By Don Shilling
The bank president is wary of future restrictions the government could enact.
WARREN — The parent company of First Place Bank has been approved for a $75 million investment from the federal government.
The money is part of the $700 billion approved last year to loosen the nation’s credit markets. The first half of the money was used to shore up big financial companies that were in trouble. The rest is being used to boost the lending capacity of healthy institutions.
“This is not a bailout,” said Steven Lewis, First Place president and chief executive.
He said the bank is considered well capitalized by regulatory standards and noted that Bank Director magazine named First Place to its annual list of Top 150 Bank Performers for the second straight year.
The board of Warren-based First Place Financial Corp. has 30 days to consider whether to accept the money and issue preferred stock that would pay the U.S. Treasury 5 percent annual interest.
It’s not an easy call, Lewis said.
The government money comes with restrictions but could help the bank grow, he said.
Lewis said he is most concerned about unknown restrictions that could be added to the contract later. The contract says the government can change the rules of the agreement as it sees fit.
“That means we would be taking on a shareholder, and that’s what the government would be, and it could behave irrationally if it wants to,” he said.
Current restrictions include limiting executive pay to $500,000 a year and limits on dividend payments.
Lewis said the pay restrictions would not be a factor. As the top earner at First Place last year, Lewis received $378,000 in total compensation in the bank’s most recent fiscal year.
The restrictions would limit the bank to paying the dividend that it was paying Oct. 14. It was paying 34 cents a share then but has since cut the dividend to 1 cent.
On the plus side, the money could help the bank be more aggressive in lending and a larger help to the community, Lewis said.
Most likely, First Place would not lend the government money directly because that would be a money-losing proposition, he said.
The bank has to pay the government 5 percent interest, meaning it would have to charge more than 7.5 percent interest to borrowers to pay for taxes and the cost of loans that go bad, he said. Developing a loan portfolio with those interest rates wouldn’t be practical in today’s low-interest environment, he said.
It would be better to use the federal investment to meet the capital requirements needed to borrow other funds or use it to increase deposits, Lewis said. The bank could then use those borrowed funds or the new deposits as loan sources that it could earn a profit on, he said.
The bank could increase its deposits in a variety of ways, such as building a new branch or loan production office, buying another bank or investing in technology that would increase business, he said.
He pointed to a troubled Columbus bank that recently sold five branches that had $600 million in deposits. The company that acquired those branches could then turn around and lend money based on those deposits, he said.
The federal investment calls for the money to be repaid within 10 years. After the first five years, the interest rate increases to 9 percent.
The government also would receive warrants that would allow it to buy $11.3 million in common stock at a later time. The price of that stock would be based on the closing price when the preferred stock is issued.
The option of buying the stock at that price would allow the government to benefit if the bank’s stock price rises.
First Place has about 17 million outstanding shares of common stock, which closed Thursday at $3.19, up 22 cents. It has traded at between $2.11 and $14.90 in the past year.
Last month, F.N.B. Corp. of Hermitage, Pa., announced that it was accepting $100 million in investment from the U.S. Treasury. It had been approved for $180 million.
F.N.B., which is the parent of First National Bank of Pennsylvania, said it would use the money to support its regular operations.