- Quarterly Report (10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2012

¨	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

incorporation or organization)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

4222 Cox Road, Glen Allen, Virginia 23060

(Address of principal executive offices)

804-273-1160

(Registrant’s telephone number, including area code)

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 x No ¨

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

11,902,532 shares of Common Stock, par value $4.00 per share, were outstanding at November 13, 2012.

TABLE OF CONTENTS


			Page
PART I – FINANCIAL INFORMATION

	Item 1 – Financial Statements
		Consolidated Statements of Financial Condition September 30, 2012 (unaudited) and December 31, 2011		3
		Consolidated Statements of Operations For the Three Months and Nine Months Ended September 30, 2012 and 2011 (unaudited)		4
		Consolidated Statements of Comprehensive Income/(Loss) For the Three Months and Nine Months Ended September 30, 2012 and 2011 (unaudited)		5
		Consolidated Statements of Stockholders’ Equity For the Nine Months Ended September 30, 2012 and 2011 (unaudited)		6
		Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2012 and 2011 (unaudited)		7
		Notes to the Consolidated Financial Statements (unaudited)		9
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
	Item 3 – Quantitative and Qualitative Disclosures About Market Risk – Not Applicable			43
	Item 4 – Controls and Procedures			43

PART II – OTHER INFORMATION

	Item 1 – Legal Proceedings – None to Report			43
	Item 1A – Risk Factors – Not Applicable			43
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			44
	Item 3 – Defaults Upon Senior Securities – None			44
	Item 4 – Mine Safety Disclosures – None			44
	Item 5 – Other Information – None to Report			44
	Item 6 – Exhibits			44

SIGNATURES				46

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition


	September 30, 2012			December 31, 2011
	(Unaudited)			(*)
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	8,086		$	9,187
Interest-bearing deposits in other banks		25,366			41,172
Investment securities:
Available for sale, at fair value		86,697			84,035
Held to maturity, at cost		2,881			2,884
Restricted, at cost		3,479			4,597
Loans held for sale		6,563			1,366
Loans, net of allowance for losses of $7,208 in 2012 and $9,271 in 2011		359,544			360,969
Other real estate owned (OREO)		4,502			7,646
Premises and equipment, net		11,074			11,273
Accrued interest receivable		1,837			1,689
Bank owned life insurance		9,167			8,917
Deferred tax asset		6,950			3,822
Prepaid FDIC premiums		957			1,482
Other assets		2,346			2,651

Total assets	$	529,449		$	541,690

LIABILITIES
Deposits
Noninterest-bearing	$	51,501		$	46,426
Interest-bearing		395,804			393,773

Total deposits		447,305			440,199

Securities sold under repurchase agreements		939			1,608
Subordinated debt		7,155			7,155
Federal Home Loan Bank advances		25,000			50,000
Accrued expenses and other liabilities		2,483			2,045

Total liabilities		482,882			501,007

STOCKHOLDERS’ EQUITY
Preferred stock, See Note 10		22			44
Common stock, See Note 11		47,539			11,885
Additional paid-in capital		5,521			29,695
Retained deficit		(8,673	)		(1,942	)
Warrants		661			661
Discount on preferred stock		(101	)		(303	)
Accumulated other comprehensive income, net of tax		1,598			643

Total stockholders’ equity		46,567			40,683

Total liabilities and stockholders’ equity	$	529,449		$	541,690

*	Derived from audited, consolidated financial statements

See notes to consolidated financial statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2012 and 2011

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(Dollars in thousands, except per share data)						(Dollars in thousands, except per share data)
Interest and dividend income
Loans	$	5,064		$	5,376		$	15,334		$	16,269
Investments:
Taxable interest income		533			513			1,637			1,582
Tax exempt interest income		64			128			205			430
Dividends		30			25			99			83
Interest bearing deposits		6			12			29			42

Total interest income		5,697			6,054			17,304			18,406

Interest expense
Deposits		1,387			1,619			4,209			5,031
FHLB advances		87			414			878			1,234
Subordinated debt and other borrowings		38			34			117			104

Total interest expense		1,512			2,067			5,204			6,369

Net interest income		4,185			3,987			12,100			12,037
Provision for loan losses		156			4,726			9,031			8,572

Net interest income (expense) after provision for loan losses		4,029			(739	)		3,069			3,465

Noninterest income
Fees on deposits		97			81			283			238
Gain on sale of securities		53			—			79			644
Gain on sale of loans		253			—			346			—
Other		218			232			638			491

Total noninterest income		621			313			1,346			1,373

Noninterest expenses
Salaries and employee benefits		1,867			1,794			5,698			4,796
Occupancy expense		201			213			594			626
Data processing		203			207			622			590
Professional services		139			178			457			540
Advertising and marketing		63			136			168			245
FDIC assessment		184			275			551			826
Virginia franchise tax		130			110			132			380
(Gain) loss on sale and write down of OREO		(47	)		—			1,596			321
Depreciation		155			151			471			453
FHLB prepayment penalty		12			—			2,767			—
Other		535			518			1,673			1,536

Total noninterest expense		3,442			3,582			14,729			10,313

Net income (loss) before income taxes		1,208			(4,008	)		(10,314	)		(5,475	)
Income tax expense (benefit)		380			(1,416	)		(3,668	)		(1,993	)

Net income (loss)		828			(2,592	)		(6,646	)		(3,482	)

Effective dividend on preferred stock		85			170			412			509
Net income (loss) allocable to common stockholders		743			(2,762	)		(7,058	)		(3,991	)

Basic and diluted net income (loss) per common share	$	0.06		$	(0.93	)	$	(0.93	)	$	(1.34	)

See notes to consolidated financial statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income/(Loss)

Three Months and Nine Months Ended September 30, 2012 and 2011

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(Dollars in thousands)						(Dollars in thousands)

Net income/(loss)	$	828		$	(2,592	)	$	(6,646	)	$	(3,482	)
Other comprehensive income:
Investment securities:
Unrealized gains on investment securities available for sale		350			664			1,526			2,582
Tax effect		(119	)		(226	)		(519	)		(878	)
Reclassification of gains recognized in net income		(53	)		—			(79	)		(644	)
Tax effect		18			—			27			219

Total other comprehensive income		196			438			955			1,279

Comprehensive income/(loss)	$	1,024		$	(2,154	)	$	(5,691	)	$	(2,203	)

See notes to consolidated financial statements

First Capital Bancorp, Inc. Subsidiary

Consolidated Statements of Stockholders’ Equity

Nine Months Ended September 30, 2012 and 2011

(Unaudited)

(Dollars in thousands)


	Preferred Stock			Common Stock		Additional Paid-in Capital			Retained Earnings (Deficit)			Warrants		Discount on Preferred Stock			Accumu- lated Other Compre- hensive Income		Total

Balances December 31, 2010	$	44		$	11,885	$	29,739		$	1,644		$	661	$	(435	)	$	137	$	43,675
Net loss		—			—		—			(3,482	)		—		—			—		(3,482	)
Other comprehensive income		—			—		—			—			—		—			1,279		1,279
Preferred stock dividend		—			—		—			(410	)		—		—			—		(410	)
Accretion of discount on preferred stock		—			—		—			(99	)		—		99			—		—
Stock based compensation		—			—		95			—			—		—			—		95

Balances September 30, 2011	$	44		$	11,885	$	29,834		$	(2,347	)	$	661	$	(336	)	$	1,416	$	41,157


Balances December 31, 2011	$	44		$	11,885	$	29,695		$	(1,942	)	$	661	$	(303	)	$	643	$	40,683
Net loss		—			—		—			(6,646	)		—		—			—		(6,646	)
Other comprehensive income		—			—		—			—			—		—			955		955
Preferred stock dividend		—			—		(266	)		(68	)		—		—			—		(334	)
Accretion of discount on preferred stock		—			—		(61	)		(17	)		—		78			—		—
Stock based compensation		—			—		90			—			—		—			—		90
Redemption of preferred stock		(22	)		—		(5,650	)		—			—		124			—		(5,548	)
Proceeds from issuance of 8.9 million shares of common stock, net of costs		—			35,654		(18,287	)		—			—		—			—		17,367

Balances September 30, 2012	$	22		$	47,539	$	5,521		$	(8,673	)	$	661	$	(101	)	$	1,598	$	46,567

See notes to consolidated financial statements

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2012 and 2011

(Unaudited)


	2012			2011
	(Dollars in thousands)
Cash flows from operating activities
Net loss	$	(6,646	)	$	(3,482	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		9,031			8,572
Depreciation of premises and equipment		471			453
Net amortization of bond premiums/discounts		784			597
Stock based compensation expense		90			95
Deferred income taxes (benefit)/expense		(3,620	)		160
Gain on sale of securities		(79	)		(644	)
Gain on loans sold		(346	)		—
Loss on sale and write-down of other real estate owned		1,596			321
Increase in cash surrender value of bank owned life insurance		(250	)		(137	)
Proceeds from sale of loans held for sale		37,839			—
Origination of loans held for sale		(42,690	)		—
(Increase) decrease in other assets		830			(1,457	)
Decrease (increase) in accrued interest receivable		(148	)		54
Increase in accrued expenses and other liabilities		438			1,125

Net cash (used in) provided by operating activities		(2,700	)		5,657

Cash flows from investing activities
Proceeds from maturities and calls of securities		2,050			6,500
Proceeds from paydowns of securities available-for-sale		9,165			8,437
Purchase of securities available-for-sale		(18,419	)		(43,736	)
Proceeds from sale of securities available-for-sale		5,287			25,509
Proceeds from sale of other real estate owned		1,722			1,075
Purchase bank owned life insurance		—			(8,249	)
Purchase of Federal Home Loan Bank Stock		(8	)		(9	)
Purchase of Federal Reserve Stock		(140	)		(3	)
Redemption of Federal Home Loan Bank Stock		1,266			—
Purchases of premises and equipment		(272	)		(245	)
Net (increase) decrease in loans		(7,780	)		6,334

Net cash used in investing activities		(7,129	)		(4,387	)

Cash flows from financing activities
Net decrease in deposits		7,106			5,599
Repayments to FHLB, net of borrowings		(25,000	)		(5,000	)
Dividends on preferred stock		(334	)		(410	)
Cash paid for TARP preferred stock redemption		(5,548	)		—
Proceeds from issuance of additional stock under rights offering, net of associated offering costs		17,367			—
Net (decrease) increase in repurchase agreements		(669	)		400

Net cash (used in) provided by financing activities		(7,078	)		589

Net (decrease)/increase in cash and cash equivalents		(16,907	)		1,859
Cash and cash equivalents, beginning of period		50,359			32,367

Cash and cash equivalents, end of period	$	33,452		$	34,226

First Capital Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2012 and 2011

(Continued)

(Unaudited)


	2012		2011
	(Dollars in thousands)
Supplemental disclosure of cash flow information
Interest paid during the period	$	5,205	$	6,375

Taxes paid during the period	$	—	$	611

Supplemental schedule of noncash investing and financing activities
Transfer of loans to other real estate owned	$	174	$	7,317

Unrealized gain on securities available for sale, net of tax	$	955	$	1,279

See notes to consolidated financial statements

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

Note 1 – Basis of Presentation

First Capital Bancorp, Inc. (the “Company”) is the holding company of and successor to First Capital Bank (the “Bank”). Effective September 8, 2006, the Company acquired all of the outstanding stock of the Bank in a statutory share exchange transaction (the “Share Exchange”) pursuant to an Agreement and Plan of Reorganization dated September 5, 2006, between the Company and the Bank (the “Agreement”). The Agreement was approved by the shareholders of the Bank at the annual meeting of shareholders held on May 16, 2006. Under the terms of the Agreement, the shares of the Bank’s common stock were exchanged for shares of the Company’s common stock, par value $4.00 per share, on a one-for-one basis. As a result, the Bank became a wholly owned subsidiary of the Company, the Company became the holding company of the Bank and the shareholders of the Bank became shareholders of the Company.

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

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

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 September 30, 2012 and December 31, 2011 and for the three and nine month periods ended September 30, 2012 and 2011, in conformity with accounting principles generally accepted in the United States of America. Results for the three and nine month periods ended September 30, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.

The organization and business of the Company, accounting policies followed, and other related information are contained in the notes to the financial statements of the Company as of and for the year ended December 31, 2011 filed as part of the Company’s annual report on Form 10-K. These interim financial statements should be read in conjunction with the annual financial statements.

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

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

The Company’s allowance for loan losses is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to applicable GAAP. Management’s estimate of each homogenous pool component is based on certain observable

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; collateral values; loan volumes; geographic, borrower and industry concentrations; seasoning of the loan portfolio; the findings of internal credit quality assessments and results from external bank regulatory examinations. These factors, as well as historical losses and current economic and business conditions, are used in developing estimated loss factors used in the calculations.

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

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

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

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

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

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

Note 2 – Use of Estimates

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

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses. The estimation process may include management obtaining independent appraisals for significant collateral properties, but the ultimate collectability and recovery of carrying amounts are susceptible to changes in the local real estate market and other local economic conditions.

Management uses available information to recognize losses on loans; future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for losses on loans. Such agencies may require the Bank to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowance for losses on loans may change in the near term.

Note 3 – Income (Loss) per share

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

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


	Three Months Ended September 30, (dollars shown in thousands, except per share amounts)					Nine Months Ended September 30, (dollars shown in thousands, except per share amounts)
	2012		2011			2012			2011

Net income (loss) allocable to common stockholders	$	743	$	(2,762	)	$	(7,058	)	$	(3,991	)
Weighted average number of shares outstanding		11,885		2,971			7,623			2,971

Income (loss) per common share - basic	$	0.06	$	(0.93	)	$	(0.93	)	$	(1.34	)


Effect of dilutive securities:

Weighted average number of common shares outstanding		11,885		2,971			7,623			2,971
Effect of stock options and warrants		664		—			—			—

Diluted average common shares outstanding		12,549		2,971			7,623			2,971

Income (loss) per common share - assuming dilution	$	0.06	$	(0.93	)	$	(0.93	)	$	(1.34	)

The Company has excluded options and warrants convertible into 596 thousand and 5.1 million shares of common stock for the three and nine months ended September 30, 2012, respectively and options and warrants convertible into 472 thousand and 439 thousand shares of common stock for the three and nine months ended September 30, 2011, respectively from the calculation of diluted earnings per share because they were anti-dilutive in all periods except for the three months ended September 30, 2012 due to net losses in those periods.

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

During the second quarter of 2012, the Company raised approximately $17.8 million, net of fees and costs, through a rights offering. As a result of the rights offering, approximately 8.9 million shares of common stock were issued. Consequently, the weighted average number of shares of common stock increased from 3.0 million shares for the quarter ended September 30, 2011 to 11.9 million shares for the quarter ended September 30, 2012. In connection with the rights offering, the Company distributed 8.9 million warrants to purchase one-half of a share of common stock for $2.00 per whole share.

Note 4 – Stock Options

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

Stock options covering a total of 5,000 shares were granted during August 2012. These shares vested immediately and the Company expensed the compensation cost in the third quarter of 2012.

Options covering a total of 2,500 shares were granted in May 2011. These shares vested immediately and the Company expensed the compensation cost in the second quarter of 2011. In the first quarter of 2011, options covering a total of 130,500 shares were granted. Vesting of 67,500 shares issued to the Directors, will occur over two years. The remaining 63,000 shares, issued to executive officers and employees, will vest over three years.

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


	2012			2011
	Third Qtr			Second Qtr			First Qtr
Dividend yield		0.00	%		0.00	%		0.00	%
Expected life in years		6			6			6
Expected volatility		59.80	%		51.77	%		51.77	%
Risk-free interest rate		0.71	%		2.54	%		2.87	%
Weighted average fair value per option granted	$	0.88		$	1.45		$	1.35

The stock based compensation, in thousands, expensed during the three and nine months ended September 30, 2012 was $34 thousand and $90 thousand, respectively, and expensed during the three and nine months ended September 30, 2011 was $36 thousand and $95 thousand, respectively. Expensed amounts are included in salaries and employee benefits.

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

Note 5 – Investment Securities

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


	September 30, 2012
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
	(Dollars in thousands)
Available-for-sale
U.S. Government agencies	$	999	$	—	$	2	$	997
Mortgage-backed securities		11,598		578		—		12,176
Corporate bonds		16,774		106		220		16,660
CMO securities		39,365		1,048		13		40,400
State and political subdivisions - taxable		11,043		717		11		11,749
State and political subdivisions - tax exempt		3,142		180		—		3,322
SBA - Guarantee portion		1,354		39		—		1,393

	$	84,275	$	2,668	$	246	$	86,697


	December 31, 2011
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
	(Dollars in thousands)
Available-for-sale
U.S. Government agencies	$	1,998	$	7	$	4	$	2,001
Mortgage-backed securities		15,484		424		—		15,908
Corporate bonds		15,472		3		781		14,694
CMO securities		37,803		919		—		38,722
State and political subdivisions - taxable		6,490		256		23		6,723
State and political subdivisions - tax exempt		4,203		131		—		4,334
SBA - Guarantee portion		1,610		43		—		1,653

	$	83,060	$	1,783	$	808	$	84,035


	September 30, 2012
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
	(Dollars in thousands)
Held-to-maturity
Tax-exempt municipal bonds	$	2,881	$	358	$	—	$	3,239

	$	2,881	$	358	$	—	$	3,239


	December 31, 2011
	Amortized		Gross Unrealized				Fair
	Costs		Gains		Losses		Values
	(Dollars in thousands)
Held-to-maturity
Tax-exempt municipal bonds	$	2,884	$	237	$	5	$	3,116

	$	2,884	$	237	$	5	$	3,116

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

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

•

the entity intends to sell the security;

•

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

•

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

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

The Company conducts an assessment of its securities portfolio for OTTI consideration during each quarter. The assessment considers factors such as external credit ratings, delinquency ratios, market price, management’s judgment, expectations of future performance and relevant industry research and analysis. All unrealized losses are considered by management to be temporary given investment security credit ratings, the short duration of the unrealized losses and the intent and ability to retain these securities for a period of time sufficient to recover all unrealized losses. Management’s assessment for the current quarter ended September 30, 2012 resulted in no recognition of OTTI.

The following table details unrealized losses and related fair values in the Company’s available-for-sale investment securities portfolios. All unrealized losses on investment securities are a result of volatility in the market during 2012 and 2011. At September 30, 2012, 12 out of 126 securities we held had fair values less than amortized cost primarily in municipal securities and corporate bonds. At December 31, 2011, 15 out of 123 securities we held had fair values less than amortized cost exclusively in corporate bonds. All unrealized losses are considered by management to be temporary given investment security credit ratings, the short duration of the unrealized losses and the intent and ability to retain these securities for a period of time sufficient to recover all unrealized losses. This information is aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2012 and December 31, 2011:


	September 30, 2012
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(Dollars in thousands)
Assets:
U.S. Government agencies	$	997	$	2	$	—	$	—	$	997	$	2
Mortgage-backed securities		—		—		—		—		—		—
Corporate bonds		1,917		80		4,358		140		6,275		220
CMO securities		754		13		—		—		754		13
State & political subdivisions-taxable		1,280		11		—		—		1,280		11
State & political subdivisions-tax exempt		—		—		—		—		—		—
SBA		—		—		—		—		—		—

All securities	$	4,948	$	106	$	4,358	$	140	$	9,306	$	246

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012


	December 31, 2011
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(Dollars in thousands)
Assets:
U.S. Government agencies	$	996	$	4	$	—	$	—	$	996	$	4
Mortgage-backed securities		—		—		—		—		—		—
Corporate bonds		13,220		755		473		26		13,693		781
CMO securities		916		—		—		—		916		—
State & political subdivisions-taxable		1,070		23		—		—		1,070		23
State & political subdivisions-tax exempt		—		—		—		—		—		—
SBA		—		—		—		—		—		—

All securities	$	16,202	$	782	$	473	$	26	$	16,675	$	808

Restricted equity securities consist primarily of Federal Home Loan Bank of Atlanta stock in the amount of $1.9 million and $3.2 million as of September 30, 2012 and December 31, 2011, respectively, and Federal Reserve Bank stock in the amount of $1.5 million and $1.3 million at September 30, 2012 and December 31, 2011, respectively. Restricted equity securities are carried at cost. The Federal Home Loan Bank requires the Bank to maintain stock in an amount equal to 4.5% of outstanding borrowings and a specific percentage of the member’s total assets. The Federal Reserve Bank of Richmond requires the Company to maintain stock with a par value equal to 3% of its outstanding capital.

Securities with a market value of approximately $939 thousand and $1.6 million were pledged as collateral at September 30, 2012 and December 31, 2011, respectively, to secure purchases of federal funds, repurchase agreements, and collateral for customer’s deposits.

Note 6 – Loans

Major classifications of loans are as follows:


	September 30, 2012		December 31, 2011
	(Dollars in thousands)

Real estate
Residential	$	132,553	$	127,541
Commercial		148,330		142,989
Residential Construction		9,648		9,712
Other Construction, Land
Development & Other Land		35,525		48,637
Commercial		38,143		37,922
Consumer		2,386		3,250

Total loans		366,585		370,051
Less:
Allowance for loan losses		7,208		9,271
Net deferred costs		167		189

Loans, net	$	359,544	$	360,969

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

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

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

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

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

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

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

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


	September 30,
	2012			2011
	(Dollars in thousands)

Balance, beginning of period	$	9,271		$	11,036
Provision for loan losses		9,031			8,572
Recoveries		338			845
Charge-offs		(11,432	)		(11,427	)

Balance, end of period	$	7,208		$	9,026


Ratio of allowance for loan losses as a percent of loans outstanding at the end of the period		1.97	%		2.42	%

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

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


	Three Months Ended
	Real Estate
	Residential			Commercial			Residential Construction			Other Construction Land Devel. & Other Land			Commercial			Consumer			Total
	(Dollars in thousands)

Balance, July 1, 2012	$	2,580		$	3,156		$	203		$	477		$	816		$	21		$	7,253
Provision for loan losses		62			(21	)		(2	)		284			(163	)		(4	)		156
Recoveries		130			—			—			—			109			—			239
Charge-offs		(144	)		—			—			(296	)		—			—			(440	)

Balance, September 30, 2012	$	2,628		$	3,135		$	201		$	465		$	762		$	17		$	7,208


Balance, July 1, 2011	$	3,555		$	1,097		$	655		$	2,957		$	1,868		$	21		$	10,153
Provision for loan losses		1,748			428			537			2,012			—			—			4,725
Recoveries		4			—			13			8			2			—			27
Charge-offs		(1,715	)		(150	)		(109	)		(3,618	)		(287	)		—			(5,879	)

Balance, September 30, 2011	$	3,592		$	1,375		$	1,096		$	1,359		$	1,583		$	21		$	9,026


	Nine Months Ended
	Real Estate
	Residential			Commercial			Residential Construction			Other Construction Land Devel. & Other Land			Commercial			Consumer			Total
	(Dollars in thousands)
Balance, January 1, 2012	$	3,680		$	1,375		$	650		$	2,175		$	1,370		$	21		$	9,271
Provision for loan losses		1,301			4,262			969			2,138			365			(4	)		9,031
Recoveries		134			78			—			17			109			—			338
Charge-offs		(2,487	)		(2,580	)		(1,418	)		(3,865	)		(1,082	)		—			(11,432	)

Balance, September 30, 2012	$	2,628		$	3,135		$	201		$	465		$	762		$	17		$	7,208


Balance, January 1, 2011	$	3,431		$	760		$	494		$	4,299		$	2,031		$	21		$	11,036
Provision for loan losses		2,910			828			937			2,875			1,022			—			8,572
Recoveries		17			—			13			808			7			—			845
Charge-offs		(2,766	)		(213	)		(348	)		(6,623	)		(1,477	)		—			(11,427	)

Balance, September 30, 2011	$	3,592		$	1,375		$	1,096		$	1,359		$	1,583		$	21		$	9,026

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

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

The following table presents the aging of unpaid principal in loans as of September 30, 2012 and December 31, 2011:


	September 30, 2012
	30-89 Day Past Due		90+ Days Past Due and Accruing		Nonaccrual		Current		Total
	(Dollars in thousands)
Real estate
Residential	$	293	$	—	$	2,155	$	130,105	$	132,553
Commercial		1,452		—		1,029		145,849		148,330
Residential Construction		366		—		1,386		7,896		9,648
Other Construction, Land
Development & Other Land		—		—		4,088		31,437		35,525
Commercial		—		—		621		37,522		38,143
Consumer		—		—		—		2,386		2,386

Total	$	2,111	$	—	$	9,279	$	355,195	$	366,585


	December 31, 2011
	30-89 Day Past Due		90+ Days Past Due and Accruing		Nonaccrual		Current		Total
	(Dollars in thousands)
Real estate
Residential	$	1,334	$	—	$	6,410	$	119,797	$	127,541
Commercial		132		—		2,909		139,948		142,989
Residential Construction		250		—		748		8,714		9,712
Other Construction, Land
Development & Other Land		—		—		5,803		42,834		48,637
Commercial		470		—		1,114		36,338		37,922
Consumer		90		—		707		2,453		3,250

Total	$	2,276	$	—	$	17,691	$	350,084	$	370,051

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 is accounting for nonaccrual loans under the cost recovery method, in 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.

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

The following table provides details of the Company’s loan portfolio internally assigned grade at September 30, 2012 and December 31, 2011:


	September 30, 2012
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(Dollars in thousands)
Real estate
Residential	$	119,916	$	8,813	$	3,824	$	—	$	—	$	132,553
Commercial		125,184		19,235		3,911		—		—		148,330
Residential Construction		2,893		3,816		2,939		—		—		9,648
Other Construction, Land
Development & Other Land		13,202		12,729		9,594		—		—		35,525
Commercial		35,101		1,853		1,189		—		—		38,143
Consumer		2,207		100		79		—		—		2,386

Total	$	298,503	$	46,546	$	21,536	$	—	$	—	$	366,585


	December 31, 2011
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(Dollars in thousands)
Real estate
Residential	$	112,070	$	5,549	$	9,922	$	—	$	—	$	127,541
Commercial		127,916		8,064		7,009		—		—		142,989
Residential Construction		1,954		3,582		4,176		—		—		9,712
Other Construction, Land
Development & Other Land		19,460		14,551		14,626		—		—		48,637
Commercial		33,084		3,076		1,762		—		—		37,922
Consumer		2,316		137		797		—		—		3,250

Total	$	296,800	$	34,959	$	38,292	$	—	$	—	$	370,051

These credit quality indicators are defined as follows:

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

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

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

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

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

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

The loan risk rankings were updated for the quarter ended September 30, 2012 on September 18, 2012. The loan risk rankings were updated for the year ended December 31, 2011 on December 13, 14, and 15, 2011.

The following table provides details regarding impaired loans by segment and class at September 30, 2012 and December 31, 2011:


	September 30, 2012						December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance:
Real estate
Residential	$	2,334	$	2,678	$	—	$	4,013	$	4,168	$	—
Commercial		1,029		3,878		—		291		303		—
Residential Construction		2,586		3,281		—		1,772		1,785		—
Other Construction, Land
Development & Other Land		6,136		15,851		—		4,747		7,519		—
Commercial		621		1,345		—		294		300		—
Consumer		—		—		—		707		707		—

Total	$	12,706	$	27,033	$	—	$	11,824	$	14,782	$	—


With an allowance:
Real estate
Residential	$	—	$	—	$	—	$	2,580	$	3,619	$	787
Commercial		—		—		—		2,618		3,336		818
Residential Construction		—		—		—		—		—		—
Other Construction, Land
Development & Other Land		—		—		—		4,659		4,969		1,450
Commercial		—		—		—		821		848		250
Consumer		—		—		—		—		—		—

Total	$	—	$	—	$	—	$	10,678	$	12,772	$	3,305


Total
Real estate
Residential	$	2,334	$	2,678	$	—	$	6,593	$	7,787	$	787
Commercial		1,029		3,878		—		2,909		3,639		818
Residential Construction		2,586		3,281		—		1,772		1,785		—
Other Construction, Land
Development & Other Land		6,136		15,851		—		9,406		12,488		1,450
Commercial		621		1,345		—		1,115		1,148		250
Consumer		—		—		—		707		707		—

Total	$	12,706	$	27,033	$	—	$	22,502	$	27,554	$	3,305

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

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
	Residential		Commercial		Residential Construction		Other Construction, Land Devel. & Other Land		Commercial		Consumer		Total
	(Dollars in thousands)
September 30, 2012
Allowance for loan losses, evaluated
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		2,628		3,135		201		465		762		17		7,208

Total ending allowance	$	2,628	$	3,135	$	201	$	465	$	762	$	17	$	7,208


Loans, evaluated
Individually	$	2,334	$	1,029	$	2,586	$	6,136	$	621	$	—	$	12,706
Collectively		130,219		147,301		7,062		29,389		37,522		2,386		353,879

Total ending loans	$	132,553	$	148,330	$	9,648	$	35,525	$	38,143	$	2,386	$	366,585


December 31, 2011
Allowance for loan losses, evaluated
Individually	$	787	$	818	$	—	$	1,450	$	250	$	—	$	3,305
Collectively		2,893		557		650		725		1,120		21		5,966

Total ending allowance	$	3,680	$	1,375	$	650	$	2,175	$	1,370	$	21	$	9,271


Loans, evaluated
Individually	$	6,593	$	2,909	$	1,772	$	9,406	$	1,115	$	707	$	22,502
Collectively		120,948		140,080		7,940		39,231		36,807		2,543		347,549

Total ending loans	$	127,541	$	142,989	$	9,712	$	48,637	$	37,922	$	3,250	$	370,051

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 on 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.

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012


	Three Months Ended				Nine Months Ended
	September 30, 2012				September 30, 2012
	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
	(Dollars in thousands)				(Dollars in thousands)

Real estate
Residential	$	13	$	2,460	$	34	$	3,959
Commercial		19		1,152		39		1,935
Residential Construction		22		2,612		63		2,346
Other Construction, Land
Development & Other Land		23		6,405		186		7,630
Commercial		3		751		—		851
Consumer		—		—		—		353

Total	$	80	$	13,380	$	322	$	17,074


	Three Months Ended				Nine Months Ended
	September 30, 2011				September 30, 2011
	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
	(Dollars in thousands)				(Dollars in thousands)

Real estate
Residential	$	143	$	6,052	$	297	$	6,055
Commercial		34		2,988		54		2,988
Residential Construction		13		1,180		40		1,306
Other Construction, Land
Development & Other Land		377		11,773		708		11,776
Commercial		33		1,297		70		1,308
Consumer		4		707		4		707

Total	$	604	$	23,997	$	1,173	$	24,140

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

Troubled Debt Restructurings

The Company adopted the amendments in Accounting Standards Update No. 2011-02 during the period ended September 30, 2011. As required, the Company reassessed all restructurings that occurred on or after the beginning of the then current fiscal year (January 1, 2011) for identification as troubled debt restructurings. The Company identified as troubled debt restructurings certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology (ASC 450-20). Upon identifying the reassessed receivables as troubled debt restructurings, the Company also identified them as impaired under the guidance in ASC 310-10-35. The amendments in Accounting Standards Update No. 2011-02

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

require prospective application of the impairment measurement guidance in Section 310-10-35 for those receivables newly identified as impaired. At the end of the first interim period of adoption for the Company (September 30, 2011), the Company determined that there were no receivables for which the allowance for credit losses was previously measured under a general allowance for credit losses methodology and are now impaired under Section 310-10-35.

Modification Categories

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

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

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

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

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

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

As of September 30, 2012 and December 31, 2011, there were no available commitments outstanding for troubled debt restructurings.

The following tables present troubled debt restructurings as of September 30, 2012 and December 31, 2011:


	September 30, 2012
	Total Number of Contracts		Accrual Status		Nonaccrual Status		Total Modifications
	(Dollars in thousands)

Real estate
Residential		1	$	180	$	—	$	180
Commercial		—		—		—		—
Residential Construction		1		1,200		—		1,200
Other Construction, Land
Development & Other Land		4		2,047		228		2,275
Commercial		—		—		—		—
Consumer		—		—		—		—

Total		6	$	3,427	$	228	$	3,655

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012


	December 31, 2011
	Total Number of Contracts		Accrual Status		Nonaccrual Status		Total Modifications
	(Dollars in thousands)

Real estate
Residential		11	$	183	$	4,133	$	4,316
Commercial		—		—		—		—
Residential Construction		1		1,025		—		1,025
Other Construction, Land
Development & Other Land		4		2,164		641		2,805
Commercial		4		—		185		185
Consumer		—		—		—		—

Total		20	$	3,372	$	4,959	$	8,331

The Company’s policy is that loans placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appear relatively certain. The Company’s policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.

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

There were no newly restructured loans that occurred during the three or nine months ended September 30, 2012. The following tables present newly restructured loans that occurred during the three and nine months ended September 30, 2011 of which all loans presented the same outstanding recorded investment both pre-modification and post modification:


	Three Months Ended September 30, 2011
	Number of Contracts		Rate Modifications		Term Modifications		Interest Only Modifications		Payment Modifications		Combination Modifications		Total
	(Dollars in thousands)
Real estate
Residential		—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial		—		—		—		—		—		—		—
Residential Construction		1		—		—		—		—		107		107
Other Construction, Land
Development & Other Land		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—

Total		1	$	—	$	—	$	—	$	—	$	107	$	107

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012


	Nine Months Ended September 30, 2011
	Number of Contracts		Rate Modifications		Term Modifications		Interest Only Modifications		Payment Modifications		Combination Modifications		Total
	(Dollars in thousands)
Real estate
Residential		—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial		—		—		—		—		—		—		—
Residential Construction		3		—		—		—		—		2,307		2,307
Other Construction, Land
Development & Other Land		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—

Total		3	$	—	$	—	$	—	$	—	$	2,307	$	2,307

The following tables represent 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 and nine month periods ended September 30, 2012 or 2011.

Three Months Ended
September 30, 2012

Three Months Ended
September 30, 2011

Number
of Contracts

Recorded
Investment

Number
of Contracts

Recorded
Investment

(Dollars in thousands)

Real estate

Residential

—

Commercial

—

Residential Construction

—

Other Construction, Land Development & Other Land

—

Commercial

—

Consumer

—

Total

—


	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
	(Dollars in thousands)				(Dollars in thousands)
Real estate
Residential		1	$	286		—	$	—
Commercial		—		—		—		—
Residential Construction		—		—		—		—
Other Construction, Land Development & Other Land		—		—		—		—
Commercial		—		—		—		—
Consumer		—		—		—		—

Total		1	$	286		—	$	—

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

Note 7 – Other Real Estate Owned

Changes in other real estate owned were as follows for the nine months ended September 30, 2012 and 2011 in thousands:


	Nine Months Ended September 30,
	2012			2011
	(dollars in thousands)

Beginning Balance	$	7,646		$	2,615
Additions		174			7,317
Sales		(1,705	)		(1,196	)
Write-downs		(1,613	)		(200	)

Ending Balance	$	4,502		$	8,536

Note 8 – Fair Value Disclosures

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

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

Fair Value Hierarchy

In accordance with this guidance, we group financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities in active markets at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

Level 2 – Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market date for substantially the full term of the asset or liability.

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

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

Securities available for sale : Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). We obtain a single quote for all securities. Quotes for all of our securities are provided by our securities accounting and safekeeping correspondent bank. We perform a review of pricing data by comparing prices received from third party vendors to the previous month’s quote for the same security and evaluate any substantial changes.

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011. Securities identified in Note 3 as restricted securities including stock in the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank are excluded from the table below since there is no ability to sell these securities except when the FHLB or FRB require redemption based on either our borrowings at the FHLB, or in the case of the FRB changes in certain portions of our capital.


	September 30, 2012
	Fair Value Measurements Using						Fair Values
	Level 1		Level 2		Level 3		Fair Values
	(Dollars in thousands)
Assets:

Available-for-sale securities	$	—	$	86,697	$	—	$	86,697


	December 31, 2011
	Fair Value Measurements Using						Fair Values
	Level 1		Level 2		Level 3		Fair Values
	(Dollars in thousands)
Assets:

Available-for-sale securities	$	—	$	84,035	$	—	$	84,035

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

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

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

Impaired Loans : Loans are designated as impaired when, in the judgment of management, based on current information and events, it is probable that all amounts when due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed external appraiser using observable market date (Level 3). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. If a real estate loan becomes a nonperforming loan, or if the valuation is over one year old, either an evaluation by an officer of the bank or an outside vendor, or an appraisal is performed to determine current market value. We consider the value of a partially completed project for our loan analysis. For nonperforming construction loans, we obtain a valuation of each partially completed project “as is’ from a third party appraiser. We use this third party valuation to determine if any charge-offs are necessary.

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

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

Held-to-maturity securities: Securities held to maturity are recorded at amortized cost. Fair value measurement is based upon quoted market prices, when available (Level 1). In quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2). We obtain a single quote for all securities. Quotes for all of our securities are provided by our securities accounting and safekeeping correspondent bank. We perform a review of pricing data by comparing prices received from third party vendors to the previous month’s quote for the same security and evaluate any substantial changes.

Other Real Estate Owned : Certain assets such as other real estate owned (“OREO”) are measured at fair value less cost to sell and the discount to reflect current market conditions ranged from 0% to 30% for each of the respective periods. We believe the fair value component in our valuation of OREO follows the provisions of accounting standards.

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

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


	September 30, 2012
	Fair Value Measurements Using						Fair Values
	Level 1		Level 2		Level 3		Fair Values
	(Dollars in thousands)
Impaired loans	$	—	$	—	$	12,706	$	12,706
Loans held for sale		—		6,563		—		6,563
Held-to-maturity securities		—		3,239		—		3,239
Other real estate owned		—		—		4,502		4,502

Total	$	—	$	9,802	$	17,208	$	27,010


	December 31, 2011
	Fair Value Measurements Using						Fair Values
	Level 1		Level 2		Level 3		Fair Values
	(Dollars in thousands)
Impaired loans	$	—	$	—	$	19,197	$	19,197
Loans held for sale		—		1,366		—		1,366
Held-to-maturity securities		—		3,116		—		3,116
Other real estate owned		—		—		7,646		7,646

Total	$	—	$	4,482	$	26,843	$	31,325

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein:

Cash and due from banks – The carrying amounts of cash and due from banks approximate their fair value.

Available-for-sale and held-to-maturity securities – Fair values measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity, the fair value reflects the Company’s assumptions about what market participants would use and information that is reasonably available under the circumstances without undue cost or effort (Level 3). The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the following table.

Loans receivable – Fair values are based on carrying values for variable-rate loans that reprice frequently and have no significant change in credit risk. Fair values for certain mortgage loans (for example, one-to-four family residential) and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

commercial real estate and commercial loans are estimated using discounted cash flow analyses and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The interest rates on loans at September 30, 2012 and December 31, 2011 are current market rates for their respective terms and associated credit risk.

Loans held for sale – Loans held for sale are carried at the lower of cost or market value. These loans currently consist of residential real estate, owner occupied loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different from cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the periods ended September 30, 2012 and December 31, 2011. Gains and losses on the sale of loans are recorded within income on the Consolidated Statements of Operations.

Deposit liabilities – The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Accrued interest – The carrying amounts of accrued interest approximate their fair values.

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

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

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

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

Off-balance-sheet instruments – Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and counterparties’ credit standings. These are not deemed to be material at September 30, 2012 and December 31, 2011.

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

The estimated fair values of the Company’s financial instruments as of September 30, 2012 and December 31, 2011 are as follows:


	September 30, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	33,452	$	33,452	$	50,359	$	50,359
Investment securities		89,578		89,936		86,919		87,151
Loans receivable, net		359,544		373,372		360,969		369,843
Loans held for sale		6,563		6,563		1,366		1,373
Accrued interest		1,837		1,837		1,689		1,689

Financial liabilities
Deposits	$	447,305	$	457,446	$	440,199	$	446,429
FHLB advances		25,000		25,682		50,000		53,496
Subordinated debt		7,155		3,775		7,155		3,600
Repurchase agreements		939		939		1,608		1,608

We assume interest rate risk (the risk that general interest rate levels will change) as a result of our normal operations. As a result, the fair values of our financial instruments will change when interest rates levels change and that change may be either favorable or unfavorable to us. We attempt to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to repay in a rising rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. We monitor rates and maturities of assets and liabilities and attempt to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate our overall interest rate risk.

Note 9 – Recently Issued Accounting Pronouncements

In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. With the Update, a company testing goodwill for impairment now has the option of performing a qualitative assessment before calculating the fair value of the reporting unit (the first step of goodwill impairment test). If, on the basis of qualitative factors, the fair value of the reporting unit is more likely than not greater than the carrying amount, a quantitative calculation would not be needed. Additionally, new examples of events and circumstances that an entity should consider in performing its qualitative assessment about whether to proceed to the first step of the goodwill impairment have been made to the guidance and replace the previous guidance for triggering events for interim impairment assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The update requires an entity to offset, and present as a single net amount, a recognized eligible asset and a recognized eligible liability when it has an unconditional and legally enforceable right of setoff and intends either to settle the asset and liability on a net basis or to realize the asset and settle the liability simultaneously. The ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The amendments are effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company is currently in the process of evaluating the ASU but does not expect it will have a material impact on the Company’s consolidated financial statements.

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

On December 23, 2011, the FASB issued ASU No. 2011-12, Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income. The ASU amends current guidance to allow a company to defer the new requirement to present components of reclassifications of other comprehensive income on the face of the financial statements. Companies are still required to adopt the other requirements found in ASU 2011-05. The Company implemented the provisions of ASU No. 2011-05 by reporting comprehensive income in a separate statement.

On July 27, 2012, the FASB issued ASU No. 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The Update simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. The amendments allow an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. An organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is “more likely than not” that the asset is impaired. Under former guidance, an organization was required to test an indefinite-lived intangible asset for impairment on at least an annual basis by comparing the fair value of the asset with its carrying amount. The ASU is effective for annual and interim impairment tests beginning on or after September 15, 2012. The Company has not implemented this ASU to date.

On October 23, 2012, the FASB issued ASU 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. This update addresses how to interpret the terms on the same basis and contractual limitations when subsequently measuring an indemnification asset recognized in a government-assisted acquisition of a financial institution that includes a loss-sharing agreement. When a reporting entity recognizes an indemnification asset and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs, the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. The update should resolve the current diversity in practice on subsequent measurement. The ASU is effective for annual and interim periods beginning on or after December 15, 2012. The Company has not implemented this ASU to date.

Note 10 – Redemption of TARP Preferred Stock

On June 14, 2012, the U. S. Department of the Treasury priced its secondary public offering of all 10,958 shares of the Preferred Stock. The Company successfully bid for the purchase of 5,427 shares of the Preferred Stock for a total purchase price of $5.0 million, plus accrued and unpaid dividends on the Preferred Stock from and including May 15, 2012 to the settlement date, June 19, 2012. The book value of the Preferred Stock retired was $5.4 million. As a result of its successful bid in the offering, the Company retired 5,427 shares of its original 10,958 shares of Preferred Stock on June 19, 2012. None of the remaining shares of the outstanding Preferred Stock are held by U. S. Treasury, though the common stock purchase warrants associated with the TARP program remain with the U. S. Treasury.

The repurchase of $5.4 million in stated value of the Preferred Stock at a discount of 8.0% (or an actual cost of $5.0 million) resulted in a one-time adjustment to capital totaling $5.4 million offset by the accretion of $124 thousand in Preferred Stock Discount and expenses related to the transaction approximating $238 thousand. The result is a net decrease in capital of approximately $5.1 million.

First Capital Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

September 30, 2012

As a result of our participation in the TARP program, among other things, the Company was subject to the Treasury’s current standards for executive compensation and corporate governance for the periods during which Treasury held the Preferred Shares, including the second quarter of 2012. These standards were most recently set forth in the Interim Final Rule of TARP Standards for Compensation and Corporate Governance, published June 15, 2009. Because Treasury sold all of the Preferred Shares in the auction, these standards are no longer applicable.

The Preferred Shares have a $4.00 par value, with $1,000 liquidation preference. With 2,000,000 authorized shares, at September 30, 2012 and December 31, 2011, there were 5,531 and 10,958 shares outstanding, respectively. In connection with the Preferred Shares, the Company has 251 thousand warrants to purchase one common share per warrant for $6.55 per share at September 30, 2012.

Note 11 – Common Stock

On May 11, 2012, the Company completed its rights offering and its offering of shares to a standby investor. Stockholders exercised subscription rights to purchase 4.0 million shares offered at a subscription price of $2.00 per share, and Kenneth R. Lehman, a private investor from Arlington, Virginia, purchased 4.9 million shares at the subscription price of $2.00 per share. Each share purchased came with a warrant to purchase an additional half share a $2.00 per whole share. In total, the Company raised gross proceeds of $17.8 million before expenses. The proceeds from the rights offering and the standby purchase were used to invest in the Company’s subsidiary, First Capital Bank, to bolster its regulatory capital ratios and for general corporate purposes.

The Common Stock has a $4.00 par value. With 30,000,000 authorized shares, at September 30, 2012 and December 31, 2011, there were 11,884,682 and 2,971,171 shares outstanding, respectively.

ITEM 2.

FIRST CAPITAL BANCORP, INC

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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

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

•

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

•

Changes in interest rates could reduce income.

•

Competitive pressures among financial institutions may increase.

•

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

•

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

•

Adverse changes may occur in the securities market.

OVERVIEW

Net income for the third quarter of 2012 was $828 thousand, and net income available to common shareholders was $743 thousand, or $0.06 per fully diluted share, compared to a net loss of $2.6 million, and a net loss allocable to common shareholders of $2.8 million or $0.93 per fully diluted share, in the third quarter of 2011.

From a revenue and cost perspective, income before excluded items, which is a non-GAAP measurement, increased to $1.3 million for the third quarter of 2012 from $718 thousand for the third quarter of 2011. Contributing to the increase was an increase in net interest income of $198 thousand due to a reduction in interest expense resulting mostly from the restructuring of the FHLB advance portfolio. The following chart reconciles income before excluded items to net income for the periods presented.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Income Before Excluded Items (non-GAAP measurement)	$	1,276		$	718		$	3,302		$	2,774
Gain on Sale of Securities		(53	)		—			(79	)		(644	)
Provision		156			4,726			9,031			8,572
FHLB Prepayment Penalty		12			—			2,767			—
(Gains) Losses and Writedown on OREO		(47	)		—			1,597			321
Additional Accrual		—			—			300			—

Income Before Taxes		1,208			(4,008	)		(10,314	)		(5,475	)
Taxes		380			(1,416	)		(3,668	)		(1,993	)

Net Income	$	828		$	(2,592	)	$	(6,646	)	$	(3,482	)

The three months ended September 30, 2012 presents the results of the successful activities undertaken in the second quarter of 2012. The three months ended June 30, 2012 was one of the most active and exciting quarters in the Company’s history. The Company successfully closed its $17.8 million rights offering, participated in the United States Treasury’s auction of its TARP securities, was the successful bidder for $5 million of the those securities, implemented the Asset Resolution Plan required in our Standby Purchase Agreement with our standby purchaser and now majority shareholder, Kenneth R. Lehman, and retired $40 million of the Company’s long term debt with the Federal Home Bank of Atlanta, with an additional $5 million in FHLB advances retired in the third quarter of 2012.

On May 11, 2012, the Company completed its rights offering and its offering of shares to a standby investor. Stockholders exercised subscription rights to purchase 4.0 million shares offered at a subscription price of $2.00 per share, and Kenneth R. Lehman, a private investor from Arlington, Virginia, purchased 4.9 million shares at the subscription price of $2.00 per share. In total, the Company raised gross proceeds of $17.8 million before expenses. The proceeds from the rights offering and the standby purchase were used to invest in the Company’s subsidiary, First Capital Bank, to bolster its regulatory capital ratios and for general corporate purposes.

Under the Standby Purchase Agreement with Lehman, the Company was required to use all or a portion of the capital raised in the rights offering to significantly change our strategy with respect to up to $50 million of our assets, consisting primarily of other real estate owned, nonperforming loans and performing loans graded substandard or lower. During the second quarter, the Company and Lehman identified $33.5 million of nonperforming and performing loans and $5.9 million of other real estate owned as targets under the agreement. We changed our strategy to accelerate the resolution of these assets prior to December 31, 2013 in accordance with the Standby Purchase Agreement and the Asset Resolution Plan. As a result of this change in strategy, during the second quarter of 2012 nonperforming and performing loans were written down by $7.4 million and other real estate owned was written down $1.2 million. Company management feels that with the actions taken in the second quarter to accelerate the resolution of the identified assets, further significant losses in these portfolios are not expected and the Company is better positioned to be profitable in the future.

The forgoing actions had significant positive effects on the Company’s credit statistics in the second quarter which continued into the third quarter of 2012. The Bank’s nonperforming assets continued to drop, and were $13.8 or 3.8% of total loans at September 30, 2012, down from $14.6 million or 4.0% of total loans at the end of the second quarter of 2012 and compared to $25.3 million or 6.8% at the end of the prior year and $27.0 million or 7.2% of total loans at the end of the third quarter of 2011.

On June 13, 2012, the United States Department of the Treasury announced that it priced the secondary public offering of 10,958 shares of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Stock”) it held in First Capital Bancorp, Inc. at $920.11 per share. The Company was notified that it was the successful bidder for the purchase of 5,434 shares of the Preferred Stock for a total purchase price of $5.0 million, plus accrued and unpaid dividends on the Preferred Stock. The closing of the offering occurred on June 19, 2012. As a result of its successful bid in the offering, the Company retired 5,434 of its original 10,958 of shares of Preferred Stock. The remaining preferred shares of the Preferred Stock were purchased by one or more third parties.

Company retired $40 million of Federal Home Loan Bank of Atlanta advances in the second quarter of 2012 and $5 million of FHLB advances in the following quarter. The advances had an average interest rate of 3.08% representing an annual cost of approximately $1.2 million. The Company incurred prepayment penalties of approximately $2.8 million to retire this debt; however, the Company’s earnings and net interest margin have already seen positive impacts of this action and expect to see significant improvement in future periods due to the repayment of this debt. Interest on FHLB advances for the third quarter of 2012 decreased $327 thousand to $87 thousand from $414 thousand for the third quarter of 2011.

Financial Condition

Total assets at September 30, 2012 were $529.5 million, down $12.2 million from $541.7 million at December 31, 2011. Net loans outstanding were $359.5 million at September 30, 2012, a decrease of $1.4 million compared to the 2011 year-end balance. Deposits increased by $7.1 million to $447.3 million, up 1.6% from December 31, 2011. Our deposit strategy was focused on decreasing noncore funding sources and single service CD relationships and increasing noninterest-bearing deposit accounts. Noninterest-bearing accounts were $51.5 million at September 30, 2012, up from $46.4 million at December 31, 2011.

At September 30, 2012, the Company’s investment portfolio totaled $89.6 million, an increase of $2.7 million from $86.9 million at December 31, 2011. Most of the funds that are invested in the Company’s investment portfolio are part of management’s effort to balance interest rate risk, and to provide liquidity and income to the Company. Bank owned life insurance of $8.2 million was purchased during the second quarter of 2011 as an additional investment for the Company and to provide life insurance benefits for senior executives. The value of this investment increased to $9.2 million at September 30, 2012.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income represents a principal source of earnings for the Company. Net interest income during 2012 to date compared to net interest income for the comparable period of 2011 remained steady at approximately $12 million resulting from the reduction of the loan portfolio being offset by the effective restructuring of the FHLB advance portfolio and decline in interest bearing deposit liabilities.

Net interest margin increased 25 basis points to 3.54% for the three months ended September 30, 2012 from 3.29% for the third quarter of 2011, reflecting a decrease in average rate paid on interest-bearing liabilities of 42 basis points to 1.43% for the third quarter of 2012 from 1.85% for the third quarter of 2011. This was offset by a 14 basis point decrease in the average yield on earning assets. The yield on loans, net of discount, was 5.41% and 5.62% for the third quarters of 2012 and 2011, respectively, with the decrease due primarily to decreases in loans outstanding and lower rates during the period. The average yield on investments decreased to 2.72% for the third quarter of 2012 from 3.02% for the third quarter of 2011 while average balances in

investments increased to $96.8 million for the third quarter of 2012 from $96.0 million for the third quarter of 2011. Average fed funds sold, which were earning 0.23% for the third quarters of 2012 and 2011, decreased to $10.6 million at the end of the third quarter of 2012 from $21.0 million at the end of the third quarter 2011. The average balance of interest bearing deposits increased to $388.3 million at the end of the third quarter of 2012 from $381.1 million at the end of the third quarter of 2011.

For the three months ended September 30, 2012, net interest income was up $198 thousand to $4.2 million for the third quarter of 2012 from $4.0 million for the third quarter of 2011. This increase was due to the disproportionate reduction in rates on interest bearing liabilities compared to the rate on earning assets.

Total interest and fees on loans, the largest component of net interest income, decreased $312 thousand or 5.8 % to $5.1 million during the third quarter of 2012 compared to $5.4 million for the same period in 2011 primarily due to decreases in loans outstanding since September 30, 2011.

Interest expense on deposits decreased $232 thousand to $1.4 million, or 14.3% for the third quarter of 2012 compared to the same period of 2011. The decrease in deposit expense was due to the restructuring of the deposit mix and a decrease in overall rates paid on deposits as interest rates paid on interest bearing deposits decreased 25 basis points to 1.43% for the third quarter of 2012 from 1.68% for the third quarter of 2011.

For the nine months ended September 30, 2012, the net interest margin increased to 3.36% from 3.28% for the nine months ended September 30, 2011. The improvement in the year to date margin is primarily a result of the successful restructuring of the FHLB advance portfolio which offset the decline in yield in the loan and investment portfolios.

Net interest income increased $63 thousand for the first nine months of 2012 compared to the first nine months of 2011.

Average Balances, Income and Expenses, Yields and Rates

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

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

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


	Three Months Ended September 30,
	2012								2011
	Average Balance			Income/ Expense		Yield/ Rate			Average Balance			Income/ Expense			Yield/ Rate
	(Dollars in thousands)
Assets:
Loans, net of unearned income ⁽¹⁾	$	372,004		$	5,064		5.41	%	$	379,535		$	5,376			5.62	%
Bank owned life insurance ⁽²⁾		9,126			127		5.53	%		8,792			138			6.24	%
Investment securities:
U.S. Agencies		999			10		3.99	%		707			4			2.38	%
Mortgage backed securities		13,691			66		1.92	%		15,259			92			2.39	%
CMO		41,607			232		2.21	%		39,009			245			2.49	%
Municipal securities ⁽²⁾		6,025			98		6.45	%		12,691			194			6.08	%
Corporate bonds		16,815			99		2.35	%		13,045			77			2.35	%
Taxable municipal securities		12,300			118		3.82	%		8,978			97			4.28	%
SBA		1,376			9		2.57	%		1,747			(1	)		(0.36	)%
Other investments		3,952			29		2.96	%		4,591			24			2.09	%

Total investment securities		96,765			661		2.72	%		96,027			732			3.02	%
Interest bearing deposits		10,623			6		0.23	%		21,027			12			0.23	%

Total earning assets	$	488,518		$	5,858		4.77	%	$	505,381		$	6,258			4.91	%

Cash and cash equivalents		8,104								7,935
Allowance for loan losses		(7,305	)							(9,603	)
Other assets		30,620								28,885

Total assets	$	519,937							$	532,598


Liabilities & Stockholders’ Equity:
Interest checking	$	10,437		$	8		0.31	%	$	10,751		$	10			0.35	%
Money market deposit accounts		137,626			174		0.50	%		151,396			258			0.68	%
Statement savings		1,303			1		0.42	%		911			1			0.42	%
Certificates of deposit		238,900			1,202		2.00	%		218,012			1,349			2.46	%

Total interest-bearing deposits		388,266			1,385		1.43	%		381,070			1,618			1.68	%

Fed funds purchased		18			—		0.00	%		—			—			—	%
Repurchase agreements		2,148			2		0.40	%		1,181			1			0.50	%
Subordinated debt		7,155			38		2.09	%		7,155			34			1.90	%
FHLB advances		23,859			88		1.46	%		53,370			414			3.07	%

Total interest-bearing liabilities		421,446			1,513		1.43	%		442,776			2,067			1.85	%


Noninterest-bearing liabilities:
Noninterest-bearing deposits		50,471								44,685
Other liabilities		1,791								1,712

Total liabilities		52,262								46,397
Shareholders’ equity		46,229								43,425

Total liabilities and shareholders’ equity	$	519,937							$	532,598


Net interest income				$	4,345							$	4,191

Interest rate spread							3.34	%								3.06	%


Net interest margin							3.54	%								3.29	%

Ratio of average interest earning assets to average interest-bearing liabilities							115.92	%								114.14	%

⁽¹⁾	Includes nonaccrual loans

⁽²⁾	Income and yields are reported on a taxable equivalent basis using a 34% tax rate.


	Nine Months Ended September 30,
	2012								2011
	Average Balance			Income/ Expense		Yield/ Rate			Average Balance			Income/ Expense			Yield/ Rate
	(Dollars in thousands)
Assets:
Loans, net of unearned income ⁽¹⁾	$	375,625		$	15,333		5.46	%	$	388,019		$	16,269			5.61	%
Bank owned life insurance ⁽²⁾		9,044			380		5.61	%		4,866			209			5.73	%
Investment securities:
U.S. Agencies		1,648			45		3.68	%		2,207			53			3.22	%
Mortgage backed securities		14,244			220		2.07	%		14,586			308			2.82	%
CMO		42,844			732		2.28	%		33,877			677			2.67	%
Municipal securities ⁽²⁾		6,419			310		6.45	%		13,824			651			6.30	%
Corporate bonds		16,530			299		2.42	%		7,903			187			3.17	%
Taxable municipal securities		10,933			319		3.90	%		10,913			369			4.52	%
SBA		1,473			22		1.97	%		2,662			(13	)		(0.64	)%
Other investments		4,306			96		2.98	%		4,587			81			2.35	%

Total investment securities		98,397			2,043		2.77	%		90,559			2,313			3.42	%
Interest bearing deposits		16,586			29		0.23	%		24,143			42			0.23	%

Total earning assets	$	499,652		$	17,785		4.75	%	$	507,587		$	18,833			4.96	%

Cash and cash equivalents		8,183								7,459
Allowance for loan losses		(7,981	)							(10,528	)
Other assets		29,636								24,977

Total assets	$	529,490							$	529,495


Liabilities & Stockholders’ Equity:
Interest checking	$	11,000		$	24		0.30	%	$	10,078		$	27			0.37	%
Money market deposit accounts		142,839			535		0.50	%		145,837			848			0.78	%
Statement savings		1,244			4		0.42	%		916			3			0.42	%
Certificates of deposit		229,521			3,642		2.12	%		221,218			4,150			2.51	%

Total interest-bearing deposits		384,604			4,205		1.46	%		378,049			5,028			1.78	%

Fed funds purchased		6			—		0.00	%		—			—			—	%
Repurchase agreements		1,380			4		0.40	%		1,041			4			0.50	%
Subordinated debt		7,155			117		2.19	%		7,155			102			1.92	%
FHLB advances		40,803			878		2.87	%		54,451			1,234			3.03	%

Total interest-bearing liabilities		433,948			5,204		1.60	%		440,696			6,368			1.93	%


Noninterest-bearing liabilities:
Noninterest-bearing deposits		47,881								43,096
Other liabilities		1,760								1,767

Total liabilities		49,641								44,863
Shareholders’ equity		45,901								43,936

Total liabilities and shareholders’ equity	$	529,490							$	529,495


Net interest income				$	12,581							$	12,465

Interest rate spread							3.15	%								3.03	%


Net interest margin							3.36	%								3.28	%

Ratio of average interest earning assets to average interest-bearing liabilities							115.14	%								115.18	%

⁽¹⁾	Includes nonaccrual loans

⁽²⁾	Income and yields are reported on a taxable equivalent basis using a 34% tax rate.

Noninterest Income

Total noninterest income was $621 thousand for the third quarter of 2012, compared to $313 thousand for the same period of 2011. Fees on deposits increased 19.8% to $97 thousand for the third quarter of 2012 compared to $81 thousand for the comparable period in 2011. Gain on sale of securities were $53 thousand for the three months ended September 30, 2012 compared to no gain on sale of securities as no security sales were transacted during the third quarter of 2011. The mortgage division added $253 thousand to noninterest income as gains on sales of loans were recognized in the third quarter 2012 compared to zero for the third quarter 2011 as the division was not yet operational in the third quarter of 2011. Other noninterest income decreased $14 thousand for the second quarter of 2012 to $218 thousand compared to $232 thousand for the same period of 2011. This decrease was due primarily to a decline in the cash surrender value of life insurance.

For the nine months ended September 30, 2012, noninterest income decreased $27 thousand to $1.3 million for the first nine months of 2012 from $1.4 thousand for the comparable period in 2011, attributable to fewer security sales in the first nine months of 2012 compared to 2011 being offset partially by the gain on sale of loans and overall increase in the cash surrender value of life insurance.

Noninterest Expense

This category includes all expenses other than interest paid on deposits and borrowings. Total noninterest expenses for the third quarter of 2012 remained relatively stable and totaled $3.4 million, a decrease of $140 thousand, compared to $3.6 million for the same period in 2011.

For the nine months ended September 30, 2012, total noninterest expense increased $4.4 million, or 42.8% to $14.7 million from $10.3 million for the comparable period in 2011. The primary cause of the increase was the implementations of the Asset Resolution Plan in accordance with the Standby Purchase Agreement as part of the rights offering that closed May 19, 2012 and the restructuring of the Federal Home Loan Bank of Atlanta (FHLB) advances. Write-downs and losses on OREO expense increased $1.3 million to $1.6 million for the nine months ended September 30, 2012, from $321 thousand for the nine months ended September 30, 2011. A prepayment penalty of $2.8 million was incurred in the second quarter of 2012 as part of the FHLB restructuring that was designed to reduce interest expense and better match the maturity of the Company’s current asset portfolio.

Income Taxes

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

The effective tax rate for the three month periods ended September 30, 2012 and 2011 was 31.5% and 35.3%, respectively. The effective tax rate for the nine months ended September 30, 2012 and 2011 was 35.6% and 36.4%, respectively.

ASSET QUALITY

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

Total nonperforming assets, which consist of nonaccrual loans, loans past due 90 days and still accruing interest, and OREO, were $13.8 million at September 30, 2012, down from $27.0 million at September 30, 2011. This decrease reflects the implementation of the Asset Resolution Plan in accordance with the Standby Purchase Agreement of the rights offering that closed May 19, 2012. At December 31, 2011, nonperforming assets totaled $25.3 million. Nonperforming assets are composed largely of loans secured by real estate and repossessed properties in our OREO portfolio. At the end of the third quarter, OREO was $4.5 million, down from $8.5 million at September 30, 2011 and down from $7.6 million at December 31, 2011. At September 30, 2012, there were $3.4 million of troubled debt restructurings that were performing loans.

Nonaccrual loans were $9.3 million at September 30, 2012, continuing to decrease from $18.5 million at September 30, 2011 and $17.7 million at December 31, 2011. The decrease reflects the continued efforts by the Company to decrease nonaccruals in a challenging economic environment.

Loan charge-offs, net of recoveries, amounted to $201 thousand for the third quarter of 2012 compared to $5.9 million for the third quarter of 2011. For the third quarter of 2012, the provision for loan losses was $156 thousand compared to $4.7 million for the third quarter of 2011, and compared to $868 thousand for the fourth quarter of 2011. With the level of real estate secured debt and the decreased nonperforming assets, management is confident that we can successfully manage through the continuing economic downturn. With the successful implementation of the Asset Resolution Plan in connection with the Standby Purchase Agreement as part of the rights offering, we do not anticipate continued significant provision expenses as were necessary in the second quarter of 2012.

Loans past due 30 to 89 days continue to drop and stood at $2.1 million at the end of the third quarter of 2012 compared to $2.3 million at the ends of the third quarter and year ended 2011, a $200 thousand reduction in those balances.

Although the Company believes it has a sufficient allowance for its existing portfolio, there can be no assurances that an additional allowance for losses on existing loans may not be necessary in the future. The allowance for loan losses totaled $7.2 million at September 30, 2012 compared to $9.0 million at September 30, 2011 and $9.3 million at December 31, 2011. The ratio of the allowance for loan losses to total loans outstanding at September 30, 2012 was 1.97% compared to 2.51% at December 31, 2011 and 2.42% at September 30, 2011. The movement in this ratio results from and is directionally consistent with the improvement in the Company’s credit quality statistics.

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


	2012						2011
	September 30,			June 30			December 31,			September 30,
				(Dollars in thousands)
Nonaccrual loans	$	9,279		$	9,778		$	17,691		$	18,455
Loans past due 90 days and accruing interest		—			—			—			—

Total nonperforming loans		9,279			9,778			17,691			18,455
Other real estate owned		4,502			4,787			7,646			8,536

Total nonperforming assets	$	13,781		$	14,565		$	25,337		$	26,991


Allowance for loan losses to period end loans		1.97	%		1.97	%		2.51	%		2.42	%
Nonperforming assets to total loans & OREO		3.71	%		3.90	%		6.71	%		7.07	%
Nonperforming assets to total assets		2.60	%		2.80	%		4.68	%		5.04	%
Allowance for loan losses to nonaccrual loans		77.68	%		74.18	%		52.41	%		48.91	%

LIQUIDITY

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

At September 30, 2012, cash and cash equivalents totaled $33.5 million. Investment securities not pledged totaled $88.6 million, for a total of 16.7% of total assets, which management believes is adequate to meet short-term liquidity needs. Management also has alternative sources of funding available, including unused unsecured federal funds facilities with three banks totaling $23.5 million and unused available term loans through the FHLB totaling $59.5 million.

Total liquidity and other alternative sources of liquidity totaled $205.1 million at September 30, 2012 if fully utilized, which represents 38.7% of total assets.

Off-Balance Sheet Arrangements

In the normal course of business there are outstanding commitments for the extension of credit which are not reflected in the financial statements. At September 30, 2012, pre-approved but unused lines of credit for loans totaled approximately $51.6 million. In addition, we had approximately $4.4 million in financial and performance standby letters of credit at September 30, 2012. These commitments represent no more than the normal lending risk that we commit to borrowers. If these commitments are drawn, we will obtain collateral if it is deemed necessary based on our credit evaluation of the counterparty.

CAPITAL RESOURCES

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

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

Federal regulatory risk-based capital ratio guidelines require percentages to be applied to various assets including off-balance sheet assets in relation to their perceived risk. Tier 1 capital consists of stockholders’ equity and minority interests in consolidated subsidiaries, less net unrealized gains on available-for-sale securities. Tier 2 capital, a component of total capital, consists of a portion of the allowance for loan losses, certain components of nonpermanent preferred stock and subordinated debt. The $5 million in trust preferred securities issued by the Company in September 2006 qualifies as Tier 1 capital. First Capital Bank’s ratios exceed regulatory requirements. As of September 30, 2012, the Company had a Tier 1 risk-based capital ratio of 12.37% and a Total risk-based capital ratio of 13.94%. At December 31, 2011 these ratios were 11.60% and 13.17%, respectively.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A

ITEM 4.

CONTROLS AND PROCEDURES

Based upon an evaluation as of September 30, 2012 under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, they have concluded that our disclosure controls and procedures, as defined in Rule 13a-15 and Rule 15d-15 under the Securities Exchange Act of 1934, as amended, are effective in ensuring that all material information required to be disclosed in reports that it files or submits under such Act is recorded, processed, summarized and is made known to management in a timely fashion.

Our management is also responsible for establishing and maintaining adequate internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings – None to report

Item 1A.

Risk Factors – Not Applicable

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds – None

Item 3.

Defaults Upon Senior Securities – None

Item 4.

Mine Safety Disclosures – None

Item 5.

Other Information – None to report

Item 6.

Exhibits


Exhibit No.		Description of Exhibit

3.1		Articles of Incorporation of First Capital Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of Form 10-QSB filed November 13, 2006)

3.2		Amended and Restated Bylaws of First Capital Bancorp, Inc. (incorporated by reference to Exhibit 3.2 of Form 8-K filed May 22, 2007)

3.3		Articles of Amendment to the Company’s Articles of Incorporation, designating the terms of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 3.1 of Form 8-K filed April 6, 2009)

3.4		Articles of Amendment to the Company’s Articles of Incorporation, increasing the number of authorized shares of Common Stock to 30,000,000 (incorporated by reference to Exhibit 3.1 of Form 8-K filed on September 3, 2010)

4.1		Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 4.1 of Form 8-K filed April 6, 2009)

4.2		Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 4.1 of Form 8-K filed on April 6, 2009)

4.3		Warrant to Purchase Shares of Common Stock, dated April 3, 2009 (incorporated by reference to Exhibit 4.2 of Form 8-K filed April 6, 2009)

31.1		Certification of John M. Presley Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 14, 2012.

31.2		Certification of Robert G. Watts, Jr. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 14, 2012.

31.3		Certification of William W. Ranson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 14, 2012.

32		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated November 14, 2012.

99.1		A Banker’s Professional Code of Ethics as adopted by First Capital Bank (incorporated by reference to Exhibit 99.1 of Form 10-KSB/A filed on June 13, 2007).



99.2		Code of Conduct and Conflict of Interest as adopted by First Capital Bank (incorporated by reference to Exhibit 99.2 of Form 10-KSB/A filed on June 13, 2007).

99.3		Certification of John M. Presley Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009 (incorporated by reference to Exhibit 99.3 of Form 10-K filed on March 31, 2011).

99.4		Certification of William W. Ranson Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009 (incorporated by reference to Exhibit 99.4 of Form 10-K filed on March 31, 2011).

101		The following materials from the Company’s 10-Q Report for the quarter ended September 30, 2012, 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. (1)

(1)	Furnished, not filed.

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: November 14, 2012	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