First Capital Bank, what’s up your sleeve?

A local bank that tried last year to orchestrate a sizeable merger appears once again to be positioning itself for some sort of transaction.

First Capital Bancorp, the Innsbrook-based holding company of First Capital Bank, last week made a move to drastically increase the number of shares it can sell from 5 million to 30 million, leading some local bankers to believe the $536 million company has something up its sleeve.

Most believe it likely entails one of two scenarios – either an acquisition or to pay back TARP money it received from the U.S. Treasury in 2009.

“Banks are positioning themselves for the future,” said Tom Tullidge, managing director with Cary Street Partners, a local investment banking firm.

The bank is a profitable, well capitalized bank and isn’t in dire need of fresh capital.

An email and phone call to First Capital Bank CEO Bob Watts weren’t returned by press time.

First Capital is no stranger to major transactions. Last year it ended its attempt to merge with Eastern Virginia Bankshares. But the banks called of the deal after regulators held up the process for too long, costing both companies time and money.

Billy Beale, CEO of Union First Market Bankshares said although the EVB deal fell through in 2009, it showed First Capital’s appetite for big deals.

“Obviously they were looking to do something because they reached that agreement to merge with EVB,” Beale said.

And the time may be right for a strong First Capital to look to some weaker banks, of which there are a few locally, for a possible acquisition.

“You’ve got some other banks in this area that are kind of weakened right now and maybe looking to do something,” Beale said. “I think there will be opportunities for consolidation amongst community banks over the next two years.”

Any possible acquisition could also come from outside the Richmond market. The FDIC has already taken over 81 banks this year, Tullidge said.

“Banks need to have the capital to strike if they want to bid on an FDIC bank,” he said.

First Capital may also be looking to buy its way out of TARP.

In early 2009, it became one of a handful of local banks and hundreds nationwide to participate in the TARP Capital Purchase Program, designed to infuse banks with capital in order to keep lending pipelines flowing during the harshest days of the recession.

First Capital received $10.9 million from Treasury in exchange for 10,958 shares of preferred stock. Treasury also received warrants for the right to purchase 250,947 shares First Capital common stock at $6.55 per share.

Some banks, particularly larger national banks, have since purchased the shares back from Treasury, freeing themselves of the 5 percent TARP dividends and regulatory restrictions that came along with the deal, including certain pay restrictions on executives.

“I think banks if they have adequate capital probably will be looking to pay TARP back,” Beale said.

Buying your way out of TARP has its advantages, Beale said.

“It’s a lot more pleasant operating environment when you’re not subject to the restrictions of the U.S. Treasury.”

There is one other motivating factor for banks to buy themselves out of TARP. A provision calls for the 5 percent dividend to jump to 9 percent after three years. That would mean early 2012 for First Capital.

First Capital began the process in March to increase the number of shares it is authorized to offer when its board of directors unanimously approved the idea, according to Securities and Exchange Commission filings. Its shareholders voted in favor of the increase at its annual meeting in May. The company then made the final step in the process, officially amending its articles of incorporation earlier this month.

According to its recent proxy statement, First Capital believes it’s in the company’s best interest to authorize the increase in shares “in order to meet the company’s possible future business and financial needs as they arise.”

The increase gives the company the “capability and flexibility to issue common stock for various purposes that the board of directors may deem advisable.”
Those purposes are expected to include raising additional capital and increasing its capital position, it said in the proxy.

First Capital Bank has eight branches and offices around Richmond. According to its holding company’s filings, it remained profitable throughout the recession and most recently reported net income of $351,755 for the first quarter of 2010, up from $102,178 a year earlier.

Michael Schwartz covers banking for BizSense. Please send news tips to [email protected]

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