Simsbury Bank’s TARP refi sweet on paper

Farmington Valley lender SBT Bancorp's partnership with federal taxpayers to boost small business lending offers benefits for both sides, authorities say.

The parent of Simsbury Bank & Trust Co. last Friday emerged as one of the first U.S. banks to cement a TARP refinancing arrangement that provides a low-cost source of capital in return for filling up its small-business loan pipeline, according to the bank's regulatory filing and its chief financial officer.

SBT obtained its $9.2 million capital infusion through the U.S. Treasury's reworked Small Business Lending Fund.

Another Connecticut lender, BNC Financial Group Inc. -- parent of The Bank of New Canaan and The Bank of Fairfield -- was granted $11 million.

The $30 billion fund is part of the Small Business Jobs Act of 2010 that was created to encourage lending to small business by providing capital to qualified community banks with assets of less than $10 billion.

In effect, the Treasury's replacement for its Troubled Asset Recovery Program provides a cheap source of funds the banks are mandated to leverage into small-business loans. Terms of the loan fund allow SBT to repay taxpayers a quarterly dividend as small as 1 percent once Simsbury Bank's small-business loan portfolio reaches $9 million, said SBT Finance Chief Anthony Bisceglio.

Dividend-payment terms are the same for BNC, although it has different loan thresholds to meet, authorities say.

That means the more small business loans it makes, the lower the dividend it owes federal taxpayers, Bisceglio said. The dividend interest starts at 5 percent and falls proportionate to the volume of small business loans it issues.

As of Monday, SBT had issued about $6 million toward its $9 million goal of small business loans, Bisceglio said. The bank expects to hit its $9 million threshold by the first quarter of 2012.

Better still, terms of the new capital arrangement are less onerous than the conditions that accompanied the TARP funding, he said. For instance, TARP limited how much compensation recipients' top executives could receive.

"It's a great benefit to the bank, to the shareholders, to the community.'' Bisceglio said.

There is no maturity date for the investment and SBT can call its special preferred shares for redemption at any time, the SEC filing states. However, at the end of the 4 ½-year term of the funding, the dividend interest rate escalates to 9 percent.

"That's an incentive to pay it off at that point,'' Bisceglio said.