What is the TARP Capital Purchase Program?
Part of the Federal Emergency Economic Stabilization Act of 2008, the Troubled Asset Relief Program (TARP) Treasury Capital Purchase Program (CPP) is a voluntary program put into place to provide a new source of capital to healthy financial institutions. Under the first round of this plan, the Treasury has purchased approximately $250 billion in shares of preferred stock in participating financial institutions, providing them with additional capital. The Treasury, through warrants, took an ownership position in each participating institution. Southern Community obtained $43 million in December of 2008. We pay a quarterly dividend of 5% for this capital. The Treasury obtained warrants for 1,623,418 shares of our stock.
Why was the program established?
The overall purpose was to assist U.S. banks in obtaining capital to encourage financing to businesses and consumers, thus stimulating the economy. Traditional capital markets for banks are virtually closed due to economic conditions. Other key goals of this program include:
Why did Southern Community choose to accept TARP capital?
We are participating in the program for the following reasons:
Because of recent concerns in the financial industry, this capital could not be obtained through other, more traditional, sources.
Are these "bailout" funds?
No. Funds from the original Capital Purchase Program were for healthy banks, and provided the Treasury an ownership stake in healthy banks. Southern Community was well capitalized at the time of receipt of the funds and considered a healthy bank. Regular audits and financial reviews have confirmed Southern Community is sound.
How is Southern Community using these funds?
In response to the current economic climate, we are taking the necessary steps to use TARP Capital funds wisely and in a way that will benefit our customers. We have initiated new lending programs to assist homebuyers and builders to help combat a tough housing market. We have enhanced products and services to provide customers with better returns on their savings. We are committed to working with our customers in any way possible to address problems or concerns that they are experiencing during this challenging time.
How is Southern Community not using these funds?
Southern Community executive management fully realizes the importance of our responsibility to the Treasury, our shareholders, and our customers to use these funds prudently. We are not paying any salary increases or bonuses to Executive Management for 2008 or 2009. Management and the Board are complying fully with compensation restrictions contained in recent legislation.
Is Southern Community lending money?
Yes, we are continuing to lend to our customers in a responsible manner. However, we continue to lend prudently using the sound credit underwriting the Bank has always had in place. We are lending in a selective way in order to minimize risk and maintain the stability of the bank for the benefit of our customers. Since receiving the TARP capital, we have extended over $50 million in new loans. Southern Community has sufficient liquidity and capital to grow as we have in the past.
What does all this mean for me?
If you have further questions about the TARP Capital Purchase Program, please contact us toll free at 1-877-353-7222 or email us at SCBConnect@smallenoughtocare.com. You may call Scott Bauer or any member of our Executive team at 336-768-8500 anytime.
