It's not just the nation's megabanks that are getting infusions of capital through the U.S. Department of the Treasury's massive Troubled Assets Relief Program (TARP). Three Inland Northwest banks have received a combined $454 million from the government, and the total could top $600 million if two other banks that have applied for the program also make final decisions to participate in it.

Meanwhile, several local banks say they won't participate in TARP, which is done through government purchases of preferred stock in the institutions.

As of Jan. 13, Treasury reported Spokane-based Sterling Financial Corp. had received $303 million; Walla Walla, Wash.-based Banner Corp. had received $124 million; and Sandpoint-based Intermountain Community Bancorp had received $27 million.

Spokane-based AmericanWest Bancorp. has applied for $57 million in TARP funds, but hasn't heard from Treasury whether it has been approved, says Patrick J. Rusnak, AmericanWest's president and CEO.

WTB Financial Corp., the Spokane-based bank-holding company that owns Washington Trust Bank, has received preliminary approval for up to $110 million, but hasn't made a final decision whether to participate in the program, says Peter Stanton, the company's chairman and CEO.

Banner Corp., the bank-holding company that owns Banner Bank, has ramped up loan promotions since receiving the TARP funds, says Douglas L. Bayne, the bank's vice president and director of marketing.

"We're talking about loans," he says. "We're actively telling people there is a funding source available."

Bayne notes that the purpose of the TARP program is to stimulate lending by banks to businesses and other customers to accelerate the country's climb out of recession. The capital infusion also will give financial institutions flexibility in considering whether to acquire other banks as the financial-services industry continues to consolidate, he adds.

Through TARP, the U.S. government buys stakes in participating banks in the form of preferred stock. Banks agree to provide a 5 percent dividend on that stock for the first five years and 9 percent after that. Banks can buy back the preferred shares after three years.

In most cases, the U.S. government receives warrants through which it can buy common stock at a price that's fixed for 10 years. For instance, in Sterling's case the government has the option to buy 6.4 million shares of Sterling's common stock for $45.5 million.

Curt Hecker, president and CEO, Intermountain Community Bancorp., the holding company that owns the banking subsidiary Panhandle State Bank, which itself has three banking divisions, couldn't be reached for comment, but indicated in a news release that, in addition to funding loans, the bank could use some of the TARP funds to make acquisitions.

"This new equity will increase our capacity to lend in our communities and the markets we serve, while enhancing our competitive position and flexibility in capitalizing on future opportunities," he says.

Sterling Financial Corp., the holding company that owns Sterling Savings Bank, said in a press release it "will begin deploying the capital to support lending activities, which in turn should help stimulate economic activity in our region."

Washington Trust Bank will decide in early February whether it will move forward with its application to participate in TARP, Stanton says.

"We're still evaluating it," he says. "We're running scenarios of what we would do with it. At this point, our worst-case scenario shows we may not need it."

The bank might still choose, however, to participate in the program "to make sure we've got capital to continue to grow like our competitors who might have taken it already," Stanton says.

The bank likely would deploy such funds in the form of loans to earn income to pay dividends on the preferred stock that would be sold to the government, he says.

Although he asserts Washington Trust would remain profitable without participating in the program, Stanton adds that participation in TARP "is more of a long-term insurance policy given that nobody can say how long this recession is going to last."

A bank has 30 days to decide whether to complete a TARP transaction if and when it receives preliminary approval, says Treasury spokeswoman Brookly McGlaughlin.

Kelley McPhee, spokeswoman for AmericanWest, says that bank hasn't heard when to expect a response from Treasury in regard to its TARP application.

Most banks participating in TARP are considered well-capitalized. AmericanWest, which reported nearly $2 billion in assets as of Sept. 30, falls $13.8 million short of one of three criteria it must meet to be considered by Treasury to be well capitalized, McPhee says.

Treasury declines to disclose names of banks that have pending applications for TARP funds, how many banks have applied, and which banks have been denied TARP funds, McGlaughlin says.

Some local banks say they are sufficiently well capitalized that they don't need TARP funding.

Coeur d'Alene-based Mountain West Bank had been approved to participate, but decided it likely will continue to grow without TARP funds, due to its strong capital levels, says Jon Hippler, the bank's CEO.

"Participation in the TARP program was not in the best interest of the company's shareholders," Hippler says.

Max Faller, president and CEO of Coeur d'Alene-based bankcda, says the government initiatives are important in stabilizing the financial sector, but the bank has decided not to apply for TARP funds.

"Bankcda is well-capitalized for the foreseeable future," Faller says.

Although he predicts credit markets will remain more conservative than in recent years, "bankcda's strong capital and ongoing earnings and banking activities will allow for continued healthy growth," he says.

Jack Gustavel, president and chairman of Coeur d'Alene-based Idaho Independent Bank, says that bank didn't apply for TARP funds, because it doesn't consider them a bargain.

Interest on loans would have to be up to 9 percent for TARP funds to pay for themselves, and warrants with which the federal government could buy common stock at a fixed price could dilute the value of the shares of other stockholders, Gustavel says.

"Costs and potential conditions outweigh potential benefits," he says. "We didn't feel we needed to go after that high-cost capital. We have relationships with good customers and we have plenty of money to lend to them."

Loan applications, however, have tapered off for reasons other than a tight credit environment, Gustavel says.

"A lot of it is psychology," he says. "People are taking a step back. They are delaying projects and not applying for loans."

Susan Horton, chairwoman, president, and CEO, of Spokane-based Wheatland Bank says Wheatland is well-capitalized without TARP funds.

"Wheatland doesn't need and has no plans to take taxpayer money from the U.S. Treasury," she says.

Healthy banks shouldn't need TARP funds, she asserts.

"It's expensive capital, and it's not the only source available to good, strong banks," she says. "In my opinion, you would have to be desperate and have a lot of loan losses and capital and liquidity problems to need to take it."

Horton says she's taken some heat for not joining the ranks of other banks that have applied for TARP funds, but adds, "Our fiduciary responsibility is to our shareholders and customers of the bank—not to the (banking) industry."