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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

Form 10-Q

________________________________________

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

For the quarterly period ended June 30, 2014

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

FIRST CAPITAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Virginia

001-33543

11-3782033

(State or other jurisdiction of

(Commission File Number)

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

4222 Cox Road, Glen Allen, Virginia 23060

(Address of principal executive offices)

804-273-1160

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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   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.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer 

Accelerated filer 

Non‑accelerated filer    (Do not check if a smaller reporting company)

Smaller reporting company 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   No 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes   No 

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

12,750,065 shares of Common Stock, par value $.01 per share, were outstanding at August 12, 2014.


 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

Page

PART I – FINANCIAL INFORMATION 

 

 

 

 

Item 1 – Financial Statements

 

 

 

Consolidated Statements of Financial Condition

 

 

 

 

June 30, 2014 (unaudited) and December 31, 2013

3

 

 

Consolidated Statements of Operations

 

 

 

 

For the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)

4

 

 

Consolidated Statements of Comprehensive Income  

 

 

 

 

For the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)

5

 

 

Consolidated Statements of Stockholders’ Equity

 

 

 

 

For the Six Months Ended June 30, 2014 and 2013 (unaudited)

6

 

 

Consolidated Statements of Cash Flows

 

 

 

 

For the Six Months Ended June 30, 2014 and 2013 (unaudited)

7

 

 

Notes to the Consolidated Financial Statements (unaudited)

9

 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk – Not Applicable

39

 

Item 4 – Controls and Procedures

40

 

 

PART II – OTHER INFORMATION 

 

 

 

 

Item 1 – Legal Proceedings – None to Report

40

 

Item 1A – Risk Factors – Not Applicable

40

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds-None to Report

40

 

Item 3 – Defaults Upon Senior Securities – None to Report

40

 

Item 4 – Mine Safety Disclosures – None to Report

40

 

Item 5 – Other Information – None to Report

40

 

Item 6 – Exhibits

40

 

 

SIGNATURES 

42

 

 

 

 

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

2014

 

2013

 

(Unaudited)

 

(*)

 

(Dollars in thousands)

ASSETS

 

 

 

 

 

Cash and due from banks

$

15,468 

 

$

10,202 

Interest-bearing deposits in other banks

 

857 

 

 

3,985 

Total cash and cash equivalents

 

16,325 

 

 

14,187 

Investment securities:

 

 

 

 

 

Available for sale, at fair value

 

70,005 

 

 

71,511 

Held to maturity, at cost

 

2,373 

 

 

2,375 

Restricted, at cost

 

4,186 

 

 

3,554 

Loans held for sale

 

 -

 

 

992 

Loans, net of allowance for losses of $7,894 in 2014 and $8,165 in 2013

 

453,688 

 

 

423,160 

Other real estate owned

 

2,279 

 

 

2,658 

Premises and equipment, net

 

10,761 

 

 

10,451 

Accrued interest receivable

 

1,721 

 

 

1,701 

Bank owned life insurance

 

9,742 

 

 

9,580 

Deferred tax asset

 

5,301 

 

 

6,064 

Other assets

 

1,720 

 

 

1,652 

Total assets

$

578,101 

 

$

547,885 

LIABILITIES

 

 

 

 

 

Deposits

 

 

 

 

 

Noninterest-bearing

$

74,487 

 

$

67,694 

Interest-bearing

 

393,302 

 

 

388,274 

Total deposits

 

467,789 

 

 

455,968 

Securities sold under repurchase agreements

 

1,925 

 

 

1,393 

Subordinated debt and trust preferred

 

13,607 

 

 

7,155 

Federal Home Loan Bank advances

 

45,000 

 

 

30,000 

Accrued expenses and other liabilities

 

2,609 

 

 

3,687 

Total liabilities

 

530,930 

 

 

498,203 

STOCKHOLDERS' EQUITY

 

 

 

 

 

Preferred stock, See Note 10

 

 -

 

 

22 

Common stock, See Note 11

 

127 

 

 

50,208 

Additional paid-in capital

 

49,575 

 

 

4,448 

Accumulated deficit

 

(2,628)

 

 

(4,590)

Discount on preferred stock

 

 -

 

 

(16)

Accumulated other comprehensive income (loss), net of tax

 

97 

 

 

(390)

Total stockholders' equity

 

47,171 

 

 

49,682 

Total liabilities and stockholders' equity

$

578,101 

 

$

547,885 

 

*Derived from audited, consolidated financial statements

See notes to consolidated financial statements

 

 

 

 

3

 


 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

(Unaudited)

 

(Dollars in thousands,

 

(Dollars in thousands,

 

except per share data)

 

except per share data)

Interest and dividend income

 

 

 

 

 

 

 

 

 

 

 

Loans

$

5,661 

 

$

5,137 

 

$

11,096 

 

$

10,170 

Investments:

 

 

 

 

 

 

 

 

 

 

 

Taxable interest income

 

336 

 

 

459 

 

 

723 

 

 

941 

Tax exempt interest income

 

32 

 

 

58 

 

 

75 

 

 

116 

Dividends

 

46 

 

 

37 

 

 

94 

 

 

68 

Interest bearing deposits

 

 

 

 

 

11 

 

 

12 

Total interest income

 

6,080 

 

 

5,696 

 

 

11,999 

 

 

11,307 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

1,080 

 

 

1,166 

 

 

2,162 

 

 

2,420 

FHLB advances

 

111 

 

 

82 

 

 

202 

 

 

163 

Subordinated debt and other borrowings

 

125 

 

 

35 

 

 

245 

 

 

71 

Total interest expense

 

1,316 

 

 

1,283 

 

 

2,609 

 

 

2,654 

Net interest income

 

4,764 

 

 

4,413 

 

 

9,390 

 

 

8,653 

(Recovery of) provision for loan losses

 

 -

 

 

 -

 

 

(292)

 

 

100 

Net interest income after (receovery of)

 

 

 

 

 

 

 

 

 

 

 

provision for loan losses

 

4,764 

 

 

4,413 

 

 

9,682 

 

 

8,553 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

Fees on deposits

 

87 

 

 

88 

 

 

167 

 

 

176 

Gain on sale of securities

 

175 

 

 

145 

 

 

271 

 

 

176 

Gain on sale of loans

 

 -

 

 

303 

 

 

55 

 

 

586 

Other

 

221 

 

 

208 

 

 

456 

 

 

407 

Total noninterest income

 

483 

 

 

744 

 

 

949 

 

 

1,345 

Noninterest expenses

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

2,079 

 

 

2,117 

 

 

4,413 

 

 

4,137 

Occupancy expense

 

214 

 

 

211 

 

 

418 

 

 

405 

Data processing

 

237 

 

 

253 

 

 

472 

 

 

490 

Professional services

 

142 

 

 

93 

 

 

259 

 

 

224 

Advertising and marketing

 

127 

 

 

165 

 

 

255 

 

 

290 

FDIC assessment

 

90 

 

 

105 

 

 

180 

 

 

186 

Virginia franchise tax

 

128 

 

 

120 

 

 

254 

 

 

240 

(Gain) loss on sale and write down of other real estate owned

 

(54)

 

 

(55)

 

 

(78)

 

 

44 

Depreciation

 

147 

 

 

151 

 

 

283 

 

 

302 

Other

 

648 

 

 

550 

 

 

1,267 

 

 

1,002 

Total noninterest expense

 

3,758 

 

 

3,710 

 

 

7,723 

 

 

7,320 

Net income before income taxes

 

1,489 

 

 

1,447 

 

 

2,908 

 

 

2,578 

Income tax expense

 

480 

 

 

446 

 

 

922 

 

 

783 

Net income

 

1,009 

 

 

1,001 

 

 

1,986 

 

 

1,795 

Preferred stock dividend

 

 -

 

 

86 

 

 

24 

 

 

172 

Net income available to common stockholders

 

1,009 

 

 

915 

 

$

1,962 

 

$

1,623 

Basic net income per common share

$

0.08 

 

$

0.08 

 

$

0.16 

 

$

0.14 

Diluted net income per common share

$

0.07 

 

$

0.07 

 

$

0.13 

 

$

0.12 

See notes to consolidated financial statements

4

 


 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

(Unaudited)

 

(Dollars in thousands)

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

Net income

$

1,009 

 

$

1,001 

 

$

1,986 

 

$

1,795 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on investment securities

 

 

 

 

 

 

 

 

 

 

 

available for sale

 

377 

 

 

(1,726)

 

 

1,009 

 

 

(1,738)

Tax effect

 

(128)

 

 

588 

 

 

(343)

 

 

591 

Reclassification of gains recognized in net income

 

(175)

 

 

(145)

 

 

(271)

 

 

(176)

Tax effect

 

59 

 

 

49 

 

 

92 

 

 

60 

Total other comprehensive income (loss)

 

133 

 

 

(1,234)

 

 

487 

 

 

(1,263)

Comprehensive income (loss)

$

1,142 

 

$

(233)

 

$

2,473 

 

$

532 

 

See notes to consolidated financial statements

5

 


 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2014 and 2013

(Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumu-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount 

 

 

lated Other

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

on

 

 

Compre-

 

 

 

 

 

Preferred

 

 

Common

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

Preferred

 

 

hensive

 

 

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Warrants

 

 

Stock

 

 

Income

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances December 31, 2012

$

22 

 

$

49,100 

 

$

4,072 

 

$

(8,120)

 

$

661 

 

$

(84)

 

$

1,437 

 

$

47,088 

Net income

 

 -

 

 

 -

 

 

 -

 

 

1,795 

 

 

 -

 

 

 -

 

 

 -

 

 

1,795 

Other comprehensive loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,263)

 

 

(1,263)

Preferred stock dividend

 

 -

 

 

 -

 

 

 -

 

 

(138)

 

 

 -

 

 

 -

 

 

 -

 

 

(138)

Accretion of discount on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   preferred stock

 

 -

 

 

 -

 

 

 -

 

 

(34)

 

 

 -

 

 

34 

 

 

 -

 

 

 -

Stock based compensation

 

 -

 

 

 -

 

 

233 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

233 

Redemption of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  warrants on preferred stock

 

 -

 

 

 -

 

 

395 

 

 

 -

 

 

(661)

 

 

 -

 

 

 -

 

 

(266)

Costs associated with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   redemption of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common stock warrants

 

 -

 

 

 -

 

 

(15)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(15)

Warrants exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.9 million shares issued

 

 -

 

 

382 

 

 

(191)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

191 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances June 30, 2013

$

22 

 

$

49,482 

 

$

4,494 

 

$

(6,497)

 

$

 -

 

$

(50)

 

$

174 

 

$

47,625 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances December 31, 2013

$

22 

 

$

50,208 

 

$

4,448 

 

$

(4,590)

 

$

 -

 

$

(16)

 

$

(390)

 

$

49,682 

Net income

 

 -

 

 

 -

 

 

 -

 

 

1,986 

 

 

 -

 

 

 -

 

 

 -

 

 

1,986 

Other comprehensive income

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

487 

 

 

487 

Preferred stock dividend

 

 -

 

 

 -

 

 

 -

 

 

(8)

 

 

 -

 

 

 -

 

 

 -

 

 

(8)

Accretion of discount on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 preferred stock

 

 -

 

 

 -

 

 

 -

 

 

(16)

 

 

 -

 

 

16 

 

 

 -

 

 

 -

Stock based compensation

 

 -

 

 

 -

 

 

159 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

159 

Change in par value

 

 -

 

 

(50,083)

 

 

50,083 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Redemption of preferred stock

 

(22)

 

 

 -

 

 

(5,509)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(5,531)

Warrants exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.9 million shares issued

 

 -

 

 

 

 

394 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

396 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances June 30, 2014

$

 -

 

$

127 

 

$

49,575 

 

$

(2,628)

 

$

 -

 

$

 -

 

$

97 

 

$

47,171 

 

See notes to consolidated financial statements

6

 


 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2014 and 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

(Unaudited)

 

(Dollars in thousands)

Cash flows from operating activities

 

 

Net income

$

1,986 

 

$

1,795 

Adjustments to reconcile net income to net cash

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

(Recovery of) provision for loan losses

 

(292)

 

 

100 

Depreciation of premises and equipment

 

283 

 

 

302 

Net amortization of bond premiums/discounts

 

293 

 

 

416 

Stock based compensation expense

 

159 

 

 

233 

Deferred income tax expense

 

512 

 

 

768 

Gain on sale of securities

 

(271)

 

 

(176)

Gain on loans sold

 

(55)

 

 

(586)

(Gain) loss on sale and write down of OREO

 

(78)

 

 

44 

Increase in cash surrender value of bank owned life insurance

 

(162)

 

 

(167)

Proceeds from sale of loans held for sale

 

7,167 

 

 

57,958 

Origination of loans held for sale

 

(6,120)

 

 

(51,456)

(Increase) decrease in other assets

 

(68)

 

 

1,816 

(Increase) decrease in accrued interest receivable

 

(20)

 

 

20 

Decrease in accrued expenses and other liabilities

 

(1,078)

 

 

(613)

Net cash provided by operating activities

 

2,256 

 

 

10,454 

Cash flows from investing activities

 

 

 

 

 

Proceeds from maturities and calls of securities

 

 -

 

 

410 

Proceeds from paydowns of securities available-for-sale

 

5,312 

 

 

7,044 

Purchase of securities available-for-sale

 

(18,253)

 

 

(8,839)

Proceeds from sale of securities available-for-sale

 

15,165 

 

 

14,026 

Proceeds from sale of other real estate owned

 

575 

 

 

1,567 

Improvements in other real estate owned

 

(118)

 

 

 -

(Purchase) redemption of Federal Home Loan Bank Stock, net

 

(516)

 

 

161 

Purchase of Federal Reserve Stock, net

 

(116)

 

 

(48)

Purchases of premises and equipment

 

(593)

 

 

(47)

Net increase in loans

 

(30,236)

 

 

(35,215)

Net cash used in investing activities

 

(28,780)

 

 

(20,941)

Cash flows from financing activities

 

 

 

 

 

Net increase (decrease) in deposits

 

11,821 

 

 

(4,195)

Borrowings with FHLB

 

15,000 

 

 

 -

Dividends on preferred stock

 

(8)

 

 

(138)

Cash paid for redemption of common stock warrants and preferred stock, net of expenses

 

(5,531)

 

 

(281)

Proceeds from issuance of subordinated debt, net of payments

 

6,452 

 

 

 -

Warrants exercised in connection with the rights offering, net

 

396 

 

 

191 

Net increase in repurchase agreements

 

532 

 

 

261 

Net cash provided by (used in) financing activities

 

28,662 

 

 

(4,162)

Net increase (decrease) in cash and cash equivalents

 

2,138 

 

 

(14,649)

Cash and cash equivalents, beginning of period

 

14,187 

 

 

35,321 

Cash and cash equivalents, end of period

$

16,325 

 

$

20,672 

 

 

7

 


 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2014 and 2013

(Unaudited)

(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

 

 

 

 

 

 

(Unaudited)

 

(Dollars in thousands)

Supplemental disclosure of cash flow information

 

 

Interest paid during the period

$

2,609 

 

$

2,654 

Taxes (paid) refunded  during the period, net

$

(410)

 

$

997 

Supplemental schedule of noncash investing and financing activities

 

 

 

 

 

Transfer of loans to other real estate owned

$

 -

 

$

2,298 

Unrealized gain (loss) on securities available for sale, net of tax

$

666 

 

$

(1,147)

Company financed sales of other real estate owned

$

 -

 

$

2,300 

 

See notes to consolidated financial statements

 

 

8

 


 

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

June 30, 2014

Note 1 – Basis of Presentation

First Capital Bancorp, Inc. (the “Company”) is the holding company of and successor to First Capital Bank (sometimes referred to herein as 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.    Effective June 24, 2014, the Board of Directors approved an amendment to the Company’s Articles of Incorporation whereby the par value of its common stock was changed from $4.00 per share to $.01 per share.

The Company conducts all of its business activities through the branch offices of its wholly owned subsidiary bank, First Capital Bank.  First Capital Bank created RE1, LLC, and RE2, LLC, wholly owned Virginia limited liability companies in 2008 and 2011, respectively, for the sole purpose of taking title to property acquired in lieu of foreclosure.  RE1, LLC, and RE2, LLC have been consolidated with First Capital Bank.  The Company exists primarily for the purpose of holding the stock of the Bank and such other subsidiaries as it may acquire or establish.

The Company has one other wholly owned subsidiary, FCRV Statutory Trust 1 (the “Trust”), a Delaware Business Trust that was formed in connection with the issuance of trust preferred debt in September, 2006.  Pursuant to current accounting standards, the Company does not consolidate the Trust.

The consolidated financial statements include the accounts of First Capital Bancorp, Inc. and its wholly owned subsidiary, First Capital Bank.  All material intercompany balances and transactions have been eliminated.

In management’s opinion the accompanying unaudited consolidated financial statements, reflect all adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the financial information as of June  30,  2014, and December 31, 2013 and for the three and six months ended June 30, 2014, and 2013, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  Results for the three and six month periods ended June 30, 2014 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014. 

The organization and business of the Company, accounting policies followed, and other related information are contained in the notes to the consolidated financial statements of the Company as of and for the year ended December 31, 2013, filed as part of the Company’s annual report on Form 10-K.  These interim consolidated financial statements should be read in conjunction with the annual financial statements.

First Capital Bank’s critical accounting policies relate to the evaluation of the allowance for loan losses and the establishment of fair value of financial instruments, and other assets.  

9

 


 

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

June 30, 2014

The evaluation of the allowance for loan losses is based on management’s opinion of an amount that is adequate to absorb probable losses inherent in the Bank’s existing portfolio. The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) Accounting for Contingencies, which requires that losses be accrued when occurrence is probable and can be reasonably estimated, and (ii) specific reserves based on accounting for impaired loans, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.

The Company’s allowance for loan losses is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to applicable GAAP. Management’s estimate of each homogenous pool component is based on certain observable data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; collateral values; loan volumes; geographic, borrower and industry concentrations; seasoning of the loan portfolio; the findings of internal credit quality assessments and results from external bank regulatory examinations. These factors, as well as historical losses and current economic and business conditions, are used in developing estimated loss factors used in the calculations. 

Reserves for commercial loans are determined by applying estimated loss factors to the portfolio based on historical loss experience and management’s evaluation and “risk grading” of the commercial loan portfolio. Reserves are provided for noncommercial loan categories using historical loss factors applied to the total outstanding loan balance of each loan category. Additionally, environmental factors based on national and local economic conditions, as well as portfolio-specific attributes, are considered in estimating the allowance for loan losses. 

Applicable GAAP requires that the impairment of loans that have been separately identified for evaluation are measured based on the present value of expected future cash flows or, alternatively, the observable market price of the loans or the fair value of the collateral. However, for those loans that are collateral dependent (that is, if repayment of those loans is expected to be provided solely by the underlying collateral) and for which management has determined foreclosure is probable, the measure of impairment is based on the net realizable value of the collateral. This statement also requires certain disclosures about investments in impaired loans and the allowance for loan losses and interest income recognized on impaired loans.

Although management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if actual economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information available to them at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.

Securities available-for-sale and certain mortgage loans held for sale are recorded at fair value on a recurring basis. From time to time, certain assets, consisting primarily of other real estate owned and impaired loans, may be recorded at fair value on a non-recurring basis. These non-recurring fair value adjustments typically are a result of the application of lower of cost or fair value accounting or a write-down occurring during the period. For example, if the fair value of an asset in these categories falls below its cost basis, it is considered to be at fair value at the end of the period of the adjustment. In periods where there is no adjustment, the asset is generally not considered to be at fair value. Management believes this is a critical accounting policy because the estimation of fair value involves a high degree of complexity and requires us to make subjective judgments that often include assumptions or estimates about various matters. 

10

 


 

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

June 30, 2014

 

Note 2 – Use of Estimates

To prepare financial statements in conformity with GAAP management makes estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results may be differentIn particular, the allowance for loan losses, valuation of other real estate owned, and fair values of financial instruments are subject to change.

 

 

Note 3 – Income 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 that have a dilutive impact on shares outstanding were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the entity.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

(in thousands,

 

 

(in thousands,

 

 

except per share amounts)

 

 

except per share amounts)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

$

1,009 

 

$

915 

 

$

1,962 

 

$

1,623 

Weighted average number of shares outstanding

 

12,544 

 

 

11,966 

 

 

12,484 

 

 

11,950 

Net income per common share - basic

$

0.08 

 

$

0.08 

 

$

0.16 

 

$

0.14 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

12,544 

 

 

11,966 

 

 

12,484 

 

 

11,950 

Effect of stock options, warrants and restricted stock

 

2,397 

 

 

1,653 

 

 

2,410 

 

 

1,630 

Diluted average common shares outstanding

 

14,941 

 

 

13,619 

 

 

14,894 

 

 

13,580 

Net income per common share - assuming dilution

$

0.07 

 

$

0.07 

 

$

0.13 

 

$

0.12 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company has excluded options convertible into 31  thousand shares of common stock for the three and six months ended June 30, 2014, from the calculation of diluted earnings per share because they were anti-dilutive since the strike price was greater than the average market price.

The Company excluded options convertible into 324 thousand shares of common stock for the three and six months ended June, 30, 2013, from the calculation of diluted earnings per share because they were anti-dilutive since the strike price was greater than the average market price.  The Company also excluded 348 thousand shares of restricted common stock for the three and six months ended June 30, 2013 from the calculation of diluted earnings per share because the shares were anti-dilutive since they were issued but not vested.

 

 

11

 


 

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

June 30, 2014

Note 4 – Stock Options

 

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

The stock based compensation, in thousands, expensed during the three and six months ended June 30, 2014, was  $76 thousand and $159 thousand, respectively, and the amount expensed during the three and six months ended June 30, 2013, was $158 thousand and $233 thousand, respectively. Expensed amounts are included in salaries and employee benefits.

 

 

Note 5 – Investment Securities

The amortized costs, gross unrealized gains, gross unrealized losses, and fair values for securities are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2014

 

Amortized

 

Gross Unrealized

 

Fair

 

Costs

 

Gains

 

Losses

 

Values

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

$

30,700 

 

$

295 

 

$

137 

 

$

30,858 

Corporate bonds

 

3,498 

 

 

12