UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 2008
TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE EXCHANGE ACT
For the transition period from
to
FIRST CAPITAL BANCORP, INC.
(Name of Small Business Issuer in its charter)
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Virginia
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001-33543
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11-3782033
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(State or other jurisdiction of
Incorporation or organization)
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(Commission File Number)
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(I.R.S. Employer
Identification No.)
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4222 Cox Road, Suite 200, Glen Allen, Virginia 23060
(Address of principal executive offices)
804-273-1160
(Issuers telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
APPLICABLE ONLY TO CORPORATE
ISSUERS
State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date:
2,971,171 shares of Common Stock, par value $4.00 per share, were outstanding at April 30, 2008.
Transitional Small Business Disclosure Format (check one) Yes
¨
No
x
TABLE OF CONTENTS
2
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
First Capital Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
March 31, 2008 and December 31, 2007
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2008
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2007
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(Unaudited)
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ASSETS
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Cash and due from banks
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$
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11,536,607
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$
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16,779,538
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Federal funds sold
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13,277,000
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Short term debt securities
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10,000,000
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Total cash and cash equivalents
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34,813,607
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16,779,538
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Investment securities:
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Available for sale, at fair value
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33,007,576
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32,824,537
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Restricted, at cost
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3,804,040
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3,183,739
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Loans, net of allowance for losses
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314,390,784
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294,234,285
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Loans held for sale
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417,000
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Premises and equipment, net
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3,700,618
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2,077,820
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Accrued interest receivable
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1,666,165
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1,807,939
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Deferred tax asset
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395,505
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319,097
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Other assets
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453,988
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640,013
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Total assets
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$
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392,649,283
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$
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351,866,968
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LIABILITIES
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Deposits
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Noninterest-bearing
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$
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36,116,494
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$
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36,541,568
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Interest-bearing
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258,799,448
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218,566,755
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Total deposits
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294,915,942
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255,108,323
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Accrued expenses and other liabilities
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2,618,557
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3,380,648
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Securities sold under repurchase agreements
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2,584,239
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2,102,939
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Federal funds purchased
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9,261,000
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Subordinated debt
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7,155,000
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7,155,000
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Federal Home Loan Bank advances
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50,000,000
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40,000,000
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Total liabilities
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357,273,738
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317,007,910
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STOCKHOLDERS EQUITY
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Common stock, $4.00 par value (authorized 5,000,000 shares; shares issued and outstanding, 2,971,171 at March 31, 2008 and
December 31, 2007)
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11,884,684
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11,884,684
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Additional paid-in capital
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18,532,552
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18,492,528
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Retained earnings
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4,933,415
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4,518,278
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Accumulated other comprehensive income (loss), net of tax
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24,894
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(36,432
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)
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Total stockholders equity
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35,375,545
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34,859,058
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Total liabilities and stockholders equity
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$
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392,649,283
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$
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351,866,968
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See notes to consolidated financial statements.
3
First Capital Bancorp Inc. and Subsidiary
Consolidated Statements of Income
For the Three Months Ended March 31, 2008 and 2007
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Three Months Ended
March 31,
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2008
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2007
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(Unaudited)
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Interest income
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Loans
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$
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5,479,986
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$
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3,964,356
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Investments:
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Taxable interest income
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369,559
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423,137
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Tax exempt interest income
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13,473
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10,264
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Dividends
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47,470
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30,601
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Federal funds sold
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113,038
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74,812
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Total interest income
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6,023,526
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4,503,170
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Interest expense
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Deposits
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2,615,823
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2,034,447
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FHLB advances
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457,065
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255,824
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Federal funds purchased
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25,902
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7,023
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Subordinated debt and other borrowed money
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123,865
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141,638
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Total interest expense
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3,222,655
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2,438,932
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Net interest income
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2,800,871
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2,064,238
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Provision for loan loss
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325,000
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122,000
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Net interest income after provision for loan loss
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2,475,871
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1,942,238
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Noninterest income
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Fees on deposits
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63,901
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49,631
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Fees on mortgage loans
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12,383
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46,386
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Other
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95,956
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70,895
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Total noninterest income
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172,240
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166,912
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Noninterest expenses
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Salaries and employee benefits
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1,039,622
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818,605
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Occupancy expense
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205,279
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184,138
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Data processing
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138,127
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124,198
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Professional services
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68,462
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53,075
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Advertising and marketing
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43,652
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28,006
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FDIC assessment
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51,000
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20,871
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Virginia franchise tax
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82,000
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45,000
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Depreciation
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85,831
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85,562
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Other expenses
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291,251
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211,789
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Total noninterest expense
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2,005,224
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1,571,244
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Net income before provision for income taxes
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642,887
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537,906
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Income tax expense
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227,750
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187,900
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Net income
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$
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415,137
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$
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350,006
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Basic income per share
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$
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0.14
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$
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0.19
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Diluted income per share
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$
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0.14
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$
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0.19
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See notes to consolidated financial statements.
4
First Capital Bancorp, Inc. and Subsidiary
Consolidated Statements of Stockholders Equity and
Comprehensive Income
Three Months Ended March 31, 2008 and 2007
(Unaudited)
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Common
Stock
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Additional
Paid-in
Capital
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Retained
Earnings
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Accumulated
Other
Comprehensive
Income (Loss)
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Total
Stockholders
Equity
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Balance January 1, 2007
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$
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7,184,084
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$
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6,010,352
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$
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2,776,277
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($
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311,598
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)
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$
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15,659,115
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Net income
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350,006
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350,006
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350,006
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Other comprehensive loss
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Unrealized holding gain arising during period, (net of tax, $31,230)
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60,622
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60,622
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Total comprehensive income
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$
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410,628
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Stock based compensation expense
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11,828
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11,828
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Balance March 31, 2007
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$
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7,184,084
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$
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6,022,180
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$
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3,126,283
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($
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250,976
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)
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$
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16,081,571
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Balance January 1, 2008
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$
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11,884,684
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$
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18,492,528
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$
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4,518,278
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($
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36,432
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)
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$
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34,859,058
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Net income
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415,137
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415,137
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415,137
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Other comprehensive loss
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Unrealized holding gain arising during period, (net of tax, $31,592)
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61,326
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61,326
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Total comprehensive income
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$
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476,463
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Stock based compensation expense
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|
|
|
40,024
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40,024
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Balance at March 31, 2008
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$
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11,884,684
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$
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18,532,552
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$
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4,933,415
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$
|
24,894
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$
|
35,375,545
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See notes to consolidated financial statements.
5
First Capital Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2008 and 2007
(Unaudited)
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2008
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2007
|
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Cash flows from operating activities
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Net income
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$
|
415,137
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|
|
$
|
350,006
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|
Adjustments to reconcile net income to net cash provided by operating activities
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Provision for loan losses
|
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|
325,000
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122,000
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Depreciation of premises and equipment
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|
|
85,831
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|
|
|
85,562
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Stock based compensation expense
|
|
|
40,024
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|
|
|
11,828
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|
Deferred income taxes
|
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|
(108,000
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)
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|
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Net accretion of bond premiums/discounts
|
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|
(36,775
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)
|
|
|
(1,257
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)
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Decrease (increase) in other assets
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|
186,025
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(233,697
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)
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Increase in accrued interest receivable
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|
|
141,774
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|
|
|
191,951
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Increase (decrease) in accrued expenses and other liabilities
|
|
|
(762,091
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)
|
|
|
214,638
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|
|
|
|
|
|
|
|
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Net cash provided by operating activities
|
|
|
286,925
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|
|
|
741,031
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|
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Cash flows from investing activities
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Proceeds from maturities and calls of securities
|
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|
17,614,286
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|
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|
8,000,000
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|
Proceeds from paydowns of securities available-for-sale
|
|
|
725,265
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|
|
|
588,017
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Purchase of securities available-for-sale
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|
|
(18,392,898
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)
|
|
|
|
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Redemption (purchase) of FHLB Stock
|
|
|
(620,300
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)
|
|
|
181,300
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|
Purchases of property and equipment
|
|
|
(195,081
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)
|
|
|
(149,679
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)
|
Purchase of land
|
|
|
(1,513,548
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)
|
|
|
|
|
Increase in loans held for sale
|
|
|
(417,000
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)
|
|
|
|
|
Net increase in loans
|
|
|
(20,481,499
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)
|
|
|
(11,578,893
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(23,280,775
|
)
|
|
|
(2,959,255
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net (decrease) increase in demand, savings and money market accounts
|
|
|
(3,618,504
|
)
|
|
|
14,444,187
|
|
Net increase in certificates of deposit
|
|
|
43,426,123
|
|
|
|
15,538,787
|
|
Advances from FHLB
|
|
|
10,000,000
|
|
|
|
5,000,000
|
|
FHLB advances called
|
|
|
|
|
|
|
(10,000,000
|
)
|
Decrease in Federal funds purchased
|
|
|
(9,261,000
|
)
|
|
|
(6,026,000
|
)
|
Net increase in repurchase agreements
|
|
|
481,300
|
|
|
|
69,644
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
41,027,919
|
|
|
|
19,026,618
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
18,034,069
|
|
|
|
16,808,394
|
|
Cash and cash equivalents, beginning of period
|
|
|
16,779,538
|
|
|
|
12,032,026
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
34,813,607
|
|
|
$
|
28,840,420
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest paid during the period
|
|
$
|
2,410,961
|
|
|
$
|
2,488,163
|
|
|
|
|
|
|
|
|
|
|
Taxes paid during the period
|
|
$
|
100,000
|
|
|
$
|
228,533
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
6
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
Note 1 Basis of Presentation
First Capital Bancorp, Inc. (the
Company) is the holding company of and successor to First Capital Bank (the Bank). Effective September 8, 2006, the Company acquired all of the outstanding stock of the Bank in a statutory share exchange transaction (the
Share Exchange) pursuant to an Agreement and Plan of Reorganization dated September 5, 2006, between the Company and the Bank (the Agreement). The Agreement was approved by the shareholders of the Bank at the annual
meeting of shareholders held on May 16, 2006. Under the terms of the Agreement, the shares of the Banks common stock were exchanged for shares of the Companys 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. All references to the Company in this quarterly report for
dates or periods prior to September 8, 2006 are references to the Bank.
In managements 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, 2008 and December 31, 2007 and for the three months ended March 31,
2008 and 2007, in conformity with accounting principles generally accepted in the United States of America. Results for the three month ended March 31, 2007 are not necessarily indicative of the results that may be expected for the full year
ending December 31, 2008.
The organization and business of the Company, accounting policies followed, and other related information are contained in
the notes to the financial statements of the Company as of and for the year ended December 31, 2007 filed as part of the Companys annual report on Form 10-KSB. These interim financial statements should be read in conjunction with the
annual financial statements.
First Capital Bancorp, Inc.s critical accounting policy relates to the evaluation of the allowance for loan losses
which is based on managements opinion of an amount that is adequate to absorb losses in the Companys 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 Companys allowance for loan losses could result in material changes in its financial condition and results of
operations. The Companys 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 Companys 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.
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.
7
The basic and diluted earnings per share calculations are as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2008
|
|
2007
|
Net income (numerator, basic and diluted)
|
|
$
|
415,137
|
|
$
|
350,006
|
Weighted average number of shares outstanding (denominator)
|
|
|
2,971,171
|
|
|
1,796,021
|
|
|
|
|
|
|
|
Earnings per common share - basic
|
|
$
|
0.14
|
|
$
|
0.19
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
2,971,171
|
|
|
1,796,021
|
Effect of stock options
|
|
|
29,929
|
|
|
91,842
|
|
|
|
|
|
|
|
Diluted average shares outstanding (denominator)
|
|
|
3,001,100
|
|
|
1,887,863
|
|
|
|
|
|
|
|
Earnings per common share - assuming dilution
|
|
$
|
0.14
|
|
$
|
0.19
|
|
|
|
|
|
|
|
Note 4 Stock Options
Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, using the modified prospective method and, accordingly, did not restate the consolidated statements of operations for periods prior to
January 1, 2006. This pronouncement amended SFAS No. 123, Accounting for Stock-Based Compensation, and superseded Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Under SFAS No. 123(R),
the Company measures 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.
In January 2008, 5,000 options were granted at an exercise price equal to 100% of the fair market value of the common stock on the date of grant. These
options vest over three years. The stock based compensation expensed during the quarter was $40,024 and is included in salaries and employee benefits.
Note 5 Investment Securities
The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities as of
March 31, 2008 and December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
Amortized
Costs
|
|
Gross Unrealized
|
|
Fair Values
|
|
|
Gains
|
|
Losses
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
20,068,027
|
|
$
|
141,707
|
|
|
|
|
$
|
20,209,734
|
Mortgage-backed securities
|
|
|
7,761,817
|
|
|
48,727
|
|
|
25,607
|
|
|
7,784,937
|
Corporate bonds
|
|
|
3,378,251
|
|
|
|
|
|
121,721
|
|
|
3,256,530
|
Tax-exempt municipal bonds
|
|
|
1,761,247
|
|
|
11,552
|
|
|
16,424
|
|
|
1,756,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,969,342
|
|
$
|
201,986
|
|
$
|
163,752
|
|
$
|
33,007,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
Amortized
Costs
|
|
Gross Unrealized
|
|
Fair Values
|
|
|
Gains
|
|
Losses
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
21,455,876
|
|
$
|
50,543
|
|
$
|
5,590
|
|
$
|
21,500,829
|
Mortgage-backed securities
|
|
|
8,493,006
|
|
|
27,725
|
|
|
102,396
|
|
|
8,418,335
|
Corporate bonds
|
|
|
1,921,847
|
|
|
|
|
|
26,722
|
|
|
1,895,125
|
Tax-exempt municipal bonds
|
|
|
1,008,492
|
|
|
3,495
|
|
|
1,739
|
|
|
1,010,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,879,221
|
|
$
|
81,763
|
|
$
|
136,447
|
|
$
|
32,824,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses in the portfolio as of March 31, 2008 are considered temporary and are a result of the
current interest rate environment and not increased credit risk. The Company has the ability and intent to hold debt securities in an unrealized loss position for the foreseeable future.
Note 6 Loans
Major classifications of loans are as follows:
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
December 31,
2007
|
|
Amount
|
|
Amount
|
Commercial
|
|
$
|
43,613,469
|
|
$
|
44,366,926
|
Real estate - residential
|
|
|
85,694,299
|
|
|
83,035,119
|
Real estate - commercial
|
|
|
96,477,757
|
|
|
86,301,455
|
Real estate - construction
|
|
|
87,208,198
|
|
|
79,095,777
|
Consumer
|
|
|
4,420,132
|
|
|
4,105,713
|
|
|
|
|
|
|
|
Total loans
|
|
|
317,413,855
|
|
|
296,904,990
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
2,819,166
|
|
|
2,489,066
|
Net deferred fees
|
|
|
203,905
|
|
|
181,640
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
314,390,784
|
|
$
|
294,234,284
|
|
|
|
|
|
|
|
A summary of the transactions affecting the allowance for loan losses follows:
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2008
|
|
2007
|
Balance, beginning of year
|
|
$
|
2,489,066
|
|
$
|
1,833,604
|
Provision for loan losses
|
|
|
325,000
|
|
|
122,000
|
Recoveries
|
|
|
5,100
|
|
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
2,819,166
|
|
$
|
1,955,604
|
|
|
|
|
|
|
|
9
Note 7 Premises and equipment
Major classifications of these assets are summarized as follows:
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
December 31,
2007
|
Land
|
|
$
|
1,741,553
|
|
$
|
228,005
|
Building
|
|
|
719,434
|
|
|
719,434
|
Furniture and equipment
|
|
|
1,855,108
|
|
|
1,832,126
|
Leasehold improvements
|
|
|
717,498
|
|
|
711,598
|
Construction in progress
|
|
|
166,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,199,792
|
|
|
3,491,163
|
Less accumulated depreciation
|
|
|
1,499,174
|
|
|
1,413,343
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
$
|
3,700,618
|
|
$
|
2,077,820
|
|
|
|
|
|
|
|
Note 8 Stock Offering
On June 19, 2007, the Company closed on a public stock offering of 1,020,000 shares of common stock at $15.75 per share. The offering was underwritten by two local brokerage houses. Gross proceeds totaled $16.1 million. Total costs of
the offering through June 30, 2007 were $1.1 million. The Company will use the net proceeds from the offering to increase equity and for general corporate purposes, including using the net proceeds to provide additional equity to the Bank to
support the growth of its operations.
On July 11, 2007, an additional 152,900 shares of common stock was issued as a result of the exercise of the
over-allotment option granted to the underwriters of the Companys public offering of 1,020,000 shares of common stock at $15.75 per share. The net proceeds to the Company from this exercise of the over-allotment were $2.3 million.
Note 9 Fair Value Disclosures
Effective January 1, 2008, the
Company adopted FAS 157, Fair Value Measurement. FAS 157 clarifies the definition of fair value and describes methods available to appropriately measure fair value in accordance with generally accepted accounting principles. This statement
applies whenever other accounting pronouncements require or permit fair value measurements.
The fair value hierarchy under FAS 157 prioritizes the inputs
to valuation techniques used to measure fair value into three broad levels (Levels 1, 2 and 3). Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to
access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset
or liability and reflect the reporting entitys own evaluation about the assumptions that market participants would use in pricing the asset or liability.
SFAS 157 defines fair value as the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date.
Assets measured at fair value on a recurring basis are summarized below:
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
Fair Value Measurements Using
|
|
Fair
Values
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(Dollars in thousands)
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
20,210
|
|
$
|
|
|
$
|
|
|
$
|
20,210
|
Mortgage-backed securities
|
|
|
|
|
|
7,785
|
|
|
|
|
|
7,785
|
Corporate bonds
|
|
|
|
|
|
3,257
|
|
|
|
|
|
3,257
|
Municipal bonds
|
|
|
|
|
|
1,756
|
|
|
|
|
|
1,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,210
|
|
$
|
12,798
|
|
$
|
|
|
$
|
33,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 Valuations based on quoted prices in active markets for identical assets that the Company has the
ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Assets utilizing Level 1 inputs include U. S.
Government agency securities.
Level 2 Valuations based on quoted prices in markets that are not active or for which all significant inputs are
observable, either directly or indirectly. Assets utilizing Level 2 inputs include mortgage-backed securities, corporate and municipal bonds.
Level 3
Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The Company had no Level 3 assets.
Note 10
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (revised 2007).
SFAS No. 141R improves reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable, and relevant information for investors and other users of financial
statements. To achieve this goal, the new standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business
combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first fiscal year that commences after December 15, 2008.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 160 improves the relevance,
comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same wayas equity in the consolidated financial statements. In
addition, SFAS No.160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring that they be treated as equity transactions. SFAS No. 160 is effective for fiscal
years beginning after December 15, 2008 and is not expected to have a material impact on the Companys financial condition or results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement No. 115. SFAS No. 159 provides companies with the
option of electing fair value as an alternative measurement for most financial assets and liabilities. It also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of a
companys choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the
11
company has chosen to use fair value on the face of the balance sheet. Under SFAS No. 159, fair value is used for both the initial and subsequent
measurement of the designated assets and/or liabilities, with the changes in value recognized in earnings. The Company adopted this statement on January 1, 2008 and did not elect the SFAS No. 159 fair value option for any of its financial
assets or liabilities, therefore the adoption did not have an impact on its consolidated financial position, consolidated results of operations, or liquidity.
Item 2.
|
Managements Discussion and Analysis of Financial Conditions and Results of Operations
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report
may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future
events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualified words (and their derivatives) such as expect, believe, estimate,
plan, project, anticipate or other statements concerning opinions or judgment of the Company and its management about future events. Although the Company believes that its expectations with respect to certain
forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ
materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of
factors, including, but not limited to, the effects of and changes in: general economic conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes
in the stock and bond markets, technology, and consumer spending and savings habits. The Company does not update any forward-looking statements that may be made from time to time by or on behalf of the Company.
GENERAL
The Company was organized under the laws of
the Commonwealth of Virginia as a bank holding company whose activities consist of investment in its wholly-owned subsidiary, the Bank. The Bank is a Virginia state-chartered bank headquartered in Glen Allen, Virginia. A member of the Federal
Reserve System, it began operations in late 1998. The Bank is a community oriented financial institution that offers a full range of banking and related financial services to small and medium-sized businesses, professionals and individuals located
in its market area, which encompasses western Henrico County, Ashland, western City of Richmond, Chesterfield County and the City of Petersburg. The Banks goal is to provide its customers with high quality, responsive and technologically
advanced banking services. In addition, the Bank strives to develop personal, hometown relationships with it customers, while at the same time offering products comparable to statewide regional banks located in its market area. Management believes
that the marketing of customized banking services has enabled it to establish a niche in the financial services marketplace in the Richmond metropolitan area.
The operating results of the Bank depend primarily upon its net interest income, which is determined by the difference between (i) interest and dividend income on interest earning assets, which consist primarily of loans, investment
securities and other investments, and (ii) interest expense on interest-bearing liabilities, which consist principally of deposits, advances from the Federal Home Loan Bank of Atlanta and junior subordinated debt. Net income is also affected by
its provision for loan loss, as well as the level of its other operating income, including loan fees and service charges, and its other operating expenses, including salaries and employee benefits, occupancy expense, miscellaneous other expenses,
franchise taxes and income taxes.
The Bank currently serves its customers through the following six full-service offices: the main office located at 4101
Dominion Boulevard in Glen Allen, Virginia, a branch located at 409 South Washington Highway in Ashland, Virginia, a branch located at 1580 Koger Center Boulevard in Chesterfield County, Virginia, a branch located at 1776 Staples Mill Road near the
Richmond / Henrico County boundary, a branch located in Forest Office Park in Henrico County and at 901 E. Cary Street in the James Center in Richmond, Virginia.
12
The following discussion represents managements discussion and analysis of the financial condition and results of
operations for the Company as of March 31, 2008 and December 31, 2007 and for the three months ended March 31, 2008 and 2007. It should be read in conjunction with the financial statements included elsewhere herein.
SUMMARY OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Financial Condition Summary
March 31, 2008 as Compared to December 31, 2007
Total assets increased $40.8 million, or 11.6%, for the first three months of 2008 to $392.6 million compared with $351.9 million at December 31,
2007. The increase in total assets during the first quarter resulted from the growth of our business and customer base. Net loans increased $20.2 million to $314.4 million at March 31, 2008, an increase of 6.9% over net loans of $294.2 million
at December 31, 2007. Deposits increased $39.8 million to $294.9 million or 15.6% for the first three months of 2008. Federal Home Loan Bank advances totaled $50.0 million at March 31, 2008, an increase of $10.0 million from year end 2007.
Federal funds purchased decreased $9.3 million from December 31, 2007 to $0.
At March 31, 2008, as compared to March 31, 2007, net loans
increased $103.2 million to $314.4 million, an increase of 48.9%. Deposits increased $70.6 million to $294.9 million, an increase of 31.5% over the same period. Assets stood at $392.6 million, up $115.7 million from $276.9 million at March 31,
2007, an increase of 41.8%.
As of March 31, 2008 and December 31, 2007, our regulatory capital levels exceeded those established for
well-capitalized institutions.
Results of Operations
Comparison of the Three Months Ended March 31, 2008 and 2007
Net income for the three months ended
March 31, 2008 increased 18.6% to $415 thousand, or $0.14 basic and diluted earnings per share compared to $350 thousand for the three months ended March 31, 2007, or $0.19 basic and diluted earnings per share. The increase in net income
was due primarily to the growth of the loan portfolio as loans grew $20.2 million for the three months ended March 31, 2008 and $103.2 million from March 31, 2007 to March 31, 2008. The loan portfolio continues to be funded with
deposit growth and, when advantageous, through borrowings from the Federal Home Loan Bank of Atlanta (FHLB). Deposits increased $39.8 million for the three months ended Marched 31, 2008 and $70.6 million from March 31, 2007 to
March 31, 2008. Advances from the FHLB grew $10.0 million in the first quarter of 2008 and $25 million from March 31, 2007. In addition, the Company closed a public offering in June 2007 of 1,202,000 shares at $15.75 and closed on the
underwriters exercise of the over-allotment option consisting of an additional 152,900 shares at $15.75 in July 2007, resulting in increases in cash and net worth of the Company totaling $17.1 million.
Net interest income increased by $737 thousand, or 35.7%, from $2.1 million in the first quarter of 2007 to $2.8 million in the first quarter of 2008. This increase in
net interest income is a direct result of our growth in loans. The yield on our earning assets declined faster than the cost of our funds due to the drastic actions of the Federal Reserve Bank during the first quarter of 2008. The federal funds
targeted rate and the associated prime rate of interest dropped 100 basis points late in 2007 and 200 basis points during the first quarter of 2008, resulting in a significant decline in this key rate that is tied to 40.1% of the loan portfolio
having a daily rate change. Although the vast majority of our time deposits are set to reprice in the next twelve months and will lower funding costs, this rapid reduction in rates put pressure on our net interest margin. The net interest margin
decreased 19 basis points for the three months ended March 31, 2008 to 3.16% as compared to 3.35% for the three months ended March 31, 2007. The yield on interest earning assets decreased from 7.31% for the quarter ended March 31,
2007 to 6.79% for the quarter ended March 31, 2008. The cost of interest bearing liabilities decreased 39 basis points from 4.68% for the quarter ended March 31, 2007 to 4.29% for the quarter ended March 31, 2008. Cost of deposits
decreased from 4.66% for the quarter ended March 31, 2007 to 4.33% for the quarter ended March 31, 2008. Money market accounts (MMA) had the largest decrease in interest rates. MMA accounts decreased 154 basis points due to
decreases in the prime rate.
Noninterest income increased by $5 thousand, or 3.2%, from $167 thousand in the first quarter of 2007 to $172 thousand in the
first quarter of 2008. This increase in noninterest income is attributable to increases in fees on deposits and other
13
income of $39 thousand offset by a reduction in fees on mortgage loans of $34 thousand. Reduction in fees on mortgage loans was the result of turmoil in the
financial markets as single family originations decreased significantly in the quarter as compared to 2007.
Noninterest expense increased $434 thousand,
or 27.6%, from $1.6 million in the first quarter of 2007 to $2.0 million in the first quarter of 2008. This increase in noninterest expense is attributable to the growth and expansion of the Company. Salaries and employee benefits represented the
largest dollar increase of $221 thousand which represent a 27% increase. We opened and staffed our sixth branch in February 2007 and added two experienced lenders with support staff. Occupancy increased as the result of the new branch in 2007 and
additional space at the corporate headquarters. Virginia franchise tax increased $37 thousand dollars as a result of additional investment in First Capital Bank by First Capital Bancorp, Inc. in 2007. Franchise tax is based on net worth of the
subsidiary. Other expenses increased $79 thousand as a result of growth of the Company and expenses associated with the new branch in 2007.
The provision
for loan losses increased from $122 thousand for the first quarter of 2007 to $325 thousand for the three months ended March 31, 2008 and up for $238 thousand for the fourth quarter of 2007. This increase was driven by loan growth and not due
to credit quality issues. The reserve for loan losses of $2.8 million represents 0.89% of total loans as of March 31, 2008, up from .84% at December 31, 2007. Asset quality on the $317.4 million loan portfolio remained strong. There were
three non-performing loans at March 31, 2008 totaling $59 thousand which represent .02% of loans. One nonaccrual loan totaled $47 thousand and has an SBA guarantee of $25 thousand. No losses are expected from these non-performing assets.
Net interest income
Net interest income represents
our principal source of earnings. Net interest income is the amount by which interest generated from earning assets exceeds the expense of funding those assets. Changes in volume and mix of interest-earning assets and interest-bearing liabilities,
as well as their respective yields and rates, have a significant impact on the level of net interest income
Earning assets consist primarily of loans,
investment securities and other investments. Interest-bearing liabilities consist principally of deposits, Federal Home Loan Bank advances and other borrowings. Since January 1, 2007, the Board of Governors of the Federal Reserve decreased
short-term interest rates by 500 basis points.
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.
14
Average Balances, Income and Expenses, Yields and Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2008
|
|
|
2007
|
|
|
Average
Balance
|
|
|
Income/
Expense
|
|
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Income/
Expense
|
|
Yield/
Rate
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
$
|
306,723
|
|
|
$
|
5,480
|
|
7.19
|
%
|
|
$
|
205,039
|
|
|
$
|
3,964
|
|
7.84
|
%
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agencies
|
|
|
17,897
|
|
|
|
244
|
|
5.47
|
%
|
|
|
25,010
|
|
|
|
307
|
|
4.97
|
%
|
Mortgage backed securities
|
|
|
8,176
|
|
|
|
89
|
|
4.36
|
%
|
|
|
10,972
|
|
|
|
116
|
|
4.31
|
%
|
Municipal securities
|
|
|
1,411
|
|
|
|
13
|
|
3.84
|
%
|
|
|
1,012
|
|
|
|
10
|
|
4.12
|
%
|
Corporate bonds
|
|
|
2,638
|
|
|
|
37
|
|
5.71
|
%
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
|
3,446
|
|
|
|
48
|
|
5.54
|
%
|
|
|
2,097
|
|
|
|
31
|
|
5.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
33,568
|
|
|
|
431
|
|
5.16
|
%
|
|
|
39,091
|
|
|
|
464
|
|
4.81
|
%
|
Federal funds sold
|
|
|
16,541
|
|
|
|
113
|
|
2.75
|
%
|
|
|
5,829
|
|
|
|
75
|
|
5.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
$
|
356,832
|
|
|
$
|
6,024
|
|
6.79
|
%
|
|
$
|
249,959
|
|
|
$
|
4,503
|
|
7.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
10,276
|
|
|
|
|
|
|
|
|
|
5,226
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(2,640
|
)
|
|
|
|
|
|
|
|
|
(1,912
|
)
|
|
|
|
|
|
|
Other assets
|
|
|
6,211
|
|
|
|
|
|
|
|
|
|
4,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
370,679
|
|
|
|
|
|
|
|
|
$
|
257,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
$
|
9,513
|
|
|
$
|
19
|
|
0.81
|
%
|
|
$
|
8,037
|
|
|
$
|
13
|
|
0.63
|
%
|
Money market deposit accounts
|
|
|
44,067
|
|
|
|
272
|
|
2.48
|
%
|
|
|
36,136
|
|
|
|
358
|
|
4.02
|
%
|
Statement savings
|
|
|
681
|
|
|
|
2
|
|
1.03
|
%
|
|
|
1,125
|
|
|
|
4
|
|
1.52
|
%
|
Certificates of deposit
|
|
|
188,603
|
|
|
|
2,323
|
|
4.95
|
%
|
|
|
131,630
|
|
|
|
1,659
|
|
5.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
242,864
|
|
|
|
2,616
|
|
4.33
|
%
|
|
|
176,928
|
|
|
|
2,034
|
|
4.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fed funds purchased
|
|
|
2,290
|
|
|
|
26
|
|
4.55
|
%
|
|
|
538
|
|
|
|
7
|
|
5.30
|
%
|
Repurchase agreements
|
|
|
2,130
|
|
|
|
11
|
|
2.02
|
%
|
|
|
1,658
|
|
|
|
19
|
|
4.65
|
%
|
Subordinated debt
|
|
|
7,155
|
|
|
|
113
|
|
6.36
|
%
|
|
|
7,155
|
|
|
|
123
|
|
6.95
|
%
|
FHLB advances
|
|
|
47,527
|
|
|
|
457
|
|
3.87
|
%
|
|
|
24,967
|
|
|
|
256
|
|
4.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
301,966
|
|
|
|
3,223
|
|
4.29
|
%
|
|
|
211,246
|
|
|
|
2,439
|
|
4.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
31,433
|
|
|
|
|
|
|
|
|
|
27,606
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,189
|
|
|
|
|
|
|
|
|
|
2,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
33,622
|
|
|
|
|
|
|
|
|
|
30,188
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
35,091
|
|
|
|
|
|
|
|
|
|
15,846
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
370,679
|
|
|
|
|
|
|
|
|
$
|
257,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
2,801
|
|
|
|
|
|
|
|
|
$
|
2,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
2.50
|
%
|
|
|
|
|
|
|
|
|
2.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
3.16
|
%
|
|
|
|
|
|
|
|
|
3.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of average interest earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
|
|
118.17
|
%
|
|
|
|
|
|
|
|
|
118.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
FINANCIAL CONDITION
Loan Portfolio
The following table presents the composition of the loan portfolio at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
|
December 31,
2007
|
|
|
March 31,
2007
|
|
|
Amount
|
|
Percentages
|
|
|
Amount
|
|
Percentages
|
|
|
Amount
|
|
Percentage
|
|
Commercial
|
|
$
|
43,613,469
|
|
13.74
|
%
|
|
$
|
44,366,926
|
|
14.94
|
%
|
|
$
|
28,069,881
|
|
13.16
|
%
|
Real estate - residential
|
|
|
85,694,299
|
|
27.00
|
%
|
|
|
83,035,119
|
|
27.97
|
%
|
|
|
67,947,082
|
|
31.86
|
%
|
Real estate - commercial
|
|
|
96,477,757
|
|
30.40
|
%
|
|
|
86,301,455
|
|
29.07
|
%
|
|
|
66,198,956
|
|
31.04
|
%
|
Real estate - construction
|
|
|
87,208,198
|
|
27.47
|
%
|
|
|
79,095,777
|
|
26.64
|
%
|
|
|
48,523,635
|
|
22.76
|
%
|
Consumer
|
|
|
4,420,132
|
|
1.39
|
%
|
|
|
4,105,713
|
|
1.38
|
%
|
|
|
2,509,074
|
|
1.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
317,413,855
|
|
100.00
|
%
|
|
|
296,904,990
|
|
100.00
|
%
|
|
|
213,248,628
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
2,819,166
|
|
|
|
|
|
2,489,066
|
|
|
|
|
|
1,955,874
|
|
|
|
Net deferred fees
|
|
|
203,905
|
|
|
|
|
|
181,640
|
|
|
|
|
|
84,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
314,390,784
|
|
|
|
|
$
|
294,234,284
|
|
|
|
|
$
|
211,208,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
The allowance for loan losses at March 31, 2008 was $2.8 million, compared to $2.0 million at March 31, 2007. The ratio of the allowance for loan losses to gross portfolio loans was 0.89% at March 31,
2008 as compared to 0.92% at March 31, 2007. At March 31, 2008, the Company had four non-performing loans which totaled $116 thousand. At March 31, 2007, the Company had one non-performing loan which totaled $120 thousand. The amount
of the allowance for loans losses is determined by an evaluation of the level of loans outstanding, the level of non-performing loans, loan concentrations, historical loan loss experience, delinquency trends and assessment of present and anticipated
economic conditions.
The following table presents activity in the allowance for loan losses for the periods indicated:
Analysis of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Beginning balance
|
|
$
|
2,489,066
|
|
|
$
|
1,833,874
|
|
Provision for loan losses
|
|
|
325,000
|
|
|
|
122,000
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
5,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,819,166
|
|
|
$
|
1,955,874
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses as a percent of loans outstanding at the end of the period.
|
|
|
0.89
|
%
|
|
|
0.92
|
%
|
|
|
|
|
|
|
|
|
|
16
Bank Premises and Equipment
All of the Banks properties are in good operating condition and are adequate for the Banks present needs. There are plans to relocate the main office from 4101 Dominion Boulevard, Glen Allen, Virginia to 11001 West Broad Street,
Glen Allen, Virginia an independent free standing facility. The land was purchased and construction began in the first quarter of 2008. Relocation is anticipated in the third quarter of 2008.
Deposits
Total deposits increased by $39.8 million, or 15.6% for the
first three months of 2008. During the first three months of 2007, the increase in deposits occurred in interest-bearing accounts. Certificates of deposit increased by $43.4 million, money market and NOW accounts decreased by $3.2 million and
interest-bearing demand deposits decreased by $456 thousand.
The mix of our deposits continues to be weighted toward certificates of deposit which
represent 68.6% of our total deposits as of March 31, 2008. Certificates of deposit as a percentage of total deposits were 62.3% at December 31, 2007.
The average cost of interest-bearing deposits for the three months ended March 31, 2008 and 2007 was 4.33% and 4.66%, respectively. This decrease in our average cost of interest-bearing deposits is attributable to the overall decrease
in interest rates resulting from the actions by the Federal Reserve to decrease short-term rates. Existing certificates of deposit during the first quarter of 2008 continued to roll down to current market rates.
Borrowings
We use borrowings to supplement deposits when they are
available at a lower overall cost than is available from retail deposits and to assist in asset liability management.
Subordinated debt totaled $7.2
million as of March 31, 2007 and 2006. $5.2 million in subordinated debt was issued in September 2006. The subordinated debt issued in September 2006 may be included in Tier 1 capital for regulatory adequacy determination purposes up to 25% of
Tier 1 capital after its inclusion. The securities have a LIBOR-indexed rate of interest (three-month LIBOR plus 1.70%) which adjust, and is payable quarterly. The interest rate at March 31, 2008 and 2007 was 4.50% and 7.05%, respectively. The
portion of subordinated debt not considered as Tier 1 capital may be included in Tier 2 capital. The $2.0 million in subordinated debt issued in December 2005, qualifies as Tier 2 capital only and carries a fixed rate of 6.33%.
As of March 31, 2008, the Company had borrowed $50.0 million from the FHLB, an increase of $10.0 million from December 31, 2007. The advances have an average
interest rate of 3.76% and are callable in one to five years with a final maturity of ten years. The proceeds were used to fund loan growth. The FHLB advances are secured by our residential and commercial mortgage loans and the pledge of our FHLB
stock.
We have $2.6 million outstanding under securities sold under repurchase agreements as of March 31, 2008 and $2.1 million at December 31,
2007. These agreements are generally corporate cash management accounts for our larger corporate depositors. These agreements are settled on a daily basis and the securities underlying the agreements remain under the banks control.
Capital Resources
Stockholders equity at March 31,
2008 was $35.4 million or 9.01% of assets, compared to $34.9 million at December 31, 2007. The $516 thousand increase in equity during the first three months of 2008 was due to net income of $415 thousand, the impact of the change in valuation
of other comprehensive income of $61 thousand and equity addition resulting from stock-based compensation of $40 thousand.
The Banks current capital
position meets the definition of a well-capitalized institution. The following table presents the capital ratios at the dates indicated:
17
Capital Ratios
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
|
December 31,
2007
|
|
|
Well
Capitalized
Requirement
|
|
Capital ratios
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital ratio
|
|
11.91
|
%
|
|
12.98
|
%
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
|
|
13.32
|
%
|
|
14.44
|
%
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio
|
|
10.93
|
%
|
|
12.50
|
%
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
Off Balance Sheet Arrangements and Commitments
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, 2008
and December 31, 2007, pre-approved but unused lines of credit for loans totaled approximately $140.2 million and $138.6 million, respectively. In addition, we had $8.8 million in financial and performance standby letters of credit at
March 31, 2008 and December 31, 2007, respectively. 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.
Liquidity
Liquidity provides the Company with the ability to meet normal deposit withdrawals, while also providing for the credit needs of our customers. We are 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, 2008, cash and cash equivalents totaled $21.5 million.
Investment securities available for sale and not pledged totaled $16.1 million, for a total of 13.0% of total assets, which we believe is adequate to meet short-term liquidity needs. Management also has alternative sources of funding available,
including lines of credit, purchase of federal funds, term loans through the Federal Home Loan Bank and correspondent banks.
Interest Rate Sensitivity
The most important element of asset/liability management is the monitoring of our sensitivity to interest rate movements. Our income stream is subject
to risk resulting from interest rate fluctuations to the extent there is a difference between the amount of our interest earning assets and the amount of interest bearing liabilities that are prepaid, mature or reprice in specific periods. Our goal
is to maximize net interest income within acceptable levels of risk to changes in interest rates. We seek to meet this goal by influencing the maturity and re-pricing characteristics of the various lending and deposit taking lines of business and by
managing discretionary balance sheet asset and liability portfolios.
The data in the following table reflects repricing or expected maturities of various
assets and liabilities at March 31, 2008. The gap analysis represents the difference between interest-sensitive assets and liabilities in a specific time interval. Interest sensitivity gap analysis presents a position that existed at one
particular point in time, and assumes that assets and liabilities with similar repricing characteristics will reprice at the same time and to the same degree.
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
1 to 90
Days
|
|
|
90 Days
to 1 Year
|
|
|
1 to 3
Years
|
|
|
3 to 5
Years
|
|
|
Over 5
Years
|
|
|
Total
|
|
|
(Dollars in thousands)
|
Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
$
|
129,409
|
|
|
$
|
18,050
|
|
|
$
|
59,875
|
|
|
$
|
79,301
|
|
|
$
|
30,778
|
|
|
$
|
317,413
|
Investment securities
|
|
|
3,579
|
|
|
|
1,650
|
|
|
|
2,735
|
|
|
|
386
|
|
|
|
24,658
|
|
|
|
33,008
|
Federal funds sold
|
|
|
13,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rate sensitive assets
|
|
$
|
146,265
|
|
|
$
|
19,700
|
|
|
$
|
62,610
|
|
|
$
|
79,687
|
|
|
$
|
55,436
|
|
|
$
|
363,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative totals
|
|
|
146,265
|
|
|
|
165,965
|
|
|
|
228,575
|
|
|
|
308,262
|
|
|
|
363,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
$
|
|
|
|
$
|
4,710
|
|
|
$
|
4,517
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,227
|
Money market accounts
|
|
|
31,235
|
|
|
|
8,500
|
|
|
|
6,891
|
|
|
|
|
|
|
|
|
|
|
|
46,626
|
Savings deposits
|
|
|
|
|
|
|
|
|
|
|
596
|
|
|
|
|
|
|
|
|
|
|
|
596
|
Certificates of deposit
|
|
|
32,143
|
|
|
|
119,664
|
|
|
|
30,817
|
|
|
|
19,726
|
|
|
|
|
|
|
|
202,350
|
FHLB borrowing and subordinated debt
|
|
|
10,155
|
|
|
|
35,000
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
57,155
|
Other liabilities
|
|
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rate sensitive liabilities
|
|
$
|
76,117
|
|
|
$
|
167,874
|
|
|
$
|
54,821
|
|
|
$
|
19,726
|
|
|
$
|
|
|
|
$
|
318,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative totals
|
|
|
76,117
|
|
|
|
243,991
|
|
|
|
298,812
|
|
|
|
318,538
|
|
|
|
318,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest sensitivity gap
|
|
$
|
70,148
|
|
|
$
|
(148,174
|
)
|
|
$
|
7,789
|
|
|
$
|
59,961
|
|
|
$
|
55,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest sensitivity gap
|
|
|
70,148
|
|
|
|
(78,026
|
)
|
|
|
(70,237
|
)
|
|
|
(10,276
|
)
|
|
|
45,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest sensitive gap as a percentage of earning assets
|
|
|
19.3
|
%
|
|
|
-21.5
|
%
|
|
|
-19.3
|
%
|
|
|
-2.8
|
%
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of inflation and changing prices and seasonality
The financial statements in this document have been prepared in accordance with accounting principles generally accepted in the United States of America which require the
measurement of financial position and operating results in terms of historical dollars, without consideration of changes in the relative purchasing power of money over time due to inflation.
Unlike industrial companies, most of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant
impact on a financial institutions performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, since such prices are
affected by inflation.
Item 3.
|
Controls and Procedures
|
Evaluation of
Disclosure Controls and Procedures
Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-QSB,
the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended, (the Exchange Act)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
19
Changes in Internal Controls
There were no significant changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART II OTHER INFORMATION
|
Item 1.
|
Legal Proceedings None to report
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds Not Applicable
|
|
Item 3.
|
Defaults Upon Senior Securities Not Applicable
|
|
Item 4.
|
Submission of Matters to a Vote of Security Holders None to report
|
|
Item 5.
|
Other Information None to report
|
|
|
|
Exhibit No.
|
|
Description of Exhibit
|
3.1
|
|
Articles of Incorporation of First Capital Bancorp, Inc.
(1)
|
|
|
3.2
|
|
Bylaws of First Capital Bancorp, Inc.
(1)
|
|
|
31.1
|
|
Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 9, 2008.
|
|
|
31.2
|
|
Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 9, 2008.
|
|
|
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 9, 2008.
|
(1)
|
Expressly incorporated by reference from the Companys Report on Form 10-QSB filed with the Securities and Exchange
Commission on November 13, 2006. The Exhibit number set forth above corresponds to the exhibit number in such Form 10-QSB.
|
20
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, 2008
|
|
By:
|
|
/s/ Robert G. Watts, Jr.
|
|
|
|
|
Robert G. Watts, Jr.
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
By:
|
|
/s/ William W. Ranson
|
|
|
|
|
William W. Ranson
|
|
|
|
|
Chief Financial Officer, Treasurer and Secretary
|
21
Index of Exhibits
|
|
|
Exhibit No.
|
|
Description of Exhibit
|
3.1
|
|
Articles of Incorporation of First Capital Bancorp, Inc.
(1)
|
|
|
3.2
|
|
Bylaws of First Capital Bancorp, Inc.
(1)
|
|
|
31.1
|
|
Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 14, 2007.
|
|
|
31.2
|
|
Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 14, 2007.
|
|
|
32
|
|
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 14, 2007.
|
(1)
|
Expressly incorporated by reference from the Companys Report on Form 10-QSB filed with the Securities and Exchange
Commission on November 13, 2006. The Exhibit number set forth above corresponds to the exhibit number in such Form 10-QSB.
|
22
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