RGJ (Reno Gazette Journal)     March 14, 2009
Heritage Bank declines federal bailout funds
By Michael martinez
mmartinez@rgj.com 

Heritage Bank of Nevada has declined an $8.6 million "bailout" offer under the Emergency Economic Stabilization Act of 2008, citing the bank's healthy capitalization and the high interest rate that accompanies the federal dollars.

The bank successfully applied to the U.S. Treasury Department for the federal Capital Purchase Program late last year and was accepted within about three weeks, Heritage President Stan Wilmoth said Friday. But he said after reviewing the terms of the bailout offer and the relative strength of the bank, "we decided we didn't need it."

"To do what the president is asking banks to do, which is to lend more money, we would have to pay more money than the market rate," Wilmoth said.

He said the money, which would have to be paid back in five years, is supposed to be 5 percent interest during that period and 9 percent per year thereafter. In order to make a loan profitable for the bank, customers would be charged more. 

After reviewing the bank's growth and income projects for 2009, coupled with its current capital adequacy, Heritage's board of directors decided against accepting the money, Wilmoth said.

Wilmoth said Heritage is capitalized to about 13 percent and that "8 percent is usually good."

Economist Elliot Parker, a University of Nevada, Reno professor, concurred, noting that the current interest rate for bank borrowing is less than 1 percent.

Parker said that the bailout money is not for banks confident they have enough to borrow at the market rate.

"If you have enough capital, your probably are able borrow at the market rate," Parker said. "This is mainly for banks without enough capital to cover a regular loan."

Risky signals

"These are institutions that may have engaged in risky subprime loans and derivatives," he said.

He said that accepting the bailout money "sends a subtle signal that you might have engaged in some of that risky behavior like buying credit defaults."

Wilmoth in previous interviews has maintained that Heritage did not jump into the mortgage business with the same zeal as other banks.

He added that the customer base has grown between 8 percent to 10 percent.

"It's about 50-50 individuals to businesses" Wilmoth said. "In terms of money, about 75 percent comes from our business customers."

"We believe we have a good mix of deposits and loans," he said. "We'll try to help our customers anyway we can. ... This is an opportunity for us to prove what we say, that it's not about your bank, it's about your banker.

"And No. 2, we're a community bank with local control and don't want the federal government to dictate terms to our customers."