FIRST CAPITAL INC — Interim / Quarterly Report 2004

May 14, 2004

10-Q 1 d10q.htm FORM 10-Q FORM 10-Q

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 2004

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

First Capital, Inc.

(Exact name of registrant as specified in its charter)

Indiana	35-2056949
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

220 Federal Drive NW, Corydon, Indiana 47112

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code 1-812-738-2198

Not applicable

Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all required reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x NO ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ NO x

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: 2,818,579 shares of common stock were outstanding as of April 30, 2004.

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FIRST CAPITAL, INC.

INDEX

Part I	Financial Information	Page
	Item 1. Consolidated Financial Statements
	Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 (unaudited)	3
	Consolidated Statements of Income for the three months ended March 31, 2004 and 2003 (unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (unaudited)	5
	Notes to consolidated financial statements (unaudited)	6-9
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	10-13
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
	Item 4. Controls and Procedures	14
Part II	Other Information
	Item 1. Legal Proceedings	15
	Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	15
	Item 3. Defaults Upon Senior Securities	15
	Item 4. Submission of Matters to a Vote of Security Holders	16
	Item 5. Other Information	16
	Item 6. Exhibits and Reports on Form 8-K	16-17
Signatures		18

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PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2004
	(In thousands)
ASSETS
Cash and due from banks	$ 8,337	$	12,190
Interest bearing deposits with banks	5,610		1,371
Securities available for sale, at fair value	64,026		66,244
Securities-held to maturity	1,333		1,507
Loans, net	311,755		304,200
Federal Home Loan Bank stock, at cost	3,251		3,094
Foreclosed real estate	387		225
Premises and equipment	10,221		10,291
Accrued interest receivable:
Loans	1,425		1,407
Securities	590		767
Cash value of life insurance	1,239		1,228
Goodwill	5,386		5,386
Core deposit intangibles	590		609
Other assets	428		619
Total Assets	$ 414,578	$	409,138
LIABILITIES
Deposits:
Noninterest-bearing	$ 30,849	$	30,535
Interest-bearing	274,911		271,933
Total Deposits	305,760		302,468
Retail repurchase agreements	213		520
Advances from Federal Home Loan Bank	61,562		60,242
Accrued interest payable	1,160		1,160
Accrued expenses and other liabilities	1,476		853
Total Liabilities	370,171		365,243
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 2,843,863 shares (2,843,763 shares in 2003)	28		28
Additional paid-in capital	19,195		19,183
Retained earnings-substantially restricted	25,508		25,092
Unearned ESOP shares	(389	)	(400	)
Unearned stock compensation	(56	)	(73	)
Accumulated other comprehensive income	584		380
Less treasury stock, at cost - 25,284 shares (18,639 shares in 2003)	(463	)	(315	)
Total Stockholders’ Equity	44,407		43,895
Total Liabilities and Stockholders’ Equity	$ 414,578	$	409,138

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, — 2004	2003
	(In thousands, except per share data)
INTEREST INCOME
Loans, including fees	$ 4,741	$ 3,916
Securities:
Taxable	501	588
Tax-exempt	144	125
Federal Home Loan Bank dividends	39	37
Interest bearing deposits with banks	14	42
Total interest income	5,439	4,708
INTEREST EXPENSE
Deposits	1,430	1,327
Advances from Federal Home Loan Bank	796	735
Total interest expense	2,226	2,062
Net interest income	3,213	2,646
Provision for loan losses	125	150
Net interest income after provision for loan losses	3,088	2,496
NONINTEREST INCOME
Service charges on deposit accounts	433	370
Commission income	99	60
Gain on sale of securities	—	51
Mortgage brokerage fees	38	—
Other income	18	28
Total noninterest income	588	509
NONINTEREST EXPENSE
Compensation and benefits	1,424	1,029
Occupancy and equipment	254	194
Data processing	202	197
Other operating expenses	559	498
Total noninterest expense	2,439	1,918
Income before income taxes	1,237	1,087
Income tax expense	404	366
Net Income	833	721
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gain (loss) on securities:
Unrealized holding gains (losses) arising during the period	204	(149	)
Less: reclassification adjustment	—	(31	)
Other comprehensive income (loss)	204	(180	)
Comprehensive Income	$ 1,037	$ 541
Net income per common share, basic	$ 0.30	$ 0.29
Net income per common share, diluted	$ 0.30	$ 0.28

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, — 2004	2003
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 833	$	721
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and accretion of discounts	63		87
Depreciation and amortization expense	191		135
Deferred income taxes	35		296
ESOP compensation expense	23		22
Stock compensation expense	18		17
Increase in cash value of life insurance	(11	)	(13	)
Provision for loan losses	125		150
Net gain on sale of securities available for sale	—		(51	)
Stock dividends on Federal Home Loan Bank stock	(39	)	—
Decrease in accrued interest receivable	159		137
Decrease in accrued interest payable	—		(111	)
Net change in other assets/liabilities	646		130
Net Cash Provided By Operating Activities	2,043		1,520
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits with banks	(4,239	)	7,260
Purchase of securities available for sale	(3,603	)	(8,143	)
Proceeds from maturities of securities available for sale	5,070		6,000
Proceeds from maturities of securities held to maturity	154		107
Proceeds from sale of securities available for sale	—		2,551
Principal collected on mortgage-backed securities	1,045		2,104
Net increase in loans receivable	(7,874	)	(663	)
Purchase of Federal Home Loan Bank stock	(118	)	(64	)
Proceeds from sale of Federal Reserve Bank stock	—		180
Proceeds from sale of foreclosed real estate	32		—
Purchase of premises and equipment	(104	)	(689	)
Net cash paid in acquisition of Hometown Bancshares, Inc.	—		(5,726	)
Net Cash Provided (Used) By Investing Activities	(9,637	)	2,917
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits	3,292		(3,568	)
Net increase in advances from Federal Home Loan Bank	1,320		1,275
Net decrease in retail repurchase agreements	(307	)	(265	)
Exercise of stock options	1		32
Purchase of treasury stock	(148	)	(146	)
Dividends paid	(417	)	(324	)
Net Cash Provided (Used) By Financing Activities	3,741		(2,996	)
Net Increase (Decrease) in Cash and Due From Banks	(3,853	)	1,441
Cash and due from banks at beginning of period	12,190		6,610
Cash and Due From Banks at End of Period	$ 8,337	$	8,051

See accompanying notes to consolidated financial statements.

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FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Presentation of Interim Information

First Capital, Inc. (“Company”) is the holding company for First Harrison Bank (“Bank”). The information presented in this report relates primarily to the Bank’s operations.

In the opinion of management, the unaudited consolidated financial statements include all normal adjustments considered necessary to present fairly the financial position as of March 31, 2004, and the results of operations and cash flows for the three months ended March 31, 2004 and 2003. All of these adjustments are of a normal, recurring nature. Such adjustments are the only adjustments included in the unaudited consolidated financial statements. Interim results are not necessarily indicative of results for a full year.

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles for interim financial statements and are presented as permitted by the instructions to Form 10-Q. Accordingly, they do not contain certain information included in the Company’s annual audited consolidated financial statements and related footnotes for the year ended December 31, 2003 included in the Form 10-K.

The unaudited consolidated financial statements include the accounts of the Company and the Bank. All material intercompany balances and transactions have been eliminated in consolidation.

1. Comprehensive Income

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 other comprehensive income representing the net unrealized gains and losses on securities available for sale. The following tables set forth the components of other comprehensive income and the allocated tax amounts for the three months ended March 31, 2004 and 2003:

	Three Months Ended March 31, — 2004	2003
	(In thousands)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	$ 338	$	(247	)
Income tax (expense) benefit	(134	)	98
Net of tax amount	204		(149	)
Less: reclassification adjustment for gains included in net income	—		(51	)
Income tax benefit	—		20
	—		(31	)
Other comprehensive income (loss)	$ 204	$	(180	)

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FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Merger with Hometown Bancshares, Inc.

On March 20, 2003, the Company consummated its acquisition of Hometown Bancshares, Inc. (Hometown), a bank holding company located in New Albany, Indiana, pursuant to an Agreement and Plan of Merger dated September 25, 2002. Hometown is the parent company of Hometown National Bank, which was merged with and into the Bank. The acquisition was made for the purpose of expanding the Company’s presence in the New Albany and Floyd County, Indiana market area and the Company expects to benefit from growth in this market area as well as from expansion of the banking services provided to the existing customers of Hometown.

Pursuant to the terms of the merger agreement, Hometown stockholders who elected to receive Company stock received 2.487 shares of Company common stock and Hometown shareholders who elected to receive cash received $46.50 in cash for each share of Hometown common stock. Hometown stockholders who did not submit properly completed election forms within the required timeframe received 0.773 shares of Company common stock and $32.05 in cash for each share of Hometown common stock. The Company issued 285,446 shares of common stock and paid approximately $5.4 million in cash consideration to former Hometown stockholders. The value assigned to the common shares issued in the transaction was approximately $6.1 million determined by the average closing price of the Company’s common stock over a twenty day period ending March 17, 2003. The transaction was accounted for under the purchase method of accounting. Accordingly, the results of operations of Hometown have been included in the Company’s results of operations since the date of acquisition. Under the purchase method of accounting, the purchase price is allocated to the respective assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. The excess of cost over the fair value of the net assets acquired of approximately $5.4 million has been recorded as goodwill.

1. Supplemental Disclosure for Earnings Per Share

	Three Months Ended March 31, — 2004	2003
	(In thousands, except share and per share data)
Basic:
Earnings:
Net income	$ 833	$ 721
Shares:
Weighted average common shares outstanding	2,775,847	2,514,198
Net income per common share, basic	$ 0.30	$ 0.29
Diluted:
Earnings:
Net income	$ 833	$ 721
Shares:
Weighted average common shares outstanding	2,775,847	2,514,198
Add: Dilutive effect of outstanding options	33,610	33,000
Add: Dilutive effect of restricted stock	2,763	4,369
Weighted average common shares outstanding, assuming full dilution	2,812,220	2,551,567
Net income per common share, diluted	$ 0.30	$ 0.28

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FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Stock Option Plan

The Company accounts for its stock option plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees , and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the stock option plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

	Three Months Ended March 31, — 2004	2003
	(In thousands, except per share data)
Net income, as reported	$ 833	$	721
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects	(3	)	(3	)
Pro forma net income	$ 830	$	718
Earnings per share:
Basic - as reported	$ 0.30	$	0.29
Basic - pro forma	$ 0.30	$	0.29
Diluted - as reported	$ 0.30	$	0.28
Diluted - pro forma	$ 0.30	$	0.28

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FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Supplemental Disclosures of Cash Flow Information

	Three Months Ended March 31, — 2004	2003
	(In thousands)
Cash payments for:
Interest	$ 2,226	$ 1,945
Taxes	67	10
Noncash investing activities:
Transfers from loans to real estate acquired through foreclosure	197	261
Acquisition of Hometown Bancshares, Inc. (Note 3)
Assets acquired	—	96,885
Liabilities assumed	—	85,122
Net assets acquired	$ —	$ 11,763
Cash paid	$	$ 5,626
Stock issued	—	6,137
Total purchase price	$ —	$ 11,763

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY

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; 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. Except as required by applicable law or regulation, the Company assumes no obligation to update any forward-looking statements.

Financial Condition

Total assets increased from $409.1 million at December 31, 2003 to $414.6 million at March 31, 2004, an increase of 1.3%. When compared to March 31, 2003, the growth in assets was $17.7 million.

Net loans receivable increased $7.6 million from $304.2 million at December 31, 2003 to $311.8 million at March 31, 2004. The primary growth categories were nontaxable commercial loans, commercial mortgages and commercial loans, increasing by $3.9 million, $1.5 million and $1.5 million, respectively.

Securities available for sale decreased $2.2 million from $66.2 million at December 31, 2003 to $64.0 million at March 31, 2004. The decrease was primarily due to maturities of $5.1 million and principal repayments of $1.0 million, partially offset by purchases of $3.6 million. The funds from the investment portfolio were used to help fund the loan growth.

Investment securities held-to-maturity decreased $174,000 primarily due to maturities of $154,000 and principal repayments of $19,000.

Cash and short-term investments increased from $13.6 million at December 31, 2003 to $13.9 million at March 31, 2004. Short-term investments increased $4.2 million which was partially offset by a decrease in cash of $3.9 million.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY

Total deposits increased 1.1%, from $302.5 million at December 31, 2003 to $305.8 million at March 31, 2004. Checking and savings accounts increased $6.4 million during the period while time deposits decreased $3.1 million. Hometown National Bank had a large number of customers with jumbo certificates and no other deposit relationship. The Bank made a strategic decision to not give a rate premium on these jumbo certificates without attracting the customers’ primary deposit accounts. This decision has helped attract new savings and checking deposits while keeping interest expense down by not paying a premium for jumbo certificates without other deposit relationships.

Federal Home Loan Bank borrowings increased $1.3 million to $61.6 million at March 31, 2004. New advances of $6.0 million were partially offset by principal payments of $4.7 million.

Total stockholders’ equity increased from $43.9 million at December 31, 2003 to $44.4 million at March 31, 2004, primarily as a result of retained net income of $416,000 and an unrealized gain of $204,000 on securities available for sale partially offset by payments of $148,000 for treasury stock.

Results of Operations

Net Income. Net income was $833,000 ($0.30 per share diluted) for the three months ended March 31, 2004 compared to $721,000 ($0.28 per share diluted) for the same period in 2003. Net income increased due to increases in net interest income and noninterest income, partially offset by an increase in noninterest expense.

Net interest income for the three-month periods ended March 31, 2004 and 2003. Net interest income increased 21.4% from $2.6 million in 2003 to $3.2 million in 2004 as a result of an increase in interest-earning assets funded by growth in deposits and borrowings from the Federal Home Loan Bank.

Total interest income increased $731,000 during the quarter ended March 31, 2004 compared to the same period in 2003. The average balance of interest-earning assets increased from $299.9 million in 2003 to $383.3 million in 2004. The average tax-equivalent yield on these same assets decreased from 6.32% in 2003 to 5.72% in 2004. The decline in yield can be primarily attributed to the continued refinancing of residential mortgages and the repricing of the investment portfolio at lower interest rates.

Total interest expense increased $164,000 to $2.2 million for the quarter ended March 31, 2004 as compared to the same period in 2003. Interest on deposits and Federal Home Loan Bank advances increased $103,000 and $61,000, respectively, when comparing the two periods. The average balance of interest-bearing liabilities increased from $257.5 million in 2003 to $334.5 million in 2004 while the average rate on these same liabilities decreased from 3.20% in 2003 to 2.66% in 2004. As a result, the Bank’s taxable-equivalent interest rate spread decreased from 3.12% for the first quarter of 2003 to 3.06% for the same period in 2004.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY

Provision for loan losses. The provision for loan losses was $125,000 for the three-month period ended March 31, 2004 as compared to $150,000 for the same period in 2003. During 2004, gross loans receivable increased $7.6 million. The majority of that growth can be attributed to a $4.0 million short-term loan made to a local municipality to be paid back with tax payments. Other significant increases include commercial mortgages and commercial loans, each increasing $1.5 million. However, the consistent application of management’s allowance methodology resulted in a slight decrease in the provision for loan losses due to the lower levels of nonperforming loans at March 31, 2004 compared to December 31, 2003.

Provisions for loan losses are charges to earnings to maintain the total allowance for loan losses at a level considered reasonable by management to provide for probable known and inherent loan 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 the allowance for loan losses at a level that 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.

The methodology used in determining the allowance for loan losses includes segmenting the loan portfolio by identifying risk characteristics common to groups of loans, determining and measuring impairment of individual loans based on the present value of expected future cash flows or the fair value of collateral, and determining and measuring impairment for groups of loans with similar characteristics by applying loss factors that consider the qualitative factors which may affect the loss rates.

The allowance for loan losses was $2.5 million at March 31, 2004 compared to $2.4 million at December 31, 2003. Management has deemed these amounts as adequate on those dates based on its best estimate of probable known and inherent loan losses. At March 31, 2004, nonperforming loans amounted to $4.4 million compared to $5.2 million at December 31, 2003. Included in nonperforming loans are loans over 90 days past due secured by one-to-four family residential real estate in the amount of $1.3 million, commercial mortgages of $587,000, consumer loans amounting to $84,000 and commercial loans of $39,000. These loans are accruing interest as the estimated value of the collateral and collection efforts are deemed sufficient to ensure full recovery. At March 31, 2004, nonaccrual loans amounted to $2.4 million compared to $2.6 million at December 31, 2003.

Noninterest income. Noninterest income increased 15.5% to $588,000 for the three months ended March 31, 2004 compared to $509,000 for the three months ended March 31, 2003. Service charges on deposits increased $63,000 to $433,000 when comparing the two periods, primarily due to the increase in the number of transaction accounts. Commission income and mortgage brokerage fees increased $39,000 and $38,000, respectively. During the quarter ended March 31, 2003, the Bank recognized a gain of $51,000 on the sale of securities. No securities were sold during the first quarter of 2004.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY

Noninterest expense. Noninterest expense increased $521,000 to $2.4 million for the three month period ended March 31, 2004 compared to $1.9 million for the same period in 2003. When comparing the two periods, compensation and benefits increased $395,000, primarily from the additional staff from three new offices, the two Hometown National Bank locations (see Note 3) and the new Jeffersonville, Indiana office that opened in May of 2003.

Occupancy and equipment expenses increased $60,000 comparing the first quarter of 2004 to the same period in 2003. The three additional facilities were the primary factor behind this increase. Other operating expenses were $61,000 higher in 2004 when comparing the same two periods. Fees for professional services, telephone expenses and the amortization of the core deposit intangible related to the Hometown acquisition were the primary factors behind this increase.

Income tax expense. Income tax expense for the three-month period ended March 31, 2004 was $404,000, compared to $366,000 for the same period in 2003. The effective tax rate was 33.7% for 2003 compared to 32.7% for 2004.

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, 2004, the Bank had cash and interest-bearing deposits with banks of $13.9 million and securities available-for-sale with a fair value of $64.0 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.

The Bank is required to maintain specific amounts of capital pursuant to OTS requirements. As of March 31, 2004, 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 8.8%, 8.8% and 13.9%, respectively. The regulatory requirements at that date were 1.5%, 3.0% and 8.0%, respectively.

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PART I - ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

FIRST CAPITAL, INC. AND SUBSIDIARY

At March 31, 2004, there has been no material change in the information set forth under the caption “Market Risk Analysis” contained in the Company’s 2003 Annual Report to Stockholders, filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2003.

PART I - ITEM 4

CONTROLS AND PROCEDURES

FIRST CAPITAL, INC. AND SUBSIDIARY

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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 its financial condition or operations.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid Per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 through January 31,2004	—	—	—	326,369
February 1 through February 29	6,645	22.22	6,645	319,724
March 1 through March 31	—	—	—	319,724
Total	6,645	22.22	6,645	319,724

On January 4, 2001, the Company announced a stock repurchase program to purchase up to 101,000 shares of its outstanding common stock. On September 30, 2002, the board of directors authorized an increase in the stock repurchase program in connection with the merger of Hometown Bancshares whereby the Company would purchase up to 345,000 shares of its outstanding common stock. The stock repurchase program expires upon purchase of the maximum number of shares authorized under the program.

The Company has purchased eight shares of its common stock from the First Harrison Bank Employee Stock Ownership Plan representing the aggregate amount of fractional shares of terminated participants.

Item 3. Defaults upon Senior Securities

Not applicable.

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Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders of the Company was held on April 21, 2004. There were 2,818,527 shares entitled to vote at the time of the annual meeting. Holders of 2,141,665 shares were represented at the meeting. The results of the vote on the matters presented at the meeting were as follows:

1. The following individuals were elected as directors:

Name	Vote For	Vote Withheld	Term to Expire
Samuel E. Uhl	2,071,631	70,034	2007
Mark D. Shireman	2,101,547	40,034	2007
Michael L. Shireman	2,098,265	43,400	2007
James S. Burden	2,101,960	39,705	2007
James E. Nett	2,101,960	39,705	2007

The terms of directors J. Gordon Pendleton, Gerald L. Uhl, Dennis L. Huber, William W. Harrod, John W. Buschemeyer, Kenneth R. Saulman and Kathryn W. Ernstberger continued after the annual meeting.

1. The appointment of Monroe Shine & Co., Inc. as auditors for the Company for the fiscal year ending December 31, 2004 was ratified by stockholders by the following vote:

For 2,106,152; Against 21,929; Abstain 13,584

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

3.1	Articles of Incorporation of First Capital, Inc. (1)
3.2	Second Amended and Restated Bylaws of First Capital, Inc. (6)
10.1	Employment Agreement with James G. Pendleton (3)
10.2	Employment Agreement with Samuel E. Uhl (2)
10.3	Employment Agreement with M. Chris Frederick (2)
10.4	Employment Agreement with Joel E. Voyles (2)

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Item 6. Exhibits and Reports on Form 8-K - (continued)

10.5	Employee Severance Compensation Plan (3)
10.6	First Federal Bank, A Federal Savings Bank 1994 Stock Option Plan (as assumed by First Capital, Inc. effective December 31, 1998) (4)
10.7	First Capital, Inc. 1999 Stock-Based Incentive Plan (5)
10.8	1998 Officers’ and Key Employees’ Stock Option Plan for HCB Bancorp (5)
10.9	Employment Agreement with William W. Harrod (2)
11.0	Statement Regarding Computation of Per Share Earnings (incorporated by reference to Note 4 of the Unaudited Consolidated Financial contained herein)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

(b) Reports on Form 8-K

On January 8, 2004, the Company filed a Form 8-K to announce the annual meeting of stockholders would be held on April 21, 2004.

On January 23, 2004, the Company filed a Form 8-K to announce its earnings for the year and quarter ended December 31, 2003.

On February 6, 2004, the Company filed a Form 8-K to announce an update of its ongoing stock repurchase program.

(1) Incorporated by reference from the Exhibits filed with the Registration Statement on Form SB-2, and any amendments thereto, Registration No. 333-63515.

(2) Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1999.

(3) Incorporated by reference to the Quarterly Report on Form 10-QSB for the quarter ended December 31, 1998.

(4) Incorporated by reference from the Exhibits filed with the Registration Statement on Form S-8, and any amendments thereto, Registration Statement No. 333-76543.

(5) Incorporated by reference from the Exhibits filed with the Registration Statement on Form S-8, and any amendments thereto, Registration Statement No. 333-95987.

(6) Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 2001.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated May 13, 2004	FIRST CAPITAL, INC. (Registrant) — BY :	/s/ William W. Harrod
		William W. Harrod President and CEO
Dated May 13,
2004	BY :	/s/ Michael C. Frederick
		Michael C. Frederick Senior Vice President and Treasurer

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