XNAS:FCAP First Capital Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

XNAS:FCAP (First Capital Inc): Fair Value Estimate
Premium
XNAS:FCAP (First Capital Inc): Consider Buying
Premium
XNAS:FCAP (First Capital Inc): Consider Selling
Premium
XNAS:FCAP (First Capital Inc): Fair Value Uncertainty
Premium
XNAS:FCAP (First Capital Inc): Economic Moat
Premium
XNAS:FCAP (First Capital Inc): Stewardship
Premium
 
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended June 30, 2012

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)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

 

Large Accelerated Filer   ¨    Accelerated Filer   ¨
Non-accelerated Filer   ¨  (Check one):    Smaller Reporting Company   x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,785,001 shares of common stock were outstanding as of July 31, 2012.

 

 

 


Table of Contents

FIRST CAPITAL, INC.

INDEX

 

     Page  

Part I Financial Information

  

Item 1. Consolidated Financial Statements

  

Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 (unaudited)

     3   

Consolidated Statements of Income for the three months and six months ended June  30, 2012 and 2011 (unaudited)

     4   

Consolidated Statements of Comprehensive Income for the three months and six months ended June  30, 2012 and 2011 (unaudited)

     5   

Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June  30, 2012 and 2011 (unaudited)

     6   

Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (unaudited)

     7   

Notes to Consolidated Financial Statements (unaudited)

     8-34   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     35-40   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     41   

Item 4. Controls and Procedures

     41   

Part II Other Information

  

Item 1. Legal Proceedings

     42   

Item 1A. Risk Factors

     42   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     42   

Item 3. Defaults Upon Senior Securities

     43   

Item 4. Mine Safety Disclosures

     43   

Item 5. Other Information

     43   

Item 6. Exhibits

     43   

Signatures

     44   

 

-2-


Table of Contents

PART I—FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     June 30,     December 31,  
     2012     2011  
     (In thousands)  

ASSETS

    

Cash and due from banks

   $ 7,746      $ 10,794   

Interest bearing deposits with banks

     1,449        525   

Federal funds sold

     14,475        7,604   
  

 

 

   

 

 

 

Total cash and cash equivalents

     23,670        18,923   

Securities available for sale, at fair value

     125,029        111,440   

Securities-held to maturity

     14        16   

Loans, net

     274,324        276,047   

Loans held for sale

     1,861        2,909   

Federal Home Loan Bank stock, at cost

     2,820        2,820   

Foreclosed real estate

     588        661   

Premises and equipment

     10,609        10,721   

Accrued interest receivable

     1,694        1,801   

Cash value of life insurance

     6,086        5,991   

Goodwill

     5,386        5,386   

Core deposit intangibles

     2        32   

Other assets

     1,703        2,139   
  

 

 

   

 

 

 

Total Assets

   $ 453,786      $ 438,886   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Noninterest-bearing

   $ 52,997      $ 47,313   

Interest-bearing

     327,071        317,061   
  

 

 

   

 

 

 

Total deposits

     380,068        364,374   

Retail repurchase agreements

     9,268        9,125   

Advances from Federal Home Loan Bank

     10,650        12,350   

Accrued interest payable

     346        413   

Accrued expenses and other liabilities

     1,479        1,571   
  

 

 

   

 

 

 

Total liabilities

     401,811        387,833   
  

 

 

   

 

 

 

EQUITY

    

First Capital, Inc. stockholders’ equity:

    

Preferred stock of $.01 par value per share Authorized 1,000,000 shares; none issued

     0        0   

Common stock of $.01 par value per share Authorized 5,000,000 shares; issued 3,164,420 shares

     32        32   

Additional paid-in capital

     24,313        24,313   

Retained earnings-substantially restricted

     33,192        32,297   

Accumulated other comprehensive income

     1,659        1,612   

Less treasury stock, at cost—379,419 shares (378,727 shares in 2011)

     (7,326     (7,312
  

 

 

   

 

 

 

Total First Capital, Inc. stockholders’ equity

     51,870        50,942   
  

 

 

   

 

 

 

Noncontrolling interest in subsidiary

     105        111   
  

 

 

   

 

 

 

Total equity

     51,975        51,053   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 453,786      $ 438,886   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

-3-


Table of Contents

PART I—FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2012      2011     2012      2011  
     (In thousands, except per share data)  

INTEREST INCOME

  

Loans, including fees

   $ 3,985       $ 4,351      $ 8,008       $ 8,690   

Securities:

          

Taxable

     421         498        855         951   

Tax-exempt

     230         271        463         542   

Federal Home Loan Bank dividends

     22         19        45         46   

Federal funds sold and interest bearing deposits with banks

     18         11        26         20   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest income

     4,676         5,150        9,397         10,249   

INTEREST EXPENSE

          

Deposits

     539         830        1,125         1,708   

Retail repurchase agreements

     9         18        21         34   

Advances from Federal Home Loan Bank

     102         158        207         316   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense

     650         1,006        1,353         2,058   

Net interest income

     4,026         4,144        8,044         8,191   

Provision for loan losses

     300         425        775         925   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provision for loan losses

     3,726         3,719        7,269         7,266   

NON INTEREST INCOME

          

Service charges on deposit accounts

     744         733        1,431         1,407   

Commission income

     36         52        80         82   

Loss on sale of securities

     0         (19     0         (19

Gain on sale of mortgage loans

     247         100        505         225   

Mortgage brokerage fees

     6         16        19         30   

Increase in cash surrender value of life insurance

     47         51        95         104   

Other income

     20         22        45         49   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non interest income

     1,100         955        2,175         1,878   
  

 

 

    

 

 

   

 

 

    

 

 

 

NON INTEREST EXPENSE

          

Compensation and benefits

     1,814         1,881        3,700         3,711   

Occupancy and equipment

     305         311        611         640   

Data processing

     333         291        657         581   

Professional fees

     159         164        312         313   

Advertising

     65         83        112         113   

Other operating expenses

     684         641        1,301         1,265   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non interest expense

     3,360         3,371        6,693         6,623   
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before income taxes

     1,466         1,303        2,751         2,521   

Income tax expense

     427         358        790         677   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net Income

   $ 1,039       $ 945      $ 1,961       $ 1,844   

Less: net income attributable to noncontrolling interest in subsidiary

     4         4        7         7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net Income Attributable to First Capital, Inc.

   $ 1,035       $ 941      $ 1,954       $ 1,837   
  

 

 

    

 

 

   

 

 

    

 

 

 

Earnings per common share attributable to First Capital, Inc.

          

Basic

   $ 0.37       $ 0.34      $ 0.70       $ 0.66   
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted

   $ 0.37       $ 0.34      $ 0.70       $ 0.66   
  

 

 

    

 

 

   

 

 

    

 

 

 

Dividends per share

   $ 0.19       $ 0.19      $ 0.38       $ 0.38   
  

 

 

    

 

 

   

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

-4-


Table of Contents

PART I—FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2012     2011     2012     2011  
     (In thousands)  

Net Income

   $ 1,039      $ 945      $ 1,961      $ 1,844   

OTHER COMPREHENSIVE INCOME

        

Unrealized gains on securities available for sale:

        

Unrealized holding gains arising during the period

     642        1,471        78        1,437   

Income tax expense

     (254     (583     (31     (570
  

 

 

   

 

 

   

 

 

   

 

 

 

Net of tax amount

     388        888        47        867   
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: reclassification adjustment for realized losses included in net income

     0        19        0        19   

Income tax benefit

     0        (7     0        (7
  

 

 

   

 

 

   

 

 

   

 

 

 

Net of tax amount

     0        12        0        12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Comprehensive Income, net of tax

     388        900        47        879   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

   $ 1,427      $ 1,845      $ 2,008      $ 2,723   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

-5-


Table of Contents

PART I—FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

(In thousands, except share data)   

Common

Stock

    

Additional

Paid-in

Capital

    

Retained

Earnings

   

Accumulated

Other

Comprehensive

Income

    

Treasury

Stock

   

Noncontrolling

Interest

    Total  

Balances at January 1, 2011

   $  32       $  24,313       $  30,442      $  391       $ (7,285   $  111      $  48,004   

Net income

     0         0         1,837        0         0        7        1,844   

Change in unrealized gain on securities available for sale, net of reclassification adjustments and tax effect

     0         0         0        879         0        0        879   

Cash dividends

     0         0         (1,059     0         0        (13     (1,072

Purchase of 1,608 treasury shares

     0         0         0        0         (27     0        (27
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balances at June 30, 2011

   $ 32       $ 24,313       $ 31,220      $  1,270       $ (7,312   $ 105      $ 49,628   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balances at January 1, 2012

   $ 32       $ 24,313       $ 32,297      $ 1,612       $  (7,312   $ 111      $ 51,053   

Net income

     0         0         1,954        0         0        7        1,961   

Change in unrealized gain on securities available for sale, net of reclassification adjustments and tax effect

     0         0         0        47         0        0        47   

Cash dividends

     0         0         (1,059     0         0        (13     (1,072

Purchase of 692 treasury shares

     0         0         0        0         (14     0        (14
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balances at June 30, 2012

   $ 32       $ 24,313       $ 33,192      $ 1,659       $  (7,326   $ 105      $ 51,975   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

-6-


Table of Contents

PART I—FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six Months Ended  
     June 30,  
     2012     2011  
     (In thousands)  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 1,961      $ 1,844   

Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:

    

Amortization of premiums and accretion of discounts on securities, net

     484        471   

Depreciation and amortization expense

     401        410   

Deferred income taxes

     (153     22   

Increase in cash value of life insurance

     (95     (104

Provision for loan losses

     775        925   

Proceeds from sales of loans

     19,935        12,324   

Loans originated for sale

     (18,382     (8,008

Gain on sale of loans

     (505     (225

Decrease in accrued interest receivable

     107        73   

Decrease in accrued interest payable

     (67     (143

Net change in other assets/liabilities

     469        (231
  

 

 

   

 

 

 

Net Cash Provided By Operating Activities

     4,930        7,358   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Purchase of securities available for sale

     (44,978     (21,595

Proceeds from maturities of securities available for sale

     22,280        6,265   

Proceeds from maturities of securities held to maturity

     0        14   

Proceeds from sales of securities available for sale

     1,004        647   

Principal collected on mortgage-backed obligations

     7,697        5,223   

Net decrease in loans receivable

     412        3,866   

Proceeds from sale of foreclosed real estate

     609        357   

Proceeds from redemption of Federal Home Loan Bank stock

     0        374   

Purchase of premises and equipment

     (258     (183
  

 

 

   

 

 

 

Net Cash Used In Investing Activities

     (13,234     (5,032
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Net increase (decrease) in deposits

     15,694        (8,834

Net decrease in advances from Federal Home Loan Bank

     (1,700     (450

Net increase in retail repurchase agreements

     143        607   

Purchase of treasury stock

     (14     (27

Dividends paid

     (1,072     (1,072
  

 

 

   

 

 

 

Net Cash Provided By (Used In) Financing Activities

     13,051        (9,776
  

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     4,747        (7,450

Cash and cash equivalents at beginning of period

     18,923        21,575   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 23,670      $ 14,125   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

-7-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Presentation of Interim Information

First Capital, Inc. (“Company”) is the savings and loan holding company for First Harrison Bank (“Bank”). The information presented in this report relates primarily to the Bank’s operations. First Harrison Investments, Inc. and First Harrison Holdings, Inc. are wholly-owned Nevada corporate subsidiaries of the Bank that jointly own First Harrison, LLC, a Nevada limited liability corporation that holds and manages an investment portfolio. First Harrison REIT, Inc. (“REIT”) was incorporated as a wholly-owned subsidiary of First Harrison Holdings, Inc. to hold a portion of the Bank’s real estate mortgage loan portfolio. On January 21, 2009, the REIT issued 105 shares of 12.5% redeemable cumulative preferred stock with an aggregate liquidation value of $105,000 in a private placement offering in order to satisfy certain ownership requirements to qualify as a real estate investment trust. At June 30, 2012, this noncontrolling interest represented 0.2% ownership of the REIT.

In the opinion of management, the unaudited consolidated financial statements include all normal adjustments considered necessary to present fairly the financial position as of June 30, 2012, and the results of operations for the three and six months ended June 30, 2012 and cash flows for the six months ended June 30, 2012 and 2011. All of these adjustments are of a normal, recurring nature. Such adjustments are the only adjustments included in the unaudited consolidated financial statements. Interim results are not necessarily indicative of results for a full year.

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and are presented as permitted by the instructions to Form 10-Q. Accordingly, they do not contain certain information included in the Company’s annual audited consolidated financial statements and related footnotes for the year ended December 31, 2011 included in the Form 10-K.

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

 

-8-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

2. Investment Securities

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. Investment securities at June 30, 2012 and December 31, 2011 are summarized as follows:

 

            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
(In thousands)    Cost      Gains      Losses      Value  

June 30, 2012

           

Securities available for sale:

           

Agency mortgage-backed securities

   $ 18,784       $ 496       $ 17       $ 19,263   

Agency CMO

     26,500         208         47         26,661   

Privately-issued CMO

     720         13         49         684   

Other debt securities:

           

Agency notes and bonds

     43,768         376         7         44,137   

Municipal obligations

     26,164         1,607         11         27,760   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal—debt securities

     115,936         2,700         131         118,505   
  

 

 

    

 

 

    

 

 

    

 

 

 

Mutual funds

     6,501         47         24         6,524   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 122,437       $ 2,747       $ 155       $ 125,029   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities held to maturity:

           

Agency mortgage-backed securities

   $ 14       $ 0       $ 0       $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 14       $ 0       $ 0       $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011

           

Securities available for sale:

           

Agency mortgage-backed securities

   $ 11,689       $ 542       $ 11       $ 12,220   

Agency CMO

     23,196         152         60         23,288   

Privately-issued CMO

     896         16         32         880   

Other debt securities:

           

Agency notes and bonds

     41,971         395         3         42,363   

Municipal obligations

     25,800         1,501         0         27,301   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal—debt securities

     103,552         2,606         106         106,052   
  

 

 

    

 

 

    

 

 

    

 

 

 

Mutual funds

     5,369         52         33         5,388   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 108,921       $ 2,658       $ 139       $ 111,440   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities held to maturity:

           

Agency mortgage-backed securities

   $ 16       $ 0       $ 0       $ 16   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 16       $ 0       $ 0       $ 16   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

-9-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(2 – continued)

 

Agency notes and bonds, agency mortgage-backed securities and agency collateralized mortgage obligations (CMO) include securities issued by the Government National Mortgage Association (GNMA), a U.S. government agency, and the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank (FHLB), which are government-sponsored enterprises. Privately-issued CMOs are issued by special-purpose entities that are generally collateralized by first position residential mortgage loans and first position residential home equity loans.

The amortized cost and fair value of debt securities as of June 30, 2012, by contractual maturity, are shown below. Expected maturities of mortgage-backed securities may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.

 

     Securities Available for Sale      Securities Held to Maturity  
     Amortized      Fair      Amortized      Fair  
     Cost      Value      Cost      Value  
(In thousands)                            

Due in one year or less

   $ 1,028       $ 1,032       $ 0       $ 0   

Due after one year through five years

     7,490         7,644         0         0   

Due after five years through ten years

     17,022         17,455         

Due after ten years

     44,392         45,766         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 
     69,932         71,897         0         0   

Mortgage-backed securities and CMO

     46,004         46,608         14         14   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 115,936       $ 118,505       $ 14       $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

 

Information pertaining to investment securities available for sale with gross unrealized losses at June 30, 2012, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows:

 

     Number of             Gross  
     Investment      Fair      Unrealized  
     Positions      Value      Losses  
(Dollars in thousands)                     

Continuous loss position less than twelve months:

        

Agency notes and bonds

     5       $ 4,747       $ 6   

Agency CMO

     10         7,952         47   

Agency mortgage-backed securities

     3         3,099         17   

Muncipal obligations

     2         413         11   
  

 

 

    

 

 

    

 

 

 

Total less than twelve months

     20         16,211         81   
  

 

 

    

 

 

    

 

 

 

Continuous loss position more than twelve months:

        

Privately-issued CMO

     1         194         49   

Agency notes and bonds

     1         1,043         1   

Mutual fund

     1         363         24   
  

 

 

    

 

 

    

 

 

 

Total more than twelve months

     3         1,600         74   
  

 

 

    

 

 

    

 

 

 

Total securities available for sale

     23       $ 17,811       $ 155   
  

 

 

    

 

 

    

 

 

 

 

-10-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(2 – continued)

 

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recover in fair value.

At June 30, 2012, the 21 U.S. government agency debt securities, including agency notes and bonds, mortgage-backed securities and CMO, and municipal obligations in a loss position had depreciated approximately 0.5% from the amortized cost basis. All of the U.S. government agency securities and municipal obligations are issued by U.S. government agencies, government-sponsored enterprises and municipal governments, or are secured by first mortgage loans and municipal project revenues. These unrealized losses related principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As the Company has the ability to hold the debt securities until maturity, or the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

At June 30, 2012, the privately-issued CMO in a loss position had depreciated approximately 20.1% from the amortized cost basis. The Company evaluates the existence of a potential credit loss component related to the decline in fair values of the privately-issued CMO portfolio each quarter using an independent third party analysis. At June 30, 2012, the privately-issued CMO in a loss position had an amortized cost of $243,000 and a fair value of $194,000, and had been downgraded to a substandard regulatory classification in 2009 due to a downgrade of the security’s credit quality by various rating agencies. Based on the independent third party analysis performed in June 2012, the Company did not recognize an other-than-temporary impairment loss during the quarter ended June 30, 2012. While management did not anticipate a credit-related impairment loss at June 30, 2012, any future deterioration in market and economic conditions may have an adverse impact on the credit quality in future periods.

 

3. Loans and Allowance for Loan Losses

The Company’s loan and allowance for loan loss policies are as follows:

Loans are stated at unpaid principal balances, less net deferred loan fees and the allowance for loan losses. The Company grants real estate mortgage, commercial business and consumer loans. A substantial portion of the loan portfolio is represented by mortgage loans to customers in southern Indiana. The ability of the Company’s customers to honor their loan agreements is dependent upon the real estate and general economic conditions in this area.

Loan origination and commitment fees, as well as certain direct costs of underwriting and closing loans, are deferred and amortized as a yield adjustment to interest income over the lives of the related loans using the interest method. Amortization of net deferred loan fees is discontinued when a loan is placed on nonaccrual status.

 

-11-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The recognition of income on a loan is discontinued and previously accrued interest is reversed, when interest or principal payments become ninety (90) days past due unless, in the opinion of management, the outstanding interest remains collectible. Past due status is determined based on contractual terms. Generally, by applying the cash receipts method, interest income is subsequently recognized only as received until the loan is returned to accrual status. The cash receipts method is used when the likelihood of further loss on the loan is remote. Otherwise, the Company applies the cost recovery method and applies all payments as a reduction of the unpaid principal balance until the loan qualifies for return to accrual status. Interest income on impaired loans is recognized using the cost recovery method, unless the likelihood of further loss on the loan is remote.

A loan is restored to accrual status when all principal and interest payments are brought current and the borrower has demonstrated the ability to make future payments of principal and interest as scheduled, which generally requires that the borrower demonstrate a period of performance of at least six consecutive months.

The Company’s practice is to charge-off any loan or portion of a loan when the loan is determined by management to be uncollectible due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, the depreciation of the underlying collateral, the loan’s classification as a loss by regulatory examiners, or for other reasons. A partial charge-off is recorded on a loan when the uncollectibility of a portion of the loan has been confirmed, such as when a loan is discharged in bankruptcy, the collateral is liquidated, a loan is restructured at a reduced principal balance, or other identifiable events that lead management to determine the full principal balance of the loan will not be repaid. A specific reserve is recognized as a component of the allowance for estimated losses on loans individually evaluated for impairment. Partial charge-offs on nonperforming and impaired loans are included in the Company’s historical loss experience used to estimate the general component of the allowance for loan losses as discussed below. Specific reserves are not considered charge-offs in management’s analysis of the allowance for loan losses because they are estimates and the outcome of the loan relationship is undetermined. At June 30, 2012, the Company had seven loans on which partial charge-offs of $377,000 had been recorded.

Installment loans are typically charged off at 90 days past due, or earlier if deemed uncollectible, unless the loans are in the process of collection. Overdrafts are charged off after 45 days past due. Charge-offs are typically recorded on loans secured by real estate when the property is foreclosed upon.

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

-12-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors, as discussed below.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Values for collateral dependent loans are generally based on appraisals obtained from independent licensed real estate appraisers, with adjustments applied for estimated costs to sell the property, costs to complete unfinished or repair damaged property and other known defects. New appraisals are generally obtained for all significant properties when a loan is identified as impaired. Generally, a property is considered significant if the value of the property is estimated to exceed $200,000. Subsequent appraisals are obtained as needed or if management believes there has been a significant change in the market value of the property. In instances where it is not deemed necessary to obtain a new appraisal, management would base its impairment and allowance for loan loss analysis on the original appraisal with adjustments for current conditions based on management’s assessment of market factors and management’s inspection of the property.

 

-13-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table provides the components of the Company’s recorded investment in loans for each portfolio segment at June 30, 2012:

 

     Residential                   Commercial     Commercial     Home Equity &      Other         
     Real Estate      Land      Construction     Real Estate     Business     2nd Mtg      Consumer      Total  
     (In thousands)  

Recorded Investment in Loans:

  

         

Principal loan balance

   $ 111,743       $ 9,779       $ 7,967      $ 60,054      $ 19,981      $ 38,097       $ 30,990       $ 278,611   

Accrued interest receivable

     423         45         13        155        59        142         157         994   

Net deferred loan origination fees and costs

     69         2         (13     (8     (10     105         0         145   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Recorded investment in loans

   $ 112,235       $ 9,826       $ 7,967      $ 60,201      $ 20,030      $ 38,344       $ 31,147       $ 279,750   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Recorded Investment in Loans as Evaluated for Impairment:

  

         

Individually evaluated for impairment

   $ 2,370       $ 41       $ 265      $ 2,730      $ 1,843      $ 239       $ 0       $ 7,488   

Collectively evaluated for impairment

     109,865         9,785         7,702        57,471        18,187        38,105         31,147         272,262   

Acquired with deteriorated credit quality

     0         0         0        0        0        0         0         0   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Ending balance

   $ 112,235       $ 9,826       $ 7,967      $ 60,201      $ 20,030      $ 38,344       $ 31,147       $ 279,750   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

-14-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table provides the components of the Company’s recorded investment in loans for each portfolio segment at December 31, 2011:

 

     Residential                    Commercial      Commercial     Home Equity &      Other         
     Real Estate      Land      Construction      Real Estate      Business     2nd Mtg      Consumer      Total  
     (In thousands)  

Recorded Investment in Loans:

  

          

Principal loan balance

   $ 116,338       $ 9,910       $ 6,963       $ 57,680       $ 20,722      $ 38,641       $ 29,832       $ 280,086   

Accrued interest receivable

     463         60         16         160         64        162         202         1,127   

Net deferred loan origination fees and costs

     67         2         0         0         (10     84         0         143   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Recorded investment in loans

   $ 116,868       $ 9,972       $ 6,979       $ 57,840       $ 20,776      $ 38,887       $ 30,034       $ 281,356   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Recorded Investment in Loans as Evaluated for Impairment:

  

          

Individually evaluated for impairment

   $ 2,281       $ 5       $ 247       $ 2,853       $ 1,928      $ 87       $ 0       $ 7,401   

Collectively evaluated for impairment

     114,587         9,967         6,732         54,987         18,848        38,800         30,034         273,955   

Acquired with deteriorated credit quality

     0         0         0         0         0        0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Ending balance

   $ 116,868       $ 9,972       $ 6,979       $ 57,840       $ 20,776      $ 38,887       $ 30,034       $ 281,356   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

-15-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

An analysis of the allowance for loan losses as of June 30, 2012 is as follows:

 

     Residential
Real Estate
     Land      Construction      Commercial
Real Estate
     Commercial
Business
     Home Equity &
2nd Mtg
     Other
Consumer
     Total  
     (In thousands)  

Ending allowance balance attributable to loans:

  

Individually evaluated for impairment

   $ 231       $ 0       $ 0       $ 348       $ 914       $ 129       $ 0       $ 1,622   

Collectively evaluated for impairment

     942         102         40         478         240         711         297         2,810   

Acquired with deteriorated credit quality

     0         0         0         0         0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 1,173       $ 102       $ 40       $ 826       $ 1,154       $ 840       $ 297       $ 4,432   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

An analysis of the allowance for loan losses as of December 31, 2011 is as follows:

 

     Residential
Real Estate
     Land      Construction      Commercial
Real Estate
     Commercial
Business
     Home Equity &
2nd Mtg
     Other
Consumer
     Total  
     (In thousands)  

Ending allowance balance attributable to loans:

  

Individually evaluated for impairment

   $ 183       $ 0       $ 0       $ 539       $ 936       $ 0       $ 0       $ 1,658   

Collectively evaluated for impairment

     645         93         33         730         224         400         399         2,524   

Acquired with deteriorated credit quality

     0         0         0         0         0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 828       $ 93       $ 33       $ 1,269       $ 1,160       $ 400       $ 399       $ 4,182   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-16-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

An analysis of the changes in the allowance for loan losses for the three months and six months ended June 30, 2012 is as follows:

 

                                                                                                                                                               
     Residential
Real Estate
    Land     Construction      Commercial
Real Estate
    Commercial
Business
    Home Equity &
2nd Mtg
    Other
Consumer
    Total  
     (In thousands)  

Allowance for loan losses:

  

Changes in Allowance for Loan Losses for the three-months ended June 30, 2012

  

Beginning balance

   $ 1,060      $ 99      $ 35       $ 924      $ 1,175      $ 651      $ 284      $ 4,228   

Provisions for loan losses

     147        3        5         (98     (22     246        19        300   

Charge-offs

     (35     0        0         0        0        (62     (55     (152

Recoveries

     1        0        0         0        1        5        49        56   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,173      $ 102      $ 40       $ 826      $ 1,154      $ 840      $ 297      $ 4,432   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Changes in Allowance for Loan Losses for the six-months ended June 30, 2012

  

Beginning balance

   $ 828      $ 93      $ 33       $ 1,269      $ 1,160      $ 400      $ 399      $ 4,182   

Provisions for loan losses

     646        12        7         (443     (10     607        (44     775   

Charge-offs

     (312     (4     0         0        0        (176     (146     (638

Recoveries

     11        1        0         0        4        9        88        113   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,173      $ 102      $ 40       $ 826      $ 1,154      $ 840      $ 297      $ 4,432   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

-17-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

An analysis of the changes in the allowance for loan losses for the three months and six months ended June 30, 2011 is as follows:

 

     Residential                 Commercial     Commercial     Home Equity &     Other        
     Real Estate     Land     Construction     Real Estate     Business     2nd Mtg     Consumer     Total  
     (In thousands)  

Allowance for loan losses:

  

       

Changes in Allowance for Loan Losses for the three-months ended June 30, 2011

  

Beginning balance

   $ 992      $ 79      $ 39      $ 1,248      $ 1,211      $ 562      $ 446      $ 4,577   

Provisions for loan losses

     223        (20     (13     91        112        46        (14     425   

Charge-offs

     (1     0        0        (68     (305     (51     (73     (498

Recoveries

     3        0        0        0        2        5        47        57   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,217      $ 59      $ 26      $ 1,271      $ 1,020      $ 562      $ 406      $ 4,561   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Changes in Allowance for Loan Losses for the six-months ended June 30, 2011

  

Beginning balance

   $ 1,024      $ 55      $ 21      $ 1,051      $ 1,251      $ 606      $ 465      $ 4,473   

Provisions for loan losses

     454        4        5        288        70        133        (29     925   

Charge-offs

     (265     0        0        (68     (305     (208     (138     (984

Recoveries

     4        0        0        0        4        31        108        147   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,217      $ 59      $ 26      $ 1,271      $ 1,020      $ 562      $ 406      $ 4,561   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

-18-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

At June 30, 2012 and December 31, 2011, for each loan portfolio segment management applied an overall qualitative factor of 1.15 to the Company’s historical loss factors based on the most recent calendar quarters. The overall qualitative factor is derived from management’s analysis of changes and trends in the following qualitative factors:

 

   

Underwriting Standards – Management reviews the findings of periodic internal audit loan reviews, independent outsourced loan reviews and loan reviews performed by the banking regulators to evaluate the risk associated with changes in underwriting standards. At June 30, 2012 and December 31, 2011, management assessed the risk associated with this component as neutral, requiring no adjustment to the historical loss factors.

 

   

Economic Conditions – Management analyzes trends in housing and unemployment data in the Harrison, Floyd and Clark counties of Indiana, the Company’s primary market area, to evaluate the risk associated with economic conditions. Due to a decrease in new home construction and an increase in unemployment in the Company’s primary market area, management assigned a risk factor of 1.20 for this component at June 30 2012 and December 31, 2011.

 

   

Past Due Loans – Management analyzes trends in past due loans for the Company to evaluate the risk associated with delinquent loans. In general, past due loan ratios have remained at elevated levels compared to historical amounts since 2007, and management assigned a risk factor of 1.20 for this component at June 30, 2012 and December 31, 2011.

 

   

Other Internal and External Factors – This component includes management’s consideration of other qualitative factors such as loan portfolio composition. The Company has focused on the origination of commercial business and real estate loans in an effort to convert the Company’s balance sheet from that of a traditional thrift institution to a commercial bank. In addition, the Company has increased its investment in mortgage loans in which it does not hold a first lien position. Commercial loans and second mortgage loans generally entail greater credit risk than residential mortgage loans secured by a first lien. As a result of changes in the loan portfolio composition, management assigned a risk factor of 1.20 for this component at June 30, 2012 and December 31, 2011.

Each of the four factors above was assigned an equal weight to arrive at an average for the overall qualitative factor of 1.15 at June 30, 2012 and December 31, 2011. The effect of the overall qualitative factor was to increase the estimated allowance for loan losses by $305,000 and $317,000 at June 30, 2012 and December 31, 2011, respectively.

 

-19-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table summarizes the Company’s impaired loans by class of loans as of June 30, 2012 and for the three months and six months ended June 30, 2012:

 

     At June 30, 2012      Three Months Ended June 30, 2012      Six Months Ended June 30, 2012  
            Unpaid             Average      Interest      Interest      Average      Interest      Interest  
     Recorded      Principal      Related      Recorded      Income      Recognized -      Recorded      Income      Recognized -  
     Investment      Balance      Allowance      Investment      Recognized      Cash Method      Investment      Recognized      Cash Method  
     (In thousands)  

Loans with no related allowance recorded:

  

                 

Residential

   $ 1,045       $ 1,314       $ 0       $ 1,202       $ 0       $ 1       $ 1,184       $ 1       $ 1   

Land

     41         42         0         41         0         0         29         0         0   

Construction

     265         270         0         266         0         0         259         0         0   

Commercial real estate

     1,237         1,530         0         1,244         0         0         1,234         0         0   

Commercial business

     0         0         0         0         0         0         0         0         0   

Home Equity/2nd mortgage

     85         92         0         85         1         0         86         2         1   

Other consumer

     0         0         0         0         0         0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2,673         3,248         0         2,838         1         1         2,792         3         2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans with an allowance recorded:

  

                 

Residential

     1,325         1,410         231         1,017         0         0         1,055         0         0   

Land

     0         0         0         0         0         0         0         0         0   

Construction

     0         0         0         0         0         0         0         0         0   

Commercial real estate

     1,493         1,593         348         1,502         0         0         1,547         0         0   

Commercial business

     1,843         1,909         914         1,885         0         0         1,899         0         0   

Home Equity/2nd mortgage

     154         156         129         171         0         1         114         0         1   

Other consumer

     0         0         0         0         0         0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     4,815         5,068         1,622         4,575         0         1         4,615         0         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

  

                 

Residential

     2,370         2,724         231         2,219         0         1         2,239         1         1   

Land

     41         42         0         41         0         0         29         0         0   

Construction

     265         270         0         266         0         0         259         0         0   

Commercial real estate

     2,730         3,123         348         2,746         0         0         2,781         0         0   

Commercial business

     1,843         1,909         914         1,885         0         0         1,899         0         0   

Home Equity/2nd mortgage

     239         248         129         256         1         1         200         2         2   

Other consumer

     0         0         0         0         0         0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 7,488       $ 8,316       $ 1,622       $ 7,413       $ 1       $ 2       $ 7,407       $ 3       $ 3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-20-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table summarizes the Company’s impaired loans by class of loans for the three months and six months ended June 30, 2011:

 

     Three Months Ended June 30, 2011      Six Months Ended June 30, 2011  
     Average      Interest      Interest      Average      Interest      Interest  
     Recorded      Income      Recognized -      Recorded      Income      Recognized -  
     Investment      Recognized      Cash Method      Investment      Recognized      Cash Method  
     (In thousands)  

Loans with no related allowance recorded:

  

           

Residential

   $ 947       $ 6       $ 2       $ 977       $ 10       $ 4   

Land

     6         0         0         4         0         0   

Construction

     441         0         0         294         0         0   

Commercial real estate

     438         0         0         424         0         0   

Commercial business

     0         0         0         7         0         0   

Home Equity/2nd mortgage

     17         2         0         19         2         0   

Other consumer

     0         1         1         6         1         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,849         9         3         1,731         13         5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans with an allowance recorded:

  

           

Residential

     2,156         0         34         2,187         0         34   

Land

     0         0         0         0         0         0   

Construction

     0         0         0         93         0         0   

Commercial real estate

     1,011         0         0         1,134         0         0   

Commercial business

     2,071         0         0         2,097         0         0   

Home Equity/2nd mortgage

     484         0         0         447         0         0   

Other consumer

     12         0         0         8         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     5,734         0         34         5,966         0         34   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

  

           

Residential

     3,103         6         36         3,164         10         38   

Land

     6         0         0         4         0         0   

Construction

     441         0         0         387         0         0   

Commercial real estate

     1,449         0         0         1,558         0         0   

Commercial business

     2,071         0         0         2,104         0         0   

Home Equity/2nd mortgage

     501         2         0         466         2         0   

Other consumer

     12         1         1         14         1         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 7,583       $ 9       $ 37       $ 7,697       $ 13       $ 39   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-21-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table summarizes the Company’s impaired loans by class of loans as of December 31, 2011:

 

            Unpaid         
     Recorded      Principal      Related  
     Investment      Balance      Allowance  
     (In thousands)  

Loans with no related allowance recorded:

        

Residential

   $ 1,149       $ 1,507       $ 0   

Land

     5         6         0   

Construction

     247         249         0   

Commercial real estate

     1,215         1,280         0   

Commercial business

     0         0         0   

HE/2nd mortgage

     87         94         0   

Other consumer

     0         0         0   
  

 

 

    

 

 

    

 

 

 
     2,703         3,136         0   
  

 

 

    

 

 

    

 

 

 

Loans with an allowance recorded:

        

Residential

     1,132         1,233         183   

Land

     0         0         0   

Construction

     0         0         0   

Commercial real estate

     1,638         1,933         539   

Commercial business

     1,928         2,023         936   

HE/2nd mortgage

     0         0         0   

Other consumer

     0         0         0   
  

 

 

    

 

 

    

 

 

 
     4,698         5,189         1,658   
  

 

 

    

 

 

    

 

 

 

Total:

        

Residential

     2,281         2,740         183   

Land

     5         6         0   

Construction

     247         249         0   

Commercial real estate

     2,853         3,213         539   

Commercial business

     1,928         2,023         936   

Home Equity/2nd mortgage

     87         94         0   

Other consumer

     0         0         0   
  

 

 

    

 

 

    

 

 

 
   $ 7,401       $ 8,325       $ 1,658   
  

 

 

    

 

 

    

 

 

 

 

-22-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

Nonperforming loans consists of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans by class of loans at June 30, 2012 and December 31, 2011:

 

     June 30, 2012      December 31, 2011  
            Loans 90+ Days      Total             Loans 90+ Days      Total  
     Nonaccrual      Past Due      Nonperforming      Nonaccrual      Past Due      Nonperforming  
     Loans      Still Accruing      Loans      Loans      Still Accruing      Loans  
     (In thousands)  

Residential

   $ 2,370       $ 0       $ 2,370       $ 2,281       $ 143       $ 2,424   

Land

     41         0         41         5         38         43   

Construction

     265         0         265         247         0         247   

Commercial real estate

     2,730         2         2,732         2,853         0         2,853   

Commercial business

     1,843         0         1,843         1,928         0         1,928   

Home Equity/2nd mortgage

     239         67         306         87         159         246   

Other consumer

     0         16         16         0         23         23   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,488       $ 85       $ 7,573       $ 7,401       $ 363       $ 7,764   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the aging of the recorded investment loans by class of loans at June 30, 2012:

 

     30-59 Days      60-89 Days      Over 90 Days      Total             Total  
     Past Due      Past Due      Past Due      Past Due      Current      Loans  
     (In thousands)  

Residential

   $ 3,814       $ 961       $ 871       $ 5,646       $ 106,589       $ 112,235   

Land

     172         0         37         209         9,617         9,826   

Construction

     0         0         265         265         7,702         7,967   

Commercial real estate

     260         128         1,239         1,627         58,574         60,201   

Commercial business

     20         18         0         38         19,992         20,030   

Home Equity/2nd mortgage

     368         40         152         560         37,784         38,344   

Other consumer

     238         90         16         344         30,803         31,147   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,872       $ 1,237       $ 2,580       $ 8,689       $ 271,061       $ 279,750   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-23-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table presents the aging of the recorded investment in loans by class of loans at December 31, 2011:

 

     30-59 Days      60-89 Days      Over 90 Days      Total             Total  
     Past Due      Past Due      Past Due      Past Due      Current      Loans  
     (In thousands)  

Residential

   $ 5,205       $ 1,068       $ 1,035       $ 7,308       $ 109,560       $ 116,868   

Land

     442         43         43         528         9,444         9,972   

Construction

     0         0         247         247         6,732         6,979   

Commercial real estate

     676         0         1,258         1,934         55,906         57,840   

Commercial business

     256         0         0         256         20,520         20,776   

Home Equity/2nd mortgage

     558         72         246         876         38,011         38,887   

Other consumer

     306         37         23         366         29,668         30,034   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,443       $ 1,220       $ 2,852       $ 11,515       $ 269,841       $ 281,356   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, public information, historical payment experience, credit documentation, and current economic trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss: Loans classified as loss are considered uncollectible and of such little value that their continuance on the institution’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted.

Loans not meeting the criteria above that are analyzed individually as part of the described process are considered to be pass rated loans.

 

-24-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table presents the recorded investment in loans by risk category and class of loans as of the date indicated:

 

     Residential                    Commercial      Commercial      Home Equity &      Other         
     Real Estate      Land      Construction      Real Estate      Business      2nd Mtg      Consumer      Total  
     (In thousands)  

June 30, 2012

                       

Pass

   $ 106,102       $ 7,388       $ 7,386       $ 49,427       $ 15,957       $ 37,833       $ 31,040       $ 255,133   

Special Mention

     1,860         252         156         5,264         1,799         17         59         9,407   

Substandard

     1,903         2,145         160         2,780         431         255         48         7,722   

Doubtful

     2,370         41         265         2,730         1,843         239         0         7,488   

Loss

     0         0         0         0         0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 112,235       $ 9,826       $ 7,967       $ 60,201       $ 20,030       $ 38,344       $ 31,147       $ 279,750   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011

                       

Pass

   $ 113,037       $ 7,578       $ 6,217       $ 46,544       $ 16,961       $ 38,513       $ 29,976       $ 258,826   

Special Mention

     862         255         307         5,392         1,462         63         44         8,385   

Substandard

     688         2,134         208         3,051         425         224         14         6,744   

Doubtful

     2,281         5         247         2,853         1,928         87         0         7,401   

Loss

     0         0         0         0         0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 116,868       $ 9,972       $ 6,979       $ 57,840       $ 20,776       $ 38,887       $ 30,034       $ 281,356   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-25-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table summarizes the Company’s troubled debt restructurings (TDRs) by class of loan and accrual status as of June 30, 2012 and December 31, 2011:

 

     June 30, 2012      December 31, 2011  
                          Related Allowance                           Related Allowance  
     Accruing      Nonaccrual      Total      for Loan Losses      Accruing      Nonaccrual      Total      for Loan Losses  
     (In thousands)  

Troubled debt restructurings:

  

                 

Residential real estate

   $ 290       $ 376       $ 666       $ 25       $ 112       $ 516       $ 628       $ 11   

Land

     136         0         136         0         135         0         135         0   

Construction

     160         265         425         0         207         247         454         0   

Commercial real estate

     0         1,577         1,577         89         0         1,603         1,603         211   

Commercial business

     0         1,843         1,843         914         0         1,843         1,843         914   

Home equity and 2nd mortgage

     0         33         33         28         8         0         8         0   

Consumer

     0         0         0         0         0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 586       $ 4,094       $ 4,680       $ 1,056       $ 462       $ 4,209       $ 4,671       $ 1,136   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2012 and December 31, 2011, commitments to lend additional funds to debtors whose loan terms have been modified in a TDR (both accruing and nonaccruing) totaled $87,000 and $192,000, respectively. These commitments represent the undisbursed portion of construction loans to borrowers that have outstanding loans classified as TDRs.

 

-26-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table summarizes information in regard to TDRs that were restructured during the six months ended June 30, 2012. There were no TDRs restructured during the three months ended June 30, 2012.

 

     Six months ended June 30, 2012  
            Pre-Modification      Post-Modification  
     Number of      Outstanding      Outstanding  
     Contracts      Balance      Balance  
     (Dollars in thousands)  

Troubled debt restructurings:

        

Residential real estate

     1       $ 88       $ 87   

Home equity & 2nd mortgage

     1         25         25   

Construction

     0         0         0   

Commercial real estate

     0         0         0   

Commercial business

     0         0         0   

Construction

     0         0         0   

Consumer

     0         0         0   
  

 

 

    

 

 

    

 

 

 

Total

     2       $ 113       $ 112   
  

 

 

    

 

 

    

 

 

 

For the TDRs listed above, the terms of modification were a reduction of the stated interest rate due to a bankruptcy filing by the borrower. There were no principal charge-offs recorded as a result of TDRs during the six months ended June 30, 2012.

There were no TDRS modified within the previous 12 months for which there was a subsequent payment default (defined as the loan becoming more than 90 days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) during the six months ended June 30, 2012. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan.

 

-27-


Table of Contents

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

4. Supplemental Disclosure for Earnings Per Share

 

     Three Months Ended      Six Months Ended  
     June 30, 2012      June 30, 2011      June 30, 2012      June 30, 2011  

Basic and Diluted:

   (Dollars in thousands, except for share and per share data)  

Earnings:

           

Net income attributable to First Capital, Inc.

   $ 1,035       $ 941       $ 1,954       $ 1,837   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares:

           

Weighted average common shares outstanding

     2,785,458         2,787,009         2,785,574         2,787,139   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to First Capital, Inc. per common share, basic and diluted

   $ 0.37       $ 0.34       $ 0.70       $ 0.66   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

5. Stock Option Plan

For the six month periods ended June 30, 2012 and 2011, the Company did not recognize any compensation expense related to its stock option plans. Expense is recognized ratably over the five-year vesting period of the options. At June 30, 2012, there was no unrecognized compensation expense related to nonvested stock options to be recognized over the remaining vesting period. The Black-Scholes option pricing model was used to determine the fair value of the options granted in prior periods.

 

6. Supplemental Disclosures of Cash Flow Information

 

     Six Months Ended
June 30,
 
     2012      2011  
     (In thousands)  

Cash payments for:

     

Interest

   $ 1,420       $ 2,200   

Taxes

     427         794   

Noncash investing activities:

     

Transfers from loans to real estate acquired through foreclosure

     680         467   

 

-28-


Table of Contents

FIRST CAPITAL, INC.