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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 March 31, 2010

 

¨	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 May 14, 2010.

 

 

 

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TABLE OF CONTENTS

 

								Page
PART I – FINANCIAL INFORMATION
		Item 1		–		Financial Statements
						Consolidated Statements of Financial Condition March 31, 2010 (unaudited) and December 31, 2009		3
						Consolidated Statements of Income For the Three Months Ended March 31, 2010 and 2006 (unaudited)		4
						Consolidated Statements of Stockholders’ Equity and Comprehensive Income For the Three Months Ended March 31, 2010 and 2009 (unaudited)		5
						Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2010 and 2009 (unaudited)		6
						Notes to Consolidated Financial Statements (unaudited)		7
		Item 2		–		Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
		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		–		(Removed and Reserved)		22
		Item 5		–		Other Information – None to Report		22
		Item 6		–		Exhibits		22
SIGNATURES								24

 

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PART 1 - FINANCIAL INFORMATION

Item 1 - Financial Statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

 

		March 31, 2010				December 31, 2009
		(Unaudited)
ASSETS
Cash and due from banks		$	7,063,098			$	7,919,612
Interest-bearing deposits in other banks			24,143,655				22,747,000
Federal funds sold			1,000,000				1,000,000
Investment securities:
Available for sale, at fair value			72,931,762				77,118,370
Held to maturity, at cost			1,452,798				1,452,947
Restricted, at cost			4,668,789				4,158,289
Loans, net of allowance for losses			406,431,006				397,120,098
Other real estate owned			3,013,926				3,387,712
Premises and equipment, net			7,127,891				7,118,591
Accrued interest receivable			2,143,594				2,292,742
Deferred tax asset			1,341,709				1,435,267
Prepaid FDIC premiums			2,912,887				3,135,649
Other assets			2,424,435				1,509,486
Total assets		$	536,655,550				530,395,763
LIABILITIES
Deposits
Noninterest-bearing		$	40,542,745			$	37,554,667
Interest-bearing			382,510,571				384,579,427
Total deposits			423,053,316				422,134,094
Accrued expenses and other liabilities			3,461,701				3,413,338
Securities sold under repurchase agreements			1,079,952				1,234,901
Subordinated debt			7,155,000				7,155,000
Federal Home Loan Bank advances			55,000,000				50,000,000
Total liabilities			489,749,969				483,937,333
STOCKHOLDERS’ EQUITY
Preferred stock, $4.00 par value (2,000,000 authorized shares; 10,958 issued and outstanding: Series A: $1,000 Stated Value Fixed Rate Cumulative Perpetual Preferred, respectively)			43,832				43,832
Common stock, $4.00 par value (5,000,000 authorized shares; 2,971,171 issued and outstanding, respectively)			11,884,684				11,884,684
Additional paid-in capital			29,708,049				29,696,114
Retained earnings			4,675,927				4,493,471
Warrants			660,769				660,769
Discount on preferred stock			(532,071	)			(564,395	)
Accumulated other comprehensive income, net of tax			464,391				243,955
Total stockholders’ equity			46,905,581				46,458,430
Total liabilities and stockholders’ equity		$	536,655,550			$	530,395,763

See notes to consolidated financial statements.

 

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Consolidated Statements of Income

Three Months Ended March 31, 2010 and 2009

 

		March 31,
		2010			2009
		(Unaudited)
Interest income
Loans		$	5,829,544		$	5,420,728
Investments:
Taxable interest income			644,386			400,446
Tax exempt interest income			112,139			39,677
Dividends			16,060			4,938
Federal funds sold and interest bearing deposits			7,662			8,666
Total interest income			6,609,791			5,874,455
Interest expense
Deposits			2,150,361			2,794,173
FHLB advances			466,607			463,206
Federal funds purchased			—			110
Subordinated debt and other borrowed money			58,068			79,234
Total interest expense			2,675,036			3,336,723
Net interest income			3,934,755			2,537,732
Provision for loan loss			461,000			215,000
Net interest income after provision for loan loss			3,473,755			2,322,732
Noninterest income
Fees on deposits			64,131			61,274
Other			167,943			119,769
Total noninterest income			232,074			181,043
Noninterest expenses
Salaries and employee benefits			1,392,491			1,184,924
Occupancy expense			214,525			206,638
Data processing			166,292			188,143
Professional services			117,201			126,693
Advertising and marketing			30,672			15,066
FDIC assessment			272,146			113,093
Virginia franchise tax			135,000			106,000
Depreciation			106,952			102,612
Other expenses			774,795			307,028
Total noninterest expense			3,210,074			2,350,197
Net income before provision for income taxes			495,755			153,578
Income tax expense			144,000			51,400
Net income		$	351,755		$	102,178
Effective dividend on preferred stock			169,299			—
Net income available to common shareholders		$	182,456		$	102,178
Basic income per share		$	0.06		$	0.03
Diluted income per share		$	0.06		$	0.03

See notes to consolidated financial statements.

 

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First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

Three Months Ended March 31, 2010 and 2009

(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, 2009		$	—		$	11,884,684		$	18,650,379		$	4,688,639			$	—		$	—			$	195,870			$	35,419,572
Net income			—			—			—			102,178				—			—				102,178				102,178
Other comprehensive income
Unrealized holding loss arising during period, (net of tax, $119,671)			—			—			—			—				—			—				(395,242	)			(395,242	)
Total comprehensive loss																						$	(293,064	)
Stock based compensation			—			—			42,604			—				—			—								42,604
Balance March 31, 2009		$	—		$	11,884,684		$	18,692,983		$	4,790,817			$	—		$	—			$	(199,372	)		$	35,169,112
Balance January 1, 2010		$	43,832		$	11,884,684		$	29,696,114		$	4,493,471			$	660,769		$	(564,395	)		$	243,955			$	46,458,430
Net income			—			—			—			351,755				—			—				351,755				351,755
Other comprehensive gain
Unrealized holding gain arising during period, (net of tax, $113,558)			—			—			—			—				—			—				220,436				220,436
Total comprehensive income																						$	572,191
Preferred stock dividend			—			—			—			(136,975	)			—			—								(136,975	)
Accretion of discount on preferred stock			—			—			—			(32,324	)			—			32,324								—
Stock based compensation			—			—			11,935			—				—			—								11,935
Balance March 31, 2010		$	43,832		$	11,884,684		$	29,708,049		$	4,675,927			$	660,769		$	(532,071	)		$	464,391			$	46,905,581

See notes to consolidated financial statements.

 

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First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2010 and 2009

(Unaudited)

 

		2010				2009
Cash flows from operating activities
Net income		$	351,755			$	102,178
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses			461,000				215,000
Depreciation of premises and equipment			106,952				102,612
Stock based compensation expense			11,935				42,604
Deferred income taxes			(20,000	)			(38,999	)
Gain on sale of securities			24,712				—
Net (accretion) amortization of bond premiums/discounts			134,531				24,896
(Increase) in other assets			(692,187	)			(628,258	)
(Increase) decrease in accrued interest receivable			149,147				144,231
Increase (decrease) in accrued expenses and other liabilities			48,363				(424,829	)
Net cash provided by (used in) operating activities			576,208				(460,565	)
Cash flows from investing activities
Proceeds from maturities and calls of securities			5,950,000				3,200,000
Proceeds from paydowns of securities available-for-sale			2,863,772				755,221
Purchase of securities available-for-sale			(5,402,340	)			(21,296,121	)
Sale of securities available-for-sale			950,076				—
Sale of other real estate owned			317,410				—
Purchase of FHLB Stock			(242,800	)			(143,800	)
Purchase of Federal Reserve Stock			(267,700	)			(210,450	)
Purchases of property and equipment			(116,252	)			(233,795	)
Increase in loans held for sale			—				(262,750	)
Net increase in loans			(9,715,531	)			(8,116,005	)
Net cash used in investing activities			(5,663,365	)			(26,307,700	)
Cash flows from financing activities
Net increase (decrease) in demand, savings and money market accounts			18,072,632				35,431,769
Advances from FHLB			5,000,000				—
Dividends on preferred stock			(136,975	)			—
Net (decrease) increase in certificates of deposit			(17,153,410	)			7,356,096
Net (decrease) increase in repurchase agreements			(154,949	)			(695,394	)
Net cash provided by financing activities			5,627,298				42,092,471
Net increase (decrease) in cash and cash equivalents			540,141				15,324,206
Cash and cash equivalents, beginning of period			31,666,612				15,354,334
Cash and cash equivalents, end of period		$	32,206,753			$	30,678,540
Supplemental disclosure of cash flow information
Interest paid during the period		$	12,774,959			$	3,336,784
Taxes paid during the period		$	724,283			$	320,000
Supplemental schedule of noncash investing and financing activities
Transfer of loans to other real estate owned		$	302,000			$	—

See notes to consolidated financial statements.

 

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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 March 31, 2010 and December 31, 2009 and for the three months ended March 31, 2010 and 2009, in conformity with accounting principles generally accepted in the United States of America. Results for the three month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2010.

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, 2009 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 of 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.

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

 

		Three Months Ended March 31,
		2010			2009
Net income available to common shareholders		$	182,456		$	102,178
Weighted average number of shares outstanding			2,971,171			2,971,171
Earnings per common share - basic		$	0.06		$	0.03
Effect of dilutive securities:
Weighted average number of shares outstanding			2,971,171			2,971,171
Effect of stock options			—			—
Diluted average shares outstanding			2,971,171			2,971,171
Earnings (loss) per common share - assuming dilution		$	0.06		$	0.03

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.

2,000 options were granted in January 2010. The 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. The stock based compensation expensed during the three months ended March 31, 2010 was $11,935 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 March 31, 2010 and December 31, 2009 were as follows:

 

		March 31, 2010
		Amortized Costs			Gross Unrealized						Fair Values
					Gains			Losses
Available-for-sale
U.S. Government agencies		$	17,627,570		$	146,015		$	85,992		$	17,687,593
Mortgage-backed securities			11,778,039			297,402			23,220			12,052,221
Corporate bonds			3,418,068			127,325			—			3,545,393
CMO securities			24,206,221			341,934			95,442			24,452,713
State and political subdivisions - taxable			5,930,266			88,129			158,472			5,859,923
State and political subdivisions - tax exempt			9,267,461			134,124			67,666			9,333,919
		$	72,227,625		$	1,134,929		$	430,792		$	72,931,762

 

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		December 31, 2009
		Amortized Costs			Gross Unrealized						Fair Values
					Gains			Losses
Available-for-sale
U.S. Government agencies		$	23,610,035		$	132,274		$	274,915		$	23,467,394
Mortgage-backed securities			11,820,972			276,457			35,382			12,062,047
Corporate bonds			3,406,512			112,519			31,416			3,487,615
CMO securities			22,699,676			284,645			44,299			22,940,022
State and political subdivisions - taxable			5,936,082			50,463			189,465			5,797,080
State and political subdivisions - tax exempt			9,274,947			147,675			58,410			9,364,212
		$	76,748,224		$	1,004,033		$	633,887		$	77,118,370
		March 31, 2010
		Amortized Costs			Gross Unrealized						Fair Values
					Gains			Losses
Held-to-maturity
Tax-exempt municipal bonds		$	1,452,798		$	76,259		$	—		$	1,529,057
		$	1,452,798		$	76,259		$	—		$	1,529,057
		December 31, 2009
		Amortized Costs			Gross Unrealized						Fair Values
					Gains			Losses
Held-to-maturity
Tax-exempt municipal bonds		$	1,452,947		$	84,507		$	—		$	1,537,454
		$	1,452,947		$	84,507		$	—		$	1,537,454

The following table details unrealized losses and related fair values in the Company’s available-for-sale investment securities portfolios. All unrealized losses on investment securities are a result of volatility in the market during 2009 and 2008. All unrealized losses are considered by management to be temporary given investment security credit ratings, the short duration of the unrealized losses and the intent to hold debt securities in an unrealized loss position greater than twelve months for the foreseeable future. This information is aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2010 and December 31, 2009:

 

		March 31, 2010
		Less than 12 Months						12 Months or More
		Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Assets:
U.S. Government agencies		$	3,014,436		$	50,079		$	2,995,938		$	35,913
Mortgage-backed securities			1,388,447			23,220			—			—
Corporate bonds			—			—			—			—
CMO securities			5,043,262			95,442			—			—
State and political subdivisions - taxable			2,537,278			76,068			1,717,596			82,404
State and political subdivisions - tax exempt			4,673,411			67,666			—			—
Available-for-sale securities		$	16,656,834		$	312,475		$	4,713,534		$	118,317

 

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		December 31, 2009
		Less than 12 Months						12 Months or More
		Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Assets:
U.S. Government agencies		$	10,419,951		$	189,472		$	2,906,250		$	85,443
Mortgage-backed securities			1,470,442			35,382			—			—
Corporate bonds			968,432			5,592			448,900			25,824
CMO securities			4,562,551			44,299			—			—
State and political subdivisions - taxable			4,229,179			189,465			—			—
State and political subdivisions - tax exempt			4,272,085			58,410			—			—
Available-for-sale securities		$	25,922,640		$	522,620		$	3,355,150		$	111,267

Note 6 – Loans

Major classifications of loans are as follows:

 

		March 31, 2010			December 31, 2009
		Amount			Amount
Commercial		$	52,536,911		$	54,590,024
Real estate - residential			149,241,170			137,981,388
Real estate - commercial			128,495,864			125,444,710
Real estate - construction			78,462,671			81,106,396
Consumer			4,455,887			4,541,791
Total loans			413,192,503			403,664,309
Less:
Allowance for loan losses			6,799,587			6,600,360
Net deferred costs			38,090			56,149
Loans, net		$	406,431,006		$	397,120,098

Activity in the allowance for loan losses for the three month period ended March 31, 2010 and 2009:

 

		2010				2009
Balance, beginning of year		$	6,600,360			$	5,060,433
Provision for loan losses			461,000				215,000
Recoveries			11,485				2,627
Charge-offs			(273,258	)			(198,433	)
Balance, March 31		$	6,799,587			$	5,079,627
Ratio of allowance for loan losses as a percent of loans outstanding at the end of the period			1.65	%			1.34	%

Note 7 – Fair Value Disclosures

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value

 

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or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would conduct a transaction at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value of a reasonable point within this range is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, we group financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value.

 

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Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities in active markets at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

 

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Level 2 – Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market date for substantially the full term of the asset or liability.

 

•

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flows methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

Following is a description of the valuation methodologies used for instruments measured as fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities available for sale: Securities available for sale are recorded at fair value on a recurring basis. Fair value 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). We obtain a single quote for all securities. Quotes for all of our securities are provided by our securities accounting and safekeeping correspondent bank. We perform a review of pricing data by comparing prices received from third party vendors to the previous month’s quote for the same security and evaluate any substantial changes.

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2010 and December 31, 2009. Securities identified as restricted securities, including stock in the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank, are excluded from the table below since there is no ability to sell these securities except when the FHLB or FRB require redemption based on either our borrowings at the FHLB, or in the case of the FRB, changes in certain portions of our capital.

 

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		March 31, 2010
		Fair Value Measurements Using									Fair Values
		Level 1			Level 2			Level 3
Assets:
Available-for-sale securities		$	—		$	72,931,762		$	—		$	72,931,762
		December 31, 2009
		Fair Value Measurements Using									Fair Values
		Level 1			Level 2			Level 3
Assets:
Available-for-sale securities		$	—		$	77,118,370		$	—		$	77,118,370

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual loans.

The following describes the valuation techniques used to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Impaired Loans: Loans are designated as impaired when, in the judgment of management, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed external appraiser using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. In the event a real estate becomes a nonperforming loan, if the valuation is over one year old, either an evaluation by an officer of the Bank or an outside vendor, or an appraisal is performed to determine current market value. We consider the value of a partially completed project for our loan analysis. For nonperforming construction loans, we obtain a valuation of each partially completed project “as is” from a third party appraiser. We use this third party valuation to determine if any charge-offs are necessary.

The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

Other Real Estate Owned: Certain assets such as other real estate owned (“OREO”) are measured at fair value less cost to sell. We believe the fair value component in our valuation of OREO follows the provisions of accounting standards.

The following tables summarize our financial assets that were measured at fair value on a nonrecurring basis during the periods.

 

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		March 31, 2010
		Fair Value Measurements Using									Fair Values
		Level 1			Level 2			Level 3
Impaired loans		$	—		$	—		$	14,224,442		$	14,224,442
Other real estate owned			—			—			3,013,926			3,013,926
Total		$	—		$	—		$	17,238,368		$	17,238,368
		December 31, 2009
		Fair Value Measurements Using									Fair Values
		Level 1			Level 2			Level 3
Impaired loans		$	—		$	—		$	12,279,027		$	12,279,027
Other real estate owned			—			—			3,387,712			3,387,712
Total		$	—		$	—		$	15,666,739		$	15,666,739

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 – Investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relaying on the securities’ relationship to other benchmark quoted securities. Level 1 securities include those traded on nationally recognized securities exchanges, U.S. Treasury securities, and money market funds. Level 2 securities include U.S. Agency securities, mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets. 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 March 31, 2010 and December 31, 2009 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 CDs 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

 

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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 March 31, 2010 and December 31, 2009.

The estimated fair values of the Company’s financial instruments as of March 31, 2010 and December 31, 2009 are as follows:

 

		March 31, 2010						December 31, 2009
		Carrying Amount			Fair Value			Carrying Amount			Fair Value
		(Dollars in thousands)
Financial assets
Cash and cash equivalents		$	32,207		$	32,207		$	31,667		$	31,667
Investment securities			74,385			74,461			78,571			78,655
Loans receivable, net			406,431			414,026			397,120			402,367
Accrued interest			2,144			2,144			2,293			2,293
Financial liabilities
Deposits		$	423,053		$	428,508		$	422,134		$	425,636
FHLB advances			55,000			57,424			50,000			52,177
Federal funds purchased			—			—			—			—
Subordinated debt			7,155			3,685			7,155			3,623
Repurchase agreements			1,080			1,080			1,235			1,235
Unrecognized financial instruments
Standby letters of credit issued		$	—		$	—		$	—		$	—

We assume interest rate risk (the risk that general interest rate levels will change) as a result of our normal operations. As a result, the fair values of our financial instruments will change when interest rates levels change and that change may be either favorable or unfavorable to us. We attempt to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to repay in a rising rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. We monitor rates and maturities of assets and liabilities and attempt to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate our overall interest rate risk.

Note 8 – 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.

 

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Note 9 – 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 Codification TM (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 September 30, 2009 for 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.

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 were 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 were 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

 

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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.

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 first quarter of 2010 was $352 thousand, and net income available to common shareholders was $182 thousand, or $0.06 per fully diluted share compared to a net income of $102 thousand, or $0.03 per fully diluted share, in the first quarter of 2009. During the quarter, the Company experienced some deterioration in its credit metrics, but continued to increased net interest margin, net interest income and continued to build its allowance for loan losses.

Financial Condition

Total assets at March 31, 2010 were $536.7 million, up $6.3 million, from $530.4 million at year end December 31, 2009. Loan growth through March 31, 2010 was $9.3 million, compared to the 2009 year-end balance. Deposits grew by $919 thousand and the Federal Home Loan Bank advances increased $5.0 million for the quarter.

 

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At March 31, 2010, the Company’s investment portfolio totaled $74.4 million, a decrease of $4.2 million from $78.6 million at December 31, 2009 due to repayments and called securities. 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.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income represents a principal source of earnings for the Company. Changes in net interest income during 2010 to date compared to net interest income for the first quarter of 2009 are attributable to relatively stable loan portfolio yields and a decrease in total funding costs.

Net interest margin increased 84 basis points for the three months ended March 31, 2010 to 3.22% as compared to 2.38% for the first quarter of 2009, reflecting a decrease in average rate paid on interest-bearing liabilities of 110 basis points from 3.58% for the first quarter of 2009 to 2.48% for the first quarter of 2010. This was offset by an 8 basis point decrease in the average yield on earning assets. The yield on loans, net of discount, remained relatively unchanged at 5.81% and 5.82% for the first quarters of 2010 and 2009, respectively. The average yield on investments decreased from 4.49% for the first quarter of 2009 to 4.10% for the first quarter of 2009 as investments were called and replaced with lower yielding investments.

Net interest margin is up 14 basis points for the three months ended March 31, 2010, as compared to the fourth quarter of 2009. The yield on earning assets decreased from 5.43% for the quarter ended December 31, 2009 to 5.38% for the quarter ended March 31, 2010. The cost of interest bearing liabilities decreased 27 basis points to 2.48% for the first quarter of 2010 as compared to 2.75% for the fourth quarter of 2009.

For the three months ended March 31, 2010, net interest income was up $1.2 million from $2.3 million for the same period in 2009 to $3.5 million in 2010.

Total interest and fees on loans, the largest component of net interest income, increased 7.5%, or $409 thousand to $5.8 million during the first quarter of 2010 compared to $5.4 million for the same period in 2009 primarily due to loan growth of $47.2 million in the year since March 31, 2009.

Interest on investment securities increased $316 thousand for the first quarter of 2010 to $757 thousand compared to $440 thousand for the same period of 2009 as average balances in investment securities increased to $77.7 million for the three months ended March 31, 2010 from $37.8 million for the comparable period in 2009.

Interest expense on deposits decreased $644 thousand to $2.2 million, or 23.04% for the first quarter of 2010 compared to the comparable period of 2009. The decrease in deposit expense is due to the restructuring of the deposit mix and by a decrease in the overall rates paid on deposits. Interest expense on other borrowings totaled $525 thousand for the first quarter of 2010 a decrease of $18 thousand over the same period of 2009. This reduction in other 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 4.41% for the first quarter of 2009 to an average of 3.22% for the first quarter of 2010.

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 March 31,
		2010										2009
		Average Balance				Income/ Expense			Yield/ Rate			Average Balance				Income/ Expense			Yield/ Rate
		(Dollars in thousands)
Assets:
Loans, net of unearned income (1)		$	407,496			$	5,829		5.81	%		$	377,768			$	5,421		5.82	%
Investment securities:
U.S. Agencies			22,188				225		4.11	%			15,638				192		4.98	%
Mortgage backed securities			11,708				102		3.53	%			8,571				98		4.62	%
CMO securities			23,771				191		3.26	%			5,713				49		3.45	%
State and political subdivisions - tax exempt (2)			10,725				170		6.42	%			3,778				60		6.41	%
State and political subdivisions - taxable			5,934				78		5.30	%			720				10		5.87	%
Corporate bonds			3,411				49		5.79	%			3,392				48		5.80	%
Other investments			4,401				16		1.48	%			3,858				5		0.52	%
Total investment securities			82,138				831		4.10	%			41,670				462		4.49	%
Federal funds sold & interest on deposits			12,991				7		0.24	%			17,747				9		0.20	%
Total earning assets		$	502,625			$	6,667		5.38	%		$	437,185			$	5,892		5.46	%
Cash and cash equivalents			6,119										5,919
OREO			3,289										2,927
Allowance for loan losses			(6,690	)									(5,118	)
Fixed assets			7,122										7,192
Other assets			9,066										3,197
Total assets		$	521,531									$	451,302
Liabilities and Stockholders’ Equity:
Interest bearing liabilities:
Interest checking		$	8,382			$	8		0.39	%		$	8,471			$	7		0.35	%
Money market deposit accounts			142,100				528		1.51	%			53,652				310		2.35	%
Statement savings			645				1		0.50	%			681				1		0.46	%
Certificates of deposit			226,783				1,614		2.89	%			256,507				2,476		3.91	%
Total interest-bearing deposits			377,910				2,151		2.31	%			319,311				2,794		3.55	%
Fed funds purchased			—				—		0.00	%			—				—		0.00	%
Repurchase agreements			1,002				1		0.50	%			1,856				2		0.33	%
Subordinated debt			7,155				57		3.22	%			7,155				78		4.41	%
FHLB advances			51,722				466		3.66	%			50,000				463		3.76	%
Total interest-bearing liabilities			437,789				2,675		2.48	%			378,322				3,337		3.58	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits			34,811										35,608
Other liabilities			2,090										2,131
Total liabilities			36,901										37,739
Shareholders’ equity			46,841										35,241
Total liabilities and shareholders’ equity		$	521,531									$	451,302
Net interest income						$	3,992									$	2,555
Interest rate spread									2.90	%									1.89	%
Net interest margin									3.22	%									2.38	%
Ratio of average interest earning assets to average interest-bearing liabilities									114.81	%									115.56	%

 

(1)	Nonaccrual loans have been included in the computations of average loan balances

(2)	Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.

 

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Noninterest Income

Total noninterest income was $232 thousand for the first quarter of 2010, compared to $181 thousand for the same period of 2009. Fees on deposits increased 4.7% to $64 thousand for the first quarter of 2010 compared to $61 thousand for the same period in 2009. Other noninterest income increased $48 thousand or 40.2% to $168 thousand for the first quarter of 2010 from $120 thousand for the first quarter of 2009, primarily due to a $32 thousand increase to $45 thousand in commissions from Infinix. In addition, gain on sale of securities of $25 thousand in the first quarter of 2010 compared to no gain in the comparable period of 2009.

Noninterest Expense

This category includes all expenses other than interest paid on deposits and borrowings. Total noninterest expenses for the first quarter of 2010 totaled $3.2 million, an increase of $860 thousand, or 36.6%, compared to $2.4 million for the same period in 2009. Salaries and employee benefits increased $207 thousand due to key additions to the lending and management team (Chief Credit Officer) during 2009 and the first quarter of 2010. FDIC premiums increased to $272 thousand for the first quarter of 2010 compared to $113 thousand for the comparable period in 2009. Virginia franchise tax increased $29 thousand as the result of the additional equity capital infusion in First Capital Bank in 2009. Other expenses increased $468 thousand from $307 thousand for the first quarter of 2009 to $774 thousand for the quarter ended March 31, 2010. The primary increase was due to a write-down in the value of Other Real Estate Owned by $352 thousand to better reflect the market value of those assets and $79 thousand in cost associated with Other Real Estate Owned in the first quarter of 2010 as compared to $0 in the first quarter of 2009.

Income Taxes

The income tax expense for the quarter ended March 31, 2010 was $144 thousand compared to $51 thousand in the same quarter of the prior year, a $93 thousand increase with the increase resulting from an increase in income before tax of $860 thousand.

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 $16.2 million at March 31, 2010, up from $10.4 million at December 31, 2009 and $8.2 million at March 31, 2009. 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 first quarter, OREO was $3.0 million compared to $4.3 million at the end of March 2009. At March 31, 2010, we had six homes and twenty-four developed lots in this portfolio.

The Company continues to take an aggressive stance as it relates to its non performing loans and troubled assets. During the first quarter of 2010 the company adjusted its carrying value of OREO by $353 thousand to better reflect the market value of those assets. Furthermore, subsequent to quarter end the Company has entered into contracts to sell approximately $1.3 million of assets classified as either non-accrual loans or OREO. In addition, the Company is aggressively working one lending relationship of approximately $3.3 million that is 90 days past due and still accruing interest. We are well secured on this loan and expect to collect it in full. We expect these efforts to decrease the current balances of non performing loans to $9.3 million and Other Real Estate Owned to $2.3 million.

Nonaccrual loans were $6.5 million at March 31, 2010, up from $3.6 million at December 31, 2009 and $3.9 million at March 31, 2009. The increase reflects the continued deterioration in the economy and our customers’ ability to pay as contractually required.

 

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Loan charge-offs, less recoveries, amounted to $262 thousand for the first quarter of 2010 compared to $195 thousand in the first quarter of 2009. For the first quarter of 2010, the provision for loan losses was $461 thousand compared to $215 thousand in the comparable period of 2009. 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 $6.8 million and $5.1 million at March 31, 2010 and 2009, respectively. The ratio of the allowance for loan losses to total loans outstanding at March 31, 2010 and 2009 was 1.65% and 1.34%, respectively. Loans that were more than 30 days but less than 90 days past due totaled $4.4 million, or 1.1% of loans outstanding at March 31, 2010, up from $1.6 million at December 31, 2009.

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

Non-performing Assets

 

		Three Months Ended March 31,								Year Ended December 31,
		2010				2009				2009				2008
		(Dollars in thousands)
Nonaccrual loans		$	6,505			$	3,941			$	3,607			$	4,411
Accruing loans greater than 90 days past due			3,336				—				—				—
Restructured performing loans			3,390				—				3,390				—
Total non-performing loans			13,231				3,941				6,997				4,411
Other real estate owned			3,014				4,286				3,388				2,158
Total non-performing assets		$	16,245			$	8,227			$	10,385			$	6,569
Allowance for loan losses:
Beginning balance		$	6,600			$	5,060			$	5,060			$	2,489
Provision for loan losses			461				215				2,285				2,924
Charge-offs			273				198				755				359
Recoveries			12				3				10				6
Ending balance		$	6,800			$	5,080			$	6,600			$	5,060
Non-performing assets to period end loans & OREO			3.90	%			2.14	%			2.55	%			1.75	%
Non-performing assets to total assets			3.03	%			1.74	%			1.32	%			1.52	%
Allowance for loan losses to
Loans, net of unearned income			1.65	%			1.34	%			1.64	%			1.36	%

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 three 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.

At March 31, 2010, cash and cash equivalents totaled $32.2 million. Investment securities available-for-sale and not pledged totaled $69.9 million, for a total of 19.0% of total assets, which management believe is adequate to meet

 

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short-term liquidity needs. Management also has alternative sources of funding available, including unused unsecured federal funds facilities with three banks totaling $29.5 million and unused available term loans through the Federal Home Loan Bank totaling $6.0 million.

Total liquidity and other alternative sources of liquidity total $136.6 million at March 31, 2010 if fully utilized, which represents 25.5% 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 March 31, 2010, pre-approved but unused lines of credit for loans totaled approximately $57.5 million. In addition, we had approximately $7.0 million in financial and performance standby letters of credit at March 31, 2010. 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 March 31, 2010, First Capital Bancorp, Inc. had a Tier 1 risk-based capital ratio of 12.26% and a Total risk-based capital ratio of 13.99%. At December 31, 2009 these ratios were 12.36% and 14.09%, 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. 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.

 

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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. (Removed and Reserved)

Item 5. Other Information – None to report

Item 6. Exhibits

 

Exhibit No.		Description of Exhibit
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		Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 4.1 of Form 8-K filed on April 6, 2009)
4.3		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 May 14, 2010.
31.2		Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 14, 2010.
31.3		Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 14, 2010.
32		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 14, 2010.
99.1		A Banker’s Professional Code of Ethics as adopted by First Capital Bank (incorporated by reference to Exhibit 99.1 of Form 10-KSB/A filed on June 13, 2007).

 

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99.2		Code of Conduct and Conflict of Interest as adopted by First Capital Bank (incorporated by reference to Exhibit 99.2 of Form 10-KSB/A filed on June 13, 2007).
99.3		Certification of John M. Presley Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009 (incorporated by reference to Exhibit 99.3 of Form 10-K filed on March 31, 2010).
99.4		Certification of William W. Ranson Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009 (incorporated by reference to Exhibit 99.3 of Form 10-K filed on March 31, 2010).

 

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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: May 14, 2010		By:		/s/ John M. Presley
				John M. Presley
				Managing Director and Chief Executive Officer
		By:		/s/ William W. Ranson
				William W. Ranson
				Chief Financial Officer,
				Treasurer and Secretary

 

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