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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 September 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:

12,864,542 shares of Common Stock, par value $.01 per share, were outstanding at November 10, 2014.


 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

Page

PART I – FINANCIAL INFORMATION 

 

 

 

 

Item 1 – Financial Statements

 

 

 

Consolidated Statements of Financial Condition

 

 

 

 

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

3

 

 

Consolidated Statements of Operations

 

 

 

 

For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)

4

 

 

Consolidated Statements of Comprehensive Income  

 

 

 

 

For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)

5

 

 

Consolidated Statements of Stockholders’ Equity

 

 

 

 

For the Nine Months Ended September 30, 2014 and 2013 (unaudited)

6

 

 

Consolidated Statements of Cash Flows

 

 

 

 

For the Nine Months Ended September 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

33

 

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

40

 

Item 4 – Controls and Procedures

41

 

 

PART II – OTHER INFORMATION 

 

 

 

 

Item 1 – Legal Proceedings – None to Report

41

 

Item 1A – Risk Factors – Not Applicable

41

 

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

41

 

Item 3 – Defaults Upon Senior Securities – None to Report

41

 

Item 4 – Mine Safety Disclosures – None to Report

41

 

Item 5 – Other Information – None to Report

41

 

Item 6 – Exhibits

41

 

 

SIGNATURES 

42

 

 

 

 

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2014

 

2013

 

(Unaudited)

 

(*)

 

(Dollars in thousands)

ASSETS

 

 

 

 

 

Cash and due from banks

$

10,823 

 

$

10,202 

Interest-bearing deposits in other banks

 

14,931 

 

 

3,985 

Total cash and cash equivalents

 

25,754 

 

 

14,187 

Investment securities:

 

 

 

 

 

Available-for-sale, at fair value

 

76,049 

 

 

71,511 

Held-to-maturity, at cost

 

2,372 

 

 

2,375 

Restricted, at cost

 

4,003 

 

 

3,554 

Loans held for sale

 

 -

 

 

992 

Loans, net of allowance for losses of $7,903 in 2014 and $8,165 in 2013

 

460,905 

 

 

423,160 

Other real estate owned

 

1,962 

 

 

2,658 

Premises and equipment, net

 

10,700 

 

 

10,451 

Accrued interest receivable

 

1,771 

 

 

1,701 

Bank owned life insurance ("BOLI")

 

9,822 

 

 

9,580 

Deferred tax asset

 

4,846 

 

 

6,064 

Other assets

 

1,974 

 

 

1,652 

Total assets

$

600,158 

 

$

547,885 

LIABILITIES

 

 

 

 

 

Deposits

 

 

 

 

 

Noninterest-bearing

$

74,358 

 

$

67,694 

Interest-bearing

 

413,826 

 

 

388,274 

Total deposits

 

488,184 

 

 

455,968 

Securities sold under repurchase agreements

 

8,948 

 

 

1,393 

Subordinated debt and trust preferred

 

11,583 

 

 

7,155 

Federal Home Loan Bank advances

 

40,000 

 

 

30,000 

Accrued expenses and other liabilities

 

3,187 

 

 

3,687 

Total liabilities

 

551,902 

 

 

498,203 

STOCKHOLDERS' EQUITY

 

 

 

 

 

Preferred stock, See Note 10

 

 -

 

 

22 

Common stock, See Note 11

 

128 

 

 

50,208 

Additional paid-in capital

 

49,701 

 

 

4,448 

Accumulated deficit

 

(1,477)

 

 

(4,590)

Discount on preferred stock

 

 -

 

 

(16)

Accumulated other comprehensive loss, net of tax

 

(96)

 

 

(390)

Total stockholders' equity

 

48,256 

 

 

49,682 

Total liabilities and stockholders' equity

$

600,158 

 

$

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

 

Nine Months Ended

 

September 30,

 

September 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

$

5,822 

 

$

5,256 

 

$

16,918 

 

$

15,426 

Investments:

 

 

 

 

 

 

 

 

 

 

 

Taxable interest income

 

341 

 

 

430 

 

 

1,064 

 

 

1,371 

Tax exempt interest income

 

28 

 

 

56 

 

 

103 

 

 

172 

Dividends

 

46 

 

 

34 

 

 

140 

 

 

102 

Interest bearing deposits

 

10 

 

 

 

 

21 

 

 

17 

Total interest income

 

6,247 

 

 

5,781 

 

 

18,246 

 

 

17,088 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

1,073 

 

 

1,120 

 

 

3,235 

 

 

3,540 

FHLB advances

 

113 

 

 

83 

 

 

315 

 

 

246 

Subordinated debt and other borrowings

 

124 

 

 

35 

 

 

369 

 

 

106 

Total interest expense

 

1,310 

 

 

1,238 

 

 

3,919 

 

 

3,892 

Net interest income

 

4,937 

 

 

4,543 

 

 

14,327 

 

 

13,196 

(Recovery of) provision for loan losses

 

(60)

 

 

(86)

 

 

(352)

 

 

14 

Net interest income after

 

 

 

 

 

 

 

 

 

 

 

provision for loan losses

 

4,997 

 

 

4,629 

 

 

14,679 

 

 

13,182 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

Fees on deposits

 

87 

 

 

92 

 

 

254 

 

 

268 

Gain (loss) on sale of securities

 

81 

 

 

(7)

 

 

352 

 

 

169 

Gain on sale of loans

 

 -

 

 

142 

 

 

55 

 

 

729 

Other

 

263 

 

 

232 

 

 

719 

 

 

639 

Total noninterest income

 

431 

 

 

459 

 

 

1,380 

 

 

1,805 

Noninterest expenses

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

2,171 

 

 

2,143 

 

 

6,584 

 

 

6,280 

Occupancy expense

 

217 

 

 

213 

 

 

635 

 

 

618 

Data processing

 

236 

 

 

240 

 

 

708 

 

 

730 

Professional services

 

99 

 

 

99 

 

 

357 

 

 

323 

Advertising and marketing

 

126 

 

 

86 

 

 

381 

 

 

376 

FDIC assessment

 

93 

 

 

68 

 

 

273 

 

 

254 

Virginia franchise tax

 

135 

 

 

120 

 

 

389 

 

 

360 

Gain on sale and write down of other real estate owned, net

 

(16)

 

 

(161)

 

 

(93)

 

 

(117)

Depreciation

 

161 

 

 

141 

 

 

444 

 

 

442 

Other

 

499 

 

 

544 

 

 

1,767 

 

 

1,546 

Total noninterest expense

 

3,721 

 

 

3,493 

 

 

11,445 

 

 

10,812 

Net income before income taxes

 

1,707 

 

 

1,595 

 

 

4,614 

 

 

4,175 

Income tax expense

 

556 

 

 

518 

 

 

1,477 

 

 

1,301 

Net income

 

1,151 

 

 

1,077 

 

 

3,137 

 

 

2,874 

Preferred stock dividend

 

 -

 

 

86 

 

 

24 

 

 

258 

Net income available to common stockholders

 

1,151 

 

 

991 

 

$

3,113 

 

$

2,616 

Basic net income per common share

$

0.09 

 

$

0.08 

 

$

0.25 

 

$

0.22 

Diluted net income per common share

$

0.08 

 

$

0.07 

 

$

0.21 

 

$

0.19 

See notes to consolidated financial statements

4

 


 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

(Unaudited)

 

(Dollars in thousands)

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

Net income

$

1,151 

 

$

1,077 

 

$

3,137 

 

$

2,874 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on investment securities

 

 

 

 

 

 

 

 

 

 

 

available for sale

 

(207)

 

 

(115)

 

 

802 

 

 

(1,850)

Tax effect

 

68 

 

 

40 

 

 

(275)

 

 

629 

Reclassification of (gains) losses recognized in net income

 

(81)

 

 

 

 

(352)

 

 

(169)

Tax effect

 

27 

 

 

(2)

 

 

119 

 

 

57 

Total other comprehensive (loss) income

 

(193)

 

 

(70)

 

 

294 

 

 

(1,333)

Comprehensive income

$

958 

 

$

1,007 

 

$

3,431 

 

$

1,541 

 

See notes to consolidated financial statements

5

 


 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Nine Months Ended September 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

 

 -

 

 

 -

 

 

 -

 

 

2,874 

 

 

 -

 

 

 -

 

 

 -

 

 

2,874 

Other comprehensive loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,333)

 

 

(1,333)

Preferred stock dividend

 

 -

 

 

 -

 

 

 -

 

 

(207)

 

 

 -

 

 

 -

 

 

 -

 

 

(207)

Accretion of discount on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   preferred stock

 

 -

 

 

 -

 

 

 -

 

 

(51)

 

 

 -

 

 

51 

 

 

 -

 

 

 -

Stock based compensation

 

 -

 

 

 -

 

 

344 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

344 

Redemption of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  warrants on preferred stock

 

 -

 

 

 -

 

 

395 

 

 

 -

 

 

(661)

 

 

 -

 

 

 -

 

 

(266)

Costs associated with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   redemption of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common stock warrants

 

 -

 

 

 -

 

 

(15)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(15)

Retirement of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and associated warrants

 

 -

 

 

(219)

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(218)

Exercise of warrants issued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

rights offering

 

 -

 

 

1,232 

 

 

(616)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

616 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances September 30, 2013

$

22 

 

$

50,113 

 

$

4,181 

 

$

(5,504)

 

$

 -

 

$

(33)

 

$

104 

 

$

48,883 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances December 31, 2013

$

22 

 

$

50,208 

 

$

4,448 

 

$

(4,590)

 

$

 -

 

$

(16)

 

$

(390)

 

$

49,682 

Net income

 

 -

 

 

 -

 

 

 -

 

 

3,137 

 

 

 -

 

 

 -

 

 

 -

 

 

3,137 

Other comprehensive income

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

294 

 

 

294 

Preferred stock dividend

 

 -

 

 

 -

 

 

 -

 

 

(8)

 

 

 -

 

 

 -

 

 

 -

 

 

(8)

Accretion of discount on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred stock

 

 -

 

 

 -

 

 

 -

 

 

(16)

 

 

 -

 

 

16 

 

 

 -

 

 

 -

Stock based compensation

 

 -

 

 

 -

 

 

253 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

253 

Change in par value

 

 -

 

 

(50,083)

 

 

50,083 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Redemption of preferred stock

 

(22)

 

 

 -

 

 

(5,509)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(5,531)

Exercise of rights offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

warrants

 

 -

 

 

 

 

427 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

429 

Issuance of 98 thousand shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of restricted common stock

 

 -

 

 

 

 

(1)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Balances September 30, 2014

$

 -

 

$

128 

 

$

49,701 

 

$

(1,477)

 

$

 -

 

$

 -

 

$

(96)

 

$

48,256 

 

See notes to consolidated financial statements

6

 


 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2014 and 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

(Unaudited)

 

(Dollars in thousands)

Cash flows from operating activities

 

 

Net income

$

3,137 

 

$

2,874 

Adjustments to reconcile net income to net cash

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

(Recovery of) provision for loan losses

 

(352)

 

 

14 

Depreciation of premises and equipment

 

444 

 

 

442 

Net amortization of bond premiums/discounts

 

481 

 

 

585 

Stock based compensation expense

 

253 

 

 

344 

Deferred income tax expense

 

1,062 

 

 

1,206 

Gain on sale of securities

 

(352)

 

 

(169)

Gain on loans sold

 

(55)

 

 

(729)

Gain on sale and write down of OREO, net

 

(93)

 

 

(117)

Increase in cash surrender value of bank owned life insurance

 

(242)

 

 

(248)

Proceeds from sale of loans held for sale

 

7,167 

 

 

71,811 

Origination of loans held for sale

 

(6,120)

 

 

(62,425)

(Increase) decrease in other assets

 

(322)

 

 

1,738 

(Increase) decrease in accrued interest receivable

 

(70)

 

 

81 

Decrease in accrued expenses and other liabilities

 

(500)

 

 

(856)

Net cash provided by operating activities

 

4,438 

 

 

14,551 

Cash flows from investing activities

 

 

 

 

 

Proceeds from maturities and calls of securities

 

 -

 

 

1,092 

Proceeds from paydowns of securities available-for-sale

 

8,592 

 

 

10,380 

Purchase of securities available-for-sale

 

(31,319)

 

 

(20,047)

Proceeds from sale of securities available-for-sale

 

18,513 

 

 

16,586 

Proceeds from sale of other real estate owned

 

1,013 

 

 

2,118 

Improvements in other real estate owned

 

(256)

 

 

 -

Purchase of Federal Home Loan Bank Stock, net

 

(291)

 

 

(64)

Purchase of Federal Reserve Stock

 

(158)

 

 

(11)

Purchases of premises and equipment

 

(693)

 

 

(53)

Net increase in loans

 

(37,361)

 

 

(40,529)

Net cash used in investing activities

 

(41,960)

 

 

(30,528)

Cash flows from financing activities

 

 

 

 

 

Net increase (decrease) in deposits

 

32,216 

 

 

(12,242)

Borrowings with FHLB, net

 

10,000 

 

 

5,000 

Dividends on preferred stock

 

(8)

 

 

(207)

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

 

6,428 

 

 

 -

Retirement of subordinated debt

 

(2000)

 

 

 -

Warrants exercised in connection with the rights offering

 

429 

 

 

398 

Net increase in repurchase agreements

 

7,555 

 

 

45 

Net cash provided by (used in) financing activities

 

49,089 

 

 

(7,287)

Net increase (decrease) in cash and cash equivalents

 

11,567 

 

 

(23,264)

Cash and cash equivalents, beginning of period

 

14,187 

 

 

35,321 

Cash and cash equivalents, end of period

$

25,754 

 

$

12,057 

 

 

7

 


 

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2014 and 2013

(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

 

 

 

 

 

 

(Unaudited)

 

(Dollars in thousands)

Supplemental disclosure of cash flow information

 

 

Interest paid during the period

$

3,919 

 

$

3,892 

Taxes (paid) refunded  during the period, net

$

(410)

 

$

917 

Supplemental schedule of noncash investing and financing activities

 

 

 

 

 

Transfer of loans to other real estate owned

$

 -

 

$

3,130 

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

$

527 

 

$

(1,221)

Company financed sales of other real estate owned

$

32 

 

$

2,300 

 

See notes to consolidated financial statements

 

 

8

 


 

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 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.  On May 21, 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 amendment became effective on June 24, 2014.

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 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 September 30, 2014, and December 31, 2013 and for the three and nine months ended September 30, 2014, and 2013, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  Results for the three and nine month periods ended September 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.

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

9

 


 

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2014

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. Management believes this is a critical accounting policy because the estimation of fair value involves a high degree of complexity and requires the Company to make subjective judgments that often include assumptions or estimates about various matters.

 

 

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 different.  In particular, the allowance for loan losses, valuation of other real estate owned, and fair values of financial instruments are subject to change.

10

 


 

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2014

 

 

 

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

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

(in thousands,

 

 

(in thousands,

 

 

except per share amounts)

 

 

except per share amounts)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

$

1,151 

 

$

991 

 

$

3,113 

 

$

2,616 

Weighted average number of shares outstanding

 

12,568 

 

 

12,034 

 

 

12,513 

 

 

11,978 

Net income per common share - basic

$

0.09 

 

$

0.08 

 

$

0.25 

 

$

0.22 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

12,568 

 

 

12,034 

 

 

12,513 

 

 

11,978 

Effect of stock options, warrants and restricted stock

 

2,442 

 

 

2,099 

 

 

2,415 

 

 

1,830 

Diluted average common shares outstanding

 

15,010 

 

 

14,133 

 

 

14,928 

 

 

13,808 

Net income per common share - assuming dilution

$

0.08 

 

$

0.07 

 

$

0.21 

 

$

0.19 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company has excluded options convertible into 31 thousand shares of common stock for the three and nine months ended September 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 315 thousand shares of common stock for the three and nine months ended September, 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 nine months ended September 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

September 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.

Stock-based compensation expensed during the three and nine months ended September 30, 2014, was $95 thousand and $253 thousand, respectively, and the amount expensed during the three and nine months ended September 30, 2013, was $111 thousand and $344 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

Amortized

 

Gross Unrealized

 

Fair

 

Costs

 

Gains

 

Losses

 

Values