First Capital Bank is one of seven banks in the country whose TARP shares will be sold at auction this month as the Treasury lowers the curtain on the TARP Capital Purchase Program, which was intended to give banks a cushion during the recession.
“I’m as surprised as anybody,” said John Presley, CEO of First Capital Bancorp, the Glen Allen-based bank’s parent company. “I’m not sure why they picked us, but we’re happy to participate. I think in general it is a good thing, and we’re viewing it that way.”
The Treasury told the bank to register the shares with the SEC so they could be sold to the public, but that’s about all the information that was provided, Presley said.
Treasury spokesman Matt Anderson declined to comment on the process.
The Glen Allen-based bank received $10.9 million in TARP capital in April 2009. It was one of 707 banks the Treasury invested in by taking shares of stock in exchange for capital during the recession.
Eight local banks participated in the program and received a combined $191.4 million in exchange for preferred stock. Two of those have since bought their way out of TARP. Union First Market Bank exited the program in December. Both its predecessor banks participated in the program. C&F Bank paid off the second half of its $20 million in TARP in April.
In addition to First Capital, Village Bank ($14.7 million), Essex Bank ($17.6 million), EVB ($24 million) and Central Virginia Bank ($11.3 million) are all still in the program.
The auction doesn’t let First Capital or any of the other banks off the hook. But they will have new preferred shareholders who must be repaid the full amount that Treasury put in. And they must also continue to pay dividends on the shares. First Capital’s current dividend rate is 5 percent. That dividend rate jumps to 9 percent if it hasn’t bought the shares back by 2014.
“At the end of the day, what does it mean? I think a lot of that depends on who buys these shares and what they want to get out of them,” Presley said.
Tom Tullidge, an investment banker and founder of Cary Street Partners who works community bank deals, said the buyers would probably be hedge funds and institutional investors that have an appetite for buying large blocks of preferred shares in multiple banks.
Tullidge said the investors most likely to bite on the auctions would be interested in the combined size of the pooled bank shares, the location of the banks and their potential ability to repay TARP.
“They’re packaging pools of these assets to attract buyers,” Tullidge said. “It’s almost like the equivalent of securitization.”
Most of the 343 banks still in the program nationwide are smaller community banks. The big boys — Bank of America, Wells Fargo and the like — have already exited the program.
“They’ve gotten the big dollars from the big banks and now they have a lot of smaller banks and they’re trying to clean that up,” Tullidge said.
Finding spare cash to buy their way out of TARP has been difficult for smaller banks.
Last month First Capital raised $17.8 million. It has said it might use some of that to pay off portions of TARP.
Founded in 1998, First Capital has seven branches and $541 million in total assets. It lost $3 million in 2011 but turned a first-quarter profit of $134,000.