Rejection of federal funds

Within a couple of days of the announcement that Heritage Bank of Nevada won't accept federal bailout funds, about 100 people called President Stan Wilmoth to offer thanks and congratulations.

Some of them even began moving their deposits to the Reno-based bank.

But Wilmoth said last week that Heritage Bank's directors weren't motivated by any desire for public acclaim when they decided against accepting the money.

The numbers just didn't work.

Wilmoth figures the effective cost of participation in the U.S. Treasury's Capital Purchase Plan would have been about 9 percent. The bank would need to loan that money at at least 12 percent to break even.

Heritage Bank had applied for the Capital Purchase Plan late last year, and the Treasury Department gave its OK to an $8.6 million capital infusion.

The bank applied for the program, Wilmoth said, at a time when prospects for the U.S. economy were more uncertain than they are today. But today, the bank's directors think the economic turmoil is beginning to

settle.

They were motivated, too, by strong growth in the bank's deposits. Wilmoth said deposits have grown by

about 6 percent since the start of the year, when deposits stood at $298.4 million.

Some of the money appears to be coming from the stock market and money market funds, Wilmoth said.

Whatever the source, it's enough to allow Heritage to fund its customers' loan demand without the need for federal help.

"We're making loans to everyone who has requested a loan and qualifies," Wilmoth said.

He said the bank's directors also were motivated to reject the federal funds because of concerns that terms

of the Capital Purchase Plan would be changed unilaterally by Treasury officials, and the bank opposes more government control of the banking system.

Even in the initial announcement of the program, the Treasury Department said it would set standards for corporate governance and executive pay for participating institutions.

About 25 percent of the 8,000 banks in the United States applied for the program.

The risks to Heritage Bank of rejecting the Capital Purchase Plan?

"There wasn't much of a downside risk at all," Wilmoth said.