A $9.8 million ace in the hole

A Northern Virginia investor wants to buy a chunk of a local bank and give it a shot of fresh cash, but the bank wants to give shareholders a crack at the investment.

First Capital Bank is looking to raise $17.8 million in new capital, and it’s willing to give up a big piece of itself to do so if its shareholders don’t step up to the plate.

First Capital and its Innsbrook-based holding company, First Capital Bancorp, said Thursday that it entered into an agreement through which Kenneth R. Lehman, an investor from Arlington, Va., could buy up to 4.9 million shares if First Capital’s shareholders don’t first bite on the offer.

Lehman is a shareholder and director of several East Coast banks and was at one time an attorney with the Securities and Exchange Commission.

First Capital is trying to close the deal by the end of March. It has hired Richmond-based investment banking firm Davenport & Co. to handle the deal.

“It’s been a tough three years in the banking industry,” First Capital chief executive John Presley said. Raising capital “will help give us more confidence. Higher levels of capital give you a lot more flexibility.”

The specifics of the offering are somewhat complicated.

For every share they own, First Capital’s current investors will get the first right to purchase three units in the offering.

If all the bank’s shareholders exercise their rights, the offering will be fully subscribed, and there would be no room for Lehman, Presley explained.

But if there were room, Lehman would have the chance to put up $9.8 million. A provision of the deal would prevent Lehman from owning more than 45 percent of First Capital’s shares.

Mr. Lehman might eventually be offered a seat on the First Capital board. But the company’s current management will remain in place.

Eventually, if shares are still available, they could be offered to the public.

“It’s a democratic way of doing it,” Presley said. “If [current shareholders] choose not to exercise the rights, then, yes, Mr. Lehman will own a big piece of the company.”

While some might question giving up such a large percentage of the company, Presley said it’s a reasonable price to pay for precious capital.

“I think in any situation, particularly in these times, more capital is better than less capital,” Presley said. “We feel fortunate that Mr. Lehman is there to stand by.”

First Capital, which has seven branches and $535 million in assets, said the money from the offering would be used as a capital cushion to help the bank deal with bad loans.

The bank lost $3.9 million through the first nine months of 2011, and about 5 percent of its assets are considered non-performing. It is still considered well capitalized under regulatory standards.

The bank said it might also look to use some of the cash buy its way out of the TARP Capital Purchase Program.

First Capital took $10.9 million from the U.S. Treasury as part of TARP and has yet to exit the program.

This would be the bank’s first capital raise since 2007, and it will be the first capital raise attempted by a local bank since Franklin Federal Savings Bank netted about $138 million early last year.

Bank of Virginia gave up majority ownership of itself in 2010 to a group of Virginia investors in exchange for $10.3 million in fresh capital.

Central Virginia Bank shelved a $15 million raise in late 2010. The failed Virginia Business Bank tried to raise $20 million in 2010, but couldn’t reach its goal.

 

A Northern Virginia investor wants to buy a chunk of a local bank and give it a shot of fresh cash, but the bank wants to give shareholders a crack at the investment.

First Capital Bank is looking to raise $17.8 million in new capital, and it’s willing to give up a big piece of itself to do so if its shareholders don’t step up to the plate.

First Capital and its Innsbrook-based holding company, First Capital Bancorp, said Thursday that it entered into an agreement through which Kenneth R. Lehman, an investor from Arlington, Va., could buy up to 4.9 million shares if First Capital’s shareholders don’t first bite on the offer.

Lehman is a shareholder and director of several East Coast banks and was at one time an attorney with the Securities and Exchange Commission.

First Capital is trying to close the deal by the end of March. It has hired Richmond-based investment banking firm Davenport & Co. to handle the deal.

“It’s been a tough three years in the banking industry,” First Capital chief executive John Presley said. Raising capital “will help give us more confidence. Higher levels of capital give you a lot more flexibility.”

The specifics of the offering are somewhat complicated.

For every share they own, First Capital’s current investors will get the first right to purchase three units in the offering.

If all the bank’s shareholders exercise their rights, the offering will be fully subscribed, and there would be no room for Lehman, Presley explained.

But if there were room, Lehman would have the chance to put up $9.8 million. A provision of the deal would prevent Lehman from owning more than 45 percent of First Capital’s shares.

Mr. Lehman might eventually be offered a seat on the First Capital board. But the company’s current management will remain in place.

Eventually, if shares are still available, they could be offered to the public.

“It’s a democratic way of doing it,” Presley said. “If [current shareholders] choose not to exercise the rights, then, yes, Mr. Lehman will own a big piece of the company.”

While some might question giving up such a large percentage of the company, Presley said it’s a reasonable price to pay for precious capital.

“I think in any situation, particularly in these times, more capital is better than less capital,” Presley said. “We feel fortunate that Mr. Lehman is there to stand by.”

First Capital, which has seven branches and $535 million in assets, said the money from the offering would be used as a capital cushion to help the bank deal with bad loans.

The bank lost $3.9 million through the first nine months of 2011, and about 5 percent of its assets are considered non-performing. It is still considered well capitalized under regulatory standards.

The bank said it might also look to use some of the cash buy its way out of the TARP Capital Purchase Program.

First Capital took $10.9 million from the U.S. Treasury as part of TARP and has yet to exit the program.

This would be the bank’s first capital raise since 2007, and it will be the first capital raise attempted by a local bank since Franklin Federal Savings Bank netted about $138 million early last year.

Bank of Virginia gave up majority ownership of itself in 2010 to a group of Virginia investors in exchange for $10.3 million in fresh capital.

Central Virginia Bank shelved a $15 million raise in late 2010. The failed Virginia Business Bank tried to raise $20 million in 2010, but couldn’t reach its goal.

 

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