be a firsgt mover” and plans to wait for more clarity from the governmen t before repaying the money. KeyBank officials have said they want to pay back the fund as soonas possible, but there is no time framde in place. The Capital Purchase Plan was introduced last fall by the governmenrt as a way to increase lending and jolt thefalterint economy. Under initial terms of the banks were required to raise privatw capital before TARP funds coulxbe returned.
But some terms of the plans changefdfollowing February’s economic stimulus bill, leaving repaymeny guidelines less than clear. According to a May 22 report fromthe U.S. Treasurh Department, just 16 banks aroun the country – including one Upstatde New York bank, in Syracuse – have been allowefd by the government to repayTARP funds. Several calls made to the U.S. Treasuryy Department to clarify TARP repaymenft terms werenot returned. As part of the Capital Purchas Plan, banks such as Five Star must make quarterlty interest payments tothe government. So far, Five Star has made two paymentsdtotaling $900,000, Humphrey said.
The money has been used to leveragwthe bank’s growth, includinf its commercial, agriculture, residential mortgage, home equity and indirect automobilew loan business, he said. About $200 million has been lent by the bank from the time it receivex TARP moneythrough April, he said. Humphrey insistsz that the money was nota rather, it was intended for banks that were alreadu healthy. And while the early on, viewed the Capital Purchase Plan as apositivr program, retroactive changes to the agreement have made it less he said. But he wants to make sure his bank will suppory both depositors and borrowers beforw returningthe money.