First Capital, Inc. (NASDAQ:FCAP) is a financial holding company that operates through its wholly-owned subsidiary, First Harrison Bank, an Indiana-chartered commercial bank. The company has a long history of serving the financial needs of its local community, dating back to its founding in 1891. Over the years, First Capital has grown to become a respected and trusted financial institution, known for its conservative lending practices and commitment to its customers.
Business Overview
First Capital, Inc. operates primarily in southern Indiana, with a network of 12 full-service banking centers and one loan production office. The company's core business activities include accepting deposits from the general public and using those funds to originate commercial and consumer loans, as well as investing in various securities. First Capital's loan portfolio is diversified across several sectors, including residential real estate, commercial real estate, construction, and commercial and consumer lending.In addition to its traditional banking services, First Capital also offers wealth management, trust, and insurance services through its subsidiaries. These ancillary business lines provide valuable fee-based income and help to diversify the company's revenue streams.
Financial Performance
For the fiscal year ended December 31, 2023, First Capital reported annual net income of $12.79 million, a slight decrease from the previous year's figure of $13.01 million. The company's annual revenue for 2023 was $51.44 million, up from $50.92 million in the prior year. Operating cash flow for the year totaled $13.75 million, while free cash flow amounted to $13.12 million.In the first quarter of 2024, First Capital continued to demonstrate its financial strength. The company reported net income of $2.95 million, or $0.88 per diluted share, compared to $3.82 million, or $1.14 per diluted share, in the same period of 2023. Total assets as of March 31, 2024, stood at $1.16 billion, relatively unchanged from the end of 2023.
Net loans receivable (excluding loans held for sale) increased by $7.0 million, or 1.1%, during the first quarter of 2024, driven by growth in commercial real estate, multifamily residential, and other construction and development loans. This loan growth was partially offset by a decrease in home equity and second mortgage loans.
The company's net interest margin decreased from 3.38% in the first quarter of 2023 to 3.14% in the first quarter of 2024, primarily due to an increase in the average cost of interest-bearing liabilities. First Capital's management team has been proactive in managing the company's interest rate risk, as evidenced by its utilization of the Federal Reserve Bank's Bank Term Funding Program (BTFP) to help fund asset growth and meet liquidity needs.
Liquidity
As of March 31, 2024, First Capital had cash and cash equivalents of $42.1 million and securities available-for-sale with a fair value of $428.1 million. The company's primary sources of funds are customer deposits, loan repayments, maturing securities, and borrowings from the Federal Home Loan Bank and the Federal Reserve Bank.First Capital is considered a "well-capitalized" institution under applicable regulatory guidelines. As of March 31, 2024, the company's Community Bank Leverage Ratio (CBLR) was 10.29%, well above the minimum requirement of 9% for qualifying community banks.
Risks and Challenges
Like any financial institution, First Capital faces a variety of risks and challenges that could impact its future performance. These include interest rate risk, credit risk, regulatory changes, and competition from larger regional and national banks.The company's exposure to interest rate fluctuations is managed through its asset-liability management strategies, which aim to minimize the mismatch between the repricing of its interest-earning assets and interest-bearing liabilities. However, a sustained period of rising interest rates could still put pressure on the company's net interest margin and profitability.
Credit risk is another key concern, as the quality of the company's loan portfolio could be affected by economic conditions in its local market area. First Capital closely monitors its loan portfolio and maintains a robust allowance for credit losses to mitigate this risk.
Regulatory changes, such as those related to capital requirements or consumer protection, could also impact the company's operations and compliance costs. First Capital's management team closely follows regulatory developments and works to ensure the company's compliance with all applicable laws and regulations.
Finally, competition from larger banks, both in the company's local market and on a national scale, could put pressure on First Capital's market share and pricing power. The company's focus on personalized customer service and deep community ties helps to differentiate it from its competitors, but it must continue to adapt and innovate to remain competitive.
Outlook
Despite the challenges it faces, First Capital remains a well-capitalized and conservatively managed community bank with a strong track record of financial performance. The company's diversified loan portfolio, fee-based revenue streams, and prudent risk management practices have helped it navigate various economic cycles over the years.Looking ahead, First Capital's management team remains cautiously optimistic about the company's future prospects. The bank's focus on organic growth, coupled with its disciplined approach to lending and capital management, should position it well to continue serving the financial needs of its local community.