Busey trades TARP obligation for a Small Business Lending Fund loan
CHAMPAIGN — First Busey Corp. is using one U.S. Treasury program to get out of another.
The parent company of Busey Bank announced Thursday it has exited the Treasury's Troubled Asset Relief Program, better known as TARP.
To enable that, First Busey decided to take part in the Treasury's Small Business Lending Fund, a program created last year to stimulate bank lending.
Here's a short history:
First Busey got a $100 million infusion of TARP money in March 2009 and in return issued $100 million of preferred stock to the Treasury.
The bank agreed to pay the Treasury dividends equal to 5 percent a year on that stock through March 2014. After that date, the dividends would have gone up to 9 percent a year.
To get out of its TARP obligation, First Busey paid the Treasury $27.4 million and agreed to let the Treasury's Small Business Lending Fund make a $72.6 million investment in First Busey.
In essence, the Treasury provides First Busey with capital by buying preferred stock in it. The company will initially pay dividends of 5 percent a year on that stock.
But if the bank's small-business lending increases by 10 percent or more, the dividend rate will fall to as low as 1 percent. Banks that increase lending by less than 10 percent would pay dividend rates between 2 percent and 4 percent.
If lending doesn't increase in the first two years, the dividend rate escalates to 7 percent.
After 4 1/2 years, the rate would increase to 9 percent if First Busey hasn't repaid the $72.6 million.
In a statement released Thursday, First Busey CEO Van Dukeman said Busey Bank is "one of the few qualified banks in our market areas to participate" in the Small Business Lending Fund.
The bank has 33 offices in central Illinois, an office in Indianapolis and seven offices in southwest Florida.
The legislation that created the Small Business Lending Fund defines small-business lending as loans of up to $10 mil- lion to businesses with up to $50 million in annual revenues. The loans can include commercial and industrial loans, farm loans and loans secured by farmland, among others.
Busey Bank President Chris Shroyer called the Small Business Lending Fund "a great opportunity to continue our tradition of serving entrepreneurs and small businesses."
As a result of paying off TARP, First Busey is no longer subject to limits on executive compensation and other restrictions under the Capital Purchase Program.
Participation in the Small Business Lending Fund is limited to depository institutions with assets of less than $10 billion. First Busey has assets of about $3.5 billion.
Institutions on the Federal Deposit Insurance Corp.'s list of "problem banks" aren't eligible to participate in the fund.