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[First Capital, Inc. Letterhead]
Report to Shareholders
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First Capital, Inc.
THIRD QUARTER REPORT
The third quarter is starting to show signs of margin pressure directly related
to the flat/inverted shape of the U.S.Treasury yield curve.While year-to-date
earnings are slightly ahead of last year, our third quarter results show a
decline in net income from $975,000 to $852,000.
This reduction is the direct effect of the continued pressure on funding cost
for loan growth.While we have had good loan growth, our higher funding cost put
continued pressure on our spread. It is a challenge to achieve our historical
margins when short and long term funding rates are the same.The challenge is
pricing quality loans that give us our desired spread, leading to an improved
margin.
In our efforts to find opportunities for growth of lower cost funds and
especially growth in checking and savings accounts, we have applied for two
branch locations. One is new and the other is a relocation of an existing
branch.We expect approval for our new location in Salem, Indiana in the near
future. Salem is a growing community that offers us an opportunity to expand our
market share in Washington County,Indiana.We are confident we can add this
office to our existing franchise without significant impact on our overhead.We
have a very good reputation in this market and currently service customers on
the fringes of Salem.
Our other move is relocating our Edwardsville Office from the existing location
to a new location that is part of a commercial development on Highway 64.We are
negotiating to locate our new office in a historic home site, which is a
landmark in this area. Our new office will incorporate the house in with the
office.We are confident moving to a location on the highway, where we will
experience much higher traffic, will offer us greater opportunities for growth.
Our goal continues to be transitioning our balance sheet from that of a
traditional thrift to be more like a commercial bank. We will put all of our
efforts into managing through this challenging rate environment while staying
focused on overall growth.
Sincerely,
/s/ William Harrod
William Harrod
President and CEO
NINE MONTHS ENDED SEPTEMBER 30, 2006
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First Capital, Inc.
THIRD QUARTER REPORT
CORPORATE ADDRESS BALANCE SHEET HIGHLIGHTS As of September 30, Percent
First Capital, Inc. (In thousands, except per share information) 2006 2005 Change
220 Federal Drive, NW ------------------------------------------------------------------------------------
Corydon, Indiana 47112 Total loans (excluding loans held for sale) $342,915 $321,225 6.75%
Allowance for loan losses 2,262 2,175 4.00%
Allowance for loan losses as a percentage 0.66% 0.68% -2.58%
COMMON SHARES of total loans (excluding loans held for sale)
The common shares of the Company are listed on Total assets $451,725 $437,657 3.21%
The Nasdaq Stock Market*. The trading symbol is Total deposits 323,628 324,256 -0.19%
FCAP. In newspaper listings, Company shares are Other borrowings 81,634 68,649 18.92%
frequently listed as First Capital, Inc. Shareholders equity 43,508 41,842 3.98%
Book value per share * 15.28 14.68 4.15%
TRANSER AGENT
Investor Relations Department Nine
Registrar and Transfer Company Three Months Nine Months Months'
10 Commerce Drive INCOME STATEMENT SUMMARY Ended September 30, Ended September 30, Percent
Cranford, New Jersey 07016-9982 (In thousands) 2006 2005 2006 2005 Change
Tel: (800) 368-5948 ------------------------------------------------------------------------------------
www.rtco.com Net interest income $ 3,284 $ 3,381 $10,183 $ 9,928 2.57%
Provision for loan losses 215 150 585 463 26.35%
Noninterest income 830 727 2,376 2,268 4.76%
Noninterest expense 2,645 2,465 7,905 7,648 3.36%
MARKET MAKERS Earnings before taxes 1,254 1,493 4,069 4,085 -0.39%
Sweeney Cartwright Provision for income taxes 402 518 1,347 1,382 -2.53%
Keefe, Bruyette & Woods, Inc. Net income 852 975 2,722 2,703 0.70%
UBS Financial Services
Nine
Three Months Nine Months Months'
Ended September 30, Ended September 30, Percent
OTHER FINANCIAL DATA 2006 2005 2006 2005 Change
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Diluted earnings per share * $ 0.30 $ 0.34 $ 0.96 $ 0.95 1.05%
Cash dividends per share * 0.17 0.16 0.51 0.46 10.87%
Return on average assets (annualized) 0.77% 0.90% 0.82% 0.84% -2.38%
Return on average equity (annualized) 7.94% 9.36% 8.52% 8.75% -2.63%
Net interest margin 3.24% 3.42% 3.38% 3.37% 0.30%
Net overhead expense as a percentage
of average assets (annualized) 2.38% 2.27% 2.39% 2.37% 0.84%
* Per share information provided gives effect to the 10% stock dividend declared on June 19, 2006.