<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
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(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-25023
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First Capital, Inc.
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(Exact name of registrant as specified in its charter)
Indiana 35-2056949
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
220 Federal Drive NW, Corydon, Indiana 47112
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 1-812-738-2198
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Not applicable
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Former name, former address and former fiscal year, if changed since last report
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: 1,292,752 shares of common stock were outstanding as of
October 31, 1999.
<PAGE>
FIRST CAPITAL, INC.
INDEX
<TABLE>
<CAPTION>
Part I Financial Information Page
----
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (unaudited)
and June 30, 1999 3
Consolidated Statements of Income for the three months
ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended September 30, 1999 and 1998 (unaudited) 5
Notes to consolidated financial statements (unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
Part II Other Information 15
Signatures 16
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
FIRST CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
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1999 1999
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(Unaudited) *
ASSETS (In Thousands)
<S> <C> <C>
Cash and due from banks $ 1,157 $ 930
Interest bearing deposits with banks 4,632 1,681
Securities available for sale, at fair value 19,662 20,205
Securities-held to maturity:
Mortgage-backed securities 693 767
Other debt securities 8,982 8,480
Loans receivable, net 89,521 83,887
Federal Home Loan Bank stock, at cost 913 662
Premises and equipment 3,641 3,688
Accrued interest receivable 725 917
Cash value of life insurance 1,100 1,086
Other assets 538 395
-----------------------------------
Total Assets $ 131,564 $ 122,698
===================================
LIABILITIES
Deposits $ 94,567 $ 92,014
Advances from Federal Home Loan Bank 18,250 12,250
Advance payments by borrowers for
taxes and insurance 64 37
Accrued interest payable on deposits 550 471
Accrued expenses and other liabilities 872 586
-----------------------------------
Total Liabilities 114,303 105,358
-----------------------------------
STOCKHOLDERS' EQUITY
Preferred stock of $.01 par value per share
Authorized 1,000,000 shares; none issued - -
Common stock of $.01 par value per share
Authorized 5,000,000 shares; issued 1,292,752 shares 13 13
Additional paid-in capital 9,404 9,402
Retained earnings-substantially restricted 9,018 8,916
Unearned ESOP shares (574) (584)
Accumulated other comprehensive income-net
unrealized gain on securities available for sale (600) (407)
-----------------------------------
Total Stockholders' Equity 17,261 17,340
-----------------------------------
Total Liabilities and Stockholders' Equity $ 131,564 $ 122,698
===================================
</TABLE>
* Derived from audited financial statements
See accompanying notes to consolidated financial statements.
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<PAGE>
PART I - FINANCIAL INFORMATION
FIRST CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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1999 1998
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INTEREST INCOME (In thousands, except per share data)
<S> <C> <C>
Loans receivable $ 1,765 $ 1,600
Mortgage-backed securities 80 18
Other securities 396 124
Federal Home Loan Bank dividends 15 12
Interest bearing deposits with banks 25 54
--------------------------
Total interest income 2,281 1,808
--------------------------
INTEREST EXPENSE
Deposits 1,094 1,001
Advances from Federal Home Loan Bank 203 74
--------------------------
Total interest expense 1,297 1,075
--------------------------
Net interest income 984 733
Provision for loan losses 21 9
--------------------------
Net interest income after provision for loan losses 963 724
NON-INTEREST INCOME
Loan fees and service charges 12 17
Service charges on deposit accounts 59 40
Other income 26 22
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Total non-interest income 97 79
--------------------------
NON-INTEREST EXPENSE
Compensation and benefits 327 204
Occupancy and equipment 102 84
Deposit insurance premiums 13 11
Merger related expenses 78 -
Other operating expenses 138 105
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Total non-interest expense 658 404
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Income before income taxes 402 399
Income tax expense 177 148
--------------------------
Net Income 225 251
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gain (loss) on securities:
Unrealized holding gains (losses) arising during the period (193) 2
Less: reclassification adjustment - -
--------------------------
Other comprehensive income (loss) (193) 2
--------------------------
Comprehensive Income $ 32 $ 253
==========================
Net income per common share, basic $ 0.17 $ 0.19
==========================
Net income per common share, diluted $ 0.17 $ 0.19
==========================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
PART I - FINANCIAL INFORMATION
FIRST CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES (In Thousands)
<S> <C> <C>
Net income $ 225 $ 251
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of premiums and accretion of discounts, net 2 -
Depreciation expense 59 46
Deferred income taxes (8) (19)
ESOP compensation expense 12 -
Provision for loan losses 21 9
Decrease in accrued interest receivable 192 6
Increase in accrued interest payable 79 188
Net change in other assets/liabilities 304 176
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Net Cash Provided By Operating Activities 886 657
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CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits with banks (2,951) 1,511
Puchase of securities available for sale (17) -
Maturities of securities available for sale 238 -
Purchase of securities held to maturity (500) (3,144)
Principal collected on mortgage-backed securities 73 -
Net increase in loans receivable (5,655) (822)
Purchase of Federal Home Loan Bank stock (251) -
Purchase of premises and equipment (12) (178)
Increase in cash value of life insurance (14) (14)
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Net Cash Used By Investing Activities (9,089) (2,647)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,553 1,774
Net increase in advances from Federal Home Loan Bank 6,000 -
Dividends paid (123) (37)
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Net Cash Provided By Financing Activities 8,430 1,737
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Net Increase (Decrease) in Cash and Due From Banks 227 (253)
Cash and due from banks at beginning of period 930 895
-------------------------
Cash and Due From Banks at End of Period $ 1,157 $ 642
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
FIRST CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Presentation of Interim Information
First Capital, Inc. ("Company") was incorporated by First Federal Bank, a
Federal Savings Bank ("Bank") in September 1998 in connection with the
conversion from the mutual holding company form of organization to the
stock holding company form of organization. Upon consummation of the
conversion on December 31, 1998, the Company became the holding company for
the Bank and the former mutual holding company, First Capital, Inc., M.H.C.
("MHC"), was merged with and into the Bank. Accordingly, the information
presented in this report relates primarily to the Bank's operations.
In the opinion of the management, the unaudited consolidated financial
statements include all normal adjustments considered necessary to present
fairly the financial position as of September 30, 1999, and the results of
operations for the three months ended September 30, 1999 and 1998 and cash
flows for the three months ended September 30, 1999 and 1998. All of these
adjustments are of a normal, recurring nature. Interim results are not
necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as permitted
by Form 10-QSB, and do not contain certain information included in the
Company's annual audited consolidated financial statements.
The consolidated financial statements include the accounts of the Company
and the Bank. All material intercompany balances and transactions have
been eliminated in consolidation.
2. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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1999 1998
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(In Thousands)
<S> <C> <C>
Cash payments for:
Interest $ 1,211 $ 886
Taxes 26 75
</TABLE>
3. Pending Merger
On July 19, 1999, the Company entered into an agreement and plan of merger
with HCB Bancorp (HCB), a bank holding company located in Palmyra, Indiana.
HCB is the parent company of Harrison County Bank, a state-chartered
commercial bank. Terms of the agreement provide for an exchange of 15.5
shares of the Company's common stock for each share of HCB common stock.
The merger is subject to regulatory and stockholder approvals.
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<PAGE>
FIRST CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
4. Comprehensive Income
The Company adopted FASB Statement No. 130, "Reporting Comprehensive
Income," effective July 1, 1998. This Statement established standards for
reporting and displaying comprehensive income and its components.
Comprehensive income is defined as "the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners." Comprehensive income for the Company includes
net income and unrealized gains and losses on securities available for
sale. The following tables set forth the components of other comprehensive
income and the allocated income tax amounts for the three months ended
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------
1999 1998
--------- --------
(In thousands)
<S> <C> <C>
Unrealized gains on securities:
Unrealized holding gains
(losses)
arising during the period $(319) $ 3
Income tax expense (benefit) (126) 1
-----------------
Net of tax amount (193) 2
-----------------
Less: reclassification
adjustment for (gains)
losses included in net
income - -
-----------------
Income tax expense (benefit) - -
-----------------
Other comprehensive
income (loss) $ (193) $ 2
=================
</TABLE>
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<PAGE>
FIRST CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. Supplemental Disclosure for Earnings Per Share
<TABLE>
<CAPTION>
Three months ended
September 30, 1999
1999 1998
---- ----
(Dollars in thousands, except per share data)
<S> <C> <C>
Basic:
Earnings:
Net income $ 225 $ 251
================================
Shares:
Weighted average common shares
outstanding 1,292,747 1,291,063
================================
Net income per common share, basic $ 0.17 $ 0.19
================================
Diluted:
Earnings: $ 225 $ 251
================================
Shares:
Weighted average common shares
outstanding 1,292,747 1,291,063
Add: Dilutive effect of outstanding options 11,464 3,619
---------------------------------
Weighted average common
shares outstanding, as adjusted 1,304,211 1,294,682
================================
Net income per common share, diluted $ 0.17 $ 0.19
================================
</TABLE>
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<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARY
Safe Harbor Statement for Forward Looking Statements
This report may contain forward-looking statements within the meaning of the
federal securities laws. These statements are not historical facts, rather
statements based on the Company's current expectations regarding its business
strategies and their intended results and its future performance. Forward-
looking statements are preceded by terms such as "expects," "believes,"
"anticipates," "intends" and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous
risks and uncertainties could cause or contribute to the Company's actual
results, performance and achievements to be materially different from those
expressed or implied by the forward-looking statements. Factors that may cause
or contribute to these differences include, without limitation, general economic
conditions, including changes in market interest rates and changes in monetary
and fiscal policies of the federal government; legislative and regulatory
changes; the Company's ability to remedy any computer malfunctions that may
result from the advent of the Year 2000; and other factors disclosed
periodically in the Company's filings with the Securities and Exchange
Commission.
Because of the risks and uncertainties inherent in forward-looking statements,
readers are cautioned not to place undue reliance on them, whether included in
this report or made elsewhere from time to time by the Company or on its behalf.
The Company assumes no obligation to update any forward-looking statements.
Financial Condition
Total assets increased 7.2% from $122.7 million at June 30, 1999 to $131.6
million at September 30, 1999, primarily as a result of increases in cash,
interest bearing deposits with banks and loans receivable, net, which was funded
primarily by growth in deposits and an increase in advances from the Federal
Home Loan Bank of Indianapolis.
Loans receivable, net, were $83.9 million at June 30, 1999, compared to
$89.5 million at September 30, 1999, a 6.7% increase. This increase is
primarily the result of increases in residential mortgage loans of $2.9 million
and commercial mortgage and business loans of $2.2 million.
The investment in mortgage-backed securities held-to-maturity decreased
from $767,000 at June 30, 1999 to $693,000 at September 30, 1999, as a result of
principal repayments.
Other debt securities held to maturity increased from $8.5 million at June
30, 1999 to $9.0 million at September 30, 1999. During the three month period
ended September 30, 1999, the Company purchased other debt securities of
$500,000.
Securities available for sale decreased $543,000 from $20.2 million at June
30, 1999 to $19.7 million at September 30, 1999 as a result of maturities of
$238,000 and unrealized depreciation in fair value of $319,000 due to lower
market interest rates.
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<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARY
Cash and interest bearing deposits with banks increased from $2.6 million
at June 30, 1999 to $5.8 million at September 30, 1999 as a result of excess
liquidity funded by growth in deposits.
Total deposits increased from $92.0 million at June 30, 1999 to $94.6
million at September 30, 1999. The increase in deposits resulted primarily from
growth in demand and savings deposit accounts, which management attributes
primarily to its promotional efforts to attract lower cost accounts.
Total stockholders' equity remained constant at $17.3 million at June 30,
1999 and at September 30, 1999 primarily as a result of retained net income of
$102,000, offset by an increase in net unrealized loss on securities.
Results of Operations
Net Income. Net income was $225,000 ($.17 per share diluted) for the three
months ended September 30, 1999 compared to $251,000 ($.19 per share diluted)
for the three months ended September 30, 1998. Net income increased for 1999
compared to 1998 primarily from an increase in net interest income offset by an
increase in non-interest expenses.
Net interest income for the three month periods ended September 30, 1999
and 1998. Net interest income increased 34.2% from $733,000 in 1998 to $984,000
in 1999 primarily as a result of the increase in interest-earning assets
provided by the net proceeds from the issuance of common stock in the
conversion.
Total interest income increased $473,000, or 26.2%, to $2.3 million for the
three months ended September 30, 1999 compared to $1.8 million in the prior year
as a result of a higher balance of interest-earning assets. Interest on loans
receivable increased $165,000 and interest on other debt securities increased
$272,000 as a result of a higher average balance in 1999. The average yield on
interest-bearing assets decreased from 8.10% in 1998 to 7.62% in 1999 due to
lower market interest rates.
Total interest expense increased $222,000, or 20.7%, to $1.3 million for
the three months ended September 30, 1999 compared to $1.1 million for the three
months ended September 30, 1998 as a result of the growth in deposits and an
increase in average borrowings from the Federal Home Loan Bank of Indianapolis.
The average cost of funds decreased from 5.35% in 1998 to 4.87% in 1999 due to
lower market interest rates.
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<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARY
Provision for loan losses. The provision for loan losses was $21,000 for
the three month period ending September 30, 1999 compared to $9,000 for the
three month period ended September 30, 1998. Provisions for loan losses are
charged to operations to bring the total allowance for loan losses to a level
considered by management to be adequate to provide for estimated losses based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specified impaired loans, and economic conditions. The Bank made
provisions of $21,000 for the three months ended September 30, 1999 to increase
the allowance for loan losses to an amount considered reasonable by management
based on an evaluation as of September 30, 1999. The allowance was increased
due to increases in commercial real estate, commercial business loans and
personal loans, which possess a higher inherent risk of loss than one-to-four
family residential mortgage loans. Although management uses the best
information available, future adjustments to the allowance may be necessary due
to changes in economic, operating, regulatory and other conditions that may be
beyond the Bank's control. While the Bank maintains its allowance for loan
losses at a level which it considers adequate to provide for estimated losses,
there can be no assurance that further additions will not be made to the
allowance for loan losses and that actual losses will not exceed the estimated
amounts. At September 30, 1999, non-performing loans amounted to $121,278.
Non-interest income. Non-interest income increased 22.8% to $97,000 for
the three months ended September 30, 1999 compared to $79,000 for the three
months ended September 30, 1998. The increase is attributable to an increase in
service charges on deposit accounts of $18,000 resulting from growth in
transaction accounts.
Non-interest expense. Non-interest expense increased by $254,000 for the
three month period ended September 30, 1999. The increase results primarily
from increases in compensation and benefits, occupancy and equipment expenses,
and other operating expenses. Also, the Company incurred one-time merger related
expenses of $78,000 during the quarter ended September 30, 1999. Compensation
and benefits expense increased $123,000 due to normal compensation increases and
additional staff for the new branch facility in 1999. Occupancy and equipment
costs have increased in 1999 compared to 1998 as a result of increased
depreciation charges and expenses related to the Year 2000 issue. The Bank also
experienced higher costs due to the opening of the new branch facility in New
Salisbury, Indiana in March 1999.
Income tax expense. Income tax expense for the three month period ended
September 30, 1999 was $177,000, compared to $148,000 for the same period in
1998. The effective tax rate for 1999 is 44.0% compared to 37.1% for 1998. The
increase in the effective tax rate for 1999 results from the non-deductible
merger related expenses of $78,000.
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<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARY
Liquidity and Capital Resources
The Bank's primary sources of funds are customer deposits, proceeds from
loan repayments, maturing securities and FHLB advances. While loan repayments
and maturities are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by market interest rates, general economic
conditions and competition. At September 30, 1999, the Bank had cash and
interest-bearing deposits with banks of $5.8 million and securities available-
for-sale with a fair value of $19.7 million. If the Bank requires funds beyond
its ability to generate them internally, it has additional borrowing capacity
with the FHLB of Indianapolis and collateral eligible for repurchase agreements.
The Bank's primary investing activity is the origination of one-to-four
family mortgage loans. The Bank also invests in U.S. Government and agency
securities and mortgage-backed securities issued by U.S. Government agencies.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. Historically, the Bank has been able to retain a significant
amount of its deposits as they mature.
Current OTS regulations require savings institutions to maintain an average
daily balance of liquid assets (cash and eligible investments) equal to at least
4.0% of the average daily balance of its net withdrawable deposits and short-
term borrowings. Historically, the Bank has maintained liquidity levels in
excess of regulatory requirements. At September 30, 1999, the Bank's liquidity
was 7.8%.
The Bank is required to maintain specific amounts of capital pursuant to
OTS requirements. As of March 31, 1999, the Bank was in compliance with all
regulatory capital requirements which were effective as of such date with
tangible, core and risk-based capital ratios of 10.7%, 10.7% and 20.4%,
respectively. The regulatory requirements at that date were 1.5%, 3.0% and
8.0%, respectively.
Year 2000 Issues
The Bank is a user of computers, computer software, and equipment utilizing
embedded microcontrollers that will be affected by the Year 2000 ("Y2K") issue.
The Y2K issue exists because many computer systems and applications use two-
digit date fields to designate a year. As the century date change occurs, date
sensitive systems may incorrectly recognize the year 2000. This inability to
recognize or properly treat the Y2K issue may cause systems to process financial
and operational information incorrectly. The Y2K issue presents several
potential risks to the Bank:
1. The banking transactions of the Bank's customers are processed by one or
more computer systems, either internal or external to the Bank. The
failure of one or more of those systems to function as a result of the Y2K
date change could result in the Bank's inability to properly process
customer transactions. If that were to occur, the Bank could lose
customers to other financial institutions, resulting in a loss of revenue.
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<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARY
2. A number of the Bank's borrowers utilize computers and computer software to
varying degrees in conjunction with the operation of their businesses. The
customers and suppliers of those businesses may utilize computers as well.
Should the Bank's borrowers, or the businesses on which they depend,
experience Y2K related computer problems, such borrowers' cash flow could
be disrupted, adversely affecting their ability to repay their loans with
the Bank.
3. Concern on the part of certain depositors that the Y2K related problems
could impair access to their deposit account balances following the Y2K
date change could result in the Bank experiencing a deposit outflow prior
to December 31, 1999.
4. The Bank contracts with several outside third parties for certain of its
data processing and account servicing functions. Should the systems of one
or more of those third parties fail to function properly after December 31,
1999, the Bank could be adversely affected.
5. Should the Y2K related problems occur which cause any of the Bank's
systems, or the systems of the third parties upon which the Bank depends,
to become inoperative, increased personnel costs could be incurred if
additional staff is required to perform functions that the inoperative
systems would have otherwise performed.
6. Certain utility services, such as electrical power and telecommunication
services, could be disrupted if those services experience Y2K related
problems. The Bank's Y2K contingency plan addresses such possible
situations.
Management believes it is not possible to estimate the potential lost revenue
due to the Y2K issue, as the extent and longevity of such potential problems
cannot be predicted. The Bank adopted a Y2K Action Plan in November 1998 to
assess all systems to insure that they will function properly in the Y2K. This
process involves separate phases which include: awareness, assessment,
renovation, validation, and implementation.
During 1997, the Bank completed the systems assessment phase, identifying each
internal system that could potentially be affected by the Y2K issue. Those
systems include the Bank's in-house microcomputer systems and third party
providers as well as equipment such as the alarm system, vault locks, telephone
system, etc., that may contain embedded microprocessors. For each such system,
an action plan was created to set forth the process for determining whether or
not the system is Y2K compliant. Those determinations involved obtaining Y2K
compliant certifications from vendors wherever possible, and by the Bank
conducting its own validation testing.
The Bank has identified major commercial borrowers to assess their Y2K readiness
and has requested information from those borrowers. As of June 30, 1999, the
Bank has received responses and evaluated those borrowers. All major commercial
borrowers identified have indicated that their Y2K preparedness is on schedule
or has been completed. Information necessary to assess Y2K readiness of new
commercial borrowers is obtained at the time of the loan application.
When the results of the Bank's validation testing programs have revealed that a
particular system is not Y2K compliant, a contingency plan is formulated to
either upgrade the system in order to meet the Y2K compliance requirements or
replace the system with one that is certified as Y2K compliant. The Bank is
currently in the validation and implementation phases of this process.
- 13 -
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARY
Other third parties upon which the Bank depends for processing include the
Bank's automated teller machine network processor, correspondent banks,
brokerage firms, and the pension plan administrator. These third parties have
indicated their compliance or intended compliance with the Y2K. Should the
testing of any third-party system or service reveal that such system or service
is not Y2K compliant, a specific deadline will be set by which time the system
or service must be brought into Y2K compliance. Should Y2K compliance not be
achieved by the specified deadlines, the Bank has developed a contingency plan
for each such external system or service. Those contingency plans document the
action the Bank will take for each such non-compliant system.
In certain cases, such as the potential loss of electrical power or
telecommunication services due to Y2K problems, testing by the Bank is either
not practical or not possible. In those cases, contingency plans have been
designed that specify how the Bank will deal with such potential situations.
For example, the Bank is considering the purchase or lease of an electrical
power generator with sufficient capacity to allow the Bank to maintain critical
functions in the event power from the electric utility is interrupted.
The Bank, as a federally chartered thrift institution, is regulated by the
Office of Thrift Supervision. The federal regulators have established specific
guidelines and time tables to follow in addressing the Y2K issue. The Bank is
currently in compliance with the federally mandated Y2K guidelines and time
tables.
As of September 30, 1999, the Bank is on schedule with its internal Y2K
preparation efforts. All internal systems identified in the assessment phase of
the project that are considered "mission critical" have either been tested for
Y2K compliance or will be tested. The Bank's in-house computer system, its most
critical processing system, has been certified by its respective hardware and
software vendors as being Y2K compliant. The Bank has begun testing the system
for Y2K compatibility and the testing to date has indicated that the system is
Y2K compliant. All systems that have been determined to be Y2K compliant will
be retested during 1999 following any material upgrades or enhancements. The
Bank has replaced non-compliant microcomputer equipment and has installed and
tested the related software for Y2K compliance. Other equipment containing
embedded microprocessors have been certified as Y2K compliant by the applicable
vendors. The Bank's estimated total cost to replace computer equipment,
software programs, or other equipment containing embedded microprocessors that
were not Y2K compliant, is approximately $65,000. As of September 30, 1999,
approximately $52,000 has been incurred. System maintenance or modification
costs are being expensed as incurred, while the cost of new hardware, software,
or other equipment, is capitalized and amortized over their estimated useful
lives.
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<PAGE>
PART II
OTHER INFORMATION
FIRST CAPITAL, INC.
Item 1. Legal Proceedings
The Company is not a party to any legal proceedings. Periodically,
there have been various claims and lawsuits involving the Bank, mainly
as a plaintiff, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests,
claims involving the making and servicing of real property loans and
other issues incident to the Bank's business. The Bank is not a party
to any pending legal proceedings that it believes would have a material
adverse affect on it's financial condition or operations.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
-------
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K on July 19, 1999 with respect to
the Agreement and Plan of Merger with HCB Bancorp.
- 15 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
FIRST CAPITAL, INC.
(Registrant)
Dated November 12, 1999 BY: /s/James G. Pendleton
----------------------------- -----------------------------
James G. Pendleton
Chairman and CEO
Dated November 12, 1999 BY: /s/ Michael C. Frederick
----------------------------- -----------------------------
Michael C. Frederick
Senior Vice President
and Treasurer
- 16 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the consolidated
financial statements of First Capital, Inc. for the three months ended September
30, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,157
<INT-BEARING-DEPOSITS> 4,632
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,662
<INVESTMENTS-CARRYING> 9,675
<INVESTMENTS-MARKET> 9,304
<LOANS> 89,521
<ALLOWANCE> 503
<TOTAL-ASSETS> 131,564
<DEPOSITS> 94,567
<SHORT-TERM> 18,250
<LIABILITIES-OTHER> 1,486
<LONG-TERM> 0
0
0
<COMMON> 9,417
<OTHER-SE> 7,844
<TOTAL-LIABILITIES-AND-EQUITY> 131,564
<INTEREST-LOAN> 1,765
<INTEREST-INVEST> 491
<INTEREST-OTHER> 25
<INTEREST-TOTAL> 2,281
<INTEREST-DEPOSIT> 1,094
<INTEREST-EXPENSE> 1,297
<INTEREST-INCOME-NET> 984
<LOAN-LOSSES> 21
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 658
<INCOME-PRETAX> 402
<INCOME-PRE-EXTRAORDINARY> 402
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
<YIELD-ACTUAL> 7.62
<LOANS-NON> 257
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 482
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 503
<ALLOWANCE-DOMESTIC> 503
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
