Central Virginia Bankshares said Friday that it wants to raise up to $15 million to replenish its capital reserves. The bank also said it will likely not be making many new loans until it is in better financial shape, according to the preliminary prospectus it filed.
The news of its intentions comes just weeks before the struggling bank holding company expects to enter a turnaround plan with federal and state regulators to try and repair its financial condition. The $471 million company has said it will enter the agreement with the Federal Reserve Bank of Richmond and the Virginia Bureau of Financial Institutions at the end of the second quarter.
“Over the past twenty-four months, our capital position has been negatively impacted by deteriorating economic conditions that in turn has caused losses in our investment and loan portfolios,” CVB said in the prospectus filed with the Securities and Exchange Commission. “Management and our board of directors believe that a higher level of capital is prudent due to the current market conditions and the related impact on our financial position.”
BizSense was unable to reach a representative at the bank.
Although Powhatan-based CVB has said the conditions of the turnaround agreement are not yet finalized, the agreements typically include terms that the bank or holding company in question must raise capital. Another provision typical of these agreements forces the company to cease lending until its balance sheet stabilizes.
“We do not expect a substantial near-term increase in the growth of our assets,” the company said in the prospectus. “At such time that we see the local economy grow and customer demand return, we do expect to prudently increase our lending activities within regulatory capital limitations.”
This will be CVB’s first efforts to raise capital since January 2009, when it and its subsidiary Central Virginia Bank received $11.3 million in capital from the U.S. Treasury through the Capital Purchase Program, part of the controversial Troubled Asset Relief Program.
CVB’s shareholder will vote today on whether or not to allow the bank to sell 6 million to 30 million shares.
The company, according to a preliminary prospectus filed with the Securities and Exchange Commission, will try to raise the capital through a rights offering that will give existing shareholders the right to purchase one share for each share they already own. A price per share was not included in this prospectus.
As of yesterday’s closing bell, CVB shares were trading at $1.79 each with 2.6 million shares outstanding. Shares were worth about $4 in June of last year.
According to the prospectus, CVB is considered adequately capitalized by regulators. But it said the agreement would likely force it to “significantly exceed the capital level required to be classified as ‘well capitalized.’”
Its agreement with regulators and its need to raise capital are related to losses that began when the recession took hold.
CVB lost nearly $19 million combined in 2008 and 2009, fueled at first by losses on investments in Lehman Brothers, Fannie Mae and Freddie Mac and then by losses on troubled real estate and commercial loans.
It had $31.2 million in non-performing assets as of the end of the first quarter, accounting for 11 percent of all its loans.
The company did turn a small profit of $87,000 in the first quarter.
As has been the case recently with other local banks that have come under regulatory agreements, the companies typically begin working toward resolving many of the issues before the agreements are finalized and made public.
That appears to be the case with CVB.
A provision typical of such regulatory agreements usually includes bringing in new management that has experience in dealing with high levels of problem assets.
CVB said recently in a filing that it has contracted with Strategic Risk Associates, a local firm whose specialty is working with troubled banks. SRA has assigned Herbert E. Marth Jr., a veteran local banker to serve as CVB’s interim COO.
CVB also announced this month that longtime CEO Larry Lyons would retire by year’s end.
Messages left for Marth and Lyons to discuss its capital raising efforts were not returned by press time.
Michael Schwartz covers banking for BizSense. Please send news tips to [email protected]