First Capital Bancorp, Eastern Virginia Bankshares call off merger

First Capital Bancorp Inc., the bank holding company for First Capital Bank, and Eastern Virginia Bankshares Inc. have called off their merger, citing the long process to get regulatory approval.

The merger was announced April 3 and shareholders from Glen Allen-based First Capital and Tappahannock-based Eastern Virginia, the bank holding company for EVB, had approved the transaction. The combination would have created the second-largest community bank based in the Richmond area and one of the 10 largest in Virginia, based on total assets.

Joe Shearin, president and chief executive officer of Eastern Virginia, and John Presley, managing director and chief executive of First Capital, said in a joint statement yesterday that the combination of the two banks was considered to be in the best interest of customers, shareholders, employees and the community.

"We still believe that today. However, the current regulatory and economic environment is such that obtaining regulatory approval has taken much longer than we ever anticipated and has reached a point . . . that continuing to wait for this approval is not in the best interest of either company."

Analyst Kent Engelke said although the stated reason is the regulatory process took longer than anyone anticipated, he has never heard of a merger being called off for that reason. The real reason may never come to light, said Engelke, chief economic strategist and managing director of Capitol Securities Management.

The merger was originally viewed as an opportunity for Eastern Virginia to get into the high-growth Richmond market and First Capital to use Eastern Virginia's large capital base to grow, he said.

Since the merger was announced, capital markets have opened up for small, well-run, profitable community banks, Engelke said.

"First Capital had great earnings," he said. "Does First Capital believe they could raise funds on their own to continue to grow, to buy other nonperforming banks and not sacrifice some of their autonomy or suffer [share] dilution via a merger with Eastern Virginia? Maybe."

In its announcement of the merger termination, First Capital pointed out that it recently reported profits of $405,000 in the third quarter. It also said its loan portfolio had improved.

"The bank was profitable for the quarter and outside of merger expenses and [Federal Deposit Insurance Corp.] assessments, the bank has been profitable for the year as it was profitable in 2008," First Capital Bank president and CEO Bob Watts said in a statement.

The bank incurred year-to-date charge-offs for bad loans of $442,000 and nonperforming assets totaled $9.9 million, representing 2.52 percent of its loan portfolio at the end of the quarter. It also reported $277,000 in merger-related expenses.

Presley said a great deal of effort has gone into the integration of the two companies. However, First Capital has remained focused on liquidity, capital, funding costs, adequacy of the allowance for loan losses and profitability, he said.

"We have grown our deposit base, lowered our costs of funds, increased our capital and positioned the balance sheet for future success, all the while increasing our level of loan loss reserve to reflect the environment we live in today," Presley said.

Contact Carol Hazard at (804) 775-8023 or .