Notes to Unaudited Consolidated Financial Statements
September 30, 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 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.
The Company conducts all of its business activities through the branch
offices of its wholly owned subsidiary bank, First Capital Bank. First Capital Bank created RE1, LLC, and RE2, LLC, wholly owned Virginia limited liability companies in 2008 and 2011 respectively, for the sole purpose of taking title to property
acquired in lieu of foreclosure. RE1, LLC and RE2, LLC have been consolidated with First Capital Bank. The Company exists primarily for the purpose of holding the stock of the Bank, and such other subsidiaries as it may acquire or establish.
The Company has one other wholly owned subsidiary, FCRV Statutory Trust 1 (the Trust), a Delaware Business Trust that was formed
in connection with the issuance of trust preferred debt in September, 2006. Pursuant to current accounting standards, the Company does not consolidate the Trust.
In managements opinion the accompanying unaudited consolidated financial statements, reflect all adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the
financial information as of September 30, 2012 and December 31, 2011 and for the three and nine month periods ended September 30, 2012 and 2011, in conformity with accounting principles generally accepted in the United States of
America. Results for the three and nine month periods ended September 30, 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 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, 2011 filed as part of the Companys annual report on Form 10-K. These interim financial statements should be read in conjunction with the annual financial statements.
First Capital Banks critical accounting policies relate to the evaluation of the allowance for loan losses and establishment of fair
value of financial instruments.
The evaluation of the allowance for loan losses is based on managements opinion of an amount that is
adequate to absorb probable losses inherent in the Banks existing portfolio. The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting:
(i) ASC 450 Contingencies, which requires that losses be accrued when occurrence is probable and can be reasonably estimated, and (ii) ASC 310 Receivables, which requires that losses be accrued based on the differences between the value of
collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.
The Companys
allowance for loan losses is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to applicable GAAP. Managements estimate of
each homogenous pool component is based on certain observable
9
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; collateral values; loan volumes; geographic,
borrower and industry concentrations; seasoning of the loan portfolio; the findings of internal credit quality assessments and results from external bank regulatory examinations. These factors, as well as historical losses and current economic and
business conditions, are used in developing estimated loss factors used in the calculations.
Applicable GAAP requires that the impairment of
loans that have been separately identified for evaluation are measured based on the present value of expected future cash flows or, alternatively, the observable market price of the loans or the fair value of the collateral. However, for those loans
that are collateral dependent (that is, if repayment of those loans is expected to be provided solely by the underlying collateral) and for which management has determined foreclosure is probable, the measure of impairment is to be based on the net
realizable value of the collateral. This statement also requires certain disclosures about investments in impaired loans and the allowance for loan losses and interest income recognized on impaired loans.
Reserves for commercial loans are determined by applying estimated loss factors to the portfolio based on historical loss experience and
managements evaluation and risk grading of the commercial loan portfolio. Reserves are provided for noncommercial loan categories using historical loss factors applied to the total outstanding loan balance of each loan category.
Additionally, environmental factors based on national and local economic conditions, as well as portfolio-specific attributes, are considered in estimating the allowance for loan losses.
While management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if future economic conditions differ substantially
from the assumptions used in making the valuations or, if required by regulators, based upon information available to them at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these
factors and other relevant considerations indicate that loss levels may vary from previous estimates.
Securities available for sale and
certain mortgage loans held for sale, are recorded at fair value on a recurring basis. From time to time, certain assets, consisting primarily of other real estate owned and impaired loans, may be recorded at fair value on a non-recurring basis.
These non-recurring fair value adjustments typically are a result of the application of lower of cost or fair value accounting or a write-down occurring during the period. For example, if the fair value of an asset in these categories falls below
its cost basis, it is considered to be at fair value at the end of the period of the adjustment. In periods where there is no adjustment, the asset is generally not considered to be at fair value. Management believes this is a critical accounting
policy because the estimation of fair value involves a high degree of complexity and requires us to make subjective judgments that often require assumptions or estimates about various matters.
The consolidated financial statements include the accounts of First Capital Bancorp, Inc. and its wholly owned subsidiary. All material intercompany
balances and transactions have been eliminated.
10
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
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.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses. The estimation
process may include management obtaining independent appraisals for significant collateral properties, but the ultimate collectability and recovery of carrying amounts are susceptible to changes in the local real estate market and other local
economic conditions.
Management uses available information to recognize losses on loans; future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for losses on loans. Such agencies may require the Bank to recognize
additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowance for losses on loans may change in the near term.
Note 3 Income (Loss) 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 income (loss) per share calculations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
(dollars shown in thousands,
except per share amounts)
|
|
|
Nine Months
Ended
September 30,
(dollars shown in thousands,
except per share amounts)
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
Net income (loss) allocable to common stockholders
|
|
$
|
743
|
|
|
$
|
(2,762
|
)
|
|
$
|
(7,058
|
)
|
|
$
|
(3,991
|
)
|
Weighted average number of shares outstanding
|
|
|
11,885
|
|
|
|
2,971
|
|
|
|
7,623
|
|
|
|
2,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share - basic
|
|
$
|
0.06
|
|
|
$
|
(0.93
|
)
|
|
$
|
(0.93
|
)
|
|
$
|
(1.34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
11,885
|
|
|
|
2,971
|
|
|
|
7,623
|
|
|
|
2,971
|
|
Effect of stock options and warrants
|
|
|
664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average common shares outstanding
|
|
|
12,549
|
|
|
|
2,971
|
|
|
|
7,623
|
|
|
|
2,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share - assuming dilution
|
|
$
|
0.06
|
|
|
$
|
(0.93
|
)
|
|
$
|
(0.93
|
)
|
|
$
|
(1.34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has excluded options and warrants convertible into 596 thousand and 5.1 million shares of common
stock for the three and nine months ended September 30, 2012, respectively and options and warrants convertible into 472 thousand and 439 thousand shares of common stock for the three and nine months ended September 30, 2011,
respectively from the calculation of diluted earnings per share because they were anti-dilutive in all periods except for the three months ended September 30, 2012 due to net losses in those periods.
11
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
During the second quarter of 2012, the Company raised approximately $17.8 million, net of fees and
costs, through a rights offering. As a result of the rights offering, approximately 8.9 million shares of common stock were issued. Consequently, the weighted average number of shares of common stock increased from 3.0 million shares for
the quarter ended September 30, 2011 to 11.9 million shares for the quarter ended September 30, 2012. In connection with the rights offering, the Company distributed 8.9 million warrants to purchase one-half of a share of common
stock for $2.00 per whole share.
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.
Stock options covering a total of 5,000 shares were granted during
August 2012. These shares vested immediately and the Company expensed the compensation cost in the third quarter of 2012.
Options covering a
total of 2,500 shares were granted in May 2011. These shares vested immediately and the Company expensed the compensation cost in the second quarter of 2011. In the first quarter of 2011, options covering a total of 130,500 shares were granted.
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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Third Qtr
|
|
|
Second Qtr
|
|
|
First Qtr
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected life in years
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
Expected volatility
|
|
|
59.80
|
%
|
|
|
51.77
|
%
|
|
|
51.77
|
%
|
Risk-free interest rate
|
|
|
0.71
|
%
|
|
|
2.54
|
%
|
|
|
2.87
|
%
|
Weighted average fair value per option granted
|
|
$
|
0.88
|
|
|
$
|
1.45
|
|
|
$
|
1.35
|
|
The stock based compensation, in thousands, expensed during the three and nine months ended September 30, 2012 was
$34 thousand and $90 thousand, respectively, and expensed during the three and nine months ended September 30, 2011 was $36 thousand and $95 thousand, respectively. Expensed amounts are included in salaries and employee benefits.
12
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
Note 5 Investment Securities
The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Costs
|
|
|
Gains
|
|
|
Losses
|
|
|
Values
|
|
|
|
(Dollars in thousands)
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
999
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
997
|
|
Mortgage-backed securities
|
|
|
11,598
|
|
|
|
578
|
|
|
|
|
|
|
|
12,176
|
|
Corporate bonds
|
|
|
16,774
|
|
|
|
106
|
|
|
|
220
|
|
|
|
16,660
|
|
CMO securities
|
|
|
39,365
|
|
|
|
1,048
|
|
|
|
13
|
|
|
|
40,400
|
|
State and political subdivisions - taxable
|
|
|
11,043
|
|
|
|
717
|
|
|
|
11
|
|
|
|
11,749
|
|
State and political subdivisions - tax exempt
|
|
|
3,142
|
|
|
|
180
|
|
|
|
|
|
|
|
3,322
|
|
SBA - Guarantee portion
|
|
|
1,354
|
|
|
|
39
|
|
|
|
|
|
|
|
1,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84,275
|
|
|
$
|
2,668
|
|
|
$
|
246
|
|
|
$
|
86,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Costs
|
|
|
Gains
|
|
|
Losses
|
|
|
Values
|
|
|
|
(Dollars in thousands)
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt municipal bonds
|
|
$
|
2,881
|
|
|
$
|
358
|
|
|
$
|
|
|
|
$
|
3,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,881
|
|
|
$
|
358
|
|
|
$
|
|
|
|
$
|
3,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
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 securitys 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, managements 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. Managements assessment for the current
quarter ended September 30, 2012 resulted in no recognition of OTTI.
The following table details unrealized losses and related fair
values in the Companys 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 September 30, 2012, 12 out of 126 securities we
held had fair values less than amortized cost primarily in municipal securities and corporate bonds. At December 31, 2011, 15 out of 123 securities we held had fair values less than amortized cost exclusively in 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 September 30, 2012 and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
997
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
997
|
|
|
$
|
2
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
1,917
|
|
|
|
80
|
|
|
|
4,358
|
|
|
|
140
|
|
|
|
6,275
|
|
|
|
220
|
|
CMO securities
|
|
|
754
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
754
|
|
|
|
13
|
|
State & political subdivisions-taxable
|
|
|
1,280
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
1,280
|
|
|
|
11
|
|
State & political subdivisions-tax exempt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All securities
|
|
$
|
4,948
|
|
|
$
|
106
|
|
|
$
|
4,358
|
|
|
$
|
140
|
|
|
$
|
9,306
|
|
|
$
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
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 $1.9 million
and $3.2 million as of September 30, 2012 and December 31, 2011, respectively, and Federal Reserve Bank stock in the amount of $1.5 million and $1.3 million at September 30, 2012 and December 31, 2011, respectively. 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 members 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.
Securities with a market value of
approximately $939 thousand and $1.6 million were pledged as collateral at September 30, 2012 and December 31, 2011, respectively, to secure purchases of federal funds, repurchase agreements, and collateral for customers deposits.
Note 6 Loans
Major
classifications of loans are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
132,553
|
|
|
$
|
127,541
|
|
Commercial
|
|
|
148,330
|
|
|
|
142,989
|
|
Residential Construction
|
|
|
9,648
|
|
|
|
9,712
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
35,525
|
|
|
|
48,637
|
|
Commercial
|
|
|
38,143
|
|
|
|
37,922
|
|
Consumer
|
|
|
2,386
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
366,585
|
|
|
|
370,051
|
|
Less:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
7,208
|
|
|
|
9,271
|
|
Net deferred costs
|
|
|
167
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
359,544
|
|
|
$
|
360,969
|
|
|
|
|
|
|
|
|
|
|
15
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
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 Banks 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 Banks 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 Banks 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 changed significantly over the past several years as fewer construction loans have been made during the economic downtown. These loans
are located in the Banks normal lending area.
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 nine months ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Balance, beginning of period
|
|
$
|
9,271
|
|
|
$
|
11,036
|
|
Provision for loan losses
|
|
|
9,031
|
|
|
|
8,572
|
|
Recoveries
|
|
|
338
|
|
|
|
845
|
|
Charge-offs
|
|
|
(11,432
|
)
|
|
|
(11,427
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
7,208
|
|
|
$
|
9,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses as a percent of loans outstanding at the end of the period
|
|
|
1.97
|
%
|
|
|
2.42
|
%
|
|
|
|
|
|
|
|
|
|
16
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
The following table presents activity in the allowance for loan losses by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
Residential
Construction
|
|
|
Other
Construction
Land Devel.
& Other
Land
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Balance, July 1, 2012
|
|
$
|
2,580
|
|
|
$
|
3,156
|
|
|
$
|
203
|
|
|
$
|
477
|
|
|
$
|
816
|
|
|
$
|
21
|
|
|
$
|
7,253
|
|
Provision for loan losses
|
|
|
62
|
|
|
|
(21
|
)
|
|
|
(2
|
)
|
|
|
284
|
|
|
|
(163
|
)
|
|
|
(4
|
)
|
|
|
156
|
|
Recoveries
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
239
|
|
Charge-offs
|
|
|
(144
|
)
|
|
|
|
|
|
|
|
|
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2012
|
|
$
|
2,628
|
|
|
$
|
3,135
|
|
|
$
|
201
|
|
|
$
|
465
|
|
|
$
|
762
|
|
|
$
|
17
|
|
|
$
|
7,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 1, 2011
|
|
$
|
3,555
|
|
|
$
|
1,097
|
|
|
$
|
655
|
|
|
$
|
2,957
|
|
|
$
|
1,868
|
|
|
$
|
21
|
|
|
$
|
10,153
|
|
Provision for loan losses
|
|
|
1,748
|
|
|
|
428
|
|
|
|
537
|
|
|
|
2,012
|
|
|
|
|
|
|
|
|
|
|
|
4,725
|
|
Recoveries
|
|
|
4
|
|
|
|
|
|
|
|
13
|
|
|
|
8
|
|
|
|
2
|
|
|
|
|
|
|
|
27
|
|
Charge-offs
|
|
|
(1,715
|
)
|
|
|
(150
|
)
|
|
|
(109
|
)
|
|
|
(3,618
|
)
|
|
|
(287
|
)
|
|
|
|
|
|
|
(5,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2011
|
|
$
|
3,592
|
|
|
$
|
1,375
|
|
|
$
|
1,096
|
|
|
$
|
1,359
|
|
|
$
|
1,583
|
|
|
$
|
21
|
|
|
$
|
9,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
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
|
|
|
1,301
|
|
|
|
4,262
|
|
|
|
969
|
|
|
|
2,138
|
|
|
|
365
|
|
|
|
(4
|
)
|
|
|
9,031
|
|
Recoveries
|
|
|
134
|
|
|
|
78
|
|
|
|
|
|
|
|
17
|
|
|
|
109
|
|
|
|
|
|
|
|
338
|
|
Charge-offs
|
|
|
(2,487
|
)
|
|
|
(2,580
|
)
|
|
|
(1,418
|
)
|
|
|
(3,865
|
)
|
|
|
(1,082
|
)
|
|
|
|
|
|
|
(11,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2012
|
|
$
|
2,628
|
|
|
$
|
3,135
|
|
|
$
|
201
|
|
|
$
|
465
|
|
|
$
|
762
|
|
|
$
|
17
|
|
|
$
|
7,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2011
|
|
$
|
3,431
|
|
|
$
|
760
|
|
|
$
|
494
|
|
|
$
|
4,299
|
|
|
$
|
2,031
|
|
|
$
|
21
|
|
|
$
|
11,036
|
|
Provision for loan losses
|
|
|
2,910
|
|
|
|
828
|
|
|
|
937
|
|
|
|
2,875
|
|
|
|
1,022
|
|
|
|
|
|
|
|
8,572
|
|
Recoveries
|
|
|
17
|
|
|
|
|
|
|
|
13
|
|
|
|
808
|
|
|
|
7
|
|
|
|
|
|
|
|
845
|
|
Charge-offs
|
|
|
(2,766
|
)
|
|
|
(213
|
)
|
|
|
(348
|
)
|
|
|
(6,623
|
)
|
|
|
(1,477
|
)
|
|
|
|
|
|
|
(11,427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2011
|
|
$
|
3,592
|
|
|
$
|
1,375
|
|
|
$
|
1,096
|
|
|
$
|
1,359
|
|
|
$
|
1,583
|
|
|
$
|
21
|
|
|
$
|
9,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
17
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
The following table presents the aging of unpaid principal in loans as of September 30, 2012 and
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
30-89 Day
Past Due
|
|
|
90+ Days
Past Due
and Accruing
|
|
|
Nonaccrual
|
|
|
Current
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
293
|
|
|
$
|
|
|
|
$
|
2,155
|
|
|
$
|
130,105
|
|
|
$
|
132,553
|
|
Commercial
|
|
|
1,452
|
|
|
|
|
|
|
|
1,029
|
|
|
|
145,849
|
|
|
|
148,330
|
|
Residential Construction
|
|
|
366
|
|
|
|
|
|
|
|
1,386
|
|
|
|
7,896
|
|
|
|
9,648
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
|
|
|
|
|
|
|
|
4,088
|
|
|
|
31,437
|
|
|
|
35,525
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
621
|
|
|
|
37,522
|
|
|
|
38,143
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,386
|
|
|
|
2,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,111
|
|
|
$
|
|
|
|
$
|
9,279
|
|
|
$
|
355,195
|
|
|
$
|
366,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 is 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.
18
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
The following table provides details of the Companys loan portfolio internally assigned grade at
September 30, 2012 and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
119,916
|
|
|
$
|
8,813
|
|
|
$
|
3,824
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
132,553
|
|
Commercial
|
|
|
125,184
|
|
|
|
19,235
|
|
|
|
3,911
|
|
|
|
|
|
|
|
|
|
|
|
148,330
|
|
Residential Construction
|
|
|
2,893
|
|
|
|
3,816
|
|
|
|
2,939
|
|
|
|
|
|
|
|
|
|
|
|
9,648
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
13,202
|
|
|
|
12,729
|
|
|
|
9,594
|
|
|
|
|
|
|
|
|
|
|
|
35,525
|
|
Commercial
|
|
|
35,101
|
|
|
|
1,853
|
|
|
|
1,189
|
|
|
|
|
|
|
|
|
|
|
|
38,143
|
|
Consumer
|
|
|
2,207
|
|
|
|
100
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
2,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
298,503
|
|
|
$
|
46,546
|
|
|
$
|
21,536
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
366,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
19,460
|
|
|
|
14,551
|
|
|
|
14,626
|
|
|
|
|
|
|
|
|
|
|
|
48,637
|
|
Commercial
|
|
|
33,084
|
|
|
|
3,076
|
|
|
|
1,762
|
|
|
|
|
|
|
|
|
|
|
|
37,922
|
|
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 managements 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.
19
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 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 September 30, 2012 on September 18, 2012. The loan risk rankings were updated for the
year ended December 31, 2011 on December 13, 14, and 15, 2011.
The following table provides details regarding impaired loans by
segment and class at September 30, 2012 and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
|
(Dollars in thousands)
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
2,334
|
|
|
$
|
2,678
|
|
|
$
|
|
|
|
$
|
4,013
|
|
|
$
|
4,168
|
|
|
$
|
|
|
Commercial
|
|
|
1,029
|
|
|
|
3,878
|
|
|
|
|
|
|
|
291
|
|
|
|
303
|
|
|
|
|
|
Residential Construction
|
|
|
2,586
|
|
|
|
3,281
|
|
|
|
|
|
|
|
1,772
|
|
|
|
1,785
|
|
|
|
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
6,136
|
|
|
|
15,851
|
|
|
|
|
|
|
|
4,747
|
|
|
|
7,519
|
|
|
|
|
|
Commercial
|
|
|
621
|
|
|
|
1,345
|
|
|
|
|
|
|
|
294
|
|
|
|
300
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
707
|
|
|
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,706
|
|
|
$
|
27,033
|
|
|
$
|
|
|
|
$
|
11,824
|
|
|
$
|
14,782
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,580
|
|
|
$
|
3,619
|
|
|
$
|
787
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,618
|
|
|
|
3,336
|
|
|
|
818
|
|
Residential Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,659
|
|
|
|
4,969
|
|
|
|
1,450
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
821
|
|
|
|
848
|
|
|
|
250
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,678
|
|
|
$
|
12,772
|
|
|
$
|
3,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
2,334
|
|
|
$
|
2,678
|
|
|
$
|
|
|
|
$
|
6,593
|
|
|
$
|
7,787
|
|
|
$
|
787
|
|
Commercial
|
|
|
1,029
|
|
|
|
3,878
|
|
|
|
|
|
|
|
2,909
|
|
|
|
3,639
|
|
|
|
818
|
|
Residential Construction
|
|
|
2,586
|
|
|
|
3,281
|
|
|
|
|
|
|
|
1,772
|
|
|
|
1,785
|
|
|
|
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
6,136
|
|
|
|
15,851
|
|
|
|
|
|
|
|
9,406
|
|
|
|
12,488
|
|
|
|
1,450
|
|
Commercial
|
|
|
621
|
|
|
|
1,345
|
|
|
|
|
|
|
|
1,115
|
|
|
|
1,148
|
|
|
|
250
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
707
|
|
|
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,706
|
|
|
$
|
27,033
|
|
|
$
|
|
|
|
$
|
22,502
|
|
|
$
|
27,554
|
|
|
$
|
3,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
Residential
Construction
|
|
|
Other
Construction,
Land Devel.
& Other
Land
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Collectively
|
|
|
2,628
|
|
|
|
3,135
|
|
|
|
201
|
|
|
|
465
|
|
|
|
762
|
|
|
|
17
|
|
|
|
7,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance
|
|
$
|
2,628
|
|
|
$
|
3,135
|
|
|
$
|
201
|
|
|
$
|
465
|
|
|
$
|
762
|
|
|
$
|
17
|
|
|
$
|
7,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
2,334
|
|
|
$
|
1,029
|
|
|
$
|
2,586
|
|
|
$
|
6,136
|
|
|
$
|
621
|
|
|
$
|
|
|
|
$
|
12,706
|
|
Collectively
|
|
|
130,219
|
|
|
|
147,301
|
|
|
|
7,062
|
|
|
|
29,389
|
|
|
|
37,522
|
|
|
|
2,386
|
|
|
|
353,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans
|
|
$
|
132,553
|
|
|
$
|
148,330
|
|
|
$
|
9,648
|
|
|
$
|
35,525
|
|
|
$
|
38,143
|
|
|
$
|
2,386
|
|
|
$
|
366,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, managements policy is generally to evaluate only those substandard 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 borrowers 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 loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The
following tables present interest income recognized and the average recorded investment of impaired loans.
21
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2012
|
|
|
September 30, 2012
|
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
13
|
|
|
$
|
2,460
|
|
|
$
|
34
|
|
|
$
|
3,959
|
|
Commercial
|
|
|
19
|
|
|
|
1,152
|
|
|
|
39
|
|
|
|
1,935
|
|
Residential Construction
|
|
|
22
|
|
|
|
2,612
|
|
|
|
63
|
|
|
|
2,346
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
23
|
|
|
|
6,405
|
|
|
|
186
|
|
|
|
7,630
|
|
Commercial
|
|
|
3
|
|
|
|
751
|
|
|
|
|
|
|
|
851
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
80
|
|
|
$
|
13,380
|
|
|
$
|
322
|
|
|
$
|
17,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2011
|
|
|
September 30, 2011
|
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
143
|
|
|
$
|
6,052
|
|
|
$
|
297
|
|
|
$
|
6,055
|
|
Commercial
|
|
|
34
|
|
|
|
2,988
|
|
|
|
54
|
|
|
|
2,988
|
|
Residential Construction
|
|
|
13
|
|
|
|
1,180
|
|
|
|
40
|
|
|
|
1,306
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
377
|
|
|
|
11,773
|
|
|
|
708
|
|
|
|
11,776
|
|
Commercial
|
|
|
33
|
|
|
|
1,297
|
|
|
|
70
|
|
|
|
1,308
|
|
Consumer
|
|
|
4
|
|
|
|
707
|
|
|
|
4
|
|
|
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
604
|
|
|
$
|
23,997
|
|
|
$
|
1,173
|
|
|
$
|
24,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 then 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
22
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
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 September 30, 2012 and December 31, 2011, there were no available commitments outstanding for troubled debt restructurings.
The following tables present troubled debt restructurings as of September 30, 2012 and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Total
Number
of Contracts
|
|
|
Accrual
Status
|
|
|
Nonaccrual
Status
|
|
|
Total
Modifications
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1
|
|
|
$
|
180
|
|
|
$
|
|
|
|
$
|
180
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction
|
|
|
1
|
|
|
|
1,200
|
|
|
|
|
|
|
|
1,200
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
4
|
|
|
|
2,047
|
|
|
|
228
|
|
|
|
2,275
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6
|
|
|
$
|
3,427
|
|
|
$
|
228
|
|
|
$
|
3,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys 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 Companys 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 or nine months ended September 30, 2012. The following tables present newly restructured loans that occurred during the three and nine months ended September 30, 2011 of which all loans presented the same outstanding
recorded investment both pre-modification and post modification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2011
|
|
|
|
Number of
Contracts
|
|
|
Rate
Modifications
|
|
|
Term
Modifications
|
|
|
Interest Only
Modifications
|
|
|
Payment
Modifications
|
|
|
Combination
Modifications
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
107
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
107
|
|
|
$
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2011
|
|
|
|
Number of
Contracts
|
|
|
Rate
Modifications
|
|
|
Term
Modifications
|
|
|
Interest Only
Modifications
|
|
|
Payment
Modifications
|
|
|
Combination
Modifications
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,307
|
|
|
|
2,307
|
|
Other Construction, Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Other Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,307
|
|
|
$
|
2,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables represent 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 and nine month periods ended September 30, 2012 or 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2012
|
|
|
Three Months Ended
September 30, 2011
|
|
|
|
Number
of Contracts
|
|
|
Recorded
Investment
|
|
|
Number
of Contracts
|
|
|
Recorded
Investment
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Construction, Land Development & Other Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2012
|
|
|
Nine Months Ended
September 30, 2011
|
|
|
|
Number
of Contracts
|
|
|
Recorded
Investment
|
|
|
Number
of Contracts
|
|
|
Recorded
Investment
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1
|
|
|
$
|
286
|
|
|
|
|
|
|
$
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Construction, Land Development & Other Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
286
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
Note 7 Other Real Estate Owned
Changes in other real estate owned were as follows for the nine months ended September 30, 2012 and 2011 in thousands:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Beginning Balance
|
|
$
|
7,646
|
|
|
$
|
2,615
|
|
Additions
|
|
|
174
|
|
|
|
7,317
|
|
Sales
|
|
|
(1,705
|
)
|
|
|
(1,196
|
)
|
Write-downs
|
|
|
(1,613
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
4,502
|
|
|
$
|
8,536
|
|
|
|
|
|
|
|
|
|
|
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 Companys 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 this range is most representative of fair value under current market
conditions.
Fair Value Hierarchy
In accordance with this guidance, we group financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded
and the reliability of the assumptions used to determine the fair value.
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.
26
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
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 months 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 September 30, 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 no ability to sell these securities except when the FHLB or FRB require redemption based on either our borrowings at the FHLB, or in the case of the FRB changes
in certain portions of our capital.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Fair Value Measurements Using
|
|
|
Fair
Values
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
|
|
|
$
|
86,697
|
|
|
$
|
|
|
|
$
|
86,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
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 an 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.
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 amortized cost. 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 months 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.
28
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
The following tables summarize our financial assets that were measured at fair value on a nonrecurring
basis during the periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Fair Value Measurements Using
|
|
|
Fair
Values
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
(Dollars in thousands)
|
|
Impaired loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,706
|
|
|
$
|
12,706
|
|
Loans held for sale
|
|
|
|
|
|
|
6,563
|
|
|
|
|
|
|
|
6,563
|
|
Held-to-maturity securities
|
|
|
|
|
|
|
3,239
|
|
|
|
|
|
|
|
3,239
|
|
Other real estate owned
|
|
|
|
|
|
|
|
|
|
|
4,502
|
|
|
|
4,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
9,802
|
|
|
$
|
17,208
|
|
|
$
|
27,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
3,116
|
|
|
|
|
|
|
|
3,116
|
|
Other real estate owned
|
|
|
|
|
|
|
|
|
|
|
7,646
|
|
|
|
7,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
4,482
|
|
|
$
|
26,843
|
|
|
$
|
31,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, the fair value reflects the Companys assumptions about what market participants would use and information that is reasonably available under
the circumstances without undue cost or effort (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
29
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
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 September 30, 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 September 30, 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.
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 September 30, 2012 and December 31, 2011.
30
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
The estimated fair values of the Companys financial instruments as of September 30, 2012 and
December 31, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
|
(Dollars in thousands)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,452
|
|
|
$
|
33,452
|
|
|
$
|
50,359
|
|
|
$
|
50,359
|
|
Investment securities
|
|
|
89,578
|
|
|
|
89,936
|
|
|
|
86,919
|
|
|
|
87,151
|
|
Loans receivable, net
|
|
|
359,544
|
|
|
|
373,372
|
|
|
|
360,969
|
|
|
|
369,843
|
|
Loans held for sale
|
|
|
6,563
|
|
|
|
6,563
|
|
|
|
1,366
|
|
|
|
1,373
|
|
Accrued interest
|
|
|
1,837
|
|
|
|
1,837
|
|
|
|
1,689
|
|
|
|
1,689
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
447,305
|
|
|
$
|
457,446
|
|
|
$
|
440,199
|
|
|
$
|
446,429
|
|
FHLB advances
|
|
|
25,000
|
|
|
|
25,682
|
|
|
|
50,000
|
|
|
|
53,496
|
|
Subordinated debt
|
|
|
7,155
|
|
|
|
3,775
|
|
|
|
7,155
|
|
|
|
3,600
|
|
Repurchase agreements
|
|
|
939
|
|
|
|
939
|
|
|
|
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 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 Companys 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 Companys consolidated
financial statements.
31
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
On December 23, 2011, the FASB issued ASU No. 2011-12, Comprehensive Income: Deferral of the
Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income. The ASU amends current guidance to allow a company to defer the new requirement to present components of reclassifications
of other comprehensive income on the face of the financial statements. Companies are still required to adopt the other requirements found in ASU 2011-05. The Company implemented the provisions of ASU No. 2011-05 by reporting comprehensive
income in a separate statement.
On July 27, 2012, the FASB issued ASU No. 2012-02, Intangibles Goodwill and Other (Topic
350): Testing Indefinite-Lived Intangible Assets for Impairment. The Update simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. The amendments allow an
organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. An organization electing to perform a qualitative assessment is no longer required to calculate the fair
value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is more likely than not that the asset is impaired. Under former guidance, an organization was required to test
an indefinite-lived intangible asset for impairment on at least an annual basis by comparing the fair value of the asset with its carrying amount. The ASU is effective for annual and interim impairment tests beginning on or after September 15,
2012. The Company has not implemented this ASU to date.
On October 23, 2012, the FASB issued ASU 2012-06, Business Combinations (Topic
805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. This update addresses how to interpret the terms
on the same basis
and
contractual limitations
when subsequently measuring an indemnification asset recognized in a government-assisted acquisition of a financial institution that includes a loss-sharing agreement. When a reporting entity recognizes an
indemnification asset and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs, the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the
same basis as the change in the assets subject to indemnification. The update should resolve the current diversity in practice on subsequent measurement. The ASU is effective for annual and interim periods beginning on or after December 15,
2012. The Company has not implemented this ASU to date.
Note 10 Redemption of TARP Preferred Stock
On June 14, 2012, the U. S. Department of the Treasury priced its secondary public offering of all 10,958 shares of the Preferred Stock. The Company
successfully bid for the purchase of 5,427 shares of the Preferred Stock for a total purchase price of $5.0 million, plus accrued and unpaid dividends on the Preferred Stock from and including May 15, 2012 to the settlement date, June 19,
2012. The book value of the Preferred Stock retired was $5.4 million. As a result of its successful bid in the offering, the Company retired 5,427 shares of its original 10,958 shares of Preferred Stock on June 19, 2012. None of the remaining
shares of the outstanding Preferred Stock are held by U. S. Treasury, though the common stock purchase warrants associated with the TARP program remain with the U. S. Treasury.
The repurchase of $5.4 million in stated value of the Preferred Stock at a discount of 8.0% (or an actual cost of $5.0 million) resulted in a one-time adjustment to capital totaling $5.4 million offset by
the accretion of $124 thousand in Preferred Stock Discount and expenses related to the transaction approximating $238 thousand. The result is a net decrease in capital of approximately $5.1 million.
32
First Capital Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 2012
As a result of our participation in the TARP program, among other things, the Company was subject to the
Treasurys current standards for executive compensation and corporate governance for the periods during which Treasury held the Preferred Shares, including the second quarter of 2012. These standards were most recently set forth in the Interim
Final Rule of TARP Standards for Compensation and Corporate Governance, published June 15, 2009. Because Treasury sold all of the Preferred Shares in the auction, these standards are no longer applicable.
The Preferred Shares have a $4.00 par value, with $1,000 liquidation preference. With 2,000,000 authorized shares, at September 30, 2012 and
December 31, 2011, there were 5,531 and 10,958 shares outstanding, respectively. In connection with the Preferred Shares, the Company has 251 thousand warrants to purchase one common share per warrant for $6.55 per share at
September 30, 2012.
Note 11 Common Stock
On May 11, 2012, the Company completed its rights offering and its offering of shares to a standby investor. Stockholders exercised subscription rights to purchase 4.0 million shares offered at
a subscription price of $2.00 per share, and Kenneth R. Lehman, a private investor from Arlington, Virginia, purchased 4.9 million shares at the subscription price of $2.00 per share. Each share purchased came with a warrant to purchase an
additional half share a $2.00 per whole share. In total, the Company raised gross proceeds of $17.8 million before expenses. The proceeds from the rights offering and the standby purchase were used to invest in the Companys subsidiary, First
Capital Bank, to bolster its regulatory capital ratios and for general corporate purposes.
The Common Stock has a $4.00 par value. With
30,000,000 authorized shares, at September 30, 2012 and December 31, 2011, there were 11,884,682 and 2,971,171 shares outstanding, respectively.
33
ITEM 2.
FIRST CAPITAL BANCORP, INC