First Capital(FCAP) - 2020 Q3 - Quarterly Report

Part I - Financial Information Item 1. Consolidated Financial Statements The company presents its unaudited consolidated financial statements, reflecting its financial position and performance Consolidated Balance Sheets Total assets grew 14.6% to $948.2 million, driven by significant increases in cash and deposits Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $948,166 | $827,496 | $120,670 | 14.6% | | Cash and cash equivalents | $134,211 | $51,360 | $82,851 | 161.3% | | Securities available for sale | $264,034 | $254,562 | $9,472 | 3.7% | | Loans, net | $492,128 | $466,494 | $25,634 | 5.5% | | Total Liabilities | $840,076 | $728,548 | $111,528 | 15.3% | | Total deposits | $833,399 | $722,177 | $111,222 | 15.4% | | Total Equity | $108,090 | $98,948 | $9,142 | 9.2% | Consolidated Statements of Income Net income declined to $7.3 million for the nine-month period due to lower net interest income Key Performance Indicators (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $21,045 | $22,647 | $6,869 | $7,717 | | Provision for loan losses | $1,576 | $975 | $400 | $225 | | Noninterest Income | $6,392 | $5,106 | $2,616 | $1,833 | | Net Income Attributable to First Capital, Inc. | $7,278 | $7,922 | $2,746 | $2,915 | | Diluted EPS | $2.17 | $2.37 | $0.82 | $0.87 | - Gain on sale of loans increased significantly to $2.03 million for the nine months ended Sep 30, 2020, compared to $771,000 in the prior-year period[12] Consolidated Statements of Comprehensive Income Comprehensive income was $11.4 million, influenced by unrealized gains on available-for-sale securities Comprehensive Income (in thousands) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net Income | $7,288 | $7,932 | | Other Comprehensive Income, net of tax | $4,158 | $5,368 | | Comprehensive Income Attributable to First Capital, Inc. | $11,436 | $13,290 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity grew to $108.1 million, driven by net income and OCI, net of dividend payments - Key changes in equity for the nine months ended September 30, 2020 include: Net Income of $7.3 million, Other Comprehensive Income of $4.2 million, and Cash Dividends of $2.4 million[17] Consolidated Statements of Cash Flows Cash increased by $82.9 million, primarily fueled by a significant inflow from financing activities Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net Cash Provided By Operating Activities | $9,151 | $8,149 | | Net Cash Used In Investing Activities | ($34,929) | ($21,103) | | Net Cash Provided By Financing Activities | $108,629 | $15,300 | | Net Increase in Cash and Cash Equivalents | $82,851 | $2,346 | Notes to Consolidated Financial Statements The notes detail accounting policies, the impact of COVID-19, and the delayed adoption of the CECL standard - The company is a financial holding company for First Harrison Bank and the financial statements include all normal, recurring adjustments[22][23] - Due to the COVID-19 pandemic, the company has implemented loan modifications and participated in the Paycheck Protection Program (PPP), originating approximately $45.9 million in PPP loans[30][31] - As of September 30, 2020, the bank had approved payment extensions on $68.1 million of loans due to COVID-19, of which $58.1 million had resumed normal payments[110] - The company has delayed the adoption of the Current Expected Credit Loss (CECL) methodology to fiscal years beginning after December 15, 2022[167][168] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides context on financial results, focusing on COVID-19 impacts and balance sheet changes COVID-19 Update The company details its operational and financial responses to the pandemic, including PPP loan activity - The bank approved payment extensions on approximately $68.1 million of loans, with $58.1 million of this total having resumed normal payments by September 30, 2020[182] - The bank was an active participant in the Paycheck Protection Program (PPP), disbursing approximately $45.9 million in loans to its customers[183] - Commercial loan exposure to the hard-hit hotel and restaurant industries was approximately $12.1 million and $5.2 million, respectively[184] Financial Condition Asset growth was driven by a surge in deposits, which increased cash reserves and funded PPP loans - Total assets increased by $120.7 million (14.6%) to $948.2 million at September 30, 2020[186] - The increase in commercial business loans was primarily due to participation in the PPP, with balances of such loans totaling $45.9 million[188] - Total deposits increased by $111.2 million, with significant growth in noninterest-bearing demand deposits ($48.9 million) and interest-bearing demand deposits ($37.5 million)[191] Results of Operations Net income declined due to lower net interest income and higher loan loss provisions from COVID-19 Net Income Comparison (in millions) | Period | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Nine Months Ended Sep 30 | $7.3 | $7.9 | ($0.6) | | Three Months Ended Sep 30 | $2.7 | $2.9 | ($0.2) | - Net interest income decreased by $1.6 million for the nine-month period due to a decline in the tax-equivalent yield on interest-earning assets from 4.30% in 2019 to 3.68% in 2020[197][198] - The provision for loan losses increased to $1.6 million for the nine months of 2020 from $975,000 in the prior year, due to COVID-19 uncertainties[204] - Noninterest income for the nine-month period increased by $1.3 million, driven by higher gains on loans sold, including a $214,000 gain on the sale of the bank's credit card portfolio[209] Liquidity and Capital Resources The company maintains a strong liquidity position and is well-capitalized under the CBLR framework - The Bank has opted into the Community Bank Leverage Ratio (CBLR) framework and its CBLR was 9.53% as of September 30, 2020, exceeding the 8% minimum[220] - The Bank was considered 'well-capitalized' under applicable regulatory guidelines as of September 30, 2020[220] - The parent company's primary source of income is dividends from the Bank, and it held $3.0 million in liquid assets at September 30, 2020[219] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed via NII and EVE sensitivity models Net Interest Income (NII) Sensitivity Analysis (as of Sep 30, 2020) | Immediate Rate Change | One Year Dollar Change (thousands) | One Year Percent Change | | :--- | :--- | :--- | | +300bp | $1,843 | 7.10% | | +200bp | $2,239 | 8.62% | | +100bp | $1,121 | 4.32% | | -100bp | ($615) | (2.37)% | Economic Value of Equity (EVE) Sensitivity Analysis (as of Sep 30, 2020) | Immediate Rate Change | Dollar Change (thousands) | Percent Change | | :--- | :--- | :--- | | +300bp | $58,898 | 48.98% | | +200bp | $43,072 | 35.82% | | +100bp | $23,791 | 19.78% | | -100bp | ($17,153) | (14.26)% | - The company does not maintain a trading account, engage in hedging activities, or purchase high-risk derivative instruments[228] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective[242] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[243] Part II - Other Information Item 1. Legal Proceedings The company reported no material pending legal proceedings during the period - None[245] Item 1A. Risk Factors Risk factors are updated to include significant uncertainties related to the COVID-19 pandemic and PPP - The COVID-19 pandemic poses a significant risk, with potential adverse effects on business operations, financial condition, and borrower credit quality[247][249] - Participation in the Paycheck Protection Program (PPP) exposes the company to credit, compliance, and litigation risks, including denial of the SBA guaranty[254][256] - The company faces potential litigation from PPP loan applicants regarding processing policies and fees, which could result in financial liability[258] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1,911 shares of common stock under its authorized buyback program - During the quarter, the company purchased 1,911 shares under its stock repurchase program at an average price of $70.09 per share[259] - The maximum number of shares that may still be purchased under the plan is 139,228[259] Item 6. Exhibits This section lists all exhibits filed with the report, including CEO/CFO certifications and XBRL data - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a)/15d-14(a) and Section 1350[262] - The filing includes Inline XBRL documents for interactive data submission[262]