The community banking industry is making a major push to extend a federal program that increases the insurance coverage for noninterest-bearing transaction accounts, or “TAG” deposits.
The Transaction Account Guarantee program was enacted in 2008 at the height of the financial crisis and provides unlimited insurance coverage to non-interest bearing accounts, like some checking accounts, instead of the regular $250,000 insurance coverage per depositor.
The goal of the program was to prevent jittery bank customers from withdrawing funds from financial institutions they think could be on the brink of failure.
The program is set to expire by the end of this year, and the community banking lobby — led by the Independent Community Bankers of America — is pushing Congress to extend the program for five more years through 2017.
The ICBA says extending the program is critical considering there are $1.3 trillion in TAG deposits that are in excess of the $250,000 insurance coverage threshold.
Meanwhile, Connecticut chartered banks are holding $4.9 billion in TAG-covered deposits.
According to the ICBA, transaction accounts are mainly used by small businesses, nonprofits, municipalities, and universities to meet payroll, deposit local tax revenues and pay operating expenses.
Without the extended insurance coverage, which is fully paid for by the banking industry as part of the Federal Deposit Insurance Corp.’s regular assessment fees, the ICBA says community banks participating in the program risk losing business payroll and checking account customers.
Gerald Noonan, president and CEO of the Connecticut Bankers Association, said lenders in the state have mixed feelings about the program and there is split opinion about the need to extend it.
It all comes down to how much in TAG deposits each individual lender is carrying on their balance sheets, he said.
“If you have a lot of those deposits and it’s a great source of funding, then you say ‘hey let’s not change the law,'” Noonan said. “There are other banks that say we went 100 years without this and we could live without it. They aren’t worried about depositors rushing out the door.”
• • •
Springfield invasion
The Hartford-Springfield Knowledge Corridor has long been thought of as an attractive economic market.
And it’s an area that Richard B. Collins, the president and CEO of West Springfield’s United Financial Bancorp, is buying into, literally.
Collins’ bank recently pulled the trigger on a $91 million deal to purchase Enfield-based New England Bancshares, which will give the Massachusetts lender its first presence in Connecticut.
More importantly, the 15 additional branches will provide United Financial a strong geographic footprint up and down the Hartford-Springfield Knowledge Corridor, which is known for its strong mix of public/private universities and corporate headquarters.
“The border shouldn’t be a substantial barrier to bringing these two regions together,” Collins said. “The Connecticut market has been attractive to us for a long time.”
United Financial is the parent company to United Bank, which, prior to the New England Bancshares deal, had $1.7 billion in assets and branches primarily in the greater Springfield area.
The acquisition, which has been approved by the board of directors of both banks, will give United Financial an additional 15 branches and $726.5 million in assets.
Collins said the northern Connecticut market is right next door to the bank’s footprint so it was an obvious place to grow the franchise. The market’s solid demographics, high incomes, and strong population density make the area an attractive economic target, a sharp contrast to the limited growth opportunities available within its current Springfield footprint.
In terms of long-term growth in Connecticut, Collins wouldn’t shed much light on the bank’s plans. He said the company’s main focus is integrating the New England Bancshares franchise once the deal receives regulatory and shareholder approval. He did say, however, that the bank has a strong track record in de novo branch build-outs.
For New England Bancshares, it’s not clear exactly what led to the deal. David J. O’Connor, New England Bancshares president and CEO did not return a call seeking comment.
The banking environment for community lenders remains challenging. Economic uncertainly, low interest rates, new regulatory requirements, and intense competition for loans are all putting the squeeze on many banks.
During the first quarter, New England Bank netted $1.2 million in profits up from $715,000 in the year ago period. For all of 2011, the bank netted $4.6 million up from $3.2 million in 2010.
Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.
