Sep. 22--Yadkin Valley Financial Corp. became yesterday the latest local community bank to suspend its dividend payment to preserve capital.

The decision by the bank's board of directors ended a streak of paying a dividend for 86 consecutive quarters. It issued a 6-cent dividend in the second quarter.

"The suspension of our quarterly divi­dend, while disappointing, is a necessary step in preserving our capital during this prolonged period of economic uncertainty across our markets," said Bill Long, the bank's president and chief executive.

"By temporarily suspending our dividend, we estimate that we will save approximately $3.9 million in capital annually, or $968,000 per quarter."

Investors reacted to the news by sending the bank's share price down 9.2 percent, or 54 cents, to close at $5.35. The share price has fallen 69 percent from its 52-week high of 17.50 on Sept. 30, 2008.

Other local banks that have suspended their dividend -- Bank of the Carolinas Corp., Bank of Granite Corp., NewBridge Bancorp and Southern Community Financial Corp. -- also have experienced a major hit to their share price.

The range of decline from the 52-week high is between 39 percent (Bank of the Carolinas) and 87 percent (Bank of Granite).

However, preserving a dividend has not spared other publicly traded banks serving the Triad from a similar decline in share price in the past 12 months.

Each bank has had at least a 15 percent decrease except Royal Bank of Canada, which has had just a 3 percent drop-off. Royal Bank also is paying the highest quarterly dividend at 50 cents.

"Many banks have suspended payment of a quarterly dividend, so this isn't really the sort of scarlet letter that it would have been in a different banking environment," said Tony Plath, a finance professor at UNC Charlotte.

The dividend suspension is just the latest financial pothole for Yadkin Valley.

On Aug. 24, the bank said in a regulatory filing that it received about $4.3 million less in cash than it expected from the purchase of American Community Bancshares Inc. of Charlotte. The bank bought American Community for about $47 million in April.

Plath said it was prudent for Yadkin Valley to suspend the dividend given the uncertainty "regarding the quality of American Community's loan book in a most difficult economic environment."

Buddy Howard, an analyst with Equity Research Services in Raleigh, said that most banks that have accepted federal capital-purchase money are paying a lower dividend to shareholders.

"The TARP dividend is clearly a factor in that it absorbs a good deal of the cash that was formerly available for the common dividend," Howard said.

Paul Stock, the executive vice president and counsel for the N.C. Bankers Association, said that every bank "has to make a lot of decisions that make sense for the bank, its shareholders and customers. Whether or not to pay a dividend is an important one on that list."

rcraver@wsjournal.com

727-7376

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