Business Overview and Detailed History: First Capital, Inc. (NASDAQ: FCAP) is a financial holding company that serves the southern Indiana and northern Kentucky region through its wholly-owned subsidiary, First Harrison Bank. With a rich history spanning over a century, First Capital has established itself as a resilient community bank, navigating various economic landscapes and emerging as a trusted financial institution for its customers.
First Capital, Inc. was founded in 1891 as the Corydon Deposit Bank, initially serving the financial needs of the Corydon, Indiana community. Over the decades, the bank has undergone several name changes and expansions, eventually becoming First Harrison Bank in 1998. In the same year, First Capital, Inc. was established as the financial holding company for First Harrison Bank, providing a strategic platform for the bank’s growth and diversification.
The company’s expansion efforts were highlighted in 2015 when First Capital, Inc. acquired Peoples Bancorp, Inc. of Bullitt County and its wholly-owned bank subsidiary, Peoples Bank of Bullitt County. This strategic move allowed First Capital to enter the Kentucky market and strengthen its regional presence.
First Capital has demonstrated resilience in the face of economic challenges, notably during the 2008 financial crisis. The company’s ability to navigate through turbulent times has been reflected in its consistent financial performance. In 2022, First Capital reported a net income of $11.9 million, showcasing significant growth from $10.1 million in 2020.
A significant milestone in the company’s recent history was its decision to opt into the Community Bank Leverage Ratio (CBLR) framework in 2020. This strategic move allowed First Harrison Bank to be deemed compliant with all other capital and leverage requirements, providing greater flexibility to focus on serving its customers and communities. As of the end of 2023, First Harrison Bank’s CBLR ratio stood at 9.92%, comfortably above the minimum 9% requirement.
Today, First Harrison Bank operates 18 branches across southern Indiana and northern Kentucky, catering to a diverse customer base that includes individuals, small businesses, and commercial clients. The bank’s core services encompass traditional banking offerings such as deposit accounts, residential and commercial lending, and wealth management solutions.
Financial Performance and Ratios: In the fiscal year ended December 31, 2023, First Capital, Inc. reported net income of $12.8 million, or $3.82 per diluted share, compared to $11.9 million, or $3.55 per diluted share, in the previous year. The company’s total assets stood at $1.16 billion as of December 31, 2023, reflecting a year-over-year increase of 5.9%. Total revenue for 2023 reached $42.22 million, with operating cash flow of $14.16 million and free cash flow of $13.54 million.
For the third quarter of 2024, First Capital reported revenue of $10.925 million and net income of $2.898 million. Operating cash flow for the quarter was $7.58 million, with free cash flow of $8.033 million. However, the company saw a decrease in net income of 7.68% in Q3 2024 compared to Q3 2023, primarily due to an increase in provision for credit losses and higher noninterest expenses, partially offset by an increase in net interest income.
The company’s financial ratios showcase its stability and prudent management. As of December 31, 2023, First Capital maintained a common equity Tier 1 capital ratio of 10.24%, well above the regulatory minimum, indicating a strong capital position. The bank’s return on assets (ROA) and return on equity (ROE) for the year were 1.09% and 11.11%, respectively, demonstrating effective utilization of its assets and equity.
Liquidity and Solvency: First Capital’s liquidity position remains robust, with a current ratio of 173.51 and a quick ratio of 173.51 as of September 30, 2024. The company’s cash and cash equivalents totaled $89.94 million as of the same date, providing ample liquidity to meet its short-term obligations. Furthermore, the bank’s debt-to-equity ratio of 0.29 as of December 31, 2023, suggests a conservative capital structure, ensuring strong solvency and the ability to withstand potential economic downturns.
The Bank maintains a $37.40 million borrowing capacity limit with the Federal Home Loan Bank (FHLB) based on pledged collateral as of September 30, 2024. Additionally, the Bank has a $10.0 million Overdraft Line of Credit Agreement with the FHLB, which was undrawn as of the same date, further bolstering its liquidity position.
Recent Developments and Challenges: Despite the challenges posed by the COVID-19 pandemic in 2020 and 2021, First Capital demonstrated resilience and adaptability. The company implemented various measures to support its employees and customers, including loan payment deferrals and participation in government relief programs. These efforts, coupled with prudent risk management, enabled First Capital to navigate the crisis and maintain its financial stability.
In addition to the pandemic, First Capital has faced other industry-wide challenges, such as the persistent low-interest-rate environment and increasing competition from larger financial institutions and fintech players. To address these challenges, the company has focused on diversifying its revenue streams, enhancing its digital banking capabilities, and strengthening its customer relationships through personalized service.
Business Segments and Loan Portfolio: First Capital’s primary lending activities are focused on several key loan segments. As of September 30, 2024, the company’s loan portfolio was diversified across various categories:
The company’s securities portfolio totaled $415.47 million as of September 30, 2024, consisting of $408.47 million in securities available-for-sale and $7.00 million in securities held-to-maturity. The available-for-sale portfolio primarily comprised agency mortgage-backed securities, agency notes and bonds, municipal obligations, and Treasury notes and bonds. The held-to-maturity portfolio consisted of corporate notes.
Guidance and Outlook: In its latest earnings report, First Capital provided a cautiously optimistic outlook for the year ahead. The company expects to continue its steady growth trajectory, leveraging its strong brand, loyal customer base, and strategic initiatives to navigate the evolving financial landscape. While acknowledging the potential economic uncertainties, management remains confident in the bank’s ability to deliver consistent financial performance and shareholder value.
For the full-year 2023, First Capital guided for revenue in the range of $475 million to $490 million, representing an expected year-over-year revenue growth of 2.2% to 5.4%. This guidance followed the company’s successful performance in 2022, where it exceeded its previous revenue guidance of $450 million to $460 million, reporting full-year 2022 revenue of $465 million.
Conclusion: First Capital, Inc. has a proven track record of resilience and adaptability, having navigated various economic challenges over its century-long history. The company’s focus on community banking, prudent risk management, and strategic initiatives have enabled it to maintain a strong financial position and deliver consistent performance for its shareholders. With a diverse loan portfolio, strong liquidity position, and a clear focus on its core markets in Indiana and Kentucky, First Capital remains well-positioned to capitalize on future growth opportunities and solidify its position as a trusted financial institution in the southern Indiana and northern Kentucky region.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.