Local bank sheds its TARP

firstcapitalbuildingsecondAnother local bank is saying adios to TARP.

But First Capital Bank took an unorthodox route to buying its way out from the government program.

The Glen Allen-based bank exited the TARP Capital Purchase Program at a discount after buying back its shares at a U.S. Treasury auction last week. It’s the third local bank to get out from under TARP.

First Capital in April 2009 received $10.9 million from the U.S. Treasury in exchange for 10,958 shares of its preferred stock at $1,000 per share.

Last week, First Capital bought back 5,434 of those shares at a public auction for $4.99 million, or about $920 a share.

“It was an 8 percent discount, which we think is pretty good,” said John Presley, chief executive of First Capital Bancorp. “We bid at a level that we thought was a good deal for us and the Treasury.”

Created in the early stages of the financial crisis to give banks a capital cushion against the recession, TARP made the federal government a preferred shareholder of First Capital and hundreds of other banks across the country, including eight in Richmond.

Many banks have had to pay full price to purchase the shares back from Treasury and free themselves from the program, including locally based Union First Market Bank and C&F Bank.

But First Capital saw an opportunity to get out at a discount when the U.S. Treasury unexpectedly chose the company this month as one of seven banks in the country whose TARP shares would be put up for public auction.

Last week’s deal means the federal government no longer is a preferred shareholder of the bank. But First Capital isn’t completely free and clear.

The remaining 5,500 shares were bought at auction by an unknown bidder, Presley said.

As it did with the Treasury, First Capital will have to continue to pay 5 percent quarterly dividends to that new shareholder, once it finds out who it is. That dividend rate jumps to 9 percent in two years.

“Somebody else bought it, and we are not aware of who it is,” Presley said. “We have to pay them dividends, so I assume at some point we’ll find out.”

The deal cuts First Capital’s dividend payments in half because it purchased half the shares itself.

Once it paid its investment bankers for working the deal, the Treasury received proceeds of $9.93 million from the auction of First Capital’s shares. Factor in the $1.6 million the bank has paid in TARP dividends since 2009, Presley said the Treasury got a pretty good return on its investment.

“We feel pretty good that Treasury got back all the money it gave First Capital to use,” plus dividends, Presley said.

Because many labeled the program a “bailout,” some bankers have regretted participating because of the associated stigma. Others said the government sold the program in a more positive light and changed some of the rules along the way.

Presley is a glass-half-full kind of guy.

“We believe TARP did exactly what it was designed to do. It gave us capital to get us through a very difficult time in banking. It got us through some of our issues until we were able to raise capital,” he said. “We think it was government at its best, at least for First Capital.”

 

firstcapitalbuildingsecondAnother local bank is saying adios to TARP.

But First Capital Bank took an unorthodox route to buying its way out from the government program.

The Glen Allen-based bank exited the TARP Capital Purchase Program at a discount after buying back its shares at a U.S. Treasury auction last week. It’s the third local bank to get out from under TARP.

First Capital in April 2009 received $10.9 million from the U.S. Treasury in exchange for 10,958 shares of its preferred stock at $1,000 per share.

Last week, First Capital bought back 5,434 of those shares at a public auction for $4.99 million, or about $920 a share.

“It was an 8 percent discount, which we think is pretty good,” said John Presley, chief executive of First Capital Bancorp. “We bid at a level that we thought was a good deal for us and the Treasury.”

Created in the early stages of the financial crisis to give banks a capital cushion against the recession, TARP made the federal government a preferred shareholder of First Capital and hundreds of other banks across the country, including eight in Richmond.

Many banks have had to pay full price to purchase the shares back from Treasury and free themselves from the program, including locally based Union First Market Bank and C&F Bank.

But First Capital saw an opportunity to get out at a discount when the U.S. Treasury unexpectedly chose the company this month as one of seven banks in the country whose TARP shares would be put up for public auction.

Last week’s deal means the federal government no longer is a preferred shareholder of the bank. But First Capital isn’t completely free and clear.

The remaining 5,500 shares were bought at auction by an unknown bidder, Presley said.

As it did with the Treasury, First Capital will have to continue to pay 5 percent quarterly dividends to that new shareholder, once it finds out who it is. That dividend rate jumps to 9 percent in two years.

“Somebody else bought it, and we are not aware of who it is,” Presley said. “We have to pay them dividends, so I assume at some point we’ll find out.”

The deal cuts First Capital’s dividend payments in half because it purchased half the shares itself.

Once it paid its investment bankers for working the deal, the Treasury received proceeds of $9.93 million from the auction of First Capital’s shares. Factor in the $1.6 million the bank has paid in TARP dividends since 2009, Presley said the Treasury got a pretty good return on its investment.

“We feel pretty good that Treasury got back all the money it gave First Capital to use,” plus dividends, Presley said.

Because many labeled the program a “bailout,” some bankers have regretted participating because of the associated stigma. Others said the government sold the program in a more positive light and changed some of the rules along the way.

Presley is a glass-half-full kind of guy.

“We believe TARP did exactly what it was designed to do. It gave us capital to get us through a very difficult time in banking. It got us through some of our issues until we were able to raise capital,” he said. “We think it was government at its best, at least for First Capital.”

 

This story is for our paid subscribers only. Please become one of the thousands of BizSense Pro readers today!

Your subscription has expired. Renew now by choosing a subscription below!

For more informaiton, head over to your profile.

Profile


SUBSCRIBE NOW

 — 

 — 

 — 

TERMS OF SERVICE:

ALL MEMBERSHIPS RENEW AUTOMATICALLY. YOU WILL BE CHARGED FOR A 1 YEAR MEMBERSHIP RENEWAL AT THE RATE IN EFFECT AT THAT TIME UNLESS YOU CANCEL YOUR MEMBERSHIP BY LOGGING IN OR BY CONTACTING [email protected].

ALL CHARGES FOR MONTHLY OR ANNUAL MEMBERSHIPS ARE NONREFUNDABLE.

EACH MEMBERSHIP WILL ONLY FUNCTION ON UP TO 3 MACHINES. ACCOUNTS ABUSING THAT LIMIT WILL BE DISCONTINUED.

FOR ASSISTANCE WITH YOUR MEMBERSHIP PLEASE EMAIL [email protected]




Return to Homepage

POSTED IN Banking

Editor's Picks

Subscribe
Notify of
guest

3 Comments
oldest
newest most voted
Inline Feedbacks
View all comments
Michael
Michael
12 years ago

Good deal for who? Not the tax payer.

doug
doug
12 years ago
Reply to  Michael

Looks like it was a pretty good deal for us taxpayers. We taxpayers gave $10.9 million, got back $11.53 million and kept the bank from failing. 5.5% return over 3 years isn’t stellar but its better than recent treasury rates.

bobby
bobby
12 years ago
Reply to  Michael

boy i hope you don’t depend on your mat skills to make a living. it was a great deal for the tax payer. have you seen what treasuries are paying? borrow at less than 2% to invest and get back 5+ % is excellent in todays enviroment