XNAS:FCVA First Capital Bancorp Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

XNAS:FCVA Fair Value Estimate
Premium
XNAS:FCVA Consider Buying
Premium
XNAS:FCVA Consider Selling
Premium
XNAS:FCVA Fair Value Uncertainty
Premium
XNAS:FCVA Economic Moat
Premium
XNAS:FCVA Stewardship
Premium
 
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

Form 10-Q

 

 

 

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

For the quarterly period ended March 31, 2012

 

¨ 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

incorporation or organization)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

4222 Cox Road, Glen Allen, Virginia 23060

(Address of principal executive offices)

804-273-1160

(Registrant’s telephone number, including area code)

 

 

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  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  x    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   x

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

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:

2,971,171 shares of Common Stock, par value $4.00 per share, were outstanding at May 9, 2012.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  

PART I – FINANCIAL INFORMATION

  

Item 1 – Financial Statements

     1   

Consolidated Statements of Financial Condition
March 31, 2012 (unaudited) and December  31, 2011

     1   

Consolidated Statements of Operations
For the Three Months Ended March  31, 2012 and 2011 (unaudited)

     2   

Consolidated Statements of Comprehensive Income
For the Three Months Ended March  31, 2012 and 2011 (unaudited)

     3   

Consolidated Statements of Stockholders’ Equity
For the Three Months Ended March  31, 2012 and 2011 (unaudited)

     4   

Consolidated Statements of Cash Flows
For the Three Months Ended March  31, 2012 and 2011 (unaudited)

     5   

Notes to Consolidated Financial Statements (unaudited)

     6   

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

     29   

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

     36   

Item 4 – Controls and Procedures

     36   

PART II – OTHER INFORMATION

  

Item 1 – Legal Proceedings – None to Report

     37   

Item 1A – Risk Factors – Not Applicable

     37   

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

     37   

Item 3 – Defaults Upon Senior Securities – None.

     37   

Item 4 – Mine Safety Disclosures – None

     37   

Item 5 – Other Information – None to Report

     37   

Item 6 – Exhibits

     37   

SIGNATURES

     39   

 

ii


Table of Contents

PART 1 – FINANCIAL INFORMATION

  Item 1 – Financial Statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

 

     March 31,
2012
    December 31,
2011
 
     (Unaudited)     (Audited)  
    

(Dollars in thousands,

except per share data)

 

ASSETS

    

Cash and due from banks

   $ 8,434      $ 9,187   

Interest-bearing deposits in other banks

     13,000        41,172   

Investment securities:

    

Available for sale, at fair value

     94,573        84,035   

Held to maturity, at cost

     2,884        2,884   

Restricted, at cost

     4,609        4,597   

Loans held for sale

     1,425        1,366   

Loans, net of allowance for losses of $8,002 in 2012 and $9,271 in 2011

     367,518        360,969   

Other real estate owned

     6,369        7,646   

Premises and equipment, net

     11,207        11,273   

Accrued interest receivable

     1,971        1,689   

Bank owned life insurance

     8,999        8,917   

Deferred tax asset

     3,549        3,822   

Prepaid FDIC premiums

     1,307        1,482   

Other assets

     4,208        2,651   
  

 

 

   

 

 

 

Total assets

   $ 530,053      $ 541,690   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits

    

Noninterest-bearing

   $ 46,382      $ 46,426   

Interest-bearing

     381,651        393,773   
  

 

 

   

 

 

 

Total deposits

     428,033        440,199   
  

 

 

   

 

 

 

Securities sold under repurchase agreements

     797        1,608   

Subordinated debt

     7,155        7,155   

Federal Home Loan Bank advances

     50,000        50,000   

Accrued expenses and other liabilities

     2,692        2,045   
  

 

 

   

 

 

 

Total liabilities

     488,677        501,007   
  

 

 

   

 

 

 

STOCKHOLDERS’ EQUITY

    

Preferred stock, $4.00 par value, $1,000 liquidation preference, 2,000,000 authorized shares, 10,958 issued and outstanding

     44        44   

Common stock, $4.00 par value, 30,000,000 authorized shares, 2,971,171 issued and outstanding

     11,885        11,885   

Additional paid-in capital

     29,553        29,695   

Retained deficit

     (1,638     (1,942

Warrants

     661        661   

Discount on preferred stock

     (270     (303

Accumulated other comprehensive income, net of tax

     1,141        643   
  

 

 

   

 

 

 

Total stockholders’ equity

     41,376        40,683   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 530,053      $ 541,690   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

1


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

Three Months Ended March 31, 2012 and 2011

 

     March 31,  
     2012      2011  
     (Unaudited)  
     (Dollars in thousands,
except per share data)
 

Interest and dividend income

     

Loans

   $ 5,148       $ 5,525   

Investments:

     

Taxable interest income

     554         572   

Tax exempt interest income

     74         157   

Dividends

     34         26   

Interest bearing deposits

     11         15   
  

 

 

    

 

 

 

Total interest income

     5,821         6,295   
  

 

 

    

 

 

 

Interest expense

     

Deposits

     1,443         1,740   

FHLB advances

     402         408   

Subordinated debt and other borrowings

     42         35   
  

 

 

    

 

 

 

Total interest expense

     1,887         2,183   
  

 

 

    

 

 

 

Net interest income

     3,934         4,112   

Provision for loan losses

     565         700   
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     3,369         3,412   
  

 

 

    

 

 

 

Noninterest income

     

Fees on deposits

     87         76   

Gain on sale of securities

     27         21   

Other

     226         124   
  

 

 

    

 

 

 

Total noninterest income

     340         221   
  

 

 

    

 

 

 

Noninterest expenses

     

Salaries and employee benefits

     1,730         1,419   

Occupancy expense

     198         205   

Data processing

     205         187   

Professional services

     153         137   

Advertising and marketing

     38         44   

FDIC assessment

     182         274   

Virginia franchise tax

     45         135   

Loss on sale and write down of other real estate owned

     124         28   

Depreciation

     158         150   

Other

     564         424   
  

 

 

    

 

 

 

Total noninterest expense

     3,397         3,003   
  

 

 

    

 

 

 

Net income before provision for income taxes

     312         630   

Income tax expense

     8         178   
  

 

 

    

 

 

 

Net income

     304         452   
  

 

 

    

 

 

 

Effective dividend on preferred stock

     170         170   

Net income allocable to common stockholders

   $ 134       $ 282   
  

 

 

    

 

 

 

Basic and diluted net income per common share

   $ 0.05       $ 0.10   
  

 

 

    

 

 

 

See notes to consolidated financial statements.

 

2


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

Three Months Ended March 31, 2012 and 2011

 

     March 31,  
     2012     2011  
     (Unaudited)  
     (Dollars in thousands)  

Net income

   $ 304      $ 452   

Other comprehensive income:

    

Investment securities:

    

Unrealized holding gains on investment securities available for sale

     781        456   

Tax effect

     (266     (155

Reclassification of gains recognized in net income

     (27     (21

Tax effect

     10        7   
  

 

 

   

 

 

 

Total other comprehensive income

     498        287   
  

 

 

   

 

 

 

Comprehensive income

   $ 802      $ 739   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

3


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2012 and 2011

(Unaudited)

(Dollars in thousands)

 

     Preferred
Stock
     Common
Stock
     Additional
Paid-in
Capital
    Retained
Earnings
    Warrants      Discount
on
Preferred
Stock
    Accumulated
Other
Comprehensive
Income
     Total  

Balance December 31, 2010

   $ 44       $ 11,885       $ 29,739      $ 1,644      $ 661       $ (435   $ 137       $ 43,675   

Net income

     —           —           —          452        —           —          —           452   

Other comprehensive income

     —           —           —          —          —           —          287         287   

Preferred stock dividend

     —           —           —          (137     —           —          —           (137

Accretion of discount on preferred stock

     —           —           —          (33     —           33        —           —     

Stock based compensation

     —           —           18        —          —           —          —           18   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Balance March 31, 2011

   $ 44       $ 11,885       $ 29,757      $ 1,926      $ 661       $ (402   $ 424       $ 44,295   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Balance December 31, 2011

   $ 44       $ 11,885       $ 29,695      $ (1,942   $ 661       $ (303   $ 643       $ 40,683   

Net income

     —           —           —          304        —           —          —           304   

Other comprehensive income

     —           —           —          —          —           —          498         498   

Preferred stock dividend

     —           —           (137     —          —           —          —           (137

Accretion of discount on preferred stock

     —           —           (33     —          —           33        —           —     

Stock based compensation

     —           —           28        —          —           —          —           28   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Balance March 31, 2012

   $ 44       $ 11,885       $ 29,553      $ (1,638   $ 661       $ (270   $ 1,141       $ 41,376   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

See notes to consolidated financial statements.

 

4


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2012 and 2011

 

     2012     2011  
     (Unaudited)  
     (Dollars in thousands)  

Cash flows from operating activities

  

Net income

   $ 304      $ 452   

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Provision for loan losses

     565        700   

Depreciation of premises and equipment

     158        150   

Net amortization of bond premiums/discounts

     249        192   

Stock based compensation expense

     28        18   

Deferred income taxes

     17        120   

Gain on sale of securities

     (27     (21

Gain on loans sold

     (37     —     

Loss on sale and write-down of other real estate owned

     124        28   

Increase in cash surrender value of bank owned life insurance

     (82     (4

Proceeds from sale of loans held for sale

     5,544        —     

Origination of loans held for sale

     (5,566     —     

(Increase) decrease in other assets

     (1,382     225   

Decrease (increase) in accrued interest receivable

     (282     24   

Increase in accrued expenses and other liabilities

     647        402   
  

 

 

   

 

 

 

Net cash provided by operating activities

     260        2,286   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Proceeds from maturities and calls of securities

     550        5,000   

Proceeds from paydowns of securities available-for-sale

     2,777        3,594   

Purchase of securities available-for-sale

     (14,344     (5,379

Proceeds from sale of securities available-for-sale

     1,011        1,093   

Proceeds from sale of other real estate owned

     1,153        148   

Purchase of FHLB Stock

     (9     (9

Purchase of Federal Reserve Stock

     (3     (2

Purchases of premises and equipment

     (92     (152

Net (increase) decrease in loans

     (7,114     2,884   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (16,071     7,177   
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net decrease in deposits

     (12,166     (8,119

Dividends on preferred stock

     (137     (137

Net (decrease) increase in repurchase agreements

     (811     80   
  

 

 

   

 

 

 

Net cash used in financing activities

     (13,114     (8,176
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (28,925     1,287   

Cash and cash equivalents, beginning of period

     50,359        32,367   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 21,434      $ 33,654   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information

    

Interest paid during the period

   $ 1,883      $ 2,187   
  

 

 

   

 

 

 

Taxes paid during the period

   $ —        $ 325   
  

 

 

   

 

 

 

Supplemental schedule of noncash investing and financing activities

    

Transfer of loans to other real estate owned

   $ —        $ 300   
  

 

 

   

 

 

 

Unrealized gain on securities available for sale, net of tax

   $ 498      $ 287   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

5


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

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, 2012 and December 31, 2011 and for the three month periods ended March 31, 2012 and 2011, in conformity with accounting principles generally accepted in the United States of America. Results for the three month periods ended March 31, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.

The organization and business of the Company, accounting policies following, 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, 2011 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.

The Company’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.

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.

 

6


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

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.

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

 

     Three Months Ended
March 31,
 
     (dollars shown in thousands,
except per share amounts)
 
     2012      2011  

Net income available to common stockholders

   $ 134       $ 282   

Weighted average number of shares outstanding

     2,971         2,971   
  

 

 

    

 

 

 

Income per common share – basic

   $ 0.05       $ 0.10   
  

 

 

    

 

 

 

Effect of dilutive securities:

     

Weighted average number of shares outstanding

     2,971         2,971   

Effect of stock options

     —           —     
  

 

 

    

 

 

 

Diluted average shares outstanding

     2,971         2,971   
  

 

 

    

 

 

 

Income per common share – assuming dilution

   $ 0.05       $ 0.10   
  

 

 

    

 

 

 

Company has excluded 839 thousand shares for the three months ended March 31, 2012 and 436 thousand shares for the three months ended March 31, 2011 from the calculation of diluted earnings per share as they were anti-dilutive since the strike price was greater than the average market price during all periods.

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.

A total of 130,500 options were granted in February 2011. The options were granted at an exercise price equal to 100% of the fair market value of the common stock on the date of the grant. Vesting of 67,500 shares issued to the Directors, will occur over two years. The remaining 63,000 shares, issued to executive officers and employees, will vest over three years.

There were no stock options granted during the three month period ended March 31, 2012.

The fair value of each stock option was estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table:

 

Dividend yield

     0.00

Expected life in years

     6   

Expected volatility

     51.77

Risk-free interest rate

     2.87

Weighted average fair value per option granted

   $ 1.35   

 

7


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

The stock based compensation, in thousands, expensed during the three months ended March 31, 2012 and 2011 was $28 thousand and $18 thousand, respectively 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 are as follows:

 

     March 31, 2012  
     Amortized      Gross Unrealized      Fair  
     Costs      Gains      Losses      Values  
     (Dollars in thousands)  

Available-for-sale

           

U.S. Government agencies

   $ 1,999       $ —         $ 14       $ 1,985   

Mortgage-backed securities

     14,675         422         13         15,084   

Corporate bonds

     16,406         6         327         16,085   

CMO securities

     44,698         1,044         26         45,716   

State and political subdivisions – taxable

     9,874         473         21         10,326   

State and political subdivisions – tax exempt

     3,650         139         —           3,789   

SBA – Guarantee portion

     1,543         45         —           1,588   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 92,845       $ 2,129       $ 401       $ 94,573   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2011  
     Amortized      Gross Unrealized      Fair  
     Costs      Gains      Losses      Values  
     (Dollars in thousands)  

Available-for-sale

           

U.S. Government agencies

   $ 1,998       $ 7       $ 4       $ 2,001   

Mortgage-backed securities

     15,484         424         —           15,908   

Corporate bonds

     15,472         3         781         14,694   

CMO securities

     37,803         919         —           38,722   

State and political subdivisions – taxable

     6,490         256         23         6,723   

State and political subdivisions – tax exempt

     4,203         131         —           4,334   

SBA – Guarantee portion

     1,610         43         —           1,653   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 83,060       $ 1,783       $ 808       $ 84,035   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

8


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

     March 31, 2012  
     Amortized      Gross Unrealized      Fair  
     Costs      Gains      Losses      Values  
     (Dollars in thousands)  

Held-to-maturity

  

Tax-exempt municipal bonds

   $ 2,884       $ 296       $ —         $ 3,180   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,884       $ 296       $ —         $ 3,180   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2011  
     Amortized      Gross Unrealized      Fair  
     Costs      Gains      Losses      Values  
     (Dollars in thousands)  

Held-to-maturity

  

Tax-exempt municipal bonds

   $ 2,884       $ 237       $ 5       $ 3,116   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,884       $ 237       $ 5       $ 3,116   
  

 

 

    

 

 

    

 

 

    

 

 

 

In the second quarter of 2009, the Company adopted Other-Than-Temporary Impairment (“OTTI”) guidance, as amended, for debt securities regarding recognition and disclosure. The major change in the guidance was that impairment is other-than-temporary if any of the following conditions exists:

 

   

the entity intends to sell the security;

 

   

it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or

 

   

the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell).

If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss.

The Company conducts an assessment of its securities portfolio for OTTI consideration during each quarter. The assessment considers factors such as external credit ratings, delinquency ratios, market price, management’s judgment, expectations of future performance and relevant industry research and analysis. 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 and ability to retain these securities for a period of time sufficient to recover all unrealized losses. Management’s assessment for the current quarter ended March 31, 2012 resulted in no recognition of OTTI.

 

9


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

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 2012 and 2011. At March 31, 2012, 20 out of 134 securities we held had fair values less than amortized cost primarily in municipal securities and corporate bonds. At March 31, 2011, 42 out of 137 securities we held had fair values less than amortized cost primarily in municipal securities and corporate bonds. 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 and ability to retain these securities for a period of time sufficient to recover all unrealized losses. 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, 2012 and December 31, 2011:

 

     March 31, 2012  
     Less than 12 Months      12 Months or More      Total  
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
     (Dollars in thousands)  

Assets:

                 

U.S. Government agencies

   $ 1,986       $ 13       $ —         $ —         $ 1,986       $ 13   

Mortgage-backed securities

     1,062         13         —           —           1,062         13   

Corporate bonds

     14,589         319         491         8         15,080         327   

CMO securities

     4,145         26         —           —           4,145         26   

State & political subdivisions-taxable

     1,887         22         —           —           1,887         22   

State & political subdivisions-tax exempt

     —           —           —           —           —           —     

SBA

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

All securities

   $ 23,669       $ 393       $ 491       $ 8       $ 24,160       $ 401   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2011  
     Less than 12 Months      12 Months or More      Total  
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
     (Dollars in thousands)  

Assets:

                 

U.S. Government agencies

   $ 996       $ 4       $ —         $ —         $ 996       $ 4   

Mortgage-backed securities

     —           —           —           —           —           —     

Corporate bonds

     13,220         755         473         26         13,693         781   

CMO securities

     916         —           —           —           916         —     

State & political subdivisions-taxable

     1,070         23         —           —           1,070         23   

State & political subdivisions-tax exempt

     —           —           —           —           —           —     

SBA

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

All securities

   $ 16,202       $ 782       $ 473       $ 26       $ 16,675       $ 808   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Restricted equity securities consist primarily of Federal Home Loan Bank of Atlanta stock in the amount of $3.2 million and $3.3 million as of March 31, 2012 and December 31, 2011, respectively, and Federal Reserve Bank stock in the amount of $1.3 million at both March 31, 2012 and December 31, 2011. Restricted equity securities are carried at cost. The Federal Home Loan Bank requires the Bank to maintain stock in an amount equal to 4.5% of outstanding borrowings and a specific percentage of the member’s total assets. The Federal Reserve Bank of Richmond requires the Company to maintain stock with a par value equal to 3% of its outstanding capital.

 

10


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

Securities with a market value of approximately $3.8 million and $14.5 million were pledged as collateral at March 31, 2012 and December 31, 2011, respectively, to secure purchases of federal funds, repurchase agreements, and collateral for customer’s deposits.

Note 6 – Loans

Major classifications of loans are as follows:

 

     March 31,
2012
     December 31,
2011
 
     (Dollars in thousands)  

Real estate

     

Residential

   $ 131,249       $ 127,541   

Commercial

     144,671         142,989   

Residential Construction

     9,892         9,712   

Other Construction, Land Development & Other Land

     48,600         48,637   

Commercial

     37,866         37,922   

Consumer

     3,079         3,250   
  

 

 

    

 

 

 

Total loans

     375,357         370,051   

Less:

     

Allowance for loan losses

     8,002         9,271   

Net deferred (income) costs

     163         189   
  

 

 

    

 

 

 

Loans, net

   $ 367,518       $ 360,969   
  

 

 

    

 

 

 

A summary of risk characteristics by loan portfolio classification follows:

Real Estate – Residential – This portfolio primarily consists of investor loans secured by properties in the Bank’s normal lending area. Those investor loans are typically five year rate adjustment loans. These loans generally have an original loan-to-value (“LTV”) of 80% or less. This category also includes home equity lines of credit (“HELOC”). The HELOCs generally have an adjustable rate tied to prime rate and a term of 10 years. Given the declining value of residential properties over the past several years, these loans possess a higher than average level of risk of loss to the bank. Multifamily residential real estate is moderately seasoned and is generally secured by properties in the Bank’s normal lending area.

Real Estate – Commercial – This portfolio consists of nonresidential improved real estate which includes shopping centers, office buildings, etc. These properties are generally located in the Bank’s normal lending area. Decreased rental income due to the economic slowdown has caused some deterioration in values. As a result, this category of loans has a higher than average level of risk.

Real Estate – Residential Construction – This portfolio has decreased significantly over the past several years as fewer construction loans have been made during the economic downtown. These loans are located in the Bank’s normal lending area.

 

11


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

Real Estate – Other Construction, Land Development and Other Land Loans – This portfolio includes raw undeveloped land and developed residential and commercial lots held by developers. Given the significant decline in value for both developed and undeveloped land due to reduced demand, this portfolio possesses an increased level of risk compared to other loan portfolios. Continuing deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for customers.

Commercial – These loans include loans to businesses that are not secured by real estate. These loans are typically secured by accounts receivable, inventory, equipment, etc. Commercial loans are typically granted to local businesses that have a strong track record of profitability and performance.

Consumer – Loans in this portfolio are either unsecured or secured by automobiles, marketable securities, etc. They are generally granted to local customers that have a banking relationship with our Bank.

Activity in the allowance for loan losses for the three months ended is as follows:

 

     March 31,  
     2012     2011  
     (Dollars in thousands)  

Balance, beginning of period

   $ 9,271      $ 11,036   

Provision for loan losses

     565        700   

Recoveries

     90        7   

Charge-offs

     (1,924     (1,174
  

 

 

   

 

 

 

Balance, end of period

   $ 8,002      $ 10,569   
  

 

 

   

 

 

 

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

     2.13     2.86
  

 

 

   

 

 

 

 

12


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

The following table presents activity in the allowance for loan losses by portfolio segment:

 

     Real Estate                     
     Residential     Commercial      Residential
Construction
    Other
Construction
Land Devel.
& Other
Land
    Commercial     Consumer      Total  
     (Dollars in thousands)  

Balance, January 1, 2012

   $ 3,680      $ 1,375       $ 650      $ 2,175      $ 1,370      $ 21       $ 9,271   

Provision for loan losses

     565        —           —          —          —          —           565   

Recoveries

     3        78         —          9        —          —           90   

Charge-offs

     (940     —           —          (867     (117     —           (1,924
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, March 31, 2012

   $ 3,308      $ 1,453       $ 650      $ 1,317      $ 1,253      $ 21       $ 8,002   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, January 1, 2011

   $ 3,431      $ 760       $ 494      $ 4,299      $ 2,031      $ 21       $ 11,036   

Provision for loan losses

     300        —           —          —          400        —           700   

Recoveries

     7        —           —          —          —          —           7   

Charge-offs

     (502     —           (17     (55     (600     —           (1,174
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, March 31, 2011

   $ 3,236      $ 760       $ 477      $ 4,244      $ 1,831      $ 21       $ 10,569   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

The charging off of uncollectible loans is determined on a case-by-case basis. Determination of a collateral shortfall, prospects for recovery, delinquency and the financial resources of the borrower and any guarantor are all considered in determining whether to charge-off a loan. Closed-end retail loans that become past due 120 cumulative days and open-end retail loans that become past due 180 cumulative days from the contractual due date will be charged off.

The following table presents the aging of unpaid principal in loans as of March 31, 2012 and December 31, 2011:

 

     March 31, 2012  
     30-89 Day
Past Due
     90+ Days
Past Due
and Accruing
     Nonaccrual      Current      Total  
     (Dollars in thousands)  

Real estate

              

Residential

   $ 1,219       $ —         $ 4,126       $ 125,904       $ 131,249   

Commercial

     271         —           2,890         141,510         144,671   

Residential Construction

     —           —           1,251         8,641         9,892   

Other Construction, Land Development & Other Land

     251         —           6,440         41,909         48,600   

Commercial

     982         —           996         35,888         37,866   

Consumer

     233         —           707         2,139         3,079   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,956       $ —         $ 16,410       $ 355,991       $ 375,357   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

     December 31, 2011  
     30-89 Day
Past Due
     90+ Days
Past Due
and Accruing
     Nonaccrual      Current      Total  
     (Dollars in thousands)  

Real estate

              

Residential

   $ 1,334       $ —         $ 6,410       $ 119,797       $ 127,541   

Commercial

     132         —           2,909         139,948         142,989   

Residential Construction

     250         —           748         8,714         9,712   

Other Construction, Land Development & Other Land

     —           —           5,803         42,834         48,637   

Commercial

     470         —           1,114         36,338         37,922   

Consumer

     90         —           707         2,453         3,250   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,276       $ —         $ 17,691       $ 350,084       $ 370,051   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans are determined past due or delinquent based on the contractual terms of the loan. Payments past due 30 days or more are considered delinquent. The accrual of interest is generally discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual at an earlier date if collection of principal or interest is considered doubtful or charged-off if a loss is considered imminent.

All interest accrued but not collected for loans that are placed on nonaccrual are reversed against interest income when the loan is placed on nonaccrual status. Because of the uncertainty of the expected cash flows, the Company is accounting for nonaccrual loans under the cost recovery method, in which all cash payments are applied to principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future collection of principal and interest are reasonably assured. The number of payments needed to meet this criteria varies from loan to loan. However, as a general rule, this criteria will be considered to have been met with the timely payment of six consecutive regularly scheduled monthly payments.

 

14


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

The following table provides details of the Company’s loan portfolio internally assigned grade at March 31, 2012 and December 31, 2011:

 

     March 31, 2012  
     Pass      Special
Mention
     Substandard      Doubtful      Loss      Total  
     (Dollars in thousands)  

Real estate

                 

Residential

   $ 110,239       $ 13,825       $ 7,185       $ —         $ —         $ 131,249   

Commercial

     120,797         18,311         5,563         —           —           144,671   

Residential Construction

     2,524         2,834         4,534         —           —           9,892   

Other Construction, Land Development & Other Land

     20,307         16,489         11,804         —           —           48,600   

Commercial

     31,298         4,805         1,763         —           —           37,866   

Consumer

     2,138         154         787         —           —           3,079   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 287,303       $ 56,418       $ 31,636       $ —         $ —         $ 375,357   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Pass      Special
Mention
     Substandard      Doubtful      Loss      Total  
     (Dollars in thousands)  

Real estate

                 

Residential

   $ 112,070       $ 5,549       $ 9,922       $ —         $ —         $ 127,541   

Commercial

     127,916         8,064         7,009         —           —           142,989   

Residential Construction

     1,954         3,582         4,176         —           —           9,712   

Other Construction, Land Development & Other Land

     19,461         14,551         14,626         —           —           48,638   

Commercial

     33,083         3,076         1,762         —           —           37,921   

Consumer

     2,316         137         797         —           —           3,250   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 296,800       $ 34,959       $ 38,292       $ —         $ —         $ 370,051   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

These credit quality indicators are defined as follows:

Pass – A “pass” rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.

Special Mention – A “special mention” asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special Mention assets are not adversely classified and do not warrant adverse classification.

Substandard – A “substandard” asset is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.

 

15


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

Doubtful – An asset classified “doubtful” has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values.

Loss – Assets classified “loss” are considered uncollectible and of such little value that their continuing to be carried as an asset is not warranted. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full write-off even though partial recovery may be effected in the future.

The loan risk rankings were updated for the quarter ended March 31, 2012 on March 19 and 20. The loan risk rankings were updated for the quarter ended December 31, 2011 on December 13, 14, and 15.

The following table provides details regarding impaired loans by segment and class at March 31, 2012 and December 31, 2011:

 

     March 31, 2012      December 31, 2011  
            Unpaid                    Unpaid         
     Recorded      Principal      Related      Recorded      Principal      Related  
     Investment      Balance      Allowance      Investment      Balance      Allowance  
     (Dollars in thousands)  

With no related allowance:

                 

Real estate

                 

Residential

   $ 3,816       $ 4,007       $ —         $ 4,013       $ 4,168       $ —     

Commercial

     291         302         —           291         303         —     

Residential Construction

     2,428         2,442         —           1,772         1,785         —     

Other Construction, Land Development & Other Land

     4,752         9,936         —           4,747         7,519         —     

Commercial

     175         179         —           294         300         —     

Consumer

     707         707         —           707         707         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,169       $ 17,573       $ —         $ 11,824       $ 14,782       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance:

                 

Real estate

                 

Residential

   $ 492       $ 531       $ 725       $ 2,580       $ 3,619       $ 787   

Commercial

     2,598         3,336         799         2,618         3,336         818   

Residential Construction

     —           —           —           —           —           —     

Other Construction, Land Development & Other Land

     3,780         4,969         600         4,659         4,969         1,450   

Commercial

     821         848         250         821         848         250   

Consumer

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,691       $ 9,684       $ 2,374       $ 10,678       $ 12,772       $ 3,305   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

                 

Real estate

                 

Residential

   $ 4,308       $ 4,538       $ 725       $ 6,593       $ 7,787       $ 787   

Commercial

     2,889         3,638         799         2,909         3,639         818   

Residential Construction

     2,428         2,442         —           1,772         1,785         —     

Other Construction, Land Development & Other Land

     8,532         14,905         600         9,406         12,488         1,450   

Commercial

     996         1,027         250         1,115         1,148         250   

Consumer

     707         707         —           707         707         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 19,860       $ 27,257       $ 2,374       $ 22,502       $ 27,554       $ 3,305   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

The following table provides details of the balance of the allowance for loan losses and the recorded investment in financing receivables by impairment method for each loan portfolio segment:

 

     Real Estate                       
                          Other                       
                          Construction,                       
                          Land Devel.                       
                   Residential      & Other                       
     Residential      Commercial      Construction      Land      Commercial      Consumer      Total  
     (Dollars in thousands)  

March 31, 2012

                    

Allowance for loan losses, evaluated

                    

Individually

   $ 725       $ 799       $ —         $ 600       $ 250       $ —         $ 2,374   

Collectively

     2,583         654         650         717         1,003         21         5,628   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance

   $ 3,308       $ 1,453       $ 650       $ 1,317       $ 1,253       $ 21       $ 8,002   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans, evaluated

                    

Individually

   $ 4,308       $ 2,889       $ 2,428       $ 8,532       $ 996       $ 707       $ 19,860   

Collectively

     126,941         141,782         7,464         40,068         36,870         2,372         355,497   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans

   $ 131,249       $ 144,671       $ 9,892       $ 48,600       $ 37,866       $ 3,079       $ 375,357   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011

                    

Allowance for loan losses, evaluated

                    

Individually

   $ 787       $ 818       $ —         $ 1,450       $ 250       $ —         $ 3,305   

Collectively

     2,893         557         650         725         1,120         21         5,966   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance

   $ 3,680       $ 1,375       $ 650       $ 2,175       $ 1,370       $ 21       $ 9,271   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans, evaluated

                    

Individually

   $ 6,593       $ 2,909       $ 1,772       $ 9,406       $ 1,115       $ 707       $ 22,502   

Collectively

     120,948         140,080         7,940         39,231         36,807         2,543         347,549   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans

   $ 127,541       $ 142,989       $ 9,712       $ 48,637       $ 37,922       $ 3,250       $ 370,051   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments on principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining whether a loan is impaired include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Additionally, management’s policy is generally to evaluate only those loans greater than $250 thousand for impairment as these are considered to be individually significant in relation to the size of the loan portfolio. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The following table presents interest income recognized and the average recorded investment of impaired loans.

 

     March 31, 2012  
     Interest      Average  
     Income      Recorded  
     Recognized      Investment  
     (Dollars in thousands)  

Real estate

     

Residential

   $ 35       $ 4,477   

Commercial

     19         2,988   

Residential Construction

     12         2,342   

Other Construction, Land Development & Other Land

     79         8,767   

Commercial

     —           1,028   

Consumer

     —           707   
  

 

 

    

 

 

 

Total

   $ 145       $ 20,309   
  

 

 

    

 

 

 
     March 31, 2011  

Real estate

     

Residential

   $ 103       $ 8,656   

Commercial

     —           367   

Residential Construction

     10         1,997   

Other Construction, Land Development & Other Land

     57         8,030   

Commercial

     41         4,943   

Consumer

     —           —     
  

 

 

    

 

 

 

Total

   $ 211       $ 23,993   
  

 

 

    

 

 

 
     
  

 

 

    

 

 

 

 

18


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

Cash payments received on impaired loans are applied on a cash basis with all cash receipts applied first to principal and any payments received in excess of the unpaid principal balance being applied to interest.

Troubled Debt Restructurings

The Company adopted the amendments in Accounting Standards Update No. 2011-02 during the period ended September 30, 2011. As required, the Company reassessed all restructurings that occurred on or after the beginning of the current fiscal year (January 1, 2011) for identification as troubled debt restructurings. The Company identified as troubled debt restructurings certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology (ASC 450-20). Upon identifying the reassessed receivables as troubled debt restructurings, the Company also identified them as impaired under the guidance in ASC 310-10-35. The amendments in Accounting Standards Update No. 2011-02 require prospective application of the impairment measurement guidance in Section 310-10-35 for those receivables newly identified as impaired. At the end of the first interim period of adoption for the Company (September 30, 2011), the Company determined that there were no receivables for which the allowance for credit losses was previously measured under a general allowance for credit losses methodology and are now impaired under Section 310-10-35.

Modification Categories

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories:

Rate Modification – A modification in which the interest rate is changed.

Term Modification – A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

Combination Modification – Any other type of modification, including the use of multiple categories above.

As of March 31, 2012 and December 31, 2011, there were no available commitments outstanding for troubled debt restructurings.

 

19


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

The following tables present troubled debt restructurings as of March 31, 2012 and December 31, 2011:

 

     March 31, 2012  
     Total
Number
of Contracts
     Accrual
Status
     Nonaccrual
Status
     Total
Modifications
 
     (Dollars in thousands)  

Real estate

           

Residential

     9       $ 182       $ 1,741       $ 1,923   

Commercial

     —           —           —           —     

Residential Construction

     1         1,178         —           1,178   

Other Construction, Land Development & Other Land

     4         2,091         640         2,731   

Commercial

     1         —           69         69   

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     15       $ 3,451       $ 2,450       $ 5,901   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2011  
     Total
Number

of Contracts
     Accrual
Status
     Nonaccrual
Status
     Total
Modifications
 
     (Dollars in thousands)  

Real estate

           

Residential

     11       $ 183       $ 4,133       $ 4,316   

Commercial

     —           —           —           —     

Residential Construction

     1         1,025         —           1,025   

Other Construction, Land Development & Other Land

     4         2,164         641         2,805   

Commercial

     4         —           185         185   

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     20       $ 3,372       $ 4,959       $ 8,331   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s policy is that loans placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appear relatively certain. The Company’s policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.

Loans reviewed for consideration of modification are reviewed for potential impairment at the time of the restructuring. Any identified impairment is recognized as a reduction in the allowance.

There were no newly restructured loans that occurred during the three months ended March 31, 2012 or 2011 or financing receivables modified as troubled debt restructurings and with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the three month periods ended March 31, 2012 or 2011.

 

20


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

Note 7 – Other Real Estate Owned

Changes in other real estate owned were as follows for the three months ended March 31, 2012 and 2011 in thousands:

 

     Three Months Ended
March 31,
 
     2012     2011  
     (Dollars in thousands)  

Beginning Balance

   $ 7,646      $ 2,615   

Additions

     —          300   

Sales

     (1,153     (175

Write-downs

     (124     —     
  

 

 

   

 

 

 

Balance March 31

   $ 6,369      $ 2,740   
  

 

 

   

 

 

 

Note 8 – 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 in the sale of 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 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 transact 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 the range this is most representative of fair value under current market conditions.

 

21


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

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.

 

   

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.

 

   

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 consider 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, 2012 and December 31, 2011. Securities identified in Note 3 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 not 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.

 

22


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

     March 31, 2012  
     Fair Value Measurements Using      Fair
Values
 
     Level 1      Level 2      Level 3     
     (Dollars in thousands)  

Assets:

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

   $ —         $ 94,573       $ —         $ 94,573   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Fair Value Measurements Using      Fair
Values
 
     Level 1      Level 2      Level 3     
     (Dollars in thousands)  

Assets:

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

   $  —         $ 84,035       $ —         $ 84,035   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 when 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 date (Level 3). However, if the collateral is a house or building in the process of construction or if a appraisal of the real estate property is over two years old, then the fair value is considered Level 3. If a real estate loan becomes a nonperforming loan, or 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 and the discount to reflect current market conditions ranged from 0% to 30% for each of the respective periods. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Operations.

 

23


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

Loans held for sale: The fair value of loans held for sale is determined using quoted secondary-market prices. As such, we classify loans subjected to nonrecurring fair value adjustments as Level 2.

Held-to-maturity securities: Securities held to maturity are recorded at cost on a nonrecurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). In 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.

Other Real Estate Owned: Certain assets such as other real estate owned (“OREO”) are measured at fair value less cost to sell and the discount to reflect current market conditions ranged from 0% to 30% for each of the respective periods. 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.

 

     March 31, 2012  
     Fair Value Measurements Using      Fair
Values
 
     Level 1      Level 2      Level 3     
     (Dollars in thousands)  

Impaired loans

   $ —         $ —         $ 17,486       $ 17,486   

Loans held for sale

     —           1,425         —           1,425   

Held-to-maturity securities

     —           2,884         —           2,884   

Other real estate owned

     —           —           6,369         6,369   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ 4,309       $ 23,855       $ 28,164   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Fair Value Measurements Using      Fair
Values
 
     Level 1      Level 2      Level 3     
     (Dollars in thousands)  

Impaired loans

   $ —         $ —         $ 19,197       $ 19,197   

Loans held for sale

     —           1,366         —           1,366   

Held-to-maturity securities

     —           2,884         —           2,884   

Other real estate owned

     —           —           7,646         7,646   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ 4,250       $ 26,843       $ 31,093   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

24


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

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

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

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

Loans receivable – Fair values are based on carrying values for variable-rate loans that reprice frequently and have no significant change in credit risk. Fair values for certain mortgage loans (for example, one-to-four family residential) and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for commercial real estate and commercial loans are estimated using discounted cash flow analyses and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The interest rates on loans at March 31, 2012 and December 31, 2011 are current market rates for their respective terms and associated credit risk.

Loans held for sale – Loans held for sale are carried at the lower of cost or market value. These loans currently consist of residential real estate, owner occupied loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different from cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the periods ended March 31, 2012 and December 31, 2011. Gains and losses on the sale of loans are recorded within income on the Consolidated Statements of Operations.

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 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.

Repurchase agreements – The carrying value of repurchase agreements due within ninety days from the balance sheet date approximate fair value.

Subordinated Debt – The values of our subordinated debt are variable rate instruments that re-price on a quarterly basis, therefore, carrying value is adjusted for the three month repricing lag in order to approximate fair value.

Bank Owned Life Insurance – The carrying value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the insurer.

 

25


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

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, 2012 and December 31, 2011.

The estimated fair values of the Company’s financial instruments as of March 31, 2012 and December 31, 2011 are as follows:

 

     March 31, 2012      December 31, 2011  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  
     (Dollars in thousands)  

Financial assets

           

Cash and cash equivalents

   $ 21,434       $ 21,434       $ 50,359       $ 50,359   

Investment securities

     97,457         97,752         86,919         87,151   

Loans receivable, net

     367,518         373,967         360,969         369,843   

Loans held for sale

     1,425         1,426         1,366         1,373   

Accrued interest

     1,971         1,971         1,689         1,689   

Financial liabilities

           

Deposits

   $ 428,033       $ 435,777       $ 440,199       $ 446,429   

FHLB advances

     50,000         53,399         50,000         53,496   

Subordinated debt

     7,155         3,575         7,155         3,600   

Repurchase agreements

     797         797         1,608         1,608   

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 9 – Recently Issued Accounting Pronouncements

In April 2011, the FASB issued ASU No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The Update amends existing guidance to remove from the assessment of effective control, the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and, as well, the collateral maintenance implementation guidance related to that criterion. ASU No. 2011-03 is effective for the Company’s reporting period beginning on or after December 15, 2011. The guidance applies prospectively to transactions or modification of existing transactions that occur on or after the effective date and early adoption is not permitted. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The Update amends existing guidance regarding the highest and best use and valuation premise by clarifying these concepts are only applicable to measuring the fair value of nonfinancial assets. The Update also clarifies that the fair value measurement of financial assets and financial liabilities which have

 

26


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

offsetting market risks or counterparty credit risks that are managed on a portfolio basis, when several criteria are met, can be measured at the net risk position. Additional disclosures about Level 3 fair value measurements are required including a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation process in place, and discussion of the sensitivity of fair value changes in unobservable inputs and interrelationships about those inputs as well disclosure of the level of the fair value of items that are not measured at fair value in the financial statements but disclosure of fair value is required. The provisions of ASU No. 2011-04 are effective for the Company’s reporting period beginning after December 15, 2011 and should be applied prospectively. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The Update amends current guidance to allow a company the option of presenting the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions do not change the items that must be reported in other comprehensive income or when an item of other comprehensive must to reclassified to net income. The amendments do not change the option for a company to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense (benefit) related to the total of other comprehensive income items. The amendments do not affect how earnings per share is calculated or presented. The provisions of ASU No. 2011-05 are effective for the Company’s reporting period beginning after December 15, 2011 and should be applied retrospectively. Early adoption is permitted and there are no required transition disclosures. In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The ASU defers indefinitely the requirement to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income is presented, by component of net income, and on the face of the financial statements where other comprehensive income is presented, by component of other comprehensive income. The Updates did not have a material impact on the Company’s consolidated financial statements.

In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. With the Update, a company testing goodwill for impairment now has the option of performing a qualitative assessment before calculating the fair value of the reporting unit (the first step of goodwill impairment test). If, on the basis of qualitative factors, the fair value of the reporting unit is more likely than not greater than the carrying amount, a quantitative calculation would not be needed. Additionally, new examples of events and circumstances that an entity should consider in performing its qualitative assessment about whether to proceed to the first step of the goodwill impairment have been made to the guidance and replace the previous guidance for triggering events for interim impairment assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The update requires an entity to offset, and present as a single net amount, a recognized eligible asset and a recognized eligible liability when it has an unconditional and legally enforceable right of setoff and intends either to settle the asset and liability on a net basis or to realize the asset and settle the liability simultaneously. The ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The amendments are effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company is currently in the process of evaluating the ASU but does not expect it will have a material impact on the Company’s consolidated financial statements.

 

27


Table of Contents

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2012

 

Note 10 – Other Event

The Company has commenced a rights offering whereby stockholders as of 5:00 pm Eastern Standard Time on February 10, 2012 were offered the right to purchase up to 8,913,513 units (individually, a “Unit”) for a price of $2.00 per Unit. Each Unit consists of one share of common stock and a transferrable warrant to purchase one-half of a share of common stock upon the terms described in the prospectus filed with the SEC. The common stock and warrants will be issued separately but will be purchased together in the rights offering.

For each share of common stock held as of the record date, a stockholder will have the nontransferable right to subscribe for up to three Units in the offering (“Basic Subscription Privilege”). We have separately entered into a standby purchase agreement with Kenneth R. Lehman, a private investor (the “Standby Purchaser”). Pursuant to the Standby Purchase Agreement, the Standby Purchaser has agreed to acquire from us, at the subscription price of $2.00 per Unit, 350,000 Units if such Units are available after exercise of the Basic Subscription Privilege. The Standby Purchaser is required to purchase 350,000 units only if we have sold at least 2,500,000 Units in the right offering and public offering, but he may waive this requirement and purchase such Units even if the Company has not sold 2,500,000 to other subscribers.

 

28


Table of Contents

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

The net income for the first quarter of 2012 was $304 thousand, and net income attributable to common shareholders was $134 thousand, or $0.05 per fully diluted share compared to a net income of $452 thousand, and a net income attributable to common shareholders of $282 thousand or $0.10 per fully diluted share, in the first quarter of 2011.

From a revenue and cost perspective, income before tax, provision for loan losses and gain on sale of securities decreased from $1.4 million for the first quarter of 2011 to $904 thousand for the first quarter of 2012. Contributing to the decrease was the reduction in the net interest income of $45 thousand due to a reduction in the loan portfolio, $158 thousand in salaries expenses incurred in the first quarter of 2012 in connection with a new mortgage operation that commenced in the third quarter of 2011, as well as an increase in salaries and employment benefits related to positions filled in other areas of the bank. The following chart reconciles the above to the net income for the periods presented.

 

29


Table of Contents
     Three Months
Ended March 31,
 
     2012      2011  
     (Dollars in
Thousands)
 

Income Before Taxes, Provision & Gain on Sale of Securities

   $ 904       $ 1,351   

Gain on Sale of Securities

     27         21   

Provision

     565         700   
  

 

 

    

 

 

 

Income Before Taxes

     312         630   

Taxes

     8         178   
  

 

 

    

 

 

 

Net Income

   $ 304       $ 452   
  

 

 

    

 

 

 

Financial Condition

Total assets at March 31, 2012 were $530.1 million, down $11.6 million from $541.7 million at December 31, 2011. Net loans outstanding were $367.5 million at March 31, 2012, an increase of $6.5 million compared to the 2011 year-end balance. Deposits decreased by $12.2 million to $428.0 million, down 2.8% from December 31, 2011. Our deposit strategy was focused on decreasing noncore funding sources and single service CD relationships and increasing noninterest-bearing deposit accounts, which were consistent compared to December 31, 2011.

At March 31, 2012, the Company’s investment portfolio totaled $97.5 million, an increase of $10.5 million from $86.9 million at December 31, 2011. 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 and income to the Company. Bank owned life insurance of $8.2 million was purchased during the second quarter of 2011 as an additional investment for the Company and to provide life insurance benefits for senior executives. The cash surrender value of the bank owned life insurance was $9.0 million and $8.9 million at March 31, 2012 and December 31, 2011, respectively.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income represents a principal source of earnings for the Company. Changes in net interest income during 2012 to date compared to net interest income for the comparable period of 2011 are attributable to decreasing loan portfolio yields, decreasing average balances of loans outstanding and a decrease in total funding costs.

Net interest margin decreased 6 basis points for the three months ended March 31, 2012 to 3.27% as compared to 3.33% for the first quarter of 2011, reflecting a decrease in average rate paid on interest-bearing liabilities of 35 basis points from 1.85% for the first quarter of 2011 to 1.50% for the first quarter of 2012. This was offset by a 28 basis point decrease in the average yield on earning assets. The yield on loans, net of discount, was 5.51% and 5.68% for the first quarters of 2012 and 2011, respectively, with the decrease due primarily to decreases in loans outstanding and lower rates during the period. The average yield on investments decreased from 3.70% for the first quarter of 2011 to 2.84% for the first quarter of 2012 while average balances in investments increased from $91.5 million for the first quarter of 2011 to $98.9 million for the first quarter of 2012. Average fed funds sold, which were earning 0.23% and 0.24% for the first quarters of 2011 and 2012, respectively, decreased from $25.5 million at the end of the first quarter of 2011 to $20.2 million at the end of the first quarter 2012. The average balance of interest bearing deposits increased from $380.9 million at the end of the first quarter of 2011 to $387.0 million at the end of the first quarter of 2012.

 

30


Table of Contents

For the three months ended March 31, 2012, net interest income was down $178 thousand from $4.1 million for the first quarter of 2011 to $3.9 million for the first quarter of 2012. This decrease was due to the reduction in average gross loans outstanding of $17.4 million from $392.7 million for the quarter ended March 31, 2011 compared to $375.4 million for the quarter ended March 31, 2012.

Total interest and fees on loans, the largest component of net interest income, decreased $377 thousand or 6.82% to $5.1 million during the first quarter of 2012 compared to $5.5 million for the same period in 2011 primarily due to decreases in loans outstanding since March 31, 2011.

Interest expense on deposits decreased $297 thousand to $1.4 million, or 17.1% for the first quarter of 2012 compared to the same period of 2011. The decrease in deposit expense was due to the restructuring of the deposit mix and a decrease in overall rates paid on deposits as interest rates paid on interest bearing deposits decreased 35 basis points to 1.50% for the first quarter of 2012 from 1.85% for the first quarter of 2011.

For the three months ended March 31, 2012, the net interest margin decreased 6 basis points from 3.33% for the first three months of 2011 to 3.27% for the first quarter of 2012. The primary reason for the decrease in the net interest margin is the yield due to the attrition of the loan portfolio from 5.68% for the three months ended March 31, 2011 to 5.51% for the same period of 2012, and the decrease in return on investment securities from a yield of 3.70% for the three months ended March 31, 2011 to 2.84% for the three months ended March 31, 2012. This was offset by a reduction in expense on interest bearing deposits from $1.7 million at a rate of 1.85% for the three months ended March 31, 2011 to $1.4 million at a rate of 1.50% for the three months ended March 31, 2012.

Net interest income decreased $178 thousand for the first three months of 2012 compared to the first three months of 2011.

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, FHLB 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.

 

31


Table of Contents
     Three Months Ended March 31,  
     2012     2011  
     Average
Balance
    Income/
Expense
     Yield/
Rate
    Average
Balance
    Income/
Expense
     Yield/
Rate
 
     (Dollars in thousands)  

Assets:

              

Loans, net of unearned income (1)

   $ 376,051      $ 5,147         5.51   $ 394,581      $ 5,525         5.68

Bank owned life insurance (2)

     8,962        125         5.63     449        6         5.70

Investment securities:

              

U.S. Agencies

     1,999        18         3.58     3,862        35         3.71

Mortgage backed securities

     14,796        81         2.20     14,890        111         3.03

CMO

     43,181        253         2.35     31,114        213         2.78

Municipal securities (2)

     6,964        113         6.50     14,930        238         6.46

Corporate bonds

     16,317        99         2.44     5,895        65         4.44

Taxable municipal securities

     9,531        94         3.96     12,712        146         4.67

SBA

     1,579        9         2.25     3,543        2         0.18

Other investments

     4,509        32         2.90     4,580        25         2.22
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total investment securities

     98,876        699         2.84     91,526        835         3.70

Interest bearing deposits

     20,186        12         0.24     25,450        15         0.23
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total earning assets

   $ 504,075      $ 5,983         4.77   $ 512,006      $ 6,381         5.05
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents

     8,062             7,301        

Allowance for loan losses

     (9,146          (11,258     

Other assets

     29,260             23,043        
  

 

 

        

 

 

      

Total assets

   $ 532,251           $ 531,092        
  

 

 

        

 

 

      

Liabilities & Stockholders’ Equity:

              

Interest checking

   $ 11,412      $ 8         0.29   $ 9,314      $ 9         0.38

Money market deposit accounts

     152,442        190         0.50     144,232        302         0.85

Statement savings

     1,148        1         0.42     891        1         0.43

Certificates of deposit

     222,019        1,244         2.25     226,499        1,428         2.56
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total interest-bearing deposits

     387,021        1,443         1.50     380,936        1,740         1.85
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Fed funds purchased

     0        —           0.00     —          0         0.00

Repurchase agreements

     1,021        1         0.40     845        1         0.50

Subordinated debt

     7,155        42         2.35     7,155        34         1.94

FHLB advances

     50,000        402         3.24     55,000        408         3.01
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total interest-bearing liabilities

     445,197        1,888         1.71     443,936        2,183         1.99
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest-bearing liabilities:

              

Noninterest-bearing deposits

     44,327             41,297        

Other liabilities

     1,724             2,053        
  

 

 

        

 

 

   

 

 

    

Total liabilities

     46,051             41,489        

Shareholders’ equity

     41,003             43,806        
  

 

 

        

 

 

   

 

 

    

Total liabilities and shareholders’ equity

   $ 532,251           $ 531,092        
  

 

 

        

 

 

      

Net interest income

     $ 4,095           $ 4,198      
    

 

 

        

 

 

    

Interest rate spread

          3.07          3.06
       

 

 

        

 

 

 

Net interest margin

          3.27          3.33
       

 

 

        

 

 

 

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

          113.23          115.33
       

 

 

        

 

 

 

 

(1)

Includes nonaccrual loans

(2) 

Income and yields are reported on a taxable equivalent basis using a 34% tax rate.

 

32


Table of Contents

Noninterest Income

Total noninterest income was $340 thousand for the first quarter of 2012, compared to $221 thousand for the same period of 2011. Fees on deposits increased 14.47% to $87 thousand for the first quarter of 2012 compared to $76 thousand for the comparable period in 2011. Gain on sale of securities increased $6 thousand to $27 thousand for the three months ended March 31, 2012 compared to $21 thousand for the comparable period in 2011. Other noninterest income increased $102 thousand for the first quarter of 2012 to $226 thousand compared to $124 thousand for the same period of 2011. This increase is due primarily to increases in bank owned life insurance cash surrender value of life insurance.

Noninterest Expense

This category includes all expenses other than interest paid on deposits and borrowings. Total noninterest expenses for the first quarter of 2012 totaled $3.4 million, an increase of $394 thousand, compared to $3.0 million for the same period in 2011. The primary cause of the increase was salaries and employee benefits of $311 thousand to $1.7 million for the three months ended March 31, 2012 compared to $1.4 million for the same period in 2011. The Company added a Compliance officer, an additional lending officer and a controller during the 2012 period. In addition, a mortgage operation was started during the third quarter of 2011 resulting in salary and benefit costs of approximately $158 thousand during the three months ended March 31, 2012 that were not present in the three months ended March 31, 2011. Write-downs and losses on OREO expense increased $96 thousand to $124 thousand for the three months ended March 31, 2012, from $28 thousand for the three months ended March 31, 2011 resulting from additional adjustments for proper valuation of the OREO portfolio. Favorable results were achieved in the FDIC assessment of $92 thousand from $274 thousand for the three months ended March 31, 2011 to $182 thousand for the three months ended March 31, 2012 due to the FDIC’s change in the calculation of the assessment.

Income Taxes

The provision for income taxes is based upon the results of operations, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.

The effective tax rate for the three months ended March 31, 2012 and 2011 was 2.6% and 28.2%, respectively.

ASSET QUALITY

The Company’s allowance for loan losses is an estimate of the amount needed to provide for probable losses inherent 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.

 

33


Table of Contents

Total nonperforming assets, which consist of nonaccrual loans, loans past due 90 days and still accruing interest, and OREO, were $22.8 million at March 31, 2012, down from $23.3 million at March 31, 2011. This decrease reflects recognition of losses on several nonaccrual loans and properties included in other real estate owned. At December 31, 2011, nonperforming assets totaled $25.3 million. 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 $6.4 million, up from $2.7 million at March 31, 2011 and down from $7.6 million at December 31, 2011. At March 31, 2012, there were $3.5 million of troubled debt restructurings that were performing loans.

Nonaccrual loans were $16.4 million at March 31, 2012, continuing to decrease from $20.5 million at March 31, 2011 and $17.7 million at December 31, 2011. The fluctuation reflects the continued efforts by the Company to decrease nonaccruals in a challenging economic environment.

Loan charge-offs, less recoveries, amounted to $1.8 million for the first quarter of 2012 compared to $1.2 million for the first quarter of 2011. For the first quarter of 2012, the provision for loan losses was $565 thousand compared to $700 thousand for the first quarter of 2011, and compared to $868 thousand for the fourth quarter of 2011. With the level of real estate secured debt and the decreased nonperforming assets, management is confident that we can successfully manage through the economic downturn. We anticipate continued provision expenses as the asset quality dictates the need.

Loans past due 30 to 89 days continues to drop and stood at $3.0 million at the end of the first quarter of 2012 compared to $6.5 million at the end of the first quarter of 2011, a $3.5 million or 53.8% reduction in those balances.

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 $8.0 million at March 31, 2012 compared to $10.6 million at March 31, 2011 and $9.3 million at December 31, 2011. The ratio of the allowance for loan losses to total loans outstanding at March 31, 2012 was 2.13% compared to 2.51% at December 31, 2011 and 2.69% at March 31, 2011.

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

 

34


Table of Contents
     March 31,     December 31,     March 31,  
     2012     2011  
     (Dollars in thousands)  

Nonaccrual loans

   $ 16,410      $ 17,691      $ 20,518   

Loans past due 90 days and accruing interest

     —          —          41   
  

 

 

   

 

 

   

 

 

 

Total nonperforming loans

     16,410        17,691        20,559   

Other real estate owned

     6,369        7,646        2,739   
  

 

 

   

 

 

   

 

 

 

Total nonperforming assets

   $ 22,779      $ 25,337      $ 23,298   
  

 

 

   

 

 

   

 

 

 

Allowance for loan losses to period end loans

     2.13     2.51     2.69

Nonperforming assets to total loans & OREO

     5.97     6.71     5.89

Nonperforming assets to total assets

     4.30     4.68     4.40

Allowance for loan losses to nonaccrual loans

     48.76     52.41     51.52

Allowance for loan losses

      

Beginning balance

   $ 9,271      $ 9,025      $ 11,036   

Provision for loan losses

     565        868        700   

Net charge-offs

     1,834        622        1,166   
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 8,002      $ 9,271      $ 10,570   
  

 

 

   

 

 

   

 

 

 

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, 2012, cash and cash equivalents totaled $21.4 million. Investment securities not pledged totaled $93.4 million, for a total of 17.6% of total assets, which management believe is adequate to meet short-term liquidity needs. Management also has alternative sources of funding available, including unused unsecured federal funds facilities with three banks totaling $22.5 million and unused available term loans through the FHLB totaling $23.9 million.

Total liquidity and other alternative sources of liquidity totaled $161.2 million at March 31, 2012 if fully utilized, which represents 37.7% of total assets.

Off-Balance Sheet Arrangements

In the normal course of business there are outstanding commitments for the extension of credit which are not reflected in the financial statements. At March 31, 2012, pre-approved but unused lines of credit for loans totaled approximately $51.3 million. In addition, we had approximately $5.7 million in financial and performance standby letters of credit at March 31, 2012. 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.

 

35


Table of Contents

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 effect 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 qualifies as Tier 1 capital. First Capital Bank’s ratios exceed regulatory requirements. As of March 31, 2012, the Company had a Tier 1 risk-based capital ratio of 11.44% and a Total risk-based capital ratio of 13.00%. At December 31, 2011 these ratios were 11.60% and 13.17%, respectively.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A

 

ITEM 4. CONTROLS AND PROCEDURES

Based upon an evaluation as of March 31, 2012 under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, they have concluded that our disclosure controls and procedures, as defined in Rule 13a-15 and Rule 15d-15 under the Securities Exchange Act of 1934, as amended, are effective in ensuring that all material information required to be disclosed in reports that it files or submits under such Act is recorded, processed, summarized and is made known to management in a timely fashion.

Our management is also responsible for establishing and maintaining adequate internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

 

36


Table of Contents

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 – None

 

  Item 3. Defaults Upon Senior Securities – None

 

  Item 4. Mine Safety Disclosures – None

 

  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)
    3.4    Articles of Amendment to the Company’s Articles of Incorporation, designation the terms of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 3.1 of Form 8-K filed on April 6, 2009)
    3.5    Articles of Amendment to the Company’s Articles of Incorporation, increasing the number of authorized shares of Common Stock to 30,000,000 (incorporated by reference to Exhibit 3.1 of Form 8-K filed on September 3, 2010)
    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 11, 2012.

 

37


Table of Contents
  31.2    Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 11, 2012.
  31.3    Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 11, 2012.
  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 11, 2012.
  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).
  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, 2011).
  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 99.4 of Form 10-K filed on March 31, 2011).
101    The following materials from the Company’s 10-Q Report for the quarter ended March 31, 2012, formatted in XBRL: (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operation, (iii) the Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text. (1)

 

(1) Furnished, not filed.

 

38


Table of Contents

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, 2012       By:  

/s/ John M. Presley

        John M. Presley
        Managing Director and Chief Executive Officer
      By:  

/s/ William W. Ranson

        William W. Ranson
        Executive Vice President &
        Chief Financial Officer

 

39

XNAS:FCVA First Capital Bancorp Inc Quarterly Report 10-Q Filling

First Capital Bancorp Inc XNAS:FCVA Stock - Get Quarterly Report SEC Filing of First Capital Bancorp Inc XNAS:FCVA stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

Content Partners
XNAS:FCVA First Capital Bancorp Inc Quarterly Report 10-Q Filing - 3/31/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |