News Column

TARP Auction of Carolina Bank Holdings Commenses

Feb 6, 2013

Richard Craver

TARP

The U.S. Treasury said today it plans to auction on Wednesday the $16 million in preferred shares it received from Carolina Bank Holdings Inc.

Carolina is based in Greensboro with a loan-production office in Winston-Salem.

The bank borrowed the money from Treasury as part of the agency's Troubled Asset Relief Program. TARP was the centerpiece of the government's 2008 response to the financial crisis -- bailing out banks, relieving pressure on markets and loosening credit that hindered loans for consumers and businesses.

The auctions are part of Treasury's overall strategy for winding down its remaining TARP bank investments "in a way that protects taxpayer interests, promotes financial stability and preserves the strength of our nation's community banks."

The sale is expected to close this week, although it is not clear when Carolina would learn the identity of its newest shareholders. The bank will not receive any proceeds from the sale.

"It appears it is our time to be in the queue, a process we look forward to in terms of trading on preferred shareholders, the U.S. Treasury, for one or more new preferred shareholders," said Robert Braswell, Carolina's chief executive. The selling of the preferred shares by the Treasury eliminates some mandatory restrictions under TARP, such as executive compensation levels.

Although many large banks, such as BB&T Corp. and Wells Fargo & Co., have repaid their TARP obligation, doing so has proved more challenging for community banks. First Community Bancshares Inc. and Surrey Ban-corp are the only community banks serving the Triad that have repaid the preferred shares.

One option for repayment has been having the Treasury sell the preferred shares to private investors, potentially at a discount and, in some instances, at the cost of some oversight independence.

Carolina will be the fourth community bank based in the Triad to have its preferred shares auctioned in a proc-ess that began in August. The others were BNC Bancorp, Yadkin Valley Financial Corp. and Oak Ridge Financial Services Inc.

Carolina has been one of the best-performing community banks in North Carolina while managing to remain current on its preferred dividend payments to the Treasury. The bank had record net income of $6.28 million in fiscal 2012 compared with $1.22 million in fiscal 2011.

Because of that, Braswell said, he does not believe Carolina will feel pressed to raise capital to retire its TARP obligations or pay down or off its nonperforming assets.

For instance, Yadkin Valley used the $45 million capital it raised to help complete the disposition of $66.5 mil-lion in certain assets by March 31. The move is akin to a financial taking-a-dose-of-castor-oil move with $50 mil-lion in classified loans and $16.5 million in bank-owned real estate.

Braswell said Carolina's financial strength could encourage investors to bid on the bank's preferred shares with-out demanding a sizable discount from par, which is $1,000 a share.

All of BNC Bancorp's 31,260 preferred shares sold for $921.23 -- or about 92 cents on the dollar -- yielding $28.4 million in net proceeds. BNC's largest shareholder, Aquiline Capital Partners LLC of New York, paid $11.8 million to buy 40 percent of BNC's preferred shares.

About 36,000 of Yadkin Valley's preferred shares were priced at $898 a share, while 13,312 preferred shares drew $888 a share.

Treasury said it has made $23 billion profit over its $245 billion TARP investments through repayments, dividends, interest and other income. It has remaining outstanding capital-purchase program investments in 199 institutions.

Tony Plath, a finance professor at UNC Charlotte, said the early auction participants are banks whose TARP preferred shares have brought the greatest value. He said the Treasury is likely to bundle the weakest banks with TARP preferred shares.

Some banks shed the payback obligation through being bought, such as Southern Community Financial Corp. through the $52.5 million purchase by Capital Bank Financial Corp. Southern had owed $43 million to the Treasury.

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Distributed by MCT Information Services



Source: (c) 2013 Winston-Salem Journal (Winston Salem, N.C.)