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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

Form 10-Q

 

 

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT

For the transition period from              to             

 

 

FIRST CAPITAL BANCORP, INC.

(Name of Small Business Issuer in its charter)

 

 

 

Virginia   001-33543   11-3782033

(State or other jurisdiction of

Incorporation or organization)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

4222 Cox Road, Suite 200, Glen Allen, Virginia 23060

(Address of principal executive offices)

804-273-1160

(Issuer’s telephone number)

 

 

Indicate by check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

2,971,171 shares of Common Stock, par value $4.00 per share, were outstanding at November 13, 2009.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page
PART I – FINANCIAL INFORMATION   

Item 1 –

   Financial Statements   
   Consolidated Statements of Financial Condition September 30, 2009 (unaudited) and December 31, 2008    3
   Consolidated Statements of Income For the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited)    4
   Consolidated Statements of Stockholders’ Equity and Comprehensive Income For the Six Months Ended September 30, 2009 and 2008 (unaudited)    5
   Consolidated Statements of Cash Flows For the Nine Months Ended September, 2009 and 2008 (unaudited)    6
   Notes to Consolidated Financial Statements (unaudited)    7

Item 2 –

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    14

Item 3 –

   Quantitative and Qualitative Disclosures About Market Risk – Not Applicable    21

Item 4 –

   Controls and Procedures    21

PART II – OTHER INFORMATION

  

Item  1 –

   Legal Proceedings – None to Report.    22

Item 1A –

   Risk Factors – Not Applicable    22

Item 2 –

   Unregistered Sales of Equity Securities and Use of Proceeds – Not Applicable.    22

Item 3 –

   Defaults Upon Senior Securities – Not Applicable.    22

Item 4 –

   Submission of Matters to a Vote of Security Holders    22

Item 5 –

   Other Information – None to Report    22

Item 6 –

   Exhibits    22

SIGNATURES

   24

 

2


Table of Contents

PART 1 - FINANCIAL INFORMATION

Item 1 - Financial Statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

September 30, 2009 and December 31, 2008

 

     2009     2008
     (Unaudited)      

ASSETS

    

Cash and due from banks

   $ 4,669,753      $ 5,439,863

Interest-bearing deposits in other banks

     28,621,993        274,471

Federal funds sold

     1,000,000        9,640,000

Investment securities:

    

Available for sale, at fair value

     67,199,273        30,523,357

Held to maturity, at cost

     1,453,095        1,453,541

Restricted, at cost

     4,158,289        3,804,039

Loans, net of allowance for losses

     389,754,882        367,440,018

Other real estate owned

     2,646,285        2,158,179

Premises and equipment, net

     7,207,162        7,214,660

Accrued interest receivable

     1,913,663        1,804,805

Deferred tax asset

     846,451        952,554

Other assets

     1,446,957        847,709
              

Total assets

   $ 510,917,803      $ 431,553,196
              

LIABILITIES

    

Deposits

    

Noninterest-bearing

   $ 36,816,744      $ 34,517,982

Interest-bearing

     367,014,690        299,782,058
              

Total deposits

     403,831,434        334,300,040
              

Accrued expenses and other liabilities

     2,516,604        2,525,956

Securities sold under repurchase agreements

     945,124        2,152,628

Subordinated debt

     7,155,000        7,155,000

Federal Home Loan Bank advances

     50,000,000        50,000,000
              

Total liabilities

     464,448,162        396,133,624
              

STOCKHOLDERS’ EQUITY

    

Preferred stock, $4.00 par value (authorized 2,000,000 shares; issued and outstanding 2009: Series A: $1,000 Stated Value 10,958 shares Fixed Rate Cumulative Perpetual Preferred, and $0 at December 31, 2008

     43,832        —  

Common stock, $4.00 par value (authorized 5,000,000 shares; issued and outstanding, 2,971,171 at September 30, 2009 and December 31, 2008 respectively)

     11,884,684        11,884,684

Additional paid-in capital

     29,663,885        18,650,379

Retained earnings

     4,131,145        4,688,639

Warrants

     660,769        —  

Discount on preferred stock

     (596,621     —  

Accumulated other comprehensive income, net of tax

     681,947        195,870
              

Total stockholders’ equity

     46,469,641        35,419,572
              

Total liabilities and stockholders’ equity

   $ 510,917,803      $ 431,553,196
              

See notes to consolidated financial statements.

 

3


Table of Contents

First Capital Bancorp Inc. and Subsidiary

Consolidated Statements of Income

Unaudited

 

     Three Months Ended
September 30,
   

Nine Months Ended

September 30,

     2009    2008     2009     2008

Interest income

         

Loans

   $ 5,869,551    $ 5,652,541      $ 16,956,071      $ 16,526,997

Investments:

         

Taxable interest income

     517,291      357,908        1,413,136        1,084,247

Tax exempt interest income

     77,333      16,342        187,981        46,157

Dividends

     6,339      30,454        33,030        135,708

Federal funds sold and interest bearing deposits

     19,856      45,853        39,595        203,561
                             

Total interest income

     6,490,370      6,103,098        18,629,813        17,996,670
                             

Interest expense

         

Deposits

     2,627,689      2,693,071        8,241,870        7,865,974

FHLB advances

     473,499      473,499        1,405,059        1,398,917

Federal funds purchased

     —        1,788        110        34,190

Subordinated debt and other borrowed money

     62,931      100,662        213,505        325,282
                             

Total interest expense

     3,164,119      3,269,020        9,860,544        9,624,363
                             

Net interest income

     3,326,251      2,834,078        8,769,269        8,372,307

Provision for loan loss

     380,000      1,406,640        1,690,000        2,041,640
                             

Net interest income after provision for loan loss

     2,946,251      1,427,438        7,079,269        6,330,667
                             

Noninterest income

         

Fees on deposits

     70,000      60,032        192,893        184,405

Other

     130,547      123,549        395,280        370,114
                             

Total noninterest income

     200,547      183,581        588,173        554,519
                             

Noninterest expenses

         

Salaries and employee benefits

     1,187,821      1,065,810        3,514,603        3,142,356

Merger costs

     56,384      —          276,607        —  

Occupancy expense

     205,151      223,657        617,803        642,726

Data processing

     168,491      212,248        532,569        506,792

Professional services

     31,739      58,497        273,536        167,858

Advertising and marketing

     48,921      128,797        69,442        242,290

FDIC assessment

     251,000      51,111        844,093        153,111

Virginia franchise tax

     116,000      99,000        332,000        263,000

Depreciation

     105,874      99,502        313,313        272,826

Other expenses

     372,153      361,173        1,141,738        941,745
                             

Total noninterest expense

     2,543,534      2,299,795        7,915,704        6,332,704
                             

Net income (loss) before provision for income taxes

     603,264      (688,776     (248,262     552,482

Income tax expense (benefit)

     198,500      (225,700     (24,300     214,250
                             

Net income (loss)

   $ 404,764    $ (463,076   $ (223,962   $ 338,232
                             

Effective dividend on preferred stock

     169,099      —          333,532        —  

Net income (loss) available to common shareholders

   $ 235,665    $ (463,076   $ (557,494   $ 338,232
                             

Basic income (loss) per share

   $ 0.08    $ (0.16   $ (0.19   $ 0.11
                             

Diluted income (loss) per share

   $ 0.08    $ (0.16   $ (0.19   $ 0.11
                             

See notes to consolidated financial statements.

 

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Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

Nine Months Ended September 30, 2009 and 2008

(Unaudited)

 

    Preferred
Stock
  Common
Stock
  Additional
Paid-in
Capital
    Retained
Earnings
    Warrant   Discount
on
Preferred
Stock
    Accumulated
Other
Comprehensive
Income
(Loss)
    Total  

Balance January 1, 2008

  $ —     $ 11,884,684   $ 18,492,528      $ 4,518,278      $ —     $ —        $ (36,432   $ 34,859,058   

Net income

    —       —       —          338,232        —       —          338,232        338,232   

Other comprehensive income

               

Unrealized holding loss arising during period, (net of tax, $353,279)

    —       —       —          —          —       —          (650,835     (650,835
                     

Total comprehensive income

              -$ 312,603     
                     

Stock based compensation expense

    —       —       116,356        —          —       —            116,356   
                                                         

Balance September 30, 2008

  $ —     $ 11,884,684   $ 18,608,884      $ 4,856,510      $ —     $ —        $ (687,267   $ 34,662,811   
                                                         

Balance January 1, 2009

  $ —     $ 11,884,684   $ 18,650,379      $ 4,688,639      $ —     $ —        $ 195,870      $ 35,419,572   

Net (loss)

    —       —       —          (223,962     —       —          (223,962     (223,962

Other comprehensive loss

               

Unrealized holding (loss) arising during period, (net of tax, $250,403)

    —       —       —          —          —       —          486,077        486,077   
                     

Total comprehensive income

              $ 262,115     
                     

Issuance of Preferred Stock

    43,832     —       10,914,168        —          660,769     (660,769       10,958,000   

Cost associated with preferred stock

    —       —       (24,272     —          —       —            (24,272

Dividends on Preferred Stock

    —       —       —          (269,384     —       —            (269,384

Accretion of discount on Preferred Stock

    —       —       —          (64,148     —       64,148          —     

Stock based compensation expense

    —       —       123,610        —          —       —            123,610   
                                                         

Balance September 30, 2009

  $ 43,832   $ 11,884,684   $ 29,663,885      $ 4,131,145      $ 660,769   $ (596,621   $ 681,947      $ 46,469,641   
                                                         

See notes to consolidated financial statements.

 

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Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2009 and 2008

(Unaudited)

 

     2009     2008  

Cash flows from operating activities

    

Net income (loss)

   $ (223,962   $ 338,232   

Adjustments to reconcile net income (loss) to net cash provided by operating activities

    

Provision for loan losses

     1,690,000        635,000   

Depreciation of premises and equipment

     313,313        173,324   

Stock based compensation expense

     123,610        79,098   

Deferred income taxes

     (144,301     (213,000

Net (accretion) amortization of bond premiums/discounts

     227,536        (37,099

Increase in loans held for sale

     —          (299,000

Increase (decrease) in other assets

     (599,249     51,459   

Decrease in accrued interest receivable

     (108,858     31,187   

Decrease in accrued expenses and other liabilities

     (9,352     (745,629
                

Net cash provided by (used in) operating activities

     1,268,737        13,572   
                

Cash flows from investing activities

    

Proceeds from maturities and calls of securities

     4,200,000        19,500,000   

Proceeds from paydowns of securities available-for-sale

     5,286,058        1,318,123   

Purchase of securities available-for-sale

     (45,652,582     (18,392,898

Purchase of FHLB Stock

     (143,800     (620,300

Purchase of Federal Reserve Stock

     (210,450     —     

Purchases of property and equipment

     (305,815     (167,151

Purchase of land and building

     —          (2,301,794

Construction in progress

     —          (1,274,020

Net increase in loans

     (24,492,970     (38,809,881
                

Net cash used in investing activities

     (61,319,559     (40,747,921
                

Cash flows from financing activities

    

Net increase (decrease) in demand, savings and money market accounts

     84,898,559        (10,812,634

Advances from FHLB

     —          10,000,000   

Issurance of preferred stock to U.S. Treasury, net of related expenses

     10,933,728        —     

Dividends on preferred stock

     (269,384     —     

Net (decrease) increase in certificates of deposit

     (15,367,165     43,925,314   

Increase in Federal funds purchased

     —          1,642,000   

Net (decrease) increase in repurchase agreements

     (1,207,504     167,552   
                

Net cash provided by financing activities

     78,988,234        44,922,232   
                

Net increase in cash and cash equivalents

     18,937,412        4,187,883   

Cash and cash equivalents, beginning of period

     15,354,334        16,779,538   
                

Cash and cash equivalents, end of period

   $ 34,291,746      $ 20,967,421   
                

Supplemental disclosure of cash flow information

    

Interest paid during the period

   $ 9,829,218      $ 6,318,398   
                

Taxes paid during the period

   $ 724,283      $ 740,000   
                

Supplemental schedule of noncash investing and financing activities

    

Transfer of loans to other real estate owned, net

   $ 1,416,852      $ —     
                

See notes to consolidated financial statements.

 

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Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

Note 1 – Basis of Presentation

First Capital Bancorp, Inc. (the “Company”) is the holding company of and successor to First Capital Bank (the “Bank”). Effective September 8, 2006, the Company acquired all of the outstanding stock of the Bank in a statutory share exchange transaction (the “Share Exchange”) pursuant to an Agreement and Plan of Reorganization dated September 5, 2006, between the Company and the Bank (the “Agreement”). The Agreement was approved by the shareholders of the Bank at the annual meeting of shareholders held on May 16, 2006. Under the terms of the Agreement, the shares of the Bank’s common stock were exchanged for shares of the Company’s common stock, par value $4.00 per share, on a one-for-one basis. As a result, the Bank became a wholly owned subsidiary of the Company, the Company became the holding company of the Bank and the shareholders of the Bank became shareholders of the Company.

In management’s opinion the accompanying consolidated financial statements, reflect all adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the financial information as of September 30, 2009 and December 31, 2008 and for the three and nine months ended September 30, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America. Results for the three and nine month periods ended September 30, 2009 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2009.

The organization and business of the Company, accounting policies followed, and other related information are contained in the notes to the financial statements of the Company as of and for the year ended December 31, 2008 filed as part of the Company’s annual report on Form 10-K. These interim financial statements should be read in conjunction with the annual financial statements.

First Capital Bancorp, Inc.’s critical accounting policy relates to the evaluation of the allowance for loan losses which is based on management’s opinion of an amount that is adequate to absorb losses in the Company’s existing portfolio. The allowance for loan losses is established through a provision for loan loss based on available information including the composition of the loan portfolio, historical loan losses (to the extent available due to limited history), specific impaired loans, availability and quality of the collateral, age of the various portfolios, changes in local economic conditions, and loan performance and quality of the portfolio. Different assumptions used in evaluating the adequacy of the Company’s allowance for loan losses could result in material changes in its financial condition and results of operations. The Company’s policies with respect to the methodology for determining the allowance for loan losses involve a high degree of complexity and require management to make subjective judgments that often require assumptions or estimates about certain matters. This critical policy and its assumptions are periodically reviewed with the Company’s Board of Directors.

During the second quarter, First Capital Bancorp, Inc. issued 10,958 shares of preferred stock to the U. S. Treasury. The Company had applied for funds under the TARP Capital Purchase Plan (“CPP”). The agreement requires us to pay a 5% dividend on the preferred stock for the first five years. The dividend increases to 9% for all periods after the first five years if we have not redeemed the preferred stock. In addition, we issued a warrant to the U. S. Treasury giving them the right to purchase 250,947 shares of our common stock at $6.55 per share for up to 10 years.

Note 2 – Use of Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Note 3 – Earnings per share

Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the entity.

 

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Table of Contents

The basic and diluted earnings per share calculations are as follows:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
   2009    2008     2009     2008

Net income (loss) available to common shareholders

   $ 235,665    $ (463,076   $ (557,494   $ 338,232

Weighted average number of shares outstanding

     2,971,171      2,971,171        2,971,171        2,971,171
                             

Earnings (loss) per common share - basic

   $ 0.08    $ (0.16   $ (0.19   $ 0.11
                             

Effect of dilutive securities:

         

Weighted average number of shares outstanding

     2,971,171      2,971,171        2,971,171        2,971,171

Effect of stock options

     —        13,749        —          37,951
                             

Diluted average shares outstanding

     2,971,172      2,984,920        2,971,171        3,009,122
                             

Earnings (loss) per common share - assuming dilution

   $ 0.08    $ (0.16   $ (0.19   $ 0.11
                             

Note 4 – Stock Options

Accounting standards require the Company to measure compensation cost for all stock-based awards at fair value on the date of grant and recognizes compensation expense in the consolidated statements of income over the service period that the awards are expected to vest.

Options totaling 5,000, 3,500 and 20,000 shares were granted in January, August and October of 2008, respectively. All options were granted at an exercise price equal to 100% of the fair market value of the common stock on the date of grant. These options vest over three years. No options have been granted in the first nine months of 2009. The stock based compensation expensed during the nine months ended September 30, 2009 was $123,610 and is included in salaries and employee benefits.

Note 5 – Investment Securities

The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities as of September 30, 2009 and December 31, 2008 were as follows:

 

     September 30, 2009
   Amortized
Costs
   Gross Unrealized    Fair
Values
      Gains    Losses   

Available-for-sale

           

U.S. Government agencies

   $ 20,457,809    $ 212,762    $ 42,059    $ 20,628,512

Mortgage-backed securities

     11,631,285      291,472      196      11,922,561

Corporate bonds

     3,402,475      83,934      46,988      3,439,421

CMO securities

     20,115,853      236,938      22,403      20,330,388

State and political subdivisions - taxable

     4,075,023      259,417      —        4,334,440

State and political subdivisions - tax exempt

     6,483,051      97,240      36,340      6,543,951
                           
   $ 66,165,496    $ 1,181,763    $ 147,986    $ 67,199,273
                           

 

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Table of Contents
     December 31, 2008
     Amortized
Costs
   Gross Unrealized    Fair
Values
        Gains    Losses   

Available-for-sale

           

U.S. Government agencies

   $ 16,685,034    $ 437,483    $ —      $ 17,122,517

Mortgage-backed securities

     8,395,017      63,429      54,910      8,403,536

Corporate bonds

     3,390,363      —        121,643      3,268,720

Tax-exempt municipal bonds

     1,755,654      3,713      30,783      1,728,584
                           
   $ 30,226,068    $ 504,625    $ 207,336    $ 30,523,357
                           
     September 30, 2009
     Amortized
Costs
   Gross Unrealized    Fair
Values
        Gains    Losses   

Held-to-maturity

           

Tax-exempt municipal bonds

   $ 1,453,095    $ 141,692    $ —      $ 1,594,787
                           
   $ 1,453,095    $ 141,692    $ —      $ 1,594,787
                           
     December 31, 2008
     Amortized
Costs
   Gross Unrealized    Fair
Values
        Gains    Losses   

Held-to-maturity

           

Tax-exempt municipal bonds

   $ 1,453,541    $ 17,530    $ —      $ 1,471,071
                           
   $ 1,453,541    $ 17,530    $ —      $ 1,471,071
                           

The unrealized losses in the portfolio as of September 30, 2009 are considered temporary and are a result of the current interest rate environment and not increased credit risk. The Company has the ability and intent to hold debt securities in an unrealized loss position for the foreseeable future.

Note 6 – Loans

Major classifications of loans are as follows:

 

     September 30,
2009
   December 31,
2008
 
     Amount    Amount  

Commercial

   $ 53,639,648    $ 51,138,208   

Real estate - residential

     134,067,713      122,551,828   

Real estate - commercial

     121,043,443      106,796,170   

Real estate - construction

     83,179,435      86,515,314   

Consumer

     4,099,982      5,584,100   
               

Total loans

     396,030,221      372,585,620   

Less:

     

Allowance for loan losses

     6,317,498      5,060,433   

Net deferred costs (fees)

     42,159      (85,169
               

Loans, net

   $ 389,754,882    $ 367,440,018   
               

 

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A summary of the transactions affecting the allowance for loan losses follows:

Activity in the allowance for loan losses for the nine month period ended September 30, 2009 and 2008:

 

    Nine Months Ended
September 30,
 
    2009     2008  

Balance, beginning of year

  $ 5,060,433      $ 2,489,066   

Provision for loan losses

    1,690,000        2,041,640   

Recoveries

    8,970        6,322   

Charge-offs

    (441,905     (135,081
               

Balance, September 30

  $ 6,317,498      $ 4,401,947   
               

Ratio of allowance for loan losses as a percent of loans outstanding at the end of the period

    1.60     0.93
               

Note 7 – Fair Value Disclosures

Effective January 1, 2008, the Company adopted “Fair Value Measurements” (ASC 820) that clarifies the definition of fair value and describes methods available to appropriately measure fair value in accordance with generally accepted accounting principles. This statement applies whenever other accounting pronouncements require or permit fair value measurements.

Accounting standards prioritize the hierarchy of fair value techniques used to measure fair value into three broad levels (Levels 1, 2 and 3). Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability and reflect the reporting entity’s own evaluation about the assumptions that market participants would use in pricing the asset or liability.

Accounting standards define fair value as the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date.

Assets measured at fair value on a recurring basis are summarized below:

 

     September 30, 2009
     Fair Value Measurements Using    Fair
     Level 1    Level 2    Level 3    Values

Available-for-sale securities

           

U.S. Government agencies

   $ —      $ 20,628,512    $ —      $ 20,628,512

Mortgage-backed securities

     —        11,922,561      —        11,922,561

Corporate bonds

     —        3,439,421      —        3,439,421

CMO securities

     —        20,330,388      —        20,330,388

State and political subdivisions - taxable

        4,334,440         4,334,440

State and political subdivisions - tax exempt

        6,543,951         6,543,951
                           

Total

   $ —      $ 67,199,273    $ —      $ 67,199,273
                           

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with the U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis at September 30, 2009 are included in the table below.

 

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     September 30, 2009
     Fair Value Measurements Using    Fair
     Level 1    Level 2    Level 3    Values

Assets:

           

Nonaccrual loans

   $ —      $ 3,936,313    $ —      $ 3,936,313

Restructured loans

        3,390,086      

Other real estate owned

     —        2,646,285      —        2,646,285
                           

Total

   $ —      $ 9,972,684    $ —      $ 6,582,598
                           

Note 8 – Disclosures about fair value of financial instruments

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein:

Cash and due from banks – The carrying amounts of cash and due from banks approximate their fair value.

Available-for-sale and held-to-maturity securities – Fair values measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity (Level 3). The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the following table.

Loans receivable – Fair values are based on carrying values for variable-rate loans that reprice frequently and have no significant change in credit risk. Fair values for certain mortgage loans (for example, one-to-four family residential) and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for commercial real estate and commercial loans are estimated using discounted cash flow analyses and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The interest rates on loans at September 30, 2009 and December 31, 2008 are current market rates for their respective terms and associated credit risk.

Deposit liabilities – The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts approximate their fair values at the reporting date. Fair values for fixed-rate Certificates of Deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Accrued interest – The carrying amounts of accrued interest approximate their fair values.

Advances from Federal Home Loan Bank The carrying value of advances from the Federal Home Loan Bank due within ninety days from the balance sheet date approximate fair value. Fair values for convertible advances are estimated using a discounted cash flow calculation that applies interest rates currently being offered on convertible advances with similar remaining maturities.

Federal Funds purchased and repurchase agreements – The carrying value of federal funds purchased and repurchase agreements due within ninety days from the balance sheet date approximate fair value.

Off-balance-sheet instruments – Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and counterparties’ credit standings. These are not deemed to be material at September 30, 2009 and December 31, 2008.

 

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The estimated fair values of the Company’s financial instruments as of September 30, 2009 and December 31, 2008 are as follows:

 

     September 30, 2009    December 31, 2008
     Carrying
Amount
   Fair
Value
   Carrying
Amount
   Fair
Value
     (Dollars in thousands)

Financial assets

           

Cash and cash equivalents

   $ 34,292    $ 34,292    $ 13,354    $ 13,354

Investment securities

     68,652      68,794      31,977      31,994

Loans receivable, net

     389,755      386,747      367,440      363,485

Accrued interest

     1,914      1,914      1,805      1,805

Financial liabilities

           

Deposits

   $ 403,831    $ 410,954    $ 334,300    $ 342,862

FHLB advances

     50,000      53,185      50,000      52,404

Subordinated debt

     7,155      3,954      7,155      7,399

Repurchase agreements

     945      945      2,153      2,153

Unrecognized financial instruments Standby letters of credit issued

   $ —      $ —      $ —      $ —  

Note 9 – Cumulative Perpetual Preferred Stock

In April 2009 we were approved for and received $10,958,000 from the U.S. Treasury Department under the TARP Capital Purchase Program. Under this program we issued 10,958 shares of Series A, $1,000 stated value, cumulative perpetual preferred stock. This stock will carry a 5% dividend for each of the first 5 years of the investment, and 9% thereafter, unless we elect to redeem the shares.

Additionally, the Treasury received warrants to purchase 250,947 shares of First Capital Bancorp, Inc. common stock with an exercise price of $6.55.

Note 10 – Recently Issued Accounting Pronouncements

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (ASC 855, Subsequent Events) “ASC 855”. ACS 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, ASC 855 provides (a) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (b) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (c) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted ASC 855 in the second quarter of 2009. See Note 11 for additional information.

In June 2009, FASB issued SFAS No.168, FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (ASC 105, Generally Accepted Accounting Principles) “ASC 105”, which states that the FASB Accounting Standards CodificationTM (Codification) will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The codification is effective for these third quarter financial statements and the principal impact is limited to disclosures as all future references to authoritative literature will be reference in accordance with the codification.

 

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In April 2009, the FASB issued the following three FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities:

FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (ASC 820-10-65-4, Transition Related to FASB Staff Position FAS 157-4), provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have decreased significantly. This FSP also provides guidance on identifying circumstances that indicate a transaction is not orderly. The provisions of this FSP are effective for the Company’s interim period ending on June 30, 2009. The adoption of this FSP at June 30, 2009 did not have a material impact on the Company’s statement of operations and balance sheet.

FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (ASC 825-10-65-1, Transition Related to FSP FAS 107-1 and APB 28-1), requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The provisions of this FSP are effective for the Company’s interim period ending on June 30, 2009 and only amends the disclosure requirements about fair value of financial instruments in interim periods. The Company adopted this FSP during the second quarter of 2009. See Note 8 for additional information.

FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (ASC 320-10-65-1, Transition Related to FSP FAS 115-2 and FAS 124-2), amends current other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The provisions of this FSP are effective for the Company’s interim period ending on June 30, 2009. The Company adopted this FSP effective April 1, 2009. The adoption of this FSP did not have a material impact on the Company’s statement of operations and balance sheet.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value. This ASU provides amendments for fair value measurements of liabilities. It provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more techniques. ASU 2009-05 also clarifies that when estimating a fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. ASU 2009-05 is effective for the first reporting period (including interim periods) beginning after issuance or fourth quarter 2009. The Company is assessing the impact of ASU 2009-05 on our financial condition, results of operations, and disclosures.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

Note 11 – Subsequent Events

During the second quarter, First Capital Bancorp, Inc. announced plans to merge with Eastern Virginia Bankshares, Inc. located in Tappahannock, Virginia. This will be a strategic alliance which will match up their strong retail experience with our strong commercial business. The merger was expected to close in the fourth quarter of 2009.

On November 9, 2009, First Capital Bancorp, Inc. (“First Capital”) and Eastern Virginia Bankshares, Inc. (“Eastern Virginia”) mutually agreed to terminate the Agreement and Plan of Merger (the “Merger Agreement”) entered into by First Capital and Eastern Virginia on April 3, 2009. Under the terms of the Merger Agreement, First Capital was to be merged with and into Eastern Virginia (the “Merger”). After the effective time of the Merger, it was further contemplated that First Capital Bank, a wholly-owned subsidiary of First Capital, would merge with and into EVB, a wholly-owned subsidiary of Eastern Virginia. The parties agreed to terminate the Merger Agreement based on the current regulatory and economic environment.

 

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No termination fees are due and payable by either party in connection with the termination, and each party will be responsible for its own costs and expenses associated with the Merger Agreement and the proposed transaction.

Subsequent events have been evaluated through November 16, 2009, which is the date the financial statements were available to be issued.

 

ITEM 2.

FIRST CAPITAL BANCORP, INC

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The purpose of this discussion is to focus on important factors affecting the Company’s financial condition and results of operations. The discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements included elsewhere in this report.

This report contains forward-looking statements with respect to the financial condition, results of operations and business of the Company. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of the Company and on information available at the time these statements and disclosures were prepared. Factors that may cause actual results to differ materially from those expected included the following:

 

   

General economic conditions may deteriorate and negatively impact the ability of borrowers to repay loans and depositors to maintain balances.

 

   

Changes in interest rates could reduce income.

 

   

Competitive pressures among financial institutions may increase.

 

   

The businesses that the Company is engaged in may be adversely affected by legislative or regulatory changes, including changes in accounting standards.

 

   

New products developed or new methods of delivering products could result in a reduction in business and income for the Company.

 

   

Adverse changes may occur in the securities market.

OVERVIEW

Net income for the third quarter of 2009 was $405 thousand, or $0.08 per diluted share compared to a net loss of $463 thousand, or $0.16 per diluted share, in the third quarter of 2008. For the first nine months of 2009, the net loss was $224 thousand, or $0.19 per diluted share compared to net income year to date in 2008 of $338 thousand, or $0.11 per diluted share. During the quarter, the Company experienced improved credit metrics, increased net interest margin, increased net interest income and continued to build its allowance for loan losses.

On April 3, 2009 First Capital Bancorp, Inc. issued 10,958 shares of preferred stock to the U. S. Treasury. The Company had applied for funds under the TARP Capital Purchase Plan (“CPP”). The agreement requires us to pay a 5% dividend on the preferred stock for the first five years. The dividend increases to 9% for all periods after the first five years if we have not redeemed the preferred stock. In addition, we issued a warrant to the U. S. Treasury giving them the right to purchase 250,947 shares of our common stock at $6.55 per share for up to 10 years. These funds increased the capital ratios of an already well capitalized company.

 

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Financial Condition

Total assets at September 30, 2009 were $510.9 million, up $79.4 million, or 18.4%, from $431.6 million at year-end and up $91.3 million or 21.8% from September 30, 2008, when total assets were $419.6 million. This increase is the result of strong deposit growth, particularly in the first quarter of 2009 and the addition of $11 million from the issuance of preferred stock under the CPP program. Loan growth through September 30, 2009 was $22.3 million, or 6.1% compared to the 2008 year-end balance. Actual loan growth in the third quarter was $6.7 million compared to $10.1 million in the second quarter of 2009. For the quarter, total average assets were $506.8 million, an increase of 25.1% compared to $405.3 million in the third quarter of 2008. For the quarter ending September 30, 2009, average total loans, net of unearned income, were $389.8 million, an increase of $42.1 million, or 12.1%, compared to $347.7 million in the third quarter of 2008.

At September 30, 2009, the Company’s investment portfolio totaled $68.7 million, an increase of $38.1 million from $30.5 million at September 30, 2008 and an increase of $36.7 million from $32.0 million at year-end 2008. Interest rates during the first nine months of 2009 were low compared to the same period in the prior year. Most of the funds that are invested in the Company’s investment portfolio are part of management’s effort to balance interest rate risk and to provide liquidity. During the third quarter of 2009, management invested approximately $14.9 million in investments utilizing fed funds sold and interest bearing deposits to fund the purchases. This effort was intended to improve return and still provide liquidity to the Company.

Total deposits of $403.8 million at September 30, 2009 represent an increase of $69.5 million, or 20.8% from $334.3 million at year-end 2008 and an increase of $80.9 million, or 25.1%, from $322.9 million at September 30, 2008. The cost of deposits is projected to continue to decrease as large blocks of certificates of deposit reprice over the next six months. On an average basis, deposits increased $88.2 million from $274.9 million in the third quarter of 2008 to $363.2 million for the same period in 2009. The average increases in deposits were in interest-bearing deposits, primarily core money market ($77.9 million) and certificates of deposit ($12.4 million). Noninterest bearing demand accounts increased $5.1 million.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income represents a principal source of earnings for the Company. Changes in net interest income during 2009 to date are attributable primarily to the overall growth of the Company, offset by drastic actions of the Federal Reserve Bank’s Open Market Committee (“FOMC”). The FOMC has cut the federal funds targeted rate and the associated prime rate of interest by 400 basis points since January 1, 2008, resulting in a significant decline in the key rate that is tied to over 40% of the Company’s loan portfolio having a daily rate change. Although the vast majority of our time deposits are set to reprice in the next twelve months and will lower funding costs, this rapid reduction in rates put downward pressure on our net interest margin.

Net interest margin increased 20 basis points for the three months ended September 30, 2009 to 2.71% as compared to 2.51% for the second quarter of 2009, reflecting a decrease in average rate paid on interest-bearing deposits of 26 basis points from 3.32% for the second quarter of 2009 to 2.87% for the third quarter of 2009. This was offset by a 12 basis point decrease in the average yield on earning assets. The yield on loans, net of discount, remained unchanged at 5.92% for the second and third quarters of 2009. The average yield on investments decreased from 4.41% for the second quarter of 2009 to 4.34% for the third quarter of 2009 as investment purchases approximated $14.9 for the quarter.

Net interest margin is down 17 basis points for the three months ended September 30, 2009, as compared to the third quarter of 2008. The yield on earning assets decreased from 6.20% for the quarter ended September 30, 2008 to 5.26% for the quarter ended September 30, 2009. The cost of interest bearing liabilities decreased 90 basis points to 2.98% for the third quarter of 2009 as compared to 3.88% for the same period in 2008.

 

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For the nine months ended September 30, 2009, net interest income was up $397 thousand from $8.4 million in 2008 to $8.8 million in 2009. The yield on earning assets was 5.36% for the nine months ended September 30, 2009 compared to 6.44% for the same period in 2008 and was down 5 basis points from the six months ended June 30, 2009. The cost of interest-bearing liabilities was 3.30% for the first nine months of 2009 compared to 4.05% for the same quarter in 2008 and was down 17 basis points from the six months ended June 30, 2009.

Total interest and fees on loans, the largest component of net interest income, increased 3.8%, or $217 thousand to $5.9 million during the third quarter of 2009 compared to $5.7 million for the same period in 2008 due to the rapid decrease in interest rates during 2008 and continued low rates in 2009.

Interest on investment securities increased 58.9% to $595 thousand for the third quarter of 2009 compared to $377 thousand for the same period of 2008 as average balances in investment securities increased to $58.0 million for the three months ended September 30, 2009 from $31.6 million for the comparable period in 2008. Interest on federal funds sold and interest bearing deposits decreased $26 thousand for the third quarter of 2009 to $20 thousand from $46 thousand for the same period in 2008 as the yields on federal funds decreased from 1.90% for the third quarter of 2008 to .22% for the third quarter of 2009.

Dividends on restricted equity securities decreased $24 thousand to $6 thousand for the three months ended September 30, 2009 as compared to $30 thousand in the third quarter of 2008, as a result of the reduction of the dividend on Federal Home Loan Bank of Atlanta stock during the quarter and year-to-date.

Interest expense on deposits decreased $65 thousand to $2.6 million, or 2.4% for the third quarter of 2009 compared to the comparable period of 2008. The increase in deposit expense is due to the increase in average outstanding deposits, arising from the overall growth of the Company, restructuring of the deposit mix and offset by a decrease in the overall rates paid on deposits. Interest expense on borrowings totaled $536 thousand for the third quarter of 2009 a decrease of $38 thousand, or 37.5%, over the same period of 2008. This reduction in borrowings expense is the result of decreases in the average cost of Trust Preferred securities, which are tied to the three month LIBOR, from an average of 4.50% for the third quarter of 2008 to an average of 2.30% for the third quarter of 2009.

Average Balances, Income and Expenses, Yields and Rates

Net interest income represents our principal source of earnings. Net interest income is the amount by which interest generated from earning assets exceeds the expense of funding those assets. Changes in volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income

Earning assets consist primarily of loans, investment securities and other investments. Interest-bearing liabilities consist principally of deposits, Federal Home Loan Bank advances and other borrowings.

The following table illustrates average balances of total interest-earning assets and total interest-bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, shareholders’ equity and related income, expense and corresponding weighted-average yields and rates. The average balances used in these tables were calculated using daily average balances.

 

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Average Balances, Income and Expenses, Yields and Rates

 

     Three Months Ended September 30,  
     2009     2008  
     Average
Balance
    Income/
Expense
   Yields/
Rates
    Average
Balance
    Income/
Expense
   Yields/
Rates
 
     (Dollars in thousands)  

Assets:

              

Securities:

              

Taxable

   $ 50,951      $ 518    4.03   $ 29,818      $ 358    4.78

Tax exempt (1)

     7,071        117    6.57     1,759        25    5.60
                                          

Total securities

     58,022        635    4.34     31,577        383    4.82

Federal funds sold

     5,093        3    0.23     8,321        39    1.89

Interest bearing deposits

     31,376        17    0.21     1,266        6    2.01

FHLB & Federal Reserve Bank stock

     4,069        6    0.62     3,715        31    3.26

Loans, net of unearned income (2)

     393,672        5,870    5.92     347,489        5,653    6.47
                                          

Total earning assets

     492,232        6,531    5.26     392,368        6,112    6.20
                                          

Allowance for loan losses

     (6,079          (3,289     

Cash and cash equivalents

     6,130             7,753        

OREO

     2,572             —          

Other nonearning assets

     11,967             8,444        
                          

Total assets

   $ 506,822           $ 405,276        
                          

Liabilities & Stockholders’ Equity:

              

Interest checking

   $ 7,814      $ 7    0.38   $ 9,801      $ 9    0.37

Money market deposit accounts

     113,097        506    1.77     35,171        129    1.46

Statement savings

     737        1    0.47     924        1    4.40

Certificates of deposit

     241,453        2,114    3.47     229,014        2,554    4.44
                                          

Total interest-bearing deposits

     363,101        2,628    2.87     274,910        2,693    3.90
                                          

Federal funds purchased

     —          —      0.00     298        2    2.39

Repurchase agreements

     1,079        1    0.50     2,891        11    1.46

Subordinated debt

     7,155        62    3.41     7,155        90    5.01

FHLB Advances

     50,000        474    3.76     50,000        473    3.77
                                          

Total interest bearing liabilities

     421,335        3,165    2.98     335,254        3,269    3.88
                                          

Noninterest-bearing liabilities:

              

Noninterest-bearing demand deposits

     37,772             32,627        

Other noninterest-bearing liabilities

     2,250             2,091        

Shareholders’ equity

     45,465             35,304        
                          

Total liabilities and shareholders’ equity

   $ 506,822           $ 405,276        
                          

Net interest spread

        2.28        2.32
                      

Impact of noninterest-bearing sources

        0.43        0.56
                      

Net interest margin

     $ 3,366    2.71     $ 2,843    2.88
                              

Ratio of average interest earning assets to average interest-bearing liabilities

        116.83        117.04
                      

 

(1) Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.
(2) Nonaccrual loans have been included in the computations of average loan balances

 

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Average Balances, Income and Expenses, Yields and Rates

 

     Nine Months Ended September 30,  
     2009     2008  
     Average
Balance
    Income/
Expense
   Yields/
Rates
    Average
Balance
    Income/
Expense
   Yields/
Rates
 
     (Dollars in thousands)  

Assets:

              

Securities:

              

Taxable

   $ 44,539      $ 1,413    4.24   $ 29,509      $ 1,084    4.91

Tax exempt (1)

     5,780        285    6.59     1,644        70    5.68
                                          

Total securities

     50,319        1,698    4.51     31,153        1,154    4.95

Federal funds sold

     19,836        27    0.18     11,336        197    2.32

Interest bearing deposits

     7,725        13    0.22     580        6    1.47

FHLB & Federal Reserve Bank stock

     3,999        33    1.10     3,626        136    5.00

Loans, net of unearned income (2)

     385,210        16,956    5.88     327,074        16,527    6.75
                                          

Total earning assets

     467,089        18,714    5.36     373,769        18,020    6.44
                                          

Allowance for loan losses

     (5,430          (2,962     

Cash and cash equivalents

     5,858             9,087        

OREO

     2,987             —          

Other nonearning assets

     11,219             7,207        
                          

Total assets

   $ 481,723           $ 387,101        
                          

Liabilities & Stockholders’ Equity:

              

Interest checking

   $ 7,897      $ 22    0.37   $ 9,393      $ 37    0.52

Money market deposit accounts

     81,832        1,218    1.99     40,008        562    1.88

Statement savings

     702        3    0.47     734        3    0.63

Certificates of deposit

     250,937        6,999    3.73     207,074        7,264    4.69
                                          

Total interest-bearing deposits

     341,368        8,242    3.23     257,209        7,866    4.09
                                          

Federal funds purchased

     —          —      0.00     1,222        34    3.74

Repurchase agreements

     1,499        5    0.43     2,451        30    1.63

Subordinated debt

     7,155        209    3.90     7,155        295    5.52

FHLB Advances

     50,000        1,405    3.76     49,179        1,399    3.80
                                          

Total interest bearing liabilities

     400,022        9,861    3.30     317,216        9,624    4.05
                                          

Noninterest-bearing liabilities:

              

Noninterest-bearing demand deposits

     37,299             32,463        

Other noninterest-bearing liabilities

     2,209             2,164        

Shareholders’ equity

     42,193             35,258        
                          

Total liabilities and shareholders’ equity

   $ 481,723           $ 387,101        
                          

Net interest spread

        2.06        2.39
                      

Impact of noninterest-bearing sources

        0.48        0.61
                      

Net interest margin

     $ 8,853    2.54     $ 8,396    3.00
                              

Ratio of average interest earning assets to average interest-bearing liabilities

        116.77        117.83
                      

 

(1) Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.
(2) Nonaccrual loans have been included in the computations of average loan balances

 

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Noninterest Income

Total noninterest income was $201 thousand for the third quarter of 2009, compared to $184 thousand for the same period of 2008. Fees on deposits increased 16.6% to $70 thousand for the first third of 2009 compared to $60 thousand for the same period in 2008. Other noninterest income increased $7 thousand or 5.7% to $130 thousand for the third quarter of 2009 from $124 thousand for the third quarter of 2008.

For the nine months ended September 30, 2009, noninterest income was $588 thousand compared to $555 thousand for the same period in 2008 an increase of 6.1%.

Noninterest Expense

This category includes all expenses other than interest paid on deposits and borrowings. Total noninterest expenses for the third quarter of 2009 totaled $2.5 million, an increase of $244 thousand, or 10.6%, compared to $2.3 million for the same period in 2008. The increase is the result of a $200 thousand increase in FDIC premiums and the $56 thousand in merger related expenses taken in the third quarter of 2009. Merger expenses include legal, investment banking fees, marketing costs or other expenses related to the proposed transaction and are accumulated as a separate total in expenses. Salaries and employee benefits increased $122 thousand due to expansion of the Company and the addition of the Bon Air branch in 2008. Occupancy expense decreased $18 thousand as two leased branch locations were relocated to owned free standing branches. Marketing expense decreased $80 thousand as advertising was reduced in the third quarter of 2009 due to the economic conditions. Virginia franchise tax increased $17 thousand as the result of the additional equity capital infusion in First Capital Bank in the third quarter of 2008. Other expenses increased $11 thousand.

For the nine months ended September 30, 2009, total noninterest expense increased $1.6 million from $6.3 million in 2008 to $7.9 million in 2009. Again, $968 thousand of the increase is the result of a $691 thousand increase in FDIC premiums and $277 thousand in merger related expense. Salaries and employee benefits increased $372 thousand or 11.8 % due to the Bon Air branch in 2008 and the addition of key management in the fourth quarter of 2008. Professional services increased $105 thousand for the nine months ended September 30, 2009 as the result of the resolutions of several problem loans. Other expenses increased $200 thousand for the period due to OREO expenses of $82 thousand and a $38 thousand loss on a real estate purchase contract not consummated.

Income Taxes

The income tax expense for the quarter ended September 30, 2009 was $199 thousand compared to a benefit of $226 thousand in the same quarter of the prior year, a $424 thousand increase with the increase resulting from an increase in income before tax of $1.3 million from a loss of $689 thousand for the third quarter of 2008 to a pretax profit of $603 for the third quarter of 2009. Income tax expense for the nine months ended September 30, 2009 was a benefit of $24 thousand compared to a $214 thousand expense in the same period in 2008, a decrease of $239 thousand. The 2009 number resulted from nine month pretax loss of $248 thousand compared to a nine month pretax profit of $552 thousand for the third quarter of 2008.

ASSET QUALITY

The Company’s allowance for loan losses is an estimate of the amount needed to provide for possible losses in the loan portfolio. In determining adequacy of the allowance, management considers a number of factors, including, the Company’s historical loss experience, the size and composition of the loan portfolio, specific impaired loans, the overall level of nonperforming loans, the value and adequacy of collateral and guarantors, experience and depth of lending staff, effects of credit concentrations and economic conditions. Because the risk of loan loss includes general economic trends as well as conditions affecting individual borrowers, the allowance for loan losses can only be an estimate.

Total nonperforming assets, which consist of nonaccrual loans, restructured loans, loans past due 90 days and still accruing interest and foreclosed properties, were $9.9 million at September 30, 2009, $9.1 million at June 30,

 

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2009, $8.2 million at March 31, 2009, $6.6 million at December 31, 2008 and $2.1 million at September 30, 2008. This increase is the result of a depressed economy and a weak real estate market, which has slowed sales of homes. Nonperforming assets are composed largely of loans secured by real estate and repossessed properties in our OREO portfolio. At the end of the third quarter, OREO was $2.6 million compared to $3.0 million at the end of June 2009. At September 30, 2009, we had 2 homes and nineteen developed lots in this portfolio.

Nonaccrual loans were $3.9 million at September 30, 2009, down from $4.4 million at December 31, 2008. The decrease reflects the transfer of nonaccrual loans to OREO.

At September 30, 2009 there were no loans past due 90 days and accruing interest, down from $146 thousand at June 30, 2009. There were no loans past due 90 days and accruing interest at December 31, 2008 or September 30, 2008.

Loan charge-offs, less recoveries, amounted to $107 thousand for the third quarter of 2009 compared to $130 thousand in the second quarter of 2009. In the third quarter of 2008 and for the first nine months of 2008, net charge-offs totaled $129 thousand. For the third quarter of 2009, the provision for loan losses was $380 thousand compared to $1.4 million in the comparable period of 2008. For the nine months ended September 30, 2009, the provision was $1.7 million compared to $2.0 million for the comparable period in the prior year. With the high level of real estate secured debt and the large increase in loan loss reserves taken, management is confident that we can successfully manage through the economic downturn. We anticipate continued provision expenses as the asset quality dictates the need.

Although the Company believes it has sufficient allowance for its existing portfolio, there can be no assurances that an additional allowance for losses on existing loans may not be necessary in the future. The allowance for loan losses totaled $6.3 million and $4.4 million at September 30, 2009 and 2008, respectively. The ratio of the allowance for loan losses to total loans outstanding at September 30, 2009 and 2008 was 1.60% and 1.25%, respectively. Loans that were more than 30 days but less than 89 days past due totaled $377 thousand or .10% of loans outstanding at September 30, 2009, down from $3.2 million at June 30, 2009.

The following table summarizes the Company’s nonperforming assets at the dates indicated.

Nonperforming Assets

(Dollars in thousands)

 

     September 30,
2009
    December 31,
2008
    September 30,
2008
 

Nonaccrual loans

   $ 3,936      $ 4,411      $ 2,064   

Restructured loans

     3,390        —          —     

Loans past due 90 days and accruing interest

     —          —          —     
                        

Total nonperforming loans

     7,326        4,411        2,064   

Other real estate owned

     2,646        2,158        —     
                        

Total nonperforming assets

   $ 9,972      $ 6,569      $ 2,064   
                        

Nonperforming assets to total loans and other real estate

     2.51     1.75     1.25

Allowance for loan losses to nonaccrual loans

     160.48     114.71     213.28

Allowance for loan losses to period end loans

     1.60     1.36     1.25

LIQUIDITY

Management monitors and plans the Company’s liquidity position for future periods. Liquidity is provided from cash, interest-bearing deposits in other banks, repayments of loans, increases in deposits, federal funds facility from two correspondent banks, term loans from a federal agency bank and maturing investments. Management is committed to maintaining liquidity at a level sufficient to protect depositors, provide for reasonable growth, and fully comply with all regulatory requirements.

 

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At September 30, 2009, cash and cash equivalents totaled $34.3 million. Investment securities available-for-sale and not pledged totaled $62.6 million, for a total of 19.0% of total assets, which management believe is adequate to meet short-term liquidity needs. Management also has alternative sources of funding available, including unused unsecured federal funds facilities with two banks totaling $24.5 million and unused available term loans through the Federal Home Loan Bank totaling $20.0 million.

Total liquidity and other alternative sources of liquidity total $141.4 million at September 30, 2009 if fully utilized, which represents 27.7% of total assets.

Off-Balance Sheet Arrangements

In the normal course of business there are outstanding commitments for the extension of credit which are not reflected in the financial statements. At September 30, 2009, pre-approved but unused lines of credit for loans totaled approximately $75.9 million. In addition, we had approximately $9.1 million in financial and performance standby letters of credit at September 30, 2009. These commitments represent no more than the normal lending risk that we commit to borrowers. If these commitments are drawn, we will obtain collateral if it is deemed necessary based on our credit evaluation of the counterparty.

CAPITAL RESOURCES

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material affect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Management reviews the adequacy of the Company’s capital on an ongoing basis with reference to the size, composition, and quality of the Company’s resources and compliance with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and absorb potential losses.

Federal regulatory risk-based capital ratio guidelines require percentages to be applied to various assets including off-balance sheet assets in relation to their perceived risk. Tier 1 capital consists of stockholders’ equity and minority interests in consolidated subsidiaries, less net unrealized gains on available-for-sale securities. Tier 2 capital, a component of total capital, consists of a portion of the allowance for loan losses, certain components of nonpermanent preferred stock and subordinated debt. The $5 million in trust preferred securities issued by the Company in September 2006 qualified as Tier 1 capital. First Capital Bank’s ratios exceed regulatory requirements. As of September 30, 2009, First Capital Bancorp, Inc. had a Tier 1 risk-based capital ratio of 12.52% and a Total risk-based capital ratio of 14.26%. At December 31, 2008 these ratios were 10.62% and 12.40%, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A

ITEM 4. CONTROLS AND PROCEDURES

We maintain a system of internal controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.

 

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Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in periodic SEC filings. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings – None to report

Item 1A. Risk Factors – Not Applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds – Not Applicable

Item 3. Defaults Upon Senior Securities – Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

The Company held a special stockholders meeting on Thursday, August 20, 2009 at 10:00 a.m. at the Comfort Suites, 4051 Innslake Drive, Glen Allen, Virginia.

There were 1,822,575 shares represented in person or by proxy at the meeting, which represented 61.3% of the outstanding shares. There was a quorum for all purposes.

The shareholders were asked to vote on a proposal to approve and adopt the Agreement and Plan of Merger dated as of April 3, 2009, by and among First Capital Bancorp, Inc. and Eastern Virginia Bankshares, Inc., and the transactions contemplated thereby. The merger agreement provides that First Capital Bancorp, Inc. will merge with and into Eastern Virginia Bankshares, Inc. upon the terms and subject to the conditions set forth in the merger agreement.

The votes cast for, withheld or abstain for the merger were as follows:

 

     FOR    AGAINST    ABSTAIN

Merger of First Capital Bancorp, Inc with and into Eastern Virginia Bankshares, Inc.

   1,720,703    28,050    73,822

Item 5. Other Information – None to report

Item 6. Exhibits

 

Exhibit No.

 

Description of Exhibit

  2.1

  Agreement and plan of merger, dated as of April 3, 2009, by and between First Capital Bancorp, Inc. and Eastern Virginia Bankshares, Inc. (incorporated by reference to Exhibit 2.1 of Form 8-K filed April 7, 2009)

  3.1

  Articles of Incorporation of First Capital Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of Form 10-QSB filed November 13, 2006)

  3.2

  Amended and Restated Bylaws of First Capital Bancorp, Inc. (incorporated by reference to Exhibit 3.2 of Form 8-K filed May 22, 2007)

  3.3

  Articles of Amendment to the Company’s Articles of Incorporation, designating the terms of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 3.1 of Form 8-K filed April 6, 2009)

 

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  4.1

  Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 4.1 of Form 8-K filed April 6, 2009)

  4.2

  Warrant to Purchase Shares of Common Stock, dated April 3, 2009 (incorporated by reference to Exhibit 4.2 of Form 8-K filed April 6, 2009)

31.1

  Certification of John M. Presley Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 13, 2009.

31.2

  Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 13, 2009

31.3

  Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 13, 2009.

32

  Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated November 13, 2009.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  First Capital Bancorp, Inc.
Date: November 13, 2009   By:   /S/    JOHN M. PRESLEY      
    John M. Presley
    Managing Director and Chief Executive Officer
    By:   /S/    ROBERT G. WATTS, JR.      
    Robert G. Watts, Jr.
    President
    By:   /S/    WILLIAM W. RANSON      
    William W. Ranson
    Senior Vice President
    and Chief Financial Officer

 

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Index of Exhibits

 

Exhibit No.

 

Description of Exhibit

  2.1   Agreement and plan of merger, dated as of April 3, 2009, by and between First Capital Bancorp, Inc. and Eastern Virginia Bankshares, Inc. (incorporated by reference to Exhibit 2.1 of Form 8-K filed April 7, 2009)
  3.1   Articles of Incorporation of First Capital Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of Form 10-QSB filed November 13, 2006)
  3.2   Amended and Restated Bylaws of First Capital Bancorp, Inc. (incorporated by reference to Exhibit 3.2 of Form 8-K filed May 22, 2007)
  3.3   Articles of Amendment to the Company’s Articles of Incorporation, designating the terms of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 3.1 of Form 8-K filed April 6, 2009)
  4.1   Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 4.1 of Form 8-K filed April 6, 2009)
  4.2   Warrant to Purchase Shares of Common Stock, dated April 3, 2009 (incorporated by reference to Exhibit 4.2 of Form 8-K filed April 6, 2009)
31.1   Certification of John M. Presley Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 13, 2009.
31.2   Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 13, 2009
31.3   Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 13, 2009.
32   Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated November 13, 2009.

 

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