First Capital(FCAP) - 2022 Q3 - Quarterly Report

Part I - Financial Information This section provides First Capital, Inc.'s unaudited consolidated financial statements and management's discussion of financial condition, operations, and market risks Item 1. Consolidated Financial Statements This section presents First Capital, Inc.'s unaudited consolidated financial statements, detailing asset and equity changes, income performance, cash flows, and significant accounting policies Consolidated Balance Sheets Total assets slightly decreased to $1.147 billion, while total equity significantly declined to $77.8 million due to unrealized losses on available-for-sale securities Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,146,851 | $1,156,603 | | Loans, net | $541,593 | $483,287 | | Total Deposits | $1,063,099 | $1,035,562 | | Total Liabilities | $1,069,018 | $1,042,663 | | Total Equity | $77,833 | $113,940 | - The decrease in total equity is primarily attributable to a significant negative shift in Accumulated Other Comprehensive Income (Loss), which went from a positive $1.7 million to a loss of $(40.4) million[8] Consolidated Statements of Income Net income for Q3 2022 increased to $3.1 million, while the nine-month net income slightly decreased to $8.4 million due to lower noninterest income Key Income Statement Data (in thousands, except per share) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $8,658 | $7,467 | $23,241 | $21,315 | | Provision for Loan Losses | $175 | $0 | $550 | $75 | | Noninterest Income | $1,873 | $2,270 | $5,985 | $7,260 | | Noninterest Expense | $6,559 | $6,202 | $18,788 | $18,174 | | Net Income Attributable to First Capital, Inc. | $3,125 | $2,936 | $8,362 | $8,605 | | Diluted EPS | $0.93 | $0.88 | $2.49 | $2.57 | - Gain on sale of loans for the nine-month period dropped sharply to $720,000 in 2022 from $1.9 million in 2021, contributing significantly to the decline in noninterest income[12] Consolidated Statements of Comprehensive Income The company reported a comprehensive loss of $7.0 million for Q3 2022 and $33.8 million for the nine months, driven by unrealized losses on available-for-sale securities Comprehensive Income (Loss) Summary (in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $3,128 | $2,939 | $8,372 | $8,615 | | Other Comprehensive Loss, net of tax | $(10,163) | $(193) | $(42,161) | $(2,523) | | Comprehensive Income (Loss) | $(7,035) | $2,746 | $(33,789) | $6,092 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $113.9 million to $77.8 million, primarily due to a $42.2 million other comprehensive loss - For the nine months ended September 30, 2022, the key drivers of the change in equity were net income of $8.4 million, other comprehensive loss of $(42.2) million, and cash dividends of $(2.6) million[19] Consolidated Statements of Cash Flows Net cash provided by operating activities was $12.4 million, while investing activities used $126.0 million, resulting in an $88.7 million net decrease in cash Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Provided By Operating Activities | $12,399 | $15,701 | | Net Cash Used In Investing Activities | $(125,989) | $(126,382) | | Net Cash Provided By Financing Activities | $24,867 | $99,093 | | Net Decrease in Cash and Cash Equivalents | $(88,723) | $(11,588) | Notes to Consolidated Financial Statements The notes detail accounting policies, investment securities with significant unrealized losses, loan portfolio growth, and preparation for CECL adoption - As of September 30, 2022, the securities available for sale portfolio had gross unrealized losses of $52.7 million, a substantial increase from $3.8 million at year-end 2021, primarily due to rising interest rates[36][47] - Gross loans increased to $587.1 million from $514.8 million at year-end 2021, with notable growth in residential, construction, and commercial real estate segments[76] - The allowance for loan losses increased to $6.6 million at September 30, 2022, from $6.1 million at year-end 2021, with qualitative factor adjustments comprising $6.2 million of the total allowance[92] - The company is preparing to adopt the CECL methodology for credit losses for the fiscal year beginning after December 15, 2022, and expects its allowance for loan losses to increase upon adoption[174][175] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, highlighting decreased assets and equity due to unrealized losses, and results of operations, noting a slight net income decrease despite higher net interest income Financial Condition Total assets decreased slightly to $1.15 billion, while net loans grew, and stockholders' equity fell due to $42.2 million in unrealized security losses - Net loans increased by $58.3 million, with commercial real estate and residential mortgage loans growing by $23.4 million and $23.1 million, respectively[189] - Cash and cash equivalents decreased from $172.5 million to $83.8 million as excess liquidity was used to fund loan growth and investment purchases[190] - Stockholders' equity decreased primarily due to a $42.2 million net unrealized loss on available for sale securities, partially offset by a $5.7 million increase in retained net income[193] Results of Operations Net income for the nine-month period slightly decreased to $8.4 million, influenced by lower noninterest income and higher expenses, partially offset by increased net interest income - Net interest income for the nine-month period increased by $1.9 million YoY, primarily due to growth in interest-earning assets[197] - Noninterest income for the nine-month period decreased by $1.3 million, largely due to a $1.2 million decrease in gains on loans sold as rising interest rates slowed residential mortgage activity[209] - Noninterest expense for the nine-month period increased by $614,000, with data processing and other expenses being the primary drivers[211] - The provision for loan losses increased to $550,000 for the nine months of 2022, compared to $75,000 in the same period of 2021, reflecting growth in the loan portfolio[203] Liquidity and Capital Resources The Bank maintains liquidity through deposits and FHLB access, opted out of the CBLR framework, and remains well-capitalized under regulatory guidelines - The Bank opted out of the Community Bank Leverage Ratio (CBLR) framework as of September 30, 2022, after its ratio fell below the minimum requirement[222] Regulatory Capital Ratios as of Sep 30, 2022 | Ratio | Bank's Ratio | 'Well-Capitalized' Minimum | | :--- | :--- | :--- | | Tier 1 capital to average assets | 8.9% | 5.0% | | Common equity Tier 1 capital to risk-weighted assets | 14.5% | 6.5% | | Tier 1 capital to risk-weighted assets | 14.5% | 8.0% | | Total capital to risk-weighted assets | 15.4% | 10.0% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with models indicating an asset-sensitive position where rising rates are projected to increase Net Interest Income and Economic Value of Equity Net Interest Income Sensitivity Analysis (One-Year Horizon) | Rate Shock | Change in NII (Sep 30, 2022) | % Change | | :--- | :--- | :--- | | +300bp | $3,838k | 10.55% | | +200bp | $2,566k | 7.05% | | +100bp | $1,287k | 3.54% | | -100bp | $(181)k | (0.50)% | | -200bp | $(1,979)k | (5.44)% | Economic Value of Equity (EVE) Sensitivity Analysis | Rate Shock | Change in EVE (Sep 30, 2022) | % Change | | :--- | :--- | :--- | | +300bp | $24,729k | 8.73% | | +200bp | $21,423k | 7.56% | | +100bp | $13,772k | 4.86% | | -100bp | $(16,606)k | (5.86)% | | -200bp | $(51,804)k | (18.29)% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[244] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[245] Part II - Other Information This section covers legal proceedings, risk factors, stock repurchase activity, and other non-applicable disclosures Item 1. Legal Proceedings The company reported no legal proceedings during the period - None[247] Item 1A. Risk Factors No material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 were reported - No material changes to risk factors were reported from the previous Form 10-K[248] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 883 shares of common stock at an average price of $29.07 per share during Q3 2022 under an existing program Issuer Purchases of Equity Securities (Q3 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2022 | 883 | $29.07 | | August 2022 | 0 | N/A | | September 2022 | 0 | N/A | | Total | 883 | $29.07 | - As of the end of the quarter, 135,680 shares may yet be purchased under the existing stock repurchase program[249] Other Items (Items 3, 4, 5, 6) Items 3, 4, and 5 were reported as not applicable or had no information to disclose, while Item 6 lists the exhibits - Items 3, 4, and 5 are not applicable or have no information to report[250][251][252]