First Capital Bancorp (FCVA) 10-Q 2015 Q2 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 June 30, 2015

☐    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 ifasmallerreportingcompany)	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  ☒

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

12,918,892 shares of Common Stock, par value $.01 per share, were outstanding at August 11, 2015.

TABLE OF CONTENTS
				Page
PART I – FINANCIAL INFORMATION
	Item 1 – Financial Statements
		Consolidated Statements of Financial Condition
			June 30, 2015 (unaudited) and December 31, 2014	3
		Consolidated Statements of Operations
			Three and Six Months Ended June 30, 2015 and 2014 (unaudited)	4
		Consolidated Statements of Comprehensive Income
			Three and Six Months Ended June 30, 2015 and 2014 (unaudited)	5
		Consolidated Statements of Stockholders’ Equity
			Six Months Ended June  30, 2015 and 2014 (unaudited)	6
		Consolidated Statements of Cash Flows
			For the Six Months Ended June 30, 2015 and 2014 (unaudited)	7
		Notes toUnaudited Consolidated Financial Statements		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			38
	Item 4 – Controls and Procedures			38
PART II – OTHER INFORMATION
	Item 1 – Legal Proceedings – None to Report			39
	Item 1A – Risk Factors			39
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			39
	Item 3 – Defaults Upon Senior Securities – None to Report			39
	Item 4 – Mine Safety Disclosures – None to Report			39
	Item 5 – Other Information – None to Report			39
	Item 6 – Exhibits			39
SIGNATURES				41

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

June 30, 2015 (Unaudited) and December 31, 2014

(Dollars in Thousands)

	2015		2014
ASSETS
Cash and due from banks	$	12,134	$	11,093
Federal funds sold		2,040		-
Total cash and cash equivalents		14,174		11,093
Time deposits in other banks		2,000		2,000
Investment securities:
Available-for-sale, at fair value		70,970		74,283
Held-to-maturity, at amortized cost (fair value of $2,601 in 2015 and $2,638 in 2014)		2,369		2,371
Restricted, at cost		4,161		4,228
Loans, net of allowance for losses of $7,865 in 2015 and $7,874 in 2014		492,808		473,789
Other real estate owned (OREO)		936		1,810
Premises and equipment, net		11,860		11,461
Accrued interest receivable		1,773		1,736
Bank owned life insurance		10,059		9,900
Deferred tax asset		3,992		4,115
Other assets		1,750		1,752
Total assets	$	616,852	$	598,538
LIABILITIES
Deposits
Noninterest-bearing	$	90,447	$	70,770
Interest-bearing		414,974		408,737
Total deposits		505,421		479,507
Securities sold under repurchase agreements		1,602		1,761
Federal funds purchased		-		6,318
Subordinated debt and trust preferred		10,011		11,559
Federal Home Loan Bank advances		45,000		45,000
Accrued expenses and other liabilities		2,974		4,741
Total liabilities		565,008		548,886
STOCKHOLDERS' EQUITY
Preferred stock (Note 10)		-		-
Common stock (Note 11)		129		128
Additional paid-in capital		48,591		48,569
Retained earnings		3,122		1,020
Accumulated other comprehensive income (loss), net of tax		2		(65)
Total stockholders' equity		51,844		49,652
Total liabilities and stockholders' equity	$	616,852	$	598,538

See notes to consolidated financial statements.

3

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

(Unaudited)

(Dollars in Thousands, except per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Interest and dividend income
Loans	$	6,017	$	5,661	$	11,917	$	11,096
Investments:
Taxable interest income		286		336		587		723
Tax exempt interest income		30		32		58		75
Dividends		52		46		98		94
Interest bearing deposits		20		5		35		11
Total interest and dividend income		6,405		6,080		12,695		11,999
Interest expense
Deposits		982		1,080		1,947		2,162
FHLB advances		183		111		317		202
Subordinated debt and other borrowings		86		125		198		245
Total interest expense		1,251		1,316		2,462		2,609
Net interest income		5,154		4,764		10,233		9,390
Recovery of provision for loan losses		-		-		(145)		(292)
Net interest income after
recovery of provision for loan losses		5,154		4,764		10,378		9,682
Noninterest income
Fees on deposits		72		87		148		167
Gain on sale of securities		2		175		71		271
Gain on sale of loans		-		-		-		55
Other		299		221		583		456
Total noninterest income		373		483		802		949
Noninterest expense
Salaries and employee benefits		1,987		2,079		4,186		4,413
Occupancy expense		204		214		420		418
Data processing		269		237		532		472
Professional services		144		142		298		259
Advertising and marketing		130		127		230		255
FDIC assessment		89		90		182		180
Virginia franchise tax		122		128		254		254
(Gain) Loss on sale and write down of OREO, net		(5)		(54)		140		(78)
Depreciation		200		147		391		283
Other operating expenses		666		648		1,260		1,267
Total noninterest expense		3,806		3,758		7,893		7,723
Net income before income taxes		1,721		1,489		3,287		2,908
Income tax expense		554		480		1,056		922
Net income		1,167		1,009		2,231		1,986
Effective dividend on preferred stock		-		-		-		24
Net income available to common stockholders	$	1,167	$	1,009	$	2,231	$	1,962
Basic net income per common share (Note 3)	$	0.09	$	0.08	$	0.18	$	0.16
Diluted net income per common share (Note 3)	$	0.08	$	0.07	$	0.15	$	0.13
See notes to consolidated financial statements.

4

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollars in Thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Net income	$	1,167	$	1,009	$	2,231	$	1,986
Other comprehensive income:
Investment securities:
Unrealized (losses) gains on investment securities
available for sale		(512)		377		150		1,009
Tax effect		174		(128)		(36)		(343)
Reclassification of gains recognized in net income		(2)		(175)		(71)		(271)
Tax effect		1		59		24		92
Total other comprehensive income		(339)		133		67		487
Comprehensive income	$	828	$	1,142	$	2,298	$	2,473

See notes to consolidated financial statements

5

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2015 and 2014

(Unaudited)

(Dollars in Thousands)

								Retained		Discount		Accumulated
						Additional		Earnings		on		Other
		Preferred		Common		Paid-in		(Accumulated		Preferred		Comprehensive
		Stock		Stock		Capital		Deficit)		Stock		Income (Loss)		Total
Balances December 31, 2013	$	22	$	50,208	$	4,448	$	(4,590)	$	(16)	$	(390)	$	49,682
Net income		-		-		-		1,986		-		-		1,986
Other comprehensive income		-		-		-		-		-		487		487
Preferred stock dividend		-		-		-		(8)		-		-		(8)
Accretion of discount on
preferred stock		-		-		-		(16)		16		-		-
Stock based compensation		-		-		159		-		-		-		159
Redemption of preferred stock		(22)		-		(5,509)		-		-		-		(5,531)
Change in par value				(50,083)		48,837		1,246
Exercise of warrants issued
in connection with
rights offering		-		2		394		-		-		-		396
Balances June 30, 2014	$	-	$	127	$	48,329	$	(1,382)	$	-	$	97	$	47,171
Balances December 31, 2014	$	-	$	128	$	48,569	$	1,020	$	-	$	(65)	$	49,652
Net income		-		-		-		2,231		-		-		2,231
Other comprehensive income		-		-		-		-		-		67		67
Stock based compensation		-		-		194		-		-		-		194
Repurchase of common stock		-		-		(182)		-		-		-		(182)
Exercise of rights offering warrants		-		-		11		-		-		-		11
Payment of dividend ($0.01/share)		-		-		-		(129)		-		-		(129)
Issuance of 94 thousand shares of
restricted common stock		-		1		(1)		-		-		-		-
Balances June 30, 2015	$	-	$	129	$	48,591	$	3,122	$	-	$	2	$	51,844

See notes to consolidated financial statements

6

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2015 and 2014

(Unaudited)

(Dollars in Thousands)

	2015		2014
Cash flows from operating activities
Net income	$	2,231	$	1,986
Adjustments to reconcile net income to net cash
provided by operating activities:
Recovery of provision for loan losses		(145)		(292)
Depreciation of premises and equipment		391		283
Net amortization of bond premiums/discounts		354		293
Stock based compensation expense		194		159
Deferred income tax expense		111		512
Gain on sale of securities		(71)		(271)
Gain on loans sold		-		(55)
Loss (gain) on sale and write down of OREO, net		140		(78)
Increase in cash surrender value of bank owned life insurance		(159)		(162)
Proceeds from sale of loans held for sale		-		7,167
Origination of loans held for sale		-		(6,120)
Decrease (increase) in other assets		2		(68)
Increase in accrued interest receivable		(37)		(20)
Decrease in accrued expenses and other liabilities		(1,767)		(1,078)
Net cash provided by operating activities		1,244		2,256
Cash flows from investing activities
Proceeds from paydowns of securities available-for-sale		6,285		5,312
Purchase of securities available-for-sale		(10,618)		(18,253)
Proceeds from sale of securities available-for-sale		7,444		15,165
Proceeds from sale of OREO		831		575
Improvements in OREO		(97)		(118)
Proceeds from sale of equipment		64		-
Redemption (purchase) of Federal Home Loan Bank (FHLB) Stock, net		67		(516)
Purchase of Federal Reserve Stock		-		(116)
Payment of stock dividend		(129)		-
Purchases of premises and equipment		(854)		(593)
Net increase in loans		(18,874)		(30,236)
Net cash used in investing activities		(15,881)		(28,780)
Cash flows from financing activities
Net increase in deposits		25,914		11,821
FHLB advances		27,000		15,000
FHLB advance repayments		(27,000)		-
Federal funds purchased, net		(6,318)		-
Dividends on preferred stock		-		(8)
Cash paid for redemption of common stock warrants and preferred stock, net of expenses		-		(5,531)
Proceeds from issuance of subordinated debt, net of payments		(48)		6,452
Repurchase of common stock		(182)		-
Retirement of subordinated debt		(1,500)		-
Warrants exercised in connection with the rights offering		11		396
Net (decrease) increase in repurchase agreements		(159)		532
Net cash provided by financing activities		17,718		28,662
Net increase in cash and cash equivalents		3,081		2,138
Cash and cash equivalents, beginning of period		11,093		14,187
Cash and cash equivalents, end of period	$	14,174	$	16,325

7

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Six Months Ended June 30,  2015 and 2014

(Dollars in Thousands)

(Unaudited)

(Continued)

	2015		2014
	(Unaudited)
	(Dollars in thousands)
Supplemental disclosure of cash flow information
Interest paid during the period	$	2,458	$	2,609
Taxes paid during the period	$	960	$	410

See notes to consolidated financial statements

8

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

Note 1 – Basis of Presentation

First Capital Bancorp, Inc. (the Company) is the holding company of and successor to First Capital Bank (the Bank).  In 2006, the Company acquired all of the outstanding stock of the Bank in a statutory share exchange transaction pursuant to an Agreement and Plan of Reorganization dated September 5, 2006, between the Company and the Bank (the Agreement).  Under the terms of the Agreement, the shares of the Bank’s common stock were exchanged for shares of the Company’s common stock 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 stockholders of the Bank became stockholders of the Company. 

The Company conducts all of its business activities through the branch offices of the bank.  The Bank created RE1, LLC, and RE2, LLC, wholly owned Virginia limited liability companies for the sole purpose of taking title to property acquired in lieu of foreclosure.  RE1, LLC, and RE2, LLC have been consolidated with the Bank.  The Company exists primarily for the purpose of holding the stock of its subsidiary, the Bank, and such other subsidiaries that 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 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 June 30, 2015, and December 31, 2014, and for the three and six months ended June 30, 2015 and 2014, in conformity with accounting principles generally accepted in the United States of America (GAAP).  Results for the three and six-month periods ended June 30, 2015, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2015.  

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, 2014, 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 consolidated financial statements.

Certain reclassifications have been made to amounts presented in the Consolidated Statements of Financial Condition as of December 31, 2014 to conform to the current period presentation.

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, income taxes, and fair values of financial instruments are subject to change.

9

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

Note 3 – Earnings per common share

Basic earnings per share (EPS) excludes potential 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 that have a dilutive impact on shares outstanding were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the Company.  

The basic and diluted EPS calculations are as follows:

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		(in thousands,				(in thousands,
		except per share amounts)				except per share amounts)
	2015		2014		2015		2014
Net income available to common stockholders	$	1,167	$	1,009	$	2,231	$	1,962
Weighted average number of shares outstanding		12,636		12,544		12,643		12,484
Net income per common share - basic	$	0.09	$	0.08	$	0.18	$	0.16
Effect of dilutive securities:
Weighted average number of common shares outstanding		12,636		12,544		12,643		12,484
Effect of stock options, warrants and restricted stock		2,212		2,397		2,170		2,410
Diluted average common shares outstanding		14,848		14,941		14,813		14,894
Net income per common share - diluted	$	0.08	$	0.07	$	0.15	$	0.13

For the three and six months ended June 30, 2015,  The Company has excluded options convertible into 29 thousand shares of common stock from the calculation of diluted earnings per share because they were anti-dilutive.

For the three and six months ended June 30, 2014, the Company excluded options convertible into 31 thousand shares of common stock from the calculation of diluted earnings per share because they were anti-dilutive. 

Note 4 – Stock-Based Compensation

Accounting standards require the Company to measure compensation cost for the type of stock-based awards the Company issues 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.

Stock-based compensation expense during the three and six months ended June 30, 2015 was $109  thousand and $194 thousand, respectively, and the amount expensed during the three and six months ended June 30, 2014, was $76 thousand and $159 thousand, respectively.  Stock-based compensation is included in salaries and employee benefits in the accompanying consolidated statements of operations.

10

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

Note 5 – Investment Securities

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

		June 30, 2015
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
		(Dollars in thousands)
Available-for-sale
Mortgage-backed securities	$	27,617	$	167	$	128	$	27,656
Corporate bonds		3,502		4		30		3,476
Collateralized mortgage obligation (CMO) securities		17,919		192		31		18,080
State and political subdivisions - taxable		16,076		56		219		15,913
State and political subdivisions - tax exempt		2,268		-		24		2,244
SBA pools		3,597		6		2		3,601
	$	70,979	$	425	$	434	$	70,970

		December 31, 2014
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
		(Dollars in thousands)
Available-for-sale
Mortgage-backed securities	$	29,447	$	190	$	73	$	29,564
Corporate bonds		3,502		8		12		3,498
Collateralized mortgage obligation (CMO) securities		19,686		196		91		19,791
State and political subdivisions - taxable		18,046		37		329		17,754
State and political subdivisions - tax exempt		-		-		-		-
SBA pools		3,690		3		17		3,676
	$	74,371	$	434	$	522	$	74,283

	June 30, 2015
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
Held-to-maturity		(Dollars in thousands)
Tax-exempt municipal bonds	$	2,369	$	232	$	-	$	2,601
	$	2,369	$	232	$	-	$	2,601

	December 31, 2014
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
Held-to-maturity		(Dollars in thousands)
Tax-exempt municipal bonds	$	2,371	$	267	$	-	$	2,638
	$	2,371	$	267	$	-	$	2,638

11

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

The following table summarizes securities with unrealized losses at June 30, 2015, and December 31, 2014, 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 June 30, 2015,  44 out of 113 securities the Company held had fair values less than amortized cost, primarily in municipal securities.  At December 31, 2014,  55 out of 111 securities the Company held had fair values less than amortized cost, primarily in municipal and mortgage-backed securities.  All unrealized losses are considered by management to be temporary given investment security credit ratings, the intent and ability to retain these securities for a period of time sufficient to recover all unrealized losses, and because it is unlikely that the Company will be required to sell the impaired securities before their anticipated recovery. As such, management’s assessment of other than temporary impairment (OTTI) for the quarter ended June 30, 2015, resulted in no recognition of an impairment loss.

	June 30, 2015
	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:
Mortgage-backed securities	$	10,574	$	105	$	721	$	23	$	11,295	$	128
Corporate bonds		498		4		1,974		26		2,472		30
CMO securities		3,422		12		1,751		19		5,173		31
State and political subdivisions-taxable		7,289		111		4,420		108		11,709		219
State & political subdivisions-tax exempt		2,244		24		-		-		2,244		24
SBA Pools		1,464		2		-		-		1,464		2
All securities	$	25,491	$	258	$	8,866	$	176	$	34,357	$	434

	December 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:
Mortgage-backed securities	$	9,722	$	30	$	4,236	$	43	$	13,958	$	73
Corporate bonds		998		5		1,492		7		2,490		12
CMO securities		6,568		34		3,542		57		10,110		91
State and political subdivisions-taxable		8,074		79		6,728		250		14,802		329
SBA Pools		2,686		17		-		-		2,686		17
All securities	$	28,048	$	165	$	15,998	$	357	$	44,046	$	522

Restricted investment securities consist primarily of Federal Home Loan Bank of Atlanta (FHLB) stock in the amount of $2.5 million as of June 30, 2015, and December 31, 2014, and Federal Reserve Bank stock in the amount of $1.6 million at June 30, 2015, and December 31, 2014.  Restricted equity securities are carried at cost because there is no ability to resell these securities.  The FHLB 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

12

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

Federal Reserve Bank of Richmond requires the Company to maintain stock with a par value equal to 3% of the Company’s outstanding capital.

Mortgage-backed securities with a fair value of approximately $1.6 million and $1.8 million were pledged as collateral at June 30, 2015,  and December 31, 2014, respectively, to secure overnight repurchase agreements.

Note 6 – Loans

Major classifications of loans are as follows:

	June 30,		December 31,
	2015		2014
		(Dollars in thousands)
Real estate
Residential	$	141,299	$	145,241
Commercial		178,410		182,718
Residential Construction		42,675		32,184
Other Construction, Land
Development & Other Land		64,921		52,937
Commercial		71,581		66,868
Consumer		1,979		1,886
Total loans		500,865		481,834
Less:
Allowance for loan losses		7,865		7,874
Net deferred fees		192		171
Loans, net	$	492,808	$	473,789

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.  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 and office buildings.  These properties are generally located in the Bank’s normal lending area.  This category of loans has a higher than average level of risk because its performance is impacted by market forces over a longer time horizon.  

Real Estate – Residential Construction – These loans are located in the Bank’s normal lending area. While it has represented a growth area for the portfolio, this category also has a higher level of risk due to inherent market change and construction risks.

Real Estate – Other Construction, Land Development and Other Land Loans – This portfolio includes developed residential and commercial lots held by developers as well as non-residential construction projects.  This category has a higher level of risk due to inherent risks associated with market changes and construction.

13

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

Commercial – These loans include loans to businesses that are not secured by real estate.  These loans are typically secured by accounts receivable, inventory, equipment, and other business assets.  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 assets such as automobiles or marketable securities.  They are generally granted to local customers that have a banking relationship with the Bank.

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

	June 30,
	2015			2014
	(Dollars in thousands)
Balance, beginning of period	$	7,874		$	8,165
Recovery of provision for loan losses		(145)			(292)
Recoveries		170			477
Charge-offs		(34)			(456)
Balance, end of period	$	7,865		$	7,894
Ratio of allowance for loan
losses as a percent of total loans
outstanding at the end of the period		1.57	%		1.71	%

The following tables present 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, April 1, 2015	$	2,352	$	2,904	$	886	$	767	$	950	$	15	$	7,874
(Provision for) recovery of loan losses		(259)		(168)		228		44		155				-
Recoveries		5		-		1		1		3		-		10
Charge-offs		(19)		-		-		-		-		-		(19)
Balance, June 30, 2015	$	2,079	$	2,736	$	1,115	$	812	$	1,108	$	15	$	7,865
Balance, April 1, 2014	$	2,711	$	2,912	$	760	$	636	$	985	$	15	$	8,019
(Provision for) recovery of loan losses		381		(11)		(303)		(17)		(49)		(1)		-
Recoveries		3		-		167		-		17		-		187
Charge-offs		(312)		-		-		-		-		-		(312)
Balance, June 30, 2014	$	2,783	$	2,901	$	624	$	619	$	953	$	14	$	7,894

14

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

	Six Months Ended
	Real Estate
							Other
							Construction
							Land Devel.
					Residential		& Other
	Residential		Commercial		Construction		Land		Commercial		Consumer		Total
		(Dollars in thousands)
Balance, January 1, 2015	$	2,324	$	3,168	$	711	$	626	$	1,031	$	14	$	7,874
Provision for (recovery of) loan losses		(231)		(432)		401		85		31		1		(145)
Recoveries		20		-		3		101		46		-		170
Charge-offs		(34)		-		-		-		-		-		(34)
Balance, June 30, 2015	$	2,079	$	2,736	$	1,115	$	812	$	1,108	$	15	$	7,865
Balance, January 1, 2014	$	2,891	$	3,050	$	591	$	624	$	996	$	13	$	8,165
Provision for (recovery of) loan losses		336		(149)		(135)		(5)		(340)		1		(292)
Recoveries		12		-		168		-		297		-		477
Charge-offs		(456)		-		-		-		-		-		(456)
Balance, June 30, 2014	$	2,783	$	2,901	$	624	$	619	$	953	$	14	$	7,894

The charge 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 from the contractual due date and open-end retail loans that become past due 180 cumulative days from the contractual due date will generally be charged off.

The following table presents the aging of unpaid principal in loans:  

	June 30, 2015
			90+ Days
	30-89 Day		Past Due
	Past Due		and Accruing		Nonaccrual		Current		Total
		(Dollars in thousands)
Real estate
Residential	$	297	$	-	$	1,776	$	139,226	$	141,299
Commercial		-		-		167		178,243		178,410
Residential Construction		-		-		-		42,675		42,675
Other Construction, Land
Development & Other Land		-		-		395		64,526		64,921
Commercial		28		-		-		71,553		71,581
Consumer		-		-		280		1,699		1,979
Total	$	325	$	-	$	2,618	$	497,922	$	500,865

15

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

	December 31, 2014
			90+ Days
	30-89 Day		Past Due
	Past Due		and Accruing		Nonaccrual		Current		Total
		(Dollars in thousands)
Real estate
Residential	$	77	$	-	$	1,560	$	143,604	$	145,241
Commercial		428		-		218		182,072		182,718
Residential Construction		-		-		-		32,184		32,184
Other Construction, Land
Development & Other Land		-		-		1,360		51,577		52,937
Commercial		-		-		-		66,868		66,868
Consumer		-		-		292		1,594		1,886
Total	$	505	$	-	$	3,430	$	477,899	$	481,834

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 tables provide details of the Company’s loan portfolio by internally assigned grade:  

	June 30, 2015
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
		(Dollars in thousands)
Real estate
Residential	$	136,882	$	1,529	$	2,888	$	-	$	-	$	141,299
Commercial		171,743		2,943		3,724		-		-		178,410
Residential Construction		42,504		-		171		-		-		42,675
Other Construction, Land
Development & Other Land		62,650		-		2,271		-		-		64,921
Commercial		70,230		443		908		-		-		71,581
Consumer		1,699		-		280		-		-		1,979
Total	$	485,708	$	4,915	$	10,242	$	-	$	-	$	500,865

16

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

		December 31, 2014
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
		(Dollars in thousands)
Real estate
Residential	$	140,491	$	2,141	$	2,609	$	-	$	-	$	145,241
Commercial		176,063		3,098		3,557		-		-		182,718
Residential Construction		32,013		-		171		-		-		32,184
Other Construction, Land
Development & Other Land		44,595		4,819		3,523		-		-		52,937
Commercial		65,915		598		355		-		-		66,868
Consumer		1,594		-		292		-		-		1,886
Total	$	460,671	$	10,656	$	10,507	$	-	$	-	$	481,834

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 continuing to carry them 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.

17

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

The following table provides details regarding impaired loans by segment and class:  

	June 30, 2015						December 31, 2014
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(Dollars in thousands)
With no related allowance:
Real estate
Residential	$	2,037	$	2,531	$	-	$	1,826	$	2,359	$	-
Commercial		167		194		-		217		242		-
Residential Construction		-		-		-		-		-		-
Other Construction, Land
Development & Other Land		395		923		-		6,180		9,080		-
Commercial		-		-		-		-		-		-
Consumer		280		396		-		292		396		-
Total	$	2,879	$	4,044	$	-	$	8,515	$	12,077	$	-
With an allowance:
Real estate
Residential	$	-	$	-	$	-	$	-	$	-	$	-
Commercial		-		-		-		-		-		-
Residential Construction		-		-		-		-		-		-
Other Construction, Land
Development & Other Land		-		-		-		-		-		-
Commercial		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	-	$	-	$	-
Total
Real estate
Residential	$	2,037	$	2,531	$	-	$	1,826	$	2,359	$	-
Commercial		167		194		-		217		242		-
Residential Construction		-		-		-		-		-		-
Other Construction, Land
Development & Other Land		395		923		-		6,180		9,080		-
Commercial		-		-		-		-		-		-
Consumer		280		396		-		292		396		-
Total	$	2,879	$	4,044	$	-	$	8,515	$	12,077	$	-

18

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

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)
June 30, 2015
Allowance for loan losses, evaluated
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		2,079		2,736		1,115		812		1,108		15		7,865
Total ending allowance	$	2,079	$	2,736	$	1,115	$	812	$	1,108	$	15	$	7,865
Loans, evaluated
Individually	$	2,037	$	167	$	-	$	395	$	-	$	280	$	2,879
Collectively		139,262		178,243		42,675		64,526		71,581		1,699		497,986
Total ending loans	$	141,299	$	178,410	$	42,675	$	64,921	$	71,581	$	1,979	$	500,865
December 31, 2014
Allowance for loan losses, evaluated
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		2,324		3,168		711		626		1,031		14		7,874
Total ending allowance	$	2,324	$	3,168	$	711	$	626	$	1,031	$	14	$	7,874
Loans, evaluated
Individually	$	1,826	$	217	$	-	$	6,180	$	-	$	292	$	8,515
Collectively		143,415		182,501		32,184		46,757		66,868		1,594		473,319
Total ending loans	$	145,241	$	182,718	$	32,184	$	52,937	$	66,868	$	1,886	$	481,834

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.

19

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

	Three Months Ended				Six Months Ended
	June 30, 2015				June 30, 2015
	Interest		Average		Interest		Average
	Income		Recorded		Income		Recorded
	Recognized		Investment		Recognized		Investment
		(Dollars in thousands)				(Dollars in thousands)
Real estate
Residential	$	56	$	1,790	$	81	$	1,889
Commercial		6		174		10		260
Residential Construction		-		-		-		36
Other Construction, Land
Development & Other Land		2		395		3		3,816
Commercial		-		-				9
Consumer		12		283		18		231
Total	$	76	$	2,642	$	112	$	6,241

	Three Months Ended				Six Months Ended
	June 30, 2014				June 30, 2014
	Interest		Average		Interest		Average
	Income		Recorded		Income		Recorded
	Recognized		Investment		Recognized		Investment
		(Dollars in thousands)				(Dollars in thousands)
Real estate
Residential	$	55	$	1,835	$	98	$	1,797
Commercial		22		512		34		528
Residential Construction		6		157		9		243
Other Construction, Land
Development & Other Land		183		4,179		284		3,527
Commercial		1		48		1		156
Consumer		-		-		-		-
Total	$	267	$	6,731	$	426	$	6,251

Cash payments received on nonaccrual, 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. Cash payments received on active, impaired loans are applied to both interest and principal.

20

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

Troubled Debt Restructurings

Accounting Standards Codification (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 to a new rate that is lower than the current market rate 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 owed.

Management reviews all modifications 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 alternatives 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 described above.

As of June 30, 2015, and December 31, 2014, there were no available commitments outstanding for troubled debt restructurings.

21

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

The following tables present troubled debt restructurings as of the dates indicated:  

	June 30, 2015
	Total
	Number		Accrual		Nonaccrual		Total
	of Contracts		Status		Status		Modifications
		(Dollars in thousands)
Real estate
Residential		1	$	261	$	-	$	261
Commercial		-		-		-		-
Residential Construction		-		-		-		-
Other Construction, Land
Development & Other Land		1		-		86		86
Commercial		-		-		-		-
Consumer		-		-		-		-
Total		2	$	261	$	86	$	347

	December 31, 2014
	Total
	Number		Accrual		Nonaccrual		Total
	of Contracts		Status		Status		Modifications
		(Dollars in thousands)
Real estate
Residential		1	$	266	$	-	$	266
Commercial		-		-		-		-
Residential Construction		-		-		-		-
Other Construction, Land
Development & Other Land		4		4,819		1,052		5,871
Commercial		-		-		-		-
Consumer		-		-		-		-
Total		5	$	5,085	$	1,052	$	6,137

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.

22

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

There were no newly restructured loans that occurred during the three or six months ended June 30, 2015 or the three months ended June 30, 2014.  The following table presents troubled debt restructurings that occurred during the six months ended June 30, 2014:

	Six Months Ended
	June 30, 2014
	Number of	Rate		Term		Interest Only		Payment		Combination
	Contracts	Modifications		Modifications		Modifications		Modifications		Modifications		Total
	(Dollars in thousands)
Real estate
Residential	1	$	-	$	-	$	-	$	-	$	272	$	272
Commercial	-		-		-		-		-		-		-
Residential Construction	-		-		-		-		-		-		-
Other Construction, Land	1		-		-		-		-		3,964		3,964
Residential Construction	-		-		-		-		-		-		-
Commercial	-		-		-		-		-		-		-
Consumer	-		-		-		-		-		-		-
Total	2	$	-	$	-	$	-	$	-	$	4,236	$	4,236

There were no 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 or six month periods ended June 30, 2015, or 2014.

Note 7 – Other Real Estate Owned (OREO)

Changes in OREO were as follows for the periods indicated:

	Six Months Ended
	June 30,
	2015		2014
	(dollars in thousands)
Beginning Balance	$	1,810	$	2,658
Additions		97		118
Sales		(817)		(497)
Write-downs		(154)		-
Ending Balance	$	936	$	2,279

23

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

Note 8 – Fair Value

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction between market participants.  A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.  The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs.  An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction.  Market participants are buyers and sellers in the principal market that are independent, knowledgeable, able to transact, and willing to transact.

Financial Accounting Standards Board (FASB) Codification Topic 820:  Fair Value Measurements and Disclosures establishes a hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair values hierarchy is as follows:

Level 1 Inputs – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. 

Level 2 Inputs – Significant other observable inputs other than Level 1 prices such as 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 data.

Level 3 Inputs – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. 

Investment Securities:  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 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 measured at fair value on a recurring basis as of the dates indicated.  See Note 5 for a detail listing of the fair values of available-for-sale securities.

	June 30, 2015
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
	(Dollars in thousands)
Assets:
Available-for-sale securities	$	-	$	70,970	$	-	$	70,970

24

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

	December 31, 2014
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
	(Dollars in thousands)
Assets:
Available-for-sale securities	$	-	$	74,283	$	-	$	74,283

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:  The fair values of impaired loans are 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 measurement is considered Level 3.  The value of business equipment is based upon an outside appraisal if deemed significant using observable market data.  Likewise, fair values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3).  Any fair value adjustments are recorded in the period incurred as provision for loan losses in the consolidated statements of operations.

Level 3 fair value measurements of impaired loans generally include discounts for unobservable input such as estimated selling costs, lack of marketability or practical life, and age of appraisal.  Such discounts ranged from 0% to 30% for each of the respective periods presented.   

Other Real Estate Owned:  OREO assets are adjusted to fair value upon transfer of the loan collateral to the Company through or instead of foreclosure.  Subsequently, OREO assets are carried at net realizable value.  Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the OREO asset as nonrecurring Level 2.  When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the OREO asset as nonrecurring Level 3.

Level 3 fair value measurements of OREO assets generally include discounts for unobservable input such as estimated selling costs, lack of marketability, and age of appraisal.  Such discounts ranged from 0% to 30% for each of the respective periods presented.

25

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

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

	June 30, 2015
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
	(Dollars in thousands)
Impaired loans	$	-	$	-	$	4,044	$	4,044
Other real estate owned		-		-		936		936
Total	$	-	$	-	$	4,980	$	4,980

	December 31, 2014
	Fair Value Measurements Using						Fair
	Level 1		Level 2		Level 3		Values
	(Dollars in thousands)
Impaired loans	$	-	$	-	$	8,515	$	8,515
Other real estate owned		-		-		1,810		1,810
Total	$	-	$	-	$	10,325	$	10,325

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

In general, fair value of securities is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon market prices determined by an outside, independent entity that primarily uses as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.

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

Time Deposits in Other Banks – The fair values of time deposits are estimated based on bid quotations received from independent pricing services for similar assets.

Loans  – For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values.  For all other loans, fair values are calculated by discounting the contractual cash flows using estimated market discount rates which reflect the credit and interest rate risk inherent in the loans, or by using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. 

26

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

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 of certificates of deposit are based on the discounted value of contractual cash flows using the rates currently offered for deposits of similar remaining maturities.  

Accrued interest  – The carrying amounts of accrued interest receivable and payable approximate fair value.

FHLB Advances–  The carrying value of advances from the FHLB due within 90 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, which are secured transactions with customers that generally mature the day following the date sold, approximate fair value.

Subordinated Debt and Trust Preferred – The Company’s subordinated debt consists of variable rate instruments that reprice on a periodic basis, therefore, carrying value is adjusted for the repricing lag in order to approximate fair value.

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

The estimated fair values of the Company’s financial instruments, which are all Level 2 in fair values hierarchy, as of June 30, 2015, and December 31, 2014, are as follows:

	June 30, 2015				December 31, 2014
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(Dollars in thousands)				(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	14,174	$	14,174	$	11,093	$	11,093
Time deposits in other banks		2,000		2,016		2,000		1,989
Investment securities		73,339		73,571		76,654		76,921
Loans, net		492,808		494,427		473,789		472,105
Accrued interest		1,773		1,773		1,736		1,736
BOLI		10,059		10,059		9,900		9,900
Financial liabilities
Deposits	$	505,421	$	498,118	$	479,507	$	477,359
FHLB advances		45,000		46,016		45,000		46,068
Subordinated debt and trust preferred		10,011		10,029		11,559		11,554
Repurchase agreements		1,602		1,602		1,761		1,761
Accrued interest		40		40		37		37

27

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

Note 9 – Recently Issued Accounting Pronouncements

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

In May of 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  The guidance in this ASU superseded the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of Codification.  The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets.  This amendment is intended to clarify that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments are effective for public business entities for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted.  The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In June of 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.  The amendments in this ASU require that repurchase-to-maturity transactions be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. In addition, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty (a repurchase financing), which will result in secured borrowing accounting for the repurchase agreement. The amendments require an entity to disclose information about transfers accounted for as sales in transactions that are economically similar to repurchase agreements, in which the transferor retains substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction.  In addition, the amendments require disclosure of the types of collateral pledged in repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions and the tenor of those transactions.  For public business entities, the accounting changes and disclosure for certain transactions accounted for as a sale are effective for the first period (interim or annual) beginning after December 15, 2014.  The disclosure for transactions accounted for as secured borrowings is required for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

28

First Capital Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

In June of 2014, the FASB issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718) – Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.  The amendments in this ASU require that a performance target that affects vesting and which could be achieved after the requisite service period be treated as a performance condition.  The amendments apply to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. For all entities, the amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted.  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 Company’s Preferred Stock has a $4.00 par value and a  $1,000 liquidation preference.  With 2,000,000 preferred shares authorized, there were no shares outstanding at June 30, 2015, or December 31, 2014. 

Note 11—Common Stock

In December 2014, the Board of Directors authorized a share repurchase program to purchase up to 300,000 shares of its outstanding common stock.  During the quarter ended June 30, 2015, the Company repurchased 41,700 shares of its common stock. 

On May 20, 2015, the Board of Directors declared a cash dividend of $0.01 per common share, payable on June 25, 2015, to stockholders of record on June 10, 2015. 

In June 2014, the Board of Directors approved a change to the par value of the Company’s Common Stock from $4.00 per share to $.01 per share.  With 30,000,000 shares of Common Stock authorized, at June 30, 2015, and at December 31, 2014, there were 12,917,317 and 12,864,542 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 include, but are not limited to, the following:

· the ability to successfully manage our growth or implement our growth strategies if we are unable to identify attractive markets, locations or opportunities to expand in the future;

· our ability to continue to attract low cost core deposits to fund asset growth;

· changes in interest rates and interest rate policies and the successful management of interest rate risk;

· maintaining cost controls and asset quality as we open or acquire new locations;

· maintaining capital levels adequate to support our growth and operations;

· changes in general economic and business conditions in our market area;

· reliance on our management team, including our ability to attract and retain key personnel;

· risks inherent in making loans such as repayment risks and fluctuating collateral values;

· competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;

· demand, development and acceptance of new products and services;

· problems with technology utilized by us;

· changing trends in customer profiles and behavior;

· changes in banking and other laws and regulations applicable to us; and

· changes in assumptions underlying the allowance for loan losses.

Although we believe that our expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that our actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

30

OVERVIEW

The Company’s results for the quarter and six-month-period ended June 30, 2015 reflect management’s continuing commitment to controlled growth.  Total assets grew 3% during the first half of 2015,  which is primarily attributable to loan growth.  Net income available to common stockholders for the quarter ended June 30, 2015, increased 16% compared to the same period in the prior year, to $1.2 million (or $0.08 per diluted share) and is primarily attributable to growth in net interest income.  Net income available to common stockholders for the six-month-period ended June 30, 2015, increased 14% compared to the same period in the prior year, to $2.2 million (or $0.15 per diluted share) and is primarily attributable to growth in net interest income.  In addition, asset quality trends continue to improve, and the Company remains well capitalized with capital ratios in excess of the regulatory minimums.

FINANCIAL CONDITION

Assets

Total assets at June 30, 2015, were $616.9 million, up $18.3 million (or 3.1%) from $598.5 million at December 31, 2014.  The primary driver of this increase was a growth in net loans of $19.0 million (or 4.0%) to $492.8 million at June 30, 2015 from $473.8 million at December 31, 2014.  This growth in net loans was due primarily to the increased loan demand in our market as the economy and consumer confidence continue to improve.  Cash and cash equivalents increased $3.1 million (or 27.8%) to $14.2 million at June 30, 2015 from $11.1 million at December 31, 2014.  This net increase in cash and cash equivalents was due primarily to an increase in federal funds sold to $2.0 million at June 30, 2015, compared to federal funds purchased of $6.3 million at December 31, 2014.  At June 30, 2015 the Company’s investment securities portfolio totaled $73.3 million, a decrease of $3.3 million (or 4.3%), from $76.7 million at December 31, 2014.  This decrease in investment securities is primarily due to principal repayments coupled with net purchases of securities as management continues to shorten the duration of the portfolio to be better positioned for rising interest rates.  The composition of the Company’s investment portfolio reflects management’s strategy to manage volatility, balance interest rate risk, and to provide liquidity and income to the Company.

Liabilities and Stockholders’ Equity

Customer deposits increased $25.9 million (or 5.4%) from $479.5 million at December 31, 2014 to $505.4 million at June 30, 2015.  The Company had federal funds purchased of $6.3 million at December 31, 2014 compared to federal funds sold of $2.0 million at June 30, 2015 (see related increase in cash and cash equivalents above).  Stockholders’ equity increased $2.2 million (or 4.4%) due primarily to net income during the six-month-period ended June 30, 2015.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income represents the principal source of earnings for the Company.  Net interest income is the amount of interest generated from earning assets that 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 the Company’s 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.

31

For the three months ended June 30, 2015, net interest income was up $390 thousand (or 8.2%) to $5.2 million compared to $4.8 million for the second quarter of 2014, due primarily to continued loan growth.  Total interest and fees on loans, the largest component of net interest income, increased $356 thousand (or 6.3%) to $6.0 million during the second quarter of 2015 compared to $5.7 million for the second quarter of 2014.  Interest expense on deposit liabilities decreased $98 thousand, or 9.1%, for the second quarter of 2015 compared to the same period of 2014.  This decrease, despite the growth in deposit liabilities, was primarily due to a 17-basis-points decrease in average rates paid on interest-bearing deposit liabilities to 0.94% for the second quarter of 2015 compared to 1.11% for the second quarter of 2014.

For the six months ended June 30, 2015, net interest income was up $843 thousand (or 8.9%) to $10.2 million compared to $9.4 million for the first half of 2014, due primarily to continued loan growth.  Total interest and fees on loans, the largest component of net interest income, increased $821 thousand (or 7.4%) to $11.9 million during the first half of 2015 compared to $11.1 million for the first half of 2014.  Interest expense on deposit liabilities decreased $215 thousand, or 9.9%, for the first half of 2015 compared to the same period of 2014.  This decrease, despite the growth in deposit liabilities, was primarily due to an 18-basis-points decrease in average rates paid on interest-bearing deposit liabilities to 0.94% for the first half of 2015 compared to 1.12% for the first half of 2014.

The net interest margin decreased 4 basis points to 3.59%  for the three months ended June 30, 2015, compared to 3.63% for the second quarter of 2014, due primarily to decreased yields, particularly in the loan portfolio. The yield on loans, net of unearned income, was 4.93%  with an average balance of $489.7 million for the second quarter of 2015 compared to 5.03%  on an average balance of $452.1 million for the second quarter of 2014, with the decrease in yield due primarily to continued rate pressure in the Company’s local market.  The average yield on investments decreased to 2.07%  with an average balance of $74.1 million for the second quarter of 2015 compared to 2.36%  on an average balance of $73.1 million for the second quarter of 2014.  The decrease in investment yield reflects management’s strategy to shorten the duration of the portfolio to be better positioned for rising interest rates.  The average balance of interest bearing deposit liabilities increased to  $418.7 million with an average interest rate of 0.94% for the second quarter of 2015 compared to  $390.9 million with an average interest rate of 1.11% for the second quarter of 2014.

The net interest margin decreased 1 basis point to 3.63% for the six months ended June 30, 2015, compared to 3.64% for the second half of 2014, due primarily to decreased yields, particularly in the loan portfolio. The yield on loans, net of unearned income, was 4.94%  with an average balance of $486.3 million for the first half of 2015 compared to 5.03%  on an average balance of $444.0 million for the first half of 2014, with the decrease in yield due primarily to continued rate pressure in the Company’s local market.  The average yield on investments decreased to 2.07%  with an average balance of $75.2 million for the first half of 2015 compared to 2.51%  on an average balance of $74.7 million for the first half of 2014.  The decrease in investment yield reflects management’s strategy to shorten the duration of the portfolio to be better positioned for rising interest rates.  The average balance of interest bearing deposit liabilities increased to  $415.9 million with an average interest rate of 0.94% for the first half of 2015 compared to  $390.4 million with an average interest rate of 1.12% for the first half of 2014.

Average Balances, Income and Expenses, Yields and Rates

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, stockholders’ 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.

32

		Three Months Ended June 30,
	2015						2014
	Average		Income/		Yield/		Average		Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate
	(Dollars in thousands)
Assets:
Loans, net of unearned income (1)	$	489,700	$	6,017	4.93	%	$	452,135	$	5,661	5.03	%
Bank owned life insurance (2)		10,022		121	4.85	%		9,705		123	5.08	%
Investment securities:
Mortgage backed securities		26,710		74	1.12	%		27,738		97	1.40	%
Corporate bonds		3,502		15	1.71	%		3,409		16	1.91	%
Municipal securities (2)		3,096		46	5.96	%		2,830		48	6.87	%
Taxable municipal securities		15,748		94	2.40	%		13,899		97	2.79	%
CMO		17,371		92	2.13	%		21,353		126	2.37	%
SBA		3,637		10	1.08	%		-		-	-	%
Other investments		4,036		51	5.05	%		3,899		45	4.66	%
Total investment securities		74,100		382	2.07	%		73,128		429	2.36	%
Interest bearing deposits		16,546		20	0.48	%		6,210		5	0.31	%
Total earning assets	$	590,368		6,540	4.44	%	$	541,178		6,218	4.61	%
Cash and cash equivalents		11,818						9,896
Allowance for loan losses		(7,870)						(8,028)
Other assets		20,359						21,723
Total assets	$	614,675					$	564,769
Liabilities & Stockholders' Equity:
Interest checking	$	27,836		23	0.32	%	$	18,787		16	0.34	%
Money market deposit accounts		154,054		142	0.37	%		154,155		163	0.42	%
Statement savings		2,433		2	0.31	%		2,246		2	0.31	%
Certificates of deposit		234,346		816	1.40	%		215,752		898	1.67	%
Total interest-bearing deposits		418,669		983	0.94	%		390,940		1,079	1.11	%
Fed funds purchased		71		-	0.61	%		461		1	0.61	%
Repurchase agreements		1,322		-	0.10	%		4,554		3	0.25	%
Subordinated debt		10,505		86	3.27	%		13,623		122	3.59	%
FHLB advances		44,176		183	1.66	%		40,604		111	1.10	%
Total interest-bearing liabilities		474,743		1,252	1.06	%		450,182		1,316	1.17	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		86,067						66,208
Other liabilities		2,205						1,927
Total liabilities		88,272						68,135
Shareholders' equity		51,660						46,452
Total liabilities and shareholders' equity	$	614,675					$	564,769
Net interest income			$	5,288					$	4,902
Interest rate spread					3.39	%					3.44	%
Net interest margin					3.59	%					3.63	%
Ratio of average interest earning assets to
average interest-bearing liabilities					124.36	%					120.21	%
(1) Includes nonaccrual loans
(2) Income and yields are reported on a taxable equivalent basis using a 34% tax rate.

33

		Six Months Ended June 30,
	2015						2014
	Average		Income/		Yield/		Average		Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate
	(Dollars in thousands)
Assets:
Loans, net of unearned income (1)	$	486,315	$	11,917	4.94	%	$	444,038	$	11,096	5.03	%
Bank owned life insurance (2)		9,984		239	4.84	%		9,665		245	5.11	%
Investment securities:
Mortgage backed securities		27,235		149	1.10	%		25,835		198	1.54	%
Corporate bonds		3,502		30	1.71	%		3,909		37	1.90	%
Municipal securities (2)		2,735		89	6.53	%		3,315		113	6.88	%
Taxable municipal securities		16,137		195	2.44	%		14,674		214	2.94	%
CMO		17,838		193	2.18	%		23,182		275	2.39	%
SBA		3,657		20	1.13	%		-		-	-	%
Other investments		4,059		97	4.81	%		3,776		93	4.94	%
Total investment securities		75,163		773	2.07	%		74,691		930	2.51	%
Interest bearing deposits		11,882		35	0.59	%		7,587		11	0.28	%
Total earning assets	$	583,344		12,964	4.48	%		535,981		12,282	4.62	%
Cash and cash equivalents		11,502						9,384
Allowance for loan losses		(7,904)						(8,104)
Other assets		20,675						21,828
Total assets	$	607,617					$	559,089
Liabilities & Stockholders' Equity:
Interest checking	$	28,275		43	0.31	%	$	17,489		30	0.34	%
Money market deposit accounts		155,112		285	0.37	%		154,389		324	0.42	%
Statement savings		2,442		4	0.31	%		2,354		4	0.31	%
Certificates of deposit		230,035		1,611	1.41	%		216,184		1,804	1.68	%
Total interest-bearing deposits		415,864		1,943	0.94	%		390,416		2,162	1.12	%
Fed funds purchased		1,000		4	0.74	%		354		1	0.61	%
Repurchase agreements		1,198		1	0.10	%		6,383		10	0.33	%
Subordinated debt and trust preferred		11,024		197	3.61	%		13,311		234	3.55	%
FHLB advances		43,873		317	1.45	%		36,823		202	1.11	%
Total interest-bearing liabilities		472,959		2,462	1.05	%		447,287		2,609	1.18	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		81,316						63,847
Other liabilities		2,300						1,953
Total liabilities		83,616						65,800
Shareholders' equity		51,042						46,002
Total liabilities and shareholders' equity	$	607,617					$	559,089
Net interest income			$	10,502					$	9,673
Interest rate spread					3.43	%					3.44	%
Net interest margin					3.63	%					3.64	%
Ratio of average interest earning assets to
average interest-bearing liabilities					123.34	%					119.83	%
(1) Includes nonaccrual loans
(2) Income and yields are reported on a taxable equivalent basis using a 34% tax rate.

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Noninterest Income

Total noninterest income decreased $110 thousand (or 22.8%) to  $373 thousand for the second quarter of 2015, compared to $483 thousand for the same period of 2014 due primarily to a $173 thousand decline in gain on sale of securities. 

Total noninterest income decreased $147 thousand (or 15.5%) to  $802 thousand for the first half of 2015, compared to $949 thousand for the same period of 2014 due primarily to a $200 thousand decline in gain on sale of securities. 

Noninterest Expense

This category includes all expenses other than interest paid on deposit liabilities and borrowings.

Total noninterest expense for the second quarter of 2015 increased to  $3.8 million, up  $48 thousand, or 1.3%, compared to the same period in 2014.  This increase is due primarily to modest increases in operating expenses related to growth in operations.

Total noninterest expense for the first half of 2015 increased to  $7.9 million, up  $170 thousand, or 2.2%, compared to $7.7 million for the same period in 2014.  This increase is due primarily to modest increases in operating expenses related to growth in operations coupled with a net write down of OREO related to fair market value measurement during the first quarter of 2015.

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 rates for the three-month periods ended June 30, 2015 and 2014 were 32.19% and 32.24%, respectively.

The effective tax rates for the six-month periods ended June 30, 2015 and 2014 were 32.13% and 31.71%, 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 the adequacy of the allowance, management considers a number of factors, including the Company’s historical loss experience, the size and composition of the loan portfolio, specific impaired loans, the overall level of nonperforming loans, the value and adequacy of collateral and guarantors, experience and depth of lending staff, effects of credit concentrations and economic conditions.  Because the risk of loan loss includes general economic trends as well as conditions affecting individual borrowers, the allowance for loan losses can only be an estimate. 

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Loan charge-offs, net of recoveries, amounted to a net charge-off of $9 thousand for the second quarter of 2015 compared to a net charge-off of $125 thousand for the second quarter of 2014.  There was no provision for or recovery of loan losses during the second quarter of 2015 or 2014.

Loan charge-offs, net of recoveries, amounted to a net recovery of $136 thousand for the first half of 2015 compared to a net recovery of $21 thousand for the first half of 2014.  The provision for loan losses was recovered in the amount of $145 thousand for the first half of 2015 compared to $292 thousand for the first half of 2014.

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 was $7.9 million at June 30, 2015 and December 31, 2014.  The ratio of the allowance for loan losses to total loans outstanding at June 30, 2015, was 1.57% compared to 1.63% at December 31, 2014.  The movement in this ratio resulted primarily from the loan portfolio’s growth since December 31, 2014.

The following table summarizes asset quality information at the dates indicated.

	2015			2014
	June 30,			December 31,			June 30,
	(Dollars in thousands)
Nonaccrual loans	$	2,618		$	3,430		$	3,932
Loans past due 90 days
and accruing interest		-			-			-
Total nonperforming loans		2,618			3,430			3,932
OREO		936			1,810			2,279
Total nonperforming assets	$	3,554		$	5,240		$	6,211
Allowance for loan losses
to period end loans		1.57	%		1.63	%		1.71	%
Nonperforming assets to total assets		0.58	%		0.88	%		1.07	%
Allowance for loan losses
to nonaccrual loans		300.45	%		229.56	%		200.78	%

LIQUIDITY

Liquidity represents the ability of the Company to convert assets into cash or cash equivalents without significant loss and the ability to raise additional funds by increasing liabilities.  Liquidity is provided from cash, interest-bearing deposits in other banks, repayments of customer loans, increases in deposits, borrowings on federal funds facilities from four correspondent banks, term loans from a federal agency bank and maturing investments.  Management monitors our sources and uses of funds to meet our day-to-day cash flow requirements while maximizing profits and plans the Company’s liquidity position for future periods.  Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control.  For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control.  However, customer deposit inflows and outflows are far less predictable and are not subject to the same high degree of control.  Management is committed to maintaining liquidity at a level sufficient to protect depositors, provide for reasonable growth, and fully comply with all regulatory requirements.

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At June 30, 2015, the Company had cash and cash equivalents of $14.2 million, time deposits in other banks of $2 million, and unrestricted investment securities not pledged of $71.7 million, for a total of $87.9 million, or 14.2% 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 four banks totaling $35.0 million and unused available term loans through the FHLB totaling $36.1 million.

Total liquidity and other alternative sources of liquidity totaled $159.0 million at June 30, 2015, if fully utilized, which represents 31.5% of total deposits.

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 Company’s financial statements. At June 30, 2015, pre-approved but unused lines of credit for loans totaled approximately $164.0 million. In addition, the Company had approximately $13.2 million in financial and performance standby letters of credit at June 30, 2015. These commitments represent no more than the normal lending risk that the Company commits to borrowers. If these commitments are drawn, the Company will obtain collateral if it is deemed necessary based on the 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 less net unrealized gains on available-for-sale securities and disallowed portion of the deferred tax asset. Tier 2 capital, a component of total capital, consists of a portion of the allowance for loan losses.  The Bank’s ratios exceed regulatory requirements.  As of June 30, 2015, the Bank had a Tier 1 risk-based capital ratio of 11.17%, total risk-based capital ratio of 12.42%, and common equity Tier 1 capital ratio of 11.17%. At December 31, 2014, the Bank’s Tier 1 risk-based capital ratio was 11.64% and total risk-based capital ratio was 12.90%.  The declines in capital ratios at June 30, 2015 compared to December 31, 2014, are due primarily to the first quarter 2015 implementation of the Basel III framework for calculating capital ratios and asset growth during the first half of 2015. 

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A

ITEM 4.  CONTROLS AND PROCEDURES

Based upon an evaluation as of June 30, 2015, under the supervision and with the participation of the Company’s Chief Executive Officer, President, and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, the Company’s management has concluded that the Company’s 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.

The Company’s 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 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.

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PART II – OTHER INFORMATION

Item 1.  Legal Proceedings – None to report

Item 1A.    Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our annual report on Form 10-K for the year ended December 31, 2014, which could materially affect our business, financial condition or future results.  There have been no material changes to those risk factors since we filed our fiscal 2014 annual report on Form 10-K.  The risks described in our annual report on Form 10-K are not the only risks we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

In December 2014, the Board of Directors authorized a share repurchase program to purchase up to 300,000 shares of the Company’s outstanding common stock.  The Company intends and expects to accomplish the repurchases through open market transactions, though it could affect the repurchases through other means such as privately negotiated transactions or under a SEC 10b5-1 trading plan, which would allow repurchases under pre-set terms at times when the Company might otherwise be prevented from doing so under applicable securities laws or self-imposed blackouts.  The authorization permits management to repurchase the Company’s shares from time to time at management’s discretion, depending on market conditions and other factors.  The repurchase program is authorized through December 31, 2015.  The following table details the Company’s purchases of its common stock during the second quarter of 2015.

Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares that may yet be Purchased Under the Plan
	(a)	(b)	(c)	(d)
April 1 - April 30, 2015	5,000	$                     4.45	5,000	295,000
May 1 - May 31, 2015	13,000	$                     4.40	18,000	282,000
June 1 - June 30, 2015	23,700	$                     4.37	41,700	258,300
Total	41,700	$                     4.39	41,700	258,300

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

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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)
3.5	Articles of Amendment to the Company’s Articles of Incorporation, changing the par value of the Company’s Common Stock from $4.00 per share to $.01 per share (incorporated by reference to Exhibit 3.1 of Form 8-K filed on June 24, 2014)
4.1	Specimen Common Stock Certificate of First Capital Bancorp, Inc., (incorporated by reference to Exhibit 4.1 of Form SB-2 filed on March 16, 2007)
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 August 13, 2015.
31.2	Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 13, 2015.
31.3	Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 13, 2015.
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 14, 2015.
101	The following materials from the Company’s 10-Q Report for the quarter ended June 30, 2015, 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:	August 13, 2015	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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