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Salisbury Bank joins post-TARP capital parade

A third Connecticut bank is taking advantage of a new federal program that allows community lenders to trade in Troubled Asset Relief Program (TARP) funds for cheaper capital with fewer government restrictions.

Salisbury Bancorp Inc. said Friday that it has qualified for $16 million from the Treasury Department’s Small Business Lending Fund program.

The funds will allow the banking company, which is the parent to Lakeville-based Salisbury Bank and Trust Co., to pay back to the federal government $8.8 million in TARP funds.

SBT Corp., parent of Simsbury Bank & Trust Co., and BNC Financial Group, parent of The Bank of New Canaan and The Bank of Fairfield, recently qualified for funding.

Meanwhile, Hartford-based Connecticut Bank and Trust Co., has applied for $10.5 million from the program.

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Those three holding companies also received funds from TARP, the federal government program created in late 2008 at the height of the financial crisis to provide capital to cash-strapped banks.

The SBLF is a $30 billion program that aims to spur small business lending by providing capital to qualified community banks with assets under $10 billion.

It was enacted as part of the Obama Administration’s Small Business Jobs Act of 2010, with the hopes that the added capital will help create jobs and promote economic growth.

The opportunity to repay TARP is an added benefit because banks that qualify will no longer have to deal with the onerous oversight and executive compensation restrictions. At the same time, it will reduce the dividend payments banks have to make to the federal government.

TARP recipients have been required to pay the Treasury Dept. a 5 percent dividend, which is scheduled to increase to 9 percent in a few years. The dividend rate on SBLF funding, however, will be reduced as a participating bank increases its lending to small businesses. The initial dividend rate will be, at most, 5 percent. But if a bank’s small business lending increases by 10 percent or more, the rate falls to as low as 1 percent.

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Salisbury Bancorp officials said the company paid $1.1 million in dividends to the Treasury. Additionally, the Treasury still holds a warrant to purchase 57,671 shares of Salisbury’s common stock at a price of $22.93.  

Salisbury officials say they are currently preparing a proposal to the Treasury to initiate the process for its potential repurchase of the warrant.

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