First Capital Bancorp (FCVA) 10-Q 2014 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

Form 10-Q

________________________________________

☒    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

FIRST CAPITAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

Virginia	001-33543	11-3782033
(State or other jurisdiction of	(Commission File Number)	(I.R.S. Employer
incorporation or organization)		Identification No.)

4222 Cox Road, Glen Allen, Virginia 23060

(Address of principal executive offices)

804-273-1160

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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  ☒  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.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated filer  ☐
Non‑accelerated filer  ☐  (Do not check if a smaller reporting company)	Smaller reporting company  ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐  No  ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes  ☐  No  ☐

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

12,688,270 shares of Common Stock, par value $4.00 per share, were outstanding at May 9, 2014.

TABLE OF CONTENTS
				Page
PART I – FINANCIAL INFORMATION
	Item 1 – Financial Statements
		Consolidated Statements of Financial Condition
			March 31, 2014 (unaudited) and December 31, 2013	3
		Consolidated Statements of Operations
			For the Three Months Ended March 31, 2014 and 2013 (unaudited)	4
		Consolidated Statements of Comprehensive Income
			For the Three Months Ended March 31, 2014 and 2013 (unaudited)	5
		Consolidated Statements of Stockholders’ Equity
			For the Three Months Ended March 31, 2014 and 2013 (unaudited)	6
		Consolidated Statements of Cash Flows
			For the Three Months Ended March 31, 2014 and 2013 (unaudited)	7
		Notes to the Consolidated Financial Statements (unaudited)		9
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
	Item 3 – Quantitative and Qualitative Disclosures About Market Risk – Not Applicable			35
	Item 4 – Controls and Procedures			35
PART II – OTHER INFORMATION
	Item 1 – Legal Proceedings – None to Report			36
	Item 1A – Risk Factors – Not Applicable			36
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds-None to Report			36
	Item 3 – Defaults Upon Senior Securities – None to Report			36
	Item 4 – Mine Safety Disclosures – None to Report			36
	Item 5 – Other Information – None to Report			36
	Item 6 – Exhibits			36
SIGNATURES				38

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

	March 31,		December 31,
	2014		2013
	(Unaudited)		(*)
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	9,524	$	10,202
Interest-bearing deposits in other banks		14,436		3,985
Total cash and cash equivalents		23,960		14,187
Investment securities:
Available for sale, at fair value		65,796		71,511
Held to maturity, at cost		2,374		2,375
Restricted, at cost		3,961		3,554
Loans held for sale		-		992
Loans, net of allowance for losses of $8,019 in 2014 and $8,165 in 2013		437,013		423,160
Other real estate owned		2,478		2,658
Premises and equipment, net		10,355		10,451
Accrued interest receivable		1,739		1,701
Bank owned life insurance		9,661		9,580
Deferred tax asset		5,440		6,064
Other assets		1,489		1,652
Total assets	$	564,266	$	547,885
LIABILITIES
Deposits
Noninterest-bearing	$	67,304	$	67,694
Interest-bearing		393,186		388,274
Total deposits		460,490		455,968
Securities sold under repurchase agreements		1,786		1,393
Subordinated debt and trust preferred		13,631		7,155
Federal Home Loan Bank advances		40,000		30,000
Accrued expenses and other liabilities		2,528		3,687
Total liabilities		518,435		498,203
STOCKHOLDERS' EQUITY
Preferred stock, See Note 10		-		22
Common stock, See Note 11		50,753		50,208
Additional paid-in capital		-		4,448
Accumulated deficit		(4,886)		(4,590)
Discount on preferred stock		-		(16)
Accumulated other comprehensive loss, net of tax		(36)		(390)
Total stockholders' equity		45,831		49,682
Total liabilities and stockholders' equity	$	564,266	$	547,885

*Derived from audited, consolidated financial statements

See notes to consolidated financial statements

3

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

	Three Months Ended
	March 31,
	2014		2013
	(Unaudited)
	(Dollars in thousands,
	except per share data)
Interest and dividend income
Loans	$	5,436	$	5,033
Investments:
Taxable interest income		387		482
Tax exempt interest income		43		59
Dividends		48		31
Interest bearing deposits		6		6
Total interest income		5,920		5,611
Interest expense
Deposits		1,082		1,254
FHLB advances		91		81
Subordinated debt and other borrowings		120		35
Total interest expense		1,293		1,370
Net interest income		4,627		4,241
(Recovery of) provision for loan losses		(292)		100
Net interest income after
provision for loan losses		4,919		4,141
Noninterest income
Fees on deposits		80		88
Gain on sale of securities		96		31
Gain on sale of loans		55		284
Other		235		199
Total noninterest income		466		602
Noninterest expenses
Salaries and employee benefits		2,334		2,020
Occupancy expense		204		194
Data processing		236		236
Professional services		117		130
Advertising and marketing		128		125
FDIC assessment		90		82
Virginia franchise tax		126		120
(Gain) loss on sale and write down of other real estate owned		(24)		98
Depreciation		137		151
Other		618		454
Total noninterest expense		3,966		3,610
Net income before income taxes		1,419		1,133
Income tax expense		442		338
Net income		977		795
Effective dividend on preferred stock		24		86
Net income available to common stockholders	$	953	$	709
Basic net income per common share	$	0.08	$	0.06
Diluted net income per common share	$	0.06	$	0.05

See notes to consolidated financial statements

4

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

	Three Months Ended March 31,
	2014		2013
	(Unaudited)
	(Dollars in thousands)
Net income	$	977	$	795
Other comprehensive income (loss):
Investment securities:
Unrealized gains (losses) on investment securities
available for sale		632		(13)
Tax effect		(215)		4
Reclassification of gains recognized in net income		(96)		(31)
Tax effect		33		11
Total other comprehensive income (loss)		354		(29)
Comprehensive income	$	1,331	$	766

See notes to consolidated financial statements

5

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2014 and 2013

(Unaudited)

(Dollars in thousands)

														Accumu-
												Discount		lated Other
						Additional						on		Compre-
		Preferred		Common		Paid-in		Accumulated				Preferred		hensive
		Stock		Stock		Capital		Deficit		Warrants		Stock		Income		Total
Balances December 31, 2012	$	22	$	49,100	$	4,072	$	(8,120)	$	661	$	(84)	$	1,437	$	47,088
Net loss		-		-		-		795		-		-		-		795
Other comprehensive loss		-		-		-		-		-		-		(29)		(29)
Preferred stock dividend		-		-		-		(69)		-		-		-		(69)
Accretion of discount on
preferred stock		-		-		-		(17)		-		17		-		-
Stock based compensation		-		-		75		-		-		-		-		75
Redemption of common stock
warrants on preferred stock		-		-		395		-		(661)		-		-		(266)
Costs associated with
redemption of
common stock warrants		-		-		(15)		-		-		-		-		(15)
Warrants exercised
in connection with
8.9 million shares issued		-		40		(20)		-		-		-		-		20
Balances March 31, 2013	$	22	$	49,140	$	4,507	$	(7,411)	$	-	$	(67)	$	1,408	$	47,599
Balances December 31, 2013	$	22	$	50,208	$	4,448	$	(4,590)	$	-	$	(16)	$	(390)	$	49,682
Net income		-		-		-		977		-		-		-		977
Other comprehensive income		-		-		-		-		-		-		354		354
Preferred stock dividend		-		-		-		(8)		-		-		-		(8)
Accretion of discount on
preferred stock		-		-		-		(16)		-		16		-		-
Stock based compensation		-		-		84		-		-		-		-		84
Redemption of preferred stock		(22)		-		(4,260)		(1,249)		-		-		-		(5,531)
Warrants exercised
in connection with
8.9 million shares issued		-		545		(272)		-		-		-		-		273
Balances March 31, 2014	$	-	$	50,753	$	-	$	(4,886)	$	-	$	-	$	(36)	$	45,831

See notes to consolidated financial statements

6

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2014 and 2013

(Unaudited)

	2014		2013
	(Unaudited)
	(Dollars in thousands)
Cash flows from operating activities
Net income	$	977	$	795
Adjustments to reconcile net income to net cash
provided by operating activities:
(Recovery of) provision for loan losses		(292)		100
Depreciation of premises and equipment		137		151
Net amortization of bond premiums/discounts		139		240
Stock based compensation expense		84		75
Deferred income tax expense		442		337
Gain on sale of securities		(96)		(31)
Gain on loans sold		(55)		(284)
(Gain) loss on sale and write down of OREO		(24)		98
Increase in cash surrender value of bank owned life insurance		(81)		(83)
Proceeds from sale of loans held for sale		7,167		26,156
Origination of loans held for sale		(6,120)		(23,351)
Decrease in other assets		163		954
Increase in accrued interest receivable		(38)		(3)
Decrease in accrued expenses and other liabilities		(1,159)		(1,418)
Net cash provided by operating activities		1,244		3,736
Cash flows from investing activities
Proceeds from maturities and calls of securities		-		235
Proceeds from paydowns of securities available-for-sale		2,267		3,585
Purchase of securities available-for-sale		(6,195)		(7,791)
Proceeds from sale of securities available-for-sale		10,137		7,177
Proceeds from sale of other real estate owned		233		295
Improvements in other real estate owned		(29)		-
(Purchase) redemption of Federal Home Loan Bank Stock, net		(291)		161
Purchase of Federal Reserve Stock, net		(116)		(48)
Purchases of premises and equipment		(41)		(34)
Net increase in loans		(13,561)		(12,462)
Net cash used in investing activities		(7,596)		(8,882)
Cash flows from financing activities
Net increase (decrease) in deposits		4,522		(15,875)
Borrowings with FHLB		10,000		-
Dividends on preferred stock		(8)		(69)
Cash paid for redemption of common stock warrants and preferred stock, net of expenses		(5,531)		(281)
Proceeds from issuance of subordinated debt, net of payments		6,476		-
Warrants exercised in connection with the rights offering, net		273		20
Net increase in repurchase agreements		393		134
Net cash provided by (used in) financing activities		16,125		(16,071)
Net increase (decrease) in cash and cash equivalents		9,773		(21,217)
Cash and cash equivalents, beginning of period		14,187		35,321
Cash and cash equivalents, end of period	$	23,960	$	14,104

7

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Three Months Ended March 31,  2014 and 2013

(Unaudited)

(Continued)

	2014		2013
	(Dollars in thousands)
Supplemental disclosure of cash flow information
Interest paid during the period	$	1,294	$	1,370
Taxes refunded, net of taxes paid during the period	$	-	$	1,012
Supplemental schedule of noncash investing and financing activities
Transfer of loans to other real estate owned	$	-	$	463
Unrealized (loss) gain on securities available for sale, net of tax	$	417	$	(9)

See notes to consolidated financial statements

8

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

Note 1 – Basis of Presentation

First Capital Bancorp, Inc. (the “Company”) is the holding company of and successor to First Capital Bank (sometimes referred to herein as 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.

The Company conducts all of its business activities through the branch offices of its wholly owned subsidiary bank, First Capital Bank.  First Capital Bank created RE1, LLC, and RE2, LLC, wholly owned Virginia limited liability companies in 2008 and 2011, respectively, for the sole purpose of taking title to property acquired in lieu of foreclosure.  RE1, LLC, and RE2, LLC have been consolidated with First Capital Bank.  The Company exists primarily for the purpose of holding the stock of the Bank and such other subsidiaries as it may acquire or establish.

The Company has one other wholly owned subsidiary, FCRV Statutory Trust 1 (the “Trust”), a Delaware Business Trust that was formed in connection with the issuance of trust preferred debt in September, 2006.  Pursuant to current accounting standards, the Company does not consolidate the Trust.

The consolidated financial statements include the accounts of First Capital Bancorp, Inc. and its wholly owned subsidiary, First Capital Bank.  All material intercompany balances and transactions have been eliminated.

In management’s opinion the accompanying unaudited consolidated financial statements, reflect all adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the financial information as of March  31, 2014, and December 31, 2013 and for the three months ended March  31, 2014, and 2013, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  Results for the three month period ended March 31,  2014 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014. 

The organization and business of the Company, accounting policies followed, and other related information are contained in the notes to the consolidated financial statements of the Company as of and for the year ended December 31, 2013, filed as part of the Company’s annual report on Form 10-K.  These interim consolidated financial statements should be read in conjunction with the annual financial statements.

First Capital Bank’s critical accounting policies relate to the evaluation of the allowance for loan losses and the establishment of fair value of financial instruments, and other assets.  

The evaluation of the allowance for loan losses is based on management’s opinion of an amount that is adequate to absorb probable losses inherent in the Bank’s existing portfolio. The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) Accounting Standards Codification (“ASC”) 450 Contingencies, which requires that losses be accrued when occurrence is probable and can be reasonably estimated, and (ii) ASC 310 Receivables, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.

9

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

The Company’s allowance for loan losses is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to applicable GAAP. Management’s estimate of each homogenous pool component is based on certain observable data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; collateral values; loan volumes; geographic, borrower and industry concentrations; seasoning of the loan portfolio; the findings of internal credit quality assessments and results from external bank regulatory examinations. These factors, as well as historical losses and current economic and business conditions, are used in developing estimated loss factors used in the calculations.

Applicable GAAP requires that the impairment of loans that have been separately identified for evaluation are measured based on the present value of expected future cash flows or, alternatively, the observable market price of the loans or the fair value of the collateral. However, for those loans that are collateral dependent (that is, if repayment of those loans is expected to be provided solely by the underlying collateral) and for which management has determined foreclosure is probable, the measure of impairment is based on the net realizable value of the collateral. This statement also requires certain disclosures about investments in impaired loans and the allowance for loan losses and interest income recognized on impaired loans.

Reserves for commercial loans are determined by applying estimated loss factors to the portfolio based on historical loss experience and management’s evaluation and “risk grading” of the commercial loan portfolio. Reserves are provided for noncommercial loan categories using historical loss factors applied to the total outstanding loan balance of each loan category. Additionally, environmental factors based on national and local economic conditions, as well as portfolio-specific attributes, are considered in estimating the allowance for loan losses.

Although management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information available to them at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.

Securities available-for-sale and certain mortgage loans held for sale are recorded at fair value on a recurring basis. From time to time, certain assets, consisting primarily of other real estate owned and impaired loans, may be recorded at fair value on a non-recurring basis. These non-recurring fair value adjustments typically are a result of the application of lower of cost or fair value accounting or a write-down occurring during the period. For example, if the fair value of an asset in these categories falls below its cost basis, it is considered to be at fair value at the end of the period of the adjustment. In periods where there is no adjustment, the asset is generally not considered to be at fair value. Management believes this is a critical accounting policy because the estimation of fair value involves a high degree of complexity and requires us to make subjective judgments that often include assumptions or estimates about various matters. 

10

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

Note 2 – Use of Estimates

To prepare financial statements in conformity with GAAP management makes estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results may be different.  In particular, the allowance for loan losses, valuation of other real estate owned, and fair values of financial instruments are subject to change.

Note 3 – Income per share

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

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

		Three Months Ended
		March 31,
		(in thousands,
		except per share amounts)
	2014		2013
Net income available to common stockholders	$	953	$	709
Weighted average number of shares outstanding		12,423		11,935
Net income per common share - basic	$	0.08	$	0.06
Effect of dilutive securities:
Weighted average number of common shares outstanding		12,423		11,935
Effect of stock options, warrants and restricted stock		2,457		1,608
Diluted average common shares outstanding		14,880		13,543
Net income per common share - assuming dilution	$	0.06	$	0.05

The Company has excluded options convertible into 33  thousand shares of common stock for the three months ended March  31, 2014, from the calculation of diluted earnings per share because they were anti-dilutive since the strike price was greater than the average market price.

The Company excluded options convertible into 340 thousand shares of common stock for the three months ended March, 31, 2013, from the calculation of diluted earnings per share because they were anti-dilutive since the strike price was greater than the average market price.

11

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

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 recognize compensation expense in the consolidated statements of operations over the service period that the awards are expected to vest.

The stock based compensation, in thousands, expensed during the three months ended March 31, 2014, was  $84 thousand, and the amount expensed during the three months ended March 31, 2013, was $75 thousand. Expensed amounts are included in salaries and employee benefits.

Note 5 – Investment Securities

The amortized costs, gross unrealized gains, gross unrealized losses, and fair values for securities are as follows:

		March 31, 2014
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
		(Dollars in thousands)
Available-for-sale
U.S. Government agencies	$	-	$	-	$	-	$	-
Mortgage-backed securities		25,846		246		219		25,873
Corporate bonds		2,997		14		31		2,980
Collateralized mortgage obligation securities		21,819		358		117		22,060
State and political subdivisions - taxable		14,480		170		510		14,140
State and political subdivisions - tax exempt		708		35		-		743
SBA - Guarantee portion		-		-		-		-
	$	65,850	$	823	$	877	$	65,796

		December 31, 2013
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
		(Dollars in thousands)
Available-for-sale
U.S. Government agencies	$	-	$	-	$	-	$	-
Mortgage-backed securities		22,258		186		302		22,142
Corporate bonds		5,996		53		48		6,001
Collateralized mortgage obligation securities		27,186		345		198		27,333
State and political subdivisions - taxable		15,024		56		753		14,327
State and political subdivisions - tax exempt		1,637		71		-		1,708
SBA - Guarantee portion		-		-		-		-
	$	72,101	$	711	$	1,301	$	71,511

12

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

	March 31, 2014
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
Held-to-maturity		(Dollars in thousands)
Tax-exempt municipal bonds	$	2,374	$	194	$	-	$	2,568
	$	2,374	$	194	$	-	$	2,568

	December 31, 2013
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
Held-to-maturity		(Dollars in thousands)
Tax-exempt municipal bonds	$	2,375	$	138	$	3	$	2,510
	$	2,375	$	138	$	3	$	2,510

Management’s assessment for the current quarter ended March 31, 2014, resulted in no recognition of other than temporary impairment (“OTTI”).

The following table summarizes securities with unrealized losses at March 31, 2014, and December 31, 2013, aggregated by major security type and length of time in a continuous unrealized loss position. The unrealized losses are largely due to changes in interest rates and other market conditions.  At March 31, 2014,  31 out of 92 securities the Company held had fair values less than amortized cost primarily in municipal securities and corporate bonds.  At December 31, 2013,  10 out of 101 securities the Company held had fair values less than amortized cost, primarily in municipal securities.  All unrealized losses are considered by management to be temporary given investment security credit ratings, the short duration of the unrealized losses, the intent and ability to retain these securities for a period of time sufficient to recover all unrealized losses, and the fact it is unlikely that the Company will be required to sell the securities before their anticipated recovery.

	March 31, 2014
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
		(Dollars in thousands)
Assets:
U.S. Government agencies	$	-	$	-	$	-	$	-	$	-	$	-
Mortgage-backed securities		9,138		178		844		41		9,982		219
Corporate bonds		496		2		1,470		29		1,966		31
CMO securities		6,129		117		-		-		6,129		117
State & political subdivisions-taxable		7,295		374		2,039		136		9,334		510
State & political subdivisions-tax exempt		-		-		-		-		-		-
SBA		-		-		-		-		-		-
All securities	$	23,058	$	671	$	4,353	$	206	$	27,411	$	877

13

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

	December 31, 2013
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
		(Dollars in thousands)
Assets:
U.S. Government agencies	$	-	$	-	$	-	$	-	$	-	$	-
Mortgage-backed securities		9,599		248		856		54		10,455		302
Corporate bonds		-		-		1,949		48		1,949		48
CMO securities		8,183		198		-		-		8,183		198
State & political subdivisions-taxable		8,129		564		2,536		189		10,665		753
State & political subdivisions-tax exempt		-		-		-		-		-		-
SBA		-		-		-		-		-		-
All securities	$	25,911	$	1,010	$	5,341	$	291	$	31,252	$	1,301

Restricted equity securities consist primarily of Federal Home Loan Bank of Atlanta stock in the amount of $2.3 million and $2.0 million as of March 31, 2014, and December 31, 2013, respectively, and Federal Reserve Bank stock in the amount of $1.6 million at March 31, 2014, and $1.5 million at December 31, 2013.  Restricted equity securities are carried at cost.  The Federal Home Loan Bank requires the Bank to maintain stock in an amount equal to 4.5% of outstanding borrowings and a specific percentage of the Company’s total assets.  The Federal Reserve Bank of Richmond requires the Company to maintain stock with a par value equal to 3% of its outstanding capital.

Securities with a carrying value of approximately $1.8 million and $1.4 million were pledged as collateral at March 31, 2014, and December 31, 2013, respectively, to secure purchases of federal funds, repurchase agreements, and collateral for customer’s deposits.

Note 6 – Loans

Major classifications of loans are as follows:

	March 31,		December 31,
	2014		2013
		(Dollars in thousands)
Real estate
Residential	$	144,499	$	142,702
Commercial		166,193		165,216
Residential Construction		27,781		22,603
Other Construction, Land
Development & Other Land		44,855		43,257
Commercial		60,316		55,947
Consumer		1,505		1,615
Total loans		445,149		431,340
Less:
Allowance for loan losses		8,019		8,165
Net deferred (fees) costs		(117)		(15)
Loans, net	$	437,013	$	423,160

14

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

A summary of risk characteristics by loan portfolio classification follows:

Real Estate – Residential – This portfolio primarily consists of investor loans secured by properties in the Bank’s normal lending area.  These investor loans are typically five year rate adjustment loans and they generally have an original loan-to-value (“LTV”) of 80% or less.  This category also includes home equity lines of credit (“HELOC”).  The HELOCs generally have an adjustable rate tied to prime rate and a term of 10 years.  Given the declining value of residential properties over the past several years, these loans possess a higher than average level of risk of loss to the bank.  Multifamily residential real estate is moderately seasoned and is generally secured by properties in the Bank’s normal lending area.

Real Estate – Commercial – This portfolio consists of nonresidential improved real estate, which includes shopping centers, office buildings, etc.  These properties are generally located in the Bank’s normal lending area.  Decreased rental income due to the economic slowdown has caused some deterioration in values.  As a result, this category of loans has a higher than average level of risk.

Real Estate – Residential Construction – This portfolio has changed significantly over the past several years as fewer construction loans have been made during the economic downtown.  These loans are located in the Bank’s normal lending area.

Real Estate – Other Construction, Land Development and Other Land Loans – This portfolio includes raw undeveloped land and developed residential and commercial lots held by developers.  Given the significant decline in value for both developed and undeveloped land due to reduced demand, this portfolio possesses an increased level of risk compared to other loan portfolios.  Continuing deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for customers.

Commercial – These loans include loans to businesses that are not secured by real estate.  These loans are typically secured by accounts receivable, inventory, equipment, etc.  Commercial loans are typically granted to local businesses that have a strong track record of profitability and performance.

Consumer – Loans in this portfolio are either unsecured or secured by automobiles, marketable securities, etc.  They are generally granted to local customers that have a banking relationship with the Bank.

Activity in the allowance for loan losses for the three months ended is as follows:

	March 31,
	2014			2013
	(Dollars in thousands)
Balance, beginning of period	$	8,165		$	7,269
(Recovery of) provision for loan losses		(292)			100
Recoveries		290			854
Charge-offs		(144)			(756)
Balance, end of period	$	8,019		$	7,467
Ratio of allowance for loan
losses as a percent of loans
outstanding at the end of the period		1.80	%		1.92	%

15

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

The following table presents activity in the allowance for loan losses by portfolio segment:

	Three Months Ended
	Real Estate
							Other
							Construction
							Land Devel.
					Residential		& Other
	Residential		Commercial		Construction		Land		Commercial		Consumer		Total
		(Dollars in thousands)
Balance, January 1, 2014	$	2,891	$	3,050	$	591	$	624	$	996	$	13	$	8,165
Provision for loan losses		(45)		(138)		168		12		(291)		2		(292)
Recoveries		9		-		1		-		280		-		290
Charge-offs		(144)		-		-		-		-		-		(144)
Balance, March 31, 2014	$	2,711	$	2,912	$	760	$	636	$	985	$	15	$	8,019
Balance, January 1, 2013	$	2,654	$	2,947	$	284	$	606	$	762	$	16	$	7,269
Provision for loan losses		(8)		(49)		(721)		595		287		(4)		100
Recoveries		3		-		842		7		2		-		854
Charge-offs		(72)		-		(30)		(550)		(104)		-		(756)
Balance, March 31, 2013	$	2,577	$	2,898	$	375	$	658	$	947	$	12��	$	7,467

The charging off of uncollectible loans is determined on a case-by-case basis.  Determination of a collateral shortfall, prospects for recovery, delinquency, and the financial resources of the borrower and any guarantor are all considered in determining whether to charge-off a loan.  Closed-end retail loans that become past due 120 cumulative days and open-end retail loans that become past due 180 cumulative days from the contractual due date will be charged off.

The following table presents the aging of unpaid principal in loans as of March 31, 2014, and December 31, 2013:  

	March 31, 2014
			90+ Days
	30-89 Day		Past Due
	Past Due		and Accruing		Nonaccrual		Current		Total
		(Dollars in thousands)
Real estate
Residential	$	1,385	$	-	$	1,547	$	141,567	$	144,499
Commercial		-		-		48		166,145		166,193
Residential Construction		-		-		160		27,621		27,781
Other Construction, Land
Development & Other Land		-		-		1,392		43,463		44,855
Commercial		-		-		529		59,787		60,316
Consumer		6		-		-		1,499		1,505
Total	$	1,391	$	-	$	3,676	$	440,082	$	445,149

16

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

	December 31, 2013
			90+ Days
	30-89 Day		Past Due
	Past Due		and Accruing		Nonaccrual		Current		Total
		(Dollars in thousands)
Real estate
Residential	$	748	$	-	$	1,720	$	140,234	$	142,702
Commercial		-		-		560		164,656		165,216
Residential Construction		-		-		414		22,189		22,603
Other Construction, Land
Development & Other Land		-		-		1,402		41,855		43,257
Commercial		182		-		371		55,394		55,947
Consumer		57		-		-		1,558		1,615
Total	$	987	$	-	$	4,467	$	425,886	$	431,340

Loans are determined past due or delinquent based on the contractual terms of the loan.  Payments past due 30 days or more are considered delinquent.  The accrual of interest is generally discontinued at the time the loan is 90 days delinquent, unless the credit is well-secured and in process of collection.  In all cases, loans are placed on nonaccrual at an earlier date if collection of principal or interest is considered doubtful or charged-off if a loss is considered imminent.

All interest accrued but not collected for loans that are placed on nonaccrual is reversed against interest income when the loan is placed on nonaccrual status.  Because of the uncertainty of the expected cash flows, the Company accounts for nonaccrual loans under the cost recovery method, under which all cash payments are applied to principal.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future collection of principal and interest are reasonably assured.  The number of payments needed to meet this criteria varies from loan to loan.  However, as a general rule, this criteria will be considered to have been met with the timely payment of six consecutive regularly scheduled monthly payments.

The following table provides details of the Company’s loan portfolio internally assigned grade at March 31, 2014, and December 31, 2013:  

	March 31, 2014
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
		(Dollars in thousands)
Real estate
Residential	$	134,808	$	4,421	$	5,270	$	-	$	-	$	144,499
Commercial		160,323		4,218		1,652		-		-		166,193
Residential Construction		26,557		423		801		-		-		27,781
Other Construction, Land
Development & Other Land		34,825		2,216		7,814		-		-		44,855
Commercial		58,682		1,586		48		-		-		60,316
Consumer		1,471		-		34		-		-		1,505
Total	$	416,666	$	12,864	$	15,619	$	-	$	-	$	445,149

17

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

		December 31, 2013
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
		(Dollars in thousands)
Real estate
Residential	$	133,389	$	5,523	$	3,790	$	-	$	-	$	142,702
Commercial		157,028		5,272		2,916		-		-		165,216
Residential Construction		21,330		355		918		-		-		22,603
Other Construction, Land
Development & Other Land		32,914		2,504		7,839		-		-		43,257
Commercial		53,794		1,227		926		-		-		55,947
Consumer		1,558		57		-		-		-		1,615
Total	$	400,013	$	14,938	$	16,389	$	-	$	-	$	431,340

These credit quality grades 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.

The loan risk rankings were updated for the quarter ended  March 31, 2014 on March 18 and 19, 2014.  The loan risk rankings were updated for the year ended December 31, 2013 on December 10 and 11,  2013.  

18

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

The following table provides details regarding impaired loans by segment and class at March 31, 2014 and December 31, 2013:  

	March 31, 2014						December 31, 2013
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(Dollars in thousands)
With no related allowance:
Real estate
Residential	$	1,547	$	1,940	$	-	$	1,720	$	2,238	$	-
Commercial		529		898		-		560		916		-
Residential Construction		160		379		-		414		630		-
Other Construction, Land
Development & Other Land		2,187		2,984		-		2,222		3,009		-
Commercial		48		110		-		371		959		-
Consumer		-		-		-		-		-		-
Total	$	4,471	$	6,311	$	-	$	5,287	$	7,752	$	-
With an allowance:
Real estate
Residential	$	-	$	-	$	-	$	-	$	-	$	-
Commercial		-		-		-		-		-		-
Residential Construction		-		-		-		-		-		-
Other Construction, Land
Development & Other Land		-		-		-		-		-		-
Commercial		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	-	$	-	$	-
Total
Real estate
Residential	$	1,547	$	1,940	$	-	$	1,720	$	2,238	$	-
Commercial		529		898		-		560		916		-
Residential Construction		160		379		-		414		630		-
Other Construction, Land
Development & Other Land		2,187		2,984		-		2,222		3,009		-
Commercial		48		110		-		371		959		-
Consumer		-		-		-		-		-		-
Total	$	4,471	$	6,311	$	-	$	5,287	$	7,752	$	-

19

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

The following table provides details of the balance of the allowance for loan losses and the recorded investment in financing receivables by impairment method for each loan portfolio segment:

		Real Estate
								Other
								Construction,
								Land Devel.
						Residential		& Other
		Residential		Commercial		Construction		Land		Commercial		Consumer		Total
		(Dollars in thousands)
March 31, 2014
Allowance for loan losses, evaluated
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		2,711		2,912		760		636		985		15		8,019
Total ending allowance	$	2,711	$	2,912	$	760	$	636	$	985	$	15	$	8,019
Loans, evaluated
Individually	$	1,547	$	529	$	160	$	2,187	$	48	$	-	$	4,471
Collectively		142,952		165,664		27,621		42,668		60,268		1,505		440,678
Total ending loans	$	144,499	$	166,193	$	27,781	$	44,855	$	60,316	$	1,505	$	445,149
December 31, 2013
Allowance for loan losses, evaluated
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		2,891		3,050		591		624		996		13		8,165
Total ending allowance	$	2,891	$	3,050	$	591	$	624	$	996	$	13	$	8,165
Loans, evaluated
Individually	$	1,720	$	560	$	414	$	2,222	$	371	$	-	$	5,287
Collectively		140,982		164,656		22,189		41,035		55,576		1,615		426,053
Total ending loans	$	142,702	$	165,216	$	22,603	$	43,257	$	55,947	$	1,615	$	431,340

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining whether a loan is impaired include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Additionally, management’s policy is generally to evaluate only those substandard loans greater than $250 thousand for impairment as these are considered to be individually significant in relation to the size of the loan portfolio.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.  The following tables present interest income recognized and the average recorded investment of impaired loans.

20

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

	Three Months Ended
	March 31, 2014
	Interest		Average
	Income		Recorded
	Recognized		Investment
		(Dollars in thousands)
Real estate
Residential	$	43	$	1,633
Commercial		12		545
Residential Construction		3		287
Other Construction, Land
Development & Other Land		101		2,205
Commercial		-		210
Consumer		-		-
Total	$	159	$	4,880

	Three Months Ended
	March 31, 2013
	Interest		Average
	Income		Recorded
	Recognized		Investment
		(Dollars in thousands)
Real estate
Residential	$	36	$	1,828
Commercial		15		798
Residential Construction		2		1,121
Other Construction, Land
Development & Other Land		37		5,149
Commercial		1		485
Consumer		-		-
Total	$	91	$	9,381

Cash payments received on impaired loans are applied on a cash basis with all cash receipts applied first to principal and any payments received in excess of the unpaid principal balance being applied to interest.

Troubled Debt Restructurings

ASC 310 defines a troubled debt restructuring as a restructuring of a debt where a creditor for economic or legal reasons related to a debtor’s financial difficulties grants a concession to the debtor that it would not otherwise render.  The concession is granted by the creditor in an attempt to protect as much of its investment as possible.  The concession either stems from an agreement between the creditor and the debtor or is imposed by law or a court.  Troubled debt restructurings include modification of the terms of a debt, such as a reduction of the stated interest rate lower thant he current market for new debt with similar risk, a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement, or a reduction of accrued interest.

21

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

Management reviews all restructured loans that occur during the year for identification as troubled debt restructurings.  Management identified as troubled debt restructurings certain loans for which the allowance for loan losses had previously been measured under a general allowance for loan losses methodology (ASC 450).  Upon identifying the reviewed loans as troubled debt restructurings, management also identified them as impaired under the guidance in ASC 310.

Modification Categories

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories:

Rate Modification - A modification in which the interest rate is changed.

Term Modification - A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

Combination Modification – Any other type of modification, including the use of multiple categories above.

As of March 31, 2014,  and December 31, 2013, there were no available commitments outstanding for troubled debt restructurings. 

The following tables present troubled debt restructurings as of March 31, 2014, and December 31, 2013:  

	March 31, 2014
	Total
	Number		Accrual		Nonaccrual		Total
	of Contracts		Status		Status		Modifications
		(Dollars in thousands)
Real estate
Residential		1	$	272	$	-	$	272
Commercial		-		-		-		-
Residential Construction		-		-		-		-
Other Construction, Land
Development & Other Land		4		4,759		1,082		5,841
Commercial		-		-		-		-
Consumer		-		-		-		-
Total		5	$	5,031	$	1,082	$	6,113

22

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

	December 31, 2013
	Total
	Number		Accrual		Nonaccrual		Total
	of Contracts		Status		Status		Modifications
		(Dollars in thousands)
Real estate
Residential		1	$	-	$	113	$	113
Commercial		-		-		-		-
Residential Construction		-		-		-		-
Other Construction, Land
Development & Other Land		3		820		1,093		1,913
Commercial		-		-		-		-
Consumer		-		-		-		-
Total		4	$	820	$	1,206	$	2,026

Loans reviewed for consideration of modification are reviewed for potential impairment at the time of the restructuring.  Any identified impairment is recognized as a reduction in the allowance.

There were no newly restructured loans that occurred during the three months ended March 31, 2014, or 2013, or financing receivables modified as troubled debt restructurings and with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the three month periods ended March 31, 2014 or 2013.    

Note 7 – Other Real Estate Owned

Changes in other real estate owned were as follows for the periods indicated:

	Three Months Ended
	March 31,
	2014		2013
	(dollars in thousands)
Beginning Balance	$	2,658	$	3,771
Additions		29		463
Sales		(209)		(290)
Write-downs		-		(103)
Ending Balance	$	2,478	$	3,841

Note 8 – Fair Value Disclosures

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  In accordance with the Fair Value Measurements and Disclosures topic ASC 825, the fair value of a financial instrument is the price that would be received in the sale of an asset or

23

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

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 transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.  The fair value of a reasonable point within this range is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, financial assets and financial liabilities are generally grouped based on 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 data that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flows methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

Following is a description of the valuation methodologies used for instruments measured as fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities available for sale:  Securities available for sale are recorded at fair value on a recurring basis.  Fair value measurement is based upon quoted market prices, when available (Level 1).  If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data.  Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).  The Company obtains a single quote for all securities.  Quotes for all of the securities are provided by the securities accounting

24

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

and safekeeping correspondent bank, which performs a review of pricing data by comparing prices received from third party vendors to the previous month’s quote for the same security and evaluates any substantial changes.

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2014, and December 31, 2013. Securities identified in Note 5 as restricted securities including stock in the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank are excluded from the table below because there is no ability to sell these securities except when the FHLB or FRB require redemption based on either the borrowings at the FHLB, or, in the case of the FRB, changes in certain portions of The Company’s capital.

	March 31, 2014
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
	(Dollars in thousands)
Assets:
Available-for-sale securities	$	-	$	65,796	$	-	$	65,796

	December 31, 2013
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
	(Dollars in thousands)
Assets:
Available-for-sale securities	$	-	$	71,511	$	-	$	71,511

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP.  Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual loans.

The following describes the valuation techniques used to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Impaired Loans:  Loans are designated as impaired when, in the judgment of management, based on current information and events, it is probable that all amounts when due according to the contractual terms of the loan agreement will not be collected.  The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral.  Fair value is measured based on the value of the collateral securing the loans.  Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable.  The vast majority of the collateral is real estate.  The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed external appraiser using observable market 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.  If a real estate loan becomes a nonperforming loan, or if the valuation is over one year old, either an evaluation by an officer of the bank or an outside vendor, or an appraisal, is performed to determine current market value.  The Company considers the value of a partially completed project for the Company’s loan analysis.  For nonperforming construction loans,

25

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

the Company obtains a valuation of each partially completed project “as is” from a third party appraiser.  The Company uses this third party valuation to determine if any charge-offs are necessary.

The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data.  Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3).  Impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis and the discount to reflect current market conditions ranged from 0% to 30% for each of the respective periods.  Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Operations.

Loans held for sale:  The fair value of loans held for sale is determined using quoted secondary-market prices.  As such, loans subjected to nonrecurring fair value adjustments are classified as Level 2.

Other Real Estate Owned:  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.  Such appraisals may be discounted for current market conditions which ranged from 0% to 30% for each of the respective periods.

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

	March 31, 2014
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
	(Dollars in thousands)
Impaired loans	$	-	$	-	$	4,471	$	4,471
Loans held for sale		-		-		-		-
Other real estate owned		-		-		2,478		2,478
Total	$	-	$	-	$	6,949	$	6,949

	December 31, 2013
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
	(Dollars in thousands)
Impaired loans	$	-	$	-	$	5,287	$	5,287
Loans held for sale		-		992		-		992
Other real estate owned		-		-		2,658		2,658
Total	$	-	$	992	$	7,945	$	8,937

26

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

The methods and assumptions, not previously presented, used by the Company in estimating fair values are as follows:

Cash and cash equivalents  – The carrying amounts of cash and cash equivalents approximate their fair value.

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, 2014, and December 31, 2013, are current market rates for their respective terms and associated credit risk.

Loans held for sale—Loans held for sale are carried at the lower of cost or market value.  These loans currently consist of residential real estate, owner occupied loans originated for sale in the secondary market.  Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different from cost due to the short duration between origination and sale (Level 2).  As such, the Company records any fair value adjustments on a nonrecurring basis.  No nonrecurring fair value adjustments were recorded on loans held for sale during the periods ended March 31, 2014, or December 31, 2013.  Gains and losses on the sale of loans are recorded as income on the consolidated statements of operations. 

Deposits  – 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 fair value.  

Advances from Federal Home Loan Bank–  The carrying value of advances from the Federal Home Loan Bank due within ninety days from the balance sheet date approximate fair value.  Fair values for convertible advances are estimated using a discounted cash flow calculation that applies interest rates currently being offered on convertible advances with similar remaining maturities.

Repurchase agreements – The carrying value of repurchase agreements due within ninety days from the balance sheet date approximate fair value.

Subordinated Debt– The values of the Company’s subordinated debt are variable rate instruments that re-price on a quarterly basis, therefore, carrying value is adjusted for the three month repricing lag in order to approximate fair value.

Bank Owned Life Insurance – The carrying value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the insurer.

Off-balance-sheet instruments  – Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements

27

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

and counterparties’ credit standings.  These are not deemed to be material at March 31, 2014, and December 31, 2013.  

The estimated fair values of the Company’s financial instruments as of March 31, 2014, and December 31, 2013, are as follows:

	March 31, 2014				December 31, 2013
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(Dollars in thousands)				(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	23,960	$	23,960	$	14,187	$	14,187
Investment securities		68,170		68,364		73,886		74,021
Loans receivable, net		437,013		429,763		423,160		416,841
Loans held for sale		-		-		992		997
Accrued interest		1,739		1,739		1,701		1,701
BOLI		9,661		9,661		9,580		9,580
Financial liabilities
Deposits	$	460,490	$	452,656	$	455,968	$	447,956
FHLB advances		40,000		40,714		30,000		30,742
Subordinated debt		13,631		9,977		7,155		3,577
Repurchase agreements		1,786		1,786		1,393		1,393

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of the Company’s normal operations.  As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to us.  The Company attempts 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.  The Company monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

Note 9 – Recently Issued Accounting Pronouncements

In January 2014, the FASB has issued Accounting Standards Update (ASU) No. 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40) – Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.  The amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized.  These amendments clarify that an in substance repossession for foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.  Additional disclosures are required.  The amendments are effective for public business entities for

28

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

annual periods and interim periods within those annual periods beginning after December 15, 2014.  The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

��

Note 10 –Preferred Stock

The Preferred Shares have a $4.00 par value, with $1,000 liquidation preference.  With 2,000,000 authorized shares, there were 5,531 shares outstanding at December 31, 2013. 

On January 10, 2014, the Company redeemed the remaining 5,531 shares of its Cumulative Perpetual Preferred Stock, Series A (“Preferred Stock”), for $5.6 million.  The Preferred Stock paid a cumulative dividend quarterly at a rate of 5% per annum.  Effective April 2014, the dividend rate would have increased to 9% per annum.  The Preferred Stock was redeemable at the option of the Company subject to regulatory approval which was received in November 2013.  No shares of the Preferred Stock remain outstanding and 2,000,000 shares remain authorized.

Note 11—Common Stock

The Common Stock has a $4.00 par value.  With 30,000,000 authorized shares, at March 31, 2014, and December 31, 2013, there were 12,688,270 and 12,551,952 shares outstanding, respectively.

29

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

Net income for the first quarter of 2014 was $977 thousand, and net income available to common shareholders was $953 thousand, or $0.06 per fully diluted share, compared to net income of $795 thousand, and net income available to common stockholders of $709 thousand or $0.05 per fully diluted share, for the first quarter of 2013.

Financial Condition

Total assets at March 31, 2014, were $564.3 million, up  $16.4 million from $547.9 million at December 31, 2013.  Cash and cash equivalents increased $9.8 million to $24.0 million at March 31, 2014.  This increase resulted from the growth in interest bearing deposit liabilities and borrowings, as well as cash generated from the paydown of securities in the investment portfolio which were offset by growth in the loan portfolio. Net loans outstanding, which were $437.0 million at March 31, 2014, up $13.9 million from $423.2 million at December 31, 2013, increased due to continued improvement in the local economy and the Company’s further penetration into the  market.  To effectively manage interest rate risk, advances from the Federal Home Loan Bank of Atlanta (FHLB) grew $10.0 million to $40.0 million at March 31, 2014, from $30.0 million at December 31, 2013.  The Company executed a subordinated note totaling $6.5 million in the first quarter of 2014, the proceeds of which were used to redeem the remaining preferred stock for $5.5 million.    

At March 31, 2014, the Company’s investment portfolio totaled $68.2 million, a decrease of $5.7 million from $73.9 million at December 31, 2013.  Most of the funds that are invested in the Company’s

30

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 the principal source of earnings for the Company.  Net interest income for the first quarter of 2014 compared to net interest income for the comparable period of 2013 improved to $4.6 million from $4.2 million, resulting primarily from the effective utilization of the investment portfolio to fund continued loan growth as well as the decline in rate on interest bearing deposit liabilities. 

The net interest margin increased 6 basis points to 3.64%  for the three months ended March 31, 2014, from 3.58% for the first quarter of 2013,  due largely to an increase in loan volume and a decrease in the average rate paid on interest-bearing liabilities of 14 basis points to 1.18% for the first quarter of 2014 from 1.32% for the first quarter of 2013.  This was slightly offset by a 7 basis point decrease in the average yield on earning assets.  The yield on loans, net of unamortized fees and costs, was 5.05% and 5.26% for the first quarters of 2014 and 2013, respectively, with the decrease due primarily to lower rates during the current period.  The average yield on investments  decreased to 2.65% for the first quarter of 2014 from 2.74% for the first quarter of 2013 while average balances in investments decreased to  $76.3 million for the first quarter of 2014  from  $89.1 million for the first quarter of 2013.  Average interest bearing deposits at the Federal Reserve, which were earning 0.26% and 0.25% for the first quarters of 2014 and 2013, respectively, decreased to  $9.0 million at the end of the first quarter of 2014 from  $10.6 million at the end of the first quarter 2013.  The average balance of interest bearing deposits increased to  $389.9 million for the first quarter of 2014 from  $387.5 million for the first quarter of 2013.

Total interest and fees on loans, the largest component of net interest income, increased to $5.4 million during the first quarter of 2014 compared to $5.0 million for the first quarter of 2013 despite the increased pressure of the rate environment.

Interest expense on deposits decreased $172 thousand to $1.1 million, or 13.72% for the first quarter of 2014 compared to $1.3 million for the same period of 2013.  This decrease was due to the change in the deposit mix and a decrease in overall rates paid on time deposits as interest rates paid on interest bearing deposits decreased 19 basis points to 1.13% for the first quarter of 2014 from 1.31% for the first quarter of 2013.

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.

31

		Three Months Ended March 31,
	2014						2013
	Average		Income/		Yield/		Average		Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate
	(Dollars in thousands)
Assets:
Loans, net of unearned income (1)	$	435,851	$	5,436	5.05	%	$	388,614	$	5,033	5.26	%
Bank owned life insurance (2)		9,624		122	5.14	%		9,297		125	5.46	%
Investment securities:
U.S. Agencies		-		-	0.00	%		-		-	-	%
Mortgage backed securities		23,911		101	1.71	%		12,036		58	1.97	%
Corporate bonds		4,413		21	1.88	%		14,936		90	2.44	%
Municipal securities (2)		3,805		65	6.89	%		5,526		89	6.53	%
Taxable municipal securities		15,459		117	3.07	%		16,704		139	3.37	%
CMO		25,031		148	2.41	%		35,879		197	2.23	%
SBA		-		-	0.00	%		637		(2)	(1.49)	%
Other investments		3,651		47	5.25	%		3,404		31	3.66	%
Total investment securities		76,270		499	2.65	%		89,122		602	2.74	%
Interest bearing deposits		8,980		6	0.26	%		10,566		6	0.25	%
Total earning assets	$	530,725	$	6,063	4.63	%	$	497,599	$	5,766	4.70	%
Cash and cash equivalents		8,866						7,719
Allowance for loan losses		(8,181)						(7,923)
Other assets		21,939						27,311
Total assets	$	553,349					$	524,706
Liabilities & Stockholders' Equity:							��
Interest checking	$	16,176	$	14	0.34	%	$	12,613	$	10	0.33	%
Money market deposit accounts		154,627		161	0.42	%		142,910		145	0.41	%
Statement savings		2,463		2	0.31	%		1,406		1	0.32	%
Certificates of deposit		216,621		905	1.70	%		230,593		1,098	1.93	%
Total interest-bearing deposits		389,887		1,082	1.13	%		387,522		1,254	1.31	%
Fed funds purchased		246		-	0.61	%		72		-	0.61	%
Repurchase agreements		8,233		8	0.38	%		1,105		1	0.40	%
Subordinated debt		12,997		113	3.50	%		7,155		34	1.94	%
FHLB advances		33,000		91	1.12	%		25,000		81	1.31	%
Total interest-bearing liabilities		444,363		1,294	1.18	%		420,854		1,370	1.32	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		61,460						54,862
Other liabilities		1,979						1,849
Total liabilities		63,439						56,711
Shareholders' equity		45,547						47,141
Total liabilities and shareholders' equity	$	553,349					$	524,706
Net interest income			$	4,769					$	4,396
Interest rate spread					3.45	%					3.38	%
Net interest margin					3.64	%					3.58	%
Ratio of average interest earning assets to
average interest-bearing liabilities					119.43	%					118.24	%
(1) Includes nonaccrual loans
(2) Income and yields are reported on a taxable equivalent basis using a 34% tax rate.

32

Noninterest Income

Total noninterest income was $466 thousand for the first quarter of 2014, compared to $602 thousand for the same period of 2013.  The mortgage division added $55 thousand to noninterest income from gains on sales of loans in the first quarter of 2014 compared to $284 thousand for the first quarter of 2013 as the demand for mortgages decreased over the previous periods and this division was closed in the first quarter of 2014.  Other noninterest income increased  $36 thousand for the first quarter of 2014 to $235 thousand compared to $199 thousand for the same period of 2013.  This increase was primarily driven by increased income from account fees and services charges.

Noninterest Expense

This category includes all expenses other than interest paid on deposits and borrowings.  Total noninterest expenses for the first quarter of 2014 increased to  $4.0 million, an increase of $356 thousand or 9.86%, compared to $3.6 million for the same period in 2013, primarily resulting from an increase in salaries and employment benefits related to annual performance based salary increases, year end bonuses and increased health care costs which were partially offset by gains on sales of other real estate owned.

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 month periods ended March 31, 2014 and 2013 was 31.15% and 29.83%, respectively.

ASSET QUALITY

The Company’s allowance for loan losses is an estimate of the amount needed to provide for probable losses inherent 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 $6.1 million at March, 31 2014, down from $10.2 million at March 31, 2013.  This decrease reflects the results of the Asset Resolution Plan.  At December 31, 2013, nonperforming assets totaled $7.1 million.  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 of 2014, OREO was $2.5 million, down from $3.8 million at March 31, 2013.  At March 31, 2014, there were $5.0 million of troubled debt restructurings that were performing loans.

Nonaccrual loans were $3.7 million at March 31, 2014, continuing to decrease from $6.4 million at March 31, 2013, and $4.5 million at December 31, 2013.  The decrease reflects the continued efforts by the Company to decrease nonaccruals in a challenging economic environment.

33

Loan charge-offs, net of recoveries, amounted to a net recovery of $146 thousand for the first quarter of 2014 compared to a net recovery of $98 thousand for the first quarter of 2013.  For the first quarter of 2014,  the provision for loan losses was recovered in the amount of $292 thousand compared to a provision expense of $100 thousand for the first quarter of 2013.

Although the Company believes it has a 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 $8.0 million at March 31, 2014, compared to $7.5 million at March 31, 2013, and $8.2 million at December 31, 2013.  The ratio of the allowance for loan losses to total loans outstanding at March 31, 2014, was 1.80% compared to 1.92%  at March 31, 2013.  The movement in this ratio results from the loan portfolio’s growth since December 31, 2012, and the loan portfolio’s risk factors.

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

	2014			2013
	March 31,			December 31,			March 31,
	(Dollars in thousands)
Nonaccrual loans	$	3,676		$	4,467		$	6,366
Loans past due 90 days
and accruing interest		-			-			-
Total nonperforming loans		3,676			4,467			6,366
Other real estate owned		2,478			2,658			3,841
Total nonperforming assets	$	6,154		$	7,125		$	10,207
Allowance for loan losses
to period end loans		1.80	%		1.89	%		1.92	%
Nonperforming assets to total assets		1.09	%		1.30	%		1.94	%
Allowance for loan losses
to nonaccrual loans		218.12	%		182.80	%		117.29	%

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, 2014, cash and cash equivalents totaled $24.0 million and unrestricted investment securities not pledged totaled $66.4 million, for a total of 11.76% of total assets, which management believes 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 $24.5 million and unused available term loans through the FHLB totaling $36.6 million.

Total liquidity and other alternative sources of liquidity totaled $151.4 million at March 31, 2014, if fully utilized, which represents 32.89% of total deposits.

34

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, 2014, pre-approved but unused lines of credit for loans totaled approximately $107.7 million. In addition, we had approximately $7.7 million in financial and performance standby letters of credit at March 31, 2014. 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 effect 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 as of December 31, 2013.  The $6.5 million of subordinated debt issued in the first quarter of 2014 qualifies as Tier 2 capital.  First Capital Bank’s ratios exceed regulatory requirements. As of March 31, 2014, the Company had a Tier 1 risk-based capital ratio of 11.0% and a Total risk-based capital ratio of 13.86%. At December 31, 2013, these ratios were 12.34% and 13.78%, respectively.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A

ITEM 4.  CONTROLS AND PROCEDURES

Based upon an evaluation as of March 31, 2014 under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, they have concluded that our disclosure controls and procedures, as defined in Rule 13a-15 and Rule 15d-15 under the Securities Exchange Act of 1934, as amended, are effective in ensuring that all material information required to be disclosed in reports that it files or submits under such Act is recorded, processed, summarized and is made known to management in a timely fashion.

Our management is also responsible for establishing and maintaining adequate internal control over financial reporting.  There were no changes in our internal control over financial reporting identified in

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connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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
Item 4.	Mine Safety Disclosures – None
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, 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 September 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)
31.1	Certification of John M. Presley Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 15, 2014.
31.2	Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 15, 2014.
31.3	Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 15, 2014.

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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 15, 2014.
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).
101	The following materials from the Company’s 10-Q Report for the quarter ended March 31, 2014, formatted in XBRL: (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operation, (iii) the Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text.

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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 15, 2014	By:	/s/ John M. Presley
			John M. Presley
			Managing Director & Chief Executive Officer
		By:	/s/ William W. Ranson
			William W. Ranson
			Executive Vice President & Chief Financial Officer

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