<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, 2000
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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 ___________
Commission File No. 0-25023
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First Capital, Inc.
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(Exact name of small business issuer 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
--------------
Not applicable
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Check whether the issuer (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[ ]
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: 2,537,324 shares of common stock were outstanding as of
October 31, 2000.
<PAGE>
FIRST CAPITAL, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Part I Financial Information Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Income for the three months
and nine months ended September 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 (unaudited) 5
Notes to consolidated financial statements (unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Part II. Other Information 14
Signatures 15
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
FIRST CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,866 $ 5,820
Interest bearing deposits with banks 4,790 3,702
Securities available for sale, at fair value 35,454 30,097
Securities-held to maturity 11,288 12,325
Federal funds sold - 4,000
Loans receivable, net 172,240 154,982
Federal Home Loan Bank stock, at cost 1,354 1,252
Foreclosed real estate 23 256
Premises and equipment 6,310 6,459
Accrued interest receivable 1,601 1,578
Cash value of life insurance 1,149 1,111
Other assets 1,101 1,215
---------------------------------------
Total Assets $ 241,176 $ 222,797
=======================================
LIABILITIES
Deposits $ 182,739 $ 175,342
Advances from Federal Home Loan Bank 26,074 16,750
Accrued interest payable 1,290 971
Accrued expenses and other liabilities 974 858
---------------------------------------
Total Liabilities 211,077 193,921
---------------------------------------
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 2,537,324 shares 25 25
Additional paid-in capital 12,799 12,446
Retained earnings-substantially restricted 18,733 17,781
Unearned ESOP shares (533) (564)
Unearned stock compensation (301) -
Accumulated other comprehensive income-net
unrealized loss on securities available for sale (624) (812)
---------------------------------------
Total Stockholders' Equity 30,099 28,876
---------------------------------------
Total Liabilities and Stockholders' Equity $ 241,176 $ 222,797
=======================================
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
PART I - FINANCIAL INFORMATION
FIRST CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable, including fees $ 3,629 $ 3,073 $10,244 $ 8,860
Securities 749 681 2,149 1,851
Federal funds sold - 39 33 115
Federal Home Loan Bank dividends 27 22 79 73
Interest bearing deposits with banks 92 64 282 225
--------------------- ---------------------
Total interest income 4,497 3,879 12,787 11,124
INTEREST EXPENSE
Deposits 2,074 1,734 5,968 5,037
Advances from Federal Home Loan Bank 375 203 808 470
--------------------- ---------------------
Total interest expense 2,449 1,937 6,776 5,507
Net interest income 2,048 1,942 6,011 5,617
Provision for loan losses 24 26 24 118
--------------------- ---------------------
Net interest income after provision for
loan losses 2,024 1,916 5,987 5,499
NON-INTEREST INCOME
Service charges on deposit accounts 167 163 469 424
Commission income 45 48 167 129
Gain on sale of mortgage loans 45 14 56 41
Gain on sale of foreclosed real estate - - 10 -
Other income 69 48 197 151
--------------------- ---------------------
Total non-interest income 326 273 899 745
--------------------- ---------------------
NON-INTEREST EXPENSE
Compensation and benefits 761 723 2,283 2,040
Occupancy and equipment 218 217 642 632
Other operating expenses 389 540 1,328 1,265
--------------------- ---------------------
Total non-interest expense 1,368 1,480 4,253 3,937
--------------------- ---------------------
Income before income taxes 982 709 2,633 2,307
Income tax expense 350 302 937 876
--------------------- ---------------------
Net Income 632 407 1,696 1,431
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gain (loss) on securities:
Unrealized holding gains (losses) arising during the period 227 (226) 187 (763)
Less: reclassification adjustment - - - -
--------------------- ---------------------
Other comprehensive income (loss) 227 (226) 187 (763)
--------------------- ---------------------
Comprehensive Income $ 859 $ 181 $ 1,883 $ 668
===================== =====================
Net income per common share, basic $ 0.26 $ 0.17 $ 0.69 $ 0.59
===================== =====================
Net income per common share, diluted $ 0.26 $ 0.17 $ 0.69 $ 0.58
===================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
PART I - FINANCIAL INFORMATION
FIRST CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,696 $ 1,431
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of premiums and accretion of discounts (4) 23
Depreciation expense 360 363
Deferred income taxes (53) 19
ESOP compensation expense 33 33
Stock compensation expense 53 -
Increase in cash value of life insurance (38) (38)
Provision for loan losses 24 118
Proceeds from sales of mortgage loans 2,657 2,037
Mortgage loans originated for sale (2,601) (1,996)
Net gain on sale of mortgage loans (56) (41)
Net gain on sale of foreclosed real estate (11) -
(Increase) decrease in accrued interest receivable (23) 17
Increase in accrued interest payable 319 136
Net change in other assets/liabilities 157 328
-----------------------
Net Cash Provided By Operating Activities 2,513 2,430
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits with banks (1,088) 4,437
(Increase) decrease in federal funds sold 4,000 (100)
Purchase of securities available for sale (6,939) (17,735)
Proceeds from maturities of securities available for sale 1,500 7,382
Proceeds from maturities of securities held to maturity 947 1,402
Purchase of securities held to maturity - (8,329)
Principal collected on mortgage-backed securities 487 647
Net increase in loans receivable (17,042) (16,400)
Purchase of Federal Home Loan Bank stock (102) (375)
Proceeds from sale of foreclosed real estate 4 -
Purchase of premises and equipment (211) (1,579)
-----------------------
Net Cash Used By Investing Activities (18,444) (30,650)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 7,397 15,765
Net increase in advances from Federal Home Loan Bank 9,324 13,000
Exercise of stock options - 6
Dividends paid (744) (306)
-----------------------
Net Cash Provided By Financing Activities 15,977 28,465
-----------------------
Net Increase in Cash and Due From Banks 46 245
Cash and due from banks at beginning of period 5,820 4,918
-----------------------
Cash and Due From Banks at End of Period $ 5,866 $ 5,163
=======================
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<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 Harrison Bank
(formerly 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 Bank's 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, 2000, and the results of
operations for the nine months ended September 30, 2000 and 1999 and cash
flows for the nine months ended September 30, 2000 and 1999. 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,
the Bank and the Bank's wholly-owned subsidiary, First Harrison Financial
Services, Inc. (formerly HCB Insurance Agency, Inc.). (See Note 2) All
material intercompany balances and transactions have been eliminated in
consolidation.
2. Merger with HCB Bancorp
On January 12, 2000, the Company completed the plan of merger with HCB
Bancorp (HCB), a bank holding company located in Palmyra, Indiana. HCB was
the parent company of Harrison County Bank, a state-chartered commercial
bank, which was merged with and into the Bank. The merger provided for an
exchange of 15.5 shares of the Company's common stock for each share of HCB
common stock. The merger was accounted for as a pooling of interests and
the consolidated financial statements give effect to the merger as if the
merger had been consummated on January 1, 1999.
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<PAGE>
FIRST CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
2000 1999
------ -------
(In thousands)
<S> <C> <C>
Cash payments for:
Interest $6,456 $ 5,371
Taxes 865 764
Noncash investing activity:
Proceeds from sales of foreclosed real estate
financed through loans 296 -
Transfer of loans to real estate acquired
through foreclosure 23 -
</TABLE>
4. Comprehensive Income
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 other comprehensive income representing the net unrealized gains
and losses on securities available for sale. The following tables set
forth the components of other comprehensive income (loss) and the allocated
income tax amounts for the three and nine months ended September 30, 2000
and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2000 1999 2000 1999
----- ----- ----- -------
(In thousands)
<S> <C> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ 375 $(374) $ 310 $(1,263)
Income tax expense (benefit) (148) 148 (123) 500
----- ----- ----- -------
Net of tax amount 227 (226) 187 (763)
----- ----- ----- -------
Less: reclassification
adjustment for (gains) losses
included in net income - - - -
Income tax expense (benefit) - - - -
----- ----- ----- -------
- - - -
----- ----- ----- -------
Other comprehensive
income (loss) $ 227 $(226) $ 187 $ (763)
===== ===== ===== =======
</TABLE>
-7-
<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 Nine Months Ended
September 30, September 30,
-------------------- -------------------
2000 1999 2000 1999
----- ----- ----- -------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Basic:
Net income $ 632 $ 407 $ 1,696 $ 1,431
=====================================================
Shares:
Weighted average
common shares
outstanding 2,450,198 2,444,798 2,450,198 2,444,798
=====================================================
Net income per common
share, basic $ 0.26 $ 0.17 $ 0.69 $ 0.59
=====================================================
Diluted:
Net income $ 632 $ 407 $ 1,696 $ 1,431
=====================================================
Shares:
Weighted average
common shares
outstanding 2,450,198 2,444,798 2,450,198 2,444,798
Add: Dilutive effect
of outstanding
options 8,580 11,607 8,588 8,781
Add: Dilutive effect
of restricted share
awards 4,956 - 4,695 -
-----------------------------------------------------
Weighted average
common shares
outstanding, as
adjusted 2,463,734 2,456,405 2,463,481 2,453,579
=====================================================
Net income per common
share, diluted $ 0.26 $ 0.17 $ 0.69 $ 0.58
=====================================================
</TABLE>
-8-
<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; 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 8.3% from $222.8 million at December 31, 1999 to
$241.1 million at September 30, 2000, primarily as a result of increases in
interest bearing deposits with banks, investment securities and loans
receivable, net, which were funded primarily by a decrease in federal funds
sold, growth in deposits and an increase in advances from the Federal Home Loan
Bank of Indianapolis.
Loans receivable, net, were $155.0 million at December 31, 1999, compared
to $172.2 million at September 30, 2000, an 11.1% increase. This increase is
primarily the result of increases in residential and commercial mortgage loans
and consumer loans.
The investment in securities held-to-maturity decreased from $12.3 million
at December 31, 1999 to $11.3 million at September 30, 2000 as a result of
maturities of $947,000 and principal repayments of $89,000.
Securities available for sale increased $5.4 million from $30.1 million at
December 31, 1999 to $35.5 million at September 30, 2000 as a result of
purchases of $6.9 million offset by maturities of $1.5 million and principal
repayments of $397,000.
Cash and interest bearing deposits with banks increased from $9.5 million
at December 31, 1999 to $10.7 million at September 30, 2000 as a result of
excess liquidity funded by growth in deposits.
-9-
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARY
Total deposits increased from $175.3 million at December 31, 1999 to $182.7
million at September 30, 2000. The increase in deposits resulted primarily from
growth in demand and savings deposit accounts, which management attributes to
the customers' positive reactions to the merger and its promotional efforts to
attract lower cost accounts. Time deposits also increased $3.8 million from
$90.3 million at December 31, 1999 to $94.1 million at September 30, 2000.
Total stockholders' equity increased from $28.9 million at December 31,
1999 to $30.1 million at September 30, 2000 as a result of retained net income
of $952,000 and a decrease in net unrealized loss on securities available for
sale of $188,000.
Results of Operations
Net income for the nine month periods ended September 30, 2000 and 1999.
Net income was $1.7 million ($.69 per share diluted) for the nine months ended
September 30, 2000 compared to $1.4 million ($.58 per share diluted) for the
nine months ended September 30, 1999. Net income increased for 2000 compared to
1999 primarily from an increase in net interest income offset by an increase in
non-interest expenses.
Net income for the three month periods ended September 30, 2000 and 1999.
Net income was $632,000 ($.26 per share diluted) for the three months ended
September 30, 2000 compared to $407,000 ($.17 per share diluted) for the three
months ended September 30, 1999. Net income increased for 2000 compared to 1999
primarily from increases in net interest income and non-interest income and a
decrease in non-interest expenses.
Net interest income for the nine month periods ended September 30, 2000
and 1999. Net interest income increased 7.0% from $5.6 million in 1999 to $6.0
million in 2000 primarily as a result of the increase in interest-earning assets
funded by growth in deposits and additional borrowings from the Federal Home
Loan Bank of Indianapolis.
Total interest income increased $1.7 million, or 14.9% to $12.8 million
for the nine months ended September 30, 2000 compared to $11.1 million in the
prior year primarily as a result of a higher average balance of interest earning
assets. Interest on loans receivable increased $1.4 million and interest on
securities increased $298,000 as a result of higher average balances in 2000.
The average balance of loans receivable was $164.4 million for the nine month
period ended September 30, 2000 compared to $142.9 million for the same period
in 1999. The yield on interest earning assets increased from 7.69% in 1999 to
7.79% in 2000 due to increases in average interest rates for loans, securities
and interest bearing deposits with banks.
Total interest expense increased $1.3 million, or 23.0%, to $6.8 million
for the nine months ended September 30, 2000 compared to $5.5 million for the
nine months ended September 30, 1999 as a result of the growth in deposits and
an increase in average borrowings from the Federal Home Loan Bank of
Indianapolis. The average balances of interest bearing deposits and advances
from the Federal Home Loan Bank were $169.1 million and $16.7 million,
respectively, for the nine month period ended September 30, 2000 compared to
$154.7 million and $11.3 million, respectively, for the same period in 1999.
The average cost of funds increased from 4.42% in 1999 to 4.86% in 2000 due to
the use of higher cost borrowed funds and an increase in market interest rates.
-10-
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARY
Net interest income for the three month periods ended September 30, 2000
and 1999. Net interest income increased from $1.9 million in 1999 to $2.0
million for 2000 primarily as a result of an increase in interest-earning assets
offset by increases in interest-bearing deposits and advances from the Federal
Home Loan Bank during the three months ended September 30, 2000 compared to
1999.
Total interest income increased $618,000, or 15.9%, to $4.5 million for the
three months ended September 30, 2000 compared to $3.9 million for the same
period in 1999 primarily as a result of a higher average balance of loans
receivable. The average balance of loans receivable was $171.6 million for the
three month period ended September 30, 2000 compared to $149.4 million for the
same period in 1999.
Total interest expense increased $512,000, or 26.4%, to $2.4 million for
the three months ended September 30, 2000 compared to $1.9 million for the three
months ended September 30, 1999 due to higher average balances of interest
bearing deposits and advances from the Federal Home Loan Bank. The average
balances of interest bearing deposits and advances from the Federal Home Loan
Bank were $170 million and $22.5 million, respectively, for the three month
period ended September 30, 2000 compared to $158.5 million and $14.5 million,
respectively, for the same period in 1999.
Provision for loan losses. The provision for loan losses was $24,000 for the
nine month period ended September 30, 2000 compared to $118,000 for the nine
months ended September 30, 1999. For 1999, the provision was recorded to bring
the allowance for loan losses to the level determined by applying the
methodology for estimating credit losses after reduction for net charge-offs of
consumer loans during the period. During 2000, the decline in the level of net
charge-offs and nonperforming loans reduced the recorded provision based on the
application of the allowance methodology, even though the Bank experienced
overall growth in the loan portfolio. During the nine month period ended
September 30, 2000, the net loan portfolio growth was $15.2 million. Commercial
and residential real estate loans and consumer installment loans increased $12.1
million and $5.6 million, respectively, during this period, while commercial
business loans decreased $2.5 million. The consistent application of
management's allowance methodology did not result in an increase in the level of
the allowance for loan losses due to lower levels of estimated inherent credit
losses in residential, consumer and commercial real estate loans combined with
the decrease in commercial business loans which have a higher level of inherent
credit risk. The provision for loan losses was $24,000 for the three month
period ended September 30, 2000 compared to $26,000 for the three months ended
September 30, 1999. During these three month periods, the provisions were
recorded to bring the allowance to the level determined in applying the
allowance methodology after reduction for net charge-offs during the quarter.
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 inherent 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. 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, 2000,
-11-
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARY
nonperforming loans amounted to $443,000. Included in non-performing loans are
loans over 90 days past due secured by one-to-four family residential real
estate in the amount of $216,000. These loans are accruing interest as the
estimated value of the collateral and collection efforts are deemed sufficient
to ensure full recovery.
Non-interest income for the nine month periods ended September 30, 2000
and 1999. Non-interest income increased 20.7% to $899,000 for the nine months
ended September 30, 2000 compared to $745,000 for the nine months ended
September 30, 1999. The increase is attributable to an increase in service
charges on deposit accounts of $45,000 resulting from growth in transaction
accounts, an increase in commission income of $38,000 due to increased
investment product sales and an increase in other income of $46,000 resulting
primarily from increases in automated teller machine and debit card fees.
Non-interest income for the three month periods ended September 30, 2000
and 1999. Non-interest income increased 19.4% to $326,000 for the three months
ended September 30, 2000 compared to $273,000 for the three months ended
September 30, 1999. The increase is attributable primarily to an increase in
gain on sale of mortgage loans due to a larger number of loans sold during 2000
compared to 1999 and an increase in other income of $21,000 resulting primarily
from increases in automated teller machine and debit card fees.
Non-interest expense for the nine month periods ended September 30, 2000
and 1999. Non-interest expense increased by $316,000 for the nine month period
ended September 30, 2000 compared to the same period for the prior year. The
increase results primarily from increases in compensation and benefits and other
operating expenses. Compensation and benefits expense increased $243,000 due to
normal compensation increases, compensation adjustments after the merger,
additional staff for the new branch office in New Albany, Indiana opened during
1999 and the adoption of a stock compensation plan in the third quarter of 1999.
Other operating expenses increased $63,000 during the nine month period ended
September 30, 2000 primarily due to increases in automated teller machine
processing fees, office supplies and public filing expenses offset by decreases
in professional fees and merger related expenses. The increase in office
supplies was merger related as the Company had to replace the existing
stationery and office products with those bearing the new bank logo. The
increase in automated teller machine processing fees related to the increase in
the volume of transactions and the purchase of an additional machine for the new
branch. Professional fees decreased due to merger related expenses incurred
during the third quarter of 1999, offset by costs associated with the Company's
change in fiscal year to a calendar year end and other expenses incurred as part
of operating as a public company.
Non-interest expense for the three month periods ended September 30, 2000
and 1999. Non-interest expense decreased by $112,000 for the three month period
ended September 30, 2000 compared to the same period for the prior year. The
decrease results primarily from decreases in other operating expenses offset by
increases in compensation and benefits. Compensation and benefits expense
increased $38,000 due to normal compensation increases. Other operating
expenses decreased $151,000 during the three month period ended September 30,
2000 primarily due to decreases in professional fees and merger related expenses
offset by an increase in automated teller machine processing fees.
-12-
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARY
Income tax expense. Income tax expense for the nine month period ended
September 30, 2000 was $937,000, compared to $876,000 for the same period in
1999. The effective tax rate for the nine month period in 2000 is 35.6%
compared to 38.0 % for 1999. Income tax expense for the three month period ended
September 30, 2000 was $350,000, compared to $302,000 for the same period in
1999. The effective tax rate for the three month period in 2000 is 35.6%
compared to 42.6% for 1999. The higher effective tax rates for 1999 compared to
2000 resulted from significant nondeductible merger related expenses incurred
during the third quarter of 1999.
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, 2000, the Bank had cash and
interest-bearing deposits with banks of $10.7 million and securities available-
for-sale with a fair value of $35.5 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 and, to a lesser extent, consumer, multi-family,
commercial real estate and residential construction 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.
The Bank is required to maintain specific amounts of capital pursuant to
OTS requirements. As of September 30, 2000, 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 11.94%, 11.94% and 20.71%,
respectively. The regulatory requirements at that date were 1.5%, 3.0% and
8.0%, respectively.
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<PAGE>
PART II
OTHER INFORMATION
FIRST CAPITAL, INC.
Item 1. 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
Exhibit
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27 Financial Data Schedule
No reports on Form 8-K were filed during the period covered by this
report.
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<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 9, 2000 BY:/s/ William W. Harrod
----------------------- -----------------------
William W. Harrod
President and CEO
Dated November 9, 2000 BY:/s/ Michael C. Frederick
----------------------- ---------------------------
Michael C. Frederick
Chief Financial Officer
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