North American Financial acquires TIB Financial

North American Financial Holdings Inc. has closed its deal to acquire TIB Financial Corp., completing its three-month mission to take control of the ailing, Naples, Florida-based company.

Although the deal will help ensure TIB Financial's survival, it also will cost taxpayers roughly $25 million.

TIB Financial was a December 2008 recipient of $37 million in public aid through the Troubled Asset Relief Program. The company issued preferred stock to the Treasury Department in exchange for the aid.

According to a footnote in the Sept. 28 TARP Transaction Report, the Treasury entered into an agreement with North American Financial Holdings on Sept. 24 for "the sale of all Preferred Stock and Warrants issued by TIB Financial Corp. to Treasury at an aggregate purchase price of $12.12 million for the Preferred Stock and $40,000 for the Warrants" (page 15, note 32).

That agreement, designed to help facilitate the acquisition, paid Treasury just 33 cents on the dollar, amounting to a loss of more than $25 million when unpaid dividends are taken into account.

North American Financial is a Charlotte, N.C. and Jacksonville, Fla.-based bank holding company that seeks to invest in banks that lack capital.  It was incorporated in Delaware in 2009, and has been both aiding and acquiring ailing banks in the interim.  North American Financial is headed largely by former Bank of America executives.

North American Financial announced on June 29 that it would invest about $175 million in TIB in return for 700 million common shares and 70,000 preferred shares. The deal also provided for the company receive warrants exercisable for as many as 1.17 billion additional common shares, at a price of 15 cents a share.

On Sept. 13 -- with approval of the deal still pending -- the Federal Reserve issued an enforcement action against TIB that called for it to develop a plan for boosting capital levels and prohibited it from, among other things, paying dividends without expressed written approval of regulators. 

On September 15 -- in the immediate wake of the enforcement action -- the Federal Reserve approved the June 29 agreement, and the investment was completed on September 30.  According to a report in the Charlotte Observer, "TIB Financial has been losing money since 2007, including a $14.8 million loss in the second quarter 2010."

North American Financial was not the only company to inject capital into TIB.  Patriot Financial Partners, a private equity fund that specializes in bank and thrift investments, has also agreed to invest between $20 million and $25 million in TIB.

The heavily discounted TARP stock played a role in North American Financial's ability to take hold of TIB.  The 37,000 shares of Preferred Stock previously issued to the Treasury were used as payment at the closing, and each share of the same stock "will mandatorily convert into 6,666 shares of Common Stock" subject to shareholder approval.

The takeover will result in five North American Financial representatives assuming positions on TIB's board of directors.  Most notably, R. Eugene Taylor, North American Financial's chairman and chief executive, will also become chairman of the TIB board.  Only two current members of TIB's board -- Howard Gutman and Brad Boaz-- will remain on the governing committee.     

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