First Capital Bancorp (FCVA) 10-Q 2010 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

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

For the quarterly period ended June 30, 2010

¨ 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	001-33543	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)

Indicate by check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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:

2,971,171 shares of Common Stock, par value $4.00 per share, were outstanding at August 16, 2010.

TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
Consolidated Statements of Financial Condition June 30, 2010 (unaudited) and December 31, 2009	3
Consolidated Statements of Operations For the Three Months and Six Months Ended June 30, 2010 and 2009 (unaudited)	4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income For the Six Months Ended June  30, 2010 and 2009 (unaudited)	5
Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2010 and 2009 (unaudited)	6
Notes to Consolidated Financial Statements (unaudited)	7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3 – Quantitative and Qualitative Disclosures About Market Risk – Not Applicable	23
Item 4 – Controls and Procedures	23
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings – None to Report.	24
Item 1A – Risk Factors – Not Applicable	24
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds – Not Applicable.	24
Item 3 – Defaults Upon Senior Securities – Not Applicable.	24
Item 4 – (Removed and Reserved)	24
Item 5 – Other Information – None to Report	24
Item 6 – Exhibits	24
SIGNATURES	26

2

PART 1 - FINANCIAL INFORMATION

Item 1 - Financial Statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

	June 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Cash and due from banks	$	7,669,599		$	7,919,612
Interest-bearing deposits in other banks		24,395,000			22,747,000
Federal funds sold		1,000,000			1,000,000
Investment securities:
Available for sale, at fair value		81,364,966			77,118,370
Held to maturity, at cost		1,452,649			1,452,947
Restricted, at cost		4,668,789			4,158,289
Loans, net of allowance for losses		401,779,517			397,120,098
Other real estate owned		2,101,646			3,387,712
Premises and equipment, net		10,607,970			7,118,591
Accrued interest receivable		2,089,400			2,292,742
Deferred tax asset		2,469,845			1,435,267
Prepaid FDIC premiums		2,687,391			3,135,649
Other assets		3,498,761			1,509,486
Total assets	$	545,785,533			530,395,763
LIABILITIES
Deposits
Noninterest-bearing	$	44,085,206		$	37,554,667
Interest-bearing		391,664,198			384,579,427
Total deposits		435,749,404			422,134,094
Accrued expenses and other liabilities		2,985,591			3,413,338
Securities sold under repurchase agreements		1,076,917			1,234,901
Subordinated debt		7,155,000			7,155,000
Federal Home Loan Bank advances		55,000,000			50,000,000
Total liabilities		501,966,912			483,937,333
STOCKHOLDERS’ EQUITY
Preferred stock, $4.00 par value (2,000,000 authorized shares; 10,958 issued and outstanding: Series A: $1,000 Stated Value Fixed Rate Cumulative Perpetual Preferred, respectively		43,832			43,832
Common stock, $4.00 par value (30,000,000 authorized shares; 2,971,171 issued and outstanding, respectively		11,884,684			11,884,684
Additional paid-in capital		29,718,409			29,696,114
Retained earnings		1,034,617			4,493,471
Warrants		660,769			660,769
Discount on preferred stock		(499,647	)		(564,395	)
Accumulated other comprehensive income, net of tax		975,957			243,955
Total stockholders’ equity		43,818,621			46,458,430
Total liabilities and stockholders’ equity	$	545,785,533		$	530,395,763

See notes to consolidated financial statements.

3

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Interest income
Loans	$	5,774,185		$	5,665,793		$	11,603,729		$	11,086,521
Investments:
Taxable interest income		594,794			495,398			1,239,180			895,844
Tax exempt interest income		129,741			70,971			241,880			110,648
Dividends		27,060			21,753			43,120			26,691
Federal funds sold and interest bearing deposits		12,014			11,073			19,676			19,739
Total interest income		6,537,794			6,264,988			13,147,585			12,139,443
Interest expense
Deposits		2,112,986			2,820,009			4,263,347			5,614,182
FHLB advances		478,337			468,353			944,944			931,559
Subordinated debt and other borrowed money		57,793			71,339			115,861			150,683
Total interest expense		2,649,116			3,359,701			5,324,152			6,696,424
Net interest income		3,888,678			2,905,287			7,823,433			5,443,019
Provision for loan loss		6,285,000			1,095,000			6,746,000			1,310,000
Net interest income (loss) after provision for loan loss		(2,396,322	)		1,810,287			1,077,433			4,133,019
Noninterest income
Fees on deposits		69,579			61,620			133,710			122,894
Gain on sale of securities		141,537			—			166,249			29,271
Other		104,043			144,964			247,274			235,462
Total noninterest income		315,159			206,584			547,233			387,627
Noninterest expenses
Salaries and employee benefits		1,401,318			1,141,858			2,793,809			2,326,782
Merger costs		—			220,222			—			220,222
Occupancy expense		155,805			206,015			370,330			412,653
Data processing		236,287			175,934			402,579			364,077
Professional services		263,298			115,105			380,499			241,798
Advertising and marketing		37,039			5,456			67,711			20,522
FDIC assessment		226,874			480,000			499,020			593,093
Virginia franchise tax		140,000			110,000			275,000			216,000
Depreciation		128,089			104,827			235,041			207,439
Other expenses		635,538			462,558			1,410,333			769,586
Total noninterest expense		3,224,248			3,021,975			6,434,322			5,372,172
Net loss before provision for income taxes		(5,305,411	)		(1,005,104	)		(4,809,656	)		(851,526	)
Income tax expense		(1,833,500	)		(274,200	)		(1,689,500	)		(222,800	)
Net loss	($	3,471,911	)	($	730,904	)	($	3,120,156	)	($	628,726	)
Effective dividend on preferred stock		169,299			167,477			338,598			167,477
Net income available to common shareholders	($	3,641,210	)	($	898,381	)	($	3,458,754	)	($	796,203	)
Basic loss per share	$	(1.23	)	$	(0.30	)	$	(1.16	)	$	(0.27	)
Diluted loss per share	$	(1.23	)	$	(0.30	)	$	(1.16	)	$	(0.27	)

4

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

Six Months Ended June 30, 2010 and 2009

(Unaudited)

	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings			Warrant		Discount on Preferred Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance January 1, 2009	$	—	$	11,884,684	$	18,650,379	$	4,688,639		$	—	$	—		$	195,870		$	35,419,572
Net (loss)		—		—		—		(628,726	)		—		—			(628,726	)		(628,726	)
Other comprehensive income
Unrealized holding loss arising during period, (net of tax, $181,346)		—		—		—		—			—		—			(352,026	)		(352,026	)
Total comprehensive loss															($	980,752	)
Issuance of preferred stock		43,832				10,914,168					660,769		(660,769	)					10,958,000
Preferred stock dividend								(135,453	)										(135,453	)
Accretion of discount on preferred stock								(32,024	)				32,024						—
Stock based compensation		—		—		85,208		—			—		—						85,208
Balance June 30, 2009	$	43,832	$	11,884,684	$	29,649,755	$	3,892,436		$	660,769	($	628,745	)	($	156,156	)	$	45,346,575
Balance January 1, 2010	$	43,832	$	11,884,684	$	29,696,114	$	4,493,471		$	660,769	($	564,395	)	$	243,955		$	46,458,430
Net loss		—		—		—		(3,120,156	)		—		—			(3,120,156	)		(3,120,156	)
Other comprehensive gain
Unrealized holding gain arising during period, (net of tax, $377,091)		—		—		—		—			—		—			732,002			732,002
Total comprehensive loss															($	2,388,154	)
Preferred stock dividend		—		—		—		(273,950	)		—		—						(273,950	)
Accretion of discount on preferred stock		—		—		—		(64,748	)		—		64,748						—
Stock based compensation		—		—		22,295		—			—		—						22,295
Balance June 30, 2010	$	43,832	$	11,884,684	$	29,718,409	$	1,034,617		$	660,769	($	499,647	)	$	975,957		$	43,818,621

See notes to consolidated financial statements.

5

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2010 and 2009

(Unaudited)

	2010			2009
Cash flows from operating activities
Net loss	$	(3,120,156	)	($	628,726	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for loan losses		6,746,000			1,310,000
Depreciation of premises and equipment		235,041			207,439
Stock based compensation expense		22,295			85,208
Deferred income taxes		(1,411,670	)		(39,000	)
Gain on sale of securities		166,249			—
Net amortization of bond premiums/discounts		288,971			128,380
Increase in other assets		(1,541,018	)		(683,379	)
(Increase) decrease in accrued interest receivable		203,342			(139,876	)
Decrease in accrued expenses and other liabilities		(427,747	)		(524,706	)
Net cash provided by (used in) operating activities		1,161,307			(284,660	)
Cash flows from investing activities
Proceeds from maturities and calls of securities		8,950,000			3,200,000
Proceeds from paydowns of securities available-for-sale		6,214,270			3,098,422
Purchase of securities available-for-sale		(22,001,196	)		(30,707,146	)
Sale of securities available-for-sale		3,244,502			—
Sale of other real estate owned		851,156			—
Purchase of FHLB Stock		(242,800	)		(143,800	)
Purchase of Federal Reserve Stock		(267,700	)		(210,450	)
Purchases of property and equipment		(3,724,420	)		(293,898	)
Net increase in loans		(10,970,508	)		(18,044,180	)
Net cash used in investing activities		(17,946,696	)		(43,101,052	)
Cash flows from financing activities
Net increase (decrease) in demand, savings and money market accounts		20,946,561			53,037,946
Advances from FHLB		5,000,000			—
Issuance of preferred stock to U.S. Treasury		—			10,958,000
Dividends on preferred stock		(273,950	)		(135,453	)
Net decrease in certificates of deposit		(7,331,251	)		(793,217	)
Net decrease in repurchase agreements		(157,984	)		(922,971	)
Net cash provided by financing activities		18,183,376			62,144,305
Net increase (decrease) in cash and cash equivalents		1,397,987			18,758,593
Cash and cash equivalents, beginning of period		31,666,612			15,354,334
Cash and cash equivalents, end of period	$	33,064,599		$	34,112,927
Supplemental disclosure of cash flow information
Interest paid during the period	$	5,302,678		$	6,701,199
Taxes paid during the period	$	825,000		$	320,000
Supplemental schedule of noncash investing and financing activities
Transfer of loans to other real estate owned	$	302,000		$	1,342,644

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.

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 June 30, 2010 and December 31, 2009 and for the three and six months ended June 30, 2010 and 2009, in conformity with accounting principles generally accepted in the United States of America. Results for the three and six month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2010.

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, 2009 filed as part of the Company’s annual report on Form 10-K. These interim financial statements should be read in conjunction with the annual financial statements.

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 losses in the Company’s existing portfolio. The allowance for loan losses is established through a provision for loan loss based on available information including the composition of the loan portfolio, historical loan losses (to the extent available due to limited history), specific impaired loans, availability and quality of the collateral, age of the various portfolios, changes in local economic conditions, and loan performance and quality of the portfolio. Different assumptions used in evaluating the adequacy of the Company’s allowance for loan losses could result in material changes in its financial condition and results of operations. The Company’s policies with respect to the methodology for determining the allowance for loan losses involve a high degree of complexity and require management to make subjective judgments that often require assumptions or estimates about certain matters. This critical policy and its assumptions are periodically reviewed with the Company’s Board of Directors.

During the second quarter of 2009, First Capital Bancorp, Inc. issued 10,958 shares of preferred stock to the U. S. Treasury. The Company had applied for funds under the TARP Capital Purchase Plan (“CPP”). The agreement requires us to pay a 5% dividend on the preferred stock for the first five years. The dividend increases to 9% for all periods after the first five years if we have not redeemed the preferred stock. In addition, we issued a warrant to the U. S. Treasury giving them the right to purchase 250,947 shares of our common stock at $6.55 per share for up to 10 years.

Note 2 – Use of Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Note 3 – Earnings per share

Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period.Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the entity.

7

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Net (loss) available to common shareholders	$	(3,641,210	)	$	(898,381	)	$	(3,458,754	)	$	(796,203	)
Weighted average number of shares outstanding		2,971,171			2,971,171			2,971,171			2,971,171
(Loss) per common share - basic	($	1.23	)	($	0.30	)	($	1.16	)	($	0.27	)
Effect of dilutive securities:
Weighted average number of shares outstanding		2,971,171			2,971,171			2,971,171			2,971,171
Effect of stock options		—			—			—			—
Diluted average shares outstanding		2,971,171			2,971,171			2,971,171			2,971,171
(Loss) per common share - assuming dilution	($	1.23	)	($	0.30	)	($	1.16	)	($	0.27	)

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.

2,000 options were granted in January 2010. The 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 six months ended June 30, 2010 was $22,295 and is included in salaries and employee benefits.

Note 5 – Investment Securities

The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities as of June 30, 2010 and December 31, 2009 were as follows:

	June 30, 2010
	Amortized Costs		Gross Unrealized				Fair Values
			Gains		Losses
Available-for-sale
U.S. Government agencies	$	14,595,114	$	200,125	$	—	$	14,795,239
Mortgage-backed securities		10,882,349		456,865		—		11,339,214
Corporate bonds		4,126,538		8,825		48,058		4,087,305
CMO securities		30,688,592		654,252		30,383		31,312,461
State and political subdivisions - taxable		6,424,449		149,166		26,183		6,547,432
State and political subdivisions - tax exempt		13,168,686		171,321		56,692		13,283,315
	$	79,885,728	$	1,640,554	$	161,316	$	81,364,966

8

	December 31, 2009
	Amortized Costs		Gross Unrealized				Fair Values
			Gains		Losses
Available-for-sale
U.S. Government agencies	$	23,610,035	$	132,274	$	274,915	$	23,467,394
Mortgage-backed securities		11,820,972		276,457		35,382		12,062,047
Corporate bonds		3,406,512		112,519		31,416		3,487,615
CMO securities		22,699,676		284,645		44,299		22,940,022
State and political subdivisions - taxable		5,936,082		50,463		189,465		5,797,080
State and political subdivisions - tax exempt		9,274,947		147,675		58,410		9,364,212
	$	76,748,224	$	1,004,033	$	633,887	$	77,118,370
	June 30, 2010
	Amortized Costs		Gross Unrealized				Fair Values
			Gains		Losses
Held-to-maturity
Tax-exempt municipal bonds	$	1,452,649	$	80,283	$	—	$	1,532,932
	$	1,452,649	$	80,283	$	—	$	1,532,932
	December 31, 2009
	Amortized Costs		Gross Unrealized				Fair Values
			Gains		Losses
Held-to-maturity
Tax-exempt municipal bonds	$	1,452,947	$	84,507	$	—	$	1,537,454
	$	1,452,947	$	84,507	$	—	$	1,537,454

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

• the entity intends to sell the security;

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

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

If a credit loss exits, 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 the securities portfolio for OTTI consideration during the quarter. The assessment considers factors such as external credit ratings, delinquency ratios, market price, management’s judgment, expectations of future performance and relevant industry research and analysis. Management’s assessment for the current quarter ended June 30, 2010 resulted in no recognition of OTTI.

9

The following table details unrealized loss and related fair values in the Company’s available-for-sale investment portfolios aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2010 and December 31, 2009.

	June 30, 2010
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Assets:
U.S. Government agencies	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities		—		—		—		—		—		—
Corporate bonds		3,095,227		48,058		—		—		3,095,227		48,058
CMO securities		3,849,809		30,383		—		—		3,849,809		30,383
State and political subdivisions - taxable		1,793,016		26,183		—		—		1,793,016		26,183
State and political subdivisions - tax exempt		6,484,581		56,692		—		—		6,484,581		56,692
Available-for-sale securities	$	15,222,633	$	161,316	$	—	$	—	$	15,222,633	$	161,316
	December 31, 2009
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Assets:
U.S. Government agencies	$	10,419,951	$	189,472	$	2,906,250	$	85,443	$	13,326,201	$	274,915
Mortgage-backed securities		1,470,442		35,382		—		—		1,470,442		35,382
Corporate bonds		968,432		5,592		448,900		25,824		1,417,332		31,416
CMO securities		4,562,551		44,299		—		—		4,562,551		44,299
State and political subdivisions - taxable		4,229,179		189,465		—		—		4,229,179		189,465
State and political subdivisions - tax exempt		4,272,085		58,410		—		—		4,272,085		58,410
Available-for-sale securities	$	25,922,640	$	522,620	$	3,355,150	$	111,267	$	29,277,790	$	633,887

Note 6 – Loans

Major classifications of loans are as follows:

	June 30, 2010			December 31, 2009
	Amount			Amount
Commercial	$	51,533,729		$	54,590,024
Real estate - residential		149,433,496			137,981,388
Real estate - commercial		133,556,348			125,444,710
Real estate - construction		74,675,048			81,106,396
Consumer		4,064,570			4,541,791
Total loans		413,263,191			403,664,309
Less:
Allowance for loan losses		11,481,324			6,600,360
Net deferred (income) costs		(2,350	)		56,149
Loans, net	$	401,779,517		$	397,120,098

10

Activity in the allowance for loan losses for the six month period ended June 30, 2010 and 2009:

	2010			2009
Balance, beginning of year	$	6,600,360		$	5,060,433
Provision for loan losses		6,746,000			1,310,000
Recoveries		12,145			2,627
Charge-offs		(1,877,181	)		(328,357	)
Balance, June 30	$	11,481,324		$	6,044,703
Ratio of allowance for loan losses as a percent of loans outstanding at the end of the period		2.78	%		1.55	%

Note 7 – 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 theFair Value Measurements and Disclosures topic ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would conduct a transaction 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.

• 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.

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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 considers observable market data (Level 2). We obtain a single quote for all securities. Quotes for all of our securities are provided by our securities accounting and safekeeping correspondent bank. We perform a review of pricing data by comparing prices received from third party vendors to the previous month’s quote for the same security and evaluate any substantial changes.

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2010 and December 31, 2009. Securities identified as restricted securities, including stock in the Federal Home Loan Bank of Atlanta (FHLB) and the Federal Reserve Bank (FRB), 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.

	June 30, 2010
	Fair Value Measurements Using						Fair Values
	Level 1		Level 2		Level 3
Assets:
Available-for-sale securities	$	—	$	81,364,966	$	—	$	81,364,966
	December 31, 2009
	Fair Value Measurements Using						Fair Values
	Level 1		Level 2		Level 3
Assets:
Available-for-sale securities	$	—	$	77,118,370	$	—	$	77,118,370

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 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 data (Level 2). 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. In the event 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

12

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. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

Other Real Estate Owned: Certain assets such as other real estate owned (“OREO”) are measured at fair value less cost to sell. We believe the fair value component in our valuation of OREO follows the provisions of accounting standards.

The following tables summarize our financial assets that were measured at fair value on a nonrecurring basis during the periods.

	June 30, 2010
	Fair Value Measurements Using						Fair Values
	Level 1		Level 2		Level 3
Impaired loans	$	—	$	—	$	26,780,976	$	26,780,976
Other real estate owned		—		—		2,101,646		2,101,646
Total	$	—	$	—	$	28,882,622	$	28,882,622
	December 31, 2009
	Fair Value Measurements Using						Fair Values
	Level 1		Level 2		Level 3
Impaired loans	$	—	$	—	$	12,279,027	$	12,279,027
Other real estate owned		—		—		3,387,712		3,387,712
Total	$	—	$	—	$	15,666,739	$	15,666,739

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 – Investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relaying on the securities’ relationship to other benchmark quoted securities. Level 1 securities include those traded on nationally recognized securities exchanges, U.S. Treasury securities, and money market funds. Level 2 securities include U.S. Agency securities, mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets. The carrying value of restricted FRB and FHLB 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

13

transactions, adjusted for differences in loan characteristics. Fair values for commercial real estate and commercial loans are estimated using discounted cash flow analyses and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The interest rates on loans at June 30, 2010 and December 31, 2009 are current market rates for their respective terms and associated credit risk.

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 FHLB 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.

Federal Funds purchased and repurchase agreements– The carrying value of federal funds purchased and repurchase agreements due within ninety days from the balance sheet date approximate fair value.

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 June 30, 2010 and December 31, 2009.

The estimated fair values of the Company’s financial instruments as of June 30, 2010 and December 31, 2009 are as follows:

	June 30, 2010 2010				December 31, 2009
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	33,065	$	33,065	$	31,667	$	31,667
Investment securities		82,818		82,898		78,571		78,655
Loans receivable, net		401,780		406,960		397,120		402,367
Accrued interest		2,089		2,089		2,293		2,293
Financial liabilities
Deposits	$	435,749	$	442,854	$	422,134	$	425,636
FHLB advances		55,000		58,328		50,000		52,177
Federal funds purchased		—		—		—		—
Subordinated debt		7,155		3,690		7,155		3,623
Repurchase agreements		1,077		1,077		1,235		1,235
Unrecognized financial instruments
Standby letters of credit issued	$	—	$	—	$	—	$	—

The Company assumes 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.

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Note 8 – Cumulative Perpetual Preferred Stock

In April 2009 we were approved for and received $10,958,000 from the U.S. Treasury Department under the TARP Capital Purchase Program. Under this program we issued 10,958 shares of Series A, $1,000 stated value, cumulative perpetual preferred stock. This stock will carry a 5% dividend for each of the first 5 years of the investment, and 9% thereafter, unless we elect to redeem the shares.

Additionally, the Treasury received warrants to purchase 250,947 shares of the Company’s common stock with an exercise price of $6.55.

Note 9 – Recently Issued Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued new guidance relating to the accounting for transfers of financial assets. The new guidance, which was issued as Statement of Financial Accounting Standards (“SFAS”) No. 166,Accounting for Transfers of Financial Assets, an amendment to SFAS No. 140, was adopted into Codification in December 2009 through the issuance of Accounting Standards Update (“ASU”) 2009-16. The new standard provides guidance to improve the relevance, representational faithfulness, and comparability of the information that an entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued new guidance relating to the variable interest entities. The new guidance, which was issued as SFAS No. 167,Amendments to FASB Interpretation No. 46(R)(“SFAS No. 167”), was adopted into Codification in December 2009. The objective of the guidance is to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. SFAS No. 167 is effective as of January 1, 2010. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued ASU 2010-04,Accounting for Various Topics – Technical Corrections to SEC Paragraphs (“ASU 2010-04”). This update makes technical corrections to existing Securities and Exchange Commission guidance including the following topics: accounting for subsequent investments, termination of an interest rate swap, issuance of financial statements - subsequent events, use of residential method to value acquired assets other than goodwill, adjustments in assets and liabilities for holding gains and losses, and selections of discount rate used for measuring defined benefit obligation. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06,Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, requires new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

In February 2010, the FASB issued ASU 2010-08,Technical Corrections to Various Topics(“ASU 2010-08’). ASU 2010-08 clarifies guidance on embedded derivatives and hedging. ASU 2010-08 is effective for interim and annual periods beginning after December 15, 2009. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20,Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The new disclosure guidance will significantly expand the existing requirements and will

15

lead to greater transparency into a company’s exposure to credit losses from lending arrangements. The extensive new disclosures of information as of the end of a reporting period will become effective for both interim and annual reporting periods ending after December 15, 2010. Specific items regarding activity that occurred before the issuance of the ASU, such as the allowance roll-forward and modification disclosures, will be required for periods beginning after December 15, 2010. The Company is currently assessing the impact that ASU 2010-20 will have on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

ITEM 2.

FIRST CAPITAL BANCORP, INC

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The purpose of this discussion is to focus on important factors affecting the Company’s financial condition and results of operations. The discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements included elsewhere in this report.

This report contains forward-looking statements with respect to the financial condition, results of operations and business of the Company. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of the Company and on information available at the time these statements and disclosures were prepared. Factors that may cause actual results to differ materially from those expected included the following:

• General economic conditions may deteriorate and negatively impact the ability of borrowers to repay loans and depositors to maintain balances.

• Changes in interest rates could reduce income.

• Competitive pressures among financial institutions may increase.

• The businesses that the Company is engaged in may be adversely affected by legislative or regulatory changes, including changes in accounting standards.

• New products developed or new methods of delivering products could result in a reduction in business and income for the Company.

• Adverse changes may occur in the securities market.

OVERVIEW

The net loss for the second quarter of 2010 was $3.5 million, and net loss available to common shareholders was $3.6 million, or ($1.23) per fully diluted share compared to a net loss of $731 thousand, and a net loss available to common shareholders of $898 thousand or ($0.30) per fully diluted share, in the second quarter of 2009. The loss in the second quarter of 2010 was primarily due to the addition of $6.3 million to the Company’s allowance for loan losses. As a result, the allowance for loan losses nearly doubled from $6.8 million at the end of the first quarter of 2010 to $11.5 million at June 30, 2010 which represents 2.78% of total loans. During the second quarter of 2010, the Company took an aggressive stance to protect against further deterioration of the economy and environmental factors that may affect the loan portfolio in the future. For the second quarter of 2009, the Company expensed $220 thousand in merger costs which ultimately was terminated and added $1.1 million to the allowance for loan losses bringing the allowance to 1.55% of total loans outstanding.

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Net loss for the first six months of 2010 was $3.1 million and net loss available to common shareholders was $3.5 million or ($1.16) per fully diluted share compared to a net loss of $629 thousand and a net loss available to common shareholders was $796 thousand or ($0.27) per fully diluted share for the same period of 2009.

From a revenue and cost perspective, income, pretax, pre-provision and pre-merger costs increased significantly from $310 thousand for the second quarter of 2009 to $980 thousand for the second quarter of 2010 an increase of 216%. For the six months ended June 30, 2010 income, pretax, pre-provision and pre-merger costs as compared to the comparable period in 2009 increased 186% to $1.9 million from $678 thousand. The following chart reconciles the above to the net (loss) for the periods presented.

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Income before provision, taxes and merger costs	$	980		$	310		$	1,937		$	678
Merger costs		—			220			—			220
Provision for loan losses		6,285			1,095			6,746			1,310
(Loss) before income tax		(5,305	)		(1,005	)		(4,809	)		(852	)
Income tax (benefit)		(1,833	)		(274	)		(1,689	)		(223	)
Net (loss)	$	(3,472	)	$	(731	)	$	(3,120	)	$	(629	)

Financial Condition

Total assets at June 30, 2010 were $545.8 million, up $15.4 million from $530.4 million at December 31, 2009. Net loans outstanding were $401.8 million at June 30, 2010 an increase of $4.7 million, compared to the 2009 year-end balance. Deposits grew by $13.6 million to $435.7 million and the Federal Home Loan Bank advances increased $5.0 to $55.0 million as compared to year-end 2009.

At June 30, 2010, the Company’s investment portfolio totaled $82.8 million, an increase of $4.2 million from $78.6 million at December 31, 2009 and an increase of $27.1 million from June 30, 2009. Most of the funds that are invested in the Company’s investment portfolio are part of management’s effort to balance interest rate risk and to provide liquidity and income to the Company.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income represents a principal source of earnings for the Company. Changes in net interest income during 2010 to date compared to net interest income for the second quarter of 2009 are attributable to relatively stable loan portfolio yields and a decrease in total funding costs.

Net interest margin increased 55 basis points for the three months ended June 30, 2010 to 3.06% as compared to 2.51% for the second quarter of 2009, reflecting a decrease in average rate paid on interest-bearing liabilities of 103 basis points from 3.38% for the second quarter of 2009 to 2.35% for the second quarter of 2010. This was offset by a 27 basis point decrease in the average yield on earning assets. The yield on loans, net of discount was 5.57% and 5.92% for the second quarters of 2010 and 2009, respectively. The decrease in yield as well as average earning assets was due to the charge-off of $247 thousand in interest in the second quarter of 2010 on non-performing loans. Without that adjustment, the net interest margin would have been 3.25% for the second quarter of 2010. The average yield on investments decreased from 4.41% for the second quarter of 2009 to 4.10% for the second quarter of 2010 as investments were called and replaced with lower yielding investments and rates on investments continue to drift lower due to worsening economic conditions.

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Net interest margin was down 16 basis points for the three months ended June 30, 2010, as compared to the first quarter of 2010. Without the charge-off on interest on non-performing loans, the net interest margin would have increased 3 basis points to 3.25% from 3.22% in the first quarter of 2010.

For the three months ended June 30, 2010, net interest income was up $983 thousand to $3.9 million from $2.9 million for the same period in 2009.

Total interest and fees on loans, the largest component of net interest income, increased 1.9%, or $108 thousand to $5.8 million during the second quarter of 2010 compared to $5.7 million for the same period in 2009 primarily due to loan growth, stable interest rates offset by write-off on interest on non-performing loans.

Interest expense on deposits decreased $707 thousand to $2.1 million, or 25.1% for the second quarter of 2010 compared to the comparable period of 2009. The decrease in deposit expense is due to the restructuring of the deposit mix and by a decrease in the overall rates paid on deposits as interest rate paid on interest bearing liabilities decreased 103 basis points to 2.35% from 3.38% for the second quarter of 2009.

For the six months ended June 30, 2010, the net interest margin increased 69 basis points from 2.45% for the first six months of 2009 to 3.14% for the comparable period of 2010. The primary increase of the net interest margin is in the reduction of interest bearing liabilities from 3.47% for the six months ended June 30, 2009 to 2.42% for the same period of 2010, a reduction of 105 basis points as interest expense decreased $1.4 million to $5.3 million for the first six months of 2010 as compared to $6.7 million for the comparable period in 2009.

Net interest income increased $2.4 million for the first six months of 2010 to $7.8 million or 43.7% from $5.4 million for the comparable period in 2009.

Average Balances, Income and Expenses, Yields and Rates

Net interest income represents our principal source of earnings. Net interest income is the amount by which interest generated from earning assets exceeds the expense of funding those assets. Changes in volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income.

Earning assets consist primarily of loans, investment securities and other investments. Interest-bearing liabilities consist principally of deposits, FHLB advances and other borrowings.

The following table illustrates average balances of total interest-earning assets and total interest-bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, shareholders’ equity and related income, expense and corresponding weighted-average yields and rates. The average balances used in these tables were calculated using daily average balances.

18

Average Balances, Income and Expenses, Yields and Rates

	Three Months Ended June 30,
	2010							2009
	Average Balance			Income/ Expense		Yields/ Rates		Average Balance			Income/ Expense		Yields/ Rates
	(Dollars in thousands)
Assets:
Securities:
Taxable	$	64,801		$	595	3.68	%	$	48,445		$	495	4.10	%
Tax exempt (1)		12,644			197	6.24	%		6,454			108	6.68	%
Total securities		77,445			792	4.10	%		54,899			603	4.41	%
Federal funds sold		20,906			12	0.23	%		28,005			11	0.16	%
FHLB & Federal Reserve Bank stock		4,579			27	2.37	%		4,069			22	2.14	%
Loans, net of unearned income (2)		415,853			5,774	5.57	%		384,015			5,665	5.92	%
Total earning assets		518,783			6,605	5.11	%		470,988			6,301	5.38	%
Allowance for loan losses		(6,892	)						(5,081	)
Cash and cash equivalents		6,501							5,777
OREO		2,565							3,467
Other nonearning assets		20,179							11,204
Total assets	$	541,136						$	486,355
Liabilities & Stockholders’ Equity:
Interest checking	$	8,950		$	8	0.38	%	$	7,413		$	7	0.38	%
Money market deposit accounts		150,198			490	1.31	%		78,093			402	2.07	%
Statement savings		720			1	0.50	%		688			1	0.47	%
Certificates of deposit		229,893			1,613	2.81	%		255,017			2,410	3.80	%
Total interest-bearing deposits		389,761			2,112	2.17	%		341,211			2,820	3.32	%
Federal funds purchased		—			—	0.00	%		—			—	0.00	%
Repurchase agreements		911			1	0.50	%		1,571			2	0.49	%
Subordinated debt		7,155			58	3.24	%		7,155			69	3.90	%
FHLB Advances		55,000			478	3.49	%		50,000			469	3.77	%
Total interest bearing liabilities		452,827			2,649	2.35	%		399,937			3,360	3.38	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		39,011							37,528
Other noninterest-bearing liabilities		2,003							3,129
Shareholders’ equity		47,295							45,761
Total liabilities and shareholders’ equity	$	541,136						$	486,355
Net interest spread						2.76	%						2.00	%
Impact of noninterest-bearing sources						0.30	%						0.50	%
Net interest margin				$	3,956	3.06	%				$	2,941	2.51	%
Ratio of average interest earning assets to average interest-bearing liabilities						114.57	%						117.77	%

(1) Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.

(2) Nonaccrual loans have been included in the computations of average loan balances

19

Average Balances, Income and Expenses, Yields and Rates

	Six Months Ended June 30,
	2010							2009
	Average Balance			Income/ Expense		Yields/ Rates		Average Balance			Income/ Expense		Yields/ Rates
	(Dollars in thousands)
Assets:
Securities:
Taxable	$	65,900		$	1,239	4.06	%	$	41,280		$	896	4.38	%
Tax exempt (1)		11,690			366	6.32	%		5,123			168	6.60	%
Total securities		77,590			1,605	4.06	%		46,403			1,064	4.62	%
Federal funds sold		16,970			20	0.23	%		23,032			19	0.17	%
FHLB & Federal Reserve Bank stock		4,491			43	1.94	%		3,964			27	1.36	%
Loans, net of unearned income (2)		411,692			11,604	5.68	%		380,909			11,087	5.87	%
Total earning assets		510,743			13,272	5.24	%		454,308			12,197	5.41	%
Allowance for loan losses		(6,792	)						(5,099	)
Cash and cash equivalents		6,311							5,720
OREO		2,926							3,198
Other nonearning assets		18,187							10,838
Total assets	$	531,375						$	468,965
Liabilities & Stockholders’ Equity:
Interest checking	$	7,582		$	16	0.44	%	$	7,939		$	14	0.36	%
Money market deposit accounts		146,171			1,017	1.40	%		65,940			713	2.18	%
Statement savings		683			2	0.50	%		685			2	0.47	%
Certificates of deposit		228,347			3,227	2.85	%		255,758			4,886	3.85	%
Total interest-bearing deposits		382,783			4,262	2.25	%		330,322			5,615	3.43	%
Federal funds purchased		—			—	0.00	%		—			—	0.00	%
Repurchase agreements		956			2	0.50	%		1,712			3	0.40	%
Subordinated debt		7,155			115	3.23	%		7,155			147	4.15	%
FHLB Advances		53,370			945	3.57	%		50,000			932	3.76	%
Total interest bearing liabilities		444,264			5,324	2.42	%		389,189			6,697	3.47	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		38,008							37,059
Other noninterest-bearing liabilities		2,037							2,187
Shareholders’ equity		47,066							40,530
Total liabilities and shareholders’ equity	$	531,375						$	468,965
Net interest spread						2.82	%						1.94	%
Impact of noninterest-bearing sources						0.31	%						0.51	%
Net interest margin				$	7,948	3.14	%				$	5,500	2.45	%
Ratio of average interest earning assets to average interest-bearing liabilities						114.96	%						116.73	%

(1) Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.

(2) Nonaccrual loans have been included in the computations of average loan balances

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Noninterest Income

Total noninterest income was $315 thousand for the second quarter of 2010, compared to $207 thousand for the same period of 2009. Fees on deposits increased 12.9% to $70 thousand for the second quarter of 2010 compared to $62 thousand for the same period in 2009. Gain on sale of securities was $142 thousand for the second quarter of 2010 as the Company took advantage of higher prices on its investment portfolio. Other noninterest income decreased $41 thousand to $104 thousand for the second quarter of 2010 from $145 thousand for the second quarter of 2009, primarily due to a decrease in late charges during the period as the result of charge-offs and placing loans on non-accrual.

Noninterest Expense

This category includes all expenses other than interest paid on deposits and borrowings. Total noninterest expenses for the second quarter of 2010 totaled $3.2 million, an increase of $202 thousand, or 6.7%, compared to $3.0 million for the same period in 2009. Salaries and employee benefits increased $259 thousand due to key additions to the lending and management team (Chief Credit Officer) during 2009 and the first quarter of 2010. The Company incurred $220 thousand in merger costs in the second quarter of 2009 in a transaction which was ultimately terminated in the fourth quarter of 2009. FDIC premiums decreased to $227 thousand for the second quarter of 2010, a reduction of $253 thousand compared to $480 thousand for the comparable period in 2009. The second quarter of 2009 included a special assessment by the FDIC. Virginia franchise tax increased $30 thousand as the result of the additional equity capital infusion in First Capital Bank in 2009. Other expenses increased $173 thousand from $463 thousand for the second quarter of 2009 to $636 thousand for the quarter ended June 30, 2010. The primary cause of the increase was due to increases in losses on sale of OREO and write-down of existing OREO to more accurately reflect the market value of those assets. Losses for the three months ended June 30, 2010 were $189 thousand compared to $2 thousand in the second quarter of 2009. Occupancy expense decreased $50 thousand for the second quarter of 2010 to $156 thousand from $206 thousand for the comparable period in 2009 as the Company purchased its headquarter building in 2010 as compared to renting the building in 2009. Depreciation expense increased $23 thousand to $128 thousand for the three months ended June 30, 2010 as compared to the comparable period in 2009 due to additional depreciation on the headquarters building purchased in 2010. Professional fees increased $148 thousand for the second quarter of 2010 to $263 thousand compared to $115 thousand for the comparable period in 2009 as legal fees were incurred related to problem loans.

For the six months ended June 30, 2010, total noninterest expense increased $1.1 million from $5.4 million in 2009 to $6.4 million in 2010, a 19.8% increase. Salaries and employee benefits increased 20.1% to $2.8 million for the six months ended June 30, 2010 from $2.3 million for the comparable period in 2009 due to key additions to the lending and management team. Merger costs decreased $220 thousand as described above. Professional fees increased $139 thousand to $380 thousand as the result of resolutions of problem loans. Other expenses increased $640 thousand to $1.4 million for the six months of 2010 from $770 thousand for the comparable period in 2009 due to losses on sale of OREO and write-downs on OREO totaling $542 thousand for the six month period ended June 30, 2010 compared to $2 thousand for the comparable period in 2009.

Income Taxes

The income tax benefit for the quarter ended June 30, 2010 was $1.8 million compared to $274 thousand in the same quarter of the prior year, a $1.6 million increase with the increased benefit resulting from an increase in loss before tax of $4.3 million.

ASSET QUALITY

The Company’s allowance for loan losses is an estimate of the amount needed to provide for possible losses in the loan portfolio. In determining adequacy of the allowance, management considers a number of factors, including, the Company’s historical loss experience, the size and composition of the loan portfolio, specific impaired loans, the overall level of nonperforming loans, the value and adequacy of collateral and guarantors, experience and depth of lending staff, effects of credit concentrations and economic conditions. Because the risk of loan loss includes general economic trends as well as conditions affecting individual borrowers, the allowance for loan losses can only be an estimate.

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Total nonperforming assets, which consist of nonaccrual loans, loans past due 90 days and still accruing interest, and foreclosed properties, were $13.3 million at June 30, 2010, up from $12.9 million at March 31, 2010, up from $7.0 million at December 31, 2009 and up $6.1 million at June 30, 2009. This increase is the result of a depressed economy and a weak real estate market, which has slowed sales of homes. Nonperforming assets are composed largely of loans secured by real estate and repossessed properties in our OREO portfolio. At the end of the second quarter, OREO was $2.1 million down from $3.0 million at March 31, 2010 and compared to $3.0 million at the end of June 2009. At June 30, 2010, we had one home and twenty developed lots in this portfolio.

The Company continues to take an aggressive stance as it relates to its loans and troubled assets. During the second quarter of 2010 the Company adjusted its carrying value of OREO by $180 thousand to better reflect the market value of those assets.

Nonaccrual loans were $11.2 million at June 30, 2010, up from $6.5 million at March 31, 2010 and up from $3.6 million at December 31, 2009. The increase reflects the continued deterioration in the economy and our customers’ ability to pay as contractually required.

Loan charge-offs, less recoveries, amounted to $1.6 million for the second quarter of 2010 compared to $262 thousand for the first quarter of 2010 and compared to $130 thousand in the second quarter of 2009. For the second quarter of 2010, the provision for loan losses was $6.3 million compared to $461 thousand for the first quarter of 2010, and compared to $1.1 million in the comparable period of 2009. With the high level of real estate secured debt and the large increase in loan loss reserves taken, management is confident that we can successfully manage through the economic downturn. We anticipate continued provision expenses as the asset quality dictates the need.

Although the Company believes it has sufficient allowance for its existing portfolio, there can be no assurances that an additional allowance for losses on existing loans may not be necessary in the future. The allowance for loan losses totaled $11.5 million at June 30, 2010 compared to $6.8 million at March 31, 2010 and $6.1 million at June 30, 2009. The ratio of the allowance for loan losses to total loans outstanding at June 30, 2010 was 2.78% compared to 1.65% at March 31, 2010 and 1.55% at June 30, 2009. Loans that were more than 30 days but less than 90 days past due totaled $7.4 million, or 1.79% of loans outstanding at June 30, 2010, up from $4.4 million, or 1.1% of loans outstanding at March 31, 2010, and up from $1.6 million at December 31, 2009.

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

Non-performing Assets

	June 30,						December 31,
	2010			2009			2009			2008
Nonaccrual loans	$	11,185		$	2,938		$	3,607		$	4,411
Accruing loans greater than 90 days past due		50			146			—			—
Total non-performing loans		11,235			3,084			3,607			4,411
Other real estate owned		2,102			3,039			3,388			2,158
Total non-performing assets	$	13,337		$	6,123		$	6,995		$	6,569
Non-performing assets to period end loans & OREO		3.21	%		1.56	%		1.72	%		1.75	%
Non-performing assets to total assets		2.44	%		1.24	%		1.32	%		1.52	%

LIQUIDITY

Management monitors and plans the Company’s liquidity position for future periods. Liquidity is provided from cash, interest-bearing deposits in other banks, repayments of loans, increases in deposits, federal funds facility from three correspondent banks, term loans from a federal agency bank and maturing investments. Management is committed to maintaining liquidity at a level sufficient to protect depositors, provide for reasonable growth, and fully comply with all regulatory requirements.

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At June 30, 2010, cash and cash equivalents totaled $33.1 million. Investment securities available-for-sale and not pledged totaled $78.5 million, for a total of 14.1% of total assets, which management believe is adequate to meet short-term liquidity needs. Management also has alternative sources of funding available, including unused unsecured federal funds facilities with three banks totaling $29.5 million and unused available term loans through the FHLB totaling $7.8 million.

Total liquidity and other alternative sources of liquidity totaled $147.5 million at June 30, 2010 if fully utilized, which represents 27.0% of total assets.

Off-Balance Sheet Arrangements

In the normal course of business there are outstanding commitments for the extension of credit which are not reflected in the financial statements. At June 30, 2010, pre-approved but unused lines of credit for loans totaled approximately $62.3 million. In addition, we had approximately $7.0 million in financial and performance standby letters of credit at June 30, 2010. 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.

CAPITAL RESOURCES

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material affect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Management reviews the adequacy of the Company’s capital on an ongoing basis with reference to the size, composition, and quality of the Company’s resources and compliance with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and absorb potential losses.

Federal regulatory risk-based capital ratio guidelines require percentages to be applied to various assets including off-balance sheet assets in relation to their perceived risk. Tier 1 capital consists of stockholders’ equity and minority interests in consolidated subsidiaries, less net unrealized gains on available-for-sale securities. Tier 2 capital, a component of total capital, consists of a portion of the allowance for loan losses, certain components of nonpermanent preferred stock and subordinated debt. The $5 million in trust preferred securities issued by the Company in September 2006 qualified as Tier 1 capital. First Capital Bank’s ratios exceed regulatory requirements. As of June 30, 2010, First Capital Bancorp, Inc. had a Tier 1 risk-based capital ratio of 11.20% and a Total risk-based capital ratio of 12.94%. At December 31, 2009 these ratios were 12.36% and 14.09%, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A

ITEM 4. CONTROLS AND PROCEDURES

We maintain a system of internal controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the

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effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in periodic SEC filings. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings – None to report

Item 1A. Risk Factors – Not Applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds – Not Applicable

Item 3. Defaults Upon Senior Securities – Not Applicable

Item 4. (Removed and Reserved)

Item 5. Other Information – None to report

Item 6. Exhibits

Exhibit No.	Description of Exhibit
3.1	Articles of Incorporation of First Capital Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of Form 10-QSB filed November 13, 2006)
3.2	Amended and Restated Bylaws of First Capital Bancorp, Inc. (incorporated by reference to Exhibit 3.2 of Form 8-K filed May 22, 2007)
3.3	Articles of Amendment to the Company’s Articles of Incorporation, designating the terms of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 3.1 of Form 8-K filed April 6, 2009)
4.1	Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 4.1 of Form 8-K filed April 6, 2009)
4.2	Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 4.1 of Form 8-K filed on April 6, 2009)
4.3	Warrant to Purchase Shares of Common Stock, dated April 3, 2009 (incorporated by reference to Exhibit 4.2 of Form 8-K filed April 6, 2009)
31.1	Certification of John M. Presley Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 16, 2010.
31.2	Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 16, 2010.
31.3	Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 16, 2010.
32	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 16, 2010.

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99.1	A Banker’s Professional Code of Ethics as adopted by First Capital Bank (incorporated by reference to Exhibit 99.1 of Form 10-KSB/A filed on June 13, 2007).
99.2	Code of Conduct and Conflict of Interest as adopted by First Capital Bank (incorporated by reference to Exhibit 99.2 of Form 10-KSB/A filed on June 13, 2007).
99.3	Certification of John M. Presley Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009 (incorporated by reference to Exhibit 99.3 of Form 10-K filed on March 31, 2010).
99.4	Certification of William W. Ranson Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009 (incorporated by reference to Exhibit 99.3 of Form 10-K filed on March 31, 2010).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

First Capital Bancorp, Inc.
Date: August 16, 2010	By:	/s/ John M. Presley
		John M. Presley
		Managing Director and Chief Executive Officer
	By:	/s/ William W. Ranson
		William W. Ranson
		Chief Financial Officer, Treasurer and Secretary

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