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 September 30, 2006
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)
| Virginia | 000-52219 | 11-3782033 | ||
(State or other jurisdiction of Incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
4222 Cox Road, Suite 200, Glen Allen, Virginia 23060
(Address of principal executive offices)
804-273-1160
(Issuer’s 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 issuer’s classes of common equity, as of the latest practicable date:
1,796,021 shares of Common Stock, par value $4.00 per share, were outstanding at November 10, 2006.
Transitional Small Business Disclosure Format (check one) Yes ¨ No x
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PART 1 - FINANCIAL INFORMATION
First Capital Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
(Unaudited)
| September 30, 2006 | December 31, 2005 | |||||||
ASSETS | ||||||||
Cash & due from banks | $ | 4,766,041 | $ | 7,185,823 | ||||
Fed funds sold | 19,810,000 | — | ||||||
Short term debt securities | — | 2,995,800 | ||||||
Total cash & cash equivalents | 24,576,041 | 10,181,623 | ||||||
Investment securities: | ||||||||
Available for sale, at fair value | 37,316,298 | 39,621,418 | ||||||
Restricted, at cost | 1,939,750 | 1,595,267 | ||||||
Loans, net of allowance for losses | 181,452,902 | 154,601,518 | ||||||
Premises and equipment, net | 2,143,268 | 1,982,314 | ||||||
Accrued interest receivable | 1,070,181 | 1,100,887 | ||||||
Deferred tax asset | 244,487 | 272,216 | ||||||
Other assets | 551,353 | 173,565 | ||||||
Total assets | $ | 249,294,280 | $ | 209,528,808 | ||||
LIABILITIES | ||||||||
Deposits | ||||||||
Noninterest-bearing | $ | 31,791,391 | $ | 30,425,438 | ||||
Interest-bearing | 166,332,759 | 131,962,114 | ||||||
Total deposits | 198,124,150 | 162,387,552 | ||||||
Accrued expenses and other liabilities | 2,299,873 | 2,221,451 | ||||||
Securities sold under repurchase agreements | 1,508,037 | 680,191 | ||||||
Fed funds purchased | — | 10,270,000 | ||||||
Subordinated debt | 7,155,000 | 2,000,000 | ||||||
Federal Home Loan Bank advances | 25,000,000 | 18,000,000 | ||||||
Total liabilities | 234,087,060 | 195,559,194 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $4.00 par value (authorized 5,000,000 shares; shares issued and outstanding, 1,796,021 at September 30, 2006 and December 31, 2005) | 7,184,084 | 7,184,084 | ||||||
Additional paid-in capital | 6,006,158 | 6,004,655 | ||||||
Retained earnings | 2,387,334 | 1,205,058 | ||||||
Accumulated other comprehensive (loss), net of tax | (370,356 | ) | (424,183 | ) | ||||
Total stockholders’ equity | 15,207,220 | 13,969,614 | ||||||
Total liabilities and stockholders’ equity | $ | 249,294,280 | $ | 209,528,808 | ||||
See notes to consolidated financial statements.
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First Capital Bancorp Inc. and Subsidiary
Consolidated Statements of Income and Comprehensive Income
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||
Interest income | ||||||||||||||
Loans | $ | 3,487,726 | $ | 2,383,810 | $ | 9,540,174 | $ | 6,341,448 | ||||||
Investments | 440,323 | 381,341 | 1,337,458 | 1,018,616 | ||||||||||
Federal funds sold | 114,824 | 49,781 | 158,813 | 72,558 | ||||||||||
Total interest income | 4,042,873 | 2,814,932 | 11,036,445 | 7,432,622 | ||||||||||
Interest expense | ||||||||||||||
Deposits | 1,811,171 | 987,614 | 4,489,600 | 2,487,136 | ||||||||||
FHLB advances | 244,311 | 138,384 | 756,484 | 275,715 | ||||||||||
Federal funds purchased | — | 15,502 | 77,350 | 53,739 | ||||||||||
Subordinated debt and other borrowed money | 51,220 | 4,386 | 137,110 | 13,439 | ||||||||||
Total interest expense | 2,106,702 | 1,145,886 | 5,460,544 | 2,830,029 | ||||||||||
Net interest income | 1,936,171 | 1,669,046 | 5,575,901 | 4,602,593 | ||||||||||
Provision for loan loss | 55,000 | 106,000 | 284,300 | 287,874 | ||||||||||
Net interest income after provision for loan loss | 1,881,171 | 1,563,046 | 5,291,601 | 4,314,719 | ||||||||||
Noninterest income | ||||||||||||||
Loss on sale of securities | — | — | — | (11,660 | ) | |||||||||
Fees on deposits | 50,078 | 29,820 | 116,148 | 71,142 | ||||||||||
Other | 67,956 | 53,496 | 182,890 | 125,619 | ||||||||||
Total noninterest income | 118,034 | 83,316 | 299,038 | 185,101 | ||||||||||
Noninterest expenses | ||||||||||||||
Salaries and employee benefits | 713,482 | 541,182 | 1,849,496 | 1,463,502 | ||||||||||
Occupancy expense | 148,540 | 151,787 | 448,075 | 446,986 | ||||||||||
Data processing | 101,978 | 102,888 | 320,134 | 303,168 | ||||||||||
Other expenses | 301,834 | 235,841 | 841,227 | 630,992 | ||||||||||
Virginia capital stock tax | 39,500 | 33,000 | 114,000 | 96,472 | ||||||||||
Depreciation | 81,486 | 56,276 | 233,431 | 165,056 | ||||||||||
Total noninterest expense | 1,386,820 | 1,120,974 | 3,806,363 | 3,106,176 | ||||||||||
Net income before provision for income taxes | 612,385 | 525,388 | 1,784,276 | 1,393,644 | ||||||||||
Income tax expense | 208,000 | 177,000 | 602,000 | 468,900 | ||||||||||
Net income | 404,385 | 348,388 | 1,182,276 | 924,744 | ||||||||||
Net unrealized holding (loss) gain on available-for-sale securities, net of tax of $203,810 and $27,729 for the three and nine months ended September 30, 2006 and $(29,334) and $(57,115) for the three and nine months ended September 30, 2005 | 395,631 | (56,942 | ) | 53,827 | (110,871 | ) | ||||||||
Comprehensive income | $ | 800,016 | $ | 291,446 | $ | 1,236,103 | $ | 813,873 | ||||||
Basic income per share | $ | 0.23 | $ | 0.19 | $ | 0.66 | $ | 0.51 | ||||||
Diluted income per share | $ | 0.21 | $ | 0.19 | $ | 0.62 | $ | 0.50 | ||||||
| �� | ||||||||||||||
See notes to consolidated financial statements.
4
First Capital Bancorp, Inc. and Subsidiary
Consolidated Statements of Stockholders’ Equity
Nine Months Ended September 30, 2006 and 2005
(Unaudited)
| Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated) Deficit) | Accumulated Other Comprehensive (Loss) | Total Stockholders’ Equity | ||||||||||||||
Balance at January 1, 2005 | $ | 4,789,420 | $ | 8,399,319 | $ | (101,269 | ) | $ | (97,185 | ) | $ | 12,990,285 | ||||||
Comprehensive Results | ||||||||||||||||||
Net income | — | — | 924,744 | — | 924,744 | |||||||||||||
Other comprehensive loss | — | — | — | (110,871 | ) | (110,871 | ) | |||||||||||
Balance at September 30, 2005 | $ | 4,789,420 | $ | 8,399,319 | $ | 823,475 | $ | (208,056 | ) | $ | 13,804,158 | |||||||
Balance at January 1, 2006 | $ | 7,184,084 | $ | 6,004,655 | $ | 1,205,058 | $ | (424,183 | ) | $ | 13,969,614 | |||||||
Comprehensive Results | ||||||||||||||||||
Net income | — | — | 1,182,276 | — | 1,182,276 | |||||||||||||
Other comprehensive income | — | — | — | 53,827 | 53,827 | |||||||||||||
Stock based compensation expense | — | 1,503 | — | — | 1,503 | |||||||||||||
Balance at September 30, 2006 | $ | 7,184,084 | $ | 6,006,158 | $ | 2,387,334 | $ | (370,356 | ) | $ | 15,207,220 | |||||||
See notes to consolidated financial statements.
5
First Capital Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2006 and 2005
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2006 | 2005 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 1,182,276 | $ | 924,744 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||
Provision for loan losses | 284,300 | 287,874 | ||||||
Depreciation of premises and equipment | 233,431 | 165,056 | ||||||
Loss on sale of available-for-sale securities | — | 11,660 | ||||||
Reduction in equity in VBA Investment Services, Inc. | 1,900 | 9,587 | ||||||
Net amortization of bond premiums/discounts | 24,735 | 85,216 | ||||||
Net (increase) in other assets | (133,448 | ) | (16,461 | ) | ||||
Decrease (increase) in accrued interest receivable | 30,706 | (280,627 | ) | |||||
Stock based compensation | 1,503 | — | ||||||
Increase in accrued expenses and other liabilities | 78,422 | 2,024,118 | ||||||
Net cash provided by operating activities | 1,703,825 | 3,211,167 | ||||||
Cash flows from investing activities | ||||||||
Purchases of securities available-for-sale | (2,998,158 | ) | (21,028,762 | ) | ||||
Proceeds from maturities, calls and sale of securities | 3,000,000 | 4,486,110 | ||||||
Proceeds from paydowns of securities available-for-sale | 2,359,127 | 4,259,229 | ||||||
Purchase of Federal Reserve Stock | (5,950 | ) | (112,650 | ) | ||||
Purchase of FHLB Stock | (428,800 | ) | (390,200 | ) | ||||
Purchase securities in FCRV Statutory Trust 1 | (155,000 | ) | — | |||||
Purchases of property and equipment | (394,385 | ) | (695,653 | ) | ||||
Net increase in loans | (27,135,684 | ) | (37,362,948 | ) | ||||
Net cash used in investing activities | (25,758,850 | ) | (50,844,874 | ) | ||||
Cash flows from financing activities | ||||||||
Net increase in demand, savings and money market accounts | 7,217,108 | 12,913,734 | ||||||
Net increase in certificates of deposit | 28,519,490 | 22,281,717 | ||||||
Advances from FHLB | 7,000,000 | 7,000,000 | ||||||
Issuance of Junior Subordinated Debt | 5,155,000 | — | ||||||
Increase (decrease) in Fed funds purchased | (10,270,000 | ) | 3,486,000 | |||||
Net (decrease) increase in repurchase agreements | 827,846 | (119,695 | ) | |||||
Net cash provided by financing activities | 38,449,444 | 45,561,756 | ||||||
Net increase (decrease) in cash and cash equivalents | 14,394,418 | (2,071,951 | ) | |||||
Cash and cash equivalents, beginning of period | 10,181,623 | 12,988,476 | ||||||
Cash and cash equivalents, end of period | $ | 24,576,041 | $ | 10,916,525 | ||||
Supplemental disclosure of cash flow information | ||||||||
Interest paid during the period | $ | 5,385,887 | $ | 2,757,094 | ||||
Taxes paid during the period | $ | 1,138,670 | $ | 25,000 | ||||
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 Bank’s common stock were exchanged for shares of the Company’s common stock, par value $4.00 per share, on a one-for-one basis. As a result, the Bank became a wholly owned subsidiary of the Company, the Company became the holding company of the Bank and the shareholders of the Bank became shareholders of the Company. All references to the Company in this quarterly report for dates or periods prior to September 8, 2006 are references to the Bank.
In management’s opinion the accompanying consolidated financial statements, reflect all adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the financial information as of September 30, 2006 and December 31, 2005 and for the three months and nine months ended September 30, 2006 and 2005, in conformity with accounting principles generally accepted in the United States of America. Results for the three month and nine month periods ended September 30, 2006 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2006.
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 Bank as of and for the year ended December 31, 2005 filed as part of the Bank’s 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 management’s opinion of an amount that is adequate to absorb loss in the Company’s existing portfolio. The allowance for loan losses is established through a provision for loan loss based on available information including the composition of the loan portfolio, historical loan losses (to the extent available due to limited history), specific impaired loans, availability and quality of the collateral, age of the various portfolios, changes in local economic conditions, and loan performance and quality of the portfolio. Different assumptions used in evaluating the adequacy of the Company’s allowance for loan losses could result in material changes in its financial condition and results of operations. The Company’s policies with respect to the methodology for determining the allowance for loan losses involve a high degree of complexity and require management to make subjective judgments that often require assumptions or estimates about certain matters. This critical policy and its assumptions are periodically reviewed with the Bank’s Board of Directors.
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The primary focus of this statement is on accounting for transactions in which an entity obtains employee services in exchange for share-based payment transactions. This Statement was effective for the beginning of the first interim or annual reporting period that begins after December 15, 2005. SFAS No. 123R was adopted by the Company January 1, 2006. Since there were no outstanding unvested options at December 31, 2005, the adoption of this Statement did not have a material impact on the consolidated financial statements of the Company.
Note 2 – Use of Estimates
The 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.
7
Note 3 – Earnings per share
In December 2005, the Bank’s Board of Directors approved and paid a three for two stock split effected in the form of a stock dividend. A total of 598,666 shares were issued as a result of the three for two stock split. All per share calculations have been restated to reflect the split.
Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period.Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the entity.
The basic and diluted earnings per share calculations are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||
Net income (numerator, basic and diluted) | $ | 404,385 | $ | 348,388 | $ | 1,182,276 | $ | 924,744 | ||||
Weighted average number of shares outstanding (denominator) | 1,796,021 | 1,796,021 | 1,796,021 | 1,796,021 | ||||||||
Earnings per common share - basic | $ | 0.23 | $ | 0.19 | $ | 0.66 | $ | 0.51 | ||||
Effect of dilutive securities: | ||||||||||||
Weighted average number of shares outstanding | 1,796,021 | 1,796,021 | 1,796,021 | 1,796,021 | ||||||||
Effect of stock options | 105,513 | 74,635 | 106,368 | 65,544 | ||||||||
Diluted average shares outstanding (denominator) | 1,901,534 | 1,870,656 | 1,902,389 | 1,861,565 | ||||||||
Earnings per common share - assuming dilution | $ | 0.21 | $ | 0.19 | $ | 0.62 | $ | 0.50 | ||||
Prior to the adoption of SFAS 123R, in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure – An Amendment of FASB Statement No. 123, the Company adopted the disclosure–only option and elected to apply the provisions of APB No. 25 for financial statement purposes. For the periods prior to the adoption of SFAS 123R, no stock-based employee or director compensation cost was reflected in net income for these plans as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant.
In December 2005, the Board of Directors approved the acceleration of vesting of all unvested stock options outstanding prior to December 31, 2005. The Board agreed to accelerate the vesting of options in order to eliminate the recognition of compensation expense associated with the affected unvested options under SFAS No. 123R, “Share-Based Payment”, which was effective for the Bank beginning January 1, 2006.
In August of 2006, 6,000 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 $1,503 and is included in Salaries and employee benefits.
8
Pro forma information regarding net income and earnings per share have been determined as if the Company had accounted for its employee stock options using the fair value method, and is presented below.
| Three Months Ended September 30, 2005 | Nine Months Ended September 30, 2005 | |||||||
Net income, as reported | $ | 348,388 | $ | 924,744 | ||||
Total stock-based compensation expense determined under fair value based method for all awards | (21,147 | ) | (61,238 | ) | ||||
Pro forma net income | $ | 327,241 | $ | 863,506 | ||||
Earnings per share: | ||||||||
Basic - as reported | $ | 0.19 | $ | 0.51 | ||||
Basis - pro forma | $ | 0.18 | $ | 0.48 | ||||
Diluted - as reported | $ | 0.19 | $ | 0.50 | ||||
Diluted - pro forma | $ | 0.17 | $ | 0.46 | ||||
Note 4 – Reclassifications
Certain reclassifications have been made in the prior year’s financial statements to conform to the 2006 presentation.
Note 5 – Trust Preferred Securities
During the third quarter of 2006, FCRV Statutory Trust 1 (the “Trust”), a subsidiary of the Company, was formed for the purpose of issuing redeemable securities. The Company owns all of the outstanding Common Stock of the Trust. On September 21, 2006, $5.2 million of Trust Preferred Capital Notes were issued through a pooled underwriting. The securities have a LIBOR-indexed floating rate of interest (three-month LIBOR plus 1.70%) which adjusts, and is payable, quarterly. The interest rate at September 30, 2006 was 7.09%. The securities may be redeemed at par beginning on September 15, 2011 and each quarter after such date until the securities mature on September 15, 2036. The principal asset of the Trust is $5.2 million of the Company’s junior subordinated debt securities with like maturities and like interest rates to the Trust Preferred Capital Notes.
The subordinated debt issued by the Company may be included in Tier 1 capital for regulatory adequacy determination purposes up to 25% of Tier 1 capital after its inclusion. The portion of the subordinated debt not considered as Tier 1 capital may be included in Tier 2 capital.
The obligations of the Company with respect to the issuance of the Trust Preferred Capital Notes constitute a full and unconditional guarantee by the Company of the Trust’s obligations with respect to the Trust Preferred Capital Notes. Subject to certain exceptions and limitations, the Company may elect from time to time to defer interest payments on the junior subordinated debt securities, which would result in a deferral of distribution payments on the related Trust Preferred Capital Notes and require a deferral of common dividends.
Pursuant to FIN No. 46R, the Company does not consolidate the Trust.
9
Note 6 – Parent corporation only financial statements
| Balance Sheet | ||||
| September 30, 2006 | ||||
Assets | ||||
Cash and due from banks | $ | 510,000 | ||
Investment in subsidiary | 19,744,176 | |||
Investment in special purpose subsidiary | 155,000 | |||
Other assets | 305 | |||
| $ | 20,409,481 | |||
Liabilities and Stockholder’s Equity | ||||
Subordinated debt | $ | 5,155,000 | ||
Payable to subsidiary | 40,354 | |||
Other liabilities | 6,907 | |||
Total liabilities | 5,202,261 | |||
Stockholders’ Equity | ||||
Common stock | 7,184,084 | |||
Additional paid-in capital | 6,006,158 | |||
Accumulated other comprehensive (loss) | (370,356 | ) | ||
Retained earnings | 2,387,334 | |||
Total stockholders’ equity | 15,207,220 | |||
| $ | 20,409,481 | |||
| Statement of Income | ||||
| Nine Months Ended September 30, 2006 | ||||
Expenses | ||||
Interest | $ | 9,847 | ||
Legal | 39,109 | |||
Other expenses | 7,000 | |||
Total Expenses | 55,956 | |||
Income tax (benefit) | (19,000 | ) | ||
Net loss before undistributed equity in subsidiary | (36,956 | ) | ||
Undistributed equity in subsidiary | 1,219,232 | |||
Net income | $ | 1,182,276 | ||
10
| Statement of Cash Flows | ||||
| Nine Months Ended September 30, 2006 | ||||
Cash Flows from Operating Activities | ||||
Net income | $ | 1,182,276 | ||
Adjustments to reconcile net income to net cash provided by operating activities | ||||
Undistributed earnings of subsidiary | (1,219,232 | ) | ||
Increase in other assets | (305 | ) | ||
Increase in other liabilities | 47,261 | |||
Net cash provided by operations | 10,000 | |||
Cash Flows from Investing Activities | ||||
Investment in FCRV Statutory Trust 1 | (155,000 | ) | ||
Capital contribution to subsidiary | (4,500,000 | ) | ||
Net cash provided by operations | (4,655,000 | ) | ||
Cash Flows from Financing Activities | ||||
Proceeds for issuance of subordinated debt | 5,155,000 | |||
Net cash used in operations | 5,155,000 | |||
Net increase in cash | 510,000 | |||
Cash, beginning of period | — | |||
Cash, end of period | $ | 510,000 | ||
Note 7 – Recent Accounting Pronouncements
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments -an amendment of FASB Statements No. 133 and 140,” which simplifies accounting for certain hybrid financial instruments by permitting fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation and eliminates a restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired, issued or subject to a remeasurement (new basis) event occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company does not expect the adoption of this new standard to have a material impact on the Company’s consolidated results of operations or consolidated financial position.
In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140,” which establishes, among other things, the accounting for all separately recognized servicing assets and servicing liabilities by requiring that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable and permits the entity to choose either the amortization method or fair value method for subsequent measurement.. SFAS No. 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 156 will have no impact on our results of operations or our financial position. The Company does not expect the adoption of this new standard to have a material impact on the Company’s consolidated results of operations or consolidated financial position.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect the adoption of this new standard to have a material impact on the Company’s consolidated results of operations or consolidated financial position.
11
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R),” which requires a business entity to recognize the overfunded or underfunded status of a single-employer defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in comprehensive income in the year in which the changes occur. SFAS No. 158 also requires a business entity to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The provisions of this statement are effective as of the end of the first fiscal year ending after December 15, 2006. The Company does not expect the adoption of this new standard to have a material impact on the Company’s consolidated results of operations or consolidated financial position.
In June 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,” which establishes that the financial statement effects of a tax position taken or expected to be taken in a tax return are to be recognized in the financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of this new standard to have a material impact on the Company’s consolidated results of operations or consolidated financial position.
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that constitute “forward-looking statements.” These forward-looking statements are based on current expectations that involve risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially. These risks include: changes in business or other market conditions, the timely development, production and acceptance of new products and services and their feature sets; the challenge of managing asset/liability levels; the management of credit risk and interest rate risk; the difficulty of keeping expense growth at modest levels while increasing revenues; and other risks detailed from time to time in the Bank’s regulatory filings with the Board of Governors of the Federal Reserve System reports, including but not limited to the Annual Report on Form 10-KSB for the most recent year ended. Pursuant to the Private Securities Litigation Act of 1995, the Company does not undertake to update forward-looking statements, whether as a result of new information, future events, or otherwise.
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 Bank’s 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.
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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 at 900 South Adams Street in the Southside Regional Medical Center in Petersburg, Virginia and its newest branch in Forest Office Park in Henrico County.
The following discussion represents management’s discussion and analysis of the financial condition and results of operations for the Company as of September 30, 2006 and December 31, 2005 and for the three month and nine month periods ended September 30, 2006 and 2005. It should be read in conjunction with the financial statements included elsewhere herein.
SUMMARY OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Financial Condition Summary
September 30, 2006 as Compared to December 31, 2005
Total assets increased $39,765,000 for the first nine months of 2006 to $249,294,000 compared with $209,529,000 at December 31, 2005. The 19.0% increase in total assets during the first nine months of 2006 resulted from the growth of the Company’s business and customer base. Net loans increased $26,851,000 to $181,453,000 at September 30, 2006, an increase of 17.4% over net loans of $154,602,000 at December 31, 2005. Deposits increased $35,737,000 to $198,124,000 or 22.0% for the first nine months of 2006. Federal Home Loan Bank advances totaled $25,000,000 at September 30, 2006, an increase of $7,000,000 from year end. Other borrowings decreased $4,287,000 from $12,950,000 at December 31, 2005 to $8,663,000 at September 30, 2006 as the borrowings were replaced with FHLB advances.
As of September 30, 2006 and December 31, 2005, the Company’s regulatory capital levels exceeded those established for well-capitalized institutions.
Results of Operations
Comparison of the Three Months Ended September 30, 2006 and 2005
Net income for the three months ended September 30, 2006 increased 16.1% to $404,385, or $0.23 basic and $0.21 diluted earnings per share compared to $348,388 for the three months ended September 30, 2005, or $0.19 basic and diluted earnings per share. The increase in net income was due in large part to the growth of the Bank and an increase in net interest income which grew 16.0% to $1,936,171 for the three months ended September 30, 2006.
Net interest income increased by $267,125, or 16.0%, from $1,669,046 in the third quarter of 2005 to $1,936,171 in the third quarter of 2006. This increase in net interest income is a direct result of the Company’s growth in loans and deposits. Net loans outstanding increased $36,764,000 since September 30, 2005. Since September 30, 2005, deposits increased $34,271,000, Federal Home Loan Bank advances increased $10,000,000 and subordinated debt increased $7,155,000. The net interest margin decreased 28 basis points for the three months ended September 30, 2006 to 3.32% as compared to 3.60% for the three months ended September 30, 2005. The yield on interest earning assets increased from 6.07% for the quarter ended September 30, 2005 to 6.93% for the quarter ended September 30, 2006. The cost of interest bearing liabilities increased 119 basis points from 3.16% for the quarter ended September 30, 2005 to 4.35% for the quarter ended September 30, 2006. Cost of deposits increased from 3.09% for the quarter ended September 30, 2005 to 4.39% for the quarter ended September 30, 2006. Certificates of deposits were the largest increase in costs as short term rates increased significantly from the third quarter of 2005 to the third quarter of 2006.
Noninterest income increased by $34,718, or 41.74%, from $83,316 in the third quarter of 2005 to $118,034 in the third quarter of 2006. This increase in noninterest income is attributable to increases in service charges and fees on deposits and loans, and increases in ATM fees.
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Noninterest expense increased $265,846, or 23.7%%, from $1,120,974 in the third quarter of 2005 to $1,386,820 in the third quarter of 2006. This increase in noninterest expense is attributable to the growth and expansion of the Company. The Bank opened its fifth branch during the third quarter of 2005 and its sixth branch in September 2006. Employees totaled 58 at the end of September 30, 2006 as compared to 48 at September 30, 2005. The increase in employees represents staffing the new branch, new lenders and infrastructure to support the growth of the Bank. Depreciation increased 44.8% to $81,486 reflecting depreciation of the two new branch locations and office furniture and computers for new employees.
The Provision for loan losses decreased 48.1% from $106,000 for the third quarter of 2005 to $55,000 for the three months ended September 30, 2006. This decrease reflects the decrease in volume on loans closed during the period as compared to the three months ended September 30, 2005.
Results of Operations
Comparison of the Nine Months Ended September 30, 2006 and 2005
Net income for the nine months ended September 30, 2006 increased 27.9% to $1,182,276, or $0.66 basic and $0.62 diluted earnings per share compared to $924,744 for the nine months ended September 30, 2005, or $0.51 basic and $0.50 diluted earnings per share.
Net interest income increased $973,308, or 21.2%, from $4,602,593 for the nine months ended September 30, 2005 to $5,575,901 for the nine months ended September 30, 2006. This increase in net interest income is a direct result of the Company’s growth in loans and deposits. For the twelve months ended September 30, 2006, assets, loans and deposits increased $48,248,000, $36,764,000 and $34,271,000 respectively. The net interest margin decreased 28 basis points for the nine months ended September 30, 2006 to 3.42% as compared to 3.70% for the nine months ended September 30, 2005. The yield on interest earning assets increased from 5.97% for the nine months ended September 30, 2005 to 6.77% for the nine months ended September 30, 2006. The cost of interest bearing liabilities increased from 2.86% for the nine months ended September 30, 2005 to 4.03% for the comparable period ended September 30, 2006.
Noninterest income increased by $113,937, or 61.6%, from $185,101 for the nine months ended September 30, 2005 to $299,038 for the comparable period in 2006. This increase in noninterest income is attributable to increases in service charges and fees on deposits and loans, and increases in ATM fees.
Noninterest expense increased $700,187, or 22.5%, from $3,106,000 for the nine months ended September 30, 2005 to $3,806,000 for the comparable period in 2006. This increase in noninterest expense is attributable to the growth and expansion of the Company in personnel, locations and infrastructure.
The Provision for loan losses was $287,874 for the nine months ended September 30, 2005 and $284,300 for the comparable period in 2006. Net increases in loans for the first nine months of 2005 were $37,363,000 as compared to $27,136,000 for the first nine months of 2006.
Net interest income
The fundamental source of the Company’s revenue is 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, Federal Home Loan Bank advances and other borrowings. Since January 1, 2005, the Board of Governors of the Federal Reserve increased short-term interest rates by 3.00% in twelve 25 basis point increases and further increases could occur during the latter half of 2006.
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.
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Average Balance Sheets
(In thousands)
| Nine Months Ended September 30, | ||||||||||||||||||||
| 2006 | 2005 | |||||||||||||||||||
| Average Balance | Interest Income/ Expense | Annualized Yield Rate | Average Balance | Interest Income/ Expense | Annualized Yield Rate | |||||||||||||||
Earning Assets: | ||||||||||||||||||||
Loans | $ | 172,539 | $ | 9,540 | 7.39 | % | $ | 127,949 | $ | 6,341 | 6.63 | % | ||||||||
Investment securities: | 41,114 | 1,338 | 4.35 | % | 35,820 | 1,020 | 3.81 | % | ||||||||||||
Federal funds sold | 4,203 | 159 | 5.05 | % | 3,046 | 73 | 3.20 | % | ||||||||||||
Total interest earning assets | 217,856 | 11,036 | 6.77 | % | 166,815 | 7,434 | 5.97 | % | ||||||||||||
Allowance for loan losses | (1,632 | ) | (1,234 | ) | ||||||||||||||||
Cash and due from banks | 5,745 | 5,767 | ||||||||||||||||||
Premises and equipment, net | 2,015 | 1,121 | ||||||||||||||||||
Other nonearning assets | 694 | 1,067 | ||||||||||||||||||
Total assets | $ | 224,678 | $ | 173,536 | ||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||
Interest checking | $ | 6,448 | $ | 24 | 0.51 | % | $ | 5,917 | $ | 22 | 0.50 | % | ||||||||
Money market deposit accounts | 23,076 | 474 | 2.75 | % | 22,978 | 273 | 1.59 | % | ||||||||||||
Statement savings | 620 | 7 | 1.54 | % | 1,159 | 7 | 0.81 | % | ||||||||||||
Certificates | 118,762 | 3,984 | 4.48 | % | 86,291 | 2,184 | 3.38 | % | ||||||||||||
Total deposits | 148,906 | 4,490 | 4.03 | % | 116,345 | 2,486 | 2.86 | % | ||||||||||||
Federal funds purchased | 2,095 | 77 | 4.93 | % | 2,082 | 54 | 3.47 | % | ||||||||||||
Other borrowing | 3,215 | 137 | 5.70 | % | 722 | 13 | 2.41 | % | ||||||||||||
FHLB advances | 25,597 | 757 | 3.95 | % | 10,736 | 276 | 3.44 | % | ||||||||||||
Total interest bearing liabilities | 179,813 | 5,460 | 4.06 | % | 129,885 | 2,829 | 2.92 | % | ||||||||||||
Noninterest-bearing sources: | ||||||||||||||||||||
Noninterest-bearing deposits | 28,118 | 28,555 | ||||||||||||||||||
Other liabilities | 2,357 | 1,743 | ||||||||||||||||||
Shareholders’ equity | 14,390 | 13,353 | ||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 224,678 | $ | 173,536 | ||||||||||||||||
Net interest income | $ | 5,576 | $ | 4,605 | ||||||||||||||||
Interest spread - average yield on interest earning assets, less average rate on interest bearing liabilities | 2.71 | % | 3.05 | % | ||||||||||||||||
Annualized net interest margin (net interest income expressed as percentage of average earning assets) | 3.42 | % | 3.70 | % | ||||||||||||||||
Ratio of average interest earning assets to average interest-bearing liabilities | 121.16 | % | 128.43 | % | ||||||||||||||||
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Loan Portfolio
The following table presents the composition of loan portfolio at the dates indicated:
Loan Portfolio, net
(In thousands)
| September 30, | |||||||||||||
| 2006 | 2005 | ||||||||||||
| Amount | % | Amount | % | ||||||||||
Commercial | $ | 18,933 | 10.3 | % | $ | 17,455 | 12.0 | % | |||||
Real estate - residential | 59,347 | 32.4 | % | 59,394 | 40.6 | % | |||||||
Real estate - commercial | 57,527 | 31.4 | % | 44,701 | 30.6 | % | |||||||
Real estate - construction | 45,058 | 24.6 | % | 21,948 | 15.0 | % | |||||||
Consumer | 2,362 | 1.3 | % | 2,525 | 1.7 | % | |||||||
Total loans | $ | 183,227 | 100.0 | % | $ | 146,023 | 100.0 | % | |||||
Less: | |||||||||||||
Allowance for loan losses | 1,733 | 1,340 | |||||||||||
Net deferred fees (costs) | 41 | (37 | ) | ||||||||||
Loans, net | $ | 181,453 | $ | 144,720 | |||||||||
Allowance for loan losses
The allowance for loan losses at September 30, 2006 was $1,733,392, compared to $1,340,243 at September 30, 2005. The ratio of the allowance for loan losses to gross portfolio loans was .946% at September 30, 2006 as compared to .918% at September 30, 2005. At September 320, 2006, the Company had one non-performing loan which totaled $199,000. At September 30, 2005, non-performing loans totaled $294,000. 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.
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The following table presents activity in the Allowance for Loan Losses for the periods indicated:
Analysis of Allowance for Loan Losses
(Dollars in thousands)
| Nine Months Ended September 30, | ||||||||
| 2006 | 2005 | |||||||
Beginning balance | $ | 1,460 | $ | 1,084 | ||||
Provision for loan losses | 284 | 288 | ||||||
Charge-offs | 11 | 32 | ||||||
Recoveries | — | — | ||||||
Ending balance | $ | 1,733 | $ | 1,340 | ||||
Ratio of allowance for loan losses as a percent of loans outstanding at the end of the period. | 0.946 | % | 0.918 | % | ||||
Deposits
Total deposits increased by $35,737,000, or 22.1% for the first nine months of 2006 as compared to an increase of $34,271,000, or 20.9%, for the first nine months of 2005. During the first nine months of 2006, the increase in deposits occurred primarily in interest-bearing accounts which increased by $34,371,000, or 26.1%. Certificates of deposit increased by $28,519,000, or 28.4%. Noninterest-bearing accounts increased by $1,366,000.
The mix of our deposits continues to be weighted toward certificates of deposit which represent 65.1% of the Bank’s total deposits as of September 30, 2006. Certificates of deposit as a percentage of total deposits were 61.9% at December 31, 2005 and 60.0% at September 30, 2005.
The average cost of interest-bearing deposits for the three months ended September 30, 2006 and 2005 was 4.39% and 3.09%, respectively. This increase in the Bank’s average cost of interest-bearing deposits is attributable to the overall increase in interest rates resulting from the actions by the Federal Reserve to increase short-term rates. Further increases in short-term rates could occur during the latter half of 2006. Existing certificates of deposit continue to roll up to current market rates. As a result, the average cost of our interest-bearing deposits is expected to continue to increase.
Borrowings
The Company uses borrowings to supplement deposits when they are available at a lower overall cost than is available from the retail deposits and to assist in asset liability management.
Subordinated debt totaled $7,155,000 as of September 30, 2006 as compared to $2,000,000 at December 31, 2006. $5,155,000 in subordinated debt was issued in September 2006 by the Company. 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 portion of subordinated debt not considered as Tier 1 capital may be included in Tier 2 capital. The $2,000,000 in subordinated debt issued in December 2005, qualifies as Tier 2 capital only.
As of September 30, 2006, the Company had borrowed $25,000,000 from the FHLB of Atlanta, an increase of $7,000,000 from December 31, 2005. The advances have an average interest rate of 3.88% 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 the Company’s residential and commercial mortgage loans and the pledge of our FHLB stock.
The Company has $1,577,039 and $680,191 outstanding under securities sold under repurchase agreements as of September 30, 2006 and December 31, 2005, respectively. These agreements are generally corporate cash management accounts for the Company’s larger corporate depositors. These agreements are settled on a daily basis and the securities underlying the agreements remain under the Bank’s control.
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Capital Resources
Stockholders’ equity at September 30, 2006 was $15,207,220, compared to $13,969,614 at December 31, 2005. The $1,237,606 increase in equity during the first nine months of 2006 was due to net income of $1,182,276 and a $53,827 decrease in net unrealized losses on securities available-for-sale. The $813,873 increase in equity during the first nine months of 2005 was attributable to a $110,871 increase in net unrealized losses on securities available-for-sale, and net income of $924,744.
During the third quarter of 2006, the Company issued $5.2 million in Trust Preferred Capital Notes. The Trust Preferred Capital Notes may be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier 1 capital after its inclusion.
The Bank’s current capital position meets the definition of well-capitalized under the regulatory framework for corrective action.
The following table presents the capital ratios at the dates indicated:
Capital Ratios
| September 30, 2006 | December 31, 2005 | |||||
Capital ratios | ||||||
Total capital to risk weighted assets | 13.14 | % | 11.36 | % | ||
Tier 1 capital to risk weighted assets | 11.13 | % | 9.13 | % | ||
Leverage ratio (Tier 1 capital to average assets) | 8.71 | % | 6.98 | % | ||
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 September 30, 2006 and December 31, 2005, pre-approved but unused lines of credit for loans totaled approximately $62,409,000 and $39,682,000, respectively. In addition, we had $2,771,000 and $1,854,000 in financial and performance standby letters of credit at September 30, 2006 and December 31, 2005, 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. Management believes these commitments can be funded through normal operations.
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 September 30, 2006, cash and cash equivalents totaled $24,576,000. Investment securities available for sale and not pledged totaled $18,808,000, for a total of 17.4% 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 correspondents.
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Interest Rate Sensitivity
The most important element of asset/liability management is the monitoring of the Company’s sensitivity to interest rate movements. The income stream of the Company is subject to risk resulting from interest rate fluctuations to the extent there is a difference between the amount of the Company’s interest earning assets and the amount of interest bearing liabilities that are prepaid, mature or reprice in specific periods. The Company’s goal is to maximize net interest income within acceptable levels of risk to changes in interest rates. Management seeks 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 Company’s management monitors interest rate levels on a daily basis and meets in the form of the Asset/Liability Sub-Committee at a minimum weekly. The following reports and/or tools are used to assess the current interest rate environment and its impact on the Company’s earnings and liquidity: monthly and year to date net interest margin and spread calculations, monthly and year to date balance sheet and income statements versus budget, quarterly net portfolio value analysis, a weekly survey of rates offered by other local competitive institutions and GAP analysis (matching maturities or repricing dates of interest sensitive assets to those of interest sensitive liabilities by periods) and a Risk Manager model used to measure earnings at risk and economic value of equity at risk.
The data in the following table reflects repricing or expected maturities of various assets and liabilities at September 30, 2006. 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.
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Interest Rate Sensitivity GAP Analysis
September 30, 2006
(In thousands)
| Within 3 Months | 4 to 12 Months | 13 to 36 Months | More than 36 Months | Total | |||||||||||||||
Interest Rate Sensitive Assets | |||||||||||||||||||
Loans | $ | 70,830 | $ | 16,356 | $ | 29,924 | $ | 66,076 | $ | 183,186 | |||||||||
Investment securities | 3,403 | 4,214 | 15,924 | 13,775 | 37,316 | ||||||||||||||
Federal funds sold | 19,810 | — | — | — | 19,810 | ||||||||||||||
Total rate sensitive assets | 94,043 | 20,570 | 45,848 | 79,851 | 240,312 | ||||||||||||||
Cumulative rate sensitive assets | 94,043 | 114,613 | 160,461 | 240,312 | |||||||||||||||
Interest Rate Sensitive Liabilities | |||||||||||||||||||
Interest checking | — | — | 10,841 | — | 10,841 | ||||||||||||||
Money market accounts | 25,534 | — | — | — | 25,534 | ||||||||||||||
Savings | — | — | 986 | — | 986 | ||||||||||||||
Time deposits | 44,723 | 64,187 | 13,377 | 6,686 | 128,973 | ||||||||||||||
Securities sold under repurchase agreements | 1,508 | — | — | — | 1,508 | ||||||||||||||
FHLB advances | — | 10,000 | 10,000 | 5,000 | 25,000 | ||||||||||||||
Subordinated debt | — | — | — | 7,155 | 7,155 | ||||||||||||||
Total rate sensitive liabilities | 71,765 | 74,187 | 35,204 | 18,841 | 199,997 | ||||||||||||||
Cumulative rate sensitive liabilities | 71,765 | 145,952 | 181,156 | 199,997 | |||||||||||||||
Rate sensitive gap for period | $ | 22,278 | $ | (53,617 | ) | $ | 10,644 | $ | 61,010 | $ | 40,315 | ||||||||
Cumulative rate sensitive gap | $ | 22,278 | $ | (31,339 | ) | $ | (20,695 | ) | $ | 40,315 | |||||||||
Rate of cumulative gap to total assets | 8.9 | % | -12.6 | % | -8.3 | % | 16.2 | % | |||||||||||
Ratio of cumulative rate sensitive assets to cumulative rate sensitive liabilities | 131.0 | % | 78.5 | % | 88.6 | % | 120.2 | % | |||||||||||
Ratio of cumulative gap to cumulative rate sensitive assets | 23.7 | % | -27.3 | % | -12.9 | % | 16.8 | % | |||||||||||
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 institution’s 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.
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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 Company’s principal executive officer and principal financial officer have concluded that the Company’s 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.
Changes in Internal Controls
There were no significant changes in the Company’s 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.
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. | |
| 3.2 | Bylaws of First Capital Bancorp, Inc. | |
| 31.1 | Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 8, 2006. | |
| 31.2 | Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 8, 2006. | |
| 32 | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated November 8, 2006. | |
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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: November 8, 2006 | By: | /s/ Robert G. Watts, Jr. | ||
| Robert G. Watts, Jr. | ||||
| President and Chief Executive Officer | ||||
| By: | /s/ William W. Ranson | |||
| William W. Ranson, CPA | ||||
| Chief Financial Officer, | ||||
| Treasurer and Secretary | ||||
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Index of Exhibits
| Exhibit No. | Description of Exhibit | |
| 3.1 | Articles of Incorporation of First Capital Bancorp, Inc. | |
| 3.2 | Bylaws of First Capital Bancorp, Inc. | |
| 31.1 | Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 8, 2006. | |
| 31.2 | Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 8, 2006. | |
| 32 | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated November 8, 2006. | |
23
