Defiance-based banks choose opposite tacks on federal funds

12/24/2008

DEFIANCE - Both of Defiance's two local financial institutions were faced with the same choice last month: participate in the federal bailout of financial institutions and get millions of dollars in a capital infusion, or let the opportunity pass.

First Defiance Financial Corp. said yes, and got $37 million to spur the local economy. Rurban Financial Corp. said no, and chose the route with less regulation and greater financial independence.

Although executives were not available to comment yesterday, both institutions have maintained they are better prepared to use their assets to spur economic growth across northwest Ohio.

William Small, First Defiance's chairman, president, and chief executive officer, told investors last month that his company "chose to participate in the Treasury Department's program because it provides additional capital beyond our current well-capitalized position."

Mr. Small said the company, which operates 36 full-service branches in the area as the holding company for First Federal Bank of the Midwest, already had reserves 20 percent above the regulatory standard to be well capitalized.

"We have prudent lending practices in place, and this additional capital will assist us with lending and growth opportunities that will benefit our communities as well as our shareholders," Mr. Small said.

According to the Treasury Department, First Defiance was one of five Ohio-based banks that chose to participate in the agency's Troubled Asset Relief Program. Authorized by Congress in September with up to $700 billion in taxpayer funds, the program injects capital into banks to get those institutions to use to increase their lending and thus spur the local economy.

The other Ohio banks were Huntington Bancshares, Columbus, KeyCorp, Cleveland, Central Federal Corp., Fairlawn, and LNB Bancorp Inc., Lorain.

Kenneth Joyce, Rurban chief executive officer, said his company's board opted to pass on the federal capital infusion in part because those institutions that participate "will be restricted in their ability to increase common share dividends or repurchase common shares.

"We do not believe it is advisable to restrict our dividend growth or capital management," he told investors recently. "In our view, there also remain too many unknowns within the [Troubled Asset Relief Program, or TARP] for us to prudently enter the program."

Contact Larry P. Vellequette at:

lvellequette@thebl ade.com

or 419-724-6091.