(Source: Richard Craver Winston-Salem Journal, N.C. — BNC Bancorp appears to be moving into prime position to repay its $31.3 million TARP obligation to the U.S. Treasury.
David Spencer, chief financial officer of BNC Bancorp, said Monday that the High Point bank has been asked to register the preferred shares it issued to the Treasury through the Troubled Asset Relief Program in December 2008.
By registering the 31,260 preferred shares, if the Treasury “chooses to include us in an auction, we will be ready,” Spencer said. The bank will not receive any proceeds from the sale.
BNC filed a regulatory prospectus Wednesday that said the preferred shares could be sold by security holders with the Treasury’s permission.
TARP was the centerpiece of the federal government’s 2008 initiative to bail out banks, relieve pressure on teetering financial markets and loosen frozen credit markets that made it difficult for consumers and businesses to obtain loans.
Although many large banks, such as BB&T Corp. and Wells Fargo & Co., have repaid their TARP obligation, it has proved more challenging for community banks. First Community Bancshares Inc. and Surrey Bancorp 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 at the cost of some oversight independence.
Swope Montgomery, BNC’s chief executive, said in May that “should our TARP be sold to a third party, and the restrictions be less, we might opt to keep it, assuming it still counts as Tier 1 capital as it does now.
“In that case, we would continue to pay dividends to the third party. We might choose to pay off TARP.”
The Treasury has auctioned the preferred shares for at least 18 community banks — 12 in late July and six in March.
Tony Plath, a finance professor at UNC Charlotte, said early auction participants are banks whose TARP shares will fetch the greatest value.
BNC has been considered by analysts as the only community bank serving the Triad currently participating in the TARP program to be strong enough financially to buy back the preferred shares.
Spencer said BNC recently became eligible for a more streamlined way to issue or sell capital.
Yadkin Valley Financial Corp. also has registered with the Treasury to sell its TARP preferred shares.
Yadkin Valley received $49.3 million in TARP funding in 2009. It has paid about $5 million in preferred dividend payments but began deferring the payments in June 2011.
The federal government lent $415 billion to financial institutions and automakers under TARP. About $245 billion went to 707 small banks.
According to The Associated Press, the government has received about $344 billion from bailed-out institutions. It still owns stakes in 325 banks.
The government cannot force banks to repay TARP capital immediately, according to Timothy Massad, an assistant Treasury secretary for financial stability.
However, the banks have a significant incentive to resolve the obligation because the interest rate on the capital goes from 5 percent to 9 percent at the end of 2013.
Plath said the Treasury is likely to bundle the weakest banks with TARP shares into a package.
Some banks are getting rid of the payback obligation through being bought, such as Southern Community Financial Corp. through its proposed deal with Capital Bank Financial Corp. Southern owes $43 million to the Treasury. Southern began deferring payments in 2011.
©2012 Winston-Salem Journal (Winston Salem, N.C.)
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Source: Richard Craver Winston-Salem Journal, N.C.