Program to Free Up Funding For Loans

A bank with close ties to Lee County is getting a capital injection under one of the programs designed to help the banking industry during the current banking crisis. Capital Bank Corporation, parent company of Capital Bank, has announced that it has received preliminary approval of its $42.9 million application to participate in the U.S. Department of the Treasury's Capital Purchase Program (TCPP). According to Federal Deposit Insurance Corporation Chairman Sheila Bair, the Temporary Liquidity Guarantee Program, which is voluntary, is to unlock inter-bank credit markets and restore rationality to credit spread. This will free up funding for banks to make loans to creditworthy businesses and consumers. The program, has two key features. (see press release)

• The first feature guarantees new, senior unsecured debt issued by any bank, thrift or holding company, which will help banks fund their operations. Both term and overnight funding of banks has come under extreme pressure, with the costs of funding ballooning to several hundred basis points. This guarantee will allow banks and their holding companies to roll maturing senior debt into new issues fully backed by the FDIC. However, guaranteed maturities cannot extend beyond three years. The ability to tap into this program expires at the end of June 2009.

• The second feature of the new program gives unlimited insurance coverage for non-interest bearing deposit transaction accounts. These are mainly payment processing accounts such as payroll accounts used by businesses. Frequently, they exceed the current maximum insurance limit of $250,000. Many smaller, healthy banks have been losing these accounts to their much larger competitors because of uncertainties in the financial system. This new, temporary guarantee –- which runs until the end of next year –- should help stabilize these accounts, and help us avoid having to close otherwise viable banks because of deposit withdrawals.

Under the TCPP, the U.S. Treasury Department will purchase 42,900 shares of senior preferred stock which will pay a dividend of 5% for the first five years and 9% thereafter. The Treasury will also receive warrants to purchase Capital Bank common stock with an aggregate market value of $6.4 million, or approximately 15% of the senior preferred stock investment. Capital Bank will have the right to redeem the preferred shares at any time after three years. Companies participating in the program must adopt the Treasury Department’s standards for executive compensation and corporate governance, for the period during which Treasury holds equity issued under this program. These standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers. Capital Bank operates 28 banking offices in Asheville (4), Burlington (4), Cary, Clayton, Graham (2), Hickory, Mebane, Morrisville, Oxford, Pittsboro, Raleigh (5), Sanford (3), Siler City, Wake Forest and Zebulon. The Company's website is http://www.capitalbank-nc.com