SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
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(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-25023
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First Capital, Inc.
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(Exact name of registrant as specified in its charter)
Indiana 35-2056949
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
220 Federal Drive NW, Corydon, Indiana 47112
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 1-812-738-2198
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Not applicable
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: 2,537,324 shares of common stock were outstanding as of April
30, 2000.
FIRST CAPITAL, INC.
INDEX
Part I Financial Information Page
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 (unaudited) 3
Consolidated Statements of Income for the three months
ended March 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (unaudited) 5
Notes to consolidated financial statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II Other Information 12
Signatures 13
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PART I - FINANCIAL INFORMATION
FIRST CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
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2000 1999
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(In thousands)
ASSETS
Cash and due from banks $ 4,867 $ 5,820
Interest bearing deposits with banks 8,261 3,702
Securities available for sale, at fair value 31,751 30,097
Securities-held to maturity 12,055 12,325
Federal funds sold - 4,000
Loans receivable, net 157,735 154,982
Federal Home Loan Bank stock, at cost 1,252 1,252
Foreclosed real estate 72 256
Premises and equipment 6,500 6,459
Accrued interest receivable 1,360 1,578
Cash value of life insurance 1,124 1,111
Other assets 1,261 1,215
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Total Assets $226,238 $ 222,797
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LIABILITIES
Deposits $184,829 $ 175,342
Advances from Federal Home Loan Bank 10,169 16,750
Accrued interest payable 1,113 971
Accrued expenses and other liabilities 979 858
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Total Liabilities 197,090 193,921
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STOCKHOLDERS' EQUITY
Preferred stock of $.01 par value per share
Authorized 1,000,000 shares; none issued - -
Common stock of $.01 par value per share
Authorized 5,000,000 shares; issued 2,537,324 shares 25 25
Additional paid-in capital 12,797 12,446
Retained earnings-substantially restricted 18,011 17,781
Unearned ESOP shares (553) (564)
Unearned stock compensation (336) -
Accumulated other comprehensive income-net
unrealized loss on securities available for sale (796) (812)
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Total Stockholders' Equity 29,148 28,876
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Total Liabilities and Stockholders' Equity $226,238 $ 222,797
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See accompanying notes to consolidated financial statements.
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PART I - FINANCIAL INFORMATION
FIRST CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
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2000 1999
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(In thousands, except per share data)
INTEREST INCOME
Loans receivable, including fees $ 3,239 $ 2,887
Securities 661 502
Federal funds sold 33 29
Federal Home Loan Bank dividends 27 28
Interest bearing deposits with banks 112 90
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Total interest income 4,072 3,536
INTEREST EXPENSE
Deposits 1,905 1,638
Advances from Federal Home Loan Bank 206 97
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Total interest expense 2,111 1,735
Net interest income 1,961 1,801
Provision for loan losses - 48
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Net interest income after provision for
loan losses 1,961 1,753
NON-INTEREST INCOME
Service charges on deposit accounts 144 119
Commission income 64 55
Gain on sale of mortgage loans 11 12
Gain on sale of foreclosed real estate 6 -
Other income 59 38
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Total non-interest income 284 224
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NON-INTEREST EXPENSE
Compensation and benefits 789 654
Occupancy and equipment 206 209
Other operating expenses 521 327
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Total non-interest expense 1,516 1,190
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Income before income taxes 729 787
Income tax expense 254 274
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Net Income 475 513
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gain (loss) on securities:
Unrealized holding gains (losses) arising during the period 16 (156)
Less: reclassification adjustment - -
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Other comprehensive income (loss) 16 (156)
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Comprehensive Income $ 491 $ 357
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Net income per common share, basic $ 0.19 $ 0.21
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Net income per common share, diluted $ 0.19 $ 0.21
==============================
See accompanying notes to consolidated financial statements.
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PART I - FINANCIAL INFORMATION
FIRST CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES (In thousands)
Net income $ 475 $ 513
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of premiums and accretion of discounts 3 7
Depreciation expense 129 144
Deferred income taxes 30 (29)
ESOP compensation expense 11 21
Stock compensation expense 18 -
Increase in cash value of life insurance (13) (11)
Provision for loan losses - 48
Proceeds from sales of mortgage loans 615 493
Mortgage loans originated for sale (604) (481)
Net gain on sale of mortgage loans (11) (12)
Net gain on sale of foreclosed real estate (6) -
Decrease in accrued interest receivable 218 30
Increase in accrued interest payable 142 129
Net change in other assets/liabilities 32 (54)
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Net Cash Provided By Operating Activities 1,039 798
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CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits with banks (4,559) 4,551
(Increase) decrease in federal funds sold 4,000 (1,000)
Purchase of securities available for sale (2,986) (14,864)
Proceeds from maturities of securities available for sale 1,250 3,695
Proceeds from maturities of securities held to maturity 235 1,396
Purchase of securities held to maturity - (3,354)
Principal collected on mortgage-backed securities 140 519
Net increase in loans receivable (2,566) (3,012)
Purchase of Federal Home Loan Bank stock - (73)
Proceeds from sale of foreclosed real estate 3 -
Purchase of premises and equipment (170) (697)
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Net Cash Used By Investing Activities (4,653) (12,839)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 9,487 4,807
Net increase (decrease) in advances from Federal Home Loan Bank (6,581) 7,000
Dividends paid (245) (84)
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Net Cash Provided By Financing Activities 2,661 11,723
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Net Decrease in Cash and Due From Banks (953) (318)
Cash and due from banks at beginning of period 5,820 4,918
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Cash and Due From Banks at End of Period $ 4,867 $ 4,600
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See accompanying notes to consolidated financial statements.
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FIRST CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Presentation of Interim Information
First Capital, Inc. ("Company") was incorporated by First Federal Bank, A
Federal Savings Bank ("Bank") in September 1999 in connection with the
conversion from the mutual holding company form of organization to the
stock holding company form of organization. Upon consummation of the
conversion on December 31, 1999, the Company became the holding company for
the Bank and the former mutual holding company, First Capital, Inc., M.H.C.
("MHC"), was merged with and into the Bank. The Bank changed its name to
First Harrison Bank in connection with the Company's merger with HCB
Bancorp. Accordingly, the information presented in this report relates
primarily to the Bank's operations.
In the opinion of the management, the unaudited consolidated financial
statements include all normal adjustments considered necessary to present
fairly the financial position as of March 31, 2000, and the results of
operations for the three months ended March 31, 2000 and 1999 and cash
flows for the three months ended March 31, 2000 and 1999. All of these
adjustments are of a normal, recurring nature. Interim results are not
necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as permitted
by Form 10-QSB, and do not contain certain information included in the
Company's annual audited consolidated financial statements.
The consolidated financial statements include the accounts of the Company,
the Bank and the Bank's wholly-owned subsidiary, First Harrison Financial
Services, Inc. (formerly HCB Insurance Agency, Inc.). (See Note 2) All
material intercompany balances and transactions have been eliminated in
consolidation.
2. Merger with HCB Bancorp
On January 12, 2000, the Company completed the plan of merger with HCB
Bancorp (HCB), a bank holding company located in Palmyra, Indiana. HCB was
the parent company of Harrison County Bank, a state-chartered commercial
bank, which was merged with and into the Bank. The merger provided for an
exchange of 15.5 shares of the Company's common stock for each share of HCB
common stock. The merger was accounted for as a pooling of interests and
the consolidated financial statements give effect to the merger as if the
merger had been consummated on January 1, 1999.
3. Supplemental Disclosures of Cash Flow Information
Three Months Ended
March 31,
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2000 1999
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(In thousands)
Cash payments for:
Interest $ 1,990 $ 1,606
Taxes 66 145
Noncash investing activity:
Proceeds from sales of foreclosed real estate
financed through loans 213 -
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FIRST CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
4. Comprehensive Income
The Company adopted FASB Statement No. 130, "Reporting Comprehensive
Income," effective July 1, 1998. This Statement established standards for
reporting and displaying comprehensive income and its components.
Comprehensive income is defined as "the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners." Comprehensive income for the Company includes
net income and unrealized gains and losses on securities available for
sale. The following tables set forth the components of other comprehensive
income and the allocated income tax amounts for the three months ended
March 31, 2000 and 1999:
Three Months Ended
March 31,
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2000 1999
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(In thousands)
Unrealized gains on securities:
Unrealized holding gains
(losses) arising during the period $ 26 $ (258)
Income tax (expense) benefit (10) 102
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Net of tax amount 16 (156)
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Less: reclassification
adjustment for (gains) losses included in net income - -
Income tax (expense) benefit - -
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Other comprehensive
income (loss) $ 16 $ (156)
== ========
5. Supplemental Disclosure for Earnings Per Share
(Dollars in thousands, except per share data)
Basic:
Earnings:
Net income $ 475 $ 513
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Shares:
Weighted average common shares
outstanding 2,450,198 2,444,798
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Net income per common share, basic $ 0.19 $ 0.21
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Diluted:
Earnings:
Net income $ 475 $ 513
========= ==========
Shares:
Weighted average common shares
outstanding 2,450,198 2,444,798
Add: Dilutive effect of outstanding options 9,132 8,548
Add: Dilutive effect of restricted shares 1,400 -
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Weighted average common shares
outstanding, as adjusted 2,460,730 2,453,346
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Net income per common share, diluted $ 0.19 $ 0.21
========= =========
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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; the Company's ability to remedy any computer malfunctions that may
result from the advent of the Year 2000; and other factors disclosed
periodically in the Company's filings with the Securities and Exchange
Commission.
Because of the risks and uncertainties inherent in forward-looking statements,
readers are cautioned not to place undue reliance on them, whether included in
this report or made elsewhere from time to time by the Company or on its behalf.
The Company assumes no obligation to update any forward-looking statements.
Financial Condition
Total assets increased 1.5% from $222.8 million at December 31, 1999 to
$226.2 million at March 31, 2000, primarily as a result of increases in interest
bearing deposits with banks and loans receivable, net, which was funded
primarily by a decrease in federal funds sold and growth in deposits.
Loans receivable, net, were $155.0 million at December 31, 1999, compared
to $157.7 million at March 31, 2000, a 1.8% increase. This increase is
primarily the result of increases in commercial mortgage loans.
Investment securities held-to-maturity decreased from $12.3 million at
December 31, 1999 to $12.1 at March 31, 2000, as a result of maturities of
$235,000 and principal repayments of $34,000.
Securities available for sale increased $1.7 million from $30.1 million at
December 31, 1999 to $31.8 million at March 31, 2000 as a result of purchases of
$3.0 million, offset by maturities of $1.3 million and principal repayments of
$106,000.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARIES
Cash and interest bearing deposits with banks increased from $9.5
million at December 31, 1999 to $13.1 million at March 31, 2000 as a result of
excess liquidity funded by growth in deposits.
Total deposits increased from $175.3 million at December 31, 1999 to $184.8
million at March 31, 2000. The increase in deposits resulted primarily from
growth in demand and savings deposit accounts, which management attributes to
the customers' positive reactions to the merger and its promotional efforts to
attract lower cost accounts. Time deposits also increased $2.4 million from
$90.3 million at December 31, 1999 to $92.7 million at March 31, 2000.
Total stockholders' equity increased from $28.9 million at December 31,
1999 to $29.1 million at March 31, 2000 primarily as a result of retained net
income of $230,000.
Results of Operations
Net Income. Net income was $475,000 ($.19 per share diluted) for the three
months ended March 31, 2000 compared to $513,000 ($.21 per share diluted) for
the three months ended March 31, 1999. Net income decreased for 2000 compared
to 1999 primarily from an increase in net interest income offset by an increase
in non-interest expenses.
Net interest income for the three month periods ended March 31, 2000
and 1999. Net interest income increased 8.9% from $1.8 million in 1999 to $2.0
million in 2000 primarily as a result of the increase in interest-earning assets
funded by growth in deposits and additional borrowings from the Federal Home
Loan Bank of Indianapolis.
Total interest income increased $536,000, or 15.2%, to $4.1 million for the
three months ended March 31, 2000 compared to $3.5 million in the prior year as
a result of a higher balance of interest-earning assets. Interest on loans
receivable increased $352,000 and interest on securities increased $159,000 as a
result of a higher average balance in 2000. The average yield on interest-
earning assets decreased from 7.76% in 1999 to 7.70% in 2000 due to a decline in
average interest rates for loans caused by rate adjustments for adjustable rate
mortgage loans in the second and third quarters of 1999.
Total interest expense increased $376,000, or 21.7%, to $2.1 million for
the three months ended March 31, 2000 compared to $1.7 million for the three
months ended March 31, 1999 as a result of the growth in deposits and an
increase in average borrowings from the Federal Home Loan Bank of Indianapolis.
The average cost of funds increased from 4.49% in 1999 to 4.69% in 2000 due to
the use of higher cost borrowed funds and an increase in market interest rates.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARIES
Provision for loan losses. The provision for loan losses was $48,000 for
the three month period ended March 31, 1999. No provisions were made for the
three month period ended March 31, 2000 because the level of the allowance for
loan losses was adequate based on management's analysis during the quarter.
Provisions for loan losses are charged to operations to bring the total
allowance for loan losses to a level considered by management to be adequate to
provide for estimated losses based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specified impaired
loans, and economic conditions. Although management uses the best information
available, future adjustments to the allowance may be necessary due to changes
in economic, operating, regulatory and other conditions that may be beyond the
Bank's control. While the Bank maintains its allowance for loan losses at a
level which it considers adequate to provide for estimated losses, there can be
no assurance that further additions will not be made to the allowance for loan
losses and that actual losses will not exceed the estimated amounts. At March
31, 2000, non-performing loans amounted to $183,000.
Non-interest income. Non-interest income increased 26.8% to $284,000
for the three months ended March 31, 2000 compared to $224,000 for the three
months ended March 31, 1999. The increase is attributable to an increase in
service charges on deposit accounts of $25,000 resulting from growth in
transaction accounts and an increase in other income of $21,000 resulting
primarily from increases in automated teller machine and debit card fees.
Non-interest expense. Non-interest expense increased by $326,000 for
the three month period ended March 31, 2000 compared to the same period for the
prior year. The increase results primarily from increases in compensation and
benefits and other operating expenses. Compensation and benefits expense
increased $135,000 due to normal compensation increases and additional staff for
new branch offices in New Salisbury and New Albany, Indiana opened during the
second quarter of 1999. Other operating expenses increased $194,000 during the
three month period ended March 31, 2000 primarily due to increases in
advertising, data processing fees, office supplies and professional fees. The
increases in advertising and office supplies were merger related as the Company
attempted to gain name recognition for the new bank and had to replace the
existing stationery and office products with those bearing the new bank logo.
The increase in data processing fees related to the increase in loan and deposit
accounts and the expense necessary to merge the computer systems. Professional
fees increased due to merger related expenses, costs associated with the
Company's change in fiscal year to a calendar year end and other expenses
incurred as part of operating as a public company.
Income tax expense. Income tax expense for the three month period ended
March 31, 2000 was $254,000, compared to $274,000 for the same period in 1999.
The effective tax rate for 2000 is 34.9% compared to 34.8% for 1999.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST CAPITAL, INC. AND SUBSIDIARIES
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 March 31, 2000, the Bank had cash and interest-
bearing deposits with banks of $13.1 million and securities available-for-sale
with a fair value of $31.8 million. If the Bank requires funds beyond its
ability to generate them internally, it has additional borrowing capacity with
the FHLB of Indianapolis and collateral eligible for repurchase agreements.
The Bank's primary investing activity is the origination of one-to-four
family mortgage loans and, to a lesser extent, consumer, multi-family,
commercial real estate and residential construction loans. The Bank also
invests in U.S. Government and agency securities and mortgage-backed securities
issued by U.S. Government agencies.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. Historically, the Bank has been able to retain a significant
amount of its deposits as they mature.
Current OTS regulations require savings institutions to maintain an average
daily balance of liquid assets (cash and eligible investments) equal to at least
4.0% of the average daily balance of its net withdrawable deposits and short-
term borrowings. Historically, the Bank has maintained liquidity levels in
excess of regulatory requirements. At March 31, 2000, the Bank's liquidity
ratio was 26.3%.
The Bank is required to maintain specific amounts of capital pursuant to
OTS requirements. As of March 31, 2000, the Bank was in compliance with all
regulatory capital requirements which were effective as of such date with
tangible, core and risk-based capital ratios of 12.1%, 12.1% and 21.0%,
respectively. The regulatory requirements at that date were 1.5%, 3.0% and
8.0%, respectively.
Year 2000 Update
The year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year. Date-sensitive systems may recognize
the year 2000 as 1900, or not at all. This inability to recognize or properly
treat the year 2000 may cause erroneous results, ranging from system
malfunctions to incorrect or incomplete processing. As a user of computers,
computer software and equipment utilizing embedded microprocessors, failure to
resolve year 2000 issues could cause substantial disruption of the Bank's
business and could have a material adverse effect on the Bank's business,
financial condition or results of operations.
The Bank established a year 2000 committee in 1997. The committee developed and
implemented a comprehensive plan to make all information and non-information
technology assets year 2000 compliant.
While there can be no assurances that the Bank's year 2000 plan has effectively
addressed the year 2000 issue, the Bank has not been notified, and is unaware
of, any vendor or service provider problems related to year 2000 and all systems
have performed properly since January 1, 2000. Likewise, the Bank is unaware of
any year 2000 issues that have impaired the ability of the Bank's borrowers to
repay their debt.
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PART II
OTHER INFORMATION
FIRST CAPITAL, INC.
Item 1. Legal Proceedings
The Company is not a party to any legal proceedings. Periodically,
there have been various claims and lawsuits involving the Bank, mainly
as a plaintiff, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests,
claims involving the making and servicing of real property loans and
other issues incident to the Bank's business. The Bank is not a party
to any pending legal proceedings that it believes would have a material
adverse affect on it's financial condition or operations.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
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27 Financial Data Schedule
(b) Reports on Form 8-K
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The Company filed a report on Form 8-K on January 24, 2000 with respect
to the completion of its merger with HCB Bancorp.
-12-
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 May 12, 2000 BY: /s/William W. Harrod
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William W. Harrod
President and CEO
Dated May 12, 2000 BY: /s/ Michael C. Frederick
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Michael C. Frederick
Senior Vice President
and Treasurer
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