Small banks still accepting aid

In Massachusetts, Wachusett Financial Services Inc., the parent of Clinton Savings Bank, just received its first round of funding from the government’s Troubled Asset Relief Program this month. The Clinton bank said the $12 million was critical to increase lending without depleting its capital reserves.

“It allows us to put money in the economy and satisfy demand,’’ said Christopher Gill, chief financial officer for the bank. “We can’t grow in Central Massachusetts’’ without the aid.

Of the more than two dozen US banks that received new or additional government aid since Nov. 1, most are small community banks such as Wachusett.

By contrast, Bank of America, Citigroup, and Wells Fargo all repaid the government this month. And half of the 10 other institutions in Massachusetts that received government aid have also paid the money back.

Some complained about the stigma attached to the money - the perception that recipients were looking for a handout or needed to be propped up. Others complained about additional paperwork, restrictions on executive compensation, or other rules that hindered their ability to operate freely.

But some smaller banks said the executive compensation limits weren’t an issue, because they generally don’t pay enough to be affected.

And Wachusett Financial’s chief executive said he couldn’t think of any other downside to signing up for the aid under the TARP’s Capital Purchase Program - other than negative publicity.

“There’s a misconception that the Capital Purchase Program is a bailout program and that certainly gave us pause,’’ Gill said. “We’ve been here for 150 years and we wanted to protect our reputation.’’

But Gill said the bank didn’t have many other options to significantly increase its lending without depleting its reserves. Gill said the bank plans to increase lending across the board - for residential mortgages, small businesses, and consumers. He said the bank originally applied for the money earlier this year.

In addition, Gill pointed out that the Treasury Department encouraged healthy banks to apply for the money. Gill said Wachusett Financial, which has seven Clinton Savings Bank branches, is well capitalized and profitable.

In the first nine months of this year, the company earned $1.7 million, compared with a $3.2 million loss a year ago, according to reports filed with the Federal Deposit Insurance Corp.

More banks of Wachusett Financial’s size will have the opportunity to borrow from the government, after the US Treasury Department extended the deadline for applications from small banks to next October.

“Small banks have been weighed down by problem commercial real estate loans, which has made them reluctant to lend and hurt the ability of small businesses to expand and hire,’’ Treasury Secretary Timothy Geithner told Congress earlier this month.

Nationwide, 645 banks are still holding onto TARP money, while more than 50 have returned the funds.

One of the Massachusetts institutions that repaid the government is Wainwright Bank & Trust Co. of Boston. Chief financial officer James Barrett said Wainwright originally applied for the money during the depths of the financial crisis, when it seemed like a good insurance policy in case the economy continued to deteriorate. But, he said, Wainwright’s loan portfolio has held up well.

Moreover, the $22 million loan from the government turned out to be more of a hassle than it was worth, Barrett said: In addition to negative publicity, he said, the money had a relatively high interest rate (5 percent a year before taxes or 8 percent a year after taxes) and had additional reporting requirements. Wainwright repaid the government Nov. 24.

“We simply didn’t need the extra capital,’’ Barrett said. “And not only did we not need it, it was expensive.

Mercantile Capital Corp., the parent of Mercantile Bank and Trust Co. of Boston, meanwhile, is hanging onto the $3.5 million it borrowed in February.

Chief executive Charles Monaghan said Mercantile is using the money to boost lending and doesn’t have any plans to return the money in the near future. Unlike publicly traded banks, Monaghan noted, Mercantile doesn’t have the option of selling stock to raise additional capital, which makes the government funds more attractive.

In addition, Monaghan said the bank, which was forced to cut back its small business lending when the economy slowed, has been able to use the TARP money to return to its previous levels of growth.

“It’s made a substantial difference,’’ Monaghan said. “There’s still a vibrant community [of small businesses] in Boston’’ that need loans.

In addition to Wachusett, five other Massachusetts banks that received TARP money have not repaid it: Boston Private Financial Holdings Inc. in Boston ($154 million), Central Bancorp of Somerville ($10 million), Leader Bancorp Inc. of Arlington ($5.8 million), Mercantile Capital Corp. of Boston ($3.5 million), and OneUnited Bancorp Inc. of Boston ($12.1 million).

Todd Wallack can be reached at twallack@globe.com.