More adept now at tapping capital, a small but significant number of community banks in the hardest-hit states like California, Georgia and Illinois are escaping from the Troubled Asset Relief Program.
Officials at these banks concede that the Capital Purchase Program worked as intended and produced some loan growth. But they also expressed relief that they could finally shed the stigma closely associated with the government's "bailout."
The most difficult part about participating in Tarp "was the bait-and-switch that occurred, really," said Edward Wehmer, the president and chief executive at Wintrust Financial Corp., referring to the government's shift away from a more benign initial positioning.
"We could have ridden this thing throughout the recession without those funds."
The $14 billion-asset Wintrust is the second community bank in Illinois to fully leave Tarp, paying the Treasury Department $251.3 million in December.
Illinois joins 30 other states with small banks that have fully redeemed Tarp, with most of those exits starting late last year, according to data from SNL Financial in Charlottesville, Va.
"It's a sign of strength," said Derek Cunningham, a managing director at Commerce Street Capital. For consumers, "it makes you feel good about the institution."
As of March 10, just 86 banks of the 673 Tarp participants with assets of less than $20 billion had fully repaid the Treasury Department.
Most Tarp-free bankers largely shared the same sentiment as Wehmer. They elected to join Tarp at a time when the healthiest banks were allowed to participate. But by early 2009, the public perceived the program as an industry bailout. It didn't help healthy banks when some of the program's participants failed.
"We were happy to be a part of the program, but we were also very happy to pay it off," said Mark Tipton, the chairman and chief executive at Georgia Commerce Bank in Atlanta.
The $395.4 million-asset bank became the first in the state to redeem its preferred shares, paying $9.1 million in mid-February after raising $21 million. Industry bailout or not, the program helped loans at Tipton's bank grow by 13%, or $50 million, since February 2009.
Among the states where community banks have redeemed Tarp funds, California has been the most active. Ten banks have paid the funds off there. But California also had far more participants remaining, 59 small banks, according to SNL.
Most recently, Bridge Capital Holdings in San Jose, Calif., said on Feb. 14 that it had repaid its $24 million in Tarp funds following a $30 million private placement last November. Bridge Capital's chief executive and president, Daniel Myers, said that the company paid Tarp off because it felt as though the economic cycle had bottomed out following early signs of recovery.
"Particularly in the Silicon Valley, we saw the market was starting to take shape in the fourth quarter of 2010," Myers said, specifically pointing to technology companies.
"We believed the market was not exposed to as much potential downside going forward as it had been the last three years," Myers added.
At the $990 million-asset Bridge Bank, loans outstanding grew by 13% last year.
Nationwide, there are 587 community banks that have yet to repay the Treasury and exit the program.
Most of the delays take place because banking companies cannot take the hit to their capital ratios, and dilution still threatens banks considering raising common stock to help pay off Tarp, industry experts said.
The time it can take to raise capital and get regulatory approval has also contributed to delays.
"I find the whole process somewhat bass-ackwards," Wehmer said.
"We filled out two lines on two pieces of paper to get $250 million," Wehmer said. But getting approval to get out of the government program "took three and a half months and we probably put three feet of binders at the regulators' feet … and then the Treasury said we could only repay on Wednesdays."
Observers said that shareholders have been much more likely to invest new capital when the banking company says a proposed raise is designed to pay off and get out of Tarp.
"Most shareholders realize that they would rather have a smaller piece of a big pie rather than a bigger piece of a small pie, or no pie at all … then you can't taste anything," Cunningham said.
Cunningham expects more capital raises later this year for the purposes of paying back Tarp funds. "From a 10,000-foot view, a majority of the Tarp banks are in a healthy situation and will pay it off," he said.