-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WAsAV2QT5FcLgH87dUhQVZv89vt4tOkAdAfp3D1s4s+xb3vpM0Inam1ZbxUa08ji RgmpZ/JCQPCUKttu2DIhgQ== 0000928385-01-502485.txt : 20020410 0000928385-01-502485.hdr.sgml : 20020410 ACCESSION NUMBER: 0000928385-01-502485 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CAPITAL INC CENTRAL INDEX KEY: 0001070296 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 352056949 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-25023 FILM NUMBER: 1790319 BUSINESS ADDRESS: STREET 1: 220 FEDERAL DRIVE N W CITY: CORYDON STATE: IN ZIP: 47112 BUSINESS PHONE: 8127382198 MAIL ADDRESS: STREET 1: 220 FEDERAL DRIVE N W CITY: CORYDON STATE: IN ZIP: 47112 10QSB 1 d10qsb.txt FORM 10QSB SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB (Mark One) ---------- (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2001 ------------------ 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 ------- First Capital, Inc. ------------------- (Exact name of registrant as specified in its charter) Indiana 35-2056949 -------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 220 Federal Drive NW, Corydon, Indiana 47112 ---------------------------------------------- (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 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: 2,535,587 shares of common stock were outstanding as of October 31, 2001. FIRST CAPITAL, INC. INDEX
Part I Financial Information Page ---- Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 (unaudited) 3 Consolidated Statements of Income for the three months and nine months ended September 30, 2001 and 2000 (unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (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
-2- PART I - FINANCIAL INFORMATION FIRST CAPITAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 2001 2000 ------------- ------------ (In thousands) ASSETS Cash and due from banks $ 5,996 $ 6,010 Interest bearing deposits with banks 6,487 5,458 Securities available for sale, at fair value 53,049 34,779 Securities-held to maturity 2,431 11,229 Loans receivable, net 19,835 179,304 Federal Home Loan Bank stock, at cost 1,979 1,504 Foreclosed real estate 120 119 Premises and equipment 6,028 6,228 Accrued interest receivable: Loans 1,201 1,155 Securities 643 790 Cash value of life insurance 1,200 1,161 Other assets 491 845 --------------------------------------- Total Assets $ 275,460 $ 248,582 ======================================= LIABILITIES Deposits: Noninterest-bearing $ 18,660 $ 17,123 Interest-bearning 181,232 168,245 --------------------------------------- Total Deposits 199,892 185,368 Retail repurchase agreements 93 - Advances from Federal Home Loan Bank 39,575 30,074 Accrued interest payable 1,389 1,306 Accrued expenses and other liabilities 1,178 726 --------------------------------------- Total Liabiliites 242,127 217,474 --------------------------------------- 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 2,542,733 shares (2,537,324 shares in 2000) 25 25 Additional paid-in capital 12,852 12,812 Retained earnings-substantially restricted 20,621 19,222 Unearned ESOP shares (492) (523) Unearned stock compensation (230) (283) Accumulated other comprehensive income-net unrealized gain (loss) on securities available for sale 638 (145) Less treasury stock, at cost-6,681 shares (81) - --------------------------------------- Total Stockholders' Equity 33,333 31,108 --------------------------------------- Total Liabilities and Stockholders' Equity $ 275,460 $ 248,582 =======================================
See accompanying notes to consolidated financial statements. -3- PART I - FINANCIAL INFORMATION FIRST CAPITAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands, except per share data) INTEREST INCOME Loans receivable, including fees $ 3,926 $ 3,629 $11,526 $10,244 Securities 754 749 2,242 2,149 Federal funds sold - - - 33 Federal Home Loan Bank dividends 33 27 95 79 Interest bearing deposits with banks 98 92 327 282 --------------------- --------------------- Total interest income 4,811 4,497 14,190 12,787 INTEREST EXPENSE Deposits 1,952 2,074 5,974 5,968 Retail repurchase agreements 1 - 3 - Advances from Federal Home Loan Bank 563 375 1,531 808 --------------------- --------------------- Total interest expense 2,516 2,449 7,508 6,776 Net interest income 2,295 2,048 6,682 6,011 Provision for loan losses - 24 36 24 --------------------- --------------------- Net interest income after provision for loan losses 2,295 2,024 6,646 5,987 NON-INTEREST INCOME Service charges on deposit accounts 309 167 888 469 Commission income 49 45 191 167 Gain on sale of securities - - 15 - Gain on sale of mortgage loans 8 45 134 56 Other income 15 69 43 207 --------------------- --------------------- Total non-interest income 381 326 1,271 899 --------------------- --------------------- NON-INTEREST EXPENSE Compensation and benefits 798 761 2,395 2,283 Occupancy and equipment 228 218 667 642 Other operating expenses 452 389 1,331 1,328 --------------------- --------------------- Total non-interest expense 1,478 1,368 4,393 4,253 --------------------- --------------------- Income before income taxes 1,198 982 3,524 2,633 Income tax expense 423 350 1,255 937 --------------------- --------------------- Net Income 775 632 2,269 1,696 OTHER COMPREHENSIVE INCOME, NET OF TAX Unrealized gain on securities: Unrealized holding gains arising during the period 484 227 784 187 Less: reclassification adjustment - - - - --------------------- --------------------- Other comprehensive income 484 227 784 187 --------------------- --------------------- Comprehensive Income $ 1,259 $ 859 $ 3,053 $ 1,883 ===================== ===================== Net income per common share, basic $ 0.31 $ 0.26 $ 0.92 $ 0.69 ===================== ===================== Net income per common share, diluted $ 0.31 $ 0.26 $ 0.92 $ 0.69 ===================== =====================
See accompanying notes to consolidated financial statements. -4- PART I - FINANCIAL INFORMATION FIRST CAPITAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 2001 2000 ---- ---- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,269 $ 1,696 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of premiums and accretion of discounts 16 (4) Depreciation expense 342 360 Deferred income taxes (25) (53) ESOP compensation expense 42 33 Stock compensation expense 53 53 Increase in cash value of life insurance (39) (38) Provision for loan losses 36 24 Net gain on sale of securities held to maturity (15) - Proceeds from sales of mortgage loans 6,033 2,657 Mortgage loans originated for sale (5,899) (2,601) Net gain on sale of mortgage loans (134) (56) (Increase) decrease in accrued interest receivable 101 (23) Increase in accrued interest payable 83 319 Net change in other assets/liabilities 317 146 ----------------------- Net Cash Provided By Operating Activities 3,180 2,513 ----------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in interest bearing deposits with banks (1,029) (1,088) Decrease in federal funds sold - 4,000 Purchase of securities available for sale (33,482) (6,939) Proceeds from maturities of securities available for sale 15,588 1,500 Proceeds from maturities of securities held to maturity 8,189 947 Purchase from sale of maturities held to maturity 356 - Principal collected on mortgage-backed securities 1,173 487 Net increase in loans receivable (16,568) (17,042) Purchase of Federal Home Loan Bank stock (475) (102) Proceeds from sale of foreclosed real estate - 4 Purchase of premises and equipment (142) (211) ----------------------- Net Cash Used By Investing Activities (26,390) (18,444) ----------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 14,524 7,397 Net increase in advances from Federal Home Loan Bank 9,501 9,324 Net increase in retail repurchase agreements 93 - Exercise of stock options 29 - Purchase of treasury stock (81) - Dividends paid (870) (744) ----------------------- Net Cash Provided By Financing Activities 23,196 15,977 ----------------------- Net Increase (Decrease) in Cash and Due From Banks (14) 46 Cash and due from banks at beginning of period 6,010 5,820 ----------------------- Cash and Due From Banks at End of Period $ 5,996 $ 5,866 =======================
See accompanying notes to consolidated financial statements. -5- FIRST CAPITAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Presentation of Interim Information First Capital, Inc. ("Company") is the holding company for First Harrison Bank ("Bank"). The information presented in this report relates primarily to the Bank's operations. In the opinion of management, the unaudited consolidated financial statements include all normal adjustments considered necessary to present fairly the financial position as of September 30, 2001, and the results of operations for the three months and nine months ended September 30, 2001 and 2000 and cash flows for the nine months ended September 30, 2001 and 2000. 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 the instructions to 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.). All material intercompany balances and transactions have been eliminated in consolidation. 2. Supplemental Disclosures of Cash Flow Information
Nine Months Ended September 30, ------------------ 2001 2000 ------ ------- (In thousands) Cash payments for: Interest $ 7,425 $ 6,456 Taxes 1,206 865 Noncash investing activity: Amortized cost of securities transferred from held to maturity to available for sale 182 - Proceeds from sales of foreclosed real estate financed through loans - 296
-6- FIRST CAPITAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. 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 and the allocated tax amounts for the three and nine months ended September 30, 2001 and 2000:
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- ------------------------- 2001 2000 2001 2000 ----- ----- ------ ----- Unrealized gains on securities: (In thousands) Unrealized holding gain arising during the period $ 802 $ 375 $1,297 $ 310 Income tax expense (318) (148) (514) (123) ----- ----- ------ ----- Net of tax amount 484 227 783 187 ----- ----- ------ ----- Less: reclassification adjustment for (gains) losses included in net income - - - - Income tax expense (benefit) - - - - ----- ----- ------ ----- Other comprehensive income $ 484 $ 227 $ 783 $ 187 ===== ===== ====== =====
4. Supplemental Disclosure for Earnings Per Share
Three months ended Nine months ended September 30, September 30, 2001 2000 2001 2000 --------- --------- -------- ------- (Dollars in thousands, except per share data) Basic: Net income $ 775 $ 632 $ 2,269 $ 1,696 ============================================================= Shares: Weighted average common shares outstanding 2,462,891 2,450,198 2,463,318 2,450,198 ============================================================= Net income per common share, basic $ 0.31 $ 0.26 $ 0.92 $ 0.69 ============================================================= Diluted: Net income $ 775 $ 632 $ 2,269 $ 1,696 ============================================================= Shares: Weighted average common shares outstanding 2,462,891 2,450,198 2,463,318 2,450,198 Add: Dilutive effect of outstanding options 19,162 8,580 12,447 8,588 Add: Dilutive effect of restricted share awards 3,921 4,956 1,979 4,695 ------------------------------------------------------------- Weighted average common shares outstanding, as adjusted 2,485,974 2,463,734 2,477,744 2,463,481 ============================================================= Net income per common share, diluted $ 0.31 $ 0.26 $ 0.92 $ 0.69 -------------------------------------------------------------
-7- FIRST CAPITAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 5. Sale of Held to Maturity Securities The Office of Thrift Supervision (OTS) requires all municipal securities held by member institutions to be rated or be issued by a municipality in which the institution has an office. Through the merger with HCB Bancorp, the Bank acquired some non-rated municipal securities issued by municipalities in which the Bank does not have an office. Following a recent examination, the OTS has required divestiture of these holdings within three years. Certain non-rated municipal securities were classified as held to maturity. As these securities are sold, gains or losses will be recognized at the time of the sale. During the first quarter of 2001, the Bank sold $356,000 of non-rated municipal securities classified as held to maturity with a net gain of $15,000 recognized in income. Also, at March 31, 2001, the Bank transferred to the available for sale category the remaining non-rated municipal securities previously classified as held to maturity which had an estimated fair value of $182,000. The Bank did not sell any securities during the second or third quarters of 2001. At September 30, 2001, the Bank holds non-rated municipal securities with a carrying value of $808,000 in the available for sale category which must be divested before December 31, 2004. -8- PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST CAPITAL, INC. AND SUBSIDIARIES 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 10.8% from $248.6 million at December 31, 2000 to $275.5 million at September 30, 2001. Net loans receivable and investment securities provided the majority of this growth. The funding was provided by increases in deposits and borrowings from the Federal Home Loan Bank of Indianapolis. Net loans receivable grew from $179.3 million at December 31, 2000 to $195.8 million at September 30, 2001, a 9.2% increase. Residential mortgage loans and home equity lines of credit were the primary contributors to loan growth. Securities available for sale increased $18.3 million from $34.8 million at December 31, 2000 to $53.0 million at September 30, 2001. This growth was a result of purchases of $33.5 million and transfers from the held to maturity category of $182,000 (see note 5), offset by maturities of $15.6 million and principal repayments of $1.1 million. The investment in securities held-to-maturity decreased $8.8 million during the nine months ended September 30, 2001 as a result of maturities of $8.2 million, sales and transfers of $523,000 (see note 5) and principal repayments of $86,000. Total deposits increased from $185.4 million at December 31, 2000 to $199.9 million at September 30, 2001, an increase of 7.8%. Time deposits grew by $8.3 million while checking and savings accounts grew by $6.2 million during the period. -9- PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST CAPITAL, INC. AND SUBSIDIARIES Federal Home Loan Bank borrowings increased $9.5 million from $30.1 million at December 31, 2000 to $39.6 million at September 30, 2001. This increase was used primarily to fund growth in the loan portfolio. Total stockholders' equity increased from $31.1 million at December 31, 2000 to $33.3 million at September 30, 2001 primarily as a result of retained net income of $1.4 million and net unrealized gains of $783,000 on securities available for sale, offset by the purchase of $81,000 in treasury stock. Results of Operations Net income for the nine month periods ended September 30, 2001 and 2000. Net income was $2.3 million ($.92 per share diluted) for the nine months ended September 30, 2001 compared to $1.7 million ($.69 per share diluted) for the same period in 2000. Net interest income, noninterest income and noninterest expense all increased in 2001 compared to 2000. Net income for the three month periods ended September 30, 2001 and 2000. Net income was $775,000 ($.31 per share diluted) for the three months ended September 30, 2001 compared to $632,000 ($.26 per share diluted) for the three months ended September 30, 2000. Net income increased for 2001 compared to 2000 due to increases in net interest income and noninterest income offset by an increase in noninterest expense. Net interest income for the nine month periods ended Setember 30, 2001 and 2000. Net interest income increased 11.2% from $6.0 million in 2000 to $6.7 million in 2001 primarily as a result of an increase in interest-earning assets funded by growth in deposits and additional borrowings from the Federal Home Loan Bank of Indianapolis and a decrease in the average cost of funds. Total interest income increased $1.4 million, or 11.0%, to $14.2 million for the nine months ended September 30, 2001 compared to $12.8 million in the prior year as a result of a higher balance of interest-earning assets offset by a lower average yield. Interest on loans receivable increased $1.3 million and interest on securities increased $93,000. The average balance of interest- earning assets was $246.8 million for the nine month period ended September 30, 2001 compared to $218.9 million for the same period in 2000. The average yield on interest-earning assets decreased from 7.79% in 2000 to 7.66% in 2001 due to the lower interest environment as the Federal Reserve has cut interest rates by 4.50% since January 1, 2001. However, due to the effects of delay in repricing of interest-bearing assets as compared to interest-bearing deposits, the interest rate spread only decreased from 2.93% at September 30, 2000 to 2.85% at September 30, 2001. -10- PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST CAPITAL, INC. AND SUBSIDIARIES Total interest expense increased $732,000, or 10.8%, to $7.5 million for the nine months ended September 30, 2001 compared to $6.8 million for the nine months ended September 30, 2000 primarily as a result of an increase in average borrowings from the Federal Home Loan Bank of Indianapolis to fund loan growth. The average balance in FHLB borrowings increased from $16.7 million for the nine month period ended September 30, 2000 to $32.8 million for the same period in 2001. The average cost of these borrowed funds decreased from 6.43% to 6.23% over the same period. Interest on deposit accounts was virtually unchanged from 2000 to 2001 as a reduction in the average cost of deposits from 4.71% to 4.54% was offset by the $6.3 million increase in the average balance of interest- bearing deposit accounts. The overall average cost of funds decreased from 4.86% in 2000 to 4.81% in 2001 due to the lower interest rate environment. Net interest income for the three month periods ended September 30, 2001 and 2000. Net interest income increased from $2.0 million in 2000 to $2.3 million in 2001 due primarily to an increase in interest-earning assets offset by increases in deposits and advances from the Federal Home Loan Bank. Total interest income increased $314,000, or 7.0%, to $4.8 million for the three months ended September 30, 2001 compared to $4.5 million for the same period in 2000 primarily as a result of a higher average balance of net loans receivable. The average balance of net loans receivable was $193.2 million for the three month period ended September 30, 2001 compared to $171.6 million for the same period in 2000. Total interest expense increased $67,000, or 2.7%, to $2.5 million for the three months ended September 30, 2001 compared to $2.4 million for the three months ended September 30, 2000 due to an increase in advances from the Federal Home Loan Bank. The average balance of FHLB advances was $36.3 million for the three month period ended September 30, 2001 compared to $22.5 million for the same period in 2000. Interest on deposits decreased by $122,000 during the three months ending September 30, 2001 as compared to the same period in 2000 due to lower interest rates. Provision for loan losses. The provision for loan losses was $36,000 for the nine month period ended September 30, 2001 compared to $24,000 during the nine month period ended September 30, 2000. During the nine month period ended September 30, 2001, the net loan portfolio growth was $16.5 million, consisting primarily of increases in residential mortgage loans and home equity lines of credit secured by mortgages, which have an inherently lower amount of credit risk. The consistent application of management's allowance methodology resulted in an increase in the provision for loan losses due primarily to higher levels of nonperforming loans as compared to the prior year after recognizing net charge-offs during the period. -11- PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST CAPITAL, INC. AND SUBSIDIARIES The provision for loan losses was $24,000 for the three months ended September 30, 2000. No provisions were made for the quarter ended September 30, 2001. During the three months ended September 30, 2000, the provision was recorded to bring the allowance to the level determined in applying the allowance methodology after reduction for net charge-offs during the quarter. The consistent application of management's allowance methodology did not result in an increase in the allowance for loan losses for the three months ended September 30, 2001. 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 that 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. In determining the adequacy of the allowance for loan losses, the Bank reviews all loans quarterly, and loans are assigned a risk weighting based on asset classification. The allowance is calculated by applying loss factors to outstanding loans based on the internal risk grade of each loan. Specific allowances related to impaired and substandard loans are established in cases where management has identified significant conditions or circumstances related to a loan that management believes indicate the probability that a loss has been incurred. A general allowance is calculated by applying loss factors to performing loans that have been grouped into homogeneous pools for the purpose of the calculation. Loss factors are based on the Bank's historical loss experience and industry peer group data and may be adjusted for significant factors that, in management's judgment, affect the collectibility of the portfolio. The allowance for loan losses was $1.1 million at September 30, 2001 compared to $1.2 million at December 31, 2000. Management has deemed these amounts as adequate on those dates based on its risk analysis. At September 30, 2001, nonperforming loans amounted to $714,000 compared to $691,000 at December 31, 2000. Included in nonperforming loans are loans over 90 days past due secured by one-to-four family residential real estate in the amount of $546,000 and consumer loans of $70,000. These loans are accruing interest as the estimated value of the collateral and collection efforts are deemed sufficient to ensure full recovery. Noninterest income for the nine month periods ended September 30, 2001 and 2000. Noninterest income increased 41.4% to $1.3 million for the nine months ended September 30, 2001 compared to $899,000 for the nine months ended September 30, 2000. The increase is attributable to an increase in service charges on deposit accounts of $419,000 resulting from both a growth in transaction accounts and an increase in fees charged, and an increase in gain on sale of mortgage loans of $78,000 resulting from the sale of $5.9 million of residential mortgages into the secondary market during 2001. -12- PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST CAPITAL, INC. AND SUBSIDIARIES Noninterest income for the three month periods ended September 30, 2001 and 2000. Noninterest income increased 16.9% to $381,000 for the three month period ending September 30, 2001 compared to $326,000 during the same period in 2000. Service charges on deposit accounts increased $142,000 while gains on the sale of mortgage loans decreased $37,000 from 2000 to 2001. Noninterest expense for the nine month periods ended September 30, 2001 and 2000. Noninterest expense increased 3.3%, or $140,000, for the nine month period ended September 30, 2001 compared to the same period for the prior year due primarily to an increase in compensation and benefits. Compensation and benefits increased by $112,000 due primarily to normal salary increases and the increased cost of providing employee health insurance. Noninterest expense for the three month periods ended September 30, 2001 and 2000. Noninterest expense increased 8.0% to $1.5 million for the three month period ended September 30, 2001 compared to $1.4 million for the same period in 2000. Compensation and benefits increased $37,000 compared to the same quarter last year due to normal salary adjustments. Other operating expenses increased $63,000 due to increases in electronic banking expenses and charitable contributions. The charitable contributions include endowing a scholarship at Ivy Tech Vocational School and making a significant contribution towards the establishment of a YMCA in Harrison County, Indiana. Income tax expense. Income tax expense for the nine month period ended September 30, 2001 was $1.3 million, compared to $937,000 for the same period in 2000. The effective tax rate was 35.6% for each of these nine month periods. Income tax expense for the three month period ended September 30, 2001 was $423,000, compared to $350,000 for the same quarter in 2000. The effective tax rate for the three month period in 2001 was 35.3% compared to 35.6% for 2000. 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, 2001, the Bank had cash and interest-bearing deposits with banks of $12.5 million and securities available- for-sale with a fair value of $53.0 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. -13- PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST CAPITAL, INC. AND SUBSIDIARIES The Bank is required to maintain specific amounts of capital pursuant to OTS requirements. As of September 30, 2001, 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 11.3%, 11.3% and 19.2%, respectively. The regulatory requirements at that date were 1.5%, 3.0% and 8.0%, respectively. -14- 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 its 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) Exhibits -------- 3.1 Articles of Incorporation of First Capital, Inc. (1) 3.2 Amended Bylaws of First Capital, Inc. (2) _________________ (1) Incorporated by reference from the Exhibits filed with the Registration Statement on Form SB-2, and any amendments thereto, Registration No. 333-63515. (2) Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1999. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the period covered by this report. -15- 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 13, 2001 BY: /s/ William W. Harrod ------------------------------ ----------------------- William W. Harrod President and CEO Dated November 13, 2001 BY: /s/ Michael C. Frederick ------------------------------ --------------------------- Michael C. Frederick Senior Vice President and Treasurer -16- -----END PRIVACY-ENHANCED MESSAGE-----