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Bank is left with a high-dollar whodunit

Michael Schwartz January 17, 2014 0
First Capital Bank's downtown branch at 901 E. Cary. (Photo by Michael Schwartz)

First Capital Bank’s downtown branch at 901 E. Cary. (Photo by Michael Schwartz)

Although it managed to work a deal to avoid a dividend rate hike on its former TARP shares, a local bank wasn’t able to solve an 18-month-old mystery.

First Capital Bank and its parent company last week spent $5.6 million to buy back 5,531 shares of its preferred stock from a buyer that purchased them at a TARP auction in June 2012.

But despite paying dividends on the shares for a year and half and closing the deal to redeem them Jan. 10, the Glen Allen bank still has no clue who the buyer was.

“We paid the dividends through a transfer agent and paid it off through a transfer agent,” said First Capital chief executive John Presley.

It wasn’t for lack of effort or curiosity on First Capital’s part.

“We tried but never really found out,” Presley said of the mystery third party. “From their perspective, as long as they were getting their dividend on a timely basis, they had no motivation to contact us.”

The unknown buyer paid $920 per share in 2012 to buy half of the bank’s TARP shares from the U.S. Treasury Dept. First Capital bought the other half at the same auction.

The same TARP terms carried over to the new owner, including the bank paying quarterly dividends of 5 percent through April 2014 and 9 percent after that.

With that rate hike set to take effect, Presley said it was a no-brainer to find a loan with a lower interest rate to buy back the shares. It took out a 10-year, $6.5 million loan for the transaction. It allows First Capital to pay a 5 percent interest rate. And the interest is pre-tax, making it an even sweeter deal.

Principal payments on the new loan amount to $8,000 a month for the first five years and $103,000 a month for the remaining term of the loan. Presley would not name the bank that it worked with for that note.

First Capital wasn’t alone in dealing with a mystery buyer.

In October, someone paid $26.49 million at auction for EVB’s TARP shares, and Midlothian-based Village Bank in November saw its TARP shares sold at a steep discount to a then-unknown party.

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