Interesting piece here by Washington Post columnist Steven Pearlstein about a relatively small North Carolina bank called Citizens South, which avoided bad loans, has remained profitable, and then applied for and won $20.5 million in TARP bailout funds.
Writing on the eve of the testimony by eight gigantic bankers before the House Financial Services Committee, Pearlstein lauds Citizens South and its president, Kim Price, for the sanity and creativity with which they put that $20.5 million to use:
A few weeks ago, while reading a newspaper article, Price came up with an ingenious plan for how to use it.
The article was about the reluctance of people to buy a house in the current market, and what kinds of incentives had been used successfully by builders and bankers to get them to close a deal. Two stood out: lower rates and the waiving of closing costs. And that got Price to thinking: What if Citizens were to use its federal bailout money to offer below-market mortgage rates with no closing costs to consumers who would buy a house, or a house lot, from builders and developers who had borrowed money from Citizens?
Price asked some of his loan officers to check with the builders and developers, who not surprisingly were excited enough about the project to be willing to chip in some money to help cover a portion of the forgone closing costs. So last week, Citizens launched its marketing campaign for the $20.5 million program, in collaboration with its builder-developer customers, offering 30-year loans with an initial teaser rate of 3.5 percent for the first two years, rising to a fixed 5.5 percent rate (the current market rate) for the balance of the loan.
“As we see it, it’s a win-win-win situation all round,” Price explained to me.
Pearlstein is particularly impressed that Price’s total pay package last year was just $456,146, a rounding error for most of the eight banking kings who came to talk to Congress. This leads Pearlstein to deliver a zesty kicker to his column:
So here’s a question the House Financial Services Committee might put to the Titans of Finance: How is it that Kim Price, a community banker with an undergraduate degree from Appalachian State University, a tiny executive staff, and a pay package that you would consider insulting, somehow managed to come up with a more creative use for his government bailout money than any of you?
(Hat tip: Craig Popelars.)