One of the macroeconomic narratives of the past year has been that banks aren’t lending because they don’t see enough demand from companies. But there are a good number of Nashville-area institutions that are proving otherwise — and four of them are doing so with the help of more than $36 million from the U.S. Treasury.
In September 2011, government officials pumped millions into the parent companies of Avenue Bank, Franklin Synergy Bank, InsBank and Sumner Bank & Trust under the auspices of the Small Business Lending Fund. That program aimed to stimulate the flow of money to ambitious small businesses that had been largely frozen out of the banking sector following the real estate bust and the ensuing recession that rocked the financial system.
The Small Business Lending Fund had its critics when it was rolled out. Some market watchers tagged it “TARP II” and wondered why the government was, as they saw it, meddling once more in the banking sector, skewing the market by creating another class of haves and have-nots. But whereas TARP aimed to strengthen the banks themselves, the SBLF sought out healthier lenders and aimed to get money to Main Street by linking loan growth to the cost of the banks’ new capital: The more they lent, the less they would have to pay.
In all, Treasury officials have invested about $4 billion in 332 banks throughout the country. By way of comparison, the government invested $787 billion under the TARP umbrella. As of Sept. 30 of last year — Q4 numbers will be made public next month — those 300-plus institutions had boosted their small-business lending by $7.4 billion since the program’s mid-2010 starting point. Four out of five banks had grown their small-biz books, defined as any loan under $10 million to a business with revenues of up to $50 million, by at least 10 percent.
Even though some area players, most notably Terry Turner at Pinnacle Financial Partners, demurred on taking the Treasury’s cash, 17 Tennessee banks are participating in the SBLF. Six of those, including Avenue, Franklin Synergy and InsBank, have grown their small-biz lending twice as fast as the 20 percent national average.
“The capital has been part of allowing us to continue to grow at a decent pace,” said Jim Rieniets, president and CEO of InsBank. “It wasn’t too hard to evaluate the program and see that it makes sense for all parties involved.”
Andy Moats, chief credit officer at Avenue, echoed that sentiment, adding that the capital has helped his team stay aggressive as the economy has begun to rebound. From mid-2010 through September 2012, Avenue grew its lending to small companies by $41 million.
“It’s been a perfect fit from Day One,” Moats said.
And at Franklin Synergy, the bank’s president and CEO Richard Herrington says the Treasury’s money has been a big part of his strategy to grow business loans and take advantage of Williamson County’s continuing prosperity. As a bonus, the low cost of SBLF capital means loans made under the program are more profitable than regular ones. Some of those extra earnings make their way to the banks’ capital ratios, providing more fuel for growth.
“Not a lot of times do we get programs from Washington that are accretive,” Herrington said. “This one has been accretive.”
With their loan strategy ticking along, SBLF-backed bankers can begin to think about the time when they will need to replace the government’s capital. The interest rate on SBLF money will jump to an unpalatable 9 percent in March 2016, which means other capital will be needed to take its place before then.
“This is interim capital,” Herrington said. “Most of us in community banking haven’t been in this position.”
But Herrington, Rieniets, Moats and the other bankers who took SBLF money could have another potential advantage when it comes to replacing the Treasury’s money. Sweeping new regulatory mechanisms such as the Dodd-Frank reform law and the launch of the Consumer Financial Protection Bureau have frustrated many community bankers and kept numerous potential investors on the sidelines. Many rules still need to be written and refined, which has created a lot of uncertainty.
Those with SBLF capital have time to let those matters play out while still pursuing their growth plans. And when the time comes to replace the SBLF money, investors will know more about the lay of the land and the banks will have a more compelling story to tell.