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FCVA > SEC Filings for FCVA > Form 10-Q on 14-Nov-2013All Recent SEC Filings

Show all filings for FIRST CAPITAL BANCORP, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for FIRST CAPITAL BANCORP, INC.


14-Nov-2013

Quarterly Report


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 2013 was $1.1 million, and net income available to common shareholders was $991 thousand, or $0.07 per fully diluted share, compared to net income of $828 thousand, and net income available to common stockholders of $743 thousand or $0.06 per fully diluted share, for the third quarter of 2012.

From a revenue and cost perspective, income after excluding certain items, which is a non-GAAP measurement, increased to $1.4 million for the third quarter of 2013 from $1.3 million for the third quarter of 2012. Contributing to the increase was an increase in net interest income of $358 thousand due to a reduction in interest expense resulting mostly from the shift in the deposit liabilities base from interest bearing to non-interest bearing deposits with additional benefit provided by the growth in the loan portfolio and the continued improvement in the loan portfolio's credit statistics. The following chart reconciles income before excluded items to net income (loss) for the periods presented.


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                                                Three Months Ended                Nine Months Ended
                                                   September 30,                    September 30,
                                                2013             2012           2013             2012
                                              (Dollars in thousands)           (Dollars in thousands)
Income Before Excluded Items (non-GAAP
measurement)                                $      1,355        $ 1,276      $    3,903        $   3,301
(Loss) Gain on Sale of Securities                     (7 )           53             169               79
Recovery of (Provision) for Loan Losses               86           (156 )           (14 )         (9,031 )
FHLB Prepayment Penalty                               -             (12 )            -            (2,767 )
Gains (Losses) on Sale and Writedown of
OREO                                                 161             47             117           (1,596 )
Additional Accrual                                    -              -               -              (300 )

Net Income (Loss) Before Income Taxes              1,595          1,208           4,175          (10,314 )
Income Tax Expense (Benefit)                         518            380           1,301           (3,668 )

Net Income (Loss)                           $      1,077        $   828      $    2,874        $  (6,646 )

The three months ended September 30, 2013, presents the continued positive results of the successful activities undertaken in the second quarter of 2012. The three month period 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 $5.0 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. These activities have provided a reduction in interest expense related to the FHLB advance portfolio and allowed for immediate and continued improvement in our credit quality statistics which have ultimately led to a better return for our shareholders.

Financial Condition

Total assets at September 30, 2013, were $536.7 million, down $6.3 million from $542.9 million at December 31, 2012. Cash and cash equivalents decreased $23.3 million to $12.1 at September 30, 2013. This decrease was used to fund the increase in net loans outstanding, which were $408.6 million at September 30, 2013, an increase of $39.7 million compared to the 2012 year-end balance. The remaining funds used to provide for the growth in the loan portfolio were obtained from available for sale securities, which decreased $10.4 million from the December 31, 2012 balance and the decrease in loans held for sale, which decreased $8.7 million from the December 31, 2012 balance. Total deposit liabilities decreased $12.2 million to $446.9 million at September 30, 2013 from $459.1 million at December 31, 2012. A favorable shift in the composition of our deposits, with an increase in non-interest bearing deposits of $2.3 million from the December 31, 2012 balance and a decrease in interest bearing deposits of $14.6 million from the December 31, 2012 balance, has bolstered additional improvement to net interest income. Our deposit strategy during the third quarter was focused on decreasing noncore funding sources and single service CD relationships and increasing noninterest-bearing deposit accounts.

At September 30, 2013, the Company's investment portfolio totaled $79.3 million, a decrease of $10.4 million from $89.7 million at December 31, 2012. 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.


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RESULTS OF OPERATIONS

Net Interest Income

Net interest income represents the principal source of earnings for the Company. Net interest income during 2013 to date compared to net interest income for the comparable period of 2012 improved to $13.2 million from $12.1 million, resulting primarily from the effective restructuring of the FHLB advance portfolio and the decline in rate and balance of interest bearing deposit liabilities.

The net interest margin increased 11 basis points to 3.65% for the three months ended September 30, 2013 from 3.54% for the third quarter of 2012, due largely to a decrease in average rate paid on interest-bearing liabilities of 25 basis points to 1.17% for the third quarter of 2013 from 1.42% for the third quarter of 2012. This was slightly offset by a 15 basis point decrease in the average yield on earning assets. The yield on loans, net of unamortized fees and costs, was 5.04% and 5.41% for the third quarters of 2013 and 2012, respectively, with the decrease due primarily to lower rates during the current period. The average yield on investments increased to 2.73% for the third quarter of 2013 from 2.72% for the third quarter of 2012 while average balances in investments decreased to $79.7 million for the third quarter of 2013 from $96.8 million for the third quarter of 2012. Average interest bearing deposits at the Federal Reserve, which were earning 0.30% and 0.23% for the third quarters of 2013 and 2012, respectively, decreased to $6.3 million at the end of the third quarter of 2013 from $10.6 million at the end of the third quarter 2012. The average balance of interest bearing deposits decreased to $384.3 million for the third quarter of 2013 from $388.3 million for the third quarter of 2012.

For the three months ended September 30, 2013, net interest income was up $358 thousand to $4.5 million from $4.2 million for the third quarter of 2012. This increase was due primarily to the reduction of interest expense resulting from the change in composition of deposit liabilities.

Total interest and fees on loans, the largest component of net interest income, increased to $5.3 million during the third quarter of 2013 compared to $5.1 million for the third quarter of 2012 despite the increased pressure of the rate environment.

Interest expense on deposits decreased $267 thousand to $1.1 million, or 19.25% for the third quarter of 2013 compared to $1.4 million for the same period of 2012. This decrease was due to the restructuring of the deposit mix and a decrease in overall rates paid on time deposits as interest rates paid on interest bearing deposits decreased 26 basis points to 1.17% for the third quarter of 2013 from 1.43% for the third quarter of 2012.

For the nine months ended September 30, 2013, the net interest margin increased to 3.61% from 3.36% for the nine months ended September 30, 2012. The improvement in year to date margin is primarily the result of the successful restructuring of the FHLB advance portfolio which offset the decline in the yield in the loan portfolio.

Net interest income increased $1.1 million for the first nine months of 2013 compared to the first nine months of 2012.

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.


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

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


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                                                              Three Months Ended September 30,
                                                       2013                                      2012
                                        Average       Income/       Yield/        Average       Income/       Yield/
                                        Balance       Expense        Rate         Balance       Expense        Rate
                                                                   (Dollars in thousands)

Assets:
Loans, net of unearned income (1)      $ 414,237      $  5,256         5.04 %    $ 372,004      $  5,064         5.41 %
Bank owned life insurance (2)              9,461           123         5.16 %        9,126           127         5.53 %
Investment securities:
U.S. Agencies                                 -             -          0.00 %          999            10         3.99 %
Mortgage backed securities                17,753            89         1.99 %       13,691            66         1.92 %
Corporate bonds                            5,995            35         2.30 %       16,815            99         2.35 %
Municipal securities (2)                   5,206            85         6.44 %        6,025            98         6.45 %
Taxable municipal securities              15,809           123         3.10 %       12,300           118         3.82 %
CMO                                       31,674           183         2.29 %       41,607           232         2.21 %
SBA                                           -             -          0.00 %        1,376             9         2.57 %
Other investments                          3,308            33         3.98 %        3,952            29         2.96 %

Total investment securities               79,745           548         2.73 %       96,765           661         2.72 %
Interest bearing deposits                  6,263             5         0.30 %       10,623             6         0.23 %

Total earning assets                   $ 509,706      $  5,932         4.62 %    $ 488,518      $  5,858         4.77 %

Cash and cash equivalents                  8,990                                     8,104
Allowance for loan losses                 (8,603 )                                  (7,305 )
Other assets                              22,387                                    30,620

Total assets                           $ 532,480                                 $ 519,937


Liabilities & Stockholders' Equity:
Interest checking                      $  14,158      $     13         0.35 %    $  10,437      $      8         0.31 %
Money market deposit accounts            153,332           161         0.42 %      137,626           174         0.50 %
Statement savings                          1,651             1         0.31 %        1,303             1         0.42 %
Certificates of deposit                  215,172           945         1.74 %      238,900         1,202         2.00 %

Total interest-bearing deposits          384,313         1,120         1.16 %      388,266         1,385         1.42 %

Fed funds purchased                          301            -          0.61 %           18            -            -  %
Repurchase agreements                      1,126             1         0.40 %        2,148             2         0.40 %
Subordinated debt                          7,155            34         1.90 %        7,155            38         2.09 %
FHLB advances                             25,706            83         1.28 %       23,859            88         1.46 %

Total interest-bearing liabilities       418,601         1,238         1.17 %      421,446         1,513         1.42 %


Noninterest-bearing liabilities:
Noninterest-bearing deposits              64,045                                    50,471
Other liabilities                          1,955                                     1,791

Total liabilities                         66,000                                    52,262
Shareholders' equity                      47,879                                    46,229

Total liabilities and shareholders'
equity                                 $ 532,480                                 $ 519,937


Net interest income                                   $  4,694                                  $  4,345

Interest rate spread                                                   3.44 %                                    3.34 %


Net interest margin                                                    3.65 %                                    3.54 %

Ratio of average interest earning
assets to average interest-bearing
liabilities                                                          121.76 %                                  115.92 %

(1) Includes nonaccrual loans

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


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                                                              Nine Months Ended September 30,
                                                      2013                                        2012
                                       Average       Income/        Yield/         Average       Income/       Yield/
                                       Balance       Expense         Rate          Balance       Expense        Rate
                                                                   (Dollars in thousands)

Assets:
Loans, net of unearned income (1)     $ 403,413      $ 15,426          5.11 %     $ 375,625      $ 15,333         5.46 %
Bank owned life insurance (2)             9,381           376          5.36 %         9,044           380         5.61 %
Investment securities:
U.S. Agencies                                -             -           0.00 %         1,648            45         3.68 %
Mortgage backed securities               14,731           221          2.00 %        14,244           220         2.07 %
Corporate bonds                           9,793           177          2.41 %        16,530           299         2.42 %
Municipal securities (2)                  5,384           261          6.48 %         6,419           310         6.45 %
Taxable municipal securities             16,893           409          3.24 %        10,933           319         3.90 %
CMO                                      33,607           567          2.26 %        42,844           732         2.28 %
SBA                                         210            (2 )       (1.49 )%        1,473            22         1.97 %
Other investments                         3,357            99          3.98 %         4,306            96         2.98 %

Total investment securities              83,975         1,732          2.76 %        98,397         2,043         2.77 %
Interest bearing deposits                 8,423            16          0.26 %        16,586            29         0.23 %

Total earning assets                  $ 505,192      $ 17,550          4.64 %     $ 499,652      $ 17,785         4.75 %

Cash and cash equivalents                 8,315                                       8,183
Allowance for loan losses                (8,115 )                                    (7,981 )
Other assets                             25,292                                      29,636

Total assets                          $ 530,684                                   $ 529,490


Liabilities & Stockholders' Equity:
Interest checking                     $  13,400      $     34          0.34 %     $  11,000      $     24         0.30 %
Money market deposit accounts           147,627           456          0.41 %       142,839           535         0.50 %
Statement savings                         1,505             3          0.32 %         1,244             4         0.42 %
Certificates of deposit                 223,577         3,046          1.82 %       229,521         3,642         2.12 %

Total interest-bearing deposits         386,109         3,539          1.23 %       384,604         4,205         1.46 %

Fed funds purchased                         182             1          0.61 %             6            -            -  %
Repurchase agreements                     1,066             3          0.40 %         1,380             4         0.40 %
Subordinated debt                         7,155           103          1.92 %         7,155           117         2.19 %
FHLB advances                            25,824           246          1.27 %        40,803           878         2.87 %

Total interest-bearing liabilities      420,336         3,892          1.24 %       433,948         5,204         1.60 %


Noninterest-bearing liabilities:
Noninterest-bearing deposits             60,779                                      47,881
Other liabilities                         1,864                                       1,760

Total liabilities                        62,643                                      49,641
Shareholders' equity                     47,705                                      45,901

Total liabilities and shareholders'
equity                                $ 530,684                                   $ 529,490


Net interest income                                  $ 13,658                                    $ 12,581

Interest rate spread                                                   3.41 %                                     3.15 %


Net interest margin                                                    3.61 %                                     3.36 %


Ratio of average interest earning
assets to average interest-bearing
liabilities                                                          120.19 %                                   115.14 %

(1) Includes nonaccrual loans

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


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Noninterest Income

Total noninterest income was $459 thousand for the third quarter of 2013, compared to $621 thousand for the same period of 2012. The mortgage division added $142 thousand to noninterest income from gains on sales of loans in the third quarter of 2013 compared to $253 thousand for the third quarter of 2012 as the demand for mortgages decreased in the current period. Other noninterest income increased $14 thousand for the third quarter of 2013 to $232 thousand compared to $218 thousand for the same period of 2012. This increase was primarily driven by increased income from account fees and services charges.

For the nine months ended September 30, 2013, noninterest income increased $459 thousand to $1.8 million from $1.3 million for the first nine months of 2012, attributable to $383 thousand in additional gains on sale of loans and $90 thousand additional gains on sale of securities.

Noninterest Expense

This category includes all expenses other than interest paid on deposits and borrowings. Total noninterest expenses for the third quarter of 2013 increased to $3.5 million, an increase of $52 thousand or 1.48%, compared to $3.4 million for the same period in 2012. Expense details are fairly consistent from one period compared to the other.

For the nine months ended September 30, 2013, total noninterest expense decreased $3.9 million or 26.59% to $10.8 million from $14.7 million for the comparable period in 2012 driven by the actions taken in the second quarter of 2012.

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, 2013 and 2012 was 32.48% and 31.46%, respectively. The effective tax rate for the nine month periods ended September 30, 2013 and 2012 was 31.16% and 35.56%, respectively.

ASSET QUALITY

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

Total nonperforming assets, which consist of nonaccrual loans, loans past due 90 days and still accruing interest, and OREO, were $6.5 million at September 30, 2013, down from $13.8 million at September 30, 2012. This decrease reflects the results of the Asset Resolution Plan. At December 31, 2012, nonperforming assets totaled $13.1 million. Nonperforming assets are composed largely of loans secured by real estate and


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repossessed properties in our OREO portfolio. At the end of the third quarter of 2013, OREO was $2.6 million, down from $4.5 million at September 30, 2012. At September 30, 2013, there were $1.9 million of troubled debt restructurings that were performing loans.

Nonaccrual loans were $3.9 million at September 30, 2013, continuing to decrease from $9.8 million at June 30, 2012 and $8.0 million at December 31, 2012. 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 a net recovery of $96 thousand for the third quarter of 2013 compared to a net charge-off of $201 thousand for the third quarter of 2012. For the third quarter of 2013, the provision for loan losses was recovered in the amount of $86 thousand compared to a provision expense of $156 thousand for the third quarter of 2012.

Loans past due 30 to 89 days decreased $1.4 million to $665 thousand at the end of the third quarter of 2013 compared to $2.1 million at both the end of the year 2012 and the end of the third quarter of 2012.

Although the Company believes it has a sufficient allowance for its existing portfolio, there can be no assurances that an additional allowance for losses on existing loans may not be necessary in the future. The allowance for loan losses totaled $8.6 million at September 30, 2013, compared to $7.3 million at December 31, 2012 and $7.2 million at September 30, 2012. The ratio of the allowance for loan losses to total loans outstanding at September 30, 2013 was 2.06% compared to 1.97% compared at September 30, 2012. The movement in this ratio results from the loan portfolio's growth since December 31, 2012, continued uncertainty in the economy, and the loan portfolio's risk factors.

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

                                          2013                                       2012
                                      September 30,          December 31,          September 30,         June 30,
                                                                (Dollars in thousands)
Nonaccrual loans                     $         3,933        $        8,014        $         9,279        $   9,778
Loans past due 90 days and
accruing interest                                 -                  1,338                     -                -

Total nonperforming loans                      3,933                 9,352                  9,279            9,778
Other real estate owned                        2,602                 3,771                  4,502            4,787

Total nonperforming assets           $         6,535        $       13,123        $        13,781        $  14,565


Allowance for loan losses to
period end loans                                2.06 %                1.93 %                 1.97 %           1.97 %
Nonperforming assets to total
assets                                          1.22 %                2.42 %                 2.60 %           2.80 %
. . .
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