First Capital Bancorp (FCVA) 10-Q 2011 Q1 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 March 31, 2011

¨ 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, 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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company 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 May 12, 2011.

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1 –	Financial Statements
	Consolidated Statements of Financial Condition March 31, 2011 (unaudited) and December 31, 2010		3
	Consolidated Statements of Operations For the Three Months Ended March 31, 2011 and 2010 (unaudited)		4
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income For the Three Months Ended March 31, 2011 and 2010 (unaudited)		5
	Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2011 and 2010 (unaudited)		6
	Notes to Consolidated Financial Statements (unaudited)		7
Item 2 –	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3 –	Quantitative and Qualitative Disclosures About Market Risk – Not Applicable		26
Item 4 –	Controls and Procedures		26
PART II – OTHER INFORMATION
Item 1 –	Legal Proceedings – None to Report.		26
Item 1A –	Risk Factors – Not Applicable		26
Item 2 –	Unregistered Sales of Equity Securities and Use of Proceeds – None.		26
Item 3 –	Defaults Upon Senior Securities – None.		26
Item 4 –	(Removed and Reserved)		27
Item 5 –	Other Information – None to Report		27
Item 6 –	Exhibits		27
SIGNATURES			28

2

PART 1 - FINANCIAL INFORMATION

Item 1 - Financial Statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

	March 31,			December 31,
	2011			2010
	(Unaudited)			(Audited)
ASSETS
Cash and due from banks		6,004,632		$	6,210,383
Interest-bearing deposits in other banks		27,649,631			26,157,038
Investment securities:
Available for sale, at fair value		82,244,043			86,786,676
Held to maturity, at cost		2,887,058			2,389,391
Restricted, at cost		4,680,039			4,668,789
Loans, net of allowance for losses		382,324,312			386,208,792
Other real estate owned		2,739,363			2,614,828
Premises and equipment, net		11,401,518			11,400,268
Accrued interest receivable		2,037,343			2,061,532
Deferred tax asset		3,262,597			3,530,265
Prepaid FDIC premiums		1,939,274			2,206,038
Other assets		1,833,358			1,791,035
Total assets	$	529,003,168		$	536,025,035
LIABILITIES
Deposits
Noninterest-bearing	$	41,507,977		$	40,379,369
Interest-bearing		377,243,490			386,491,424
Total deposits		418,751,467			426,870,793
Accrued expenses and other liabilities		2,645,394			2,248,185
Securities sold under repurchase agreements		1,156,818			1,076,521
Subordinated debt		7,155,000			7,155,000
Federal Home Loan Bank advances		55,000,000			55,000,000
Total liabilities		484,708,679			492,350,499
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)		11,884,684			11,884,684
Additional paid-in capital		29,757,092			29,739,129
Retained earnings		1,925,947			1,643,335
Warrants		660,769			660,769
Discount on preferred stock		(401,766	)		(434,494	)
Accumulated other comprehensive income, net of tax		423,931			137,281
Total stockholders’ equity		44,294,489			43,674,536
Total liabilities and stockholders’ equity	$	529,003,168		$	536,025,035

See notes to consolidated financial statements.

3

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

Three Months Ended March 31, 2011 and 2010

	March 31,
	2011		2010
	(Unaudited)
Interest income
Loans	$	5,525,191	$	5,829,544
Investments:
Taxable interest income		572,501		644,386
Tax exempt interest income		156,852		112,139
Dividends		25,887		16,060
Federal funds sold and interest bearing deposits		14,725		7,662
Total interest income		6,295,156		6,609,791
Interest expense
Deposits		1,739,957		2,150,361
FHLB advances		407,875		466,607
Subordinated debt and other borrowed money		35,226		58,068
Total interest expense		2,183,058		2,675,036
Net interest income		4,112,098		3,934,755
Provision for loan loss		700,000		461,000
Net interest income after provision for loan loss		3,412,098		3,473,755
Noninterest income
Fees on deposits		75,575		64,131
Gain on sale of securities		20,915		24,712
Other		124,423		143,231
Total noninterest income		220,913		232,074
Noninterest expenses
Salaries and employee benefits		1,419,049		1,392,491
Occupancy expense		204,978		214,525
Data processing		187,044		166,292
Professional services		137,064		117,201
Advertising and marketing		44,112		30,672
FDIC assessment		273,764		272,146
Virginia franchise tax		135,000		135,000
Write-down and losses on OREO		27,822		352,836
Depreciation		150,380		106,952
Other expenses		423,883		421,959
Total noninterest expense		3,003,096		3,210,074
Net income before provision for income taxes		629,915		495,755
Income tax expense		177,600		144,000
Net income	$	452,315	$	351,755
Effective dividend on preferred stock		169,703		169,299
Net income available to common shareholders	$	282,612	$	182,456
Basic net income per common share	$	0.10	$	0.06
Diluted net income per common share	$	0.10	$	0.06

See notes to consolidated financial statements.

4

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

Three Months Ended March 31, 2011 and 2010

(Unaudited)

	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings			Warrants		Discount on Preferred Stock			Accumulated Other Comprehensive Income (Loss)		Total
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 income		—		—		—		351,755			—		—			—		351,755
Other comprehensive income
Unrealized holding gain arising during period, (net of tax, $113,558)		—		—		—		—			—		—			220,436		220,436
Total comprehensive income																—	$	572,191
Preferred stock dividend								(136,975	)									(136,975	)
Accretion of discount on preferred stock								(32,324	)				32,324					—
Stock based compensation		—		—		11,935		—			—		—					11,935
Balance March 31, 2010	$	43,832	$	11,884,684	$	29,708,049	$	4,675,927		$	660,769	($	532,071	)	$	464,391	$	46,905,581
Balance January 1, 2011	$	43,832	$	11,884,684	$	29,739,129	$	1,643,335		$	660,769	($	434,494	)	$	137,281	$	43,674,536
Net income		—		—		—		452,315			—		—			—		452,315
Other comprehensive income
Unrealized holding gain arising during period, (net of tax, $147,669)		—		—		—		—			—		—			286,651		286,651
Total comprehensive income																—	$	738,966
Preferred stock dividend		—		—		—		(136,975	)		—		—					(136,975	)
Accretion of discount on preferred stock		—		—		—		(32,728	)		—		32,728					—
Stock based compensation		—		—		17,962		—			—		—					17,962
Balance March 31, 2011	$	43,832	$	11,884,684	$	29,757,091	$	1,925,947		$	660,769	($	401,766	)	$	423,932	$	44,294,489

See notes to consolidated financial statements.

5

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2011 and 2010

	2011			2010
	(Unaudited)
Cash flows from operating activities
Net income	$	452,315		$	351,755
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		700,000			461,000
Depreciation of premises and equipment		150,380			106,952
Stock based compensation expense		17,963			11,935
Deferred income taxes		119,999			(20,000	)
Gain on sale of securities		(20,915	)		(24,712	)
Loss on sale of OREO		27,822			352,836
Net amortization of bond premiums/discounts		192,169			134,531
Increase (decrease) in other assets		224,441			(692,187	)
Decrease in accrued interest receivable		24,189			149,147
Increase in accrued expenses and other liabilities		397,209			48,363
Net cash provided by operating activities		2,285,572			879,620
Cash flows from investing activities
Proceeds from maturities and calls of securities		5,000,000			5,950,000
Proceeds from paydowns of securities available-for-sale		3,594,379			2,863,772
Purchase of securities available-for-sale		(5,378,848	)		(5,402,340	)
Proceeds from sale of securities available-for-sale		1,092,500			999,500
Proceeds from sale of OREO		147,643			317,410
Purchase of FHLB Stock		(9,000	)		(242,800	)
Purchase of Federal Reserve Stock		(2,250	)		(267,700	)
Purchases of premises and equipment		(151,630	)		(116,252	)
Net decrease (increase) in loans		2,884,480			(10,068,367	)
Net cash provided (used) in investing activities		7,177,274			(5,966,777	)
Cash flows from financing activities
Net (decrease) increase in deposits		(8,119,326	)		919,222
Advances from FHLB		—			5,000,000
Dividends on preferred stock		(136,975	)		(136,975	)
Net increase (decrease) in repurchase agreements		80,297			(154,949	)
Net cash (used) provided by financing activities		(8,176,004	)		5,627,298
Net increase in cash and cash equivalents		1,286,842			540,141
Cash and cash equivalents, beginning of period		32,367,421			31,666,612
Cash and cash equivalents, end of period	$	33,654,263		$	32,206,753
Supplemental disclosure of cash flow information
Interest paid during the period	$	2,186,976		$	2,716,286
Taxes paid during the period	$	325,000		$	320,000
Supplemental schedule of noncash investing and financing activities
Transfer of loans to other real estate owned	$	300,000		$	302,000
Unrealized gain on securities available for sale	$	434,319		$	220,436

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 March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and 2010, in conformity with accounting principles generally accepted in the United States of America. Results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2011.

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, 2010 filed as part of the Company’s annual report on Form 10-K. These interim financial statements should be read in conjunction with the annual financial statements.

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

Note 2 – Use of Estimates

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

Note 3 – Earnings per share

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

7

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

	Three Months Ended March 31,
	2011		2010
Net available to common shareholders	$	282,612	$	182,456
Weighted average number of shares outstanding		2,971,171		2,971,171
Income per common share - basic	$	0.10	$	0.06
Effect of dilutive securities:
Weighted average number of shares outstanding		2,971,171		2,971,171
Effect of stock options		—		—
Diluted average shares outstanding		2,971,171		2,971,171
Income per common share - assuming dilution	$	0.10	$	0.06

For the three months periods ended March 31, 2011 and 2010, the Company has excluded 435,949 shares and 118,635 shares from the calculation of diluted earnings per share as they are anti-diluting since the strike price is greater than the average market price.

Note 4 – Stock Options

Accounting standards require the Company to measure compensation cost for all stock-based awards at fair value on the date of grant and recognizes compensation expense in the consolidated statements of income over the service period that the awards are expected to vest.

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

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

Dividend yield		0.00	%
Expected life in years		6
Expected volatility		51.77	%
Risk-free interest rate		2.87	%
Weighted average fair value per option granted	$	1.35

The stock based compensation expensed during the three months ended March 31, 2011 was $17,963 and is included in salaries and employee benefits.

Note 5 – Investment Securities

The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities as of March 31, 2011 and December 31, 2010 were as follows:

	March 31, 2011
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
Available-for-sale
U.S. Government agencies	$	2,523,395	$	29,195	$	—	$	2,552,590
Mortgage-backed securities		14,811,379		341,072		189,947		14,962,504
Corporate bonds		5,328,780		101,498		3,854		5,426,424
CMO securities		30,598,381		515,838		96,615		31,017,604
State and political subdivisions - taxable		12,809,066		154,598		302,210		12,661,454
State and political subdivisions - tax exempt		12,142,414		182,658		78,249		12,246,823
SBA - Guarantee portion		3,387,792		6,050		17,198		3,376,644
	$	81,601,207	$	1,330,909	$	688,073	$	82,244,043

8

	December 31, 2010
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
Available-for-sale
U.S. Government agencies	$	6,532,851	$	48,439	$	—	$	6,581,290
Mortgage-backed securities		14,834,604		346,624		159,511		15,021,717
Corporate bonds		6,411,962		20,519		31,318		6,401,163
CMO securities		30,586,678		567,898		110,961		31,043,615
State and political subdivisions - taxable		12,319,449		105,896		418,673		12,006,672
State and political subdivisions - tax exempt		12,149,884		88,256		245,851		11,992,289
SBA - Guarantee portion		3,742,730		12,204		15,004		3,739,930
	$	86,578,158	$	1,189,836	$	981,318	$	86,786,676

	March 31, 2011
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
Held-to-maturity
Tax-exempt municipal bonds	$	2,887,058	$	86,542	$	88,667	$	2,884,933
	$	2,887,058	$	86,542	$	88,667	$	2,884,933
	December 31, 2010
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
Held-to-maturity
Tax-exempt municipal bonds	$	2,389,391	$	53,444	$	80,888	$	2,361,947
	$	2,389,391	$	53,444	$	80,888	$	2,361,947

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

• the entity intends to sell the security;

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

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

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

The Company conducts an assessment of its securities portfolio for OTTI consideration during each quarter. The assessment considers factors such as external credit ratings, delinquency ratios, market price, management’s judgment, expectations of future performance and relevant industry research and analysis. All unrealized losses are considered by management to be temporary given investment security credit ratings, the short duration of the unrealized losses and the intent and ability to retain these securities for a period of time sufficient to recover all unrealized losses. Management’s assessment for the current quarter ended March 31, 2011 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 March 31, 2011 and December 31, 2010.

	March 31, 2011
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Assets:
Mortgage-backed securities	$	5,203,164	$	189,948	$	—	$	—	$	5,203,164	$	189,948
Corporate bonds		3,878,667		3,855		—		—		3,878,667		3,855
CMO securities		7,582,826		96,615		—		—		7,582,826		96,615
State & political subdivisions-taxable		8,402,363		302,209		—		—		8,402,363		302,209
State & political subdivisions-tax exempt		4,947,546		166,915						4,947,546		166,915
SBA		2,604,112		17,198		—		—		2,604,112		17,198
All securities	$	32,618,678	$	776,740	$	—	$	—	$	32,618,678	$	776,740

	December 31, 2010
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Assets:
Mortgage-backed securities	$	6,050,579	$	159,511	$	—	$	—	$	6,050,579	$	159,511
Corporate bonds		5,336,726		31,318		—		—		5,336,726		31,318
CMO securities		6,545,351		110,961		—		—		6,545,351		110,961
State & political subdivisions-taxable		10,010,637		418,673		—		—		10,010,637		418,673
State & political subdivisions-tax exempt		8,918,277		326,739						8,918,277		326,739
SBA		2,073,125		15,004		—		—		2,073,125		15,004
All securities	$	38,934,695	$	1,062,206	$	—	$	—	$	38,934,695	$	1,062,206

Note 6 – Loans

Major classifications of loans are as follows:

	March 31,		December 31,
	2011		2010
	Amount		Amount
Commercial	$	45,185,766	$	48,004,443
Real estate - residential		145,930,559		145,661,487
Real estate - commercial		141,937,665		145,399,093
Real estate - construction		55,877,958		54,440,560
Consumer		3,804,272		3,692,687
Total loans		392,736,220		397,198,270
Less:
Allowance for loan losses		10,569,602		11,036,134
Net deferred costs		157,694		46,656
Loans, net	$	382,324,312	$	386,208,792

10

Activity in the allowance for loan losses for the three months ended March 31, 2011 and 2010:

	2011			2010
Balance, beginning of period	$	11,036,134		$	6,600,360
Provision for loan losses		700,000			461,000
Recoveries		7,006			11,485
Charge-offs		(1,173,538	)		(273,258	)
Balance, March 31	$	10,569,602		$	6,799,587

The ratio of allowance for loan losses as a percent of loans outstanding as of March 31, 2011 and December 31, 2010 was 2.69% and 2.78%, respectively.

The following table presents the aging of the unpaid principal in past due loans as of March 31, 2011 and December 31, 2010:

	March 31, 2011
	30 - 89 Days		90+ Days		Nonaccrual		Current
	Past Due		Past Due		Loans		Loans		Total
	(Dollars in thousands)
Commercial	$	536	$	—	$	4,813	$	39,837	$	45,186
Real Estate
Residential		3,733		41		11,062		131,094		145,930
Commercial		310		—		355		141,273		141,938
Construction		1,107		—		4,288		50,483		55,878
Consumer		797		—				3,007		3,804
Total	$	6,483	$	41	$	20,518	$	365,694	$	392,736

	December 31, 2010
	30 - 89 Days		90+ Days		Nonaccrual		Current
	Past Due		Past Due		Loans		Loans		Total
	(Dollars in thousands)
Commercial	$	—	$	993	$	5,615	$	41,396	$	48,004
Real Estate
Residential		735		564		11,972		132,390		145,661
Commercial		—		—		355		145,044		145,399
Construction		492		—		4,413		49,536		54,441
Consumer		10		—		—		3,683		3,693
Total	$	1,237	$	1,557	$	22,355	$	372,049	$	397,198

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The following table provides details of the Company’s loan portfolio internally assigned grade at March 31, 2011 and December 31, 2010:

	March 31, 2011
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(Dollars in thousands)
Commercial	$	36,339	$	2,740	$	6,107	$	—	$	—	$	45,186
Real Estate
Residential		114,841		11,384		17,506		2,199		—		145,930
Commercial		134,202		3,732		4,004		—		—		141,938
Construction		20,585		20,287		15,006		—		—		55,878
Consumer		2,827		887		90		—		—		3,804
	$	308,794	$	39,030	$	42,713	$	2,199	$	—	$	392,736
	December 31, 2010
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
					(Dollars in thousands)
Commercial	$	36,318	$	3,884	$	7,802	$	—	$	—	$	48,004
Real Estate
Residential		109,950		13,226		22,440		45		—		145,661
Commercial		132,060		12,180		1,159		—		—		145,399
Construction		19,394		19,884		15,163		—		—		54,441
Consumer		3,415		188		90		—		—		3,693
	$	301,137	$	49,362	$	46,654	$	45	$	—	$	397,198

These credit quality indicators are defined as follows:

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

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

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

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

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

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The following table provides details regarding impaired loans by segment and class at March 31, 2011 and December 31, 2010:

	March 31, 2011						December 31, 2010
	Recorded Balance in Impaired Loans		Unpaid Principal Balance of Impaired Loans		Related Allowance		Recorded Balance in Impaired Loans		Unpaid Principal Balance of Impaired Loans		Related Allowance
					(Dollars in thousands)
With no related allowance:
Commercial	$	672	$	678	$	—	$	543	$	544	$	—
Real Estate
Residential		4,479		4,647		—		4,183		4,263		—
Commercial		—		—		—		—		—		—
Construction		1,458		2,568		—		1,576		2,669		—
Total	$	6,609	$	7,893	$	—	$	6,302	$	7,476	$	—
With an allowance:
Commercial	$	4,141	$	4,198	$	1,262	$	5,072	$	5,088	$	1,912
Real Estate
Residential		7,387		7,416		1,937		8,945		8,965		2,927
Commercial		355		367		138		355		367		138
Construction		4,859		4,878		1,191		4,866		4,881		741
Total	$	16,742	$	16,859	$	4,528	$	19,238	$	19,301	$	5,718
Total:
Commercial	$	4,813	$	4,876	$	1,262	$	5,615	$	5,632	$	1,912
Real Estate
Residential		11,866		12,063		1,937		13,128		13,228		2,927
Commercial		355		367		138		355		367		138
Construction		6,317		7,446		1,191		6,442		7,550		741
Total	$	23,351	$	24,752	$	4,528	$	25,540	$	26,777	$	5,718

Note 7 – Other Real Estate Owned

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

Beginning balance	$	2,614,828
Additions		300,000
Sales		(175,465	)
Write-downs		—
Other changes		—
Ending balance	$	2,739,363

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Note 8 – Fair Value Disclosures

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with 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.

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.

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The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010. 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.

	March 31, 2011
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
Assets:
Available-for-sale securities	$	—	$	82,244,043	$	—	$	82,244,043
	December 31, 2010
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
Assets:
Available-for-sale securities	$	—	$	86,786,676	$	—	$	86,786,676

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 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.

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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.

	March 31, 2011
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
Impaired loans	$	—	$	—	$	23,350,833	$	23,350,833
Other real estate owned		—		—		2,739,363		2,739,363
Total	$	—	$	—	$	26,090,196	$	26,090,196
	December 31, 2010
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
Impaired loans	$	—	$	—	$	25,539,638	$	25,539,638
Other real estate owned		—		—		2,614,828		2,614,828
Total	$	—	$	—	$	28,154,466	$	28,154,466

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 transactions, adjusted for differences in loan characteristics. Fair values for commercial real estate and commercial loans are estimated using discounted cash flow analyses and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The interest rates on loans at March 31, 2011 and December 31, 2010 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.

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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 March 31, 2011 and December 31, 2010.

The estimated fair values of the Company’s financial instruments as of March 31, 2011 and December 31, 2010 are as follows:

	March 31, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	33,654	$	33,654	$	32,367	$	32,367
Investment securities		85,131		85,129		89,176		89,149
Loans receivable, net		382,324		390,521		386,209		394,489
Accrued interest		2,037		2,037		2,062		2,062
Financial liabilities
Deposits	$	418,751	$	421,425	$	426,871	$	429,597
FHLB advances		55,000		57,952		55,000		57,766
Federal funds purchased		—		—		—		—
Subordinated debt		7,155		3,542		7,155		3,455
Repurchase agreements		1,157		1,157		1,077		1,077
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.

Note 9 – Recently Issued Accounting Pronouncements

ASU No. 2010-06,Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures About Fair Value Measurements, requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are

17

recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) company’s should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy is required for us beginning January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective for us on January 1, 2010.

ASU No. 2010-20 ,Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable. The required disclosures include, among other things, a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 was effective for our financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period were effective January 1, 2011 and had no impact on our financial statements.

ASU No. 2011-01,Receivables (Topic 310) – Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 temporarily delayed the effective date of the disclosures regarding troubled debt restructurings in ASU No. 2010-20 for public entities. The effective date is for interim and annual reporting periods ending after June 15, 2011.

ASU No.2011-02,Receivables ( Topic 310 ): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuringprovides additional guidance to clarify when a loan modification or restructuring is considered a troubled debt restructuring (TDR) in order to address current diversity in practice and lead to more consistent application of U.S. GAAP for debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (1) the restructuring constitutes a concession, and (2) the debtor is experiencing financial difficulties. The amendments to Topic 310 clarify the guidance regarding the evaluation of both considerations above. Additionally, the amendments clarify that a creditor is precluded from using the effective interest rate test in the debtor’s guidance on restructuring of payables (paragraph 470-60-55-10) when evaluating whether a restructuring constitutes a TDR. This amendment is effective for us July 1, 2011. Early adoption is permitted. Retrospective application to the beginning of the annual period of adoption for modifications occurring on or after the beginning of the annual adoption period is required. As a result of applying these amendments, we may identify receivables that are newly considered to be impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011.

ASU No. 2010-28,Intangibles – Goodwill and Other (Topic 350) – When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples in paragraph 350-20-35-30, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This amendment was effective for us January 1, 2011 and had no impact on our financial statements.

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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.

RECENT LEGISLATION

On July 21, 2010, sweeping financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”) was signed into law by President Obama. The Dodd-Frank Act implements far-reaching changes across the financial regulatory landscape. Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry generally. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits and interchange fees could increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate.

OVERVIEW

The net income for the first quarter of 2011 was $452 thousand, and net income available to common shareholders was $283 thousand, or $0.10 per fully diluted share compared to a net income of $352 thousand, and a net income available to common shareholders of $182 thousand or $0.06 per fully diluted share, in the first quarter of 2010. The increase in net income in the first quarter of 2011 was primarily due to the increase in net interest margin during the quarter to 3.32% from 3.22% for the first quarter of 2010.

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From a revenue and cost perspective, income before tax and provision increased significantly from $957 thousand for the first quarter of 2010 to $1.3 million for the first quarter of 2011, an increase of 28.1%. The following chart reconciles the above to the net income (loss) for the periods presented.

	Three Months Ended March 31,
	2011		2010
Income before tax and provision	$	1,330	$	957
Provision for loan losses		700		461
Income before income tax		630		496
Income tax		178		144
Net income	$	452	$	352

Financial Condition

Total assets at March 31, 2011 were $529.0 million, down $7.0 million, or 1.3% from $536.0 million at December 31, 2010. Net loans outstanding were $382.3 million at March 31, 2011, a decrease of $3.9 million, compared to the 2010 year-end balance. This was the result of a continued, focused effort by the Bank to decrease its exposure to speculative real estate loans and decrease the amount of nonperforming assets. Deposits decreased by $8.1 million to $418.8 million, down 1.9% from December 31, 2010. Our deposit strategy was focused on decreasing noncore funding sources and single service CD relationships and increasing noninterest-bearing deposits accounts which increased $1.1 million or 2.8% from December 31, 2010.

At March 31, 2011, the Company’s investment portfolio totaled $85.1 million, a decrease of $4.1 million from $89.2 million at December 31, 2010. 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 2011 to date compared to net interest income for the first quarter of 2010 are attributable to relatively stable loan portfolio yields and a decrease in total funding costs.

Net interest margin increased 10 basis points for the three months ended March 31, 2011 to 3.32% as compared to 3.22% for the first quarter of 2010, reflecting a decrease in average rate paid on interest-bearing liabilities of 49 basis points from 2.48% for the first quarter of 2010 to 1.99% for the first quarter of 2011. This was offset by a 34 basis point decrease in the average yield on earning assets. The yield on loans, net of discount, was 5.67% and 5.81% for the first quarters of 2011 and 2010, respectively, with the decrease due primarily to decreases in loans outstanding and nonaccrual loans during the period. The average yield on investments decreased from 4.10% for the first quarter of 2010 to 3.73% for the first quarter of 2011 while average balances in investments increased from $82.1 million for the first quarter of 2010 to $89.9 million for the first quarter of 2011. Average interest bearing deposits and fed funds sold, which were earning 0.24% for the first quarter of 2010 and 2011, increased $14.2 million due to reduction in loans outstanding and investments.

For the three months ended March 31, 2011, net interest income was up $177 thousand to $4.1 million from $3.9 million for the same period in 2010.

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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.

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Average Balances, Income and Expenses, Yields and Rates

	Three Months Ended March 31,
	2011								2010
	Average Balance			Income/ Expense		Yield/ Rate			Average Balance			Income/ Expense		Yield/ Rate
						(Dollars in thousands)
Assets:
Loans, net of unearned income (1)	$	395,395		$	5,525		5.69	%	$	407,496		$	5,830		5.81	%
Investment securities:
Taxable		72,465			572		3.20	%		67,012			644		3.90	%
Tax exempt (2)		14,869			238		6.48	%		10,725			170		6.42	%
Other investments		4,580			25		2.22	%		4,401			16		1.48	%
Total investment securities		91,914			835		3.69	%		82,138			830		4.10	%
Federal funds sold & interest on deposits		25,532			15		0.23	%		12,991			8		0.24	%
Total earning assets	$	512,841		$	6,375		5.04	%	$	502,625		$	6,668		5.38	%
Cash and cash equivalents		7,356								6,119
OREO		2,630								3,289
Allowance for loan losses		(11,261	)							(6,690	)
Fixed assets		11,393								7,122
Other assets		9,616								9,066
Total assets	$	532,575							$	521,531
Liabilities and Stockholders’ Equity:
Interest bearing liabilities:
Interest checking	$	9,562		$	9		0.37	%	$	8,382		$	8		0.39	%
Money market deposit accounts		144,225			302		0.85	%		142,100			528		1.51	%
Statement savings		871			1		0.44	%		645			1		0.50	%
Certificates of deposit		226,958			1,428		2.55	%		226,783			1,614		2.89	%
Total interest-bearing deposits		381,616			1,740		1.85	%		377,910			2,151		2.31	%
Repurchase agreements		913			1		0.46	%		1,002			1		0.50	%
Subordinated debt		7,155			34		1.94	%		7,155			57		3.22	%
FHLB advances		55,000			408		3.01	%		51,722			466		3.66	%
Total interest-bearing liabilities		444,684			2,183		1.99	%		437,789			2,675		2.48	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		42,237								34,811
Other liabilities		1,857								2,090
Total liabilities		44,094								36,901
Shareholders’ equity		43,797								46,841
Total liabilities and shareholders’ equity	$	532,575							$	521,531
Net interest income				$	4,192							$	3,993
Interest rate spread							3.05	%							2.90	%
Net interest margin							3.32	%							3.22	%
Ratio of average interest earning assets to average interest-bearing liabilities							115.33	%							114.81	%

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

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

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Noninterest Income

Total noninterest income was $221 thousand for the first quarter of 2011, compared to $232 thousand for the same period of 2010. Fees on deposits increased 17.8% to $76 thousand for the first quarter of 2011 compared to $64 thousand for the comparable period in 2010. Other noninterest income decreased to $124 thousand for the first quarter of 2011 from $168 thousand in 2010 for the first quarter of 2010. The decrease was the result of $31 thousand in the first quarter of 2010 related to gains on sale of mortgages originated in 2010.

Noninterest Expense

This category includes all expenses other than interest paid on deposits and borrowings. Total noninterest expenses for the first quarter of 2011 totaled $3.0 million, a decrease of $207 thousand, compared to $3.2 million for the same period in 2010. The primary cause of the decrease was a reduction in losses on sale of OREO and write-down of existing OREO to more accurately reflect the market value of those assets. Losses and write-down of OREO for the three months ended March 31, 2010 was $353 thousand compared to $28 thousand in the first quarter of 2011. Occupancy expense decreased $10 thousand for the first quarter of 2011 to $205 thousand from $215 thousand for the comparable period in 2010 as the Company purchased its’ headquarters building in April 2010 as compared to renting the building during the first quarter of 2010. Depreciation expense increased $43 thousand to $150 thousand for the three months ended March 31, 2011 as compared to the comparable period in 2010 due to additional depreciation on the headquarters building purchased in 2010. Professional fees increased $20 thousand for the first quarter of 2011 to $137 thousand compared to $117 thousand for the comparable period in 2010 as legal fees were incurred related to resolution of problem loans.

Income Taxes

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

The effective tax rate for the three months ended March 31, 2011 and 2010 was 28.2% and 29.1%, respectively.

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.

Total nonperforming assets, which consist of nonaccrual loans, loans past due 90 days and still accruing interest, and OREO, were $23.6 million, up from $16.2 million at March 31, 2010, but down from $26.8 million at December 31, 2010. This quarter to quarter 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 first quarter, OREO was $2.7 million, down from $3.0 million at March 31, 2010, but up from $2.6 million at December 31, 2010. At March 31, 2011, there were $303 thousand of troubled debt restructurings with specific valuation allowances of such loans in the amount of $35 thousand.

Nonaccrual loans were $20.5 million at March 31, 2011, down from $22.4 million at December 31, 2010 and up from $6.5 million at March 31, 2010. The decrease reflects the continued efforts by the Company to decrease nonaccruals in a challenging economic environment.

Loan charge-offs, less recoveries, amounted to $1.2 million for the first quarter of 2011 compared to $1.1 million for the fourth quarter of 2010. For the first quarter of 2011, the provision for loan losses was $700 thousand compared to $461 thousand for the first quarter of 2010, and compared to $1.1 million for the fourth quarter of 2010. With the level of real estate secured debt and the large increase in loan loss reserves, management is confident that we can successfully manage through the economic downturn. We anticipate continued provision expenses as the asset quality dictates the need.

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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 $10.6 million at March 31, 2011 compared to $6.8 million at March 31, 2010. The ratio of the allowance for loan losses to total loans outstanding at March 31, 2011 was 2.69% compared to 1.65% at March 31, 2010 and 2.78% at December 31, 2010. The 9 basis point decrease in the ratio of the allowance for loan losses to total loans outstanding from 2.78% at December 31, 2010 to 2.69% at March 31, 2011 was due to the decrease of $3.2 million in nonperforming assets during the period.

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

	Mar 31,			Dec 31,			Mar 31,
	2011			2010
	(Dollars in thousands)
Nonaccrual loans	$	20,518		$	22,355		$	6,505
Restructured loans		303			303			3,390
Loans past due 90 days and accruing interest		41			1,556			3,336
Total nonperforming loans		20,862			24,214			13,231
Other real estate owned		2,739			2,615			3,014
Total nonperforming assets	$	23,601		$	26,829		$	16,245
Allowance for loan losses to period end loans		2.69	%		2.78	%		1.65	%
Nonperforming assets to total loans & OREO		5.97	%		6.71	%		3.90	%
Nonperforming assets to total assets		4.46	%		5.01	%		3.03	%
Allowance for loan losses to nonaccrual loans		51.51	%		49.37	%		104.53	%

LIQUIDITY

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

At March 31, 2011, cash and cash equivalents totaled $33.7 million. Investment securities available-for-sale and not pledged totaled $82.3 million, for a total of 15.6% of total assets, which management believe is adequate to meet short-term liquidity needs. Management also has alternative sources of funding available, including unused unsecured federal funds facilities with three banks totaling $29.5 million and unused available term loans through the FHLB totaling $17.0 million.

Total liquidity and other alternative sources of liquidity totaled $162.5 million at March 31, 2011 if fully utilized, which represents 30.7% of total assets.

Off-Balance Sheet Arrangements

In the normal course of business there are outstanding commitments for the extension of credit which are not reflected in the financial statements. At March 31, 2011, pre-approved but unused lines of credit for loans totaled approximately $47.7 million. In addition, we had approximately $6.5 million in financial and performance standby letters of credit at March 31, 2011. 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.

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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 March 31, 2011, the Company had a Tier 1 risk-based capital ratio of 12.37% and a Total risk-based capital ratio of 14.04%. At December 31, 2010 these ratios were 12.04% and 13.7%, 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 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 – None

Item 3. Defaults Upon Senior Securities – None

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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)
3.4	Articles of Amendment to the Company’s Articles of Incorporation, designation the terms of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 3.1 of Form 8-K filed on April 6, 2009)
3.5	Articles of Amendment to the Company’s Articles of Incorporation, increasing the number of authorized shares of Common Stock to 30,000,000 (incorporated by reference to Exhibit 3.1 of Form 8-K filed on June 3, 2010)
4.1	Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 4.1 of Form 8-K filed April 6, 2009)
4.2	Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 4.1 of Form 8-K filed on April 6, 2009)
4.3	Warrant to Purchase Shares of Common Stock, dated April 3, 2009 (incorporated by reference to Exhibit 4.2 of Form 8-K filed April 6, 2009)
31.1	Certification of John M. Presley Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 12, 2011.
31.2	Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 12, 2011.
31.3	Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 12, 2011.
32	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 12, 2011.
99.1	A Banker’s Professional Code of Ethics as adopted by First Capital Bank (incorporated by reference to Exhibit 99.1 of Form 10-KSB/A filed on June 13, 2007).
99.2	Code of Conduct and Conflict of Interest as adopted by First Capital Bank (incorporated by reference to Exhibit 99.2 of Form 10-KSB/A filed on June 13, 2007).
99.3	Certification of John M. Presley Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009 (incorporated by reference to Exhibit 99.3 of Form 10-K filed on March 31, 2011).
99.4	Certification of William W. Ranson Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009 (incorporated by reference to Exhibit 99.3 of Form 10-K filed on March 31, 2011).

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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: May 12, 2011	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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